<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1999
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COMMUNICATION TELESYSTEMS INTERNATIONAL
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 4813 33-0466205
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
9999 WILLOW CREEK ROAD, SAN DIEGO, CALIFORNIA 92131 (800) 500-8972
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ROGER B. ABBOTT
Chief Executive Officer
Communication TeleSystems International d/b/a
WORLDxCHANGE Communications
9999 Willow Creek Road
San Diego, California 92131
(800) 500-8972
(Name, address including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
DAVID A. KRINSKY, ESQ. DOUGLAS L. GETTER, ESQ.
O'Melveny & Myers LLP Dewey Ballantine LLP
610 Newport Center Drive, Suite 1700 1301 Avenue of the Americas
Newport Beach, California 92660-6429 New York, NY 10019-6092
(949) 760-9600 (212) 259-8000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE OFFERING REGISTRATION
REGISTERED PRICE(1)(2) FEE
<S> <C> <C>
Common Stock, no par value per share.................................................... $82,000,000 $22,796
</TABLE>
(1) Includes shares subject to the underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 25, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SHARES
WORLDxCHANGE COMMUNICATIONS
COMMON STOCK
------------------
This is an initial public offering of shares of common stock of
Communication TeleSystems International d/b/a WORLDxCHANGE Communications. No
public market currently exists for our common stock. We anticipate that the
initial public offering price will be between $ and $ per share.
------------------------
PRICE $ PER SHARE
------------------------
We have applied to list our common stock on the Nasdaq National Market.
NASDAQ NATIONAL MARKET SYMBOL--CALL
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 11.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- --------------
<S> <C> <C>
Public offering price............................................. $ $
Underwriting discount............................................. $ $
Proceeds, before expenses, to WORLDxCHANGE........................ $ $
</TABLE>
Roger Abbott, our chief executive officer and a director, and Edward Soren,
our executive vice president and a director, have granted to the underwriters an
option to purchase up to an aggregate of additional shares to cover
over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
GERARD KLAUER MATTISON & CO., INC.
Prospectus dated , 1999
<PAGE>
----------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 11
Acquisition of Minority Interests in Subsidiaries.......................................................... 22
Use of Proceeds............................................................................................ 22
Dividend Policy............................................................................................ 22
Capitalization............................................................................................. 23
Dilution................................................................................................... 24
Selected Consolidated Financial Data....................................................................... 25
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 27
Business................................................................................................... 39
Management................................................................................................. 82
Principal Shareholders..................................................................................... 90
Certain Relationships and Related Transactions............................................................. 92
Certain Indebtedness....................................................................................... 95
Description of Capital Stock............................................................................... 96
Shares Eligible for Future Sale............................................................................ 99
Underwriting............................................................................................... 101
Legal Matters.............................................................................................. 102
Experts.................................................................................................... 102
Additional Information..................................................................................... 103
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN
THIS PROSPECTUS.
WORLDxCHANGE
We are a leading global telecommunications company that specializes in
providing high-quality, low-cost domestic and international telecommunications
services. We have established retail and wholesale operations in North America,
Europe and the Pacific Rim. Our global facilities include 40 switches located in
major metropolitan areas in 12 countries. Our network has been designed to give
us the ability to simultaneously carry voice and data. We connect our switches
with an extensive network of owned and leased undersea and land-based fiber
optic cables. Our revenues have grown from $184 million in fiscal 1996 to $332
million in fiscal 1997 to $399 million in fiscal 1998. According to the 1999
edition of Telegeography, in 1997 we were the 39th largest telecommunications
carrier of international minutes in the world and the fourth largest of the
non-monopoly or non-former monopoly carriers behind MCI WorldCom, Sprint and
Pacific Gateway Exchange.
We currently serve more than 750,000 residential and commercial retail
customers each month. Our services currently include international and domestic
long distance telephone service, post-paid and pre-paid calling card services,
operator services, Internet access and e-commerce services. We market these
services through direct mail, independent agents, direct sales and media
advertising. By the end of 1999, we intend to offer high-speed data networking
services through digital subscriber line, or DSL, technology to our customers in
North America, with service to European and Australian customers to follow.
We currently have established operations in the United States, Australia,
Canada, The Netherlands, New Zealand and the United Kingdom and have recently
obtained, or expect shortly to obtain, interconnection for our operations in
Belgium, Chile, France, Germany, Guatemala and Sweden, after which we plan to
expand our marketing efforts in these countries. We plan to establish operations
in El Salvador, Italy, Japan, Spain and Switzerland within the next 15 months.
We also plan to begin the installation and integration of Asynchronous Transfer
Mode, or ATM, switches across our global network to allow for the seamless
transport of voice, data and video.
OUR COMPETITIVE STRENGTHS
We believe we have positioned ourselves to compete successfully in the
domestic and international marketplace and have the following competitive
strengths:
ESTABLISHED GLOBAL COMMUNICATIONS NETWORK
We have established a worldwide telecommunications network that enables us
to carry calling traffic on a high-quality, cost-effective basis. This network
includes:
- 40 switches in 12 countries;
- ownership interests in 14 undersea cable systems, and long-term capacity
agreements, which are commonly referred to as "IRUs", in an additional 11
undersea cable systems, comprising in total over 340 E-1 circuits;
- IRUs in more than 25 million DS-0 miles of on-land fiber optic cable
capacity in the United States;
- seven satellite earth stations at locations in the United States and
abroad.
3
<PAGE>
In addition, we have interconnection agreements in Australia, Belgium,
Canada, Chile, France, Germany, Guatemala, The Netherlands, New Zealand and the
United Kingdom.
WE HAVE A SEASONED MANAGEMENT TEAM WITH SIGNIFICANT OWNERSHIP
We have assembled a seasoned and aggressive management team. This team
includes our chairman, Walt Anderson, who founded Esprit Telecommunications, Mid
Atlantic Telecom, and Telco Communications and oversaw their growth until they
were acquired. Tom Cirrito, a director of our company, also founded several long
distance telecommunications carriers, including Telco Communications and Long
Distance Wholesale Club. Chris Bantoft, our president and a director, is a
former senior executive who was based in Europe with ACC Corp., an international
carrier that was recently acquired by AT&T. These individuals complement the
skills of our company's founder and chief executive officer, Roger Abbott, as
well as of our other senior executives, who have experience in management,
multinational sales and marketing, network operations and engineering, finance
and regulatory matters. Through corporate affiliates, Mr. Anderson and Mr.
Cirrito recently purchased a total of $120 million of our equity securities.
INNOVATIVE AND DIVERSE MARKETING STRATEGY
We use a variety of marketing channels to reach our customers. These
channels include direct mail, multilevel marketing, independent sales agents,
direct sales and media advertising. In October 1998, we introduced our
innovative "xPectations ML" multilevel marketing program. This program allows
participating representatives to earn commissions based on revenues we collect
from new pre-subscribed and dial-around long distance customers, as well as
Internet access and prepaid calling card customers that they sign up. In
addition, these representatives earn commissions based on revenues we collect
from customers signed up by other representatives that they recruit to the
program. We also use the Internet to provide on-line commission information and
accounting, call details, pre-approved advertising, marketing information and
alerts, chat rooms and on-line trouble reporting for program representatives. We
also provide program representatives with a Web site, which we host. This allows
our representatives to use a professionally designed Web site to market our
services while allowing us to retain control over the advertising content. We
have recruited more than 7,000 representatives into the xPectations ML program
since its introduction.
ADVANCED OPERATIONAL SYSTEMS
We have developed proprietary software and information systems that allow us
to manage our business using real-time information. We believe we are one of the
few companies with systems that provide management with daily network cost
information on a route-by-route basis, which enables us to calculate our
variable gross margins by type of service on a daily basis throughout the world.
We believe these analytical tools allow us to quickly identify new market growth
and cost-saving opportunities, as well as to manage our business effectively.
HIGH-QUALITY CUSTOMER CARE
We have developed an advanced customer care platform that enables us to
communicate with our customers over a variety of media, including the Internet.
We have engineered and designed call centers that incorporate access to our
customer information with real-time information dissemination and
trouble-shooting. The proprietary billing system that we use in our foreign
markets provides significant competitive advantages, such as integration with
our switching systems to provide instant account set-up and other benefits,
adaptability for pre-paid and post-paid calling card services, compatibility
with every currency and flexibility to implement appropriate rate and discount
plans as competitive conditions warrant.
4
<PAGE>
OUR STRATEGY
Our objective is to position ourselves as a leading total solution provider
of high-quality, low cost communications services, including voice, data and
Internet protocol services. Our strategy for achieving this objective consists
of the following key elements:
EXPAND OUR NETWORK AND ENTER KEY NEW MARKETS
Within the next 15 months, we intend to initiate operations in five
additional countries. We recently began developing our European network
consisting of fiber optic lines to be constructed by us in selected cities,
long-term IRUs in dark fiber and in operational capacity owned by other
carriers, and leased capacity. We expect to decrease our transmission costs by
increasing the use of our network. It costs us less to carry calls over our
network than to do so over other carriers' networks, since our owned
transmission capacity entails fixed costs regardless of the volume of traffic
carried. In contrast, we pay per-minute charges to transmit calls over other
carriers' networks.
INTEGRATE BROADBAND CAPABILITIES INTO OUR NETWORK
We intend to expand the technological capability of our network. We plan to
incorporate into our network DSL multiplexing equipment for the end-user as well
as our central switching offices, which will enable us to provide high-speed,
local data network services. We also intend to install ATM switches in key
switching locations within our network, which will enable us to provide
integrated voice, data and video communications services.
EMPHASIZE OUR HIGHER MARGIN RETAIL BUSINESS
We intend to concentrate our future growth in the retail market segment
while continuing to sell excess network capacity to other carriers and wholesale
customers. We believe that the retail segment offers several advantages,
including:
- higher margins;
- higher barriers to entry because of the significant investments required
to develop sales, marketing and customer support;
- greater opportunities to bundle local, data and other value-added
services, such as DSL Internet access and e-commerce services;
- greater opportunities to increase name recognition and build brand
loyalty; and
- reduced concentration on large wholesale customers who have higher credit
and cancellation risks.
EXPAND OUR MARKETING PROGRAMS IN EXISTING AND NEW MARKETS
We believe that we have developed a cost-effective and successful marketing
platform. We believe that we can increase our retail sales by expanding our
marketing programs in existing markets and aggressively implementing them in new
foreign markets. We intend to emphasize our Internet, e-commerce and multi-level
marketing activities. For example, we intend to expand our recently introduced
"xPectations ML" multi-level marketing program both in the United States and
overseas.
EXPAND OUR INTERNET AND e-COMMERCE SERVICE OFFERINGS
We recently began offering Internet access services in several of the
countries in which we operate and intend to offer these services in other
markets in the near future. Our planned installation of DSL equipment on our
network will enable us to provide customers with continuously connected,
high-speed
5
<PAGE>
Internet access. We provide an Internet-based billing and customer care platform
that allows our customers to sign up for our services and make changes to the
services they select, view their call data, generate customized billing reports,
and make billing and service inquiries. We also recently introduced our
e-commerce program in the United States by developing a user-friendly Web site
for the sale and recharge of prepaid calling cards. We intend to offer this
program in other markets, as well as to expand the range of our products and
services offered through the Internet.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES
To date we have achieved all of our growth internally. Although we intend to
continue to emphasize internal growth, we also plan to pursue strategic
acquisitions and alliances. We will seek to acquire or partner with
complementary companies that:
- will provide us with access to attractive new geographic markets;
- have an established customer base or marketing channels;
- have a complementary network; or
- have innovative telecommunications services or technologies.
LOCATION
Our principal executive offices are located at 9999 Willow Creek Road, San
Diego, California 92131. Our telephone number is (800) 576-7775. Our Web site
address is www.worldxchange.com. The information found on our Web site is not a
part of this prospectus.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by
WORLDxCHANGE................... shares
Common stock to be outstanding
after the offering............. shares(1)
Over-allotment option........... shares(2)
Use of proceeds................. We will receive net proceeds from the offering of
approximately $ million. We intend to use the net
proceeds to expand our sales and marketing activities,
expand our network, repay a portion of our indebtedness,
fund working capital and for general corporate purposes.
Dividend policy................. We do not, for the foreseeable future, intend to pay
dividends on our common stock. We plan to retain earnings,
if any, to pay dividends on our Series A Convertible
Preferred Stock, for use in the operation of our business
and to fund future growth. In addition, our credit
facility currently restricts the payment of dividends.
Risk factors.................... For a discussion of certain risks relating to our company,
its business and an investment in our common stock, see
"Risk Factors."
Proposed Nasdaq National Market
symbol......................... CALL
</TABLE>
- ------------------------
(1) Based on the number of shares outstanding as of August 16, 1999. Includes
1,554,763 shares to be issued by us in connection with our planned
acquisition of minority interests in certain subsidiaries. See "Acquisition
of Minority Interests in Subsidiaries." Excludes:
- 7,000,000 shares of common stock reserved under our stock option plans, of
which 2,479,626 shares of common stock at a weighted average exercise
price of $ per share are covered by outstanding options;
- 1,194,095 shares of common stock issuable upon the exercise of options
granted by us outside of our stock option plans, with a weighted average
exercise price of $ per share;
- a total of shares of common stock issuable upon the exercise of
warrants outstanding or to be outstanding as of the closing of this
offering at a weighted average exercise price of $ per share; and
- 2,727,270 shares of common stock issuable upon the conversion of 30,000
shares of our Series A Convertible Preferred Stock.
See "Capitalization," "Management--1999 Stock Option Plan/Stock Issuance
Plan," "Description of Capital Stock--Preferred Stock--Series A Convertible
Preferred Stock" and "Underwriting."
(2) In the event the over-allotment option is exercised, Roger Abbott, our chief
executive officer and a director, and Edward Soren, our executive vice
president and a director, will sell a portion of their shares of our common
stock to cover the over-allotment option.
------------------------
OUR COMPANY'S LOGO AND CERTAIN TITLES AND LOGOS OF OUR COMPANY'S SERVICES
MENTIONED IN THIS PROSPECTUS ARE OUR COMPANY'S TRADEMARKS. EACH TRADEMARK, TRADE
NAME OR SERVICE MARK OF ANY OTHER COMPANY APPEARING IN THIS PROSPECTUS BELONGS
TO ITS HOLDER.
7
<PAGE>
EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES:
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION;
- THE ISSUANCE OF A TOTAL OF 1,554,763 SHARES OF COMMON STOCK IN CONNECTION
WITH OUR PLANNED ACQUISITION OF MINORITY INTERESTS IN CERTAIN
SUBSIDIARIES; AND
- NO CONVERSION OF THE SERIES A CONVERTIBLE PREFERRED STOCK INTO OUR COMMON
STOCK.
SEE "ACQUISITION OF MINORITY INTERESTS IN SUBSIDIARIES" AND "DESCRIPTION OF
CAPITAL STOCK--PREFERRED STOCK--SERIES A CONVERTIBLE PREFERRED STOCK."
------------------------
This prospectus includes statistical data including Federal Communications
Commission and International Telecommunications Union data concerning the
telecommunications industry that we obtained from industry publications. These
publications generally indicate that they have obtained information from sources
that they believe are reliable, but that they do not guarantee the accuracy and
completeness of the information. Although we believe that these industry
publications are reliable, we have not independently verified their data. We
also have not sought the consent of any of these publications to refer to their
data in this prospectus.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes our financial data. The data presented in
this table are derived from the "Selected Consolidated Financial Data" and the
consolidated financial statements and notes which are included elsewhere in this
prospectus. You should read those sections for a further explanation of the
financial data summarized here.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------------------ -------------------------------
PRO FORMA PRO FORMA
--------- ---------
1996 1997 1998 1998(1) 1998 1999 1999(1)
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ 183.9 $ 331.7 $ 398.9 $ 398.9 $ 301.0 $ 304.3 $ 304.3
Cost of services.................. 127.9 235.0 287.3 287.3 207.2 238.6 238.6
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................... 56.0 96.7 111.6 111.6 93.8 65.7 65.7
Selling, general and
administrative.................. 64.5 113.5 115.0 115.0 81.2 88.4 88.4
Depreciation and amortization..... 7.0 8.7 12.3 12.9 8.9 12.4 12.8
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........... (15.5) (25.5) (15.7) (16.3) 3.7 (35.1) (35.5)
Interest expense.................. 5.7 8.7 11.9 11.9 8.6 12.5 12.5
Other expense, net................ 0.6 3.4 1.4 1.4 0.2 0.2 0.2
Minority interest................. (0.2) (0.5) (1.5) -- (1.1) (1.8) --
--------- --------- --------- --------- --------- --------- ---------
Net loss.......................... $ (21.6) $ (37.1) $ (27.5) $ (29.6) $ (4.0) $ (46.0) $ (48.2)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic and diluted net loss per
share........................... $ (0.78) $ (1.34) $ (0.99) $ (1.01) $ (0.15) $ (1.41) $ (1.41)
Shares used to compute basic and
diluted net loss per share...... 27.572 27.734 27.760 29.315 27.734 32.696 34.251
OTHER DATA:
EBITDA(2)......................... $ (8.5) $ (16.8) $ (3.4) $ (3.4) $ 12.6 $ (22.7) $ (22.7)
Net cash provided by (used in)
operating activities............ 7.6 (7.2) (31.7) (31.7) (28.0) (4.5) (4.5)
Capital expenditures.............. 8.7 19.4 22.4 22.4 14.2 57.8 57.8
GEOGRAPHIC DATA:
Revenues:
North America................... $ 171.4 $ 291.7 $ 321.8 $ 321.8 $ 244.9 $ 238.0 $ 238.0
Pacific Rim..................... 7.5 24.4 58.4 58.4 43.5 43.0 43.0
Europe.......................... 5.0 15.6 18.7 18.7 12.6 23.3 23.3
--------- --------- --------- --------- --------- --------- ---------
Total......................... $ 183.9 $ 331.7 $ 398.9 $ 398.9 $ 301.0 $ 304.3 $ 304.3
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
(FOOTNOTES ON NEXT PAGE)
9
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(3) ADJUSTED(4)
--------- ----------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 38.2 $ 68.2 $
Intangible assets............................................ 2.1 13.7 13.7
Total assets................................................. 199.7 241.3
Current portion of long-term debt and capital lease
obligations................................................ 17.0 17.0
Long-term debt and capital lease obligations, net of current
portion.................................................... 112.4 112.4
Minority interest............................................ 5.5 -- --
Total shareholders' equity (deficit)......................... (64.2) (17.1)
</TABLE>
- ------------------------
(1) The pro forma Statement of Operations Data gives effect to:
- the amortization of a portion of the newly created intangible assets
resulting from the planned acquisition of minority interests in certain
subsidiaries. See "Acquisition of Minority Interests in Subsidiaries." The
amortization was based upon an estimated useful life of 20 years.
- the removal of losses previously allocated to the minority interest
holders in certain subsidiaries.
(2) EBITDA represents operating income (loss) plus depreciation and amortization
expense.
(3) The pro forma Balance Sheet Data give effect to:
- the issuance of 1,554,763 shares of common stock by us for the planned
acquisition of minority interests in certain subsidiaries, generating the
following adjustments:
-- the creation of an intangible asset in the amount of $11.6 million,
representing the excess value of the stock issued over the minority
interest recorded in the financial statements; and
-- the elimination of the minority interest in these subsidiaries.
- the planned issuance of 30,000 shares of our Series A Convertible
Preferred Stock at a price of $1,000 per share convertible into 2,727,270
shares of common stock.
(4) The pro forma as adjusted data gives effect to the pro forma adjustments
noted above and to this offering.
10
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE HARMED. IN SUCH CASE, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF
YOUR INVESTMENT.
THE CHALLENGES INHERENT IN GROWING OUR BUSINESS ARE DIFFICULT AND SUCCESS IS
UNCERTAIN
We have aggressive growth plans, particularly in Europe and other foreign
markets in which we have no or limited operating experience. We expect that the
return to our shareholders will depend greatly on our ability to grow our
business. To successfully implement our growth plans, we will need to:
- successfully implement our marketing strategies;
- continue the development, expansion and integration of our network,
including the planned construction of our own European fiber optic
network;
- successfully manage the strain on our financial and management resources
should we continue to grow;
- obtain satisfactory and cost-effective ownership interests and lease
rights from, and establish interconnection arrangements with, competitors
that own transmission lines (in certain cases, intra-national transmission
lines may be available only from dominant local carriers);
- hire, retain and motivate highly productive sales personnel and
independent sales representatives;
- continue to expand and develop our billing and information systems,
switching systems, and technical support, customer service and other
back-office capacity;
- enhance and expand our service features and offerings;
- continue to attract and hire experienced corporate professionals; and
- recognize and capitalize on opportunities in foreign markets.
If we are unable to successfully manage any one or more of the above
challenges, our business could be harmed and the price of our common stock could
be depressed.
WE WILL FACE CHALLENGES AND RISKS IN EXPANDING AND OPERATING OUR NETWORK
Our success is dependent, in part, on our ability to continue to expand our
network and to keep the network functioning properly and reliably. We intend to
install DSL and ATM equipment across our network. We also plan to continue
developing a European network and to install switching equipment in selected
cities in El Salvador, Italy, Japan, Spain and Switzerland over the next 15
months. As we expand our network, we will face increasing challenges, including:
- managing the construction of new fiber optic cable routes in a
cost-effective manner, including obtaining required rights-of-way and
construction licenses and timely completing the construction within our
budget;
- managing the acquisition and integration of DSL and ATM equipment into our
network in a cost-effective manner;
- increasing network traffic volume; and
- selling capacity on our network.
If we experience construction delays, we will not be able to begin carrying
increased traffic over our own network as planned, which will impair our ability
to improve our gross margins. Furthermore, our ability to sell IRUs or capacity
to other carriers would be adversely affected by construction delays. See
"Business--The WORLDxCHANGE Network--European Network--Network Expansion."
The telecommunications industry is experiencing significant technological
change. In order to remain competitive, we believe it will be
11
<PAGE>
necessary for us to acquire and incorporate new and emerging technologies into
our network in the future. Integrating such new technologies into our system
could increase the risk of system failure and result in further strain on our
network. Moreover, there is no assurance that we will be able to afford any new
technology that becomes available in the future. See "--The Costs of Expanding
Our Business Will Be Significant; We Will Need Additional Capital to Complete
the Build-out of Our European Network" and "--We Have a Limited Operating
History and May Not Be Successful in Implementing Our Business Plan; We Have Had
Historical Losses and Expect to Have Future Losses." Further, integration of
such new and emerging technological changes into our network may create
regulatory consequences that we cannot, at this time, anticipate.
We face risks in operating our network that are beyond our control. These
risks include:
- the risk that our network hardware and/or software will be damaged as a
result of fire or natural disasters, such as earthquakes;
- the risk of power losses;
- the risk of general transmission failures caused by cable cuts, switch
failures and other factors; and
- the risk that new technology could make our network obsolete or
non-competitive.
From time to time in the past we have experienced network failures or
disruptions. We attempt to minimize customer inconvenience in the event of a
network disruption by routing traffic to other circuits and switches that may be
owned by other carriers. Such re-routing increases our transmission costs and
may not always be possible. If our operations are significantly interrupted by
any network failure, our business could be harmed and the price of our common
stock could be depressed.
WE WILL FACE CHALLENGES AND RISKS IN IMPLEMENTING OUR DSL STRATEGY
The implementation of our strategy of becoming a DSL service provider will
entail significant challenges and risks. Historically, we have derived a
substantial portion of our revenue from customers who are not obligated to
purchase any minimum volume of service and who do not need to make any up-front
cash investment to use our service. In contrast, our DSL customers will need to
pre-subscribe to this service at a fixed monthly rate and will be required to
pay up-front installation and other fees and costs, which could total several
hundred dollars or more. There can be no assurance that we will be successful in
attracting our existing or prospective customers to make the financial
commitment associated with DSL service. In addition, we do not have experience
in marketing or implementing DSL service, and there can be no assurance that we
will be successful in doing so.
WE OPERATE INTERNATIONALLY AND AS SUCH FACE ADDITIONAL RISKS
We are subject to risks inherent in conducting business internationally,
which could require us to modify our operations in international markets, harm
our international business and depress the price of our common stock. For the
years ended September 30, 1996, 1997 and 1998, international revenue, including
Canada, represented 8%, 13% and 20% of our total revenues, respectively. Revenue
from our international operations continues to increase as a percentage of total
revenue. Risks relating to conducting business internationally include:
- unexpected changes in regulatory requirements, tariffs, customs, duties
and other trade barriers;
- difficulties in staffing and managing foreign operations;
- political risks;
- technology export and import restrictions or prohibitions;
- delays from customs brokers or government agencies;
- seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and
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<PAGE>
- potentially adverse tax consequences resulting from operating in multiple
jurisdictions with different tax laws.
A substantial portion of our revenues are denominated in non-U.S.
currencies. We expect that an increasing percentage of our revenues will be
denominated in non-U.S. currencies, while a disproportionate portion of our
expenses, including interest and principal on our indebtedness, will continue to
be denominated in U.S. dollars. We currently do not use foreign exchange
contracts to hedge our foreign currency exposure and therefore we are exposed to
fluctuations in the rate of exchange between foreign currencies and the U.S.
dollar. If these fluctuations are or become significant, our business could be
harmed and the price of our common stock could be depressed.
WE REQUIRE LOCAL CONNECTIVITY, WHICH IS OFTEN DIFFICULT TO OBTAIN, IN ORDER TO
COMPETE COST-EFFECTIVELY IN OUR OVERSEAS MARKETS
Monopolies or former monopolies own the only line to substantially all of
the telephones in nearly all of the overseas markets in which we operate.
Therefore, we need to interconnect with these dominant local carriers in order
to cost effectively provide service in the geographic markets where we operate.
In order to achieve local connectivity with the dominant local carrier in a
particular geographic market, we must:
- negotiate and execute an interconnection agreement with the dominant local
carrier; and
- implement the interconnection agreement by ordering lines from the
dominant local carrier and conducting required interconnection testing in
order to satisfy the dominant local carrier that we have properly tied our
network into its network.
Interconnection availability and rates are determined on a
country-by-country basis. If these rates were to increase, our margins could
shrink. In continental Europe, the dominant local carriers, which are our
primary competitors, have only recently begun providing interconnection to other
carriers and in many cases have delayed doing so.
Interconnection agreements with the dominant local carriers typically
facilitate our ability to obtain more favorable access and termination rates for
the origination and termination of traffic and other benefits, such as the
ability to offer customers abbreviated dialing. Because of these advantages,
interconnection with the dominant local carrier is effectively a prerequisite to
offering cost-effective services to customers in local markets. We cannot be
certain that we will be able to maintain any of our interconnections, obtain
additional interconnection in cities where we currently operate, which would
increase our ability to handle larger traffic volumes or additional types of
traffic or services, or obtain interconnection in additional cities, in each
case on acceptable terms, on a timely basis or at all. If we are unable to
obtain or maintain interconnection on commercially acceptable terms,
particularly in key markets, our business could be harmed and the price of our
common stock could be depressed.
THE COSTS OF EXPANDING OUR BUSINESS WILL BE SIGNIFICANT; WE WILL NEED ADDITIONAL
CAPITAL TO COMPLETE THE BUILD-OUT OF OUR EUROPEAN NETWORK
During the next 12 months, we plan to spend approximately $140 million for
capital expenditures, including the planned development of our fiber optic
network in Europe and acquisition of DSL, ATM and other network equipment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources," "Business--The WORLDxCHANGE
Network-- Development of Broadband Network Capabilities" and "Business--The
WORLDxCHANGE Network--European Network--Network Expansion." Our actual capital
expenditures may be significantly higher than we currently anticipate,
particularly if we perceive opportunities to acquire additional transmission
capacity on attractive terms.
We also expect to incur substantially greater sales and customer care
expenses as we increase
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<PAGE>
our customer base. We plan to expand our existing marketing programs and to hire
additional internal sales personnel. These initiatives will be costly and may
negatively affect our operating results.
We will need to finance our expansion costs and capital expenditures through
capital lease and vendor financing and by issuing additional debt or equity
securities. The issuance of debt would increase our interest expenses and could
be accompanied by additional restrictive covenants. The issuance of equity would
dilute our shareholders' ownership interests in our company. There can be no
assurance that we will be able to obtain additional financing on favorable terms
or at all. If we are unsuccessful in obtaining additional financing, we would be
forced to delay or curtail our planned network expansion and would not be able
to take advantage of the expected benefits of having our own European fiber
optic network.
WE HAVE MANY COMPETITORS WHO ENJOY SIGNIFICANT COMPETITIVE ADVANTAGES OVER US
The markets for our services are extremely competitive, and we expect
competition to continue to intensify. We believe that competition in our
overseas markets will become as intense as competition in the United States.
Our larger competitors include AT&T, MCI WorldCom, Sprint, Telstra, KPN
Telecom, British Telecom, Deutsche Telekom, France Telecom and Belgacom. All of
these competitors, and many other competitors, have larger networks than we do
and control a greater portion of their transmission lines, which gives these
competitors significant cost advantages over us. Many of our competitors
currently offer customers additional services that we do not provide as part of
an integrated package of services. In addition, many of our competitors,
including the dominant local carriers in many of our markets, have long-standing
relationships with our target customers and the regulators in local markets, and
many already have universal name recognition.
We also expect to face new competition from the Regional Bell Operating
Companies (RBOCs), the principal U.S. local telephone companies, for long
distance and Internet access services, such as DSL service, to their customers
in the RBOCs' "in region" service areas in the United States. RBOCs would have
significant competitive advantages, including substantial name recognition and
established customer relationships. RBOCs will have a cost advantage over us and
other competitors, since they are established local carriers.
Providers using new or different technologies and/or transmission methods
may also compete with us. These competitors include Internet service providers,
cable television companies, wireless telephone companies, satellite owners and
resellers, electric and other utilities, railways, microwave carriers and large
end users that have private networks. Technological advances may enable one or
more of them to provide competitive services on attractive terms.
WE ARE SUBJECT TO SIGNIFICANT REGULATORY RESTRICTIONS
The jurisdictions in which we operate impose varying degrees and kinds of
regulation on us. We cannot assure you that future regulatory, judicial and
legislative changes will not harm our business or that domestic or international
regulators or third parties will not raise material issues with respect to our
compliance with applicable regulations.
In the United States, the following federal and state regulatory matters
affect our business:
- Our ability to terminate international long distance calls for other
carriers and to have our international long distance calls terminated by
other carriers is subject to regulation;
- We operate under tariffs providing for the rates, terms and conditions
applicable to our services. The requirement that we file tariffs could be
subject to modification or elimination, in which case we would have to
secure contractual arrangements with each of our customers. Such a change
could hinder our ability to collect our accounts receivable, increase our
overall bad debt losses and collection expenses
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<PAGE>
and increase our exposure to damage claims;
- We are required to make universal service fund and other contributions on
both the federal and state levels and to pay compensation to the owners of
payphones, the amount and timing of which are subject to change;
- We are required to pay access charges to local telephone companies to
originate and terminate most interexchange or long distance calls, which
account for a significant portion of our costs and are subject to change.
See "Business-- Regulation";
- We are subject to federal and state regulations prohibiting carriers from
changing a customer's service without the customer's permission. As a
result of its finding that we had violated these regulations during
periods prior to March 1996, the California Public Utilities Commission
revoked our license to provide intrastate telecommunications services in
California and imposed a substantial fine on us. See "Business-- Legal
Proceedings";
- We are subject to consumer protection and marketing regulations, including
regulations concerning the use of customer proprietary network information
in cross-marketing efforts; and
- We are subject to regulations relating to the provision of Internet
access. See "Business--Regulation--United States-- Internet Regulation".
- We are subject to state and federal interpretations of the
Telecommunications Act of 1996 applicable to inter-carrier compensation
for Internet-bound traffic, which are currently in a state of flux. See
"Business Regulation--United States-- FCC Domestic Interstate Regulation."
In Europe, the following regulatory matters affect our business:
- European Union (EU) directives have mandated competition;
- EU directives must be implemented on a national level, and such national
legislation is variable and subject to delay;
- EU directives impose requirements relating to data protection and customer
privacy; and
- We are subject to regulations concerning temporary license and/or
interconnection matters.
In the Pacific Rim, our business is affected by the following regulatory
matters:
- We are subject to various Australian state and federal laws, including
consumer protection and competition legislation and legislation that
regulates the provision of and access to telephony services and
infrastructure;
- We are required to pay interconnection charges to carriers to originate
and terminate calls in Australia;
- Our Australian operations may develop in a manner that would require us to
obtain a carrier license. The acquisition of a carrier license would
result in increased regulatory obligations, including the obligation to
pay universal service fees.
- Potential changes to the Commerce Act 1986 in New Zealand that could
restrict trade practices that have the effect of reducing competition in
the telecommunications market.
In Canada, the following regulatory matters affect our business:
- The new requirement that international carriers and resellers be licensed
by the Canadian Radio-television and Telecommunications Commission (CRTC);
- CRTC license requirements relating to such matters as anti-competitive
conduct and consumer safeguards;
- The CRTC regime of contribution charges (which are similar to access
charges in the United States) with its associated traffic reporting
requirements; and
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<PAGE>
- Canadian government regulations restricting foreign ownership and control
of facilities-based carriers operating in Canada.
See "Business--Regulation" for a discussion of these and certain other
regulatory risks and considerations relevant to our business.
INTERNATIONAL CALLING PRICES ARE DECLINING
We compete for customers based primarily on price. Prevailing prices for
international long distance services are declining worldwide. These price
declines are due to a number of factors, including increased competition,
particularly from the dominant local carriers and other carriers with
substantial transmission networks and significant resulting cost advantages, and
the erosion of the traditional pricing system for international long distance
services. See "Business--The WORLDxCHANGE Network-- Costs of Call Origination,
Transmission and Termination." We have no control over the prices set by our
competitors, and when our competitors reduce their prices, we generally reduce
our prices. Many dominant local carriers that had long enjoyed monopoly or
near-monopoly pricing are substantially reducing their retail prices to protect
market share and discourage competition. See "Business-- Competition." If
calling prices continue to drop and are not offset by a substantial increase in
our calling traffic or charges for additional services, or a decrease in our
costs, we will experience shrinking revenues and gross margins, which will harm
our business and depress the price of our common stock.
IF OUR INFORMATION SYSTEMS WERE TO FAIL, OUR ABILITY TO BILL OUR CUSTOMERS AND
MANAGE OUR OPERATIONS COULD BE HARMED
We rely heavily on our information systems to record and process large
amounts of data quickly and accurately and to bill our customers. If our
customer base continues to increase, we may need to make investments in new and
upgraded information systems. We may encounter difficulties in integrating any
revised or upgraded hardware, software and equipment technology that our
suppliers may develop or use. Our business could be harmed and the price of our
common stock could be depressed if we encounter delays or cost-overruns or
suffer adverse consequences in implementing these systems. We have previously
experienced problems with certain of our information systems. Should we
experience additional problems with our billing and information systems in the
future, our business could be harmed and our results of operations could be
depressed. See "Business--The WORLDxCHANGE Network--Network Hardware and
Software."
WE FACE YEAR 2000 TECHNOLOGY RISKS
Year 2000 issues could harm our business and depress the price of our common
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Year 2000 Computer Issues" for a discussion of these
risks.
WE HAVE A LIMITED OPERATING HISTORY AND MAY NOT BE SUCCESSFUL IN IMPLEMENTING
OUR BUSINESS PLAN; WE HAVE HAD HISTORICAL LOSSES AND EXPECT TO HAVE FUTURE
LOSSES
We have a limited operating history. Although we were founded in 1991, we
conducted only minimal business before 1993, and we have only been providing
most of our current services in most of our current markets since 1996 or later.
We have recently introduced or intend to introduce new services and features,
including enhanced services such as Internet access services and e-commerce
services and high-speed data access, which we have not historically offered to
any significant extent. As a result of our limited operating history and
experience, it will be difficult to accurately predict our revenues or results
of operations. This may result in one or more future quarters where our
financial results may fall below the expectations of analysts and investors,
which could cause the price of our common stock to be depressed.
Although we have achieved substantial revenue growth, we have experienced
net losses for each fiscal year since our inception. For the nine months ended
June 30, 1999, we had a net loss of $46.0 million, negative EBITDA of $22.7
million, and net cash used in operating
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<PAGE>
activities was $4.5 million. In addition, as of June 30, 1999, we had total
consolidated indebtedness of $129.4 million. We expect to have net losses
through at least fiscal 2002 and cannot be certain that we will ever have
profits or be able to repay principal and interest on money that we have
borrowed. Our failure to achieve profitability could depress the price of our
common stock.
WE ARE SUBJECT TO CERTAIN RESTRICTIONS UNDER OUR DEBT OBLIGATIONS
The legal documents governing our credit facility contain financial
covenants, as well as restrictive covenants that impose limitations on our
ability and the ability of certain of our subsidiaries to:
- incur additional debt or guarantee debt;
- pay dividends and make other distributions;
- create liens on our property and that of certain of our subsidiaries;
- enter into transactions out of the ordinary course of business;
- prepay outstanding indebtedness;
- enter into transactions resulting in a change of control of our company;
- make capital expenditures or advances to our foreign subsidiaries beyond
specified limits; and
- make certain investments.
These restrictions could prevent us from taking actions that may prove to be
beneficial to shareholders or to our business. In addition, we are required to
use 35% of the net proceeds of this and any future common stock offerings to
repay our junior debt obligations. See "Certain Indebtedness."
WE FACE RISKS RELATING TO CARRIER AND OTHER WHOLESALE CUSTOMERS
Our sales of transmission capacity to other carriers accounted for 45% of
our consolidated net revenues for the nine months ended June 30, 1999, as
compared to 42% for the fiscal year ended September 30, 1998. Carrier customers
generally are extremely price sensitive. They often move their traffic from
carrier to carrier based solely on small price changes, which may occur daily.
As a result, margins from carrier revenues are usually very small. Moreover, we
believe that carrier customers, particularly our smaller carrier customers, pose
a higher credit risk on average than that posed by our retail customers as a
whole. We have established credit criteria to address this risk, and we maintain
an allowance for doubtful accounts receivable. However, we cannot be certain
that these measures will adequately protect us against our credit risks.
IF WE ARE UNABLE TO OBTAIN OR IF WE INACCURATELY ESTIMATE REQUIRED TRANSMISSION
CAPACITY, OUR COSTS WILL INCREASE AND OUR COMPETITIVE POSITION WILL BE HARMED
Nearly all of our communications are carried on transmission lines. Our
practice to date has been either to purchase ownership interests or IRUs in
transmission lines or to lease the transmission capacity of another carrier or
consortium of carriers, or to lease transmission capacity on a short-term basis.
When we negotiate purchase and lease arrangements, we must estimate the future
supply and demand for transmission capacity, as well as our customer calling
patterns and traffic levels. We could suffer competitive disadvantages if we
base our acquisitions of transmission capacity on inaccurate projections.
In many of our markets outside of the United States, dominant local carriers
are the only significant providers of transmission facilities. In these
countries, carriers with a monopoly or near-monopoly position may provide lease
transmission capacity at artificially high rates. In some areas, dominant local
carriers may not be required by law to provide us with transmission capacity at
all. Even when dominant local carriers are required by law to provide
transmission capacity to other carriers, we and other private carriers have
often experienced substantial delays in negotiating leases or other transmission
arrangements. If we were unable to obtain sufficient transmission capacity, we
would be forced to attempt to use the networks of other carriers at increased
cost (if available at all), which would harm our
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<PAGE>
business and depress the price of our common stock.
WE OBTAIN MOST OF OUR NETWORK EQUIPMENT FROM ONE SUPPLIER
We purchase a significant portion of our switching equipment from Siemens
AG. Siemens also provides a substantial portion of our technical support for
this equipment. In addition, Siemens may from time to time introduce software
and hardware upgrades, which increase the efficiency and/or features of our
switching equipment. These upgrades frequently can be purchased only directly
from Siemens. We cannot be certain that, as we expand our network, we will be
able to acquire the necessary Siemens equipment or compatible equipment. If we
are unable to do so on a timely basis or at a reasonable price or at all, we may
experience delays, operational problems or increased expenses, any of which
could harm our business and the price of our common stock. See "Business--The
WORLDxCHANGE Network-- Network Hardware and Software."
IF WE LOSE THE SERVICES OF OUR KEY PERSONNEL, OUR OPERATIONS COULD BE HARMED
Our success is substantially dependent upon the continued services of the
key members of our management. We are highly dependent upon Roger Abbott, our
chief executive officer and a director, and Christopher Bantoft, our president
and a director. In addition, Walt Anderson, the chairman of our board of
directors, has made important contributions to the strategic direction of our
company and has facilitated recent access to outside capital. If we were to lose
the services of Mr. Abbott, Mr. Bantoft, Mr. Anderson or any of the other
members of our senior management team, our business could be harmed and the
price of our common stock could be depressed.
We are also highly dependent upon the efforts and contributions of our other
key managerial and highly skilled employees. These employees are in great
demand. We cannot be certain that we will be able to retain them or that we will
be able to attract, integrate or retain these kinds of employees in the future.
Our inability to do so could harm our business and depress the price of our
common stock.
WE RELY ON THIRD PARTY SELLERS
We expect to sell an increasing portion of our services through indirect
distribution channels, including independent sales representatives, distributors
and, to a lesser extent, resellers. We do not have control over these third
party sellers or their agents and employees. Therefore, we cannot be certain
that they will perform well for us or that their interests will be aligned with
ours. In addition, we could lose the services of our third party sellers at any
time and without notice. For example, our competitors may attract our third
party sellers with financial and other incentives to leave us and go to work for
our competitors. If our third party sellers fail to perform well or terminate
their business relationships with us, our business could be harmed and the price
of our common stock could be depressed.
In addition, recent European Union regulations pertaining to commercial
agents provide sales agents with far greater protection than under prior
legislation. These recent regulations could require us to pay significant
termination payments to our third party sellers in the event we have any
disputes with them.
WE MAY HAVE TROUBLE MAINTAINING OUR CUSTOMER BASE
We derive a substantial portion of our revenues from customers who are not
obligated to purchase any minimum volume of service and may discontinue our
service, without penalty, at any time. We believe that most of our customers
perceive telecommunications providers to be relatively fungible and are
therefore highly price sensitive. In addition to price competition, we also
compete for our customers based on technological advances, marketing programs,
billing functions and quality of service. As a result, we face a relatively high
customer turnover rate. This, in turn, makes us vulnerable to significant
fluctuations in the timing and amount of our revenues. If we lose a significant
portion of our customers and are unable to replace them with other customers,
our business
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would be harmed and the price of our common stock would be depressed.
OUR PRINCIPAL SHAREHOLDERS COULD HAVE SIGNIFICANT INFLUENCE OVER OUR AFFAIRS
When this offering is complete, our executive officers and directors,
members of their immediate families and affiliated entities will control, in the
aggregate, approximately % of our outstanding common stock. As a result,
these shareholders will have majority control of our company, the ability to
approve certain fundamental corporate transactions and to elect a majority of
the members of our board of directors. The exercise of these powers may present
conflicts of interest between these shareholders and the other owners of our
capital stock. In addition, the fact that the ownership of our capital stock is
concentrated in the hands of a few shareholders may have the effect of delaying,
deferring or preventing a change of control of our company, even if such
transaction may otherwise be desirable to the shareholders generally. Such
concentration of ownership could also prevent the other shareholders from
removing incumbent management even if factors warrant such removal. See
"Principal Shareholders."
In addition, upon completion of the issuance of our Series A Convertible
Preferred Stock, a corporate affiliate of our chairman of the board will own all
outstanding shares of this stock. Until the conversion of this stock, this
affiliate will have an effective veto right over certain merger and other
fundamental corporate transactions under California law. See "-- Description of
Capital Stock--Preferred Stock-- Series A Convertible Preferred Stock."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
We may pursue selected acquisitions, some of which could be material. Our
ability to engage in acquisitions will depend on our ability to identify
attractive acquisition candidates and, if necessary, obtain financing on
satisfactory terms, which cannot be assured. We face the following challenges in
undertaking acquisitions:
- potential distraction to management;
- integrating the network and operations of acquired businesses into our
own;
- integrating the acquired business's financial, computer and other systems
into our own;
- unanticipated liabilities or contingencies from the acquired company; and
- reduced earnings or increased losses due to increased goodwill
amortization, increased interest costs and costs related to integration.
We could use our common stock to pay for acquisitions, which would dilute
our shareholders' ownership interests in our company. If we are unsuccessful in
addressing the challenges arising out of acquisitions, our business could be
harmed and the price of our common stock could be depressed.
WE HAVE ADOPTED ANTI-TAKEOVER MEASURES THAT COULD DISCOURAGE TAKEOVER ATTEMPTS
AND COULD LIMIT THE OPPORTUNITY FOR OUR SHAREHOLDERS TO RECEIVE A PREMIUM FOR
THEIR SHARES
Certain provisions in our articles of incorporation and bylaws may
discourage, delay or prevent an acquisition of our company at a premium price.
These provisions:
- authorize the issuance of "blank check" preferred stock;
- provide for a classified board of directors;
- prohibit cumulative voting in the election of directors;
- require a super-majority shareholder vote to effect certain amendments to
our articles of incorporation and bylaws;
- limit the persons who may call special meetings of shareholders; and
- establish advance notice requirements for nominations for election to our
board of directors or for proposing matters that can be acted on by
shareholders at shareholder meetings.
As a result of these provisions, our management could attempt to utilize
these provisions to discourage or reject unsolicited bids to acquire us,
including bids that may propose the payment to our shareholders of a premium
over the then current market price of
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their shares. In addition, we may adopt a shareholder rights plan after the
completion of this offering. This plan would cause substantial dilution to any
person or group that attempts to acquire our company on terms not approved in
advance by our board of directors. See "Description of Capital
Stock--Anti-Takeover Provisions."
Certain provisions of the California General Corporation Law, our
shareholder rights plan and some of our employment agreements may delay, deter
or prevent someone from acquiring us in a transaction that would provide our
shareholders with a premium over the market price for our shares of common
stock. In addition, the Federal Communications Commission and certain state
public service commissions require prior approval of transfers of control.
Our credit facility also prohibits us from entering into a change of control
transaction without the prior consent of our lender. See "Certain Indebtedness."
THERE HAS NOT BEEN A PUBLIC MARKET FOR OUR COMMON STOCK; OUR STOCK PRICE MAY BE
VOLATILE
There has not been a market for our common stock, and there can be no
assurance that a public market for our common stock will develop or be sustained
after this offering. A number of factors, many of which we cannot control, may
cause our stock price to fluctuate significantly, including:
- variations in operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of telecommunications companies;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- our ability or inability to implement our expansion plans;
- an adverse decision by a regulatory agency in one of our primary markets;
- increases or decreases in reported holdings by insiders or mutual funds;
- the hiring or departure of key personnel;
- future sales of common stock; and
- general stock market price and volume fluctuations.
A SIGNIFICANT PORTION OF OUR TOTAL OUTSTANDING SHARES ARE RESTRICTED FROM
IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE. THIS
COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN
IF OUR BUSINESS IS DOING WELL.
After this offering, and giving effect to the conversion of the Series A
Convertible Preferred Stock into a total of 2,727,270 shares of common stock, we
will have outstanding shares of common stock. This includes the
shares we are selling in this offering which may be resold in the public market
immediately. The remaining %, or 39,693,141 shares, of our total outstanding
shares as of August 16, 1999 will become available for resale in the public
market as shown in the chart below.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the market
as intending to sell them.
<TABLE>
<CAPTION>
NUMBER OF SHARES / % OF DATE OF AVAILABILITY FOR
TOTAL OUTSTANDING RESALE INTO PUBLIC MARKET
<S> <C>
5,262,175 / % IMMEDIATELY AFTER THE DATE
OF THIS PROSPECTUS UNDER
RULE 144(K)
235,749 / % 90 DAYS AFTER THE DATE OF
THIS PROSPECTUS UNDER RULE
144 OR RULE 701
27,185,914 / % 181 DAYS AFTER THE DATE OF
THIS PROSPECTUS UPON
EXPIRATION OF AN AGREEMENT
THESE SHAREHOLDERS HAVE
WITH THE UNDERWRITERS.
HOWEVER, THE UNDERWRITERS
CAN WAIVE THIS RESTRICTION
AND ALLOW THESE
SHAREHOLDERS TO SELL THEIR
SHARES AT ANY TIME UNDER
RULE 144.
7,009,303 / % BETWEEN 181 DAYS AND 365
DAYS AFTER THE DATE OF
THIS PROSPECTUS DUE TO THE
REQUIREMENTS OF THE
FEDERAL SECURITIES LAWS.
</TABLE>
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Immediately after this offering, we intend to file registration statements
under the Securities Act covering 7,659,721 shares of the common stock reserved
for issuance upon exercise of options granted under our stock option plans or
outside of these plans or to be granted under the 1999 Stock Option/Stock
Issuance Plan. The registration statements are expected to be filed and become
effective as soon as practicable after the closing of this offering.
Accordingly, shares registered under the registration statements will, subject
to Rule 144 volume limitations applicable to affiliates, be available for sale
in the open market beginning on the date the registration statements covering
these shares becomes effective.
OUR QUARTERLY RESULTS ARE SUBJECT TO FLUCTUATION
Our quarterly operating results are difficult to forecast with any degree of
accuracy as they are subject to significant fluctuations resulting from a number
of factors. Fluctuations in our results make it harder to identify and
understand trends in our business and may lead to volatility in our stock price.
Given our past fluctuations in quarterly results, we believe that period to
period comparisons of our operating results are not necessarily meaningful and
should not be relied upon as indications of future performance.
OUR RESULTS CAN MATERIALLY DIFFER FROM THOSE FORECAST OR EXPRESSED IN THE
FORWARD LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "could," "may," "will," "should," "except," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue," the
negative of such terms or other comparable terminology. These statements are
only predictions and are not guarantees of future performance. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks described above and
in other parts of this prospectus. These factors may cause our actual results to
differ materially from those expressed or reflected in any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy or completeness of the forward-looking
statements after the date of this prospectus to conform them to actual results
or to changes in our expectations.
21
<PAGE>
ACQUISITION OF MINORITY INTERESTS IN SUBSIDIARIES
On August 24, 1999 we agreed to issue 1,450,000 shares of our common stock
to the TVG Asian Communications Fund in exchange for its 40% interest in our
Australian operating subsidiary. This transaction will close upon the receipt of
required regulatory approvals in Australia. In addition, on August 10, 1999, we
issued 104,763 shares of our common stock to Richard A. D. Vincent, a former
executive officer of our Australian operating subsidiary, in exchange for
1,000,000 shares of common stock of our subsidiary, WxL International-Australia,
Inc., which holds a majority equity interest in our Australian operating
subsidiary.
USE OF PROCEEDS
The net proceeds to be received by us from the offering are estimated to be
approximately $ million after deducting discounts, commissions and estimated
offering expenses payable by us. We intend to use the net proceeds from the
offering as follows:
- $ million to repay a portion of our subordinated indebtedness, which,
after giving effect to this payment, will be due and payable on November
30, 2002; and
- the remainder of the proceeds for network expansion and equipment
purchases, other capital expenditures, sales and marketing, as well as to
fund working capital and for general corporate purposes.
While we currently intend to use the net proceeds of the offering in the
manner described above, the actual allocation of funds among these uses will
depend on future developments in or affecting our business, the competitive
environment in which we operate, and the emergence of future opportunities.
Pending use of the net proceeds as described above, the net proceeds will be
invested in investment grade, short-term marketable securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends or distributions on our
common stock since our inception. We anticipate that, for the foreseeable
future, all earnings will be used to pay dividends on our Series A Convertible
Preferred Stock or retained for use in our business, and no cash dividends will
be paid on our common stock. See "Description of Capital Stock--Preferred
Stock--Series A Convertible Preferred Stock." Any payment of cash dividends in
the future on our common stock will be dependent upon our financial condition,
results of operations, current and anticipated cash requirements, plans for
expansions, the ability of our subsidiaries to pay dividends or otherwise make
cash payments or advances to us and restrictions, if any, under any future debt
obligations, as well as other factors that our board of directors deems
relevant. Our credit facility restricts our ability to pay cash dividends,
including on our common stock and Series A Convertible Preferred Stock. In
addition, under the terms of our Series A Convertible Preferred Stock, we are
not permitted to pay any dividends on our common stock unless we have paid all
required dividends on our Series A Convertible Preferred Stock.
22
<PAGE>
CAPITALIZATION
The following table sets forth our unaudited cash and cash equivalents,
short-term debt and capitalization as of June 30, 1999, (i) on an actual basis,
(ii) on a pro forma basis giving effect to our issuance of 1,554,763 shares of
common stock in connection with the planned acquisition of minority interests in
certain subsidiaries, at a deemed fair value of approximately $17 million (see
"Acquisition of Minority Interests in Subsidiaries"), and the planned issuance
of 30,000 shares of Series A Convertible Preferred Stock, convertible into
2,727,270 shares of common stock, for proceeds of $30 million, and (iii) on a
pro forma as adjusted basis for the sale of the common stock offered hereby, at
an assumed initial public offering price of $ per share on a pro forma basis,
and the application of the net proceeds as described in "Use of Proceeds." The
table should be read in conjunction with the Consolidated Financial Statements
and notes thereto, which are included elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Cash and cash equivalents...................................................... $ 38.2 $ 68.2 $
--------- ----------- -----------
--------- ----------- -----------
Short-term debt:
Current portion of long-term debt and subordinated debentures.............. $ 8.9 $ 8.9 $ 8.9
Current portion of capital lease obligations............................... 8.1 8.1 8.1
--------- ----------- -----------
Total short-term debt.................................................... $ 17.0 $ 17.0 $ 17.0
--------- ----------- -----------
--------- ----------- -----------
Long-term debt, net of current portion:
Long-term debt............................................................. $ 22.4 $ 22.4 $
Notes...................................................................... 64.0 64.0
Capital lease obligations.................................................. 26.0 26.0
--------- ----------- -----------
Total long-term debt..................................................... 112.4 112.4
Minority interest.............................................................. 5.5 -- --
Shareholders' equity (deficit):
Preferred stock no par value; 10,000,000 shares authorized;
Series A Convertible Preferred Stock no par value; zero shares
outstanding, actual; 30,000 shares issued and outstanding, pro forma;
30,000 shares issued and outstanding, pro forma as adjusted............ -- 30.0 30.0
Common stock no par value; 100,000,000 shares authorized; 35,411,108 shares
issued and outstanding, actual; 36,965,871 shares issued and outstanding,
pro forma(1); shares issued and outstanding, pro forma as
adjusted(1).............................................................. 81.6 98.7
Notes receivable from shareholders......................................... (1.1) (1.1) (1.1)
Accumulated other comprehensive income..................................... (2.3) (2.3) (2.3)
Accumulated deficit........................................................ (142.4) (142.4) (142.4)
--------- ----------- -----------
Total shareholders' equity (deficit)..................................... (64.2) (17.1)
--------- ----------- -----------
Total capitalization................................................... $ 53.7 $ 95.3 $
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- --------------------------
(1) Excludes:
- 7,000,000 shares of common stock reserved under our stock option plans, of
which 2,479,626 shares of common stock at a weighted average exercise
price of $ per share are covered by outstanding options as of
August 16, 1999;
- 1,194,095 shares of common stock issuable upon the exercise of options
granted by us outside of our stock option plans, with a weighted average
exercise price of $ per share as of August 16, 1999; and
- a total of shares of common stock issuable upon the exercise of
warrants outstanding or to be outstanding following the closing of this
offering at a weighted average exercise price of $ per share.
23
<PAGE>
DILUTION
The difference between the public offering price per share of the common
stock and our net tangible book value per share after the offering constitutes
the dilution to investors in the offering. Net tangible book value per share is
determined by dividing our net tangible book value (tangible assets less total
liabilities) by the applicable number of shares of common stock. At June 30,
1999, the pro forma net tangible book value (deficit) of our common stock was
$(60.8) million, or $(1.64) per share of common stock based on a total of
36,965,871 shares outstanding. After giving effect to the sale of the
shares of common stock offered hereby, at the initial public offering price per
share of $ , and the application of the net proceeds from such sale, our pro
forma net tangible book value attributable to our common stock at June 30, 1999
would have been $ million or $ per share, representing an immediate
increase in pro forma net tangible book value of $ per share to existing
shareholders and an immediate dilution of $ per share to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................................... $
Pro forma net tangible book value (deficit) per share before the offering....... $ (1.64 (1)
Increase in net tangible book value per share attributable to new investors.....
---------
Pro forma net tangible book value per share after the offering..................
---------
Dilution per share to new investors............................................... $
---------
---------
</TABLE>
- --------------------------
(1) Pro forma net tangible book value gives effect to the issuance of a total of
1,554,763 shares of our common stock in connection with our planned
acquisition of minority interests in certain subsidiaries. See "Acquisition
of Minority Interests in Subsidiaries." Pro forma net tangible book value
per share of common stock is computed by reducing pro forma total assets of
$211.3 million at June 30, 1999 by $13.7 million (the amount of pro forma
intangible assets), subtracting total pro forma liabilities of $258.4
million, and then dividing by 36,965,871 (the pro forma number of shares
outstanding at June 30, 1999 after giving effect to the issuance of
1,554,763 shares in connection with our planned acquisition of minority
interests in certain subsidiaries as described under "Acquisition of
Minority Interests in Subsidiaries"). Pro forma net tangible book value
excludes the effect of the planned issuance of 30,000 shares of Series A
Convertible Preferred Stock for $30 million, which are convertible into
2,727,270 shares of common stock.
The following table sets forth, with respect to existing shareholders and
new investors, a comparison of the number of shares of common stock acquired
from us, the percentage ownership of such shares, the total consideration paid,
the percentage of total consideration paid and the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- --------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders................................ 39,693,144 % $ 131,794,692 % $ 3.32
New investors........................................ % % $
------------ ----- -------------- -----
Total............................................ 100.0% $ 100.0%
------------ ----- -------------- -----
------------ ----- -------------- -----
</TABLE>
The foregoing table assumes:
- no exercise of outstanding options to purchase 3,673,721 shares of common
stock at a weighted average exercise price of $ per share as of August
16, 1999;
- no exercise of warrants to purchase a total of shares of common
stock at a weighted average exercise price of $ per share;
- the issuance of a total of 1,554,763 shares of common stock in connection
with our planned acquisition of minority interests in certain
subsidiaries. See "Acquisition of Minority Interests in Subsidiaries"; and
- the conversion of the 30,000 shares of Series A Convertible Preferred
Stock into 2,727,270 shares of common stock.
To the extent that any outstanding options or warrants are exercised, there may
be further dilution to new investors. See "Capitalization" and
"Management--Stock Option Plans."
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with selected consolidated financial data
of WORLDxCHANGE. The selected consolidated financial data as of September 30,
1997 and 1998 and for each of the three years in the period ended September 30,
1998 are derived from our audited consolidated financial statements included
elsewhere in this prospectus. The selected consolidated financial data as of
September 30, 1994, 1995 and 1996 and for the years ended September 30, 1994 and
1995 are derived from our audited consolidated financial statements that are not
contained herein. The selected consolidated financial data as of June 30, 1999
and for the nine-month periods ended June 30, 1998 and 1999 are derived from our
unaudited consolidated financial statements included elsewhere in this
prospectus, which, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
such information. Operating results for the nine months ended June 30, 1999 are
not necessarily indicative of the results that are expected for fiscal 1999.
When you read this selected consolidated financial data, it is important that
you also read the section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA
---------
1994 1995 1996 1997 1998 1998(1) 1998 1999
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 39.3 $ 101.7 $ 183.9 $ 331.7 $ 398.9 $ 398.9 $ 301.0 $ 304.3
Cost of services.................... 20.9 64.5 127.9 235.0 287.3 287.3 207.2 238.6
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit........................ 18.4 37.2 56.0 96.7 111.6 111.6 93.8 65.7
Selling, general & administrative... 16.6 38.6 64.5 113.5 115.0 115.0 81.2 88.4
Depreciation and amortization....... 0.9 3.1 7.0 8.7 12.3 12.9 8.9 12.4
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............. 0.9 (4.5) (15.5) (25.5) (15.7) (16.3) 3.7 (35.1)
Interest expense.................... 0.9 3.3 5.7 8.7 11.9 11.9 8.6 12.5
Other expense, net.................. (0.3) (0.2) 0.6 3.4 1.4 1.4 0.2 0.2
Minority interest................... -- (0.2) (0.2) (0.5) (1.5) -- (1.1) (1.8)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)................... $ 0.3 $ (7.4) $ (21.6) $ (37.1) $ (27.5) $ (29.6) $ (4.0) $ (46.0)
Basic and diluted net income (loss)
per share......................... $ 0.01 $ (0.27) $ (0.78) $ (1.34) $ (0.99) $ (1.01) $ (0.15) $ (1.41)
Shares used to compute basic and
diluted net income (loss) per
share............................. 27.398 27.572 27.572 27.734 27.760 29.315 27.734 32.696
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
EBITDA(2)........................... $ 1.8 $ 1.4 $ (8.5) $ (16.8) $ (3.4) $ (3.4) $ 12.6 $ (22.7)
Net cash provided by (used in)
operating activities.............. 0.3 2.6 7.6 (7.2) (31.7) (31.7) (28.0) (4.5)
Capital expenditures................ 5.8 24.3 8.7 19.4 22.4 22.4 14.2 57.8
GEOGRAPHIC DATA:
Net revenues:
North America..................... $ 39.3 $ 100.9 $ 171.4 $ 291.7 $ 321.8 $ 321.8 $ 244.9 $ 238.0
Pacific Rim....................... -- 0.3 7.5 24.4 58.4 58.4 43.5 43.0
Europe............................ -- 0.5 5.0 15.6 18.7 18.7 12.6 23.3
--------- --------- --------- --------- --------- --------- --------- ---------
Total........................... $ 39.3 $ 101.7 $ 183.9 $ 331.7 $ 398.9 $ 398.9 $ 301.0 $ 304.3
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
PRO FORMA
---------
1999(1)
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ 304.3
Cost of services.................... 238.6
---------
Gross profit........................ 65.7
Selling, general & administrative... 88.4
Depreciation and amortization....... 12.8
---------
Operating income (loss)............. (35.5)
Interest expense.................... 12.5
Other expense, net.................. 0.2
Minority interest................... --
---------
Net income (loss)................... $ (48.2)
Basic and diluted net income (loss)
per share......................... $ (1.41)
Shares used to compute basic and
diluted net income (loss) per
share............................. 34.251
---------
---------
OTHER DATA:
EBITDA(2)........................... $ (22.7)
Net cash provided by (used in)
operating activities.............. (4.5)
Capital expenditures................ 57.8
GEOGRAPHIC DATA:
Net revenues:
North America..................... $ 238.0
Pacific Rim....................... 43.0
Europe............................ 23.3
---------
Total........................... $ 304.3
---------
---------
</TABLE>
(FOOTNOTES ON NEXT PAGE)
25
<PAGE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,
1999
AS OF SEPTEMBER 30, ----------------------
----------------------------------------------------- PRO
1994 1995 1996 1997 1998 ACTUAL FORMA(3)
--------- --------- --------- --------- --------- --------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $ 0.2 $ 1.4 $ 3.4 $ 4.3 $ 20.9 $ 38.2 $ 68.2
Working capital (deficit)......................... (4.5) (15.1) (35.4) (50.4) (37.0) (41.8) (11.8)
Total assets...................................... 16.8 55.2 62.8 103.7 120.1 199.7 241.3
Short-term debt and capital lease obligations..... 2.7 13.5 15.7 9.5 20.3 17.0 17.0
Long-term debt, net of current portion............ 4.5 24.9 24.7 49.2 99.3 112.4 112.4
Minority interest................................. -- -- 0.3 8.8 7.3 5.5 --
Total shareholders' deficit....................... (1.1) (8.6) (32.0) (68.9) (89.6) (64.2) (17.1)
</TABLE>
- --------------------------
(1) The pro forma Statement of Operations Data give effect to:
- the amortization of a portion of the newly created intangible assets
resulting from the planned acquisition of minority interests in certain
subsidiaries. See "Acquisition of Minority Interests in Subsidiaries." The
amortization was based upon an estimated useful life of 20 years; and
- the removal of losses previously allocated to the minority interest
holders in certain subsidiaries.
(2) EBITDA represents operating income (loss) plus depreciation and amortization
expense. We have included information concerning EBITDA herein because such
information is commonly used in the telecommunications industry as one
measure of an issuer's operating performance and historical ability to
service debt. EBITDA is not determined in accordance with generally accepted
accounting principles, is not indicative of cash provided by operating
activities, is not necessarily comparable to similarly titled measures of
other companies, should not be used as a measure of operating income and
cash flows from operations as determined under generally accepted accounting
principles and should not be considered in isolation or as an alternative
to, or to be more meaningful than, measures of performance determined in
accordance with generally accepted accounting principles.
(3) The pro forma Balance Sheet Data give effect to:
- the issuance of 1,554,763 shares of common stock by us for the planned
acquisition of minority interests in certain subsidiaries, generating the
following adjustments:
-- the creation of an intangible asset in the amount of $11.6 million,
representing the excess value of the stock issued over the minority
interest recorded in the financial statements; and
-- the elimination of the minority interest in these subsidiaries.
- the planned issuance of 30,000 shares of our Series A Convertible
Preferred Stock at a price of $1,000 per share convertible into 2,727,270
shares of common stock.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL DATA INCLUDED ELSEWHERE IN
THIS PROSPECTUS. IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION
AND OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING INFORMATION THAT
INVOLVES RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED BY FORWARD-LOOKING INFORMATION DUE TO FACTORS DISCUSSED
UNDER "RISK FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
GENERAL
We are a leading global telecommunications company that specializes in
providing high-quality, low-cost domestic and international telecommunications
services. We have established retail and wholesale operations in North America,
Europe and the Pacific Rim. Our global facilities include 40 switches located in
major metropolitan areas in 12 countries. Our network has been designed to give
us the ability to simultaneously carry voice and data. We connect our switches
with a network of owned and leased undersea and land-based fiber optic cables.
Our revenues have grown from $184 million in fiscal 1996 to $332 million in
fiscal 1997 to $399 million in fiscal 1998.
REVENUES
We obtain our revenues from providing international and domestic
telecommunication services to retail and wholesale customers on four continents.
Our retail revenues are derived from usage generated by residential and
commercial customers. Our wholesale revenues are comprised of revenues generated
from sales to other U.S. and foreign telecommunications carriers and resellers.
Revenues are derived mainly from the number of minutes (or fractions
thereof) used by our customers and billed by WORLDxCHANGE and are recognized
upon completion of the calls, as well as, to a lesser extent, from certain
recurring and non-recurring fees that are recognized when services are provided.
Prices for long distance calls have decreased substantially in many of the
markets that we serve due to increased competition and to cost reductions
associated with technological advancements. As a consequence, we have
experienced and expect to continue to experience declining revenues per minute
in these markets. We expect that increased minute volumes will more than offset
the impact on our revenue from declining revenues per minute.
We have experienced substantial growth with revenues increasing from $183.9
million in fiscal 1996 to $398.9 million in fiscal 1998. Our recent growth shows
revenue increasing in each of the first three quarters of fiscal 1999: from
$89.9 million in the first quarter to $100.8 million in the second quarter to
$113.6 million in the third quarter.
Our total retail revenues have grown significantly, from $69.2 million in
fiscal 1996 to $191.7 million in fiscal 1998. Our foreign retail revenues have
increased from $10.7 million in fiscal 1996 to $68.1 million in fiscal 1998. We
have achieved our retail growth primarily through the use of direct mail
marketing campaigns in Europe, the U.S. and Australia, as well as through agent
sales. We have achieved substantial revenue growth despite the fact that we have
historically been hampered by cash constraints and at times during these periods
have had to curtail spending on sales and marketing programs. We believe that
our direct mail and other marketing programs will become increasingly effective
as we obtain the cash resources required to consistently fund them.
27
<PAGE>
The following table reflects percentages of total revenue from our North
American and non-North American operations and by type of customer for fiscal
1996, 1997, and 1998 and the nine months ended June 30, 1998 and 1999:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Retail:
North America........................................................ 32% 34% 31% 32% 31%
Outside North America................................................ 6 8 17 17 18
--------- --------- --------- --------- ---------
Total Retail..................................................... 38 42 48 49 49
Carrier:
North America........................................................ 48 46 40 38 41
Outside North America................................................ 1 3 2 2 4
--------- --------- --------- --------- ---------
Total Carrier.................................................... 49 49 42 40 45
Operator Services.................................................... 13 9 10 11 6
--------- --------- --------- --------- ---------
Total Revenues................................................... 100% 100% 100% 100% 100%
</TABLE>
As we implement our growth strategy, we expect our operations outside North
America, particularly in Europe, to contribute an increasingly larger percentage
of our revenues. In addition, we expect carrier revenue to become a smaller
percentage of total revenue as our marketing efforts continue to focus on retail
customers. Carrier customers are generally more price-sensitive and revenues
from carriers generally generate lower gross margins than revenues from retail
customers. Although we continue to sell and market our operator services, we
have reduced the level of marketing associated with this business and do not
anticipate these revenues to grow.
COST OF SERVICES
Cost of services is our largest expense and consists of both variable and
fixed costs. Variable costs include costs associated with the origination and
termination of calls. Virtually all calls we carry must be originated and
terminated by a local carrier. Variable costs also include the cost of
transmitting calls using the long distance facilities of other carriers, which
we use if we cannot carry the traffic over our own network. These local and long
distance carriers charge on a per minute basis. Our fixed costs consist of
leased point-to-point cable capacity, which typically requires fixed monthly
payments regardless of usage. Because the cost of leased lines is fixed,
transmitting a greater portion of our traffic over the leased lines reduces our
incremental marginal transmission costs. Accordingly, once certain volume levels
are reached, leased line capacity can be more cost-effective than capacity
acquired from other long distance carriers.
Capitalized costs associated with our ownership interests in cables, known
as "MIUs", and long-term rights of use in cables or other facilities, known as
"IRUs", are expensed in depreciation and amortization and are therefore not
accounted for as part of cost of services. To the extent our expanded use of
MIUs or IRUs reduces our utilization of leased lines and the facilities of other
long distance carriers, we believe the increase in depreciation expense
associated with the MIUs or IRUs will be fully offset by a decrease in our
variable and fixed cost of services.
We intend to continue to reduce our dependence on transmission arrangements
with other carriers by increasing the percentage of our traffic carried on our
network. We plan to expand the geographic scope and capacity of our network. Our
strategy is to bring our network as close to the end user as possible, reducing
the need to use other carriers' networks. We believe that control of network
28
<PAGE>
infrastructure is critical to enhancing our position as a high-quality, low-cost
provider of communications services and will enable us to better manage service
offerings.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our selling, general and administrative expenses consist of commissions paid
to our independent agents and direct sales force, advertising and promotional
costs, direct mail expenses, employee compensation, occupancy, insurance,
professional fees, bad debt expense, expenses relating to customer service
operations and the costs related to maintaining and supporting our systems. As
we start operations in new countries, we incur significant start-up costs
associated with establishing a supporting infrastructure, particularly for
hiring and training of personnel, leasing office space and paying various fees
in conjunction with our business. As we increase our sales and marketing efforts
and commence operations in new countries, we expect that our sales and marketing
expenses will increase.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses consist of depreciation of all fixed
assets and computer equipment, as well as amortization of the fixed costs
associated with our:
- owned and leased switching platforms, which have been capitalized and are
being amortized over their estimated useful lives or the term of the
lease, which is typically five to seven years; and
- MIU or IRU interests in international undersea and on-land fiber-optic
cable systems, which are being amortized over their estimated useful
lives, which is typically 20 years.
Following the offering, as we expand our network, we expect depreciation and
amortization expenses to increase significantly.
INTEREST EXPENSE
Interest expense principally consists of interest payable on our revolving
credit agreement, subordinated notes, notes payable and capital leases.
Following the offering, as we incur additional indebtedness to expand our
network, we expect interest expense to increase.
INCOME TAXES
As of September 30, 1998, we had net operating loss carryforwards available
for federal, state, and foreign tax purposes of approximately $43.0 million,
$29.9 million and $26.5 million, respectively. The federal net operating loss
carryforwards will begin expiring in 2007 and the state net operating loss
carryforwards will expire from 1999 through 2003, unless previously utilized.
The Canadian and Netherlands net operating loss carryforwards, in the amounts of
$4.7 million and $700,000, respectively, will begin expiring in 2002. Our other
foreign net operating loss carryforwards carry forward indefinitely. The
realization of future domestic benefits from net operating loss carryforwards
may be limited under Section 382 of the Internal Revenue Code if certain
cumulative changes occur in our equity ownership. We have not recognized any
income tax benefit in our historical financial statements because we believe the
realization of the deferred tax asset is uncertain. See Note 7 to Consolidated
Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly results of
operations data for each of the three quarters in the nine month period ended
June 30, 1999. In our opinion, this information has been prepared substantially
on the same basis as the audited financial statements appearing elsewhere in
this prospectus, and all necessary adjustments, consisting only of normal
recurring adjustments, have been
29
<PAGE>
included in the amounts stated below to present fairly the unaudited quarterly
results of operations data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
<S> <C> <C> <C>
DECEMBER 31, MARCH 31, JUNE 30,
1998 1999 1999
------------- ----------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................................................... $ 89.9 $100.8 $113.6
Cost of services............................................................. 70.4 79.4 88.8
------ ----------- ---------
Gross profit................................................................. 19.5 21.4 24.8
Selling general and administrative........................................... 27.9 29.2 31.3
Depreciation and amortization................................................ 3.6 4.1 4.7
------ ----------- ---------
Operating loss............................................................... (12.0 ) (11.9 ) (11.2)
Interest expense............................................................. 4.3 3.8 4.3
Other expense, net........................................................... 0.1 -- 0.1
Minority interest............................................................ (0.6 ) (0.5 ) (0.7)
------ ----------- ---------
Net loss..................................................................... ($ 15.8 ) ($15.2 ) ($14.9)
------ ----------- ---------
------ ----------- ---------
</TABLE>
REVENUES. Our revenues increased in each of the first three quarters of
fiscal 1999, primarily due to increased revenues in North America and Europe. In
October 1998, we initiated a multilevel marketing program in North America to
augment our direct mail marketing efforts and provide an added retail sales
distribution channel. We also expanded our sales and marketing efforts for our
calling card products. In Europe, revenues have grown due to increased marketing
expenditures on direct mail campaigns and direct sales. These increases have
been offset in part by planned decreases in our operator services revenues.
COST OF SERVICES. Cost of services has increased proportionately with
increased revenues, keeping gross margin percentages relatively constant during
the three quarters. In April 1999 we began using on-land fiber optic cable
capacity in the United States, allowing us to reduce our leased network capacity
and improve our North American gross margins. In Europe margins have declined
over the quarters as we have increased our leased network facilities to provide
us with the capacity needed for our expected future growth. We expect our
European gross margins to improve as we more fully utilize this capacity. Gross
margins in the Pacific Rim have remained relatively constant.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative spending levels increased due to increased sales and marketing
spending and the continued expansion of our European infrastructure. In spite of
increased sales and marketing spending during the quarters, selling, general and
administrative expenses as a percentage of revenues continued to improve each
quarter. This improvement has been due to the implementation in our North
American operations of a cost reduction program to streamline general and
administrative expenses.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expense increased during the quarters as we made $57.8 million in capitalized
purchases during this period to expand the geographic scope and available
capacity of our network.
INTEREST EXPENSE. Interest expense fluctuated commensurate with the level
of quarterly indebtedness. The decline in interest expense in the second quarter
from the first quarter was due to a reduction in our notes payable of $8.5
million. The increase of interest expense in the third quarter from the second
quarter was due to an increase in our indebtedness associated with the purchase
of our on-land fiber optic cable capacity in the United States.
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RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
REVENUES. Total revenues increased by 1.1% to $304.3 million in the first
nine months of fiscal 1999 from $301.0 million for the first nine months of
fiscal 1998. The increase in revenues was primarily associated with an increase
in European retail revenues, which was partially offset by a decrease in retail
and operator services revenues in North America.
In North America, revenues decreased by 2.8% to $238.0 million for the first
nine months of fiscal 1999 from $244.9 million for the first nine months of
fiscal 1998. The decrease was primarily attributable to a decline in revenues
from operator services of 46.4% from $33.0 million for the first nine months of
fiscal 1998 to $17.7 million for the same period of fiscal 1999. The decline in
operator services revenues was due to our strategic decision to reduce marketing
efforts in the operator services market. The decrease was also attributable to a
decline in retail revenues. These revenues declined 3.0% from $96.7 million for
the first nine months of fiscal 1998 to $93.8 million for the first nine months
of fiscal 1999. Our retail revenues declined due to cash constraints experienced
during the last half of fiscal 1998, which caused us to curtail our direct mail
and other marketing programs, which had a negative impact on fiscal 1999
revenues. Our North American carrier revenues increased 9.8% to $126.5 million
for the first nine months of fiscal 1999 from $115.2 million for the first nine
months of fiscal 1998.
In the Pacific Rim, revenues decreased by 1.1%, to $43.0 million for the
first nine months of fiscal 1999 from $43.5 million for the first nine months of
fiscal 1998. This decline, which followed strong growth in each of the prior two
fiscal years, was primarily attributable to the loss of our largest reseller
customer, which accounted for approximately 23% of this region's fiscal 1998
revenues. This reseller's business was purchased by a competitor and the traffic
began to migrate off our network in October 1998. A substantial portion of the
reduction in revenues attributable to the reseller was offset by increased
retail revenue generated through direct mail and agent sales. Currently, none of
our customers accounts for more than five percent of this region's revenues.
In Europe, revenues increased by 84.9% for the first nine months of fiscal
1999 to $23.3 million from $12.6 million for the same period of fiscal 1998,
primarily due to increases in retail revenues. Retail revenues increased due to
geographic expansion in the region and increased direct mail campaigns in the
region. We believe Europe will continue to provide us with an opportunity for
revenue growth due to the expanding deregulation of the European
telecommunications market, the recent achievement of interconnection in existing
markets, and our plans to enter additional European countries.
COST OF SERVICES. Cost of services increased by 15.1% to $238.6 million for
the first nine months of fiscal 1999 from $207.2 million for the same nine
months in fiscal 1998 and, as a percentage of revenue, increased to 78.4% from
68.8%. Cost of services as a percentage of revenue increased primarily as a
result of decreasing margins associated with carrier revenues. Carrier revenues
as a percentage of total revenues increased for the first nine months of fiscal
1999 compared to the same period of fiscal 1998. These revenues have lower gross
margins than the gross margins from retail and operator services revenues. Cost
of services as a percentage of revenues increased in North America from 72.8%
for the first nine months of fiscal 1998 to 83.3% for the same period of fiscal
1999. Cost of services as a percentage of revenues decreased in the Pacific Rim
from 77.7% for the first nine months of fiscal 1998 to 73.9% for the same period
of fiscal 1999. Cost of services as a percentage of revenues increased in Europe
from 74.4% for the first nine months of fiscal 1998 to 78.3% for the same period
of fiscal 1999. This increase was due to additional costs associated with the
expansion of our European network infrastructure in anticipation of future
growth in our customer base.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 8.9% to $88.4 million for the first nine
months of fiscal 1999 from $81.2 million for the
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same period in fiscal 1998 and, as a percentage of revenues, increased from
27.0% to 29.1%. The increase was primarily due to increased spending in Europe
and the Pacific Rim, offset in part by reduced general and administrative
spending in North America. These expenses in Europe increased from $6.9 million
for the first nine months of fiscal 1998 to $13.8 million for the first nine
months of fiscal 1999. This increase was due to increased sales, operations and
back office infrastructure to support sales growth and the expansion into new
markets in Europe. Selling, general and administrative expenses in the Pacific
Rim increased by 14.0% to $16.3 million for the first nine months of fiscal 1999
from $14.3 million for the same period of fiscal 1998. This increase was due to
growth in the supporting infrastructure and increased staffing levels in
customer service in our Pacific Rim markets. Selling, general and administrative
expenses in North America decreased to $57.5 million for the first nine months
of fiscal 1999 from $59.4 million for the same period of fiscal 1998. The
decline in these expenses in North America was due to our efforts to streamline
our North American operations and reduce overall spending costs. We expect
selling, general and administrative expenses to continue to grow as revenues
increase and as we continue to expand into new markets and build infrastructure.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased by 39.6% to $12.4 million for the first nine months of fiscal
1999 from $8.9 million in the first nine months of fiscal 1998. The increase in
depreciation and amortization was due to the continued build-out of our network
and supporting infrastructure.
INTEREST EXPENSE. Interest expense increased by 44.2% to $12.4 million for
the first nine months of fiscal 1999 from $8.6 million in the first nine months
of fiscal 1998. The increase was primarily due to interest associated with the
subordinated promissory notes issued between May and August of 1998.
FISCAL 1998 AS COMPARED TO FISCAL 1997
REVENUES. Total revenues for fiscal 1998 increased by 20.3% to $398.9
million from $331.7 million for fiscal 1997. Growth in revenues during 1998 was
attributable primarily to an increase in traffic volume, offset in part by a
decline in average carrier prices. Total revenues for fiscal 1998 were also
negatively impacted by our inability to bill for certain calls during the period
due to technical difficulties with a newly installed switch.
In North America, our revenues for fiscal 1998 increased by 10.3% to $321.8
million, primarily as a result of substantial increases in sales of residential
and operator services. Revenues from residential customers increased by 13.5% to
$116.1 million for fiscal 1998 from $102.3 million for fiscal 1997. The increase
in residential revenues was due to increased promotional spending in late fiscal
1997, which stimulated growth in the first half of fiscal 1998. Revenues from
operator services increased by 51.7% to $40.5 million for fiscal 1998 from $26.7
million for fiscal 1997. Revenues from carrier and commercial customers were
relatively stable.
In the Pacific Rim, revenues increased by 139.3% to $58.4 million for fiscal
1998 from $24.4 million for fiscal 1997, reflecting significant increases in the
usage of our services by residential and commercial customers.
In Europe, revenues increased by 19.9% to $18.7 million for fiscal 1998 from
$15.6 million for fiscal 1997, reflecting significant increases in the usage of
our services by residential and commercial customers.
COST OF SERVICES. Cost of services increased by 22.2% to $287.3 million for
fiscal 1998 from $235.0 million for fiscal 1997 and, as a percentage of
revenues, increased to 72.0% for fiscal 1998 from 70.9% for fiscal 1997. Cost of
services increased as a percentage of revenues as a result of lower margins
associated with carrier revenues. Although our carrier costs decreased during
fiscal 1998 due to competitive pricing pressures, we were unable to maintain the
gross margins we experienced in 1997. In addition, during the fourth quarter of
fiscal 1998, we experienced technical problems with a newly installed switch.
The problems included the failure of the switch to record billing information
for
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certain calls. As a result, we were unable to bill for all of our calls. This
resulted in our incurring costs for calls with no corresponding revenues, which
reduced overall gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In fiscal 1998, selling,
general and administrative expenses increased by 1.4% to $114.9 million from
$113.5 million for fiscal 1997 and, as a percentage of revenue, decreased to
28.8% for fiscal 1998 from 34.2% for fiscal 1997. A significant portion of the
increase in spending was directly related to the increase in revenues, as
marketing and sales expenses increased due to increases in commissions,
marketing, and other related expenses. Selling, general and administrative
expenses, as a percentage of revenue, declined due to efficiencies gained as our
revenues increased.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased by 41.4% to $12.3 million for fiscal 1998 from $8.7 million
for fiscal 1997. This increase was due to the expansion of our network and
capital deployed as we entered new markets.
INTEREST EXPENSE. Interest expense increased by 36.8% to $11.9 million in
fiscal 1998 from $8.7 million in fiscal 1997. The increase in interest was due
to the increase in the level of debt and capital lease obligations we incurred
in order to fund our network expansion.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES. Total revenues for fiscal 1997 increased by 80.4% to $331.7
million from $183.9 million for fiscal 1996. Growth in revenues during fiscal
1997 was attributable primarily to an increase in traffic volume and was offset
in part by a decline in average prices.
In North America, revenues for fiscal 1997 increased by 70.1% to $291.6
million from $171.4 million for fiscal 1996, primarily as a result of
substantial increases in sales of international long distance services. Revenues
from carrier customers for fiscal 1997 increased by 73.0% to $153.3 million from
$88.6 million for fiscal 1996, while revenues from retail customers for fiscal
1997 increased by 91.1% to $111.6 million from $58.4 million for fiscal 1996.
Revenues from operator services increased 9.0% to $26.7 million for fiscal 1997
from $24.5 million for fiscal 1996.
In the Pacific Rim, revenues in fiscal 1997 increased by 225.3% to $24.4
million from $7.5 million in fiscal 1996. Revenues from retail customers
increased to $21.8 million in fiscal 1997 from $7.5 million in fiscal 1996. We
commenced operations in the Asia Pacific region by entering the Australian
market in 1995.
In Europe, revenues increased by 212.0% for fiscal 1997 to $15.6 million
from $5.0 million for fiscal 1996. This increase was primarily attributable to
increased sales to carrier customers, which grew from $1.7 million for fiscal
1996 to $9.4 million for fiscal 1997. Revenues from retail customers increased
from $3.3 million for fiscal 1996 to $6.2 million for fiscal 1997 due to the
establishment of operations in additional European markets and increased
business in existing markets during fiscal 1997. We commenced operations in
Europe by entering the U.K. market in 1995.
COST OF SERVICES. Cost of services increased by 83.9% to $235.0 million for
fiscal 1997 from $127.8 million for fiscal 1996 and, as a percentage of
revenues, increased to 70.9% for fiscal 1997 from 69.5% for fiscal 1996. Cost of
services as a percentage of revenue increased primarily due to higher
transmission costs. Transmission costs increased as we invested in new
transmission capacity, as part of our growth strategy, which capacity was not
fully utilized. In addition, because certain of our lowest-cost suppliers of
switched transmission would not furnish us with sufficient capacity due to our
slow payment history during fiscal 1997, we were forced to obtain switched
transmission capacity on more expensive terms.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In fiscal 1997, selling,
general and administrative expenses increased by 75.7% to $113.5 million from
$64.6 million for fiscal 1996 and, as a percentage
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of revenue, decreased to 34.2% for fiscal 1997 from 35.1% for fiscal 1996. A
significant portion of the percentage decrease was directly related to increased
efficiencies as a result of the revenue growth.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased by 24.3% to $8.7 million for fiscal 1997 from $7.0 million
for fiscal 1996. The increase in depreciation and amortization was due to the
expansion of our network and capital deployed as we entered new markets.
INTEREST EXPENSE. Interest expense increased by 50.0% to $8.7 million for
fiscal 1997 from $5.8 million for fiscal 1996. The increase in interest was due
to the increase in the level of debt and capital lease obligations we incurred.
The level of debt and capital lease obligations increased in conjunction with
network expansion and the expansion of our operations into new markets.
OTHER INCOME/EXPENSE. Other expenses increased to $3.4 million for fiscal
1997 from approximately $600,000 for fiscal 1996 as we increased our accruals
and reserves for certain domestic and international taxes other than income
taxes.
LIQUIDITY AND CAPITAL RESOURCES
As a consequence of the rapid expansion of our business and our historical
capital constraints, we have incurred cumulative net losses from inception in
1991 through June 30, 1999. These losses and associated negative cash flows
resulted primarily from start-up costs, marketing expenses and capital
expenditures required to build and deploy our network. Following the offering,
we expect to continue to significantly expand our operations, to continue
building our worldwide network and to increase our customer base and marketing
operations. We have utilized cash provided from financing activities to fund
losses and capital expenditures. The sources of this cash have primarily been
private placement equity offerings, the issuance of subordinated debt, capital
lease and vendor financing and our revolving credit facility.
For the first nine months of fiscal 1999, cash used in operating activities
was $4.5 million, primarily composed of a net loss of $46.0 million, offset by
an increase in operating working capital and non-cash charges relating to the
provision for bad debt and depreciation and amortization. Cash used for
investing activities, primarily capital expenditures, totaled $25.1 million in
the first nine months of fiscal 1999. Cash provided by financing activities
amounted to $46.9 million, primarily consisting of the receipt of $70.0 million
in private placement equity offerings, offset by repayments of certain
subordinated debt. As of June 30, 1999, we had $38.2 million in cash.
As of September 30, 1998, we had approximately $20.9 million in cash. Our
net cash used in operating activities was $31.7 million in fiscal 1998,
primarily caused by a net loss of $27.5 million, a decrease in operating working
capital of $28.0 million, and $27.5 million of non-cash charges consisting of
the provision for bad debts and depreciation and amortization. Cash used for
investing activities totaled $12.0 million in fiscal 1998, which was for capital
expenditures. The capital expenditures primarily consisted of purchases
associated with the expansion of our network, computers, and general equipment.
Net cash provided by financing activities totaled $60.5 million for fiscal 1998,
which consisted of $55.2 million in proceeds from the issuance of subordinated
debt, $10.0 million from a private placement equity offering, a $0.7 million
increase in our revolving credit facility, offset by $5.3 million in the
repayment of debt and capital lease obligations. Net cash used in operating
activities for fiscal 1997 was $7.2 million, and net cash provided by operating
activities for fiscal 1996 was $7.6 million. Net cash used in investing
activities, principally capital expenditures, was $10.9 million and $3.1 million
for fiscal 1997 and 1996, respectively. We financed these capital expenditures
primarily with long-term debt. Net cash provided by financing activities for
fiscal 1997 was $18.8 million, and net cash used in financing activities for
fiscal 1996 was $2.3 million.
In October 1997, the California Public Utilities Commission issued its final
order which imposed a $19.6 million fine against us, $2.0 million of which was
charged against earnings in fiscal 1997 and was
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paid in April 1998 and the remainder of which is suspended by the CPUC subject
to our refraining from committing any violations of statutes or CPUC directives.
See "Business--Legal Proceedings."
Capital expenditures, including assets acquired by incurring capital lease
obligations, for fiscal 1996, 1997 and 1998 totaled $8.7 million, $19.4 million,
and $22.4 million, respectively. We expect to continue to make significant
capital expenditures during fiscal 1999 and fiscal 2000, including the purchase
of telecommunications equipment such as digital subscriber line and Asynchronous
Transfer Mode equipment, additional interests in undersea cables, investments in
U.S. and European fiber optic networks and network management systems. We also
intend to enhance our network infrastructure, including by making further
improvements to our billing systems and management information systems. Total
estimated capital expenditures for fiscal 1999 are $67.0 million, of which $57.8
million had been spent as of June 30, 1999. Total estimated capital expenditures
for fiscal 2000 are $142.0 million. Included in the fiscal 2000 estimate is
approximately $113.0 million for our planned buildout of our U.S. and European
networks and interests in undersea cables. These capital expenditures will
increase the geographic scope of our operations. We expect that the
implementation of our network expansion plans will reduce the cost of
transmission on a per minute basis as traffic volumes increase on our network.
In order to finance the planned network expansion in fiscal 2000 we intend to
use a portion of the proceeds of this offering, together with capital lease and
vendor financing and the issuance of additional debt and/or equity securities.
We cannot assure you that we will be able to obtain such financing or raise
additional capital on acceptable terms or at all. If we are not successful in
obtaining this additional financing, we would be forced to delay or curtail our
planned network expansion. See "Risk Factors--We Are Subject to Certain
Restrictions Under Our Debt Obligations," "Risk Factors-- The Costs of Expanding
Our Business Will Be Significant; We Will Need Additional Capital to Complete
the Build-out of Our European Network" and "Use of Proceeds."
We have utilized capital lease and vendor financing to assist in financing
the building of our network, systems and infrastructure. As of June 30, 1999,
the balance of capital lease financing obligations totaled $34.0 million,
primarily relating to the lease of our switching platforms in North America. In
addition, as of June 30, 1999 we had $22.5 million in obligations owed to
vendors.
In March 1997, we entered into our revolving credit facility, which consists
of an accounts receivable-based revolving credit facility and a term loan. The
credit facility allows us to borrow up to a maximum of $35.0 million, subject to
certain restrictions and borrowing base limitations. The available borrowing
base under the revolving credit agreement is determined as a specified
percentage of eligible accounts receivable. The balance outstanding on the
revolving credit agreement is reduced by the application of payments received on
collections of accounts receivable. The accounts receivable revolving credit
facility had an outstanding balance of approximately $22.4 million at June 30,
1999, which approximates the maximum available pursuant to the borrowing base
limitations. This facility bears interest at the prime rate plus 2.75%, is
repaid through collections of accounts receivable, and matures in October 2000.
The term loan, which at June 30, 1999 had an outstanding balance of
approximately $4.1 million, bears interest at the prime rate plus 6.75%,
requires monthly reductions of principal of $300,000 plus interest, and matures
in October 2000. As of June 30, 1999 we were in compliance with the restrictive
covenants under the credit facility. Our obligations under the credit facility
are secured by a first position in substantially all of our property.
In fiscal 1997, we sold a 40% interest in WorldxChange Pty. Ltd., our
Australian operating subsidiary, to an affiliate of the Asian Infrastructure
Fund. The proceeds of approximately $9.0 million from this sale were used to
finance working capital requirements and the expansion of this operating
subsidiary. We have recently agreed to repurchase the 40% interest in
WorldxChange Pty. Ltd. See "Acquisition of Minority Interest in Subsidiaries."
From May through August 1998, we issued and sold subordinated promissory
notes in the aggregate principal amount of $55.0 million. These notes bear
interest at the rate of 12.5% per annum, provide for quarterly payments of
interest only and mature on November 30, 2000. These notes provide
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the lender the right to require us to use 35% of the net proceeds from any
private placement or public offering of our common stock, including this
offering, to repay the notes. The balance of these notes at June 30, 1999 was
$45.2 million.
In September 1998, we sold 788,127 shares of our common stock in a private
placement at a price of $12.69 per share for total proceeds of $10.0 million. In
December 1998, we sold 871,087 shares of our common stock in a private placement
at a price of $11.48 per share for total proceeds of $10.0 million. In March
1999, we sold 3,000,000 shares of our common stock in a private placement at a
price of $10.00 per share for total proceeds of $30.0 million. In June 1999, we
sold 2,727,270 shares of our common stock in a private placement at a price of
$11.00 per share for total proceeds of $30.0 million. The offerings raised a
total of $80 million. The proceeds from these private placements were used for
network expansion, to pay for direct mail campaigns and other marketing
activities, to repay subordinated debentures, and to prepay a portion of our
subordinated promissory notes and for other corporate purposes.
In August 1999, we entered into an agreement to sell 30,000 shares of our
Series A Convertible Preferred Stock in a private placement for total proceeds
of $30.0 million. These shares are convertible into 2,727,270 shares of our
common stock. Prior to the conversion of these shares, we are obligated to pay
the holder of these shares an annual dividend equal to 4% of the face amount of
these shares.
We entered into two agreements during the nine month period ended June 30,
1999 for the acquisition of capacity on land-based fiber optic cable systems for
a total price of $45.0 million. The vendors have agreed to finance 90% of the
commitment at 12% interest, with monthly principal and interest payments over a
five year amortization period. As of June 30, 1999, we had acquired
approximately $16.0 million, leaving $29.0 million to be ordered by November
1999.
We believe that we will be able to satisfy our operating cash requirements
for at least the next 12 months from a combination of cash on hand, the proceeds
of this offering, availability under our vendor financing arrangements, and our
secured credit facility. In order to complete our planned network expansion, we
must raise additional capital through the issuance of debt and/or equity
securities. If we are not successful in obtaining this additional financing, we
would be forced to delay or curtail our planned network expansion in order to
satisfy our operating cash requirements.
MARKET RISK
The carrying value of cash and cash equivalents approximates fair value due
to the short-term, highly liquid nature of the cash equivalents, which have
maturities of three months or less. Interest rate fluctuations would not have a
significant effect on the fair market value of cash equivalents held by us.
At June 30, 1999 we had outstanding debt, excluding capital lease
obligations, in the amount of $95.4 million, of which $68.9 million is fixed
interest debt. The remaining $26.5 million carries adjustable interest rates at
the prime rate plus 2.75%. A one percent change in the interest rate would
change interest payments by approximately $22,100 per month.
FOREIGN CURRENCY EXPOSURE
While an increasing amount of our revenues will be denominated in non-U.S.
currencies, a disproportionate portion of our expenditures, including interest,
will be denominated in U.S. dollars. In addition, the assets and liabilities of
our non-U.S. subsidiaries are generally denominated in local currencies.
Accordingly, we may be subject to significant foreign currency exchange risks.
In addition, we may in the future acquire interests in entities that operate in
countries where the expatriation or conversion of currency is restricted. We
currently do not hedge against foreign currency exchange risks, but may in the
future. Because of the number of currencies involved, our constantly changing
foreign currency exposure and the fact that all foreign currencies do not
fluctuate in the same manner against
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the U.S. dollar, we cannot quantify the effect of exchange rate fluctuations on
our future financial condition or results of operations.
EURO CONVERSION
On January 1, 1999, several member countries of the European Union
established fixed conversion rates and adopted the euro as their new common
legal currency. Since that date, the euro has traded on currency exchanges,
although the legacy currencies will remain legal tender in the participating
countries for a transition period between January 1, 1999 and January 1, 2002.
During the transition period, parties can elect to pay for goods and services
and transact business using either the euro or a legacy currency. Between
January 1, 2002 and July 1, 2002, the participating countries will introduce
euro currency coins and withdraw all legacy currencies.
The euro conversion may affect cross-border competition by creating
cross-border price transparency. We are assessing our pricing and marketing
strategy in order to insure that it remains competitive in a broader European
market. In addition, we are reviewing whether certain existing contracts will
need to be modified. Our currency risks and risk management for operations in
participating countries may be reduced as the legacy currencies now trade at a
fixed exchange rate against the euro. We will continue to evaluate issues
involving introduction of the euro. However, based on current information and
assessments, we do not expect that the euro conversion will have a material
adverse effect on our results of operations or financial condition.
SEASONALITY
Our European and Australian operations experience seasonality during the
summer seasons of those regions, which results in decreased customer calling
volumes.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive
Income. This standard is effective for fiscal years beginning after December 15,
1997. SFAS 130 requires that all components of comprehensive income, including
net income, be reported in the financial statements in the period in which they
are recognized. Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from non-owner
sources. Net income and other comprehensive income, including foreign currency
translation adjustments, and unrealized gains and losses on investments, shall
be reported, net of their related tax effect, to arrive at comprehensive income.
We have adopted this standard in our financial statements.
Also, in June 1997, the Financial Accounting Standards Board issued SFAS No.
131 (SFAS 131), Segment Information. This standard is effective for fiscal years
beginning after December 15, 1997. SFAS 131 amends the requirements for public
enterprises to report financial and descriptive information about its reportable
operating segments. Operating segments, as defined by SFAS 131, are components
of an enterprise for which financial information is available and evaluated
regularly by a company in deciding how to allocate resources and in assessing
performance. The financial information is required to be reported on the basis
that is used internally for evaluating the segment performance. We have adopted
this standard in our financial statements.
YEAR 2000 COMPUTER ISSUES
The Year 2000 problem is the result of computer programs, microprocessors
and embedded date reliant systems using two digits rather than four to define
the applicable year. If not corrected, these programs and systems may recognize
a date using "00" as the year 1900 rather than the year 2000. This could cause
systems to fail, lock up or generate erroneous results.
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In mid-1998, we commenced an assessment of our internal systems to determine
whether they were Year 2000 compliant. The fundamental ability of our network to
carry calling traffic has been tested for Year 2000 compliance and has passed.
We are currently in the process of remediating our remaining systems and
functions for Year 2000 compliance. We expect this process to be completed by
September 30, 1999.
Our remaining Year 2000 preparedness efforts have principally focused on the
implementation of a Year 2000 compliant billing software package for our North
American operations. This process involves replacing our existing North American
billing software, which is not Year 2000 compliant, with a compliant version
from the same vendor and then customizing the new version to integrate it into
our billing platform. We have scheduled a series of tests, which will be
internally conducted, supervised and reviewed, for mid-September 1999 to assess
the new North American billing software and all other systems and functions. The
billing systems used in our overseas operations have all been previously tested
and found to be Year 2000 compliant.
In addition to our remediation efforts, we have established contingency
plans in the event that any of our systems or functions were to fail as a result
of the Year 2000 problem. We have arranged to have the employees who were
involved in our Year 2000 preparedness efforts on-site or available on short
notice to augment our normal trouble-shooting team. These employees, on a
rotating basis, will provide 24-hour availability of Year 2000 expertise should
unforeseen problems arise. There can be no assurance that our contingency plans
will allow us to avoid delays, disruptions and losses in our operations if our
systems are not successfully remediated. If any of our systems were to fail as a
result of the Year 2000 problem or for any other reason, our business could be
harmed and the price of our common stock could be depressed.
We have budgeted a total of approximately $4.25 million, representing
approximately 50% of our total information technology budget for fiscal 1999,
for Year 2000 preparedness efforts. Of this amount:
- approximately $1 million is budgeted for detection of Year 2000 problems;
and
- approximately $3.25 million is budgeted for remediation, internal testing
and verification of Year 2000 preparedness.
As of August 1, 1999, approximately 30 of the 65 full-time employees in our
information technology department were fully engaged in Year 2000 preparedness
activities. Staffing will increase beginning in the month of August to nearly 40
full-time employees and contractors to complete the integration, testing and
remediation of any new problems found during the course of testing.
We are in the process of communicating with key carriers and other vendors
and suppliers upon which our operation and infrastructure are dependent to
determine the extent to which we are vulnerable to a failure resulting from the
inability of these parties to correct their own Year 2000 issues. We have taken
steps to ensure that services and products provided to us by these parties are
Year 2000 compliant. Although there can be no assurance that the carriers and
vendors with whom we do business, or the products or services they provide, are
Year 2000 compliant, we are working with each one to understand their Year 2000
preparedness levels. Also, we will be reviewing any Year 2000 contingency plans
of these vendors and carriers. Should these services be disrupted, and depending
upon the extent and duration of any such disruptions, our business and common
stock price could be adversely affected.
We are also vulnerable to disruptions in the economy generally resulting
from Year 2000 problems. We could be subject to litigation resulting from
disruptions in our services. Any such litigation could harm our business and
depress the price of our common stock.
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BUSINESS
OUR COMPANY
We are a leading global telecommunications company that specializes in
providing high-quality, low-cost domestic and international telecommunications
services. We have established retail and wholesale operations in North America,
Europe and the Pacific Rim. Our global facilities include 40 switches located in
major metropolitan areas in 12 countries. Our network has been designed to give
us the ability to simultaneously carry voice and data. We connect our switches
with an extensive network of owned and leased undersea and land-based fiber
optic cables. Our revenues have grown from $184 million in fiscal 1996 to $332
million in fiscal 1997 to $399 million in fiscal 1998. According to the 1999
edition of Telegeography, in 1997 we were the 39(th) largest telecommunications
carrier of international minutes in the world and the fourth largest of the
non-monopoly or non-former monopoly carriers behind MCI WorldCom, Sprint and
Pacific Gateway Exchange.
We currently serve more than 750,000 residential and commercial retail
customers each month. Our services currently include international and domestic
long distance telephone service, post-paid and pre-paid calling card services,
operator services, Internet access and e-commerce services. We market these
services through direct mail, independent agents, direct sales and media
advertising. By the end of 1999, we intend to offer high-speed data networking
services through DSL technology to our customers in North America, with service
to European and Australian customers to follow.
We currently have established operations in the United States, Australia,
Canada, The Netherlands, New Zealand and the United Kingdom and have recently
obtained, or expect shortly to obtain, interconnection for our operations in
Belgium, Chile, France, Germany, Guatemala and Sweden, after which we plan to
expand our marketing efforts in these countries. We plan to establish operations
in El Salvador, Italy, Japan, Spain and Switzerland within the next 15 months.
We also plan to begin the installation and integration of ATM switches across
our global network to allow for the seamless transport of voice, data and video.
We entered the U.S. market during 1992 and quickly recognized the
opportunities presented by the international long distance market both in the
United States and abroad. Our strategy is to continue to expand our global
network to enhance our ability to provide high-quality, low-cost
telecommunications services to our growing customer base. In the United States,
we target customers with international long distance usage. In foreign markets,
our strategy is to establish operations in key metropolitan areas early in the
deregulation process to position ourselves to accelerate our growth after
obtaining connection to the networks of the dominant carriers in those markets.
Using this strategy, we have increased our international revenues from $44.5
million for fiscal 1997 to $84.5 million for fiscal 1998. We believe there are
significant opportunities for continued growth in overseas markets.
INDUSTRY OVERVIEW
The industry is being shaped by the following trends:
- deregulation and privatization of telecommunications markets worldwide;
- diversification of services through technological innovations;
- globalization of major carriers through market expansion;
- consolidation and strategic alliances;
- greater consumer demand;
- increases in international business travel; and
- privatization of national carriers, growth of computerized transmission of
voice and data information.
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These trends have sharply increased the use of, and reliance upon,
telecommunications services throughout the world. We believe that despite these
trends, a high percentage of international businesses and residential consumers
continue to be subject to high prices and poor quality of service in comparison
to the United States. Demand for improved service and lower prices have spurred
deregulation and created opportunities for private industry to compete in
previously closed or restricted sectors of the international market. Increased
competition, in turn, has spurred a broadening of products and services, and new
technologies have contributed to improved quality and increased transmission
capacity and speed.
Measured in minutes, international long distance switched telecommunications
grew at an average annual rate exceeding 14% between 1989 and 1997, making it
one of the fastest-growing segments of the long distance industry. International
Telecommunications Union forecasts project continued growth in this segment at a
compound annual rate of approximately 12% to 18% from 1997 to 2001. Based on
this forecast, worldwide international long distance traffic is projected to
increase from approximately 81.8 billion minutes in 1997 to between
approximately 128.7 billion and 158.6 billion minutes by the year 2001. We
believe that the last decade of industry growth as well as the projected future
industry growth are based on a combination of:
- regulatory liberalization of the telecommunications industry;
- privatization of the dominant local carriers;
- the opening of geographic markets to foreign competition;
- substantial investment in the telecommunications infrastructure;
- greater consumer access to international long distance services
attributable in part to the increase in the number of households with
telephones; and
- technological advances.
Regulatory liberalization and technological advances have also broadened the
range of telecommunications and information services that are now available to
consumers. In addition to traditional person-to-person long distance calling,
telecommunications and other companies now provide such services as voicemail,
faxmail and electronic mail, as well as itemized billing, telephone debit and
calling cards, and intranet and Internet services, some of which are not
regulated at this time. This greater variety of services, combined with
generally declining prices, has contributed to the increase in the volume of
long distance traffic.
International long distance calling prices have historically been determined
by international settlement rates, which are the rates that a carrier (often a
dominant local carrier) charges to terminate an international call in its home
country. Historically, national monopolies set these rates at arbitrary,
artificially high levels that enabled many carriers to enjoy high gross margins
on international calls. Intensifying competition in many countries has caused
international settlement rates to decline for the last several years. In
addition, a greater percentage of calls is being placed outside the
international settlement rate system altogether, resulting in further price
declines. Moreover, practices such as "refile" (where traffic originating from a
particular country is rerouted through another country with a lower settlement
rate), off settlement rate terminations (where a local carrier agrees to
terminate an international call at rates below the settlement rates) and transit
(where a carrier agrees to terminate another carrier's traffic to a particular
country at a negotiated price other than the settlement rate) are becoming
increasingly common. We believe that all of these factors, combined with
advances in technology, are leading to the end of the international settlement
rate system.
Regulatory initiatives are also mandating reductions in settlement rates. We
expect that many countries will implement lower settlement rates over the next
several years. Prices may decline further as a result of recent FCC decisions
modifying the Commission's regulatory requirements for the provision of
international services. See "--Regulation--United States--FCC International
Regulation."
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THE U.S. MARKET
The U.S. domestic long distance companies had approximately $105 billion in
revenue in 1998. While AT&T, MCI WorldCom and Sprint accounted for the
overwhelming share of that revenue, there are literally hundreds of competitors.
The U.S. market is among the most competitive and deregulated in the world.
Carriers compete on the basis of price, quality of service, customer service,
and the ability to provide value-added services. The Regional Bell Operating
Companies are currently precluded from providing long distance service in their
local exchange operating territories, but it is expected that the first
instances of such authority will be granted soon, paving the way for the entry
of additional major competitors.
The U.S. international long distance telecommunications market accounted for
approximately 33% of worldwide long distance traffic originations in 1997. The
profitability of the U.S. international long distance market is determined
principally by the spread between settlement rates, which are the rates paid to
other carriers to terminate an international call, and billed revenues.
Settlement rates have been declining due to increased competition resulting from
regulatory liberalization and political pressure arising from increased global
trade. The costs of leased capacity have also declined as technological
advances, investments in the telecommunications infrastructure and regulatory
liberalization have increased the availability of transmission lines. We believe
that settlement rates and costs for leased capacity will continue to decline,
although we cannot be certain of this. See "Risk Factors--International Calling
Prices Are Declining."
THE EUROPEAN MARKET
The European international long distance telecommunications market accounted
for approximately 43% of worldwide long distance traffic originations in 1997. A
fully liberalized single market for continental European telecommunications is
expected to arise. Already deregulation is stimulating competition. As of August
1, 1998, there were more than 400 facilities-based carriers competing to provide
international service in Europe.
As alternative wholesale networks are constructed in continental Europe, it
is becoming less expensive to operate a retail long distance business there.
Since such projects have been announced or completed, the costs associated with
the operation of European long distance facilities has begun to decline rapidly.
For example, over a period of less than one year, the cost of an E-1 circuit,
which is a European unit of measure representing the capacity to carry 30 calls
simultaneously, from London to Stockholm has declined from approximately $21,000
to approximately $12,000 per month. We believe that these cost declines will
continue to outpace declines in prices for long distance services because:
- dominant local carriers in markets for retail national and international
long distance services are reluctant to reduce prices; and
- enhanced services and generally lower prices should increase the demand
for long distance services.
However, there can be no assurance in this regard. See "Risk Factors--We Have
Many Competitors Who Enjoy Significant Competitive Advantages Over Us" and "Risk
Factors--International Calling Prices Are Declining."
PACIFIC RIM MARKET
Led by Australia and New Zealand, the telecommunications industries in the
countries of the Pacific Rim are becoming increasingly liberalized. Australia
and New Zealand have for some time allowed full facilities-based competition.
Each of these countries also actively fosters competition by establishing
regulatory bodies empowered to monitor and curtail anti-competitive practices
and promulgating rules and regulations intended to promote competition.
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The pace of regulatory liberalization in the Pacific Rim is accelerating,
with recent liberalization developments occurring in Japan, Guam, Hong Kong,
Malaysia, the Philippines and other Pacific Rim countries. Several of these
markets generate significant long distance traffic. We believe that a number of
these markets potentially offer attractive growth opportunities. However, we
cannot assure you that the pace of liberalization will continue at its current
rate or at all in these countries, or that these markets will ultimately become
open to full or significant competition.
THE LATIN AMERICAN MARKET
During the last few years, several Latin American countries have taken
preliminary steps to liberalize the regulation of their telecommunications
markets. The markets of Chile, the Dominican Republic, El Salvador, Guatemala
and Mexico are among the most liberalized. Several other countries have also
partially or totally privatized their dominant local carriers, including
Argentina, Mexico, Peru and Venezuela. Some of the more significant developments
in the liberalization of the Latin American international long distance market
include:
- Telmex, the dominant local carrier in Mexico, was recently privatized and,
since 1997 has been required to interconnect with the networks of
competing carriers;
- Venezuela approved the provision of value-added services and has announced
plans to implement full regulatory liberalization by January 1, 2000; and
- Brazil is in the process of privatizing its dominant local carrier, has
established an independent regulator, and is opening its
telecommunications market to competition.
OUR COMPETITIVE STRENGTHS
We believe we have positioned ourselves to compete successfully in the
domestic and international marketplace and have the following competitive
strengths:
ESTABLISHED GLOBAL COMMUNICATIONS NETWORK
We have established a worldwide telecommunications network that enables us
to carry calling traffic on a high-quality, cost-effective basis. This network
includes:
- 40 switches in 12 countries;
- ownership interests in 14 undersea cable systems, and IRUs in an
additional 11 undersea cable systems, comprising in total over 340 E-1
circuits;
- IRUs in more than 25 million DS-0 miles of on-land fiber optic cable
capacity in the United States;
- seven satellite earth stations at locations in the United States and
abroad.
In addition, we have interconnection agreements in Australia, Belgium,
Canada, Chile, France, Germany, Guatemala, The Netherlands, New Zealand and the
United Kingdom.
WE HAVE A SEASONED MANAGEMENT TEAM WITH SIGNIFICANT OWNERSHIP
We have assembled a seasoned and aggressive management team. This team
includes our chairman, Walt Anderson, who founded Esprit Telecommunications, Mid
Atlantic Telecom and Telco Communications and oversaw their growth until they
were acquired. Tom Cirrito, a director of our company, also founded several long
distance telecommunications carriers, including Telco Communications and the
Long Distance Wholesale Club. Chris Bantoft, our president and a director, is a
former senior executive who was based in Europe with ACC, an international
carrier that was recently acquired by AT&T. These individuals complement the
skills of our company's founder and chief executive officer, Roger Abbott, as
well as of our other senior executives, who have experience in
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management, multinational sales and marketing, network operations and
engineering, finance and regulatory matters. Through corporate affiliates, Mr.
Anderson and Mr. Cirrito recently purchased a total of $120 million of our
equity securities.
INNOVATIVE AND DIVERSE MARKETING STRATEGY
We use a variety of marketing channels to reach our customers. These
channels include direct mail, multilevel marketing, independent sales agents,
direct sales and media advertising. In October 1998, we introduced our
innovative "xPectations ML" multilevel marketing program. This allows
participating representatives to earn commissions based on revenues we collect
from new pre-subscribed and dial-around long distance customers, as well as
Internet access and prepaid calling card customers that they sign up. In
addition, these representatives earn commissions based on revenues we collect
from customers signed up by other representatives that they recruit to the
program. We also use the Internet to provide on-line commission information and
accounting, call details, pre-approved advertising, marketing information and
alerts, chat rooms and on-line trouble reporting for program representatives. We
also provide program representatives with a Web site, which we host. This allows
our representatives to use a professionally designed Web site to market our
services while allowing us to retain control over the advertising content. We
have recruited more than 7,000 representatives into this program since its
introduction.
ADVANCED OPERATIONAL SYSTEMS
We have developed proprietary software and information systems that allow us
to manage our business using real-time information. We believe we are one of the
few companies with systems that provide management with daily network cost
information on a route-by-route basis, which enables us to calculate our
variable gross margins by type of service on a daily basis throughout the world.
We believe these analytical tools allow us to quickly identify new market growth
and cost-saving opportunities, as well as to manage our business effectively.
HIGH-QUALITY CUSTOMER CARE
We have developed an advanced customer care platform that enables us to
communicate with our customers over a variety of media, including the Internet.
We have engineered and designed call centers that incorporate access to our
customer information with real-time information dissemination and
trouble-shooting. The proprietary billing system that we use in our foreign
markets provides significant competitive advantages, such as integration with
our switching systems to provide instant account set-up and other benefits,
adaptability for pre-paid and post-paid calling card services, compatibility
with every currency, and flexibility to implement appropriate rate and discount
plans as competitive conditions warrant.
OUR STRATEGY
Our objective is to position ourselves as a leading total solution provider
of high-quality, low-cost communications services, including voice, data and
Internet protocol services. Our strategy for achieving this objective consists
of the following key elements:
EXPAND OUR NETWORK AND ENTER KEY NEW MARKETS
Within the next 15 months, we intend to initiate operations in five
additional countries. We recently began developing our European network
consisting of fiber optic lines to be constructed by us in selected cities,
long-term IRUs in dark fiber and in operational capacity owned by other
carriers, and leased capacity. We expect to decrease our transmission costs by
increasing the use of our network. It costs us less to carry calls over our
network than to do so over other carriers' networks, since our
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owned transmission capacity entails fixed costs regardless of the volume of
traffic carried. In contrast, we pay per-minute charges to transmit calls over
other carriers' networks.
INTEGRATE BROADBAND CAPABILITIES INTO OUR NETWORK
We intend to expand the technological capability of our network. We plan to
incorporate into our network high-speed DSL multiplexing equipment for the
end-user as well as our central switching offices, which will enable us to
provide high-speed, local data network services. We also intend to install ATM
switches in key switching locations within our network, which will enable us to
provide integrated voice, data and video communications services.
EMPHASIZE OUR HIGHER MARGIN RETAIL BUSINESS
We intend to concentrate our future growth in the retail market segment
while continuing to sell excess network capacity to other carriers and wholesale
customers. We believe that the retail segment offers several advantages,
including:
- higher margins;
- higher barriers to entry because of the significant investments required
to develop sales, marketing and customer support;
- greater opportunities to bundle local, data and other value-added
services, such as DSL Internet access and e-commerce services;
- greater opportunities to increase name recognition and build brand
loyalty; and
- reduced concentration on large wholesale customers who have higher credit
and cancellation risks.
EXPAND OUR MARKETING PROGRAMS IN EXISTING AND NEW MARKETS
We believe that we have developed a cost-effective and successful marketing
platform. We believe that we can increase our retail sales by expanding our
marketing programs in existing markets and aggressively implementing them in new
foreign markets. We intend to emphasize our Internet, e-commerce and multi-level
marketing activities. For example, we intend to expand our recently introduced
"xPectations ML" multi-level marketing program both in the United States and
overseas.
EXPAND OUR INTERNET AND E-COMMERCE SERVICE OFFERINGS
We recently began offering Internet access services in several of the
countries in which we operate and intend to offer these services in other
markets in the near future. Our planned installation of DSL equipment on our
network will enable us to provide customers with continuously connected,
high-speed Internet access. We provide an Internet-based billing and customer
care platform that allows our customers to sign up for our services and make
changes to the services they select, view their call data, generate customized
billing reports, and make billing and service inquiries. We also recently
introduced our e-commerce program in the United States by developing a
user-friendly Web site for the sale and recharge of prepaid calling cards. We
intend to offer this program in other markets, as well as to expand the range of
products and services offered through the Internet.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES
To date we have achieved all of our growth internally. Although we intend to
continue to emphasize internal growth, we also plan to pursue strategic
acquisitions and alliances. We will seek to acquire or partner with
complementary companies that:
- will provide us with access to attractive new geographic markets;
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- have an established customer base or marketing channels;
- have a complementary network; or
- have innovative telecommunications services or technologies.
SERVICES
We provide a variety of retail telecommunication and information services,
including international and domestic long distance telephone service, post-paid
and pre-paid calling card services, operator services, Internet access and
e-commerce services, to our residential and commercial customers. We also
provide wholesale and resale services to our carrier customers. Our services are
discussed below.
RETAIL SERVICES
We offer international and domestic long distance telephone service,
post-paid and pre-paid calling card services, and Internet access services in
all of our primary geographic markets, including the United States, Australia,
Belgium, Canada, France, Germany, The Netherlands, New Zealand and the United
Kingdom. We also offer e-commerce services in the United States, Australia and
Canada. Each of these services is described in more detail below.
INTERNATIONAL AND DOMESTIC LONG DISTANCE TELEPHONE SERVICE. International
and domestic long distance telephone service is accessed from a customer's
billing location, such as the home or office. In North America, Germany and New
Zealand, customers who have pre-subscribed our service may access the
WORLDxCHANGE network by dialing "1+". U.S. customers who have not pre-subscribed
our service may access our network by dialing a seven-digit code. Most of our
U.S. residential customers use the dial around method. In other countries, our
customers generally must dial a three- to seven-digit access code. We expect to
add a pre-subscription option for these customers as that service becomes
available to us. Our international and domestic long distance telephone service
generally enables customers to call to any destination.
CALLING CARD SERVICES. We sell post-paid and pre-paid calling card services
in most of the countries in which we operate. In these countries, customers
access our calling card service by dialing a national toll free number or a
local access number. Our services can be accessed from outside a customer's home
country through an international or national toll free number or a local access
number.
INTERNET ACCESS SERVICES. We introduced our Internet access service, known
as "wxc.net", in June 1999. We plan to increase the number of markets in which
we offer our Internet access services. Our customers access our Internet service
by dialing a local or toll-free number. We offer this service to retail
customers for a fixed monthly price, which we believe is discounted from the
prices charged by the major Internet access providers. We believe offering
Internet access will increase usage of our services, generate additional revenue
and help us attract and retain customers.
e-COMMERCE SERVICES. We believe it will be important for us to capitalize
on the growing popularity of the Internet. We have implemented several
e-commerce services and expect to introduce additional Internet services in the
near future. For example, in July 1999, we introduced "Virtual PIN," a program
under which our customers are able to purchase and recharge prepaid calling
cards exclusively through our Web site, which may be accessed at
www.worldxchange.com. We also offer our North American customers the "iPlan"
billing option, under which they can receive a discount by having their bills
rendered over the Internet instead of by paper invoice. Other features allow our
customers, via the Internet, to sign up for our services and make changes to the
services they select, view their call data, generate customized billing reports,
and make billing and service inquiries. We intend to offer Internet-accessed
pre-paid calling cards and paperless "iPlan" billing in additional markets in
the near future.
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Our e-commerce strategy also includes our "xPectations ML" multi-level
marketing program. Under this program, independent representatives can obtain
their own Web site, which we host. This allows the representatives to use a
professionally-designed Web site to market our services to potential customers
and the xPectations ML program to prospective new representatives while allowing
us to retain control over the advertising content on the site.
We believe that e-commerce represents a significant growth opportunity for
us. We believe that these services will appeal to a desirable segment of the
population that is:
- technologically proficient;
- makes a significant number of long distance calls; and
- represents a broad geographic base.
E-commerce services also generally have lower associated sales and marketing,
billing and customer service costs.
OTHER RETAIL SERVICES. We also provide the other retail services described
below. These services currently account for a relatively small portion of our
revenues. We currently intend to continue providing these services as ancillary
offerings.
- TOLL-FREE SERVICE. We provide domestic toll-free service to customers in
most of the countries where we operate. Our toll-free customers also may
obtain an enhanced feature known as "follow me" service, under which
toll-free calls are automatically forwarded to alternate numbers until
answered.
- DIRECTORY ASSISTANCE. We provide our U.S. and Canadian long distance
customers with nationwide directory assistance service 24 hours a day.
- DEDICATED ACCESS SERVICE. This service provides customers with a
dedicated, leased transmission line that connects the customer's business
directly to our network. This service is marketed to high-volume customers
in the United States and can be used for voice, data, video and Internet
access.
- OPERATOR SERVICES. In the United States, we offer 24-hour operator service
to customers that have pre-selected our service. We also offer alternative
operator services predominately for U.S. bound calls originating from
hospitality locations in Latin American countries. We process collect,
third-party, person-to-person and calling card calls and generally share a
percentage of call revenues with the location owner and/or the agent or
agents procuring such locations.
WHOLESALE SERVICES
CARRIER SERVICES. We sell long distance transmission capacity to carriers
through our direct sales force in the United States, Australia, Belgium, Canada,
The Netherlands, New Zealand and the United Kingdom. These customers, which
include some of the largest carriers in the world, may purchase capacity from us
to carry traffic where they do not have their own routes of if they require
additional or reserve capacity. These carrier customers use our transmission
capacity to provide service to their customers.
By selling transmission capacity to carrier customers where all or a portion
of the traffic is transmitted over a route or routes on which we have unused
capacity, we can generate additional revenues without incurring significant
marginal costs. In addition, by selling carriers capacity purchased from
third-party vendors, we increase the amount of transmission capacity that we
purchase overall, which may allow us to obtain volume discounts on our purchases
of transmission capacity from these third-party vendors. This in turn may allow
us to generate higher margins and/or offer better pricing on our retail
services. See "Risk Factors--We Face Risks Relating to Carrier and Other
Wholesale Customers."
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OTHER WHOLESALE SERVICES. We sell transmission capacity to customers that
offer their own branded products and services such as private label calling
cards. In addition, we also sell transmission capacity to resellers for
subsequent sale of long distance services to their customers. We intend to
increase the amount of capacity that we sell to resale customers in overseas
markets, since this channel typically generates higher margins than wholesale
carrier sales. See "Risk Factors--We Face Risks Relating to Carrier and Other
Wholesale Customers."
THE WORLDxCHANGE NETWORK
As of June 30, 1999, our network consisted of:
- 40 switches in 12 countries;
- IRUs in more than 25 million DS-0 miles of on-land fiber optic cable
capacity in the United States;
- seven satellite earth stations at locations in the United States and
abroad; and
- an international transmission network consisting of direct ownership
interests and IRUs, comprising over 340 E-1 circuits, including rights on
the following undersea cables:
<TABLE>
<CAPTION>
SERVICE STATUS OR
PLANNED CALENDAR
QUARTER SERVICE MIU/ TOTAL E1
UNDERSEA CABLE DATE IRU CAPACITY
- ------------------------------------------------------ ------------------- --------- -----------
<S> <C> <C> <C>
Americas-I............................................ In Service MIU 1
APCN.................................................. In Service IRU 2
Atlantic Crossing..................................... In Service IRU 126
Cantat 3.............................................. In Service MIU 2
Canus 1............................................... In Service IRU 2
Columbus II........................................... In Service MIU 1
F.L.A.G............................................... In Service IRU 7
Guam-Philippines...................................... In Service MIU 3
HAW-5................................................. In Service IRU 1
Jasuraus.............................................. In Service IRU 2
PacRim East........................................... In Service MIU 9
Pan American.......................................... In Service MIU 10
PTAT.................................................. In Service IRU 1
Taino-Caribe.......................................... In Service IRU 1
Tasman 2.............................................. In Service IRU 3
TAT-12/TAT-13......................................... In Service MIU 5
TPC-5................................................. In Service MIU 4
UK-Belgium 6.......................................... In Service IRU 3
UK-Germany 6.......................................... In Service MIU 42
UK-Japan.............................................. In Service MIU 3
UK-Netherlands 12..................................... In Service IRU 1
China-US.............................................. Q1 2000 MIU 2
Columbus-III.......................................... Q4 1999 MIU 11
Maya 1................................................ Q2 2000 MIU 9
Southern Cross........................................ Q1 2000 MIU 89
</TABLE>
In addition, we have interconnection arrangements in Australia, Belgium,
Canada, Chile, France, Germany, Guatemala, The Netherlands, New Zealand and the
United Kingdom. On the inside cover of this prospectus there is a graphic
illustration of our network. We intend to continue to make substantial
investments in network infrastructure, particularly investments in ATM and DSL
equipment and in a
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fiber optic cable network in Europe. See "--Development of Broadband Network
Capabilities" and "--European Network--Network Expansion."
COSTS OF CALL ORIGINATION, TRANSMISSION AND TERMINATION
The major components of our costs include the cost of origination,
transmission and termination. We believe that our ability to control these costs
will be an important factor in our overall financial performance.
ORIGINATION AND TERMINATION. In general, we pay a per-minute fee to
originate and terminate calls. We can reduce the costs of our U.S. calls by
having direct interconnection with the applicable local telephone companies,
which allows us to carry a larger portion of each call on our network. We can
reduce these costs outside North America by interconnecting with the dominant
local carriers. In addition, these interconnections allow us to provide network
access through abbreviated dialing and to transport calls on our network
originating in a greater number of cities. We can also achieve higher
transmission quality and improved reliability through direct interconnection.
TRANSMISSION. In Europe we have begun developing a network consisting of
fiber optic lines to be constructed by us in selected cities, long-term IRUs in
dark fiber and in operational capacity owned by other carriers, and leased
capacity. We currently use a combination of direct ownership interests in
undersea cables, IRUs in on-land and undersea cables, leased lines and
arrangements with other carriers to manage our transmission costs. We usually
try to acquire ownership interests in undersea cables and/or IRUs that connect
network cities with substantial calling traffic between them. However, we have
used leased lines in regions where IRUs are either too expensive or if we
believe IRU prices will decline, or where IRUs are not available. For example,
in continental Europe, we have used leased lines and intend to construct our
network and obtain IRUs. See "--Our Strategy--Expand Our Network and Enter Key
New Markets" and "--European Network--Network Expansion." We are able to reduce
our incremental transmission costs by transmitting a greater percentage of calls
over these owned facilities, IRUs and leased lines because they involve only an
initial capital outlay or a fixed monthly payment. Once we have generated enough
traffic to cover the costs of IRUs and leased lines, there is no significant
marginal cost to us for carrying additional calls over these IRUs and leased
lines. In some cases, we use compression or multiplexing equipment to further
increase the capacity of our IRUs.
OTHER. In addition to the cost of origination, transmission and
termination, the other costs of our network relate primarily to switching
equipment, compression equipment, our Internet protocol overlay and
facility/network management and related software.
NETWORK OPERATIONS
NORTH AMERICA. We monitor and maintain the North American portion of our
network from a centralized network operations center in San Diego, which
operates 24 hours a day. By centralizing the North American network monitoring
function, we are able to monitor the network more effectively and on a more
cost-efficient basis.
OVERSEAS OPERATIONS. Currently, each of our foreign operating subsidiaries
monitors their own domestic switching and network infrastructure. In our San
Diego network operation center we monitor the intercontinental and intercountry
portion of our network. Our proprietary switch, which we refer to as the TCIB
2000, has sophisticated alarm capabilities that facilitate the monitoring
process. We are in the process of centralizing the management of our overseas
network on a company-wide basis through our network operation center in San
Diego. As part of the centralization process, we are modifying our existing TCIB
2000 software to allow it to be integrated with the other network alarm and
monitoring software that we use. Each of our foreign operating subsidiaries will
continue to monitor their domestic portion of our overseas network as we
gradually centralize the monitoring function to our network operation center.
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INFORMATION SYSTEMS. Our information systems are one of our key assets. The
systems we have developed provide us with vital "real time" operating
information and statistics. Specifically, these systems provide the following
information:
- customer usage, broken down by country and by time period within country,
in order to track sales and enable management to respond to any loss of
traffic from particular customers;
- country usage, detailed by vendor or customer, which assists management
with route and network planning;
- vendor rates, through an audit report that allows management to determine
which vendors have the lowest rates for a particular market for a given
time period;
- vendor usage by minute, enabling management to confirm and audit vendor
invoices and calculate the value of minutes purchased from our vendors and
to determine operating margins;
- reports that are used to identify routes that are generating negative
variable margins as well as to highlight routes experiencing substantial
surplus usage;
- regional reporting, broken down by originating and terminating areas,
which facilitates RBOC access charge audits; and
- daily variable network cost information on a route-by-route basis, which
enables us to monitor our gross margins by product line on a daily basis
throughout the world.
We use our information systems to monitor carrier traffic volumes and
patterns and price schedules. These systems allow us to respond in real time to
changes in these traffic volumes, patterns and prices and assist us in effecting
least-cost routing. We have installed a wide area network linking all of our
switch sites in North America, which coordinates the use of our systems. In
addition, we operate and maintain a sophisticated intranet in the United States,
which has automated most of our operations reporting functions. These systems
allow us to assess and resolve quickly many customer billing and collection
problems; monitor and determine production by and compensation or commissions
owed to agents, sales representatives and distributors; and determine proper
pricing for our services.
TCIB 2000 FEATURE PLATFORM. The TCIB 2000 feature platform is an integrated
suite of services that includes switching, billing and customer care. These
services can be and are integrated with other platforms like the Siemens EWSD
switch. The TCIB 2000 system has been designed to be integrated into the
operations of each of our current and planned international operating
subsidiaries. Due to its relatively low cost and ease of installation, the TCIB
2000 system enables us to initiate service in new locations quickly and
efficiently. We expect that the TCIB 2000 system will facilitate integration and
central oversight of our foreign operating subsidiaries. See "Risk Factors--If
Our Information Systems Were to Fail, Our Ability to Bill Customers and Manage
Our Operations Could Be Harmed."
DEVELOPMENT OF BROADBAND NETWORK CAPABILITIES
We intend to expand the technological capability of our network to enable us
to provide our customers with a fully integrated, total solution communications
package. These efforts will focus principally on two technologies: digital
subscriber line (DSL) technology and Asynchronous Transfer Mode (ATM)
technology. These technologies, and our plans to acquire and integrate them into
our network, are discussed below.
DSL TECHNOLOGY. DSL technology enables data transport over telephone lines
at speeds many times faster than common dial-up modems. This technology works by
encoding information in a digital format, which allows for dramatically faster
and more efficient transmission of data over telephone lines. DSL technology
facilitates a number of applications, including Internet access, intranets,
extranets, telecommuting, e-commerce, e-mail, video conferencing and multimedia.
Collectively, these applications represent the fastest-growing segment of the
telecommunications industry.
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DSL technology requires equipment that is installed at the end-user's
location and at our central switching offices. At the end-user's location, DSL
modems are connected with the end-user's computer, local area network or
enterprise router. These connections will also require on-site wiring into the
telephone lines leading into the end-user's location. We expect to use outside
contractors to install end-user DSL modems. In our central switching offices, we
plan to install DSL multiplexing equipment, which compresses data received via
the end-user's DSL modem for transmission over our network. Over approximately
the next 12 months, we plan to spend approximately $5 million to acquire central
office multiplexing equipment, which will be installed in our largest
metropolitan market areas. We will acquire DSL modems, which currently range in
price from approximately $300 to $2,000 per unit, as end-user demand warrants. A
significant portion of the build-out of our DSL network will be directly related
to the demand of paying subscribers, which will result in a success-based
deployment of capital.
ATM TECHNOLOGY. ATM technology enables the integrated and simultaneous
transport of voice, data and video over the same transmission lines. This
technology works by bundling the otherwise disparate signals of voice, data and
video transmissions into packets, which are then sent simultaneously through
communications circuits in an efficient manner. The result to our customers will
be seamless transmission of their diverse communications using a single point of
connection. During the next 12 months, we plan to spend approximately $5 million
to acquire approximately 40 ATM switches, which we plan to install in various
locations across our global network.
NORTH AMERICAN NETWORK
We have switches in each of the 12 cities listed below that are connected
with a fiber optic backbone.
<TABLE>
<S> <C> <C>
Chicago Miami Seattle
Dallas Montreal Toronto
Honolulu New York Vancouver
Los Angeles Ottawa Washington D.C.
</TABLE>
Through our interconnection with the local telephone companies, we are able
to connect with approximately 85% of the U.S. market.
We connect or are in the process of connecting the North American portion of
our network with other regions of the world through our direct ownership
interests or IRUs on the Americas-I, Atlantic Crossing, Canus 1, China-US,
Columbus II, HAW-5, Southern Cross, Taino-Caribe and TPC-5 undersea cables.
U.S. NETWORK. Prior to March 1999, we leased approximately 17.5 million
route miles of fiber optic transmission capacity, representing most of our U.S.
transmission capacity, from MCI WorldCom. As those leases expired, we converted
them to long-term IRU arrangements covering the same capacity. The new IRU
arrangements significantly reduced our monthly cost associated with this
capacity. The IRU arrangements also allow us to add additional capacity in the
future.
In February 1999, we entered into a five-year lease with Level 3
Communications covering approximately 19.4 million route miles of fiber optic
transmission capacity. This lease is convertible into a 15-year IRU on the same
capacity at the end of the lease. We are obligated under this lease-IRU
arrangement to order all of the capacity by November 11, 1999.
We also currently have leased transmission capacity in the United States
from other carriers. We intend to replace most of this leased capacity with
capacity obtained under the IRU arrangements described above. This will further
reduce our domestic transmission costs.
EUROPEAN NETWORK
We have six TCIB 2000 switches in continental Europe and the United Kingdom.
We intend to install 23 additional TCIB 2000 switches in those European
countries where we presently operate, as
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well as in new European markets within the next 12 months. In addition, as our
call traffic increases, we may replace the TCIB 2000 switches with the higher
capacity Siemens EWSD switches in certain major cities, such as London and
Frankfurt. The table below lists the location of each of our existing switches
in Europe, the locations and the calendar quarter in which we expect to commence
operation of switches that we plan to install over the next 18 months, whether
we are interconnected in at least one location in the specified country, and, if
we are not currently so interconnected, the calendar quarter in which we expect
to obtain interconnection to the dominant local carrier in at least one location
in that country. There can be no assurance that we will achieve interconnection
or become operational in any location by the indicated date or at all.
<TABLE>
<CAPTION>
EXPECTED DATE OF EXPECTED DATE OF
LOCATION OPERATION INTERCONNECTION
- ------------------------------------------------------- ------------------------- ------------------------------
<S> <C> <C>
BELGIUM................................................ Interconnected
Brussels............................................. Operational
Antwerp.............................................. Q1 2000
FRANCE................................................. Interconnected
Paris................................................ Operational
Bordeaux............................................. Q2 2000
Lille................................................ Q2 2000
Lyons................................................ Q2 2000
Marseilles........................................... Q3 2000
Toulouse............................................. Q3 2000
GERMANY................................................ Interconnected
Frankfurt............................................ Operational
Berlin............................................... Q1 2000
Bonn................................................. Q2 2000
Cologne.............................................. Q1 2000
Dusseldorf........................................... Q1 2000
Hamburg.............................................. Q2 2000
Mannheim............................................. Q2 2000
Munich............................................... Q1 2000
Stuttgart............................................ Q3 2000
ITALY.................................................. Q4 2000
Milan................................................ Q4 2000
Rome................................................. Q4 2000
THE NETHERLANDS........................................ Interconnected
Amsterdam............................................ Operational
Zoetermeer........................................... Q1 2000
SPAIN Q4 2000
Barcelona............................................ Q4 2000
Madrid............................................... Q4 2000
SWEDEN................................................. Q3 2000
Stockholm............................................ Operational
SWITZERLAND............................................ Q2 2000
Geneva............................................... Q2 2000
Zurich............................................... Q2 2000
UNITED KINGDOM......................................... Interconnected
London............................................... Operational
Glasgow.............................................. Q3 2000
Manchester........................................... Q1 2000
</TABLE>
We connect the European portion of our network with other regions of the
world through direct ownership interests or IRUs on the Atlantic Crossing,
Cantat 3, Columbus-II, F.L.A.G., PTAT,
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TAT-12/TAT-13, UK-Belgium 6, UK-Germany 6 and UK-Netherlands 12 undersea cables.
As part of our expansion strategy, we intend to acquire additional IRUs,
including in continental Europe. See "--The WORLDxCHANGE Network--European
Network--Network Expansion."
By having interconnection, we are able to offer domestic long distance
service, provide network access through abbreviated dialing and reduce our costs
for the origination and termination of calls. As we enter additional countries
in continental Europe, we will aggressively seek to enter and implement direct
interconnection agreements with the dominant local carriers.
NETWORK EXPANSION. We have begun developing a network consisting of fiber
optic lines to be constructed by us in selected cities, long-term IRUs in dark
fiber and in operational capacity owned by other carriers, and leased capacity.
We currently plan to develop an 1,800 route mile fiber optic cable network
within approximately the next two years. We intend to obtain IRUs or enter into
other long term capacity agreements for dark fiber where existing capacity of
other carriers is available at attractive prices. Where existing capacity of
other carriers is not available or too expensive, we intend to construct our own
fiber optic cable systems. We expect to construct fiber optic lines that will
account for approximately 20% of the capacity to be provided by our planned
European network expansion.
The process of constructing fiber optic cable systems includes purchasing
the raw fiber optic cable and hiring an engineering firm to design and a
construction firm to dig the necessary trenches and lay and connect the fiber
optic cable. We have budgeted approximately $160,000 per mile of construction.
We intend to complete our European network expansion in two primary phases.
In the first phase, we intend to build or acquire capacity in Amsterdam,
Antwerp, Brussels, Dusseldorf, Frankfurt, London, Paris and Strasbourg. Once we
have completed this portion of our expansion, we intend to branch out from each
of these major cities to four or five other significant cities in the same
country by building or acquiring capacity. Once we complete our planned network
expansion, we expect to be able to reduce our overall transmission costs in our
European markets. Currently, we anticipate the total cost of developing this
network will be approximately $150 million.
PACIFIC RIM NETWORK
We have a total of nine TCIB 2000 switches in Australia. We recently
installed a Siemens EWSD switch in Sydney, Australia. Within the next 12 months,
we plan to replace four TCIB 2000 switches in Australia with higher capacity
Siemens EWSD switches. See "--Network Hardware and Software-- Overseas
Operations." These planned switch upgrades will coincide with the upgrade of our
interconnection with the Australian carrier, Telstra. We are currently
interconnected with Telstra through their National Connect program, and we
intend to migrate to Telstra's National Access interconnection program during
the fourth calendar quarter of 1999. National Access interconnection will reduce
our access costs and allow customers to pre-subscribe to our service. In
addition, in New Zealand, we are planning to install a calling card platform in
Auckland in the near future. The table below lists the location of each of our
existing switches in the Pacific Rim, the locations and the calendar quarter in
which we expect to commence operation of switches that we plan to install over
the next 18 months, whether we are interconnected in at least one location in
the specified country, and, if we are not currently so interconnected, the
calendar quarter in which we expect to obtain interconnection to the dominant
local carrier in at least one location in that country. There can be no
52
<PAGE>
assurance that we will achieve interconnection or become operational in any
location by the indicated date or at all.
<TABLE>
<CAPTION>
EXPECTED DATE OF EXPECTED DATE OF
LOCATION OPERATION INTERCONNECTION
- ------------------------------------------------------- ------------------------- ------------------------------
<S> <C> <C>
AUSTRALIA.............................................. Interconnected
Adelaide............................................. Operational
Brisbane............................................. Operational
Canberra............................................. Operational
Cairns............................................... Operational
Gold Coast........................................... Operational
Melbourne............................................ Operational
Penrith.............................................. Operational
Perth................................................ Operational
Sydney............................................... Operational
GUAM................................................... Interconnected
Agana................................................ Q4 2000
JAPAN.................................................. Q4 2000
Osaka................................................ Q4 2000
Tokyo................................................ Q4 2000
NEW ZEALAND............................................ Interconnected
Auckland............................................. Operational
Christchurch......................................... Q3 2000
Wellington........................................... Q3 2000
</TABLE>
We connect or are in the process of connecting the Asia Pacific portion of
our network with other regions of the world through direct ownership interests
or IRUs on the APCN, Jasuraus, China-U.S., F.L.A.G., Guam-Philippines, PacRim
East, Southern Cross, Tasman 2, TPC-5 and US-Japan undersea cables.
LATIN AMERICA NETWORK
We have a TCIB 2000 switch in Guatemala City, Guatemala and Santiago, Chile.
We intend to install an additional TCIB 2000 switch in El Salvador within the
next 12 months. The table below lists the location of each of our existing
switches or points of presence in Latin America, the locations and the calendar
quarter in which we expect to commence operation of switches that we plan to
install over the next 18 months, whether we are interconnected in at least one
location in the specified country, and, if we are not so currently
interconnected, the calendar quarter in which we expect to obtain
interconnection to the dominant local carrier in at least one location in that
country. There can be no assurance that we will achieve interconnection or
become operational in any location by the indicated date or at all.
<TABLE>
<CAPTION>
EXPECTED DATE OF EXPECTED DATE OF
LOCATION OPERATION INTERCONNECTION
- ------------------------------------------------------- ------------------------- ------------------------------
<S> <C> <C>
CHILE.................................................. Interconnected
Santiago............................................. Operational
EL SALVADOR............................................ Q3 2000
San Salvador......................................... Q3 2000
GUATEMALA.............................................. Interconnected
Guatemala City....................................... Operational
PUERTO RICO............................................ Interconnected
San Juan............................................. Operational
</TABLE>
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<PAGE>
We connect the Latin American portion of our network through a direct
ownership interest in the Maya-1 and the Pan American undersea cables.
NETWORK ACCESS AND CALL ROUTING
NETWORK ACCESS. Our network can be accessed through a variety of methods,
depending upon the service and the location from which the customer is calling.
These methods are as follows:
- EQUAL ACCESS. Equal access, also known as pre-selection or non-code
access, enables a long distance customer to access our network from the
customer's premises by dialing typically a single or double digit number
and then the number that the customer is calling. Using the equal access
method, a customer can avoid dialing a specific prefix access code by
pre-selecting our company as its long distance carrier, since the dominant
local carrier's switching system already is programmed to direct long
distance calls from the customer's telephone to our nearest switch.
Currently, most of our customers in the U.S., Canada, Germany, Guatemala
and New Zealand can pre-select us as their long distance carriers. Our
customers in Australia will be able to pre-select us as their long
distance carrier when we interconnect through Telstra's National Access
program.
- CODE DIALING. In our European and Pacific Rim markets, as well as in the
United States, long distance customers can use code dialing, which is also
referred to as dial-around calling, to access our network. To use code
dialing, customers dial a carrier access code of typically three to seven
digits, and then the number the customer is calling.
- LOCAL DIAL-UP ACCESS. In certain continental European cities where we
have a switch, customers can access our international and domestic long
distance service and, in some cases, prepaid card service, by dialing a
local telephone number. Local dial-up access reduces our transmission
costs for these calls because it shifts the cost of accessing our switch
to the customer, which enables us to increase our margins and/or reduce
our retail prices on these calls. We also offer local dial-up access for
our prepaid calling card customers in certain U.S. cities.
- INTERNATIONAL TOLL-FREE ACCESS. This access method allows customers to
access our operator or card-based services from over 80 countries by
dialing an international toll-free number. This access method is
predominantly used by customers who are traveling outside of their home
country.
- NATIONAL TOLL-FREE ACCESS. This access method allows customers to access
our network by dialing a national toll-free number. This access method is
available to our customers in most of the countries in which we operate.
- DEDICATED ACCESS. Carrier customers and high volume end-users can be
connected to our switch by a dedicated leased line. Dedicated access lines
offer several advantages, including simplified dialing, faster call setup
times and lower access costs if a sufficient volume of calls is
transmitted over the leased line. This service can be used for voice,
data, video and the Internet over a single leased line.
CALL ROUTING. We route calls to their destination through one or more of
our switches. If a call originates in a network city with a switch, the caller
generally will dial into the network over local lines. These calls will then be
routed to our switch by the local service provider, which is generally a local
exchange carrier in the U.S. and a dominant local carrier in Europe. If a call
originates in a city where we only have a point of presence, which acts solely
as a collection point for calls, it will be originated using one of the access
methods described above and sent to the point of presence. The call is then
transmitted from the point of presence to one of our switches on an owned or
leased line on our network. Callers originating calls in cities where we do not
have a switch or point of presence generally
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<PAGE>
will dial into our network using national or international toll-free access,
which costs us more than code dialing, equal access or local dial-up access. We
use "least cost" routing techniques to determine whether the call should be
transferred directly to the public switched telephone network or routed to
another one of our switches over an owned or leased line and then transferred to
the public switched telephone network for termination. See "--Network Hardware
and Software--Least Cost Routing."
NETWORK HARDWARE AND SOFTWARE
NORTH AMERICA. We use Siemens DC0-CS and EWSD switches throughout our North
American network. These switches give us the ability to handle large,
simultaneous call volumes, provide high quality service to customers and
seamlessly interconnect with local operators.
We have installed the Siemens EWSD switch at our Dallas, Los Angeles and New
York switch sites. Our Siemens EWSD switches have 21,000 ports and are
expandable to up to 60,000 ports, while the Siemens DC0-CS switch has 5,000
ports. A Siemens EWSD switch with 21,000 ports can simultaneously handle 21,000
calls. We may replace DC0-CS switches as we approach our capacity limits on
those switches.
During the fourth quarter of 1998, we experienced technical problems with
the new Siemens EWSD switch that we installed in New York. The problems included
the failure of the switch to record billing information for certain calls. We
worked with Siemens to fix the problems and have implemented new procedures to
detect any similar problems that may arise with our Siemens EWSD switches in the
future. Siemens has agreed to provide us with additional future lease financing
for third-party equipment, free software and deferred lease payments on most of
our EWSD and DC0-CS switches in the United States. While we believe that the
EWSD switch is now functioning reliably, there can be no assurance that we will
not experience additional problems with the EWSD or other switching equipment in
the future. See "Risk Factors--If Our Information Systems Were to Fail, Our
Ability to Bill Our Customers and Manage Our Operations Could Be Harmed."
OVERSEAS OPERATIONS. We use our proprietary TCIB 2000 switching equipment
in our markets outside of North America. The TCIB 2000 is a personal
computer-based, integrated telephony hardware and software platform designed by
us that combines standard switching functions with customer care and billing
functions. Because the TCIB 2000 is less expensive than other commercially
available switches, we install this switch in new markets to minimize our
initial network investment. Our strategy is to replace the TCIB 2000 switches
with greater-capacity switches as our customer base grows in major metropolitan
markets. For example, we are in the process of replacing our TCIB 2000 switch in
Sydney with a Siemens EWSD switch.
Unlike the TCIB 2000 switches that perform billing functions on the same
platform, the Siemens EWSD switches rely on separate billing software.
Therefore, when we replace the TCIB 2000 switches, we will have to make changes
to our billing software to accommodate the new switches. We are currently
working on changes to our TCIB 2000 billing software to support the Siemens EWSD
switches. However, these changes present risks to us, and there can be no
assurance that we will be able to integrate new switches into our billing
systems cost-effectively or at all.
LEAST COST ROUTING. We use a combination of network hardware and software
to route a call over the most cost-efficient route available at the time the
call is placed. Prices for various destinations fluctuate daily. Our least cost
routing software enables us to continually revise our routing tables, including
accounting for fluctuations in currency exchange rates, as the cost of certain
routes change. We have a dedicated group of employees based in San Diego that
are largely responsible for monitoring the routing of calls and seeking to
minimize our transmission costs. In addition to the monitoring performed by our
San Diego-based team, some of the monitoring is performed in each of the
countries in which we operate.
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<PAGE>
INTERNET NETWORK
We provide Internet access from our network. Internet customers dial an
access number, which connects the customer over our network to our Ascend
Communications MAX/TNT random access server in Los Angeles. The random access
server interfaces with our IBM authentication server in our San Diego office.
The authentication server uses IBM Sentinel software to verify the customer's
account number and password. Once the authentication server verifies the
customer's account information, the random access server sends the call to our
Cisco Series 7206 router for connection to the Internet backbone. We use Navais
software to monitor the integrity of our Internet network from our San Diego
network operations center.
We are in the process of expanding our Internet network to add back-up
random access servers, additional data lines to the network's backbone nodes and
high-speed DSL equipment. Additionally, we plan to add additional routers and
servers into our network as necessitated by demand for our Internet access
service.
TERMINATION ARRANGEMENTS
We attempt to maximize our alternatives for terminating our calling traffic
by utilizing a number of routing alternatives. These alternatives include resale
arrangements, operating agreements and other attractive termination
arrangements. By diversifying our termination alternatives, we believe that we
are able to take advantage of attractive arrangements as they may become
available, which helps us to control our termination costs.
Resale arrangements provide us with multiple options to route traffic
through our switches in various destination countries. These arrangements
generally involve terminating traffic through a third party's correspondent
relationships or through the third party itself. Resale arrangements allow us to
leverage another carrier's network to terminate our customers' calls. For
example, we currently do not have operations in Afghanistan. If one of our
customers wishes to place a call to Afghanistan, we can pass the call on to a
third party carrier by purchasing some of the excess capacity of that carrier's
network. The carrier would then terminate the call in Afghanistan either through
a correspondent relationship that it has with a carrier with facilities in
Afghanistan or directly through its own local facilities.
During a typical month, we may purchase capacity from approximately 80
vendors. We pay per-minute charges to use much of this capacity, which subjects
us to potential price increases. In addition, since we generally obtain this
capacity on a short-term basis, we may experience service cancellations. Our
vendor contracts provide that rates are subject to change after notice periods
varying from one to 30 days. The pricing of termination services depends on such
factors as the volume of call traffic and the time of day. Our sophisticated
information systems and reports allow us to track price changes on a real-time
basis, which helps us to achieve least-cost routing and greater overall
efficiency. See "--The WORLDxCHANGE Network--Network Operations--Information
Systems" and "Risk Factors--If Our Information Systems Were to Fail, Our Ability
to Bill Our Customers and Manage Our Operations Could Be Harmed." In addition,
in each of the countries in which we operate, we have or intend to have within
the next 18 months, interconnection agreements with the dominant local carrier
or carriers for termination of our traffic within that country.
The FCC or foreign regulatory agencies may assert that certain of our call
termination practices do not comply with current international settlement rules
and policies, such as current international simple resale rules. We could face
sanctions, including forfeitures, if the Federal Communications Commission were
to find that certain of our termination arrangements violate FCC rules. See
"--Regulation-- United States--FCC International Regulation."
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SALES AND MARKETING
We use a variety of marketing channels to reach a wide range of customers.
These channels include direct mail, independent sales agents, multilevel
marketing, a direct sales force, affinity groups, the Internet and media
advertising. This multi-faceted approach allows us to customize our marketing
for specific geographic markets and services. We believe that our multichannel
marketing approach will help accelerate our growth.
UNITED STATES
We use several channels to market our services to U.S. customers, including
direct mail, our recently introduced "xPectations ML" multi-level marketing
program, direct sales and other channels such as affinity programs, the Internet
and media advertising. These channels are described below.
DIRECT MAIL. Our direct mail marketing programs have proved to be an
effective marketing channel. We have developed a number of different direct mail
programs, each tailored to appeal to a particular market segment. We use direct
mail principally to market our dial-around services to residential and
commercial customers. We completed mailings of approximately 75.6 million pieces
in fiscal 1997 and 59.8 million pieces in fiscal 1998. We intend to expand our
use of this marketing channel in the United States.
MULTILEVEL MARKETING. In October 1998, we introduced our xPectations ML
multi-level marketing program in the United States. This program involves the
marketing by our independent representatives of our pre-selected and dial-around
long distance service, as well as our Internet access and prepaid calling card
services, to potential customers. These representatives also seek to recruit
additional xPectations ML representatives who will in turn market our services
to their contacts. Program representatives earn commissions based on revenues we
collect from new customers that they sign up, as well as based on revenues we
collect from customers signed up by other representatives that they recruit to
the program. To recruit xPectations ML representatives ourselves, we conduct
seminars and use media advertising. We have recruited more than 7,000
representatives into the xPectations ML program since its introduction.
We have also harnessed the power of the Internet to enhance the xPectations
ML program. xPectations ML representatives can obtain their own Web site, which
we host. This allows them to use a professionally-designed Web site to market
the xPectations ML program to their contacts while allowing us to retain control
over the advertising content on the site. We are also considering expanding the
range of products and services to be offered over the xPectations ML Web sites
to include non-telecommunications-related items such as personal computers.
DIRECT SALES. We employ an internal sales force in the United States that
consisted of approximately 38 people as of June 30, 1999. This direct sales
force primarily markets our prepaid calling cards to residential and commercial
customers. They also sell our excess transmission capacity to carrier and other
wholesale customers. We use the direct sales approach for these services because
they are more complex and usually have a longer sales cycle.
OTHER CHANNELS. We also use affinity programs, the Internet and media
advertising to market our services in the United States. Under our affinity
programs we partner with other companies and organizations to introduce and sell
our products. Our Internet marketing strategy includes our recent introduction
of several e-commerce services, such as the "Virtual PIN" program under which
our customers are able to purchase and recharge prepaid calling cards
exclusively through our Web site, which may be accessed at www.worldxchange.com.
As part of our growth strategy, we intend to expand our direct mailing,
xPectations ML and Internet marketing programs into additional overseas markets.
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EUROPE
Our marketing activities vary from country to country and are distilled from
our successful marketing programs used throughout the world. For example, we are
beginning the process of implementing our xPectations ML program in Europe, and
we have commenced direct mailing campaigns modeled after our U.S. direct mail
programs.
Our marketing activities vary by the kind of service we are selling and the
kind of customer we are targeting within a particular country. For example, in
the United Kingdom, we market our residential long distance services through
affinity programs and direct mail programs. We use direct sales to generate
commercial long distance, resale and carrier and other wholesale business in the
United Kingdom, and independent agents to market our calling card services
there. We plan to substantially increase our direct mail activities in the
United Kingdom within the next 12 months. In The Netherlands we use direct mail,
affinity programs, direct sales and independent agents to market our residential
and our commercial long distance services. We also use direct sales, independent
agents and limited media advertising to market other services in The
Netherlands, including our resale and carrier services.
In Belgium, we rely on direct mail and independent agents to market our
residential long distance services. We have two employees dedicated to making
direct sales of our long distance service to commercial customers in Belgium, as
well as sales of excess capacity to carrier and other wholesale customers there.
We have three employees who market our calling card services in Belgium. In
addition, our independent agents also market our long distance services to
Belgian commercial customers.
We are in the process of establishing a sales and marketing infrastructure
and customer base in France and Germany as we increase our operating capacity in
those countries. In France, we are promoting our residential long distance
service, which currently requires our customers to dial a seven-digit access
number, through independent agents and, to a lesser extent, the distribution of
flyers to apartment complexes and other residential locations. We use direct
sales to market our calling card services and direct sales and independent
agents to market our commercial long distance services, which require the use of
a four-digit access code, in France. We are marketing our calling card services
in Germany primarily through independent agents and, to a lesser extent, through
affinity programs. We plan to conduct direct mailing campaigns in both France
and Germany in the near future.
THE PACIFIC RIM
Our marketing strategy in Australia and New Zealand uses direct mailing,
independent agents, affinity programs and media advertising to reach potential
residential long distance customers. We rely on direct sales and independent
agents to market our long distance service to commercial customers and direct
sales to reach calling card and carrier and other wholesale customers.
BROADBAND MARKETING STRATEGY
Once we are able to offer DSL services to end-users, we plan to market these
services through many of our marketing channels, with an emphasis on agent
sales.
WORLDWIDE OPERATIONS
U.S. HEADQUARTERS OPERATIONS
Our senior management directs our operations and those of our foreign
operating subsidiaries and develops and oversees the implementation of our
overall business strategy from our San Diego headquarters. These functions
include managing the growth of our operations and assessing potential new
markets and acquisition, joint venture and strategic alliance opportunities. Our
headquarters
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personnel currently perform centralized financial services for all of our
foreign operating subsidiaries, including financial planning and analysis and
cost control. Our San Diego-based senior management also coordinate the
acquisition of additional transmission capacity, either leased or purchased,
based on the growth of traffic volumes in each market and helps arrange
financing and vendor discounts on behalf of our foreign operating subsidiaries.
In addition, our headquarters personnel perform worldwide treasury functions for
our foreign operating subsidiaries, including managing cash flows between our
foreign operating subsidiaries for the transmission of traffic between them as
well as the allocation of working capital. We plan to maintain our decentralized
billing system that allows each foreign operating subsidiary to provide its own
billing using the TCIB 2000 billing system.
Our headquarters personnel manage the expansion of our network, which
includes determining whether to acquire additional capacity for existing
operations and integrating foreign operating subsidiaries into our network.
Headquarters personnel also coordinate least-cost traffic routing over our
network, which involves the programming of our switches to transport
international calls over the route which is most likely to result in the
lowest-cost transmission without sacrificing quality. Headquarters personnel
also provide our foreign operating subsidiaries with consolidated least-cost
routing information to allow them to benefit from each other's low cost
structure.
NON-U.S. OPERATIONS
Each of our foreign operating subsidiaries is a limited liability company.
The table below provides the operational status for each subsidiary, the status
of that subsidiary's operating licenses or other required authorizations, and
our direct or indirect percentage ownership in the operating subsidiary located
in each listed country. Following the table is a more detailed description of
the operations of our operating subsidiaries in certain of the markets outside
of the United States. The percentage ownership listed for the Australian
operating subsidiary gives effect to our planned acquisition of minority
interests in certain subsidiaries. See "Acquisition of Minority Interests in
Subsidiaries." Percentages are rounded to the nearest one percent.
<TABLE>
<CAPTION>
EXPECTED STATUS OF EFFECTIVE
CALENDAR QUARTER LICENSE/ OWNERSHIP
COUNTRY OF OPERATION AUTHORIZATION PERCENTAGE
- -------------------------------------------------------- ---------------- ------------------- -------------
<S> <C> <C> <C> <C>
Australia............................................... Operational 1 98%
Belgium................................................. Operational 1 100
Canada.................................................. Operational 1 100
Chile................................................... Operational 1 100
France.................................................. Operational 1 99
Germany................................................. Operational 1 100
Guam.................................................... Operational 1 100
Guatemala............................................... Operational 1 99
The Netherlands......................................... Operational 1 100
New Zealand............................................. Operational 1 100
Sweden.................................................. Operational 1 100
United Kingdom.......................................... Operational 1 100
El Salvador............................................. Q3 2000 1 100
Italy................................................... Q4 2000 2 99
Japan................................................... Q4 2000 2 100
Spain................................................... Q4 2000 2 99
Switzerland............................................. Q2 2000 2 100
</TABLE>
- ------------------------
KEY FOR LICENSE/AUTHORIZATION STATUS:
1) Existing license or other authorization for provision of switched voice and
data over the public switched telephone network.
2) Application for license to provide switched voice and data over the public
switched telephone network not yet filed.
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AUSTRALIAN OPERATIONS
The Australian market originated 1.5 billion minutes of international
telecommunications traffic in 1997. Our operating subsidiary in Australia
commenced operations in January 1995. As of June 30, 1999, our Australian
operating subsidiary employed 159 people.
Our Australian operating subsidiary provides local service and international
and domestic long distance service to residential and commercial customers and
sells excess transmission capacity to other carrier customers. Calling card
services are also provided. Current commercial customers in Australia include
multinational corporations, large national companies, as well as small and
medium-sized businesses.
Currently, we are interconnected with the Australian carrier, Telstra,
through its National Connect program. Under this program, our customers must
dial a four-digit code to access our network. However, during the first quarter
of fiscal 2000, we expect to migrate to Telstra's National Access
interconnection program, which will allow our customers to pre-select our
service and eliminate the need for our customers to dial access codes.
BELGIAN OPERATIONS
The Belgian market originated 1.3 billion minutes of international
telecommunications traffic in 1997. Our operating subsidiary in Belgium
commenced operations in March 1997. As of June 30, 1999, our Belgian operating
subsidiary employed 44 people.
Our Belgian operating subsidiary provides domestic and international long
distance and calling card services to residential and commercial customers. It
also sells excess transmission capacity to other telecommunications carriers.
Our Belgian operating subsidiary signed a provisional interconnection
agreement with Belgacom in May 1998 and a definitive interconnection agreement
in December 1998, which was superseded by a new definitive agreement with
Belgacom signed by our Belgian operating subsidiary in June 1999. Our Belgian
operating subsidiary interconnected its first lines with Belgacom's network in
December 1998. Currently, our Belgian interconnection requires long distance
customers to dial a four-digit code to access our network. However, we
anticipate that customers will be able to pre-select our service within
approximately the next 12 months, which will eliminate the need for access
codes.
DUTCH OPERATIONS
The Dutch market originated 1.5 billion minutes of international
telecommunications traffic in 1997. Our operating subsidiary in The Netherlands
commenced operations in October 1996 and is an indirect wholly-owned subsidiary
of our company. As of June 30, 1999, our Dutch operating subsidiary employed 50
people.
Our Dutch operating subsidiary provides local service and domestic and
international long distance service to residential and commercial customers and
call shops. Commercial customers include small and medium-sized businesses. Our
Dutch operating subsidiary also has reseller, carrier and other wholesale
customers.
Our Dutch operating subsidiary has an interconnection agreement with KPN
Telecom, the dominant local carrier in The Netherlands. Currently, this
interconnection requires long distance customers to dial a four-digit code to
access our network. However, we anticipate that customers will be able to
pre-select our service within approximately the next 12 months, which will
eliminate the need for access codes.
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FRENCH OPERATIONS
The French market originated 3.5 billion minutes of international
telecommunications traffic in 1997. Our operating subsidiary in France commenced
operations in October 1995. As of June 30, 1999, our French operating subsidiary
employed 15 people.
Our French operating subsidiary provides local service, domestic and
international long distance and calling card services to residential and
commercial customers. It also sells excess transmission capacity to other
telecommunications carriers.
Our French operating subsidiary signed an interconnection agreement with
France Telecom in May 1999 and interconnected its first lines with that dominant
local carrier's network in July 1999. Currently, this interconnection requires
long distance customers to dial a four-digit code to access our network.
However, we anticipate that customers will be able to pre-select our service
within approximately the next 12 months, which will eliminate the need for
access codes.
GERMAN OPERATIONS
The German market originated 5.3 billion minutes of international
telecommunications in 1997. Our operating subsidiary in Germany commenced
operations in October 1995. As of June 30, 1999, our German operating subsidiary
employed 12 people.
Our German operating subsidiary provides local service, domestic and
international long distance and calling card services to residential and
commercial customers. It also sells excess transmission capacity to other
telecommunications carriers.
Our German operating subsidiary signed an interconnection agreement with
Deutsche Telekom during the fourth quarter of 1998, which expired and was
subsequently replaced with a new interconnection agreement in June 1999, and
interconnected its first lines with that dominant local carrier's network in
July 1999. Currently, this interconnection requires long distance customers to
dial a six-digit code to access our network. However, we anticipate that
customers will be able to pre-select our service within approximately the next
12 months, which will eliminate the need for access codes.
NEW ZEALAND OPERATIONS
The New Zealand market originated 407 million minutes of international
telecommunications traffic in 1997. Our operating subsidiary in New Zealand
commenced operations in October 1996. As of June 30, 1999, our New Zealand
operating subsidiary employed 36 people.
Our New Zealand operating subsidiary provides domestic and international
long distance services to residential and commercial customers, as well as
toll-free services. Additionally, we expect that our New Zealand operating
subsidiary will begin offering Internet access and calling card services in New
Zealand within approximately the next six months.
Our New Zealand operating subsidiary is interconnected with the networks of
the two largest local carriers in New Zealand, New Zealand Telecom and Clear
Communications. Under this interconnection, our customers are able to access our
network either through pre-subscription or by dialing a four-digit access code.
U.K. OPERATIONS
The U.K. market originated 6.6 billion minutes of international
telecommunications traffic in 1997. Our operating subsidiary in the United
Kingdom, WORLDxCHANGE Communications Ltd., is an indirect wholly-owned
subsidiary of our company and began generating revenues in May 1995. As of June
30, 1999, our U.K. operating subsidiary employed 53 people.
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Our U.K. operating subsidiary provides local service and domestic and
international long distance service to residential and commercial customers and
other carriers in the United Kingdom, as well as calling card services. Current
commercial customers include small and medium-sized businesses.
Our U.K. operating subsidiary has an interconnection agreement with British
Telecom. This interconnection requires customers to dial a four-digit code to
access our network. However, we anticipate that customers will be able to
pre-subscribe to our service within approximately the next 12 months, which will
eliminate the need for access codes.
CUSTOMER CARE
We are committed to providing our customers with high-quality customer care
and believe that we have developed the infrastructure necessary to serve both
our existing customer base and accommodate substantial growth. We have a
24-hour-a-day customer care department located in our San Diego headquarters,
which, at June 30, 1999, had 130 full-time equivalent customer care
representatives. Additionally, each of our foreign operating subsidiaries
maintains an extended-hours customer care department. At all of our customer
care facilities, our representatives handle both service and billing inquiries.
In addition, our call centers all have representatives who are multilingual. We
also provide our North American customers with automated customer care through
the Internet.
COMPETITION
The international telecommunications industry is and will continue to be
highly competitive. Regulatory changes, technological advances and actions taken
by the dominant local carriers and other large industry participants continue to
shape our competitive environment. Prices for long distance calls have decreased
substantially over the last few years in most of our markets and we anticipate
further substantial price declines. Our larger competitors generally have lower
per call transmission costs than we have. They own more transmission capacity,
have more favorable interconnection rates and obtain larger volume discounts
from suppliers. Carriers are able to substantially reduce their variable
transmission costs by having their own international networks, which enable them
to offer lower retail and wholesale prices.
In addition to risks associated with price competition, we face risks and
challenges inherent in entering new markets. In certain markets, we will not be
able to offer all of the services that certain of our competitors provide due to
regulatory limitations applicable to us in such markets. Moreover, even in
markets where we may be able to provide a range of services comparable to that
provided by our competitors, many of our potential customers will not be
familiar with us and may be reluctant to entrust their telecommunications
services needs to an unfamiliar provider.
If any of our competitors were to devote substantial additional resources to
the provision of international long distance voice telecommunications services
to our target customer base, our business would be materially adversely
affected. In addition, certain of our competitors may provide discounts in one
market to gain an advantage in another market or with a particular customer. We
may not have the financial ability to offer competitive discounts and may lose
customers as a consequence. This price competition would harm our business and
depress the price of our common stock. See "Risk Factors-- We Have Many
Competitors Who Enjoy Significant Competitive Advantages Over Us."
WORLD TRADE ORGANIZATION INITIATIVES
Under the World Trade Organization Basic Telecommunications Services
Agreement ("WTO Agreement"), which went into effect on February 9, 1998, 69
countries have agreed to permit varying degrees of competition from foreign
carriers over different timeframes. As a result of the WTO Agreement,
competition is expected to increase in telecommunications markets in countries
representing more than 90% of the global telecommunications market.
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Implementation of the WTO Agreement in foreign countries is expected to
create additional competitive opportunities in international and foreign markets
for multinational telecommunications businesses such as ours. Although many
countries have agreed to make certain changes to open and ensure fair
competition in their respective markets, there can be no assurance that
countries will honor their commitments in a timely manner, if at all. In
addition, since the regulatory frameworks are not yet well established in all
countries, specific foreign regulatory requirements that we will face in
carrying out our business plan are not yet known. While the WTO Agreement may
allow us to access new markets or to provide additional services, it also may
subject us to greater competitive pressures in these markets, which could cause
us to lose customers and/or reduce the rates that we are able to charge. At the
same time, the WTO Agreement has created expanded opportunities for foreign
carriers to compete with us in the U.S. telecommunications market. See
"--Competition--United States."
UNITED STATES
The United States telecommunications marketplace is among the most
competitive and deregulated in the world. Competition in the U.S. market is
based primarily upon pricing, customer service, network quality and the ability
to provide value added services.
With respect to all of our services other than Internet access services, we
compete with major carriers such as AT&T, MCI WorldCom and Sprint, as well as
other national and regional long distance carriers and resellers, many of whom
are able to provide services at costs that are lower than our current costs.
These competitors are, or may in the future, be able to provide bundled packages
of telecommunications products, including local and long distance services and
data services and prepaid services, in direct competition with the products
offered or to be offered by us, and may be capable of offering these products
sooner and at lower prices than us.
In addition, as a result of the 1996 Telecommunications Act, the RBOCs can
compete with us in the long distance telecommunications industry, both outside
of their service area and, upon satisfaction of certain conditions, within their
service area. RBOCs can now enter an "out-of-region" long distance market
immediately upon the receipt of any state or federal regulatory approvals
otherwise applicable in the provision of long distance service. In order to
enter the "in region" long distance market in a given state, a RBOC must satisfy
certain procedural and substantive requirements, including obtaining FCC
approval based upon a number of statutorily prescribed requirements. Any RBOC
that receives such authority must provide in-region long distance service
through a separate affiliate. No RBOC is authorized to provided in-region long
distance services in any state at this time, but some are likely to be so
authorized soon. When an RBOC-affiliate is so authorized, it is likely to have a
substantial advantage for long distance calls, because it typically will be
paying access charges to its affiliate when it originates or terminates a call
in-region. There can be no guarantee that such RBOC entry will be delayed and
will not harm our business when it occurs.
The WTO Agreement has resulted in additional competitors entering the U.S.
telecommunications market. To implement the WTO Agreement, in November 1997 the
FCC adopted its "Foreign Participation Order," which created streamlined
procedures for processing market entry applications from foreign carriers and
established a presumption that such applications will be granted. The FCC's
streamlined processing procedures and presumptions of entry have made it
substantially easier for foreign carriers to enter the market and compete in the
United States. We cannot assure you that this increased competition will not
harm our business.
We also expect increasing competition from Internet protocol-based ("IP
Telephony") service providers. Some of our current competitors are already
offering voice telecommunication services using Internet protocols at
substantially reduced prices. Methods are also becoming available to allow
customers of ISPs to conduct near real-time voice communications over their
Internet connections ("Computer-to-Computer Internet Telephony"). As the
technology matures in this area, transmission
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quality will improve and the competitive pressure against us will increase as a
result. Furthermore, the FCC, to date, has determined not to subject either type
of these telephony services to FCC regulation as telecommunications services.
There can be no guarantee when, or even if, the FCC will subject either IP
Telephony or Computer-to-Computer Internet Telephony to regulation. Accordingly,
ISPs and providers of IP Telephony are, today, not subject to universal service
contributions, access charge requirements, or traditional common carrier
regulation.
Under the Telecommunications Act of 1996, RBOCs were granted new rights to
provide certain TV services. Interexchange carriers were permitted to construct
their own local facilities and/or resell local services. State laws no longer
can require providers of cable television services to obtain a franchise before
offering telecomunications services. In addition, under the Telecommunications
Act of 1996 all utility holding companies are permitted to diversify into
telecommunications services. All of these are sources of potential increased
competition. We also expect to face increasing competition from wireless
telecommunications providers in the future.
With respect to our Internet access service, in addition to competing with
other carriers, we also compete with Internet service providers such as American
Online, Prodigy, Earthlink and MindSpring. Many of these competitors are able to
devote greater financial, technological and marketing resources than us to the
Internet access business. If any of these competitors were to focus their
resources on providing Internet access service to our target customers, our
Internet access business could be harmed.
CANADA
The Canadian telecommunications market is highly competitive and is
dominated by a few established carriers whose marketing and pricing decisions
have a significant impact on the other industry participants, including us. Our
principal facilities-based competitors include Bell Canada, Bell Nexxia, BCT.
TELUS, AT&T Canada, and Sprint Canada. We also compete with Primus, which
recently acquired the residential long-distance customer base of AT&T Canada,
and with ACC TelEnterprises which, until its recent merger with AT&T Canada, was
one of the largest resellers in Canada. In addition, we are competing with
alternative telecommunications providers such as cable companies, including
Rogers Communications, Shaw Cable and cellular and personal communications
service providers, including Microcell Solutions, Bell Mobility, Rogers Cantel
and Clearnet.
EUROPE
In Europe, our competitors include:
- the dominant local carriers,
- certain large alliances such as Global One, consisting of Sprint, Deutsche
Telekom and France Telecom, and AT&T's alliance with both British Telecom
and Japan Telecom,
- emerging multinational carriers such as Destia, Primus Telecommunications
Group, Viatel, RSL Communications, Global Telesystems Group and Colt
Telecommunications;
- companies offering resold international telecommunications services; and
- other companies with business plans similar in varying degrees to us,
including emerging public telephone operators who are constructing their
own networks and wireless network operators.
BELGIUM. Our principal competitor is the dominant local carrier, Belgacom.
We also compete with the Belgian affiliates of some of the mega-carriers such as
Global One, local resellers and other international carriers with Belgian
operations such as RSL Communications and Viatel.
FRANCE. Our principal competitor is the dominant local carrier, France
Telecom. We also compete with international carriers who have obtained
interconnection with France Telecom including companies
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such as MCI Worldcom, Colt, Siris, Cegetel and Bouygues. These competitors are
also in the process of constructing fiber networks in major metropolitan areas,
which, when completed will allow these companies to offer telecommunications
services at lower prices than we currently can. In addition, we compete with
resellers such as Omnicom. As deregulation continues, we expect that alternative
networks will become available to route and terminate call traffic.
GERMANY. Our principal competitor is the dominant local carrier, Deutsche
Telekom. We also compete with newly licensed operators who are constructing
their own facilities-based networks, such as Arcor, O.telo and VIAG Interkom. In
addition, we compete with resellers such as MCI Worldcom.
THE NETHERLANDS. Our principal competitor is the dominant local carrier,
KPN Telecom. Our other major competitors in The Netherlands are MCI WorldCom and
mega-carriers such as Global One. We are also competing with companies such as
MCI WorldCom, who are constructing facilities-based networks and have been
licensed as public telephone operators. As deregulation continues, we expect
that alternative networks currently under construction will become available to
route and terminate call traffic.
THE UNITED KINGDOM. Competition is intense in the relatively deregulated
United Kingdom market. Our principal competitors include the dominant local
carrier, British Telecom, and Cable and Wireless Communications. We are also
competing with emerging licensed public telephone operators, who are
constructing their own facilities-based networks, such as Energis. In addition
we compete with resellers such as MCI WorldCom and Global One.
THE PACIFIC RIM
AUSTRALIA. In Australia, our principal competitors are Telstra Corporation
Limited and Optus Communications Pty. Limited. In addition, our Australian
competitors include carriers and carriage service providers such as Spectrum
Network Systems Limited, Axicorp Pty. Limited, Call Australia Pty. Limited,
Primus and AAPT Pty. Limited.
NEW ZEALAND. In New Zealand, our principal competitors are the two largest
local carriers, Telecom New Zealand and Clear Communications. In addition, our
New Zealand competitors include switch-based and switchless resellers such as
Telstra and Pacific Gateway Exchange. There are a number of competitors in the
toll-call telecommunications market. New Zealand is a comparatively deregulated
market, and competition there is expected to intensify.
LATIN AMERICA
GUATEMALA. In Guatemala, our principal competitor is the dominant local
carrier, Telgua.
CHILE. In Chile, our competitors include Entel Chile, CTC-Mundo and
Chilesat.
REGULATION
We are subject to varying degrees of regulation in the jurisdictions in
which we provide services. This regulation--both domestically and
internationally--is changing rapidly. The laws and regulations applicable to our
business differ significantly from market to market. There can be no assurance
that future regulatory, judicial and legislative changes will not harm us or
that domestic or international regulators or third parties will not raise
material issues with respect to our compliance or noncompliance with applicable
regulations.
Below is a description of the regulatory framework in certain jurisdictions
in which we provide our services.
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UNITED STATES
As a provider of telecommunications services, we must comply with a number
of statutes and regulations in the United States. These include the
Communications Act of 1934, as amended by the 1996 Telecommunications Act (the
"1934 Act"), the FCC regulations thereunder, as well as the applicable laws and
regulations of the various states administered by the relevant state public
service commissions. The FCC exercises jurisdiction over all facilities and
services of telecommunications common carriers to the extent those facilities
are used to provide, originate or terminate interstate or international
communications. State public utility and service commissions retain jurisdiction
over the Company's facilities and services to the extent they are used to
originate or terminate intrastate communications. Local governments may require
the Company to obtain licenses or franchises permitting access to or use of
public rights-of-way to install and operate its networks.
There has been a general trend toward deregulation of the telecommunications
industry at both the federal and state level. Because this trend facilitates
market entry and competition by multiple providers, it has both created
opportunities and presented challenges for us. For example, it has given AT&T,
the largest international and domestic long distance carrier in the United
States, increased pricing and market entry flexibility that has permitted it to
compete more effectively with smaller carriers, such as us. In addition, the
1996 Telecommunications Act has opened the U.S. market to increased competition
from RBOCs. It is difficult to predict the future impact of regulatory, judicial
and legislative changes in the United States. There can be no assurance that
these changes will not materially affect our business and the price of our
common stock.
We are currently regulated as a non-dominant telecommunications carrier by
the FCC with respect to our international and domestic interstate long distance
services. Historically, the FCC has generally not closely regulated the charges,
practices or classifications of non-dominant carriers. However, it has the
authority to do so, including the power to impose more stringent regulatory
requirements on us, to change our regulatory classification, to impose monetary
forfeitures, to hear complaints for alleged violations of the 1934 Act or FCC
regulations, and to revoke our authority. We do not believe, however, that in
the increasingly deregulated U.S. market, the FCC is likely to take such actions
(apart from resolving complaints filed by third parties) but we cannot guarantee
this. There can be no assurance were the FCC to take such actions, that such
actions would not materially affect our business and the price of our stock.
We are required to obtain prior FCC and, in certain jurisdictions, state
regulatory approval before engaging in transactions that would result in a
change of control of our company, including transfers of control resulting from
corporate reorganizations and assignments of regulatory authorizations. The need
to obtain these approvals may delay, prevent or hinder a change in control of
our company. Effective May 19, 1999, new FCC rules went into effect under which
the FCC will forbear from reviewing pro forma assignments and transfers of
control of international telecommunications service authorizations. Instead, the
FCC requires only post-consummation notifications of pro forma assignments.
Although we intend to comply with such notification requirements, we do not
believe that we would incur any material penalties for failing to notify the FCC
of a pro forma change of control where required. We cannot be certain that this
would be the case.
FCC DOMESTIC INTERSTATE REGULATION. The FCC considers us a non-dominant
domestic interstate carrier. As a result, we are subject to minimal FCC
regulation. Although we are not required to obtain FCC authority to expand our
domestic interstate operations, we currently are required to maintain, and do
maintain, a domestic interstate tariff on file with the FCC. Pursuant to the
1934 Act, we are subject to the general requirement that our charges and
regulations for communications services must be "just and reasonable" and that
we may not make any "unjust or unreasonable discrimination" in our charges or
regulations.The FCC presumes the tariffs of non-dominant carriers to be lawful
and does not carefully review such tariffs before permitting them to take
effect. However, the FCC could investigate
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our tariffs in response to any public complaint or upon its own motion. Any such
FCC investigation could result in an FCC order to revise our tariffs or
prescribing revised tariffs. The FCC has jurisdiction to act upon complaints
from third parties against any common carrier for failure of the carrier to
comply with its statutory obligations and to award damages for such violations.
The FCC ruled in late 1996 that interexchange carriers do not have to file
their tariffs for domestic interstate interexchange services. In August 1997,
the FCC affirmed its decision eliminating the requirement that non-dominant
carriers file tariffs for domestic interstate long distance services. However,
since February 13, 1997, the FCC's detariffing orders have been stayed by the
U.S. Court of Appeals for the D.C. Circuit pending judicial review. Those
appeals remain pending.
We also are subject to a variety of miscellaneous regulations that, for
instance, govern the documentation and verifications necessary to change a
consumer's long distance carrier and require the filing of periodic reports.
On February 1, 1996, the U.S. Congress enacted comprehensive
telecommunications reform legislation, which the President signed into law as
the Telecommunications Act of 1996 on February 8, 1996 (the "1996 Act"). The
1996 Act requires all local exchange carriers:
- not to prohibit or unduly restrict resale of their services;
- to provide number portability;
- to provide dialing parity and nondiscriminatory access to telephone
numbers, operators services, directory assistance and directory listings;
- to afford access to poles, ducts, conduits and rights-of-way; and
- to establish reciprocal compensation arrangements for the transport and
termination of local telecommunications traffic.
The 1996 Act also permits the RBOCs to enter an "out-of-region" long
distance market immediately upon the receipt of any state and/or federal
regulatory approvals otherwise applicable in the provision of long distance
service. The provisions also permit an RBOC to enter the long distance market in
its local exchange operating territory (on a state-by-state basis) by satisfying
certain procedural and substantive requirements, including by showing that
facilities-based competition is present in its market, that it has entered into
interconnection agreements which satisfy a 14-point "checklist" of competitive
requirements and that its entry into the "in-region" long distance market is in
the public interest.
A number of RBOCs have made initial applications for the approvals necessary
to enter their "in-region" long distance markets. To date, all such applications
the FCC has acted upon have been denied on the basis that the RBOC has not
satisfied the list of competitive requirements. However, over the past year,
there have been extensive discussions among the state public service
commissions, the FCC and RBOCs in order to develop a definitive understanding of
these requirements and the specific criteria to measure their satisfaction. In
certain states, such as New York and Texas, RBOC efforts to obtain in-region,
long distance authority through such discussions may lead to one or more
successful RBOC "in-region" applications in the near future. See "Risk
Factors--We Have Many Competitors Who Enjoy Significant Competitive Advantages
Over Us." We cannot predict whether such entry would have a material adverse
effect on our business.
Our operations may also be affected by a number of other provisions of the
1996 Act. However, it is difficult at this time to accurately assess what these
effects will be. On August 1, 1996, the FCC adopted an Interconnection Order
implementing the requirements that incumbent local exchange carriers make
available to new entrants, such as us, interconnection and unbundled network
elements, and offer retail local services for resale at wholesale rates.
Although portions of the FCC's order were
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temporarily overturned by a reviewing court, the U.S. Supreme Court recently
upheld most of the challenged rules, finding that the FCC has jurisdiction to
establish rules to promote competition for competitive local exchange services.
Several incumbent local exchange carriers are pursuing substantive appeals
before the U. S. Court of Appeals for the Eighth Circuit of the FCC rules the
Supreme Court upheld on jurisdictional grounds only. Incumbent local exchange
carriers have argued, for example, that the FCC's pricing method ignores their
historic costs and underestimates the actual costs of providing interconnection
and unbundled access. The Eighth Circuit did not reach that issue when it first
reviewed the FCC's Interconnection Orders, and the Supreme Court noted that only
the jurisdictional issue was before it.
The Supreme Court also held that the FCC's analysis leading to the creation
of its minimum list of seven mandatory incumbent local exchange carrier
unbundled network elements was inadequate. The Court ruled that the FCC failed
to consider whether access to proprietary network elements was "necessary," or
whether lack of access to any such element would "impair" the ability of
competitive local exchange carriers to offer telecommunications services. The
Court vacated the relevant rule and remanded the matter to the FCC either to
modify the rule or justify it, subject to further court review. The Supreme
Court's action also provides an opportunity for incumbent local exchange
carriers to argue before the FCC that the FCC should refrain from requiring
incumbent local exchange carriers to provide access to at least some network
elements on the ground that they do not satisfy the 1996 Act's "necessary" and
"impair" standards. The FCC has a proceeding underway to determine whether its
list of seven mandatory network elements should be reduced, expanded or
otherwise revised. We are unable to predict what the outcome of these decisions
related to network elements and their pricing or any resulting litigation will
be or when these matters will be resolved. We cannot guarantee that the outcome
will not materially affect our business.
Certain other aspects of the FCC's Interconnection Orders were vacated by
the Eighth Circuit and were not appealed to the Supreme Court; thus, they remain
vacated. These include FCC rules that had directed incumbent local exchange
carriers to combine network elements requested by competitors whether or not
those elements had previously been combined ("the new combinations rule"), and a
provision requiring incumbent local exchange carriers to provide interconnection
superior in quality to that provided by the incumbent local exchange carriers to
themselves, when requested to do so by competitors. The Court's action vacating
these rules may have an adverse impact on our business.
On August 6, 1998, the FCC took certain actions regarding the deployment of
advanced communications services. "Advanced communications services" are
wireline, broadband telecommunications services, such as services that rely on
digital subscriber line technology, commonly referred to as xDSL, and
packet-switched technology. The FCC issued a Memorandum Opinion and Order and a
Notice of Proposed Rulemaking that (i) clarified its views on the applicability
of existing statutory requirements in Sections 251 and 271 to advanced services,
and (ii) sought comment on a wide variety of issues associated with the
provision of advanced services by wireline carriers. Generally, the FCC
clarified that the Section 251(c) interconnection, unbundling and resale
obligations of incumbent local exchange carriers extend to their provision of
advanced communications services. The FCC also denied requests by several of the
incumbent local exchange carriers to forbear from imposing Section 251
obligations as then applied to advanced services. The FCC also proposed measures
to promote the deployment of advanced communications services by both incumbent
local exchange carriers and competitive local exchange carriers. Among the
proposals that generally were favorable to competitive local exchange carriers
are those for expanded physical collocation rights and strengthened rights to
order unbundled network elements required to provide advanced communications
services. However, the FCC also tentatively interpreted the 1996 Act as
permitting incumbent local exchange carriers to deploy advanced communications
services through separate affiliates that would not be regulated as incumbent
local exchange carriers. Thus, such separate affiliates of incumbent local
exchange carriers, if permitted, would not be subject to Section 251 and 252
unbundling and resale
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obligations. On March 18, 1999, the FCC adopted a First Report and Order in
these proceedings requiring incumbent local exchange carriers to make available
to requesting competitive local exchange carriers shared cage and cageless
collocation arrangements. The FCC also ruled that incumbent local exchange
carriers must permit competitive local exchange carriers to collocate equipment
used for interconnection and/or access to unbundled network elements even if
equipment includes certain switching or enhanced services functions. The FCC
also adopted rules designed to limit incumbent local exchange carriers' ability
to deny competitive local exchange carriers' ability to deploy transmission
hardware by purporting that the equipment will cause electrical interference
with other wires, and it proposed rules making these requirements more specific.
We cannot predict the final outcome of these proceedings or any appeals that
might ensue, and the effect such outcome may have on our business.
US WEST has sought judicial review before the U.S. Court of Appeals for the
D.C. Circuit of the FCC's decision that the Section 251(c) obligations apply to
advanced services. Pending before the Court are the FCC's voluntary motion to
remand for further explanation of its Order and U.S. WEST's motion to vacate the
decision pending such remand. Petitions for reconsideration of other aspects of
the FCC's advanced services decision remain pending before the agency. We cannot
predict the outcome of these proceedings or their effect on our business.
The FCC also has revised the universal service subsidy regime pursuant to
the 1996 Act. Beginning January 1, 1998, we and other interstate carriers and
other entities became obligated to make FCC-mandated contributions to universal
service funds. These funds help pay for telecommunications services in high cost
areas and to low-income customers, as well as for telecommunications and certain
other services to eligible schools, libraries and rural health care providers.
The amount of our required contributions is based on our end user revenues. We
make contributions to the high cost and low income fund based on our interstate
and international gross end-user telecommunications revenues. We make
contributions to the schools and libraries and rural health care fund based on
our intrastate, interstate and international gross end-user telecommunications
revenues. The FCC sets contribution factors quarterly, and we and other carriers
are billed monthly. The FCC orders implementing the universal service
contribution obligation were reviewed by the U.S. Court of Appeals for the Fifth
Circuit and, on July 30, 1998, were generally upheld. The Court did reverse
certain aspects of the FCC's rules, though, including the assessment of
contributions on interstate revenues, limits on certain state rules concerning
disconnection of local service and the incumbent carriers' recovery of its
contributions through access charges. There can be no assurance as to how these
rulings will be implemented or enforced or what effect the orders will have on
the industry generally or on us specifically. Contribution factors for the third
quarter of 1999 are: (i) 2.94% for the high cost, insular and low income funds
(interstate and international revenues); and (ii) 0.99% for the schools,
libraries and rural health care funds (intrastate, interstate and international
revenues). Although we are unable to predict future contribution factors or the
annual cost to us of the contributions, there is no reason of which we are aware
that would cause the factors in the short run to change materially from today's
levels.
The Universal Service Fund could be used to enable the incumbent local
exchange carriers to reduce prices that they charge to certain customers,
putting additional competitive pressure on us. However, we also are eligible to
qualify as a recipient of universal service support if we elect to provide
facilities-based service to areas designated for universal service support. We
presently are unable to predict the potential impact of these universal service
funding reforms, but they could have a significant impact on our future
operations. Significant portions of the FCC's universal service orders have been
appealed and are under review by the U.S. Court of Appeals for the Fifth Circuit
or are the subject of further proceedings by the FCC. We cannot predict the
outcome of these proceedings or the effect of these proceedings on our business.
In 1991, the FCC replaced traditional rate of return regulation for large
incumbent local exchange carriers with price caps, under which incumbent local
exchange carriers can only raise prices for certain
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interstate services by a small percentage each year. In addition, there are
constraints on the pricing of incumbent local exchange carriers services that
are competitive with those of competitive local exchange carriers. However, the
FCC has taken several actions, and is considering additional such steps, that
grant incumbent local exchange carriers pricing flexibility in areas of
concentrated population or where they face potential competition from
competitive local exchange carriers or competitive access providers. Changes in
local exchange carrier access charge rates for origination and termination of
calls over local exchange carrier facilities will affect our costs of providing
long distance services. Over the past few years, the FCC has granted incumbent
local exchange carriers significant flexibility in pricing their interstate
special and switched access services. Under this pricing scheme, incumbent local
exchange carriers may establish pricing zones based on access traffic density
and charge different prices for each zone. We anticipate that this pricing
flexibility will result in incumbent local exchange carriers lowering their
prices in high traffic density areas, the probable area of competition with us.
We also anticipate that the FCC will grant incumbent local exchange carriers
increasing pricing flexibility as the number of potential competitors increases.
On May 7, 1997, the FCC took action to reform the current interstate access
charge system. The FCC adopted an order that makes various reforms to the
existing rate structure for interstate access that are designed to move access
charges, over time, to more economically efficient rate levels and structures.
On October 5, 1998, the FCC released a public notice inviting comment on
proposals to accelerate reductions in incumbent local exchange carrier access
charges and grant the incumbent local exchange carriers increased flexibility
when setting prices in response to competition. In an order released on the same
day, the Commission deferred a scheduled increase in monthly presubscribed
interexchange carrier charges, which are commonly referred to as "PICCs," from
January 1, 1999, to July 1, 1999, explaining that on the latter date it expected
concurrent proceedings to have a significant downward effect on incumbent local
exchange carrier access charges. The July 1, 1999 changes have taken effect as
scheduled, with the PICCs increasing but overall access charges decreasing. The
PICCs are currently scheduled to continue to increase yearly until they reach
certain limits. The recent incumbent local exchange carrier annual access charge
revisions are intended to reflect implementation of a revised mechanism for
determining universal service high cost support for non-rural carriers, and
incumbent local exchange carrier price caps were adjusted downward on the basis
of a productivity improvement factor and lower inflation. The FCC is currently
considering several incumbent local exchange carriers petitions for waiver of
access charge rules which would further enable them to negotiate certain access
charge arrangements on an individual case basis. This series of decisions and
proceedings is likely ultimately to reduce the prices of incumbent local
exchange carriers access services with which we compete and could therefore have
a significant impact on our operations, expenses, pricing and revenue. We
currently intend to pass on to our customers the costs of both the PICC and our
universal service fund contributions. However, we cannot be certain that we will
not be prohibited from doing so, or that we will not lose customers if we do so.
We expect further revisions to the FCC's access charge rules. The FCC
already has indicated that it will promulgate additional rules in the near
future that may afford certain LECs increased flexibility. Recently, the FCC
issued an order clarifying the definition of a "primary line." Under the FCC's
order, a primary residential line is defined as "one residential line provided
by a price cap LEC per service location." The FCC did not change its definition
of a single line business subscriber line for purposes of its price cap rule.
This kind of line is still defined as a line for which the subscriber pays a
rate that is not described as a residential rate in the local exchange service
tariff and does not obtain more than one such line from a particular telephone
company.
Costs may also change based on changes in our agreements with various
carriers for the termination, origination and exchange of traffic. These
carriers may seek to change their arrangements with us as a result of changes to
their similar agreements with other carriers or local exchange carriers. Any
change in any of these agreements, whether by operation of law or otherwise, may
affect our costs or could disrupt our ability to terminate, originate or
exchange traffic, which could harm us.
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Interexchange carriers are required under the 1996 Telecommunications Act to
compensate the owners of payphones that are used by calling card customers to
originate a telephone call. Under the FCC's original compensation scheme,
beginning October 7, 1997, all carriers were required to compensate payphone
owners at a rate of 35 cents per call. On July 1, 1997, the United States Court
of Appeals for the District of Columbia Circuit ("D.C. Circuit") reversed in
part the FCC's payphone orders. The court ruled that the rate of 35 cents per
call was arbitrary and capricious and remanded the case to the FCC for further
proceedings. The FCC subsequently ruled that, for the period from October 7,
1997 through October 7, 1999, interexchange carriers are required to compensate
payphone owners at a per call rate of 28.4 cents for all payphone calls. The
Court remanded this order to the FCC on May 15, 1998, ruling that the 28.4 cents
rate was arbitrary and capricious, but not vacating it. On February 4, 1999, the
FCC lowered the payphone compensation rate to 24 cents, effective to October,
1997. However, the FCC has stated there will be no refunds until the FCC
determines what payphone compensation interexchange carriers must pay for the
"interim period" between November 1996 and October 1997. Because any refunds to
which interexchange carriers are entitled will be offset by payment obligations
for the "interim period" the timing and amount of any refund is uncertain. MCI
WorldCom, Sprint, the RBOCs and the American Public Communications Council have
filed Petitions for Review of this latest order with the D.C. Circuit. In
addition, a coalition including the RBOCs, SNET and GTE have filed a Petition
for Clarification with the FCC. This petition requests the FCC to clarify which
long distance carriers are responsible for payment of per-call compensation and
urges that the obligation be placed on the entity identified by the Carrier
Identification Code (CIC) used to route the call from the local exchange
network. We cannot predict the outcome of these proceedings or whether we will
have payment obligations for the "interim period" that exceed any refund to
which we are entitled, or any other effect on our business.
As a result of many factors, many payphone service providers have made
compensation claims against long distance carriers, including against us. We
have paid or accrued all payphone compensation we believe is due under the most
recent payphone compensation scheme but cannot provide any assurances as to the
outcome of these proceedings or their effect on our business.
The FCC also regulates the marketing of telephone services and the changing
of a customer's primary long distance carrier. The FCC has recently imposed
severe penalties on a number of carriers for "slamming." See "--Legal
Proceedings." Under an order recently issued by the FCC, carriers such as us are
required to take certain additional steps to prevent slamming. We expect the FCC
to continue to reexamine its slamming rules and cannot predict the outcome of
such reexamination, which may lead to additional or modified obligations imposed
upon us.
FCC INTERNATIONAL REGULATION We are regulated as a non-dominant carrier in
our provision of international service. As an international carrier, we are
required to obtain an appropriate certificate of public convenience and
necessity from the FCC pursuant to Section 214 of the 1934 Act before providing
international service. We also must comply with tariff, reporting, and fee
requirements that are the same as or similar to the tariff, reporting, and fee
requirements applicable to our U.S. domestic business. We are also required to
comply with the FCC's international service policies. Certain of these policies
may limit our ability to provide our services in the most economical manner.
We are subject to the FCC's "International Settlements Policy" governing
traffic exchange and settlement between U.S. and foreign carriers. The
International Settlements Policy establishes the parameters by which U.S.
carriers and their foreign correspondents settle international revenues to
recover the cost of terminating each other's traffic over their respective
networks under the international accounting rate system. Under the international
accounting rate system, a U.S. facilities-based carrier is permitted to
negotiate an "accounting rate" with the corresponding foreign carrier for
handling each minute of international telephone service. The amount of payment
is determined by applying a "settlement rate" (generally one-half of the
negotiated accounting rate) to net billed minutes for a particular month. Unless
we receive a waiver, the FCC could find that certain terms of our
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foreign carrier agreements or our actions to terminate international traffic do
not comply with the International Settlement Policy. While the FCC generally has
not imposed penalties in this area, it could take action against a carrier
violating the International Settlement Policy, including issuing a cease and
desist order, revoking Section 214 authorizations, or imposing fines. Recently,
the FCC approved sweeping reform of its International Settlement Policy. This
reform will eliminate the International Settlement Policy for arrangements with
foreign carriers lacking market power (i.e., less than 50% market share in the
relevant destination market) and for arrangements with all foreign carriers on
liberalized routes (i.e., those routes where the settlement rate to terminate
U.S. calls is at least 25 percent below the FCC's relevant benchmark rate set
for that country). Although these rules should afford us additional flexibility,
they may also increase competition on certain routes.
We are also subject to the FCC's rules regarding "international simple
resale" or "ISR." ISR is the provision of switched services over "private" lines
interconnected on one or both ends to the public network. U.S. carriers are
allowed to engage in ISR on any route where the U.S. carrier exchanges switched
traffic with a foreign carrier that lacks market power. In addition, U.S.
carriers are permitted to engage in ISR with any foreign carrier, regardless of
market power, on any route for which the FCC has authorized the provision of
ISR. The FCC will allow ISR between the U.S. and a WTO member country for which
it has not previously authorized such service upon a demonstration that (1)
settlement rates for at least 50 percent of the settled U.S.-billed traffic
between the U.S. and the proposed destination country are at or below the
benchmark settlement rate adopted by the FCC, or (2) where such destination
country affords resale opportunities "equivalent" to those available under U.S.
law. The FCC will allow ISR between the U.S. and a non-WTO member country not
previously authorized to provide such service if both conditions summarized
above are satisfied. As of July 21, 1999, the FCC has authorized ISR to the
following countries: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Iceland, Ireland, Israel, Italy, Japan, Luxembourg,
The Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, and the United
Kingdom. The FCC could find that certain of our actions regarding the
termination of traffic do not comply with the ISR requirements. Although the FCC
generally has not issued penalties in this area, it could take action against a
carrier violating the ISR requirements, including issuing a cease and desist
order, revoking Section 214 authorizations, or imposing fines.
We are also subject to the FCC's rules on "special concessions." A special
concession is an exclusive arrangement involving certain services, facilities,
or functions on the foreign end of a U.S. international route that are necessary
for the provision of basic telecommunications services where the arrangement is
not offered to similarly situated U.S. licensed carriers. The FCC's rule on
special concessions prohibits us from accepting, directly or indirectly, any
special concession from a foreign carrier with respect to any U.S. international
route where the foreign carrier possesses sufficient market power on the foreign
end of the route to affect competition adversely in the U.S. market. The FCC's
rules on special concessions could limit our flexibility in making arrangements
with some foreign carriers for termination of international traffic.
STATE REGULATION. We are authorized, where necessary, either pursuant to
certification, the fulfillment of tariff requirements or notification
requirements, to provide long distance services in 41 states.
We believe that, as the degree of intrastate competition increases, some
states are likely to offer incumbent local exchange carriers increasing pricing
flexibility. This pricing flexibility may present incumbent local exchange
carriers with an opportunity to subsidize services that compete with our
services with revenues generated from less competitive services, thereby
allowing incumbent local exchange carriers to offer services competing with ours
at prices below the cost of providing the service. We cannot predict the extent
to which this may occur or its impact on our business.
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We are subject to various reporting and other requirements in a number of
states. State commissions regulate access charges and other pricing for
telecommunications services. In addition, a number of state public service
commissions regulate the marketing of telephone services and require customer
authorizations for changes of a customers' primary long distance carrier.
Several states also require (and others are considering requiring) universal
service fund contributions. States also generally have the right to impose
sanctions on a carrier or to condition, modify, cancel, terminate or revoke
authorization to provide telecommunications services for failure to comply with
state law and/or rules, regulations and policies of the state regulatory
authorities. There can be no assurance that the states will not modify their
regulations so as to have an adverse impact on our business.
INTERNET REGULATION. In the United States, Internet service providers are
generally considered "enhanced service providers" and therefore are not subject
to U.S. federal and state regulations governing common carriers. Accordingly, we
are currently exempt from tariffing, certification and rate regulation with
respect to our provision of Internet access services. However, other
requirements may apply to our provision of Internet services, including
regulations relating to disclosure of confidential communications, copyright and
excise tax matters. We may become subject to material additional regulations in
the future that apply to our Internet access business and adversely affect it.
Internet service providers such as us are subject to potential criminal
liability under the provisions of the Communications Decency Act of 1996 (CDA)
that govern the use of interstate telecommunications networks,
telecommunications devices, or interactive computer services, to transmit
obscene or indecent communications. In an April 1999 decision, the Supreme Court
upheld provisions of the CDA that impose criminal liability on:
- any person who knowingly uses a telecommunications device to send an
obscene or indecent communication with intent to annoy another person; or
- any entity who knowingly permits any telecommunications facility under his
control to be used for such purposes.
Entities solely providing access to facilities not under their control are
exempted from liability, as are providers that take good faith, reasonable,
effective and appropriate actions to restrict access by minors to the prohibited
communications. The U.S. Supreme Court struck down, on constitutional grounds,
provisions of the CDA that imposed criminal liability on:
- any person who knowingly uses a telecommunications device to send an
obscene or indecent communication to a recipient under 18 years of age,
and
- any person who knowingly uses an interactive computer service to send to a
specific person under 18 years of age, or to display in a manner available
to a person under 18 years of age, communications that, in context, depict
or describe, in terms patently offensive as measured by contemporary
community standards, sexual or excretory activities or organs.
It is not known how the provisions of the CDA will be enforced or
interpreted in the future. It is possible that these provisions will chill the
development of Internet content or otherwise adversely affect Internet access
providers such as us. In addition, we cannot be certain that we will not be
required to modify our Internet access operations to comply with the CDA.
As an Internet service provider, we have been granted statutory immunity
from liability for the transmission of, or provision of access to, information
created or originated by others over our network. Internet service providers are
exempt from criminal prosecution under the Children's Online Protection Act of
1998 ("COPA") with respect to the commercial use of their networks by others to
make available to minors material that is obscene, pornographic or harmful to
minors. Section 230 of the CDA immunizes an Internet service provider from
potential civil liability in connection with the dissemination of information
originated or created by a third party that is transmitted or made
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available on the Internet service provider's network. Federal court decisions in
1997 and 1998 have held that Section 230 of the CDA grants an Internet service
provider immunity from civil liability with respect to the transmission of, or
provision of access to, defamatory materials created by others. Notwithstanding
these statutory and court precedents granting limitations on Internet service
provider liability, we cannot predict whether our operations may be adversely
affected in the future by the negligent or criminal acts or communications of
others in the use of our network.
The FCC initiated a Notice of Inquiry in December 1996 seeking public
comment on whether to impose regulations or surcharges on, among other entities,
providers of Internet access. In addition, the FCC indicated in a Report to
Congress in April 1998 that it will reexamine its policy of not requiring
Internet service providers to make mandatory universal service fund
contributions when they provide their own transmission facilities and engage in
data transport over those facilities to provide an information service. The FCC
also strongly hinted in this Report that, although the matter was not before it,
it would find voice telephony over Internet protocol services to be
telecommunications services, making such services, as opposed to
computer-to-computer Internet Telephony, subject to universal service
obligations, access charges, and other common carrier obligations. U S WEST has
filed a complaint before the FCC seeking such a ruling, which remains pending.
We are unable to predict the outcome of the FCC's review and proceedings
regarding the regulation of Internet related services and IP Telephony.
Furthermore, we cannot predict whether we will face additional regulations,
requirements or charges in connection with our Internet access service and what
the impact on our business will be.
Over 30 states have found that, through existing interconnection agreements,
local exchange carriers are eligible to receive compensation from incumbent
local exchange carriers or competitive local exchange carriers for traffic that
originates on the other carrier's network and is delivered to an Internet
service provider in the same local calling area. Although subject to differing
interpretations, as many as three states have found to the contrary. The FCC
found in February 1999 that such Internet-bound traffic is jurisdictionally
interstate. The FCC tentatively concluded that some intercarrier compensation is
due for the exchange of such traffic, but has not yet decided the direction or
amount of such compensation that is due. These issues are pending before the
agency, and a decision is expected in the next few months. In the interim, state
commissions remain free to resolve issues concerning the propriety of such
compensation under current interconnection arrangements or for new agreements.
We cannot predict the outcome of such state or federal proceedings or their
effect upon our business.
NETWORK MARKETING REGULATION. Our network marketing system is subject to
extensive government regulation. For example, we are subject to state regulation
of marketing practices and federal and state regulation of the offer and sale of
business franchises, business opportunities and securities. In addition, various
regulatory authorities monitor direct selling activities, including those of our
company. There is also the risk that the Internal Revenue Service and/or any
state taxing authority could classify our independent representatives as
employees rather than independent contractors. If such a determination were made
by any one or more taxing authorities, we could be subject to penalties and
interest for taxes not withheld and/or required to withhold such taxes in the
future, and we could be required to pay unemployment insurance. In addition, any
adverse determination in one jurisdiction with respect to these matters could
influence the decisions of authorities in other jurisdictions. Any or all of
these factors could adversely affect the way we do business and could hurt our
ability to attract potential independent representatives. While network
marketing regulations are complex and vary from jurisdiction to jurisdiction, we
believe we are in compliance with currently applicable regulations. However, no
assurance can be given that one or more jurisdictions will not assert future
violations against us in the future or that, if such assertions are made, that
they will not harm our business or depress the price of our common stock.
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PATENT RIGHTS RELATING TO PREPAID SERVICES. Certain prepaid card providers
have been subject to claims that their provision of prepaid services infringes
the patent rights of other parties. To date, we have not received any such
claims. However, no assurance can be given that such claims will not be asserted
against us in the future. And while we do not believe that our provision of
prepaid services infringes any third party patent rights, we cannot be certain
that we would prevail if a claim were asserted by a third party. If we were
unable to continue providing our prepaid card services as we do now, our
business could be harmed and the price of our common stock could be depressed.
EUROPEAN UNION REGULATION
The European Union (EU), formerly the European Communities, consists of the
following EU member states: Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and
the United Kingdom. The telecommunications industry in the EU is governed by
regulations and directives issued at a supra-national level by the EU
authorities (the EU Commission, the EU Council of Ministers and Parliament)
which generally require further implementation in each member state through
domestic legislation. The EU has adopted pan-European policies aimed at
facilitating an open and competitive telecommunications market.
With a number of exceptions, the EU ordered all special or exclusive rights
that restrict the provision of telecommunications services in EU countries to be
abolished, effective January 1, 1998. The EU adopted specific directives
implementing this policy, including the Open Network Provision (ONP) Framework
Directive, ONP Leased Lines Directive, the Revised Voice Telephony Directive,
the ONP Adaptation of Full Competition Amending Directive, the Services
Directive, the Interconnection Directive, and the Licensing Directive. The
Licensing Directive sets out framework rules for the procedures associated with
granting national authorizations for the provision of telecommunications
services and for the establishment or operation of any infrastructure for the
provision of telecommunications services. It requires EU member states to rely
as much as possible on "general authorizations," which do not require an
explicit decision from the regulatory agency, and to require "individual
licenses," only for public voice telephony and in other limited circumstances
such as where the licensee requires access to scarce resources. The EU also has
mandated carrier pre-selection and number portability on or before January 1,
2000. Carrier pre-selection will enable our customers to access our network over
the fixed public telephone network of operations without dialing an access code,
by "pre-selecting" our company as their long distance carrier.
Implementation of the EU directives has varied among the EU member states.
Some EU member states were granted derogation from the January 1, 1998
liberalization date as follows: Luxembourg (July 1, 1998), Spain (December 1,
1998), Ireland (January 1, 2000), Portugal (January 1, 2000), and Greece
(January 1, 2002), but actual liberalization in some of these countries has
already been achieved or will be achieved, prior to the deadlines in question.
Even those EU member states that have already fully implemented the EU licensing
framework vary in their requirements that we obtain approvals and are expected
to continue to so vary. See "Risk Factors--We Are Subject to Significant
Regulatory Restrictions."
UNITED KINGDOM. The Telecommunications Act of 1984 (U.K. Act) establishes
the licensing and regulatory framework for telecommunications activities in the
United Kingdom. Pursuant to the U.K. Act, the Secretary of State for Trade and
the Department of Trade and Industry (DTI) is responsible for granting licenses
and for overseeing telecommunications policy, while the Director General of the
Office of Telecommunications (OFTEL) is responsible, among other things, for
enforcing the terms of such licenses. Applications for licenses are generally
approved by the DTI provided that the DTI determines that the applicant has a
reasonable business plan and the necessary financial resources to provide the
proposed services and there are no overriding considerations against grant of
the application. Applications for frequency assignment are processed and acted
upon separately by the Radiocommunications Agency.
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Since 1992, the British Government has permitted competition in the
provision of international voice service over leased lines interconnected with
the PSTN on certain specified routes. In December 1996, the British Government
introduced the International Facilities License (IFL) which authorizes holders
to provide international telecommunications services over their own
international infrastructure and/or through ownership interest in international
undersea cables.
We have all of the required licenses to provide international services in
the United Kingdom. We provide certain services in the United Kingdom under
registrable class licenses. In addition, through our U.K. subsidiary,
WorldxChange Communications Ltd., we have an International Simple Voice Resale
License (the ISVR), under which we are authorized to resell international voice
services. WorldxChange Communications Ltd. is also able to interconnect with,
and lease capacity at wholesale rates from, British Telecom and other public
telecommunications operators by virtue of this license. We also hold an IFL
license which authorizes us to provide international telecommunication services
over our own international infrastructure.
Our customers in the United Kingdom are not yet able to pre-select us as
their long distance carrier. Consequently, they have to dial a four-digit access
code to use our service. EU directives have mandated equal access in the United
Kingdom by January 1, 2000. However, OFTEL is seeking to defer the
implementation of carrier pre-selection in the United Kingdom until a later
date.
BELGIUM. In December 1997, the Belgian Federal Parliament enacted a new
Telecommunications Law establishing January 1, 1998 as the date for full
liberalization of the Belgian telecommunications market, including voice
telephony. Under this law, separate licenses are required to operate public
telecommunications networks, provide leased lines and supply voice telephony
services. Despite liberalization under the new Telecommunications Law, Belgium's
regulatory framework remains partly incomplete because measures required by EU
Directives--in particular, those pertaining to systems and licensing--have yet
to be implemented. As a result, authorizations continue to be granted under a
provisional licensing regime.
As a provider of voice telephony services in Belgium, we are required to
have a voice telephony license. We recently obtained this license from the
Belgium Minister for Telecommunications. Our license expires in January 2014. We
have interconnection in Belgium through an agreement with Belgacom.
Our customers may not yet pre-select us as their long distance carrier.
Therefore, they must dial a four-digit access code to use our service. Belgian
regulatory authorities have not yet introduced the regulations setting forth the
criteria that private carriers must satisfy to offer pre-selection to their
customers. However, Belgacom has submitted to Belgian regulators a proposal for
allowing carriers such as us to establish pre-selection for their customers. We
expect to be able to begin offering pre-selection to our Belgian customers
within approximately the next 12 months, although no assurance can be given in
this regard.
FRANCE. Licensed private service providers have been authorized to provide
domestic and international long distance voice telephony services in France
since January 1, 1998. The establishment and operation of a public
telecommunications network and the provision of voice telephony are subject to
separate individual licenses, which are granted by the Minister charged with
oversight of telecommunications upon recommendation of France's independent
regulatory authority, the Authorite de Regulation des Telecommunications (ART).
Carriers that desire to own and control transmission infrastructure in
France need an infrastructure license (License L33-1) from the ART. A license
34-1 is required to provide voice telephony only. Our French subsidiary,
WorldxChange Communications, S.A., obtained its voice telephony license during
the third quarter of 1998. This license enables us to provide all of our current
services in France.
We lease our transmission lines in France and are therefore not required to
have an infrastructure license. However, we are also unable to take advantage of
lower access charges available through France Telecom to carriers with their own
infrastructure.
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Currently, our customers may not pre-select our service and must dial a
four-digit access code to use our service. Seven carriers that have agreed to
interconnect on a national basis to the French public switched telephone network
in a substantial number of markets have been granted single digit access for
their customers.
GERMANY. The German Telecommunications Act of July 25, 1996 (the German
Telecommunications Act) liberalized all telecommunications activities, but
postponed effective liberalization of voice telephony until January 1, 1998. The
German Telecommunications Act has been complemented by several Ordinances. The
most significant Ordinances concern license fees, rate regulation,
interconnection, universal service fees, frequencies and consumer protection.
Under the German regulatory scheme, a license is required for the operation
of transmission lines. There are three infrastructure license classes: mobile
telecommunications (license class 1); satellite (license class 2); and
telecommunications services for the general public (license class 3). The
provision of "voice telephone service," which includes services involving
switching in Germany over a privately owned telecommunications network, requires
a license Class 4. We received a license Class 4 during the second quarter of
fiscal 1998.
The German Telecommunications Act and the Network Access Ordinance require
public telecommunications network operators to offer interconnection at the
request of other network interconnection operators. This requires Deutsche
Telekom to allow other providers interconnection to its telecommunications
networks. During the fourth quarter of 1998, we entered into an interconnection
agreement with Deutsche Telekom, which expired at the end of February 1999. In
June 1999, we entered into a new interconnection agreement with Deutsche
Telekom.
THE NETHERLANDS. The Dutch Telecommunications Act of 1998 (Dutch Telecom
Act), which became effective December 15, 1998, provides the existing regulatory
framework for the provision of telecommunications services in the Netherlands.
The new regime closely parallels the EU Licensing Directive, requiring
individual licenses only for the use of spectrum. All other services, including
the installation and provision of public telecommunications networks, leased
lines and broadcasting networks, may be provided pursuant to registration. Our
Dutch operating subsidiary became licensed and registered in The Netherlands
during the first quarter of fiscal 1997.
SWEDEN. Sweden's telecommunications market has been deregulated since July
1, 1993. The Post and Telestryrelsen (PTS) was created to issue licenses and
monitor compliance with telecommunications regulations. The agency is also
responsible for number planning and spectrum allocation.
The regulatory regime is quite liberal according to international standards,
and, for the most part, appears to be in compliance with the EU Licensing
Directive. Only a few important telecommunications services are regulated. A
declaration (notification) is required for companies wishing to provide, over a
publicly available network, fixed telephony, mobile services, any other
telecommunications service which requires allocation of capacity from a
numbering plan for telephony, and network capacity (including leasing lines).
Companies may commence operations immediately upon filing the declaration with
the PTS. Our Swedish operating subsidiary filed its declaration with the PTS in
March 1998.
An individual license is required only where a service provider maintains a
significant presence in the market. The PTS will issue a determination of
whether a license is required upon application. Licenses generally are granted
except where the applicant clearly is not capable of pursuing the activity on a
permanent basis and with adequate capacity and quality. All operator licenses
within a specific category are subject to the same conditions, regardless of
whether the operator is or is not from an EU member state.
Uncertainty in the Swedish market could be created by the fact that a
carrier's unregulated operations may expand and at some point require an
individual license. However, operators may request an advance ruling as to
whether an individual license is required, which generally takes up to six
weeks.
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AUSTRALIA
The provision of telecommunications services in Australia is principally
regulated by the Telecommunications Act of 1997 and the Trade Practices Act of
1974.
The Telecommunications Act regulates the use of telecommunications
facilities to provide telecommunications carriage and content services. The
Australian Communications Authority (ACA) is responsible for administering the
Telecommunications Act, including licensing telecommunications carriers,
ensuring compliance with carrier license conditions and carriage service
provider rules and monitoring industry participants' performance and service
quality.
There are three principal classes of telecommunications operators under the
Telecommunications Act:
- Carriers -- which own the infrastructure used to provide carriage services
to the public;
- Carriage service providers -- which use infrastructure owned by carriers
to offer carriage service to the public; and
- Content service providers -- which use carriage services supplied by a
carriage service provider to supply content services to the public.
A carrier license is required to own most types of transmission
infrastructure that are used for the provision of telecommunications services to
the public, including cable networks that connect distinct places in Australia,
mobile telephony networks, certain fixed radiocommunications transmitters and
satellites. A carrier license is not required to own infrastructure such as
switches, operational support systems, and databases.
We operate in Australia through our subsidiary, WorldxChange Pty. Limited,
which is a carriage service provider.
The Trade Practices Act of 1974 governs restrictive trade practices and
consumer protection in Australia. In addition, the Trade Practices Act provides
a mechanism for carriers and carriage service providers to gain access to each
other's services and some facilities. The Trade Practices Act is administered by
the Australia Competition and Consumer Commission (ACCC). The ACCC may declare a
carriage service (Declared Service) if the ACCC considers that the declaration
of the service would promote the long-term interests of end-users. A carrier or
carriage service provider must comply with certain standard access obligations
in supplying Declared Services.
The regulatory regime provided by the Trade Practices Act encourages access
providers and access seekers to reach commercial agreements on the supply of
Declared Services. If an agreement can not be reached, the ACCC has the power to
arbitrate. If an access provider has not given an access undertaking, the ACCC
has full discretion to determine the terms and conditions of access that it
considers reasonable.
In addition to the Telecommunications Act and the Trade Practices Act,
WorldxChange Pty. Limited is required to comply with various other federal,
state and local government legislation, regulations, codes, statements of policy
and court decisions affecting telecommunications providers.
NEW ZEALAND
The Telecommunications Act of 1987 opened the New Zealand telecommunications
market to competition effective April 1, 1989. Although the New Zealand
telecommunications market is comparatively deregulated, like other New Zealand
businesses, we are subject to the Commerce Act 1986, which prohibits restrictive
trade practices that have the purpose or effect of substantially lessening
competition. The New Zealand government is currently reviewing the Commerce Act,
which may be amended to make these provisions more stringent.
The Commerce Act also prohibits any person who has a dominant position in a
market from using that position for the purpose of restricting the entry of
others into any market, preventing or deterring others from engaging in
competitive conduct in any market or eliminating others from any market.
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The Consumer Guarantees Act 1993 implies certain guarantees in respect of
the supply of goods or services to consumers and provides consumers with
remedies against suppliers and manufacturers of such goods and services in
respect of any failure to comply with such guarantees.
The Telecommunications (International Services) Regulations 1994 apply to
all persons who establish, operate and maintain facilities in New Zealand for
the purpose of providing to other persons in New Zealand, leased circuits that
are connected both with public networks in New Zealand and with public networks
in the territory of the operator that is provided with such leased circuits or
public switched telecommunications services to or from territories outside New
Zealand. Any person to whom the regulations apply must apply to the Secretary of
Commerce to become a registered operator. Registered operators must comply with
certain conditions. Our operating subsidiary is a registered operator under
these regulations.
Like all businesses in New Zealand, we are also subject to the Fair Trading
Act 1986 which prohibits misleading and deceptive conduct, making false
representations and unfair trade practices.
Under the Overseas Investment Regulations 1995, certain proposals by our
operating subsidiary, WorldxChange Limited, to acquire securities in a New
Zealand entity, to acquire the assets of a New Zealand business or to acquire
certain land in New Zealand require the consent of the Minister of Finance,
acting through the Overseas Investment Commission, and also the Minister of
Lands, in relation to proposals to acquire certain land. This is because our
operating subsidiary is an "overseas person" for the purposes of such
legislation. No consent is required if the value of the transaction is below
NZ$10 million.
CANADA
The domestic long distance market in Canada has been open to resale
competition since 1990 and to facilities-based competition since 1992.
Foreign-owned resellers competing in the Canadian domestic long-distance market
are neither regulated nor subject to any foreign ownership restrictions or
licensing requirements.
Under the WTO Agreement, Canada agreed to end Teleglobe Canada's
long-standing monopoly on the provision of Canada--overseas transmission
facilities and services effective on October 1, 1998. An international telecom
service provider licensing regime was introduced by the Canadian Radio-
television and Telecommunications Commission effective on January 1, 1999,
applicable to Canadian and foreign carriers and resellers alike. We obtained a
license authorizing us to provide international long distance services in Canada
in the first quarter of 1999, and we are subject to licensing conditions
regarding anti-competition conduct, traffic reporting and payment of
contribution charges (which are similar to access charges in the United States).
CHILE
The Chilean telecommunications sector has been opened to competition since
1992. There are no restrictions on foreign ownership of telecommunications
service providers. All telecommunications service providers must obtain a
concession or license from the Ministry of Transport and Telecommunications.
Our Chilean subsidiary, WorldxChange Communications, S.A. has obtained an
Intermediate Telecommunications Service Concession from the Ministry of
Transport and Telecommunications. We have installed a switch in Santiago and
have entered into a signal transport agreement with ENTEL. We have obtained
interconnection for our operations in Chile.
GUATEMALA
The telecommunications sector in Guatemala has been opened to competition
since 1996 with the enactment of the Telecommunications Law. As a result, all
telecommunications services previously reserved to the state-owned monopoly
provider, EMPRESA GUATEMALTECA DE TELECOMMUNICACIONES (TELGUA), are now fully
open to competition and local, long distance (national and international), and
value-added services may be provided by new operators using their own facilities
or by reselling the
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facilities of other carriers. All providers must register with the
SUPERINTENDENCIA DE TELECOMMUNICACIONES (SIT).
Our Guatemalan subsidiary, WorldxChange Communications, S.A., has registered
with the SIT as a commercial operator of a telecommunications network. We have
installed a switch in Guatemala City and have entered into an interconnection
agreement with TELGUA. In addition, we are currently requesting registration
with the SIT as a user of satellite facilities and as an operator of an
international gateway.
EL SALVADOR
All aspects of the telecommunications sector in El Salvador -- including
local, domestic and international long distance, and value-added services --
have been fully open to competition since 1997. The state-owned telephone
company, ANTEL (currently CTE Antel Telecom), was also privatized. Licensing
procedures for facilities-based and resale carriers are not burdensome.
Interconnection is mandated and Salvadorian law designates a list of essential
network facilities that must be offered to all telecommunications carriers on a
non-discriminatory basis. El Salvador imposes no foreign ownership restrictions
on telecommunications providers.
Our Salvadoran subsidiary, WorldxChange Communications, S.A. de C.V., has
obtained access code number 151 and has been registered as a telecommunications
provider with the SUPERINTENDENCIA GENERAL DE TELECOMUNICACIONES (SIGET). We
have started negotiating an interconnection agreement with CTE Antel Telecom,
but the negotiations have been delayed due to the incumbent's lack of capacity
for new entrants. If an interconnection agreement cannot be reached with CTE
Antel Telecom, an alternative will be to negotiate an agreement WITH TELEFONICA
EL SALVADOR, S.A. DE C.V., one of the largest competitive operators in the
country. We currently have no operations in El Salvador, but we anticipate that
we will begin operations in El Salvador as soon as we finalize our
interconnection negotiations.
EMPLOYEES
As of June 30, 1999, we employed 917 people, including officers,
administrative and sales personnel. We consider our relationship with our
employees to be good.
PROPERTIES
Our principal offices are located at 9999 Willow Creek Road, San Diego,
California, where we occupy approximately 36,100 square feet under a lease that
expires on August 31, 2002. The lease provides for annual lease payments of
$398,000, subject to annual adjustment.
We also maintain a 24,300 square-foot office at 9775 Businesspark Avenue,
San Diego, California, which houses our human resources, technical and certain
other corporate functions. The lease expires on July 31, 2002 and provides for
annual lease payments of $253,812.
We lease all of the facilities in which our switches are installed. These
leases are generally multi-year leases and provide for aggregate annual lease
payments of approximately $536,000, subject to annual adjustment.
In addition, our foreign operating subsidiaries lease facilities for their
respective corporate offices and switch sites. The aggregate annual lease
payments for these leases total approximately $1.9 million, subject to annual
adjustment.
LEGAL PROCEEDINGS
In May 1997, the California Public Utilities Commission issued an order
revoking our authority to provide intrastate calling service in California and
imposing certain other fines and penalties, including, among other things, a
$19.6 million fine, against us based on the CPUC's finding that we had violated
California laws and regulations requiring us to obtain prior consumer
authorization before switching consumers' long distance carriers. We have paid
$2.0 million of the $19.6 million fine, with the balance suspended so long as we
are not found to have committed any future violations of statutes or CPUC
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directives. Under the CPUC's order, the sanctions and fines are binding on any
successor to us, unless otherwise ordered by the CPUC, which could materially
adversely affect our marketability. We have implemented a number of policies and
procedures designed to help reduce the likelihood of future allegations of the
kind leading to the CPUC's order. However, there can be no assurance that
additional allegations of wrongdoing will not be brought against us in the
future or that, if such allegations are made, that they would not result in
substantial expense and/or liability to us. For example, if such allegations
were to be made in California and we were found to have violated statutes or any
CPUC directives, we would be subject to paying the $17.6 million portion of the
CPUC fine that is currently suspended, as well as potentially other fines and
penalties, which could be substantial. If we were required to pay the suspended
portion of the CPUC fine and/or any such additional fines or penalties, our
business would be harmed and the price of our common stock would be depressed.
In September 1995, the California Attorney General notified us that it was
investigating alleged violations by us of certain consumer protection laws. We
commenced negotiations for a settlement with the California Attorney General,
but these negotiations were terminated in 1997 in connection with the CPUC
proceedings described above without any settlement agreement. It is possible
that the California Attorney General could reopen its investigation of us or
commence a lawsuit against us based on the same or new or additional allegations
of wrongdoing by us. If such investigation were to be reopened or such lawsuit
were to be commenced, we would be forced to respond and defend ourselves, which
could result in significant expense and diversion of our management's time and
resources. In addition, we could incur significant liability pursuant to a
settlement or adverse judicial ruling in connection with any such proceedings.
We were also notified in September 1995 by the attorneys general of five
other states that they were investigating alleged violations by us of certain
consumer protection laws. We settled these allegations by paying an aggregate
amount of $475,000 and, without admitting liability, consenting to civil
injunctions.
We are a party, from time to time, to certain legal and administrative
proceedings, claims and inquiries that arise in the ordinary course of our
business, as well as to certain other litigation, some of which proceedings,
claims and inquiries involve claims for substantial amounts of damages. Although
the ultimate outcome of these proceedings, claims and inquiries is uncertain, we
do not believe that any of these proceedings, claims or inquiries will
materially harm our business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our board of directors is divided into two classes. See "Description of
Capital Stock-- Anti-Takeover Effects." Each of our directors serves a two year
term and one class is elected each year by our shareholders, commencing at the
annual shareholders' meeting in 2000. Directors hold office until their terms
expire and their successors are elected and qualified. The terms of the current
directors will expire as follows: Messrs. Angeloff, Bantoft and Laxalt, in 2000;
and Messrs. Abbott, Anderson, Cerrito and Soren, in 2001. The following table
sets forth the name, age and position of our directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH WORLDXCHANGE
- ---------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Walt Anderson................................. 45 Chairman of the Board
Roger B. Abbott............................... 41 Chief Executive Officer and Director
Christopher Bantoft........................... 52 President, Chief Operating Officer and Director
Edward S. Soren............................... 56 Executive Vice President and Director
Patrick M. Aelvoet............................ 36 Senior Vice President and Chief Financial Officer
Barbara H. Jamaleddin......................... 53 Senior Vice President of Network Operations
Eric G. Lipoff................................ 45 Senior Vice President, Secretary and General Counsel
William Moskowitz............................. 36 Senior Vice President of Information Systems
Dann V. Angeloff.............................. 63 Director
Tom Cirrito................................... 51 Director
Paul Laxalt................................... 77 Director
</TABLE>
WALT ANDERSON has served as chairman of our board of directors since March
1999. Since 1992, Mr. Anderson has been the financial advisor to Gold & Appel
Transfer, S.A., a venture capital company which owns substantial positions in
several public and private telecommunications companies, including WORLDxCHANGE.
Pursuant to a power of attorney, Mr. Anderson has sole investment power over the
shares of our common stock owned by Gold & Appel Transfer, S.A. Mr. Anderson has
been president and chairman of Entree International Ltd. (financial consulting
services) from July 1997 to the present; chairman of Teleport UK Ltd. (satellite
communications) from January 1995 to the present; chairman of US WATS (telecom
services) since May 1997; and chairman and chief executive officer of Esprit
Telecom Group plc. (telecom services) from 1990 to December 1998. Mr. Anderson
is also a director of American Technology Labs (network equipment), Asia Access
Telecommunications (telecom services), Net-Tel Holdings (telecom services) and
Total-Tel USA Communications, Inc. (telecom services).
ROGER B. ABBOTT is a co-founder of WORLDxCHANGE and has served as our chief
executive officer since January 1997 and as a director since May 1, 1998. From
May 1991 to December 1996, Mr. Abbott served as our chief operating officer. Mr.
Abbott was a co-founder of, and served as a director of and held various
executive positions with, Walker & Wellington, an investment/commodities
company, from 1986 to 1992.
CHRISTOPHER BANTOFT has served as our president and chief operating officer
and a director since May 1998. From December 1997 to April 1998, Mr. Bantoft
served as executive vice president of ACC Corp., an international
telecommunications company. From October 1996 to April 1998, he served as
president of ACC Telecom Europe, a subsidiary of ACC Corp. Mr. Bantoft served as
the managing director of ACC Telecom United Kingdom, a subsidiary of ACC Corp.,
from January 1994 to December 1997. From October 1991 to December 1993, Mr.
Bantoft served as managing director of Alcatel Business Systems.
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EDWARD S. SOREN is a co-founder of WORLDxCHANGE, has served as a director
since our inception in May 1991 and as our executive vice president since March
1999. From March 1998 to March 1999, Mr. Soren served as chairman of our board
of directors. From our inception until February 1998, Mr. Soren served as our
president. From 1988 to 1992, Mr. Soren held various executive positions with
Walker & Wellington, an investment/commodities company. From June 1987 to July
1988, Mr. Soren served as president of First Philadelphia Trading Corporation, a
precious metals firm. From September 1980 to July 1983, Mr. Soren served as
director of sales for Monex International, Ltd., one of the largest independent
precious metals firms in the United States.
PATRICK M. AELVOET has served as a senior vice president and our chief
financial officer since May 1999. From March 1998 to April 1999, Mr. Aelvoet
served as our vice president and chief accounting officer. From March 1993 to
March 1998, Mr. Aelvoet served in various capacities at USLD Communications
Corp., most recently as vice president and corporate controller. Prior to
joining USLD Communications Corp. in 1993, Mr. Aelvoet was a senior manager at
KPMG Peat Marwick LLP.
BARBARA H. JAMALEDDIN has served as our senior vice president of network
operations since March 1998. From February 1997 to February 1998, Ms. Jamaleddin
served as our vice president of network support and customer service. From
December 1995 to February 1997, she served as a director of our network control
center. From April 1992 to December 1995, Ms. Jamaleddin acted as the director
of multimedia and strategic services for Sprint. From February 1988 to April
1992, Ms. Jamaleddin served as the director of the national operations control
center for Sprint.
ERIC G. LIPOFF has served as our general counsel since January 1997 and as a
senior vice president and our general counsel since March 1998. Since October
1998, Mr. Lipoff has also served as our secretary. From 1985 to 1996, Mr. Lipoff
was a partner in the law firm of Raring & Lipoff where he specialized in
telecommunications law and investment and business litigation. From our
inception in May 1991 to December 1996, Raring & Lipoff served as our regulatory
counsel. From 1982 to 1985, Mr. Lipoff served as director of compliance for the
Monex group of companies, which included a broker-dealer and futures commission
merchant. Mr. Lipoff previously practiced law with several southern California
law firms.
WILLIAM MOSKOWITZ has served as our senior vice president of management
information systems since June 1999. From June 1996 to June 1999, Mr. Moskowitz
was a director and chief engineer of software development for Xerox corporation.
From June 1995 to June 1996, Mr. Moskowitz served as a senior manager in the
user support and software development department of MCI Telecommunications. Mr.
Moskowitz also served as a software development manager for MCI
Telecommunications from September 1991 to June 1995.
DANN V. ANGELOFF has served as a director since May 1998. Mr. Angeloff
founded the Angeloff Company, a corporate financial advisory firm, in 1976 and
has served as its president since such date. Mr. Angeloff serves as a director
of AremisSoft Corporation, Balboa Capital Corporation, Compensation Resource
Group, Nicholas-Applegate Growth Equity Fund, Public Storage, Inc., Ready Pac
Produce, Inc., Royce Medical Company and topjobs.net plc. He is a former trustee
of the University of Southern California and is a university counselor.
TOM CIRRITO has served as a director since April 1999. Mr. Cirrito is a
general partner of Atocha, L.P., a Texas limited partnership which owns
substantial interests in several public and private telecommunications
companies, including WORLDxCHANGE. He has also served from June 1998 to the
present as chairman of the board of Digital Commerce Corporation, a provider of
commercial and government e-commerce solutions, and from January 1999 to the
present as a director of Paradigm 4 Corporation, a provider of wireless data
solutions. He served from June 1993 until May 1996 as director and president,
consumer division, of Telco Communications Group, and from May 1993 to April
1996 as president and chief executive officer of Long Distance Wholesale Club, a
company that he co-founded.
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PAUL LAXALT has served as a director since May 1998. Sen. Laxalt founded the
Paul Laxalt Group, a governmental relations firm, in 1990. From 1974 to 1986,
Sen. Laxalt served as a U.S. Senator. Sen. Laxalt served as the Governor of
Nevada from 1967 to 1971 and as Lieutenant Governor of Nevada from 1963 to 1967.
BOARD COMPOSITION
Our board of directors is currently set at seven directors and is divided
into two classes. See "Description of Capital Stock--Anti-Takeover Effects."
Each of our directors serves a two year term and one class is elected each year
by our shareholders, commencing at the annual shareholders' meeting in 2000.
Directors hold office until their terms expire and their successors are elected
and qualified. The terms of the current directors will expire as follows:
Messrs. Angeloff, Bantoft and Laxalt, in 2000; and Messrs. Abbott, Anderson,
Cerrito and Soren, in 2001.
COMMITTEES OF OUR BOARD OF DIRECTORS
The standing committees of our board of directors consist of an audit
committee and a compensation committee. Ad hoc committees of members of our
board of directors may be convened periodically to address specific matters
affecting our company.
AUDIT COMMITTEE
Our audit committee meets periodically with representatives of our auditors,
Ernst & Young LLP, to make inquiries regarding the manner in which their
respective responsibilities are being discharged in relation to each audit of
our financial statements. Our audit committee recommends to our board of
directors the annual appointment of our auditors, with whom the audit committee
reviews the scope of audit and non-audit assignments and related fees, our
accounting principles and the adequacy of our internal controls. Our audit
committee currently is composed of Mr. Angeloff (chairman) and Sen. Laxalt.
COMPENSATION COMMITTEE
Our compensation committee reviews the salaries, bonuses and share ownership
awards for our officers. Our compensation committee currently is composed of
Sen. Laxalt (chairman) and Mr. Angeloff.
DIRECTOR COMPENSATION
Mr. Angeloff and Sen. Laxalt each receive a $20,000 annual retainer, plus
$1,000 for each board or committee meeting they attend in person and $500 for
each such meeting attended by telephone. In addition, the chairman of our audit
committee receives an $8,000 annual retainer, and the chairman of our
compensation committee receives a $4,000 annual retainer. We will also reimburse
our directors for their travel and other expenses incurred in connection with
attending meetings of our board of directors and committees thereof.
In May 1998, we granted each of Mr. Angeloff and Sen. Laxalt options to
purchase 25,000 shares of our common stock, which are fully vested. In January
1999, we granted each of Mr. Angeloff and Sen. Laxalt additional options to
purchase 20,000 shares of our common stock. These options vest at the rate of
one-twelfth per month so long as the optionees continue to serve as directors of
our company. All of the options were granted under our 1996 Stock Option
Plan/Stock Issuance Plan, expire on the 10th anniversary of the date of grant
and have an exercise price of $10.00 per share.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to
compensation earned by our chief executive officer and the named executive
officers other than the chief executive officer during fiscal 1998.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING
SALARY($) BONUS($) OPTIONS(#)
------------ ------------ -------------
<S> <C> <C> <C>
Roger B. Abbott(1)..................................................... $ 581,391 $ 1,150,009 --
Chief Executive Officer
Edward S. Soren(1)..................................................... 465,104 919,991 --
Executive Vice President
Eric G. Lipoff......................................................... 1,126,919 -- --
Senior Vice President, Secretary and General Counsel
Rosalind Abbott(2)..................................................... 232,559 460,009 --
Ralph Brandifino(3).................................................... 312,000 -- --
</TABLE>
- ------------------------
(1) Effective as of October 1, 1998, Messrs. Abbott and Soren agreed to reduce
their total annual compensation for each of the next three years to a
maximum of $600,000 and $200,000, respectively.
(2) Rosalind Abbott, Roger Abbott's spouse, resigned as our secretary and as a
director effective as of October 1, 1998.
(3) Ralph Brandifino resigned as our chief financial officer effective as of May
1999.
FISCAL YEAR-END OPTION VALUES
None of the named executive officers exercised any options during fiscal
1998. The following table sets forth certain information with respect to the
value of the options as of September 30, 1998 held by our named executive
officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS(#) FISCAL YEAR END($)(1)
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------ ------------- ------------- ------------- -------------
Eric G. Lipoff........................................ 138,900 111,120 $ 694,500 $ 555,600
Ralph Brandifino(2)................................... 29,530 64,970 88,590 194,910
</TABLE>
- ------------------------
(1) Represents the difference between the estimated fair market value of $10.00
per share as of September 30, 1998 and the exercise prices of the options,
in each case multiplied by the applicable number of shares underlying the
options. The exercise price of all of Mr. Lipoff's options is $5.00 per
share. The exercise price of all of Mr. Brandifino's options were $7.00 per
share.
(2) Mr. Brandifino resigned as our chief financial officer in May 1999. In
connection with his resignation, Mr. Brandifino exercised options to
purchase a total of 50,374 shares of common
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stock, representing all of his vested options to date. Options to purchase
94,126 shares of common stock were cancelled.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
EMPLOYMENT AGREEMENTS
Mr. Abbott has an employment agreement that provides for a salary of $50,000
per month. Under this agreement, we may terminate Mr. Abbott's employment
without cause, as that term is defined in the agreement, upon 90 days' prior
written notice to Mr. Abbott. If Mr. Abbott is terminated other than for cause
or due to death or disability, Mr. Abbott will be entitled to receive a lump sum
cash payment equal to the amount Mr. Abbott would have earned from the date of
termination through July 31, 2002 plus the cost for Mr. Abbott to obtain the
medical, dental, disability and life insurance plans in effect prior to his
termination.
Mr. Bantoft has an employment agreement providing for a salary of $29,167
per month. Mr. Bantoft is also entitled under the agreement to earn up to
$50,000 in additional compensation during each year of his employment, based
upon our achievement of financial performance levels. Mr. Bantoft received a
living allowance of $3,000 per month for the first six months of his employment
with us. In May 1998, we granted Mr. Bantoft options to purchase 400,000 shares
of common stock under our 1996 Stock Option Plan/Stock Issuance Plan. A total of
125,000 of these options are vested, and the remainder vest at the rate of
25,000 shares per quarter. The options expire on the 10th anniversary of the
date of grant and have an exercise price of $10.00 per share.
Mr. Soren has an employment agreement that may be terminated at any time by
us or by Mr. Soren for any reason. The agreement provides that Mr. Soren's
salary may be changed at any time upon 10 days' prior written notice to Mr.
Soren. Mr. Soren's current salary is $16,666 per month.
Mr. Lipoff has an employment agreement that provides for a salary of $83,333
per month and expires on December 31, 1999. Pursuant to the agreement, we cannot
terminate Mr. Lipoff's employment without cause prior to January 1, 2000. Mr.
Lipoff is also entitled under this agreement to a payment upon a change of
control of our company, generally including a merger or consolidation, or a
complete liquidation of our company. The amount of this payment is equal to the
lesser of 5% of the total consideration received by our shareholders in the
change of control transaction or .7% of the combined gross monthly revenues of
our company and WxL Communications Ltd. in the last full month prior to the
month in which the change of control transaction occurs, multiplied by the
number of months prior to and including December 1999 that the change of control
transaction occurs. Mr. Lipoff is also entitled to a payment if certain of our
assets are sold or if we terminate his employment after this offering. Pursuant
to the agreement, we cannot terminate Mr. Lipoff's employment without cause
prior to January 1, 2001, unless Mr. Lipoff's employment is terminated within 30
days after a change of control transaction, as defined above, or the closing of
this offering.
STOCK OPTION PLANS
1999 STOCK OPTION PLAN/STOCK ISSUANCE PLAN
In July 1999, we adopted the Communication TeleSystems International 1999
Stock Option Plan/ Stock Issuance Plan to provide an additional means to
attract, motivate, reward and retain key personnel. The plan gives the
administrator the authority to grant different types of stock and cash incentive
awards and to select participants. While only stock options are contemplated at
this time, the other forms of awards that may be granted give us flexibility to
structure future incentives. Our employees, officers, directors, and
consultants, and those of our subsidiaries, may be selected to receive awards
under the plan. The following summary is qualified by reference to the complete
plan, which has been filed as an exhibit to the registration statement of which
this prospectus is a part.
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SHARE LIMITS. A maximum of 4,000,000 shares of our common stock may be
issued under the plan, or approximately % of our outstanding shares after
giving effect to the public offering. The aggregate number of shares subject to
stock options and stock appreciation rights granted under the plan to any one
person in a calendar year can not exceed 600,000 shares. The aggregate number of
shares subject to all awards granted under the plan to any one person in a
calendar year can not exceed 600,000 shares. Performance-based awards payable
solely in cash that are granted under the plan to any one person in a calendar
year can not provide for payment of more than $1,000,000.
Each share limit and award under the plan is subject to adjustment for
certain changes in our capital structure, reorganizations and other
extraordinary events. Shares subject to awards that are not paid or exercised
before they expire or are terminated are available for future grants under the
plan.
AWARDS. Awards under the plan may be in the form of nonqualified stock
options, incentive stock options, stock appreciation rights, limited stock
appreciation rights (these are stock appreciation rights limited to specific
events, such as in a change in control or other special circumstances),
restricted stock, performance shares, stock units, stock bonuses, or cash
bonuses based on performance. Awards may be granted individually or in
combination with other awards. Any cash bonuses and certain types of stock-based
performance awards under the plan will depend upon the extent to which
performance goals set by the administrator are met during the performance
period.
Awards under the plan generally will be nontransferable, subject to such
exceptions (such as a transfer to a family member or to a trust) as may be
authorized by the administrator.
Nonqualified stock options and other awards may be granted at prices below
the fair market value of the common stock on the date of grant. Restricted stock
awards can be issued for nominal or the minimum lawful consideration. Incentive
stock options must have an exercise price that is at least equal to the fair
market value of the common stock (110% of fair market value of the common stock
for holders of 10% of our common stock) on the date of grant. These and other
awards may also be issued solely or in part for services.
ADMINISTRATION. The plan will be administered by our board of directors or
a committee of directors appointed by the board. Currently, our board has
delegated general administrative authority over the plan to the compensation
committee.
The administrator of the plan has broad authority to:
- designate recipients of awards;
- determine or modify, subject to any required consent, the terms and
provisions of awards, including the price, vesting provisions, terms of
exercise and expiration dates;
- approve the form of award agreements;
- determine specific objectives and performance criteria with respect to
performance awards;
- construe and interpret the plan; and
- reprice, accelerate and extend the exercisability or term, and establish
the events of termination or reversion of outstanding awards.
CHANGE IN CONTROL. Upon a change in control event, the administrator may
provide that each option and stock appreciation right will become immediately
exercisable, restricted stock will immediately vest free of restrictions, and
the number of shares, cash or other property covered by each performance award
will be issued to the holder of the award. Generally speaking, a change in
control event will be triggered under the plan:
- upon dissolution or liquidation;
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- upon the sale of all or substantially all of our assets to an entity that
is not an affiliate;
- in connection with certain mergers or consolidations of our company into
or with another entity where our shareholders before the transaction own
less than 50% of the surviving entity; or
- if a change in ownership of more than 50% of our outstanding common stock
occurs.
The administrator of the plan may also provide for alternative settlements
(including cash payments) of awards, the assumption or substitution of awards,
or other adjustments of awards, in connection with a change in control or other
reorganization of our company.
PLAN AMENDMENT, TERMINATION AND TERM. Our board of directors may amend,
suspend or discontinue the plan at any time, but no such action will affect any
outstanding award in any manner materially adverse to a participant without the
consent of the participant. Plan amendments will generally not be submitted to
shareholders for their approval unless such approval is required by applicable
law.
The plan will remain in existence as to all outstanding awards until such
awards are exercised or terminated. The maximum term of options, stock
appreciation rights and other rights to acquire common stock under the plan is
10 years after the initial date of award, subject to provisions for further
deferred payment in certain circumstances. No award can be granted after July
29, 2009.
PAYMENT FOR SHARES. The exercise price of options or other awards may
generally be paid in cash or, subject to certain restrictions, shares of our
common stock or a note satisfying the requirements of the plan. Subject to any
applicable limits, we may finance or offset shares to cover any minimum
withholding taxes due in connection with an award.
FEDERAL TAX CONSEQUENCES. The current federal income tax consequences of
awards authorized under the plan follow certain basic patterns. Generally,
awards under the plan that are includable in the income of the recipient at the
time of exercise, vesting or payment (such as nonqualified stock options, stock
appreciation rights, restricted stock and performance awards), are deductible by
us, and awards that are not required to be included in the income of the
recipient (such as incentive stock options) are not deductible by us.
Generally speaking, Section 162(m) of the Internal Revenue Code provides
that a public company may not deduct compensation (except for certain
compensation that is commission or performance-based) paid to its chief
executive officer or to any of its four other highest compensated officers to
the extent that the compensation paid to such person exceeds $1,000,000 in a tax
year. The regulations exclude from these limits compensation that is paid
pursuant to a plan in effect prior to the time that a company is publicly held.
We expect that compensation paid under the plan will not be subject to Section
162(m) in reliance on this transition rule, as long as such compensation is paid
(or stock options, stock appreciation rights, and/or restricted stock awards are
granted) before the earlier of a material amendment to the plan or the annual
shareholders meeting in the year 2003.
In addition, we may not be able to deduct certain compensation attributable
to the acceleration of payment and/or vesting of awards in connection with a
change in control event should that compensation exceed certain threshold limits
under Section 280G of the Internal Revenue Code.
NON-EXCLUSIVE PLAN. The 1999 Stock Option Plan/Stock Issuance Plan is not
exclusive. Our board of directors (or its delegate), under California law, may
grant stock and performance incentives or other compensation, in stock or cash,
under other plans or authority.
CERTAIN SPECIFIC AWARDS. As of August 16, 1999, options to purchase 14,000
shares of our common stock had been granted under the 1999 Stock Option
Plan/Stock Issuance Plan, and 3,986,000 shares reserved under the plan remain
available for grant purposes.
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THE 1996 PLAN
We also maintain the Communication TeleSystems International 1996 Stock
Option Plan/Stock Issuance Plan. As of August 16, 1999, approximately 2,465,626
shares are covered by currently outstanding options granted under the 1996 plan.
These options were granted for 10-year terms and at exercise prices between
$5.00 and $11.00 per share. Our board of directors or a committee appointed by
the board has the authority to administer such options, and the vesting of such
options may be accelerated in connection with a change in control event on terms
similar to those described above with respect to the 1999 plan. Future awards
will be granted under the 1999 plan and we do not intend to grant new awards
under the 1996 plan.
OTHER MATTERS
In 1981, Mr. Abbott, then 23, was charged and in 1983 subsequently convicted
in California of conspiracy to traffic narcotics.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of June 30, 1999 by the following persons both
immediately prior to and immediately after giving effect to the offering:
- each person who is known by us to own beneficially 5% or more of the
outstanding shares of our common stock;
- each of our directors;
- each of our officers named in the executive compensation table above; and
- all of our directors and executive officers as a group.
Except as indicated in the footnotes to the table, the persons named in the
table have sole voting and investment power with respect to all shares of our
common stock shown as beneficially owned by them, subject to community property
laws where applicable, and are located at our principal offices at 9999 Willow
Creek Road, San Diego, California 92131.
Shares of common stock subject to options or warrants exercisable, or
securities convertible, within 60 days of June 30, 1999 are deemed outstanding
for the purpose of computing the percentage ownership of the person holding
those options, warrants or securities, but are not deemed outstanding for
computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(1) NUMBER PERCENT(1)
- -------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Roger B. Abbott(2)(3)............................. 15,214,857 41.2% 15,214,857 %
Edward S. Soren(3)................................ 7,331,812 19.8% 7,331,812 %
Gold & Appel Transfer, S.A.(4).................... 4,525,043 12.2% 4,525,043 %
Atocha, L.P.(5)................................... 3,833,672 10.4% 3,833,672 %
Eric G. Lipoff(6)................................. 243,095 * 243,095 *
Christopher Bantoft(7)............................ 125,000 * 125,000 *
Ralph Brandifino.................................. 50,374 * 50,374 *
Dann V. Angeloff(7)............................... 36,667 * 36,667 *
Paul Laxalt(7).................................... 36,667 * 36,667 *
All directors and executive officers as a group
(11 persons)(2)(3)(4)(5)(6)(7).................. 30,385,082 81.2% 30,385,082 %
</TABLE>
- ------------------------
* Less than 1%.
(1) Percentage calculation is based upon 36,965,871 shares outstanding (
shares following the offering). The outstanding shares totals give effect to
our issuance of a total of 1,554,763 shares of our common stock in
connection with our acquisition of minority interests in certain
subsidiaries. See "Acquisition of Minority Interests in Subsidiaries."
(2) All shares, other than (i) 1,000,000 shares as to which Mr. Abbott, our
chief executive officer and a director, has sole voting power pursuant to a
voting trust agreement with Mr. Soren (see note 3 below), (ii) 81,176 shares
that are held directly by Mr. Abbott, and (iii) 81,176 shares that are held
directly by Mr. Abbott's spouse, Rosalind Abbott, are jointly held by Mr.
Abbott and Ms. Abbott as community property. Mr. Abbott and Ms. Abbott have
granted the underwriters an option to purchase up to shares of their
common stock pursuant to the underwriters' over-allotment option. Assuming
such option is exercised in full, Mr. Abbott will beneficially own
shares, or approximately %, of our common stock upon consummation of the
offering.
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(3) Includes 1,000,000 shares of common stock as to which Mr. Abbott has sole
voting power and Mr. Soren has sole investment power pursuant to the terms
of a voting trust agreement between Mr. Abbott and Mr. Soren. Mr. Soren has
granted the underwriters an option to purchase up to shares of his
common stock pursuant to the underwriters' over-allotment option. Assuming
such option is exercised in full, Mr. Soren will beneficially own
shares, or approximately %, of our common stock upon consummation of the
offering.
(4) Includes 20,000 shares issuable upon the exercise of a warrant held by Gold
& Appel Transfer, S.A. Under a power of attorney from Gold & Appel Transfer,
S.A., Walt Anderson, the chairman of our board of directors, has sole
investment power over these shares and as a result may be deemed to be the
beneficial owner of such shares. Mr. Anderson, however, disclaims beneficial
ownership of these shares. Does not include a total of 2,727,270 shares of
common stock issuable upon conversion of the Series A Convertible Preferred
Stock held by Gold & Appel Transfer, S.A. If such shares of Series A
Convertible Preferred Stock were to be fully converted, Gold & Appel
Transfer, S.A. will beneficially own 7,252,313 shares, or approximately
%, of our common stock upon consummation of the offering. The address for
each of Gold & Appel Transfer, S.A. and Walt Anderson is c/o Gold & Appel
Transfer, S.A., Omar Hodge Building, Wickhams Cay, Road Town, Tortula,
British Virgin Islands.
(5) Tom Cirrito, one of our directors, is a general partner of Atocha, L.P., and
as a result may be deemed to have beneficial ownership of these shares. The
address for each of Atocha, L.P. and Tom Cirrito is c/o Atocha, L.P., 6429
Georgetown Pike, McLean, Virginia 22101.
(6) Includes a total of 215,295 shares issuable pursuant to options that were
exercisable as of June 30, 1999 or within 60 days of such date.
(7) Represents shares issuable pursuant to options that were exercisable as of
June 30, 1999 or within 60 days of that date.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH FORMER CORPORATE AFFILIATES
During the periods indicated below, we engaged in the transactions described
below with corporate affiliates. We believe that all of these transactions were
on terms at least as favorable to us as would be available from independent
third parties. We have acquired the entities described below or otherwise
terminated the transactions with these former corporate affiliates. As the
mergers with CTS Telcom, Inc. and WORLDxCHANGE Ltd. were mergers with entities
under common control, our historical consolidated financial statements include
the operations of CTS Telcom, Inc. and WORLDxCHANGE Ltd. since their respective
inceptions. The transactions described below as they relate to CTS Telcom, Inc.
and WORLDxCHANGE Limited are netted out in our consolidated financial
statements.
CTS TELCOM, INC.
Effective December 1, 1998, CTS Telcom Holdings, Inc., a Delaware
corporation and our wholly owned subsidiary, acquired for no consideration, all
of the outstanding capital stock of CTS Telcom, Inc., a Florida corporation,
from Edward Soren, a director and our executive vice president, and Rosalind
Abbott, a former officer and director of our company. As a result of this
transaction, CTS Telcom, Inc. is now a wholly-owned subsidiary of our company.
Prior to December 1, 1998, Mr. Soren owned 38% and Ms. Abbott owned 62% of
the outstanding capital stock of CTS Telcom, Inc. CTS Telcom, Inc. provided
intrastate and domestic and international long distance services to consumers in
Florida. Prior to December 1, 1998, CTS Telcom, Inc. arranged for the
termination of a portion of our calling traffic and performed certain billing
and collection services for us, for which we were billed as follows:
- $2,003,000 during fiscal 1996;
- $4,277,000 during fiscal 1997;
- $3,168,000 during fiscal 1998; and
- $566,000 during the first two months of fiscal 1999.
We also provided certain billing, collection, accounting and administrative
services and arranged for the termination of call traffic for CTS Telcom, Inc.
We billed CTS Telcom, Inc. for these services as follows:
- $9,949,000 during fiscal 1996;
- $10,729,000 during fiscal 1997;
- $11,372,000 during fiscal 1998; and
- $1,423,000 during the first two months of fiscal 1999.
WORLDxCHANGE LIMITED
Effective December 31, 1998, WxL International-New Zealand, Inc., a Delaware
corporation and our wholly-owned subsidiary, acquired all of the outstanding
capital stock of WORLDxCHANGE Limited, a New Zealand corporation, in exchange
for the issuance of 81,176 shares of our common stock to each of Roger Abbott
and Rosalind Abbott, 80,898 shares to Edward Soren, 27,800 shares to Eric Lipoff
(our senior vice president, secretary and general counsel) and 6,950 shares to
Richard Vincent (one of our employees). As a result of this transaction,
WORLDxCHANGE Limited is now an indirect wholly-owned subsidiary of our company.
Prior to December 31, 1998, Mr. Abbott and Ms. Abbott owned approximately
55%, Mr. Soren owned approximately 29%, and Mr. Lipoff owned approximately 10%
of WORLDxCHANGE Limited.
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WORLDxCHANGE Limited arranged for the termination of a portion of our calling
traffic through capacity purchased by WORLDxCHANGE Limited from, among other
sources, certain corporations that are wholly-owned by Raeline Scott, the
fiancee of Mr. Soren. In connection with these arrangements, we were billed as
follows:
- $4,529,000 during fiscal 1996;
- $15,745,000 during fiscal 1997;
- $17,394,000 during fiscal 1998; and
- $2,669,000 during the first three months of fiscal 1999.
We also arranged for the termination of call traffic for WORLDxCHANGE
Limited and billed WORLDxCHANGE Limited as follows:
- $0 during fiscal 1996;
- $85,000 during fiscal 1997;
- $1,115,000 during fiscal 1998; and
- $311,000 during the first three months of fiscal 1999.
WORLDxCHANGE DE MEXICO S.A. DE C.V.
Holly Mead, one of our former employees and the sister of Roger Abbott, and
her husband collectively owned 100% of WORLDxCHANGE de Mexico S.A. de C.V., a
corporation organized under Mexican law. We incurred commission expense of
approximately $507,000 during fiscal 1997 to agents and third parties based upon
contracts between WORLDxCHANGE de Mexico and these agents. These commissions
were paid as a result of operator service traffic delivered to us pursuant to
contracts between WORLDxCHANGE de Mexico and these agents. We did not incur any
commission expense in fiscal 1996 or fiscal 1998. As of March 23, 1998,
WORLDxCHANGE de Mexico assigned all rights and interests in these agent
contracts to us for no consideration, and we are not conducting any further
business with WORLDxCHANGE de Mexico.
TRANSACTIONS WITH CERTAIN SHAREHOLDERS
ATOCHA, L.P.
On September 30, 1998, Atocha, L.P., a limited partnership in which Tom
Cirrito, one of our directors, is a general partner, purchased:
- 553,115 shares of our common stock from Roger Abbott and Rosalind Abbott
for $6,666,667; and
- 276,557 shares of our common stock from Edward Soren for $3,333,333.
On March 22, 1999, we issued 3,000,000 shares of common stock to Atocha,
L.P. for $30,000,000.
GOLD & APPEL TRANSFER, S.A.
On September 30, 1998, we issued 788,127 shares of common stock to Gold &
Appel Transfer, S.A. for $10,000,000. Walt Anderson, the chairman of our board
of directors, has sole investment power over the shares of our common stock
owned by Gold & Appel Transfer, S.A. pursuant to a power of attorney. Effective
December 22, 1998, we issued an additional 871,087 shares of our common stock to
Gold & Appel Transfer, S.A. for $10,000,000. As an inducement to Gold & Appel
Transfer, S.A. to complete the acquisition of the additional 871,087 shares
prior to the scheduled closing of that acquisition, we issued Gold & Appel
Transfer, S.A. a warrant to purchase up to an additional 20,000 shares of our
common stock. See "Description of Capital Stock--Preferred Stock--Warrants."
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On June 25, 1999, we issued 2,727,270 shares of common stock to Gold & Appel
Transfer, S.A. for $30,000,000. Pursuant to a power of attorney, Walt Anderson,
the chairman of our board of directors, has sole investment power over the
shares of our common stock owned by Gold & Appel Transfer, S.A.
On August 16, 1999, we entered into an agreement to issue 30,000 shares of
our Series A Convertible Preferred Stock to Gold & Appel Transfer, S.A. for
$30,000,000. Each share of Series A Convertible Preferred Stock is convertible
into 90.9091 shares of our common stock provided in the Certificate of
Determination relating to such shares of Series A Convertible Preferred Stock.
See "--Description of Capital Stock--Preferred Stock--Series A Convertible
Preferred Stock."
SEVERANCE AGREEMENT WITH HOLLY MEAD
Holly Mead resigned as a vice president effective July 31, 1998. In
connection with her resignation, we entered into a severance agreement with Ms.
Mead under which Ms. Mead will receive a total of $574,750 in severance benefits
over a period of 18 months from the effective date of her resignation. Under the
severance agreement, all options granted to Ms. Mead that were not vested were
terminated. Ms. Mead exercised all of the options granted to her that had
vested. Ms. Mead paid the exercise price for these options through a
full-recourse promissory note in favor of WORLDxCHANGE in the aggregate
principal amount of $309,000. The note accrues interest at a rate of 12% per
annum and is due and payable on September 30, 2001.
PAYMENTS TO THE PAUL LAXALT GROUP
Since the third quarter of fiscal 1997, we have utilized the services of the
Paul Laxalt Group, a governmental relations firm of which Sen. Laxalt, one of
our directors, is the founding member. We paid the Paul Laxalt Group a total of
$130,000 in fiscal 1997 and $78,000 in fiscal 1998 for these services. We have
not utilized these services in fiscal 1999.
PAYMENTS TO RARING & LIPOFF
From our inception in May 1991 to December 1996, Raring & Lipoff, a law firm
in which Eric Lipoff, our senior vice president, secretary and general counsel,
was formerly a partner, served as our regulatory counsel. We paid Raring &
Lipoff a total of approximately $617,000 in fiscal 1996 and $224,000 in fiscal
1997 for services provided by Raring & Lipoff to us prior to Mr. Lipoff joining
our company on January 1, 1997.
CERTAIN INDEBTEDNESS OF MANAGEMENT
From time to time since the fourth quarter of fiscal 1994, Roger Abbott and
Rosalind Abbott have jointly borrowed various amounts from us. Since October 1,
1995, the largest aggregate amount outstanding on these loans was $231,907.
These loans bore interest at the rate of 8% per annum and were repaid on
September 30, 1998.
Edward Soren has also borrowed various amounts from us from time to time
since the fourth quarter of 1994. Since October 1, 1995, the largest aggregate
amount outstanding on these loans was $142,723. These loans bore interest at the
rate of 8% per annum and were repaid on September 30, 1998.
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CERTAIN INDEBTEDNESS
OUR CREDIT FACILITY
In March 1997, we and certain of our subsidiaries entered into a credit
facility with Foothill Capital Corporation. Our credit facility extends through
October 31, 2000, until which time we can borrow up to a maximum of $35 million,
subject to borrowing base limitations. Our credit facility consists of a
revolving credit agreement and a term loan and is guaranteed by three of our
shareholders. The available borrowing base under the revolving credit agreement
is determined as a specified percentage of eligible accounts receivable. The
balance outstanding on the revolving credit agreement is reduced by the amount
of payments received on collections of accounts receivable. As of June 30, 1999,
the aggregate amount outstanding under our credit facility was $26.5 million.
Loans under our credit facility accrue interest at an interest rate equal to
prime (8.5% at June 30, 1999) plus a margin of 2.75% on the revolving credit
portion and a margin of 6.75% on the term loan, provided that each of the
interest rates must at all times be at least 8.00%. Our obligations under the
credit facility are secured by a first position in substantially all of our
property.
Our credit facility prohibits us, with some exceptions, from:
- incurring additional debt or guaranteeing additional debt;
- creating or incurring liens on our property and that of certain of our
subsidiaries;
- entering into transactions out of the ordinary course of business;
- making any distribution, declaring or paying any dividend or making any
redemption of capital stock, directly or indirectly;
- entering into transactions resulting in a change of control of our
company;
- making capital expenditures or advances to our foreign subsidiaries beyond
specified limits;
- making certain investments; and
- permitting our tangible net worth to fall below specified levels.
THE TEL-SAVE NOTES
From May 1998 through August 1998, we obtained financing from Tel-Save
Holdings, Inc., in the aggregate amount of $56.2 million. The Tel-Save debt
bears interest at the rate of 12.50% per annum, requires quarterly payments of
interest only and matures on November 30, 2000. Tel-Save Holdings, Inc. has the
right to require us to use an amount equal to 35% of the net proceeds from any
sale of our common stock to prepay the Tel-Save debt. In connection with various
sales of our common stock to Gold & Appel Transfer, S.A. and Atocha, L.P., we
reduced the principal on the Tel-Save debt by a total of $11 million.
The term of the Tel-Save debt will be extended by one year if we make
additional aggregate principal payments of at least $12.25 million, and by two
years if we make additional aggregate payments of principal of at least $21
million. Tel-Save Holdings, Inc. has assigned all of its interest in the
Tel-Save debt to a third party.
As of June 30, 1999, the aggregate amount outstanding under the Tel-Save
debt was $45.2 million. Our obligations under the Tel-Save debt are secured by
(i) a junior lien on substantially all of our assets, and (ii) a pledge by three
of our shareholders of certain of their shares of our common stock.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common stock,
no par value, and 10,000,000 shares of preferred stock, no par value, which can
be issued in one or more series. Immediately following completion of this
offering and assuming no exercise of outstanding stock options, an aggregate of
shares of our common stock will be issued and outstanding and 30,000
shares of our Series A Convertible Preferred Stock will be issued and
outstanding. As of June 30, 1999, our common stock was held of record by 90
persons and, when issued, our Series A Convertible Preferred Stock will be held
by one holder of record.
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of shareholders. Subject to the rights of the
holders of any outstanding preferred stock, holders of our common stock are
entitled to receive ratably any dividends that may be legally declared by our
board of directors and, in the event of liquidation, dissolution or winding up
of our company, to share ratably in all assets remaining after payment of
liabilities. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights. All of our outstanding shares of common stock
are, and all shares of our common stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Our board of directors has the authority to issue up to 10,000,000 shares of
preferred stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by our shareholders. The issuance of
preferred stock could adversely affect the rights of holders of common stock.
The issuance of preferred stock in certain circumstances may have the effect of
delaying, deterring or preventing a change in control of our company, may
discourage bids for our common stock at a premium over the market price of our
common stock and may adversely affect the market price of, and the voting and
other rights of the holders of, our common stock.
SERIES A CONVERTIBLE PREFERRED STOCK
DIVIDENDS. The holders of shares of Series A Convertible Preferred Stock
are entitled to receive, when, as and if declared by our board of directors,
annual dividends equal to $40 per share. If we fail to make a dividend payment,
we are required to pay an additional dividend of 4% per annum on the unpaid
amount.
CONVERTIBILITY. Each share of Series A Convertible Preferred Stock is
convertible into 90.9091 shares of our common stock as described below. The
conversion rate is subject to certain antidilution adjustments that may be
triggered if we:
- effect any stock splits or reverse stock splits of common stock;
- reclassify our common stock into any other security or securities of our
company; or
- make or issue a dividend or other distribution with respect to our common
stock that is payable in securities, properties (other than cash) or
rights of our company other than our common stock.
96
<PAGE>
AUTOMATIC CONVERSION. Each share of Series A Convertible Preferred Stock
will be automatically converted into shares of our common stock at the
conversion rate specified above on the first date on or by which:
- we have completed a registered public offering of our securities;
- at least six months have elapsed since we have completed a registered
public offering of our securities; and
- there is no pending registered public offering by us of our securities.
VOTING RIGHTS. Except as provided by law holders of Series A Convertible
Preferred Stock will not have any voting rights. Under California law, holders
of the Series A Convertible Preferred Stock will have an effective veto right
over certain mergers and like transactions involving us. Upon conversion of any
shares of Series A Convertible Preferred Stock into shares of common stock the
holders of such converted shares will have the voting rights applicable to the
shares of common stock into which such shares are converted.
LIQUIDATION PREFERENCE. If we are voluntarily or involuntarily liquidated
or dissolved or our affairs wound up, holders of our Series A Convertible
Preferred Stock will be entitled to receive out of our assets available for
distribution to shareholders an amount equal to $1,000 per share, plus any
accrued and unpaid dividends on such shares, before any distribution is made to
the holders of our common stock.
WARRANTS
We have issued to Gold & Appel Transfer, S.A. a warrant to purchase 20,000
shares of our common stock at an exercise price of $12.05 per share. This
warrant became exercisable upon issuance and will remain exercisable until
December 15, 2001. We will also issue to Gerard Klauer Mattison & Co., Inc. upon
the closing of this offering a warrant to purchase shares of our common stock
at an exercise price of $ per share. This warrant will become exercisable
beginning on the second anniversary of the closing date of this offering and
will expire five years from the closing date of the offering. In the event of a
change of control of our company, the warrant will become immediately
exercisable. Under the terms of this warrant, a change of control is deemed to
occur if more than 50% of our common stock is transferred to persons or entities
other than our principal shareholders as of the date of issuance of the warrant,
or their affiliates. We have granted to Gerard Klauer Mattison & Co., Inc.
registration rights with respect to the shares underlying their warrant. See
"--Registration Rights."
ANTI-TAKEOVER PROVISIONS
The provisions of our articles of incorporation and bylaws summarized below
may have the effect of delaying, deterring or preventing a change in control of
our company, may discourage bids for our common stock at a premium over the
market price of our common stock and may adversely affect the market price of,
and the voting and other rights of the holders of, our common stock.
Our articles of incorporation authorize issuance of up to 10,000,000 shares
of preferred stock, with such characteristics that may tend to discourage a
merger, tender offer or proxy contest, as described in "--Preferred Stock"
above. Our bylaws also limit the ability of shareholders to raise certain
matters at a meeting of shareholders without giving advance notice. In addition,
so long as we are a "listed corporation" as defined in Section 301.5(d) of the
California Corporations Code:
- cumulative voting will be eliminated;
97
<PAGE>
- as long as the size of our board of directors is at least six but less
than nine directors, our board of directors will be divided into two
classes of directors with each class serving staggered two-year terms;
- and, if the number of directors is increased to nine or more, our board of
directors will be divided into three classes serving staggered three-year
terms.
Our articles of incorporation also provide that the provisions in our
articles of incorporation relating to the classification of our board of
directors and the prohibition on cumulative voting cannot be amended without the
approval of shareholders representing at least 66 2/3% of our outstanding common
stock.
REGISTRATION RIGHTS
We have granted registration rights with respect to our common stock as
described below:
- We have granted substantially similar piggyback and demand registration
rights to each of Gold & Appel Transfer, S.A., Atocha, L.P., TVG Asian
Communications Fund, Gerard Klauer Mattison & Co., Inc. and Roger Abbott.
The holders of these rights may in their discretion require us to include
their shares of our common stock in future registration statements filed
by us. In addition, the holders of these rights may require us to file a
registration statement with respect to the resale of these shares one time
beginning two years after the date of the applicable registration rights
agreements. These registration rights cover a total of 23,881,013 shares
of our common stock held by these shareholders and an additional
shares issuable upon exercise of the warrant to be issued to Gerard Klauer
Mattison & Co., Inc. in connection with this offering.
- We have also granted demand registration rights to Gold & Appel Transfer,
S.A. with respect to a total of 2,727,270 shares of our common stock
issuable upon the conversion of the 30,000 shares of our Series A
Convertible Preferred Stock sold to Gold & Appel Transfer, S.A. in August
1999. These rights are substantially similar to the registration rights
granted to Gold & Appel Transfer, S.A. as described above.
The piggyback registration rights described above terminate when the holder
of the registration rights is able to resell the underlying shares of common
stock under Rule 144 of the Securities Act within a six month period.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of our common stock is U.S. Stock Transfer
Corporation.
REPORTS TO SHAREHOLDERS
We will furnish our shareholders with annual reports containing financial
statements audited by our independent accountants and quarterly reports for the
first three quarters of each year containing unaudited financial statements.
98
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering.
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of outstanding options and warrants and
assuming our issuance of a total of 1,554,763 shares of our common stock in
connection with the planned acquisition of minority interests in certain
subsidiaries and the issuance of 2,727,270 shares of our common stock upon the
conversion of our Series A Convertible Preferred Stock. See "Acquisition of
Minority Interests in Subsidiaries" and "Description of Capital Stock--Preferred
Stock--Series A Convertible Preferred Stock." Of these shares, all of the shares
sold in this offering will be freely tradable without restriction under the
Securities Act unless purchased by our affiliates.
The remaining 39,693,144 shares of our common stock held (or to be held) by
existing shareholders are, or will be upon issuance, restricted securities.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.
As a result of the lock-up agreements and the provisions of Rules 144,
144(k) and 701 described below, these restricted shares will be available for
sale in the public market as follows:
- 5,262,175 shares will have been held long enough to be sold under Rule
144(k) immediately after this offering and will not be subject to a
lock-up agreement;
- an additional 235,749 shares will have been held long enough to be sold
under Rule 144 or Rule 701 beginning 90 days after the date of this
prospectus and will not be subject to a lock-up agreement;
- an additional 27,185,914 shares will have been held long enough to be sold
under Rule 144 or Rule 701 beginning 181 days after the date of this
prospectus; and
- the remaining 7,009,306 outstanding shares may be sold under Rule 144 or
144(k) after they have been held for the required time.
LOCK-UP AGREEMENTS
We and our directors, officers and certain shareholders have agreed that we
will not offer, sell, contract to sell, announce our intention to sell, pledge
or otherwise dispose of, directly or indirectly, any shares of our common stock
or securities convertible into or exchangeable or exercisable for any shares of
common stock, without the prior written consent of the representatives of the
underwriters for a period of 180 days after the date of this prospectus.
RULE 144
In general, under Rule 144, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this offering,
assuming that the total outstanding shares will be increased by the
issuance of 2,727,270 shares of common stock upon conversion of the Series
A Convertible Preferred Stock; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
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<PAGE>
Sales under Rule 144 are also subject to manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144 discussed above.
RULE 701
In general, under Rule 701, any of our employees, consultants or advisors
who purchases or receives shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus.
Non-affiliates will be able to sell their shares subject only to the
manner-of-sale provisions of Rule 144. Affiliates will be able to sell their
shares without compliance with the holding period requirements of Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of a total of 23,881,013
shares of our common stock, a holder of a warrant exercisable into up to
shares of our common stock and the holder(s) of the 2,727,270 shares of our
common stock issuable upon the conversion of the 30,000 shares of our Series A
Convertible Preferred Stock will be entitled to rights with respect to the
registration of their shares under the Securities Act. See "Description of
Capital Stock--Registration Rights." Except for shares purchased by affiliates,
registration of their shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration.
STOCK OPTIONS
Immediately after this offering, we intend to file registration statements
under the Securities Act covering the shares of common stock reserved for
issuance upon the exercise of options granted or to be granted under our stock
option plans and upon the exercise of options which have been granted outside of
our stock option plans. The registration statement is expected to be filed and
become effective as soon as practicable after the closing of this offering.
Accordingly, shares registered under the registration statement will, subject to
Rule 144 volume limitations applicable to affiliates, be available for sale in
the open market beginning on the date the registration statement covering these
shares becomes effective.
We are unable to estimate the number of shares that may be sold in the
future by our existing shareholders. Sales of substantial amounts of our common
stock in the public market could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
100
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Gerard Klauer Mattison & Co., Inc. and are acting as representatives,
have severally, but not jointly, agreed to purchase from us the following
respective number of shares of common stock:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Gerard Klauer Mattison & Co., Inc..........................................
............................................
-----------------
-----------------
-----------------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to some conditions precedent, and that the underwriters will be
obligated to purchase all of the shares of common stock offered in this
prospectus, other than those shares covered by the over-allotment option
described below, if any are taken. The underwriting agreement provides that in
the event of a default by an underwriter, in some circumstances the purchase
commitments of non-defaulting underwriters may be increased.
The underwriters propose to offer the shares of common stock to the public
initially at the public offering price set forth on the cover page of this
prospectus and to some dealers at a price that represents a concession not in
excess of $ per share. After the initial offering of the shares of
common stock, the offering price and concession and discount to dealers may be
changed by the representatives of the underwriters.
Roger Abbott and Edward Soren have granted to the underwriters an option
exercisable by the representatives of the underwriters, expiring at the close of
business on the 45th day after the date of this prospectus, to purchase up to
additional shares of common stock at the offering price, less underwriting
discounts. This option may be exercised only to cover over-allotments in the
sale of the shares of common stock. To the extent that the option is exercised,
each underwriter will become obligated, subject to certain conditions, to
purchase a number of additional shares of the common stock proportionate to each
underwriter's initial amount reflected in the foregoing table.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
The following table summarizes the compensation we will pay:
<TABLE>
<CAPTION>
TOTAL
------------------------------
<S> <C> <C> <C>
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------- -------------- --------------
Underwriting discounts paid by us......................................
</TABLE>
Our expenses in connection with this offering are estimated to be
approximately $ .
In connection with the offering, we have granted to Gerard Klauer Mattison &
Co., Inc. a warrant to purchase shares of common stock at an exercise
price equal to the greater of 1.44 times our annualized revenues based on the
last three months prior to the closing of this offering or 120% of the offering
price to the public. The warrant will become exercisable two years after the
offering and will
101
<PAGE>
expire five years after the offering. The warrant will also have registration
rights with respect to the common stock issuable upon the exercise of the
warrant, exercisable by the holder beginning two years after the offering.
We, our directors, executive officers and some of our shareholders have
agreed that we will not offer, sell, contract to sell, announce our intention to
sell, pledge or otherwise dispose of, directly or indirectly, any shares of our
common stock or securities convertible into or exchangeable or exercisable for
any shares of common stock, without the prior written consent of the
representatives of the underwriters for a period of 180 days after the date of
this prospectus.
The representatives of the underwriters on behalf of the underwriters may
engage in over-allotment, stabilizing transactions, syndicate covering
transactions, penalty bids and "passive" market making in accordance with
Regulation M under the Securities Exchange Act of 1934. Over-allotment involves
syndicate sales in excess of the offering size, which creates a syndicate short
position. Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of the shares of common stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the representatives of the
underwriters to reclaim a selling concession from a syndicate member when the
shares of common stock originally sold by these syndicate members are purchased
in a syndicate covering transaction to cover syndicate short positions. In
"passive" market making, market makers in the securities offered hereby who are
underwriters or prospective underwriters may, subject to some limitations, make
bids for or purchases of such securities until the time, if any, at which a
stabilizing bid is made. These stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock to be
higher than it would otherwise be in the absence of these transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
We have agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price has been determined by negotiations
between us and the representatives of the underwriters. Among the factors
considered in determining the initial public offering price were estimates of
the business potential and prospects for us and our industry in general,
prevailing market and economic conditions, our revenues and earnings, market
valuations of other companies engaged in activities similar to us, the present
state of our business operations, our management and other factors deemed
relevant.
LEGAL MATTERS
O'Melveny & Myers LLP, Newport Beach, California, will pass upon the
validity of the shares of common stock offered by this prospectus. Dewey
Ballantine LLP, New York, New York, will pass upon certain legal matters for the
underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at September 30, 1997 and 1998, and for each of the three
years in the period ended September 30, 1998, as described in their report. We
have included our financial statements in our prospectus and in our registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
102
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act, with respect to the common stock
offered by this prospectus. As permitted by the rules and regulations of the
SEC, this prospectus, which is part of the registration statement, omits certain
information exhibits, schedules and undertakings set forth in the registration
statement. For further information pertaining to us and the common stock offered
by this prospectus, reference is made to our registration statement and its
exhibits and schedules. Statements contained in this prospectus concerning the
contents of any contract or any other document to which this prospectus refers
are not necessarily complete, and in each instance, reference is made to the
copy of the contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. A copy of the registration statement may be inspected without charge
at the SEC's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the SEC's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part of the
registration statement may be obtained from such offices upon the payment of the
fees prescribed by the SEC. In addition, registration statements and certain
other filings made with the SEC through its Electronic Data Gathering, Analysis
and Retrieval system, including our registration statement and all exhibits and
amendments to our registration statement, are publicly available through the
SEC's Web site at http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, will
file periodic reports, proxy statements and other information with the SEC. Upon
approval of our common stock for listing on the Nasdaq National Market, such
reports, proxy and information statements and other information may also be
inspected at the office of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
103
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1997 and 1998 and June 30, 1999
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for each of the three years in the period ended
September 30, 1998 and the nine months ended June 30, 1998 and 1999 (unaudited)..... F-4
Consolidated Statements of Shareholders' Deficit and Comprehensive Income for each of
the three years in the period ended September 30, 1998 and the nine months ended
June 30, 1999 (unaudited)........................................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
September 30, 1998 and the nine months ended June 30, 1998 and 1999 (unaudited)..... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Communication Telesystems International d/b/a
WORLDxCHANGE Communications
We have audited the consolidated balance sheets of Communication Telesystems
International d/b/a WORLDxCHANGE Communications as of September 30, 1998 and
1997, and the related consolidated statements of operations, shareholders'
deficit and comprehensive income, and cash flows for each of the three years in
the period ended September 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Communication Telesystems International d/b/a WORLDxCHANGE Communications at
September 30, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Diego, California
August 2, 1999
F-2
<PAGE>
WORLDxCHANGE COMMUNICATIONS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30
SEPTEMBER 30 1999
---------------------- -----------
1997 1998
---------- ---------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 4,326 $ 20,917 $ 38,197
Accounts receivable, net of allowance of $13,804 and $10,690 at September
30, 1997 and 1998, respectively and $8,825 at June 30, 1999
(unaudited)............................................................. 53,745 38,966 56,524
Receivables from related parties.......................................... 1,133 -- --
Prepaid expenses and other current assets................................. 2,531 3,825 6,924
---------- ---------- -----------
Total current assets.................................................. 61,735 63,708 101,645
Equipment and leasehold improvements, net................................... 38,437 49,697 92,155
Other assets.......................................................... 3,573 6,724 5,869
---------- ---------- -----------
Total assets.......................................................... $ 103,745 $ 120,129 $ 199,669
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accrued network costs..................................................... $ 58,842 $ 49,796 $ 89,459
Accounts payable.......................................................... 16,384 14,144 17,415
Other accrued liabilities................................................. 21,114 15,377 17,040
Payable to related parties................................................ 3,406 468 --
Deferred revenue.......................................................... 2,961 686 2,511
Current portion of long-term debt and subordinated debentures............. 1,255 13,421 8,934
Current portion of capital lease obligations.............................. 8,201 6,851 8,071
---------- ---------- -----------
Total current liabilities............................................. 112,163 100,743 143,430
Long-term debt.............................................................. 26,010 75,287 86,421
Subordinated debentures..................................................... 6,297 1,182 --
Capital lease obligations................................................... 16,897 22,844 25,956
Other long-term liabilities................................................. 2,443 2,397 2,572
---------- ---------- -----------
Total liabilities..................................................... 163,810 202,453 258,379
Minority interest........................................................... 8,815 7,269 5,487
Shareholders' deficit:
Preferred Stock, no par value; authorized 100,000 shares: Series A
Cumulative Preferred Stock; Authorized shares--125, Issued and
outstanding--23 at September 30, 1997 and 1998 and zero at June 30, 1999
(unaudited)............................................................. 7 7 --
Common Stock, no par value;
Authorized shares--40,000,000, Issued and outstanding-- 27,734,000 at
September 30, 1997 and 28,576,552 at September 30, 1998 and 35,411,108
at June 30, 1999 (unaudited)............................................ 258 10,297 81,583
Notes receivable from shareholders........................................ -- -- (1,070)
Accumulated other comprehensive income.................................... (237) (3,529) (2,352)
Accumulated deficit....................................................... (68,908) (96,368) (142,358)
---------- ---------- -----------
Total shareholders' deficit........................................... (68,880) (89,593) (64,197)
---------- ---------- -----------
Total liabilities and shareholders' deficit........................... $ 103,745 $ 120,129 $ 199,669
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
WORLDxCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30 JUNE 30
---------------------------------------- --------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................... $ 183,861 $ 331,660 $ 398,867 $ 301,041 $ 304,324
Operating expenses:
Cost of services......................... 127,818 235,027 287,312 207,249 238,599
Selling, general and administrative...... 64,550 113,459 114,897 81,197 88,431
Depreciation and amortization............ 6,992 8,677 12,332 8,883 12,394
------------ ------------ ------------ ------------ ------------
Total operating expenses............. 199,360 357,163 414,541 297,329 339,424
Operating income (loss).................... (15,499) (25,503) (15,674) 3,712 (35,100)
Interest expense........................... 5,762 8,682 11,947 8,600 12,448
Other expense, net......................... 568 3,366 1,378 263 222
------------ ------------ ------------ ------------ ------------
Loss before minority interest.............. (21,829) (37,551) (28,999) (5,151) (47,770)
Minority interest.......................... 237 473 1,546 1,112 1,782
------------ ------------ ------------ ------------ ------------
Net loss................................... $ (21,592) $ (37,078) $ (27,453) $ (4,039) $ (45,988)
------------ ------------ ------------ ------------ ------------
Basic and diluted net loss per share....... $ (0.78) $ (1.34) $ (0.99) $ (0.15) $ (1.41)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Shares used to compute basic and diluted
net loss per share....................... 27,572,000 27,734,000 27,760,010 27,734,000 32,696,047
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
WORLDxCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A CUMULATIVE
NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
------------------------ ---------------------- FROM
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS
----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995................................. 86 $ 38 27,572,000 $ 196 $ --
Repurchase of Series A Cumulative Preferred Stock........... (4) (2) -- -- --
Dividends on Series A Preferred Stock....................... -- -- -- -- --
Comprehensive loss:
Net loss.................................................. -- -- -- -- --
Foreign currency translation adjustment................... -- -- -- -- --
Total comprehensive loss....................................
--
----- --------- ----------- -------------
Balance at September 30, 1996................................. 82 36 27,572,000 196 --
Repurchase of Series A Cumulative Preferred Stock........... (59) (29) -- -- --
Dividends on Series A Cumulative Preferred Stock............ -- -- -- -- --
Exercise of options/warrants................................ -- -- 162,000 62 --
Comprehensive loss:
Net loss.................................................. -- -- -- -- --
Foreign currency translation adjustment................... -- -- -- -- --
Total comprehensive loss....................................
--
----- --------- ----------- -------------
Balance at September 30, 1997................................. 23 7 27,734,000 258 --
Dividends on Series A Preferred Stock....................... -- -- -- -- --
Issuance of Common Stock.................................... -- -- 788,127 10,000 --
Exercise of options/warrants................................ -- -- 54,425 39 --
Comprehensive loss:
Net loss.................................................. -- -- -- -- --
Foreign currency translation adjustment................... -- -- -- -- --
Total comprehensive loss....................................
--
----- --------- ----------- -------------
Balance at September 30, 1998................................. 23 7 28,576,552 10,297 --
Repurchase of Series A Cumulative Preferred Stock
(unaudited)............................................... (23) (7) -- -- --
Dividends on Series A Preferred Stock (unaudited)........... -- -- -- -- --
Issuance of Common Stock (unaudited)........................ -- -- 6,598,357 70,000 --
Exercise of options/warrants (unaudited).................... -- -- 236,199 1,286 --
Note receivable for sales of common stock (unaudited)....... -- -- -- -- (1,070)
Comprehensive income:
Net loss (unaudited)...................................... -- -- -- -- --
Foreign currency translation adjustment (unaudited)....... -- -- -- -- --
Total comprehensive loss (unaudited)........................
--
----- --------- ----------- -------------
Balance at June 30, 1999 (unaudited).......................... -- $ -- 35,411,108 $ 81,583 $ (1,070)
--
--
----- --------- ----------- -------------
----- --------- ----------- -------------
<CAPTION>
ACCUMULATED OTHER TOTAL
ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
DEFICIT INCOME DEFICIT
------------ ------------------- -------------
<S> <C> <C> <C>
Balance at September 30, 1995................................. $ (10,200) $ (76) $ (10,042)
Repurchase of Series A Cumulative Preferred Stock........... -- -- (2)
Dividends on Series A Preferred Stock....................... (25) -- (25)
Comprehensive loss:
Net loss.................................................. (21,592) -- (21,592)
Foreign currency translation adjustment................... -- (358) (358)
-------------
Total comprehensive loss.................................... (21,950)
------------ ------- -------------
Balance at September 30, 1996................................. (31,817) (434) (32,019)
Repurchase of Series A Cumulative Preferred Stock........... -- -- (29)
Dividends on Series A Cumulative Preferred Stock............ (13) -- (13)
Exercise of options/warrants................................ -- -- 62
Comprehensive loss:
Net loss.................................................. (37,078) -- (37,078)
Foreign currency translation adjustment................... -- 197 197
-------------
Total comprehensive loss.................................... (36,881)
------------ ------- -------------
Balance at September 30, 1997................................. (68,908) (237) (68,880)
Dividends on Series A Preferred Stock....................... (7) -- (7)
Issuance of Common Stock.................................... -- -- 10,000
Exercise of options/warrants................................ -- -- 39
Comprehensive loss:
Net loss.................................................. (27,453) -- (27,453)
Foreign currency translation adjustment................... -- (3,292) (3,292)
-------------
Total comprehensive loss.................................... (30,745)
------------ ------- -------------
Balance at September 30, 1998................................. (96,368) (3,529) (89,593)
Repurchase of Series A Cumulative Preferred Stock
(unaudited)............................................... -- -- (7)
Dividends on Series A Preferred Stock (unaudited)........... (2) -- (2)
Issuance of Common Stock (unaudited)........................ -- -- 70,000
Exercise of options/warrants (unaudited).................... -- -- 1,286
Note receivable for sales of common stock (unaudited)....... -- -- (1,070)
Comprehensive income:
Net loss (unaudited)...................................... (45,988) -- (45,988)
Foreign currency translation adjustment (unaudited)....... -- 1,177 1,177
-------------
Total comprehensive loss (unaudited)........................ (44,811)
------------ ------- -------------
Balance at June 30, 1999 (unaudited).......................... $ (142,358) $ (2,352) $ (64,197)
------------ ------- -------------
------------ ------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
WORLDxCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
SEPTEMBER 30 JUNE 30
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................................... $ (21,592) $ (37,078) $ (27,453) $ (4,039) $ (45,988)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for bad debt...................................... 6,562 22,348 15,170 9,900 11,005
Depreciation and amortization............................... 6,992 8,677 12,332 8,883 12,394
Deferred revenue............................................ 5 2,714 (2,275) (2,387) 1,825
Impairment of long-lived assets............................. 1,430 659 -- -- --
Minority interest........................................... (237) (473) (1,546) (1,112) (1,782)
Changes in operating assets and liabilities:
Accounts receivable....................................... (18,167) (48,411) (391) (1,946) (26,214)
Receivables from related parties.......................... 634 1,317 (1,864) (283) (1,037)
Prepaid expenses and other assets......................... 3,302 (3,478) (5,551) (2,485) (2,536)
Accrued network costs..................................... 23,624 21,200 (12,255) (24,711) 39,966
Accounts payable.......................................... 1,512 12,136 (1,584) (1,672) 2,613
Other accrued liabilities................................. 3,578 13,183 (6,318) (8,098) 5,248
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities........... 7,643 (7,206) (31,735) (27,950) (4,506)
INVESTING ACTIVITIES
Acquisition of property and equipment......................... (3,124) (10,871) (11,990) (4,142) (25,125)
Proceeds from the sale of property and equipment.............. 111 -- -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities......................... (3,013) (10,871) (11,990) (4,142) (25,125)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement...................... -- 154,961 256,535 182,363 179,011
Repayments on revolving credit agreement...................... -- (128,598) (255,885) (184,029) (178,820)
Proceeds from issuance of long-term debt and
subordinated debentures..................................... 1,070 -- 55,152 41,002 --
Repayment of long-term debt, subordinated debentures,
loans payable and capital leases............................ (3,904) (16,602) (5,299) (5,192) (24,604)
Payment of dividends on Preferred Stock....................... (25) (11) (7) -- (2)
Proceeds from issuance of Common Stock........................ -- 62 10,039 -- 71,286
Repurchase of Preferred Stock................................. (2) (30) -- (1) (7)
Proceeds from issuance of subsidiary common stock to
minority holders............................................ 559 9,001 -- -- --
--------- --------- --------- --------- ---------
Net cash (used in) provided by financing activities........... (2,302) 18,783 60,535 34,143 46,864
Effect of exchange rate changes on cash....................... (358) 197 (219) (107) 47
--------- --------- --------- --------- ---------
Net increase in cash.......................................... 1,970 903 16,591 1,944 17,280
Cash and cash equivalents at beginning of period.............. 1,453 3,423 4,326 4,326 20,917
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.................... $ 3,423 $ 4,326 $ 20,917 $ 6,270 $ 38,197
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest...................................................... $ 6,469 $ 7,176 $ 6,686 $ 4,723 $ 8,244
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income taxes.................................................. $ 72 $ 102 $ 8 $ 1 $ 2
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NON-CASH INVESTING AND FINANCING ACTIVITIES
Assets acquired by incurring capital lease obligations or
long-term debt.............................................. $ 5,596 $ 8,533 $ 10,421 $ 10,097 $ 32,638
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-6
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. BUSINESS ACTIVITY
Communications TeleSystems International d/b/a WORLDxCHANGE Communications,
Inc. ("WORLDxCHANGE"), a California corporation, is a facilities-based
telecommunications carrier that provides international and domestic
long-distance service to retail and wholesale customers. Our retail base is
comprised of residential and commercial customers. Our wholesale base is
comprised of other U.S. and foreign telecommunications carriers and resellers.
We have established retail and wholesale operations in the United States, the
Pacific Rim, Canada, Europe and Latin America. WORLDxCHANGE also provides
operator, debit/calling card service, toll free, private line and other enhanced
services.
WORLDxCHANGE has established operations in the United Kingdom, Germany,
Belgium, The Netherlands, New Zealand, France and Canada through wholly owned
subsidiaries. WORLDxCHANGE has also established a subsidiary in Australia, in
which WORLDxCHANGE Communications initially had a 92% equity interest. During
the year ended September 30, 1997, WORLDxCHANGE sold an equity interest in its
Australian subsidiary which reduced WORLDxCHANGE's ownership interest to
approximately 55%. In August 1999, WORLDxCHANGE agreed to issue 1,554,763 shares
of its common stock for the shares held by certain minority shareholders of its
Australian subsidiary and a related holding company (see note 13). WORLDxCHANGE
has additional subsidiaries domiciled in various other countries; however, the
activity of these subsidiaries to date has not been significant.
The revenue from WORLDxCHANGE's international operations continues to
increase as a percentage of total revenue. As of the years ended September 30,
1996, 1997 and 1998 international revenue including Canada represented
approximately 8%, 13% and 20% of WORLDxCHANGE's total revenue, respectively.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that
WORLDxCHANGE will continue as a going concern. WORLDxCHANGE has experienced
recurring losses and has a deficiency in working capital and shareholders'
equity. WORLDxCHANGE's rapid growth and investments for additional anticipated
growth have required significant capital. Historically WORLDxCHANGE's capital
needs have been met primarily through a combination of a revolving credit
facility, debt, lease financing, cash flows from operations, the sale of stock
in its Australian subsidiary to minority shareholders and private placement
equity offerings. During the year ended September 30, 1998, WORLDxCHANGE raised
approximately $55 million from a private placement debt offering (Note 5) and
$10 million from a private placement equity offering closed on September 30,
1998. Management believes the additional $70 million in private placement
offerings received since September 30, 1998 (Note 8) and vendor committed
financing, along with the existing credit facility will be adequate to meet
WORLDxCHANGE's domestic and international capital requirements for the next
twelve months. Management also believes that WORLDxCHANGE's ability to raise
additional financing will enable the continuation of its global expansion.
However, without additional financing, WORLDxCHANGE will be required to delay,
reduce the scope of and/or
F-7
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
eliminate certain of its future expansion plans, and/or reduce its planned
expenditures on infrastructure and marketing activities.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
WORLDxCHANGE and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying financial statements at June 30, 1999 and for the nine
months ended June 30, 1998 and 1999 are unaudited but include all adjustments
(consisting of normal recurring accruals), which, in the opinion of management,
are necessary for a fair statement of the financial position and the operating
results and cash flows for the interim date and periods presented. Results for
the interim period ended June 30, 1999 are not necessarily indicative of results
for the entire year or future periods.
CASH EQUIVALENTS
WORLDxCHANGE considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
FOREIGN CURRENCY
The accounts of foreign subsidiaries consolidated herein have been
translated from their respective functional currencies into U.S. dollars at
appropriate exchange rates. Cumulative translation adjustments are included as a
separate component of shareholders' deficit. Exchange gains and losses from
foreign currency transactions are included in "Other (income) expense," in the
accompanying statements of operations.
CONCENTRATION OF CREDIT RISK
WORLDxCHANGE's customer base is comprised of several hundred carrier
customers and over 750,000 residential and commercial users of its direct dial
long distance telephone services, as well as hotels and other users of its
operator-assisted long distance telephone services. These customers are located
principally throughout the United States (U.S.), and to a much lesser extent in
the Pacific Rim, Europe, Latin America, and Canada. WORLDxCHANGE's U.S. revenues
from residential and smaller commercial users are billed and collected by local
exchange carriers (LECs). These LECs pass through to WORLDxCHANGE their
collection experience with customers billed under these billing agreements.
WORLDxCHANGE direct bills carrier and certain commercial customers in the U.S.
and direct bills all customers in its international markets. WORLDxCHANGE
performs credit evaluations of the financial condition of these direct bill
customers, and may require a deposit in certain circumstances. Estimated credit
losses are provided for in the financial statements at the same time the
F-8
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
corresponding revenue is recognized. No one customer accounted for more than 10%
of revenues for any period.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements, including equipment under capital
leases, are recorded at cost and are depreciated or amortized using the
straight-line method over the estimated useful lives of the assets (generally
two to seven years) or the term of the related lease (ranging from three to
seven years). Interests in international undersea and on-land fiber-optic cable
systems are amortized over their estimated useful lives, typically 20 years.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS
121"), companies are required to record impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. WORLDxCHANGE adopted
SFAS 121 at September 30, 1996, and its adoption resulted in a write-down of
$1.4 million to the pay telephone assets acquired from WintelCo in 1995. During
the year ended September 30, 1997, WORLDxCHANGE wrote-down the remaining
$659,000 associated with the pay telephone routes acquired from WintelCo. These
writedowns have been classified in selling, general and administrative expenses
in the Statement of Operations.
INSTALLATION COSTS
Installation costs consists of costs incurred by WORLDxCHANGE for the
expansion of its switching capacity and related network. These costs also
include dialer installation costs incurred upon establishing network services to
certain operator services customers. These costs are amortized using the
straight-line method over three years.
MINORITY INTEREST
Certain of WORLDxCHANGE's subsidiaries have sold stock to outside investors.
Income or losses from these operations are allocated to minority shareholders
based on ownership percentages, losses in excess of the amounts invested by the
minority shareholders are absorbed by WORLDxCHANGE. During 1997, WORLDxCHANGE's
Australian subsidiary sold $9.0 million of its stock to a minority shareholder.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"), which was implemented by WORLDxCHANGE for the year
ending September 30, 1997. SFAS 123 allows companies to account for stock-based
compensation either under the new provisions of SFAS 123 or
F-9
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
under the provisions of Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), but requires pro forma disclosure in
the footnotes to the financial statements as if the measurement provisions of
SFAS 123 had been adopted. WORLDxCHANGE has continued accounting for its
stock-based compensation in accordance with the provisions of APB 25.
REVENUE RECOGNITION
Revenue is recognized as long distance telecommunications services are
provided. Prepaid calling card revenue is reported net of selling discounts and
recorded when minutes are used. Deferred revenue relates to amounts received
from or billed to customers prior to WORLDxCHANGE providing telecommunications
services.
ADVERTISING
WORLDxCHANGE charges advertising costs to expense as the costs are incurred.
Total advertising expense was $9,391,000, $17,201,000 and $14,117,000 for the
years ended September 30, 1996, 1997 and 1998 and $8,677,000 and $13,898,000 for
the nine months ended June 30, 1998 and 1999, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET LOSS PER SHARE
Basic and diluted net loss per share has been computed in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE,
using the weighted-average number of shares of common stock outstanding during
the period. Options, warrants, and preferred stock were not included in the
computation of diluted net loss per share because the effect would be
anti-dilutive.
NEW ACCOUNTING STANDARDS
Effective April 1, 1998, WORLDxCHANGE adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including unrealized gains and losses on investments and
foreign currency translation adjustments are reported, net of their related tax
effect, to arrive at comprehensive income. SFAS No. 131 amends the requirements
for public enterprises to report financial and descriptive information about its
reporting operating segments.
F-10
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Operating segments, as defined in SFAS No. 131, are components of an enterprise
for which separate financial information is available and is evaluated regularly
by the Company in deciding how to allocate resources and in assessing
performance. The financial information is required to be reported on the basis
that is used internally for evaluating the segment performance.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, ACCOUNTING FOR COSTS OF COMPUTER SOFTWARE DEVELOPED
OR OBTAINED FOR INTERNAL USE (SOP 98-1). This standard requires companies to
capitalize qualifying computer software costs which are incurred during the
application development stage and amortize them over the software's estimated
useful life. SOP 98-1 is effective for fiscal years beginning after December 15,
1998. The Company is currently evaluating the impact of SOP 98-1 on its
financial statements and related documents.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 REPORTING ON THE COSTS OF START-UP ACTIVITIES (SOP
98-5). The standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. The Company does not expect
the adoption of this standard to have a material effect on its financial
position or results of operations.
FAIR VALUES OF FINANCIAL INSTRUMENTS
WORLDxCHANGE believes that the carrying amounts of its cash, cash
equivalents, accounts receivable, accounts payable, accrued liabilities, and
notes payable approximate their fair market values due to their short-term
nature or variable interest rates.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
3. ACQUISITIONS
In December 1998, WORLDxCHANGE completed a business combination with CTS
Telecom, Inc. ("CTS") and WORLDxCHANGE Limited ("WxL"), affiliates under common
ownership and management control, both of which have been accounted for in a
manner similar to a pooling-of-interests. WORLDxCHANGE issued 278,000 shares in
connection with the acquisition of WxL. Because of these mergers, the Company
has reisssued its financial statements for the three years ended September 30,
1998. The accompanying retroactively pooled consolidated financial statements
are derived from the combined historical financial statements of CTS, WxL and
WORLDxCHANGE. All significant intercompany accounts and transactions have been
eliminated.
F-11
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
3. ACQUISITIONS (CONTINUED)
Net revenues and net loss for the three fiscal years preceding the merger by
entity are as follows (in thousands):
<TABLE>
<CAPTION>
NET NET INCOME
REVENUES (LOSS)
---------- -----------
<S> <C> <C>
1996
WxC................................................................ $ 180,308 $ (15,441)
CTS Telecom........................................................ 15,505 (6,252)
WxL New Zealand.................................................... 4,523 101
Eliminations....................................................... (16,475) --
---------- -----------
Combined........................................................... $ 183,861 $ (21,592)
---------- -----------
---------- -----------
1997
WxC................................................................ $ 328,517 $ (35,349)
CTS Telecom........................................................ 17,884 (2,184)
WxL New Zealand.................................................... 18,342 455
Eliminations....................................................... (33,083) --
---------- -----------
Combined........................................................... $ 331,660 $ (37,078)
---------- -----------
---------- -----------
1998
WxC................................................................ $ 394,232 $ (24,932)
CTS Telecom........................................................ 16,343 (2,099)
WxL New Zealand.................................................... 21,204 (422)
Eliminations....................................................... (32,912) --
---------- -----------
Combined........................................................... $ 398,867 $ (27,453)
---------- -----------
---------- -----------
</TABLE>
4. BALANCE SHEET INFORMATION
SALE OF ACCOUNTS RECEIVABLE WITH RECOURSE
WORLDxCHANGE sells certain receivables, subject to full recourse provisions,
to Zero Plus Dialing Incorporated (ZPDI), one of WORLDxCHANGE's providers of
billing and collection services. At September 30, 1997 and 1998 and June 30,
1999 the outstanding balance of such accounts for which WORLDxCHANGE is
contingently liable was approximately $4,374,000 and $4,019,000 and $1,548,000,
respectively.
F-12
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
4. BALANCE SHEET INFORMATION (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- --------- JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Telecommunications equipment................................................... $ 42,961 $ 56,091 $ 106,345
Computer equipment and software................................................ 8,293 9,985 13,338
Office furniture, equipment and vehicles....................................... 6,895 9,335 9,622
Leasehold improvements......................................................... 616 1,614 2,750
Equipment in progress.......................................................... 78 4,932 4,311
--------- --------- -----------
58,843 81,957 136,366
Accumulated depreciation and amortization...................................... (20,406) (32,260) (44,211)
--------- --------- -----------
$ 38,437 $ 49,697 $ 92,155
--------- --------- -----------
--------- --------- -----------
</TABLE>
OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- --------- JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Deposits......................................................................... $ 1,708 $ 3,417 $ 3,783
Debt issuance costs, net of accumulated amortization of $97 at September 30, 1998
and $1,168 at June 30, 1999.................................................... -- 3,307 2,086
Other............................................................................ 1,865 -- --
--------- --------- -----------
$ 3,573 $ 6,724 $ 5,869
--------- --------- -----------
--------- --------- -----------
</TABLE>
ACCRUED LIABILITIES
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- --------- JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued excise taxes........................................................... $ 7,107 $ 1,766 $ 5,170
Accrued commissions............................................................ 2,100 2,311 1,526
Accrued compensation and benefits.............................................. 3,340 3,384 2,842
Accrued settlements (Note 11).................................................. 4,254 2,059 1,945
Other.......................................................................... 4,313 5,857 5,557
--------- --------- -----------
$ 21,114 $ 15,377 $ 17,040
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-13
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. LONG-TERM DEBT AND SUBORDINATED DEBENTURES
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- --------- JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Secured subordinated note with interest payable quarterly at 12.5%, balance due
November 2000................................................................ $ -- $ 55,000 $ 45,200
Loan and security agreement payable upon collections of accounts receivable
with interest payable monthly at prime rate plus 2.75% (11.25% at September
30, 1998, and 1997 and 10.5% at June 30, 1999) balance due October 2000...... 20,988 21,888 22,378
Note payable due May 2004, with principal and interest payments payable in
monthly installments of $322,632 at 12%...................................... -- -- 14,304
Note payable due March 2004, with principal and interest payments, payable in
monthly installments of $183,518 at 12%...................................... -- -- 7,840
Term loan due October 2000, with principal reductions of $300,000 due monthly
and interest payable monthly at prime plus 6.75% (15.25% at September 30,
1997 and 1998 and 14.50% at June 30, 1999)................................... 5,375 5,125 4,100
Secured subordinated note with interest payable quarterly at 10%, balance due
November 2000................................................................ -- 1,200 --
Secured and unsecured notes, with principal and interest payments payable in
quarterly installments, maturing at various dates through June 2000. Interest
rates ranging from 10% to 14.25%............................................. 407 429 351
--------- --------- -----------
26,770 83,642 94,173
Less current portion........................................................... (760) (8,355) (7,752)
--------- --------- -----------
$ 26,010 $ 75,287 $ 86,421
--------- --------- -----------
--------- --------- -----------
</TABLE>
In March 1997, WORLDxCHANGE entered into a loan and security arrangement
with a financial institution for an initial term of three years wherein
WORLDxCHANGE can borrow up to a maximum of $35 million, subject to borrowing
base restrictions. The agreement consists of a revolving credit agreement and a
term loan. The available borrowing base under the revolving credit agreement is
determined as a specified percentage of eligible accounts receivable. The
balance outstanding on the revolving credit agreement is reduced by the
application of payments received on collections of accounts receivable. As of
September 30, 1998 $21,888,000 was outstanding under the revolving credit
agreement, which approximates the maximum available based upon the borrowing
base restrictions. The financial institution charges interest at prime plus a
margin of 2.75% on the revolving credit portion and a margin of 6.75% on the
term loan. The loan and security agreement requires compliance with certain
restrictive financial, operating and reporting covenants, including a
restriction on WORLDxCHANGE's ability to pay dividends to common shareholders.
As of September 30, 1998 and June 30, 1999, WORLDxCHANGE was in compliance
with these covenants, as amended and restructured in order to reflect the debt
and equity financings discussed
F-14
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. LONG-TERM DEBT AND SUBORDINATED DEBENTURES (CONTINUED)
below and in Note 8 and the acquisition of two affiliated companies subsequent
to year end discussed in Note 3.
The loan and security arrangement matures in October 2000. Further,
WORLDxCHANGE's obligations under this agreement are secured by a first position
in substantially all of its assets, excluding equipment where encumbrances
already exist.
From May through August 1998, WORLDxCHANGE issued and sold subordinated
promissory notes in the aggregate principal amounts of $55.0 million. These
notes bear interest at the rate of 12.5% per annum, provide for quarterly
payments of interest only and mature on November 30, 2000. These notes provide
the lender the right to require WORLDxCHANGE to use a portion of the net
proceeds from any private placement or public offering of WORLDxCHANGE's common
stock to repay the notes. As such, the outstanding balance at June 30, 1999 has
been reduced to $45,200,000.
In addition, WORLDxCHANGE also issued a promissory note in August 1998 in
the amount of $1.2 million representing accrued interest on the subordinated
promissory notes. This note bears interest at the rate of 10.0% per annum,
provides for quarterly payments of interest only and matures on November 30,
2000. In accordance with the terms of the note, this balance was repaid out of
the proceeds of the private placement equity offerings.
Subordinated debentures consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- --------- JUNE 30,
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
10% subordinated debentures maturing between December 31, 1998 and December 31,
1999.......................................................................... $ 1,222 $ 807 $ 704
15% subordinated debentures maturing between December 31, 1998 and December 31,
1999.......................................................................... 5,570 5,441 478
--------- --------- -----------
6,792 6,248 1,182
Less current portion............................................................ (495) (5,066) (1,182)
--------- --------- -----------
$ 6,297 $ 1,182 $ --
--------- --------- -----------
--------- --------- -----------
</TABLE>
The subordinated debentures are subordinate to senior debt, as defined, and
are redeemable by WORLDxCHANGE at face value plus accrued interest.
Maturities of long-term debt and subordinated debentures as of September 30,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30:
- -----------------------------------------------------------------------------------
<S> <C>
1999............................................................................... $ 13,421
2000............................................................................... 22,617
2001............................................................................... 53,852
---------
Total.............................................................................. $ 89,890
---------
---------
</TABLE>
F-15
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES
LEASES
WORLDxCHANGE leases its primary operating facilities under noncancellable
operating leases which expire at various dates through March 2015. Certain of
these leases contain escalation clauses based on inflation or fixed amounts and
the leases generally require WORLDxCHANGE to pay utilities, insurance, taxes and
other operating expenses. Rental expense under such leases was $1,581,000,
$1,973,000 and $3,129,000 for the years ended September 30, 1996, 1997 and 1998,
respectively and $2,842,000 and $3,426,000 for the nine months ended June 30,
1998 and 1999, respectively.
WORLDxCHANGE leases its switches and certain other telecommunication and
computer equipment under capital leases, most of which contain bargain or fair
market value purchase options. At September 30, 1997 and 1998 and June 30, 1999,
assets acquired under these leases have an original cost of $34,311,000 and
$40,099,000 and $41,606,000, respectively, and accumulated amortization of
$14,796,000 and $18,515,000 and $21,164,000, respectively. The depreciation of
these assets is included with depreciation and amortization expense presented on
the consolidated statement of operations.
Future minimum payments for capital leases and noncancellable operating
leases with initial or remaining terms of one year or more as of September 30,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30: LEASES LEASES
- -------------------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
1999........................................................................................ $ 10,325 $ 3,149
2000........................................................................................ 10,590 2,909
2001........................................................................................ 8,530 2,165
2002........................................................................................ 4,970 1,254
2003........................................................................................ 2,219 285
Thereafter.................................................................................. 134 589
--------- -----------
Total minimum lease payments................................................................ 36,768 $ 10,351
-----------
-----------
Less amount representing interest........................................................... (7,073)
---------
Present value of minimum lease payments..................................................... 29,695
Less current portion........................................................................ (6,851)
---------
Amounts due after one year.................................................................. $ 22,844
---------
---------
</TABLE>
COMMITMENTS FOR UNDERSEA CABLE AND LAND-BASED FIBER OPTIC CABLE SYSTEMS
WORLDxCHANGE has entered into two agreements to increase its ownership of
undersea cables. These commitments will continue WORLDxCHANGE's further
expansion in international markets, and are expected to require incremental
capital expenditures of approximately $18.3 million. The first $10 million
installment was paid in December 1998 by WORLDxCHANGE with proceeds received
from the private placement equity offerings. On April 1, 1999, the remaining
$8.3 million was vendor financed at 12% interest, with monthly principal and
interest payments over a five year amortization period.
F-16
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
WORLDxCHANGE entered into two agreements during the nine month period ended
June 30, 1999 to acquire $45.0 million for capacity in land-based fiber optic
cable systems. The vendors have agreed to finance 90% of the commitment at 12%
interest, with monthly principal and interest payments over a five year
amortization period. At June 30, 1999, WORLDxCHANGE has purchased approximately
$16.0 million, leaving $29.0 million to be ordered by November 1999.
EMPLOYMENT AGREEMENT
Effective January 1, 1997, WORLDxCHANGE entered into an employment agreement
with an executive of WORLDxCHANGE whereby if certain transactions which result
in a change in ownership of at least 50% of the voting stock of WORLDxCHANGE or
a division of WORLDxCHANGE occur, or if WORLDxCHANGE or a division of
WORLDxCHANGE is sold, he is to receive additional compensation.
The compensation will be determined as the lesser of a) five percent of the
total consideration received from the sale of the assets; the value of the stock
outstanding after the sale of stock; or the value attributable to WORLDxCHANGE
in a merger as applicable or b) seven-tenths of one percent of the aggregate
monthly revenues of WORLDxCHANGE and WORLDxCHANGE Communications LTD. multiplied
by the number of months remaining until December 31, 1999.
7. INCOME TAXES
Income taxes are provided for in accordance with the provisions of FASB
Statement No. 109, ACCOUNTING FOR INCOME TAXES. Under this method, WORLDxCHANGE
recognizes deferred tax assets and liabilities for the expected future tax
effects of temporary differences between the carrying amounts and the tax bases
of assets and liabilities, as well as operating loss carryforwards.
The significant components of WORLDxCHANGE's deferred tax assets and
liabilities as of September 30, 1997 and 1998 are shown below (in thousands). At
September 30, 1998, a valuation allowance of $27,834,000 has been recorded as
realization of such net deferred assets is uncertain:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
U.S. net operating loss carryforward.................. $ 6,557 $ 16,704
Foreign net operating loss carryforwards.............. 5,845 9,275
Accrued liabilities and reserves...................... 7,926 3,720
Other................................................. -- 336
--------- ---------
$ 20,328 $ 30,035
Deferred tax liabilities:
Depreciation and amortization......................... (2,281) (2,145)
Other................................................. (91) (56)
--------- ---------
Net deferred tax assets................................. 17,956 27,834
Deferred tax assets valuation allowance................. (17,956) (27,834)
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
At September 30, 1998, WORLDxCHANGE had net operating loss carryforwards
available for federal, state and foreign tax purposes of approximately
$43,000,000, $29,900,000 and $26,500,000, respectively. The federal tax loss
carryforwards will begin expiring in 2007, unless previously utilized. The state
tax loss carryforwards will begin expiring in 1999 through 2003, unless
previously utilized. The Canadian and Netherlands net operating loss
carryforwards in the amounts of $4,700,000 and $700,000, respectively, will
begin expiring in 2002. Other foreign loss carryforwards may be carried forward
indefinitely. The realization of future domestic benefits from net operating
loss carryforwards may be limited under Section 382 of the Internal Revenue Code
if certain cumulative changes occur in WORLDxCHANGE's ownership.
8. SHAREHOLDERS' DEFICIT
COMMON STOCK
In September 1998, WORLDxCHANGE completed a private placement for the
issuance of common stock. WORLDxCHANGE agreed to the issuance of 1,659,214
shares of common stock. WORLDxCHANGE issued 788,127 shares of common stock in
September 1998 for $10 million. The remaining 871,087 shares of common stock
were issued in December 1998 for another $10 million. The Company issued 3
million shares of common stock in March 1999 for proceeds at $30 million. In
June 1999, an additional 2,727,270 shares of common stock were issued for $30
million.
PREFERRED STOCK
Each share of Series A Cumulative Preferred Stock ("Preferred Stock") is
non-voting and is entitled to a $300 per share annual cumulative dividend,
payable monthly. Upon liquidation or dissolution of WORLDxCHANGE, each holder of
Preferred Stock shall be entitled to receive $500 per share (an aggregate of
$11,500 at September 30, 1998) plus any accrued but unpaid dividends.
STOCK OPTIONS
WORLDxCHANGE's 1996 Stock Option Plan provides for the granting of stock
options to purchase, and the issuance of, up to 3 million shares to employees,
non-exempt directors and consultants. Generally, options are granted at prices
at least equal to fair value of WORLDxCHANGE's common stock on the date of grant
as determined by WORLDxCHANGE's Board of Directors. In addition, certain
officers and directors have been granted stock options outside the Plan.
Pro forma information regarding net loss is required by Statement 123, and
has been determined as if WORLDxCHANGE had accounted for its employee stock
options under the fair value method of that statement. The fair value of these
options was estimated at the date of grant using the minimum value method and
the following weighted average assumptions for fiscal year 1996, 1997 and 1998,
respectively: risk free interest rate of 6.15%, 6.20% and 5.25%; expected option
life of seven years; and no annual dividends.
F-18
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
8. SHAREHOLDERS' DEFICIT (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of such options. The
effects of applying SFAS 123 for pro forma disclosure purposes are not likely to
be representative of the effects on pro forma net income or loss in future years
because they do not take into consideration pro forma compensation expenses
related to grants made prior to fiscal 1996. WORLDxCHANGE's pro forma
information follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Pro forma net loss.......................... $ (21,611) $ (37,432) $ (28,176)
--------- ----------- ---------
--------- ----------- ---------
Pro forma basic and diluted net loss per
share..................................... $ (0.78) $ (1.36) $ (1.02)
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
A summary of WORLDxCHANGE's stock option activity, including those issued
outside of the plans and related information are as follows:
<TABLE>
<CAPTION>
WEIGHTED-
SHARES NUMBER AVERAGE
AVAILABLE OF SHARES PRICE EXERCISE
FOR GRANT GRANTED PER SHARE PRICE
--------- --------- ------------ -------------
<S> <C> <C> <C> <C>
Balance as of September 30, 1995........... 1,740,000 1,260,000 $0.42-$0.67 $ 0.54
--------- --------- ------------ ------
Grants................................... (463,200) 463,200 $0.67-$5.00 4.04
Cancellations............................ 100,800 (100,800) $0.42-$0.67 0.43
--------- --------- ------------ ------
Balance as of September 30, 1996........... 1,377,600 1,622,400 $0.42-$5.00 $ 1.54
--------- --------- ------------ ------
Grants................................... (1,977,559) 1,977,559 $4.33-$7.00 4.94
Exercises................................ -- (90,000) $0.42 0.42
Cancellations............................ 1,312,525 (1,312,525) $4.33-$5.00 4.57
--------- --------- ------------ ------
Balance as of September 30, 1997........... 712,566 2,197,434 $0.42-$7.00 $ 2.84
--------- --------- ------------ ------
Additional shares reserved............... 1,008,166 -- -- --
Grants................................... (1,377,453) 1,377,453 $7.00-$10.00 9.67
Exercises................................ -- (54,425) $4.33-$5.00 0.72
Cancellations............................ 320,162 (320,162) $4.33-$5.00 5.49
--------- --------- ------------ ------
Balance as of September 30, 1998........... 663,441 3,200,300 $0.42-$10.00 $ 5.73
--------- --------- ------------ ------
Grants (unaudited)....................... (858,002) 858,002 $10.00-$11.00 10.10
Exercises (unaudited).................... -- (236,199) $0.67-$10.00 5.51
Cancellations (unaudited)................ 362,575 (362,575) $5.00-$10.00 8.91
--------- --------- ------------ ------
Balance at June 30, 1999 (unaudited)....... 168,014 3,459,528 $0.42-$11.00 $ 6.48
--------- --------- ------------ ------
--------- --------- ------------ ------
</TABLE>
F-19
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
8. SHAREHOLDERS' DEFICIT (CONTINUED)
The following table summarizes significant ranges of outstanding and
exercisable options at June 30, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
-------------------------------- ------------------------
WEIGHED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE REMAINING LIFE EXERCISE EXERCISE
PRICES SHARES IN YEARS PRICE SHARES PRICE
- ------------------------------- --------- ----------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
$0.42-$0.67.................... 944,075 3.81 $ 0.57 944,075 $ 0.57
$5.00-$9.00.................... 895,293 7.25 $ 6.25 490,964 $ 5.75
$10.00..................... 1,535,160 9.24 $ 10.00 356,688 $ 10.00
$11.00..................... 85,000 9.93 $ 11.00 -- $ --
--------- ----- ------ --------- ------
3,459,528 7.26 $ 6.48 1,791,727 $ 3.87
--------- ----- ------ --------- ------
--------- ----- ------ --------- ------
</TABLE>
The weighted average fair value at date of grant for options granted during
1996, 1997, 1998 and the nine months ended June 30, 1999 were $0.53, $1.43,
$1.88 and $1.94 per share, respectively.
9. RELATED PARTY TRANSACTIONS
AFFILIATED LONG DISTANCE COMPANIES
In fiscal 1996, WORLDxCHANGE began utilizing long distance services from
four affiliated companies owned by a relative of WORLDxCHANGE's
officers/shareholders.
Billings by the four affiliates for long distance services provided to
WORLDxCHANGE were approximately $4,159,000, $12,607,000 and $5,409,000 for the
years ended September 30, 1996, 1997 and 1998, respectively and $3,658,000 and
$1,705,000 for the nine months ended June 30, 1998 and 1999, respectively.
WORLDxCHANGE had accounts payable to the four affiliates of $3,406,000 and
$468,000 at September 30, 1997 and 1998 and zero at June 30, 1999, respectively.
OFFICER/SHAREHOLDER NOTES RECEIVABLE AND ADVANCES
As of September 30, 1997, WORLDxCHANGE had made advances to its two major
shareholders which totaled $966,000 and are included in "receivables from
related parties" in the accompanying balance sheet. As of September 30, 1998,
the shareholder advances have been repaid to WORLDxCHANGE.
10. SAVINGS PLAN
On January 1, 1996, WORLDxCHANGE adopted a 401(k) Savings Plan covering
substantially all employees that have been employed for at least one year and
meet other age and eligibility requirements. Participants may elect to
contribute up to six percent of their compensation subject to limitations.
WORLDxCHANGE matches 25% of participant contributions. WORLDxCHANGE's matching
contribution totaled $30,989, $62,240 and $81,563 during the years ended
September 30, 1996,
F-20
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
10. SAVINGS PLAN (CONTINUED)
1997 and 1998 respectively and $61,137 and $73,764 for the nine months ended
June 30, 1998 and 1999, respectively.
11. LITIGATION AND REGULATION
WORLDxCHANGE is required under federal law and regulations to file tariffs
showing rates, terms and conditions affecting its services. WORLDxCHANGE has
filed interstate long distance tariffs with the FCC. The FCC has adopted an
order that, with certain exceptions, rescinds the requirement that carriers such
as WORLDxCHANGE maintain FCC tariffs and mandates that tariffs be withdrawn. The
FCC stayed its order pending judicial review. If tariffs are eliminated, it will
probably be necessary for WORLDxCHANGE to secure contractual agreements with its
customers providing for many of the terms of its existing tariffs. Absent
tariffs and contracts, WORLDxCHANGE believes that disputes could arise
concerning the respective rights of WORLDxCHANGE and its customers, which could
hinder WORLDxCHANGE's ability to collect its account receivable, increase
WORLDxCHANGE's overall bad debt losses and collection expenses, and increase
WORLDxCHANGE's exposure to unlimited damage claims. The FCC has not proposed to
change its requirements that tariffs for international services be filed, and
WORLDxCHANGE continues to file such tariffs.
The intrastate long distance operations of WORLDxCHANGE are also subject to
various state laws. The majority of states require certification or
registrations. WORLDxCHANGE has secured the ability to offer intra-state service
in forty-one states. Many states require tariff filing as well.
WORLDxCHANGE has been successful in obtaining all necessary regulatory
approvals to date, although revision of tariffs, authorities and approvals are
being made on a continuing basis and many such requests are pending at any one
time.
Some states may assess penalties on long distance service providers for
traffic sold prior to tariff approval. Such states may require refunds to be
made to customers. It is the opinion of management that such penalties and
refunds, if any, would not have a material adverse effect on the results of
operations, financial position or liquidity of WORLDxCHANGE.
In May 1997, the California Public Utilities Commission ("CPUC") issued an
order, which became effective in October 1997, revoking WORLDxCHANGE's
Certificate of Public Convenience and Necessity (the "CPCN") in California and
imposing certain other fines and penalties against WORLDxCHANGE based on the
CPUC's findings that WORLDxCHANGE violated California laws and regulations
requiring WORLDxCHANGE to obtain prior consumer authorization before switching
consumers' long distance carriers. As a result of the revocation for
WORLDxCHANGE's CPCN, WORLDxCHANGE cannot provide intrastate telecommunication
services in California. In addition, WORLDxCHANGE must, among other things, (i)
pay a $19.6 million fine to the state of California, $2 million of which has
been paid with the balance suspended so long as WORLDxCHANGE is not found to
have committed any future violations of California law or CPUC directives; (ii)
reimburse the CPUC for $100,000 in prosecution costs which has also been paid;
and (iii) pay approximately $1.9 million in reparations to consumers, of which
$927,200 remains payable at July 31, 1999.
WORLDxCHANGE may apply to the CPUC for reinstatement of the CPCN after
October 22, 2000, although there can be no assurance that such reinstatement
would be granted.
F-21
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
11. LITIGATION AND REGULATION (CONTINUED)
Under the CPUC's order, the suspension of WORLDxCHANGE's CPCN and the other
sanctions and fines imposed on WORLDxCHANGE are binding on any successor of
WORLDxCHANGE. The reparations noted above have been accrued by WORLDxCHANGE and
is included in other accrued liabilities in WORLDxCHANGE's balance sheet as of
September 30, 1998.
In addition, WORLDxCHANGE is subject to certain legal, regulatory and
administrative proceedings, claims and inquiries arising in the ordinary course
of business, some of which involve claims for substantial amounts of damages.
The ultimate outcome of such proceedings, claims or inquiries cannot be
predicted at this time. It is management's opinion, after consultation with its
legal counsel, that any such liability or possible restrictions placed on
WORLDxCHANGE's operations resulting from the ultimate resolution of such
proceedings, claims, and inquiries, beyond that provided, would not have a
material affect on WORLDxCHANGE's financial position or WORLDxCHANGE's future
results of operations or cash flows.
12. SEGMENT INFORMATION
In 1999, WORLDxCHANGE adopted FAS 131. The prior year's segment information
has been restated to present three reportable operating segments. WORLDxCHANGE's
segments are organized on the basis of geographic location and include North
America, Pacific Rim and Europe. None of WORLDxCHANGE's operating segments have
been aggregated.
WORLDxCHANGE evaluates performance and allocates resources based on profit
or loss from operations before interest expense, other income (loss) and
minority interest. The accounting policies of the reportable segments are the
same as those described in the basis of presentation and summary of significant
accounting policies. Intersegment sales and transfers between geographic regions
are accounted for at prices that approximate arm's length transactions. No
single customer accounted for 10% or more of revenues in fiscal 1998, 1997 or
1996, or for the nine months ended June 30, 1998 or 1999.
WORLDxCHANGE's regional segments earn revenue from direct-dial long distance
services as well as operator, debit/calling card, toll free, private line and
other enhanced services to residential customers, other telecommunications
carriers, and small to medium-sized businesses. Each of WORLDxCHANGE's
reportable regions represents a strategic business segment that functions in an
environment with common economic characteristics determined based on historical
and expected future performance.
The Company markets its products domestically and internationally, with its
principal international markets being Australia and Europe. The tables below
contain information about the geographical areas in which the Company operates
and represent information utilized by management to evaluate its operating
segments. Revenues are attributed to countries based on location in which the
sale originated. Long-lived assets are based on the country of domicile.
F-22
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
12. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NORTH PACIFIC
AMERICA RIM EUROPE TOTALS
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
June 30, 1999, and for the nine months then ended
(in thousands)
Sales to unaffiliated customers................ $ 238,013 $ 42,975 $ 23,336 $ 304,324
Intersegment revenues.......................... 35,551 9,953 4,987 50,491
-------------- ------------- -------------- --------------
Segment revenues............................... 273,564 52,928 28,323 354,815
Depreciation and amortization.................. 9,823 1,298 1,273 12,394
Segment operating profit (loss)................ (22,405) (3,785) (8,910) (35,100)
Segment assets................................. 364,006 24,183 55,657 443,846
Expenditures for long-lived assets............. 15,765 1,742 7,618 25,125
Reconciliations:
NET LOSS
Total operating profit or loss for reportable
segments..................................... $ (35,100)
Interest expense............................... 12,448
Other income & expense......................... 222
Minority interest.............................. 1,782
--------------
Total consolidated net loss.................. $ (45,988)
--------------
--------------
ASSETS
Total assets for reportable segments........... $ 443,846
Elimination of intercompany receivables........ (244,177)
--------------
Total consolidated assets.................... $ 199,669
--------------
--------------
</TABLE>
F-23
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
12. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NORTH PACIFIC
AMERICA RIM EUROPE TOTALS
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
June 30, 1998, and for the nine months then ended
(in thousands)
Sales to unaffiliated customers................ $ 244,902 $ 43,540 $ 12,599 $ 301,041
Intersegment revenues.......................... 32,618 16,164 9,522 58,304
-------------- ------------- -------------- --------------
Segment revenues............................... 277,520 59,704 22,121 359,345
Depreciation and amortization.................. 7,093 1,111 679 8,883
Segment operating profit (loss)................ 8,688 (2,109) (2,529) 4,050
Segment assets................................. 159,603 23,425 18,771 201,799
Expenditures for long-lived assets............. 4,142 -- -- 4,142
Reconciliations:
NET LOSS
Total operating profit or loss for reportable
segments..................................... $ 4,050
Interest expense............................... 8,600
Other income & expense......................... 263
Minority interest.............................. 1,112
Eliminations of operating income............... (338)
--------------
Total consolidated net loss.................. $ (4,039)
--------------
--------------
ASSETS
Total assets for reportable segments........... $ 201,799
Elimination of intercompany receivables........ (99,504)
--------------
Total consolidated assets.................... $ 102,295
--------------
--------------
</TABLE>
F-24
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
12. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NORTH PACIFIC
AMERICA RIM EUROPE TOTALS
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
September 30, 1998, and for the twelve
months then ended (in thousands)
Sales to unaffiliated customers..... $ 321,763 $ 58,382 $ 18,722 $ 398,867
Intersegment revenues............... 44,650 22,605 7,576 74,831
----------- ---------- ------------ -----------
Segment revenues.................... 366,413 80,987 26,298 473,698
Depreciation and amortization....... 9,988 1,484 860 12,332
Segment operating profit (loss)..... (5,547) (3,041) (7,086) (15,674)
Segment assets...................... 176,678 19,883 28,705 225,266
Expenditures for long-lived
assets............................ 11,790 200 -- 11,990
Reconciliations:
NET LOSS
Total operating profit or loss for
reportable segments............... $ (15,674)
Interest expense.................... 11,947
Other income & expense.............. 1,378
Minority interest................... 1,546
------------
Total consolidated net loss....... $ (27,453)
------------
------------
ASSETS
Total assets for reportable
segments.......................... $ 225,266
Elimination of intercompany
receivables....................... (105,137)
------------
Total consolidated assets......... $ 120,129
------------
------------
</TABLE>
F-25
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
12. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NORTH PACIFIC
AMERICA RIM EUROPE TOTALS
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
September 30, 1997, and for the twelve months
then ended (in thousands)
Sales to unaffiliated customers................ $ 291,633 $ 24,437 $ 15,590 $ 331,660
Intersegment revenues.......................... 39,326 19,333 2,712 61,371
-------------- ------------- -------------- --------------
Segment revenues............................... 330,959 43,770 18,302 393,031
Depreciation and amortization.................. 7,474 548 655 8,677
Segment operating profit (loss)................ (23,439) 2,433 (4,497) (25,503)
Other significant noncash item:
Write down of impaired long-lived assets..... 659 -- -- 659
Segment assets................................. 136,355 17,796 17,583 171,734
Expenditures for long-lived assets............. 8,691 2,180 -- 10,871
Reconciliations:
NET LOSS
Total operating profit or loss for reportable
segments..................................... $ (25,503)
Interest expense............................... 8,682
Other income & expense......................... 3,366
Minority interest.............................. 473
--------------
Total consolidated net loss.................. $ (37,078)
--------------
--------------
ASSETS
Total assets for reportable segments........... $ 171,734
Elimination of intercompany receivables........ (67,989)
--------------
Total consolidated assets.................... $ 103,745
--------------
--------------
</TABLE>
F-26
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
12. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
NORTH PACIFIC
AMERICA RIM EUROPE TOTALS
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
September 30, 1996, and for the twelve months
then ended (in thousands):
Sales to unaffiliated customers................ $ 171,446 $ 7,455 $ 4,960 $ 183,861
Intersegment revenues.......................... 19,561 4,845 329 24,735
-------------- ------------- -------------- --------------
Segment revenues............................... 191,007 12,300 5,289 208,596
Depreciation and amortization.................. 6,122 373 497 6,992
Segment operating profit (loss)................ (9,745) (2,328) (3,426) (15,499)
Other significant noncash item:
Write down of impaired long-lived assets..... 1,430 -- -- 1,430
Segment assets................................. 83,938 5,423 4,621 93,982
Expenditures for long-lived assets............. 3,124 -- -- 3,124
Reconciliations:
NET LOSS
Total operating profit or loss for reportable
segments..................................... $ (15,499)
Interest expense............................... 5,762
Other income & expense......................... 568
Minority interest.............................. 237
--------------
Total consolidated net loss.................. $ (21,592)
--------------
--------------
ASSETS
Total assets for reportable segments........... $ 93,982
Elimination of intercompany receivables........ (31,217)
--------------
Total consolidated assets.................... $ 62,765
--------------
--------------
</TABLE>
F-27
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
12. SEGMENT INFORMATION (CONTINUED)
The following table summarizes revenue by region and by type of customer for
the years ended September 30, 1996, 1997 and 1998, and for the nine months ended
June 30, 1998 and 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE BY REGIONS:
United States.................................................... $ 169.5 $ 287.4 $ 318.1 $ 242.1 $ 233.5
North America (other)............................................ 1.9 4.3 3.7 2.8 4.5
--------- --------- --------- --------- ---------
North America total.............................................. 171.4 291.7 321.8 244.9 238.0
Pacific Rim...................................................... 7.5 24.4 58.4 43.5 43.0
Europe........................................................... 5.0 15.6 18.7 12.6 23.3
--------- --------- --------- --------- ---------
Total.......................................................... $ 183.9 $ 331.7 $ 398.9 $ 301.0 $ 304.3
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
REVENUE BY CUSTOMERS:
Carrier.......................................................... $ 90.2 $ 163.3 $ 166.1 $ 120.4 $ 138.1
Residential...................................................... 52.9 116.9 161.1 124.6 125.5
Operator Services................................................ 24.5 28.7 41.1 33.0 17.7
Commercial....................................................... 16.3 22.8 30.6 23.0 23.0
--------- --------- --------- --------- ---------
Total.......................................................... $ 183.9 $ 331.7 $ 398.9 $ 301.0 $ 304.3
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED)
By August 4, 1999, WORLDxCHANGE repaid all amounts outstanding relating to
the 10% and 15% subordinated debentures.
In August 1999, WORLDxCHANGE agreed to issue 1,554,763 shares of its common
stock in exchange for minority interests held in certain of its subsidiaries.
WORLDxCHANGE will account for the acquisition as a purchase, with a deemed value
of approximately $17 million, and as such will record an intangible asset of
approximately $11.6 million, representing the excess value of the stock issued
over the minority interest recorded in the financial statements. WORLDxCHANGE
will amortize the intangible asset over its estimated useful life of 20 years.
In August 1999, WORLDxCHANGE's shareholders approved the restatement of
WORLDxCHANGE's articles of incorporation to increase the authorized common stock
to 100,000,000 shares and the authorized preferred stock to 10,000,000 shares.
The unissued preferred stock is "blank check preferred" which can be created and
issued by the board of directors without shareholder approval, with rights
senior to those of common stock.
On August 16, 1999, WORLDxCHANGE entered into an agreement to issue 30,000
shares of Series A Convertible Preferred Stock for $30,000,000. The holders of
the Series A Convertible Preferred Stock are entitled to receive an annual 4
percent cumulative cash dividend of $40 per share.
F-28
<PAGE>
WORLDxCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR
THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
13. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
The holders of the Series A Convertible Preferred Stock are entitled to certain
antidilution rights and have liquidation rights senior to those of common
shareholders.
Each share of Series A Convertible Preferred Stock is convertible into
90.9091 shares of common stock. The stock is convertible at the option of the
holder six months after issuance provided WORLDxCHANGE has not completed a
public offering and no such offering is pending. The stock is automatically
convertible: (i) six months from a completed registered public offering,
provided there has been no other registered public offering during the course of
the six months and no registered public offering is pending, or (ii) in the
event there is no registered public offering, two years from the date of
issuance, provided there is no registered public offering pending.
F-29
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock. In this
prospectus, "WORLDxCHANGE," "we," "us" and "our" refer to Communication
TeleSystems International, which operates under the name "WORLDxCHANGE
Communications", and its subsidiaries, unless the context indicates otherwise.
Until , 1999, which is 25 days after the commencement of the
offering, all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
SHARES
[LOGO]
WORLDxCHANGE
COMMUNICATIONS
COMMON STOCK
------------
PROSPECTUS
, 1999
---------------
GERARD KLAUER MATTISON & CO., INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of the common stock being registered. All amounts are estimates except the
SEC registration fee, the NASD filing fees and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
SEC Registration fee............................................ $ 22,796
NASD fee........................................................ $ 8,700
Nasdaq National Market listing fee.............................. $ 95,000
Printing and engraving expenses................................. $ 250,000
Legal fees and expenses......................................... $ 650,000
Accounting fees and expenses.................................... $ 350,000
Blue sky fees and expenses...................................... $ 15,000
Transfer agent fees............................................. $ 5,000
Miscellaneous fees and expenses................................. $ 78,344
---------
Total......................................................... $1,474,840
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law (the "CGCL") provides
for the indemnification of directors, officers and "agents" (as defined in
Section 317 of the CGCL) under certain circumstances. Subject to certain
limitations, Section 204(a)(11) of the CGCL permits corporations incorporated in
California to provide for indemnification of directors, officers and agents for
breach of their duty to the corporation and its shareholders in excess of that
expressly permitted by Section 317 of the CGCL. Under our articles of
incorporation and bylaws, we have the power to indemnify any person who was or
is a party or is threatened to be made a party to any proceeding by reason of
the fact that such person is or was one of our officers, directors or agents,
against expenses, judgments, fines, settlements and other amounts, actually and
reasonably incurred in connection with such proceeding if the person acted in
good faith, reasonably believing the acts to be in our best interest and having
no reason to believe the conduct to be unlawful.
We have entered into indemnification agreements with our directors and
officers. These agreements provide for the indemnification by us of our officers
and directors against all costs and expenses, judgments and fines and other
amounts actually and reasonably incurred in connection with proceedings in which
our officers or directors are or become involved as a party or otherwise by any
of their actions or inactions while acting as a director or officer, all to the
full extent permitted by federal and California law. The agreements also require
us to advance to indemnified officers and directors, prior to the final
disposition of any proceedings for which our officers and directors are entitled
to indemnification and promptly upon our receipt of supporting documentation
therefor, expenses relating to such proceedings. We are also required under the
agreements to obtain and maintain in full force and effect directors' and
officers' liability insurance in reasonable amounts from reputable insurers.
Section 317 of the CGCL permits us to obtain such insurance, and we intend to do
so.
The above discussion of our articles of incorporation, bylaws and
indemnification agreements and of Sections 204(a)(11) and 317 of the CGCL is not
intended to be exhaustive and is respectively qualified in its entirety by such
articles of incorporation, bylaws, indemnification agreements and statutes.
II-1
<PAGE>
In addition, the Underwriting Agreement filed as Exhibit 1.1 to this
registration statement provides for indemnification by the underwriters of us
and our officers and directors, and by us of the underwriters, for certain
liabilities arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have issued and sold the following unregistered securities during the
last three years:
- In November 1996, we issued 30,000 shares of our common stock, and in July
1998, we issued 6,000 shares of our common stock, to a former employee in
connection with the exercise of options issued by us to the former
employee outside of our 1996 Stock Option/Stock Issuance Plan. The
issuance of these shares was exempt from registration under the Securities
Act pursuant to Section 4(2) thereunder.
- From December 1996, the date of the first issuance of options under our
1996 Stock Option Plan, through August 16, 1999, we granted stock options
to purchase an aggregate of 3,336,030 shares of common stock, with
exercise prices ranging from $5.00 to $11.00 per share, to employees,
consultants and directors pursuant to our 1996 Stock Option/Stock Issuance
Plan. Of these options, options to purchase an aggregate of 222,799 shares
of common stock have been exercised, options to purchase an aggregate of
710,305 shares have vested and are outstanding, options to purchase an
aggregate of 665,105 shares of common stock have been cancelled and
options to purchase 1,737,821 shares of common stock have not yet vested
and remain outstanding. The grants of the above options were exempt from
registration in reliance on Section 2(3) of the Securities Act as
transactions by an issuer not involving the sale of a security. The
issuances of the shares of our common stock pursuant to the exercise of
our options were exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.
- In January 1997, we issued an option to purchase 250,020 shares of common
stock at an exercise price of $5.00 per share to one employee. This option
was issued outside of the 1996 Stock Option Plan. The issuance of this
option was exempt from registration under the Securities Act in reliance
upon Section 2(3) of the Securities Act.
- On September 30, 1998, we issued 788,127 shares of common stock to Gold &
Appel Transfer, S.A., for $10,000,000 pursuant to a Stock Purchase
Agreement, dated September 30, 1998 by and among WORLDxCHANGE, Gold &
Appel, Roger Abbott, Rosalind Abbott and Edward Soren. Effective December
22, 1998, we issued an additional 871,087 shares of our common stock to
Gold & Appel for $10,000,000. As an inducement to Gold & Appel to complete
the acquisition of the additional 871,087 shares prior to the scheduled
closing of the acquisition, we issued Gold & Appel a warrant to purchase
up to an additional 20,000 shares of common stock at an exercise price of
$12.05 per share. The issuances of the common stock and the warrant to
Gold & Appel were exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.
- In January 1999, we issued 13,825 shares of our common stock to one of our
employees in connection with the exercise of options issued by us to the
employee outside of our 1996 Stock Option/Stock Issuance Plan. The
issuance of these shares was exempt from registration under the Securities
Act pursuant to Section 4(2) thereunder.
- On February 1, 1999, we issued an aggregate of 278,000 shares of common
stock to five current or former employees, pursuant to the acquisition by
WxL New Zealand-International, Inc. (our wholly-owned subsidiary) of all
of the outstanding equity interests in WORLDxCHANGE Limited, a New Zealand
corporation. These issuances of common stock were exempt from registration
under the Securities Act pursuant to Section 4(2) thereunder.
II-2
<PAGE>
- On March 22, 1999, we issued 3,000,000 shares of common stock to Atocha,
L.P. for $30,000,000 pursuant to a Stock Purchase Agreement dated February
3, 1999 between WORLDxCHANGE and Atocha. The issuance of common stock to
Atocha was exempt from registration under the Securities Act pursuant to
Section 4(2) thereunder.
- On June 25, 1999, we issued 2,727,270 shares of common stock to Gold &
Appel for $30,000,000 pursuant to a Stock Purchase Agreement dated May 10,
1999 between WORLDxCHANGE and Gold & Appel. The issuance of common stock
to Gold & Appel was exempt from registration under the Securities Act
pursuant to Section 4(2) thereunder.
- On August 10, 1999, we entered into a Subscription Agreement with Richard
A. D. Vincent, a former executive officer of our Australian operating
subsidiary, under which we issued 104,763 shares of our common stock to
Mr. Vincent in exchange for 1,000,000 shares of the common stock of our
subsidiary,WxL International-Australia, Inc. Our issuance of these shares
to Mr. Vincent was exempt from registration under Section 4(2) of the
Securities Act.
- On August 16, 1999, we entered into an agreement to issue 30,000 shares of
Series A Convertible Preferred Stock to Gold & Appel for $30,000,000. The
issuance of these shares to Gold & Appel will be exempt from registration
under the Securities Act pursuant to Section 4(2) thereunder.
- On August 24, 1999, we entered into a Stock Purchase Agreement with The
TVG Asian Communications Fund, under which we have agreed to issue a total
of 1,450,000 shares of our common stock to The TVG Asian Communications
Fund in exchange for the 40% interest in our Australian operating
subsidiary, WORLDxCHANGE Pty. Ltd., held by The TVG Asian Communications
Fund. Under the agreement, we and The TVG Asian Communications Fund are
obligated to close this transaction upon the receipt of required
regulatory approval in Australia. Our issuance of shares to The TVG Asian
Communications Fund will be exempt from registration under Section 4(2) of
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement, dated , by and among Communication
TeleSystems International and Gerard Klauer Mattison & Co., Inc.*
2.1 Stock Purchase Agreement, dated August 24, 1999, among WORLDxCHANGE
B.V.B.A., The TVG Asian Communications Fund, Communication TeleSystems
International, WORLDxCHANGE Pty. Ltd., Warna Gerakan Sdn Bhd and the other
parties named therein
2.2 Stock Purchase Agreement, dated November 30, 1998, among CTS Telcom
Holdings, Inc., CTS Telcom, Inc., Rosalind R. Abbott and Edward S. Soren
2.3 Stock Purchase Agreement, dated December 31, 1998, among Communication
TeleSystems International d/b/a WORLDxCHANGE Communications, WxL
International-New Zealand, Inc., WORLDxCHANGE Limited, Roger B. Abbott,
Rosalind R. Abbott, Edward S. Soren, Eric G. Lipoff and Richard Vincent.
3.1 Amended and Restated Articles of Incorporation of Communication
TeleSystems International
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
3.2 Certificate of Determination of Preferences of Series A Convertible Stock
3.3 Amended and Restated Bylaws of Communication TeleSystems International
4.1 Specimen Common Stock Certificate*
5.1 Opinion of O'Melveny & Myers LLP*
9.1 Voting Trust Agreement, dated March 1, 1998, by and between Edward S.
Soren and Roger B. Abbott
10.1 Stock Purchase Agreement, dated September 29, 1998, among Communication
TeleSystems International d/b/a WORLDxCHANGE Communications, Gold & Appel
Transfer S.A., Roger B. Abbott, Rosalind Abbott and Edward S. Soren.
10.2 Stock Purchase Agreement, dated September 29, 1998, among Communication
TeleSystems International d/b/a WORLDxCHANGE Communications, Atocha L.P.,
Roger B. Abbott, Rosalind Abbott and Edward S. Soren.
10.3 Registration Rights Agreement, dated September 29, 1998, among
Communication TeleSystems International d/b/a WORLDxCHANGE Communications,
Gold & Appel Transfer S.A. and Atocha L.P.
10.4 Stock Purchase Agreement, dated February 3, 1999, among Communication
TeleSystems International d/b/a WORLDxCHANGE Communications and Atocha
L.P.
10.5 Registration Rights Agreement, dated February 3, 1999, among Communication
TeleSystems International d/b/a WORLDxCHANGE Communications and Atocha
L.P.
10.6 Stock Purchase Agreement, dated May 10, 1999, among Communication
TeleSystems International d/b/a WORLDxCHANGE Communications and Gold &
Appel Transfer S.A.
10.7 Registration Rights Agreement, dated May 10, 1999, among Communication
TeleSystems International d/b/a WORLDxCHANGE Communications and Gold &
Appel Transfer S.A.
10.8 Subordinated Promissory Note, dated August 25, 1998, made by Communication
TeleSystems International d/b/a WORLDxCHANGE Communications in favor of
Gerard Klauer Mattison & Co., Inc. in the principal amount of $20,000,000.
10.9 Subordinated Promissory Note, dated August 25, 1998, made by Communication
TeleSystems International d/b/a WORLDxCHANGE Communications in favor of
Gerard Klauer Mattison & Co., Inc. in the principal amount of $20,000,000.
10.10 Subordinated Promissory Note, dated August 25, 1998, made by Communication
TeleSystems International d/b/a WORLDxCHANGE Communications in favor of
Gerard Klauer Mattison & Co., Inc. in the principal amount of $15,000,000.
10.11 Subordinated Promissory Note, dated August 25, 1998, made by Communication
TeleSystems International d/b/a WORLDxCHANGE Communications in favor of
Tel-Save Holdings, Inc. in the principal amount of $1,200,000.
10.12 Agreement, dated March 15, 1999, among Communication TeleSystems
International d/b/a WORLDxCHANGE Communications, Tel-Save.com, Inc.,
Tel-Save, Inc., Mark Pavol, as Trustee of that certain D&K Grantor
Retained Annuity Trust dated June 15, 1998, Roger B. Abbott and Rosalind
Abbott, and Edward Soren
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.13 Agreement, dated June 28, 1999, among Communication TeleSystems
International d/b/a WORLDxCHANGE Communications, Mark Pavol, as Trustee of
that certain D&K Grantor Retained Annuity Trust dated June 15, 1998, Roger
B. Abbott and Rosalind Abbott, and Edward Soren
10.14 Security Agreement, dated August 25, 1998, between Communication
TeleSystems International d/b/a WORLDxCHANGE Communications and Gerard
Klauer Mattison & Co., Inc.
10.15 Assignment made by Gerard Klauer Mattison & Co., Inc. in favor of Tel-Save
Holdings, Inc.
10.16 Loan and Security Agreement, dated March 11, 1997, among Communication
TeleSystems International d/b/a WORLDxCHANGE Communications, WXL
Communications, Ltd., CTS Telcom, Inc. and Foothill Capital Corporation.
10.16.1 Amendment Number One, dated December 31, 1997, to Loan and Security
Agreement among Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, WXL Communications, Ltd., CTS Telcom, Inc. and Foothill
Capital Corporation
10.16.2 Amendment Number Two, dated February 20, 1998, to Loan and Security
Agreement among Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, WXL Communications, Ltd., CTS Telcom, Inc. and Foothill
Capital Corporation
10.16.3 Amendment Number Three, dated April 27, 1998, to Loan and Security
Agreement among Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, WXL Communications, Ltd., CTS Telcom, Inc. and Foothill
Capital Corporation
10.16.4 Amendment Number Four, dated August 25, 1998, to Loan and Security
Agreement among Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, WXL Communications, Ltd., CTS Telcom, Inc. and Foothill
Capital Corporation
10.16.5 Amendment Number Five, dated December 29, 1998, to Loan and Security
Agreement among Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, WXL Communications, Ltd., CTS Telcom, Inc. and Foothill
Capital Corporation
10.16.6 Amendment Number Six, dated March 15, 1999, to Loan and Security Agreement
among Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, WorldxChange Communications, Inc., CTS Telcom Holdings,
Inc., CTS Telcom, Inc. and Foothill Capital Corporation
10.16.7 Amendment Number Seven, dated June 16, 1999, to Loan and Security
Agreement among Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, WorldxChange Communications, Inc., CTS Telcom Holdings,
Inc., CTS Telcom, Inc. and Foothill Capital Corporation
10.16.8 Amendment Number Eight, dated August 24, 1999, to Loan and Security
Agreement among Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, WorldxChange Communications, Inc., CTS Telcom Holdings,
Inc., CTS Telcom, Inc. and Foothill Capital Corporation
10.17 TPC-5 Cable Network Construction and Maintenance Agreement, dated October
29, 1992, among the Parties listed on Schedule A thereto, as amended
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.17.1 TPC-5 Cable Network Amendatory Agreement No. 1, dated May 16, 1995, to the
Construction and Maintenance Agreement, dated October 29, 1992, among CTS
and the other Parties listed on Schedule A thereto
10.18 Tasman 2 Cable System Indefeasible Right of Use Agreement, dated April 1,
1997, between WORLDxCHANGE (New Zealand) Limited and WorldxChange Pty Ltd.
10.19 Tasman 2 Cable System Construction and Maintenance Agreement Revision No.
1, dated December 5, 1990, among the Parties identified in Schedule A
thereto
10.19.1 Sixth Supplementary Agreement, dated December 3, 1996, to the Tasman 2
Cable System Construction and Maintenance Agreement Revision No. 1, dated
December 5, 1990, among the Parties identified in Schedule A thereto
10.20 PacRimEast Cable System Construction and Maintenance Agreement, dated
December 5, 1990, as amended, among Communication TeleSystems
International d/b/a WORLDxCHANGE Communications and the other Parties
identified on Schedule A attached thereto
10.20.1 Third Supplementary Agreement, dated October 31, 1995, to the PacRimEast
Cable System Construction and Maintenance Agreement, dated December 5,
1990, as amended by the First Supplementary Agreement, dated October 8,
1992 and the Second Supplementary Agreement, dated October 19, 1993, among
Communication TeleSystems International d/b/a WORLDxCHANGE Communications
and the other Parties identified on Schedule A attached thereto
10.21 Indefeasible Right of Use Agreement and Financing Agreement, dated October
5, 1998 between Teleglobe USA Inc. and Communication TeleSystems
International d/b/a WORLDxCHANGE Communications
10.21.1 Side Letter, dated October 12, 1998, between Communication TeleSystems
International
d/b/a WORLDxCHANGE Communications and Teleglobe USA, Inc., regarding the
Indefeasible Right of Use Agreement and Financing Agreement, dated October
5, 1998
10.22 Southern Cross Cable Network Capacity Use Agreement, dated May 1998
between Southern Cross Cables Limited and Communication TeleSystems
International d/b/a WORLDxCHANGE Communications
10.23 Taino-Carib Cable System Indefeasible Right of User Agreement, dated
October 26, 1995, among AT&T Corp., Transoceanic Communications,
Incorporated and Communication TeleSystems International d/b/a
WORLDxCHANGE Communications
10.24 HAW-5 Cable System Indefeasible Right of User Agreement, dated March 9,
1995, between AT&T Corp. and Communication TeleSystems International d/b/a
WORLDxCHANGE Communications
10.25 Warrant to Purchase Common Stock, dated December 31, 1998, by and between
Communication TeleSystems International d/b/a WORLDxCHANGE Communications
and Gold & Appel Transfer S.A.
10.26 Capacity Lease and IRU Agreement, dated February 11, 1999, by and between
Level 3 Communications, LLC, a Delaware limited liability company, and
Communication Telesystems International, d/b/a WORLDxCHANGE Communications
(1)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.27 Capacity Lease Agreement, dated March 26, 1999, by and between
Communication Telesystems International d/b/a WORLDxCHANGE Communications
and Worldcom Network Services, Inc.(1)
10.28 Termination and Severance Agreement, dated July 24, 1998, between
Communication Telesystems International d/b/a WORLDxCHANGE Communications
and Holly Mead
10.29 Termination and Severance Agreement, dated May 11, 1999, by and between
Communication Telesystems International d/b/a WORLDxCHANGE Communications
and Ralph Brandifino
10.30 Letter Agreement, dated April 7, 1999, by and among Communication
Telesystems International d/b/a WORLDxCHANGE Communications and Siemens
Information and Communications Networks, Inc.
10.31 Registration Rights Agreement, dated July 29, 1999, between Communication
Telesystems International d/b/a WORLDxCHANGE Communications and Rosalind
and Roger Abbott
10.32 Form of Indemnification Agreement, dated July 29, 1999, between
Communication Telesystems International d/b/a WORLDxCHANGE Communications
and each of the individuals identified on Schedule A thereto
10.33 Communication TeleSystems International 1999 Stock Option / Stock Issuance
Plan
10.34 Communication TeleSystems International 1996 Stock Option / Stock Issuance
Plan
10.35 Employment Agreement, dated August 1, 1999, between Communication
Telesystems International d/b/a WORLDxCHANGE Communications and Roger B.
Abbott
10.36 Employment Agreement, dated April 23, 1998, between Communication
Telesystems International d/b/a WORLDxCHANGE Communications and Chris
Bantoft
10.37 Employment Agreement, dated December 16, 1993, between Communication
Telesystems International d/b/a WORLDxCHANGE Communications and Edward S.
Soren
10.38 Amended and Restated Employment Agreement, dated June 1, 1999, between
Communication Telesystems International d/b/a WORLDxCHANGE Communications
and Patrick Aelvoet
10.39 Employment Agreement, dated November 10, 1995, between Communication
Telesystems International d/b/a WORLDxCHANGE Communications and Barbara H.
Jamaleddin
10.40 Employment Agreement, dated October 1, 1996, between Communication
Telesystems International d/b/a WORLDxCHANGE Communications and Eric G.
Lipoff
10.41 Employment Agreement, dated April 28, 1999, between Communication
Telesystems International d/b/a WORLDxCHANGE Communications and William
Moskowitz
10.42 Lease Agreement, dated October 4, 1993, between Telecommunications Finance
Group and Communication Telesystems International d/b/a WORLDxCHANGE
Communications
10.43 Lease Agreement, dated June 2, 1992, between Telecommunications Finance
Group and Communication Telesystems International d/b/a WORLDxCHANGE
Communications
10.44 Lease Agreement, dated February 23, 1993, between Telecommunications
Finance Group and Communication Telesystems International d/b/a
WORLDxCHANGE Communications
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.45 Lease Agreement, dated February 20, 1995, between Telecommunications
Finance Group and Communication Telesystems International d/b/a
WORLDxCHANGE Communications
10.46 Lease Agreement, dated March 8, 1995, between Telecommunications Finance
Group and Communication Telesystems International d/b/a WORLDxCHANGE
Communications
10.47 Lease relating to 611 Wilshire Boulevard, Suite 601, Los Angeles,
California, 90017, dated September 17, 1997, between Downtown Properties,
L.L.C. and Communication Telesystems International d/b/a WORLDxCHANGE
Communications
10.48 Lease relating to Levels 3 and 4, 1 Elizabeth Place, North Sydney,
Australia, dated July 14, 1997, between Nesova Pty. Limited and
WORLDxCHANGE Pty. Limited
10.49 Univision Center Office Lease Agreement relating to 2323 Bryan Street,
15th Floor, Dallas, Texas 75201, dated May 30, 1998, between Beverly Hills
Center LLC and Communication Telesystems International d/b/a WORLDxCHANGE
Communications
10.50 Agreement of Lease relating to 60 Hudson Street, 15th Floor, New York, New
York, dated January 1995, between Hudson Telegraph Associates and
Communication Telesystems International d/b/a WORLDxCHANGE Communications
10.51 Underlease relating to Suite 9.02 Exchange Tower, One Harbor Exchange
Square, London E14 9GB, dated December 12, 1994, by and between Globe
Trust Limited and WORLDxCHANGE Communications Limited
10.51.1 Deed of Variation, relating to Suite 9.02 Exchange Tower, One Harbor
Exchange Square, London E14 9GB, dated June 23, 1997, between Dockways
Limited and WORLDxCHANGE Communications Limited
10.52 Sub-Underlease, relating to Suite 9.03 Exchange Tower, One Harbor Exchange
Square, London E14 9GB, dated June 23, 1997, between Dockways Limited and
WORLDxCHANGE Communications Limited
10.53 Lease relating to 9775 Business Park, San Diego, California, dated June
23, 1997, between Burnham Pacific Properties, Inc. and Communication
Telesystems International d/b/a WORLDxCHANGE Communications
10.54 Lease relating to 9999 Willow Creek Road, San Diego, California, dated
June 1, 1997, between Currie/Samuelson Development Group LP and
Communication TeleSystems, International d/b/a WORLDxCHANGE Communications
10.55 Registration Rights Agreement, dated August 24, 1999, between
Communication TeleSystems International d/b/a WORLDxCHANGE Communications
and the TVG Asian Communications Fund
10.56 Warrant to Purchase Common Stock, dated , 1999, by and between
Communication TeleSystems International d/b/a WORLDxCHANGE Communications
and Gerard Klauer Mattison & Co., Inc.*
10.57 Registration Rights Agreement, dated August , 1999, between
Communication TeleSystems International d/b/a WORLDxCHANGE Communications
and Gerard Klauer Mattison & Co., Inc.*
10.58 Stock Purchase Agreement, dated August 16, 1999, between Communications
TeleSystems International d/b/a WORLDxCHANGE Communications and Gold &
Appel Transfer S.A.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.59 Registration Rights Agreement, dated August 16, 1999, between
Communications TeleSystems International d/b/a WORLDxCHANGE Communications
and Gold & Appel Transfer S.A.
10.60 Voting Agreement, dated August 16, 1999, between Communications
TeleSystems International d/b/a WORLDxCHANGE Communications and Gold &
Appel Transfer S.A.
21.1 Subsidiaries of the Company.
23.1 Consent of O'Melveny & Myers LLP (contained in Exhibit 5.1)*
23.2 Consent of Ernst & Young LLP, Independent Auditors
24.1 Power of Attorney (included in the signature pages to the Registration
Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
(1) Confidential treatment has been requested for a portion of this Exhibit
* To be filed by amendment
(b) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable, not
required, or the required information is included in the consolidated financial
statements or the notes thereto.
II-9
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 2, 1999 in the Registration Statement on Form
S-1 and related Prospectus to be filed on or about August 25, 1999 of
Communication Telesystems International d/b/a WORLDxCHANGE Communications for
the registration of its common stock.
Our audits also included the financial statement schedule of Communication
Telesystems International d/b/a WORLDxCHANGE Communications for the three years
ended September 30, 1998 listed in Item 16(b). This schedule is the
responsibility of Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
San Diego, California
August 20, 1999
II-10
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
WORLDxCHANGE COMMUNICATIONS
<TABLE>
<CAPTION>
COL. C
----------------------------------
COL. B COL. E
------------ ADDITIONS ----------------
COL. A BALANCE AT ---------------------------------- COL. D BALANCE AT END
- ------------------------------------- BEGINNING OF CHARGED TO COSTS CHARGED TO OTHER ------------- OF
DESCRIPTION YEAR AND EXPENSES ACCOUNTS DEDUCTIONS(1) YEAR
- ------------------------------------- ------------ ---------------- ---------------- ------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998:
Reserves and allowances deducted
from asset accounts
Allowance for uncollectible
accounts....................... $ 9,808 $ 15,170 -- $ (16,524) $ 8,454
Allowance for credits and billing
adjustments.................... 3,996 6,098 -- (7,858) 2,236
YEAR ENDED SEPTEMBER 30, 1997:
Reserves and allowances deducted
from asset accounts
Allowance for uncollectible
accounts....................... $ 2,915 22,348 -- $ (15,455) $ 9,808
Allowance for credits and billing
adjustments.................... -- 10,260 -- (6,264) 3,996
YEAR ENDED SEPTEMBER 30, 1996:
Reserves and allowances deducted
from asset accounts
Allowance for uncollectible
accounts....................... $ 501 $ 6,562 -- $ (4,148) $ 2,915
Allowance for credits and billing
adjustments.................... -- -- -- -- --
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries.
II-11
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the provisions referenced in Item 14 of this Registration Statement or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer, or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The Company hereby undertakes to provide to the underwriters at the Closing,
as specified in the Underwriting Agreement, certificates in such denomination
and registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on this 25th day of August, 1999.
<TABLE>
<S> <C> <C>
COMMUNICATION TELESYSTEMS INTERNATIONAL D/B/A
WORLDxCHANGE Communications
By: /s/ ROGER B. ABBOTT
------------------------------------------
Roger B. Abbott
CHIEF EXECUTIVE OFFICER
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward S. Soren and Roger B. Abbott, and each of
them, his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and any registration statement
relating to the offering covered by this Registration Statement and filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that each of said attorneys-in-fact and agents or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ WALT ANDERSON
- ------------------------------ Chairman of the Board August 25, 1999
Walt Anderson
/s/ ROGER B. ABBOTT Chief Executive Officer
- ------------------------------ (Principal Executive August 25, 1999
Roger B. Abbott Officer) and Director
/s/ CHRISTOPHER BANTOFT President and Chief
- ------------------------------ Operating Officer and August 25, 1999
Christopher Bantoft Director
/s/ PATRICK AELVOET Chief Financial Officer
- ------------------------------ (Principal Financial and August 25, 1999
Patrick Aelvoet Accounting Officer)
/s/ EDWARD S. SOREN
- ------------------------------ Executive Vice President August 25, 1999
Edward S. Soren and Director
/s/ TOM CIRRITO
- ------------------------------ Director August 25, 1999
Tom Cirrito
/s/ DANN V. ANGELOFF
- ------------------------------ Director August 25, 1999
Dann V. Angeloff
/s/ PAUL LAXALT
- ------------------------------ Director August 25, 1999
Paul Laxalt
</TABLE>
II-13
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE
COMMUNICATIONS,
WORLDXCHANGE B.V.B.A.
WXL INTERNATIONAL - AUSTRALIA, INC.
THE TVG ASIAN COMMUNICATIONS FUND
WARNA GERAKAN SDN BHD
WORLDXCHANGE PTY. LTD.
AND
CERTAIN INDIVIDUALS NAMED HEREIN
AUGUST 24, 1999
<PAGE>
<TABLE>
<S> <C> <C>
1. DEFINITIONS.............................................................................................1
1.1 Definitions.............................................................................................1
2. PURCHASE AND SALE OF THE COMPANY SHARES; THE CLOSING; POST-CLOSING DELIVERIES...........................4
2.1 Purchase and Sale of the Company Shares.................................................................4
2.2 The Closing.............................................................................................5
2.3 Closing Conditions......................................................................................5
2.3.1 Mutual Condition........................................................................................5
2.3.2 Conditions to the Obligation of TVG to Close............................................................5
2.3.3 Conditions to the Obligation of the CTS Parties to Close................................................5
2.4 Post-Signing Deliveries.................................................................................6
3. REPRESENTATIONS AND WARRANTIES OF CTS AND WXBV..........................................................6
3.1 Organization and Corporate Power........................................................................6
3.2 Capital Stock and Related Matters.......................................................................6
3.3 Authorization; No Conflicts.............................................................................6
3.4 Governmental Consent, etc...............................................................................7
3.5 No Brokers or Finders...................................................................................7
3.6 Accuracy of Information.................................................................................7
3.7 Investment Representations..............................................................................7
4. REPRESENTATIONS AND WARRANTIES OF TVG...................................................................8
4.1 Organization and Related Matters........................................................................8
4.2 Authorization...........................................................................................8
4.3 No Conflicts............................................................................................8
4.4 No Brokers or Finders...................................................................................8
4.5 Ownership...............................................................................................8
4.6 Title...................................................................................................8
4.7 Right to Transfer.......................................................................................8
4.8 Investment Representations..............................................................................9
4.9 Governmental Consent, etc...............................................................................9
5. TRANSFER OF SHARES OF CTS STOCK........................................................................10
5.1 Restrictive Legends....................................................................................10
5.2 Notice of Proposed Transfers...........................................................................10
5.3 Permitted Transfers....................................................................................10
<PAGE>
6. CERTAIN COVENANTS......................................................................................11
6.1 Termination of Company Shareholders' Deed and Company Subscription Agreement...........................11
6.2 General Release........................................................................................11
6.3 Financial Statements...................................................................................12
6.4 Preemptive Rights......................................................................................12
6.5 Best Efforts...........................................................................................13
6.6 Rule 144 Filing........................................................................................13
6.7 Resignation of John Troy...............................................................................13
7. INDEMNIFICATION........................................................................................13
7.1 Obligations of CTS.....................................................................................14
7.2 Obligations of TVG.....................................................................................14
7.3 Procedure..............................................................................................14
7.3.1 Certificate............................................................................................14
7.3.2 Defense................................................................................................14
7.3.3 Subrogation of Indemnifying Party......................................................................14
7.4 Exclusive Remedy.......................................................................................15
8. CO-SALE RIGHT..........................................................................................15
8.1 Co-Sale Procedure......................................................................................15
8.2 Limitation on Co-Sale Right; Exercises of Right Prior to Closing.......................................15
9. GENERAL................................................................................................16
9.1 Amendments;Waivers.....................................................................................16
9.2 Survival of Representations and Warranties.............................................................16
9.3 Integration............................................................................................17
9.4 Best Efforts; Further Assurances.......................................................................17
9.4.1 Standard...............................................................................................17
9.4.2 Limitation.............................................................................................17
9.5 Governing Law and Forum Selection......................................................................17
9.6 No Assignment..........................................................................................17
9.7 Headings...............................................................................................17
9.8 Counterparts...........................................................................................17
9.9 Publicity and Reports..................................................................................17
9.10 Confidentiality........................................................................................18
<PAGE>
9.11 Parties in Interest....................................................................................18
9.12 Notices................................................................................................18
9.13 Expenses...............................................................................................19
9.14 Waiver.................................................................................................19
9.15 Representation By Counsel; Interpretation..............................................................19
9.16 Severability...........................................................................................19
9.17 No Consequential Damages...............................................................................20
9.18 Termination............................................................................................20
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is dated
August 24, 1999, by and among WORLDXCHANGE B.V.B.A., a Belgium corporation
("WXBV"), THE TVG ASIAN COMMUNICATIONS FUND, a Cayman Islands corporation
("TVG"), COMMUNICATION TELESYSTEMS INTERNATIONAL, a California corporation
("CTS") and, for the limited purposes set forth herein, WORLDXCHANGE PTY. LTD.,
an Australian corporation (the "COMPANY"), WARNA GERAKAN SDN BHD, a Malaysian
corporation ("WGSB"), WXL INTERNATIONAL - AUSTRALIA, INC., a Delaware
corporation ("WXL") and certain individuals named herein.
The parties hereby agree as follows:
1. DEFINITIONS.
1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the terms
defined in this SECTION 1.1 have the meanings assigned to them in this SECTION
1.1 and include the plural as well as the singular; the words "herein,"
"hereof," "hereto" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Section, Subsection or other
subdivision; unless the context otherwise requires, and all accounting terms not
otherwise defined herein have the meanings assigned under generally accepted
accounting principles.
As used in this Agreement, the following definitions shall
apply.
"AFFILIATE" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, a specified Person. In the case of TVG, Affiliate shall
also mean any current or future investment fund that is managed by the Telecom
Venture Group Limited (which currently manages TVG), any investor in TVG or such
fund, or any custodian of TVG (currently State Street Australia Limited) or such
fund.
"AGREEMENT" means this Agreement by and among WXBV, TVG, CTS
and, for the limited purposes set forth herein, the Company, WGSB and WXL, and
the individuals named herein as amended or supplemented together with all
Schedules attached or incorporated by reference.
"APPROVAL" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
"AUDITORS" means Ernst & Young LLP, independent public
accountants to the Company.
1
<PAGE>
"AVAILABLE SHARES" means, collectively, (i) the Offered Shares
and (ii) the number of shares of Stock offered for sale by TVG pursuant to
SECTION 8.1.
"CASH" has the meaning specified in SECTION 2.1.
"CERTIFICATE" has the meaning specified in SECTION 7.3.1.
"CLOSING" has the meaning specified in SECTION 2.2.
"CLOSING DATE" has the meaning specified in SECTION 2.2.
"COMPANY" means WorldxChange Pty. Ltd., an Australian
corporation.
"COMPANY SHAREHOLDERS' DEED" has the meaning specified in
SECTION 6.1.
"COMPANY SHARES" means the 46,968 ordinary shares of the
Company acquired by WGSB pursuant to the Company Subscription Agreement and
subsequently transferred to TVG.
"COMPANY SUBSCRIPTION AGREEMENT" has the meaning specified in
SECTION 6.1.
"CONTRACT" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"CTS" means Communication TeleSystems International, a
California corporation.
"CTS PARTIES" has the meaning specified in SECTION 2.3.3.
"CTS RELEASEES" has the meaning specified in SECTION 6.2.
"CTS STOCK" has the meaning specified in SECTION 2.1.
"E&Y OPINION" has the meaning specified in SECTION 2.3.2(ii).
"ENCUMBRANCE" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"EQUITY SECURITIES" means any capital stock of the Company or
other equity interest in the Company or any securities convertible into or
exchangeable for capital stock of the Company or any other rights, warrants or
options to acquire any of the foregoing securities.
"FIRB" has the meaning specified in SECTION 2.3.1.
2
<PAGE>
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"GOVERNMENTAL ENTITY" means any government or any agency,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"INDEMNIFIABLE CLAIM" means any Loss for or against which any
party is entitled to indemnification under this Agreement; "INDEMNIFIED PARTY"
means the party entitled to indemnity hereunder; and "INDEMNIFYING PARTY" means
the party obligated to provide indemnification hereunder.
"INDEMNIFIED PARTY" has the meaning specified in SECTION
7.3.1.
"INDEMNIFYING PARTY" has the meaning specified in SECTION
7.3.1
"LAW" means any constitutional provision, statute or other
law, rule, regulation, or interpretation of any Governmental Entity and any
Order.
"LOSS" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified person, but excluding any consequential damages.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
the financial condition and business operations of CTS and its Subsidiaries
taken as a whole.
"MATERIAL CONTRACT" means any Contract material to the
business of the subject Person as of the date hereof.
"OFFERED SHARES" has the meaning specified in SECTION 8.1.
"O'MELVENY OPINION" has the meaning specified in SECTION
2.3.2(ii).
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PURCHASE FUNDS" has the meaning specified in SECTION 6.4.2.
"PREEMPTIVE RIGHTS CERTIFICATES" has the meaning specified in
SECTION 6.4.2.
3
<PAGE>
"PROSPECTUS" means the prospectus relating to CTS in the form
attached as EXHIBIT F.
"REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement, dated the date hereof, between CTS and TVG, in
the form attached as EXHIBIT E.
"SEC" means the Securities and Exchange Commission or any
successor entity.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHAREHOLDER" and "SHAREHOLDERS" each has the meaning
specified in SECTION 8.1.
"STOCK" means the common stock of CTS, no par value.
"SUBSIDIARY" means any Person in which the subject Person has
a direct or indirect equity or ownership interest in excess of 50%.
"TAX" or "TAXES" means all federal, state, local or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TROY" has the meaning specified in SECTION 2.3.3.
"TVG" means the TVG Asian Communications Fund, a Cayman
Islands corporation.
"TVG RELEASEES" has the meaning specified in SECTION 6.2.
"WALKER OPINION" has the meaning specified in SECTION
2.3.3(ii).
"WXL" means WXL International - Australia, Inc., a Delaware
corporation.
"WXBV" means WorldxChange B.V.B.A., a Belgium corporation.
2. PURCHASE AND SALE OF THE COMPANY SHARES; THE CLOSING;
POST-CLOSING DELIVERIES.
2.1 PURCHASE AND SALE OF THE COMPANY SHARES. Subject to the terms and
conditions of this Agreement, at the Closing, TVG shall deliver to WXBV
certificates evidencing the Company Shares against the delivery by WXBV to TVG
of (a) certificates representing a total of 1,450,000 shares of Stock (such
shares, the "CTS STOCK") and (b) a cashier's check made payable to TVG in the
amount of $1,000 (the "CASH"). Subject to the terms and conditions of this
Agreement, the Company Shares shall be delivered to WXBV, and the CTS Stock and
the
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Cash shall be conveyed to TVG (such transaction, the "TRANSACTION") free and
clear of any Encumbrances whatsoever. WXBV shall be responsible for any
payment of the Australian Stamp Duty in connection with the share transfers
by TVG contemplated by this Agreement and shall indemnify TVG against any
such duty or any liability related thereto.
2.2 THE CLOSING. The closing of the Transaction (the "CLOSING") shall
take place at the offices of Baker & McKenzie, 101 West Broadway, Suite 1200,
San Diego, California (or such other location as WXBV and TVG may agree in
writing) on the later to occur of (i) September 1, 1999 or (ii) the first date
on which all of the conditions to Closing have been satisfied or waived in
writing by the party entitled to the performance or satisfaction thereof. The
date on which the Closing occurs is referred to herein as the "CLOSING DATE".
2.3 CLOSING CONDITIONS.
2.3.1 MUTUAL CONDITION. The obligation of each of the parties to close
the Transaction shall be subject to either (i) the receipt by one or
more of CTS, WXBV or TVG of a letter or other written notice from the
Australian Foreign Investment Review Board ("FIRB") confirming that the
Australian Commonwealth Government does not object to the Transaction
or (ii) the requisite amount of time shall have elapsed from the date
that the required information regarding the Transaction is filed with
the FIRB (or other appropriate entity), such that, based on the advice
of legal counsel (provided such legal counsel is reasonably acceptable
to WXBV and TVG), the Treasurer of the Commonwealth of Australia has
become precluded from making an order in respect of the Transaction
under the Foreign Acquisitions and Takeovers Act 1975 (Cth).
2.3.2 CONDITIONS TO THE OBLIGATION OF TVG TO CLOSE. The obligation of
TVG to close the Transaction shall be subject to the satisfaction or
written waiver by TVG of all of the following additional conditions:
(i) CERTIFICATES EVIDENCING THE CTS STOCK; CASH. WXBV shall
have delivered to TVG certificates representing the CTS Stock, in form
and substance reasonably satisfactory to TVG, together with the
cashier's check for the Cash.
(ii) OPINIONS. WXBV shall have delivered to TVG (i) the legal
opinion of O'Melveny & Myers LLP, dated the date of such delivery, in
the form attached hereto as EXHIBIT A (the "O'MELVENY OPINION") and
(ii) the legal opinion of Moret Ernst & Young, dated the date of such
delivery, in the form attached hereto as EXHIBIT C (the "E&Y OPINION").
(iii) REGISTRATION RIGHTS AGREEMENT. CTS shall have delivered
to TVG the Registration Rights Agreement, duly executed by CTS.
2.3.3 CONDITIONS TO THE OBLIGATION OF THE CTS PARTIES TO CLOSE. The
obligation of each of WXBV, CTS, WxL, Roger B. Abbott, Rosalind Abbott
and Edward S. Soren (collectively, the "CTS PARTIES") to close the
Transaction shall be subject to the satisfaction or written waiver by
WXBV of all of the following additional conditions:
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(i) CERTIFICATES EVIDENCING THE COMPANY SHARES. TVG shall
have delivered to WXBV the certificates representing the Company
Shares, accompanied by share transfers executed in blank, and in
proper form for transfer on the books of the Company, all in form and
substance reasonably satisfactory to WXBV.
(ii) OPINION. TVG shall have delivered to WXBV the legal
opinion of W.S. Walker & Co., dated the date of such delivery, in the
form attached hereto as EXHIBIT B (the "WALKER OPINION").
(iii) REGISTRATION RIGHTS AGREEMENT. TVG shall have delivered
to CTS the Registration Rights Agreement, duly executed by CTS.
(iv) RESIGNATION OF JOHN TROY. TVG shall have caused to be
delivered to the Board of Directors of the Company (with a copy thereof
delivered to WXBV) a letter from and executed by John Troy ("TROY") in
which Troy resigns, contingent upon the occurrence of and effective as
of the Closing, from the Board of Directors of the Company, which
letter shall be in the form attached as EXHIBIT D.
2.4 POST-SIGNING DELIVERIES. Not later than September 6, 1999,
irrespective of whether any of the other closing conditions specified in
SECTION 2.3 have been satisfied by such date, (a) TVG shall deliver to WXBV
the Walker Opinion; and (b) WXBV shall deliver to TVG the E&Y Opinion and the
O'Melveny Opinion.
3. REPRESENTATIONS AND WARRANTIES OF CTS AND WXBV.
Except as otherwise disclosed in the Prospectus, CTS and WXBV
jointly and severally represent and warrant to TVG that:
3.1 ORGANIZATION AND CORPORATE POWER. As of the date hereof and the
Closing Date, (a) each of CTS and WXBV is and will be a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and country of Belgium, respectively, and (b) each of CTS and WXBV
has and will have all requisite corporate power and authority necessary to own
and operate its properties and to carry on its business as now conducted and as
presently proposed to be conducted. The copies of CTS's charter documents and
bylaws provided to TVG reflect all amendments made thereto at any time prior to
the date of this Agreement and are correct and complete. CTS is duly qualified
to do business as a foreign corporation and is in good standing under the laws
of each state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where the failure to be so qualified would
not have a Material Adverse Effect.
3.2 CAPITAL STOCK AND RELATED MATTERS. The shares of CTS Stock, when
delivered to TVG pursuant hereto, will be duly authorized and validly issued,
fully paid and non-assessable.
3.3 AUTHORIZATION; NO CONFLICTS. The execution, delivery and
performance of this Agreement by each of CTS and WXBV has been duly and validly
authorized by the respective
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Boards of Directors of CTS and WXBV. This Agreement constitutes the legally
valid and binding obligation of CTS and WXBV, enforceable against CTS and
WXBV in accordance with its terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws and equitable principles relating to or limiting creditors
rights generally. The execution, delivery and performance of this Agreement
by CTS and WXBV will not violate, or constitute a breach or default (whether
upon lapse of time and/or the occurrence of any act or event or otherwise)
under, the respective charter documents or bylaws of CTS and WXBV or any of
the respective Material Contracts of CTS and WXBV, result in the imposition
of any material Encumbrance against any material asset or properties of CTS
or any Subsidiary, or violate any Law.
3.4 GOVERNMENTAL CONSENT, ETC. Except for FIRB approval and those other
approvals that have been obtained, no Approval is required for WXBV or CTS to
deliver the CTS Stock and the Cash to TVG pursuant to this Agreement.
3.5 NO BROKERS OR FINDERS. No agent, broker, finder, or investment or
commercial banker, or other Person or firm engaged by or acting on behalf of CTS
and/or WXBV or its Affiliates in connection with the negotiation, execution or
performance of this Agreement and/or the transactions contemplated hereby, is or
will be entitled to any brokerage or finder's or similar fee or other commission
as a result of this Agreement or the transactions contemplated hereby.
3.6 ACCURACY OF INFORMATION. As of the date hereof, the Prospectus does
not contain any untrue statement of a material fact, or fail to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.7 INVESTMENT REPRESENTATIONS. WXBV has not been attracted to the
purchase of the Company Shares by any publication or any advertising, and the
transactions contemplated by this Agreement are not being effected by or through
a broker-dealer. WXBV is an "accredited investor" within the meaning of Rule 501
of Regulation D promulgated by the SEC, as presently in effect. WXBV understands
that (i) neither the Company Shares nor the sale thereof to it has been
registered under the Securities Act, or under any state securities law, (ii) no
registration statement has been filed with the SEC, nor with any other
regulatory authority and that, as a result, any benefit which might normally
accrue to an investor such as WXBV by an impartial review of such a registration
statement by the SEC or other regulatory commission will not be forthcoming; and
(iii) the Company Shares are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from TVG in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances. WXBV acknowledges that
(i) it is represented by counsel, (ii) it has received and carefully reviewed
all information it considers necessary or appropriate for deciding whether to
acquire the Company Shares; (iii) as a result of its knowledge of the
telecommunications industry, its prior indirect ownership of a majority of the
capital stock of the Company and its prior overall experience in financial
matters, it is properly able to evaluate the capital structure of the Company
and its Subsidiaries and the risks inherent therein; and (iv) it has been given
the
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opportunity to obtain any additional information or documents from, and to
ask questions and receive answers of, the officers and representatives of the
Company to the extent necessary to evaluate the merits and risks related to
its investment in the Company.
4. REPRESENTATIONS AND WARRANTIES OF TVG. TVG represents and warrants
to WXBV and CTS that:
4.1 ORGANIZATION AND RELATED MATTERS. As of the date hereof and the
Closing Date, TVG (a) is and will be a corporation duly organized, validly
existing and in good standing under the laws of the Cayman Islands and (b) has
and will have all requisite corporate power and authority to execute, deliver
and perform this Agreement and to consummate the transactions contemplated
hereby.
4.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of TVG. This
Agreement constitutes the legal, valid and binding obligation of TVG,
enforceable against TVG in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors' rights generally.
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, by TVG
will not violate, or constitute a breach or default whether upon lapse of time
and/or the occurrence of any act or event or otherwise under (i) the charter
documents or bylaws of TVG, (ii) any Material Contract to which TVG is a party
(after giving effect to the provisions of SECTION 6.1 hereof), or (iii) any Law
to which TVG is subject.
4.4 NO BROKERS OR FINDERS. No agent, broker, finder or investment or
commercial banker, or other Person or firms engaged by or acting on behalf of
TVG or its Affiliates in connection with the negotiation, execution or
performance of this Agreement and/or the transactions contemplated hereby, is or
will be entitled to any broker's or finder's or similar fees or other
commissions as a result of this Agreement or the transactions contemplated
hereby.
4.5 OWNERSHIP. As of the date hereof and the Closing, (a) TVG is and
will be the record and beneficial owner of all of the Company Shares; (b) such
Company Shares represent and will represent the entire ownership interest of TVG
in the Company; c) TVG has and will have no other Equity Securities of the
Company, and (d) WGSB has no Equity Securities of the Company.
4.6 TITLE. As of the date hereof and the Closing, TVG has and will have
good and marketable title to the Company Shares, free and clear of any
Encumbrances.
4.7 RIGHT TO TRANSFER. TVG has full legal right and power to transfer
and deliver to WXBV the Company Shares.
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4.8 INVESTMENT REPRESENTATIONS. This Agreement is made with TVG in
reliance upon TVG's representation to WXBV and CTS, which by TVG's execution of
this Agreement TVG hereby confirms, that (i) the CTS Stock is being acquired for
investment for TVG's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and that TVG has no present
intention of selling, granting any participation in, or otherwise distributing
the same; (ii) TVG does not have any Contract, undertaking, agreement or
arrangement with any Person to sell, transfer or grant participations to any
Person with respect to any shares of the CTS Stock (except that TVG has the
legal obligation to transfer to its investors assets at the end of the fund
life); and (iii) TVG is not an underwriter of the CTS Stock within the meaning
of Section 2(11) of the Securities Act.
TVG has not been attracted to the purchase of the CTS Stock by any publication
or any advertising, and the transactions contemplated by this Agreement are not
being effected by or through a broker-dealer.
TVG has no intent or expectation, and there is no agreement or commitment by
WXBV or CTS, that, at any time on or after the Closing Date, TVG will
participate in the making of basic business decisions of CTS or otherwise
participate directly in the operations of CTS.
TVG is an "accredited investor" within the meaning of Rule 501 of Regulation D
promulgated by the SEC, as presently in effect.
TVG understands that (i) neither the CTS Stock nor the sale thereof to it has
been registered under the Securities Act, or under any state securities law,
(ii) no registration statement has been filed with the SEC, nor with any other
regulatory authority and that, as a result, any benefit which might normally
accrue to an investor such as TVG by an impartial review of such a registration
statement by the SEC or other regulatory commission will not be forthcoming; and
(iii) the shares of the CTS Stock are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being acquired from WXBV
and CTS in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances.
TVG acknowledges that (i) it is represented by counsel, (ii) it has received and
carefully reviewed a copy of the Prospectus and this Agreement; (iii) it has
received all information it considers necessary or appropriate for deciding
whether to acquire the CTS Stock; (iv) as a result of its knowledge of the
telecommunications industry, its study of the aforementioned documents and its
prior overall experience in financial matters, it is properly able to evaluate
the capital structure of CTS, the business of CTS and its Subsidiaries and the
risks inherent therein; and (v) it has been given the opportunity to obtain any
additional information or documents from, and to ask questions and receive
answers of, the officers and representatives of CTS to the extent necessary to
evaluate the merits and risks related to its investment in the CTS.
4.9 GOVERNMENTAL CONSENT, ETC. Except for those that have been
obtained, no Approval is required for TVG to convey and deliver the Company
Shares to WXBV pursuant to this Agreement
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5. TRANSFER OF SHARES OF CTS STOCK. TVG expressly acknowledges
and agrees that the shares of CTS Stock delivered to TVG pursuant hereto
shall be subject to certain restrictions on transfer which conditions are
intended to assure compliance with the provisions of the Securities Act and
state securities laws in respect of the transfer of any of such shares of the
CTS Stock. Such restrictions on transfer are set forth below in SECTIONS 5.1,
5.2 and 5.3.
5.1 RESTRICTIVE LEGENDS. Unless and until otherwise permitted by this
Agreement, the certificates representing the CTS Stock shall be stamped or
otherwise imprinted with legends in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED UNLESS PRIOR WRITTEN NOTICE OF THE
HOLDER'S INTENTION TO TRANSFER SUCH SECURITIES IS GIVEN TO THE COMPANY
AND UNLESS SUCH SECURITIES ARE REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933 OR AN EXEMPTION FROM REGISTRATION OR
QUALIFICATION IS AVAILABLE AND THE COMPANY HAS RECEIVED A WRITTEN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE
COMPANY, TO SUCH EFFECT."
TVG expressly acknowledges and agrees that CTS may order its transfer agents to
stop the transfer of any shares of the CTS Stock bearing a legend required by
this SECTION 5.1 until the conditions herein with respect to transfer of such
securities have been satisfied.
5.2 NOTICE OF PROPOSED TRANSFERS. Subject to SECTION 5.1, prior to any
transfer or attempted transfer of the shares of the CTS Stock bearing the legend
in SECTION 5.1, TVG shall give CTS written notice of its intention to do so,
describing briefly the nature of any such proposed transfer. If, in the written
opinion of counsel for holder, addressed to CTS and TVG, in form and substance
reasonably acceptable to CTS, the proposed transfer may be effected without
registration of such shares of the CTS Stock, the shares of the CTS Stock
proposed to be transferred may be transferred in accordance with the terms of
said notice and in compliance with applicable state securities laws and
regulations. CTS shall not be required to effect any such transfer prior to the
receipt of such favorable opinion or opinions; provided that if the proposed
transfer is governed by Rule 144 promulgated by the SEC, or any successor rule,
such opinion shall not be required, but CTS may prevent such transfer until it
receives evidence satisfactory to it and its counsel that the transfer complies
with Rule 144. Each transfer shall comply with all applicable SEC rules and
applicable state securities laws.
5.3 PERMITTED TRANSFERS. Notwithstanding anything to the contrary in
this Agreement, TVG may transfer the CTS Stock to any Affiliate of TVG (a
"PERMITTED TRANSFEREE") in accordance with the provisions of SECTIONS 5.1 and
5.2; provided that the transferee shall hold
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such shares of CTS Stock subject to the same restrictions applicable to its
transferor and shall agree in writing to be bound by the terms of this
Agreement.
6. CERTAIN COVENANTS.
6.1 TERMINATION OF COMPANY SHAREHOLDERS' DEED AND COMPANY SUBSCRIPTION
AGREEMENT. Contingent upon the occurrence of and effective as of the Closing,
WXL, WGSB, WXBV, TVG and the Company mutually agree that that certain
Shareholders' Deed by and among WXL, WGSB, and the Company (the "COMPANY
SHAREHOLDERS' DEED") shall be terminated and shall cease to be of any further
force or effect, and none of WXL, WGSB, TVG, WXBV or the Company shall have any
further rights, duties, obligations or liabilities whatsoever thereunder. Also
contingent upon the occurrence of and effective as of the Closing, WXL, WGSB,
WXBV, CTS, TVG and the Company further mutually agree that certain Subscription
Agreement by and among WXL, CTS, WGSB and the Company (the "COMPANY SUBSCRIPTION
AGREEMENT") shall be terminated and shall cease to be of any force or effect,
and none of CTS, WXL, WGSB or the Company shall have any further rights, duties,
obligations or liabilities whatsoever thereunder.
6.2 GENERAL RELEASE. Contingent upon the occurrence of and effective as
of the Closing, (a) each of TVG and WGSB agrees not to sue and fully releases
and discharges the Company, WXL, WXBV and CTS, including, without limitation,
their respective directors, officers, employees, shareholders, representatives,
agents, assigns and successors, past and present (collectively, the "CTS
RELEASEES"), with respect to and from any and all claims, issuances of the
Company's stock, notes or other securities, any demands, rights, liens,
agreements, contracts (including, without limitation, the Company Subscription
Agreement and/or the Company Shareholders' Deed), covenants, actions, suits,
causes of action, obligations, debts, costs, expenses, damages, judgments,
orders and liabilities of whatever kind or nature in law, equity or otherwise,
whether now known or unknown, and whether or not concealed or hidden, all of
which each of TVG and/or WGSB now owns or holds or has at any time owned or held
against the CTS Releasees; and (b) each of WXBV, CTS, WXL and the Company agrees
not to sue and fully releases and discharges TVG and WGSB, including, without
limitation, its directors, officers, employees, shareholders, representatives,
agents, assigns and successors, past and present (collectively, the "TVG
RELEASEES"), with respect to and from any and all claims, issuances of the
Company's stock, notes or other securities, any demands, rights, liens,
agreements, contracts (including, without limitation, the Company Subscription
Agreement and/or the Company Shareholders' Deed), covenants, actions, suits,
causes of action, obligations, debts, costs, expenses, damages, judgments,
orders and liabilities of whatever kind or nature in law, equity or otherwise,
whether now known or unknown, and whether or not concealed or hidden, all of
which WXBV, CTS, WXL and/or the Company now owns or holds or has at any time
owned or held against the TVG Releasees.
It is the intention of WXBV, CTS, WXL, WGSB, TVG and the Company that
the foregoing releases be effective as a bar to each and every claim, demand and
cause of action hereinabove specified. In furtherance of this intention, each of
WXBV, CTS, WXL, WBSG, TVG and the Company hereby expressly waives, effective as
of the Closing Date, any and all
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rights and benefits conferred upon each such party by the provisions of
Section 1542 of the California Civil Code and expressly consents that this
release shall be given full force and effect according to each and all of its
express terms and provisions, including as well, those related to unknown and
unsuspected claims, demands and causes of action, if any, as those relating
to any other claims, demands and causes of action hereinabove specified, but
only to the extent such section is applicable to releases such as this.
Section 1542 provides:
"A general release does not extend to claims which
the creditor does not know or suspect to exist in his favor at the time
of executing the release, which if known by him must have materially
affected his settlement with the debtor."
Nothing in this SECTION 6.2 shall in any way affect any rights that any
party hereto may have against any other party under this Agreement, including,
without limitation, any right of indemnification pursuant to this Agreement.
6.3 FINANCIAL STATEMENTS. Contingent upon the occurrence of and
effective as of the Closing, CTS agrees to deliver to TVG so long as TVG shall
own the CTS Stock (i) unaudited quarterly financial statements of CTS within 45
days after the end of each fiscal quarter of CTS that occurs after the Closing
and (ii) audited annual financial statements of CTS within 150 days after the
end of each fiscal year of CTS that occurs after the Closing.
6.4 PREEMPTIVE RIGHTS.
6.4.1 Subject to SECTION 6.4.2 and to the terms and condition of this
SECTION 6.4.1, TVG shall have the right to subscribe to any additional
(i) issuances of shares of capital stock of CTS occurring on or after
the date hereof, (ii) issuances of securities convertible into shares
of capital stock of CTS occurring on or after the date hereof, or (iii)
grants of options to purchase shares of capital stock of CTS, other
than grants to employees, directors or consultants of CTS (and the
issuance of shares upon exercise of such options), for cash occurring
on or after the date hereof, on the same terms of such offerings to the
extent equal to the proportion which the total shares of Stock then
held by TVG bears to CTS's fully-diluted capitalization (on an
as-converted and as-exercised basis). Such right is exercisable within
ten (10) days after the receipt by TVG of written notice relating to
such issuance. Such right extends to the same proportion of the new
issue of shares, convertible securities or options as TVG's proportion
of CTS's fully-diluted capitalization. Notwithstanding the foregoing,
TVG's right to purchase new issues of shares or convertible securities
or options does not extend to (i) the issuance of shares upon the
conversion or exercise of options or other convertible securities
either (A) outstanding on the Closing Date, or (B) with respect to
which options or other convertible securities TVG had preemptive rights
under this SECTION 6.4.1; or (ii) securities issued solely in exchange
for shares, convertible securities or options issued in connection with
any merger, reorganization or acquisition. The preemptive rights held
by TVG pursuant to this Section 6.4 shall terminate and be of no
further force or effect upon the first to occur of (i) the termination
of this Agreement pursuant to SECTION 9.18 hereof; or (ii) immediately
prior to the listing of shares of the common stock of CTS on a
securities
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exchange or qualification of such shares for trading on an
over-the-counter system selected by CTS.
6.4.2 Notwithstanding any contrary term or provision of this Agreement,
if TVG shall be entitled to preemptive rights pursuant to SECTION 6.4.1
with respect to any securities of CTS issued or to be issued before the
Closing has occurred, then, if TVG shall exercise such rights, (i) TVG
shall deliver to an escrow agent reasonably mutually acceptable to TVG
and CTS, via wire transfer of immediately available funds, the purchase
price (the "PURCHASE FUNDS") for the securities of CTS to be purchased
pursuant to such preemptive rights; (ii) CTS shall deliver to such
escrow agent the certificates or instruments representing the
securities to be so purchased by TVG (the "PREEMPTIVE RIGHTS
CERTIFICATES"); and (iii) TVG and CTS shall enter into an escrow
agreement with such escrow agent that shall provide for the escrow
agent to hold such funds and certificates and/or instruments until the
first to occur of (1) the satisfaction of the mutual condition to
closing specified in SECTION 2.3.1 hereof, in which event the escrow
agent shall release the Preemptive Rights Certificates to TVG and the
Purchase Funds to CTS promptly after the satisfaction of such
condition; (2) the termination of this Agreement pursuant to SECTION
9.18, in which event the escrow agent shall release the Preemptive
Rights Certificates to CTS and the Purchase Funds to TVG promptly after
such termination of this Agreement; or (3) the escrow agent's receipt
of a final, non-appealable determination of a court of competent
jurisdiction or a joint written instruction executed by CTS and TVG
instructing the escrow agent what to do with the Preemptive Rights
Certificates and Purchase Funds, in which event the escrow agent shall
act on such judicial determination or joint written instructions
without further question.
6.5 BEST EFFORTS. CTS shall use its best efforts to cause FIRB approval
of the transactions contemplated hereby to be obtained as soon as practicable.
WXBV and TVG shall cooperate fully in such efforts. CTS and WXBV shall use its
best efforts to provide to TVG such information as shall be reasonably requested
with respect to WXBV and otherwise reasonably cooperate in order that TVG may
provide to the Australian Tax Authorities such information as they may require
related to the transfer of stock contemplated by this Agreement and the prior
transfer from WGSB to TVG.
6.6 RULE 144 FILING. After CTS's Stock is registered under the
Securities Exchange Act of 1934, and until all of the CTS Stock has been
publicly sold or is eligible for sale under Rule 144(k) under the Securities
Act, CTS shall use best efforts to file the reports required under Rule
144(c)(1) under the Securities Act in order to permit sales of the CTS Stock by
TVG pursuant to Rule 144.
6.7 RESIGNATION OF JOHN TROY. Each of TVG and Troy shall take all
actions necessary or appropriate to cause the resignation of Troy from the Board
of Directors of the Company to be and become effective as of (and subject to the
occurrence of) the Closing.
7. INDEMNIFICATION.
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7.1 OBLIGATIONS OF CTS. Subject to SECTION 7.3.1, CTS and WXBV agree to
indemnify and hold harmless TVG from and against any and all Losses of
TVG based upon or arising from any inaccuracy in or breach or
nonperformance of any of the representations, warranties, or covenants
made by WXBV or CTS in this Agreement.
7.2 OBLIGATIONS OF TVG. Subject to SECTION 7.3.1, TVG agrees to
indemnify and hold harmless each of CTS, WXBV and the Company from and
against any and all Losses of CTS, WXBV and/or the Company based upon
or arising from any inaccuracy in or breach or nonperformance of any of
the representations, warranties or covenants made by TVG in this
Agreement.
7.3 PROCEDURE
7.3.1 CERTIFICATE. As soon as reasonably practicable after the
incurrence of a Loss or Losses which is or are reasonably likely to
give rise to indemnification hereunder, such party (the "INDEMNIFIED
PARTY") shall deliver to the party required to provide indemnity
hereunder (the "INDEMNIFYING PARTY") a certificate (a "CERTIFICATE"),
which Certificate shall (i) state that the Indemnified Party has paid
or properly accrued Losses, or anticipates that it will incur liability
for Losses; and (ii) specify in reasonable detail each individual item
of Loss included in the amount so stated, the date such item was paid
or properly accrued, the basis for any anticipated liability and the
nature of the misrepresentation, breach of warranty or breach of
covenant or claim to which such item is related and the computation of
the amount to which such Indemnified Party claims to be entitled
hereunder, provided, however, that subject to SECTION 9.2, no delay on
the part of such party in providing such Certificate shall relieve the
Indemnifying Party from any obligation to indemnify under this
Agreement unless (and then only to the extent) the Indemnifying Party
thereby is prejudiced.
7.3.2 DEFENSE. If any claim, demand or liability is asserted by any
third party against any Indemnified Party, the Indemnifying Party
shall, upon the written request of the Indemnified Party, defend any
actions or proceedings brought against the Indemnified Party in respect
of matters embraced by the indemnity. If, after a request to defend any
action or proceeding, the Indemnifying Party neglects to defend the
Indemnified Party, a recovery against the latter suffered by it in good
faith, is conclusive in its favor against the Indemnifying Party,
provided however that, if the Indemnifying Party has not received
reasonable notice of the action or proceeding against the Indemnified
Party, or is not allowed to control its defense, judgment against the
Indemnified Party is only presumptive evidence against the Indemnifying
Party. The parties shall cooperate in the defense of all third party
claims which may give rise to Indemnifiable Claims hereunder. In
connection with the defense of any claim, each party shall make
available to the party controlling such defense, any books, records or
other documents within its control that are reasonably requested in the
course of such defense.
7.3.3 SUBROGATION OF INDEMNIFYING PARTY. If the Indemnified Party
receives payment or other indemnification from an Indemnifying Party
hereunder, the Indemnifying Party
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shall be subrogated to the extent of such payment or indemnification
to all rights in respect of the subject matter of such claim to
which the Indemnified Party may be entitled, to institute
appropriate action for the recovery thereof, and the Indemnified Party
agrees reasonably to assist and cooperate with the Indemnifying Party
at no expense to the Indemnified Party in enforcing such rights.
7.4 EXCLUSIVE REMEDY. This SECTION 7 shall be the exclusive remedy of
each of the parties hereto for any Loss of such party based upon or arising from
any inaccuracy in or breach or nonperformance of any of the representations,
warranties, or covenants made by any other party to this Agreement.
8. CO-SALE RIGHT.
8.1 CO-SALE PROCEDURE. Subject to SECTION 8.2, if, at any time on or
after the date hereof, any of Mr. Roger B. Abbott, Ms. Rosalind Abbott or Mr.
Edward S. Soren (each of Messrs. Abbott and Soren and Ms. Abbott is a
"SHAREHOLDER" and collectively, they are the "SHAREHOLDERS") desire to sell,
assign or otherwise transfer any shares of Stock owned by such Shareholder
(except for a sale, assignment or transfer to a family member of such
Shareholder, provided (i) that the shares of Stock so transferred shall
thereafter remain subject to this SECTION 8 as though the transferee were a
Shareholder and (ii) the transferee agrees in writing to be bound by this
SECTION 8), then such Shareholder (collectively with any other selling
Shareholder, the "SELLING SHAREHOLDER") shall first give written notice (the
"CO-SALE NOTICE") to TVG specifying the following: (i) the name and address of
the proposed purchaser (the "OFFEROR"); (ii) the number of shares of Stock
offered for sale to the Offeror by the Selling Shareholder (the "OFFERED
SHARES"); the price or amount per share of Stock to be paid (and other
consideration, if any) or delivered to the Selling Shareholder for the Offered
Shares; and (iv) all other material terms and conditions of the proposed sale.
Within five business days after receipt of the Co-Sale Notice, TVG may elect by
written notice to the Selling Shareholder to sell to the Offeror a number of
shares of Stock not to exceed the product of (i) a fraction where the numerator
is the Offered Shares and the denominator is the total number of shares of Stock
(including the Offered Shares) then held by the Shareholders, multiplied by (ii)
the number of shares of Stock then owned by TVG; provided, however, that TVG
shall have the right, which right may be exercised by TVG one time only, to sell
to the Offeror a number of shares of Stock (to the extent such shares of Stock
are actually owned by TVG) equal to double the number of shares allowed to be
sold (before application of this proviso) by TVG pursuant to this SECTION 8.1.
8.2 LIMITATION ON CO-SALE RIGHT; EXERCISES OF RIGHT PRIOR TO CLOSING.
If the Offeror does not wish to purchase the full amount of Available Shares,
then TVG shall be entitled to sell to the Offeror a number of shares of Stock
not to exceed the product of (i) a fraction where the numerator is the number of
shares of Stock offered for sale by TVG pursuant to SECTION 8.1 and the
denominator is the number of Available Shares, multiplied by (ii) the total
number of shares of Stock which the Offeror is willing to purchase in total from
the Selling Shareholder and TVG. Notwithstanding any contrary provision of this
Agreement (but subject to the last sentence of this SECTION 8.2), if TVG shall
be entitled to co-sale rights pursuant to SECTION 8.1 and/or SECTION 8.2 with
respect to a sale, assignment or other transfer by a Selling Shareholder
proposed to be
15
<PAGE>
effected prior to the Closing and the applicable Offeror declines to agree to
purchase TVG's shares when and if they are delivered to TVG pursuant to this
Agreement, then TVG shall have the right, upon written notice delivered to
the Selling Shareholder (at the address given in SECTION 9.12 for CTS) not
later than three business days after the Offeror shall have so informed TVG,
to require the Selling Shareholder (on a pro rata basis, based on the number
of Offered Shares proposed to be sold by each Shareholder (if more than one)
comprising the Selling Shareholder) to purchase the shares that TVG would
otherwise be entitled to sell to the Offeror pursuant to SECTION 8.1 and/or
SECTION 8.2, on the same terms and conditions as would have applied in the
sale to the Offeror, with such sale to the Selling Shareholder to be effected
upon (and subject to the occurrence of) the Closing. Notwithstanding the
foregoing or any other provision of this Agreement, the co-sale rights set
forth in SECTION 8.1 and the first two sentences of this SECTION 8.2 shall
terminate and be of no further force or effect upon the first to occur of the
following: (i) the CTS Stock then held by TVG may be sold under Rule 144 of
the Securities Act and the disposition of all of the CTS Stock may be
completed within six (6) months; (ii) the CTS Stock then held by TVG is
listed on a securities exchange or qualified for trading on an
over-the-counter system selected by CTS; or (iii) this Agreement is
terminated pursuant to SECTION 9.18 hereof
9. GENERAL.
9.1 AMENDMENTS; WAIVERS. This Agreement and any schedule attached
hereto may be amended only by agreement in writing of all parties. No waiver of
any provision nor consent to any exception to the terms of this Agreement shall
be effective unless in writing and signed by the party to be bound and then only
to the specific purpose, extent and instance so provided.
9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding any
other term or provision of this Agreement, (A) all representations and
warranties of WXBV, CTS and TVG set forth in this Agreement or expressly
incorporated herein by reference shall, as of the first anniversary of the
Closing Date, expire and terminate and be of no further force or effect;
provided, however, that (i) the representations and warranties set forth in
SECTION 3.6 (Accuracy of Information) shall survive until the thirtieth day
following delivery to TVG of audited financial statements for CTS for the fiscal
year ended September 30, 1999 (if such date is later than the first anniversary
of the Closing Date), and (ii) Sections 3.1 (Organization and Corporate Power),
3.2 (Capital Stock and Related Matters), 4.1 (Organization and Related Matters),
4.5 (Ownership) and 4.6 (Title), 4.7 (Right to Transfer) and 4.8 (Binding
Agreement) shall survive indefinitely; (B) no claim for indemnification under
SECTION 7 for breach of a representation or warranty may be brought unless the
representation or warranty on which such claim is based continues to survive at
the time a Certificate relating to such claim has been delivered in accordance
with SECTION 7.3.1 hereof, and if such Certificate is delivered within such
period, all rights to indemnification with respect to such claim shall continue
in force and effect; and (C) except as to claims that are the subject of a
Certificate delivered prior to the first anniversary of the Closing Date and
except as to those representations and warranties that survive indefinitely
pursuant to the provision in the first sentence of this SECTION 9.2, as of the
first anniversary of the Closing Date, each of CTS, WXBV and TVG shall be deemed
to have irrevocably waived and released any and all rights and remedies any of
them may have with respect to any inaccuracy in
16
<PAGE>
or breach or nonperformance of any of the representations, warranties, or
covenants made by any party to this Agreement.
9.3 INTEGRATION. This Agreement constitutes the entire agreement among
the parties pertaining to the subject matter hereof and supersedes all prior
agreements and understandings of the parties in connection therewith.
9.4 BEST EFFORTS; FURTHER ASSURANCES
9.4.1 STANDARD. Each party will use its best efforts to fulfill all
obligations on its part to be performed and fulfilled under this
Agreement, to the end that the transactions contemplated by this
Agreement shall be effected substantially in accordance with its terms
as soon as reasonably practicable. The parties shall cooperate with
each other in such actions and in securing requisite Approvals. Each
party shall deliver such further documents and take such other actions
as the other party may reasonably request to consummate or implement
the transactions contemplated hereby or to evidence such events or
matters.
9.4.2 LIMITATION. As used in this Agreement, the term "best efforts"
shall not mean efforts which require the performing party to do any act
that is unreasonable under the circumstances, to make any capital
contribution or to expend any funds other than reasonable out-of-pocket
expenses incurred in satisfying its obligations hereunder, including
but not limited to the fees, expenses and disbursements of its
accountants, actuaries, counsel and other professionals.
9.5 GOVERNING LAW AND FORUM SELECTION. This Agreement is to be
construed and enforced in accordance with the internal laws of the State of
California. The parties consent to the jurisdiction of all federal and state
courts in California. Any civil action or other legal proceeding arising out of
or relating to this Agreement shall be brought and heard only in a federal or
state court located in San Diego County, California, and all parties waive any
right to have such action or proceeding transferred to another location.
9.6 NO ASSIGNMENT. Neither this Agreement nor any rights or obligations
under it are assignable except as to a Permitted Transferee as defined in
SECTION 5.3.
9.7 HEADINGS. The descriptive headings of the Sections and Subsections
of this Agreement are for convenience only and do not constitute a part of this
Agreement.
9.8 COUNTERPARTS. This Agreement and any amendment hereto or any other
document delivered pursuant hereto may be executed in one or more counterparts
and by different parties in separate counterparts. All of such counterparts
shall constitute one and the same agreement (or other document) and shall become
effective (unless otherwise provided therein) when one or more counterparts have
been signed by each party and delivered to the other party.
9.9 PUBLICITY AND REPORTS. TVG, CTS and WXBV shall coordinate all
publicity relating to the transactions contemplated by this Agreement and no
party shall issue any press release,
17
<PAGE>
publicity statement or other public notice relating to this Agreement, or the
transactions contemplated by this Agreement, without obtaining the prior
written consent of each of the parties to this Agreement except to the extent
that a particular action is required by applicable Law.
9.10 CONFIDENTIALITY. All information disclosed by any party (or its
representatives) whether before or after the date hereof, in connection with the
transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) shall be kept
confidential by such other party and its representatives and shall not be used
by any such Persons other than as contemplated by this Agreement, except to the
extent that such information (i) was known by the recipient when received, (ii)
it is or hereafter becomes lawfully obtainable from other sources, (iii) is
necessary or appropriate to disclose to a Governmental Entity having
jurisdiction over the parties, (iv) as may otherwise be required by Law or (v)
to the extent such duty as to confidentiality is waived in writing by the other
party.
9.11 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure to the benefit of each party, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement is intended to relieve or discharge the obligation of any third person
to any party to this Agreement.
9.12 NOTICES. Any notice or other communication hereunder must be given
in writing and (i) delivered in person, (ii) transmitted by telex, telefax or
telecommunications mechanism or (iii) mailed by certified or registered mail,
postage prepaid), receipt requested as follows:
IF TO WXBV OR CTS, ADDRESSED TO:
WORLDxCHANGE
9999 Willow Creek Road
San Diego, California 92131
Attn: Legal Department
Facsimile No. (619) 452-3780
WITH A COPY TO:
O'Melveny & Myers LLP
610 Newport Center Drive
Newport Beach, California 92660
Attn: David A. Krinsky, Esq.
Facsimile No. (949) 823-6994
18
<PAGE>
IF TO TVG, ADDRESSED TO:
The TVG Asian Communications Fund
c/o Telecom Venture Group Limited
2015 Jardine House
1 Connaught Place Central
Hong Kong
Attention: John Troy
Facsimile No.: (852) 2147-3320
WITH A COPY TO:
Baker & McKenzie
101 West Broadway
Suite 1200
San Diego, California 92101
Attention: John Hentrich, Esq.
Facsimile No.: (619) 236-0429
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (A) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
SECTION 9.12 and an appropriate answer back is received, (B) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (C) if given by any other means, when
actually received at such address.
9.13 EXPENSES. Each Party shall pay its own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including but not limited to the fees, expenses and
disbursements of such party's respective investment bankers, accountants and
counsel.
9.14 WAIVER. No failure on the part of any party to exercise or delay
in exercising any right hereunder shall be deemed a waiver thereof, nor shall
any single or partial exercise preclude any further or other exercise of such or
any other right.
9.15 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party hereto
acknowledges that such party has been represented by counsel in connection with
this Agreement and the transactions contemplated by this Agreement. Accordingly,
any rule of Law, including but not limited to Section 1654 of the California
Civil Code, or any legal decision that would require interpretation of any
claimed ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the intent of the parties hereto.
9.16 SEVERABILITY. If any provision of this Agreement is determined to
be invalid, illegal or unenforceable by any Governmental Entity, the remaining
provisions of this Agreement
19
<PAGE>
to the extent permitted by Law shall remain in full force and effect provided
that the economic and legal substance of the transactions contemplated is not
affected in any manner materially adverse to any party. In event of any such
determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof.
9.17 NO CONSEQUENTIAL DAMAGES. Notwithstanding anything to the contrary
elsewhere in this Agreement, no party (or its Affiliates) shall, in any event,
be liable to any other party (or its Affiliates) for any consequential damages,
including, but not limited to, loss of revenue or income, or loss of business
reputation or opportunity relating to the breach or alleged breach of this
Agreement. The foregoing shall not be deemed to limit TVG's right to specific
performance with respect to SECTIONS 6.3, 6.4, 6.6, 8.1 or 8.2.
9.18 TERMINATION. Notwithstanding any contrary provision of this
Agreement, (i) TVG shall, so long as it is not then in material breach of any
provision of this Agreement, be entitled to terminate this Agreement if the
mutual condition to closing provided in SECTION 2.3.1 has not been satisfied
by November 23, 1999 and (ii) WXBV shall, so long as it is not then in
material breach of any provision of this Agreement, be entitled to terminate
this Agreement if the mutual condition to closing provided in SECTION 2.3.1
has not been satisfied by the later of (A) November 23, 1999 or (B) ninety
days from the date that the filing of the required notice with respect to the
Transaction is made with the FIRB. To exercise the termination right provided
in this SECTION 9.18, the party entitled to terminate this Agreement shall
give written notice to all other parties hereto of its desire to terminate
this Agreement. The termination of this Agreement pursuant to this SECTION
9.18 shall become effective upon the date of the terminating party's dispatch
of the written notice of termination delivered pursuant to this Agreement.
Except for any liability for any breaches by a party of this Agreement
occurring or arising prior to the effective date of the termination of this
Agreement, no party shall have any liability hereunder upon the termination
of this Agreement.
20
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
WXBV: TVG:
WORLDXCHANGE B.V.B.A., a Belgium THE TVG ASIAN COMMUNICATIONS FUND,
corporation a Cayman Islands corporation
By: /s/ Edward S. Soren By: /s/ John Troy
------------------------------- ----------------------------------
Its: President Its:
------------------------------- ----------------------------------
CTS: WXL:
COMMUNICATION TELESYSTEMS WXL INTERNATIONAL-
INTERNATIONAL, a California AUSTRALIA, INC., a Delaware corporation
corporation
By: /s/ Edward S. Soren By: /s/ Edward S. Soren
------------------------------- ----------------------------------
Its: Executive Vice President Its: President
------------------------------- ----------------------------------
WARNA GERAKAN SDN BHD,
a Malaysian corporation
By: /s/ Edward Sippel
--------------------------------
Its:
-------------------------------
21
<PAGE>
The Company hereby agrees to be bound by the provisions of SECTIONS 6.1 and 6.2,
it being understood that SECTIONS 6.1 and 6.2 are the only Sections which are
applicable to the Company and therefore such Sections are the only Sections by
which the Company shall be considered bound under this Agreement.
WORLDxCHANGE PTY. LTD.
By: /s/ Edward S. Soren
------------------------------------
Title: Director
---------------------------------
Each of Roger B. Abbott, Rosalind Abbott and Edward Soren hereby agrees to be
bound by the covenants contained in SECTIONS 8.1 and 8.2, it being understood
that SECTIONS 8.1 and 8.2 are the only Sections which are applicable to any of
the undersigned and therefore such Sections are the only Sections by which the
undersigned shall be considered bound under this Agreement.
/s/ Roger B. Abbott /s/ Rosalind Abbott /s/ Edward S. Soren
- ----------------------- ----------------------- -----------------------
Roger B. Abbott Rosalind Abbott Edward S. Soren
Troy hereby agrees to be bound by the covenants contained in SECTION 6.7, it
being understood that SECTION 6.7 is the only Section that is applicable to Troy
and therefore such Section is the only Section by which the undersigned shall be
considered bound under this Agreement.
/s/ John Troy
- ------------------------
John Troy
22
<PAGE>
LIST OF OMITTED EXHIBITS
The following Exhibits to the Stock Purchase Agreement have
been omitted from this Exhibit and shall be furnished supplementally to the
Commission upon request:
Exhibit A - Opinion of O'Melveny & Myers LLP
Exhibit B - Opinion of W.S. Walker & Co.
Exhibit C - Opinion of Moret Ernst & Young
Exhibit D - Form of Troy Resignation Letter
Exhibit E - Registration Rights Agreement
Exhibit F - Prospectus
<PAGE>
STOCK PURCHASE AGREEMENT
DATED AS OF NOVEMBER 30, 1998
BY AND AMONG
CTS TELCOM HOLDINGS, INC.
CTS TELCOM, INC.
ROSALIND R. ABBOTT
EDWARD S. SOREN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
2.1 Transfer of Stock of the Company. . . . . . . . . . . . . . . . . . . .2
2.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 Delivery of the Shares. . . . . . . . . . . . . . . . . . . . . . . . .2
2.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE III
3.1 Incorporation, Stock, Etc.. . . . . . . . . . . . . . . . . . . . . . .2
3.2 Title to Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
3.3 Authority; Binding Effect . . . . . . . . . . . . . . . . . . . . . . .3
3.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . .3
ARTICLE IV
4.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . .4
ARTICLE V
5.1 Amendment and Modifications . . . . . . . . . . . . . . . . . . . . . .4
5.2 Waiver of Compliance. . . . . . . . . . . . . . . . . . . . . . . . . .4
5.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.4 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.5 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.7 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.10 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.11 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.12 Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
</TABLE>
i
<PAGE>
SCHEDULES
- ---------
Schedule A-1 List of Shareholders, Shares Owned and Addresses
Schedule 3.1(b) Company - Incorporation, Stock, Etc.
ii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into effective as of this 30th day of November, 1998, by and among CTS
Telcom Holdings, Inc, a Delaware corporation ("CTSTH"), CTS Telcom, Inc., a
Florida corporation (the "COMPANY"), and each of the following shareholders of
the Company: Rosalind R. Abbott and Edward S. Soren, (each a "SHAREHOLDER" and
collectively, the "SHAREHOLDERS").
RECITALS
A. As of the date of this Agreement, the outstanding capital
stock of the Company is owned by the Shareholders in the amounts set forth
opposite each such Shareholder's name on SCHEDULE A-1 hereto, and such shares
constitute 100% of the issued stock of the Company.
B. On the Closing Date, CTSTH will acquire all of the issued
and outstanding stock of the Company from the Shareholders on the terms and
conditions provided for herein.
C. For accounting purposes, it is intended that the
acquisition of the Shares be accounted for as a "pooling-of-interests."
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties to this Agreement
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement and the Exhibits
and Schedules delivered pursuant to this Agreement, the following definitions,
in addition to those set forth elsewhere in this Agreement, shall apply:
"Closing" means the consummation of the transactions contemplated
by this Agreement which shall occur concurrently with the execution and delivery
of this Agreement.
"Closing Date" means the date specified in Section 2.6 of this
Agreement.
"Person" means any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization or
governmental entity.
"Restrictions" shall mean all liens, pledges, encumbrances,
security interests, changes, voting trusts, agreements, rights, options,
warrants, claims, taxes,
<PAGE>
contracts, calls, commitments, equities, demands, rights of first refusal,
security agreements, assessments, charges, conditions or other restrictions,
other than any of those in favor of CTSTH created by this Agreement.
ARTICLE II
THE PURCHASE
2.1 TRANSFER OF STOCK OF THE COMPANY. Subject to and upon the
terms and conditions set forth in this Agreement, the Shareholders shall
transfer, convey, assign and deliver to CTSTH, and CTSTH shall accept and
receive from the Shareholders, at the Closing hereunder, all of the issued and
outstanding shares of capital stock of the Company (the shares of the capital
stock of the Company being acquired by CTSTH hereunder shall be referred to
herein collectively as the "SHARES" and each a "SHARE"). The Shares shall be
conveyed by the Shareholders to CTSTH free and clear of all Restrictions
whatsoever.
2.2 CONSIDERATION. Neither CTSTH nor the Company shall
transfer any consideration to the Shareholders for the shares.
2.3 DELIVERY OF THE SHARES. At the Closing, each of the
Shareholders shall tender to CTSTH the certificates representing the Shares,
together with such appropriate documentation evidencing the transfer of such
Shareholder's Shares pursuant to this Agreement, which documentation shall be in
form and substance acceptable to CTSTH.
2.4 CLOSING. The Closing Date of the transactions contemplated
by this Agreement shall occur at the offices of CTSTH at 9999 Willow Creek Road,
San Diego, California 92131 at 10:00 A.M., Pacific Standard Time, on November
30, 1998, or at such other location, time and date as the parties hereto shall
agree.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and each of the Shareholders hereby represent and
warrant, jointly and severally, to CTSTH, in each case as of the date of this
Agreement, as follows:
3.1 INCORPORATION, STOCK, ETC.
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Florida, with all requisite power and authority to own its
properties and assets and to carry on the business in which it is
now engaged.
2
<PAGE>
(b) The issued and outstanding shares of the Company are as set
forth on SCHEDULE 3.1(b) hereto. All of the issued shares of the
capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. Except as set forth
on SCHEDULE 3.1(b), as of the Closing Date, the Company is not
bound by any subscription, option, warrant, conversion privilege,
or other right, call, agreement or commitment to issue or sell, or
any obligation, agreement or commitment to purchase or otherwise
acquire any of its stock or any securities convertible into or
exchangeable for any of its stock. None of the stock of the
Company has been issued in violation of any preemptive or
contractual rights of any Person. All of the stock of the Company
has been issued in compliance with all applicable securities laws,
and there are no shareholders' agreements, voting trusts or
similar agreements that are in effect with respect to any of such
stock at the Closing Date, except as set forth on SCHEDULE 3.1(b).
3.2 TITLE TO STOCK. Each Shareholder is the beneficial and
record owner of all of the Shares listed next to such Shareholder's name on
Schedule A-1. The Shares are not subject to any Restrictions that, as of the
Closing, have not been or will not be waived or terminated, and each Shareholder
has good and marketable title to such Shareholder's Shares, free and clear of
any Restrictions.
3.3 AUTHORITY; BINDING EFFECT. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on the part of the Company, the Company has all requisite
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally.
The execution, delivery and performance by the Shareholders of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of the Shareholders, and
each of the Shareholders has the power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. This Agreement
has been duly executed and delivered by each of the Shareholders and is the
valid and binding agreement of each Shareholder, enforceable against each
Shareholder in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally.
3.4 NO BROKERS OR FINDERS. No agent, broker, finder, or
investment or commercial banker, or other person or firm engaged by or acting on
behalf of the Company or the Shareholders in connection with the negotiation,
execution or
3
<PAGE>
performance of this Agreement or the transaction contemplated by this Agreement,
is or will be entitled to any brokerage or finder's or similar fee or other
commission as a result of this Agreement or such transaction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CTSTH
4.1 REPRESENTATIONS AND WARRANTIES. CTSTH hereby represents
and warrants to each of the Shareholders, in each case as of the date of this
Agreement, as follows:
(a) INCORPORATION. CTSTH is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware.
(b) AUTHORITY; BINDING EFFECT. (i) The execution, delivery
and performance by CTSTH of this Agreement and the consummation of
the transactions contemplated hereby by CTSTH has been duly and
validly authorized by all necessary corporate action on the part
of CTSTH; (ii) CTSTH has all requisite corporate power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby; and (iii) this Agreement has
been duly executed and delivered by CTSTH and is the valid and
binding agreement of CTSTH, enforceable in accordance with its
terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally.
(c) NO BROKERS OR FINDERS. No agent, broker, finder, or
investment or commercial banker, or other person or firm engaged
by or acting on behalf of CTSTH in connection with the
negotiation, execution or performance of this Agreement or the
transaction contemplated by this Agreement, is or will be entitled
to any brokerage or finder's or similar fee or other commission as
a result of this Agreement or such transaction.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 AMENDMENT AND MODIFICATIONS. Subject to applicable law,
this Agreement may be amended, modified and supplemented only by written
agreement between the parties hereto which states that it is intended to be a
modification of this Agreement.
5.2 WAIVER OF COMPLIANCE. Any failure of the Company and the
Shareholders, on the one hand, or CTSTH, on the other, to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the other
4
<PAGE>
party, but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
5.3 EXPENSES. The parties agree that all fees and expenses
incurred by them in connection with this Agreement and the transaction
contemplated hereby shall be borne by the party incurring such fees and
expenses, including, without limitation, all fees of counsel, investment bankers
and accountants.
5.4 FURTHER ASSURANCES. Each party shall execute and deliver
after the Closing such further certificates, agreements and other documents and
take such other actions as the other party may reasonably request to consummate
or implement the transactions contemplated hereby or to evidence such events or
matters. Notwithstanding the foregoing, the Shareholders shall not be obligated
to incur any financial obligation or other liability other than as expressly
provided herein.
5.5 WAIVER. No failure on the party of any party to exercise
or delay in exercising any right hereunder shall be deemed a waiver thereof, nor
shall any single or partial exercise preclude any further or other exercise of
such or any other right.
5.6 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given upon receipt if delivered by hand or mailed,
certified or registered mail with postage prepaid:
(a) if to CTSTH, to:
CTS Telcom Holdings, Inc.
9999 Willow Creek Road
San Diego, California 92131
Attention: General Counsel
if to Company, to:
CTS Telcom, Inc.
9999 Willow Creek Road
San Diego, California 92131
Attention: General Counsel
or to such other person or address as CTSTH or Company shall furnish to
each of the Shareholders in writing;
(b) if to a Shareholder, to the address for each such
Shareholder listed
5
<PAGE>
on SCHEDULE A-1 hereto, or to such other person or address
as such Shareholder shall furnish to CTSTH in writing.
5.7 ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other party.
5.8 GOVERNING LAW. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the laws of the State of California, as applied to contracts entered into and to
be wholly performed within such State, without giving effect to conflict of
laws.
5.9 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.10 HEADINGS. The headings of the Sections and Articles of
this Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
5.11 ENTIRE AGREEMENT. This Agreement, including the Exhibits
and Schedules hereto, and the other documents and certificates delivered
pursuant to the terms hereof, set forth the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein, and
supersede all prior agreements, promises, covenants, letters of intent,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto.
5.12 THIRD PARTIES. Except as specifically set forth or
referred to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person or corporation other than the
parties hereto and their successors or assigns, any rights or remedies under or
by reason of this Agreement.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their respective corporate seals to be affixed hereto,
all as of the day and year first above written.
"CTSTH"
CTS TELCOM HOLDINGS, INC.
a Delaware corporation
By: /s/ Edward S. Soren
----------------------------
Name: Edward S. Soren
Title: President
"COMPANY"
CTS TELCOM, INC.
a Florida corporation
By: /s/ Edward S. Soren
----------------------------
Name: Edward S. Soren
Title: President
"SHAREHOLDERS"
/s/ Rosalind R. Abbott
- -----------------------------
ROSALIND R. ABBOTT
/s/ Edward S. Soren
- -----------------------------
EDWARD S. SOREN
7
<PAGE>
SCHEDULE A-1
LIST OF SHAREHOLDERS,
SHARES OWNED AND ADDRESSES
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES HELD
- --------------------- -----------
<S> <C>
Rosalind Abbott 620,000
9999 Willow Creek Road
San Diego, CA 92131
Edward S. Soren 380,000
9999 Willow Creek Road
San Diego, CA 92131
</TABLE>
Schedule A-1
<PAGE>
SCHEDULE 3.1(b)
INCORPORATION, STOCK, ETC.
1. The number of issued shares of the Company are 1,000,000.
2. There are no outstanding options.
Schedule 3.1(b)
<PAGE>
STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 31, 1998
BY AND AMONG
COMMUNICATION TELESYSTEMS INTERNATIONAL d/b/a
WORLDXCHANGE COMMUNICATIONS
WXL INTERNATIONAL - NEW ZEALAND, INC.
WORLDXCHANGE LIMITED
ROGER B. ABBOTT
ROSALIND R. ABBOTT
EDWARD S. SOREN
ERIC G. LIPOFF
RICHARD VINCENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
2.1 Purchase and Sale of Stock of the Company . . . . . . . . . . . . . . .2
2.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 Effect of Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.4 Delivery of the Shares. . . . . . . . . . . . . . . . . . . . . . . . .2
2.5 Delivery of Shareholder Waivers . . . . . . . . . . . . . . . . . . . .2
2.6 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.7 Condition Precedent to Closing. . . . . . . . . . . . . . . . . . . . .3
ARTICLE III
3.1 Incorporation, Stock, Etc.. . . . . . . . . . . . . . . . . . . . . . .3
3.2 Title to Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
3.3 Authority; Binding Effect . . . . . . . . . . . . . . . . . . . . . . .4
3.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE IV
4.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . .4
ARTICLE V
5.1 Amendment and Modifications . . . . . . . . . . . . . . . . . . . . . .5
5.2 Waiver of Compliance. . . . . . . . . . . . . . . . . . . . . . . . . .5
5.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.4 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.5 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.7 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.10 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.11 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.12 Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
</TABLE>
i
<PAGE>
EXHIBITS
- --------
Exhibit A Shareholder Consent and Waiver
SCHEDULES
- ---------
Schedule A-1 List of Shareholders, Shares Owned and Addresses
Schedule 3.1(b) Company - Incorporation, Stock, Etc.
ii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of this 31st day of December, 1998, by and among Communication
TeleSystems International d/b/a/ WorldxChange Communications, a California
corporation ("CTS"), WXL International - New Zealand, Inc., a Delaware
corporation ("WXL"), WorldxChange Limited, a New Zealand corporation (the
"COMPANY"), and each of the following shareholders of the Company: Roger B.
Abbott, Rosalind R. Abbott, Edward S. Soren, Eric G. Lipoff and Richard
Vincent (each a "SHAREHOLDER" and collectively, the "SHAREHOLDERS").
RECITALS
A. As of the date of this Agreement, the issued stock of the
Company is owned by the Shareholders in the amounts set forth opposite each such
Shareholder's name on SCHEDULE A-1 hereto, and such shares constitute 100% of
the issued stock of the Company.
B. On the Closing Date, WXL will acquire all of the issued
stock of the Company from the Shareholders on the terms and conditions provided
for herein.
C. The acquisition by WXL of the Shares (as defined in Section
2.1 hereof) of the Company solely in consideration for shares of common stock of
CTS as contemplated by this Agreement is intended by the parties to qualify as a
stock-for-stock exchange under section 368(a)(1)(B) of the Internal Revenue Code
of 1986, as amended (the "Code").
D. For accounting purposes, it is intended that the
acquisition of the Shares be accounted for as a "pooling-of-interests."
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties to this Agreement
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement and the Exhibits
and Schedules delivered pursuant to this Agreement, the following definitions,
in addition to those set forth elsewhere in this Agreement, shall apply:
"Closing" means the consummation of the transactions contemplated
by this Agreement.
"Closing Date" means the date specified in Section 2.6 of this
Agreement.
<PAGE>
"OIC" means the New Zealand Overseas Investment Commission.
"Person" means any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization or
governmental entity.
"Restrictions" shall mean all liens, pledges, encumbrances,
security interests, changes, voting trusts, agreements, rights, options,
warrants, claims, taxes, contracts, calls, commitments, equities, demands,
rights of first refusal, security agreements, assessments, charges, conditions
or other restrictions, other than those in favor of WXL created by this
Agreement.
ARTICLE II
THE PURCHASE
2.1 PURCHASE AND SALE OF STOCK OF THE COMPANY. Subject to and
upon the terms and conditions set forth in this Agreement, the Shareholders
shall sell, transfer, convey, assign and deliver to WXL, and WXL shall accept
and receive from the Shareholders, at the Closing hereunder, all of the issued
ordinary shares of capital stock of the Company (the ordinary shares of the
capital stock of the Company being acquired by WXL hereunder shall be referred
to herein collectively as the "SHARES" and each a "SHARE"). The Shares shall be
conveyed by the Shareholders to WXL free and clear of all Restrictions
whatsoever.
2.2 CONSIDERATION. In exchange for the transfer of the Shares
by the Shareholders to WXL, and subject to the terms and conditions of this
Agreement, at the Closing, CTS shall issue and transfer two hundred seventy
eight (278) shares of its common stock for each Share held by a Shareholder.
Neither WXL nor CTS shall transfer any consideration to the Shareholders, other
than the shares of common stock of CTS, as provided herein.
2.3 EFFECT OF EXCHANGE. Until a Shareholder exchanges his/her
Company stock certificates for CTS stock certificates, such Shareholder will not
be a shareholder of CTS for any purpose.
2.4 DELIVERY OF THE SHARES. At the Closing, each of the
Shareholders shall tender to WXL the certificates representing the Shares (if
certificated), together with the transfers of the Shares to WXL, in registerable
form, duly executed by the Shareholders, or such other appropriate documentation
evidencing the transfer of such Shareholder's Shares pursuant to this Agreement,
which documentation shall be in form and substance acceptable to WXL.
2.5 DELIVERY OF SHAREHOLDER WAIVERS. At the Closing, each of
the Shareholders shall deliver to each of CTS and WXL a Shareholder Consent and
Waiver in the form of EXHIBIT A hereto, duly executed.
2.6 CLOSING. The Closing of the transactions contemplated by
this
2
<PAGE>
Agreement shall occur at the offices of CTS at 9999 Willow Creek Road, San
Diego, California, no later than three (3) days after the OIC approval has been
obtained, or at such other location, time and date as the parties hereto shall
agree in writing.
2.7 CONDITION PRECEDENT TO CLOSING. The Closing shall not
occur until OIC approval for this transaction is obtained. All parties shall
use their best efforts to obtain OIC approval in an expeditious manner. In the
event that OIC approval is not obtained by April 30, 1999, CTS or any of the
Shareholders may elect to cancel this transaction by providing notice to all
other parties to this Agreement, in which case no party shall have any further
rights or obligations under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company and each of the Shareholders hereby represent and
warrant, jointly and severally, to WXL, in each case as of the date of this
Agreement, as follows:
3.1 INCORPORATION, STOCK, ETC.
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of New
Zealand, with all requisite power and authority to own its
properties and assets and to carry on the business in which
it is now engaged.
(b) The issued shares of the Company are as set forth on
SCHEDULE 3.1(b) hereto. All of the issued shares of the
capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable.
Except as set forth on SCHEDULE 3.1(b), as of the Closing
Date, the Company is not bound by any subscription, option,
warrant, conversion privilege, or other right, call,
agreement or commitment to issue or sell, or any
obligation, agreement or commitment to purchase or
otherwise acquire any of its stock or any securities
convertible into or exchangeable for any of its stock.
None of the stock of the Company has been issued in
violation of any preemptive or contractual rights of any
Person. All of the stock of the Company has been issued in
compliance with all applicable securities laws, and there
are no shareholders' agreements, voting trusts or similar
agreements that are in effect with respect to any of such
stock at the Closing Date, except as set forth on SCHEDULE
3.1(b).
3.2 TITLE TO STOCK. Each Shareholder is the beneficial and
record owner of all of the Shares listed next to such Shareholder's name on
SCHEDULE A-1. The Shares are not subject to any Restrictions that, as of the
Closing, have not been or will not be waived or terminated, and each Shareholder
has good and marketable title to such
3
<PAGE>
Shareholder's Shares, free and clear of any Restrictions.
3.3 AUTHORITY; BINDING EFFECT. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on the part of the Company, the Company has all requisite
corporate power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally.
The execution, delivery and performance by the Shareholders of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of the Shareholders, and
each of the Shareholders has the power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby. This Agreement
has been duly executed and delivered by each of the Shareholders and is the
valid and binding agreement of each Shareholder, enforceable against each
Shareholder in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally.
3.4 NO BROKERS OR FINDERS. No agent, broker, finder, or
investment or commercial banker, or other person or firm engaged by or acting on
behalf of the Company or the Shareholders in connection with the negotiation,
execution or performance of this Agreement or the transaction contemplated by
this Agreement, is or will be entitled to any brokerage or finder's or similar
fee or other commission as a result of this Agreement or such transaction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WXL AND CTS
4.1 REPRESENTATIONS AND WARRANTIES. WXL and CTS hereby
represent and warrant to each of the Shareholders, in each case as of the date
of this Agreement, as follows:
(a) INCORPORATION. WXL is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware, and CTS is a corporation duly organized, validly
existing and in good standing under the laws of the State of
California.
(b) AUTHORITY; BINDING EFFECT. (i) The execution, delivery and
performance by each of WXL and CTS of this Agreement and the
consummation of the transactions contemplated hereby by WXL and
CTS have been duly and validly authorized by all necessary
corporate action on
4
<PAGE>
the part of WXL and CTS, respectively; (ii) each of WXL and CTS
has all requisite corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated hereby;
and (iii) this Agreement has been duly executed and delivered by
each of WXL and CTS and is the valid and binding agreement of each
of them, enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally.
ARTICLE V
MISCELLANEOUS PROVISIONS
5.1 AMENDMENT AND MODIFICATIONS. Subject to applicable law,
this Agreement may be amended, modified and supplemented only by written
agreement between the parties hereto which states that it is intended to be a
modification of this Agreement.
5.2 WAIVER OF COMPLIANCE. Any failure of the Company and the
Shareholders, on the one hand, or WXL or CTS, on the other, to comply with any
obligation, covenant, agreement or condition herein may be expressly waived in
writing by the other party, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
5.3 EXPENSES. The parties agree that all fees and expenses
incurred by them in connection with this Agreement and the transaction
contemplated hereby shall be borne by the party incurring such fees and
expenses, including, without limitation, all fees of counsel, investment bankers
and accountants.
5.4 FURTHER ASSURANCES. Each party shall execute and deliver
after the Closing such further certificates, agreements and other documents and
take such other actions as the other party may reasonably request to consummate
or implement the transactions contemplated hereby or to evidence such events or
matters. Notwithstanding the foregoing, the Shareholders shall not be obligated
to incur any financial obligation or other liability other than as expressly
provided herein. WXL and/or CTS, as applicable, shall file all notices, reports
and returns (the "Tax Reports") necessary in connection with qualification of
the transactions contemplated hereunder as a stock-for-stock exchange under
section 368(a)(1)(B) of the Code and to comply with section 367(b) of the Code
and final and temporary regulations thereunder. The Shareholders agree to
cooperate in such filing of the Tax Reports and shall comply with all reporting
requirements applicable to such Shareholders (including reporting on IRS Form
5471, if applicable).
5.5 WAIVER. No failure on the part of any party to exercise or
delay in exercising any right hereunder shall be deemed a waiver thereof, nor
shall any single or
5
<PAGE>
partial exercise preclude any further or other exercise of such or any other
right.
5.6 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given upon receipt if delivered by hand or mailed,
certified or registered mail with postage prepaid:
(a) if to WXL or CTS, to:
Communication TeleSystems International
d/b/a WorldxChange Communications
9999 Willow Creek Road
San Diego, California 92131
Attention: General Counsel
or such other person or address as WXL and/or CTS, as the case may be,
shall furnish to each of the Shareholders in writing;
(b) if to a Shareholder, to the address for each such
Shareholder listed on SCHEDULE A-1 hereto, or to such other person
or address as such Shareholder shall furnish to WXL and CTS in
writing.
5.7 ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other party.
5.8 GOVERNING LAW. This Agreement and the legal relations
among the parties hereto shall be governed by and construed in accordance with
the laws of the State of California, as applied to contracts entered into and to
be wholly performed within such State, without giving effect to conflict of
laws.
5.9 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
5.10 HEADINGS. The headings of the Sections and Articles of
this Agreement are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this Agreement.
5.11 ENTIRE AGREEMENT. This Agreement, including the Exhibits
and Schedules hereto, and the other documents and certificates delivered
pursuant to the
6
<PAGE>
terms hereof, set forth the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein, and supersede all
prior agreements, promises, covenants, letters of intent, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto.
5.12 THIRD PARTIES. Except as specifically set forth or
referred to herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person or corporation other than the
parties hereto and their successors or assigns, any rights or remedies under or
by reason of this Agreement.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their respective corporate seals to be affixed hereto,
all as of the day and year first above written.
"CTS"
COMMUNICATION TELESYSTEMS INTERNATIONAL d/b/a
WORLDXCHANGE COMMUNICATIONS,
a California corporation
By: /s/ Edward S. Soren
----------------------------
Name: Edward S. Soren
Title: Chairman of the Board
"WXL"
WXL INTERNATIONAL - NEW ZEALAND, INC.,
a Delaware corporation
By: /s/ Edward S. Soren
----------------------------
Name: Edward S. Soren
Title: President
"COMPANY"
WORLDXCHANGE LIMITED,
a New Zealand corporation
By: /s/ Roger B. Abbott
----------------------------
Name: Roger B. Abbott
Title: Director
S-1
<PAGE>
"SHAREHOLDERS"
/s/ Roger B. Abbott
- -----------------------------
ROGER B. ABBOTT
/s/ Rosalind R. Abbott
- -----------------------------
Rosalind R. Abbott
/s/ Edward S. Soren
- -----------------------------
Edward S. Soren
/s/ Eric G. Lipoff
- ------------------------------
Eric G. Lipoff
/s/ Richard Vincent
- ------------------------------
Richard Vincent
S-2
<PAGE>
SCHEDULE A-1
LIST OF SHAREHOLDERS,
SHARES OWNED AND ADDRESSES
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES HELD
- --------------------- -----------
<S> <C>
Roger B. Abbott 292
9999 Willow Creek Road
San Diego, CA 92131
Rosalind Abbott 292
9999 Willow Creek Road
San Diego, CA 92131
Edward S. Soren 291
9999 Willow Creek Road
San Diego, CA 92131
Eric G. Lipoff 100
9999 Willow Creek Road
San Diego, CA 92131
Richard Vincent 25
1 Elizabeth Plaza
Level 4, Educom House
North Sydney, NSW 2060
Australia
</TABLE>
Schedule A-1
<PAGE>
SCHEDULE 3.1(b)
INCORPORATION, STOCK, ETC.
1. The number of issued shares of the Company are 1,000.
2. Steven Stanford has an option to subscribe for, and be issued with, 53
ordinary shares in the capital of the Company pursuant to that certain
Agreement Granting Option to Purchase Shares dated August 1, 1997, by and
between the Company and Steven Stanford.
Schedule 3.1(b)
<PAGE>
EXHIBIT A
SHAREHOLDER CONSENT AND WAIVER
WORLDXCHANGE LIMITED,
A NEW ZEALAND CORPORATION
The undersigned, a shareholder of WorldxChange Limited, a New Zealand
corporation (the "Company"), hereby consents to the sale by the shareholders of
the Company of all of the issued ordinary shares of the Company (the "Shares")
to WXL International - New Zealand, Inc., a Delaware corporation ("WXL"), and in
connection with such sale of the Shares to WXL, hereby waives all pre-emptive
rights conferred upon such shareholder pursuant to Section 13 of the
Constitution of the Company, effective as of December 31, 1998.
SHAREHOLDER
/s/ Roger B. Abbott
Name: Roger B. Abbott
Number of Shares Held: 292
Exhibit A
<PAGE>
EXHIBIT A
SHAREHOLDER CONSENT AND WAIVER
WORLDXCHANGE LIMITED,
A NEW ZEALAND CORPORATION
The undersigned, a shareholder of WorldxChange Limited, a New Zealand
corporation (the "Company"), hereby consents to the sale by the shareholders of
the Company of all of the issued ordinary shares of the Company (the "Shares")
to WXL International - New Zealand, Inc., a Delaware corporation ("WXL"), and in
connection with such sale of the Shares to WXL, hereby waives all pre-emptive
rights conferred upon such shareholder pursuant to Section 13 of the
Constitution of the Company, effective as of December 31, 1998.
SHAREHOLDER
/s/ Rosalind Abbott
Name: Rosalind Abbott
Number of Shares Held: 292
Exhibit A
<PAGE>
EXHIBIT A
SHAREHOLDER CONSENT AND WAIVER
WORLDXCHANGE LIMITED,
A NEW ZEALAND CORPORATION
The undersigned, a shareholder of WorldxChange Limited, a New Zealand
corporation (the "Company"), hereby consents to the sale by the shareholders of
the Company of all of the issued ordinary shares of the Company (the "Shares")
to WXL International - New Zealand, Inc., a Delaware corporation ("WXL"), and in
connection with such sale of the Shares to WXL, hereby waives all pre-emptive
rights conferred upon such shareholder pursuant to Section 13 of the
Constitution of the Company, effective as of December 31, 1998.
SHAREHOLDER
/s/ Edward S. Soren
Name: Edward S. Soren
Number of Shares Held: 291
Exhibit A
<PAGE>
EXHIBIT A
SHAREHOLDER CONSENT AND WAIVER
WORLDXCHANGE LIMITED,
A NEW ZEALAND CORPORATION
The undersigned, a shareholder of WorldxChange Limited, a New Zealand
corporation (the "Company"), hereby consents to the sale by the shareholders of
the Company of all of the issued ordinary shares of the Company (the "Shares")
to WXL International - New Zealand, Inc., a Delaware corporation ("WXL"), and in
connection with such sale of the Shares to WXL, hereby waives all pre-emptive
rights conferred upon such shareholder pursuant to Section 13 of the
Constitution of the Company, effective as of December 31, 1998.
SHAREHOLDER
/s/ Eric G. Lipoff
Name: Eric G. Lipoff
Number of Shares Held: 100
Exhibit A
<PAGE>
EXHIBIT A
SHAREHOLDER CONSENT AND WAIVER
WORLDXCHANGE LIMITED,
A NEW ZEALAND CORPORATION
The undersigned, a shareholder of WorldxChange Limited, a New Zealand
corporation (the "Company"), hereby consents to the sale by the shareholders of
the Company of all of the issued ordinary shares of the Company (the "Shares")
to WXL International - New Zealand, Inc., a Delaware corporation ("WXL"), and in
connection with such sale of the Shares to WXL, hereby waives all pre-emptive
rights conferred upon such shareholder pursuant to Section 13 of the
Constitution of the Company, effective as of December 31, 1998.
SHAREHOLDER
/s/ Richard Vincent
Name: Richard Vincent
Number of Shares Held: 25
Exhibit A
<PAGE>
RESOLUTION ADOPTED BY SOLE DIRECTOR
OF
WXL INTERNATIONAL -- NEW ZEALAND, INC.
The undersigned, being the sole director of WXL International - New
Zealand, Inc. (the "Corporation") a Delaware corporation, hereby adopt and
consent to the following resolutions:
RESOLVED, that the Corporation is authorized to purchase all of the
outstanding shares in WorldxChange Limited, a New Zealand corporation, on the
terms and conditions set forth in that certain Stock Purchase Agreement, a copy
of which is attached hereto as Exhibit "A".
NOW, THEREFORE, BE IT RESOLVED, that the Stock Purchase Agreement is
hereby adopted and approved.
RESOLVED FURTHER, that the sole director and any officer of this
Corporation is authorized, in the name and on behalf of this Corporation, to
execute and deliver the Stock Purchase Agreement in the form and substance as
approved by the executing officer, such approval to be conclusively evidenced by
such officer's or officers' execution thereof.
RESOLVED FURTHER, that the sole director and any officer of this
Corporation is authorized and empowered and on behalf of this Corporation, to
take any and all actions in execute any and all such documents, each as he deems
necessary or advisable to carry out fully the intent and purposes of the
foregoing resolutions and each of the transactions contemplated thereby, the
taking of such action or the execution of such document to be conclusive
evidence as the same of deemed necessary or advisable.
RESOLVED FURTHER, that any and all actions hereto for hereafter take in
the name and on behalf of this Corporation by any officer, agent or counsel of
this Corporation in connection with or related to the matters in or contemplated
by the foregoing resolutions be, and they hereby are adopted, affirmed, approved
and ratified in all respects as the acts and deeds of this Corporation.
Dated: December 31, 1998
/s/ Edward S. Soren
- --------------------------------
Edward Soren, Sole Director
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
COMMUNICATION TELESYSTEMS INTERNATIONAL
Edward Soren and Eric Lipoff hereby certify that:
1. They are the Executive Vice President and Secretary, respectively, of
Communication Telesystems International, a California corporation.
2. The Articles of Incorporation of this corporation are amended and restated
in their entirety to read as follows:
"NAME
ONE: The name of the corporation is:
Communication Telesystems International
PURPOSE
TWO: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
AUTHORIZED SHARES
THREE: The corporation shall have authority to issue one hundred ten
million (110,000,000) shares of stock, consisting of one hundred million
(100,000,000) shares of common stock, no par value per share (the "Common
Stock"), and ten million (10,000,000) shares of preferred stock, no par
value per share (the "Preferred Stock").
The Board of Directors is authorized to fix by resolution the
designations, powers, preferences and relative, participating,
optional or other special rights (including voting rights, if any, and
conversion rights, if any), and qualifications, limitations or
restrictions thereof, of any such series of Preferred Stock, and the
number of shares constituting any such series, or all or any of
them; and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the
number of such shares then outstanding. Except as otherwise provided
(i) by law, (ii) by these Articles of Incorporation as amended from
time to time, or (iii) by resolutions of the Board of Directors fixing
the
<PAGE>
powers and preferences of any class or series of shares as to which
the Board of Directors has been expressly vested with authority to fix
the powers and preferences, (a) the Common Stock shall possess the
full voting power of the Corporation and (b) the number of authorized
shares of any class or classes of stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the
Corporation entitled to vote.
NO CUMULATIVE VOTING
FOUR: No holder of any class of stock of the corporation shall be entitled
to cumulate votes at any election of directors of this corporation. This
provision shall become effective only when this corporation becomes a
listed corporation within the meaning of Section 301.5 of the California
General Corporation Law.
ELECTION AND TERM OF DIRECTORS
FIVE: This provision shall become effective only when this corporation
becomes a listed corporation within the meaning of Section 301.5 of the
General Corporation Law of California.
In the event that the authorized number of directors shall be fixed
with at least six (6) but less than nine (9) directors, the Board of
Directors shall be divided into two classes, designated Class I and
Class II, effective as of the date that this corporation becomes a
listed corporation within the meaning of Section 301.5 of the General
Corporation Law of California. Each class shall consist of one-half
of the directors or as close an approximation as possible. The
initial term of office of the directors of Class I shall expire at
the first annual meeting following the date that this corporation
becomes a listed corporation within the meaning of Section 301.5 of
the General Corporation Law of California (the "Initial Annual
Meeting"), and the initial term of office of the directors of
Class II shall expire at the annual meeting to be held during the
first fiscal year following the Initial Annual Meeting. At each
annual meeting, commencing with the Initial Annual Meeting, each of
the successors to the directors of the class whose term shall have
expired at such annual meeting shall be elected for a term running
until the second annual meeting next succeeding his or her election
and until his or her successor shall have been duly elected and
qualified.
In the event that the authorized number of directors shall be fixed at
nine (9) or more, the Board of Directors shall be divided into three
classes, designated Class I, Class II and Class III, effective as of
the first annual meeting coinciding with or following the division
into three classes (the "Effective Date"). Each class shall consist of
one-third of the directors or as close an approximation as possible.
The initial term of office of the directors of Class I shall expire at
the annual meeting to be held during the first fiscal year following
the Effective Date, the initial term of office of the directors of
Class II shall expire at the annual meeting to be held during second
fiscal year following the Effective Date and the initial term of
2
<PAGE>
office of the directors of Class III shall expire at the annual
meeting to be held during the third fiscal year following the
Effective Date. At each annual meeting, commencing with the first
annual meeting following the Effective Date, each of the successors
to the directors of the class whose term shall have expired at such
annual meeting shall be elected for a term running until the third
annual meeting next succeeding his or her election and until his or
her successor shall have been duly elected and qualified.
Notwithstanding the rule that the classes shall be as nearly equal in
number of directors as possible, in the event of any change in the
authorized number of directors, each director then continuing to serve
as such shall nevertheless continue as a director of the class of
which he or she is a member until the expiration of his or her current
term, or his or her prior death, resignation or removal.
At each annual election, the directors chosen to succeed those whose
terms then expire shall be of the same class as the directors they
succeed, unless, by reason of any intervening changes in the
authorized number of directors, the Board of Directors shall designate
one or more directorships whose terms then expire as directorships of
another class in order more nearly to achieve equality of number of
directors among the classes.
This provision only may be amended or repealed by the approval of the
Board of Directors and the outstanding shares (as defined in Section
152 of the General Corporation Law of California) voting as a single
class, notwithstanding Section 903 of the General Corporation Law of
California.
DIRECTOR LIABILITY
SIX: The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
INDEMNIFICATION OF AGENTS
SEVEN: The corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the General Corporation Law of California) to
the fullest extent permissible under California law, in excess of that
indemnification otherwise permitted by Section 317 of the General
Corporation Law of California.
AMENDMENTS
EIGHT: The act of the shareholders to amend any of the provisions of this
Article Eight (Amendments) or of Article Four (No Cumulative Voting) or
Article Five (Election and Term of Directors) shall require the affirmative
vote of the holders of not less than two-thirds (66 2/3%) of the total
voting power of all outstanding shares of stock entitled to vote thereon."
3
<PAGE>
3. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the Board of Directors of this corporation.
4. The foregoing amendment and restatement of Articles of Incorporation has
been duly approved by the required vote of the shareholders of this
corporation in accordance with Sections 902 and 903 of the General
Corporation Law of California. The total number of outstanding shares of each
class and series entitled to vote with respect to the foregoing amendment and
restatement of Articles of Incorporation was 35,411,108 shares of Common
Stock. There are no shares outstanding of Preferred Stock of this corporation
of any class or series. The number of shares voting in favor of the foregoing
amendment and restatement equaled or exceeded the vote required. The
percentage vote required was a majority of the outstanding shares of Common
Stock and Preferred Stock voting together as a single class.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.
DATED: July 29, 1999
------------------------
Edward Soren
Executive Vice President
------------------------
Eric Lipoff
Secretary
4
<PAGE>
CERTIFICATE OF DETERMINATION OF
PREFERENCES
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
COMMUNICATION TELESYSTEMS INTERNATIONAL
(Pursuant to Section 401 of the General
Corporation Law of the State of California)
---------------------------
The undersigned, Edward Soren and Patrick Aelvoet, hereby certify that
(1) Edward Soren is the duly elected and acting Executive Vice President and
Patrick Aelvoet is the duly elected and acting Chief Financial Officer of
Communication TeleSystems International, a California corporation (hereinafter
called the "Corporation"), and (2) under authority given by the Corporation's
Amended and Restated Articles of Incorporation, the Board of Directors has duly
adopted the following recitals and resolutions:
WHEREAS, the Amended and Restated Articles of Incorporation of the
Corporation provide for a class of shares known as Preferred Stock, issuable
from time to time in one or more series;
WHEREAS, the Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed on any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series, and to determine the designation
thereof, or any of them;
WHEREAS, the Amended and Restated Articles of Incorporation of the
Corporation provide that the Corporation is authorized to issue Ten Million
(10,000,000) shares of Preferred Stock; and
WHEREAS, the Corporation has not issued any shares of such Preferred
Stock and the Board of Directors of the Corporation desires to determine the
rights, preferences, privileges, and restrictions relating to this initial
series of Preferred Stock and the number of shares constituting and the
designation of said series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
determines the designation of, number of shares constituting, and the rights,
preferences, privileges, and restrictions relating to said series of Preferred
Stock as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Convertible Preferred Stock" (the "Series A
Stock") and the number of
<PAGE>
shares constituting the Series A Stock shall be 30,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Stock to a number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of any outstanding
options, rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series A Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) AMOUNT OF DIVIDEND. Subject to the rights of the holders of
any shares of any series of Preferred Stock (or any similar stock) ranking
prior and superior to the Series A Stock with respect to dividends, the
holders of shares of Series A Stock, prior and in preference to any
declaration or payment of any dividend (payable other than in shares of
Common Stock, no par value, of the Corporation (the "Common Shares") or
other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional Common Shares of the
Corporation) on the Common Shares of the Corporation, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, annual dividends payable in cash on the
first day of October each year (each such date being referred to herein as
a "Dividend Payment Date"), commencing on the first Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Stock, in an amount equal to forty dollars ($40) per share per annum, as
adjusted to reflect any subdivision or combination of the Series A Stock.
Such dividends shall be cumulative so that if such dividends in respect of
any annual dividend period shall not have been paid on, or declared and set
apart for, all shares of Series A Stock at the time outstanding, the
deficiency shall be fully paid on or declared or set apart for such shares
before any dividend or other distribution shall be paid upon or declared or
set apart for the Corporation's Common Shares.
(B) ACCRUAL OF DIVIDENDS FOR NEWLY ISSUED SHARES. Dividends
shall begin to accrue and be cumulative on outstanding shares of Series A
Stock from the Dividend Payment Date next preceding the date of issue of
such shares, unless the date of issue of such shares is prior to the record
date for the first Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Stock
entitled to receive an annual dividend and before such Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Dividend Payment Date. Accrued but unpaid dividends
shall accrue dividends at the rate of four percent (4%) of the amount of
such accrued but unpaid dividends per annum. Dividends paid on the shares
of Series A Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Stock entitled to receive
-2-
<PAGE>
payment of a dividend or distribution declared thereon, which record date
shall be not more than 60 days prior to the date fixed for the
payment thereof.
(C) EFFECT OF CONVERSIONS. In the event that, prior to the
record date fixed for the payment of dividends on the outstanding shares of
Series A Stock for any particular year, any shares of Series A Stock shall
have been converted into Common Shares pursuant to Section 8 hereof, then,
solely for the purposes of this Section 2(C), such shares shall be deemed
to be outstanding as of such record date fixed for the payment of
dividends; provided, that the dividend payable with respect to each such
share of previously converted Series A Stock shall be payable within ten
(10) business days after the date that such share of Series A Stock is
converted pursuant to Section 8 and shall be equal in amount to the product
of (1) $40 and (2) the quotient (X) the numerator of which is equal to the
number of calendar days between the Dividend Payment Date next preceding
the date of conversion and the date that such share was converted (or, if
the conversion of such share occurs prior to the first Dividend Payment
Date, the number of calendar days between the date that dividends began to
accrue on such share pursuant to Section 2(B) and the date that such share
was converted pursuant to this Certificate)), and (Y) the denominator of
which is equal to 365.
Section 3. NO VOTING RIGHTS. Except as otherwise provided by law,
the holders of shares of Series A Stock shall not have any voting rights with
respect to any such shares of Series A Stock. Upon conversion of any shares of
Series A Stock as provided in Section 8 hereof, the holders of such converted
shares of Series A Stock shall have such voting rights as are applicable to the
Common Shares into which such shares of Series A Stock are converted.
Section 4. REACQUIRED SHARES. Any shares of Series A Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
(including, without limitation, due to the conversion of such shares pursuant to
Section 6 or Section 8 hereof) shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock.
Section 5. LIQUIDATION PREFERENCE.
(A) PREFERENCE. Subject to Sections 5(C) and 6 below, in the event
of any liquidation, dissolution, or winding up of the affairs of the
Corporation, voluntarily or involuntarily, subject to the rights of any
subsequently authorized series of Preferred Stock, the holders of shares of
Series A Stock shall be entitled to receive, prior to any distribution to
the holders of Common Shares by reason of their ownership thereof, a
preferential amount of assets with an aggregate fair market value equal to
$1,000 per share of Series A Stock then held by them plus all accrued but
unpaid dividends on such shares. If upon such liquidation, dissolution, or
winding up, the assets of the Corporation are insufficient to provide for
the payment to the holders of the Series A Stock of the full preferential
amount aforesaid, such assets as are available shall be paid out pro rata
(in proportion to the full preferential amount each such holder would
otherwise be entitled to receive) among the holders of the Series A Stock.
-3-
<PAGE>
(B) PRO RATA DISTRIBUTION. Upon the completion of the distributions
in respect of the Series A Stock as set forth above, the remaining assets
of the Corporation, if any, available for distribution to holders of the
Corporation's capital stock shall be distributed pro rata among the holders
of Common Shares, subject to the rights of any other Preferred Stock, in
proportion to the number of Common Shares held by such holders.
(C) CERTAIN TRANSACTIONS. A consolidation or merger of the
Corporation with or into any other corporation or corporations, or a sale
or disposition of all or substantially all of the assets of the Corporation
(whether or not followed by the dissolution or winding up of the
Corporation) in a single transaction or series of transactions, shall not
be considered to be a liquidation, dissolution or winding up within the
meaning of this Section 5, but shall instead be treated pursuant to Section
6 below.
Section 6. ACQUISITION. For purposes of this Section 6 in
connection with any consolidation or merger or other form of corporate
reorganization in which the outstanding shares of the Corporation are exchanged
for securities or other consideration issued or caused to be issued by another
corporation or entity or its subsidiary (other than a reincorporation of the
Corporation) or the sale of all or substantially all of the assets of the
Corporation, (i) those holders of outstanding Series A Stock voting in favor of
such acquisition shall be deemed to have converted their shares immediately
prior to the effective date of such merger, reorganization or sale, and shall be
entitled to the consideration payable in respect of the Corporation's Common
Shares (in the case of a merger or other form of corporate reorganization) or
proceeds thereof (as applicable), pro rata, and on an as if converted basis and
(ii) the dissenting shareholders shall be entitled to the fair market value of
their shares determined as of the day before the first announcement of the terms
of the acquisition, excluding any appreciation or depreciation in consequence of
the acquisition, but adjusted for any stock split, reverse stock split or share
dividend which becomes effective thereafter.
Section 7. NO REDEMPTION. The shares of Series A Stock shall not
be redeemable.
Section 8. CONVERSION. The shares of Series A Stock shall be
convertible as follows (the "Conversion Rights"):
(A) RIGHT TO CONVERT. Unless previously automatically converted
pursuant to Section 8(B) below, each share of Series A Stock shall be
convertible, at the option of the holder thereof, at the office of the
Corporation or any transfer agent for such shares, and without any
additional consideration by the holder thereof, into 90.9091 fully paid and
non-assessable Common Shares (the "Conversion Rate"), subject to adjustment
as hereinafter provided, at any time so long as each of the following is
true as of the time of the proposed conversion: (i) at least six months
shall have elapsed since the date of issuance of such shares of Series A
Stock; (ii) there shall not exist a Pending Offering (as defined below);
and (iii) an Offering (as defined below) shall not have been completed
within the past six months. For purposes of this Certificate, (1)
"Offering" shall mean a completed offer and sale by the Corporation of its
securities pursuant to a registration statement (other than a registration
statement on Form S-8) filed with the Securities and
-4-
<PAGE>
Exchange Commission; and (2) "Pending Offering" shall mean an Offering that
has not been withdrawn, completed or otherwise terminated.
(B) AUTOMATIC CONVERSION. Each and every outstanding share of Series
A Stock shall be converted automatically, if not previously converted, at
the Conversion Rate into fully paid and non-assessable Common Shares,
subject to adjustment as hereinafter provided, upon (i) the first date on
or by which (1) an Offering shall have previously been completed, (2) there
shall not have occurred any Offering within the immediately preceding six
months and (3) there is not in existence any Pending Offering; or (ii) the
first date on which (1) at least two years have elapsed since the date of
issuance of such shares of Series A Stock, (2) there has not occurred
within the immediately preceding six months the completion of an Offering,
and (3) there is not in existence any Pending Offering. Upon automatic
conversion as provided for herein, the Secretary of the Corporation shall
promptly deliver notice of such conversion to each holder of shares of the
Series A Stock, who shall thereupon surrender the certificates representing
such shares at the office of the Corporation or of any transfer agent for
such Series A Stock. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder a certificate
or certificates for the number of Common Shares into which such shares of
Series A Stock have been automatically converted.
(C) MECHANICS OF CONVERSION. Before any holder of shares of Series A
Stock shall be entitled to convert the same into full Common Shares
pursuant to Section 8(A), he or she shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or
of any transfer agent for such Series A Stock, and shall give written
notice to the Corporation at such office that he or she elects to convert
the same and shall state therein his or her name or the name or names of
his nominees in which he or she wishes the certificate or certificates for
the number of full Common Shares to which he or she shall be entitled as
aforesaid. Except as set forth herein, conversion pursuant to Section 8(A)
shall be deemed to have occurred immediately prior to the close of business
on the date of such surrender of the shares of Series A Stock to be
converted, and the person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Shares on such date.
(D) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after August 13, 1999 (the
"Commitment Date") effect a subdivision of the outstanding Common Stock,
the Conversion Rate then in effect immediately before the subdivision shall
be proportionately increased and, conversely, if the Corporation shall at
any time or from time to time after the Commitment Date combine the
outstanding shares of Common Stock, the Conversion Rate then in effect
immediately before the combination shall be proportionately decreased. Any
adjustment under this subsection (D) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
-5-
<PAGE>
(E) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Commitment Date
shall make or issue, or fix a record date for the determination of holders
of Common Shares entitled to receive, a dividend or other distribution
payable in securities, properties (other than cash) or rights of the
Corporation other than Common Shares, then and in each such event
provisions shall be made so that the holders of Series A Stock shall
receive upon conversion thereof, in addition to the number of Common Shares
receivable thereupon, the amount of securities, properties or rights of the
Corporation which they would have received had their Series A Stock been
converted into Common Shares on the date of such event and had thereafter,
during the period from the date of such event to and including the
conversion date, retained such securities, properties or rights (together
with any distributions payable thereon during such period) receivable by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 8 with respect to the
rights of the holders of the Series A Stock.
(F) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Shares issuable upon the conversion of the Series A Stock at any
time or from time to time after the Commitment Date shall be changed into
the same or different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other
than a reorganization, merger, consolidation, or sale of assets provided
for in Section 6 above or a subdivision or combination of shares provided
for in Section 8(D) above), then, and in each such event, provision shall
be made (by adjustment to the Conversion Rate or otherwise) so that each
holder of Series A Stock shall have the right thereafter to convert its
shares into the kind and amount of shares of stock and other securities
receivable upon such reorganization, reclassification, or other change, by
holders of the number of Common Shares into which such share of Series A
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustments as provided
herein.
(G) NO IMPAIRMENT. The Corporation will not, by amendment of its
Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale or securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 8 and in
the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of the Series A Stock
against impairment.
(H) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Rate pursuant to this
Section 8, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish
to each holder of Series A Stock a certificate setting forth (i) such
adjustments and readjustments, (ii) the applicable Conversion Rate at the
time in effect, and (iii) the number of Common Shares and the amount, if
any, of other property which at the time would be received upon the
conversion of a share of such Series A Stock.
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<PAGE>
(I) NOTICES OF RECORD DATE. If:
(i) the Corporation shall set a record date for the purpose
of entitling the holders of its Common Shares to receive a dividend, or any
other distribution, payable otherwise than in cash;
(ii) the Corporation shall set a record date for the purpose
of entitling the holders of its Common Shares to subscribe for or purchase
any shares of any class or to receive any other rights;
(iii) there shall occur any capital reorganization of the
Corporation, reclassification of the shares of the Corporation (other than
a subdivision or combination of its outstanding Common Stock),
consolidation or merger of the Corporation with or into another
corporation, or conveyance of all or substantially all of the assets of the
Corporation to another corporation; or
(iv) there shall occur a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; then, and in any such case,
the Corporation shall cause to be mailed to the holders of record of the
outstanding shares of the Series A Stock, at least fifteen (15) days prior
to the date hereinafter specified, a notice stating (a) the date which (x)
has been set as the record date for the purpose of such dividend,
distribution, or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up
is to take place and (b) the record date as of which holders of Common
Shares of record shall be entitled to exchange their shares for securities
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(J) NOTICES. Any notice required by the provisions of this Section 8
to be given to the holders of shares of Series A Stock shall be in writing
and may be delivered by personal service or sent by telegraph or cable or
sent by prepaid registered or certified mail, return receipt requested to
the holders of record of such shares at the address shown on the
Corporation's books.
(K) FRACTIONAL SHARES. No fractional Common Shares shall be issued
upon conversion of Series A Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay
cash equal to the product of such fraction multiplied by the fair market
value of one Common Share on the date of conversion. For purposes of this
paragraph, "fair market value" shall mean (i) if the Common Shares shall
then be listed for trading on a national securities exchange or admitted
for quotation on an over-the-counter securities market (including, without
limitation, the Nasdaq Stock Market), the average closing price per share,
as reported by such exchange or market, of the Common Shares for the 30
consecutive trading days preceding the date of the conversion of the Series
A Stock giving rise to the fractional Common Share or Common Shares or (ii)
if the Common Shares shall not then be so listed or admitted for quotation,
the amount determined pursuant to an appraisal of an independent valuation
firm selected in good faith by the Board of Directors.
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<PAGE>
(L) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available, out of its authorized but
unissued Common Shares, solely for the purpose of effecting the conversion
of the Series A Stock, the full number of Common Shares deliverable upon
the conversion of all shares of the Series A Stock from time to time
outstanding. Before taking any action which would cause the Corporation
not to have a sufficient number of authorized but unissued Common Shares
for purposes of effecting the conversion of all then outstanding shares of
Series A Stock, the Corporation shall take any corporate action that is
necessary for the Corporation to be able to validly and legally issue fully
paid and nonassessable Common Shares upon such conversion at the Conversion
Rate (as adjusted from time to time).
* * * * * *
The number of shares constituting Series A Stock is 30,000, none of which
has been issued.
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<PAGE>
The undersigned Edward Soren, the Executive Vice President, and
Patrick Aelvoet, the Chief Financial Officer, of Communication TeleSystems
International, each declares under penalty of perjury under the laws of the
State of California that the matters set out in the foregoing Certificate are
true of his own knowledge.
Executed at San Diego, California, on August 12, 1999.
--
/s/ Edward Soren
------------------------------------
Name: Edward Soren
Title: Executive Vice President
/s/ Patrick Aelvoet
------------------------------------
Name: Patrick Aelvoet
Title: Chief Financial Officer
S-1
<PAGE>
AMENDED AND RESTATED
BYLAWS
COMMUNICATION TELESYSTEMS INTERNATIONAL, d/b/a
WORLDxCHANGE COMMUNICATIONS,
a California Corporation
ARTICLE I
Offices
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive
office of the corporation is hereby fixed and located at 9999 Willow Creek
Road, San Diego, California 92131. The Board of Directors is hereby granted
full power and authority to change the principal executive office from one
location to another. Any such change shall be noted on the Bylaws by the
secretary, opposite this section, or this section may be amended to state the
new location.
Section 2. OTHER OFFICES. Other business offices may at any time be
established by the Board of Directors at any place or places where the
corporation is qualified to do business.
ARTICLE II
Meetings of Shareholders
Section 1. PLACE OF MEETINGS. All annual or other meetings of
shareholders shall be held at the principal executive office of the
corporation, or at any other place within or without the State of California
which may be designated by the Board of Directors.
Section 2. ANNUAL MEETINGS. The annual meetings of shareholders
shall be held on such dates and at such times as shall be designated by the
Board of Directors and stated in the notice of the meeting given to each
shareholder as provided below. At such meetings, directors shall be elected,
reports of the affairs of the corporation shall be considered, and any other
business may be transacted which is within the powers of the shareholders.
Written notice of each annual meeting shall be given to each shareholder
entitled to vote, either personally or by mail or other means of written
communication, charges prepaid, addressed to such shareholder at its address
appearing on the books of the corporation or given to the corporation for the
purpose of notice. If any notice or report addressed to the shareholder at
the address of such shareholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to deliver the
notice or report to the shareholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if
the same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period
of one year from the date of the giving of the notice or report to all other
shareholders. If a shareholder gives no address, notice shall be deemed to
have been given if sent by mail or other means of written communication
addressed to the place where the principal executive office of the
corporation is situated, or if published at least once in some newspaper of
general circulation in the county in which the principal executive office is
located.
<PAGE>
All such notices shall be given to each shareholder entitled
thereto not less than ten (10) days nor more than sixty (60) days before each
annual meeting. Any such notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by other
means of written communication. An affidavit of mailing of any such notice in
accordance with the foregoing provisions, executed by the secretary,
assistant secretary or any transfer agent of the corporation, shall be prima
facie evidence of the giving of the notice.
Such notices shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters which the Board, at the time of the mailing
of the notice, intends to present for action by the shareholders at the
meeting;
(c) if directors are to be elected, the names of nominees
intended at the time of the notice to be presented by management for
election;
(d) the general nature of a proposal, if any, to take action
with respect to approval of (i) a contract or other transaction with an
interested director, (ii) amendment of the Articles of Incorporation,
(iii) a reorganization of the corporation as defined in Section 181 of
the California General Corporation Law, (iv) voluntary dissolution of
the corporation, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, if any; and
(e) such other matters, if any, as may be expressly required
by statute.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders
for the purpose of taking any action permitted by the shareholders under the
General Corporation Law and the Articles of Incorporation of this
corporation, may be called at any time only by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President, or by
one or more shareholders entitled to cast not less than ten percent (10%) of
the votes at the meeting. Upon request in writing that a special meeting of
shareholders be called for any proper purpose, directed to the chairman of
the Board, president, vice president or secretary by any person (other than
the Board) entitled to call a special meeting of shareholders, the officer
forthwith shall cause notice to be given to shareholders entitled to vote
that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after receipt of the request. Except in special cases where other
express provision is made by statute, notice of such special meetings shall
be given in the same manner as for the annual meeting of shareholders. In
addition to the matters required by items (a) and, if applicable, (c) of the
preceding Section, notice of any special meeting shall specify the general
nature of the business to be transacted, and no other business may be
transacted at such meeting.
Section 4. QUORUM. The presence in person or by proxy of the persons
entitled to vote a majority of the shares at any meeting shall constitute a
quorum for the transaction of business at that meeting. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
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Section 5. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be
adjourned from time to time by the vote of a majority of the shares, the
holders of which are either present in person or by proxy thereat, but in the
absence of a quorum no other business may be transacted at such meeting,
except as provided in Section 4 above. When any shareholders' meeting, either
annual or special, is adjourned for forty-five days or more, or if after
adjournment a new record date is fixed for the adjourned meeting, notice of
the adjourned meeting shall be given as in the case of an original meeting.
Except as provided above, it shall not be necessary to give any notice of the
time and place of the adjourned meeting or of the business to be transacted
thereat, other than by announcement of the time and place of the adjourned
meeting at the meeting at which the adjournment is taken.
Section 6. VOTING. Unless a record date for voting purposes be
fixed as provided in Section 1 of Article V of these Bylaws, then, subject to
the provisions of Sections 702 and 704, inclusive, of the Corporations Code
of California (relating to voting of shares held by a fiduciary, in the name
of a corporation, or in joint ownership) only persons in whose names shares
entitled to vote stand on the stock records of the corporation at the close
of business on the business day next preceding the day on which notice of the
meeting is given or if such notice is waived, at the close of business on the
business day next preceding the day on which the meeting of shareholders is
held, shall be entitled to vote at such meeting, and such day shall be the
record date for such meeting. Such vote may be viva voce or by ballot;
provided, however, that all elections for directors must be by ballot upon
demand made by a shareholder at any election and before the voting begins. If
a quorum is present, except with respect to election of directors, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on any matter shall be the act of the shareholders, unless
the vote of a greater number or voting by classes is required by the General
Corporation Law or the Articles of Incorporation.
Section 7. NO CUMULATIVE VOTING. No holder of any class of stock of
this corporation shall be entitled to cumulate votes at any election of
directors of this corporation. This provision shall become effective only
when this corporation becomes a listed corporation within the meaning of
Section 301.5 of the California General Corporation Law.
Section 8. VALIDATION OF DEFECTIVE CALLED OR NOTICED MEETINGS. The
transactions of any meeting of shareholders, either annual or special,
however called and noticed, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present either in person
or by proxy, and if, whether before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy, or who, though present,
has, at the beginning of the meeting, properly objected to the transaction of
any business thereat because the meeting was not lawfully called or convened,
or to particular matters of business legally required to be included in the
notice, but not so included, signs a written waiver of notice, or a consent
to the holding of such meeting, or an approval of the minutes thereof. All
such waivers, consents or approvals shall be filed with the corporate records
or made a part of the minutes of the meeting.
Section 9. PROXIES. Every person entitled to vote shall have the
right to do so whether in person or by one or more agents authorized by a
written proxy executed by such person or such person's duly authorized agent
and filed with the secretary of the corporation. Any proxy duly executed is
not revoked and continues in full force and effect until (i) an
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<PAGE>
instrument revoking it or a duly executed proxy bearing a later date is filed
with the secretary of the corporation prior to the vote pursuant thereto, (ii)
the person executing the proxy attends the meeting and votes in person, or (iii)
written notice of the death or incapacity of the maker of the proxy is received
by the corporation before the vote pursuant thereto is counted; provided that no
proxy shall be valid after the expiration of eleven (11) months from the date of
its execution, unless the person executing it specifies therein the length of
time for which such proxy is to continue in force.
Section 10. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election be not so appointed, the chairman of any such
meeting may, on the request of any shareholder or its proxy, shall make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed. In case any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may, and on the request of any shareholder or a shareholder's proxy
shall, be filled by appointment by the Board of Directors in advance of the
meeting, or at the meeting by the chairman of the meeting.
The duties of such inspectors shall be as prescribed by Section 707
of the General Corporation Law and shall include determining the number of
shares outstanding and the voting power of each, the shares represented at
the meeting, the existence of a quorum, the authenticity, validity and effect
of proxies; receiving votes or ballots; hearing and determining all
challenges and questions in any way arising in connection with the right to
vote; counting and tabulating all votes; determining when the polls close;
determining the result; and such acts as may be proper to conduct the
election or vote with fairness to all shareholders. In the determination of
the validity and effect of proxies, the dates contained on the forms of proxy
shall presumptively determine the order of execution of the proxies,
regardless of the postmark dates on the envelopes in which they are mailed.
The inspectors of election shall perform their duties impartially,
in good faith, to the best of their ability and as expeditiously as is
practical. If there be three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act
or certificate of all. Any report or certificate made by the inspectors of
election is prima facie evidence of the facts stated therein.
Section 11. NOTICE OF BUSINESS. At any meeting of shareholders,
only such business shall be conducted as shall have been brought before the
meeting (a) by or at the direction of the Board of Directors, (b) in
accordance with Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or (c) by any shareholder of the corporation
who was a shareholder of record at the time of giving of notice provided for
in this bylaw, who is entitled to vote at the meeting and who complies with
the notice procedures set forth in this bylaw. For business to be properly
brought before a meeting by a shareholder pursuant to clause (c) of this
bylaw, the shareholder must have given timely notice thereof in writing to
the Secretary of the corporation and such other business must otherwise be a
proper matter for shareholder action. To be timely, a shareholder's notice
shall be delivered to the
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<PAGE>
Secretary at the principal executive offices of the Corporation not later
than the close of business on the 60th day nor earlier than the close of
business on the 90th day prior to the meeting; PROVIDED, HOWEVER, that if less
than 70 days' notice of the date of the meeting is given by the corporation,
notice by the shareholder to be timely must be so delivered no later than the
10th day following the day on which public announcement of the date of such
meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of a meeting commence a new time period for
the giving of a shareholder's notice as described above. Such shareholder's
notice shall set forth (i) as to any business that the shareholder proposes
to bring before the meeting, a brief description of the business desired to
be brought before the meeting, the reasons for conducting such business at
the meeting and any material interest in such business of such shareholder
and the beneficial owner, if any, on whose behalf the proposal is made; and
(ii) as to the shareholder giving the notice and the beneficial owner, if
any, on whose behalf the proposal is made (x) the name and address of such
shareholder, as they appear on the corporation's books, and of such
beneficial owner and (y) the class and number of shares of stock of the
corporation which are owned beneficially and of record by such shareholder
and such beneficial owner. If notice has not been given pursuant to this
Section, the chairman of the meeting may declare to the meeting that the
proposed business was not properly brought before the meeting, and such
business may not be transacted at the meeting. The foregoing provisions of
this Section do not relieve any shareholder of any obligation to comply with
all applicable requirements of the Exchange Act and rules and regulations
thereunder. For purposes of these bylaws, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Section 12. NOMINATION OF DIRECTORS. At any meeting of
shareholders, a person may be a candidate for election to the Board only if
such person is nominated (a) by or at the direction of the Board, (b) by any
nominating committee or person appointed by the Board, or (c) by a
shareholder of record entitled to vote at such meeting who complies with the
notice procedures set forth in this Section and has given timely notice of
such nomination in writing to the Secretary of the corporation. To be timely,
a shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on
the 60th day nor earlier than the close of business on the 90th day prior to
the meeting; PROVIDED, HOWEVER, that if less than 70 days notice of the date
of the meeting is given by the corporation, notice by the shareholder to be
timely must be so delivered no later than the 10th day following the day on
which public announcement of the date of such meeting is first made by the
corporation. In no event shall the public announcement of an adjournment of
an annual meeting commence a new time period for the giving of a
shareholder's notice as described above. Such shareholder's notice shall set
forth as to each person whom the shareholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act and Rule 14a-11
thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected). The
corporation may require such other information to be furnished respecting any
proposed nominee as may be reasonably necessary to determine whether the
proposed nominee has, or represents, interests which are opposed to or in
conflict with the interests of the corporation. No person
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shall be eligible for election as a director at any meeting unless nominated in
accordance with this Section.
ARTICLE III
Directors
Section 1. POWERS. Subject to limitations of the Articles of
Incorporation and the California General Corporation Law as to action to be
authorized or approved by the shareholders, and subject to the duties of
directors as prescribed by these Bylaws, all corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation shall be controlled by, the Board of Directors. Without prejudice
to such general powers, but subject to the same limitations, it is hereby
expressly declared that the directors shall have the following powers, to wit:
FIRST - To select and remove all the officers, agents and employees
of the corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the Articles of Incorporation or these Bylaws,
fix their compensation and require from them security for faithful service.
SECOND - To conduct, manage and control the affairs and business of
the corporation, and to make such rules and regulations therefor not
inconsistent with law, or with the Articles of Incorporation or these Bylaws,
as they may deem best.
THIRD - To change the principal executive office and principal
office for the transaction of business of the corporation from one location
to another as provided in Article I, Section 1, hereof; to fix and locate
from time to time one or more subsidiary offices of the corporation within or
without the State of California, as provided in Article I, Section 2, hereof;
to designate any place within or without the State of California for the
holding of any shareholders' meeting or meetings; and to adopt, make and use
a corporate seal, and to prescribe the forms of certificates of stock, and to
alter the form of such seal and of such certificates from time to time, as in
their judgment they may deem best, provided such seal and such certificates
shall at all times comply with the provisions of law.
FOURTH - To authorize the issue of shares of stock of the
corporation from time to time, upon such terms as may be lawful.
FIFTH - To borrow money and incur indebtedness for the purposes of
the corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and securities
therefor.
SIXTH - By resolution adopted by a majority of the authorized
number of directors, to designate an executive and other committees, each
consisting of two or more directors, to serve at the pleasure of the Board,
and to prescribe the manner in which proceedings of such committees shall be
conducted. Unless the Board of Directors shall otherwise prescribe the manner
of proceedings of any such committee, meetings of such committee may be
regularly scheduled in advance and may be called at any time by any two
members thereof; otherwise, the
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provisions of these Bylaws with respect to notice and conduct of meetings of the
Board shall govern. Any such committee, to the extent provided in a resolution
of the Board, shall have all of the authority of the Board, except with respect
to:
(i) the approval of any action for which the General Corporation Law
or the Articles of Incorporation also require shareholder approval;
(ii) the filling of vacancies on the Board or in any committee;
(iii) the fixing of compensation of the directors for serving on the
Board or on any committee;
(iv) the adoption, amendment or repeal of bylaws;
(v) the amendment or repeal of any resolution of the Board;
(vi) any distribution to the shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board;
(vii) the appointment of other committees of the Board or the members
thereof.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of directors shall be not less than five (5) nor more than nine (9)
until changed by Amendment of the Articles of Incorporation or by a Bylaw
duly adopted by approval of the outstanding shares. The exact number of
directors shall be fixed, within the limits specified, by amendment of the
next sentence duly adopted either by the Board of Directors or the
shareholders. The exact number of directors shall be seven (7) until changed
as provided in this Section 2.
Section 3. ELECTION AND TERM OF OFFICE. This section shall become
effective only when this corporation becomes a listed corporation within the
meaning of Section 301.5 of the California General Corporation Law.
In the event that the authorized number of directors shall be fixed
with at least six (6) but less than nine (9) directors, the Board of
Directors shall be divided into two classes, designated Class I and Class II,
effective as of the first annual meeting following the effective date of this
Bylaw (the "Initial Annual Meeting"). Each class shall consist of one-half of
the directors or as close an approximation as possible. The initial term of
office of the directors of Class I shall expire at the annual meeting to be
held during the fiscal year following the Initial Annual Meeting, and the
initial term of office of the directors of Class II shall expire at the
annual meeting to be held during the second fiscal year following the Initial
Annual Meeting. At each annual meeting, commencing with the first annual
meeting following the Initial Annual Meeting, each of the successors to the
directors of the class whose term shall have expired at such annual meeting
shall be elected for a term running until the second annual meeting next
succeeding his or her election and until his or her successor shall have been
duly elected and qualified.
In the event that the authorized number of directors shall be fixed
at nine (9) or more, the Board of Directors shall be divided into three
classes, designated Class I, Class II and
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Class III, effective as of the first annual meeting coinciding with or following
the division into three classes (the "Effective Date"). Each class shall consist
of one-third of the directors or as close an approximation as possible. The
initial term of office of the directors of Class I shall expire at the annual
meeting to be held during the first fiscal year following the Effective Date,
the initial term of office of the directors of Class II shall expire at the
annual meeting to be held during second fiscal year following the Effective Date
and the initial term of office of the directors of Class III shall expire at the
annual meeting to be held during the third fiscal year following the Effective
Date. At each annual meeting, commencing with the first annual meeting following
the Effective Date, each of the successors to the directors of the class whose
term shall have expired at such annual meeting shall be elected for a term
running until the third annual meeting next succeeding his or her election and
until his or her successor shall have been duly elected qualified.
Notwithstanding the rule that the classes shall be as nearly equal in
number of directors as possible, in the event of any change in the authorized
number of directors, each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he or she is a member
until the expiration of his or her current term, or his or her prior death,
resignation or removal.
At each annual election, the directors chosen to succeed those
whose terms then expire shall be of the same class as the directors they
succeed, unless, by reason of any intervening changes in the authorized
number of directors, the Board of Directors shall designate one or more
directorships whose term then expires as directorships of another class in
order more nearly to achieve equality of number of directors among the
classes.
This section only may be amended or repealed by the approval of the
Board of Directors and the outstanding shares (as defined in Section 152 of
the California General Corporation Law) voting as a single class,
notwithstanding Section 903 of the California General Corporation Law.
Section 4. VACANCIES. A vacancy in the Board of Directors shall be
deemed to exist in the case of the death, resignation or removal of any
director, if a director has been declared of unsound mind by order of court
or convicted of a felony, if the authorized number of directors be increased,
or if the shareholders fail, at any annual or special meeting of shareholders
at which any director or directors are elected, to elect the full authorized
number of directors to be voted for at that meeting. No reduction of the
authorized number of directors shall have the effect of removing any director
prior to the expiration of his or her term of office.
Subject to any provision contained in the Articles of
Incorporation, vacancies in the Board of Directors, except for a vacancy
created by the removal of a director, may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining
director; and each director so elected shall hold office until his or her
successor is elected at an annual or special meeting of the shareholders.
Subject to any provision contained in the Articles of Incorporation, a
vacancy in the Board of Directors created by the removal of a director may
only be filled by the vote of a majority of the shares entitled to vote
represented at a duly held meeting at which a quorum is present.
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Subject to any provision contained in the Articles of Incorporation,
the shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election shall
require the vote of a majority of the shares entitled to vote represented at
a duly held meeting at which a quorum is present.
Any director may resign effective upon giving written notice to the
chairman of the Board, the president, the secretary of the Board or the Board
of Directors of the corporation, unless the notice specifies a later time for
the effectiveness of such resignation. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future time, the Board
or, subject to any provision contained in the Articles of Incorporation, the
shareholders shall have the power to elect a successor to take office when
the resignation is to become effective.
Section 5. PLACE OF MEETING. Regular meetings of the Board of
Directors shall be held at any place within or without the State of
California which has been designated from time to time by resolution of the
Board or by written consent of all members of the Board. In the absence of
such designation, regular meetings shall be hold at the principal executive
office of the corporation. Special meetings of the Board may be held either
at a place so designated or at the principal executive office of the
corporation.
Section 6. ORGANIZATION MEETING. Immediately following each annual
meeting of shareholders, the Board of Directors shall hold a regular meeting
at the place of said annual meeting or at such other place as shall be fixed
by the Board, for the purpose of organization of the newly elected Board,
election of officers, and the transaction of other business. Call and notice
of such meetings are hereby dispensed with.
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the
Board of Directors shall be hold without call as provided in a resolution
adopted by the Board from time to time; provided, however, should said day
fall upon a legal holiday, then said meeting shall be held at the same time
on the next day thereafter ensuing which is a full business day. Notice of
all such regular meetings of the Board of Directors is hereby dispensed with.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose or purposes may be called at any time by the
chairman of the Board, the president, any vice president or the secretary, or
by any two directors, or by one or more shareholders holding not less than
25% of any series of Preferred Stock of the corporation.
Written notice of the time and place of special meetings shall be
delivered personally to each director or communicated to each director by
telephone or by telegraph or mail, charges prepaid, addressed to him or her
at his or her address as it is shown upon the records of the corporation or,
if it is not so shown on such records or is not readily ascertainable, at the
place at which meetings of the directors are regularly held. In case such
notice is mailed or telegraphed, it shall be deposited in the United States
mail or delivered to the telegraph company in the place in which the
principal executive office of the corporation is located at least forty-eight
(48) hours prior to the time of the holding of the meeting. In case such
notice is delivered, personally or by telephone, as above provided, it shall
be so delivered at least twenty-four (24) hours prior to the time of the
holding of the meeting. Such mailing,
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telegraphing or delivery, personally or by telephone, as above provided, shall
be due, legal and personal notice to each such director.
Section 9. ACTION WITHOUT A MEETING. Any action by the Board of
Directors may be taken without a meeting if all members of the Board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board and shall have the same force and effect as a unanimous vote of such
directors at a meeting duly called and held.
Section 10. ACTION AT A MEETING: QUORUM AND REQUIRED VOTE. Presence
of a majority of the authorized number of directors at a meeting of the Board
of Directors constitutes a quorum for the transaction of business, except as
hereinafter provided. Members of the Board may participate in a meeting
through use of conference telephone or similar communications equipment, so
long as all members participating in such meeting can hear one another.
Participation in a meeting as permitted in the preceding sentence constitutes
presence in person at such meeting.
Every act or decision done or made by a majority of the directors
at a meeting duly hold at which a quorum is present shall be regarded as the
act of the Board of Directors, unless a greater number, or the same number
after disqualifying one or more directors from voting, is required by law, by
the Articles of Incorporation, or by these Bylaws. A meeting at which a
quorum is initially present may continue to transact business notwithstanding
the withdrawal of directors, provided that any action taken is approved by at
least a majority of the required quorum for such meeting.
Section 11. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS.
The transactions of any meeting of the Board of Directors, however called or
noticed or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum is present and if, either
before or after the meeting, each of the directors not present or who, though
present, has, prior to the meeting or at its commencement, protested the lack
of proper notice, signs a written waiver of notice or a consent to holding
such meeting or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a
part of the minutes of the meeting.
Section 12. ADJOURNMENT. A quorum of the directors may adjourn any
directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence of a quorum a majority of the directors present at any
directors' meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the Board.
Section 13. NOTICE OF ADJOURNMENT. If the meeting is adjourned for
more than twenty-four (24) hours, notice of any adjournment to another time
or place shall be given prior to the time of the adjourned meeting to the
directors who were not present at the time of adjournment. Otherwise, notice
of the time and place of holding an adjourned meeting need not be given to
absent directors if the time and place be fixed at the meeting adjourned.
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Section 14. FEES AND COMPENSATION. Directors and members of
committees may receive such compensation, if any, for their services, and
such reimbursement for expenses, as may be fixed or determined by resolution
of the Board of Directors.
Section 15. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS.
(a) INDEMNIFICATION OF DIRECTORS AND OFFICERS. Each person who
was or is a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or
proceeding, formal or informal, whether brought in the name of the
corporation or otherwise and whether of a civil, criminal,
administrative or investigative nature (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of
whom he or she is the legal representative, is or was a director or
officer of the corporation or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is an alleged
action or inaction in an official capacity or in any other capacity
while serving as a director or officer, shall, subject to the terms
of any agreement between the corporation and such person, be
indemnified and held harmless by the corporation to the fullest
extent permissible under California law and the corporation's
Articles of Incorporation, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person
in connection therewith, and such indemnification shall continue as
to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and
administrators; provided, however, that (a) the corporation shall
indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only
if such proceeding (or part thereof) was authorized by the Board of
the corporation, (b) the corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or
part thereof) other than a proceeding by or in the name of the
corporation to procure a judgment in its favor only if any
settlement of such a proceeding is approved in writing by the
corporation, (c) no such person shall be indemnified (i) except to
the extent that the aggregate of losses to be indemnified exceeds
the amount of such losses for which the director or officer is paid
pursuant to any directors' and officers' liability insurance policy
maintained by the corporation; (ii) on account of any suit in which
judgment is rendered against such person for an accounting of
profits made from the purchase or sale by such person of securities
of the corporation pursuant to the provisions of Section 16(b) of
the Securities Exchange Act of 1934 and amendments thereto or
similar provisions of any federal state or local statutory law;
(iii) if a court of competent jurisdiction finally determines that
any indemnification hereunder is unlawful; and (iv) as to
circumstances in which indemnity is expressly prohibited by the
Law, and (d) no such person shall be indemnified with regard to any
action brought by or in the right of the corporation for breach of
duty to the corporation and its shareholders (i) for acts or
omissions involving intentional misconduct or knowing and culpable
violation of law; (ii)
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for acts or omissions that the director or officer believes to be
contrary to the best interests of the corporation or its
shareholders or that involve the absence of good faith on the part
of the director or officer; (iii) for any transaction from which
the director or officer derived an improper personal benefit; (iv)
for acts or omissions that show a reckless disregard for the
director's or officer's duty to the corporation or its shareholders
in circumstances in which the director or officer was aware, or
should have been aware, in the ordinary course of performing his or
her duties, of a risk of serious injury to the corporation or its
shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of
the director's or officer's duties to the corporation or its
shareholders; and (vi) for costs, charges, expenses, liabilities
and losses arising under Section 310 or 316 of the General
Corporation Law of California (the "Law"). The right to
indemnification conferred in this Section 15 shall be a contract
right and shall include the right to be paid by the corporation
expenses incurred in defending any proceeding in advance of its
final disposition; provided, however, that if the Law permits the
payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of a
proceeding, such advances shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts to the corporation if it shall be
ultimately determined that such person is not entitled to be
indemnified.
(b) INDEMNIFICATION OF EMPLOYEES AND AGENTS. A person who was or
is a party or is threatened to be made a party to or is involved in
any proceeding by reason of the fact that he or she is or was an
employee or agent of the corporation or is or was serving at the
request of the corporation as an employee or agent of another
enterprise, including service with respect to employee benefit
plans, whether the basis of such action is an alleged action or
inaction in an official capacity or in any other capacity while
serving as an employee or agent, may, subject to the terms of any
agreement between the corporation and such person, be indemnified
and held harmless by the corporation to the fullest extent
permitted by California law and the corporation's Articles of
Incorporation, against all costs, charges, expenses, liabilities
and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in
connection therewith. The immediately preceding sentence is not
intended to be and shall not be considered to confer a contract
right on any employee or agent (other than directors and officers)
of the corporation.
(c) RIGHT OF DIRECTORS AND OFFICERS TO BRING SUIT. If a claim
under Paragraph (a) of this Section 15 is not paid in full by the
corporation within 30 days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the
claim and, if successful in whole or in part, the claimant shall
also be entitled to be paid the expense of prosecuting such claim.
Neither the failure of the
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corporation (including its Board of Directors, independent legal
counsel, or its shareholders) to have made a determination prior to
the commencement of such action that indemnification of the
claimant is permissible in the circumstances because he or she has
met the applicable standard of conduct, if any, nor an actual
determination by the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) that the claimant
has not met the applicable standard of conduct, shall be a defense
to the action or create a presumption for the purpose of an action
that the claimant has not met the applicable standard of conduct.
(d) SUCCESSFUL DEFENSE. Notwithstanding any other provision of
this Section 15, to the extent that a director or officer has been
successful on the merits or otherwise (including the dismissal of
an action without prejudice or the settlement of a proceeding or
action without admission of liability) in defense of any proceeding
referred to in paragraph (a) of this Section 15 or in defense of
any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and
reasonably incurred in connection therewith.
(e) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
provided by this Section 15 shall not be exclusive of any other
right which any person may have or hereafter acquire under any
statute, bylaw, agreement, vote of shareholders or disinterested
directors or otherwise.
(f) INSURANCE. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or
agent of the corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability
or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under
the Law.
(g) EXPENSES AS A WITNESS. To the extent that any director or
officer of the corporation is by reason of such position, or a
position with another entity at the request of the corporation, a
witness in any action, suit or proceeding, he or she shall be
indemnified against all costs and expenses actually and reasonably
incurred by him or her on his or her behalf in connection
therewith.
(h) INDEMNITY AGREEMENTS. The corporation may enter into
agreements with any director, officer, employee or agent of the
corporation providing for indemnification to the fullest extent
permissible under the Law and the corporation's Articles of
Incorporation.
(i) SEPARABILITY. Each and every paragraph, sentence, term and
provision of this Section 15 is separate and distinct so that if
any paragraph, sentence, term or provision hereof shall be held to
be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of
any other paragraph, sentence, term or provision hereof. To the
extent required, any
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paragraph, sentence, term or provision of this Section 15 may be
modified by a court of competent jurisdiction to preserve its
validity and to provide the claimant with, subject to the
limitations set forth in this Section 15 and any agreement between
the corporation and claimant, the broadest possible indemnification
permitted under applicable law.
(j) EFFECT OF REPEAL OR MODIFICATION. Any repeal or modification of
this Section 15 shall not adversely affect any right of
indemnification of a director or officer existing at the time of
such repeal or modification with respect to any action or omission
occurring prior to such repeal or modification.
ARTICLE IV
Officers
Section 1. OFFICERS. The officers of the corporation shall be a
president, a secretary and a treasurer. The corporation may also have, at the
discretion of the Board of Directors, a Chairman of the Board, a Chief
Executive Officer, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers, and such other officers as may
be appointed in accordance with the provisions of Section 3 of this Article.
One person may hold two or more offices, except that the offices of president
and secretary shall not be held by the same person.
Section 2. ELECTION. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article, shall be chosen annually by the Board of
Directors, and each shall hold office until he or she shall resign or shall
be removed or otherwise disqualified to serve, or his or her successor shall
be elected and qualified.
Section 3. SUBORDINATE OFFICERS, ETC. The Board of Directors may
appoint, and may empower the president to appoint, such other officers as the
business of the corporation my require, each of whom shall hold office, for
such period, have such authority and perform such duties as are provided in
these Bylaws or as the Board of Directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by the Board of Directors, at any regular or
special meeting thereof, or, except in case of an officer chosen by the Board
of Directors, by any officer upon whom such power of removal may be conferred
by the Board of Directors (subject, in each case, to the rights, if any, of
an officer under any contract of employment).
Any officer may resign at any time by giving written notice to the
Board of Directors or the president, or to the secretary of the corporation,
without prejudice, however, to the rights, if any, of the corporation under
any contract to which the officer is a party. Any such resignation shall take
effect at the date of receipt of such notice or at any time specified
therein. Unless otherwise specified therein, acceptance of such resignation
shall not be necessary to make it effective.
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Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these Bylaws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there shall be such an officer, shall, if present, preside at all meetings of
the Board of Directors and exercise and perform such other powers and duties
as may be from time to time assigned by the Board of Directors or prescribed
by these Bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any,
as may be given by the Board of Directors to the Chairman of the Board or the
Chief Executive Officer, if there shall be such an officer or officers, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and affairs of the corporation. The
president shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. The president shall be ex officio a member of all the
standing committees, including the executive committee, if any, and shall
have the general powers and duties of management usually vested in the office
of president of a corporation, and shall have such other powers and duties as
may be prescribed by these Bylaws or the Board of Directors.
Section 8. VICE PRESIDENT. In the absence or disability of the
president, the vice presidents in order of their rank as fixed by the Board
of Directors or, if not ranked, the vice president designated by the Board of
Directors, shall perform all the duties of the president, and when so acting
shall have such other powers and perform such other duties as from time to
time may be prescribed for them respectively by the Board of Directors or
these Bylaws.
Section 9. SECRETARY. The secretary shall record or cause to be
recorded, and shall keep or cause to be kept, at the principal executive
office and such other place as the Board of Directors may order, a book of
minutes of actions taken at all meetings of directors and shareholders, with
the time and place of holding, whether regular or special, and, if special,
how authorized, the notice given thereof, the names of those present at
directors' meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent, a
share register, or a duplicate share register, showing the names of the
shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of shareholders and of the Board of Directors required by these
Bylaws or by law to be given, and shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or these Bylaws.
Section 10. TREASURER. The treasurer shall be the chief financial
officer of the corporation and shall keep and maintain, or cause to be kept
and maintained, adequate and
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correct accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, capital, surplus and shares. Any surplus, including earned surplus,
paid-in surplus, and surplus arising from a reduction of stated capital, shall
be classified according to source and shown in a separate account. The books of
account shall at all reasonable times be open to inspection by any director.
The treasurer shall deposit all monies and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the Board of Directors. The treasurer shall disburse the funds
of the corporation as may be ordered by the Board of Directors, shall render
to the president and directors, whenever they request it, an account of all
his or her transactions as treasurer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or these Bylaws.
ARTICLE V
Miscellaneous
Section 1. RECORD DATE. The Board of Directors may fix a time in
the future as a record date for the determination of the shareholders
entitled to notice of and to vote at any meeting of shareholders, to receive
any report, to receive any dividend or distribution, or any allotment of
rights, or to exercise rights in respect to any change, conversion or
exchange of shares. The record date so fixed shall be not more than sixty
(60) days nor less than ten (10) days prior to the date of any meeting, nor
more than sixty (60) days prior to any other event for the purposes of which
it is fixed. When a record date is so fixed, only shareholders of record on
that date are entitled to notice of and to vote at any such meeting, to
receive any report, to receive a dividend, distribution or allotment of
rights, or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise may be provided in the Articles of Incorporation or these
Bylaws.
Section 2. INSPECTION OF CORPORATE RECORDS. The accounting books
and records, the record of shareholders, and minutes of proceedings of the
shareholders and of the Board of Directors and committees of the Board of
this corporation and any subsidiary of this corporation shall be open to
inspection upon the written demand on the corporation of any shareholder or
the holder of a voting trust certificate at any reasonable time during
regular business hours, for a purpose reasonably related to such holder's
interests as a shareholder or as the holder of such voting trust certificate.
Such inspection by a shareholder or holder of a voting trust certificate may
be made in person or by agent or attorney, and the right of inspection
includes the right to copy and make extracts.
A shareholder or shareholders holding at least five percent (5%) in
the aggregate of the outstanding voting shares of the corporation or who hold
at least one percent (1%) of such voting shares and have filed a Schedule 14B
with the United States Securities and Exchange Commission relating to the
election of directors of the corporation shall have (in person, or by agent
or attorney) the right to inspect and copy the record of shareholders' names
and addresses and shareholdings during usual business hours upon five (5)
business days' prior written demand upon the corporation, and to obtain from
the transfer agent for the corporation, if there be one,
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upon written demand and upon the tender of its usual charges, a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors, and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date subsequent to the date of demand specified
by the shareholder therein. The list shall be made available on or before the
later of five (5) business days after receipt of the demand or the date
specified therein as of which the list is to be compiled.
Every director shall have the absolute right at any reasonable time
to inspect and copy all books, records and documents of every kind and to
inspect the physical properties of the corporation. Such inspection by a
director may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness, issued in
the name of or payable to this corporation, shall be signed or endorsed by
such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.
Section 4. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General
Corporation Law is expressly waived, but nothing herein shall be interpreted
as prohibiting the Board from issuing annual or other periodic reports to the
shareholders.
A shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation may make a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the current fiscal
year ended more than thirty (30) days prior to the date of the request and a
balance sheet of the corporation as of the end of any such period, and, in
addition, if no annual report for the last fiscal year containing an income
statement and balance sheet for and as of the end of such fiscal year has
been sent to shareholders, such an income statement and balance sheet for the
prior fiscal year. The corporation shall use its best efforts to deliver the
statement or statements requested to the person making such request within
thirty days after the receipt thereof. A copy of any such statements shall be
kept on file in the principal executive office of the corporation for twelve
(12) months, and they shall be exhibited at all reasonable times to any
shareholder demanding an examination of them or a copy thereof shall be
mailed to such shareholder.
The corporation shall, upon the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual or quarterly
income statement which it has prepared, together with a balance sheet as of
the and of the same period. The financial statements referred to in this
Section shall be accompanied by the report thereon, if there be any, of any
independent accountants engaged by the corporation in respect thereof or, if
there be no such report, the certificate of an authorized officer of the
corporation that such financial statements were prepared without audit from
the books and records of the corporation.
Section 5. CERTIFICATES FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the chairman or vice chairman of the Board or the president or
any vice president and by the chief financial officer or
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an assistant treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the
shareholder. Any of the signatures on the certificate may be facsimile,
provided that in such event at least one signature, including that of either
officer or the corporation's registrar or transfer agent, if any, shall be
manually signed. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be an officer, transfer agent or registrar before such
certificate is issued, it may nevertheless be issued by the corporation with
the same effect as if such person were an officer, transfer agent or registrar
at the date of issue. Any such certificate shall also contain such legend or
other statement as may be required by Section 418 of the General Corporation
Law, the Corporate Securities Law of 1968, the federal securities laws, these
Bylaws, and any agreement between the corporation and the issuee thereof.
Certificates for shares may be issued prior to full payment under
such restrictions and for such purposes as the Board of Directors or these
Bylaws may provide; provided, however, that any such certificate so issued
prior to full payment shall state on the face thereof the amount remaining
unpaid and the terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered and cancelled at the same time;
provided, however, that a new certificate will be issued without surrender
and cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for issuance of a
new certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction or theft; (3) the request for
issuance of a new certificate is made prior to the receipt of notice by the
corporation that the old certificate has been acquired by a bona fide
purchaser; (4) the owner of the old certificate files a sufficient indemnity
bond with or provides other adequate security to the corporation; and (5) the
owner satisfies any other reasonable requirements imposed by the corporation.
In the event of the issuance of a new certificate, the rights and liabilities
of the corporation, and of the holders of the old and new certificates, shall
be governed by the provisions of Sections 8104 and 8405 of the California
Uniform Commercial Code.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
president or any vice president and the secretary or any assistant secretary
of this corporation are authorized to vote, represent and exercise on behalf
of this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other
corporation or corporations may be exercised either by such officers in
person or by any other person authorized so to do by proxy or power of
attorney duly executed by said officers.
Section 7. INSPECTION OF BYLAWS. The corporation shall keep in its
principal executive office in California, or, if its principal executive
office is not in California, then at its principal business office in
California (or otherwise provide upon written request of any shareholder) the
original or a copy of these Bylaws as amended or otherwise altered to date,
certified by the secretary of the corporation, which shall be open to
inspection by the shareholders at all reasonable times during office hours.
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Section 8. CONSTRUCTION AND DEFINITIONS. Unless the context
otherwise requires, the general provisions, rules of construction and
definitions contained in the California General Corporations Law shall govern
the construction of these Bylaws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the
singular includes the plural and the plural number includes the singular, and
the term "person" includes a corporation or other entity as well as a natural
person.
ARTICLE VI
Amendments
Section 1. POWER OF SHAREHOLDERS. New bylaws may be adopted or
these Bylaws may be amended or repealed by the affirmative vote of a majority
of the outstanding shares entitled to vote, except as otherwise provided by
law or by the Articles of Incorporation.
Section 2. POWER OF DIRECTORS. Subject to the right of the
shareholders as provided in Section I of this Article VI to adopt, amend or
repeal bylaws, bylaws, other than a bylaw or amendment thereof increasing or
decreasing the range of the authorized number of directors or changing
Article III, Section 3, may, except as otherwise provided by law or the
Articles of Incorporation, be adopted, amended or repealed by the Board of
Directors.
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CERTIFICATE OF SECRETARY
OF
COMMUNICATION TELESYSTEMS INTERNATIONAL,
d/b/a WORLDxCHANGE COMMUNICATIONS,
A CALIFORNIA CORPORATION
I hereby certify that I am the duly elected and acting Secretary of
Communication TeleSystems International, d/b/a WorldxChange Communications, a
California corporation ("WorldxChange"), and that the foregoing Bylaws,
comprising 19 pages, constitute the Bylaws of said corporation as duly adopted
by the Board of Directors of WorldxChange on July 29, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 29th
day of July, 1999.
/s/ Eric Lipoff
---------------------------
Eric Lipoff
Secretary
<PAGE>
VOTING TRUST AGREEMENT
FOR STOCK OF
COMMUNICATION TELESYSTEMS INTERNATIONAL
1. INTRODUCTION AND PARTIES
This voting trust agreement (the "Agreement") is made as of March 1, 1998
between Edward S. Soren (the "Shareholder"; also the "Certificate Holder"), who
is an owner of shares of common stock of Communication TeleSystems International
(the "Company"), and Roger B. Abbott (the "Trustee").
2. EXCHANGE OF SHARES FOR VOTING TRUST CERTIFICATES
Simultaneously with the execution of this Agreement, the Shareholder shall
deliver to the Trustee properly endorsed certificates for the number of shares
of common stock of the Company shown opposite his name below (the "Shares"). The
Trustee shall cause the Shares to be transferred to him on the Company's books
and shall issue and deliver to the Shareholder a voting trust certificate, in
the form of Exhibit A to this Agreement, for the number of Shares transferred to
the Trustee. The Trustee shall hold the Shares transferred to him in trust,
subject to the terms of this Agreement.
3. TRUSTEE'S POWERS AND DUTIES
(a) VOTING OF SHARES
During the existence of this trust, the Trustee shall have the exclusive
right to vote the Shares transferred to him in person or by proxy at all
shareholder meetings and in all proceedings in which the vote or consent of
shareholders may be required or authorized, and shall have all the rights,
privileges, and powers of a shareholder except as otherwise provided in this
Agreement.
(b) NUMBER OF TRUSTEES
The number of Trustees under this Agreement shall be one.
(c) OTHER TRUSTEE ACTIVITIES
The Trustee may serve the Company as an officer or director or in any other
capacity, and may receive compensation from the Company for such services.
(d) NO SALE OF SHARES
The Trustee shall have no authority to sell or otherwise dispose of any
Shares transferred to him under this Agreement.
(e) COMPENSATION
The Trustee shall receive no compensation for his services except for
reimbursement, by the Certificate Holder, of expenses incurred in the admini-
stration of his duties.
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(f) TRUSTEE'S LIABILITY
The Trustee shall not be liable for any error of judgment or mistake of
fact or law, or for any act or omission made in good faith in connection with
his powers and duties under this Agreement, except for the Trustee's own willful
misconduct or gross negligence. The Trustee shall not be liable in acting on
any notice, consent, certificate, instruction, or other paper or document or
signature believed by him to be genuine and to have been signed by the proper
party or parties. The Trustee may consult with legal counsel, and any of his
acts or omissions made in good faith in accordance with the opinion of legal
counsel shall be binding and conclusive on the parties to this Agreement.
4. TERMINATION
This Agreement shall terminate three (3) years after the date of this
Agreement or on any later date to which the term is extended, as provided below,
without notice by or to, or action on the part of, the Trustee or the
Certificate Holder.
This Agreement shall be terminated at an earlier date upon the occurrence
of any of the following events:
(a) Upon the sale by Roger or Rosalind Abbott of 50% or more of their
common stock in the Company (held individually or as community property) which
they own as of March 1,1998.
(b) The merger of the Company pursuant to which shareholders of the
Company hold less than 50% of the voting equity of the surviving corporation.
(c) The sale of all or substantially all of the assets of the Company.
(d) The death of the Trustee.
(e) The agreement, in writing, by the Certificate Holder and the Trustee.
As soon as practicable after termination of this Agreement, the Trustee
shall re-deliver share certificates representing the Shares, properly endorsed
for transfer, to the Certificate Holder of record, and the Certificate Holder
shall surrender to the Trustee his voting trust certificate properly endorsed,
together with payment of sums sufficient to cover any taxes and other expenses
relating to the transfer or delivery of the share certificate.
If the Certificate Holder refuses to surrender this voting trust
certificate in exchange for the Shares, or cannot be located, the Trustee may
deliver the share certificates due the Certificate Holder to any bank or trust
company in California for the benefit of the person or persons entitled thereto,
and thereupon shall be fully discharged with respect to those share
certificates.
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5. EXTENSION OF AGREEMENT
The term of this Agreement, as prescribed in Paragraph 4, may be extended
from the original termination date of this Agreement or from the termination
date as last extended in accordance with this paragraph, provided that within
two (2) years before the date as originally fixed or as last extended, the
Certificate Holder, by written agreement, and with the Trustee's written
consent, extends the term of this Agreement with respect to his Shares for an
additional term not to exceed three (3) years from the expiration date then in
effect.
In the event of extension, duplicate copies of this Agreement and of the
extension agreement shall be filed with the Secretary of the Corporation and
shall be open for inspection on the same conditions as the Company's record of
shareholders.
6. NOTICES, DIVIDENDS, AND DISTRIBUTION
The Trustee shall promptly forward copies of all notices, reports,
statements, and other communications received from the Company to the
Certificate Holder, indicating the date of receipt.
The Trustee shall promptly distribute all dividends and other distributions
received from the Company to the Certificate Holder. If any dividend or stock
split consists of additional shares having voting rights, the Trustee shall hold
these shares in trust subject to the terms of this Agreement, and shall issue
new voting trust certificate, representing the additional shares, to the
Certificate Holder.
7. ENTIRE AGREEMENT
This Agreement is the entire agreement among the parties hereto with
respect to the subject matter hereof and shall not be amended, altered or
modified in any manner whatsoever, except by a written instrument executed by
the parties hereto. This Agreement supersedes all prior understandings, either
written or oral, among the parties hereto with respect to the subject matter
hereof.
8. GOVERNING LAW
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the State of California, without regard to the rules
regarding conflicts of law thereof.
9. SEVERABILITY
If any one or more of the provisions of this Agreement, as applied to any
party or any circumstances, shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein. If any one or more of the provisions
of this Agreement shall, for any reason, be held to be unenforceable as to
duration, scope, activity, or subject, such provisions shall be construed by
limiting and reducing it so as to make such provision enforceable to the extent
compatible with the then existing applicable law.
<PAGE>
10. REMEDIES
The parties acknowledge that it would be impossible to fix money damages
for violations of this Agreement and that such violations will cause irreparable
injury for which adequate remedy at law is not available and, therefore, this
Agreement must be enforced by specific performance or injunctive relief. The
parties hereby agree that any party hereto may, in its sole discretion, apply to
any court of competent jurisdiction located in San Diego, California for
specific performance or injunctive or such other relief as such court may deem
just and proper in order to enforce this Agreement or prevent any violation
thereof and, to the extent permitted by applicable law, each party waives any
objection or defense to the imposition of such relief. Nothing herein shall be
construed to prohibit any party from bringing any action for damages in addition
to an action for specific performance or an injunction for a breach of this
Agreement.
11. SUCCESSORS AND ASSIGNS
All of the covenants and agreements contained in this Agreement shall be
binding upon, and inure to the benefit of, the respective parties and their
successors, assigns, heirs, executors, administrators and other legal
representatives.
12. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
when so executed and delivered, shall be deemed to be an original and all of
which, when taken together, shall constitute but one and the same Agreement.
Dated: March 1, 1998
TRUSTEE:
/s/ Roger B. Abbott
-----------------------------------
Roger B. Abbott
CERTIFICATE HOLDER:
/s/ Edward S. Soren
-----------------------------------
Edward S. Soren
Number of Shares Deposited: 1,000,000
<PAGE>
LIST OF OMITTED EXHIBITS
The following Exhibits to the Voting Trust Agreement have been omitted
from this Exhibit and shall be furnished supplementally to the Commission upon
request:
Exhibit A - Voting Trust Certificate
Exhibit B - Stock Certificate
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE
COMMUNICATIONS,
GOLD & APPEL TRANSFER S.A.,
ROGER B. ABBOTT, ROSALIND ABBOTT
AND
EDWARD S. SOREN
SEPTEMBER ___, 1998
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<PAGE>
TABLE OF CONTENTS
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1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. PURCHASE AND SALE OF THE INITIAL SHARES . . . . . . . . . . . . . . . .4
3. SALE OF REMAINING SHARES . . . . . . . . . . . . . . . . . . . . . . .4
3.1 Sale of Remaining Shares . . . . . . . . . . . . . . . . . . . .4
3.2 Conditions Precedent to Sale of Remaining Shares . . . . . . . .4
3.3 HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . .5
4.1 Organization and Corporate Power . . . . . . . . . . . . . . . .5
4.2 Capital Stock and Related Matters . . . . . . . . . . . . . . . .5
4.3 Authorization; No Conflicts . . . . . . . . . . . . . . . . . . .6
4.4 Governmental Consent, etc. . . . . . . . . . . . . . . . . . . .6
4.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . .6
4.6 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . .6
4.7 Accuracy of Information . . . . . . . . . . . . . . . . . . . . .7
4.8 No Material Adverse Change . . . . . . . . . . . . . . . . . . .7
4.9 Conformity with Law; Litigation . . . . . . . . . . . . . . . . .7
4.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . .7
4.12 Government Authorizations . . . . . . . . . . . . . . . . . . . .7
4.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
RELATING TO EACH SHAREHOLDER . . . . . . . . . . . . . . . . . . . . .8
5.1 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.2 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . .8
5.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.4 Relationships with Related Persons . . . . . . . . . . . . . . .8
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . .8
6.1 Organization and Related Matters . . . . . . . . . . . . . . . . .8
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . .8
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6.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . .9
6.5 Investment Representations . . . . . . . . . . . . . . . . . . .9
7. TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Notice of Proposed Transfers . . . . . . . . . . . . . . . . . 10
7.3 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . 11
8. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . 11
8.1 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.2 Board Matters . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.3 Rule 144 Filing . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . 12
8.5 Registration Rights . . . . . . . . . . . . . . . . . . . . . . 12
8.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . 12
8.7 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.1 Obligations of the Company . . . . . . . . . . . . . . . . . . 12
9.2 Obligations of the Shareholders . . . . . . . . . . . . . . . . 13
9.3 Obligations of the Purchaser . . . . . . . . . . . . . . . . . 13
9.4 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.5 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . 13
10. CO-SALE RIGHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.1 Co-Sale Procedure . . . . . . . . . . . . . . . . . . . . . . . 13
10.2 Limitation on Co-Sale Right . . . . . . . . . . . . . . . . . . 14
11. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.1 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . 14
11.2 Survival of Representations and Warranties . . . . . . . . . . 14
11.3 Schedules; Exhibits; Integration . . . . . . . . . . . . . . . 15
11.4 Best Efforts; Further Assurances . . . . . . . . . . . . . . . 15
11.5 Governing Law and Forum Selection . . . . . . . . . . . . . . . 15
11.6 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 15
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11.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.9 Publicity and Reports . . . . . . . . . . . . . . . . . . . . . 16
11.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 16
11.11 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . 16
11.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.13 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.14 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.15 Representation By Counsel; Interpretation . . . . . . . . . . . 17
11.16 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.17 No Consequential Damages . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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<PAGE>
SCHEDULES AND EXHIBITS
Schedule 4.2 Equity Securities
Schedule 4.16 Directors and Officers Liability Insurance
Schedule 5.1 Equity Securities Owned by the Shareholders
Schedule 8.1 Compensation of the Shareholders
Schedule 10.2 Sample Calculation of Co-Sale Right
Exhibit A Registration Rights Agreement
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is dated as of
September __, 1998, by and among COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A.
WORLDXCHANGE COMMUNICATIONS, a California corporation (the "COMPANY"), GOLD &
APPEL TRANSFER S.A., a British Virgin Islands corporation (the "PURCHASER"),
ROGER B. ABBOTT, ROSALIND ABBOTT and EDWARD S. SOREN (each of Messrs. Abbott and
Soren and Ms. Abbott is a "SHAREHOLDER" and collectively they are the
"SHAREHOLDERS").
The parties hereby agree as follows:
1. DEFINITIONS.
1.1 DEFINITIONS.
1.1.1 For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires,
(a) the terms defined in this SECTION 1 have the meanings
assigned to them in this SECTION 1 and include the plural as well as the
singular,
(b) the words "herein," "hereof," "hereto" and "hereunder"
and other words of similar import refer to this Agreement as a whole and not to
any particular Section, Subsection or other subdivision, unless the context
otherwise requires, and
(c) all accounting terms not otherwise defined herein have
the meanings assigned under generally accepted accounting principles.
1.2 As used in this Agreement, the following definitions shall
apply.
"AFFILIATE" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, a specified Person.
"AGREEMENT" means this Agreement by and among the Company, the
Purchaser and the Shareholders as amended or supplemented together with all
Schedules and Exhibits attached or incorporated by reference.
"APPROVAL" means any approval, authorization, consent, qualification
or registration, or any waiver of any of the foregoing, required to be obtained
from, or any notice, statement or other communication required to be filed with
or delivered to, any Governmental Entity or any other Person.
"ATOCHA" means Atocha, L.P. a Texas limited partnership.
"AUDITORS" means Ernst & Young LLP, independent public accountants to
the Company.
1
<PAGE>
"AVAILABLE SHARES" means, collectively, (i) the Offered Shares, (ii)
the number of shares of Stock offered for sale by the Purchaser pursuant to
SECTION 10.1, and (iii) the number of shares of Stock offered for sale by Atocha
pursuant to Section 10.1 of that certain Stock Purchase Agreement, dated as of
the date hereof, by and between the Company, Atocha, and the other parties
thereto.
"BALANCE SHEET DATE" means September 30, 1997.
"COMPANY" means Communication TeleSystems International d.b.a.
WorldxChange Communications, a California corporation.
"CONTRACT" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"CO-SALE NOTICE" has the meaning specified in SECTION 10.1.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"EQUITY SECURITIES" means any capital stock of the Company (including,
without limitation, common stock and preferred stock) or other equity interest
in the Company or any securities convertible into or exchangeable for capital
stock of the Company or any other rights (statutory, contractual or otherwise),
warrants or options to acquire any of the foregoing securities.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the related regulations and published interpretations.
"HSR FILINGS" means the filing of a premerger notification and report
form by each of the Company and the Purchaser (with respect to the transactions
contemplated by this Agreement) with the Federal Trade Commission and the
Antitrust Division of the Department of Justice.
"INDEMNIFIABLE CLAIM" means any Loss for or against which any party is
entitled to indemnification under this Agreement; "INDEMNIFIED PARTY" means
the party entitled to indemnity hereunder; and "INDEMNIFYING PARTY" means the
party obligated to provide indemnification hereunder.
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<PAGE>
"INITIAL SHARES", means 788,127 shares of Stock to be issued by the
Company pursuant to Section 2.
"LAW" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"LOSS" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified person, but excluding any consequential damages.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition and business operations of the Company and its Subsidiaries
taken as a whole.
"MATERIAL CONTRACT" means any Contract material to the business of the
subject Person as of the date hereof.
"OFFERING MEMORANDUM" means that certain preliminary offering
circular, prepared by the Company, dated May 4, 1998 (the "PRELIMINARY OFFERING
CIRCULAR") as supplemented by a supplement to the Preliminary Offering Circular,
prepared by the Company, dated September 28, 1998, in the form delivered to
Purchaser on September 29, 1998.
"OFFERED SHARES" has the meaning specified in SECTION 10.1.
"OFFEROR" has the meaning specified in SECTION 10.1.
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, any Governmental Entity or arbitrator.
"PURCHASE PRICE" has the meaning specified in SECTION 2.
"PURCHASER" means Gold & Appel Transfer S.A., a British Virgin Islands
corporation.
"REMAINING SHARES" means 871,087 shares of Stock to be issued by the
Company at the Second Closing.
"SEC" means the Securities and Exchange Commission or any successor
entity.
3
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLERS" means, collectively, the Company and the Shareholders.
"SELLING SHAREHOLDER" has the meaning specified in SECTION 10.1.
"STOCK" means the common stock of the Company, no par value.
"SUBSIDIARY" means any Person in which the Company has a direct or
indirect equity or ownership interest in excess of 50%.
"TAX" or "TAXES" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, AD VALOREM, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
2. PURCHASE AND SALE OF THE INITIAL SHARES.
Simultaneously with the execution and delivery of this Agreement, the
Purchaser shall deliver by wire transfer of immediately available funds the
amount of $10,000,000 (the "PURCHASE PRICE") to the Company against delivery by
the Company to the Purchaser of a certificate, issued in the name of the
Purchaser, evidencing the Initial Shares. Each of the following documents must
have been delivered to Purchaser as of the date of this Agreement: (i) an
opinion of O'Melveny & Myers LLP reasonably acceptable to Purchaser and (ii)
such other documents as Purchaser may reasonably request for the purpose of
facilitating the consummation of the sale of the Initial Shares.
3. SALE OF REMAINING SHARES.
3.1 SALE OF REMAINING SHARES. Subject to Section 3.2, on or before
January 29, 1999 the Purchaser shall deliver by wire transfer of immediately
available funds the amount of $10,000,000 to the Company against the delivery by
the Company to the Purchaser of a certificate, issued in the name of the
Purchaser, evidencing the Remaining Shares (the "Second Closing"). The date on
which the Second Closing occurs shall be the "Second Closing Date."
3.2 CONDITIONS PRECEDENT TO SALE OF REMAINING SHARES. The
obligations of the Company and the Purchaser to sell and purchase the Remaining
Shares, respectively, are subject to the satisfaction, at or prior to the Second
Closing, of each of the following conditions (any of which may be waived by the
agreement of both parties, in whole or in part):
(a) NO PROHIBITION. Neither the consummation nor the performance of
any of the transactions contemplated by this Agreement at the Second Closing
will, directly or indirectly (with or without notice or lapse of time),
materially contravene or conflict with, or result in a material violation of,
any applicable Law or Order.
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(b) HSR APPROVAL. Any waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have expired or been
terminated prior to January 29, 1999.
3.3 HSR FILINGS. The Company and the Purchaser each agree to use
best efforts to cause the HSR Filings to be made promptly after the execution
and delivery of this Agreement. The Company and the Purchaser each agree to
furnish each other with such necessary information and reasonable assistance
as the other may request in connection with the HSR Filings.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as otherwise disclosed in the Offering Memorandum or as set forth in
the attached Schedules, the Company represents and warrants that as of the date
hereof:
4.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. The Company has all requisite corporate power and authority
necessary to (i) execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby and (ii) own and operate its properties and
to carry on its business as now conducted and as presently proposed to be
conducted. The copies of the Company's charter documents and bylaws furnished to
the Purchaser's counsel reflect all amendments made thereto at any time prior to
the date of this Agreement and are correct and complete. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect.
4.2 CAPITAL STOCK AND RELATED MATTERS. The authorized capital stock
of the Company is as set forth in its articles of incorporation and the
outstanding capital stock, options and other rights to acquire capital stock and
shares reserved for issuance are as set forth in SCHEDULE 4.2. Except as set
forth in SCHEDULE 4.2 and as contemplated by this Agreement, as of the date of
this Agreement: (i) the Company will not have outstanding any stock or
securities convertible or exchangeable for any shares of capital stock, nor will
there be outstanding any rights or options to subscribe for or to purchase any
capital stock or any stock or securities convertible into or exchangeable for
any capital stock of the Company, and (ii) the Company will not be subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock. All of the outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable. The Initial Shares and the Remaining Shares, when issued
and sold in accordance with the terms of this Agreement, will be duly authorized
and validly issued, fully paid and nonassessable.
4.3 AUTHORIZATION; NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company and the consummation of the
transaction contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. This Agreement
constitutes the legally valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. The execution, delivery and
performance of this Agreement by the Company will not (i) conflict with,
violate, or constitute a
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breach or default (whether upon lapse of time and/or the occurrence of any act
or event or otherwise) under, the charter documents or bylaws of the Company or
any Material Contract of the Company, result in the imposition of any material
Encumbrance against any material asset or properties of the Company or any
Subsidiary, or violate any material Law or Order.
4.4 GOVERNMENTAL CONSENT, ETC. Except for the HSR Filings, no
further permit, consent, Approval, authorization of, declaration to, or filing
with any Governmental Entity is required in connection with the execution,
delivery and performance of this Agreement by the Company or the consummation by
the Company of any transactions contemplated hereby, except as have already been
obtained or accomplished.
4.5 FINANCIAL STATEMENTS.
4.5.1 AUDITED FINANCIAL STATEMENTS. The Company has delivered to
the Purchaser consolidated balance sheets for the Company and its
Subsidiaries at September 30, 1997, 1996 and 1995 and the related
consolidated statements of operations, changes in stockholder's equity
and changes in financial position or cash flow for the periods then
ended. All such financial statements have been examined by the
Auditors whose reports thereon are included with such financial
statements. All such financial statements have been prepared in
conformity with GAAP. Such statements of operations and cash flow
present fairly in all material respects the results of operations and
cash flows of the Company and its Subsidiaries for the respective
periods covered, and the balance sheets present fairly in all material
respects the financial condition of the Company and its Subsidiaries
as of their respective dates.
4.5.2 UNAUDITED INTERIM FINANCIAL STATEMENTS. The Company has
delivered to the Purchaser a consolidated balance sheet for the
Company and its Subsidiaries at August 31, 1998, and the related
consolidated statements of operations for the eleven months then ended
(the "Interim Statements"). The Interim Statements have been prepared
in conformity with GAAP applied on a consistent basis except for (i)
changes, if any, disclosed therein (except for the absence of notes
and normal year-end adjustments consistent with past practices) and
(ii) information in the Interim Statements concerning EBITDA, which is
not determined in accordance with GAAP. The statements of operations
present fairly the results of operations of the Company and its
Subsidiaries for the period covered, and the balance sheet presents
fairly in all material respects the financial condition of the Company
as of the date of the balance sheet.
4.6 NO BROKERS OR FINDERS. No agent, broker, finder, or investment
or commercial banker, or other Person or firm engaged by or acting on behalf of
the Company or its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any brokerage or finder's or similar fee or
other commission as a result of this Agreement or such transactions.
4.7 ACCURACY OF INFORMATION. As of the date hereof, the Offering
Memorandum does not contain any untrue statement of a material fact, or fail to
state any
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material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.8 NO MATERIAL ADVERSE CHANGE. Since the Balance Sheet Date, there
has not been any Material Adverse Effect.
4.9 CONFORMITY WITH LAW; LITIGATION. To the knowledge of the
Company, the Company has complied with all Laws applicable to it or to the
operation of its business and has not received any written notice of any
violation of, liability or potential responsibility under, any such Law which
has not heretofore been cured and for which there is no remaining liability,
other than, in each case, those not having a Material Adverse Effect.
4.10 ERISA. Each Company employee benefit plan that is subject to
ERISA has been administered in compliance with the applicable requirements of
ERISA, except for such noncompliance, if any, that in the aggregate, would not
have a Material Adverse Effect.
4.11 ENVIRONMENTAL MATTERS. To the knowledge of the Company, all real
property now or previously owned, operated or leased by the Company and located
in the United States has been operated by the Company in compliance with all
applicable Environmental Laws, except for such noncompliance, if any, that would
not have a Material Adverse Effect. As used herein, "Environmental Law" means
any federal, state, or local law, statute, rule or regulation governing or
relating to the environment or to occupational health and safety.
4.12 GOVERNMENT AUTHORIZATIONS. The Company has all federal, state
and local governmental licenses, permits and other authorizations, including
without limitation all licenses and authorizations required by the United State
Federal Communications Commission (the "FCC") and by state public utilities
commissions (collectively, "Company Permits"), necessary to conduct the
Company's business as presently conducted, except where the failure to hold any
such licenses, permits and other authorizations would not result in a Material
Adverse Effect.
4.13 TAXES. To the knowledge of the Company, all Taxes owed by the
Company have been paid or accrued on the Company's financial statements, except
where the failure to pay or accrue such Taxes would not result in a Material
Adverse Effect.
4.14 INSURANCE. SCHEDULE 4.14 sets forth a true and correct
description of the directors and officers liability insurance policy currently
maintained by the Company. There have been no claims made against such insurance
policy.
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS RELATING TO EACH
SHAREHOLDER.
Each Shareholder represents and warrants to the Purchaser as of the
date hereof as follows with respect to such Shareholder:
5.1 OWNERSHIP. Such Shareholder is the record and beneficial owner
of the number of Equity Securities set forth in SCHEDULE 5.1 across from such
Shareholder's name; such Equity Securities represent the entire ownership
interest of such Shareholder in the Company; and such Shareholder has no other
Equity Securities of the Company.
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5.2 BINDING AGREEMENT. This Agreement has been duly executed and
delivered by or on behalf of such Shareholder, and this Agreement is a legal,
valid and binding obligation of such Shareholder, enforceable against such
Shareholder in accordance with its terms.
5.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby by the
Shareholder will not violate, or constitute a breach or default whether upon
lapse of time and/or the occurrence of any act or event or otherwise under, (i)
any Material Contract to which the Shareholder is a party or (ii) any material
Law or Order to which the Shareholder is subject.
5.4 RELATIONSHIPS WITH RELATED PERSONS. The section titled "Certain
Relationships and Related Transactions" in the Offering Memorandum, as of the
date hereof, does not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents
and warrants that:
6.1 ORGANIZATION AND RELATED MATTERS. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
British Virgin Islands. The Purchaser has all requisite corporate power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby.
6.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement by the Purchaser and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Purchaser. This Agreement constitutes the legally valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
6.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, by
the Purchaser will not violate, or constitute a breach or default whether
upon lapse of time and/or the occurrence of any act or event or otherwise
under (i) the charter documents or bylaws of the Purchaser, (ii) any Material
Contract to which the Purchaser is a party, or (iii) any material Law or
Order to which the Purchaser is subject.
6.4 NO BROKERS OR FINDERS. No agent, broker, finder or investment or
commercial banker, or other Person or firm engaged by or acting on behalf of the
Purchaser or its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any broker's or finder's or similar fee or
other commission as a result of this Agreement or such transactions.
6.5 INVESTMENT REPRESENTATIONS.
6.5.1 This Agreement is made with the Purchaser in reliance upon
the Purchaser's representation to the Company, which by the
Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that (i) the Initial and
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Remaining Shares are being acquired for investment for the Purchaser's
own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that the Purchaser has
no present intention of selling, granting any participation in, or
otherwise distributing the same; and (ii) the Purchaser does not have
any Contract, undertaking, agreement or arrangement with any Person to
sell, transfer or grant participations to any Person with respect to
any of the Initial Shares or Remaining Shares.
6.5.2 The Purchaser has not been attracted to the purchase of the
Initial Shares or Remaining Shares by any publication or any
advertising, and the transactions contemplated by this Agreement are
not being effected by or through a broker-dealer.
6.5.3 The Purchaser is an "accredited investor" within the meaning
of Rule 501 of Regulation D promulgated by the SEC, as presently in
effect.
6.5.4 The Purchaser understands that (i) neither the Initial
Shares or the Remaining Shares nor the sale thereof to it has been
registered under the Securities Act, or under any state securities
law, (ii) no registration statement has been filed with the SEC, nor
with any other regulatory authority and that, as a result, any benefit
which might normally accrue to an investor such as the Purchaser by an
impartial review of such a registration statement by the SEC or other
regulatory commission will not be forthcoming; and (iii) the Initial
Shares and the Remaining Shares are characterized as "restricted
securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable regulations
such securities may be resold without registration under the
Securities Act only in certain limited circumstances. In this
connection, the Purchaser represents that it is familiar with the
SEC's Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
6.5.5 The Purchaser acknowledges that (i) it is represented by
counsel, (ii) it has received and carefully reviewed a copy of the
Offering Memorandum and this Agreement; (iii) it has received all
information it considers necessary or appropriate for deciding whether
to purchase the Initial Shares and the Remaining Shares; (iv) as a
result of its knowledge of the telecommunications industry, its
study of the aforementioned documents and its prior overall experience
in financial matters, it is properly able to evaluate the capital
structure of the Company, the business of the Company and its
Subsidiaries and the risks inherent therein; and (v) it has been given
the opportunity to obtain any additional information or documents
from, and to ask questions and receive answers of, the officers and
representatives of the Company to the extent necessary to evaluate the
merits and risks related to its investment in the Company.
7. TRANSFER OF SHARES. The Initial Shares and the Remaining Shares are not
transferable except upon the conditions specified in this SECTION 7, which
conditions are intended
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to assure compliance with the provisions of the Securities Act and state
securities laws in respect of the transfer of any of such Initial Shares or
Remaining Shares.
7.1 RESTRICTIVE LEGENDS. Unless and until otherwise permitted by
this Agreement, the Initial Shares and the Remaining Shares issued or
transferred to the Purchaser pursuant to this Agreement shall be stamped or
otherwise imprinted with legends in substantially the following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED OR
QUALIFIED UNDER THAT ACT OR SUCH LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE."
"SUCH SECURITIES ARE ALSO SUBJECT TO THE RESTRICTIONS ON
TRANSFER CONTAINED IN A STOCK PURCHASE AGREEMENT, DATED AS OF
SEPTEMBER __, 1998, BY AND AMONG COMMUNICATION TELESYSTEMS
INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS, GOLD & APPEL
TRANSFER S.A., ROGER B. ABBOTT, ROSALIND ABBOTT, AND EDWARD S. SOREN,
COPIES OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY."
The Company may order its transfer agents to stop the transfer of any Initial
Shares or Remaining Shares bearing a legend required by this SECTION 7.1 until
the conditions herein with respect to transfer of such securities have been
satisfied.
7.2 NOTICE OF PROPOSED TRANSFERS. Subject to SECTION 7.1, prior to
any transfer or attempted transfer of the Initial Shares or Remaining Shares
bearing the legend in SECTION 7.1, the Purchaser or its permitted assignee,
transferee or donee (the "Holder") shall give the Company written notice of its
intention to do so, describing briefly the nature of any such proposed transfer.
If, in the written opinion of counsel for Holder, addressed to the Company and
the Holder, in form and substance reasonably acceptable to the Company, the
proposed transfer may be effected without registration of such Initial Shares or
Remaining Shares, the Initial Shares or Remaining Shares proposed to be
transferred may be transferred in accordance with the terms of said notice and
in compliance with applicable state securities laws and regulations. The Company
shall not be required to effect any such transfer prior to the receipt of such
favorable opinion; provided that if the proposed transfer is governed by Rule
144 promulgated by the SEC, or any successor rule, such opinion shall not be
required, but the Company may prevent such transfer until it receives evidence
satisfactory to it and its counsel that the transfer complies with Rule 144.
Each transfer shall comply with all applicable SEC rules and applicable state
securities laws.
7.3 PERMITTED TRANSFERS. Notwithstanding anything to the contrary in
this Agreement, Purchaser may transfer Initial Shares or Remaining Shares to any
Affiliate of Purchaser in accordance with the provisions of Section 7.1 and 7.2;
provided that the transferee shall hold such Initial Shares or Remaining Shares
subject to the same restrictions applicable to its transferor and shall agree in
writing to be bound by the terms of this Agreement.
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8. COVENANTS OF THE COMPANY.
8.1 RESTRICTIONS. For a period of three years from the date of this
Agreement, the Company shall not: (i) issue any Equity Securities to the
Shareholders or immediate family members of the Shareholders, except that the
Company may issue 883,069 shares of Stock to the Shareholders in connection with
the sale of the Shareholders' stock in WorldxChange Limited, a New Zealand
corporation, to a wholly owned subsidiary of the Company, (ii) increase the
salary, bonuses, options or payments through consulting agreements or otherwise
(the "Compensation") payable to the Shareholders beyond that set forth in
SCHEDULE 8.1, (iii) increase the Compensation of immediate family members of the
Shareholders other than in amounts consistent with past practices for non-family
members or (iv) engage in any other transactions with immediate family member
employees, except as permitted in subsection (iii). During the third year from
the date of this Agreement, if the Company has not completed an initial public
offering of its securities, the Compensation payable to each Shareholder shall
not exceed 200% of the total Compensation paid to such Shareholder during the
second year after the date of this Agreement.
8.2 BOARD MATTERS. Beginning on the date that the Purchaser
purchases the Remaining Shares from the Company pursuant to SECTION 3.1, and
until the earlier to occur of (i) such time as the Purchaser and Atocha,
collectively, do not own at least five percent of the issued and outstanding
Stock, or (ii) such time as the Company becomes subject to the reporting
requirements of Section 13 of the Exchange Act, the Purchaser shall have the
right to designate one (1) nominee to the Company's Board of Directors.
Notwithstanding the foregoing, (i) prior to such time as the Company becomes
subject to Section 13, such nominee shall be Walt Anderson, unless Mr. Anderson
is unable to serve due to a physical or mental incapacity, in which case the
Purchaser has the right to designate another nominee, and (ii) the Purchaser
shall have the right to designate one (1) nominee to the Company's initial Board
of Directors after the Company becomes subject to Section 13, provided that if
such nominee is not Mr. Anderson, the nominee shall be subject to the approval
of the Company.
8.3 RULE 144 FILING. After the Company's Common Stock is registered
under the Exchange Act, and until the Initial Shares and the Remaining Shares
held by Purchaser have all been publicly sold or are eligible for sale under
Rule 144(k) under the Securities Act, the Company shall use best efforts to file
the reports required under Rule 144(c)(1) under the Securities Act in order to
permit sales of the Initial Shares and Remaining Shares by Purchaser pursuant
to Rule 144.
8.4 PREEMPTIVE RIGHTS. Purchaser shall have the right to subscribe
to any additional (i) issuances of shares of capital stock of the Company, (ii)
issuances of securities convertible into shares of capital stock of the Company,
or (iii) grants of options to purchase shares of capital stock of the Company,
other than grants to employees, directors or consultants of the Company (and the
issuance of shares upon exercise of such options), for cash, on the same terms
of such offerings to the extent equal to the proportion which the number of
Initial Shares and Remaining Shares then held by Purchaser bears to the
Company's fully-diluted capitalization (on an as-converted and as-exercised
basis). Such right is exercisable within ten (10) days after the receipt of
written notice relating to such issuances by the Purchaser. Such right extends
to the same proportion of the new issue of shares, convertible securities or
options as the Purchaser's proportion of the outstanding shares. Purchaser's
right to purchase new issues of
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shares or convertible securities or options does not extend to (i) the issuance
of shares upon the conversion or exercise of options or other convertible
securities either (A) outstanding on the date hereof, or (B) with respect to
which options or other convertible securities Purchaser had preemptive rights
under this Section 8.4, or (ii) securities issued solely in exchange for shares,
convertible securities or options issued in connection with any merger,
reorganization or acquisition (including, without limitation, the proposed
transactions described in Section 8.7 below). The preemptive rights held by the
Purchaser pursuant to this Section 8.4 shall terminate immediately prior to the
closing of an initial public offering of the Company's securities and shall not
apply to any issuance of securities in such offering.
8.5 REGISTRATION RIGHTS. The Company and Purchaser, concurrently
with the Closing, shall execute and deliver a Registration Rights Agreement
substantially in the form attached hereto as EXHIBIT A.
8.6 FINANCIAL STATEMENTS. For as long as Purchaser and Atocha,
collectively, own five percent or more of the issued and outstanding Stock, the
Company agrees to deliver to Purchaser (i) unaudited quarterly financial
statements within 45 days after the end of each fiscal quarter of the Company
and (ii) audited annual financial statements within 150 days after the end of
each fiscal year of the Company.
8.7 SUBSIDIARIES. The Company agrees to use best efforts to cause
the pending mergers of WorldxChange Limited (New Zealand) and CTS Telcom, Inc.
to be completed on or prior to March 31, 1999. In the event such mergers are not
completed by such date, for as long as Purchaser and Atocha, collectively, own
five percent or more of the issued and outstanding Stock, the Purchaser shall
have the right to approve all inter-company transactions between such affiliated
companies and the Company.
9. INDEMNIFICATION.
9.1 OBLIGATIONS OF THE COMPANY. The Company agrees to indemnify and
hold harmless the Purchaser from and against any and all Losses of the Purchaser
based upon or arising from any inaccuracy in or breach or nonperformance of any
of the representations, warranties, or covenants made or obligations undertaken
by the Company in this Agreement.
9.2 OBLIGATIONS OF THE SHAREHOLDERS. Each Shareholder agrees to
indemnify and hold harmless the Purchaser from and against any and all Losses of
the Purchaser based upon or arising from any inaccuracy in or breach or
nonperformance of any of the representations, warranties, or covenants made by
such Shareholder in this Agreement.
9.3 OBLIGATIONS OF THE PURCHASER. The Purchaser agrees to indemnify
and hold harmless the Company from and against any and all Losses of the Company
based upon or arising from, any inaccuracy in or breach or nonperformance of any
of the representations, warranties or covenants made by the Purchaser in this
Agreement.
9.4 PROCEDURE.
9.4.1 NOTICE. Any party seeking indemnification with respect to
any Loss shall give notice to the party required to provide indemnity
hereunder (the "INDEMNIFYING PARTY").
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9.4.2 DEFENSE. If any claim, demand or liability is asserted by
any third party against any Indemnified Party, the Indemnifying Party
shall upon the written request of the Indemnified Party, defend any
actions or proceedings brought against the Indemnified Party in
respect of matters embraced by the indemnity. If, after a request to
defend any action or proceeding, the Indemnifying Party does not
defend the Indemnified Party, a recovery against the latter suffered
by it in good faith, is conclusive in its favor against the
Indemnifying Party, provided however that, if the Indemnifying Party
has not received reasonable notice of the action or proceeding against
the Indemnified Party, or is not allowed to control its defense,
judgment against the Indemnified Party is only presumptive evidence
against the Indemnifying Party. The parties shall cooperate in the
defense of all third party claims which may give rise to Indemnifiable
Claims hereunder. In connection with the defense of any claim, each
party shall make available to the party controlling such defense, any
books, records or other documents within its control that are
reasonably requested in the course of such defense.
9.5 EXCLUSIVE REMEDY. This Section 9 shall be the exclusive remedy
of the parties for any Loss of such party based upon or arising from any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, or covenants made by any other party to this Agreement.
Notwithstanding the foregoing, Purchaser shall have the right to the remedy of
specific performance with respect to Sections 3.1, 8.2, 8.3, 8.4, 8.6, 8.7 and
10.
10. CO-SALE RIGHT.
10.1 CO-SALE PROCEDURE. If any of the Shareholders desire to sell,
assign or otherwise transfer any Stock owned by such Shareholder (except for
a sale, assignment or transfer to a family member of such Shareholder,
provided (i) that the shares of Stock so transferred shall thereafter remain
subject to this SECTION 10 as though the transferee were a Shareholder and
(ii) the transferee agrees in writing to be bound by this SECTION 10), then
such Shareholder (collectively with any other selling Shareholder, the
"SELLING SHAREHOLDER") shall first give written notice (THE "CO-SALE NOTICE")
to the Purchaser specifying the following: (i) the name and address of the
proposed purchaser (the "OFFEROR"); (ii) the number of shares of Stock
offered for sale to the Offeror by the Selling Shareholder (the "Offered
Shares"); the price or amount per share of Stock to be paid (and other
consideration, if any) or delivered to the Selling Shareholder for the
Offered Shares; and (iv) all other material terms and conditions of the
proposed sale. Within five business days after receipt of the Co-Sale Notice,
the Purchaser may elect by written notice to the Selling Shareholder to sell
to the Offeror a number of shares of Stock not to exceed the product of (i) a
fraction where the numerator is the Offered Shares and the denominator is the
total number of shares of Stock (including the Offered Shares) then held by
the Shareholders, multiplied by (ii) the number of shares of Stock then owned
by the Purchaser; PROVIDED, HOWEVER, that the Purchaser shall have the right,
which right may be exercised by the Purchaser one time only, to sell to the
Offeror a number of shares of Stock equal to double the number of shares
allowed to be sold (before application of this proviso) by the Purchaser
pursuant to this SECTION 10.1.
10.2 LIMITATION ON CO-SALE RIGHT. If the Offeror does not wish to
purchase the full amount of Available Shares, then the Purchaser shall be
entitled to sell to the Offeror a
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number of shares of Stock not to exceed the product of (i) a fraction where the
numerator is the number of shares of Stock offered for sale by the Purchaser
pursuant to SECTION 10. 1 and the denominator is the number of Available Shares,
multiplied by (ii) the total number of shares of Stock which the Offeror is
willing to purchase from the Selling Shareholder, the Purchaser and Atocha.
SCHEDULE 10.2 provides a sample calculation of the application of SECTION 10.1
and SECTION 10.2. The co-sale rights set forth in Sections 10.1 and 10.2 shall
terminate upon such time as the Initial Shares and the Remaining Shares then
held by the Purchaser (i) may be sold under Rule 144 of the Securities Act and
the disposition of all such Initial Shares and Remaining Shares may be completed
within six (6) months and (ii) are listed on a securities exchange or qualified
for trading on an over-the-counter system selected by the Company.
11. GENERAL.
11.1 AMENDMENTS; WAIVERS. This Agreement and any schedule attached
hereto may be amended only by agreement in writing of all parties. No waiver of
any provision nor consent to any exception to the terms of this Agreement shall
be effective unless in writing and signed by the party to be bound and then only
to the specific purpose, extent and instance so provided.
11.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as set forth
in the following sentence, all representations and warranties of the Company,
each Shareholder and the Purchaser set forth in this Agreement or expressly
incorporated herein by reference shall, as of the first anniversary of the date
of this Agreement, expire and terminate and be of no further force or effect.
Notwithstanding the foregoing, (i) the representations and warranties set forth
in Section 4.7 (Accuracy of Information) shall survive until the thirtieth day
following delivery by the Company to the Purchaser of audited financial
statements for the fiscal year ended September 30, 1999, and (ii) the
representations and warranties set forth in Section 4.2 (Capital Stock and
Related Matters) and Section 5.1 (Ownership) shall survive indefinitely. As of
the termination of the respective representations, warranties and covenants as
provided in this Agreement, the Company, each Shareholder and the Purchaser
shall be deemed to have irrevocably waived and released any and all rights and
remedies any of them may have with respect to any inaccuracy in or breach or
nonperformance of any of the representations, warranties, or covenants made by
any party to this Agreement.
11.3 SCHEDULES; EXHIBITS; INTEGRATION. Each schedule and exhibit
delivered pursuant to the terms of this Agreement shall be in writing and shall
constitute a part of this Agreement. This Agreement, together with such
schedules and exhibits, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith.
11.4 BEST EFFORTS; FURTHER ASSURANCES.
11.4.1 STANDARD. Each party will use its best efforts to fulfill
all obligations on its part to be performed and fulfilled under this
Agreement, to the end that the transactions contemplated by this
Agreement shall be effected substantially in accordance with its terms
as soon as reasonably practicable. The parties shall cooperate with
each other in such actions and in securing requisite Approvals. Each
party shall deliver such further documents and take such other actions
as the
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other party may reasonably request to consummate or implement the
transactions contemplated hereby or to evidence such events or
matters.
11.4.2 LIMITATION. As used in this Agreement, the term "best
efforts" shall not mean efforts which require the performing party to
do any act that is unreasonable under the circumstances, to make any
capital contribution or to expend any funds other than reasonable
out-of-pocket expenses incurred in satisfying its obligations
hereunder, including but not limited to the fees, expenses and
disbursements of its accountants, actuaries, counsel and other
professionals.
11.5 GOVERNING LAW AND FORUM SELECTION. This Agreement is to be
construed and enforced in accordance with the internal laws of the State of
California. The parties consent to the jurisdiction of all federal and state
courts in California. Any civil action or other legal proceeding arising out of
or relating to this Agreement shall be brought and heard only in a federal or
state court located in California, and all parties waive any right to have such
action or proceeding transferred to another location.
11.6 NO ASSIGNMENT. Neither this Agreement nor any rights or
obligations under it are assignable, except pursuant to a permitted transfer by
Purchaser in accordance with Section 7.3 above.
11.7 HEADINGS. The descriptive headings of the Sections and
Subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
11.8 COUNTERPARTS. This Agreement and any amendment hereto or any
other document delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement (or other document) and
shall become effective (unless otherwise provided therein) when one or more
counterparts have been signed by each party and delivered to the other party.
11.9 PUBLICITY AND REPORTS. The Company and the Purchaser shall
coordinate all publicity relating to the transactions contemplated by this
Agreement and no party shall issue any press release, publicity statement or
other public notice relating to this Agreement, or the transactions contemplated
by this Agreement, without obtaining the prior written consent of each of the
parties to this Agreement except to the extent that a particular action is
required by applicable Law.
11.10 CONFIDENTIALITY. All information disclosed by any party (or its
representatives) whether before or after the date hereof, in connection with the
transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) shall be kept
confidential by such other party and its representatives and shall not be used
by any such Persons other than as contemplated by this Agreement, except to the
extent that such information (i) was known by the recipient when received, (ii)
it is or hereafter becomes lawfully obtainable from other sources, (iii) is
necessary or appropriate to disclose to a Governmental Entity having
jurisdiction over the parties, provided that the disclosing party give
reasonable notice to the other parties and the opportunity to protect any
15
<PAGE>
such confidential information, (iv) as may otherwise be required by Law or (v)
to the extent such duty as to confidentiality is waived in writing by the other
party.
11.11 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure to the benefit of each party, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement is intended to relieve or discharge the obligation of any third person
to any party to this Agreement.
11.12 NOTICES. Any notice or other communication hereunder must be
given in writing and (i) delivered in person, (ii) transmitted by telex, telefax
or telecommunications mechanism or (iii) mailed by certified or registered mail,
postage prepaid), receipt requested as follows:
IF TO PURCHASER, ADDRESSED TO:
Gold & Appel Transfer S.A.
P.O. Box 985
Wickhams Cay Road Town
Tortula, British Virgin Islands
WITH A COPY TO:
Mr. Walt Anderson
Entree International
3050 K Street, N.W. Suite 250
Washington D.C., 20036
Facsimile No: (202) 736-5065
IF TO THE COMPANY OR THE SHAREHOLDERS, ADDRESSED TO:
WORLDxCHANGE
9999 Willow Creek Road
San Diego, California 92131
Attn: Roger B. Abbott
Facsimile No: (619) 625-0217
WITH A COPY TO:
O'Melveny & Myers LLP
610 Newport Center Drive
Newport Beach, California 92660
Attn: David A. Krinsky, Esq.
Facsimile No: (949) 823-6994
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (A) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to)
16
<PAGE>
this SECTION 11.12 and an appropriate answer back is received, (B) if given by
mail, three days after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (C) if given by any other
means, when actually received at such address.
11.13 EXPENSES. Each Party shall pay its own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including but not limited to the fees, expenses and
disbursements of such party's respective investment bankers, accountants and
counsel. Purchaser will pay one-half and the Company will pay one-half of the
HSR Act filing fee.
11.14 WAIVER. No failure on the part of any party to exercise or delay
in exercising any right hereunder shall be deemed a waiver thereof, nor shall
any single or partial exercise preclude any further or other exercise of such or
any other right.
11.15 REPRESENTATION BY COUNSEL; INTERPRETATION. The Sellers and the
Purchaser each acknowledge that each party to this Agreement has been
represented by counsel in connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of Law, including but not
limited to Section 1654 of the California Civil Code, or any legal decision that
would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted it has no application and is expressly waived.
The provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intent of the Purchaser and the Sellers.
11.16 SEVERABILITY. If any provision of this Agreement is determined
to be invalid, illegal or unenforceable by any Governmental Entity, the
remaining provisions of this Agreement to the extent permitted by Law shall
remain in full force and effect provided that the economic and legal substance
of the transactions contemplated is not affected in any manner materially
adverse to any party. In event of any such determination, the parties agree to
negotiate in good faith to modify this Agreement to fulfill as closely as
possible the original intents and purposes hereof.
11.17 NO CONSEQUENTIAL DAMAGES. Notwithstanding anything to the
contrary elsewhere in this Agreement, no party (or its Affiliates) shall, in any
event, be liable to any other party (or its Affiliates) for any consequential
damages, including, but not limited to, loss of revenue or income, or loss of
business reputation or opportunity relating to the breach or alleged breach of
this Agreement. The foregoing shall not be deemed to limit Purchaser's right to
specific performance with respect to Sections 3.1, 8.2, 8.3, 8.4, 8.6, 8.7 and
10.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
COMPANY: PURCHASER:
COMMUNICATION TELESYSTEMS GOLD & APPEL TRANSFER S.A., a
INTERNATIONAL D.B.A. British Virgin Islands corporation
WORLDXCHANGE
COMMUNICATIONS, a California
corporation
By: [ILLEGIBLE]
-------------------------------
Its: Power of Attorney in Fact
-------------------------------
By: /s/ Roger B. Abbott
--------------------------
Its: CEO
--------------------------
SHAREHOLDER: SHAREHOLDER:
ROGER B. ABBOTT ROSALIND ABBOTT
/s/ Roger B. Abbott /s/ Rosalind Abbott
- -------------------------------- -------------------------------
SHAREHOLDER:
EDWARD S. SOREN
/s/ Edward S. Soren
- -------------------------------
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<PAGE>
LIST OF OMITTED SCHEDULES
The following Schedules to the Stock Purchase Agreement dated
September 29, 1998 (Gold & Appel Transfer S.A.) have been omitted from this
Exhibit and shall be furnished supplementally to the Commission upon request:
Schedule 4.2 - Equity Securities
Schedule 4.16 - Directors and Officers Liability Insurance
Schedule 5.1 - Equity Securities Owned by the Shareholders
Schedule 8.1 - Compensation of the Shareholders
Schedule 10.2 - Sample Calculation of Co-Sale Right
Exhibit A - Registration Rights Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE
COMMUNICATIONS,
ATOCHA, L.P.,
ROGER B. ABBOTT, ROSALIND ABBOTT
AND
EDWARD S. SOREN
SEPTEMBER __, 1998
- ------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. PURCHASE AND SALE OF THE INITIAL SHARES . . . . . . . . . . . . . . . . . . .4
3. [INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . . . . . . .4
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . . . .4
4.1 Organization and Corporate Power . . . . . . . . . . . . . . . . . . .4
4.2 Capital Stock and Related Matters . . . . . . . . . . . . . . . . . . .4
4.3 Authorization; No Conflicts . . . . . . . . . . . . . . . . . . . . . .5
4.4 Governmental Consent, etc. . . . . . . . . . . . . . . . . . . . . . .5
4.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .5
4.6 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . .6
4.7 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . .6
4.8 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . .6
4.9 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . .6
4.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
4.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . .6
4.12 Government Authorizations . . . . . . . . . . . . . . . . . . . . . . .6
4.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
RELATING TO EACH SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . . . .7
5.1 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.2 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.3 Right to Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.4 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.5 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.6 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . .7
5.7 Relationships with Related Persons. . . . . . . . . . . . . . . . . . .8
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. . . . . . . . . . . . . . . .8
6.1 Organization and Related Matters . . . . . . . . . . . . . . . . . . .8
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
6.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . .8
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
6.5 Investment Representations . . . . . . . . . . . . . . . . . . . . . ..8
7. TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7.1 Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . ..9
7.2 Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . . . 10
7.3 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . 10
8. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.1 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.2 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . 11
8.3 Rule 144 Filing . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.5 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.6 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 11
8.7 [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . 11
9. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.1 Obligations of the Company. . . . . . . . . . . . . . . . . . . . . . 11
9.2 Obligations of the Shareholders . . . . . . . . . . . . . . . . . . . 12
9.3 Obligations of the Purchaser . . . . . . . . . . . . . . . . . . . . 12
9.4 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.5 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . 12
10. CO-SALE RIGHT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.1 Co-Sale Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.2 Limitation on Co-Sale Right . . . . . . . . . . . . . . . . . . . . . 13
11. GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
11.1 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 13
11.2 Survival of Representations and Warranties. . . . . . . . . . . . . . 13
11.3 Schedules; Exhibits; Integration. . . . . . . . . . . . . . . . . . . 14
11.4 Best Efforts; Further Assurances. . . . . . . . . . . . . . . . . . . 14
11.5 Governing Law and Forum Selection . . . . . . . . . . . . . . . . . . 14
11.6 No Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11.7 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
11.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.9 Publicity and Reports . . . . . . . . . . . . . . . . . . . . . . . . 15
11.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.11 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.12 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.13 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.14 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.15 Representation By Counsel; Interpretation . . . . . . . . . . . . . . 16
11.16 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.17 No Consequential Damages . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-iii-
<PAGE>
SCHEDULE AND EXHIBITS
Schedule 2 Allocation of the Purchase Price Among the Shareholders
Schedule 4.2 Equity Securities
Schedule 4.16 Directors and Officers Liability Insurance
Schedule 5.1 Equity Securities Owned by the Shareholders
Schedule 8.1 Compensation of the Shareholders
Schedule 10.2 Sample Calculation of Co-Sale Right
Exhibit A Registration Rights Agreement
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is dated as of September
_, 1998, by and among COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A.
WORLDXCHANGE COMMUNICATIONS, a California corporation (the "COMPANY"), ATOCHA,
L.P., a Texas limited partnership (the "PURCHASER"), ROGER B. ABBOTT, ROSALIND
ABBOTT and EDWARD S. SOREN (each of Messrs. Abbott and Soren and Ms. Abbott is a
"SHAREHOLDER" and collectively they are the "SHAREHOLDERS").
The parties hereby agree as follows:
1. DEFINITIONS.
1.1 DEFINITIONS.
1.1.1 For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires,
(a) the terms defined in this SECTION 1 have the meanings
assigned to them in this SECTION 1 and include the plural as well as the
singular,
(b) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Section, Subsection or other subdivision, unless the context
otherwise requires, and
(c) all accounting terms not otherwise defined herein have the
meanings assigned under generally accepted accounting principles.
1.2 As used in this Agreement, the following definitions shall apply.
"AFFILIATE" means a Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person.
"AGREEMENT" means this Agreement by and among the Company, the
Purchaser and the Shareholders as amended or supplemented together with all
Schedules and Exhibits attached or incorporated by reference.
"APPROVAL" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
"AUDITORS" means Ernst & Young LLP, independent public
accountants to the Company.
"AVAILABLE SHARES" means, collectively, (i) the Offered Shares,
(ii) the number of shares of Stock offered for sale by the Purchaser pursuant to
SECTION 10.1, and (iii) the number
1
<PAGE>
of shares of Stock offered for sale by Gold pursuant to Section 10.1 of that
certain Stock Purchase Agreement, dated as of the date hereof, by and between
the Company, Gold, and the other parties thereto.
"BALANCE SHEET DATE" means September 30, 1997.
"COMPANY" means Communication TeleSystems International d.b.a.
WorldxChange Communications, a California corporation.
"CONTRACT" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"CO-SALE NOTICE" has the meaning specified in SECTION 10.1.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"EQUITY SECURITIES" means any capital stock of the Company
(including, without limitation, common stock and preferred stock) or other
equity interest in the Company or any securities convertible into or
exchangeable for capital stock of the Company or any other rights (statutory,
contractual or otherwise), warrants or options to acquire any of the foregoing
securities.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"GOLD" means Gold & Appel Transfer S.A., a British Virgin Islands
corporation.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"INDEMNIFIABLE CLAIM" means any Loss for or against which any
party is entitled to indemnification under this Agreement; "INDEMNIFIED PARTY"
means the party entitled to indemnity hereunder; and "INDEMNIFYING PARTY" means
the party obligated to provide indemnification hereunder.
"INITIAL SHARES" means, collectively, (i) 553,115 shares of Stock
owned by Roger B. Abbott and Rosalind Abbott, and (ii) 276,557 shares of Stock
owned by Edward S. Soren.
"LAW" means any constitutional provision, statute or other law,
rule, regulation, or interpretation of any Governmental Entity and any Order.
2
<PAGE>
"LOSS" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified person, but excluding any consequential damages.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition and business operations of the Company and its Subsidiaries
taken as a whole.
"MATERIAL CONTRACT" means any Contract material to the business of
the subject Person as of the date hereof.
"OFFERING MEMORANDUM" means that certain preliminary offering
circular, prepared by the Company, dated May 4, 1998 (the "PRELIMINARY OFFERING
CIRCULAR") as supplemented by a supplement to the Preliminary Offering Circular,
prepared by the Company, dated September 28, 1998, in the form delivered to
Purchaser on September 29, 1998.
"OFFERED SHARES" has the meaning specified in SECTION 10.1.
"OFFEROR" has the meaning specified in SECTION 10.1.
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, any Governmental Entity or arbitrator.
"PURCHASE PRICE" has the meaning specified in SECTION 2.
"PURCHASER" means Atocha, L.P., a Texas limited partnership.
"SEC" means the Securities and Exchange Commission or any
successor entity.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLERS" means, collectively, the Company and the Shareholders.
"SELLING SHAREHOLDER" has the meaning specified in SECTION 10.1.
"STOCK" means the common stock of the Company, no par value.
"SUBSIDIARY" means any Person in which the Company has a direct or
indirect equity or ownership interest in excess of 50%.
3
<PAGE>
"TAX" or "TAXES" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, AD VALOREM, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental or other
taxes, assessments, duties, fees, levies or other governmental charges of any
nature whatsoever, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
2. PURCHASE AND SALE OF THE INITIAL SHARES.
Simultaneously with the execution and delivery of this Agreement,
the Purchaser shall deliver by wire transfer of immediately available funds the
amount of $10,000,000 (the "PURCHASE PRICE") to the Shareholders as specified
in SCHEDULE 2 against delivery by the Shareholders to the Purchaser of the
certificates evidencing the Initial Shares. The certificates will be properly
endorsed for transfer to or accompanied by a duly executed stock power in favor
of the Purchaser with signatures guaranteed by a commercial bank or by a member
firm of the New York Stock Exchange, for transfer to Purchaser; and otherwise in
a form acceptable for transfer on the books of the Company. Each of the
following documents must have been delivered to Purchaser as of the date of this
Agreement: (i) an opinion of O'Melveny & Myers LLP reasonably acceptable to
Purchaser and (ii) such other documents as Purchaser may reasonably request for
the purpose of facilitating the consummation of the sale of the Initial Shares.
3. [INTENTIONALLY OMITTED].
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as otherwise disclosed in the Offering Memorandum or as set forth
in the attached Schedules, the Company represents and warrants that as of the
date hereof:
4.1 ORGANIZATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company has all requisite corporate power and
authority necessary to (i) execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby and (ii) own and operate its
properties and to carry on its business as now conducted and as presently
proposed to be conducted. The copies of the Company's charter documents and
bylaws furnished to the Purchaser's counsel reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
The Company is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect.
4.2 CAPITAL STOCK AND RELATED MATTERS. The authorized capital
stock of the Company is as set forth in its articles of incorporation and the
outstanding capital stock, options and other rights to acquire capital stock and
shares reserved for issuance are as set forth in SCHEDULE 4.2. Except as set
forth in SCHEDULE 4.2 and as contemplated by this Agreement, as of the date of
this Agreement: (i) the Company will not have outstanding any stock or
securities convertible or exchangeable for any shares of capital stock, nor will
there be outstanding any
4
<PAGE>
rights or options to subscribe for or to purchase any capital stock or any stock
or securities convertible into or exchangeable for any capital stock of the
Company, and (ii) the Company will not be subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock. All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable.
4.3 AUTHORIZATION; NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company and the consummation of the
transaction contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. This Agreement
constitutes the legally valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. The execution, delivery and
performance of this Agreement by the Company will not (i) conflict with,
violate, or constitute a breach or default (whether upon lapse of time and/or
the occurrence of any act or event or otherwise) under, the charter documents or
bylaws of the Company or any Material Contract of the Company, result in the
imposition of any material Encumbrance against any material asset or properties
of the Company or any Subsidiary, or violate any material Law or Order.
4.4 GOVERNMENTAL CONSENT, ETC. No further permit, consent,
Approval, authorization of, declaration to, or filing with any Governmental
Entity is required in connection with the execution, delivery and performance of
this Agreement by the Company or the consummation by the Company of any
transactions contemplated hereby, except as have already been obtained or
accomplished.
4.5 FINANCIAL STATEMENTS.
4.5.1 AUDITED FINANCIAL STATEMENTS. The Company has delivered to
the Purchaser consolidated balance sheets for the Company and its
Subsidiaries at September 30, 1997, 1996 and 1995 and the related
consolidated statements of operations, changes in stockholder's
equity and changes in financial position or cash flow for the
periods then ended. All such financial statements have been
examined by the Auditors whose reports thereon are included with
such financial statements. All such financial statements have been
prepared in conformity with GAAP. Such statements of operations
and cash flow present fairly in all material respects the results
of operations and cash flows of the Company and its Subsidiaries
for the respective periods covered, and the balance sheets present
fairly in all material respects the financial condition of the
Company and its Subsidiaries as of their respective dates.
4.5.2 UNAUDITED INTERIM FINANCIAL STATEMENTS. The Company has
delivered to the Purchaser a consolidated balance sheet for the
Company and its Subsidiaries at August 31, 1998, and the related
consolidated statements of operations for the eleven months then
ended (the "Interim Statements"). The Interim Statements have been
prepared in conformity with GAAP applied on a consistent basis
except for (i) changes, if any, disclosed therein (except for the
absence of notes and normal year-end adjustments consistent with
past practices) and (ii) information in the Interim Statements
concerning EBITDA, which is not determined in accordance with
GAAP. The statements of operations present fairly the results of
operations of the Company and its Subsidiaries for the period
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covered, and the balance sheet presents fairly in all material
respects the financial condition of the Company as of the date of
the balance sheet.
4.6 NO BROKERS OR FINDERS. No agent, broker, finder, or
investment or commercial banker, or other Person or firm engaged by or acting on
behalf of the Company or its Affiliates in connection with the negotiation,
execution or performance of this Agreement or the transactions contemplated by
this Agreement, is or will be entitled to any brokerage or finder's or similar
fee or other commission as a result of this Agreement or such transactions.
4.7 ACCURACY OF INFORMATION. As of the date hereof, the
Offering Memorandum does not contain any untrue statement of a material fact, or
fail to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
4.8 NO MATERIAL ADVERSE CHANGE. Since the Balance Sheet Date,
there has not been any Material Adverse Effect.
4.9 CONFORMITY WITH LAW; LITIGATION. To the knowledge of the
Company, the Company has complied with all Laws applicable to it or to the
operation of its business and has not received any written notice of any
violation of, liability or potential responsibility under, any such Law which
has not heretofore been cured and for which there is no remaining liability,
other than, in each case, those not having a Material Adverse Effect.
4.10 ERISA. Each Company employee benefit plan that is subject
to ERISA has been administered in compliance with the applicable requirements of
ERISA, except for such noncompliance, if any, that in the aggregate, would not
have a Material Adverse Effect.
4.11 ENVIRONMENTAL MATTERS. To the knowledge of the Company, all
real property now or previously owned, operated or leased by the Company and
located in the United States has been operated by the Company in compliance with
all applicable Environmental Laws, except for such noncompliance, if any, that
would not have a Material Adverse Effect. As used herein, "Environmental Law"
means any federal, state, or local law, statute, rule or regulation governing or
relating to the environment or to occupational health and safety.
4.12 GOVERNMENT AUTHORIZATIONS. The Company has all federal,
state and local governmental licenses, permits and other authorizations,
including without limitation all licenses and authorizations required by the
United State Federal Communications Commission (the "FCC") and by state public
utilities commissions (collectively, "Company Permits"), necessary to conduct
the Company's business as presently conducted, except where the failure to hold
any such licenses, permits and other authorizations would not result in a
Material Adverse Effect.
4.13 TAXES. To the knowledge of the Company, all Taxes owed by
the Company have been paid or accrued on the Company's financial statements,
except where the failure to pay or accrue such Taxes would not result in a
Material Adverse Effect.
4.14 INSURANCE. SCHEDULE 4.14 sets forth a true and correct
description of the directors and officers liability insurance policy currently
maintained by the Company. There have been no claims made against such insurance
policy.
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5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS RELATING TO EACH
SHAREHOLDER.
Each Shareholder represents and warrants to the Purchaser as of
the date hereof as follows with respect to such Shareholder:
5.1 OWNERSHIP. Such Shareholder is the record and beneficial
owner of the number of Equity Securities set forth in SCHEDULE 5.1 across from
such Shareholder's name; such Equity Securities represent the entire ownership
interest of such Shareholder in the Company; and such Shareholder has no other
Equity Securities of the Company.
5.2 TITLE. Such Shareholder has good and marketable title to
such Shareholder's Initial Shares, free and clear of all Encumbrances.
5.3 RIGHT TO TRANSFER. Such Shareholder has full legal right
and power to transfer and deliver to the Purchaser such Shareholder's Initial
Shares. Such Shareholder has taken all steps that may be necessary to duly
authorize the execution and delivery by such Shareholder of this Agreement and
the consummation of the transactions contemplated on his or her part hereby. No
other actions on the part of such Shareholder are necessary to authorize the
execution and delivery of this Agreement by such Shareholder and the
consummation of the transactions contemplated on his or her part hereby.
5.4 BINDING AGREEMENT. This Agreement has been duly executed
and delivered by or on behalf of such Shareholder, and this Agreement is a
legal, valid and binding obligation of such Shareholder, enforceable against
such Shareholder in accordance with its terms.
5.5 NO CONFLICTS. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby by
the Shareholder will not violate, or constitute a breach or default whether upon
lapse of time and/or the occurrence of any act or event or otherwise under, (i)
any Material Contract to which the Shareholder is a party or (ii) any material
Law or Order to which the Shareholder is subject.
5.6 NO BROKERS OR FINDERS. No agent, broker, finder, or
investment or commercial banker, or other Person or firm engaged by or acting on
behalf of such Shareholder or its Affiliates in connection with the negotiation,
execution or performance of this Agreement or the transactions contemplated by
this Agreement, is or will be entitled to any broker's or finder's or similar
fee or other commission as a result of this Agreement or such transactions.
5.7 RELATIONSHIPS WITH RELATED PERSONS. The section titled
"Certain Relationships and Related Transactions" in the Offering Memorandum, as
of the date hereof, does not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants that:
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6.1 ORGANIZATION AND RELATED MATTERS. The Purchaser is a
limited partnership duly organized, validly existing and in good standing under
the laws of Texas. The Purchaser has all requisite partnership power and
authority to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby.
6.2 AUTHORIZATION. The execution, delivery and performance of
this Agreement by the Purchaser and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary partnership
action on the part of the Purchaser. This Agreement constitutes the legally
valid and binding obligation of the Purchaser, enforceable against the Purchaser
in accordance with its terms.
6.3 NO CONFLICTS. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby, by
the Purchaser will not violate, or constitute a breach or default whether upon
lapse of time and/or the occurrence of any act or event or otherwise under (i)
the Certificate of Limited Partnership or the partnership agreement of the
Purchaser, (ii) any Material Contract to which the Purchaser is a party, or
(iii) any material Law or Order to which the Purchaser is subject.
6.4 NO BROKERS OR FINDERS. No agent, broker, finder or
investment or commercial banker, or other Person or firm engaged by or acting on
behalf of the Purchaser or its Affiliates in connection with the negotiation,
execution or performance of this Agreement or the transactions contemplated by
this Agreement, is or will be entitled to any broker's or finder's or similar
fee or other commission as a result of this Agreement or such transactions.
6.5 INVESTMENT REPRESENTATIONS.
6.5.1 This Agreement is made with the Purchaser in reliance upon
the Purchaser's representation to the Company, which by the
Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that (i) the Initial Shares are being acquired for
investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any
part thereof, and that the Purchaser has no present intention of
selling, granting any participation in, or otherwise distributing
the same; and (ii) the Purchaser does not have any Contract,
undertaking, agreement or arrangement with any Person to sell,
transfer or grant participations to any Person with respect to any
of the Initial Shares.
6.5.2 The Purchaser has not been attracted to the purchase of the
Initial Shares by any publication or any advertising, and the
transactions contemplated by this Agreement are not being effected
by or through a broker-dealer.
6.5.3 The Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated by the SEC, as
presently in effect.
6.5.4 The Purchaser understands that (i) neither the Initial
Shares nor the sale thereof to it has been registered under the
Securities Act, or under any state securities law, (ii) no
registration statement has been filed with the SEC, nor with any
other regulatory authority and that, as a result, any benefit
which might normally accrue to an investor such as the Purchaser
by an impartial review of such a registration statement by the SEC
or other regulatory commission will not
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be forthcoming; and (iii) the Initial Shares are characterized as
"restricted securities" under the federal securities laws inasmuch
as they are being acquired from the Selling Shareholders, who
acquired the Initial Shares from the Company in a transaction not
involving a public offering, and that under such laws and
applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited
circumstances. In this connection, the Purchaser represents that
it is familiar with the SEC's Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the
Securities Act.
6.5.5 The Purchaser acknowledges that (i) it is represented by
counsel, (ii) it has received and carefully reviewed a copy of the
Offering Memorandum and this Agreement; (iii) it has received all
information it considers necessary or appropriate for deciding
whether to purchase the Initial Shares; (iv) as a result of its
knowledge of the telecommunications industry, its study of the
aforementioned documents and its prior overall experience in
financial matters, it is property able to evaluate the capital
structure of the Company, the business of the Company and its
Subsidiaries and the risks inherent therein; and (v) it has been
given the opportunity to obtain any additional information or
documents from, and to ask questions and receive answers of, the
officers and representatives of the Company to the extent
necessary to evaluate the merits and risks related to its
investment in the Company.
7. TRANSFER OF SHARES. The Initial Shares are not transferable except upon
the conditions specified in this SECTION 7, which conditions are intended to
assure compliance with the provisions of the Securities Act and state securities
laws in respect of the transfer of any of such Initial Shares.
7.1 RESTRICTIVE LEGENDS. Unless and until otherwise permitted
by this Agreement, the Initial Shares issued or transferred to the Purchaser
pursuant to this Agreement shall be stamped or otherwise imprinted with legends
in substantially the following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED
OR QUALIFIED UNDER THAT ACT OR SUCH LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE."
"SUCH SECURITIES ARE ALSO SUBJECT TO THE RESTRICTIONS ON
TRANSFER CONTAINED IN A STOCK PURCHASE AGREEMENT, DATED AS OF SEPTEMBER
__, 1998, BY AND AMONG COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A.
WORLDXCHANGE COMMUNICATIONS, ATOCHA, L.P., ROGER B. ABBOTT, ROSALIND
ABBOTT AND EDWARD S. SOREN, COPIES OF WHICH MAY BE OBTAINED FROM THE
SECRETARY OF THE COMPANY."
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The Company may order its transfer agents to stop the transfer of any Initial
Shares bearing a legend required by this SECTION 7.1 until the conditions herein
with respect to transfer of such securities have been satisfied.
7.2 NOTICE OF PROPOSED TRANSFERS. Subject to SECTION 7.1, prior
to any transfer or attempted transfer of the Initial Shares bearing the legend
in SECTION 7.1, the Purchaser or its permitted assignee, transferee or donee
(the "Holder") shall give the Company written notice of its intention to do so,
describing briefly the nature of any such proposed transfer. If, in the written
opinion of counsel for Holder, addressed to the Company and the Holder, in form
and substance reasonably acceptable to the Company, the proposed transfer may be
effected without registration of such Initial Shares, the Initial Shares
proposed to be transferred may be transferred in accordance with the terms of
said notice and in compliance with applicable state securities laws and
regulations. The Company shall not be required to effect any such transfer prior
to the receipt of such favorable opinion; provided that if the proposed transfer
is governed by Rule 144 promulgated by the SEC, or any successor rule, such
opinion shall not be required, but the Company may prevent such transfer until
it receives evidence satisfactory to it and its counsel that the transfer
complies with Rule 144. Each transfer shall comply with all applicable SEC rules
and applicable state securities laws.
7.3 PERMITTED TRANSFERS. Notwithstanding anything to the
contrary in this Agreement, Purchaser may transfer Initial Shares to any
Affiliate of Purchaser in accordance with the provisions of Section 7.1 and 7.2;
provided that the transferee shall hold such Initial Shares subject to the same
restrictions applicable to its transferor and shall agree in writing to be bound
by the terms of this Agreement.
8. COVENANTS OF THE COMPANY.
8.1 RESTRICTIONS. For a period of three years from the date of
this Agreement, the Company shall not: (i) issue any Equity Securities to the
Shareholders or immediate family members of the Shareholders, except that the
Company may issue 883,069 shares of Stock to the Shareholders in connection with
the sale of the Shareholders' stock in WorldxChange Limited, a New Zealand
corporation, to a wholly owned subsidiary of the Company, (ii) increase the
salary, bonuses, options or payments through consulting agreements or otherwise
(the "Compensation") payable to the Shareholders beyond that set forth in
SCHEDULE 8.1, (iii) increase the Compensation of immediate family members of the
Shareholders other than in amounts consistent with past practices for non-family
members or (iv) engage in any other transactions with immediate family member
employees, except as permitted in subsection (iii). During the third year from
the date of this Agreement, if the Company has not completed an initial public
offering of its securities, the Compensation payable to each Shareholder shall
not exceed 200% of the total Compensation paid to such Shareholder during the
second year after the date of this Agreement.
8.2 [INTENTIONALLY OMITTED].
8.3 RULE 144 FILING. After the Company's Common Stock is
registered under the Exchange Act, and until the Initial Shares held by
Purchaser have all been publicly sold or are eligible for sale under Rule 144(k)
under the Securities Act, the Company shall use best
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efforts to file the reports required under Rule 144(c)(1) under the Securities
Act in order to permit sales of the Initial Shares by Purchaser pursuant to Rule
144.
8.4 PREEMPTIVE RIGHTS. Purchaser shall have the right to
subscribe to any additional (i) issuances of shares of capital stock of the
Company, (ii) issuances of securities convertible into shares of capital
stock of the Company, or (iii) grants of options to purchase shares of
capital stock of the Company, other than grants to employees, directors or
consultants of the Company (and the issuance of shares upon exercise of such
options), for cash, on the same terms of such offerings to the extent equal
to the proportion which the number of Initial Shares then held by Purchaser
bears to the Company's fully-diluted capitalization (on an as-converted and
as-exercised basis). Such right is exercisable within ten (10) days after the
receipt of written notice relating to such issuances by the Purchaser. Such
right extends to the same proportion of the new issue of shares, convertible
securities or options as the Purchaser's proportion of the outstanding
shares. Purchaser's right to purchase new issues of shares or convertible
securities or options does not extend to (i) the issuance of shares upon the
conversion or exercise of options or other convertible securities either (A)
outstanding on the date hereof or (B) with respect to which options or other
convertible securities Purchaser had preemptive rights under this Section
8.4, or (ii) securities issued solely in exchange for shares, convertible
securities or options issued in connection with any merger, reorganization or
acquisition (including, without limitation, the proposed transactions
described in Section 8.7 below). The preemptive rights held by the Purchaser
pursuant to this Section 8.4 shall terminate immediately prior to the closing
of an initial public offering of the Company's securities and shall not apply
to any issuance of securities in such offering.
8.5 REGISTRATION RIGHTS. The Company and Purchaser,
concurrently with the Closing, shall execute and deliver a Registration Rights
Agreement substantially in the form attached hereto as EXHIBIT A.
8.6 FINANCIAL STATEMENTS. For as long as Purchaser and Gold,
collectively, own five percent or more of the issued and outstanding Stock, the
Company agrees to deliver to Purchaser (i) unaudited quarterly financial
statements within 45 days after the end of each fiscal quarter of the Company
and (ii) audited annual financial statements within 150 days after the end of
each fiscal year of the Company.
8.7 [INTENTIONALLY OMITTED]
9. INDEMNIFICATION.
9.1 OBLIGATIONS OF THE COMPANY. The Company agrees to indemnify
and hold harmless the Purchaser from and against any and all Losses of the
Purchaser based upon or arising from any inaccuracy in or breach or
nonperformance of any of the representations, warranties, or covenants made or
obligations undertaken by the Company in this Agreement.
9.2 OBLIGATIONS OF THE SHAREHOLDERS. Each Shareholder agrees to
indemnify and hold harmless the Purchaser from and against any and all Losses of
the Purchaser based upon or arising from any inaccuracy in or breach or
nonperformance of any of the representations, warranties, or covenants made by
such Shareholder in this Agreement.
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9.3 OBLIGATIONS OF THE PURCHASER. The Purchaser agrees to
indemnify and hold harmless (i) the Company from and against any and all
Losses of the Company based upon or arising from, any inaccuracy in or breach
or nonperformance of any of the representations, warranties or covenants made
by the Purchaser in this Agreement and (ii) each Shareholder from and against
any and all Losses of such Shareholder based upon or arising from, any
inaccuracy in or breach or nonperformance of any of the representations,
warranties or covenants made by the Purchaser in this Agreement.
9.4 PROCEDURE.
9.4.1 NOTICE. Any party seeking indemnification with respect to
any Loss shall give notice to the party required to provide
indemnity hereunder (the "INDEMNIFYING PARTY").
9.4.2 DEFENSE. If any claim, demand or liability is asserted by
any third party against any Indemnified Party, the Indemnifying
Party shall upon the written request of the Indemnified Party,
defend any actions or proceedings brought against the Indemnified
Party in respect of matters embraced by the indemnity. If, after
a request to defend any action or proceeding, the Indemnifying
Party does not defend the Indemnified Party, a recovery against
the latter suffered by it in good faith, is conclusive in its
favor against the Indemnifying Party, provided however that, if
the Indemnifying Party has not received reasonable notice of the
action or proceeding against the Indemnified Party, or is not
allowed to control its defense, judgment against the Indemnified
Party is only presumptive evidence against the Indemnifying Party.
The parties shall cooperate in the defense of all third party
claims which may give rise to Indemnifiable Claims hereunder. In
connection with the defense of any claim, each party shall make
available to the party controlling such defense, any books,
records or other documents within its control that are reasonably
requested in the course of such defense.
9.5 EXCLUSIVE REMEDY. This Section 9 shall be the exclusive
remedy of the parties for any Loss of such party based upon or arising from any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, or covenants made by any other party to this Agreement.
Notwithstanding the foregoing, Purchaser shall have the right to the remedy of
specific performance with respect to Sections 3.1, 8.3, 8.4, 8.6 and 10.
10. CO-SALE RIGHT.
10.1 CO-SALE PROCEDURE. If any of the Shareholders desire to sell,
assign or otherwise transfer any Stock owned by such Shareholder (except for a
sale, assignment or transfer to a family member of such Shareholder, provided
(i) that the shares of Stock so transferred shall thereafter remain subject to
this SECTION 10 as though the transferee were a Shareholder and (ii) the
transferee agrees in writing to be bound by this SECTION 10), then such
Shareholder (collectively with any other selling Shareholder, the "SELLING
SHAREHOLDER") shall first give written notice (the "CO-SALE NOTICE") to the
Purchaser specifying the following: (i) the name and address of the proposed
purchaser (the "OFFEROR"); (ii) the number of shares of Stock offered for sale
to the Offeror by the Selling Shareholder (the "OFFERED SHARES"); the price or
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amount per share of Stock to be paid (and other consideration, if any) or
delivered to the Selling Shareholder for the Offered Shares; and (iv) all
other material terms and conditions of the proposed sale. Within five
business days after receipt of the Co-Sale Notice, the Purchaser may elect by
written notice to the Selling Shareholder to sell to the Offeror a number of
shares of Stock not to exceed the product of (i) a fraction where the
numerator is the Offered Shares and the denominator is the total number of
shares of Stock (including the Offered Shares) then held by the Shareholders,
multiplied by (ii) the number of shares of Stock then owned by the Purchaser;
PROVIDED, HOWEVER, that the Purchaser shall have the right, which right may be
exercised by the Purchaser one time only, to sell to the Offeror a number of
shares of Stock equal to double the number of shares allowed to be sold
(before application of this proviso) by the Purchaser pursuant to this
SECTION 10.1.
10.2 LIMITATION ON CO-SALE RIGHT. If the Offeror does not wish
to purchase the full amount of Available Shares, then the Purchaser shall be
entitled to sell to the Offeror a number of shares of Stock not to exceed the
product of (i) a fraction where the numerator is the number of shares of Stock
offered for sale by the Purchaser pursuant to SECTION 10.1 and the denominator
is the number of Available Shares, multiplied by (ii) the total number of shares
of Stock which the Offeror is willing to purchase from the Selling Shareholder,
the Purchaser and Gold. SCHEDULE 10.2 provides a sample calculation of the
application of SECTION 10.1 and SECTION 10.2. The co-sale rights set forth in
SECTIONS 10. 1 and 10.2 shall terminate upon such time as the Initial Shares
then held by the Purchaser (i) may be sold under Rule 144 of the Securities Act
and the disposition of all such Initial Shares and Remaining Shares may be
completed within six (6) months and (ii) are listed on a securities exchange or
qualified for trading on an over-the-counter system selected by the Company.
11. GENERAL.
11.1 AMENDMENTS; WAIVERS. This Agreement and any schedule
attached hereto may be amended only by agreement in writing of all parties. No
waiver of any provision nor consent to any exception to the terms of this
Agreement shall be effective unless in writing and signed by the party to be
bound and then only to the specific purpose, extent and instance so provided.
11.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as set
forth in the following sentence, all representations and warranties of the
Company, each Shareholder and the Purchaser set forth in this Agreement or
expressly incorporated herein by reference shall, as of the first anniversary of
the date of this Agreement, expire and terminate and be of no further force or
effect. Notwithstanding the foregoing, (i) the representations and warranties
set forth in Section 4.7 (Accuracy of Information) shall survive until the
thirtieth day following delivery by the Company to the Purchaser of audited
financial statements for the fiscal year ended September 30, 1999, and (ii) the
representations and warranties set forth in Sections 4.2, 5.1, 5.2 and 5.3 shall
survive indefinitely. As of the termination of the respective representations,
warranties and covenants as provided for this Agreement, the Company, each
Shareholder and the Purchaser shall be deemed to have irrevocably waived and
released any and all rights and remedies any of them may have with respect to
any inaccuracy in or breach or nonperformance of any of the representations,
warranties, or covenants made by any party to this Agreement.
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11.3 SCHEDULES; EXHIBITS; INTEGRATION. Each schedule and exhibit
delivered pursuant to the terms of this Agreement shall be in writing and shall
constitute a part of this Agreement. This Agreement, together with such
schedules and exhibits, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith.
11.4 BEST EFFORTS; FURTHER ASSURANCES.
11.4.1 STANDARD. Each party will use its best efforts to fulfill
all obligations on its part to be performed and fulfilled under
this Agreement, to the end that the transactions contemplated by
this Agreement shall be effected substantially in accordance
with its terms as soon as reasonably practicable. The parties
shall cooperate with each other in such actions and in securing
requisite Approvals. Each party shall deliver such further
documents and take such other actions as the other party may
reasonably request to consummate or implement the transactions
contemplated hereby or to evidence such events or matters.
11.4.2 LIMITATION. As used in this Agreement, the term "best
efforts" shall not mean efforts which require the performing party
to do any act that is unreasonable under the circumstances, to
make any capital contribution or to expend any funds other than
reasonable out-of-pocket expenses incurred in satisfying its
obligations hereunder, including but not limited to the fees,
expenses and disbursements of its accountants, actuaries, counsel
and other professionals.
11.5 GOVERNING LAW AND FORUM SELECTION. This Agreement is to
be construed and enforced in accordance with the internal laws of the State
of California. The parties consent to the jurisdiction of all federal and
state courts in California. Any civil action or other legal proceeding
arising out of or relating to this Agreement shall be brought and heard only
in a federal or state court located in California, and all parties waive any
right to have such action or proceeding transferred to another location.
11.6 NO ASSIGNMENT. Neither this Agreement nor any rights or
obligations under it are assignable, except pursuant to a permitted transfer
by Purchaser in accordance with Section 7.3 above.
11.7 HEADINGS. The descriptive headings of the Sections and
Subsections of this Agreement are for convenience only and do not constitute
a part of this Agreement.
11.8 COUNTERPARTS. This Agreement and any amendment hereto or
any other document delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement (or other document)
and shall become effective (unless otherwise provided therein) when one or
more counterparts have been signed by each party and delivered to the other
party.
11.9 PUBLICITY AND REPORTS. The Sellers and the Purchaser
shall coordinate all publicity relating to the transactions contemplated by
this Agreement and no party shall issue any press release, publicity
statement or other public notice relating to this Agreement, or the
transactions contemplated by this Agreement, without obtaining the prior
written consent of each
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of the parties to this Agreement except to the extent that a particular
action is required by applicable Law.
11.10 CONFIDENTIALITY. All information disclosed by any party
(or its representatives) whether before or after the date hereof, in
connection with the transactions contemplated by, or the discussions and
negotiations preceding, this Agreement to any other party (or its
representatives) shall be kept confidential by such other party and its
representatives and shall not be used by any such Persons other than as
contemplated by this Agreement, except to the extent that such information
(i) was known by the recipient when received, (ii) it is or hereafter becomes
lawfully obtainable from other sources, (iii) is necessary or appropriate to
disclose to a Governmental Entity having jurisdiction over the parties,
provided that the disclosing party give reasonable notice to the other
parties and the opportunity to protect any such confidential information,
(iv) as may otherwise be required by Law or (v) to the extent such duty as to
confidentiality is waived in writing by the other party.
11.11 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure to the benefit of each party, and nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Nothing in this Agreement is intended to relieve or discharge the obligation
of any third person to any party to this Agreement.
11.12 NOTICES. Any notice or other communication hereunder must
be given in writing and (i) delivered in person, (ii) transmitted by telex,
telefax or telecommunications mechanism or (iii) mailed by certified or
registered mail, postage prepaid), receipt requested as follows:
IF TO PURCHASER, ADDRESSED TO:
Atocha, L.P.
6429 Georgetown Pike
McLean, Virginia 22101
IF TO THE COMPANY OR THE SHAREHOLDERS, ADDRESSED TO:
WORLDxCHANGE
9999 Willow Creek Road
San Diego, California 92131
Attn: Roger B. Abbott
Facsimile No. (619) 625-0217
WITH A COPY TO:
O'Melveny & Myers LLP
610 Newport Center Drive
Newport Beach, California 92660
Attn: David A. Krinsky, Esq.
Facsimile No. (949) 823-6994
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or to such other address or to such other person as either party shall have
last designated by such notice to the other party. Each such notice or other
communication shall be effective (A) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
SECTION 11.12 and an appropriate answer back is received, (B) if given by
mail, three days after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (C) if given by any
other means, when actually received at such address.
11.13 EXPENSES. Each Party shall pay its own expenses incident
to the negotiation, preparation and performance of this Agreement and the
transactions contemplated hereby, including but not limited to the fees,
expenses and disbursements of such party's respective investment bankers,
accountants and counsel.
11.14 WAIVER. No failure on the part of any party to exercise
or delay in exercising any right hereunder shall be deemed a waiver thereof,
nor shall any single or partial exercise preclude any further or other
exercise of such or any other right.
11.15 REPRESENTATION BY COUNSEL; INTERPRETATION. The Sellers
and the Purchaser each acknowledge that each party to this Agreement has been
represented by counsel in connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of Law, including but
not limited to Section 1654 of the California Civil Code, or any legal
decision that would require interpretation of any claimed ambiguities in this
Agreement against the party that drafted it has no application and is
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of the Purchaser and the Sellers.
11.16 SEVERABILITY. If any provision of this Agreement is
determined to be invalid, illegal or unenforceable by any Governmental
Entity, the remaining provisions of this Agreement to the extent permitted by
Law shall remain in full force and effect provided that the economic and
legal substance of the transactions contemplated is not affected in any
manner materially adverse to any party. In event of any such determination,
the parties agree to negotiate in good faith to modify this Agreement to
fulfill as closely as possible the original intents and purposes hereof.
11.17 NO CONSEQUENTIAL DAMAGES. Notwithstanding anything to the
contrary elsewhere in this Agreement, no party (or its Affiliates) shall, in
any event, be liable to any other party (or its Affiliates) for any
consequential damages, including, but not limited to, loss of revenue or
income, or loss of business reputation or opportunity relating to the breach
or alleged breach of this Agreement. The foregoing shall not be deemed to
limit Purchaser's right to specific performance with respect to Sections 3.1,
8.3, 8.4, 8.6 and 10.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and
year first above written.
COMPANY: PURCHASER:
COMMUNICATION TELESYSTEMS ATOCHA, L.P., a Texas limited partnership
INTERNATIONAL D.B.A.
WORLDXCHANGE By: /s/ [ILLEGIBLE], its general partner
COMMUNICATIONS, a California
corporation
By: /s/ [ILLEGIBLE]
-----------------------------------
By: /s/ Roger B. Abbott Its: General Partner
------------------------------ ---------------------------------
Its: CEO
----------------------------
SHAREHOLDER: SHAREHOLDER:
ROGER B. ABBOTT ROSALIND ABBOTT
/s/ Roger B. Abbott /s/ Rosalind Abbott
------------------------------- --------------------------------
SHAREHOLDER:
EDWARD S. SOREN
/s/ Edward S. Soren
------------------------------
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LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Schedules and Exhibits to the Stock Purchase Agreement
dated September 29, 1998 (Atocha L.P.) have been omitted from this Exhibit
and shall be furnished supplementally to the Commission upon request:
Schedule 2 - Allocation of the Purchase Price Among the Shareholders
Schedule 4.2 - Equity Securities
Schedule 4.16 - Directors and Officers Liability Insurance
Schedule 5.1 - Equity Securities Owned by the Shareholders
Schedule 8.1 - Compensation of the Shareholders
Schedule 10.2 - Sample Calculation of Co-Sale Right
Exhibit A - Registration Rights Agreement
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT")
which shall be effective as of September __, 1998, is made and entered into by
and among Communication Telesystems International d.b.a. WorldxChange
Communications, a California corporation (the "COMPANY"), and the investors
whose names and addresses are set forth on the signature pages hereto (the
"INVESTORS").
RECITALS
WHEREAS, the Company, Gold & Appel Transfer S.A., Roger B. Abbott,
Rosalind Abbott and Edward S. Soren are parties to that certain Stock Purchase
Agreement, dated of even date herewith, and the Company, Atocha, L.P., Roger B.
Abbott, Rosalind Abbott and Edward S. Soren are parties to a separate Stock
Purchase Agreement, also dated of even date herewith (together, the "PURCHASE
AGREEMENTS"), pursuant to which the Investors propose to purchase an aggregate
of 2,488,886 shares of the Common Stock of the Company (the "SECURITIES"); and
WHEREAS, in order to induce the Investors to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement with respect to the "REGISTRABLE SECURITIES" (as such term is
defined in Section 1);
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties, intending to be
legally bound, hereby agree as follows:
1. DEFINITIONS. FOR PURPOSES OF THIS AGREEMENT:
(a) the term "BONA FIDE PUBLIC OFFERING" means an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended ("1933 ACT") covering the offer and sale
of Common Stock of the Company in which aggregate proceeds to the Company
and the selling shareholders exceed $25,000,000;
(b) the term "COMMON STOCK" means the Company's authorized
voting common stock, no par value, and any class of securities issued in
exchange for the Common Stock or into which the Common Stock is
converted;
(c) the term "HOLDER" means any Investor or any permitted
transferee of Registrable Securities pursuant to the Purchase Agreement in
accordance with Section 10 hereof;
(d) the term "INITIATING HOLDERS" means the Holders of 30% or
more of the Registrable Securities then outstanding;
<PAGE>
(e) the term "REGISTRABLE SECURITIES" means: (i) the Securities,
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of such Securities;
(f) the term "REGISTRATION EXPENSES" means all expenses incurred
by the Company in complying with Sections 2 and 3 hereof, including,
without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, accountants' fees and
expenses, and blue sky fees and expenses;
(g) the terms "REGISTER," "REGISTERED" and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by
the Securities and Exchange Commission;
(h) the term "SELLING EXPENSES" means all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities,
the fees and disbursements of any counsel engaged by the Holders and any
other expenses incurred by the Holders in connection with the registration
and sale of the Registrable Securities;
(i) the number of shares of Registrable Securities "THEN
OUTSTANDING" shall be the number of shares of Common Stock outstanding
which are, and the number of shares of Common Stock which upon issuance of
then exercisable or convertible securities will be, Registrable Securities;
and
(j) the term "THIRD PARTY HOLDER" means any person other than a
Holder with registration rights with respect to securities of the Company.
2. DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive, at any time during the
one-year period commencing three years after the date of this Agreement
(and in such additional years as may be required by Section 2(d)), a
written request from the Initiating Holders with respect to the
Registrable Securities that the Company file a registration statement
under the 1933 Act covering the registration of Registrable Securities
having an estimated aggregate initial public offering price of not less
than $5,000,000, provided that a Bona Fide Public Offering has not been
commenced by the Company, the Company shall promptly give written notice
of such request to all Holders and shall use reasonable efforts to effect
the registration under the 1933 Act of all such Registrable Securities
which the Initiating Holders request to be registered, together with all
of the Registrable Securities of any other Holder or Holders who so
request by notice to the Company which is given within 10 days after
receipt of the notice from the
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<PAGE>
Company described above. Notwithstanding the foregoing, if the Company
shall furnish to the Initiating Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company for a
registration statement to be filed in the near future, then the Company's
obligation to use its reasonable efforts to file a registration statement
shall be deferred for a period not to exceed 90 days (provided, however,
that the Company may make only one such deferral with respect to each
demand registration). Securities of the Company to be sold by the Company
or by a Third Party Holder may be included in such registration statement,
subject to the provisions of Section 2(c) below.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to this Section 2 and the Company shall include such
information in the written notice referred to in Section 2(a). In such
event, the right of any Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed by a
majority in interest of the Initiating Holders, by the underwriter, by the
Company, and by such Holder) to the extent provided herein.
(c) All Holders and Third Party Holders proposing to distribute
their securities through such underwriting (together with the Company as
provided in Section 4(e)) shall enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the Company, or if no underwriter is
selected by the Company, by a majority in interest of the Initiating
Holders and reasonably acceptable to the Company. Notwithstanding any other
provisions of this Section 2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, the Initiating Holders shall so advise
all Holders of Registrable Securities, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting by the Holders shall be allocated among all Holders thereof,
all Third Party Holders, and the Company, pro rata based on the number of
shares for which registration was requested. No Registrable Securities
excluded from the underwriting by reason of the marketing limitation shall
be included in such registration. If any Holder of Registrable Securities
disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter and,
unless otherwise provided, the Initiating Holders.
(d) The Company is obligated to effect only one demand
registration for the Holders pursuant to this Section 2; provided, however,
that if any Registrable Securities of a Holder requested to be registered
(regardless of whether a Holder withdraws such Registrable Securities
pursuant to Section 2(c) or Section 6) are excluded by the underwriter in a
demand registration pursuant to
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<PAGE>
Section 2(c) or in a "piggyback" registration pursuant to Section 6 (which
excluded Registrable Securities are referred to herein as the "EXCLUDED
SECURITIES"), then the Company, upon the demand of the Initiating Holders
three or more years after the date of this Agreement, shall be obligated to
effect one additional demand registration under this Section 2 each year
with respect to the Excluded Securities of such Holder, until such time as
(i) such Holder may freely (except as may be restricted by Rule 144 under
the 1933 Act) sell all of the Excluded Securities without registration
under the 1933 Act within the then following six months and (ii) the
Excluded Securities are listed on a securities exchange or qualified for
trading on an over-the-counter system selected by the Company.
(e) The demand registration rights provided by the Company to
any Holder pursuant to Section 2 of this Agreement shall immediately
terminate upon the closing of a Bona Fide Public Offering by the Company.
(f) A registration requested pursuant to this Section 2 shall
not be deemed to have been effected (a) unless a registration statement
with respect thereto has become effective or (b) if after it has become
effective, the effectiveness of such registration statement is terminated
or suspended by a stop order, injunction or other order of the SEC or other
governmental agency or court, unless such order, injunction or other order
is lifted or stayed within 30 days of the issuance of such stop order,
injunction or other order. The Company shall use its reasonable best
efforts to keep such registration statement effective for up to 60 days
after such registration statement has become effective.
3. PIGGY-BACK REGISTRATION RIGHTS. If at any time the Company proposes
to register (including for this purpose a registration effected by the Company
for shareholders other than the Holders) any of its securities under the 1933
Act in connection with the public offering of such securities solely for cash
(other than a registration form relating to: (a) a registration of a stock
option, stock purchase or compensation or incentive plan or of stock issued or
issuable pursuant to any such plan, or a dividend investment plan; (b) a
registration of securities proposed to be issued in exchange for securities or
assets of, or in connection with a merger or consolidation with, another
corporation; or (c) a registration of securities proposed to be issued in
exchange for other securities of the Company), the Company shall, each such
time, promptly give each Holder written notice of such registration together
with a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under applicable state securities laws. Upon the written
request of any Holder given within 30 days after receipt of such written notice
from the Company in accordance with Section 14, the Company shall (subject to
the provisions of Section 6 in the case of an underwritten offering) cause to be
registered under the 1933 Act all of the Registrable Securities that each such
Holder has requested to be registered; provided, however, in the event and to
the extent such a Holder may freely (except as may be restricted by Rule 144
under the 1933 Act) sell all of its Registrable Securities without registration
under the 1933 Act and the person acquiring the securities does not acquire
"restricted securities" within the meaning of Rule 144, the Company may elect
not to register such Registrable Securities.
4
<PAGE>
4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be necessary for the distribution of the securities
covered by the registration statement and such jurisdictions as the Holders
participating in the offering shall reasonably request, provided that the
Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service
of process in any such jurisdiction, and further provided that (anything in
this Agreement to the contrary notwithstanding with respect to the bearing
of expenses) if any jurisdiction in which the securities shall be qualified
shall require that expenses incurred in connection with the qualification
of the securities in that jurisdiction be borne by selling shareholders,
such expenses shall be payable by the selling Holders pro rata, to the
extent required by such jurisdiction;
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with
commercially reasonable and customary terms generally satisfactory to the
managing underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such
an agreement; and
(f) Use its reasonable best efforts to cause all such
Registrable Securities to be listed on a securities exchange or to qualify
such Registrable Securities for trading on an over-the-counter system
selected by the Company;
5
<PAGE>
(g) Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement and thereafter maintain such a transfer agent and
registrar;
(h) In the event of any underwritten public offering, make
available for inspection, at reasonable times during normal business hours,
by any underwriter participating in such public offering and any attorney,
accountant or other agent retained by such underwriter, such financial and
other records, pertinent corporate documents and properties of the Company
as may be reasonably requested by such underwriter, and cause the Company's
officers, directors, employees and independent accountants to supply such
information as may be reasonably requested by any such underwriter,
attorney, accountant or agent in connection with such public offering
(provided, however, that such inspection and supplying of records and
documents shall be subject to the execution by each requesting party of a
confidentiality and non-disclosure agreement in a form reasonably
acceptable to the Company);
(i) Permit any Holder participating in such registration, which
Holder, in such Holder's reasonable judgment, might be deemed to be an
underwriter or controlling person of the Company, to participate in the
preparation of the registration statement in connection with such
registration and to propose the insertion therein of material which in the
reasonable judgment of such Holder and its counsel should be included;
(j) In connection with underwritten offerings, make available
appropriate management personnel for participation in the preparation and
drafting of such registration or comparable statement, for due diligence
meetings and for "road show" meetings;
(k) In the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending
or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, the Company will use its reasonable
best efforts promptly to obtain the withdrawal of such order, provided that
in the Company's opinion, in consultation with its counsel, there is a
good faith argument for the removal of such order;
(l) Obtain a cold comfort letter from the Company's independent
public accountants addressed to the selling Holders of Registrable
Securities in customary form and covering such matters of the type
customarily covered by cold comfort letters as the Holders of a majority of
the Registrable Securities being sold reasonably request; and
(m) Furnish, at the request of Holders of a majority of the
Registrable Securities participating in the registration, to each seller of
Registrable Securities a signed counterpart, addressed to such seller (and
6
<PAGE>
underwriters, if any) of an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such Holder covering substantially the same matters with
respect to such registration (and the prospectus included therein) as are
customarily covered in opinions of issuer's counsel to underwriters in
underwritten public offerings.
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.
6. UNDERWRITING REQUIREMENTS. The right of any Holder to "piggyback"
in an underwritten public offering of the Company's securities pursuant to
Section 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
any other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company. Notwithstanding any other
provision of Section 3 and this Section 6, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, and (a) if such registration is the first registered offering of
the Company's securities to the public, the underwriter may exclude some or all
of the Registrable Securities from such registration and underwriting, provided
that the Holders are allowed to participate in the offering in the same
proportion (based on the total number of securities requested to be registered)
as any other shareholder of the Company participating in the offering, and (b)
if such registration is other than the first registered offering of the
Company's securities to the public, the underwriter may exclude some or all
Registrable Securities from such registration and underwriting, provided that
all of the shares requested to be registered by shareholders other than Holders
and Third Party Holders shall first be excluded and thereafter, only to the
extent deemed necessary by the underwriter, shares requested to be registered
by Holders and Third Party Holders shall be reduced pro rata based on the number
of securities respectively requested by them to be registered. Any reduction in
the number of Registrable Securities included in such registration shall be
borne equally by the Holders and any Third Party Holders as a group pro rata
based on the number of shares for which registration was requested. If any
Holder disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration. Third Party Holders "piggybacking" on a demand
registration demanded by the Initiating Holders under Section 2 above shall be
subject to the same conditions,
7
<PAGE>
requirements and limitations that are applicable to a Holder under this Section
6 in the event of an underwritten public offering.
7. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Holders of the securities so registered pro rata on the basis of the
number of shares so registered.
8. DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
9. INDEMNIFICATION. If any Registrable Securities are included in a
registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors and partners of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended
(the "1934 ACT"), against any losses, claims, damages, or liabilities
(joint or several) to which they or any of them may become subject under
the 1933 Act, the 1934 Act or any other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect
thereof) arise from or are based upon any of the following statements,
omissions or violations (collectively a "VIOLATION"): (i) any untrue
statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto; or
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein
not misleading; and the Company will reimburse each such Holder, officer,
director or partner, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 9 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
the Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises from or is based upon a
violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any,
who
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<PAGE>
controls the Company within the meaning of the 1933 Act, any underwriter
(within the meaning of the 1933 Act) for the Company, any person who
controls such underwriter, any other Holder selling securities in such
registration statement or any of its directors or officers or any person
who controls such Holder against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer,
controlling person, or underwriter or other such Holder or director,
officer or controlling person may become subject, under the 1933 Act, the
1934 Act or any other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise from or are
based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person, underwriter or controlling person,
other Holder, officer, director or controlling person in connection with
investigation or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 9 shall not apply to amounts paid in settlement of any such loss,
claim damage, liability or action if such settlement is effected without
the consent of the Holder which consent shall not be unreasonably withheld.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 9
is applicable but for any reason is held to be unavailable from the Company
or any Holder, the Company and the Holders participating in the
registration shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claims asserted) to which the Company and the
participating Holders may be subject in such proportion so that the
participating Holders are responsible for that portion of the foregoing
amount represented by the ratio of the proceeds received by the
participating Holders in the offering to the total proceeds received from
the offering by the Company and all selling shareholders (other than
participating Holders) and the Company shall be responsible for the portion
represented by the ratio of proceeds received by the Company to the total
proceeds received by the Company and all selling shareholders (other than
participating Holders); provided, however, that such portions shall be
adjusted as may be just and equitable to take into account the relative
fault of the participating Holders and the Company; provided further,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9(c), each person, if any,
who controls the Company or any Holder within the meaning of the 1933 Act,
each officer of the Company who shall have signed the registration
statement and each director of the Company shall have the same rights to
contribution as the Company.
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<PAGE>
(d) No settlement shall be effected without the prior written
consent of the Holders participating in a registration unless (i) the
obligations of the Company for indemnification or contribution pursuant to
this Agreement survive and are not extinguished by reason of the settlement
and remain in full force and effect under applicable federal and state
laws, rules, regulations and orders or (ii) all claims and actions against
the participating Holders and each person who controls a participating
holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act are extinguished by the settlement and the indemnifying party
obtains a full release of all claims and actions against the participating
Holders and each such control person, which release shall be to the
reasonable satisfaction of the participating Holders.
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 9,
notify the indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party
within a reasonable time of the commencement of any such action, to the
extent prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 9, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
(f) The obligations of the Company and the Holders under this
Section 9 shall survive through the completion of any offering of
Registrable Securities in a registration statement made under the terms of
this Agreement.
10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of a Holder under
this Agreement may be assigned by a Holder only to a permitted transferee of
such securities pursuant to Section 7.3 the Purchase Agreement, provided the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee and the securities with
respect to which such registration rights are being assigned; provided, however,
that no such assignment shall be effective if, immediately following the
transfer, the transferee is free to dispose of all of such securities without
regard to any restrictions imposed under the 1933 Act.
11. SUBSEQUENT REGISTRATION RIGHTS. The Company may grant
registration rights to parties other than the Holders; provided, however, that
in the event
10
<PAGE>
the Company shall grant any person registration rights containing terms more
favorable than the terms granted herein, the more favorable terms shall
automatically be deemed granted to the Holders and incorporated herein by
reference. Prior to the date of this Agreement, the Company has not granted
registration rights to any other person that are still in effect and that are on
terms more favorable than the terms granted herein.
12. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities in a market transaction during a period
deemed by the underwriter to be necessary or appropriate following the effective
date of a registration statement of the Company filed under the 1933 Act,
provided that Roger B. Abbott, Rosalind Abbott, and Edward S. Soren are subject
to such an agreement for the same period. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
13. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a registration statement and which does not directly or indirectly
affect the rights of other holders of Registrable Securities may be given by the
holders of a majority of the Registrable Securities being sold; provided,
however, that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
14. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one business day after being sent, when
sent by professional overnight courier service from and to locations within the
continental United States, or (c) five days after posting when sent by
registered or certified mail (return receipt requested), addressed to the
Company or an Investor at his, her or its address set forth on the signature
pages hereof. Any party hereto may from time to time by notice in writing served
upon the others as provided herein, designate a different mailing address or a
different person to which such notices or demands are thereafter to be
addressed, or delivered.
15. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.
11
<PAGE>
16. CAPTIONS. Captions are provided herein for convenience only and
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
17. CROSS-REFERENCES. All cross-references in this Agreement, unless
specifically directed to another agreement or document, refer to provisions
within this Agreement.
18. GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of California
applicable to agreements made and to be performed wholly within the State of
California. In the event a judicial or other proceeding is necessary to resolve
any dispute hereunder, the sole forum for resolving disputes arising under or
relating to this Agreement shall be the Municipal and Superior Courts for the
County of San Diego, State of California, or the federal district court for the
district of California associated with such county and all related appellate
courts and the parties hereby consent to the jurisdiction of such courts, and
that venue shall be in such county.
19. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be declared invalid or unenforceable, the remaining
provisions shall remain in full force and effect and shall be construed in the
broadest possible manner to effectuate the purposes hereof. The parties further
agree to replace such void or unenforceable provisions of this Agreement with
valid and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.
20. ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersedes all prior written and oral agreements, understandings,
commitments and practices between the parties, including all prior agreements
with respect to registration rights.
21. CONSIDERATION FOR APPROVALS OR WAIVERS. No consideration shall be
paid to any Holder to obtain such Holder's approval for or waiver of any
amendment of this Agreement or any matter requiring the approval or consent of
the Holders hereunder unless such consideration is also offered to all Holders,
pro rata based upon the number of Registerable Securities held by the Holders.
22. REMEDIES. Subject to Section 8 (Delay of Registration), each
Holder of Registrable Securities, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement with the intent and agreement that the same shall be effective
as of the day and year first above written.
THE COMPANY:
Communication Telesystems International
d.b.a. WorldxChange Communications,
a California corporation
By: /s/ Roger B. Abbott
------------------------------
Title: CEO
------------------------------
Address: 9999 Willow Creek Road
San Diego, California 92131
Attn: Roger B. Abbott
Fax: (619) 625-0217
INVESTORS:
GOLD & APPEL TRANSFER, S.A.,
a British Virgin Islands Corporation
By: /s/ [ILLEGIBLE]
---------------------------------
Title: Power of Attorney in Fact
-------------------------------
Address: P.O. Box 985
Wickhams Cay Road Twn
Tortula, British Virgin Islands
Attn: Rosa Restrepo
------------------------
Facsimile:
-------------------
ATOCHA, L.P.,
a Texas limited partnership
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: General Partner
---------------------------------
Address: 6429 Georgetown Pike
Mc Lean, VA 72101
------------------------------
13
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE
COMMUNICATIONS
AND
ATOCHA, L.P.
FEBRUARY 3, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. PURCHASE AND SALE OF THE INITIAL SHARES . . . . . . . . . . . . . . . . . . .4
2.1 Purchase and Sale of the Initial Shares . . . . . . . . . . . . . . .4
2.2 Conditions Precedent to Sale of the Initial Shares . . . . . . . . . .4
3. SALE OF REMAINING SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 Sale of Remaining Shares . . . . . . . . . . . . . . . . . . . . . . .5
3.2 Conditions Precedent to Sale of Remaining Shares . . . . . . . . . . .5
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . .5
4.1 Organization and Corporate Power . . . . . . . . . . . . . . . . . . .5
4.2 Capital Stock and Related Matters . . . . . . . . . . . . . . . . . .6
4.3 Authorization; No Conflicts . . . . . . . . . . . . . . . . . . . . .6
4.4 Governmental Consent, etc. . . . . . . . . . . . . . . . . . . . . . .6
4.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .6
4.6 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . .7
4.7 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . .7
4.8 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . .7
4.9 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . .7
4.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . .7
4.12 Government Authorizations . . . . . . . . . . . . . . . . . . . . . .8
4.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . .8
5.1 Organization and Related Matters . . . . . . . . . . . . . . . . . . .8
5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . .8
5.5 Investment Representations . . . . . . . . . . . . . . . . . . . . . .8
6. TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.1 Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . .10
-i-
<PAGE>
PAGE
6.2 Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . . . 10
6.3 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . 10
7. CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Board Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Rule 144 Filing . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.5 HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.1 Obligations of the Company . . . . . . . . . . . . . . . . . . . . . 12
8.2 Obligations of the Purchaser . . . . . . . . . . . . . . . . . . . . 12
8.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.4 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.1 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . 13
9.2 First Atocha Agreement . . . . . . . . . . . . . . . . . . . . . . . 13
9.3 Survival of Representations and Warranties . . . . . . . . . . . . . 13
9.4 Schedules; Exhibits; Integration . . . . . . . . . . . . . . . . . . 13
9.5 Best Efforts; Further Assurances . . . . . . . . . . . . . . . . . . 13
9.6 Governing Law and Forum Selection . . . . . . . . . . . . . . . . . 14
9.7 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.10 Publicity and Reports . . . . . . . . . . . . . . . . . . . . . . . 14
9.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.12 Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . 15
9.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.14 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.15 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.16 Representation By Counsel; Interpretation . . . . . . . . . . . . . 16
9.17 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-ii-
<PAGE>
PAGE
9.18 No Consequential Damages . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
-iii-
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 4.2 Equity Securities
Schedule 4.14 Directors and Officers Liability Insurance
Exhibit A New Registration Rights Agreement
Exhibit B Form of Opinion of O'Melveny & Myers LLP - First Closing
Exhibit C Form of Opinion of O'Melveny & Myers LLP - Second Closing
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is dated February
3, 1999, by and between COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A.
WORLDXCHANGE COMMUNICATIONS, a California corporation (the "COMPANY"), and
ATOCHA, L.P., a Texas limited partnership (the "PURCHASER").
The parties hereby agree as follows:
1. DEFINITIONS.
1.1 Definitions.
1.1.1 For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires,
(a) the terms defined in this SECTION 1 have the
meanings assigned to them in this SECTION 1 and include the plural
as well as the singular,
(b) the words "herein," "hereof," "hereto" and
"hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Section, Subsection
or other subdivision, unless the context otherwise requires, and
(c) all accounting terms not otherwise defined
herein have the meanings assigned under generally accepted
accounting principles.
1.2 As used in this Agreement, the following definitions shall
apply.
"AFFILIATE" means a Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person.
"AGREEMENT" means this Agreement by and between the Company and
the Purchaser as amended or supplemented together with the Exhibit and all
Schedules attached or incorporated by reference.
"APPROVAL" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
"AUDITORS" means Ernst & Young LLP, independent public accountants
to the Company.
"BALANCE SHEET DATE" means September 30, 1998.
1
<PAGE>
"COMPANY" means Communication TeleSystems International d.b.a.
WorldxChange Communications, a California corporation.
"CONTRACT" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"EQUITY SECURITIES" means any capital stock of the Company
(including, without limitation, common stock and preferred stock) or other
equity interest in the Company or any securities convertible into or
exchangeable for capital stock of the Company or any other rights (statutory,
contractual or otherwise), warrants or options to acquire any of the foregoing
securities.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FIRST ATOCHA AGREEMENT" means that certain Stock Purchase
Agreement, dated September 30, 1998, by and among the Company, the Purchaser,
Roger B. Abbott, Rosalind Abbott and Edward S. Soren.
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"GOLD & APPEL" means Gold & Appel Transfer S.A., a British Virgin
Islands corporation.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the related regulations and published interpretations.
"HSR FILINGS" means the filing of a premerger notification and
report form by each of the Company and the Purchaser (with respect to the
transactions contemplated by this Agreement) and with the Federal Trade
Commission and the Antitrust Division of the Department of Justice.
"INDEMNIFIABLE CLAIM" means any Loss for or against which any
party is entitled to indemnification under this Agreement; "INDEMNIFIED PARTY"
means the party entitled to indemnity hereunder; and "INDEMNIFYING PARTY" means
the party obligated to provide indemnification hereunder.
"INITIAL CLOSING" has the meaning specified in SECTION 2.1.
2
<PAGE>
"INITIAL CLOSING DATE" has the meaning specified in SECTION 2.1.
"INITIAL SHARES" means 1,500,000 shares of Stock to be issued by
the Company pursuant to SECTION 2.
"LAW" means any constitutional provision, statute or other law,
rule, regulation, or interpretation of any Governmental Entity and any Order.
"LOSS" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified person, but excluding any consequential damages.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition and business operations of the Company and its Subsidiaries
taken as a whole.
"MATERIAL CONTRACT" means any Contract material to the business of
the subject Person as of the date hereof.
"NEW REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form attached as EXHIBIT A.
"OFFERING MEMORANDUM" means that certain preliminary offering
circular, prepared by the Company, dated May 4, 1998 (the "PRELIMINARY OFFERING
CIRCULAR") as supplemented by a supplement to the Preliminary Offering Circular,
prepared by the Company, dated December 31, 1998, in the form delivered to
Purchaser with this Agreement.
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, any Governmental Entity or arbitrator.
"PURCHASER" means Atocha, L.P., a Texas limited partnership.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration
Rights Agreement, dated as of September 30, 1998, by and among the Company and
the investors set forth on the signature pages thereto.
"REMAINING SHARES" means 1,500,000 shares of Stock to be issued by
the Company at the Second Closing.
3
<PAGE>
"SEC" means the Securities and Exchange Commission or any
successor entity.
"SECOND CLOSING" has the meaning specified in SECTION 3.1.
"SECOND CLOSING DATE" has the meaning specified in SECTION 3.1.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK" means the common stock of the Company, no par value.
"SUBSIDIARY" means any Person in which the Company has a direct or
indirect equity or ownership interest in excess of 50%.
"TAX" or "TAXES" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, AD VALOREM, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
2. PURCHASE AND SALE OF THE INITIAL SHARES.
2.1 PURCHASE AND SALE OF THE INITIAL SHARES. Subject to SECTION
2.2, on or before the later to occur of (i) February 5, 1999 or (ii) the first
business day after the date that all of the conditions set forth in SECTION 2.2
have been satisfied or waived by the parties, the Purchaser shall deliver by
wire transfer of immediately available funds the amount of $15,000,000 to the
Company against the delivery by the Company to the Purchaser of a certificate,
issued in the name of the Purchaser, evidencing the Initial Shares (the "INITIAL
CLOSING"). The date on which the Initial Closing occurs shall be the "INITIAL
CLOSING DATE."
2.2 CONDITIONS PRECEDENT TO SALE OF THE INITIAL SHARES. The
obligations of the Company and the Purchaser to sell and purchase the Initial
Shares, respectively, are subject to the satisfaction, at or prior to the
Initial Closing Date, of each of the following conditions (which shall be the
only conditions to the Initial Closing and any of which may be waived by the
agreement of both parties, in whole or in part):
2.2.1 NO PROHIBITION. Neither the consummation nor the
performance of any of the transactions contemplated by this
Agreement at the Initial Closing will, directly or indirectly
(with or without notice or lapse of time), materially contravene
or conflict with, or result in a material violation of, any
applicable Law or Order.
2.2.2 HSR APPROVAL. Any waiting period applicable to the
transactions contemplated by this Agreement under the HSR Act
shall have expired or been terminated.
2.2.3 BRING-DOWN OF SELECTED REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company set forth in the
following portions
4
<PAGE>
of the indicated Sections of this Agreement shall be true and
correct as of the Initial Closing Date: (1) the first two
sentences of Section 4.1; (2) the last sentence of Section 4.2;
(3) the first sentence of Section 4.3; and (4) the second sentence
of Section 4.3, except as to clause (ii) thereof.
In addition to being subject to the satisfaction of the conditions
specified in Sections 2.2.1, 2.2.2 and 2.2.3, the Purchaser's obligations to
purchase the Initial Shares shall also be conditioned on Purchaser's receipt
from the Company of an opinion of O'Melveny & Myers LLP, dated the Initial
Closing Date, in the form attached hereto as EXHIBIT B.
3. SALE OF REMAINING SHARES
3.1 SALE OF REMAINING SHARES. Subject to Section 3.2, on or before
April 1, 1999 the Purchaser shall deliver by wire transfer of immediately
available funds the amount of $15,000,000 to the Company against the delivery by
the Company to the Purchaser of a certificate, issued in the name of the
Purchaser, evidencing the Remaining Shares (the "SECOND CLOSING"). The date on
which the Second Closing occurs shall be the "SECOND CLOSING DATE."
3.2 CONDITIONS PRECEDENT TO SALE OF REMAINING SHARES. The
obligations of the Company and the Purchaser to sell and purchase the Remaining
Shares, respectively, are subject to the satisfaction, at or prior to the Second
Closing, of each of the following conditions (any of which may be waived by the
agreement of both parties, in whole or part):
3.2.1 NO PROHIBITION. Neither the consummation nor the
performance of any of the transactions contemplated by this
Agreement at the Second Closing will, directly or indirectly (with
or without notice or lapse of time), materially contravene or
conflict with, or result in a material violation of, any
applicable Law or Order.
3.2.2 HSR APPROVAL. Any waiting period applicable to the
transactions contemplated by this Agreement under the HSR Act
shall have expired or been terminated.
3.2.3 BRING-DOWN OF SELECTED REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company set forth in the
following portions of the indicated Sections of this Agreement
shall be true and correct as of the Second Closing Date: (1) the
first two sentences of Section 4.1; (2) the last sentence of
Section 4.2; (3) the first sentence of Section 4.3; and (4) the
second sentence of Section 4.3, except as to clause (ii) thereof.
In addition to being subject to the satisfaction of the conditions
specified in Sections 3.2.1, 3.2.2 and 3.2.3, the Purchaser's obligations to
purchase the Remaining Shares shall also be conditioned on Purchaser's receipt
from the Company of an opinion of O'Melveny & Myers LLP, dated the Second
Closing Date, in the form attached hereto as EXHIBIT C.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
5
<PAGE>
Except as otherwise disclosed in the Offering Memorandum or as set
forth in the attached Schedules, the Company represents and warrants that as of
the date hereof:
4.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. The Company has all requisite corporate power and corporate
authority necessary to (i) execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby and (ii) own and operate its
properties and to carry on its business as now conducted and as presently
proposed to be conducted. The copies of the Company's charter documents and
bylaws furnished to the Purchaser's counsel reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
The Company is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect.
4.2 CAPITAL STOCK AND RELATED MATTERS. The authorized capital
stock of the Company is as set forth in its articles of incorporation and the
outstanding capital stock, options and other rights to acquire capital stock
and shares reserved for issuance as of December 31, 1998 are as set forth in
SCHEDULE 4.2. Except as set forth in SCHEDULE 4.2 and as contemplated by this
Agreement, as of December 31, 1998: (i) the Company does not have outstanding
any stock or securities convertible or exchangeable for any shares of capital
stock, nor are there outstanding any rights or options to subscribe for or to
purchase any capital stock or any stock or securities convertible into or
exchangeable for any capital stock of the Company, and (ii) the Company is
not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock. All of the
outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. The Initial Shares
and the Remaining Shares, when issued and sold in accordance with the terms
of this Agreement, will be duly authorized and validly issued, fully paid and
nonassessable.
4.3 AUTHORIZATION; NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement constitutes the
legally valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. The execution, delivery and performance
of this Agreement, and the consummation of the transactions contemplated
hereby, by the Company will not violate, or constitute a breach or default
whether upon lapse of time and/or the occurrence of any act or event or
otherwise under (i) the charter documents or bylaws of the Company, (ii) any
Material Contract to which the Company is a party, or (iii) any material Law
or Order to which the Company is subject.
4.4 GOVERNMENTAL CONSENT, ETC. Except for the HSR Filings, no
further permit, consent, Approval, authorization of, declaration to, or filing
with any Governmental Entity is required in connection with the execution,
delivery and performance of this Agreement by the Company or the consummation by
the Company of any transactions contemplated hereby, except as have already been
obtained or accomplished.
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4.5 FINANCIAL STATEMENTS.
4.5.1 AUDITED FINANCIAL STATEMENTS. The Company has delivered to
the Purchaser consolidated balance sheets for the Company and its
Subsidiaries at September 30, 1998, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholder's
equity and changes in financial position or cash flow for the
periods then ended. All such financial statements have been
examined by the Auditors whose reports thereon are included with
such financial statements. All such financial statements have been
prepared in conformity with GAAP. Such statements of operations
and cash flow present fairly in all material respects the results
of operations and cash flows of the Company and its Subsidiaries
for the respective periods covered, and the balance sheets present
fairly in all material respects the financial condition of the
Company and its Subsidiaries as of their respective dates.
4.5.2 UNAUDITED INTERIM FINANCIAL STATEMENTS. The Company has
delivered to the Purchaser an unaudited consolidated balance sheet
for the Company and its Subsidiaries at October 31, 1998 and
November 30, 1998, and the related unaudited consolidated
statements of operations and cash flows and changes in
stockholder's equity for the periods then ended (the "INTERIM
STATEMENTS"). The Interim Statements have been prepared in
conformity with GAAP applied on a consistent basis except for (i)
changes, if any, disclosed therein (except for the absence of
notes and normal year-end adjustments consistent with past
practices) and (ii) information in the Interim Statements
concerning EBITDA, which is not determined in accordance with
GAAP. The statements of operations present fairly the results of
operations of the Company and its Subsidiaries for the period
covered, and the balance sheets present fairly in all material
respects the financial condition of the Company as of the
respective date of each balance sheet.
4.6 NO BROKERS OR FINDERS. No agent, broker, finder, or
investment or commercial banker, or other Person or firm engaged by or acting
on behalf of the Company or its Affiliates in connection with the
negotiation, execution or performance of this Agreement or the transactions
contemplated by this Agreement, is or will be entitled to any brokerage or
finder's or similar fee or other commission as a result of this Agreement or
such transactions.
4.7 ACCURACY OF INFORMATION. As of December 31, 1998, except as
to any information pertaining to general industry or regulatory matters,
including without limitation any information pertaining to general industry
or regulatory matters set forth in the risk factors and business sections of
the Offering Memorandum, the Offering Memorandum does not contain any untrue
statement of a material fact, or fail to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4.8 NO MATERIAL ADVERSE CHANGE. Since the Balance Sheet Date,
there has not been any Material Adverse Effect.
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4.9 CONFORMITY WITH LAW; LITIGATION. To the knowledge of the
Company, the Company has complied with all Laws applicable to it or to the
operation of its business and has not received any written notice of any
violation of, liability or potential responsibility under, any such Law which
has not heretofore been cured and for which there is no remaining liability,
other than, in each case, those not having a Material Adverse Effect.
4.10 ERISA. Each Company employee benefit plan that is subject
to ERISA has been administered in compliance with the applicable requirements of
ERISA, except for such noncompliance, if any, that in the aggregate, would not
have a Material Adverse Effect.
4.11 ENVIRONMENTAL MATTERS. To the knowledge of the Company, all
real property now or previously owned, operated or leased by the Company and
located in the United States has been operated by the Company in compliance with
all applicable Environmental Laws, except for such noncompliance, if any, that
would not have a Material Adverse Effect. As used herein, "ENVIRONMENTAL LAW"
means any federal, state, or local law, statute, rule or regulation governing or
relating to the environment or to occupational health and safety.
4.12 GOVERNMENT AUTHORIZATIONS. The Company has all federal,
state and local governmental licenses, permits and other authorizations,
including without limitation all licenses and authorizations required by the
United State Federal Communications Commission (the "FCC") and by state public
utilities commissions (collectively, "COMPANY PERMITS"), necessary to conduct
the Company's business as presently conducted, except where the failure to hold
any such licenses, permits and other authorizations would not result in a
Material Adverse Effect.
4.13 TAXES. To the knowledge of the Company, all Taxes owed by
the Company have been paid or accrued on the Company's financial statements,
except where the failure to pay or accrue such Taxes would not result in a
Material Adverse Effect.
4.14 INSURANCE. SCHEDULE 4.14 sets forth a true and correct
description of the directors and officers liability insurance policy currently
maintained by the Company. There have been no claims made against such insurance
policy.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants that:
5.1 ORGANIZATION AND RELATED MATTERS. The Purchaser is a limited
partnership duly organized, validly existing and in good standing under the laws
of Texas. The Purchaser has all requisite partnership power and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
5.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement by the Purchaser and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary partnership action on the part
of the Purchaser. This Agreement constitutes the legally valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
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5.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, by the
Purchaser will not violate, or constitute a breach or default whether upon lapse
of time and/or the occurrence of any act or event or otherwise under (i) the
Certificate of Limited Partnership or the partnership agreement of the
Purchaser, (ii) any Material Contract to which the Purchaser is a party, or
(iii) any material Law or Order to which the Purchaser is subject.
5.4 NO BROKERS OR FINDERS. No agent, broker, finder or investment
or commercial banker, or other Person or firm engaged by or acting on behalf of
the Purchaser or its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any broker's or finder's or similar fee or
other commission as a result of this Agreement or such transactions.
5.5 INVESTMENT REPRESENTATIONS.
5.5.1 This Agreement is made with the Purchaser in reliance upon
the Purchaser's representation to the Company, which by the
Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that (i) the Initial Shares and the Remaining Shares are
being acquired for investment for the Purchaser's own account, not
as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Purchaser has no
present intention of selling, granting any participation in, or
otherwise distributing the same; and (ii) the Purchaser does not
have any Contract, undertaking, agreement or arrangement with any
Person to sell, transfer or grant participations to any Person
with respect to any of the Initial Shares or Remaining Shares.
5.5.2 The Purchaser has not been attracted to the purchase of the
Initial Shares or Remaining Shares by any publication or any
advertising, and the transactions contemplated by this Agreement
are not being effected by or through a broker-dealer.
5.5.3 The Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated by the SEC, as
presently in effect.
5.5.4 The Purchaser understands that (i) neither the Initial
Shares nor the Remaining Shares nor the sale thereof to it have or
has been registered under the Securities Act, or under any state
securities law, (ii) no registration statement has been filed with
the SEC, nor with any other regulatory authority and that, as a
result, any benefit which might normally accrue to an investor
such as the Purchaser by an impartial review of such a
registration statement by the SEC or other regulatory commission
will not be forthcoming; and (iii) the Initial Shares and the
Remaining Shares are characterized as "restricted securities"
under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities
Act only in certain limited circumstances. In this connection, the
Purchaser represents that it is familiar with the SEC's Rule 144,
as presently in
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effect, and understands the resale limitations imposed thereby and
by the Securities Act.
5.5.5 The Purchaser acknowledges that (i) it is represented by
counsel, (ii) it has received and carefully reviewed a copy of the
Offering Memorandum and this Agreement; (iii) it has received all
information it considers necessary or appropriate for deciding
whether to purchase the Initial Shares and the Remaining Shares;
(iv) as a result of its knowledge of the telecommunications
industry, its study of the aforementioned documents and its prior
overall experience in financial matters, it is properly able to
evaluate the capital structure of the Company, the business of the
Company and its Subsidiaries and the risks inherent therein; and
(v) it has been given the opportunity to obtain any additional
information or documents from, and to ask questions and receive
answers of, the officers and representatives of the Company to the
extent necessary to evaluate the merits and risks related to its
investment in the Company.
6. TRANSFER OF SHARES. The Initial Shares and the Remaining Shares are not
transferable except upon the conditions specified in this SECTION 6, which
conditions are intended to assure compliance with the provisions of the
Securities Act and state securities laws in respect of the transfer of any of
the Initial Shares or Remaining Shares.
6.1 RESTRICTIVE LEGENDS. Unless and until otherwise permitted
by this Agreement, the Initial Shares and the Remaining Shares issued to the
Purchaser pursuant to this Agreement shall be stamped or otherwise imprinted
with legends in substantially the following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED
OR QUALIFIED UNDER THAT ACT OR SUCH LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE."
"SUCH SECURITIES ARE ALSO SUBJECT TO THE RESTRICTIONS ON
TRANSFER CONTAINED IN A STOCK PURCHASE AGREEMENT; DATED FEBRUARY 3,1999,
BY AND BETWEEN COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A.
WORLDXCHANGE COMMUNICATIONS AND ATOCHA, L.P., COPIES OF WHICH MAY BE
OBTAINED FROM THE SECRETARY OF THE COMPANY."
The Company may order its transfer agents to stop the transfer of any Initial
Shares or Remaining Shares bearing a legend required by this SECTION 6.1
until the conditions herein with respect to transfer of such securities have
been satisfied.
6.2 NOTICE OF PROPOSED TRANSFERS. Subject to SECTION 6.1, prior
to any transfer or attempted transfer of the Initial Shares or Remaining
Shares bearing the legend in SECTION 6.1, the Purchaser or its permitted
assignee, transferee or donee (the "HOLDER") shall give the Company written
notice of its intention to do so, describing briefly the nature of any such
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proposed transfer. If, in the written opinion of counsel for Holder,
addressed to the Company and the Holder, in form and substance reasonably
acceptable to the Company, the proposed transfer may be effected without
registration of such Initial Shares or Remaining Shares, the Initial Shares
or Remaining Shares proposed to be transferred may be transferred in
accordance with the terms of said notice and in compliance with applicable
state securities laws and regulations. The Company shall not be required to
effect any such transfer prior to the receipt of such favorable opinion;
provided that if the proposed transfer is governed by Rule 144 promulgated by
the SEC, or any successor rule, such opinion shall not be required, but the
Company may prevent such transfer until it receives evidence satisfactory to
it and its counsel that the transfer complies with Rule 144. Each transfer
shall comply with all applicable SEC rules and applicable state securities
laws.
6.3 PERMITTED TRANSFERS. Notwithstanding anything to the
contrary in this Agreement, Purchaser may transfer Initial Shares or
Remaining Shares to any Affiliate of Purchaser in accordance with the
provisions of SECTIONS 6.1 and 6.2; provided that the transferee shall hold
such Initial Shares or Remaining Shares subject to the same restrictions
applicable to its transferor and shall agree in writing to be bound by the
terms of this Agreement.
7. CERTAIN COVENANTS.
7.1 PREEMPTIVE RIGHTS.
7.1.1 Purchaser shall have the right to subscribe to any
additional (i) issuances of shares of capital stock of the
Company, (ii) issuances of securities convertible into shares of
capital stock of the Company, or (iii) grants of options to
purchase shares of capital stock of the Company, other than grants
to employees, directors or consultants of the Company (and the
issuance of shares upon exercise of such options), for cash, on
the same terms of such offerings to the extent equal to the
proportion which the number of shares of Stock then held by
Purchaser bears to the Company's fully-diluted capitalization (on
an as-converted and as-exercised basis). Such right is exercisable
within ten (10) days after the receipt of written notice relating
to such issuances by the Purchaser. Such right extends to the same
proportion of the new issue of shares, convertible securities or
options as the Purchaser's proportion of the outstanding shares.
7.1.2 Purchaser's right to purchase new issues of shares or
convertible securities or options does not extend to (i) the
issuance of shares upon the conversion or exercise of options or
other convertible securities either (A) outstanding on the date
hereof, or (B) with respect to which options or other convertible
securities Purchaser had preemptive rights under this SECTION 7.1,
or (ii) securities issued solely in exchange for shares,
convertible securities or options issued in connection with any
merger, reorganization or acquisition (including, without
limitation, shares of Stock issued in connection with the pending
merger of WorldxChange Limited (New Zealand)).
7.1.3 The preemptive rights held by the Purchaser pursuant to
this SECTION 7.1 supersede and replace the preemptive rights held
by the Purchaser pursuant to the
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First Atocha Agreement such that the preemptive rights held by the
Purchaser pursuant to the First Atocha Agreement shall terminate
as of the Initial Closing.
7.1.4 The preemptive rights held by the Purchaser pursuant to
this SECTION 7.1 shall terminate immediately prior to the closing
of an initial public offering of the Company's securities and
shall not apply to any issuance of securities in such offering.
7.2 REGISTRATION RIGHTS. The Company and Purchaser, concurrently
with the Initial Closing, shall execute and deliver the New Registration Rights
Agreement.
7.3 BOARD MATTERS. Beginning on and contingent upon the occurrence
of the Initial Closing Date and until the earlier to occur of (i) such time as
the Purchaser and Gold & Appel, collectively, do not own at least five percent
of the issued and outstanding Stock, or (ii) such time as the Company becomes
subject to the reporting requirements of Section 13 of the Exchange Act, the
Purchaser shall have the right to designate one (1) nominee to the Company's
Board of Directors. Notwithstanding the foregoing, (i) prior to such time as the
Company becomes subject to Section 13 of the Exchange Act, such nominee shall be
Thomas Ciritto, unless Thomas Ciritto is unable to serve due to a physical or
mental incapacity, in which case the Purchaser has the right to designate
another nominee, and (ii) the Purchaser shall have the right to designate one
(1) nominee to the Company's initial Board of Directors after the Company
becomes subject to Section 13 of the Exchange Act, provided that if such nominee
is not Thomas Ciritto, the nominee shall be subject to the approval of the
Company.
7.4 RULE 144 FILING. After the Company's Common Stock is
registered under the Exchange Act, and until the Initial Shares and the
Remaining Shares held by Purchaser have all been publicly sold or are eligible
for sale under Rule 144(k) under the Securities Act, the Company shall use best
efforts to file the reports required under Rule 144(c)(1) under the Securities
Act in order to permit sales of the Initial Shares and Remaining Shares by
Purchaser pursuant to Rule 144.
7.5 HSR FILINGS. The Company and the Purchaser each agree to use
best efforts to cause the HSR Filings to be made promptly after the execution
and delivery of this Agreement. The Company and the Purchaser each agree to
furnish each other with such necessary information and reasonable assistance as
the other may request in connection with the HSR Filings.
8. INDEMNIFICATION.
8.1 OBLIGATIONS OF THE COMPANY. The Company agrees to indemnify
and hold harmless the Purchaser from and against any and all Losses of the
Purchaser based upon or arising from any inaccuracy in or breach or
nonperformance of any of the representations, warranties, or covenants made or
obligations undertaken by the Company in this Agreement.
8.2 OBLIGATIONS OF THE PURCHASER. The Purchaser agrees to
indemnify and hold harmless the Company from and against any and all Losses of
the Company based upon or arising from, any inaccuracy in or breach or
nonperformance of any of the representations, warranties or covenants made by
the Purchaser in this Agreement.
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8.3 PROCEDURE.
8.3.1 NOTICE. Any party seeking indemnification with respect to
any Loss shall give notice to the party required to provide
indemnity hereunder (the "INDEMNIFYING PARTY").
8.3.2 DEFENSE. If any claim, demand or liability is asserted by
any third party against any Indemnified Party, the Indemnifying
Party shall upon the written request of the Indemnified Party,
defend any actions or proceedings brought against the Indemnified
Party in respect of matters embraced by the indemnity. If, after a
request to defend any action or proceeding, the Indemnifying Party
does not defend the Indemnified Party, a recovery against the
latter suffered by it in good faith, is conclusive in its favor
against the Indemnifying Party, provided however that, if the
Indemnifying Party has not received reasonable notice of the
action or proceeding against the Indemnified Party, or is not
allowed to control its defense, judgment against the Indemnified
Party is only presumptive evidence against the Indemnifying Party.
The parties shall cooperate in the defense of all third party
claims which may give rise to Indemnifiable Claims hereunder. In
connection with the defense of any claim, each party shall make
available to the party controlling such defense, any books,
records or other documents within its control that are reasonably
requested in the course of such defense.
8.4 EXCLUSIVE REMEDY. This SECTION 8 shall be the exclusive remedy
of the parties for any Loss of such party based upon or arising from any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, or covenants made by any other party to this Agreement.
Notwithstanding the foregoing, Purchaser shall have the right to the remedy of
specific performance with respect to SECTIONS 2.1, 3.1, 7.1, 7.3 AND 7.4.
9. GENERAL.
9.1 AMENDMENTS; WAIVERS. This Agreement and any schedule attached
hereto may be amended only by agreement in writing of all parties. No waiver of
any provision nor consent to any exception to the terms of this Agreement shall
be effective unless in writing and signed by the party to be bound and then only
to the specific purpose, extent and instance so provided.
9.2 FIRST ATOCHA AGREEMENT. Except as provided in SECTION 7.1 or
as otherwise expressly provided in this Agreement, the terms and provisions of
the First Atocha Agreement (i) are hereby ratified and confirmed, (ii) shall
continue in full force and effect, and (iii) shall be unaffected by any
provisions of this Agreement.
9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as set
forth in the following sentence, all representations and warranties of the
Company and the Purchaser set forth in this Agreement or expressly incorporated
herein by reference shall, as of the first anniversary of the date of this
Agreement, expire and terminate and be of no further force or effect.
Notwithstanding the foregoing, (i) the representations and warranties set forth
in SECTION 4.7 (Accuracy of Information) shall survive until the thirtieth day
following delivery by the
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Company to the Purchaser of audited financial statements for the fiscal year
ended September 30, 1999, and (ii) the representations and warranties set forth
in SECTION 4.2 (Capital Stock and Related Matters) shall survive indefinitely.
As of the termination of the respective representations, warranties and
covenants as provided in this Agreement, the Company and the Purchaser shall be
deemed to have irrevocably waived and released any and all rights and remedies
any of them may have with respect to any inaccuracy in or breach or
nonperformance of any of the representations, warranties, or covenants made by
any party to this Agreement.
9.4 SCHEDULES; EXHIBITS; INTEGRATION. Each schedule and exhibit
delivered pursuant to the terms of this Agreement shall be in writing and shall
constitute a part of this Agreement. This Agreement, together with such
schedules and exhibit, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith.
9.5 BEST EFFORTS; FURTHER ASSURANCES.
9.5.1 STANDARD. Each party will use its best efforts to fulfill
all obligations on its part to be performed and fulfilled under
this Agreement, to the end that the transactions contemplated by
this Agreement shall be effected substantially in accordance with
its terms as soon as reasonably practicable. The parties shall
cooperate with each other in such actions and in securing
requisite Approvals. Each party shall deliver such further
documents and take such other actions as the other party may
reasonably request to consummate or implement the transactions
contemplated hereby or to evidence such events or matters.
9.5.2 LIMITATION. As used in this Agreement, the term "best
efforts" shall not mean efforts which require the performing party
to do any act that is unreasonable under the circumstances, to
make any capital contribution or to expend any funds other than
reasonable out-of-pocket expenses incurred in satisfying its
obligations hereunder, including but not limited to the fees,
expenses and disbursements of its accountants, actuaries, counsel
and other professionals.
9.6 GOVERNING LAW AND FORUM SELECTION. This Agreement is to be
construed and enforced in accordance with the internal laws of the State of
California. The parties consent to the jurisdiction of all federal and state
courts in California. Any civil action or other legal proceeding arising out of
or relating to this Agreement shall be brought and heard only in a federal or
state court located in California, and all parties waive any right to have such
action or proceeding transferred to another location.
9.7 NO ASSIGNMENT. Neither this Agreement nor any rights or
obligations under it are assignable, except pursuant to a permitted transfer by
Purchaser in accordance with SECTION 6.3 above.
9.8 HEADINGS. The descriptive headings of the Sections and
Subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
9.9 COUNTERPARTS. This Agreement and any amendment hereto or any
other document delivered pursuant hereto may be executed in one or more
counterparts and by
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different parties in separate counterparts. All of such counterparts shall
constitute one and the same agreement (or other document) and shall become
effective (unless otherwise provided therein) when one or more counterparts have
been signed by each party and delivered to the other party.
9.10 PUBLICITY AND REPORTS. The Company and the Purchaser shall
coordinate all publicity relating to the transactions contemplated by this
Agreement and no party shall issue any press release, publicity statement or
other public notice relating to this Agreement, or the transactions contemplated
by this Agreement, without obtaining the prior written consent of each of the
parties to this Agreement except to the extent that a particular action is
required by applicable Law.
9.11 CONFIDENTIALITY. All information disclosed by any party (or
its representatives) whether before or after the date hereof, in connection with
the transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) shall be kept
confidential by such other party and its representatives and shall not be used
by any such Persons other than as contemplated by this Agreement, except to the
extent that such information (i) was known by the recipient when received, (ii)
it is or hereafter becomes lawfully obtainable from other sources, (iii) is
necessary or appropriate to disclose to a Governmental Entity having
jurisdiction over the parties, provided that the disclosing party give
reasonable notice to the other parties and the opportunity to protect any such
confidential information, (iv) as may otherwise be required by Law or (v) to the
extent such duty as to confidentiality is waived in writing by the other party.
9.12 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure to the benefit of each party, and nothing in this Agreement, express
or implied, is intended to confer upon any other Person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement is intended to relieve or discharge the obligation of any third person
to any party to this Agreement.
9.13 NOTICES. Any notice or other communication hereunder must
be given in writing and (i) delivered in person, (ii) transmitted by telex,
telefax or telecommunications mechanism or (iii) mailed by certified or
registered mail, postage prepaid), receipt requested as follows:
IF TO PURCHASER, ADDRESSED TO:
Atocha, L.P.
6429 Georgetown Pike
McLean, Virginia 22101
Attn: Thomas Ciritto
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IF TO THE COMPANY, ADDRESSED TO:
WORLDxCHANGE
9999 Willow Creek Road
San Diego, California 92131
Attn: Roger B. Abbott
Facsimile No: (619) 625-0217
WITH A COPY TO:
O'Melveny & Myers LLP
610 Newport Center Drive
Newport Beach, California 92660
Attn: David A. Krinsky, Esq.
Facsimile No: (949) 823-6994
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (A) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
SECTION 9.13 and an appropriate answer back is received, (B) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (C) if given by any other means, when
actually received at such address.
9.14 EXPENSES. Each party shall pay its own expenses incident to
the negotiation, preparation and performance of this Agreement and the
transactions contemplated hereby, including but not limited to the fees,
expenses and disbursements of such party's respective investment bankers,
accountants and counsel. Purchaser shall pay one-half and the Company will pay
one-half of the HSR Act filing fee.
9.15 WAIVER. No failure on the part of any party to exercise or
delay in exercising any right hereunder shall be deemed a waiver thereof, nor
shall any single or partial exercise preclude any further or other exercise of
such or any other right.
9.16 REPRESENTATION BY COUNSEL; INTERPRETATION. The Company and
the Purchaser each acknowledge that each party to this Agreement has been
represented by counsel in connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of Law, including but not
limited to Section 1654 of the California Civil Code, or any legal decision that
would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted it has no application and is expressly waived.
The provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intent of the Purchaser and the Company.
9.17 SEVERABILITY. If any provision of this Agreement is
determined to be invalid, illegal or unenforceable by any Governmental Entity,
the remaining provisions of this Agreement to the extent permitted by Law shall
remain in full force and effect provided that the economic and legal substance
of the transactions contemplated is not affected in any manner materially
adverse to any party. In event of any such determination, the parties agree to
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negotiate in good faith to modify this Agreement to fulfill as closely as
possible the original intents and purposes hereof.
9.18 NO CONSEQUENTIAL DAMAGES. Notwithstanding anything to the
contrary elsewhere in this Agreement, no party (or its Affiliates) shall, in any
event, be liable to any other party (or its Affiliates) for any consequential
damages, including, but not limited to, loss of revenue or income, or loss of
business reputation or opportunity relating to the breach or alleged breach of
this Agreement. The foregoing shall not be deemed to limit Purchaser's right to
specific performance with respect to SECTIONS 2.1, 3.1, 7.1, 7.3 and 7.4.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and
year first above written.
COMPANY: PURCHASER:
COMMUNICATION TELESYSTEMS ATOCHA, L.P., a Texas limited partnership
INTERNATIONAL D.B.A.
WORLDXCHANGE
COMMUNICATIONS, a California
corporation By: /s/ [Illegible]
-----------------------------------
Its: General Partner
-----------------------------------
By: /s/ Roger B. Abbott
-------------------------
Its: CEO
-------------------------
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LIST OF OMITTED SCHEDULES
The following Schedules and Attachment to the Stock Purchase Agreement
dated February 3, 1999 (Atocha L.P.) have been omitted from this Exhibit and
shall be furnished supplementally to the Commission upon request:
Schedule 4.2 - Equity Securities
Schedule 4.14 - Directors and Officers Liability Insurance
Exhibit A - New Registration Rights Agreement
Exhibit B - Form of Opinion of O'Melveny & Myers LLP - First Closing
Exhibit C - Form of Opinion of O'Melveny & Myers LLP - Second Closing
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated February
3, 1999, is made and entered into by and among Communication Telesystems
International d.b.a. WorldxChange Communications, a California corporation (the
"COMPANY"), and Atocha, L.P. ("ATOCHA").
RECITALS
WHEREAS, the Company and Atocha are parties to that certain Stock
Purchase Agreement, dated February 3, 1999 (the "PURCHASE AGREEMENT"), which
provides for Atocha's purchase from the Company of an aggregate of 3,000,000
shares of the Common Stock of the Company (with 1,500,000 of such shares (the
"INITIAL SHARES") to be purchased at the Initial Closing (as defined in the
Purchase Agreement) and 1,500,000 shares (the "REMAINING SHARES") to be
purchased at the Second Closing (as defined in the Purchase Agreement)); and
WHEREAS, in order to induce Atocha to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement with respect to the "REGISTRABLE SECURITIES" (as such term is
defined in Section 1).
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties, intending to be
legally bound, hereby agree as follows:
1. DEFINITIONS. FOR PURPOSES OF THIS AGREEMENT:
(a) the term "BONA FIDE PUBLIC OFFERING" means an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "1933 ACT"), covering the offer and
sale of Common Stock of the Company in which aggregate proceeds to the
Company and the selling shareholders exceed $25,000,000;
(b) the term "COMMON STOCK" means the Company's authorized
voting common stock, no par value, and any class of securities issued in
exchange for the Common Stock or into which the Common Stock is converted;
(c) the term "HOLDER" means Atocha or any permitted transferee
of Registrable Securities pursuant to the Purchase Agreement in accordance
with Section 10 hereof;
(d) the term "INITIATING HOLDERS" means the Holders of 30% or
more of the Registrable Securities then outstanding;
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(e) the term "ORIGINAL REGISTRATION RIGHTS AGREEMENT" means that
certain Registration Rights Agreement effective as of September 30, 1998 by
and among the Company, Atocha and the other investors named therein.
(f) the term "REGISTRABLE SECURITIES" means: (i) if acquired by
Atocha pursuant to the Purchase Agreement, the Initial Shares; (ii) if
acquired by Atocha pursuant to the Purchase Agreement, the Remaining
Shares; and (iii) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of such Initial Shares and/or Remaining
Shares;
(g) the term "REGISTRATION EXPENSES" means all expenses incurred
by the Company in complying with Sections 2 and 3 hereof, including,
without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, accountants' fees and
expenses, and blue sky fees and expenses;
(h) the terms "REGISTER," "REGISTERED" and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with the 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by
the Securities and Exchange Commission;
(i) the term "SELLING EXPENSES" means all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities,
the fees and disbursements of any counsel engaged by the Holders and any
other expenses incurred by the Holders in connection with the registration
and sale of the Registrable Securities;
(j) the number of shares of Registrable Securities "THEN
OUTSTANDING" shall be the number of shares of Common Stock outstanding
which are, and the number of shares of Common Stock which upon issuance of
then exercisable or convertible securities will be, Registrable Securities;
and
(k) the term "THIRD PARTY HOLDER" means (A) any person other
than a Holder with registration rights with respect to securities of the
Company and (B) Atocha (or any permitted transferee of Atocha) with respect
to securities of the Company as to which Atocha (or any such transferee of
Atocha) has registration rights pursuant to the Original Registration
Rights Agreement.
2. DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive, at any time during the one-
year period commencing three years after the date of this Agreement (and in
such additional years as may be required by Section 2(d)), a written
request from the Initiating Holders with respect to the Registrable
Securities that the Company file a registration statement under the 1933
Act covering the registration of
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Registrable Securities having an estimated aggregate initial public
offering price of not less than $5,000,000, provided that a Bona Fide
Public Offering has not been commenced by the Company, the Company shall
promptly give written notice of such request to all Holders and shall use
reasonable efforts to effect the registration under the 1933 Act of all
such Registrable Securities which the Initiating Holders request to be
registered, together with all of the Registrable Securities of any other
Holder or Holders who so request by notice to the Company which is given
within 10 days after receipt of the notice from the Company described
above. Notwithstanding the foregoing, if the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would
be seriously detrimental to the Company for a registration statement to be
filed in the near future, then the Company's obligation to use its
reasonable efforts to file a registration statement shall be deferred for a
period not to exceed 90 days (provided, however, that the Company may make
only one such deferral with respect to each demand registration).
Securities of the Company to be sold by the Company or by a Third Party
Holder may be included in such registration statement, subject to the
provisions of Section 2(c) below.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to this Section 2 and the Company shall include such
information in the written notice referred to in Section 2(a). In such
event, the right of any Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders, by the underwriter, by the Company, and
by such Holder) to the extent provided herein.
(c) All Holders and Third Party Holders proposing to distribute
their securities through such underwriting (together with the Company as
provided in Section 4(e)) shall enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the Company, or if no underwriter is
selected by the Company, by a majority in interest of the Initiating
Holders and reasonably acceptable to the Company. Notwithstanding any other
provisions of this Section 2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, the Initiating Holders shall so advise
all Holders of Registrable Securities, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting by the Holders shall be allocated among all Holders thereof,
all Third Party Holders, and the Company, pro rata based on the number of
shares for which registration was requested. No Registrable Securities
excluded from the underwriting by reason of the marketing limitation shall
be included in such registration. If any Holder of Registrable Securities
disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice
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to the Company, the underwriter and, unless otherwise provided, the
Initiating Holders.
(d) The Company is obligated to effect only one demand
registration for the Holders pursuant to this Section 2; provided, however,
that if any Registrable Securities of a Holder requested to be registered
(regardless of whether a Holder withdraws such Registrable Securities
pursuant to Section 2(c) or Section 6) are excluded by the underwriter in a
demand registration pursuant to Section 2(c) or in a "piggyback"
registration pursuant to Section 6 (which excluded Registrable Securities
are referred to herein as the "EXCLUDED SECURITIES"), then the Company,
upon the demand of the Initiating Holders three or more years after the
date of this Agreement, shall be obligated to effect one additional demand
registration under this Section 2 each year with respect to the Excluded
Securities of such Holder, until such time as (i) such Holder may freely
(except as may be restricted by Rule 144 under the 1933 Act) sell all of
the Excluded Securities without registration under the 1933 Act within the
then following six months and (ii) the Excluded Securities are listed on a
securities exchange or qualified for trading on an over-the-counter system
selected by the Company.
(e) The demand registration rights provided by the Company to
any Holder pursuant to Section 2 of this Agreement shall immediately
terminate upon the closing of a Bona Fide Public Offering by the Company.
(f) A registration requested pursuant to this Section 2 shall
not be deemed to have been effected (a) unless a registration statement
with respect thereto has become effective or (b) if after it has become
effective, the effectiveness of such registration statement is terminated
or suspended by a stop order, injunction or other order of the SEC or other
governmental agency or court, unless such order, injunction or other order
is lifted or stayed within 30 days of the issuance of such stop order,
injunction or other order. The Company shall use its reasonable best
efforts to keep such registration statement effective for up to 60 days
after such registration statement has become effective.
3. PIGGY-BACK REGISTRATION RIGHTS. If at any time the Company proposes
to register (including for this purpose a registration effected by the Company
for shareholders other than the Holders) any of its securities under the 1933
Act in connection with the public offering of such securities solely for cash
(other than a registration form relating to: (a) a registration of a stock
option, stock purchase or compensation or incentive plan or of stock issued or
issuable pursuant to any such plan, or a dividend investment plan; (b) a
registration of securities proposed to be issued in exchange for securities or
assets of, or in connection with a merger or consolidation with, another
corporation; or (c) a registration of securities proposed to be issued in
exchange for other securities of the Company), the Company shall, each such
time, promptly give each Holder written notice of such registration together
with a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under applicable state securities laws. Upon the written
request of any Holder given within 30 days after receipt
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of such written notice from the Company in accordance with Section 14, the
Company shall (subject to the provisions of Section 6 in the case of an
underwritten offering) cause to be registered under the 1933 Act all of the
Registrable Securities that each such Holder has requested to be registered;
provided, however, in the event and to the extent such a Holder may freely
(except as may be restricted by Rule 144 under the 1933 Act) sell all of its
Registrable Securities without registration under the 1933 Act and the person
acquiring the securities does not acquire "restricted securities" within the
meaning of Rule 144, the Company may elect not to register such Registrable
Securities.
4. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be necessary for the distribution of the securities
covered by the registration statement and such jurisdictions as the Holders
participating in the offering shall reasonably request, provided that the
Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service
of process in any such jurisdiction, and further provided that (anything in
this Agreement to the contrary notwithstanding with respect to the bearing
of expenses) if any jurisdiction in which the securities shall be qualified
shall require that expenses incurred in connection with the qualification
of the securities in that jurisdiction be borne by selling shareholders,
such expenses shall be payable by the selling Holders pro rata, to the
extent required by such jurisdiction;
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an under writing agreement with
commercially reasonable and customary terms generally satisfactory to the
managing
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underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such
an agreement; and
(f) Use its reasonable best efforts to cause all such
Registrable Securities to be listed on a securities exchange or to qualify
such Registrable Securities for trading on an over-the-counter system
selected by the Company;
(g) Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement and thereafter maintain such a transfer agent and
registrar;
(h) In the event of any underwritten public offering, make
available for inspection, at reasonable times during normal business hours,
by any underwriter participating in such public offering and any attorney,
accountant or other agent retained by such underwriter, such financial and
other records, pertinent corporate documents and properties of the Company
as may be reasonably requested by such underwriter, and cause the Company's
officers, directors, employees and independent accountants to supply such
information as may be reasonably requested by any such underwriter,
attorney, accountant or agent in connection with such public offering
(provided, however, that such inspection and supplying of records and
documents shall be subject to the execution by each requesting party of a
confidentiality and non-disclosure agreement in a form reasonably
acceptable to the Company);
(i) Permit any Holder participating in such registration, which
Holder, in such Holder's reasonable judgment, might be deemed to be an
underwriter or controlling person of the Company, to participate in the
preparation of the registration statement in connection with such
registration and to propose the insertion therein of material which in the
reasonable judgment of such Holder and its counsel should be included;
(j) In connection with underwritten offerings, make available
appropriate management personnel for participation in the preparation and
drafting of such registration or comparable statement, for due diligence
meetings and for "road show" meetings;
(k) In the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending
or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, the Company will use its reasonable
best efforts promptly to obtain the withdrawal of such order, provided that
in the Company's opinion, in consultation with its counsel, there is a good
faith argument for the removal of such order;
(l) Obtain a cold comfort letter from the Company's independent
public accountants addressed to the selling Holders of Registrable
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Securities in customary form and covering such matters of the type
customarily covered by cold comfort letters as the Holders of a majority of
the Registrable Securities being sold reasonably request; and
(m) Furnish, at the request of Holders of a majority of the
Registrable Securities participating in the registration, to each seller of
Registrable Securities a signed counterpart, addressed to such seller (and
underwriters, if any) of an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such Holder covering substantially the same matters with
respect to such registration (and the prospectus included therein) as are
customarily covered in opinions of issuer's counsel to underwriters in
underwritten public offerings.
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.
6. UNDERWRITING REQUIREMENTS. The right of any Holder to "piggyback"
in an underwritten public offering of the Company's securities pursuant to
Section 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
any other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company. Notwithstanding any other
provision of Section 3 and this Section 6, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, and (a) if such registration is the first registered offering of
the Company's securities to the public, the underwriter may exclude some or all
of the Registrable Securities from such registration and underwriting, provided
that the Holders are allowed to participate in the offering in the same
proportion (based on the total number of securities requested to be registered)
as any other shareholder of the Company participating in the offering, and (b)
if such registration is other than the first registered offering of the
Company's securities to the public, the underwriter may exclude some or all
Registrable Securities from such registration and underwriting, provided that
all of the shares requested to be registered by shareholders other than Holders
and Third Party Holders shall first be excluded and thereafter, only to the
extent deemed necessary by the underwriter, shares requested to be registered by
Holders and Third Party Holders shall be reduced pro rata based on the number of
securities respectively requested by them to be registered. Any reduction in the
number of Registrable Securities included in such registration shall be borne
equally by the Holders and any Third Party Holders as a group
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pro rata based on the number of shares for which registration was requested. If
any Holder disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration. Third Party Holders "piggybacking" on a demand
registration demanded by the Initiating Holders under Section 2 above shall be
subject to the same conditions, requirements and limitations that are applicable
to a Holder under this Section 6 in the event of an underwritten public
offering.
7. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Holders of the securities so registered pro rata on the basis of the
number of shares so registered.
8. DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
9. INDEMNIFICATION. If any Registrable Securities are included in a
registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors and partners of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended
(the "1934 ACT"), against any losses, claims, damages, or liabilities
(joint or several) to which they or any of them may become subject under
the 1933 Act, the 1934 Act or any other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect
thereof) arise from or are based upon any of the following statements,
omissions or violations (collectively a "VIOLATION"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto; or
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein
not misleading; and the Company will reimburse each such Holder, officer,
director or partner, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 9 shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
the Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises from or is based upon a
violation which occurs in reliance upon and in conformity with written
information furnished expressly for
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use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the 1933 Act, any
underwriter (within the meaning of the 1933 Act) for the Company, any
person who controls such underwriter, any other Holder selling securities
in such registration statement or any of its directors or officers or any
person who controls such Holder against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, or underwriter or other such Holder or
director, officer or controlling person may become subject, under the 1933
Act, the 1934 Act or any other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto)
arise from or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or controlling
person, other Holder, officer, director or controlling person in connection
with investigation or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 9 shall not apply to amounts paid in settlement of any such loss,
claim damage, liability or action if such settlement is effected without
the consent of the Holder which consent shall not be unreasonably withheld.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 9
is applicable but for any reason is held to be unavailable from the Company
or any Holder, the Company and the Holders participating in the
registration shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claims asserted) to which the Company and the
participating Holders may be subject in such proportion so that the
participating Holders are responsible for that portion of the foregoing
amount represented by the ratio of the proceeds received by the
participating Holders in the offering to the total proceeds received from
the offering by the Company and all selling shareholders (other than
participating Holders) and the Company shall be responsible for the portion
represented by the ratio of proceeds received by the Company to the total
proceeds received by the Company and all selling shareholders (other than
participating Holders); provided, however, that such portions shall be
adjusted as may be just and equitable to take into account the relative
fault of the participating Holders and the Company; provided further,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
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misrepresentation. For purposes of this Section 9(c), each person, if any,
who controls the Company or any Holder within the meaning of the 1933 Act,
each officer of the Company who shall have signed the registration
statement and each director of the Company shall have the same rights to
contribution as the Company.
(d) No settlement shall be effected without the prior written
consent of the Holders participating in a registration unless (i) the
obligations of the Company for indemnification or contribution pursuant to
this Agreement survive and are not extinguished by reason of the settlement
and remain in full force and effect under applicable federal and state
laws, rules, regulations and orders or (ii) all claims and actions against
the participating Holders and each person who controls a participating
holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act are extinguished by the settlement and the indemnifying party
obtains a full release of all claims and actions against the participating
Holders and each such control person, which release shall be to the
reasonable satisfaction of the participating Holders.
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 9,
notify the indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party
within a reasonable time of the commencement of any such action, to the
extent prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 9, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
(f) The obligations of the Company and the Holders under this
Section 9 shall survive through the completion of any offering of
Registrable Securities in a registration statement made under the terms of
this Agreement.
10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of a Holder under
this Agreement may be assigned by a Holder only to a permitted transferee of
such securities pursuant to Section 6.3 of the Purchase Agreement, provided the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee and the securities with
respect to which such registration rights are
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being assigned; provided, however, that no such assignment shall be effective
if, immediately following the transfer, the transferee is free to dispose of all
of such securities without regard to any restrictions imposed under the 1933
Act.
11. SUBSEQUENT REGISTRATION RIGHTS. The Company may grant registration
rights to parties other than the Holders; provided, however, that in the event
the Company shall grant any person registration rights containing terms more
favorable than the terms granted herein, the more favorable terms shall
automatically be deemed granted to the Holders and incorporated herein by
reference. Prior to the date of this Agreement, the Company has not granted
registration rights to any other person that are still in effect and that are on
terms more favorable than the terms granted herein.
12. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities in a market transaction during a period
deemed by the underwriter to be necessary or appropriate following the effective
date of a registration statement of the Company filed under the 1933 Act,
provided that Roger B. Abbott, Rosalind Abbott, and Edward S. Soren are subject
to such an agreement for the same period. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
13. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a registration statement and which does not directly or indirectly
affect the rights of other holders of Registrable Securities may be given by the
holders of a majority of the Registrable Securities being sold; provided,
however, that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
14. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one business day after being sent, when
sent by professional overnight courier service from and to locations within the
continental United States, or (c) five days after posting when sent by
registered or certified mail (return receipt requested), addressed to the
Company or an Investor at his, her or its address set forth on the signature
pages hereof. Any party hereto may from time to time by notice in writing served
upon the others as provided herein, designate a different mailing address or a
different person to which such notices or demands are thereafter to be addressed
or delivered.
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15. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.
16. CAPTIONS. Captions are provided herein for convenience only and
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
17. CROSS-REFERENCES. All cross-references in this Agreement, unless
specifically directed to another agreement or document, refer to provisions
within this Agreement.
18. GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of California
applicable to agreements made and to be performed wholly within the State of
California. In the event a judicial or other proceeding is necessary to resolve
any dispute hereunder, the sole forum for resolving disputes arising under or
relating to this Agreement shall be the Municipal and Superior Courts for the
County of San Diego, State of California, or the federal district court for the
district of California associated with such county and all related appellate
courts and the parties hereby consent to the jurisdiction of such courts, and
that venue shall be in such county.
19. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be declared invalid or unenforceable, the remaining
provisions shall remain in full force and effect and shall be construed in the
broadest possible manner to effectuate the purposes hereof. The parties further
agree to replace such void or unenforceable provisions of this Agreement with
valid and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.
20. ENTIRE AGREEMENT. This Agreement contains the entire understanding
among the parties hereto with respect to the subject matter hereof and
supersedes all prior written and oral agreements, understandings, commitments
and practices between the parties, including all prior agreements with respect
to registration rights.
21. CONSIDERATION FOR APPROVALS OR WAIVERS. No consideration shall be
paid to any Holder to obtain such Holder's approval for or waiver of any
amendment of this Agreement or any matter requiring the approval or consent of
the Holders hereunder unless such consideration is also offered to all Holders,
pro rata based upon the number of Registerable Securities held by the Holders.
22. REMEDIES. Subject to Section 8 (Delay of Registration), each
Holder of Registrable Securities, in addition to being entitled to exercise all
rights granted by
12
<PAGE>
law, including recovery of damages, will be entitled to specific performance of
its rights under this Agreement.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement with the intent and agreement that the same
shall be effective as of the day and year first above written.
THE COMPANY:
Communication Telesystems International
d.b.a. WorldxChange Communications,
a California corporation
By: /s/ Roger B. Abbott
-------------------------------------
Title: CEO
----------------------------------
Address: 9999 Willow Creek Road
San Diego, California 92131
Attn: Roger B. Abbott
Fax: (619) 625-0217
ATOCHA:
ATOCHA, L.P.,
a Texas limited partnership
By: /s/ [Illegible]
-----------------------------
Title: General Partner
--------------------------
Address: 6429 Georgetown Pike
------------------------
McLean, VA 72101
------------------------
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<PAGE>
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE
COMMUNICATIONS
AND
GOLD & APPEL TRANSFER S.A.
MAY 10, 1999
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. PURCHASE AND SALE OF THE INITIAL SHARES . . . . . . . . . . . . . . . . . . .4
2.1 Purchase and Sale of the Initial Shares . . . . . . . . . . . . . . .4
2.2 Conditions Precedent to Sale of the Initial Shares . . . . . . . . . .4
3. SALE OF ADDITIONAL SHARES . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 Sale of Second Closing Shares . . . . . . . . . . . . . . . . . . . .5
3.2 Conditions Precedent to Sale of Second Closing Shares . . . . . . . .5
3.3 Sale of Third Closing Shares . . . . . . . . . . . . . . . . . . . . .5
3.4 Conditions Precedent to Sale of Third Closing Shares . . . . . . . . .6
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . .6
4.1 Organization and Corporate Power . . . . . . . . . . . . . . . . . . .6
4.2 Capital Stock and Related Matters . . . . . . . . . . . . . . . . . .6
4.3 Authorization; No Conflicts . . . . . . . . . . . . . . . . . . . . .7
4.4 Governmental Consent . . . . . . . . . . . . . . . . . . . . . . . . .7
4.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .7
4.6 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . .8
4.7 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . .8
4.8 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . .8
4.9 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . .8
4.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . .8
4.12 Government Authorizations . . . . . . . . . . . . . . . . . . . . . .8
4.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . .9
5.1 Organization and Corporate Power . . . . . . . . . . . . . . . . . . .9
5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . .9
5.5 Investment Representations . . . . . . . . . . . . . . . . . . . . . .9
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PAGE
6. TRANSFER OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Notice of Proposed Transfers . . . . . . . . . . . . . . . . . . . . 11
6.3 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . 11
7. CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . 12
7.3 Rule 144 Filing . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.4 Changes in Capital Stock . . . . . . . . . . . . . . . . . . . . . . 12
8. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Obligations of the Company . . . . . . . . . . . . . . . . . . . . . 13
8.2 Obligations of the Purchaser . . . . . . . . . . . . . . . . . . . . 13
8.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.4 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.1 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . 14
9.2 First Gold & Appel Agreement . . . . . . . . . . . . . . . . . . . . 14
9.3 Survival of Representations and Warranties . . . . . . . . . . . . . 14
9.4 Schedules; Exhibits; Integration . . . . . . . . . . . . . . . . . . 14
9.5 Best Efforts; Further Assurances . . . . . . . . . . . . . . . . . . 14
9.6 Governing Law and Forum Selection . . . . . . . . . . . . . . . . . 15
9.7 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.10 Publicity and Reports . . . . . . . . . . . . . . . . . . . . . . . 15
9.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.12 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . 16
9.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.14 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.15 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.16 Representation By Counsel; Interpretation . . . . . . . . . . . . . 17
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PAGE
9.17 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.18 No Consequential Damages . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<PAGE>
SCHEDULES AND EXHIBITS
Schedule 4.2 Equity Securities
Schedule 4.14 Directors and Officers Liability Insurance
Exhibit A New Registration Rights Agreement
Exhibit B Form of Opinion of O'Melveny & Myers LLP -Initial Closing
Exhibit C Form of Opinion of O'Melveny & Myers LLP - Second Closing
Exhibit D Form of Opinion of O'Melveny & Myers LLP - Third Closing
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is dated May 10,
1999, by and between COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE
COMMUNICATIONS, a California corporation (the "COMPANY"), and GOLD & APPEL
TRANSFER S.A., a British Virgin Islands corporation (the "PURCHASER").
The parties hereby agree as follows:
1. DEFINITIONS.
1.1 Definitions.
1.1.1 For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires,
(a) the terms defined in this SECTION 1 have the
meanings assigned to them in this SECTION 1 and include the plural
as well as the singular,
(b) the words "herein," "hereof," "hereto" and
"hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Section, Subsection
or other subdivision, unless the context otherwise requires, and
(c) all accounting terms not otherwise defined
herein have the meanings assigned under generally accepted
accounting principles.
1.2 As used in this Agreement, the following definitions shall
apply.
"AFFILIATE" means a Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with, a specified Person.
"AGREEMENT" means this Agreement by and between the Company and
the Purchaser as amended or supplemented together with the Exhibits and all
Schedules attached or incorporated by reference.
"APPROVAL" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
"ATOCHA" means Atocha, L.P., a Texas limited partnership.
"AUDITORS" means Ernst & Young LLP, independent public accountants
to the Company.
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"COMPANY" means Communication TeleSystems International d.b.a.
WorldxChange Communications, a California corporation.
"CONTRACT" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"EQUITY SECURITIES" means any capital stock of the Company
(including, without limitation, common stock and preferred stock) or other
equity interest in the Company or any securities convertible into or
exchangeable for capital stock of or an entity interest in, the Company or any
other rights (statutory, contractual or otherwise), warrants or options to
acquire any of the foregoing securities.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FIRST ATOCHA AGREEMENT" means that certain Stock Purchase
Agreement, dated September 29, 1998, by and among the Company, Atocha, Roger B.
Abbott, Rosalind Abbott and Edward S. Soren.
"FIRST GOLD & APPEL AGREEMENT" means that certain Stock Purchase
Agreement dated September 29, 1998 by and between the Company, Gold & Appel,
Roger B. Abbott, Rosalind Abbott and Edward S. Soren.
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"GOLD & APPEL" means Gold & Appel Transfer S.A., a British Virgin
Islands corporation.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"INDEMNIFIABLE CLAIM" means any Loss for or against which any
party is entitled to indemnification under this Agreement; "INDEMNIFIED PARTY"
means the party entitled to indemnity hereunder; and "INDEMNIFYING PARTY" means
the party obligated to provide indemnification hereunder.
"INITIAL CLOSING" has the meaning specified in SECTION 2.1.
"INITIAL CLOSING DATE" has the meaning specified in SECTION 2.1.
"INITIAL SHARES" means 909,090 shares of Stock to be issued by the
Company pursuant to SECTION 2.
2
<PAGE>
"LAW" means any constitutional provision, statute or other law,
rule, regulation, or interpretation of any Governmental Entity and any Order.
"LOSS" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified Person, but excluding any consequential damages.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition and business operations of the Company and its Subsidiaries
taken as a whole.
"MATERIAL CONTRACT" means any Contract material to the business of
the subject Person as of the date hereof.
"NEW REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement in the form attached hereto as EXHIBIT A.
"OFFERING MEMORANDUM" means that certain preliminary offering
circular, prepared by the Company, dated May 4, 1998 (the "PRELIMINARY OFFERING
CIRCULAR") as supplemented by a supplement to the Preliminary Offering Circular,
prepared by the Company, dated May 1, 1999, in the form delivered to Purchaser
with this Agreement.
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
any Governmental Entity or arbitrator.
"PURCHASER" means Gold & Appel Transfer S.A., a British Virgin
Islands corporation.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration
Rights Agreement, dated as of September 29, 1998, by and among the Company and
the investors set forth on the signature pages thereto.
"SEC" means the Securities and Exchange Commission or any
successor entity.
"SECOND ATOCHA AGREEMENT" means that certain Stock Purchase
Agreement dated February 3, 1999, by and between the Company and Atocha.
"SECOND CLOSING" has the meaning specified in SECTION 3.1.
3
<PAGE>
"SECOND CLOSING DATE" has the meaning specified in SECTION 3.1.
"SECOND CLOSING SHARES" means 909,090 shares of Stock to be issued
by the Company at the Second Closing.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK" means the common stock of the Company, no par value.
"SUBSIDIARY" means any Person in which the Company has a direct or
indirect equity or ownership interest in excess of 50%.
"TAX" or "TAXES" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, AD VALOREM, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"THIRD CLOSING" has the meaning specified in Section 3.3.
"THIRD CLOSING DATE" has the meaning specified in SECTION 3.3.
"THIRD CLOSING SHARES" means 909,090 shares of stock to be issued
by the Company at the Third Closing.
2. PURCHASE AND SALE OF THE INITIAL SHARES.
2.1 PURCHASE AND SALE OF THE INITIAL SHARES. Subject to SECTION
2.2, on or before the later to occur of (I) July 1, 1999 or (ii) the first
business day after the date that all of the conditions set forth in SECTION 2.2
have been satisfied or waived by the parties hereto, the Purchaser shall deliver
by wire transfer of immediately available funds in the amount of $10,000,000 to
the Company against the delivery by the Company to the Purchaser of a
certificate, issued in the name of the Purchaser, evidencing the Initial Shares
(the "INITIAL CLOSING"). The date on which the Initial Closing occurs shall be
the "INITIAL CLOSING DATE."
2.2 CONDITIONS PRECEDENT TO SALE OF THE INITIAL SHARES. The
obligations of the Company and the Purchaser to sell and purchase the Initial
Shares, respectively, are subject to the satisfaction, at or prior to the
Initial Closing Date, of each of the following conditions (which shall be the
only conditions to the Initial Closing and any of which may be waived by the
agreement of both parties, in whole or in part):
2.2.1 NO PROHIBITION. Neither the consummation nor the
performance of any of the transactions contemplated by this
Agreement at the Initial Closing will, directly or indirectly
(with or without notice or lapse of time), materially contravene
or conflict with, or result in a material violation of, any
applicable Law or Order.
4
<PAGE>
2.2.2 BRING-DOWN OF SELECTED REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company set forth in the
following portions of the indicated Sections of this Agreement
shall be true and correct as of the Initial Closing Date: (1) the
first two sentences of Section 4. 1; (2) the last sentence of
Section 4.2; (3) the first sentence of Section 4.3; and (4) the
third sentence of Section 4.3, except as to clause (ii) thereof.
In addition to being subject to the satisfaction of the conditions
specified in Sections 2.2.1 and 2.2.2, the Purchaser's obligations to purchase
the Initial Shares shall also be conditioned on Purchaser's receipt from the
Company of an opinion of O'Melveny & Myers LLP, dated the Initial Closing Date,
in the form attached hereto as EXHIBIT B.
3. SALE OF ADDITIONAL SHARES
3.1 SALE OF SECOND CLOSING SHARES. Subject to SECTION 3.2, on or
before August 1, 1999 the Purchaser shall deliver by wire transfer of
immediately available funds in the amount of $10,000,000 to the Company against
the delivery by the Company to the Purchaser of a certificate, issued in the
name of the Purchaser, evidencing the Second Closing Shares (the "SECOND
CLOSING"). The date on which the Second Closing occurs shall be the "SECOND
CLOSING DATE."
3.2 CONDITIONS PRECEDENT TO SALE OF SECOND CLOSING SHARES. The
obligations of the Company and the Purchaser to sell and purchase the Second
Closing Shares, respectively, are subject to the satisfaction, at or prior to
the Second Closing, of each of the following conditions (any of which may be
waived by the agreement of both parties, in whole or part):
3.2.1 NO PROHIBITION. Neither the consummation nor the performance
of any of the transactions contemplated by this Agreement at the
Second Closing will, directly or indirectly (with or without
notice or lapse of time), materially contravene or conflict with,
or result in a material violation of, any applicable Law or Order.
3.2.2 BRING-DOWN OF SELECTED REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company set forth in the
following portions of the indicated Sections of this Agreement
shall be true and correct as of the Second Closing Date: (1) the
first two sentences of Section 4. 1; (2) the last sentence of
Section 4.2; (3) the first sentence of Section 4.3); and (4) the
third sentence of Section 4.3, except as to clause (ii) thereof.
In addition to being subject to the satisfaction of the conditions
specified. in Sections 3.2.1 and 3.2.2, the Purchaser's obligations to purchase
tile Second Closing Shares shall also be conditioned on Purchaser's receipt from
the Company of an opinion of O'Melveny & Myers LLP, dated the Second Closing
Date, in the form attached hereto as EXHIBIT C.
3.3 SALE OF THIRD CLOSING SHARES. Subject to SECTION 3.4. on or
before September 1, 1999 the Purchaser shall deliver by wire transfer of
immediately available funds in the amount or$ 10,000,000 to the Company against
tile delivery by tile Company to tile Purchaser of a certificate, Issued in tile
name oil' tile PURCHASER evidencing the Third Closing
5
<PAGE>
Shares (the "THIRD CLOSING"). The date on which the Third Closing occurs shall
be the "THIRD CLOSING DATE."
3.4 CONDITIONS PRECEDENT TO SALE OF THIRD CLOSING SHARES. The
obligations of the Company and the Purchaser to sell and purchase the Third
Closing Shares, respectively, are subject to the satisfaction, at or prior to
the Third Closing, of each of the following conditions (any of which may be
waived by the agreement of both parties, in whole or part):
3.4.1 NO PROHIBITION. Neither the consummation nor the performance
of any of the transactions contemplated by this Agreement at the
Third Closing will, directly or indirectly (with or without notice
or lapse of time), materially contravene or conflict with, or
result in a material violation of, any applicable Law or Order.
3.4.2 BRING-DOWN OF SELECTED REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company set forth in the
following portions of the indicated Sections of this Agreement
shall be true and correct as of the Third Closing Date: (1) the
first two sentences of Section 4. 1; (2) the last sentence of
Section 4.2; (3) the first sentence of Section 4.3; and (4) the
third sentence of Section 4.3, except as to clause (ii) thereof.
In addition to being subject to the satisfaction of the conditions
specified in Sections 3.4.1 and 3.4.2, the Purchaser's obligations to purchase
the Third Closing Shares shall also be conditioned on Purchaser's receipt from
the Company of an opinion of O'Melveny & Myers LLP, dated the Third Closing
Date, in the form attached hereto as EXHIBIT D.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as otherwise disclosed in the Offering Memorandum or as set forth
in the attached Schedules, the Company represents and warrants that as of the
date hereof:
4.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. The Company has all requisite corporate power and corporate
authority necessary to (I) execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby? and (ii) own and operate its
properties and to carry on its business as now conducted and as presently
proposed to be conducted. The copies of the Company's charter documents and
bylaws furnished to the Purchaser's counsel reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
The Company is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect.
4.2 CAPITAL STOCK AND RELATED MATTERS. The authorized capital
stock of the Company is as set forth in its articles of incorporation and the
Outstanding capital stock, options and other rights to acquire capital stock and
shares reserved for Issuance as of May 1, 1999 are as set forth in Schedule 4.2.
Except as set forth in Schedule 4.2 and as contemplated by this Agreement. as of
May 1. 1999: (1) the Company; does not have outstanding- any stock or
6
<PAGE>
securities convertible or exchangeable for any shares of capital stock, nor are
there OUTSTANDING any rights or options to subscribe for or to purchase any
capital stock or any stock or SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE FOR
any capital stock of the Company, and (ii) the Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock. All of the outstanding shares of capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable. The Initial Shares, the Second Closing Shares and the
Third Closing Shares when issued and sold in accordance with the terms of this
Agreement, will be duly authorized and validly ISSUED, FULLY paid and
nonassessable.
4.3 AUTHORIZATION; NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement constitutes the
legally valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby, by
the Company will not violate or constitute a breach or default whether upon
lapse of time and/or the occurrence of any act or event or otherwise under (I)
the charter documents or bylaws of the Company, (ii) any Material Contract to
which the Company is a party, or (iii) any material Law or Order to which the
Company is subject.
4.4 GOVERNMENTAL CONSENT. No further permit, consent, Approval,
authorization of, declaration to or filing with any Governmental Entity is
required in connection with the execution, delivery and performance of this
Agreement by the Company or the consummation by the Company of any transactions
contemplated hereby, except as have already been obtained or accomplished.
4.5 FINANCIAL STATEMENTS.
4.5.1 AUDITED FINANCIAL STATEMENTS. The Company has delivered to
the Purchaser consolidated balance sheets for the Company and its
Subsidiaries at September 30, 1998, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholders'
equity and changes in financial position or cash flow for the
periods then ended. All such financial statements have been
examined by the Auditors whose reports thereon are included with
such financial statements. All such financial statements have been
prepared in conformity-with GAAP. Such statements of operations
and cash flow present fairly in all material respects the results
of operations and cash flows of the Company and its Subsidiaries
for the respective periods covered, and the balance sheets present
fairly in all material respects the financial condition of the
Company and its Subsidiaries as of their respective dates.
4.5.2 UNAUDITED INTERIM FINANCIAL STATEMENTS. The Company has
delivered to the Purchaser all unaudited consolidated balance
sheet for the Company and its Subsidiaries at March 31, 1999, and
the related unaudited consolidated statement of operations and
cash flows and changes in stockholder's equity for the six (6)
months ending March 31, 1999 (the "Interim Statements"). The
Interim Statements have been prepared in conformity with GAAP
applied oil a consistent
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basis except for (I) changes, if any, disclosed therein (except
for the absence of notes and normal year-end adjustments
consistent with past practices) and (ii) Information in the
Interim Statements concerning EBITDA, which is not determined in
accordance with GAAP. The statement of operations presents fairly
the results of operations of the Company and its Subsidiaries for
the PERIOD covered, and the balance sheet presents fairly in all
material respects the financial condition of the Company as of the
respective date of such balance sheet.
4.6 No Brokers or Finders. No agent, broker, finder or investment
or commercial banker, or other Person or firm engaged by or acting on behalf of
the Company or its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any broker's or finder's or similar fee or
other commission as a result of this Agreement or such transactions.
4.7 Accuracy of Information. As of May 1, 1999, except as to any
information pertaining to general industry or regulatory matters, including
without limitation any information pertaining to general industry or regulatory
matters set forth in the risk factors and business sections of the Offering
Memorandum, the Offering Memorandum does not contain any untrue statement of a
material fact, or fail to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.8 No Material Adverse Change. Since April 1, 1999, there has not
been any Material Adverse Effect.
4.9 CONFORMITY WITH LAW; LITIGATION. To the knowledge of the
Company, the Company has complied with all Laws applicable to it or to the
operation of its business and has not received any written notice of any
violation of, liability or potential responsibility under, any such Law which
has not heretofore been cured and for which there is no remaining liability,
other than, in each case, those not having a Material Adverse Effect.
4.10 ERISA. Each Company employee benefit plan that is subject
to ERISA has been administered in compliance with the applicable requirements of
ERISA, except for such noncompliance, if any, that in the aggregate, would not
have a Material Adverse Effect.
4.11 ENVIRONMENTAL MATTERS. To the knowledge of the Company, all
real property now or previously owned, operated or leased by the Company and
located in the United States has been operated by the Company in compliance with
all applicable Environmental Laws, except for such noncompliance, if any, that
would not have a Material Adverse Effect. As used herein, "ENVIRONMENTAL LAW"
means any federal, state, or local law, statute, rule or regulation governing or
relating to the environment or to occupational health and safety:
4.12 GOVERNMENT AUTHORIZATIONS. The Company has all federal,
state and local governmental licenses, permits and other authorizations,
including without limitation ail licenses and authorizations required by the
United States Federal Communications Commission and by state public utilities
commissions necessary to conduct the Company's business as presently conducted,
except where the failure to hold any such licenses. permits and other
authorizations would not result in a Material Adverse Effect.
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4.13 TAXES. To the knowledge of the Company, all Taxes owed by
the Company have been paid or accrued on the Company's financial statements,
except where the failure to pay or accrue such Taxes would not result in a
Material Adverse Effect.
4.14 INSURANCE. SCHEDULE 4.14 sets forth a true and correct
description of the directors and officers liability insurance policy currently
maintained by the Company. There have been no claims made against such insurance
policy.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents
and warrants that:
5.1 ORGANIZATION AND CORPORATE POWER. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the British Virgin Islands. The Purchaser has all requisite corporate power
and authority to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby.
5.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement by the Purchaser and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Purchaser. This Agreement constitutes the legally valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms.
5.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, by the
Purchaser will not violate, or constitute a breach or default whether upon lapse
of time and/or the occurrence of any act or event or otherwise under (i) the
charter documents or bylaws of the Purchaser, (ii) any Material Contract to
which the Purchaser is a party, or (iii) any material Law or Order to which the
Purchaser is subject.
5.4 NO BROKERS OR FINDERS. No agent, broker, finder or investment
or commercial banker, or other Person or firm engaged by or acting on behalf of
the Purchaser or its Affiliates in connection with the negotiation, execution or
performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any broker's or finder's or similar fee or
other commission as a result of this Agreement or such transactions.
5.5 INVESTMENT REPRESENTATIONS.
5.5.1 This Agreement is made with the Purchaser in reliance upon
the Purchaser's representation to the Company, which by the
Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that (i) the Initial Shares, the Second Closing Shares
and the Third Closing Shares are being acquired for investment for
the Purchaser's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same;
and (ii) the Purchaser does not have any Contract, undertaking,
agreement or arrangement with any Person to sell, transfer or
grant participations to any Person with respect to any of the
Initial Shares, the Second Closing Shares or the Third Closing
Shares.
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5.5.2 The Purchaser has not been attracted to the purchase of the
Initial Shares, the Second Closing Shares or the Third Closing
Shares by any publication or any advertising, and the transactions
contemplated by this Agreement are not being effected by or
through a broker-dealer.
5.5.3 The Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated by the SEC, as
presently in effect.
5.5.4 The Purchaser understands that (i) neither the Initial
Shares, the Second Closing Shares nor the Third Closing Shares nor
the sale thereof to it have or has been registered under the
Securities Act, or under any state securities law, (ii) no
registration statement has been filed with the SEC, nor with any
other regulatory authority and that, as a result, any benefit
which might normally accrue to an investor such as the Purchaser
by an impartial review of such a registration statement by the SEC
or other regulatory commission will not be forthcoming; and (iii)
the Initial Shares, the Second Closing Shares and the Third
Closing Shares are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired
from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such
securities may be resold without registration under the Securities
Act only in certain limited circumstances. In this connection, the
Purchaser represents that it is familiar with the Rule 144 under
the Securities Act, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
5.5.5 The Purchaser acknowledges that (i) it is represented by
counsel, (ii) it has received and carefully reviewed a copy of the
Offering Memorandum and this Agreement; (iii) it has received all
information it considers necessary or appropriate for deciding
whether to purchase the Initial Shares, the Second Closing Shares
and the Third Closing Shares; (iv) as a result of its knowledge of
the telecommunications industry, its study of the aforementioned
documents and its prior overall experience in financial matters,
it is properly able to evaluate the capital structure of the
Company, the business of the Company and its Subsidiaries and the
risks inherent therein; and (v) it has been given the opportunity
to obtain any additional information or documents from, and to ask
questions and receive answers of, the officers and representatives
of the Company to the extent necessary to evaluate the merits and
risks related to its investment in the Company.
6. TRANSFER OF SHARES. The Initial Shares, Second Closing Shares and Third
Closing Shares are not transferable except upon the conditions specified in this
SECTION 6, which conditions are intended to assure compliance with the
provisions of the Securities Act and state securities laws in respect of the
transfer of any of the Initial Shares, Second Closing Shares or the Third
Closing Shares.
6.1 RESTRICTIVE LEGENDS. Unless and until otherwise permitted by
this Agreement, the Initial Shares, the Second Closing Shares and the Third
Closing Shares issued to the Purchaser pursuant to this Agreement shall be
stamped or otherwise imprinted with legends in substantially the following
forms:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED
OR QUALIFIED UNDER THAT ACT OR SUCH LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION OR QUALIFICATION IS AVAILABLE."
"SUCH SECURITIES ARE ALSO SUBJECT TO THE RESTRICTIONS ON
TRANSFER CONTAINED IN A STOCK PURCHASE AGREEMENT, DATED MAY 10, 1999, BY
AND BETWEEN COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE
COMMUNICATIONS AND GOLD & APPEL TRANSFER S.A., COPIES OF WHICH MAY BE
OBTAINED FROM THE SECRETARY OF THE COMPANY."
The Company may order its transfer agents to stop the transfer of any Initial
Shares, Second Closing Shares or Third Closing Shares bearing a legend required
by this SECTION 6.1 until the conditions herein with respect to transfer of such
securities have been satisfied.
6.2 NOTICE OF PROPOSED TRANSFERS. Subject to SECTION 6.1, prior to
any transfer or attempted transfer of the Initial Shares, Second Closing Shares
or Third Closing Shares bearing the legend in SECTION 6.1, the Purchaser or its
permitted assignee, transferee or donee (the "HOLDER") shall give the Company
written notice of its intention to do so, describing briefly the nature of any
such proposed transfer. If, in the written opinion of counsel for Holder,
addressed to the Company and the Holder, in form and substance reasonably
acceptable to the Company, the proposed transfer may be effected without
registration of such Initial Shares Second Closing Shares or Third Closing
Shares, the Initial Shares Second Closing Shares, or Third Closing Shares
proposed to be transferred may be transferred in accordance with the terms of
said notice and in compliance with applicable state securities laws and
regulations. The Company shall not be required to effect any such transfer prior
to the receipt of such favorable opinion; provided that if the proposed transfer
is governed by Rule 144 promulgated by the SEC, or any successor rule, such
opinion shall not be required, but the Company may prevent such transfer until
it receives evidence satisfactory to it and its counsel that the transfer
complies with Rule 144. Each transfer shall comply with all applicable SEC rules
and applicable state securities laws.
6.3 PERMITTED TRANSFERS. Notwithstanding anything to the contrary
in this Agreement, Purchaser may transfer the Initial Shares, Second Closing
Shares or Third Closing Shares to any Affiliate of Purchaser in accordance with
the provisions of SECTIONS 6.1 and 6.2; provided that the transferee shall hold
such Initial Shares, Second Closing Shares or Third Closing Shares subject to
the same restrictions applicable to its transferor and shall agree in writing
to be bound by the terms of this Agreement.
7. CERTAIN COVENANTS.
7.1 PREEMPTIVE RIGHTS.
7.1.1 Purchaser shall have the right to subscribe to any
additional (i) issuances of shares of capital stock of the
Company, (ii) issuances of securities convertible
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into shares of capital stock of the Company, or (iii) grants of
options to purchase shares of capital stock of the Company, other
than grants to employees, directors or consultants of the Company
(and the issuance of shares upon exercise of such options), for
cash, on the same terms of such offerings to the extent equal to
the proportion which the number of shares of Stock then held by
Purchaser bears to the Company's fully-diluted capitalization (on
an as-converted and as-exercised basis). Such right is exercisable
within ten (10) days after the receipt of written notice relating
to such issuances by the Purchaser. Such right extends to the same
proportion of the new issue of shares, convertible securities or
options as the Purchaser's proportion of the outstanding shares.
7.1.2 Purchaser's right to purchase new issues of shares or
convertible securities or options does not extend to (i) the
issuance of shares upon the conversion or exercise of options or
other convertible securities either (A) outstanding on the date
hereof or (B) with respect to which options or other convertible
securities Purchaser had preemptive rights under this SECTION 7.1,
or (ii) securities issued solely in exchange for shares,
convertible securities or options issued in connection with any
merger, reorganization or acquisition (including, without
limitation, shares of Stock to be issued in connection with the
contemplated acquisition of the minority interest in WorldxChange
Pty. Ltd.).
7.1.3 The preemptive rights held by the Purchaser pursuant to
this SECTION 7.1 supersede and replace the preemptive rights held
by the Purchaser pursuant to the First Gold & Appel Agreement such
that the preemptive rights held by the Purchaser pursuant to the
First Gold & Appel Agreement shall terminate as of the Initial
Closing.
7.1.4 The preemptive rights held by the Purchaser pursuant to
this SECTION 7.1 shall terminate immediately prior to the closing
of an initial public offering of the Company's securities and
shall not apply to any issuance of securities in such offering.
7.2 REGISTRATION RIGHTS. The Company and Purchaser, concurrently
with the Initial Closing, shall execute and deliver the New Registration Rights
Agreement.
7.3 RULE 144 FILING. After the Company's Common Stock is
registered under the Exchange Act, and until the Initial Shares, Second Closing
Shares and the Third Closing Shares held by Purchaser have all been publicly
sold or are eligible for sale under Rule 144(k) under the Securities Act, the
Company shall use best efforts to file the reports required under Rule 144(c)(1)
under the Securities Act in order to permit sales of the Initial Shares, the
Second Closing Shares and the Third Closing Shares by Purchaser pursuant to Rule
144.
7.4 CHANGES IN CAPITAL STOCK.
7.4.1 If, prior to the Initial Closing Date, the Second Closing
Date, or the Third Closing Date, as applicable, the Stock is
subdivided, combined or reclassified, or if shares of capital
stock of the Company are issued as a dividend thereon, the number
of shares of Stock which constitute the Initial Shares, the Second
Closing
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Shares and the Third Closing Shares (to the extent the relevant
closing date has not yet occurred), shall be adjusted so that the
Purchaser shall be entitled to purchase the kind and number of
shares or other securities of the Company which it would have
been entitled to receive after the happening of any of the events
described above, had the Initial Shares, the Second Closing
Shares, or the Third Closing Shares, as applicable, been purchased
immediately prior to the happening of such event or any record
date with respect thereto.
7.4.2 If, prior to the Initial Closing Date, the Second Closing
Date or the Third Closing Date, as applicable, there is a
reclassification of the securities of the Company or a
consolidation of the Company with or merger of the Company into
another corporation or in case of a sale or conveyance to another
corporation of the property, assets or business of the Company as
an entirety or substantially as an entirety, the Company shall
provide, or shall cause such successor or purchasing corporation
to provide, as the case may be, that the Purchaser shall have the
right thereafter to purchase for the same consideration provided
in this Agreement, the kind and amount of shares and other
securities and property which the Purchaser would have owned or
have been entitled to receive after the happening of such
reclassification, consolidation, merger, sale or conveyance had
the Initial Shares, the Second Closing Shares, or the Third
Closing Shares, as applicable, been purchased immediately prior to
the happening of such event.
8. INDEMNIFICATION.
8.1 OBLIGATIONS OF THE COMPANY. The Company agrees to indemnify
and hold harmless the Purchaser from and against any and all Losses of the
Purchaser based upon or arising from any inaccuracy in or breach or
nonperformance of any of the representations, warranties or covenants made or
obligations undertaken by the Company in this Agreement.
8.2 OBLIGATIONS OF THE PURCHASER. The Purchaser agrees to
indemnify and hold harmless the Company from and against any and all Losses of
the Company based upon or arising from, any inaccuracy in or breach or
nonperformance of any of the representations, warranties or covenants made by
the Purchaser in this Agreement.
8.3 PROCEDURE.
8.3.1 NOTICE. Any party seeking indemnification with respect to
any Loss shall give notice to the party required to provide
indemnity hereunder (the "INDEMNIFYING PARTY").
8.3.2 DEFENSE. If any claim, demand or liability is asserted by
any third party against any Indemnified Party, the Indemnifying
Party shall upon the written request of the Indemnified Party,
defend any actions or proceedings brought against the Indemnified
Party in respect of matters embraced by the indemnity. If, after a
request to defend any action or proceeding, the Indemnifying Party
does not defend the Indemnified Party, a recovery against the
latter suffered by it in good faith, is conclusive in its favor
against the Indemnifying Party, provided however that, if the
Indemnifying Party has not received reasonable notice of the
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action or proceeding against the Indemnified Party, or is not
allowed to control its defense, judgment against the Indemnified
Party is only presumptive evidence against the Indemnifying Party.
The parties shall cooperate in the defense of all third party
claims which may give rise to Indemnifiable Claims hereunder. In
connection with the defense of any claim, each party shall make
available to the party controlling such defense, any books,
records or other documents within its control that are reasonably
requested in the course of such defense.
8.4 EXCLUSIVE REMEDY. This SECTION 8 shall be the exclusive remedy
of the parties for any Loss of such party based upon or arising from any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, or covenants made by any other party to this Agreement.
Notwithstanding the foregoing, Purchaser shall have the right to the remedy of
specific performance with respect to SECTIONS 2.1, 3.1, 3.3, 7.1, 7.3 AND 7.4.
9. GENERAL.
9.1 AMENDMENTS; WAIVERS. This Agreement and any schedule attached
hereto may be amended only by agreement in writing of all parties. No waiver of
any provision nor consent to any exception to the terms of this Agreement shall
be effective unless in writing and signed by the party to be bound and then only
to the specific purpose, extent and instance so provided.
9.2 FIRST GOLD & APPEL AGREEMENT. Except as provided in SECTION
7.1 or as otherwise expressly provided in this Agreement, the terms and
provisions of the First Gold & Appel Agreement (i) are hereby ratified and
confirmed, (ii) shall continue in full force and effect, and (iii) shall be
unaffected by any provisions of this Agreement.
9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as set
forth in the following sentence, all representations and warranties of the
Company and the Purchaser set forth in this Agreement or expressly incorporated
herein by reference shall, as of the first anniversary of the date of this
Agreement, expire and terminate and be of no further force or effect.
Notwithstanding the foregoing, (i) the representations and warranties set forth
in SECTION 4.7 (Accuracy of Information) shall survive until the thirtieth day
following delivery by the Company to the Purchaser of audited financial
statements for the fiscal year ended September 30, 1999, and (ii) the
representations and warranties set forth in SECTION 4.2 (Capital Stock and
Related Matters) shall survive indefinitely. As of the termination of the
respective representations, warranties and covenants as provided in this
Agreement, the Company and the Purchaser shall be deemed to have irrevocably
waived and released any and all rights and remedies any of them may have with
respect to any inaccuracy in or breach or nonperformance of any of the
representations, warranties or covenants made by any party to this Agreement.
9.4 SCHEDULES; EXHIBITS; INTEGRATION. Each schedule and exhibit
delivered pursuant to the terms of this Agreement shall be in writing and shall
constitute a part of this Agreement. This Agreement, together with such
schedules and exhibit, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith.
9.5 BEST EFFORTS; FURTHER ASSURANCES.
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9.5.1 STANDARD. Each party will use its best efforts to fulfill
all obligations on its part to be performed and fulfilled under
this Agreement, to the end that the transactions contemplated by
this Agreement shall be effected substantially in accordance with
its terms as soon as reasonably practicable. The parties shall
cooperate with each other in such actions and in securing
requisite Approvals. Each party shall deliver such further
documents and take such other actions as the other party may
reasonably request to consummate or implement the transactions
contemplated hereby or to evidence such events or matters.
9.5.2 LIMITATION. As used in this Agreement, the term "best
efforts" shall not mean efforts which require the performing party
to do any act that is unreasonable under the circumstances, to
make any capital contribution or to expend any funds other than
reasonable out-of-pocket expenses incurred in satisfying its
obligations hereunder, including but not limited to the fees,
expenses and disbursements of its accountants, actuaries, counsel
and other professionals.
9.6 GOVERNING LAW AND FORUM SELECTION. This Agreement is to be
construed and enforced in accordance with the internal laws of the State of
California. The parties consent to the jurisdiction of all federal and state
courts in California. Any civil action or other legal proceeding arising out of
or relating to this Agreement shall be brought and heard only in a federal or
state court located in California, and all parties waive any right to have such
action or proceeding transferred to another location.
9.7 NO ASSIGNMENT. Neither this Agreement nor any rights or
obligations under it are assignable, except pursuant to a permitted transfer by
Purchaser in accordance with SECTION 6.3 above.
9.8 HEADINGS. The descriptive headings of the Sections and
Subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
9.9 COUNTERPARTS. This Agreement and any amendment hereto or any
other document delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement (or other document) and
shall become effective (unless otherwise provided therein) when one or more
counterparts have been signed by each party and delivered to the other party.
9.10 PUBLICITY AND REPORTS. The Company and the Purchaser shall
coordinate all publicity relating to the transactions contemplated by this
Agreement and no party shall issue any press release, publicity statement or
other public notice relating to this Agreement, or the transactions contemplated
by this Agreement, without obtaining the prior written consent of each of the
parties to this Agreement except to the extent that a particular action is
required by applicable Law.
9.11 CONFIDENTIALITY. All information disclosed by any party (or
its representatives) whether before or after the date hereof, in connection with
the transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) shall be kept
confidential by such other party and its representatives
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and shall not be used by any such Persons other than as contemplated by this
Agreement, except to the extent that such information (i) was known by the
recipient when received, (ii) it is or hereafter becomes lawfully obtainable
from other sources, (iii) is necessary or appropriate to disclose to a
Governmental Entity having jurisdiction over the parties, provided that the
disclosing party give reasonable notice to the other parties and the opportunity
to protect any such confidential information, (iv) as may otherwise be required
by Law or (v) to the extent such duty as to confidentiality is waived in writing
by the other party.
9.12 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure to the benefit of each party, and nothing in this Agreement, express
or implied, is intended to confer upon any other Person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement is intended to relieve or discharge the obligation of any third person
to any party to this Agreement.
9.13 NOTICES. Any notice or other communication hereunder must
be given in writing and (i) delivered in person, (ii) transmitted by telex,
telefax or telecommunications mechanism or (iii) mailed by certified or
registered mail, postage prepaid), receipt requested as follows:
IF TO PURCHASER, ADDRESSED TO:
Gold & Appel Transfer S.A.
P.O. Box 985
Wickhams Cay Road Town
Tortula, British Virgin Islands
WITH A COPY TO:
Mr. Walt Anderson
Entree International
3050 K Street, N.W., Suite 250
Washington, D.C. 20036
Facsimile No: (202) 736-5065
IF TO THE COMPANY, ADDRESSED TO:
WORLDxCHANGE
9999 Willow Creek Road
San Diego, California 92131
Attn: Legal Department
Facsimile No: (619) 452-3780
WITH A COPY TO:
O'Melveny & Myers LLP
610 Newport Center Drive
Newport Beach, California 92660
Attn: David A. Krinsky, Esq.
Facsimile No: (949) 823-6994
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or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (A) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
SECTION 9.13 and an appropriate answer back is received, (B) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (C) if given by any other means, when
actually received at such address.
9.14 EXPENSES. Each party shall pay its own expenses incident to
the negotiation, preparation and performance of this Agreement and the
transactions contemplated hereby, including but not limited to the fees,
expenses and disbursements of such party's respective investment bankers,
accountants and counsel.
9.15 WAIVER. No failure on the part of any party to exercise or
delay in exercising any right hereunder shall be deemed a waiver thereof, nor
shall any single or partial exercise preclude any further or other exercise of
such or any other right.
9.16 REPRESENTATION BY COUNSEL; INTERPRETATION. The Company and
the Purchaser each acknowledge that each party to this Agreement has been
represented by counsel in connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of Law, including but not
limited to Section 1654 of the California Civil Code, or any legal decision that
would require interpretation of any claimed ambiguities in this Agreement
against the party that drafted it has no application and is expressly waived.
The provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intent of the Purchaser and the Company.
9.17 SEVERABILITY. If any provision of this Agreement is
determined to be invalid, illegal or unenforceable by any Governmental Entity,
the remaining provisions of this Agreement to the extent permitted by Law shall
remain in full force and effect provided that the economic and legal substance
of the transactions contemplated is not affected in any manner materially
adverse to any party. In event of any such determination, the parties agree to
negotiate in good faith to modify this Agreement to fulfill as closely as
possible the original intents and purposes hereof.
9.18 NO CONSEQUENTIAL DAMAGES. Notwithstanding anything to the
contrary elsewhere in this Agreement, no party (or its Affiliates) shall, in any
event, be liable to any other party (or its Affiliates) for any consequential
damages, including, but not limited to, loss of revenue or income, or loss of
business reputation or opportunity relating to the breach or alleged breach of
this Agreement. The foregoing shall not be deemed to limit Purchaser's right to
specific performance with respect to SECTIONS 2.1, 3.1, 3.3, 7.1, 7.3 and 7.4.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
COMPANY: PURCHASER:
COMMUNICATION TELESYSTEMS GOLD & APPEL TRANSFER S.A., a
INTERNATIONAL D.B.A. British Virgin Islands corporation
WORLDXCHANGE
COMMUNICATIONS,
a California corporation
By: /s/ Roger B. Abbott By: /s/ [ILLEGIBLE]
------------------------- -----------------------------------
Its: CEO Its: Power of Attorney in Fact
------------------------- -----------------------------------
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LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Schedules and Exhibits to the Stock Purchase Agreement
dated May 10, 1999 (Gold & Appel Transfer S.A.) have been omitted from this
Exhibit and shall be furnished supplementally to the Commission upon request:
Schedule 4.2 - Equity Securities
Schedule 4.14 - Directors and Officers Liability Insurance
Exhibit A - New Registration Rights Agreement
Exhibit B - Form of Opinion of O'Melveny & Myers LLP - Initial Closing
Exhibit C - Form of Opinion of O'Melveny & Myers LLP - Second Closing
Exhibit D - Form of Opinion of O'Melveny & Myers LLP - Third Closing
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated May 10,
1999, is made and entered into by and among Communication Telesystems
International d.b.a. WorldxChange Communications, a California corporation (the
"COMPANY"), and Gold & Appel Transfer S.A. ("GOLD").
RECITALS
WHEREAS, the Company and Gold are parties to that certain Stock
Purchase Agreement, dated May 10, 1999, (the "PURCHASE AGREEMENT"), which
provides for Gold's purchase from the Company of an aggregate of 2,727,270
shares of the Common Stock of the Company (with 909,090 of such shares (the
"INITIAL SHARES") to be purchased at the Initial Closing (as defined in the
Purchase Agreement), 909,090 of such shares (the "SECOND CLOSING SHARES") to be
purchased at the Second Closing (as defined in the Purchase Agreement) and
909,090 of such shares (the "THIRD CLOSING SHARES") to be purchased at the Third
Closing (as defined in the Purchase Agreement)); and
WHEREAS, in order to induce Gold to enter into the Purchase Agreement,
the Company has agreed to provide the registration rights set forth in this
Agreement with respect to the "REGISTRABLE SECURITIES" (as such term is defined
in Section 1).
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties, intending to be
legally bound, hereby agree as follows:
1. DEFINITIONS. FOR PURPOSES OF THIS AGREEMENT:
(a) the term "BONA FIDE PUBLIC OFFERING" means an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "1933 ACT"), covering the offer and
sale of Common Stock of the Company in which aggregate proceeds to the
Company and the selling shareholders exceed $25,000,000;
(b) the term "COMMON STOCK" means the Company's authorized
voting common stock, no par value, and any class of securities issued in
exchange for the Common Stock or into which the Common Stock is converted;
(c) the term "HOLDER" means Gold or any permitted transferee of
Registrable Securities pursuant to the Purchase Agreement in accordance
with Section 10 hereof;
(d) the term "INITIATING HOLDERS" means the Holders of 30% or
more of the Registrable Securities then outstanding;
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(e) the term "ORIGINAL REGISTRATION RIGHTS AGREEMENT" means that
certain Registration Rights Agreement effective as of September 29, 1998 by
and among the Company, Gold and the other investors named therein.
(f) the terms "REGISTRABLE SECURITIES" means: (i) if acquired by
Gold pursuant to the Purchase Agreement, the Initial Shares (as may be
adjusted); (ii) if acquired by Gold pursuant to the Purchase Agreement, the
Second Closing Shares (as may be adjusted); (iii) if acquired by Gold
pursuant to the Purchase Agreement, the Third Closing Shares (as may be
adjusted) and (iv) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of such Initial Shares, Second Closing
Shares and/or Third Closing Shares;
(g) the term "REGISTRATION EXPENSES" means all expenses incurred
by the Company in complying with Sections 2 and 3 hereof, including,
without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, accountants' fees and
expenses and blue sky fees and expenses.
(h) the term "REGISTER," "REGISTERED" and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with the 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by
the Securities and Exchange Commission;
(i) the term "SELLING EXPENSES" means all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities,
the fees and disbursements of any counsel engaged by the Holders and any
other expenses incurred by the Holders in connection with the registration
and sale of the Registrable Securities;
(j) the number of shares of Registrable Securities "THEN
OUTSTANDING" shall be the number of shares of Common Stock outstanding
which are, and the number of shares of Common Stock which upon issuance of
then exercisable or convertible securities will be, Registrable Securities;
and
(k) the term "THIRD PARTY HOLDER" means (A) any person other
than a Holder with registration rights with respect to securities of the
Company and (B) Gold (or any permitted transferee of Gold) with respect to
securities of the Company as to which Gold (or any such transferee of Gold)
has registration rights pursuant to the Original Registration Rights
Agreement.
2. DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive, at any time during the
one-year period commencing three years after the date of this Agreement
(and in such additional years as may be required by Section 2(d)), a
written request from the
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Initiating Holders with respect to the Registrable Securities that the
Company file a registration statement under the 1933 Act covering the
registration of Registrable Securities having an estimated aggregate
initial public offering price of not less than $5,000,000, provided that a
Bona Fide Public Offering has not been commenced by the Company, the
Company shall promptly give written notice of such request to all Holders
and shall use reasonable efforts to effect the registration under the 1933
Act of all such Registrable Securities which the Initiating Holders request
to be registered, together with all of the Registrable Securities of any
other Holder or Holders who so request by notice to the Company which is
given within 10 days after receipt of the notice from the Company described
above. Notwithstanding the foregoing, if the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would
be seriously detrimental to the Company for a registration statement to be
filed in the near future, then the Company's obligation to use its
reasonable efforts to file a registration statement shall be deferred for a
period not to exceed 90 days (provided, however, that the Company may make
only one such deferral with respect to each demand registration).
Securities of the Company to be sold by the Company or by a Third Party
Holder may be included in such registration statement, subject to the
provisions of Section 2(c) below.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to this Section 2 and the Company shall include such
information in the written notice referred to in Section 2(a). In such
event, the right of any Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders, by the
underwriter, by the Company, and by such Holder) to the extent provided
herein.
(c) All Holders and Third Party Holders proposing to distribute
their securities through such underwriting (together with the Company as
provided in Section 4(e)) shall enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the Company, or if no underwriter is
selected by the Company, by a majority in interest of the Initiating
Holders and reasonably acceptable to the Company. Notwithstanding any
other provisions of this Section 2, if the underwriter advises the
Initiating Holders in writing that marketing factors require a limitation
of the number of shares to be underwritten, the Initiating Holders shall so
advise all Holders of Registrable Securities, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting by the Holders shall be allocated among all Holders thereof,
all Third Party Holders, and the Company, pro rata based on the number of
shares for which registration was requested. No Registrable Securities
excluded from the underwriting by reason of the marketing limitation shall
be included in such
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registration. If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the underwriter and, unless otherwise
provided, the Initiating Holders.
(d) The Company is obligated to effect only one demand
registration for the Holders pursuant to this Section 2; provided, however,
that if any Registrable Securities of a Holder requested to be registered
(regardless of whether a Holder withdraws such Registrable Securities
pursuant to Section 2(c) or Section 6) are excluded by the underwriter in a
demand registration pursuant to Section 2(c) or in a "piggyback"
registration pursuant to Section 6 (which excluded Registrable Securities
are referred to herein as the "EXCLUDED SECURITIES"), then the Company,
upon the demand of the Initiating Holders three or more years after the
date of this Agreement, shall be obligated to effect one additional demand
registration under this Section 2 each year with respect to the Excluded
Securities or such Holder, until such time as (i) such Holder may freely
(except as may be restricted by Rule 144 under the 1933 Act) sell all of
the Excluded Securities without registration under the 1933 Act within the
then following six months and (ii) the Excluded Securities are listed on a
securities exchange or qualified for trading on an over-the-counter system
selected by the Company.
(e) The demand registration rights provided by the Company to
any Holder pursuant to Section 2 of this Agreement shall immediately
terminate upon the closing of a Bona Fide Public Offering by the Company.
(f) A registration requested pursuant to this Section 2 shall
not be deemed to have been effected (a) unless a registration statement
with respect thereto has become effective or (b) if after it has become
effective, the effectiveness of such registration statement is terminated
or suspended by a stop order, injunction or other order of the Securities
and Exchange Commission ("SEC") or other governmental agency or court,
unless such order, injunction or other order is lifted or stayed within 30
days of the issuance of such stop order, injunction or other order. The
Company shall use its reasonable best efforts to keep such registration
statement effective for up to 60 days after such registration statement has
become effective.
3. PIGGY-BACK REGISTRATION RIGHTS. If at any time the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholder other than the Holders) any of its securities under the
1933 Act in connection with the public offering of such securities solely for
cash (other than a registration form relating to: (a) a registration of a stock
option, stock purchase or compensation or incentive plan or of stock issued or
issuable pursuant to any such plan, or a dividend investment plan; (b) a
registration of securities proposed to be issued in exchange for securities or
assets of, or in connection with a merger or consolidation with, another
corporation; or (c) a registration of securities proposed to be issued in
exchange for other securities of the Company), the Company shall, each such
time, promptly give
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each Holder written notice of such registration together with a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under applicable state securities laws. Upon the written request of any Holder
given within 30 days after receipt of such written notice from the Company in
accordance with Section 14, the Company shall (subject to the provisions of
Section 6 in the case of an underwritten offering) cause to be registered under
the 1933 Act all of the Registrable Securities that each such Holder has
requested to be registered; provided, however, in the event and to the extent
such a Holder may freely (except as may be restricted by Rule 144 under the 1933
Act) sell all of its Registrable Securities without registration under the 1933
Act and the person acquiring the securities does not acquire "restricted
securities" within the meaning of Rule 144, the Company may elect not to
register such Registrable Securities.
4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be necessary for the distribution of the securities
covered by the registration statement and such jurisdictions as the Holders
participating in the offering shall reasonably request, provided that the
Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service
of process in any such jurisdiction, and further provided that (anything in
this Agreement to the contrary notwithstanding with respect to the bearing
of expenses) if any jurisdiction in which the securities shall be qualified
shall require that expenses incurred in connection with the qualification
of the securities in that jurisdiction be borne by selling shareholders,
such expenses shall be payable by the selling Holders pro rata, to the
extent required by such jurisdiction;
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(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement with
commercially reasonable and customary terms generally satisfactory to the
managing underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such
an agreement; and
(f) Use its reasonable best efforts to cause all such
Registrable Securities to be listed on a securities exchange or to qualify
such Registrable Securities for trading on an over-the-counter system
selected by the Company;
(g) Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement and thereafter maintain such a transfer agent and
registrar;
(h) In the event of any underwritten public offering, make
available for inspection, at reasonable times during normal business
hours, by any underwriter participating in such public offering and any
attorney, accountant or other agent retained by such underwriter, such
financial and other records, pertinent corporate documents and properties
of the Company as may be reasonably requested by such underwriter, and
cause the Company's officers, directors, employees and independent
accountants to supply such information as may be reasonably requested by
any such underwriter, attorney, accountant or agent in connection with
such public offering (provided, however, that such inspection and
supplying of records and documents shall be subject to the execution by
each requesting party of a confidentiality and non-disclosure agreement in
a form reasonably acceptable to the Company);
(i) Permit any Holder participating in such registration, which
Holder, in such Holder's reasonable judgement, might be deemed to be an
underwriter or controlling person of the Company, to participate in the
preparation of the registration statement in connection with such
registration and to propose the insertion therein of material which in the
reasonable judgment of such Holder and its counsel should be included;
(j) In connection with underwritten offerings, make available
appropriate management personnel for participation in the preparation and
drafting of such registration or comparable statement, for due diligence
meetings and for "road show" meetings;
(k) In the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending
or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, the Company will use its reasonable
best efforts promptly to obtain the withdrawal of such order, provided that
in the Company's opinion, in consultation with its counsel, there is a good
faith argument for the removal of such order;
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(l) Obtain a cold comfort letter from the Company's independent
public accountants addressed to the selling Holders of Registrable
Securities in customary form and covering such matters of the type
customarily covered by cold comfort letters as the Holders of a majority of
the Registrable Securities being sold reasonably request; and
(m) Furnish, at the request of Holders of a majority of the
Registrable Securities participating in the registration, to each seller of
Registrable Securities a signed counterpart, addressed to such seller (and
underwriters, if any) of an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such Holder covering substantially the same matters with
respect to such registration (and the prospectus included therein) as are
customarily covered in opinions of issuer's counsel to underwriters in
underwritten public offerings.
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.
6. UNDERWRITING REQUIREMENTS. The right of any Holder to "piggyback"
in an underwritten public offering of the Company's securities pursuant to
Section 3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
any other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting by the Company. Notwithstanding any
other provision of Section 3 and this Section 6, if the underwriter determines
that marketing factors require a limitation of the number of shares to be
underwritten, and (a) if such registration is the first registered offering of
the Company's securities to the public, the underwriter may exclude some or all
of the Registrable Securities from such registration and underwriting, provided
that the Holders are allowed to participate in the offering in the same
proportion (based on the total number of securities requested to be registered)
as any other shareholder of the Company participating in the offering, and (b)
if such registration is other than the first registered offering of the
Company's securities to the public, the underwriter may exclude some or all
Registrable Securities from such registration and underwriting, provided that
all of the shares requested to be registered by shareholders other than Holders
and Third Party Holders shall first be excluded and thereafter, only to the
extent deemed necessary by the underwriter, shares requested to be registered by
Holders and Third Party Holders shall be reduced pro rata based on the number of
securities respectively requested by them to
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be registered. Any reduction in the number of Registrable Securities included
in such registration shall be borne equally by the Holders and any Third Party
Holders as a group pro rata based on the number of shares for which registration
was requested. If any Holder disapproves of the terms of any such underwriting,
it may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration. Third Party Holders
"piggybacking" on a demand registration demanded by the Initiating Holders under
Section 2 above shall be subject to the same conditions, requirements and
limitations that are applicable to a Holder under this Section 6 in the event of
an underwritten public offering.
7. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Holders of the securities so registered pro rata on the basis of the
number of shares so registered.
8. DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
9. INDEMNIFICATION. IF any Registrable Securities are included in a
registration statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers, directors and
partners of each Holder, any underwriter (as defined in the 1933 Act)
for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they or any
of them may become subject under the 1933 Act, the 1934 Act or any other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise from or are based upon
any of the following statements, omissions or violations (collectively a
"VIOLATION"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; and the
Company will reimburse each such Holder, officer, director or partner,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 9 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim,
damage, liability or
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action to the extent that it arises from or is based upon a violation which
occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any
such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the 1933 Act, any
underwriter (within the meaning of the 1933 Act) for the Company, any
person who controls such underwriter, any other Holding selling securities
in such registration statement or any of its directors or officers or any
person who controls such Holder against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person or underwriter or other such Holder or
director, officer or controlling person may become subject, under the 1933
Act, the 1934 Act or any other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto)
arise from or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or controlling
person, other Holder, officer, director or controlling person in connection
with investigation or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 9 shall not apply to amounts paid in settlement of any such loss,
claim damage, liability or action if such settlement is effected without
the consent of the Holder (which consent shall not be unreasonably
withheld).
(c) In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in this
Section 9 is applicable but for any reason is held to be unavailable
from the Company or any Holder, the Company and the Holders
participating in the registration shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims
asserted) to which the Company and the participating Holders may be
subject in such proportion so that the participating Holders are
responsible for that portion of the foregoing amount represented by the
ratio of the proceeds received by the participating Holders in the
offering to the total proceeds received from the offering by the Company
and all selling shareholders (other than participating Holders) and the
Company shall be responsible for the portion represented by the ratio of
proceeds received by the Company to the total proceeds received by the
Company and all selling shareholders (other than participating Holders);
provided, however, that such portions shall be adjusted as may be just
and equitable to take into account the relative fault of the
participating Holders and the Company; provided further, however, that
no person guilty of fraudulent
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misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 9(c), each
person, if any, who controls the Company or any Holder within the meaning
of the 1933 Act, each officer of the Company who shall have signed the
registration statement and each director of the Company shall have the same
rights to contribution as the Company.
(d) No settlement shall be effected without the prior written
consent of the Holders participating in a registration unless (i) the
obligations of the Company for indemnification or contribution pursuant to
this Agreement survive and are not extinguished by reason of the settlement
and remain in full force and effect under applicable federal and state
laws, rules, regulations and orders or (ii) all claims and actions against
the participating Holders and each person who controls a participating
holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act are extinguished by the settlement and the indemnifying party
obtains a full release of all claims and actions against the participating
Holders and each such control person, which release shall be to the
reasonable satisfaction of the participating Holders.
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
9, notify the indemnifying party in writing of the commencement thereof
and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify
an indemnifying party within a reasonable time of the commencement of
any such action, to the extent prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 9, but the omission so to notify
the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 9.
(f) The obligations of the Company and the Holders under
this Section 9 shall survive through the completion of any offering of
Registrable Securities in a registration statement made under the terms
of this Agreement.
10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of a Holder under
this Agreement may be assigned by a Holder only to a permitted transferee of
such securities pursuant to Section 6.3 of the Purchase Agreement, provided the
Company is, within a
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reasonable time after such transfer, furnished with written notice of the name
and address of such transferee and the securities with respect to which such
registration rights are being assigned; provided, however, that no such
assignment shall be effective if, immediately following the transfer, the
transferee is free to dispose of all of such securities without regard to any
restrictions imposed under the 1933 Act.
11. SUBSEQUENT REGISTRATION RIGHTS. The Company may grant
registration rights to parties other than the Holders; provided, however, that
in the event the Company shall grant any person registration rights
containing terms more favorable than the terms granted herein, the more
favorable terms shall automatically be deemed granted to the Holders and
incorporated herein by reference. Prior to the date of this Agreement, the
Company has not granted registration rights to any other person that are
still in effect and that are on terms more favorable than the terms granted
herein.
12. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities in a market transaction during a period
deemed by the underwriter to be necessary or appropriate following the effective
date of a registration statement of the Company filed under the 1933 Act,
provided that Roger B. Abbott, Rosalind Abbott and Edward S. Soren are subject
to such an agreement for the same period. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of each Holder (and the share or securities of every
other person subject to the foregoing restriction) until the end of such period.
13. AMENDMENT AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the Company has obtained the written consent
of Holders of at least a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof with respect to a matter which relates exclusively
to the rights of Holders of Registrable Securities whose securities are being
sold pursuant to a registration statement and which does not directly or
indirectly affect the rights of other holders of Registrable Securities may
be given by the holders of a majority of the Registrable Securities being
sold; provided, however, that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions
of the immediately preceding sentence.
14. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one business day after being sent,
when sent by professional overnight courier service from and to locations
within the continental United States, or (c) five days after posting when
sent by registered or certified mail (return receipt requested), addressed to
the Company or a Holder at his, her or its address on the signature pages
hereof. Any party hereto may from time to time by notice in writing served
upon the others as provided herein, designate a different mailing address or a
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different person to which such notices or demands are thereafter to be
addressed or delivered.
15. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.
16. CAPTIONS. Captions are provided herein for convenience only and
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
17. CROSS-REFERENCES. All cross-references in this Agreement,
unless specifically directed to another agreement or document, refer to
provisions within this Agreement.
18. GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of California
applicable to agreements made and to be performed wholly within the State of
California. In the event a judicial or other proceeding is necessary to resolve
any dispute hereunder, the sole forum for resolving disputes arising under or
relating to this Agreement shall be the Municipal and Superior Courts for the
County of San Diego, State of California, or the federal district court for the
district of California associated with such county and all related appellate
courts and the parties hereby consent to the jurisdiction of such courts, and
that venue shall be in such county.
19. SEVERABILITY. The provisions of this Agreement are severable.
The invalidity, in whole or in part, of any provision of this Agreement shall
not affect the validity or enforceability of any other of its provisions. If
one or more provisions hereof shall be declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof.
The parties further agree to replace such void or unenforceable provisions of
this Agreement with valid and enforceable provisions which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
20. ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersedes all prior written and oral agreements, understandings,
commitments and practices between the parties, including all prior agreements
with respect to registration rights.
12
<PAGE>
21. CONSIDERATION FOR APPROVALS OR WAIVERS. No consideration shall
be paid to any Holder to obtain such Holder's approval for or waiver of any
amendment of this Agreement or any matter requiring the approval or consent of
the Holders hereunder unless such consideration is also offered to all Holders,
pro rata based upon the number of Registrable Securities held by the Holders.
22. REMEDIES. Subject to Section 8 (Delay of Registration), each
Holder of Registrable Securities, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement with the intent and agreement that the same shall be effective
as of the day and year first above written.
THE COMPANY:
Communication Telesystems International
d.b.a. WorldxChange Communications,
a California corporation
By: /s/ Roger B. Abbott
--------------------------------
Title: CEO
-----------------------------
Address: 9999 Willow Creek Road
San Diego, California 92131
Attn: Legal Department
Fax: (619) 452-3780
GOLD:
GOLD & APPEL TRANSFER S.A.,
a British Virgin Islands corporation
By: /s/ [ILLEGIBLE]
--------------------------------
Title: Power of Attorney in Fact
-----------------------------
Address:
---------------------------
14
<PAGE>
SUBORDINATED PROMISSORY NOTE
August 25, 1998
For value received, the undersigned, COMMUNICATION TELESYSTEMS
INTERNATIONAL, d.b.a. WorldxChange Communications, a California corporation
(the "Maker"), whose address is 9999 Willow Creek Road, San Diego, CA 92131,
hereby promises to pay to the order of GERARD KLAUER MATTISON & CO., INC.,
(the "Holder"), at such place as the Holder may from time to time designate
in writing, the principal sum of Twenty Million Dollars and No Cents
($20,000,000.00) on November 30, 2000. The Maker also promises to pay simple
interest on the unpaid principal balance hereof from the date hereof until
paid in full at a rate per annum equal to twelve and one-half percent (12
1/2%). Interest on this Note shall be payable quarterly in arrears
commencing on November 25, 1998. Any payment of interest under this Note not
paid by its respective due date shall accrue interest at a rate per annum of
twelve and one-half percent (12 1/2%) for so long as such interest payment
shall remain unpaid. If any payment of interest under this note is not paid
on or before the tenth day after its respective due date, then the Maker
shall promptly pay, and there shall be due and owing as of such tenth day, to
the Holder the amount of $10,000.00; which amount is agreed by the Holder and
the Maker to be liquidated damages to the Holder for such late payment and
not a penalty.
In the event that the Maker shall close a private placement or public
offering of its Common Stock (an "Equity Offering"), the Holder shall have the
right (the "Call Right") to require the Maker to use up to an amount equal to
nine and one-tenth percent (9.1%) of the net proceeds received by the Maker from
the Equity Offering to repay any accrued but unpaid interest and any unpaid
principal balance under this Note; provided, however, the Holder shall have,
within ten business days from receipt of a written notice by the Maker of a
proposed Equity Offering, notified the Maker in writing of the exercise of its
Call Right with respect to such proposed Equity Offering. The Maker shall
provide the Holder with reasonable written notice of any proposed Equity
Offering.
The Maker covenants to deliver to the Holder on or before the date
such items are required to be delivered to the Senior Lender (as defined herein)
(i) quarterly financial statements of the Maker, and (ii) annual audited
financial statements of the Maker; provided, however, that if and when the Maker
is an issuer of a security registered pursuant to Section 12 of the Securities
Exchange Act of 1934, Maker shall deliver such quarterly and annual financial
statements to the Holder on or before the date such financial statements are
required to be filed with Securities and Exchange Commission. The quarterly
financial statements described herein shall be delivered to the Holder along
with a certificate of the chief financial officer of the Maker certifying that
such quarterly financial statements are true and correct copies of the financial
statements of the Maker. The annual financial statements of the Maker delivered
to the Holder pursuant to this paragraph shall be audited by independent
certified public accountants reasonably acceptable to the Senior Lender (as
defined herein) and certified, without any qualifications, by such accountants
to have been prepared in accordance with generally accepted accounting
principles. The quarterly and annual financial statements delivered by the
Maker to
<PAGE>
the Holder shall be in form and substance the same quarterly and annual
financial statements provided to the Senior Lender (as defined herein).
All amounts payable hereunder are payable in lawful money of the
United States of America.
If this Note is placed in the hands of an attorney for collection,
or suit is filed hereon, or proceedings are had in bankruptcy, receivership,
reorganization, or other judicial proceedings for the establishment or
collection of any amount hereunder, or any amount payable or to be payable
hereunder is collected through any such proceedings, the Maker agrees to pay
attorneys' fees and collection fees incurred by the Holder.
The occurrence of any of the following events shall constitute an
event of default ("Event of Default") under this Note: (a) failure of the
Maker to pay any principal under this Note when due; (b) failure of the Maker
to pay any interest or other amount due under this Note when due and such
default continues for a period of five days after written notice by Holder;
or (c) failure of the Maker to perform or observe any other term, covenant or
agreement to be performed or observed by it pursuant to this Note and such
default of breach continues for a period of 10 days after written notice by
Holder; or (d) any proceedings for liquidation or dissolution of the Maker
shall have been commenced by the Maker or any order, judgement or decree
shall be entered against the Maker decreeing the dissolution or split-up of
the Maker; or (e) (i) court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Maker in an involuntary case
under Title 11 of the United States Code entitled "Bankruptcy" (as now and
hereinafter in effect, or any successor thereto, the "Bankruptcy Code") or
any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, which decree or order is not stayed; or any other similar relief
shall be granted under any applicable federal or state law; or (ii) an
involuntary case shall be commenced against the Maker under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Maker or over all or a
substantial part of its property shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of the Maker
for all or a substantial part of its property shall have occurred; and, in
the case of any event described in this clause (ii), such event shall have
continued for 60 days unless dismissed, bonded or discharged; or (f) an order
for relief shall be entered with respect to the Maker or the Maker shall
commence a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an involuntary case, or
to the conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or the Maker shall make an assignment for the benefit of creditors;
or the Maker shall be unable or fail, or shall admit in writing its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in (e) or (f) of
the preceding paragraph, the principal amount of this Note together with accrued
interest thereon shall become immediately due and payable, without presentment,
demand, notice, protest or other requirements of any kind (all of which are
hereby expressly waived by the Maker). Upon
2
<PAGE>
the occurrence and during the continuance of any other Event of Default, Holder
may, by written notice to the Maker, declare the principal amount of this Note
together with accrued interest thereon to be due and payable, and the principal
amount of this Note together with such interest shall thereupon immediately
become due and payable without presentment, further notice, protest or other
requirements of any kind (all of which are hereby expressly waived by the
Maker).
Except as otherwise provided herein, the Maker hereby waives demand
and presentment for payment, notice of non-payment, protest, notice of protest,
notice of dishonor, bringing of suit and diligence in taking any action to
collect amounts called for hereunder; and the Maker shall be liable for the
payment of all amounts owing and to be owing hereon, regardless of and without
any notice, diligence, act or omission with respect to the collection of any
amount called for hereunder.
Failure by the Holder to exercise any of the rights or remedies set
forth herein shall not constitute a waiver of the right to exercise the same or
any other right or remedy at any subsequent time with respect to the same or any
other event. The acceptance by the Holder of any payment hereunder that is less
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a wavier of the right to exercise any rights or remedies at
that time or at any subsequent time, or nullify any prior exercise of any right
or remedy without the express written consent of the Holder.
It is expressly stipulated and agreed to be the intent of the Maker
and the Holder to at all times comply with the applicable law now or hereafter
governing the interest payable on this Note or the indebtedness evidenced
hereby. If the applicable law as it is now or as it may be revised, repealed or
judicially interpreted renders usurious any amount called for under this Note,
or contracted for, charged, taken, reserved or received without respect to the
indebtedness evidenced by this Note, or if any prepayment by the Maker results
in the Maker having paid any Interest in excess of that permitted by applicable
law, then it is the Maker's and the Holders express intent that all excess
amounts therefore collected by the Holder be credited on the principal balance
of this Note (or, if this Note has been paid in full, refunded to the Maker),
and the provisions of this Note shall immediately be deemed reformed and the
amounts thereafter collectible hereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
hereunder.
This Note is and shall be deemed to be a contract entered into and
made pursuant to the laws of the State of New York and shall in all respects
be governed, construed, applied and enforced in accordance with the laws of
the State of New York without regard to choice of law principles. The Maker
hereby agrees that the venue of any legal action or proceeding with respect
to this Note and the rights and obligations of the parties hereto shall lie
in any state or federal court in the State of New York. The Maker further
consents to and hereby submits itself to the jurisdiction of the
above-mentioned courts situated in the State of New York.
All advances made by the Holder and all repayments of the principal
thereof shall be recorded by the Holder; PROVIDED that the failure of the Holder
to make any such recordation or endorsement shall not affect the obligations of
the Maker to hereunder.
3
<PAGE>
This Note shall be subordinated to all present and future secured
debt of the Maker to Foothill Capital Corporation ("Foothill") or such other
single secured lender (or indenture trustee) to the Maker, which may from
time to time replace Foothill, in the event that Foothill ceases to be a
secured lender senior to the Holder (in either case, the "Senior Lender");
provided, however, that the syndication by Foothill or such other single
secured lender of the secured debt of the Maker to one or more financial
institutions or investors shall not affect such single secured lender's (or
indenture trustee's) status as a Senior Lender or the subordination of this
Note to such secured debt of the Maker to the Senior Lender. Upon the
Maker's request, Holder shall execute a subordination agreement: (i) in the
exact form of that certain Intercreditor Agreement between the Holder and
Foothill of even date herewith; or (ii) if the Maker requests an alternative
form, then in a form and substance reasonably acceptable to the Holder and
the Senior Lender providing that the debt hereunder is subordinated in right
of payment to such secured debt, and requiring Holder to standstill in the
exercise of its remedies prior to the exercise of remedies of the holders of
secured debt, such standstill to be on terms reasonably acceptable to Holder
and the holders or perspective holders of such secured debt. This Note may
be prepaid by the Maker at any time, in whole or part, without penalty.
This Note is secured by that certain Security Agreement, dated as of
the date hereof, by and among Maker and Holder.
[Remainder of Page Intentionally Left Blank]
4
<PAGE>
All notices and other communications required or permitted to be made
to the Maker hereunder shall be made in writing and will be deemed delivered
when received by the Maker by messenger, telex, telecopier or mail at the
following address or such other address as the Maker may notify the Holder in
writing from time to time:
Communication TeleSystems International
9999 Willow Creek Road
San Diego, CA 92131
Attn: Legal Department
Facsimile: (619) 452-3780
The terms of this Note shall be binding upon and inure to the benefit
of the successors and assigns of the Maker and the Holder. This Note and the
related documents executed in connection herewith constitute the complete and
exclusive statement of the understandings between the parties and supersedes all
proposals and prior agreements (oral or written) between the parties relating to
the subject matter of this transaction, and may only be amended by agreement in
writing and subscribed to by an authorized representative of the Maker.
This Note may be assigned by the Holder upon written notice to the
Maker.
COMMUNICATION TELESYSTEMS
INTERNATIONAL, D.B.A.
WORLDxCHANGE COMMUNICATIONS
By: /s/ Rosalind Abbott
-----------------------------
Name: Rosalind Abbott
Title: Secretary
5
<PAGE>
Note (Cont'd)
LOAN AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
<S><C>
- -----------------------------------------------------------------------------------------------------
Date Amount of Amount of Amount of Maturity Notation
Loan Interest Principal Date Made By
Paid Repaid
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
SUBORDINATED PROMISSORY NOTE
August 25, 1998
For value received, the undersigned, COMMUNICATION TELESYSTEMS
INTERNATIONAL, d.b.a WorldxChange Communications, a California corporation
(the "Maker"), whose address is 9999 Willow Creek Road, San Diego, CA 92131,
hereby promises to pay to the order of GERARD KLAUER MATTISON & CO., INC.,
(the "Holder"), at such place as the Holder may from time to time designate
in writing, the principal sum of Twenty Million Dollars and No Cents
($20,000,000.00) on November 30, 2000. The Maker also promises to pay simple
interest on the unpaid principal balance hereof from the date hereof until
paid in full at a rate per annum equal to twelve and one-half percent (12 1/2%).
Interest on this Note shall be payable quarterly in arrears commencing
on November 25, 1998. Any payment of interest under this Note not paid by its
respective due date shall accrue interest at a rate per annum of twelve and
one-half percent (12 1/2%) for so long as such interest payment shall remain
unpaid. If any payment of interest under this note is not paid on or before
the tenth day after its respective due date, then the Maker shall promptly
pay, and there shall be due and owing as of such tenth day, to the Holder the
amount of $10,000.00; which amount is agreed by the Holder and the Maker to
be liquidated damages to the Holder for such late payment and not a penalty.
In the event that the Maker shall close a private placement or public
offering of its Common Stock (an "Equity Offering"), the Holder shall have the
right (the "Call Right") to require the Maker to use up to an amount equal to
nine and one-tenth percent (9.1%) of the net proceeds received by the Maker from
the Equity Offering to repay any accrued but unpaid interest and any unpaid
principal balance under this Note; provided, however, the Holder shall have,
within ten business days from receipt of a written notice by the Maker of a
proposed Equity Offering, notified the Maker in writing of the exercise of its
Call Right with respect to such proposed Equity Offering. The Maker shall
provide the Holder with reasonable written notice of any proposed Equity
Offering.
The Maker covenants to deliver to the Holder on or before the date
such items are required to be delivered to the Senior Lender (as defined herein)
(i) quarterly financial statements of the Maker, and (ii) annual audited
financial statements of the Maker; provided, however, that if and when the Maker
is an issuer of a security registered pursuant to Section 12 of the Securities
Exchange Act of 1934, Maker shall deliver such quarterly and annual financial
statements to the Holder on or before the date such financial statements are
required to be filed with the Securities and Exchange Commission. The quarterly
financial statements described herein shall be delivered to the Holder along
with a certificate of the chief financial officer of the Maker certifying that
such quarterly financial statements are true and correct copies of the financial
statements of the Maker. The annual financial statements of the Maker delivered
to the Holder pursuant to this paragraph shall be audited by independent
certified public accountants reasonably acceptable to the Senior Lender (as
defined herein) and certified, without any qualifications, by such accountants
to have been prepared in accordance with generally accepted accounting
principles. The quarterly and annual financial statements delivered by the
Maker to
<PAGE>
the Holder shall be in form and substance the same quarterly and annual
financial statements provided to the Senior Lender (as defined herein).
All amounts payable hereunder are payable in lawful money of the
United States of America.
If this Note is placed in the hands of an attorney for collection,
or suit is filed hereon, or proceedings are had in bankruptcy, receivership,
reorganization, or other judicial proceedings for the establishment or
collection of any amount hereunder, or any amount payable or to be payable
hereunder is collected through any such proceedings, the Maker agrees to pay
attorneys' fees and collection fees incurred by the Holder.
The occurrence of any of the following events shall constitute an
event of default ("Event of Default") under this Note: (a) failure of the
Maker to pay any principal under this Note when due; (b) failure of the Maker
to pay any interest or other amount due under this Note when due and such
default continues for a period of five days after written notice by Holder;
or (c) failure of the Maker to perform or observe any other term, covenant or
agreement to be performed or observed by it pursuant to this Note and such
default or breach continues for a period of 10 days after written notice by
Holder; or (d) any proceedings for liquidation or dissolution of the Maker
shall have been commenced by the Maker or any order, judgement or decree
shall be entered against the Maker decreeing the dissolution or split-up of
the Maker; or (e) (i) court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Maker in an involuntary case
under Title 11 of the United States Code entitled "Bankruptcy" (as now and
hereinafter in effect, or any successor thereto, the "Bankruptcy Code") or
any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, which decree or order is not stayed; or any other similar relief
shall be granted under any applicable federal or state law; or (ii) an
involuntary case shall be commenced against the Maker under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Maker or over all or a
substantial part of its property shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of the Maker
for all or a substantial part of its property shall have occurred; and, in
the case of any event described in this clause (ii), such event shall have
continued for 60 days unless dismissed, bonded or discharged; or (f) an order
for relief shall be entered with respect to the Maker or the Maker shall
commence a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an involuntary case, or
to the conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or the Maker shall make an assignment for the benefit of creditors;
or the Maker shall be unable or fail, or shall admit in writing its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in (e) or (f) of
the preceding paragraph, the principal amount of this Note together with accrued
interest thereon shall become immediately due and payable, without presentment,
demand, notice, protest or other requirements of any kind (all of which are
hereby expressly waived by the Maker). Upon
2
<PAGE>
the occurrence and during the continuance of any other Event of Default, Holder
may, by written notice to the Maker, declare the principal amount of this Note
together with accrued interest thereon to be due and payable, and the principal
amount of this Note together with such interest shall thereupon immediately
become due and payable without presentment, further notice, protest or other
requirements of any kind (all of which are hereby expressly waived by the
Maker).
Except as otherwise provided herein, the Maker hereby waives demand
and presentment for payment, notice of non-payment, protest, notice of protest,
notice of dishonor, bringing of suit and diligence in taking any action to
collect amounts called for hereunder; and the Maker shall be liable for the
payment of all amounts owing and to be owing hereon, regardless of and without
any notice, diligence, act or omission with respect to the collection of any
amount called for hereunder.
Failure by the Holder to exercise any of the rights or remedies set
forth herein shall not constitute a waiver of the right to exercise the same or
any other right or remedy at any subsequent time with respect to the same or any
other event. The acceptance by the Holder of any payment hereunder that is less
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a wavier of the right to exercise any rights or remedies at
that time or at any subsequent time, or nullify any prior exercise of any right
or remedy without the express written consent of the Holder.
It is expressly stipulated and agreed to be the intent of the Maker
and the Holder to at all times comply with the applicable law now or hereafter
governing the interest payable on this Note or the indebtedness evidenced
hereby. If the applicable law as it is now or as it may be revised, repealed or
judicially interpreted renders usurious any amount called for under this Note,
or contracted for, charged, taken, reserved or received without respect to the
indebtedness evidenced by this Note, or if any prepayment by the Maker results
in the Maker having paid any Interest in excess of that permitted by applicable
law, then it is the Maker's and the Holders express intent that all excess
amounts theretofore collected by the Holder be credited on the principal balance
of this Note (or, if this Note has been paid in full, refunded to the Maker),
and the provisions of this Note shall immediately be deemed reformed and the
amounts thereafter collectible hereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
hereunder.
This Note is and shall be deemed to be a contract entered into and
made pursuant to the laws of the State of New York and shall in all respects
be governed, construed, applied and enforced in accordance with the laws of
the State of New York without regard to choice of law principles. The Maker
hereby agrees that the venue of any legal action or proceeding with respect
to this Note and the rights and obligations of the parties hereto shall lie
in any state or federal court in the State of New York. The Maker further
consents to and hereby submits itself to the jurisdiction of the
above-mentioned courts situated in the State of New York.
All advances made by the Holder and all repayments of the principal
thereof shall be recorded by the Holder; PROVIDED that the failure of the Holder
to make any such recordation or endorsement shall not affect the obligations of
the Maker to hereunder.
3
<PAGE>
This Note shall be subordinated to all present and future secured
debt of the Maker to Foothill Capital Corporation ("Foothill") or such other
single secured lender (or indenture trustee) to the Maker, which may from
time to time replace Foothill, in the event that Foothill ceases to be a
secured lender senior to the Holder (in either case, the "Senior Lender");
provided, however, that the syndication by Foothill or such other single
secured lender of the secured debt of the Maker to one or more financial
institutions or investors shall not affect such single secured lender's (or
indenture trustee's) status as a Senior Lender or the subordination of this
Note to such secured debt of the Maker to the Senior Lender. Upon the
Maker's request, Holder shall execute a subordination agreement: (i) in the
exact form of that certain Intercreditor Agreement between the Holder and
Foothill of even date herewith; or (ii) if the Maker requests an alternative
form, then in a form and substance reasonably acceptable to the Holder and
the Senior Lender providing that the debt hereunder is subordinated in right
of payment to such secured debt, and requiring Holder to standstill in the
exercise of its remedies prior to the exercise of remedies of the holders of
secured debt, such standstill to be on terms reasonably acceptable to Holder
and the holders or prospective holders of such secured debt. This Note may
be prepaid by the Maker at any time, in whole or part, without penalty.
This Note is secured by that certain Security Agreement, dated as of
the date hereof, by and among Maker and Holder.
[Remainder of Page Intentionally Left Blank]
4
<PAGE>
All notices and other communications required or permitted to be made
to the Maker hereunder shall be made in writing and will be deemed delivered
when received by the Maker by messenger, telex, telecopier or mail at the
following address or such other address as the Maker may notify the Holder in
writing from time to time:
Communication TeleSystems International
9999 Willow Creek Road
San Diego, CA 92131
Attn: Legal Department
Facsimile: (619) 452-3780
The terms of this Note shall be binding upon and inure to the benefit
of the successors and assigns of the Maker and the Holder. This Note and the
related documents executed in connection herewith constitute the complete and
exclusive statement of the understandings between the parties and supersedes all
proposals and prior agreements (oral or written) between the parties relating to
the subject matter of this transaction, and may only be amended by agreement in
writing and subscribed to by an authorized representative of the Maker.
This Note may be assigned by the Holder upon written notice to the
Maker.
COMMUNICATION TELESYSTEMS
INTERNATIONAL, D.B.A.
WORLDxCHANGE COMMUNICATIONS
By: /s/ Rosalind Abbott
---------------------------
Name: Rosalind Abbott
Title: Secretary
5
<PAGE>
Note (Cont'd)
LOAN AND PAYMENTS OF PRINCIPAL
<TABLE>
<S><C>
- -----------------------------------------------------------------------------------------------------
Date Amount of Amount of Amount of Maturity Notation
Loan Interest Principal Date Made By
Paid Repaid
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
SUBORDINATED PROMISSORY NOTE
August 25, 1998
For value received, the undersigned, COMMUNICATION TELESYSTEMS
INTERNATIONAL, d.b.a WorldxChange Communications, a California corporation (the
"Maker"), whose address is 9999 Willow Creek Road, San Diego, CA 92131, hereby
promises to pay to the order of GERARD KLAUER MATTISON & CO., INC. (the
"Holder"), at such place as the Holder may from time to time designate in
writing, the principal sum of Fifteen Million Dollars and No Cents
($15,000,000.00) on November 30, 2000. The Maker also promises to pay simple
interest on the unpaid principal balance hereof from the date hereof until paid
in full at a rate per annum equal to twelve and one-half (12 1/2%). Interest on
this Note shall be payable quarterly in arrears commencing on November 25, 1998.
Any payment of interest under this Note not paid by its respective due date
shall accrue interest at a rate per annum of twelve and one-half percent (12
1/2%) for so long as such interest payment shall remain unpaid. If any payment
of interest under this note is not paid on or before the tenth day after its
respective due date, then the Maker shall promptly pay, and there shall be due
and owing as of such tenth day, to the Holder the amount of $10,000.00; which
amount is agreed by the Holder and the Maker to be liquidated damages to the
Holder for such late payment and not a penalty.
In the event that the Maker shall close a private placement or public
offering of its Common Stock (an "Equity Offering"), the Holder shall have the
right (the "Call Right") to require the Maker to use up to an amount equal to
six and eight-tenths percent (6.8%) of the net proceeds received by the Maker
from the Equity Offering to repay any accrued but unpaid interest and any unpaid
principal balance under this Note; provided, however, the Holder shall have,
within ten business days from receipt of a written notice by the Maker of a
proposed Equity Offering, notified the Maker in writing of the exercise of its
Call Right with respect to such proposed Equity Offering. The Maker shall
provide the Holder with reasonable written notice of any proposed Equity
Offering.
The Maker covenants to deliver to the Holder on or before the date
such items are required to be delivered to the Senior Lender (as defined herein)
(i) quarterly financial statements of the Maker, and (ii) annual audited
financial statements of the Maker; provided, however, that if and when the Maker
is an issuer of a security registered pursuant to Section 12 of the Securities
Exchange Act of 1934, Maker shall deliver such quarterly and annual financial
statements to the Holder on or before the date such financial statements are
required to be filed with Securities and Exchange Commission. The quarterly
financial statements described herein shall be delivered to the Holder along
with a certificate of the chief financial officer of the Maker certifying that
such quarterly financial statements are true and correct copies of the financial
statements of the Maker. The annual financial statements of the Maker delivered
to the Holder pursuant to this paragraph shall be audited by independent
certified public accountants reasonably acceptable to the Senior Lender (as
defined herein) and certified, without any qualifications, by such accountants
to have been prepared in accordance with generally accepted accounting
principles. The quarterly and annual financial statements delivered by the
Maker to
<PAGE>
the Holder shall be in form and substance the same quarterly and annual
financial statements provided to the Senior Lender (as defined herein).
All amounts payable hereunder are payable in lawful money of the
United States of America.
If this Note is placed in the hands of an attorney for collection,
or suit is filed hereon, or proceedings are had in bankruptcy, receivership,
reorganization, or other judicial proceedings for the establishment or
collection of any amount hereunder, or any amount payable or to be payable
hereunder is collected through any such proceedings, the Maker agrees to pay
attorneys' fees and collection fees incurred by the Holder.
The occurrence of any of the following events shall constitute an
event of default ("Event of Default") under this Note: (a) failure of the
Maker to pay any principal under this Note when due; (b) failure of the Maker
to pay any interest or other amount due under this Note when due and such
default continues for a period of five days after written notice by Holder;
or (c) failure of the Maker to perform or observe any other term, covenant or
agreement to be performed or observed by it pursuant to this Note and such
default or breach continues for a period of 10 days after written notice by
Holder; or (d) any proceedings for liquidation or dissolution of the Maker
shall have been commenced by the Maker or any order, judgment or decree shall
be entered against the Maker decreeing the dissolution or split-up of the
Maker; or (e) (i) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Maker in an involuntary case
under Title 11 of the United States Code entitled "Bankruptcy" (as now and
hereinafter in effect, or any successor thereto, the "Bankruptcy Code") or
any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, which decree or order is not stayed; or any other similar relief
shall be granted under any applicable federal or state law; or (ii) an
involuntary case shall be commenced against the Maker under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Maker or over all or a
substantial part of its property shall have been entered; or the
involuntary appointment of an interim receiver, trustee or other custodian of
the Maker for all or a substantial part of its property shall have occurred;
and, in the case of any event described in this clause (ii), such event shall
have continued for 60 days unless dismissed, bonded or discharged; or (f) an
order for relief shall be entered with respect to the Maker or the Maker
shall commence a voluntary case under the Bankruptcy code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an involuntary case, or
to the conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or the Maker shall make an assignment for the benefit of creditors;
or the Maker shall be unable or fail, or shall admit in writing its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in (e) or (f) of
the preceding paragraph, the principal amount of this Note together with accrued
interest thereon shall become immediately due and payable, without presentment,
demand, notice, protest or other requirements of any kind (all of which are
hereby expressly waived by the Maker). Upon
2
<PAGE>
the occurrence and during the continuance of any other Event of Default, Holder
may, by written notice to the Maker, declare the principal amount of this Note
together with accrued interest thereon to be due and payable, and the principal
amount of this Note together with such interest shall thereupon immediately
become due and payable without presentment, further notice, protest or other
requirements of any kind (all of which are hereby expressly waived by the
Maker).
Except as otherwise provided herein, the Maker hereby waives demand
and presentment for payment, notice of non-payment, protest, notice of protest,
notice of dishonor, bringing of suit and diligence in taking any action to
collect amounts called for hereunder; and the Maker shall be liable for the
payment of all amounts owing and to be owing hereon, regardless of and without
any notice, diligence, act or omission with respect to the collection of any
amount called for hereunder.
Failure by the Holder to exercise any of the rights or remedies set
forth herein shall not constitute a waiver of the right to exercise the same or
any other right or remedy at any subsequent time with respect to the same or any
other event. The acceptance by the Holder of any payment hereunder that is less
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a wavier of the right to exercise any rights or remedies at
that time or at any subsequent time, or nullify any prior exercise of any right
or remedy without the express written consent of the Holder.
It is expressly stipulated and agreed to be the intent of the Maker
and the Holder to at all times comply with the applicable law now or hereafter
governing the interest payable on this Note or the indebtedness evidenced
hereby. If the applicable law as it is now or as it may be revised, repealed or
judicially interpreted renders usurious any amount called for under this Note,
or contracted for, charged, taken, reserved or received without respect to the
indebtedness evidenced by this Note, or if any prepayment by the Maker results
in the Maker having paid any Interest in excess of that permitted by applicable
law, then it is the Maker's and the Holders express intent that all excess
amounts theretofore collected by the Holder be credited on the principal balance
of this Note (or, if this Note has been paid in full, refunded to the Maker),
and the provisions of this Note shall immediately be deemed reformed and the
amounts thereafter collectible hereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for
hereunder.
This Note is and shall be deemed to be a contract entered into and
made pursuant to the laws of the State of New York and shall in all respects be
governed, construed, applied and enforced in accordance with the laws of the
State of New York without regard to choice of law principles. The Maker hereby
agrees that the venue of any legal action proceeding with respect to this Note
and the rights and obligations of the parties hereto shall lie in any state or
federal court in the State of New York. The Maker further consents to and
hereby submits itself to the jurisdiction of the above-mentioned courts situated
in the State of New York.
All advances made by the Holder and all repayments of the principal
thereof shall be recorded by the Holder; PROVIDED that the failure of the Holder
to make any such recordation or endorsement shall not affect the obligations of
the Maker to hereunder.
3
<PAGE>
This Note shall be subordinated to all present and future secured
debt of the Maker to Foothill Capital Corporation ("Foothill") or such other
single secured lender (or indenture trustee) to the Maker, which may from
time to time replace Foothill, in the event that Foothill ceases to be a
secured lender senior to the Holder (in either case, the "Senior Lender");
provided, however, that the syndication by Foothill or such other single
secured lender of the secured debt of the Maker to one or more financial
institutions or investors shall not affect such single secured lender's (or
indenture trustee's) status as a Senior Lender or the subordination of this
Note to such secured debt of the Maker to the Senior Lender. Upon the
Maker's request, Holder shall execute a subordination agreement: (i) in the
exact form of that certain Intercreditor Agreement between the Holder and
Foothill of even date herewith; or (ii) if the Maker requests an alternative
form, then in a form and substance reasonably acceptable to the Holder and
the Senior Lender providing that the debt hereunder is subordinated in right
of payment to such secured debt, and requiring Holder to standstill in the
exercise of its remedies prior to the exercise of remedies of the holders of
secured debt, such standstill to be on terms reasonably acceptable to Holder
and the holders or prospective holders of such secured debt. This Note may
be prepaid by the Maker at any time, in whole or part, without penalty.
This Note is secured by that certain Security Agreement, dated as of
the date hereof, by and among Maker and Holder.
[Remainder of Page Intentionally Left Blank]
4
<PAGE>
All notices and other communications required or permitted to be made
to the Maker hereunder shall be made in writing and will be deemed delivered
when received by the Maker by messenger, telex, telecopier or mail at the
following address or such other address as the Maker may notify the Holder in
writing from time to time:
Communication TeleSystems International
9999 Willow Creek Road
San Diego, CA 92131
Attn: Legal Department
Facsimile: (619) 452-3780
The terms of this Note shall be binding upon and inure to the
benefit of the successors and assigns of the Maker and the Holder. This Note
and the related documents executed in connection herewith constitute the
complete and exclusive statement of the understandings between the parties
and supersedes all proposals and prior agreements (oral or written) between
the parties relating to the subject matter of this transaction, and may only
be amended by an agreement in writing and subscribed to by an authorized
representative of the Maker.
This Note may be assigned by the Holder upon written notice to the
Maker.
COMMUNICATION TELESYSTEMS
INTERNATIONAL, D.B.A.
WORLDxCHANGE COMMUNICATIONS
By: /s/ Rosalind Abbott
---------------------------
Name: Rosalind Abbott
Title: Secretary
5
<PAGE>
Note (Cont'd)
LOAN AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
<S><C>
- -----------------------------------------------------------------------------------------------------
Date Amount of Amount of Amount of Maturity Notation
Loan Interest Principal Date Made By
Paid Repaid
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
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- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
SUBORDINATED PROMISSORY NOTE
August 25, 1998
For value received, the undersigned, COMMUNICATION TELESYSTEMS
INTERNATIONAL, d.b.a. WorldxChange Communications, a California corporation (the
"Maker"), whose address is 9999 Willow Creek Road, San Diego, CA 92131, hereby
promises to pay to the order of TEL-SAVE HOLDINGS, INC., a Delaware corporation
(the "Holder"), at such place as the Holder may from time to time designate in
writing, the principal sum of One Million Two Hundred Thousand Dollars and No
Cents ($1,200,000.00) on November 30, 2000. The Maker also promises to pay
simple interest on the unpaid principal balance hereof from the date hereof
until paid in full at a rate per annum equal to ten percent (10%). Interest on
this Note shall be payable quarterly in arrears commencing on November 25, 1998.
Any payment of interest under this Note not paid by its respective due date
shall accrue interest at a rate per annum of ten percent (10%) for so long as
such interest payment shall remain unpaid. If any payment of interest under
this note is not paid on or before the tenth day after its respective due date,
then the Maker shall promptly pay and there shall be due and owing as of such
tenth day, to the Holder the amount of $10,000.00; which amount is agreed by the
Holder and the Maker to be liquidated damages to the Holder for such payment and
not a penalty.
The Maker covenants to deliver to the Holder on or before the date
such items are required to be delivered to the Senior Lender (as defined
herein) (i) quarterly financial statements of the Maker, and (ii) annual
audited financial statements of the Maker; provided, however, that if and
when the Maker is an issuer of a security registered pursuant to Section 12
of the Securities Exchange Act of 1934, Maker shall deliver such quarterly
and annual financial statements to the Holder on or before the date such
financial statements are required to be filed with the Securities and
Exchange Commission. The quarterly financial statements described herein
shall be delivered to the Holder along with a certificate of the chief
financial officer of the Maker certifying that such quarterly financial
statements are true and correct copies of the financial statements of the
Maker. The annual financial statements of the Maker delivered to the Holder
pursuant to this paragraph shall be audited by independent certified public
accountants reasonably acceptable to the Senior Lender (as defined herein)
and certified, without any qualifications, by such accountants to have been
prepared in accordance with generally accepted accounting principles. The
quarterly and annual financial statements delivered by the Maker to the
Holder shall be in form and substance the same quarterly and annual financial
statements provided to the Senior Lender (as defined herein).
All amounts payable hereunder are payable in lawful money of the
United States of America.
If this Note is placed in the hands of an attorney for collection, or
suit is filed hereon, or proceedings are had in bankruptcy, receivership,
reorganization, or other judicial proceedings for the establishment or
collection of any amount hereunder, or any amount payable or to be payable
hereunder is collected through any such proceedings, the Maker agrees to pay
attorneys' fees and collection fees incurred by the Holder.
<PAGE>
The occurrence of any of the following events shall constitute an event
of default ("Event of Default") under this Note: (a) failure of the Maker to
pay any principal under this Note when due; (b) failure of the Maker to pay
any interest or other amount due under this Note when due and such default
continues for a period of five days after written notice by the Holder; or
(c)failure of the Maker to perform or observe any other term, covenant or
agreement to be performed or observed by it pursuant to this Note and such
default or breach continues for a period of 10 days after written notice by
Holder; or (d) any proceedings for liquidation or dissolution of the Maker
shall have been commenced by the Maker or any order, judgment or decree shall
be entered against the Maker decreeing the dissolution or split-up of the
Maker; or (e) (i) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Maker in an involuntary case
under Title 11 of the United States Code entitled "Bankruptcy" (as now and
hereinafter in effect, or any successor thereto, the "Bankruptcy Code") or
any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, which decree or order is not stayed; or any other similar relief
shall be granted under any applicable federal or state law; or (ii) an
involuntary case shall be commenced against the Maker under applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over the Maker or over all or a
substantial part of its property shall have been entered; or the involuntary
appointment of an interim receiver, trustee or other custodian of the Maker
for all or a substantial part of its property shall have occurred; and, in the
case of any event described in this clause (ii), such event shall have
continued for 60 days unless dismissed, bonded or discharged; or (f) an order
for relief shall be entered with respect to the Maker or the Maker shall
commence a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
shall consent to the entry of an order for relief in an involuntary case, or
to the conversion of an involuntary case to a voluntary case, under any such
law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or the Maker shall make an assignment for the benefit of creditors;
or the Maker shall be unable or fail, or shall admit in writing its
inability, to pay its debts as such debts become due.
Upon the occurrence of any Event of Default specified in (e) or (f)
of the preceding paragraph, the principal amount of this Note together with
accrued interest thereon shall become immediately due and payable, without
presentment, demand, notice, protest or other requirements of any kind (all of
which are hereby expressly waived by the Maker). Upon the occurrence and during
the continuance of any other Event of Default, Holder may, by written notice to
the Maker, declare the principal amount of this Note together with accrued
interest thereon to be due and payable, and the principal amount of this Note
together with such interest shall thereupon immediately become due and payable
without presentment, further notice, protest or other requirements of any kind
(all of which are hereby expressly waived by the Maker).
Except as otherwise provided herein, the Maker hereby waives demand
and presentment for payment, notice of non-payment, protest, notice of protest,
notice of dishonor, bringing of suit and diligence in taking any action to
collect amounts called for hereunder; and the Maker shall be liable for the
payment of all amounts owing and to be owing hereon,
2
<PAGE>
regardless of and without notice, diligence, act or omission with respect to the
collection of any amount called for hereunder.
Failure by the Holder to exercise any of the rights or remedies set
forth herein shall not constitute a waiver of the right to exercise the same or
any other right or remedy at any subsequent time with respect to the same or any
other event. The acceptance by the Holder of any payment hereunder that is
less than payment in full of all amounts due and payable at the time of such
payment shall not constitute a wavier of the right to exercise any rights or
remedies at that time or at any subsequent time, or nullify any prior exercise
of any right or remedy without the express consent of the Holder.
It is expressly stipulated and agreed to be the intent of the Maker
and the Holder to at all times comply with the applicable law now or
hereafter governing the interest payable on this Note or the indebtedness
evidenced hereby. If the applicable law as it is now or as it may be
revised, repealed or judicially interpreted renders usurious any amount
called for under this Note, or contracted for, changed, taken, reserved or
received with respect to the indebtedness evidenced by this Note, or if any
prepayment by the Maker results in the Maker having paid any Interest in
excess of that permitted by the applicable law, then it is the Maker's and
the Holders express intent that all excess amounts theretofore collected by
the Holder be credited on the principal balance of this Note (or, if this Note
has been paid in full, refunded to the Maker), and the provisions of the Note
shall immediately be deemed reformed and the amounts thereafter collectible
hereunder reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as to permit
the recovery of the fullest amount otherwise called for hereunder.
This Note is and shall be deemed to be a contact entered into and made
pursuant to the laws of the State of New York and shall in all respects be
governed, construed, applied and enforced in accordance with the laws of the
State of New York without regard to choice of law principles. The Maker hereby
agrees that the venue of any legal action or proceeding with respect to this
Note and the rights and obligations of the parties hereto shall lie in any state
or federal court in the State of New York. The Maker further consents to and
hereby submits itself to the jurisdiction of the above-mentioned courts situated
in the State of New York.
All advances made by the Holder and all repayments of the principal
thereof shall be recorded by the Holder; PROVIDED that the failure of the Holder
to make any such recordation or endorsement shall not affect the obligations of
the Maker to hereunder.
The Note shall be subordinated to all present and future secured debt
of the Maker to Foothill Capital Corporation ("Foothill") or such other single
secured lender (or indenture trustee) to the Maker, which may from time to time
replace Foothill, in the event that Foothill ceases to be a secured lender
senior to the Holder (in either case, the "Senior Lender"); provided, however
that the syndication by Foothill or such other single secured lender of the
secured debt of the Maker to one or more financial institutions or investors
shall not affect such single secured lender's (or indenture trustee's) status as
a Senior Lender or the subordination of this Note to such secured debt of the
Maker to the Senior Lender. Upon the Maker's request, Holder shall execute a
subordination agreement: (i) in the exact form of that certain Intercreditor
Agreement between the Holder and Foothill of even date herewith; or (ii) if the
Maker requests
3
<PAGE>
an alternative form, then in a form and substance reasonably acceptable to the
Holder and the Senior Lender providing that the debt hereunder is subordinated
in right of payment to such secured debt, and requiring Holder to standstill in
the exercise of its remedies prior to the exercise of remedies of the holders of
secured debt, such standstill to be on terms reasonably acceptable to Holder and
the holders or prospective holders of such secured debt. This Note may be
prepaid by the Maker at any time, in whole or part, without penalty.
This Note is secured by that certain Security Agreement, dated as of
the date hereof, by and among Maker and Gerard Klauer Mattison & Co., Inc.,
which was assigned on the date hereof to Holder.
[Remainder of Page Intentionally Left Blank]
4
<PAGE>
All notices and other communications required or permitted to be made
to the Maker hereunder shall be made in writing and will be deemed delivered
when received by the Maker by messenger, telex, telecopier or mail at the
following address or such other address as the Maker may notify the Holder in
writing from time to time:
Communication TeleSystems International
9999 Willow Creek Road
San Diego, CA 92131
Attn: Legal Department
Facsimile: (619) 452-3780
The terms of this Note shall be binding upon and inure to the benefit
of the successors and assigns of the Maker and the Holder. This Note and the
related documents executed in connection herewith constitute the complete and
exclusive statement of the understandings between the parties and supersedes all
proposals and prior agreements (oral or written) between the parties relating to
the subject matter of this transaction, and may only be amended by an agreement
in writing and subscribed to by an authorized representative of the Maker.
This Note may be assigned by the Holder upon written notice to the
Maker.
COMMUNICATION TELESYSTEMS
INTERNATIONAL D.B.A.
WORLDxCHANGE COMMUNICATIONS
By: /s/ Rosalind Abbot
--------------------
Name: Rosalind Abbott
Title: Secretary
5
<PAGE>
Note (Cont'd)
LOAN AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Date Amount of Amount of Amount of Maturity Notation
Loan Interest Principal Date Made By
Paid Repaid
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
AGREEMENT
This agreement (this "Agreement") is entered into as of March 15, 1999,
effective as of February 28, 1999 (the "Effective Date"), by and among
COMMUNICATION TELESYSTEMS INTERNATIONAL, d.b.a. WorldxChange Communications,
a California corporation ("CTS"). TEL-SAVE.com, INC., a Delaware corporation
("Tel-Save"), TEL-SAVE, INC., a Pennsylvania corporation and a subsidiary of
Tel-Save (the "Subsidiary"), MARK PAVOL, as Trustee of that certain D&K
Grantor Retained Annuity Trust dated June 15, 1998 (the "Trust"), ROGER B.
ABBOTT AND ROSALIND ABBOTT, individuals residing in San Diego, California
(collectively, the "Abbotts"), and EDWARD SOREN, an individual residing in
San Diego, California ("Soren").
RECITALS
--------
A. CTS is the maker of three subordinated promissory notes, each dated
August 25, 1998, in favor of Gerard Klauer Mattison & Co., Inc. ("GKM") in
the aggregate initial principal amount of $55,000,000 (collectively, the
"Notes").
B. CTS is the maker of a subordinated promissory note, date August 25,
1998, in favor of Tel-Save in the initial principal amount of $1,200,000 (the
"Accrued Interest Note").
C. CTS and GKM entered into that certain Security Agreement dated August
25, 1998 (the "Security Agreement"), pursuant to which CTS provided security
for repayment of the Notes and of the Accrued Interest Note, among other
things.
D. The Abbotts and GKM entered into that certain Pledge Agreement dated
August 25, 1998 (the "Abbott Pledge Agreement"), pursuant to which the
Abbotts granted a limited guaranty of the Notes and of the Accrued Interest
Note, pledged certain shares of CTS stock (the "Abbott Pledged Shares") as
security for such limited guaranty, and delivered appropriate stock
certificates and stock powers pursuant to such pledge.
E. Soren and GKM entered into that certain Pledge Agreement dated August
25, 1998 (the "Soren Pledge Agreement"), pursuant to which Soren granted a
limited guaranty of the Notes and of the Accrued Interest Note, pledged
certain shares of CTS stock (the "Soren Pledged Shares") as security for such
limited guaranty, and delivered appropriate stock certificates and stock
powers pursuant to such pledge.
F. GKM assigned to Tel-Save all of the rights, title, and interest of
GKM in the Notes, the Security Agreement, the Abbott Pledge Agreement, the
Abbott Pledged Shares, the Soren Pledge Agreement, the Soren Pledged Shares,
and all related stock certificates and stock powers.
1
<PAGE>
G. CTS consented to such assignment from GKM to Tel-Save and
acknowledged Tel-Save as the payee of the Notes and the Secured Party under
(and as defined in) the Security Agreement.
H. The Abbotts consented to such assignments from GKM to Tel-Save and
acknowledged Tel-Save as the Secured Party under (and as defined in) the
Abbott Pledge Agreement.
I. Soren consented to such assignment from GKM to Tel-Save and
acknowledged Tel-Save as the Secured Party under (and as defined in) the
Soren Pledge Agreement.
J. Pursuant to that certain Exchange Agreement dated January 2, 1999
(the "Exchange Agreement"), Tel-Save granted to the Trust a participation
interest in all of the rights, title, and interest of Tel-Save in the Notes,
the Accrued Interest Note, the Security Agreement, the Abbott Pledge
Agreement, the Soren Pledge Agreement, the Abbott Pledged Shares, the Soren
Pledged Shares, all related stock certificates and stock powers, that certain
Intercreditor Agreement dated as of August 25, 1998, between Foothill Capital
Corporation, a California corporation, Tel-Save, and GKM, and the Financing
Statement that was filed in connection with the Security Agreement and that
showed CTS as the Debtor and Tel-Save as the Secured Party (such documents,
other than the Exchange Agreement, to be referred to hereinafter collectively
as the "Note Documents").
K. CTS desires to sell equity securities in an amount not less than
$30,000,000, and desires to enter into this Agreement in connection with that
proposed sale.
I. The parties hereto acknowledge and agree that the aggregate principal
balance owing on the Notes at the date hereof is $50,000,000.
M. The parties hereto acknowledge and agree that the principal balance
owing on the Accrued Interest Note at the date hereof is $1,200,000.
N. The parties hereto desire to modify certain of the covenants and
provisions of the Accrued Interest Note and the Notes and to enter into
certain other agreements as hereinafter set forth.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree that:
1. INCORPORATION OF RECITALS. CTS represents and warrants that
Recital K of this Agreement is true, complete, and correct. All other Recitals
to this Agreement are hereby incorporated by this reference herein and
constitute agreements among the parties hereto.
2. MODIFICATION OF CALL RIGHTS UNDER THE NOTES. Each of the Notes
contains certain "Call Rights" (as defined in the Notes). As of the Effective
Date, the second paragraph (unnumbered) of each Note shall be amended to read
in full as follows:
"In the event that the Maker shall close a private placement
or public offering of its Common Stock (an "Equity Offering"),
the
2
<PAGE>
Holder shall have the right (the "Call Right") to require
the Maker to use up to an amount (the "Amount") of the
net proceeds received by the Maker from the Equity
Offering to repay any accrued but unpaid interest and any
unpaid principal balance under this Note; provided,
however, the Holder shall have, within ten business days
from receipt of a written notice by the Maker of a
proposed Equity Offering, notified the Maker in writing
of the exercise of its Call Right with respect to such
proposed Equity Offering. The Amount shall be expressed
herein as an aggregate amount to be applicable to this
Note and two other notes issued by Maker concurrently
herewith, which three promissory notes are in the initial
aggregate principal amount of $55,000,000. The Amount
shall be divided among such three promissory notes pro
rata based on the initial principal amount of each such
promissory note. The Maker shall provide the Holder with
reasonable written notice of any proposed Equity Offering.
"(a) In the event that, after February 28, 1999,
Maker closes an Equity Offering in which net proceeds to
the Maker are at least $6,000,000 (the "First Equity
Offering"), the Amount shall be limited to an amount
equal to the greater of: (i) 20% of the net proceeds
received by the Maker from the First Equity Offering or
(ii) $6,000,000.
"(b) With respect to any Equity Offering after the
date of the First Equity Offering, the Amount shall be
limited to an amount equal to 35% of the net proceeds
received by the Maker from such Equity Offering.
"(c) With respect to any Equity Offering after the
Effective Date of this Agreement but prior to the First
Equity Offering, the Amount shall be limited to an amount
equal to 25% of the net proceeds received by the Maker
from such Equity Offering.
"(d) Multiple closings under one agreement for the
private placement of Common Stock of the Maker shall be
deemed to be part of the same Equity Offering."
3. POSSIBLE ONE YEAR EXTENSION OF THE TERM OF THE ACCRUED INTEREST
NOTE AND THE NOTES. In the event that, on or before November 30, 2000: (i) the
Accrued Interest Note and the Notes have not been repaid in full; and (ii)
CTS has made payments of principal on the Accrued Interest Note or the Notes
after the Effective date of an aggregate amount of at least $12,250,000
(excluding any and all payments described in subsection (a) contained in the
amendment quoted in section 2 of this Agreement), then the due date of the
Accrued Interest Note and each of the Notes shall be extended from November
30, 2000, to November 30, 2001.
4. POSSIBLE TWO YEAR EXTENSION OF THE TERM OF THE ACCRUED INTEREST
NOTE AND THE NOTES. In the event that on or before November 30, 2001: (i) the
Accrued
3
<PAGE>
Interest Note and the Notes have not been repaid in full; and (ii) CTS has
made payments of principal on the Accrued Interest Note or the Notes after
the Effective Date of an aggregate amount of at least $21,000,000 (excluding
any and all payments described in subsection (a) contained in the amendment
quoted in Section 2 of this Agreement), then the due date of the Accrued
Interest Note and each of the Notes shall be extended form November 30, 2000,
or, if the due dates have already been extended pursuant to Section 3 hereof,
from November 30, 2001, to November 30, 2002.
5. CERTAIN CONSENTS AND WAIVERS.
(a) Each of CTS, the Abbotts, and Soren (collectively, the
"CTS Parties") acknowledges and consents to each of the assignments and
transfers referred to in this Agreement, including without limitation the
assignments and transfers referred to in the Recitals to this Agreement.
(b) Each of the CTS parties acknowledges and certifies that,
as of the date hereof, no default or Event of Default exists under any of the
Note Documents, nor would a default or Event of Default exist thereunder with
notice or the passage of time or both.
(c) CTS acknowledges and agrees that it has waived the effect
of Section 4.10 of the Security Agreement and that such Section is of no
further force or effect.
(d) Each of the CTS Parties represents and warrants to, and
agrees with, each of Tel-Save, the Trust, and the Subsidiary (collectively,
the "Other Parties") that, at the date hereof: (i) none of the Other Parties
is in default under any of the Note Documents; (ii) none of the CTS Parties
has suffered any damage under any of the Note Documents, and none of the CTS
Parties has, under any of the Note Documents, any cause of action, right of
set-off or counterclaim, or any other claim of any nature whatsoever under
any of the Note Documents against any of the Other Parties or any director,
officer, attorney, agent, employee, or affiliate of any of the Other Parties
(collectively, "CTS Parties' Claims"); and (iii) each of the CTS Parties
hereby waivers and relinquishes any and all CTS Parties' Claims.
(c) Each of the Other Parties represents and warrants to, and
agrees with each of the CTS Parties that, at the date hereof: (i) none of the
CTS Parties is in default under any of the Note Documents; (ii) none of the
Other Parties has suffered any damage under any of the Note Documents, and
none of the Other Parties has, under any of the Note Documents, any cause of
action, right of set-off or counterclaim, or any other claim of any nature
whatsoever under any of the Note Documents against any of the CTS Parties or
any director, officer, attorney, agent, employee, or affiliate of any of the
CTS Parties (collectively, "Other Parties' Claims"); and (iii) each of the
Other Parties hereby waives and relinquishes any and all Other Parties'
Claims.
(f) CTS agrees that the Security Agreement remains in full
force and effect on the date hereof and that its force and effect will not be
affected by any of the transactions contemplated hereby, subject only to the
express confirmation of the prior modification of the Security Agreement by
this Agreement, and that the Security Agreement provides collateral security
for the Accrued Interest Note and for the Notes.
4
<PAGE>
(g) Each of the Abbotts agrees that the Abbott Pledge
Agreement remains in full force and effect on the date hereof and that its
force and effect will not be affected by any of the transactions contemplated
hereby, and that it provides collateral security for the Accrued Interest
Note and for the Notes.
(h) Soren agrees that the Soren Pledge Agreement remains in
full force and effect on the date hereof and that its force and effect will
not be affected by any of the transactions contemplated hereby, and that it
provides collateral security for the Accrued Interest Note and for the Notes.
(i) CTS acknowledges and agrees that it may not reduce or
offset against any of its obligations under any of the Notes or the Accrued
Interest Note for any reason whatsoever. Without limiting the generality of
the foregoing, nothing in this Agreement shall be deemed or construed to
create such a right of offset.
6. CERTAIN AGREEMENTS.
(a) Tel-Save represents and warrants to the Trust and CTS
that, except for the transfer to the Trust referred to herein, Tel-Save has
not transferred or assigned any of the Note Documents, or any interest
therein, to any other person or entity.
(b) The Trust represents and warrants to Tel-Save and CTS that
the Trust has not transferred or assigned any of the Note Documents, or any
interest therein, to any other person or entity.
(c) None of the Other Parties shall have any obligation or
responsibility with regard to the offer, purchase, or sale of any Equity
Offering. Without limiting the generality of the foregoing, and except for the
agreements of the Other Parties expressly set forth in this Agreement, none
of the Other Parties makes any representation, warranty, or covenant
regarding CTS, any Equity Offering, or such offer, purchase, or sale, and
expressly disclaims any such representation, warranty, or covenant, express
or implied.
7. ADDITIONAL COVENANTS. Within 10 days following the receipt by
Tel-Save of a minimum of $6,000,000 from CTS as payment under subsection (a)
contained in the amendment quoted in Section 2 hereof, provided that such
amount is received by Tel-Save on or prior to May 31, 1999:
(a) Tel-Save, the Subsidiary, and the Trust shall enter into
that certain Modification of the Exchange Agreement, substantially in the
form attached hereto as EXHIBIT A, pursuant to which: (i) The Trust shall
release and discharge Tel-Save and the Subsidiary from all of their future
individual and joint obligations and responsibilities under the Exchange
Agreement, including without limitation the obligation of the Subsidiary to
perform under its limited guaranty set forth in the Exchange Agreement; (ii)
Tel-Save shall sell to the Trust the participation interest of Tel-Save in
the Note Documents; (iii) Tel-Save shall assign and deliver the Note Documents
to the Trust; (iv) the Subsidiary shall waive any guaranty fee payable under
Section 4 of the Exchange Agreement; and (v) Tel-Save and the Trust shall
agree that Sections 3.4-3.18 (inclusive), 4, and 5 of the Exchange Agreement
are terminated and are of no further force or effect.
5
<PAGE>
(b) Tel-Save and the Trust shall execute and deliver to each
other and to the other parties thereto a Modification of the Registration
Rights Agreement substantially in the form of EXHIBIT B hereto, and the Trust
shall cause the other parties to such Modification of the Registration
Rights Agreement to execute and deliver such document to each other and to
Tel-Save and the Trust.
(c) CTS shall pay up to $10,000 of the reasonable costs and
fees incurred by Tel-Save, the Subsidiary, and the Trust in connection with
this Agreement and the transactions contemplated hereby, including without
limitation the reasonable fees of legal counsel incurred by such entities.
(d) The Trust shall deliver to CTS the Accrued Interest Note
and the Notes in exchange for an Amended and Restated Accrued Interest Note
and Amended and Restated Notes that shall be of identical terms as the
promissory notes exchanged therefor except that the payee of such Amended and
Restated promissory notes shall be the Trust.
(e) At the time of the transactions identified in this Section
7, each of the Abbotts and Soren shall reconfirm in writing that their
respective Pledge Agreements remain in full force and effect.
8. TERMINATION. If, on or before May 31, 1999, Tel-Save has not
received a minimum of $6,000,000 from CTS as payment under subsection (a)
contained in the amendment quoted in Section 2 hereof: (a) Sections 2, 3, 4,
and 7 of this Agreement shall be of no further force or effect, and (b) the
provisions set forth in Sections 2, 3, and 4 hereof amending the Accrued
Interest Note and the Notes shall be rescinded as of the Effective Date,
shall be of no further force or effect, and the Accrued Interest Note and the
Notes shall revert to their forms as they existed prior to such amendments.
9. BINDING EFFECT: TRANSFER. This Agreement is binding upon and
inures to the benefit of the successors and assigns of each of the parties.
This Agreement is also binding upon any transferees of the Accrued Interest
Note or any of the Notes. Each of the Other Parties agrees not to assign or
transfer the Accrued Interest Note or any of the Notes without first: (i)
informing the assignee or transferee of the terms of this Agreement; (ii)
providing such assignee or transferee with a copy of this Agreement; and
(iii) notifying CTS in writing of the proposed transfer. The possible
modifications and possible extensions in Sections 2, 3, and 4 hereof shall
apply only to the provisions and periods specifically referred to therein and
no other, further, or broader modifications or possible extensions, or any
waiver or consent, is inferred or shall be implied.
10. GOVERNING LAW. This Agreement is and shall be deemed to be a
contract entered into and made pursuant to the laws of the State of New York
and shall in all respects be governed, construed, applied, and enforced in
accordance with the laws of the State of New York without regard to choice of
law principles. The parties hereby agree that the venue of any legal action
or proceeding with respect to the Agreement and the rights and obligations of
the parties hereto shall lie in any state or federal court in the State of
New York. Each of the parties further consents to and hereby submits itself
to the jurisdiction of the above-mentioned courts situated in the State of
New York.
6
<PAGE>
11. FULL FORCE AND EFFECT OF CERTAIN DOCUMENTS. Each of the parties
hereto agrees that, at the date hereof each of the Note Documents is in full
force and effect except as modified by this Agreement and the Exhibits hereto.
12. FURTHER COOPERATION. Each of the parties hereto agrees to
cooperate with each of the other parties hereto, including without limitation
by executing and delivering appropriate documents, to more fully effectuate
the purposes of this Agreement.
13. EXHIBITS. Exhibits A and B hereto are, by this reference,
incorporated herein.
14. LEGEND. On or before the date of this Agreement, the Other
Parties shall cause the following legend to be stamped or otherwise imprinted
(while in the presence of an officer of CTS) on the Accrued Interest Note and
each of the Notes:
"THIS NOTE AND THE INDEBTEDNESS EVIDENCED BY THIS NOTE ARE
SUBJECT TO AN AGREEMENT, DATED AS OF MARCH 15, 1999, BY
AND BETWEEN THE MAKER (AS DEFINED HEREIN), TEL-SAVE.com, INC.,
AND TEL-SAVE, INC., AND OTHER PARTIES, COPIES OF WHICH
AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF THE MAKER
(AS DEFINED HEREIN)."
IN WITNESS WHEREOF, CTS, Tel-Save, the Subsidiary, and the Trust have
caused this Agreement to be executed by their respective officers, thereunto
duly authorized, and the Abbotts and Soren have executed this Agreement, as of
the date first above written to be effective as of the Effective Date.
COMMUNICATIONS TELESYSTEMS
INTERNATIONAL, d.b.a.
WORLDXCHANGE
COMMUNICATIONS, A CALIFORNIA
CORPORATION
By: /s/ Edward S. Soren
------------------------------
Name: Edward Soren
---------------------------
Title: Executive Vice-President
---------------------------
7
<PAGE>
TEL-SAVE.com, INC., A DELAWARE
CORPORATION
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
----------------------------
Title:
---------------------------
TEL-SAVE, INC., A PENNSYLVANIA
CORPORATION
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
----------------------------
Title:
---------------------------
8
<PAGE>
MARK PAVOL, AS TRUSTEE OF THAT CERTAIN
D&K GRANTOR RETAINED ANNUITY TRUST
DATED JUNE 15, 1998
/s/ Mark Pavol
- --------------------------------------
ROGER B. ABBOTT
/s/ Roger B. Abbott
- --------------------------------------
ROSALIND ABBOTT
/s/ Rosalind Abbott
- --------------------------------------
EDWARD S. SOREN
/s/ Edward S. Soren
- --------------------------------------
9
<PAGE>
LIST OF EXHIBITS
A. Modification of the Exchange Agreement
B. Modification of Registration Rights Agreement
10
<PAGE>
LIST OF OMITTED EXHIBITS
The following Exhibits to the Agreement have been omitted from this
Exhibit and shall be furnished supplementally to the Commission upon request:
Exhibit A - Modification of the Exchange Agreement
Exhibit B - Modification of the Registration Rights Agreement
<PAGE>
AGREEMENT
This agreement ("Agreement") is entered into as of June 28, 1999 (the
"Effective Date"), by and among COMMUNICATION TELESYSTEMS INTERNATIONAL,
d.b.a. WorldxChange Communications, a California corporation ("CTS"), MARK
PAVOL, as Trustee of that certain D&K Grantor Retained Annuity Trust dated
June 15, 1998 (the "Trust"), ROGER B. ABBOTT AND ROSALIND ABBOTT,
individuals residing in San Diego, California (collectively, the "Abbotts"),
and EDWARD SOREN, an individual residing in San Diego, California ("Soren").
RECITALS
A. CTS is the maker of three subordinated promissory notes, each dated
August 25, 1998, in favor of Gerard Klaurer Mattison & Co., Inc. ("GKM") in
the aggregate initial principal amount of $55,000,000 (collectively, the
"Notes").
B. CTS is the maker of a subordinated promissory note, dated August 25,
1998, in favor of Tel-Save in the initial principal amount of $1,200,000 (the
"Accrued Interest Note").
C. CTS and GKM entered into that certain Security Agreement dated August
25, 1998 (the "Security Agreement"), pursuant to which CTS provided security
for repayment of the Notes and of the Accrued Interest Note, among other
things.
D. The Abbotts and GKM entered into that certain Pledge Agreement dated
August 25, 1998 (the "Abbott Pledge Agreement"), pursuant to which the Abbotts
granted a limited guaranty of the Notes and of the Accrued Interest Note,
pledged certain shares of CTS stock (the "Abbott Pledged Shares"), as
security for such limited guaranty, and delivered appropriate stock
certificates and stock powers pursuant to such pledge.
E. Soren and GKM entered into that certain Pledge Agreement dated August
25, 1998 (the "Soren Pledge Agreement"), pursuant to which Soren granted a
limited guaranty of the Notes and of the Accrued Interest Note, pledged
certain shares of CTS stock (the "Soren Pledged Shares") as security for such
limited guaranty, and delivered appropriate stock certificates and stock
powers pursuant to such pledge.
F. GKM assigned to Tel-Save.com, Inc. ("Tel-Save") all of the rights,
title, and interest of GKM in the Notes, the Security Agreement, the Abbott
Pledge Agreement, the Abbott Pledged Shares, the Soren Pledge Agreement, the
Soren Pledged Shares, and all related stock certificates and stock powers.
G. CTS consented to such assignment from GKM to Tel-Save and
acknowledged Tel-Save as the payee of the Notes and the Secured Party under
(and as defined in) the Security
1
<PAGE>
Agreement.
H. The Abbotts consented to such assignment from GKM to Tel-Save and
acknowledged Tel-Save as the Secured Party under (and as defined in) the
Abbott Pledge Agreement.
I. Soren consented to such assignment from GKM to Tel-Save and
acknowledged Tel-Save as the Secured Party under (and as defined in) the
Soren Pledge Agreement.
J. Pursuant to that certain Exchange Agreement dated January 2, 1999
(the "Exchange Agreement"), Tel-Save granted to the Trust a participation
interest in all of the rights, title, and interest of Tel-Save in the Notes,
the Accrued Interest Note, the Security Agreement, the Abbott Pledge
Agreement, the Soren Pledge Agreement, the Abbot Pledged Shares, the Soren
Pledged Shares, all related stock certificates and stock powers, that certain
Intercreditor Agreement dated as of August 25, 1998, between Foothill Capital
Corporation, a California corporation, Tel-Save, and GKM, and the Financing
Statement that was filed in connection with the Secured Agreement and that
showed CTS as the Debtor and Tel-Save as the Security Party (such documents,
other than the Exchange Agreement, to be referred to hereinafter collectively
as the "Note Documents").
K. Pursuant to that certain Agreement dated March 15, 1999 (the
"Amendment Agreement"), certain covenants and provisions of the Accrued
Interest Note and the Notes were modified. The Amendment Agreement also
provides for exchange of the Accrued Interest Note and the Notes in return
for Amended and Restated notes. The parties are in the process of arranging
such exchange, and all subsequent references in this Agreement to the Accrued
Interest Notes and the Note shall also refer to the Amended and Restated
Accrued Interest Note and the Amended and Restated Notes, when such Amended
and Restated notes are issued.
L. Pursuant to that certain Modification Of The Exchange Agreement dated
March 15, 1999, Tel-Save sold to the Trust the participation of interest of
Tel-Save in the Note Documents, so that the Trust is now the sole owner and
holder of the Note Documents.
M. The parties hereto acknowledge and agree that the aggregate principal
balance owing on the Notes at the date hereof is 45,200,000.
N. The parties hereto acknowledge and agree that the principal balance
owing on the Accrued Interest Note on the date hereof is *.
O. The parties hereto desire to modify certain of the covenants and
provisions of the Accrued Interest Note and the Notes and to enter into
certain other agreements as hereinafter set forth.
2
<PAGE>
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree that:
1. INCORPORATION OF RECITALS. All Recitals to this Agreement are
hereby incorporated by this reference herein and constitute agreements among
the parties hereto.
2. MODIFICATIONS OF CALL RIGHTS UNDER THE NOTES. Each of the Notes
contains certain "Call Rights" (as defined in the Notes). As of the Effective
Date, the second paragraph (unnumbered) of each Note shall be amended to read
in full as follows:
"In the event that the Maker shall close a private placement or
public offering of its Common Stock an ("Equity Offering"), the
Holder shall have the right (the "Call Right") to require the Maker
to use up to an amount (the "Amount") of the net proceeds received
by the Maker from the Equity Offering to repay any accrued but
unpaid interest and any unpaid principal balance under this Note;
provided, however, the Holder shall have, within ten business days
from receipt of a written notice by the Maker of a proposed Equity
Offering, notified the Maker in writing of the exercise of its Call
Right with respect to such proposed Equity Offering. The Amount
shall be expressed herein as an aggregate amount to be applicable
to this Note and two other notes issued by Maker concurrently
herewith, which three promissory notes are in the initial
aggregate principal amount of $55,000,000. The Amount shall be
divided among such three promissory notes pro rata based on the
initial principal amount of each such promissory note. The Maker
shall provided the Holder with reasonable written notice of any
proposed Equity Offering.
"(a) In the event that, after the Effective Date and prior to
June 30, 1999, Maker closes one or more Equity Offerings to Gold &
Appel Transfer S.A. and/or Atocha, L.P., the Amount shall be 0% of
the net proceeds up to an aggregate amount of $30,000,000 received
by the Maker from such offering(s),"
"(b) With respect to any Equity Offering other than those
described in sub-paragraph 2(a) above, the Amount shall be limited
to an amount equal to 35% of the net proceeds by the Maker from
such Equity Offering."
3. EFFECT ON AMENDMENT AGREEMENT. Except as expressly modified by this
Agreement, the provisions of the Amendment Agreement, including Sections 3
and 4 thereof, shall remain in full force and effect.
4. CERTAIN CONSENTS AND WAIVERS.
(a) Each of CTS, the Abbott's, and Soren (collectively, the "CTS
Parties") acknowledges and consents to each of the assignments and transfers
referred to in this
3
<PAGE>
Agreement, including without limitation the assignments and transfers
referred to in the Recitals to this Agreement.
(b) Each of the CTS Parties acknowledges and certifies that, as of
the date hereof, no default or Event of Default exists under any of the Note
documents, nor would a default or Event of Default exist thereunder with
notice of the passage of time or both.
(c) CTS acknowledges and agrees that it has waived the effect of
Section 4.10 of the Security Agreement and that such Section is of no further
force or effect.
(d) Each of the CTS Parties represents and warrants to, and agrees
with, each of the Trust that at the date hereof: (i) The Trust is not in
default under any of the Note Documents: (ii) none of the CTS Parties has
suffered any damage under any of the Note Documents, and none of the CTS
Parties has, under any of the Note Documents, any cause of action, right of
set-off or counterclaim, or any other claim of any nature whatsoever under any
of the Note Documents against the Trust or any trustee, director, officer,
attorney, agent, employee, or affiliate of any of the Trust (collectively,
"CTS Parties' Claims"); and (iii) each of the CTS Parties hereby waives and
relinquishes any and all CTS Parties' Claims.
(e) The Trust represents and warrants to, and agrees with, each of
the CTS Parties that, at the date hereof: (i) none of the CTS Parties is
in default under any of the Note Documents; (ii) The Trust has not suffered
any damage under any of the Note Documents, and the Trust does not have,
under any of the Note Documents, any cause of action, right of set-off or
counterclaim, or any other claim of any nature whatsoever under any of the
Note Documents against any of the CTS Parties or any director, officer,
attorney, agent, employee, or affiliate of any of the CTS Parties
(collectively, "Trust Claims"); and (iii) the Trust hereby waives and
relinquishes any and all Trust Claims.
(f) CTS agrees that the Security Agreement remains in full force
and effect on the date hereof and that its force and effect will not be
affected by any of the transactions contemplated hereby, subject only to the
express confirmation of the prior modification of the Security Agreement by
this Agreement, and that the Security Agreement provides collateral security
for the Accrued Interest Note and for the Notes.
(g) Each of the Abbotts agrees that the Abbott Pledge Agreement
remains in full force and effect on the date hereof and that its force and
effect will not be affected by any of the transactions contemplated hereby,
and that it provides collateral security for the Accrued Interest Note and
for the Notes.
(h) Soren agrees that the Soren Pledge Agreement remains in full
force and effect on the date hereof and that its force and effect will not be
affected by any of the transactions contemplated hereby, and that it provides
collateral security for the Accrued Interest
4
<PAGE>
Note and for the Notes.
(j) CTS acknowledges and agrees that it may not reduce or offset
against any of its obligations under any of the Notes or the Accrued
Interest Note for any reason whatsoever. Without limiting the generality
of the foregoing, nothing in this Agreement shall be deemed or construed to
create such a right of offset.
5. CERTAIN AGREEMENTS.
(a) The Trust represents and warrants to CTS that the Trust has not
transferred or assigned any of the Note Documents, or any interest therein, to
any other person or entity.
(b) The Trust shall not have any obligation or responsibility with
regard to the offer, purchase, or sale of any Equity Offering. Without
limiting the generality of the foregoing, and except for the agreements of the
Trust expressly set forth in this Agreement, the Trust does not make any
representation, warranty, or covenant regarding CTS, any Equity Offering, or
such offer, purchase, or sale and expressly disclaims any such representation,
warranty, or covenant, express or implied.
6. ADDITIONAL COVENANTS. Within 10 days following the receipt by CTS,
after the Effective Date and before June 30, 1999, of net proceeds of at
least $30,000,000 from one or more private placement of its common stock to
Gold & Appel Transfer S.A. and/or Atocha, L.P.:
(a) The Trust shall deliver to CTS the Accrued Interest Note and
the Notes in exchange for a Second Amended and Restated Accrued Interest Note
and Second Amended and Restated Notes that shall be of identical terms as the
promissory notes exchanged therefor except that the provisions of Section 2
of this Agreement shall be incorporated into the Second Amended and Restated
Promissory Notes.
(b) At the time of the transactions identified in this Section 6,
each of the Abbotts and Soren shall reconfirm in writing that their
respective Pledge Agreements remain in full force and effect.
7. TERMINATION. If, after the Effective Date and before June 30, 1999,
CTS has not received net proceeds of at least $30,000,000 from one or more
private placements of its common stock to Gold & Appel Transfer S.A. and/or
Atocha, L.P., then: (a) Sections 2 and 6 of this Agreement shall be of no
further force or effect; and (b) the provisions set forth in Section 2 hereof
amending the Accrued Interest Note and Notes shall be rescinded as of the
Effective Date, shall be of no further force or effect, and the Accrued
Interest Notes and the Notes shall revert to their forms as they existed
prior to such amendments.
8. BINDING EFFECT; TRANSFER. This Agreement is binding upon and inures to
the benefit of the successors and assigns of each of the parties. This
Agreement is also binding upon
5
<PAGE>
any transferees of the Accrued Interest Note or any of the Notes. The Trust
agrees not to assign or transfer the Accrued Interest Note or any of the
Notes without first: (1) informing the assignee or transferee of the terms of
this Agreement; (ii) providing such assignee or transferee with a copy of
this Agreement; and (iii) notifying CTS in writing of the proposed transfer.
The possible modifications in Section 2 hereof shall apply only to the
provisions and periods specifically referred to therein and no other,
further, or broader modifications or possible extensions, or any waiver or
consent, is inferred or shall be implied.
9. GOVERNING LAW. This Agreement is and shall be deemed to be a contract
entered into and made pursuant to the laws of the State of New York and shall
in all respects be governed, construed, applied, and enforced in accordance
with the laws of the State of New York without regard to choice of law
principles. The parties hereby agree that the venue of any legal action or
proceeding with respect to this Agreement and the rights and obligations of
the parties hereto shall lie in any state or federal court in the State of
New York. Each of the parties further consents to and hereby submits itself to
the jurisdiction of the above-mentioned courts situated in the State of New
York.
10. FULL FORCE AND EFFECT OF CERTAIN DOCUMENTS. Each of the parties
hereto agrees that, at the date hereof each of the Note Documents is in full
force and effect except as modified by this Agreement and the Exhibits hereto.
11. FURTHER COOPERATION. Each of the parties hereto agrees to cooperate
with each of the other parties hereto, including without limitation by
executing and delivering appropriate documents, to more fully effectuate the
purpose of this Agreement.
12. LEGEND. Within ten (10) days after the execution of this Agreement
by all parties, the Trust shall cause the following legend to be stamped or
otherwise imprinted (while in the presence of an officer of CTS) on the
Accrued Interest Note and each of the Notes:
"THIS NOTE AND THE INDEBTEDNESS EVIDENCED BY THIS NOTE ARE SUBJECT TO
AGREEMENTS DATED AS OF MARCH 15, 1999 AND JUNE 8, 1999, BY AND BETWEEN
THE MAKER (AS DEFINED HEREIN), TEL-SAVE.com, INC., AND TEL-SAVE, INC.,
AND OTHER PARTIES, COPIES OF WHICH AGREEMENT MAY BE OBTAINED FROM THE
SECRETARY OF THE MAKER (AS DEFINED HEREIN)."
(BALANCE OF PAGE LEFT INTENTIONALLY BLANK)
6
<PAGE>
IN WITNESS WHEREOF, CTS and the Trust have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, and the
Abbotts and Soren have executed this Agreement as of the date first above
written to be effective as of the Effective Date.
COMMUNICATION TELESYSTEMS
INTERNATIONAL d.b.a.
WORLDXCHANGE
COMMUNICATIONS, A CALIFORNIA
CORPORATION
By: /s/ Edward S. Soren
----------------------------------
Name: Edward S. Soren
-------------------------------
Title: Executive Vice-President
-------------------------------
7
<PAGE>
MARK PAVOL, AS TRUSTEE OF THAT CERTAIN
D&K GRANTOR RETAINED ANNUITY TRUST
DATED JUNE 15, 1998
/s/ Mark Pavol
- -----------------------------------
ROGER B. ABBOTT
/s/ Roger B. Abbott
- -----------------------------------
ROSALIND ABBOTT
/s/ Rosalind Abbott
- -----------------------------------
EDWARD S. SOREN
/s/ Edward S. Soren
- -----------------------------------
8
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "SECURITY AGREEMENT") is dated as of
August 25, 1998 by and among COMMUNICATION TELESYSTEMS INTERNATIONAL, d.b.a.
WorldxChange Communications, a California corporation ("DEBTOR"), and GERARD
KLAUER MATTISON & Co., Inc. ("SECURED PARTY").
The parties hereto agree as follows:
1. DEFINITIONS.
1.1 For all purposes of this Security Agreement, except as otherwise expressly
provided or unless the context otherwise requires,
(a) the terms defined in this SECTION 1 have the meanings assigned to
them in this SECTION 1 and include the plural as well as the singular,
(b) the words "herein," "hereof," "hereto" and "hereunder" and other
words of similar import refer to this Security Agreement as a whole
and not to any particular Section, Subsection or other subdivision,
unless the context otherwise requires, and
(c) all accounting terms not otherwise defined herein have the
meanings assigned under generally accepted accounting principles.
1.2 As used in this Security Agreement, the following definitions shall apply.
"COLLATERAL" has the meaning set forth in EXHIBIT A.
"DEBTOR" means COMMUNICATIONS TELESYSTEMS INTERNATIONAL, d.b.a.
WorldxChange Communications, a California corporation.
"EVENT OF DEFAULT" has the meaning set forth in the Notes.
"FOOTHILL" means Foothill Capital Corporation, a California
corporation.
"NOTES" means those certain three Subordinated Promissory Notes,
each dated as of the date hereof, made by Debtor in favor of Secured Party in
the amount of $20,000,000, $20,000,000, and $15,000,000, respectively (for an
aggregate principal amount of $55,000,000).
"OBLIGATIONS" means (i) all obligations of Debtor to Secured Party
under the Notes, whether for principal, interest, fees, expenses or otherwise
and (ii) any obligation of Debtor to Secured Party which Debtor agrees in
writing to make subject to this Security Agreement.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization.
<PAGE>
"PLEDGE AGREEMENTS" means, collectively, (i) that certain Stock Pledge
Agreement, dated as of the date hereof, by and among Secured Party, Roger B.
Abbott and Rosalind Abbott, and (ii) that certain Stock Pledge Agreement, dated
as of the date hereof, by and among Secured Party and Edward S. Soren.
"SECURED PARTY" means Gerard Klauer Mattison & Co., Inc.
"SECURITY AGREEMENT" means this Security Agreement by and among Debtor
and Secured Party as amended or supplemented together with all Schedules and
Exhibits attached hereto or incorporated by reference.
"SENIOR LENDER" means Foothill or such other single secured lender (or
indenture trustee) to Debtor, which may from time to time replace Foothill, in
the event that Foothill ceases to be a secured lender senior to Secured Party.
The syndication by Foothill or such other single secured lender of the secured
debt of Debtor to one or more financial institutions or investors shall not
affect such single secured lender's (or indenture trustee's) status as a Senior
Lender or the subordination of the Notes to such secured debt of Debtor to the
Senior Lender.
"SUBORDINATION AGREEMENT" means one or more subordination
agreements to be entered into from time to time and as may be modified from
time to time among Secured Party, Debtor and Senior Lender.
2. OBLIGATIONS SECURED; SECURITY INTEREST.
2.1 OBLIGATIONS SECURED. This Security Agreement secures the prompt payment
and performance of all Obligations.
2.2 SECURITY INTEREST. Debtor hereby grants to Secured Party a continuing
security interest in and to and a lien upon, the Collateral, with the
understanding that such security interest and lien is junior and subordinate
to the security interests or liens, if any, that may be perfected from time
to time by Senior Lender in the Collateral.
2.3 DEBTOR'S RIGHTS T0 THE COLLATERAL. Notwithstanding anything herein to
the contrary, (i) Debtor shall have all rights with respect to the Collateral
(including without limitation the right to sell, transfer or otherwise
dispose of the Collateral) as may be granted Debtor by Senior Lender, and
(ii) any restrictions herein on Debtor's rights to the Collateral shall only
apply herein to the extent that Debtor is also restricted in the exercise of
such rights pursuant to the then existing agreement between Debtor and Senior
Lender. Without limiting the generality of the foregoing, any waiver,
release, permission or consent whether previously or hereafter given by
Senior Lender shall also be deemed to have been given by Secured Party.
3. RIGHTS AND DUTIES OF SECURED PARTY.
3.1 REMEDIES OF SECURED PARTY IN THE EVENT OF DEFAULT. Upon the occurrence and
during the continuance of an Event of Default, and subject to the prior rights
of Senior Lender and subject to the Subordination Agreement, Secured Party shall
have the following rights and remedies:
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3.1.1 In addition to any other rights and remedies contained in this
Security Agreement, all of the rights and remedies of a secured party under
the Uniform Commercial Code or other similar applicable law, all of which
rights and remedies shall be cumulative and nonexclusive, to the extent
permitted by law;
3.1.2 The right to collect any and all amounts due Debtor from any account
debtor to the extent such account is included in the definition of
Collateral;
3.1.3 The right to require Debtor or assemble the Collateral and make it
available to Secured Party at a place to be designated by Secured Party in
its reasonable discretion;
3.1.4 The right to: (i) do all acts and things necessary, in Secured
Party's sole discretion, to fulfill Debtor's obligations under this
Security Agreement; (ii) endorse the name of Debtor upon any chattel paper,
documents, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Collateral; and (iii) use the
information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Collateral to which Debtor
has access; and
3.1.5 The right to: (i) sell or to otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice
as may be required by law, in lots or in bulk, for cash or on credit, all
as Secured Party, in its sole discretion, may deem advisable; (ii) adjourn
such sales from time to time with or without notice; and (iii) conduct such
sales on Debtor's premises or elsewhere and use Debtor's premises without
charge for such sales for such time or times as Secured Party may see fit.
Secured Party is hereby granted a license or other right to use, without
charge, Debtor's labels, copyrights, right of use of any name, trade
secrets, patents, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling of Collateral and Debtor's rights under
all licenses and all franchise agreements shall inure to Secured
Party's benefit. Secured Party shall have the right to sell, lease or
otherwise dispose of the Collateral, or any part thereof, for cash, credit
or any combination thereof, and Secured Party may purchase all or any part
of the Collateral at public or, if permitted by law, private sale and, in
lieu of actual payment of such purchase price, may set off the amount of
such price against the Obligations. The proceeds realized from the sale
of any Collateral shall be applied first to the reasonable costs, expenses
and attorney's fees and expenses incurred by Secured Party for collection
and for acquisition, completion, protection, removal, storage, sale and
delivery of the Collateral; second to interest due upon any of the
Obligations; and third to the principal of the Obligations.
3.2 DISCRETIONARY RIGHTS OF SECURED PARTY. Exercise of or omission to exercise
any right of Secured Party shall not affect any other subsequent right of
Secured Party to exercise the same and the waiver of any Event of Default by
Secured Party shall not be deemed a waiver of any subsequent Event of Default.
Notwithstanding anything herein to the contrary, all rights granted in this
Security Agreement to Secured Party shall be subject to the limitations and
provisions in the Subordination Agreement, the Notes and to the rights of Senior
Lender.
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3.3 WAIVER BY SECURED PARTY. Upon the occurrence of an Event of Default,
Secured Party may waive in writing its right to receive the benefits of the
remedies to which Secured Party is entitled pursuant to this Security Agreement.
3.4 SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Subject to the limitations in
the Subordination Agreement, the Notes and this Security Agreement, Debtor
hereby irrevocably nominates and appoints Secured Party as its
attorney-in-fact for the following purposes: (a) to take such actions which
Secured Party may deem necessary to perfect the security interests created by
this Agreement and, upon the occurrence and during the continuance of an
Event of Default, to preserve, process, develop, maintain and protect the
Collateral; (b) upon the occurrence and during the continuance of an Event of
Default, to do any and every act which Debtor is obligated to do under this
Security Agreement, at the expense of Debtor so obligated and without any
obligation to do so; (c) to prepare, sign, file and/or record, for Debtor in
the name of Debtor, any financing statement, application for registration,
and like papers and to take any other action deemed by Secured Party
necessary in order to perfect the security interests granted hereby; and (d)
upon the occurrence and during the continuance of an Event of Default to
execute any and all papers and instruments and do all other things necessary
to preserve and protect the Collateral and to protect Secured Party's
security interests therein; provided, however, that Secured Party shall be
under no obligation whatsoever to take any of the foregoing actions. Secured
Party shall notify Debtor of any action taken pursuant to this SECTION 3.4.
3.4 DUTIES OF SECURED PARTY. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon Secured Party to exercise any such powers. Except for
the safe custody of any Collateral in Secured Party's possession and the
accounting for monies actually received by Secured Party hereunder, Secured
Party shall have no duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
4. MISCELLANEOUS.
4.1 FURTHER ASSURANCES.
4.1.1 Debtor agrees that from time to time, Debtor will promptly execute
and deliver all further instruments and documents, and take all further
action, that Secured Party may reasonably deem necessary in order to
perfect and protect any security interest granted or purported to be
granted hereby or to enable Secured Party to excercise and enforce its
rights and remedies hereunder with respect to any Collateral.
4.1.2 Debtor hereby authorizes Secured Party to file one or more financing
or continuation statements, and amendments thereto, relative to all or any
part of the Collateral.
4.1.3 Debtor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral and such
other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
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4.1.4 Debtor will make reasonable efforts to obtain such waivers and
consents to this Security Agreement from Debtor's landlords under Debtor's
material leases of real property as may be reasonably requested by Secured
Party.
4.1.5 Upon repayment of all outstanding Obligations or termination of this
Security Agreement, upon the request of Debtor, Secured Party shall
promptly execute any and all documents evidencing the termination of the
security interests created hereby and the release of any financing or
continuation statements.
4.1.6 In the event Senior Lender subordinates its security interest in any
Collateral, the terms and conditions of such subordination shall
automatically apply to the security interest of Secured Party in such
Collateral. Upon request of Debtor, Secured Party shall execute such
documents reasonably requested to effectuate the release or subordination
of the security interest of Secured Party as provided above.
4.2 FOOTHILL. As of the date of this Security Agreement, Foothill is the only
creditor to which Debtor has granted a blanket lien in substantially all of the
Collateral.
4.3 DESCRIPTIVE HEADINGS. The descriptive headings of this Security Agreement
are inserted for convenience only and do not affect the meaning of any
provisions herein.
4.4 GOVERNING LAW. This Security Agreement is being delivered in and shall be
construed in accordance with the laws of the State of New York, provided that to
the extent Collateral is located in another jurisdiction and the Uniform
Commercial Code so provides, the laws of said other jurisdiction shall govern
the perfection and enforcement of the security interests of Secured Party in
such Collateral.
4.5 NOTICES. Any notice, demand or other communication required or permitted
under the terms of this Agreement shall be in writing and shall be made by
telegram, telex or electronic transmitter or certified or registered mail,
return receipt requested, and shall be deemed to be received by the addressee
one (1) business day after sending, if sent by Federal Express, Express Mail, or
other similar overnight delivery service, the date of sending, if sent by
telegram, telex, telecopy or electronic transmitter, and three (3) business days
after mailing, if sent by certified or registered mail with postage prepaid,
and properly addressed notices shall be addressed as provided below:
If to Debtor: Communications TeleSystems International
9999 Willow Creek Road
San Diego, California 92131
Facsimile: (619) 452-3780
Attn: Legal Department
If to Secured Party: Gerard Klauer Mattison & Co., Inc.
529 5th Avenue, 3rd Floor
New York, New York 10017
Attn: David Skriloff
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4.6 LITIGATION COSTS. If any legal action or other proceeding is brought for
the enforcement of this Security Agreement, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Security Agreement, the successful or prevailing party or parties shall
be entitled to recover reasonable attorneys' fees and other costs incurred in
that action or proceeding, in addition to any other relief to which it or they
may be entitled.
4.7 FINAL AGREEMENT. This Security Agreement, the Notes and the Pledge
Agreements constitute the final agreement of the parties concerning the matters
herein and supersede all prior and contemporaneous agreements and
understandings.
4.8 AMENDMENT. This Security Agreement may be amended by an instrument in
writing by Debtor and Secured Party.
4.9 COUNTERPARTS. This Security Agreement may be executed in two counterparts,
either one of which need not contain the signatures of both parties, but both of
which counterparts when taken together shall constitute one and the same
Security Agreement.
4.10 ASSIGNMENT. This Security Agreement may not be assigned by Secured Party
except with the prior written consent of Debtor.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties have executed this Security Agreement to be
effective as of the date first above written.
DEBTOR:
COMMUNICATIONS TELESYSTEMS
INTERNATIONAL, D.B.A.
WORLDXCHANGE
COMMUNICATIONS, a California
corporation
By: /s/ Rosalind Abbott
-----------------------
Name: Rosalind Abbott
Title: Secretary
SECURED PARTY:
GERARD KLAUER MATTISON & CO., INC.
By: /s/ Robert M. Bloom
------------------------
Name: Robert M. Bloom
------------------------
Title: Compliance
------------------------
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EXHIBIT A
DESCRIPTION OF COLLATERAL
"COLLATERAL" means all of the following property and interests in property of
Debtor, whether now owned or existing or hereafter acquired or arising and
wheresoever located:
(i) All agreements for use or purchase of the properties, assets and
rights described herein or any part thereof and all renewals and
extensions thereof, and all amounts, rents, issues, royalties,
profits and rights, and other sums of money due and to become due
under such other agreements for use or purchase of such properties,
assets, or rights and renewals and extensions;
(ii) All cash, bank deposits, deposit accounts, checks, certificates
of deposit, checking and savings accounts, bankers' acceptances,
letters of credit, United States obligations, state and municipal
obligations, obligations of foreign governments and subdivisions
thereof, commercial paper, notes, instruments (whether negotiable
or nonnegotiable), drafts, bonds, debentures (excluding debentures
convertible into shares of capital stock and other equity
securities) of and claims against any Person;
(iii) Any interest in any personal property, including, but not
limited to, repossessed and returned goods and goods covered by
chattel paper;
(iv) All general intangibles, choses in action, or causes of
action, including, particularly, any right of indemnity or other
right that Debtor may have or hereafter acquire against any Person
arising under or with respect to any judgement, statute, or rule and
all other properties, assets and rights of every kind and nature,
including, but not limited to, rights to refunds, tax refunds,
claims for tax refunds, rights of indemnification, books and
records (including, without limitation, corporate and other
business records, customer lists, credit files, computer programs,
printouts and other computer materials and records), inventions,
designs, patents, copyrights, trademarks, trade names, trade styles,
trade secrets, registrations, licenses, customer lists and computer
source and object codes;
(v) All equitable rights and interests of whatever kind or nature;
(vi) All rights and claims in or under any policy of insurance,
excluding business interruption insurance but including insurance
for fire, damage, loss and casualty, whether covering personal
property, real property, tangible rights, or intangible rights, and
all liability, life and key man insurance, together with the
proceeds, products, renewals and replacements thereof, including
prepaid and unearned premiums;
(vii) All equipment, machinery, tools, furnishings, fixtures,
vehicles and motor vehicles, and all other goods used or bought
primarily for use in Debtor's
8
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business, together with all products and proceeds of the foregoing
whether due or voluntary or involuntary disposition;
(viii) All present and future inventory and merchandise, including
without limitation, all present and future goods held for sale or
lease or to be furnished under a contract of service, all raw
materials, work in process and finished goods, all packing
materials, supplies and containers relating to or used in
connection with any of the foregoing, and all bills of lading,
warehouse receipts or documents of title relating to any of the
foregoing;
(ix) All present and future accounts, accounts receivable,
agreements, contracts, leases, contract rights, rights to payment,
instruments, documents, chattel paper, security agreements,
guaranties, undertakings, surety bonds, insurance policies, notes
and drafts, and all forms of obligations owing to Debtor or in which
Debtor may have any interest;
(x) Without in any way limiting the foregoing, the proceeds of any
of the foregoing, whether derived from voluntary or involuntary
disposition, products of the foregoing, and all renewals,
replacements, substitutions, additions, accessions, rents, issue,
royalties and profits of any of the foregoing, whether now owned,
existing or hereafter acquired or arising; and
(xi) All proceeds of and substitutions for any and all of the
Collateral and, to the extent not otherwise included, all payments
under insurance (excluding business interruption insurance), or any
indemnity, warranty or guaranty, payable to Debtor by reason of
loss or damage to or otherwise with respect to any of the foregoing
Collateral.
Provided, however, and notwithstanding any other provision contained herein,
the Collateral shall not include any property in which Senior Lender does not
have a security interest and lien including, without limiting the generality of
the foregoing, any property in which Senior Lender has waived or released its
security interest.
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ASSIGNMENT
For good and valuable consideration, the receipt of which is hereby
acknowledged, GERARD KLAUER MATTISON & CO., INC. ("GKM") hereby absolutely and
irrevocably sells, assigns and transfers all of its rights, title and interest
in the following instruments and agreements to TEL-SAVE HOLDINGS, INC.
("TEL-SAVE"):
1. Those certain Subordinated Promissory Notes, each dated as of the date
hereof, and each made by Communication TeleSystems International, d.b.a.
WorldxChange Communications ("CTS") in favor of GKM, in the aggregate
principal amount of $55,000,000 (collectively, the "NOTES") (copies of the
Note are attached hereto as EXHIBITS A-1, A-2 and A-3);
2. That certain Security Agreement, dated as of the date hereof, by and
between CTS and GKM (the "SECURITY AGREEMENT") (a copy of the Security
Agreement is attached hereto as EXHIBIT B); and
3. Those certain Stock Pledge Agreements, each dated as of the date
hereof, executed by Roger B. Abbott and Rosalind M. Abbott and Edward S.
Soren, respectively, in favor of GKM (collectively, the "PLEDGE
AGREEMENTS") (copies of the Pledge Agreements are attached hereto as
EXHIBITS C-1 and C-2).
GERARD KLAUER MATTISON & CO., INC.
By: /s/ Robert M. Bloom
-------------------------
Name: Robert M. Bloom
-------------------------
Title: Compliance
-------------------------
CTS hereby consents to each assignment set forth in Sections 1 and 2 above,
acknowledges that Tel-Save is the payee of each such promissory note and the
Secured Party under such Security Agreement, acknowledges that Tel-Save has all
the rights of such parties, including without limitation the right to assign
such notes and such Security Agreement, and acknowledges that Tel-Save's notice
address for all such agreements and instruments shall be as set forth below.
COMMUNICATION TELESYSTEMS
INTERNATIONAL, D.B.A.
WORLDxCHANGE COMMUNICATION
By: /s/ Rosalind Abbott
-------------------------
Name: Rosalind Abbott
-------------------------
Title: Secretary
-------------------------
<PAGE>
Roger B. Abbott and Rosalind Abbott each hereby consents to the
assignment of the Stock Pledge Agreement executed by him or her and referred
to in Section 3 above, acknowledges that Tel-Save is the Secured Party under
such Stock Pledge Agreement, acknowledges that Tel-Save has all rights of
such Secured Party including without limitation the right to assign such
Stock Pledge Agreement, and acknowledges that Tel-Save's notice address for
such Stock Pledge Agreement shall be as set forth below.
ROGER B. ABBOTT
/s/ Roger B. Abbott
- ------------------------------
ROSALIND ABBOTT
/s/ Rosalind Abbott
- ------------------------------
Edward S. Soren hereby consents to the assignment of the Stock Pledge
Agreement executed by him and referred to in Section 3 above, acknowledges
that Tel-Save is the Secured Party under such Stock Pledge Agreement,
acknowledges that Tel-Save has all rights of such Secured Party including
without limitation the right to assign such Stock Pledge Agreement, and
acknowledges that Tel-Save's notice address for such Stock Pledge Agreement
shall be as set forth below.
EDWARD S. SOREN
/s/ Edward S. Soren
- ------------------------------
-2-
<PAGE>
Tel-Save hereby notifies each of CTS, Roger Abbott, Rosalind Abbott and
Edward Soren that all notices and other communications required or permitted to
be made to Tel-Save under the Notes, the Security Agreement and the Pledge
Agreements shall be made as provided in such documents to the following address:
Tel-Save Holdings, Inc.
6805 Route 202
New Hope, Pennsylvania 18938
Attn: General Counsel
Telecopier: 215-862-1083
TEL-SAVE HOLDINGS, INC.
By: /s/ Edward Meyercord
------------------------------
Name: Edward Meyercord
------------------------------
Title: EVP
------------------------------
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LIST OF OMITTED EXHIBITS
The following Exhibits to the Assignment have been omitted from this
Exhibit and shall be furnished supplementally to the Commission upon request:
Exhibit A-1 - Subordinated Promissory Note
Exhibit A-2 - Subordinated Promissory Note
Exhibit A-3 - Subordinated Promissory Note
Exhibit B - Security Agreement
Exhibit C-1 - Stock Pledge Agreement
Exhibit C-2 - Stock Pledge Agreement
<PAGE>
[FOOTHILL LOGO]
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
COMMUNICATION TELESYSTEMS INTERNATIONAL DBA
WORLDxCHANGE COMMUNICATIONS
WXL COMMUNICATIONS, LTD.
CTS TELCOM, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF MARCH 11, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . 28
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . 28
1.5 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . 29
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . 29
2.1 Revolving Advances . . . . . . . . . . . . . . . . . . . . . 29
2.2 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . 30
2.3 Interest: Rates, Payments, and Calculations . . . . . . . . 30
2.4 Collection of Accounts. . . . . . . . . . . . . . . . . . . 32
2.5 Crediting Payments; Application of Collections . . . . . . . 32
2.6 Borrower's Designated Account . . . . . . . . . . . . . . . 33
2.7 Maintenance of Loan Account; Statements of Obligations . . . 33
2.8 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . 35
3.1 Conditions Precedent to the Initial Advance . . . . . . . . 35
3.2 Conditions Precedent to all Advances . . . . . . . . . . . . 38
3.3 Condition Subsequent . . . . . . . . . . . . . . . . . . . . 38
3.4 Term and Termination . . . . . . . . . . . . . . . . . . . . 39
3.5 Effect of Termination . . . . . . . . . . . . . . . . . . . 39
3.6 Early Termination by Borrower . . . . . . . . . . . . . . . 40
3.7 Termination Upon Event of Default . . . . . . . . . . . . . 40
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . 40
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . 40
4.2 Negotiable Collateral . . . . . . . . . . . . . . . . . . . 41
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral. . . . . . . . . . . . . . . . . . . . 41
4.4 Delivery of Additional Documentation Required . . . . . . . 41
4.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . 42
4.6 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . 42
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 43
5.1 No Prior Encumbrances . . . . . . . . . . . . . . . . . . . 43
5.2 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . 43
5.3 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.4 Location of Inventory and Equipment . . . . . . . . . . . . 44
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5.5 Inventory Records . . . . . . . . . . . . . . . . . . . . . 44
5.6 Location of Chief Executive Office; FEIN or Equivalent . . . 44
5.7 Due Organization and Qualification; No Subsidiaries
Except as Disclosed . . . . . . . . . . . . . . . . . . . . 44
5.8 Due Authorization; No Conflict . . . . . . . . . . . . . . . 44
5.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.10 No Material Adverse Change . . . . . . . . . . . . . . . . . 44
5.11 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.12 Employee Benefits . . . . . . . . . . . . . . . . . . . . . 45
5.13 Environmental Condition . . . . . . . . . . . . . . . . . . 45
5.14 Reliance by Foothill; Cumulative . . . . . . . . . . . . . . 45
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 46
6.1 Accounting System . . . . . . . . . . . . . . . . . . . . . 46
6.2 Collateral Reporting . . . . . . . . . . . . . . . . . . . . 46
6.3 Financial Statements, Reports, Certificates . . . . . . . . 47
6.4 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . 49
6.5 Guarantor Reports . . . . . . . . . . . . . . . . . . . . . 49
6.6 Returns . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.7 Title to Equipment . . . . . . . . . . . . . . . . . . . . . 49
6.8 Maintenance of Equipment . . . . . . . . . . . . . . . . . . 50
6.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.11 Financial Covenant . . . . . . . . . . . . . . . . . . . . . 51
6.12 No Setoffs or Counterclaims . . . . . . . . . . . . . . . . 51
6.13 Location of Inventory and Equipment . . . . . . . . . . . . 51
6.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . . 51
6.15 Employee Benefits . . . . . . . . . . . . . . . . . . . . . 51
6.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.17 Performance of Obligations to Carriers . . . . . . . . . . . 52
6.18 LEC and Carrier Agreements . . . . . . . . . . . . . . . . . 53
6.19 Brokerage Indemnity . . . . . . . . . . . . . . . . . . . . 53
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 53
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 53
7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.3 Restrictions on Fundamental Changes . . . . . . . . . . . . 55
7.4 Extraordinary Transactions and Disposal of Assets . . . . . 55
7.5 Change Name . . . . . . . . . . . . . . . . . . . . . . . . 55
7.6 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.7 Restructure . . . . . . . . . . . . . . . . . . . . . . . . 56
7.8 Prepayments; Subordinated Indebtedness; Modifications . . . 56
7.9 Change of Control . . . . . . . . . . . . . . . . . . . . . 57
7.10 Capital Expenditures . . . . . . . . . . . . . . . . . . . . 57
-S-ii-
<PAGE>
7.11 Consignments . . . . . . . . . . . . . . . . . . . . . . . . 57
7.12 Distributions . . . . . . . . . . . . . . . . . . . . . . . 57
7.13 Accounting Methods . . . . . . . . . . . . . . . . . . . . . 57
7.14 Investments. . . . . . . . . . . . . . . . . . . . . . . . . 57
7.15 Transactions with Affiliates . . . . . . . . . . . . . . . . 58
7.16 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.17 Compensation . . . . . . . . . . . . . . . . . . . . . . . . 58
7.18 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 59
7.19 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees . . . . . . . . . . . . . . . . . . . 59
7.20 No Prohibited Transactions Under ERISA . . . . . . . . . . . 59
7.21 Contracts with Carriers or LECs . . . . . . . . . . . . . . 60
7.22 Certain Limitations on Investments in CTST and Advances
to CTST. . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 60
9. FOOTHILL'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . 64
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . 64
9.2 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . 66
10. TAXES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . 66
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 67
11.1 Demand; Protest; etc . . . . . . . . . . . . . . . . . . . . 67
11.2 Foothill's Liability for Collateral . . . . . . . . . . . . 67
11.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . 68
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . . . . . . . . 70
14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . 70
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 71
15.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . 71
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . 71
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . 71
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 71
15.5 Severability of Provisions . . . . . . . . . . . . . . . . . 71
15.6 Amendments in Writing . . . . . . . . . . . . . . . . . . . 71
15.7 Counterparts; Telefacsimile Execution . . . . . . . . . . . 71
15.8 Revival and Reinstatement of Obligations . . . . . . . . . . 72
15.9 Integration . . . . . . . . . . . . . . . . . . . . . . . . 72
15.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
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<PAGE>
SCHEDULES AND EXHIBITS
Schedule E-1 20% Account Debtors
Schedule P-1 Permitted Liens
Schedule P-2 Permitted Subsidiary Investments
Schedule R-1 Real Property
Schedule 5.7 Subsidiaries
Schedule 5.9 Litigation
Schedule 6.13 Location of Inventory and Equipment
Schedule 6.17 Certain Matters Regarding Carrier Agreements
Schedule 7.1 Scheduled Indebtedness
Exhibit B-1 Borrower's 1997 Business Plan
Exhibit C-1 Forms of Canadian Security Agreements
Exhibit C-2 Form of Compliance Certificate
Exhibit G-1 Form of Limited Continuing Guaranty
Exhibit P-1 Forms of Pledge Agreements
Exhibit S-1 Form of Suretyship Agreement
-S-iv-
<PAGE>
Schedule E-1
20% Account Debtors
WorldCom, Incorporated
TeleGlobe and its Affiliates, collectively
AT&T Corporation, and its subsidiaries
MCI, and its subsidiaries
Sprint, and its subsidiaries
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "AGREEMENT"), is entered into
as of March 11, 1997, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 11111 Santa
Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333,
COMMUNICATION TELESYSTEMS INTERNATIONAL, dba WORLDxCHANGE Communications, a
California corporation ("WXCC"), with its chief executive office located at
4350 La Jolla Village Drive, Suite 100, San Diego, CA 92122, WXL
COMMUNICATIONS, LTD., a Canadian corporation ("WXLC"), with its chief
executive office located at 4350 La Jolla Village Drive, Suite 100, San
Diego, CA 92122, and CTS TELCOM, INC., a Florida corporation ("CTST"), with
its chief executive office located at 4350 La Jolla Village Drive, Suite 100,
San Diego, CA 92122.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account. With respect to
any LEC Account, "Account Debtor" refers to the LEC obligated with respect
thereto rather than the end-user, unless the context in which such term is used
clearly requires otherwise.
"ACCOUNTS" means all currently existing and hereafter arising
accounts; contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the sale or lease of General
Intangibles relating to the provision of telecommunications services, or the
rendition of services by Borrower, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
"ADVANCES" shall have the meaning ascribed thereto in SECTION
2.1 (a) hereof.
"AFFILIATE" means, as applied to any Person, any other Person who
directly or indirectly controls, is controlled by, is under common control with
or is a director or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power to vote
five percent (5%) or more of the securities having ordinary voting power for
the election of directors or the direct or indirect power to direct the
management and policies of a Person.
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<PAGE>
"AGREEMENT" has the meaning set forth in the preamble hereto.
"APPLICABLE AMOUNT" means, as of any date of determination
thereof, the lesser of (a) the Reducing Amount, and (b) the outstanding balance
of the Loan Account.
"APPLICABLE MARGIN" means, as of any date of determination
thereof, (i) if such date of determination is prior to the occurrence of the
Reduction Date, two and three-quarters percentage points (2.75%) per annum, (ii)
if such date of determination is on or after the Reduction Date and is prior to
the date that is one year after the Closing Date, two and one-quarter percentage
points (2.25%) per annum, and (iii) if such date of determination is on or after
the Reduction Date and is on or after the date that is one year after the
Closing Date, one and three-quarters percentage points (1.75%) per annum.
"APPLICABLE PERCENTAGE" means (a) from and after the Closing Date
and through and including the first anniversary of the Closing Date, (i) if and
only if the termination of this Agreement and repayment of the Obligations is
occurring contemporaneously with, or within 180 days after, the consummation of
a public or private equity offering in excess of $20,000,000 by Borrower, or a
sale of substantially all of the assets of Borrower (including a sale effected
by one or more mergers or any pooling merger), and as a direct result of either
thereof, under circumstances where the thirty-day prior notice requirement of
SECTION 3.6 has been complied with, two percent (2.00%), or (ii) otherwise, four
percent (4.00%), and (b) thereafter, (i) if and only if the termination of this
Agreement and repayment of the Obligations is occurring contemporaneously with,
or within 180 days after, the consummation of a public or private equity
offering in excess of $20,000,000 by Borrower, or a sale of substantially all of
the assets of Borrower (including a sale effected by one or more mergers or any
pooling merger), and as a direct result of either thereof, under circumstances
where the thirty-day prior notice requirement of SECTION 3.6 has been complied
with, one percent (1.00%), or (ii) otherwise, two percent (2.00%).
"APPLICABLE PREMIUM RATE" means, as of any date of determination
thereof: (a) if the Special Bridge Advance Component Termination Date has not
yet occurred: (i) if such date of determination is prior to the occurrence of
the Reduction Date, four percentage points (4.00%) per annum, (ii) if such date
of determination is on or after the Reduction Date and is prior to the date that
is one year after the Closing Date, three and one-half percentage points (3.50%)
per annum, and (iii) if such date of determination is on or after the Reduction
Date and is on or after the date that is one year after the Closing Date, three
percentage points (3.00%) per annum; and (b) if the Special Bridge Advance
Component Termination Date has occurred, zero percentage points (0.00%) per
annum.
"APPROVED BILLING SERVICES AGREEMENT" means a Billing Services
Agreement a true and complete copy of which previously has been provided to
Foothill and Foothill's counsel for review, that is in form and substance
reasonably satisfactory to Foothill, with
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<PAGE>
respect to which the LEC has delivered a LEC Non-Offset Agreement, and with
respect to which the rights of Borrower thereunder may be the subject of an
attached, enforceable, and perfected security interest in favor of Foothill.
"AUTHORIZED OFFICER" means any officer or other employee of
Borrower.
"AVAILABILITY" means, as of any date of determination thereof,
the non negative amount equal to (a) the LESSER of the Borrowing Base and the
Maximum Amount, minus (b) the outstanding balance of the Loan Account.
"AVAILABILITY CONTRACTION DATE" means any date as of which: (a) As
a result of one or more Availability Reductions (considered in the aggregate),
Availability on such date is less than or equal to 90% of what Availability
would have been on such date if such Availability Reductions had not occurred,
all other things being equal; and (b) Borrower has given written notice to
Foothill that Borrower has determined that the circumstance described in clause
(a) of this definition has occurred; PROVIDED that Borrower shall not be
entitled to give such a notice and such a notice shall be ineffective if the
most recent Availability Reduction upon which such notice is premised, in whole
or in part, occurred more than sixty (60) days prior to the date such notice is
given.
"AVAILABILITY REDUCTION" means any action by Foothill, not
consented to by Borrower, to change the standards or criteria for determining
Eligible Accounts or Eligible Unbilled Accounts, or exclusions therefrom, create
additional categories of Accounts that are not Eligible Accounts or Eligible
Unbilled Accounts, reduce rates of advance against Eligible Accounts, Eligible
Unbilled Accounts, or categories or subportions thereof (other than as expressly
provided for herein with respect to the LEC Account Dilution Reserve or the
Direct Account Dilution Reserve), create new reserves (except as set forth below
with respect to SECTION 8 of this Agreement), or change the manner by which
existing reserves are determined (except as set forth below with respect to
SECTION 8 Of this Agreement), to the extent that such action, considered alone
or in conjunction with other such actions (and offsetting the effect of any
concurrent mitigating actions by Foothill to the extent they would effectively
negate or reduce the effect of such action), would have the net effect of
reducing Availability on any date of determination from what it otherwise would
have been on such date of determination, had such action or related actions not
occurred, all other things being equal. Changes in the LEC Account Dilution
Reserve made in accordance with the terms of this Agreement based on increased
LEC Account Dilution shall not constitute Availability Reductions. Changes in
the Direct Account Dilution Reserve made in accordance with the terms of this
Agreement based on increased Direct Account Dilution shall not constitute
Availability Reductions. Reserves maintained by Foothill pursuant to any
provision of SECTION 8 that expressly permits Foothill to maintain reserves with
respect to items that would give rise to Events of Default absent the
maintenance of such reserves shall not constitute Availability Reductions.
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<PAGE>
"AVERAGE UNUSED PORTION OF FACILITY" means, as of the first day
of any month: (a) If such day occurs on or prior to December 1, 1997, the
non-negative amount equal to (y) $20,000,000, MINUS (z) the average Daily
Balance of Advances that were outstanding during the immediately preceding
month; and (b) if such day occurs after December 1, 1997, the non-negative
amount equal to (y) the then Maximum Amount (giving effect to any increases
thereof elected by Borrower, if any, that have become effective before, or
that become effective on, such day), MINUS (z) the average Daily Balance of
Advances that were outstanding during the immediately preceding month;
PROVIDED, that, with respect to any day that is the first day of a month and
which day occurs after December 1, 1997, if the Maximum Amount changed during
the immediately preceding month effective on any day or days other than the
first day of such preceding month, then the calculation of the Average Unused
Portion of Facility as of such first day of the succeeding month with respect
to such immediately preceding month shall be performed on a weighted basis
giving effect to all such changes that occurred during the immediately
preceding month (for example, by way of illustration and not by way of
limitation, if the Maximum Amount were to be increased effective on April 11,
1998, from $25,000,000 to $30,000,000, then the calculation of the Average
Unused Portion of Facility for April, 1998, would be 10/30 of the amount that
would be calculated under clause (b) above using $25,000,000 as the Maximum
Amount (except that the average Daily Balance of Advances for purposes of
such calculation would be for the first ten days of November rather than for
the entire month), PLUS 20/30 of the amount that would be calculated under
clause (b) above using $30,000,000 as the Maximum Amount (except that the
average Daily Balance of Advances for purposes of such calculation would be
for the last twenty days of November rather than for the entire month).
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S. C. Section 101 ET SEQ.), as amended, and any successor statute.
"BASE PERMITTED CAPITAL EXPENDITURE AMOUNT" means (a) with respect
to fiscal year 1997 of Borrower, $12,000,000, and (b) with respect to any fiscal
year of Borrower after fiscal year 1997, 120% of the Base Permitted Capital
Expenditure Amount for the immediately preceding fiscal year of Borrower.
"BENEFIT PLAN" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which any Borrower or any ERISA Affiliate thereof
has been an "employer" (as defined in Section 3(5) of ERISA) within the past six
years.
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<PAGE>
"BILLING AND COLLECTION CHARGES RESERVE" means, as of any date of
determination thereof, which determinations shall not be made more frequently
than weekly without the consent of Borrower unless an Event of Default has
occurred and is continuing, the greater of;
(a) the actual aggregate outstanding accrued and unpaid
obligations of Borrower to LECs, on such date of determination, with respect to
billing and collection charges payable under Billing Services Agreements for
those LEC's which bill such charges separately to Borrower (as opposed to being
offset directly on a LEC Confirmation Statement), and
(b) the average of the actual aggregate outstanding accrued and
unpaid obligations of Borrower to LECs, as of each week-ending date that
occurred during the related Lookback Period with respect to which a weekly
report was, is , or will be due to Foothill pursuant to SECTION 6.2(a)(vii) of
this Agreement, with respect to billing and collection charges payable under
Billing Services Agreements, for those LEC's which bill such charges separately
to Borrower (as opposed to being offset directly on a LEC Confirmation
Statement),
PROVIDED, HOWEVER, that upon the delivery of Borrower's audited fiscal year 1997
financial statement pursuant to SECTION 6.3, Foothill shall, not more than 30
days after receipt of such financial statement, reasonably determine if
Borrower's actual financial performance, as measured on the basis of Borrower's
audited fiscal year 1997 financial statement, has met or exceeded Borrower's
1997 Business Plan provided to Foothill under this Agreement, and in the event
that Borrower's actual financial performance has met or exceeded Borrower's 1997
Business Plan, then each subsequent determination of the Billing and Collection
Charges Reserve shall be made on the basis of subparagraph (a) alone.
"BILLING SERVICES AGREEMENT" means a billing services agreement or
similar agreement that has been entered into and is in full force and effect
between Borrower and a LEC.
"BORROWER" means WXCC, WXLC, and CTST, and each of them, and any
one or more of them, collectively and individually, and jointly and severally.
"BORROWER'S BOOKS" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
"BORROWER'S DESIGNATED ACCOUNT" means account number 0890106749 of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit
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<PAGE>
account (located within the United States) of Borrower designated, in writing
and from time to time, by Borrower to Foothill prior to the date of the
establishment of such other deposit account.
"BORROWER'S DESIGNATED ACCOUNT BANK" means Union Bank of
California, whose office is located at 4660 La Jolla Village Drive, San Diego,
California 92122, and whose ABA routing number is 122000496, or such other bank
designated by Borrower and approved by Foothill with such approval not to be
unreasonably delayed or withheld.
"BORROWER'S 1997 BUSINESS PLAN" means the written business plan
for Borrower with respect to Borrower's fiscal year 1997 that is attached hereto
as EXHIBIT B-1.
"BORROWING BASE" has the meaning set forth in SECTION 2.1(a)
hereof.
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"CANADIAN LOCKBOX ACCOUNT" means any deposit account in Canada
into which Canadian Collections are deposited or that is established pursuant to
the terms of any Canadian Lockbox Agreement.
"CANADIAN LOCKBOX AGREEMENT" means any Lockbox Agreement that
relates to the collection of Accounts in Canada.
"CANADIAN MARITIME PROVINCES" means Prince Edward Island, New
Brunswick, Newfoundland, and Nova Scotia.
"CANADIAN SECURITY AGREEMENTS" means agreements in the forms
attached as EXHIBIT C-1, dated as of even date with this Agreement, executed and
delivered by WXLC to and for the benefit of Foothill.
"CARRIER" means any provider of long distance telecommunications
access or network services with whom Borrower from time to time does business,
such as (without limitation) WilTel, Mercury Communications, Pacific Gateway, Hi
Rim Communications, Unitel, and Pacific Bell.
"CARRIER AGREEMENT" means each contract or agreement in effect
between Borrower and a Carrier.
"CARRYOVER AMOUNT" means, with respect to any fiscal year of
Borrower, commencing with Borrower's fiscal year 1998, the non-negative amount,
if any, equal to the difference obtained by subtracting (x) the amount equal to
the actual total capital expenditures of Borrower during such prior fiscal year
of Borrower from (y) the sum of
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<PAGE>
the Base Permitted Capital Expenditure Amount with respect to the prior fiscal
year of Borrower as added to the Net Equity Supplemental Amount with respect to
the prior fiscal year of Borrower.
"CHANGE OF CONTROL" shall be deemed to have occurred at such time
as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 25% of the total voting power of all classes of stock
then outstanding of Borrower entitled to vote in the election of directors.
"CLOSING DATE" means the date of the making of the initial
Advance hereunder.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property, if any,
(h) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of
Foothill, and
(i) the proceeds and products, whether tangible or intangible,
of any of the foregoing, including proceeds of insurance
covering any or all of the Collateral, and any and all
Accounts, Borrower's Books, Equipment, General Intangibles,
Inventory, Negotiable Collateral, Real Property, money,
deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof
or interest therein, and the proceeds thereof.
PROVIDED that the Collateral shall not include any Excluded Property.
"COLLATERAL ACCESS AGREEMENT" means a landlord waiver or consent,
mortgagee waiver or consent, Equipment lessor or Equipment secured financer
waiver or consent, bailee letter, or a similar acknowledgement agreement of any
warehouseman, processor, or other Person in possession of Collateral consisting
of goods, or of lessors or secured financers of Equipment to Borrower, in each
case, if and as requested by Foothill,
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<PAGE>
"DIRECT ACCOUNT DILUTION" means, in each case based upon the
experience of the immediately prior 6 months, the result of dividing the Dollar
amount of (a) bad debt write-downs, post-billing adjustments, credits, or other
dilutive items with respect to the Direct Accounts (but expressly excluding
Contra Accounts), by (b) Borrower's Collections with respect to Direct Accounts
plus the Dollar amount of clause (a).
"DIRECT ACCOUNT DILUTION RESERVE" means, as of any date of
determination by Foothill, which determinations shall not be made more
frequently than monthly without the consent of Borrower unless an Event of
Default has occurred and is continuing, an amount sufficient to reduce
Foothill's advance rate against Direct Accounts by one percentage point for each
percentage point by which Direct Account Dilution is in excess of ten percent
(10%).
"DIRECT ACCOUNT SUBLINE LIMIT" means, as of any date of
determination thereof, 50% of the Maximum Amount in effect on such date.
"DISBURSEMENT LETTER" means an instructional letter executed and
delivered by Borrower to Foothill regarding the extensions of credit to be made
on the Closing Date, the form and substance of which shall be satisfactory to
Foothill.
"DOLLARS OR $" means United States dollars.
"EARLY TERMINATION PREMIUM" has the meaning set forth in SECTION
3.6.
"ELIGIBLE ACCOUNTS" means those Accounts created by Borrower in
the ordinary course of business, that arise out of Borrower's sale of goods,
sale of General Intangibles relating to the provision of telecommunication
services, or rendition of services, that strictly comply with each and all of
the representations and warranties respecting Accounts made by Borrower to
Foothill in the Loan Documents, and that are and at all times continue to be
acceptable to Foothill in Foothill's reasonable credit judgment, based upon
standards of eligibility currently existing, or from time to time fixed or
revised as set forth below; PROVIDED, HOWEVER, that standards of eligibility may
be fixed and revised from time to time by Foothill in Foothill's reasonable
credit judgment. Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay
(i) in the case of LEC Accounts, within ninety (90) days of invoice date (which,
for purposes of this Agreement, with respect to any LEC Account, means the date
of receipt by Borrower from the applicable LEC of a LEC Confirmation Statement
with respect to such LEC Account), or (ii) in the case of Direct Accounts,
within ninety (90) days of invoice date; but, in each case, only to the extent
of such unpaid amounts;
(b) Accounts owed by an Account Debtor or its Affiliate
where fifty
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<PAGE>
percent (50%) or more of all Accounts owed to Borrower from that Account Debtor
(or its Affiliates) have not been paid within ninety (90) days of invoice date;
(c) Accounts with respect to which the Account Debtor is
an employee, Affiliate, or agent of Borrower; PROVIDED, however, that Direct
Accounts owed by employees or agents of Borrower shall be ineligible only to the
extent that, in the case of any single employee or agent, such Direct Accounts
in the aggregate with respect to such single employee or agent have a balance
due of $5,000 or more;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts that are not payable in Dollars or Canadian
Dollars or with respect to which the Account Debtor: (i) does not maintain its
chief executive office in the United States or Canada (excluding the Canadian
Maritime Provinces), or (ii) is not organized under the laws of the United
States or any State thereof, or the laws of Canada or any Province thereof
(excluding the Canadian Maritime Provinces), or (iii) is the government of any
foreign country or sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof, unless (x) the Account is
approved in writing by Foothill in Foothill's sole and absolute discretion, (y)
the Account is supported by an irrevocable letter of credit satisfactory to
Foothill (as to form, substance, and issuer) and assigned and delivered to and
directly drawable by Foothill, or (z) the Account is covered by credit insurance
in form and amount, and by an insurer, satisfactory to Foothill;
(f) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Foothill, with the Assignment of
Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United States
(exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(g) Accounts to the extent that the Account Debtor has
disputed its liability or made any claim with respect to the Account or any
other Account that has not been resolved, but only to the extent of the amount
disputed or claimed by the Account Debtor and only with respect to a written
dispute or claim that remains unresolved after the passage of ten (10) Business
Days after Borrower's receipt of such dispute or claim;
(h) Direct Accounts with respect to an Account Debtor
whose total obligations owing to Borrower with respect to Direct Accounts exceed
fifteen percent
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(15%) of all Eligible Direct Accounts (or twenty percent (20%) in the case of
those Account Debtors identified on SCHEDULE E-1 hereto), to the extent of the
obligations owing by such Account Debtor in excess of such percentage;
(i) Accounts with respect to which Borrower received
from the Account Debtor, and is accountable for, a customer deposit, but only to
the extent of such customer deposit;
(j) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(k) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition or otherwise, and with respect to which Foothill
reasonably has endeavored to provide written or telephonic notice of such
determination to Borrower;
(l) Accounts with respect to which any goods giving rise
to such Account have not been shipped and delivered to and accepted by the
Account Debtor, any General Intangibles relating to the provision of
telecommunications services giving rise to such Account have not been provided
to and accepted, consumed, or utilized by the Account Debtor, any services
giving rise to such Account have not been performed and accepted, consumed, or
utilized by the Account Debtor, or the Account otherwise does not represent a
final sale, except for Eligible Private Line Accounts;
(m) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement;
(n) LEC Accounts submitted for billing and collection to
a LEC with respect to which there does not exist an Approved Billing Services
Agreement;
(o) LEC Accounts (i) that are not covered by a LEC
Confirmation Statement received by Borrower from the applicable LEC, or (ii)
that are covered by a LEC Confirmation Statement received by Borrower from the
applicable LEC to the extent of (without duplication) reductions of or offsets
against amounts otherwise payable with respect thereto by reason of up-front LEC
rejects or credits deducted in arriving at net confirmed revenues on such LEC
Confirmation Statement;
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(p) Direct Accounts that have not yet been billed to the
Account Debtor (PROVIDED that such Accounts may qualify as Eligible Unbilled
Direct Accounts if they otherwise meet the criteria applicable thereto);
(q) ZPDI Accounts;
(r) Accounts to the extent that they represent
obligations with respect to advance billings that are due prior to the
completion of performance by Borrower with respect to the subject contract or
transaction that gives rise to such Accounts, except for Eligible Private Line
Accounts;
(s) [intentionally omitted];
(t) Accounts that have been transferred to Borrower's
legal or collection department, if service has been disconnected with respect to
the Account Debtor or collection litigation has been instituted by Borrower
against the Account Debtor; and
(u) Direct Accounts with respect to which there exist
Contra Accounts, to the extent of the balance of such Contra Accounts.
Except as otherwise expressly provided herein, Eligible Accounts and exclusions
therefrom shall be determined on a weekly basis, or more frequently if and as
agreed by the parties, and interim changes between dates of determination shall
be disregarded.
"ELIGIBLE DIRECT ACCOUNT" means, as of any date of determination,
an Eligible Account that is a Direct Account.
"ELIGIBLE LEC ACCOUNT" means, as of any date of determination, an
Eligible Account that is a LEC Account. The amount of any Eligible LEC Account
shall be presumed to be the amount thereof projected to be received by Borrower
on the related LEC Confirmation Statement, unless Foothill in its reasonable
discretion determines the amount thereof to be a different amount.
"ELIGIBLE PRIVATE LINE ACCOUNTS" means, as of any date of
Determination, private line Accounts in an amount not to exceed $200,000 (net of
Contra Accounts) in the aggregate at any one time outstanding, PROVIDED,
HOWEVER, that upon the delivery of Borrower's monthly financial statements for
the month ending September 30, 1997 pursuant to SECTION 6.3, Foothill shall, not
more than 30 days after receipt of such financial statement, reasonably
determine if Borrower's actual financial performance, as measured on the basis
of Borrower's cumulative monthly financial statements from the Closing date
through the month ending September 30, 1997, has met or exceeded Borrower's 1997
Business Plan provided to Foothill under this agreement, and in the event that
Borrower's actual financial performance has met or exceeded Borrower's 1997
Business Plan, then the
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maximum amount of Eligible Private Line Accounts shall be increased to $500,000
(net of Contra Accounts).
"ELIGIBLE UNBILLED DIRECT ACCOUNT" means, as of any date of
determination, a Direct Account that (a) resulted from a transaction that
occurred prior to the date of determination and with respect to which Borrower
has an existing call transaction record in proper format that is capable of
being billed by Borrower to its customer in accordance with Borrower's usual
billing methods for Direct Accounts but that has not yet been billed and
invoiced to such customer, (b) does not relate to a transaction that occurred
more than forty-five (45) days prior to the date of determination, and (c) in
all other respects would qualify as an Eligible Direct Account but for the fact
that it has not yet been billed and invoiced to Borrower's customer. Eligible
Unbilled Direct Accounts shall be net of the balance of any Contra Accounts. If
an Account that was an Eligible Unbilled Direct Account, immediately prior to
being billed and invoiced, then is billed and invoiced, it thereupon shall cease
to be an Eligible Unbilled Direct Account, and it shall become an Eligible
Direct Account if it then meets the criteria applicable thereto.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, including
(a) any interest of Borrower in any of the foregoing, and (b) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" the Employee Retirement Income Security Act of 1974, 29
U.S.C. Sections 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA AFFILIATE" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA EVENT" means with respect to any Borrower, (a) a Reportable
Event with respect to any Benefit Plan or Multiemployer Plan, (b) the withdrawal
of such Borrower or any ERISA Affiliate thereof from a Benefit Plan during a
plan year in which it was a "substantial employer" (as defined in Section
4001(a)(2) of ERISA), (c) the
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providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal, within the meaning of Sections 4203 and 4205 of
ERISA, of any Borrower or ERISA Affiliate thereof, from a Multiemployer Plan, or
(g) providing any security to any Benefit Plan under Section 401(a)(29) of the
IRC by any Borrower or any ERISA Affiliate thereof.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXCLUDED PROPERTY" means, with respect to any contract or lease
existing on the Closing Date between Borrower, on the one hand, as lessee,
purchaser, or licensee, and any Designated Financier, on the other hand, as
lessor, seller, or licensor, which contract or lease pertains to the sale,
lease, or license by the Designated Financier to Borrower of personal property,
(a) Borrower's rights under or with respect to such contract or lease, and (b)
Borrower's rights or interests in or with respect to the personal property that
is the subject thereof, in each case to the extent, and only to the extent, that
the grant of a security interest therein by Borrower to Foothill would give rise
to a breach by Borrower of the terms or provisions of such contract or lease
that, in accordance with applicable law, would permit the applicable Designated
Financier to enforce any default right or remedy provided for in such contract
or lease or available pursuant to applicable law.
"EXISTING LENDER" means Reservoir Capital Corporation.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" has the meaning set forth in the preamble to this
Agreement.
"FOOTHILL ACCOUNT" has the meaning set forth in SECTION 2.7.
"FOOTHILL EXPENSES" means all: costs or expenses (including taxes,
and insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by Foothill; reasonable out-of-pocket fees
or charges paid or incurred by Foothill in connection with Foothill's
transactions with Borrower, including, fees or charges for photocopying,
notarization, telecommunication, public record searches (including tax lien,
litigation, and ucc searches), filing, recording, publication, post-Event of
Default appraisals to the extent provided for herein, and environmental audits;
actual out-of-pocket costs and expenses incurred by Foothill in the disbursement
of funds to Borrower (by wire transfer or otherwise); actual out-of-pocket
charges paid or incurred by Foothill resulting from the dishonor of checks;
reasonable out-of-pocket costs and expenses
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paid or incurred by Foothill to correct any default or enforce any provision of
the Loan Documents, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale, or advertising to
sell the Personal Property Collateral or any Real Property, or any portion
thereof, irrespective of whether a sale is consummated; reasonable costs and
expenses paid or incurred by Foothill in examining Borrower's Books; reasonable
out-of-pocket costs and expenses of third party claims or any other suit paid or
incurred by Foothill in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or
Foothill's relationship with Borrower; and Foothill's reasonable out-of-pocket
attorneys fees and expenses incurred in advising, structuring, drafting,
reviewing, administering, amending, terminating, enforcing (including reasonable
out-of-pocket attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or
any guarantor of the Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit is brought. The foregoing provisions of this
definition notwithstanding, "Foothill Expenses" shall not include any amounts
that otherwise would be included within such definition that a court of
competent jurisdiction finally determines to have been incurred, paid, or
expended as the proximate result of the gross negligence or willful misconduct
of Foothill.
"FOREIGN ADVANCE CAP" means, as of any date of determination
thereof, which determination shall be made monthly, $2,000,000, plus, in the
case of profits, and minus, in the case of losses, 50% of the cumulative pre-tax
net profits or losses of Borrower's domestic operations (including the United
States and each State thereof, and Canada and each Province thereof (excluding
the Canadian Maritime Provinces)), for the period commencing on the Closing Date
and continuing through the last day of the fiscal month of Borrower most
recently ended. In addition, the Foreign Advance Cap shall be increased by 50%
of any net cash proceeds received by Borrower from any public or private equity
offerings, effective upon receipt thereof.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"GENERAL INTANGIBLES" means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"GOVERNING DOCUMENTS" means the certificates or articles of
incorporation,
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by-laws, or other organizational or governing documents of any Person.
"GROSS DOMESTIC ACCOUNTS" means, as of any date of determination
thereof, all Accounts of Borrower carried on Borrower's Books in accordance with
GAAP that arise out of transactions in the United States or any State thereof,
or Canada or any Province thereof (excluding the Canadian Maritime Provinces).
"GUARANTEES" means the limited continuing personal guarantees of
the Obligations given by the Principals to Foothill, substantially in the form
attached hereto as EXHIBIT G-1.
"HAZARDOUS MATERIALS" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts per million.
"INDEBTEDNESS" means: (a) all obligations of Borrower for borrowed
money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of Borrower under capital leases
(excluding any portion thereof allocated to interest or finance charges in
accordance with GAAP), (d) all obligations or liabilities of others secured by a
lien or security interest on any property or asset of Borrower, irrespective of
whether such obligation or liability is assumed, and (e) any obligation of
Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed,
co-made, discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors,
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.
"INSIDER" shall have the meaning ascribed to such term in Section
101 of the Bankruptcy Code, or any comparable successor provision.
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"INTANGIBLE ASSETS" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"INVENTORY" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title
"INVESTMENT" means any transaction within the scope of SECTION
7.14 (whether permitted or prohibited thereby), and includes capital
contributions, equity contributions, loans, and advances.
"INVESTMENT PROPERTY" shall have the meaning ascribed to such term
in Division 9 of the Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"LEC" means a local exchange carrier or telephone company that
provides basic telecommunications services to its customers and from whom
Borrower receives payments with respect to Accounts, such as (without
limitation) Pacific Bell, U.S. West, NYNEX, Southwestern Bell, GTE, and
Ameritech.
"LEC ACCOUNT" means, as of any date of determination, any Account
of Borrower submitted by or on behalf of Borrower to a LEC for billing and
payment pursuant to a Billing Services Agreement.
"LEC ACCOUNT DILUTION" means, with respect to LEC Accounts, in
each case based upon the experience of the immediately prior 6 months, the
result of dividing (a) the Dollar amount of bad debt write-downs, credits,
unbillable transactions, and other dilutive items with respect to the LEC
Accounts for such period (excluding billing and collection charges billed
separately to Borrower (as opposed to being offset directly on a LEC
Confirmation Statement), and up-front LEC rejects and up-front credits already
deducted in arriving at net confirmed revenues on LEC Confirmation Statements),
by (b) Borrower's net confirmed revenues for such period with respect to LEC
Accounts.
"LEC ACCOUNT DILUTION RESERVE" means, as of any date of any
determination by Foothill, which determinations shall not be made more
frequently than monthly without the consent of Borrower unless an Event of
Default has occurred and is continuing, an amount sufficient to reduce
Foothill's advance rate against Eligible LEC Accounts by one percentage point
for each percentage point by which LEC Account Dilution is in excess of ten
percent (10%).
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"LEC ACCOUNT SUBLINE LIMIT" means, as of any date of determination
thereof, 80% of the Maximum Amount in effect on such date.
"LEC CONFIRMATION STATEMENT" means a written confirmation
statement sent to Borrower by a LEC to confirm the receipt by the LEC from
Borrower of call transaction records relating to Accounts that the LEC is to
bill on behalf of Borrower to customers of the LEC.
"LEC NON-OFFSET AGREEMENT" means an agreement by a LEC in favor of
Borrower, that is in form and substance reasonably satisfactory to Foothill,
that runs to the benefit of Foothill, or that may be assigned to Foothill and is
in fact so assigned, and that is in full force and effect, whereby the LEC
agrees not to offset claims, other than for billing and collection services it
may hold against Borrower against amounts otherwise due Borrower by the LEC
under the Billing Services Agreement in effect between Borrower and the LEC.
"LEC RESERVE" means, as of any date of determination thereof,
which determinations shall not be made more frequently than weekly without
the consent of Borrower unless an Event of Default has occurred and is
continuing, the greater of;
(a) the actual aggregate outstanding accrued and unpaid
obligations of Borrower to each LEC for which Borrower is including LEC Accounts
in the Borrowing Base that has not entered into a LEC Non-Offset Agreement on
such date of determination, with respect to connection or access charges, but
only to the extent of such access or connection charges which are not subject to
a LEC Non-Offset Agreement, and
(b) the average of the actual aggregate outstanding accrued and
unpaid obligations of Borrower to each LEC for which Borrower is including LEC
Accounts in the Borrowing Base that has not entered into a LEC Non-Offset
Agreements of each weekending date that occurred during the related Lookback
Period With respect to which a weekly report was, is, or will be due to Foothill
pursuant to SECTION 6.2(a)(vi) of this Agreement, with respect to connection or
access charges, but only to the extent of such access or connection charges
which are not subject to a LEC Non-Offset Agreement.
PROVIDED, HOWEVER, that upon the delivery of Borrower's audited fiscal year 1997
financial statement pursuant to SECTION 6.3, Foothill shall, not more than 30
days after receipt of such financial statement, reasonably determine if
Borrower's actual financial performance, as measured on the basis of Borrower's
audited fiscal year 1997 financial statement, has met or exceeded Borrower's
1997 Business Plan provided to Foothill under this Agreement, and in the event
that Borrower's actual financial performance has met or exceeded Borrower's 1997
Business Plan, then each subsequent determination of the LEC Reserve shall be
made on the basis of subparagraph (a) alone.
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"LOAN ACCOUNT" has the meaning set forth in SECTION 2.7.
"LOAN DOCUMENTS" means this Agreement, the Canadian Security
Agreements, the Pledge Agreements, the Disbursement Letter, the Guarantees, the
Lockbox Agreements, any Mortgages hereafter delivered by Borrower to Foothill,
the Suretyship Agreement, any note or notes executed by Borrower and payable to
Foothill, and any other agreement entered into, now or in the future, in
connection with this Agreement.
"LOCKBOX ACCOUNT" shall mean a depositary account established
pursuant to one of the Lockbox Agreements.
"LOCKBOX AGREEMENTS" means those certain Lockbox Operating
Procedural Agreements, Depository Account Agreements, Blocked Account
Agreements, or similar agreements, in form and substance reasonably satisfactory
to Foothill, each of which is among Borrower, Foothill, and one of the Lockbox
Banks.
"LOCKBOX BANKS" means Union Bank of California, The Royal Bank of
Canada, or such other bank(s) as may be selected by Borrower and approved by
Foothill, with such approval not unreasonably to be withheld or delayed.
"LOCKBOXES" has the meaning set forth in SECTION 2.7.
"LOOKBACK PERIOD" means, with respect to any date of
determination, the period commencing on the 90th day prior to such date of
determination and ending on such date of determination, inclusive.
"MAC-RELATED DATE" means the first date, if any, to occur as of
which: (a) A MAC-Related Event of Default has occurred and is continuing; (b) no
Event of Default that is not a MAC-Related Event of Default has occurred and is
continuing; and (c) Foothill has (i) accelerated the maturity of the
Obligations, based solely on the existence of one or more MAC-Related Events of
Default, (ii) ceased for more than two (2) Business Days making Advances to
Borrower, based solely upon the existence of one or more MAC-Related Events of
Default, (iii) terminated the Agreement, based solely on the existence of one or
more MAC-Related Events of Default, or (iv) commenced material enforcement of
its rights and remedies the exercise of which is conditioned upon the occurrence
of an Event of Default, based solely on the existence of one or more MAC-Related
Events of Default.
"MAC-RELATED EVENT OF DEFAULT" means any Event of Default: (a)
Pursuant to SECTION 8.3 of this Agreement; or (b) Pursuant to SECTION 8.12 of
this Agreement, to the extent, and only to the extent, that such SECTION 8.12
Event of Default is premised upon a misstatement or misrepresentation contained
in any warranty or representation at any time made by Borrower in SECTIONS
5.9(c), 5.10, OR 5.12(c) of this Agreement.
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"MATERIAL ADVERSE CHANGE" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of WXCC, WXLC, and CTST on a consolidated
basis that, with the passage of time, is likely to result in an Event of Default
(other than (i) a MAC-Related Event of Default, or (ii) an Event of Default
based on a breach of SECTION 6.11 hereof), (b) the material impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or a Foothill to enforce the Obligations or realize upon the
Collateral, (c) a material adverse effect on the value of the Collateral or the
amount that Foothill would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Foothill's liens or
security interests in the Collateral.
"MAXIMUM AMOUNT" means, subject to adjustment as hereinafter set
forth, Twenty Five Million Dollars ($25,000,000). From time to time after the
Closing Date, subject to the prior or concurrent payment of any applicable fee
provided for in SECTION 2.8(c), Borrower may elect to increase the Maximum
Amount, on one or more occasions, in increments of $1,000,000 or an integral
multiple thereof, to an amount not to exceed $35,000,000, such increases to
become effective, in each instance, prospectively, subject to payment of any
applicable fee as aforesaid, on the date specified in a written notice of such
election received by Foothill from Borrower, which specified date shall be not
less than 3 Business Days after the date on which Foothill receives such notice.
"MAXIMUM FOOTHILL AMOUNT" means that portion of the Maximum Amount for
which Foothill shall be responsible, exclusive of any participations with
Participants, which amount is $20,000,000.
"MORTGAGES" means any one or more mortgages, deeds of trust, or deeds
to secure debt, that hereafter may be from time to time executed by Borrower in
favor of Foothill, the form and substance of which shall be satisfactory to
Foothill, that encumber any Real Property and the related improvements thereto.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which any Borrower of any ERISA Affiliate
thereof has contributed, or was obligated to contribute, within the past six
years.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, certificated securities
(including the shares of stock of Subsidiaries of Borrower), Investment
Property, documents, personal property leases (wherein Borrower is the lessor),
chattel paper, and Borrower's Books relating to any of the foregoing.
"NET DOMESTIC REVENUES" means, for any period of measurement, revenues
of Borrower derived from transactions in the United States or any State thereof,
or Canada
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or any Province thereof (excluding the Canadian Maritime Provinces), exclusive
of revenues received from Carriers.
"NET EQUITY SUPPLEMENTAL AMOUNT" means, with respect to any fiscal
year of Borrower commencing with Borrower's fiscal year 1997, the non-negative
amount equal to 50% of the aggregate net cash proceeds of any new equity raised
by Borrower during such fiscal year in one or more public or private equity
offerings by Borrower.
"NO-PREMIUM WINDOW" means any and each period of time that begins on a
Triggering Date and lasts for 120 consecutive calendar days.
"OBLIGATIONS" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations owing to Foothill,
premiums (including Early Termination Premiums), liabilities (including all
amounts charged to the Loan Account pursuant hereto), obligations, fees or
Foothill Expenses (including any fees or expenses that, but for the provisions
of the Bankruptcy Code, would have accrued) lease payments, guaranties,
covenants, and duties owing by Borrower to Foothill of any kind and description
(whether pursuant to or evidenced by the Loan Documents or pursuant to any other
agreement between Foothill and Borrower, and irrespective of whether for the
payment of money), whether direct, absolute or contingent, due or to become due,
now existing or hereafter arising, and including any debt, liability, or
obligation owing from Borrower to others that Foothill may have obtained by
assignment or otherwise, and further including all interest not paid when due
and all Foothill Expenses that Borrower is required to pay for reimburse by the
Loan Documents, by law, or otherwise.
"OVERADVANCE" has the meaning set forth in SECTION 2.2.
"PARTICIPANT" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"PAY-OFF LETTER" means a letter, in form and substance reasonably
satisfactory to Foothill, from Existing Lender respecting the amount necessary
to repay in full all of the obligations of Borrower owing to Existing Lender and
obtain a termination or release of all of the security interests or liens
existing in favor of Existing Lender in and to the properties or assets of
Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"PERMITTED CAPITAL EXPENDITURE AMOUNT" means, with respect to any
fiscal year of Borrower commencing with Borrower's fiscal year 1997, the sum of
(a) the Base Permitted Capital Expenditure Amount for such fiscal year, PLUS (b)
the Net Equity
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Supplemental Amount for such fiscal year, if any, PLUS (c) except with respect
to Borrower's fiscal year 1997, with respect to which no Carryover Amount is
applicable, the Carryover Amount applicable to such fiscal year, if any.
"PERMITTED LIENS" means (a) liens and security interests held by
Foothill, (b) liens for unpaid taxes with respect to which Borrower is not in
breach of its covenants set forth in SECTION 6.9 of this Agreement, (c) liens
and security interests set forth on SCHEDULE P-1 attached hereto, (d)
purchase money security interests and liens of lessors under capital leases
to the extent that the acquisition or lease of the underlying asset was
permitted under SECTION 7.10, and so long as the security interest or lien
only secures the obligations of Borrower under the purchase agreement or
lease with respect to the purchase price of or rental payments with respect
to the asset, interest or finance charges with respect thereto, or related
fees, costs, or expenses, and does not secure unrelated obligations of
Borrower to the holder of such purchase agreement or lease, (e) easements,
rights of way, reservations, covenants, conditions, restrictions, zoning
variances, and other similar encumbrances that do not materially interfere
with the use or value of the property subject thereto, (f) obligations and
duties as lessee under any lease existing on the date of this Agreement, (g)
mechanics', materialmen's, warehousemen's, or similar liens that arise by
operation of law, (h) exceptions listed in any title insurance or commitment
therefor delivered by Borrower hereunder in respect of any Real Property and
as are approved in the sole discretion of Foothill, (i) liens with respect to
which Borrower is engaging in a Permitted Protest permitted by an express
provision of the Loan Documents, to the extent that Borrower is in compliance
with such provision, and (j) liens to the extent that Borrower is given a
grace period pursuant to an express provision of the Loan Documents within
which to remove or eliminate such liens, and to the extent that Borrower is
proceeding in compliance with such provision to remove or eliminate such lien
within such grace period.
"PERMITTED ORDINARY COURSE INVESTMENTS" means (a) direct
obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the United States of America with a maturity
not exceeding one year, (b) certificates of deposit, time deposits, banker's
acceptances or other instruments of a bank having a combined capital and
surplus of not less than $500,000,000, or another financial institution
reasonably satisfactory to Foothill, with a maturity not exceeding one year,
(c) investments in commercial paper rated at A-1 or P-1 maturing within one
year after the date of acquisition thereof, (d) money market accounts
maintained at a bank having combined capital and surplus of no less than
$500,000,000 or another financial institution reasonably satisfactory to
Foothill (including satisfaction of requirements necessary for Foothill to
have a perfected security interest therein with the priority provided for
herein), (e) loans and advances to non-Insider officers and employees of
Borrower in the ordinary course of business (excluding loans or advances in
connection with the purchase of stock of Borrower) in an aggregate amount at
any one time outstanding not to exceed $250,000, (f) investments in
negotiable instruments for collection, and (g) advances in connection with
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purchases of goods or services in the ordinary course of business.
"PERMITTED PROTEST" means the right of Borrower to protest any
lien, tax, rental payment, or other charge, other than any such lien or
charge that secures the Obligations, provided that (a) a reserve with respect
to such obligation is established on the books of Borrower in an amount that
is reasonably satisfactory to Foothill, (b) any such protest is instituted
and diligently prosecuted by Borrower in good faith, and (c) Foothill is
reasonably satisfied that, while any such protest is pending, there will be
no impairment of the enforceability, validity, or priority of any of the
liens or security interests of Foothill in and to the Collateral.
"PERMITTED SUBSIDIARY INVESTMENTS" means direct or indirect
Investments of Borrower in Subsidiaries of Borrower either (a) existing on
the Closing Date and fully disclosed in SCHEDULE P-2, or (b) consisting of
advances by Borrower to Subsidiaries made after the Closing Date, or
guarantees by Borrower of Indebtedness of Subsidiaries given after the
Closing Date, so long as of the date of any such advance (1) the aggregate
net Dollar-equivalent amount of such advances outstanding at such date
(giving effect to all such advances made and repaid since the Closing Date),
plus the aggregate potential Dollar-equivalent exposure with respect to all
such guarantees outstanding at such date, plus the aggregate
Dollar-equivalent amount of any and all payments made by Borrower under any
such guarantees after the Closing Date to the extent that such payments have
not been reimbursed to Borrower by the Subsidiary or Subsidiaries whose
obligations were so guarantied, does not exceed the Foreign Advance Cap, and
provided that, (2) on and after August 1, 1997, such advances shall be made,
or guarantees given, only when Borrower does not have any non-disputed
payables due to Carriers that remain unpaid for more than 90 days after their
invoice dates.
"PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"PERSONAL PROPERTY COLLATERAL" means all Collateral other than Real
Property.
"PLAN" means any employee benefit plan, program, or arrangement
maintained or contributed to by Borrower or with respect to which it may incur
liability.
"PLEDGE AGREEMENTS" means agreements in the forms attached as EXHIBIT
P-1 hereto, dated as of even date with this Agreement, and entered into by
Borrower and each Subsidiary of Borrower that owns any interest in any other
Subsidiary of Borrower, in each case for the benefit of Foothill, whereby
Borrower and each such stock-owning Subsidiary of Borrower pledges to Foothill
100% of Borrower's capital stock in its domestic
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Subsidiaries, 100% of Borrower's capital stock of WXLC, and 66 2/3% of
Borrower's capital stock in its foreign Subsidiaries other than WXLC.
"PLEDGED SHARES" means the original certificates evidencing the shares
of capital stock of Subsidiaries of Borrower pledged to Foothill pursuant to the
Pledge Agreements.
"PRACTICABLE" means, with respect to any agreement herein of a
Person to send a facsimile to another Person "if practicable," that the
Person agreeing to send such facsimile to such other Person will make
reasonably diligent attempts to transmit such facsimile to such other Person
contemporaneous with the giving of the related notice or communication by any
other means (such as mail, personal delivery, or telephone, subject to the
provisions hereof and to the extent permitted herein), but the Person
agreeing to send such facsimile shall not be responsible for any inability
successfully to transmit such facsimile, or for the failure of the intended
recipient to receive such facsimile, that results from mechanical failure,
electrical or telephone line failure, failure of the intended recipient's
facsimile device to receive or print such transmission, or any other similar
cause not the proximate result of the gross negligence or willful misconduct
of the Person agreeing to send such facsimile.
"PRINCIPALS" means Edward S. Soren, Roger B. Abbott, and Rosalind
Abbott, and each of them, and any one or more of them.
"PRIVATE LINE ACCOUNT" means any Account that arises out of the
provision of dedicated digital point-to-point telecommunication services,
including ancillary services such as local access, muxing, and digital
cross-connect service.
"REAL PROPERTY" means the parcel or parcels of real property and the
related improvements thereto, if any, identified on SCHEDULE R-1, and any
estates or interests in real property hereafter acquired by Borrower, unless
Foothill in its sole discretion has agreed to exclude such after-acquired
estates or interests.
"REDUCING AMOUNT" means, as of any date of determination thereof, the
greater of:
(a) $5,000,000; and
(b) $6,000,000, as of the Closing Date, reduced cumulatively by each
of the following: (i) On the first day of each calendar month,
commencing April 1, 1997, and continuing thereafter on the first
day of each succeeding calendar month, a reduction of $41,667 per
month; and (ii) In addition, with respect to any and each public
or private equity offering consummated by Borrower after the
Closing Date and
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on or before such date of determination, a reduction in an
amount equal to 100% of the net cash proceeds received by or
for the account of Borrower with respect to such public or
private equity offering, effective upon each date of receipt
thereof in the amount so received on each such date.
"REDUCTION DATE" means the first date, if any, to occur as of which
both of the following conditions shall have been satisfied: (a) Borrower has
successfully concluded one or more public or private equity offerings that
raised in the aggregate not less than Twenty Million Dollars ($20,000,000) of
new equity for Borrower; and (b) Borrower has demonstrated to Foothill's
reasonable satisfaction that Borrower has substantially met Borrower's 1997
Business Plan with respect to Borrower's fiscal year 1997 (or the portion of
such fiscal year ending on such date, if such date is prior to the last day of
Borrower's fiscal year 1997).
"REFERENCE RATE" means the highest of the variable rates of interest,
per annum, most recently announced by Norwest Bank Minnesota, National
Association, or any successor thereto, as its "prime rate" or "reference rate,"
irrespective of whether such announced rate is the best rate available from such
financial institution.
"REPORTABLE EVENT" means any of the events described in Section
4043(c) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of thirty (30) days notice to the PBGC is waived under
applicable regulations.
"RETIREE HEALTH PLAN" means an "employee welfare benefit plan" within
the meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"SOLVENT" means, with respect to any Person on a particular date,
that on such date (a) such Person is able to realize upon its properties and
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (b) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (c) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
"SPECIAL BRIDGE ADVANCE COMPONENT" means (a) as of any date of
determination on or after the Closing Date and prior to the Special Bridge
Advance
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Component Termination Date, the LESSER of (i) the then applicable Reducing
Amount, and (ii) 45% of Net Domestic Revenues for the three months of Borrower
most recently ended for which Foothill has received financial statements of
Borrower, and (b) as of any date of determination on or after the Second Bridge
Advance Component Termination Date, Zero Dollars.
"SPECIAL BRIDGE ADVANCE COMPONENT TERMINATION DATE" means the earlier
of (a) the date that is two years after the Closing Date, and (b) the first date
that Foothill receives a signed written notice from Borrower stating in
substance that Borrower has elected irrevocably to terminate, and reduce to Zero
Dollars, the Special Bridge Advance Component.
"SPECIFIED AMOUNT" means, with respect to the first four (4)
quarters of Borrower's fiscal year 1997, negative seventeen million dollars
(-$17,000,000) plus any applicable amount provided for in the next sentence
of this definition, and, with respect to all fiscal quarters of Borrower
thereafter, negative nine million dollars (-$9,000,000) plus any applicable
amount provided for in the next sentence of this definition. As of any date
of determination of the Specified Amount, if Borrower has concluded one or
more public or private equity offerings after the Closing Date and on or
before such date of determination, the Specified Amount shall be increased by
fifty percent (50%) of the aggregate net cash proceeds raised by Borrower
after the Closing Date with respect to all such public or private equity
offerings.
"SUBORDINATION AGREEMENTS" means (a) subordination of indebtedness
agreements in form and substance reasonably satisfactory to Foothill, which
shall be in full force and effect and for the benefit of Foothill, with respect
to any obligations or indebtedness of Borrower (other than with respect to
employee compensation permitted by this Agreement, or purchases of services from
WorldxChange, LTD., a New Zealand corporation, that are otherwise permitted by
SECTION 7.15 hereof) owed to any Insider or Affiliate of Borrower, or to any
Principal or other Person to whom Borrower proposes to incur Indebtedness after
the Closing Date pursuant to SECTION 7.1(e) of this Agreement, as required by
Foothill in its sole discretion, and (b) the subordination provisions of the
subordinated debentures of Borrower outstanding on the Closing Date.
"SUBSIDIARY" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the board of directors or appoint
other managers of such corporation, partnership, limited liability company, or
other entity.
"SURETYSHIP AGREEMENT" means an agreement in the form of EXHIBIT S-1
hereto, dated as of even date with this Agreement, and entered into by Borrower
for the benefit of Foothill.
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"SYNDICATED AMOUNT" means that portion of the Maximum Amount equal to
the aggregate financing commitments (to the extent not breached or terminated)
of all Participants.
"SYNDICATION ABROGATION DATE" means: (A) With respect to any request
by Borrower that the Maximum Amount be increased to an amount greater than
$25,000,000 but not to exceed $35,000,000, the earliest date, if any,
thereafter to occur as of which: (a) At least ninety (90) days have elapsed
since the date Foothill has received each of the following from the Borrower:
(w) projections in reasonable detail prepared not earlier than thirty (30) days
prior to the date of receipt by Foothill, (x) Borrower's cooperation with
respect to any audit of Borrower requested to be conducted by Foothill, (y)
financial statements as of a date not more than forty five (45) days prior to
the date of receipt by Foothill, and (z) a weekly Borrowing Base calculation not
more than one week old as of the date of receipt by Foothill; and during which
ninety (90) days no unwaived Event of Default occurred or was continuing; (b)
Foothill has not succeeded both in causing the sum of the Foothill Maximum
Amount plus the Syndicated Amount to equal an amount not less than the increased
Maximum Amount so requested by Borrower (but not to exceed $35,000,000), and in
giving written notice of such success to Borrower; and (c) Borrower has notified
Foothill in writing that the circumstances described in clauses (a) and (b) of
this definition both have occurred; PROVIDED that Borrower shall not be entitled
to give such a notice and such a notice shall be ineffective if such a notice is
given more than thirty (30) days after the later of (i) conclusion of the ninety
(90) day period referred to in clause (a) of this definition, and (ii) the date
Foothill has given written notice to Borrower that Foothill has ceased
syndication efforts with respect to such request; and (B) With respect to any
reduction in the Syndicated Amount resulting from the breach or termination by
any Participant of its financing commitment, the tenth (10th) Business Day
following the date of such reduction unless, as of such day, Foothill has caused
such reduced portion of the Syndicated Amount (for this purpose only, calculated
without regard to any breach or terminating by such Participant of its financing
commitment) to have been restored, reinstated, or replaced, whether by causing
the breaching or termination Participant to remedy such breach or rescind such
termination and reinstate its financing commitment, by causing another
Participant to assume a new or incremental financing commitment at least equal
to the amount of such reduction, by itself agreeing to increase the Maximum
Foothill Amount by an amount at least equal to the amount of such reduction, or
otherwise (although Foothill shall be under no obligation to do or to seek to
do any of the foregoing).
"TELECOMMUNICATION TAXES" means all excise or other special taxes that
in any way relate to the Borrower's provision of telecommunications services.
"TELECOMMUNICATION TAX RESERVE" means, as of any date of determination
by Foothill, which determinations shall not be made more frequently than monthly
without the consent of Borrower unless an Event of Default has occurred and is
continuing, an amount (without duplication) equal to the aggregate amount of all
unpaid
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Telecommunications Taxes and any related tax liens arising, or that may in the
future arise, with respect to such unpaid Telecommunication Taxes, that Foothill
reasonably determines to have priority over Foothill's liens or security
interests in the Collateral.
"TERMINATION DATE" has the meaning set forth in SECTION 3.4.
"TOTAL AVAILABILITY" means, as of any date of determination thereof,
Availability PLUS all unrestricted cash (or cash equivalents) on hand of
Borrower.
"TRIGGERING DATE" means any (a) Availability Contraction Date, (b)
Syndication Abrogation Date, or (c) MAC-Related Date.
"U.S. WEST" means U.S. West Communications, Inc.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION 15.8.
"WILTEL" means WilTel, Inc., and its Affiliates, including Worldcom,
Inc.
"WXCC" has the meaning ascribed to such term in the introductory
paragraph of this Agreement.
"WXLC" has the meaning ascribed to such term in the introductory
paragraph of this Agreement.
"ZPDI" means Zero Plus Dialing, Inc., US Billing, Inc., or such other
LEC billing clearinghouse(s) that Borrower may engage to supplement or replace
either or both of them.
"ZPDI ACCOUNT" means, as of any date of determination, any Account of
Borrower transferred or sold to, or submitted for billing and collection to or
through, ZPDI.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistently applied.
When used herein, the term "financial statements" shall include the notes and
schedules thereto. Whenever the term "Borrower" is used in respect of a
financial covenant or a related definition, it shall be understood to mean
Borrower on a consolidated basis, but exclusive of CTST, unless the context
clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires
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otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented
by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder,"
and similar terms in this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement. An Event of Default shall
"continue" or be "continuing" until such Event of Default has been waived in
writing by Foothill, or cured by Borrower if and only to the extent that cure is
permitted by the provisions of the Loan Documents or applicable law. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or in the Loan
Documents to this Agreement or any of the Loan Documents shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOANS AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and conditions of
this Agreement, Foothill agrees to make advances ("Advances") to Borrower in an
amount at any one time outstanding not to exceed the LEAST of (i) the Maximum
Amount, (ii) the Maximum Foothill Amount PLUS the Syndicated Amount, and (iii)
the Borrowing Base. For purposes of this Agreement, "Borrowing Base", as of any
date of determination, shall mean the sum of:
(v) THE LOWER OF: (i) eighty percent (80%) of the result of the
following calculation: (the amount of Eligible LEC Accounts, LESS the
amounts, if any, of each of (1) the LEC Account Dilution Reserve,
(2) the LEC Reserve, (3) the Billing and Collection Charges Reserve);
and (ii) the LEC Account Subline Limit, PLUS
(w) seventy five percent (75%) of the result of the following
calculation: (the amount of Eligible Direct Accounts, LESS the
amount, if any, of the Direct Account Dilution Reserve), PLUS
(x) forty percent (40%) of Eligible Unbilled Direct Accounts,
PLUS
(y) the Special Bridge Advance Component, MINUS
(z) the sum of the following calculation ((i) aggregate amount of
reserves, if any, established by Foothill under SECTION 2.1 (b); PLUS
(ii) the Telecommunication Tax Reserve, if any);
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PROVIDED that, in no event shall the Borrowing Base at any time exceed
100% of Gross Domestic Accounts; and PROVIDED, FURTHER, that, in no
event shall the combined amount of the components of the Borrowing
Base provided for in SECTIONS 2.1(w) AND 2.1(x) exceed the lower of
the Direct Accounts Subline Limit and the amount equal to Borrower's
Collections with respect to Direct Accounts for the immediately
preceding 45 day period.
(b) Anything to the contrary in SECTION 2.1(a) above
notwithstanding, Foothill may create reserves against or reduce its advance
rates based upon Eligible Accounts or categories thereof without declaring an
Event of Default if it reasonably determines that there has occurred a
Material Adverse Change.
(c) Foothill shall have no obligation to make Advances hereunder
to the extent they would cause the outstanding Obligations to exceed the Maximum
Amount. In addition, Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations to exceed
the Maximum Foothill Amount plus the Syndicated Amount.
(d) Amounts borrowed pursuant to this SECTION 2.1 may be repaid
and, subject to the terms and conditions of this Agreement, reborrowed at any
time during the term of this Agreement.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to SECTION 2.1 is greater than
either the dollar or percentage limitations set forth in SECTION 2.1 (an
"Overadvance"), Borrower immediately shall cause such Overadvance to be
eliminated, either by paying to Foothill, in cash, the amount of such excess to
be used by Foothill to repay Advances outstanding under SECTION 2.1, or by
causing the Borrowing Base to be recomputed, in all respects in accordance with
the terms and provisions of this Agreement, in such fashion as to create
sufficient Availability to eliminate such Overadvance.
2.3 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. Except as provided in SECTION 2.3(b), all
Obligations shall bear interest at a per annum rate from time to time equal to
the Applicable Margin PLUS the Reference Rate. In addition, during all periods
prior to the Special Bridge Advance Component Termination Date, as
consideration for Foothill making available to Borrower, subject to the terms,
conditions, and provisions hereof, the Special Bridge Advance Component of the
Borrowing Base, Borrower shall pay to Foothill additional premium interest on
the average daily Applicable Amount at a per annum rate from time to time equal
to the Applicable Premium Rate. At all times prior to the Special Bridge
Advance Component Termination Date, Obligations outstanding under the Loan
Documents shall be allocated first to the Special Bridge Advance Component of
the
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Borrowing Base.
(b) Default Rate. All Obligations shall bear interest, from
and after the occurrence and during the continuance of an Event of Default,
at a per annum rate from time to time equal to the Applicable Margin PLUS the
Reference Rate PLUS three (3.00) percentage points. In addition, but not in
duplication of the last sentence of SECTION 2.3(a), during all periods prior
to the Special Bridge Advance Component Termination Date, as consideration
for Foothill making available to Borrower, subject to the terms, conditions,
and provisions hereof, the Special Bridge Advance Component of the Borrowing
Base, Borrower shall pay to Foothill additional premium interest on the
average daily Applicable Amount at a per annum rate from time to time equal
to the Applicable Premium Rate. At all times prior to the Special Bridge
Advance Component Termination Date, Obligations outstanding under the Loan
Documents shall be allocated first to the Special Bridge Advance Component of
the Borrowing Base.
(c) Minimum Interest. In no event shall the rate of interest
chargeable hereunder be less than eight percent (8.00%) per annum. To the
extent that interest accrued hereunder at the rate set forth herein would be
less than the foregoing minimum rate, the interest rate chargeable hereunder
for the period in question automatically shall be deemed increased to the
minimum rate.
(d) Payments. Interest hereunder shall be due and payable, in
arrears, on the first day of each month during the term hereof. Borrower hereby
authorizes Foothill, at its option, without prior notice to Borrower, to charge
such interest, all Foothill Expenses (as and when incurred), and all payments
due under any Loan Document to the Loan Account, which amounts thereafter shall
accrue interest at the rate then applicable hereunder. Any interest not paid
when due shall be compounded and shall thereafter accrue interest at the rate
then applicable hereunder.
(e) Computation. The Reference Rate as of the date of this
Agreement is eight and one quarter percent (8.25%) per annum. In the event the
Reference Rate is changed from time to time hereafter, the applicable rate of
interest hereunder automatically and immediately shall be increased or decreased
by an amount equal to such change in the Reference Rate. All interest and fees
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no event
shall the interest rate or rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible under
any law that a court of competent jurisdiction shall, in a final determination,
deem applicable. Borrower and Foothill, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; PROVIDED, HOWEVER, that,
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anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then IPSO FACTO as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
2.4 COLLECTION OF ACCOUNTS. Borrower shall at all times maintain
Lockboxes (the "Lockboxes") and, immediately after the Closing Date, shall
instruct all Advance Debtors with respect to the Accounts, General
Intangibles, and Negotiable Collateral of Borrower to remit ALL Collections
in respect thereof to such Lockboxes. Borrower, Foothill, and the Lockbox
Banks shall enter into the Lockbox Agreements, which among other things shall
provide for the opening of a Lockbox Account for the deposit of Collections
at a Lockbox Bank. Borrower agrees that all Collections and other amounts
received by Borrower from any Account Debtor or any other source immediately
upon receipt shall be deposited into a Lockbox Account. No Lockbox Agreement
or arrangement contemplated thereby shall be modified by Borrower without the
prior written consent of Foothill, which consent shall not unreasonably be
withheld or delayed. Upon the terms and subject to the conditions set forth
in the Lockbox Agreements, all amounts received in each Lockbox Account shall
be wired each Business Day into an account (the "Foothill Account")
maintained by Foothill at a depositary selected by Foothill; PROVIDED that,
with respect to any Canadian Lockbox Agreement and any Canadian Lockbox
Account, unless (a) Borrower's Canadian Collections as a percentage of
Borrower's total Collections exceeded 10.0% with respect to any fiscal month
of Borrower ended after the Closing Date, and, thereafter, Foothill has
notified Borrower that such Canadian amounts henceforth shall be wired each
Business Day to the Foothill Account, (b) an Event of Default has occurred
and is continuing, or (c) Foothill reasonably (from the perspective of a
reasonable secured lender) deems itself insecure (in accordance with Section
1208 of the Code), such Canadian amounts need not be wired to Foothill and
may be retained and used in Canada for any purpose permitted by the Loan
Documents as if such amounts had been used to pay down the balance of
Borrower's loan account and immediately readvanced to Borrower.
2.5 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt
of any Collections by Foothill (whether from transfers to Foothill by the
Lockbox Banks pursuant to the Lockbox Agreements or otherwise) immediately
shall be applied provisionally to reduce the Obligations outstanding under
SECTION 2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available federal funds and
is made to the Foothill Account or unless and until such Collection item is
honored when presented for payment. From and after the Closing Date,
Foothill shall be entitled to charge Borrower for two and one half (2.5)
Business Days of 'clearance' or 'float' at the rate set forth in SECTION
2.3(a) or SECTION 2.3(b), as applicable, on all Collections that are received
by Foothill (regardless of whether forwarded by the Lockbox
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Banks to Foothill, whether provisionally applied to reduce the Obligations under
SECTION 2.1, or otherwise), and, in addition, for all Canadian Collections, even
if such Collections are retained by Borrower and not paid to or received by
Foothill. This across-the-board two and one half (2.5) Business Day clearance
or float charge on all Collections is acknowledged by the parties to constitute
an integral aspect of the pricing of Foothill's financing of Borrower, and shall
apply irrespective of the characterization of whether receipts are owned by
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging two
and one half (2.5) Business Days of interest on such Collections. Should any
Collection item not be honored when presented for payment, then Borrower shall
be deemed not to have made such payment, and interest shall be recalculated
accordingly. Anything to the contrary contained herein notwithstanding, any
Collection item shall be deemed received by Foothill only if it is received into
the Foothill Account on or before 11:00 a.m. Los Angeles time. If any
Collection item is received into the Foothill Account after 11:00 a.m. Los
Angeles time it shall be deemed to have been received by Foothill as of the
opening of business on the immediately following Business Day.
2.6 BORROWER'S DESIGNATED ACCOUNT. Foothill is authorized to make
the Advances under this Agreement based upon telephonic or other instructions
received from anyone purporting to be an Authorized Officer of Borrower, or
without instructions if pursuant to SECTION 2.3(d). Borrower agrees to
establish and maintain Borrower's Designated Account with Borrower's
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Foothill hereunder. Unless
otherwise agreed by Foothill and Borrower in a writing signed by two of the
individuals identified on the certificate delivered by Borrower to Foothill
pursuant to SECTION 3.1(e) hereof as Persons authorized to execute Loan
Documents on behalf of Borrower, any Advance requested by Borrower and made
by Foothill hereunder shall be made to Borrower's Designated Account.
2.7 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances made by
Foothill to Borrower or for Borrower's account, including, accrued interest,
Foothill Expenses, and any other payment Obligations of Borrower, in
accordance with SECTION 2.5 and on which Borrower will be credited with all
payments received by Foothill from Borrower or for Borrower's account,
including all amounts received in the Foothill Account from any Lockbox Bank.
Foothill shall render statements regarding the Loan Account to Borrower,
including principal, interest, fees, and including an itemization of all
charges and expenses constituting Foothill Expenses owing, and such
statements shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and Foothill unless, within
ninety (90) days after receipt thereof by Borrower, Borrower shall deliver to
Foothill by registered or certified mail at its address specified in SECTION
12, written objection thereto describing the error or errors contained in any
such statements.
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2.8 FEES. Borrower shall pay to Foothill the following fees:
(a) Closing Facility Fee. A one time closing fee of Two Hundred
Fifty Thousand Dollars ($250,000) which is earned, in full, on the Closing Date
and is due and payable by Borrower to Foothill in connection with this Agreement
on the Closing Date;
(b) Anniversary Facility Fee. On each anniversary of the
Closing Date, other than the Termination Date, a fee in an amount equal to
one-half percent (0.50%) of the then Maximum Amount (giving effect to any
increases thereof elected by Borrower, if any, that have become effective
before, or that become effective on, the date of such anniversary), such fee to
be fully earned on each such date;
(c) Line Increase Fee. On the effective date of any election
by Borrower to increase the Maximum Amount (other than any such effective
date that coincides with an anniversary of the Closing Date), a fee equal to
the PRODUCT of (i) the amount by which the Maximum Amount is increased on
such effective date, TIMES (ii) the fraction equal to the number of days from
and including such effective date through and including the next anniversary
of the Closing Date DIVIDED BY 360, TIMES (iii) (A) if such effective date
occurs prior to the first anniversary of the Closing Date, one percent
(1.00%), and, (B) if such effective date occurs thereafter, one half percent
(0.50%), such fee to be fully earned on each such date.
(d) Unused Line Fee. On the first day of each month during the
term of this Agreement, a fee in an amount equal to one-half percent (0.50%) per
annum times the Average Unused Portion of Facility;
(e) Financial Examination Fees and Post-Event of Default
Appraisal Fees. (i) Foothill's customary fee of Six Hundred Fifty Dollars
($650) per day per examiner, plus actual and reasonable out-of-pocket
expenses (such as, without limitation, transportation, lodging, and meal
expenses) relating to each financial analysis and examination (i.e., audit)
of Borrower performed by personnel employed by Foothill; (ii) the actual and
reasonable out-of-pocket charges paid or incurred by Foothill if it elects to
employ the services of one or more third Persons to perform such financial
analyses and examination (i.e., audits) of Borrower; (iii) if an Event of
Default has occurred and is continuing, but not otherwise, Foothill's
customary appraisal fee of One Thousand Five Hundred Dollars ($1,500) per day
per appraiser, plus actual out-of-pocket expenses (such as, without
limitation, transportation, lodging, and meal expenses) for each appraisal of
the Collateral performed by personnel employed by Foothill: and (iv) if an
Event of Default has occurred and is continuing, but not otherwise, the
actual out-of-pocket charges paid or incurred by Foothill if it elects to
employ the services of one or more third Persons to appraise the Collateral.
Without limiting Foothill's right to be repaid Foothill Expenses
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as provided in the Loan Documents, or to charge Foothill Expenses to the Loan
Account, Foothill hereby confirms that it shall not charge Borrower a recurring
annual documentation fee.
(f) Servicing Fee. On the first day of each month during the
term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to Three Thousand Dollars
($3,000) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The obligation of
Foothill to make the initial Advance is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions on
or before the Closing Date:
(a) the Closing Date shall occur on or before March 21, 1997;
(b) Existing Lender shall have executed and delivered the
Pay-Off Letter, together with UCC termination statements and other documentation
evidencing the termination of its liens and security interests in and to the
properties and assets of Borrower;
(c) Foothill shall have received searches reflecting the filing
of its financing statements (and any comparable Canadian filings); PROVIDED
that, if the transactions contemplated by this Agreement do not close or the
initial Advance is not made by Foothill for any reason, Foothill shall promptly,
upon Borrower's request and at Borrower's expense, deliver to Borrower
termination statements, duly executed by Foothill and in proper form, with
respect to all financing statements (or comparable Canadian filings) that
Foothill has filed against Borrower in any jurisdiction;
(d) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
i) the Lockbox Agreements with respect to each Lockbox
Bank other than the Royal Bank of Canada;
ii) the Disbursement Letter;
iii) the Guarantees;
iv) the Canadian Security Agreements;
v) the Pledge Agreements;
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vi) the Suretyship Agreement; and
(e) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute same;
(f) Foothill shall have received copies of Borrower's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of Borrower;
(g) Foothill shall have received a certificate of status with
respect to Borrower, dated within ten (30) days of the Closing Date, by the
appropriate officer of the jurisdiction of organization of Borrower, which
certificate shall indicate that Borrower is in good standing in such
jurisdiction;
(h) Foothill shall have received certificates of status with
respect to Borrower, each dated within fifteen (40) days of the Closing Date,
such certificates to be issued by the appropriate officer of the jurisdictions
in which its failure to be duly qualified or licensed would have a Material
Adverse Change, which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(i) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by SECTION 6.10 hereof,
the form and substance of which shall be satisfactory to Foothill and its
counsel;
(j) [intentionally omitted];
(k) Borrower shall have used its best efforts, to the reasonable
satisfaction of Foothill, to cause Foothill to have received Collateral Access
Agreements from the real property lessors of the premises where the Equipment
consisting of telephone switches or Borrower's AS400 computer system is located,
and from lessors or secured financers of such Equipment to or of Borrower;
(l) Foothill shall have received opinions of Borrower's
California, Canadian, Florida, and special telecommunications outside counsel in
form and substance satisfactory to Foothill in its sole discretion; PROVIDED
that Foothill agrees to bear the lesser of (i) one-half and out-of-pocket
expenses actually incurred by Borrower in obtaining such opinions, as
substantiated by Borrower to Foothill by reasonable documentation, and (ii)
$15,000, by crediting such amount against fees otherwise due from Borrower on
the Closing Date;
(m) Foothill shall have received satisfactory evidence that all
returns
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required to be filed by Borrower have been timely filed and all taxes upon
Borrower or its properties, assets, income, and franchises (including payroll
taxes) have been paid prior to delinquency, except such taxes that are the
subject of a Permitted Protest;
(n) Foothill and Foothill's counsel shall have been provided
with a true and complete copy of each Billing Services Agreement and shall
have had a reasonable opportunity to review each Billing Services Agreement,
and Foothill either (i) shall have advised Borrower that each Billing
Services Agreement is an Approved Billing Services Agreement, or, (ii) as to
any Billing Services Agreements that are not Approved Billing Services
Agreements, Foothill shall have advised Borrower that Foothill nevertheless
is prepared to close (with the LEC Accounts relating to such non-approved
Billing Services Agreements, if any, not constituting Eligible LEC Accounts)
and Borrower shall have agreed in writing to such arrangement with respect to
non-approved Billing Services Agreements;
(o) either (i) Foothill shall have received a LEC Non-Offset
Agreement with respect to each Billing Services Agreement, or (ii) with respect
to any Billing Services Agreement as to which Foothill has not received a LEC
Non-Offset Agreement, Foothill shall have advised Borrower that Foothill
nevertheless is prepared to close (with the LEC Accounts relating to such
Billing Services Agreements, if any, not constituting Eligible LEC Accounts) and
Borrower shall have agreed in writing to such arrangement with respect to
non-approved Billing Services Agreements;
(p) Foothill shall have received and reviewed, and shall have
expressed no objection to, the terms of each Carrier Agreement requested to be
reviewed by Foothill;
(q) Foothill shall have completed a filed survey by its
examiners, and the results shall be acceptable to Foothill;
(r) Foothill shall have received reference checks and personal
credit reports with respect to key management of Borrower and the Principals,
and the results shall be acceptable to Foothill;
(s) Foothill shall have received and reviewed personal financial
statements from each Principal, which shall be acceptable to Foothill;
(t) Except to the extent otherwise provided for in SECTION
3.3(d) AND (e), Foothill shall have received possession of the Pledged Shares
together with duly executed blank stock powers with respect thereto;
(u) On the Closing Date, after giving effect to all payments,
transfers, and transactions contemplated to occur on such date by the Loan
Documents,
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except for, and immediately prior to giving effect to, the payment of any
fees due Foothill on the Closing Date and the reimbursement of any Foothill
Expenses due to be reimbursed on the Closing Date, Borrower shall have Total
Availability of not less than $1,000,000; and
(v) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
In the event the transactions contemplated hereby do not close or Foothill
declines to make the initial Advance hereunder for any reason, then Borrower
shall not be obligated to pay any of the fees set forth in SECTION 2.8, but
Borrower shall be obligated to repay any Foothill Expenses due Foothill.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The following shall be
conditions precedent to all Advances hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all
material respects on and as of the date of such extension of credit, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result
from the making thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority
against Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to the making
of the initial Advance, Borrower shall perform or cause to be performed the
following (the failure by Borrower to so perform or cause to be performed
constituting, in the case of SECTIONS 3.3(a) AND (c), an Event of Default
hereunder, and, in the case of SECTION 3.3(b), an event that would entitle
Foothill thenceforth and at all times thereafter to exclude from Eligible
Accounts, and from the Borrowing Base, all Canadian Accounts, without such
exclusion being considered an Availability Reduction hereunder):
(a) within sixty (60) days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by SECTION 6.10 hereof, the form and
substance of which shall be reasonably satisfactory to Foothill and its
counsel;
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(b) within ninety (90) days of the Closing Date, deliver to
Foothill a duly executed original of the Lockbox Agreement with The Royal Bank
of Canada, or such other bank reasonably acceptable to Foothill, which shall be
in full force and effect;
(c) prior to the sixtieth (60th) day following the Closing Date,
Borrower shall have prepared and provided to Foothill a formalized written
contingency plan for backup computer operations, in reasonable detail and
including cost estimates and feasibility analysis, which plan shall be
reasonably satisfactory to Foothill;
(d) within thirty (30) days of the Closing Date, deliver to
Foothill possession of the Pledged Shares in respect of each of (i) WXL
Holdings, Ltd., a corporation organized under the laws of the United Kingdom,
and (ii) WorldXChange Ltd., a corporation organized under the laws of the United
Kingdom, together with duly executed blank stock powers with respect thereto;
(e) within twenty-one (21) days of the Closing date, deliver to
Foothill possession of the Pledged Shares in respect of WorldXChange Pty
Limited, a corporation organized under the laws of Australia, together with duly
executed blank stock powers with respect thereto;
(f) within ninety (90) days of the Closing Date, deliver to
Foothill possession of the Pledged Shares in respect of WorldXChange
Communications SARL, a corporation organized under the laws of France together
with duly executed blank stock powers with respect thereto or otherwise grant a
security interest in such shares to the satisfaction of Foothill, in its
reasonable discretion; and
(g) for the period of sixty (60) days following the Closing
Date, use its reasonable best efforts to open a credit card collection account
with a bank reasonably acceptable to Foothill, and enter into a Lockbox
Agreement with such depositary bank which shall be in full force and effect.
3.4 TERM AND TERMINATION. This Agreement shall become effective upon
the execution and delivery hereof by Borrower and Foothill and shall continue in
full force and effect for a term ending on the date (the "Termination Date")
that is three (3) years from the Closing Date. The foregoing notwithstanding,
Foothill shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including any contingent reimbursement obligations
of Borrower) immediately shall become due and payable without notice or demand.
No termination of this Agreement, however, shall relieve or discharge Borrower
of Borrower's duties, Obligations, or covenants hereunder, and Foothill's
continuing security interests in the
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Collateral shall remain in effect until all Obligations have been fully and
finally discharged and Foothill's obligation to provide additional credit
hereunder is terminated.
3.6 EARLY TERMINATION BY BORROWER. The provisions of SECTION 3.4
that allow termination of this Agreement by Borrower only on the Termination
Date notwithstanding, Borrower has the option, at any time upon thirty (30) days
prior written notice to Foothill, to terminate this Agreement by paying to
Foothill, in cash, the Obligations, in full, together with a premium (the "Early
Termination Premium") equal to the Applicable Percentage of the Maximum Amount.
The foregoing notwithstanding, no Early Termination Premium shall be due under
this SECTION 3.6 if Borrower terminates this Agreement and repays the
Obligations (other than the Early Termination Premium) in full in cash during
any No-Premium Window.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be
the amount of damages sustained by Foothill as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this
SECTION 3.7 shall be deemed included in the Obligations. The foregoing
notwithstanding, no Early Termination Premium shall be due under this SECTION
3.7, if: (a) Following a termination of this Agreement by Foothill, the
Obligations (other than the Early Termination Premium) are repaid in full in
cash during any No-Premium Window, other than a No-Premium Window that first
commences after the date of termination of this Agreement by Foothill; or (b)
Foothill terminates this Agreement based solely upon the existence of one or
more Events of Default that result directly and proximately from the
occurrence of (y) one or more MAC-Related Events of Default, or (z) one or
more Availability Reductions that, taken together, gave rise to an
Availability Contraction Date, in any such instance at a time when no other
Events of Default have occurred and are continuing.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired or
arising Personal Property Collateral in order to secure prompt repayment of any
and all Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents. Foothill's security
interests in the Personal Property Collateral shall attach to all Personal
Property Collateral without further act on the part of Foothill or Borrower.
Anything contained in this Agreement or any other Loan Document to the contrary
notwithstanding and except as expressly and explicitly
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permitted under the provisions of this Agreement or the other Loan Documents,
except for the sale of Inventory to buyers in the ordinary course of business,
the sale of Equipment in the ordinary course of business, and the sale of
Permitted Ordinary Course Investments in the ordinary course of business, or the
sale by Borrower with Foothill's prior written consent of Collateral which has
become obsolete or is to be replaced, which consent by Foothill shall not
unreasonably be withheld or delayed, Borrower has no authority, express or
implied, to dispose of any item or portion of the Personal Property Collateral
or any Real Property. Anything contained in the Canadian Security Agreements to
the contrary notwithstanding, the collateral covered by the Canadian Security
Agreements shall not include any Excluded Property.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Foothill, shall endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE
COLLATERAL. At any time that an Event of Default has occurred and is continuing
or Foothill reasonably (from the perspective of a reasonable secured lender)
deems itself insecure (in accordance with Section 1208 of the Code), Foothill or
Foothill's designee may (a) notify customers (PROVIDED that, with respect to
end-user customers, in relation to LEC Accounts, Foothill or Foothill's designee
may notify such end-user customers only if Borrower, at the time of the giving
of such notice, has the right to deal directly with such end-user customers
under the provisions of the applicable Billing Services Agreements with the
applicable LECs) or Account Debtors of Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein, and (b) collect the Accounts, General
Intangibles, and Negotiable Collateral directly and charge the collection costs
and expenses to the Loan Account (PROVIDED that, with respect to end-user
customers, in relation to LEC Accounts, Foothill or Foothill's designee may
collect directly from such end-user customers only if Borrower, at the time of
such collection, has the right to deal directly with such end-user customers
under the provisions of the applicable Billing Services Agreements with the
applicable LECs). Borrower agrees that it will hold in trust for Foothill, as
Foothill's trustee, any Collections that it receives and immediately will
deliver said Collections to Foothill in their original form as received by
Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon
the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, Mortgages, pledges, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Foothill reasonably may request, in form reasonably satisfactory
to Foothill, to perfect and continue perfected Foothill's security interests in
the
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Collateral, and in order to fully consummate all of the transactions
contemplated hereby and under the other the Loan Documents. Without limiting
the generality of the foregoing, Foothill shall be entitled to receive, promptly
upon written demand by Foothill given to Borrower at any time after the Closing
Date, or from time to time thereafter, in Foothill's sole discretion, original
certificates of title, together with duly executed applications in the proper
form for notation of the lien of Foothill thereon, with respect to that portion
of the Collateral, if any, that at any time is subject to certificates of title.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers,
employees, or agents designated by Foothill) as Borrower's true and lawful
attorney, with power to (a) if Borrower refuses to, or fails timely to
execute and deliver any of the documents described in SECTION 4.4, sign the
name of Borrower on any of the documents described in SECTION 4.4, (b) at any
time that an Event of Default has occurred and is continuing or Foothill
reasonably (from the perspective of a reasonable secured lender) deems itself
insecure (in accordance with Section 1208 of the Code), sign Borrower's name
on any invoice or bill of lading relating to any Account, drafts against
Account Debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors, (c) send requests for verification
of Accounts, (d) endorse Borrower's name on any Collection item that may come
into Foothill's possession, (e) at any time that an Event of Default has
occurred and is continuing or Foothill reasonably (from the perspective of a
reasonable secured lender) deems itself insecure (in accordance with Section
1208 of the Code), notify the post office authorities to change the address
for delivery of Borrower's mail to an address designated by Foothill, to
receive and open all mail addressed to Borrower, and to retain all mail
relating to the Collateral and forward all other mail to Borrower, (f) at any
time that an Event of Default has occurred and is continuing or Foothill
reasonably (from the perspective of a reasonable secured lender) deems itself
insecure (in accordance with Section 1208 of the Code), make, settle, and
adjust all claims under Borrower's policies of insurance and make all
determinations and decisions with respect to such policies of insurance, and
(g) at any time that an Event of Default has occurred and is continuing or
Foothill reasonably (from the perspective of a reasonable secured lender)
deems itself insecure (in accordance with Section 1208 of the Code), settle
and adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms that Foothill reasonably determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases that Foothill reasonably determines to be necessary. The
appointment of Foothill as Borrower's attorney, and each and every one of
Foothill's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid and performed
and Foothill's obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. At any time that an Event of Default has
occurred and is continuing or Foothill reasonably (from the perspective of a
reasonable secured lender) deems itself insecure (in accordance with Section
1208 of the Code), Foothill
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(through any of its officers, employees or agents) shall have the right, from
time to time hereafter to inspect Borrower's Books and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, quality, value, condition of, or any other matter relating to, the
Collateral. At any other time, Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter at
reasonable times and in a reasonable manner (including periodic audits, as
customarily conducted by Foothill of its customers, which are stipulated to be
reasonable), to inspect Borrower's Books and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of liens, claims, security interests, or
encumbrances, except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, at the time of the
creation thereof and as of each date on which Borrower includes them in a
Borrowing Base calculation or certification, except to the extent any such
Accounts, or any portions thereof, are identified as ineligible and excluded by
Borrower from its calculation or certification of the Borrowing Base, bona fide
existing obligations created by the sale and delivery of Inventory or General
Intangibles or the rendition of services to Account Debtors in the ordinary
course of Borrower's business, unconditionally (except for conditions that would
not render such Account ineligible) owed to Borrower without defenses, disputes,
offsets, counterclaims, or rights of return or cancellation that would render
them ineligible pursuant to the other provisions of this Agreement. Except with
respect to Eligible Private Line Accounts, the property giving rise to such
Eligible Accounts has been delivered or provided to the Account Debtor, or to
the Account Debtor's agent for immediate shipment or delivery to and
unconditional acceptance by the Account Debtor. At the time of the creation of
an Eligible Account and as of each date on which Borrower includes an Eligible
Account in a Borrowing Base calculation or certification, Borrower has not
received actual notice of actual or imminent bankruptcy, insolvency, or material
impairment of the financial condition of any applicable Account Debtor regarding
such Eligible Account that those Authorized Officers of Borrower having direct
responsibility for or involvement in the determination of the Borrowing Base,
and the determination of which Accounts are Eligible Accounts, believe is likely
materially to impair the collectibility of such Eligible Account.
5.3 EQUIPMENT. All of the Equipment owned by Borrower is used or
held for use in Borrower's business and is fit for such purposes.
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5.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party (without Foothill's
prior written consent) and are located only at the locations identified on
SCHEDULE 6.13 or otherwise permitted by SECTION 6.13.
5.5 INVENTORY RECORDS. Borrower now keeps, and hereafter at all
times shall keep, materially correct and accurate records itemizing and
describing the kind, type, quality, and quantity of any Inventory, and
Borrower's cost therefor.
5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN OR EQUIVALENT. The
chief executive office of Borrower is located at the addresses indicated in the
preamble to this Agreement or such other location(s) where Borrower moves with
prior notice to Foothill as required herein (which notice shall specifically
reference any change of chief executive office if such move involves a change of
chief executive office). The FEIN of WXCC is 33-0466205. The FEIN of CTST is
65-0475433. The Canadian Corporate Income Tax Number of WXLC is 14058-0960RC.
The Canadian GST Tax Number of WXLC is 14058-0960RT. WXLC does not have, and is
not required by law to have, a FEIN.
5.7 DUE ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES EXCEPT AS
DISCLOSED. Borrower is duly organized and existing and in good standing under
the laws of the jurisdiction of its incorporation and qualified and licensed to
do business in, and in good standing in, any state where the failure to be so
licensed or qualified could reasonably be expected to have a Material Adverse
Change. Borrower has no Subsidiaries except as specifically disclosed on
SCHEDULE 5.7, or created after the Closing Date as permitted by SECTION 7.14
hereof.
5.8 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's corporate powers, have
been duly authorized, and are not in conflict with nor constitute a breach of
any provision contained in Borrower's Articles or Certificate of Incorporation,
or By-laws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which its properties or assets may
be bound.
5.9 LITIGATION. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower does not
have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
SCHEDULE 5.9; and (c) matters arising after the date hereof that a reasonable
Person, fully informed of all relevant particulars with respect thereto then
known, would not reasonably conclude are likely to result in a Material Adverse
Change.
5.10 NO MATERIAL ADVERSE CHANGE. All financial statements relating to
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Borrower or any guarantor of the Obligations that have been delivered by
Borrower to Foothill have been prepared in accordance with GAAP (except, (a) in
the case of Borrower's unaudited financial statements, for the lack of footnotes
and being subject to year-end audit adjustments, and (b) in the case of
Guarantor's unaudited financial statements which are not prepared in accordance
with GAAP) and fairly present Borrower's (or such guarantor's, as applicable)
financial condition as of the date thereof and Borrower's results of operations
for the period then ended. There has not been a Material Adverse Change with
respect to Borrower (or such guarantor, as applicable) since the date of the
latest financial statements submitted to Foothill on or before the Closing Date.
5.11 SOLVENCY. Borrower is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by Borrower in connection
with the transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future creditors
of Borrower.
5.12 EMPLOYEE BENEFITS. (a) No Borrower or any ERISA Affiliate
thereof maintains or contributes to any Benefit Plan, other than those listed
on SCHEDULE 5.12. (b) Each Borrower and each ERISA Affiliate thereof have
satisfied the minimum funding standards of ERISA and the IRC with respect to
each Benefit Plan to which it is obligated to contribute. (c) No ERISA Event
has occurred nor has any other event occurred that may result in an ERISA
Event that reasonably could be expected to result in a Material Adverse
Change. (d) No Borrower or any ERISA Affiliate thereof, or any fiduciary of
any Plan is subject to any direct or indirect liability with respect to any
Plan under any applicable law, treaty, rule, regulation, or agreement that
reasonably could be expected to result in a Material Adverse Change. (e) No
Borrower or any ERISA Affiliate thereof is required to provide security to
any Plan under Section 401(a)(29) of the IRC.
5.13 ENVIRONMENTAL CONDITION. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials, except for halon gas and
batteries. None of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
Hazardous Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by Borrower. Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous Materials into the
environment.
5.14 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated with each extension of credit hereunder and shall be conclusively
presumed to have been relied on by Foothill
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regardless of any investigation made or information possessed by Foothill. The
warranties and representations set forth herein shall be cumulative and in
addition to any and all other warranties and representations that Borrower now
or hereafter shall give, or cause to be given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting in accordance with GAAP with ledger and account cards or computer
tapes, disks, printouts, and records pertaining to the Collateral which contain
information as from time to time may be reasonably requested by Foothill.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form reasonably satisfactory to Foothill:
(a) at least weekly, (i) a sales journal, and collection register containing
all entries since the last such journals and register delivered hereunder,
(ii) a calculation of the Borrowing Base, (iii) a report summarizing all
written disputes or claims with respect to Accounts received by Borrower and
not previously reported to Foothill, (iv) a report with respect to unbilled
Direct Accounts of Borrower, (v) a report detailing Contra Accounts with
respect to Eligible Direct Accounts and Eligible Unbilled Direct Accounts,
(vi) a report calculating the aggregate outstanding accrued and unpaid
obligations of Borrower to U.S. West, as of the last day of the week most
recently ended, with respect to connection or access charges, and detailing
any accruals or payments with respect thereto that occurred during such week,
(vii) a report calculating the aggregate outstanding accrued and unpaid
obligations of Borrower to LECs, as of the last day of the week most recently
ended, with respect to billing and collection charges payable under Billing
Services Agreements, and detailing any accruals or payments with respect
thereto that occurred during such week, and (viii) a report of all
transactions involving any transfer, sale, or submission of Accounts by
Borrower to ZPDI, or advances or payments by ZPDI to Borrower, in such detail
as reasonably may be requested by Foothill to enable Foothill to verify that
no such ZPDI Accounts are included within any calculation of the Borrowing
Base, (b) on a monthly basis and, in any event, by no later than the
fifteenth (15th) day of each month during the term of this Agreement, (i) a
report detailing all Collections received in any Canadian Lockbox Account
during the preceding month, for purposes of enabling Foothill to calculate
'clearance' or 'float' charges with respect thereto, and (ii) a detailed
aging, by total, of the Accounts, together with such information as Foothill
shall reasonably request to permit Foothill to prepare a reconciliation of
such aging of Accounts to Foothill's month-end calculation of the Borrowing
Base as of the end of the month most recently ended, as calculated by
Foothill's collateral tracking system, (c) on a monthly basis and, in any
event,
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by no later than the twentieth (20th) day of each month during the term of this
Agreement, a summary aging, by vendor, of Borrower's accounts payable and any
book overdraft, (d) upon reasonable request, copies of invoices in connection
with the Accounts, customer statements, credit memos, remittance advices and
reports, deposit slips, and purchase orders and invoices, and (e) such other
reports as to the Collateral or the financial condition of Borrower as Foothill
reasonably may request from time to time. Borrower shall bill Account Debtors
with respect to Direct Accounts within 45 days after the close of any monthly
billing period.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within forty-five (45)
days after the end of each month during each of WXCC and WXLC's fiscal years,
an internally-prepared balance sheet, an internally-prepared income
statement, and (if and only if available) an internally-prepared cash flow
statement covering WXCC and WXLC's consolidated operations during such
period, together with a report estimating the aggregate amount, as of the end
of such month, of all Telecommunication Taxes payable by WXCC and WXLC in
respect of their business activities in the State of Texas or any other state
where Foothill determines pursuant to SECTION 2.1 that a Telecommunication
Tax Reserve is necessary; (b) as soon as available, but in any event not
later than April 1, 1997 for each of WXCC and WXLC's 1996 fiscal years, and
within one hundred fifty (150) days after the end of each of WXCC and WXLC's
subsequent fiscal years, consolidated financial statements of WXCC and WXLC
for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Foothill and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP, together with a certificate of such accountants addressed to Foothill
stating that such accountants do not have knowledge of the existence of any
Default or Event of Default then continuing; and (c) if the same are obtained
by WXCC and WXLC, as soon as available, but in any event within one hundred
fifty (150) days after the end of the first two fiscal quarters of each of
WXCC and WXLC's fiscal years, consolidated financial statements of WXCC and
WXLC for such two fiscal quarters, audited by independent certified public
accountants reasonably acceptable to Foothill and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP. Such audited financial statements shall include a balance sheet,
profit and loss statement, and cash flow statement, and, if prepared, such
accountants' letter to management. If WXCC or WXLC is a parent company of
one or more Subsidiaries or is a Subsidiary of another company, then, in
addition to the financial statements referred to above, but without
duplication, WXCC and WXLC agree to deliver financial statements prepared on
a consolidating basis so as to present WXCC and WXLC and each such related
entity separately, and on a consolidated basis.
CTST in addition shall deliver to Foothill, as soon as available, but
in any event within forty-five (45) days after the end of each month during each
of CTST's fiscal years, a company prepared balance sheet and income statement
covering CTST's operations during such period, together with a report estimating
the aggregate amount, as of the end
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of such month, of all Telecommunication Taxes payable by CTST in respect of any
business activities in the State of Texas or any other state where Foothill
determines pursuant to SECTION 2.1 that a Telecommunication Tax Reserve is
necessary.
If CTST hereafter obtains audited annual financial statements, CTST in
addition shall deliver to Foothill, as soon as available, but in any event
within one hundred fifty (150) days after the end of each of its fiscal years
with respect to which such audited financial statements are to be obtained,
financial statements of CTST for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Foothill and certified,
without any qualifications, by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such accountants addressed
to Foothill stating that such accountants do not have knowledge of the existence
of any Default or Event of Default then continuing. Such audited financial
statements shall include a balance sheet, profit and loss statement, and cash
flow statement, and, if prepared, such accountants' letter to management.
With respect to any fiscal year of CTST for which its gross
revenues were greater than or equal to $27,000,000, if the preceding
paragraph hereof is not otherwise applicable because CTST has not itself
determined to obtain audited financial statements, Foothill shall have the
right, upon written request to CTST, to require CTST to obtain audited
financial statements with respect to such fiscal year, and related
accountant's certifications, in compliance with the foregoing paragraph,
except that such items shall be due the earlier of (a) the soonest date that
they are available following Foothill's request, and (ii) one hundred fifty
(150) days after Foothill's request, which request shall not be made until
after the last day of the fiscal year with respect to which such financial
statements relate at such time as it has been ascertained with reasonable
assurance that the gross revenues of CTST for such fiscal year were in fact
greater than or equal to $27,000,000.
Together with the above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the financial condition of
Borrower.
Each month, together with the financial statements provided pursuant
to SECTION 6.3(a), Borrower shall deliver to Foothill a certificate signed by
its chief financial officer to the effect that: (i) all reports, statements, or
computer prepared information of any kind or nature delivered or caused to be
delivered to Foothill hereunder have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
the financial condition of Borrower, (ii) the representations and warranties of
Borrower
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contained in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as though made
on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date), (iii) for each month that also is
the date on which a financial covenant in SECTION 6.11 is to be tested, a
Compliance Certificate demonstrating in reasonable detail compliance at the end
of such period with the applicable financial covenants contained in SECTION
6.11, and (iv) on the date of delivery of such certificate to Foothill there
does not exist any condition or event that constitutes a Default or Event of
Default (or, in each case, to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action Borrower
has taken, is taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning Borrower that
Foothill may request. Borrower hereby irrevocably authorizes and directs all
auditors, accountants, or other third parties to deliver to Foothill, at
Borrower's expense, copies of Borrower's financial statements, papers related
thereto, and other accounting records of any nature in their possession, and to
disclose to Foothill any information they may have regarding Borrower's business
affairs and financial conditions.
Notwithstanding any other provision contained herein, Foothill shall
not be entitled to obtain any information that Borrower reasonably and in good
faith claims is protected by any attorney-client or attorney-work-product
privileges, and nothing herein shall constitute any waiver by Borrower of such
privileges.
6.4 TAX RETURNS. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within thirty
(30) days of the filing thereof with the Internal Revenue Service.
6.5 GUARANTOR REPORTS. Cause any guarantor of any of the Obligations
to deliver its annual financial statements at the time when Borrower provides
its audited financial statements to Foothill and copies of all federal income
tax returns as soon as the same are available and in any event no later than
thirty (30) days after the same are required to be filed by law.
6.6 RETURNS. Returns and allowances, if any, as between Borrower and
its Account Debtors shall be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement, or as reasonably revised by Borrower hereafter with
notice to Foothill.
6.7 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of,
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certificates of title, or applications for title to any items of Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Maintain all material Equipment in
good operating condition and repair (ordinary wear and tear excepted), and make
all necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved unless Borrower
reasonably determines that replacement is not warranted considering all of the
relevant circumstances. Borrower shall not permit any item of Equipment to
become a fixture to real estate or an accession to the other property, and the
Equipment is now and shall at all times remain personal property.
6.9 TAXES. Except to the extent that Borrower is engaging in a
Permitted Protest thereof, all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property shall be paid in full, before delinquency or before the
expiration of any extension period. Except to the extent that Borrower is
engaging in a Permitted Protest thereof, Borrower shall make due and timely
payment or deposit of all federal, state, and local taxes, assessments, or
contributions required of it by law, and will execute and deliver to Foothill,
on demand, appropriate certificates attesting to the payment thereof or deposit
with respect thereto. Except to the extent that Borrower is engaging in a
Permitted Protest thereof, Borrower will make timely payment or deposit of all
tax payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish Foothill with proof
reasonably satisfactory to Foothill indicating that Borrower has made such
payments or deposits.
6.10 INSURANCE.
(a) At its expense, keep the Personal Property Collateral and
any Real Property insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, as are
ordinarily insured against by other owners in similar businesses. Borrower also
shall maintain business interruption, public liability, product liability, and
property damage insurance relating to Borrower's ownership and use of the
Personal Property Collateral and any Real Property, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All such policies of insurance (except those of public liability and
property damage) shall contain a 438BFU lender's loss payable endorsement, or an
equivalent endorsement in a form satisfactory to Foothill, showing Foothill as
an additional loss payee thereof, as its interests may appear, and shall contain
a waiver of warranties, and shall specify that the insurer must give at least
ten (10) days prior written notice to Foothill before canceling its policy for
any reason. Borrower shall deliver to Foothill certified copies of such
policies of
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insurance and evidence of the payment of all premiums therefor. All proceeds
payable under any insurance policy relating to business interruption insurance
coverage shall be paid to Borrower unless an Event of Default has occurred and
is continuing, in which case all such proceeds shall be paid to Foothill to be
applied on account of the Obligations. Except as otherwise provided in the
immediately preceding sentence, all proceeds payable under any policy of
insurance required by this SECTION 6.10 shall be paid to Foothill to be applied
on account of the Obligations.
6.11 FINANCIAL COVENANT. Maintain consolidated net worth determined
in accordance with GAAP of Borrower and its Subsidiaries (but excluding CTST and
any Subsidiaries of CTST from such calculation) of not less than the Specified
Amount, measured on a fiscal quarter-end basis.
6.12 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under
the other Loan Documents made by or on behalf of Borrower shall be made
without setoff or counterclaim and free and clear of, and without deduction
or withholding for or on account of, any federal, state, or local taxes.
6.13 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on SCHEDULE 6.13; PROVIDED, HOWEVER,
that Borrower may amend SCHEDULE 6.13 so long as such amendment occurs by
written notice to Foothill not less than thirty (30) days prior to the date on
which the Inventory or Equipment is moved to such new location, so long as such
new location is within the continental United States (or, solely with respect to
Equipment of which Borrower is a lessee but not the owner, so long as such new
location is a location where a Subsidiary of Borrower is located), and so long
as, at the time of such written notification, Borrower provides any financing
statements, fixture filings, or comparable filings necessary to perfect and
continue perfected Foothill's security interests in such assets and also
provides to Foothill a Collateral Access Agreement.
6.14 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would or could reasonably be expected to have
a Material Adverse Change.
6.15 EMPLOYEE BENEFITS.
(a) Cause to be delivered to Foothill each of the following:
(i) promptly, and in any event within ten (10) Business Days after such Borrower
or any of its Subsidiaries knows or has reason to know that an ERISA Event has
occurred that reasonably could be expected to result in a Material Adverse
Change, a written statement of the Chief financial officer of such Borrower
describing such ERISA Event and any action
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that is being taken with respect thereto by such Borrower, any such
Subsidiary, or ERISA Affiliate thereof, and any action taken or threatened by
the IRS, Department of Labor, or PBGC. Such Borrower or such Subsidiary, as
applicable, shall be deemed to know all facts known by the administrator of
any Benefit Plan of which it is the plan sponsor, (ii) promptly, and in any
event within three (3) Business Days after the filing thereof with the IRS, a
copy of each funding waiver request filed with respect to any Benefit Plan
and all communications received by such Borrower, any of its Subsidiaries or,
to the knowledge of such Borrower, any ERISA Affiliate thereof with respect
to such request, and (iii) promptly, and in any event within three (3)
Business Days after receipt by such Borrower, any of its Subsidiaries or, to
the knowledge of such Borrower, any ERISA Affiliate thereof, of the PBGC's
intention to terminate a Benefit Plan or to have a trustee appointed to
administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's request,
each of the following: (i) a copy of each Plan (or, where any such plan is not
in writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of such Borrower or any ERISA
Affiliate thereof; (ii) the most recent determination letter issued by the IRS
with respect to each Benefit Plan; (iii) for the three most recent plan years,
annual reports on Form 5500 Series required to be filed with any governmental
agency for each such Benefit Plan; (iv) all actuarial reports prepared for the
last three plan years for each such Benefit Plan; (v) a listing of all
Multiemployer Plans, with the aggregate amount of the most recent annual
contributions required to be made by Borrower or any ERISA Affiliate thereof to
each such plan and copies of the collective bargaining agreements requiring such
contributions; (vi) any information that has been provided to Borrower or any
ERISA Affiliate thereof regarding withdrawal liability under any Multiemployer
Plan; and (vii) the aggregate amount of the most recent annual payments made to
former employees of such Borrower or its Subsidiaries under any Retiree Health
Plan.
6.16 LEASES. Pay not later than the earlier of (a) the sixtieth
(60th) day after the date when first due, or (b) the last day prior to the
date when failure to pay same would create a material default that would
entitle the obligee with respect thereto to take enforcement action against
Borrower, all rents and other amounts payable under any leases to which
Borrower is a party or by which Borrower's properties and assets are bound,
unless such payments are the subject of a Permitted Protest. To the extent
that Borrower fails timely to make payment of such rents and other amounts
payable when required by this SECTION 6.16, Foothill shall be entitled, in
its sole discretion, and without the necessity of declaring an Event of
Default, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
6.17 PERFORMANCE OF OBLIGATIONS TO CARRIERS. Except as otherwise
specifically excepted by SCHEDULE 6.17, from and after August 1, 1997, make all
payments
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due from it to Carriers within ninety (90) days of their due date, and
otherwise comply in all material respects with Borrower's non-monetary
contractual obligations to Carriers; PROVIDED that Borrower shall not be in
breach of this section by virtue of claiming permitted credits and
deductions, or by virtue of immaterial breaches that would not permit
Carriers to enforce default remedies. Should Borrower acquire knowledge that
Borrower is in breach of this section, or should Borrower receive a written
default notice from any Carrier, in each such instance Borrower promptly
shall notify Foothill of same and all relevant details pertaining thereto.
If Foothill reasonably determines that Borrower is in breach of the
requirements of this SECTION 6.17, and that such breach may have an adverse
effect upon the value or collectibility of the Accounts (such as, by way of
illustration but not by way of limitation, where a Carrier threatens to
contact customers of Borrower and give notices or assert demands that could
confuse such customers or interfere with collection of the affected Accounts
by Borrower or Foothill), then Foothill in the reasonable exercise of its
discretion may elect to pay to such Carrier amounts claimed by such Carrier
to be due from Borrower, whereupon such amounts so paid by Foothill shall
become Foothill Expenses immediately due and payable from Borrower to
Foothill.
6.18 LEC AND CARRIER AGREEMENTS. From time to time, if and as
requested by Foothill, Borrower shall deliver to Foothill copies of all Billing
Services Agreements, Carrier Agreements, and/or other material agreements in
effect between Borrower and LECs or Carriers; PROVIDED that if any such
agreement contains confidentiality restrictions, Foothill will agree to
reasonable restrictions upon the use or dissemination of such agreement by
Foothill.
6.19 BROKERAGE INDEMNITY. Pay any and all brokerage commissions or
finder's fees incurred in connection with or as a result of Borrower's
obtaining financing from Foothill under this Agreement, and indemnify and hold
Foothill harmless from and against any claim of a broker or finder for the
payment of any brokerage commission or finder's fee arising out of Borrower's
obtaining financing from Foothill under this Agreement, except for any such
commissions or fees payable as a result of contractual obligations created by
Foothill.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
will not do any of the following without Foothill's prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
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(b) Indebtedness set forth in the latest financial statements of
Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens;
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), (e), (f), or (g) of this SECTION 7.1 (and
continuance or renewal of any Permitted Liens associated therewith) so long
as: (i) the terms and conditions of such refinancings, renewals, or
extensions do not materially impair the prospects of repayment of the
Obligations by Borrower, (ii) the net cash proceeds of such refinancings,
renewals, or extensions do not result in an increase in the aggregate
principal amount of the Indebtedness so refinanced, renewed, or extended,
(iii) such refinancings, renewals, refundings, or extensions do not result in
a shortening of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended, and (iv) to the extent that Indebtedness
that is refinanced was subordinated in right of payment to the Obligations,
then the subordination terms and conditions of the refinancing Indebtedness
must be at least as favorable to Foothill as those applicable to the
refinanced Indebtedness;
(e) unsecured Indebtedness subject to Subordination Agreements,
to the extent that Foothill has determined to Foothill's reasonable satisfaction
(which such determination shall not be unreasonably withheld or delayed by
Foothill following receipt by Foothill from Borrower of cash flow projections
sufficient in Foothill's reasonable judgment to allow Foothill to make such
determination) that the projected cash flow of Borrower is sufficient to support
Borrower's projected interest, principal, and other payment obligations with
respect to such Indebtedness in addition to Borrower's other cash flow
requirements;
(f) Indebtedness specifically described on SCHEDULE 7.1 hereto
that is outstanding on the Closing Date;
(g) Guarantees by Borrower of Indebtedness of Subsidiaries of
Borrower to the extent that such guarantees are Permitted Subsidiary
Investments; and
(h) Unsecured reimbursement obligations of Borrower to issuers
of letters of credit issued for the account of Borrower, including contingent
reimbursement obligations with respect to undrawn letters of credit, and
including non-contingent reimbursement obligations with respect to draws honored
by issuers of such letters of credit, not to exceed $250,000 in the aggregate at
any one time.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are replacements of
Permitted Liens to the extent that the
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original Indebtedness is refinanced under SECTION 7.1(d) and so long as the
replacement liens only encumber those assets or property that secured the
original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any acquisition,
merger, consolidation, reorganization, or recapitalization, or reclassify its
capital stock, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business, property, or assets, whether now owned or
hereafter acquired, or acquire by purchase or otherwise all or substantially all
of the properties, assets, stock, or other evidence of beneficial ownership of
any Person (other than the creation of a new Subsidiary as and to the extent
permitted in SECTION 7.14 of this Agreement); PROVIDED that nothing in this
SECTION 7.3 shall limit the right of Borrower to conduct one or more public or
private offerings of equity, or of Indebtedness permitted by SECTION 7.1(e) of
this Agreement, in each case in compliance with applicable law.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Except as
otherwise expressly and explicitly permitted by this Agreement, except for the
sale of Inventory to buyers in the ordinary course of business, the sale of
Equipment in the ordinary course of business, and the sale of Permitted Ordinary
Course Investments in the ordinary course of business, or the sale by Borrower
with Foothill's prior written consent of Collateral which has become obsolete or
is to be replaced, which consent by Foothill shall not unreasonably be withheld
or delayed, enter into any transaction not in the ordinary course of Borrower's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's
properties or assets (other than sales of Inventory to buyers in the ordinary
course of Borrower's business as currently conducted, or as permitted by SECTION
4.1 hereof) or relocations in connection with Borrower's relocation to a new
place of business as permitted by this Agreement; PROVIDED that nothing in this
SECTION 7.4 shall limit the right of Borrower to conduct one or more public or
private offerings of equity, or of Indebtedness permitted by SECTION 7.1(e) of
this Agreement, in each case in compliance with applicable law. In addition,
Borrower shall not, without the prior written consent of Foothill in each
instance, sell to ZPDI, transfer to ZPDI, assign to ZPDI, or submit for
processing to ZPDI any Account that in turn is to be sold, transferred,
assigned, or submitted by ZPDI to a LEC with which Borrower directly is party to
a Billing Services Agreement that would entitle Borrower directly to submit such
Account to such LEC for billing and payment pursuant to such Billing Services
Agreement between Borrower and such LEC. Anything in the forgoing to the
contrary notwithstanding, Borrower may sell, transfer, assign or submit to ZPDI
for processing, free of Foothill's security interest, Accounts which arise
solely from operator service traffic, PROVIDED, HOWEVER, that Foothill's
security interest shall attach to the proceeds of any such Accounts sold,
transferred, assigned, or submitted to ZPDI for processing, consisting of rights
to payment from ZPDI.
7.5 CHANGE NAME. Change Borrower's name, FEIN, corporate structure
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(within the meaning of Section 9402(7) of the Code), or identity, or add any new
fictitious name, in each case without the prior written consent of Foothill,
which consent, in each case, shall not be unreasonably withheld or delayed.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill, except for guarantees of the
Indebtedness of Subsidiaries of Borrower to the extent permitted by SECTION
7.1(g) of this Agreement, and except for reimbursement obligations with respect
to letters of credit to the extent permitted by SECTION 7.1(h) of this
Agreement.
7.7 RESTRUCTURE. Make any change in the principal nature of
Borrower's business operations, or the date of its fiscal year, without the
prior written consent of Foothill, which consent shall not be unreasonably
withheld or delayed.
7.8 PREPAYMENTS; SUBORDINATED INDEBTEDNESS; MODIFICATIONS. Except in
connection with the refinancing permitted by SECTION 7.1(d):
(a) prepay, redeem, retire (except at maturity and in accordance
with clause (b), where applicable), defease, purchase, or otherwise acquire any
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement;
(b) pay any principal with respect to any Indebtedness that is
subordinated to the Obligations under a Subordination Agreement (regardless of
the maturity or principal amortization terms of such subordinated Indebtedness
as between Borrower and the holders thereof), or make any payment with respect
to such subordinated Indebtedness in violation of the terms of the Subordination
Agreement applicable thereto (giving maximum effect to any optional or
discretionary right of Borrower to subordinate or defer payment of such
subordinated Indebtedness to payment of the Obligations), PROVIDED, HOWEVER,
that Borrower may make principal payments with respect to such subordinated
Indebtedness (i) during any fiscal year in an amount not to exceed $300,000, so
long as after giving effect to such payment, Borrower has Total Availability of
not less than $1,000,000, and (ii) during any fiscal year in an amount in excess
of $300,000 so long as (y) at the time of the making of such payment, Borrower
has a consolidated net worth equal to the Specified Amount plus $5,000,000, or
greater, and (z) so long as after giving effect to such payment, Borrower has
Total Availability of not less than $2,000,000; and
(c) directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under SECTIONS 7.1(b), (c), (d), (e), (f), OR (g), without the prior written
consent of Foothill, which Foothill shall not
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unreasonably withhold or delay if the combined effect of such amendments,
modifications, alterations, or changes would be permitted under the criteria set
forth in SECTION 7.1(d) if the agreements, instruments, documents, indentures,
or other writings so amended, modified, altered, or changed, as so amended,
modified, altered, or changed, were entered into by Borrower with a new creditor
as a refinancing, renewal, or extension pursuant to such SECTION 7.1(d) of the
Indebtedness being so amended, modified, altered, or changed.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CAPITAL EXPENDITURES. Make any capital expenditures in excess of
the Permitted Capital Expenditure Amount during in any fiscal year.
7.11 CONSIGNMENTS. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale, except for the issuance of pre-paid calling cards with respect to which
Borrower's reasonably estimated total financial exposure shall not at any time
exceed $500,000 in the aggregate.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or purchase,
acquire, redeem, or retire any of Borrower's capital stock, of any class,
whether now or hereafter outstanding, except that, so long as no Event of
Default has occurred and is continuing, (a) WXCC may declare and pay regularly
scheduled dividends with respect to its preferred stock outstanding on the
Closing Date, in accordance with the rights, preferences, and terms of such
preferred stock as in effect on the Closing Date, and (b) WXCC may repurchase
shares of its stock in connection with immediately exercisable options granted
pursuant to WXCC's stock option plan, for total consideration not to exceed
$100,000 during any fiscal year of WXCC, or $250,000 in the aggregate from and
after the Closing Date until the Obligations are finally paid in cash.
7.13 ACCOUNTING METHODS. Modify or change, in any material respect,
its method of accounting (except as required by GAAP) or enter into, modify, or
terminate any agreement currently existing, or at any time hereafter entered
into with any third party accounting firm or service bureau for the preparation
or storage of Borrower's accounting records without said accounting firm or
service bureau agreeing to provide Foothill information regarding the Collateral
or Borrower's financial condition. Borrower waives the right to assert a
confidential relationship, if any, it may have with any accounting firm or
service bureau in connection with any information requested by Foothill pursuant
to or in accordance with this Agreement, and agrees that Foothill may contact
directly any such accounting firm or service bureau in order to obtain such
information.
7.14 INVESTMENTS. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with (a) the
acquisition of
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the securities of (whether debt or equity), or other interests in, a Person, (b)
loans, advances, capital contributions, equity contributions, or transfers of
property to a Person, or (c) the acquisition of all or substantially all of the
properties or assets of a Person, except for Permitted Subsidiary Investments,
except for Permitted Ordinary Course Investments, and except for Investments of
WXCC and its Subsidiaries in CTST existing on the Closing Date and disclosed to
Foothill prior to the Closing Date or expressly permitted by SECTION 7.22 of
this Agreement. In addition, WXCC or its Subsidiaries may create and invest in
new foreign Subsidiaries, so long as each of the follow conditions is satisfied:
(i) WXCC provides at least thirty (30) days prior written notice to Foothill of
the relevant particulars (such as the exact legal name of such new Subsidiary of
WXCC, its form of organization and jurisdiction of organization, and the
jurisdictions or locations in which it proposes to engage in business); (ii)
WXCC (or a Subsidiary of WXCC) pledges at least 66 2/3% of the capital stock of
such new foreign Subsidiary to Foothill pursuant to a written pledge agreement
in form and substance reasonably satisfactory to Foothill at the time such
capital stock first is issued; and (iii) all Investments in such Subsidiaries
collectively are subject to and included within the limitations set forth herein
with respect to Permitted Subsidiary Investments.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of its
business, except that Foothill will not unreasonably withhold or delay its
consent to such matters insofar as they relate to WXLC or CTST (but not WXCC).
7.17 COMPENSATION. Increase the annual fee or per-meeting fees paid
to directors during any year by more than fifteen percent (15%) over the prior
year; PROVIDED, however, that the foregoing shall not preclude WXCC from paying
reasonable compensation to outside directors; pay or accrue total cash
compensation, during any year, to existing officers and senior management
employees, as reasonably attributed by Borrower, in an aggregate amount in
excess of one hundred fifteen percent (115%) of that paid or accrued in the
prior year. The foregoing clause shall not limit the ability of Borrower to add
new or additional officers or senior management employees, and to pay to them,
or accrue with respect to them, reasonable compensation consistent with
prevailing market conditions with respect to the compensation of Persons of
similar qualifications and accomplishments as of the time such new or additional
officers or senior management employees are added, which new or additional
officers or senior management employees, once added, thereafter shall be part of
the pool for purposes of future application of the provisions of the last clause
of the preceding sentence of this SECTION 7.17.
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7.18 USE OF PROCEEDS. Use the proceeds of the Advances made hereunder
for any purpose other than: (a) on the Closing Date, (i) to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing to
Existing Lender, (ii) repay a portion of WXCC's Indebtedness to WilTel, and
(iii) to pay transactional costs and expenses incurred in connection with this
Agreement; and (b) thereafter, consistent with the terms and conditions hereof,
for its lawful and permitted corporate purposes.
7.19 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Without thirty (30) days prior written notification to
Foothill, relocate its chief executive office to a new location and so long as,
at the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests and also provides to Foothill a Collateral Access
Agreement. The Inventory and Equipment shall not at any time now or hereafter
be stored with a bailee, warehouseman, or similar party without Foothill's prior
written consent.
7.20 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or indirectly:
(a) Engage, or permit any Subsidiary of Borrower to engage, in any
prohibited transaction which is reasonably likely to result in a civil penalty
or excise tax described in Sections 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC),
whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay timely
required contributions or annual installments due with respect to any waived
funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to terminate, any
Benefit Plan of such Borrower of any Subsidiary of such Borrower where such
event would result in any liability of Borrower, any of its Subsidiaries, or any
ERISA Affiliate thereof under Title IV of ERISA;
(e) fail, or permit any Subsidiary of such Borrower to fail, to make
any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of such Borrower to fail, to pay
any required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
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(g) amend, or permit any Subsidiary of such Borrower to amend, a
Benefit Plan resulting in an increase in current liability for the plan year
such that either of such Borrower, or any ERISA Affiliate thereof is required to
provide security to such Benefit Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of such Borrower to withdraw,
from any Multiemployer Plan where such withdrawal is reasonably likely to result
in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of One Dollar ($1.00).
7.21 CONTRACTS WITH CARRIERS OR LECs. Enter into any new contractual
arrangements with Carriers or LECs, or materially amend, modify, or extend
existing contractual arrangements with Carriers or LECs, if the effect in either
case would be to prohibit Foothill from having a security interest in the rights
of Borrower thereunder, to prohibit disclosure of the terms thereof to Foothill
(although disclosure may be conditioned on Foothill's agreement to reasonable
confidentiality provisions), to grant a security interest to the Carrier or LEC
in any of the Collateral, to authorize any Carrier to withhold delivery of call
transaction record tapes other than after the occurrence of a default, or to
authorize any Carrier to contact or directly bill customers of Borrower with
respect to services provided by such Carrier to Borrower for resale to
Borrower's customers.
7.22 CERTAIN LIMITATIONS ON INVESTMENTS IN CTST AND ADVANCES TO CTST.
WXCC and its Subsidiaries shall not make post-Closing Date Investments in CTST
(including: (i) equity Investments; (ii) intercompany loans; (iii) advances; or
(iv) accounts that are more than ninety (90) days past due) that, in the
aggregate, are in excess of $1,000,000 at any one time outstanding. CTST shall
not at any time have net utilization of Advances under this Agreement (defined
as Advances to the extent made to or utilized by CTST (as opposed to WXCC or
WXLC), net of repayments made by CTST, or out of Collateral owned by CTST) in
excess of the portion of the Borrowing Base attributable to Collateral owned by
CTST.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay within one (1) Business Day of the date
when due and payable or when declared due and payable, any portion of the
Obligations (whether of principal, interest (including any interest which, but
for the provisions of the Bankruptcy Code, would have accrued on such amounts),
fees and charges due Foothill, reimbursement
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of Foothill Expenses, or other amounts constituting Obligations); PROVIDED,
HOWEVER, that, except as otherwise provided below, in the case of
Overadvances or other payment defaults that are not the result of intentional
non-payment by Borrower, intentional misrepresentation by Borrower, or fraud
on the part of Borrower, any such event shall not constitute an Event of
Default unless, within three (3) Business Days of telephonic notice from
Foothill to Borrower of any such Overadvance or payment default, Borrower
fails to repay in full or otherwise eliminate such Overadvance or payment
default; PROVIDED, FURTHER, that the three (3) Business Day notice and cure
provision provided for in the preceding proviso shall not be available to
Borrower more than two (2) times during any six (6) month period; and
PROVIDED, FURTHER, that, during any period of time that any Overadvance or
payment default exists, even if such Overadvance or payment default is not
yet an Event of Default by virtue of the existence of a grace or cure period
or the precondition of the giving of a notice, Foothill shall not required
during such period to make Advances to Borrower;
8.2 (a) If Borrower fails or neglects to perform, keep, or observe,
in any material respect, any term, provision, condition, covenant, or agreement
contained in SECTIONS 6.2 (Collateral Reporting), 6.3 (Financial Statements,
Reports, Certificates), 6.4 (Tax Returns), 6.5 (Guarantor Reports), 6.7 (Title
to Equipment), 6.13 (Location of Inventory and Equipment), 6.14 (Compliance with
Laws), 6.15 (Employee Benefits), or 6.16 (Leases) of this Agreement and such
failure continues for a period of five (5) days from the date Foothill sends
Borrower telephonic or written notice of such failure or neglect; (b) If
Borrower fails or neglects to perform, keep, or observe, in any material
respect, any term, provision, condition, covenant, or agreement contained in
SECTIONS 6.1 (Accounting System), 6.6 (Returns), or 6.8 (Maintenance of
Equipment) of this Agreement and such failure continues for a period of fifteen
(15) days from the date Foothill sends Borrower telephonic or written notice of
such failure or neglect; or (c) If Borrower fails or neglects to perform, keep,
or observe, in any material respect, any other term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the other Loan
Documents (giving effect to any grace periods, cure periods, or required
notices, if any, expressly provided for in such Loan Documents), or in any other
present or future agreement between Borrower and Foothill (giving effect to any
grace periods, cure periods, or required notices, if any, expressly provided for
in such other agreements); in each case, other than any such term, provision,
condition, covenant, or agreement that is the subject of another provision of
this SECTION 8, in which event such other provision of this SECTION 8 shall
govern); PROVIDED that, during any period of time that any such failure or
neglect of Borrower referred to in this paragraph exists, even if such failure
or neglect is not yet an Event of Default by virtue of the existence of a grace
or cure period or the pre-condition of the giving of a notice, Foothill shall
not required during such period to make Advances to Borrower;
8.3 If there is a Material Adverse Change;
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8.4 If any material portion of Borrower's properties or assets having
a value of at least $50,000 is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any third Person,
and such attachment, seizure, writ, warrant, or levy is not released,
discharged, or bonded against before the earlier of 30 days of the date it first
arises or 5 days prior to the date when such property or asset is subject to
being forfeited by Borrower;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and
any of the following events occur: (a) Borrower consents to the institution
of the Insolvency Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the petition commencing
the Insolvency Proceeding is not dismissed within sixty (60) calendar days of
the date of the filing thereof; PROVIDED, HOWEVER, that, during the pendency
of such period, Foothill shall be relieved of its obligation to extend credit
hereunder; (d) an interim trustee is appointed to take possession of all or a
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, Borrower; or (e) an order for relief
shall have been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or otherwise prevented by
court order from continuing to conduct all or any material part of its business
affairs and such injunction, restraining order, or other court order is not
stayed, dissolved, vacated, or modified so as no longer to enjoin, restrain, or
otherwise prevent Borrower from continuing to conduct all or any material part
of its business affairs, within 30 days of the date on which it first arises;
8.8 (a) If (i) a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's properties or assets by the United
States, or (ii) any taxes or debts owing at any time hereafter to the United
States becomes a lien upon any of Borrower's properties or assets, which lien,
in the reasonable judgment of Foothill, would likely be determined to have
priority over the security interest of Foothill with respect to the Collateral
or any material portion thereof; PROVIDED that, if the aggregate amount claimed
with respect to any of the foregoing is less than $100,000, an Event of Default
shall not occur under this paragraph if such claims are the subject of a
Permitted Protest and the lien, levy, or assessment is released, discharged, or
bonded against before the earlier of 30 days of the date it first arises or 5
days prior to the date when such property or asset is subject to being
forfeited; and, PROVIDED, FURTHER, that in any such case where such a notice of
lien, levy, or assessment if filed of record, or such a tax becomes a lien as
described above, Foothill shall have the right to establish and maintain a
reserve against the Borrowing Base of the aggregate amount asserted to be due
with respect thereto (including instances where such amount is less than
$100,000); or
(b) If (i) a notice of lien, levy, or assessment is filed of
record with
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respect to any Borrower's properties or assets by any state, county,
municipal, or other non-federal governmental agency, or (ii) any taxes or
debts owing for an amount in excess of $100,000 at any time hereafter to any
one or more of such entities becomes a lien upon any of Borrower's properties
or assets, which lien, in the reasonable judgment of Foothill, would likely
be determined to have priority over the security interest of Foothill with
respect to the Collateral or any material portion thereof, and, in any such
case, such taxes or debts are not the subject of a Permitted Protest, and the
lien, levy, or assessment is not released, discharged, or bonded against
before the earlier of 30 days of the date it first arises or 5 days prior to
the date when such property or asset is subject to being forfeited; PROVIDED
that in any such case where such a notice of lien, levy, or assessment if
filed of record, or such a tax becomes a lien as described above, Foothill
shall have the right to establish and maintain a reserve against the
Borrowing Base of the aggregate amount asserted to be due with respect
thereto (including instances where such amount is less than $100,000 and this
paragraph thus otherwise would not be applicable);
8.9 If a judgment or other claim for an amount greater than or equal
to $100,000 becomes a lien or encumbrance upon any material portion of
Borrower's properties or assets and the same is not released, discharged, bonded
against, or stayed pending appeal before the earlier of 45 days of the date it
first arises or 5 days prior to the date when such property or asset is subject
to being forfeited by Borrower; PROVIDED, HOWEVER, that during such period
Foothill shall be entitled to create a reserve against the Borrowing Base, in an
amount sufficient to discharge such lien or encumbrance and any and all
penalties or interest payable in connection therewith;
8.10 If there is a material default in any material agreement relating
to Indebtedness with an unpaid balance greater than or equal to $250,000 to
which Borrower is a party with one or more third Persons and such default (a)
occurs at the final maturity of the obligations thereunder, or (b) results in a
right by such third Person(s), irrespective of whether exercised, but after
giving effect to any applicable grace or cure periods or notice requirements or
entitlements with respect thereto, to accelerate the maturity of Borrower's
obligations thereunder or to terminate the subject agreement;
8.11 If Borrower makes any payment on account of Indebtedness that has
been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn in any respect that is material; or
8.13 If the obligation of any guarantor, or of any third Person that
is an
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Affiliate of Borrower, under any Loan Document, is limited or terminated by
operation of law or by the guarantor or such third Person thereunder, or any
such guarantor or third Person becomes the subject of an Insolvency Proceeding;
PROVIDED that, if such Insolvency Proceeding is involuntary and not consented to
or acquiesced in by such guarantor or Third Person, it shall not become an Event
of Default unless it has not been dismissed within sixty (60) calendar days of
the date of the filing thereof.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interests in the Personal Property Collateral or
any Real Property and without affecting the Obligations;
(d) Require Borrower to deliver to Foothill a complete list of
all end-user customers of Borrowers, with respect to all Accounts of Borrower
including LEC Accounts and Direct Accounts, or any reasonably designated portion
thereof, which Borrower shall deliver to Foothill promptly upon demand by
Foothill;
(e) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill reasonably determines to be
reasonable, and in such cases, Foothill will credit the Loan Account with only
the net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(f) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of Foothill;
(g) Without notice to or demand upon Borrower or any guarantor,
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make such payments and do such acts as Foothill reasonably considers
necessary or reasonable to protect its security interests in the Collateral.
Borrower agrees to assemble the Personal Property Collateral if Foothill so
requires, and to make the Personal Property Collateral available to Foothill
as Foothill may designate. Borrower authorizes Foothill to enter the
premises where the Personal Property Collateral is located, to take and
maintain possession of the Personal Property Collateral, or any part of it,
and to pay, purchase, contest, or compromise any encumbrance, charge, or lien
that in Foothill's determination appears to conflict with its security
interests and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned premises, Borrower hereby grants Foothill
a license to enter into possession of such premises and to occupy the same,
without charge, for up to one hundred twenty (120) days in order to exercise
any of Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(h) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower held
by Foothill (including any amounts received in the Lockbox Accounts), or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Foothill;
(i) Hold, as cash collateral, any and all balances and deposits
of Borrower held by Foothill, and any amounts received in the Lockbox Accounts,
to secure the full and final repayment of all of the Obligations;
(j) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Personal Property Collateral. Foothill is hereby granted a license
or other right to use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Personal Property Collateral, in completing production of,
advertising for sale, and selling any Personal Property Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
Foothill's benefit;
(k) Sell the Personal Property Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's premises)
as are commercially reasonable. It is not necessary that the Personal Property
Collateral be present at any such sale;
(l) Foothill shall give notice of the disposition of the
Personal Property Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security
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interest in the Personal Property Collateral who has filed with Foothill a
written request for notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other disposition other than a
public sale is to be made of the Personal Property Collateral, then the time on
or after which the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in SECTION 12, at least five (5) days
before the date fixed for the sale, or at least five (5) days before the date on
or after which the private sale or other disposition is to be made; no notice
needs to be given prior to the disposition of any portion of the Personal
Property Collateral that is perishable or threatens to decline speedily in value
or that is of a type customarily sold on a recognized market. Notice to Persons
other than Borrower claiming an interest in the Personal Property Collateral
shall be sent to such addresses sa they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall
give notice of the time and place by publishing a notice one time at least five
(5) days before the date of the sale in a newspaper of general circulation in
the county in which the sale is to be held;
(m) Foothill may credit bid and purchase at any public sale; and
(n) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies with respect to taxes, assessments by
governmental agencies or authorities, or insurance premiums, due to tax
collectors, governmental agencies or authorities, or insurers, or fails to make
any deposits with respect to any thereof or furnish any required proof of
payment or deposit with respect to any thereof, all as required under the terms
of this Agreement, then, to the extent that Foothill reasonably determines that
there is a not insubstantial likelihood that such failure by
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Borrower may result in a Material Adverse Change, Foothill may but shall not be
obligated to do any or all of the following: (a) make payment of the same or
any part thereof; (b) set up such reserves in the Loan Account as Foothill in
good faith deems necessary to protect Foothill from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type described in
SECTION 6.10, and take any action with respect to such policies as Foothill
deems prudent. Under any circumstance not governed by the preceding sentence,
if Borrower fails to pay any monies (including, in the case of leased properties
or assets, rents or other amounts payable under such leases) due to third
Persons, or fails to make any deposits or furnish any required proof of payment
or deposit, all as required, and within any applicable time periods specified,
under the terms of this Agreement, then, to the extent that Foothill reasonably
determines that there is a substantial likelihood that such failure by Borrower
may result in a Material Adverse Change, Foothill may but shall not be obligated
to do any or all of the following: (x) make payment of the same or any part
thereof; (y) set up such reasonable reserves in the Loan Account as Foothill in
good faith deems necessary to protect Foothill from the exposure created by such
failure; or (z) obtain and maintain insurance policies of the type described in
SECTION 6.10, and take any action with respect to such policies as Foothill
deems prudent. Any amounts paid by Foothill in accordance with this paragraph
shall constitute Foothill Expenses. Any payments made by Foothill pursuant to
this paragraph shall not constitute an agreement by Foothill to make similar
payments in the future or a waiver by Foothill of any Default or Event of
Default under this Agreement. With respect to any payment made by Foothill
pursuant to the first sentence of this paragraph, Foothill need not inquire as
to, or contest the validity of, any such tax, assessment, insurance premium,
required deposit, encumbrance, or lien and the receipt of the usual official
notice for the payment thereof shall be conclusive evidence that the same was
validly due and owing. With respect to any payment made by Foothill pursuant to
the second sentence of this paragraph, unless Borrower has specifically notified
Foothill that it is engaging in a Permitted Protest with respect to such matter
or item, Foothill need not inquire as to, or contest the validity of, any such
expense, security interest, encumbrance, or lien and the receipt of the usual
official notice for the payment thereof shall be presumptive evidence that the
same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill on which Borrower may in any way be
liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code and any
other applicable legal requirements not effectively waived by Borrower, Foothill
shall not in any way or manner
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be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other Person. Subject to
the immediately preceding sentence, all risk of loss, damage, or destruction of
the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and hold
Foothill, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this SECTION 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail, postage prepaid, return
receipt requested, and also transmitted by telefacsimile where practicable, to
Borrower or to Foothill, as the case may be, at its address set forth below:
IF TO BORROWER: COMMUNICATION TELESYSTEMS INTERNATIONAL dba
WORLDxCHANGE COMMUNICATIONS
4350 La Jolla Village Drive, Suite 100
San Diego, CA 92122
Attn: Mark Warner, CFO
Fax No. 619.452.2041
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AND TO: WXL COMMUNICATIONS, LTD.
4350 La Jolla Village Drive, Suite 100
San Diego, CA 92122
Attn: Mark Warner, CFO
Fax No. 619.452.2041
AND TO: CTS TELCOM, INC.
4350 La Jolla Village Drive, Suite 100
San Diego, CA 92122
Attn: Mark Warner, CFO
Fax No. 619.452.2041
WITH COPIES TO: COMMUNICATION TELESYSTEMS
INTERNATIONAL DBA
WordlxChange Communications
4250 Executive Square, Suite 700
San Diego, CA 92037
Attn: Legal Department
Fax No. 619.452.3780
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.575.3435
WITH COPIES TO: BROBECK, PHLEGER & HARRISON LLP
550 South Hope St., Suite 2100
Los Angeles, CA 90071
Attn: Jeffrey S. Turner, Esq.
Fax No. 213.239.1324
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this SECTION 12, other
than notices by Foothill in connection with Sections 9504 and 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or five
(5) days after the deposit thereof in the mail and transmission by telefacsimile
where practicable. Borrower acknowledges and agrees that notices sent by
Foothill in connection with Sections 9504 or 9505 of the Code shall be deemed
sent when deposited in the mail or other similar method set forth above and
transmitted by telefacsimile where practicable.
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13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE OPTION OF FOOTHILL, WITH RESPECT TO ACTIONS RELATING TO
PROVISIONAL REMEDIES AGAINST COLLATERAL OR ANCILLARY PROCEEDINGS FOR THE
FORECLOSURE OF INTERESTS IN COLLATERAL, IN ANY OTHER COURT IN WHICH FOOTHILL
SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER AND
FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER
AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill four (4)
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
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15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participation in all or any part of,
or any interest in Foothill's rights and benefits hereunder. In connection with
any such assignment or participation, Foothill may disclose all documents and
information which Foothill now or hereafter may have relating to Borrower or
Borrower's business, PROVIDED that such Person is bound by the confidentiality
provisions contained herein. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery
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of an executed counterpart of this Agreement by telefacsimile shall be equally
as effective as delivery of a manually executed counterpart of this Agreement.
Any party delivering an executed counterpart of this Agreement by telefacsimile
also shall deliver a manually executed counterpart of this Agreement but the
failure to deliver a manually executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
15.10 CONFIDENTIALITY. (a) Foothill acknowledge and agrees,
except as otherwise provided below, that the terms and conditions of the Loan
Documents, all documents delivered by or on behalf of Borrower to Foothill
pursuant to the Loan Documents, and all communications between the parties
regarding the Loan Documents (collectively, except as otherwise provided below,
the "Confidential Information"), are confidential. The foregoing
notwithstanding, Confidential Information shall not include: (i) Terms and
provisions of documents filed in public records, such as, by way of illustration
but not by way of limitation, financing statements, articles of incorporation,
and SEC filings; (ii) terms and provisions of documents to which third Persons
not bound by confidentiality agreements are parties; (iii) information generally
available to members of the public from sources other than Foothill; and (iv)
information treated by Borrower in such a way as to give rise to a reasonable
belief on Foothill's part that such information is not confidential, such as, by
way of illustration but not by way of limitation, information disclosed by
Borrower to third Persons other than Foothill with no confidentiality
restrictions.
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(b) Foothill shall not disclose Confidential Information except
as follows: (i) To Persons it reasonably believes to be attorneys, accountants,
employees, officers, agents, or authorized representatives of Borrower; (ii) to
attorneys, agents, examiners, auditors, appraisers, accountants, consultants,
employees, or officers of or acting on behalf of Foothill pursuant to procedures
or policies reasonably calculated to preserve the confidentiality of such
Confidential Information; (iii) to actual or prospective participants or
assignees of Foothill who are bound by the confidentiality provisions hereof;
(iv) to regulators or examiners having regulatory or supervisory authority over
Foothill or its parents or affiliates, as reasonably determined by Foothill to
be necessary or appropriate in connection with the exercise by such regulators
or examiners of their regulatory or supervisory functions; or (v) pursuant to
discovery or disclosure pursuant to legal process, PROVIDED that, to the extent
practicable, Foothill shall provide Borrower with reasonable (where practicable)
advance notice of disclosures made pursuant to this clause (v) in order to
permit Borrower to seek, if it so elects, an appropriate protective order or
exemption.
(c) The provisions of this SECTION 15.10 shall be effective
as of the date of execution and delivery of this Agreement by the parties and
shall remain in full force and effect for a period equal to two (2) years
following the termination hereof.
[Balance of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Los Angeles, California.
COMMUNICATION TELESYSTEMS
INTERNATIONAL dba WORLDxCHANGE
COMMUNICATIONS,
a California corporation
By /s/ Edward S. Soren
----------------------------
Title: President
------------------------
WXL COMMUNICATIONS, LTD.,
a Canadian corporation
By /s/ Edward S. Soren
----------------------------
Title: President
------------------------
CTS TELCOM, INC.,
a California corporation
By /s/ Edward S. Soren
----------------------------
Title: President
------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ [ILLEGIBLE]
-----------------------------
Title: SVP
------------------------
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<PAGE>
LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Schedules and Exhibits to the Loan and Security Agreement
have been omitted from this Exhibit and shall be furnished supplementally to
the Commission upon request:
Schedule E-1 - 20% Account Debtors
Schedule P-1 - Permitted Liens
Schedule P-2 - Permitted Subsidiary Investments
Schedule R-1 - Real Property
Schedule 5.7 - Subsidiaries
Schedule 6.13 - Litigation
Schedule 6.17 - Location of Inventory and Equipment
Schedule 7.1 - Scheduled Indebtedness
Exhibit B-1 - Borrower's 1997 Business Plan
Exhibit C-1 - Forms of Canadian Security Agreements
Exhibit C-2 - Form of Compliance Certificate
Exhibit G-1 - Form of Limited Continuing Guaranty
Exhibit P-1 - Forms of Pledge Agreements
Exhibit S-1 - Form of Suretyship Agreement
<PAGE>
- --------------------------------------------------------------------------------
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
COMMUNICATION TELESYSTEMS INTERNATIONAL DBA
WORLDxCHANGE COMMUNICATIONS
-
WXL COMMUNICATIONS, LTD.
CTS TELCOM, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
---------------------------
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), is entered into as of December 31, 1997, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333, and COMMUNICATION TELESYSTEMS INTERNATIONAL, dba WORLDxCHANGE
Communications, a California corporation ("WXCC"), with its chief executive
office located at 9999 Willow Creek Road, San Diego, California 92131, WXL
COMMUNICATIONS, LTD., a Canadian corporation ("WXLC"), with its chief executive
office located at 9999 Willow Creek Road, San Diego, California 92131, and CTS
TELCOM, INC., a Florida corporation ("CTST"), with its chief executive office
located at 9999 Willow Creek Road, San Diego, California 92131 (WXCC, WXLC, and
CTST, and each of them, and any one or more of them, jointly and severally,
individually and collectively, "Borrower").
This Amendment is entered into with reference to the following facts:
A. Foothill, as lender, and Borrower heretofore entered into that
certain Loan and Security Agreement, dated as of March 11, 1997,
(herein the "Agreement");
B. On October 17, 1997 Borrower requested Foothill's extension of an
Overadvance to Borrower in excess of the amount otherwise
available under the terms and conditions of the Agreements in the
amount of up to $3,150,000 (the "Requested Overadvance"), and
Foothill extended the Requested Overadvance to Borrower on that
date;
C. Borrower has requested Foothill to amend the Agreement as set
forth in this Amendment, (i) to change the address of Borrower's
chief executive office to the address contained in the first
paragraph hereof, and (ii) increase the Maximum Amount available
thereunder from the existing amount of $25,000,000 to the new
amount of $30,000,000 (the "Line Increase"), (iii) provide for the
incorporation of the Requested Overadvance as an Advance under the
secured credit facilities extended to Borrower under the
Agreement, (iv) provide for the reduction of the Requested
Overadvance, and (v) change certain pricing under the Agreement;
D. Foothill is willing to (i) so amend the Agreement in accordance
with the terms and conditions hereof and (ii) to consent to the
extension and reduction
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of the Requested Overadvance as an Advance under the secured
credit facilities extended to Borrower under the Agreement; and
E. All capitalized terms used herein and not defined herein shall
have the meanings ascribed to them in the Agreement, as amended
hereby.
NOW, THEREFORE, in consideration of the above recitals and the
mutual promises contained herein, Foothill and Borrower hereby agree as follows:
1. AMENDMENTS TO THE AGREEMENT.
a. The reference to Borrower's chief executive
office contained in the initial paragraph to the Agreement, all subsequent
references to Borrower's chief executive office or to Borrower's address
contained in the Agreement, and any reference to Borrower's chief executive
office or to Borrower's address contained in any other Loan Document are
hereby deleted and replaced in their entirety with the following address:
9999 Willow Creek Road, San Diego, California 92131
b. SECTION 1.1 of the Agreement is hereby amended by
adding the following definitions in alphabetical order:
"FIRST AMENDMENT" means that certain Amendment Number One
to Loan and Security Agreement, dated as of December 31, 1997, between
Foothill and Borrower.
"GUARANTY REAFFIRMATION AND CONSENTS" means those certain
guaranty reaffirmations and consents, dated as of December 31, 1997,
between Foothill and the Guarantors.
"PERMITTED OVERADVANCE AMOUNT" means: (a) prior to November
28, 1997, $2,500,000; (b) from November 28, 1997 through December 11,
1997, $2,000,000; (c) from December 12, 1997 through December 25, 1997,
$1,750,000; (d) from December 26, 1997 through January 8, 1998,
$1,000,000; and (e) from and after January 9, 1998, zero dollars;
PROVIDED, HOWEVER, that, at any time prior to the date of any mandatory
reduction in the Permitted Overadvance Amount as set forth above,
Borrower may prepay all or part of the outstanding amount of any
Overadvance and request a reduction in the Permitted Overadvance Amount
in minimum increments of $50,000 without penalty.
c. The following definitions contained in SECTION
1.1 of the Agreement hereby are deleted in their entirety and the following
are hereby substituted in lieu thereof:
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<PAGE>
"AVERAGE UNUSED PORTION OF FACILITY" means, as of the
first day of any month: (a) If such day occurs on or prior to December
1, 1997, the non-negative amount equal to (i) $20,000,000, MINUS (ii)
the average Daily Balance of Advances that were outstanding during the
immediately preceding month; and (b) if such day occurs after December
1, 1997, the non-negative amount equal to (i) the then Maximum Amount
(giving effect to any increases thereof elected by Borrower, if any,
that have become effective before, or that become effective on, such
day), MINUS (ii) the average Daily Balance of Advances that were
outstanding during the immediately preceding month; PROVIDED, that,
with respect to any day that is the first day of a month and which day
occurs after December 1, 1997, if the Maximum Amount changed during
the immediately preceding month effective on any day or days other
than the first day of such preceding month, then the calculation of
the Average Unused Portion of Facility as of such first day of the
succeeding month with respect to such immediately preceding month
shall be performed on a weighted basis giving effect to all such
changes that occurred during the immediately preceding month (for
example, by way of illustration and not by way of limitation, if the
Maximum Amount were to be increased effective on April 11, 1998, from
$25,000,000 to $30,000,000, then the calculation of the Average Unused
Portion of Facility for April, 1998, would be 10/30 of the amount that
would be calculated under clause (b) above using $25,000,000 as the
Maximum Amount (except that the average Daily Balance of Advances for
purposes of such calculation would be for the first ten days of April
rather than for the entire month), PLUS 20/30 of the amount that would
be calculated under clause (b) above using $30,000,000 as the Maximum
Amount (except that the average Daily Balance of Advances for purposes
of such calculation would be for the last twenty days of April rather
than for the entire month).
"LOAN DOCUMENTS" means this Agreement, the First
Amendment, the Canadian Security Agreements, the Pledge Agreements,
the Disbursement Letter, the Guarantees, the Guaranty Reaffirmation
and Consents, the Lockbox Agreements, any Mortgages hereafter
delivered by Borrower to Foothill, the Suretyship Agreement, any note
or notes executed by Borrower and payable to Foothill, and any other
agreement entered into, now or in the future, in connection with this
Agreement.
"MAXIMUM AMOUNT" means, subject to adjustment as
hereinafter set forth, $30,000,000. From time to time after the
Closing Date, subject to the prior or concurrent payment of any
applicable fee provided for in SECTION 2.8(c), Borrower may elect to
increase the Maximum Amount, on one or more occasions, in increments
of $1,000,000 or an integral multiple thereof, to an amount not to
exceed $35,000,000, such increases to become effective, in each
instance, prospectively, subject to payment of any applicable fee as
aforesaid, on the date specified in a written notice of such election
received by Foothill from Borrower,
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<PAGE>
which specified date shall not be less than 3 Business Days after the
date on which Foothill receives such notice.
"MAXIMUM FOOTHILL AMOUNT" means that portion of the Maximum
Amount for which Foothill shall be responsible, exclusive of any
participations with Participants, which amount is $20,000,000.
d. The initial clause of SECTION 2.1(a) hereby is
amended and restated in its entirety as follows:
2.1 REVOLVING ADVANCES. (a) Subject to the terms and conditions
of this Agreement, Foothill agrees to make advances ("Advances") to
Borrower in an amount at any one time outstanding not to exceed the LEAST
of (i) the Maximum Amount, (ii) the Maximum Foothill Amount PLUS the
Syndicated Amount, and (iii) the Borrowing Base PLUS the then applicable
Permitted Overadvance Amount. For purposes of this Agreement, "Borrowing
Base", as of any date of determination, shall mean the sum of:
e. SECTION 2.2 hereby is amended and restated in its
entirety as follows:
2.2 OVERADVANCES OR OVERLINE AMOUNTS. If, at any time or for
any reason, the amount of Obligations owed by Borrower to Foothill
pursuant to SECTION 2.1 is greater than either the dollar or percentage
limitations set forth in SECTION 2.1 less (without duplication) any
applicable reserves (any such excess, an "Overadvance") by an amount
greater than the then applicable Permitted Overadvance Amount,
immediately shall cause such Overadvance to be eliminated, either by
paying to Foothill, in cash, the amount of such excess to be used by
Foothill to repay Advances outstanding under SECTION 2.1, or by causing
the Borrowing Base to be recomputed, in all respects in accordance with
the terms and provisions of this Agreement, in such fashion as to create
sufficient Availability to eliminate such Overadvance.
f. The following new SECTION 2.8(g) is added to the
Agreement:
(f) OVERADVANCE FEE. On the first day of each month
with respect to which the Permitted Overadvance Amount on any day during
the immediately preceding month was greater than zero, an overadvance fee
(in addition to any interest or other amounts otherwise payable under the
Loan Documents) in the dollar amount equal to the sum of the following
two components:
(i) a daily fee for each day during the
immediately preceding month that the Permitted Overadvance Amount
was greater than
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<PAGE>
zero dollars, equal to (a) 1.0% TIMES the applicable Permitted
Overadvance Amount on such day DIVIDED BY (b) 30; PLUS
(ii) a daily fee for each day during the
immediately preceding month that an Overadvance of greater than
10% of the applicable Permitted Overadvance Amount on such day,
equal to (a) 2.0% TIMES the applicable Permitted Overadvance
Amount on such day DIVIDED BY (b) 30; otherwise, zero dollars.
2. CONSENT TO INCORPORATION OF REQUESTED OVERADVANCE IN THE
OBLIGATIONS. Foothill hereby agrees and consents to the incorporation of all
amounts outstanding under the Requested Overadvance as an Obligation under the
Agreement as amended by this Amendment.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents
and warrants to Foothill that (a) the execution, delivery, and performance of
this Amendment and of the Agreement, as amended by this Amendment, are within
its corporate powers, have been duly authorized by all necessary corporate
action, and are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any arbitrator, court, or
governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) this Amendment and the Agreement, as amended
by this Amendment, constitute Borrower's legal, valid, and binding obligation,
enforceable against Borrower in accordance with its terms.
4. CONDITIONS PRECEDENT TO AMENDMENT. The satisfaction of
each of the following, on or before the First Amendment Closing Deadline, unless
waived or deferred by Foothill in its sole discretion, shall constitute
conditions precedent to the effectiveness of this Amendment:
a. Foothill shall have received a fee payable in
connection with the extension of the Requested Overadvance from October 17, 1997
through October 31, 1997 in the amount of $315,000.00.
b. Foothill shall have received a Line Increase Fee
payable in connection with the increase in the Maximum Amount as provided for in
the Agreement in the amount of $18,194.44.
c. Each of the Guarantors shall have executed and
delivered a Guaranty Reaffirmation and Consent in form and substance
satisfactory to Foothill;
d. Foothill shall have received the consent of each of
its Participants in the secured credit facilities extended to Borrower under the
Agreement to
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<PAGE>
the Line Increase and to the incorporation of the principal outstanding under
the Requested Overadvance as Outstandings under the Agreement as amended hereby;
e. The representations and warranties in this
Amendment, the Agreement as amended by this Amendment, and the other Loan
Documents shall be true and correct in all respects on and as of the date
hereof, as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date);
f. No Event of Default or event which with the giving
of notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date hereof, nor shall result from the
consummation of the transactions contemplated herein;
g. No injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against Borrower or Foothill; and
h. All other documents and legal matters in connection
with the transactions contemplated by this Amendment shall have been delivered
or executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
5. FURTHER ASSURANCES. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time fully to consummate the transactions contemplated under this Amendment and
the Agreement, as amended by this Amendment.
6. MISCELLANEOUS.
a. Upon the effectiveness of this Amendment, each
reference in the Agreement to "this Agreement", "hereunder", "herein", "hereof"
or words of like import referring to the Agreement shall mean and refer to the
Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each
reference in the Loan Documents to the "Loan Agreement", "thereunder",
"therein", "thereof" or words of like import referring to the Agreement shall
mean and refer to the Agreement as amended by this Amendment.
c. As used in this Amendment, "First Amendment Closing
Deadline" means January 20, 1998.
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<PAGE>
d. This Amendment shall be governed by and construed in
accordance with the laws of the State of California.
e. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Amendment.
Delivery of an executed counterpart of this Amendment by telefacsimile shall be
equally as effective as delivery of a manually executed counterpart of this
Amendment. Any party delivering an executed counterpart of this Amendment by
telefacsimile also shall deliver a manually executed counterpart of this
Amendment but the failure to deliver a manually executed counterpart shall not
affect the validity, enforceability, and binding effect of this Amendment.
[Remainder of page left intentionally blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the date first written above.
COMMUNICATION TELESYSTEMS
INTERNATIONAL dba WORLDxCHANGE
COMMUNICATIONS,
a California corporation
By /s/ Edward S. Soren
-------------------------------
Title:
----------------------------
WXL COMMUNICATIONS, LTD.,
a Canadian corporation
By /s/ Edward S. Soren
-------------------------------
Title:
----------------------------
CTS TELCOM, INC.,
a Florida corporation
By /s/ Edward S. Soren
-------------------------------
Title:
----------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Kurt R. Marsden
-------------------------------
Title: Vice President
---------------------------
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<PAGE>
AMENDMENT NO. TWO TO THE LOAN
AND SECURITY AGREEMENT
COMMUNICATION TELESYSTEMS INTERNATIONAL dba
WORLDxCHANGE COMMUNICATIONS
WXL COMMUNICATIONS, LTD.
CTS TELCOM, INC.
This Amendment No. Two To The Loan And Security Agreement (the "Amendment")
is entered into as of the 20th day of February, 1998, by and between
COMMUNICATION TELESYSTEMS INTERNATIONAL dba WORLDxCHANGE COMMUNICATIONS, a
California corporation, WXL COMMUNICATIONS, LTD., a Canadian corporation CTS
TELCOM, INC., a Florida corporation (collectively, "Borrower"), whose chief
executive office is located at 9999 Willow Creek Road, San Diego, California
92131 and FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"),
with a place of business located at 11111 Santa Monica Boulevard, Suite 1500,
Los Angeles, California 90025-3333, in light of the following facts:
FACTS
FACT ONE: Foothill and Borrower have previously entered into that certain
Loan And Security Agreement, dated March 11, 1997 (as amended and supplemented,
the "Agreement").
FACT TWO: Foothill and Borrower desire to amend the Agreement as provided
herein. Terms defined in the Agreement which are used herein shall have the
same meanings as set forth in the Agreement, unless otherwise specified.
NOW, THEREFORE, Foothill and Borrower hereby modify and amend the Agreement
as follows:
1. Subsection 7.8(b)(ii) of the Agreement is hereby amended in its
entirety to read as follows: "(ii) during fiscal year 1998 in an amount in
excess of $515,000, said section 7.8(b)(ii) shall revert to its original terms
for every subsequent year thereafter.".
2. In the event of a conflict between the terms and provisions of this
Amendment and the terms and provisions of the Agreement, the terms and
provisions of this Amendment shall govern. In all other respects, the
Agreement, as supplemented, amended and modified, shall remain in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, Borrower and Foothill have executed this Amendment as
of the day and year first written above.
FOOTHILL CAPITAL CORPORATION COMMUNICATION TELESYSTEMS
INTERNATIONAL, dba
WORLDxCHANGE COMMUNICATIONS
By /s/ Kurt R. Marsden By /s/ Edward S. Soren
-------------------------- ------------------------------
Kurt R. Marsden Print Name Edward S. Soren
Its Vice President Its President
------------------------- -----------------------------
WXL COMMUNICATIONS, LTD.
By /s/ Edward S. Soren
------------------------------
Print Name Edward S. Soren
-----------------------------
Its President
-----------------------------
CTS TELCOM, INC.
By /s/ Edward S. Soren
------------------------------
Print Name Edward S. Soren
------------------------------
Its President
-----------------------------
APPROVED BY
LEGAL DEPT.
- ------------------
/s/ [ILLEGIBLE]
- ------------------
ATTORNEY, DATE]
- ------------------
<PAGE>
- --------------------------------------------------------------------------------
AMENDMENT NUMBER THREE TO
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
COMMUNICATION TELESYSTEMS INTERNATIONAL DBA
WORLDXCHANGE COMMUNICATIONS
WXL COMMUNICATIONS, LTD.
CTS TELECOM, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF APRIL 27, 1998
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NUMBER THREE TO
LOAN AND SECURITY AGREEMENT
---------------------------
THIS AMENDMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT (THIS
"AMENDMENT"), is entered into as of April 27, 1998, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333, and COMMUNICATION TELESYSTEMS INTERNATIONAL, dba WORLDxCHANGE
Communications, a California corporation ("WXCC"), with its chief executive
office located at 9999 Willow Creek Road, San Diego, California 92131, WXL
COMMUNICATIONS, LTD., a Canadian corporation ("WXLC"), with its chief executive
office located at 9999 Willow Creek Road, San Diego, California 92131, and CTS
TELCOM, INC., a Florida corporation ("CTST"), with its chief executive office
located at 9999 Willow Creek Road, San Diego, California 92131 (WXCC, WXLC, and
CTST, and each of them, and any one or more of them, jointly and severally,
individually and collectively, "Borrower").
This Amendment is entered into with reference to the following facts:
A. WHEREAS, Foothill, as lender, and Borrower are parties to that certain
Loan and Security Agreement, dated as of March 11, 1997, (as from time
to time amended, modified, supplemented, renewed, extended, or
restated, including, without limitation, by this Amendment Number
Three and by the prior amendments to the aforesaid loan agreement
specifically referred to below, the "Loan Agreement");
B. WHEREAS, Foothill, as lender, and Borrower are parties to that certain
Amendment Number One to Loan and Security Agreement, dated as of
December 31, 1997, amending the Loan Agreement as therein provided;
C. WHEREAS, Foothill, as lender, and Borrower are parties to that certain
Amendment No. Two to the Loan and Security Agreement, dated as of
February 20, 1998, amending the Loan Agreement as therein provided;
D. WHEREAS, Borrower has requested Foothill to amend the Loan Agreement
as set forth in this Amendment, and Borrower has requested Foothill to
waive certain Defaults and Events of Default under the Loan Agreement
as set forth in this Amendment;
E. WHEREAS, Foothill is willing to (i) so amend the Loan Agreement in
accordance with the terms and conditions hereof and (ii) to waive
certain Defaults and Events of Default under the Loan Agreement as set
forth herein.
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<PAGE>
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained herein, Foothill and Borrower hereby agree as follows:
1. INITIALLY CAPITALIZED TERMS.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Loan Agreement, as amended hereby.
2. AMENDMENTS TO THE LOAN AGREEMENT.
a. SECTION 1.1 of the Loan Agreement is hereby amended by adding the
following definitions in alphabetical order:
"ADJUSTED CONSOLIDATED NET WORTH" means consolidated net worth
determined in accordance with GAAP of Borrower and its Subsidiaries (but
excluding from such calculation (a) the non-cash portion of any foreign
currency translation adjustments reflected on the balance sheet of Borrower
or any of its Subsidiaries in accordance with the Financial Accounting
Standards Board, Statement of Financial Accounting Standards, Number 52,
(b) the reclassification contemplated by a recession offering for some or
all of the outstanding shares of the capital stock of WXCC or its
subsidiaries in an amount not to exceed $2,500,000 in the aggregate, and
(c) the net worth of CTST and any Subsidiaries of CTST).
"GUARANTY REAFFIRMATION AND CONSENTS" means those certain guaranty
reaffirmations and consents, dated as of August 27, 1998, between Foothill
and the Guarantors.
"OFFERING" shall mean Borrower's incurrence of Indebtedness currently
anticipated to be $150,000,000 or more under the offering of public debt
securities of Borrower through Jeffries and Company, Inc. or Morgan Stanley
Dean Witter, or such other investment bankers as are reasonably acceptable
to Foothill.
"SECOND AMENDMENT" means that certain Amendment No. Two to the Loan
and Security Agreement, dated as of February 20, 1998, between Foothill and
Borrower.
"SPECIFIED CARRIERS" means Mercury Telecommunications, British Telcom,
and Unisource.
"THIRD AMENDMENT" means that certain Amendment Number Three to Loan
and Security Agreement, dated as of April 27, 1998, between Foothill and
Borrower.
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<PAGE>
b. The following definitions contained in SECTION 1.1 of the Loan
Agreement hereby are deleted in their entirety and the following are hereby
substituted in lieu thereof:
"BASE PERMITTED CAPITAL EXPENDITURE AMOUNT" means (a) actual cash
capital expenditures incurred for Borrower's fiscal year ending September
30, 1997, of $18,502,000, and (b) with respect to any fiscal year of
Borrower after fiscal year 1997, 120% of the Base Permitted Capital
Expenditure Amount for the immediately preceding fiscal year of Borrower.
"LOAN DOCUMENTS" means this Agreement, the First Amendment, the Second
Amendment, the Third Amendment, the Canadian Security Agreements, the
Pledge Agreements, the Disbursement Letter, the Guarantees, the Guaranty
Reaffirmation and Consents, the Lockbox Agreements, any Mortgages hereafter
delivered by Borrower to Foothill, the Suretyship Agreement, any note or
notes executed by Borrower and payable to Foothill, and any other
agreement entered into, now or in the future, in connection with this
Agreement.
"SPECIFIED AMOUNT" means, (a) with respect to Borrower's fiscal
quarter ending March 31, 1998, negative fifty six million dollars
(-$56,000,000), PLUS any applicable amount provided for in the next
sentence of this definition, (b) with respect to Borrower's fiscal quarter
ending June 30, 1998, negative fifty six million five hundred thousand
dollars (-$56,500,000), PLUS any applicable amount provided for in the next
sentence of this definition, (c) with respect to Borrower's fiscal quarter
ending September 30, 1998, negative fifty six million dollars
(-$56,000,000), PLUS any applicable amount provided for in the next
sentence of this definition, and (d) with respect to each fiscal quarter of
Borrower occurring thereafter, an amount equal to negative fifty six
million dollars (-$56,000,000), PLUS two million dollars ($2,000,000) for
each such fiscal quarter occurring after September 30, 1998, PLUS any
applicable amount provided for in the next sentence of this definition. As
of any date of determination of the Specified Amount, if Borrower has
concluded one or more public or private equity offerings after the Closing
Date and on or before such date of determination, the Specified Amount
shall be increased by fifty percent (50%) of the aggregate net cash
proceeds raised by Borrower after the Closing Date with respect to all such
public or private equity offerings.
c. SECTION 3.8 of the Loan Agreement hereby is amended by adding the
following sentence immediately following the last sentence thereof:
"Anything contained in the foregoing to the contrary notwithstanding,
Borrower shall not be required to provide any prior notice to Foothill in
connection with the termination of this Agreement and the payment in cash
of the Obligations,
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<PAGE>
in full on or before June 30, 1998 from the proceeds of the Offering;
PROVIDED, HOWEVER, that (i) in connection with the foregoing, Borrower
shall pay to Foothill an amount equal to the aggregate amount of all
interest fees otherwise payable to Foothill on the average Daily Balance of
Advances that were outstanding during the 30 day period immediately
preceding any such termination of the Agreement and repayment of the
Obligations, and (ii) nothing in the foregoing shall relive Borrower of its
obligations under this SECTION 3.6 to pay to any applicable Early
Termination Premium in connection with any such termination of the
Agreement and repayment of the Obligations.
d. SECTION 6.11 of the Loan Agreement hereby is deleted in its
entirety and the following is hereby substituted in lieu thereof:
"6.11 FINANCIAL COVENANT. Maintain Adjusted Consolidated Net Worth of
not less than the Specified Amount, measured on a fiscal quarter-end
basis."
e. SECTION 6.17 of the Loan Agreement hereby is amended by adding
the following sentence immediately following the last sentence thereof:
"Anything contained in the foregoing to the contrary notwithstanding,
Borrower shall not be required to comply with the provisions of the first
sentence of this SECTION 6.17 with respect to its obligations to make
payments to a Specified Carrier to the extent that, on or before June 30,
1998, Borrower has entered into a written payment plan, satisfactory to
Foothill, setting forth the Borrower's agreement with such Specified
Carrier to bring Borrower back in compliance with the terms and conditions
of its contractual agreements with such Specified Carrier, and Borrower
shall be performing its obligations in accordance with such plan."
3. WAIVERS OF CERTAIN TERMS AND CONDITIONS UNDER THE LOAN AGREEMENT.
Subject to the terms and conditions set forth below, Foothill hereby agrees to
waive each of the following Defaults or Events of Default arising prior to the
date hereof under the Loan Agreement:
a. Borrower's violation of the requirement set forth in SECTION
6.2(c) of the Loan Agreement which provides, INTER ALIA, that Borrower shall
provide Foothill, on a monthly basis and, in any event, by no later than the
twentieth (20th) day of each month during the term of this Agreement, with a
report of any book overdraft in existence in connection with Borrower's accounts
payable, hereby is waived in its entirety through the date hereof; PROVIDED,
HOWEVER, that nothing in the foregoing shall relive Borrower of its other
reporting obligations to Foothill under SECTION 6.2 during any applicable
period.
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<PAGE>
b. Borrower's violation of the requirements set forth (i) in
SECTION 6.3(a) of the Loan Agreement which provides that Borrower shall deliver
to Foothill, within forty-five (45) days after the end of each month during each
of WXCC and WXLC's fiscal years, an internally-prepared balance sheet, an
internally-prepared income statement, and (if and only if available) an
internally-prepared cash flow statement covering WXCC and WXLC's consolidated
operations during such period, together with a report estimating the aggregate
amount, as of the end of such month, of all Telecommunication Taxes payable by
WXCC and WXLC in respect of their business activities in the State of Texas or
any other state where Foothill determines pursuant to SECTION 2.1 that a
Telecommunication Tax Reserve is necessary, and (ii) in SECTION 6.3(b) of the
Loan Agreement which provides that Borrower shall deliver to Foothill, as soon
as available, but in any event within one hundred fifty (150) days after the end
of each of WXCC and WXLC's fiscal years, consolidated financial statements of
WXCC and WXLC for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Foothill and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP, together with a certificate of such accountants addressed to Foothill
stating that such accountants do not have knowledge of the existence of any
Default of Event of Default then continuing, hereby are waived in their entirety
of any Default or Event of Default then continuing, hereby are waived in their
entirety through May 31, 1998; PROVIDED, HOWEVER, that nothing in the foregoing
shall relive Borrower of its other reporting obligations to Foothill under
SECTION 6.3 during this period.
c. Borrower's violations of the requirements set forth in
SECTION 6.9 of the Loan Agreement which provide, INTER ALIA, that Borrower
shall pay all assessments and taxes, whether real, personal, or otherwise,
due or payable by, or imposed, levied, or assessed against Borrower or any of
its property, in full before delinquency or before the expiration of any
extension period therefor, hereby are waived in their entirety through
June 30, 1998.
d. Borrower's violations of the requirements set forth in
SECTION 6.11 of the Loan Agreement which provide, INTER ALIA, that Borrower
shall maintain a consolidated net worth determined in accordance with GAAP of
Borrower and its Subsidiaries (but excluding CTST and any Subsidiaries of
CTST from such calculation) of not less than < $17,000,000 > for Borrower's
fiscal year ending September 30, 1997, and of not less than < $9,000,000 >
for each fiscal quarter thereafter as a result of Borrower's actual
consolidated net worth for Borrower's fiscal year ended September 30, 1997 of
< $52,916,000 > and Borrower's actual consolidated net worth for Borrower's
fiscal quarter ended December 31, 1997 of < $54,992,000 > hereby are waived
in their entirety for these measuring periods.
e. Borrower's violations of the requirements set forth in
SECTION 6.16 of the Loan Agreement which provide that Borrower shall pay, not
later than the earlier of (a) the sixtieth (60th) day after the date when first
due, or (b) the last day prior
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<PAGE>
to the date when failure to pay same would create a material default that would
entitle the obligee with respect thereto to take enforcement action against
Borrower, all rents and other amounts payable under any leases to which Borrower
is a party or by which Borrower's properties and assets are bound, unless such
payments are the subject of a Permitted Protest, hereby are waived in their
entirety through the date hereof.
f. Borrower's violations of the requirements set forth in
SECTION 6.17 of the Loan Agreement which provide, INTER ALIA, that Borrower
shall make all payments due from it to Carriers within ninety (90) days of their
due date, and otherwise comply in all material respects with Borrower's
non-monetary contractual obligations to Carriers as a result of Borrower's
failure to make all such payments due from it to its Carriers within the
specified period hereby are waived in their entirety through June 30, 1998.
g. Foothill hereby agrees to waive Borrower's compliance with
the provisions of SECTION 7.1(e) which require that additional unsecured
Indebtedness be subject to subordination agreements reasonable satisfactory to
Foothill, such satisfaction to require a determination that Borrower's cash flow
projections are sufficient in Foothill's reasonable judgment to support the
projected interest, principal and other payment obligations required under the
additional unsecured Indebtedness, in connection with Borrower's incurrence of
Indebtedness in the amount of $10,000,000 (the "TEL-SAVE INDEBTEDNESS") from
Tel-Save Holdings, Inc., a Delaware corporation ("Tel-Save"), with its principal
place of business at 6805 Route 202, New Hope, Pennsylvania, to be repaid in
accordance with the terms and conditions of that certain Subordinated Promissory
Note dated March 27, 1998, a copy of which is attached hereto as EXHIBIT "A" and
incorporated hereby by this reference (the "Subordinated Note").
h. Foothill hereby agrees to waive Borrower's compliance with
the provisions of SECTION 7.1(e) which require that additional unsecured
indebtedness be subject to subordination agreements reasonable satisfactory to
Foothill, such satisfaction to require a determination that Borrower's cash flow
projections are sufficient in Foothill's reasonable judgment to support the
projected interest, principal and other payment obligations required under the
additional unsecured Indebtedness, in connection with Borrower's incurrence of
Indebtedness in an aggregate amount anticipated to be $150,000,000 or more under
the offering of public debt securities of Borrower through Jeffries and Company,
Inc. and/or Morgan Stanley Dean Witter, or such other investment bankers as are
acceptable to Foothill (the "Permitted Offering Indebtedness").
i. Foothill hereby agrees to waive Borrower's violations of the
provisions of SECTION 7.2 of the Loan Agreement as a result of any liens arising
for unpaid taxes with respect to which Borrower is in breach of its covenants
set forth in SECTION 6.9 of the Loan Agreement, through June 30, 1998.
-6-
<PAGE>
j. Foothill hereby agrees to waive Borrower's compliance
with the provisions of SECTION 7.8 of the Loan Agreement which provides,
INTER ALIA, that Borrower shall not prepay any Indebtedness owing to any
third person to the extent necessary (i) to permit WCXC to prepay
Indebtedness in an aggregate amount not to exceed $500,000 payable to CTST on
or before June 30, 1998, and (ii) to permit CTST to prepay Indebtedness in an
aggregate amount not to exceed $500,000 payable to the Principals on or
before June 30, 1998.
k. Borrower's violation of the negative covenant set forth in
SECTION 7.10 of the Loan Agreement which provides, INTER ALIA, that Borrower
shall not make any capital expenditures in excess of $12,000,000 during
Borrower's fiscal year ending September 30, 1997 as a result of Borrower's
making capital expenditures during Borrower's fiscal year ending September 30,
1997 in the amount of $18,502,000 hereby is waived in its entirety.
l. Borrower's violation of the negative covenant set forth in
SECTION 7.13 of the Loan Agreement which provides, INTER ALIA, that Borrower
shall not modify or change, in any material respect, its method of accounting
(except as required by GAAP) as a result of Borrower's adoption of voluntary
adjustments, including a change in accounting for direct response advertising
for Borrower's fiscal year ended September 30, 1997 and for each period ending
thereafter, including any accounting adjustments made as a result thereof,
hereby is waived in to the extent necessary to permit Borrower's adoption of
voluntary adjustments, including a change in accounting for direct response
advertising for Borrower's fiscal year ended September 30, 1997 and all
subsequent periods; and to make all necessary accounting adjustments in
connection therewith.
m. Borrower's violations of the negative covenant set forth
in SECTION 7.14 of the Loan Agreement which provides, INTER ALIA, that
Borrower shall not create and invest in new foreign Subsidiaries, unless WXCC
(or a Subsidiary of WXCC) pledges at least 66 2/3% of the capital stock of
such new foreign Subsidiary to Foothill pursuant to a written pledge
agreement in form and substance reasonably satisfactory to Foothill at the
time such capital stock first is issued as a result of Borrower's failure to
deliver to Foothill the requisite shares of capital stock those certain newly
created foreign Subsidiaries set forth on SCHEDULE 1 to this Amendment at the
time that such foreign Subsidiaries were created hereby are `waived in their
entirety through June 30, 1998.
4. FOOTHILL CONSENTS.
a. Foothill hereby consents to the incurrence of the Tel-Save
Indebtedness by Borrower and the execution by Borrower of the Subordinated Note.
In connection with Borrower's incurrence of the Tel-Save Indebtedness, Borrower
promptly shall provide Foothill with copies of all agreements to be entered into
by Borrower in connection with Borrower's incurrence of the Tel-Save
Indebtedness.
-7-
<PAGE>
b. Foothill hereby consents to the incurrence of the Permitted
Offering Indebtedness. In connection with Borrower's incurrence of the
Permitted Offering Indebtedness, Borrower promptly shall provide Foothill with
copies of all agreements to be entered into by Borrower in connection with
Borrower's incurrence of the Permitted Offering Indebtedness.
5. LIMITATION OF WAIVERS AND CONSENTS. The waiver and consents
contained herein are limited to the specifics hereof, shall not apply with
respect to any facts or occurrences other than those on which each such waiver
and consent are based, shall not excuse future non-compliance with the Loan
Agreement or any other Loan Document, (as they may from time to time be
amended), except and only to the extent expressly set forth herein, shall not
operate as a waiver or an amendment of any right, power or remedy of Foothill,
nor as a consent to any further or other matter, under any of the Loan
Documents.
6. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Amendment and of the Agreement, as amended by this Amendment, are within its
corporate powers, have been duly authorized by all necessary corporate action,
and are not in contravention of any law, rule, or regulation, or any order,
judgment, decree, writ, injunction, or award of any arbitrator, court, or
governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) this Amendment and the Agreement, as amended
by this Amendment, constitute Borrower's legal, valid, and binding obligation,
enforceable against Borrower in accordance with its terms.
7. CONDITIONS PRECEDENT TO AMENDMENT. The satisfaction of each of
the following, on or before the Third Amendment Closing Deadline, unless waived
or deferred by Foothill in its sole discretion, shall constitute conditions
precedent to the effectiveness of this Amendment:
a. Foothill shall have received a waiver fee in the amount of
$10,000 from Borrower in connection herewith.
b. Each of the Guarantors shall have executed and delivered a
Guaranty Reaffirmation and Consent in form and substance satisfactory to
Foothill;
c. Foothill shall have received the acknowledgment and
agreement of each of its Participants in the secured credit facilities extended
to Borrower under the Agreement to this Amendment;
d. The representations and warranties in this Amendment, the
Agreement as amended by this Amendment, and the other Loan Documents shall be
true
-8-
<PAGE>
and correct in all respects on and as of the date hereof, as though made on such
date (except to the extent that such representations and warranties relate
solely to an earlier date);
e. No Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default shall have occurred and
be continuing on the date hereof (except for and excluding those Events of
Default specifically waived hereby), nor shall result from the consummation of
the transactions contemplated herein;
f. No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against Borrower or Foothill; and
g. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Foothill
and its counsel.
8. FURTHER ASSURANCES. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time fully to consummate the transactions contemplated under this Amendment and
the Agreement, as amended by this Amendment.
9. MISCELLANEOUS.
a. Upon the effectiveness of this Amendment, each reference in
the Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of
like import referring to the Agreement shall mean and refer to the Agreement as
amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof"
or words of like import referring to the Agreement shall mean and refer to the
Agreement as amended by this Amendment.
c. As used in this Amendment, "Third Amendment Closing
Deadline" means May 1, 1998.
d. This Amendment shall be governed by and construed in
accordance with the laws of the State of California.
-9-
<PAGE>
e. This Amendment may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Amendment. Delivery of an
executed counterpart of this Amendment by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of this Amendment. Any
party delivering an executed counterpart of this Amendment by telefacsimile also
shall deliver a manually executed counterpart of this Amendment but the failure
to deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Amendment.
[Remainder of page left intentionally blank]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
COMMUNICATION TELESYSTEMS
INTERNATIONAL dba WORLDxCHANGE
COMMUNICATIONS,
a California corporation
By /s/ Edward S. Soren
-------------------------------
Title: Chairman of the Board
--------------------------
WXL COMMUNICATIONS, LTD.,
a Canadian corporation
By /s/ Edward S. Soren
-------------------------------
Title: President
--------------------------
CTS TELCOM, INC.,
a Florida corporation
By /s/ Edward S. Soren
-------------------------------
Title: President
--------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Kurt R. Marsden
-------------------------------
Title: Vice President
--------------------------
-11-
<PAGE>
PARTICIPANT ACKNOWLEDGEMENT AND CONSENT:
Each of the undersigned Participants hereby acknowledges and consents to the
foregoing Amendment in its entirety.
FREMONT FINANCIAL CORPORATION,
a California corporation
By /s/ [ILLEGIBLE]
-------------------------------
Title: Vice President
----------------------------
RESERVOIR CAPITAL CORPORATION,
a Maryland corporation
By
-------------------------------
Title:
----------------------------
-12-
<PAGE>
LIST OF OMITTED EXHIBITS AND SCHEDULES
The following Exhibits and Schedules to Amendment Number Three to the
Loan and Security Agreement have been omitted from this Exhibit and shall be
furnished supplementally to the Commission upon request:
Exhibit A - Subordinated Note
Schedule 1 - Subsidiaries
<PAGE>
- --------------------------------------------------------------------------------
AMENDMENT NUMBER FOUR TO
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
COMMUNICATION TELESYSTEMS INTERNATIONAL dba
WORLDxCHANGE COMMUNICATIONS
WXL COMMUNICATIONS, LTD.
CTS TELCOM, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF AUGUST 25, 1998
- --------------------------------------------------------------------------------
<PAGE>
AMENDMENT NUMBER FOUR TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER FOUR TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), is entered into as of August 25, 1998, among FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333, and COMMUNICATION TELESYSTEMS INTERNATIONAL, dba WORLDxCHANGE
Communications, a California corporation ("WXCC"), with its chief executive
office located at 9999 Willow Creek Road, San Diego, California 92131, WXL
COMMUNICATIONS, LTD., a Canadian corporation ("WXLC"), with its chief executive
office located at 9999 Willow Creek Road, San Diego, California 92131, and CTS
TELCOM, INC., a Florida corporation ("CTST"), with its chief executive office
located at 9999 Willow Creek Road, San Diego, California 92131 (WXCC, WXLC, and
CTST, and each of them, and any one or more of them, jointly and severally,
individually and collectively, "Borrower").
This Amendment is entered into with reference to the following facts:
A. WHEREAS, Foothill and Borrower are parties to that certain Loan and
Security Agreement, dated as of March 11, 1997, (as amended by that
certain Amendment Number One to Loan and Security Agreement dated, as
of December 31, 1997, by that certain Amendment No. Two to the Loan
and Security Agreement, dated as of February 20, 1998, and by that
certain Amendment Number Three of the Loan and Security Agreement,
dated as of April 27, 1998, and as otherwise from time to time
amended, modified, supplemented, renewed, extended or restated prior
to the date hereof, the "Loan Agreement");
B. WHEREAS, Borrower has previously obtained unsecured indebtedness in
the amount of $40,000,000 (the "Initial Tel-Save Junior Indebtedness")
from Tel-Save Holdings, Inc., a Delaware corporation ("Tel-Save");
C. WHEREAS, Borrower has requested that Foothill consent to additional
debt financing in the amount of $16,200,000 from Tel-Save (the
"Additional Tel-Save Junior Indebtedness," and together with the
Initial Tel-Save Junior Indebtedness, the "Tel-Save Junior
Indebtedness");
D. WHEREAS, Borrower has requested that Foothill consent to the grant of
a junior security interest in all of Borrower's tangible and
intangible personal property to Tel-Save to secure the Tel-Save Junior
Indebtedness (the "Tel-Save Junior Lien");
-1-
<PAGE>
E. WHEREAS, Borrower has requested that Foothill (i) consent to the
Additional Tel-Save Junior Indebtedness and the Tel-Save Junior Lien,
and (ii) amend the Loan Agreement to the extent necessary to permit
the Tel-Save Junior Indebtedness and the Tel-Save Junior Lien in
accordance with the terms and conditions hereof as set forth herein.
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained herein, Foothill and Borrower hereby agree as follows:
1. INITIALLY CAPITALIZED TERMS.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Loan Agreement, as amended hereby.
2. AMENDMENTS TO THE LOAN AGREEMENT.
a. Section 1.1 of the Loan Agreement is hereby amended by adding the
following definitions in alphabetical order:
"FOURTH AMENDMENT" means, that certain Amendment Number Four to Loan
and Security Agreement, dated as of August 25, 1998, between Foothill and
Borrower.
"TEL-SAVE" means Tel-Save Holdings, Inc., a Delaware corporation, with
its principal place of business at 6805 Route 202, New Hope, Pennsylvania
18938.
"TEL-SAVE JUNIOR INDEBTEDNESS" means indebtedness of Borrower to
Tel-Save in the aggregate principal amount not to exceed $56,200,000 that
is subject to the Tel-Save Intercreditor Agreement.
"TEL-SAVE INTERCREDITOR AGREEMENT" means, that certain Intercreditor
Agreement between Foothill on the one hand, and Tel-Save and Gerard Klauer
Mattison & Co., Inc. on the other hand, and acknowledged by WXCC, WXLC and
CTST dated August 25, 1998.
"TEL-SAVE PERMITTED LIENS" means those certain liens and security
interests granted by Borrower in favor of Tel-Save in respect of the
Tel-Save Junior Indebtedness, that are in each case subject to the Tel-Save
Intercreditor Agreement.
-2-
<PAGE>
b. Section 1.1 of the Loan Agreement is hereby amended by deleting
the following definitions in their entirety and replacing them with the
definitions set forth below in alphabetical order:
"LOAN DOCUMENTS" means, this Agreement, the First Amendment, the
Second Amendment, the Third Amendment, the Fourth Amendment, the Canadian
Security Agreements, the Pledge Agreements, the Disbursement Letter, the
Guarantees, the Guaranty Reaffirmation and Consents, the Tel-Save
Intercreditor Agreement, the Lockbox Agreements, any Mortgages hereafter
delivered by Borrower to Foothill, the Suretyship Agreement, any note or
notes executed by Borrower and payable to Foothill, and any other
agreement entered into, now or in the future, in connection with this
Agreement.
"PERMITTED LIENS" means, (a) liens and security interest held by
Foothill, (b) liens for unpaid taxes with respect to which Borrower is not
in breach of its covenants set forth in SECTION 6.9 of the Loan Agreement,
(c) liens and security interests set forth in SCHEDULE P-1 attached to the
Loan Agreement, (d) purchase money security interest and liens of lessors
under capital leases to the extent that the acquisition or lease of the
underlying asset was permitted under SECTION 7.10 of the Loan Agreement,
and so long as the security interest or lien only secures the obligations
of Borrower under the purchase agreement or lease with respect to the
purchase price of or rental payments with respect to the asset, interest or
finance charges with respect thereto, or related fees, costs, or expenses,
and does not secure unrelated obligation of Borrower to the holder of such
purchase agreement or lease, (e) easements, rights of way, reservations,
covenants, conditions, restrictions, zoning variances, and other similar
encumbrances that do not materially interfere with the use or value of the
property subject thereto, (f) obligations and duties as lessee under any
lease existing on the date of this Agreement, (g) mechanics',
materialmen's, warehousemen's, or similar liens that arise by operation of
law, (h) exceptions listed in any title insurance or commitment therefor
delivered by Borrower hereunder in respect of any Real Property and as are
approved in the sole discretion of Foothill, (i) liens with respect to
which Borrower is engaging in a Permitted Protest permitted by an express
provision of the Loan Documents, to the extent that Borrower is in
compliance with such provision, (j) Tel-Save Permitted Liens, and (k) liens
to the extent that Borrower is giving a grace period pursuant to an express
provision of the Loan Documents within which to remove or eliminate such
liens, and to the extent that Borrower is proceeding in compliance with
such provision to remove or eliminate such lien within such grace period.
-3-
<PAGE>
3. Subject to the terms and conditions hereof, including without
limitation the execution and delivery of the Tel-Save Intercreditor Agreement in
form and substance satisfactory to Foothill by each of the parties thereto,
Foothill hereby consents to (i) the incurrence of the Tel-Save Junior
Indebtedness by Borrower, (ii) the execution by Borrower of those certain notes,
not to exceed $56,200,000 in aggregate amount, in favor of Tel-Save or its
nominees attached hereto as EXHIBIT A (the "Subordinated Notes," and together
with any other agreements, instruments or other documents entered into in
connection with the Subordinated Notes, the "Tel-Save Transactional Documents"),
and (iii) to the grant of the Tel-Save Junior Lien pursuant to the Tel-Save
Transactional Documents. In connection with Borrower's incurrence of the
Tel-Save Junior Indebtedness, Borrower promptly shall provide Foothill with
copies of all Tel-Save Transactional Documents entered into by Borrower in
connection with Borrower's incurrence of the Tel-Save Junior Indebtedness.
4. LIMITATION OF WAIVERS AND CONSENTS. The waiver and consents
contained herein are limited to the specifics hereof, shall not apply with
respect to any facts or occurrences other than those on which each such
waiver and consent are based, shall not excuse future non-compliance with the
Loan Agreement or any other Loan Document, (as they may from time to time be
amended), except and only to the extent expressly set forth herein, shall not
operate as a waiver or an amendment of any right, power or remedy of
Foothill, nor as a consent to any further or other matter, under any of the
Loan Documents.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Amendment and of the Agreement, as amended by this Amendment, are within its
corporate powers, have been duly authorized by all necessary corporate action,
and are not in contravention of any law, rule, or regulation, or any order,
judgment, decree, writ, injunction, or award of any arbitrator, court, or
governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) this Amendment and the Agreement, as amended
by this Amendment, constitute Borrower's legal, valid, and binding obligation,
enforceable against Borrower in accordance with its terms.
6. CONDITIONS PRECEDENT TO AMENDMENT. The satisfaction of each of
the following, on or before the Third Amendment Closing Deadline, unless waived
or deferred by Foothill in its sole discretion, shall constitute conditions
precedent to the effectiveness of this Amendment:
a. Each of the Guarantors shall have executed and delivered a
Guaranty Reaffirmation and Consent in form and substance satisfactory to
Foothill;
-4-
<PAGE>
b. Each of the parties to the Tel-Save Intercreditor Agreement
shall have executed and delivered a counterpart of the Tel-Save Intercreditor
Agreement in form and substance satisfactory to Foothill;
c. The representations and warranties in this Amendment, the
Agreement as amended by this Amendment, and the other Loan Documents shall be
true and correct in all respects on and as of the date hereof, as though made on
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
d. No Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default shall have occurred and
be continuing on the date hereof (except for and excluding those Events of
Default specifically waived hereby), nor shall result from the consummation of
the transactions contemplated herein;
e. No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against Borrower or Foothill; and
f. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Foothill
and its counsel.
7. FURTHER ASSURANCES. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time fully to consummate the transactions contemplated under this Amendment and
the Agreement, as amended by this Amendment.
8. MISCELLANEOUS.
a. Upon the effectiveness of this Amendment, each reference in
the Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of
like import referring to the Agreement shall mean and refer to the Agreement as
amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof"
or words of like import referring to the Agreement shall mean and refer to the
Agreement as amended by this Amendment.
-5-
<PAGE>
c. This Amendment shall be governed by and construed in
accordance with the laws of the State of California.
d. This Amendment may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Amendment. Delivery of an
executed counterpart of this Amendment by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of this Amendment. Any
party delivering an executed counterpart of this Amendment by telefacsimile also
shall deliver a manually executed counterpart of this Amendment but the failure
to deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Amendment.
[Remainder of page left intentionally blank]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the date first written above.
COMMUNICATION TELESYSTEMS
INTERNATIONAL dba WORLDxCHANGE
COMMUNICATIONS,
a California corporation
By /s/ Edward S. Soren
-------------------------------
Title: President
--------------------------
WXL COMMUNICATIONS, LTD.,
a Canadian corporation
By /s/ Edward S. Soren
-------------------------------
Title: President
--------------------------
CTS TELCOM, INC.,
a Florida corporation
By /s/ Edward S. Soren
-------------------------------
Title: President
--------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Kurt R. Marsden
-------------------------------
Title: Vice President
---------------------------
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<PAGE>
OMITTED SCHEDULE
The following Schedule to the Amendment Number Four to the Loan and
Security Agreement has been omitted from this Exhibit and shall be furnished
supplementally to the Commission upon request:
Exhibit A - Subordinated Notes
<PAGE>
EXHIBIT 10.16.5
AMENDMENT NUMBER FIVE TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER FIVE TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of December 29, 1998, by and between FOOTHILL
CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of
business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025-3333, on the one hand, and, on the other hand, COMMUNICATION
TELESYSTEMS INTERNATIONAL, dba WORLDxCHANGE Communications, a California
corporation ("WXCC"), with its chief executive office located at 9999 Willow
Creek Road, San Diego, California 92131, WXL COMMUNICATIONS, LTD., a Canadian
corporation ("WXLC"), with its chief executive office located at 9999 Willow
Creek Road, San Diego, California 92131, and CTS TELCOM, INC., a Florida
corporation ("CTST"), with its chief executive office located at 9999 Willow
Creek Road, San Diego, California 92131 (WXCC, WXLC, and CTST, and each of them,
and any one or more of them, jointly and severally, individually and
collectively, "Borrower"), with reference to the following facts:
A. WHEREAS, Foothill, as lender, and Borrower are parties to that certain
Loan and Security Agreement, dated as of March 11, 1997, as amended by
that certain Amendment Number One to Loan and Security Agreement,
dated as of December 31, 1997, as amended by that certain Amendment
No. Two to the Loan and Security Agreement, dated as of February 20,
1998, as amended by that certain Amendment Number Three to Loan and
Security Agreement, dated as of April 27, 1998, and as amended by that
certain Amendment Number Four to Loan and Security Agreement, dated as
of August 25, 1998 (as from time to time amended, modified,
supplemented, renewed, extended, or restated, including, without
limitation, by this Amendment Number Five and by the prior amendments
to the aforesaid loan agreement specifically referred to above, the
"Loan Agreement");
B. WHEREAS, Borrower has requested Foothill to (i) amend the Loan
Agreement to revise the minimum consolidated net worth required under
SECTION 6.11 of the Loan Agreement, (ii) consent to the change of the
name WXLC to "WorldxChange Communications, Inc.," (iii) consent to
the creation of a new subsidiary of WXCC to be named "CTS Telcom
Holdings, Inc. ("Holdings"), and (iv) consent to the contribution of
the capital stock of CTST to Holdings;
C. WHEREAS, Foothill is willing to (i) so amend the Loan Agreement in
accordance with the terms and conditions hereof to revise the
consolidated net worth required under SECTION 6.11 of the Loan
Agreement as set forth herein, (ii) consent to the change of the name
of WXLC to "WorldxChange Communications, Inc.," (iii) consent to the
creation of a new subsidiary of WXCC to be named "CTS Telcom Holdings,
Inc. ("Holdings"), and (iv) consent to the contribution of the capital
stock of CTST to Holdings;
D. NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained herein, Foothill and Borrower hereby agree as
follows:
1.
<PAGE>
1. INITIALLY CAPITALIZED TERMS.
All capitalized terms used herein and not defined herein shall have
the meanings ascribed to them in the Loan Agreement, as amended hereby.
2. AMENDMENTS TO THE LOAN AGREEMENT.
a. The reference to "WXL Communications, Ltd." contained in the
initial paragraph to the Loan Agreement, and each subsequent reference thereto
contained therein is hereby deleted and replaced in its entirety with
"WorldxChange Communications, Inc."
b. The reference to "WXLC" contained in the initial paragraph
to the Loan Agreement, and each subsequent reference thereto contained therein
is hereby deleted and replaced in its entirety with "WXC,"
c. SECTION 1.1 of the Loan Agreement hereby is amended by
adding the following defined terms in alphabetical order:
"FIFTH AMENDMENT means, that certain Amendment Number Five to
Loan and Security Agreement, dated as of December 29, 1998, between
Foothill and Borrower."
"FIFTH AMENDMENT CLOSING DATE means the date on which all
conditions precedent to the Fifth Amendment are satisfied and Foothill
shall make the Term Loan."
"WXC" has the meaning ascribed to such term in the introductory
paragraph of this Agreement."
d. SECTION 1.1 of the Loan Agreement hereby is amended,
effective as of September 30, 1998, by adding the following defined term in its
entirety in alphabetical order:
"TANGIBLE NET WORTH means, as of any date of determination, the
difference of (a) Borrower's total stockholder's equity, MINUS (b) the sum
of; (i) all Intangible Assets of Borrower, (ii) all of Borrower's prepaid
expenses, and (iii) all amounts due to Borrower from Affiliates which are
not Subsidiaries PLUS (c) the sum of; (1) the non-cash portion of any
foreign currency translation adjustments reflected on the balance sheet of
Borrower or any of its Subsidiaries in accordance with the Financial
Accounting Standards Board, Statement of Financial Accounting Standards,
Number 52, (2) all amounts due under all secured and unsecured Indebtedness
subject to Subordination Agreements approved in writing by Foothill prior
to any such date of determination, (3) any amounts due to any Affiliate of
Borrower which is not a Subsidiary of Borrower in connection with any note
payable from Borrower to such Affiliate, and (4) any amounts received in
connection with the issuance of any preferred shares of the capital stock
of Borrower, whether or not such preferred shares are convertible into
shares of the common capital stock of Borrower."
2.
<PAGE>
e. SECTION 1.1 of the Loan Agreement is hereby amended by
deleting the following defined terms in their entirety and replacing them in
their entirety with the defined terms set forth below in alphabetical order:
"BORROWER means WXCC, WXC, and CTST, and each of them, and
any one or more of them, collectively and individually, and jointly
and severally, and any other Person that now or in the future executes
and delivers a joinder to this Agreement as a Borrower."
"GUARANTY REAFFIRMATION AND CONSENT" means that certain
guaranty reaffirmation and consent, dated as of December 29, 1998,
entered into by each of the Guarantors in favor of Foothill."
"LOAN DOCUMENTS means, this Agreement, the First Amendment,
the Second Amendment, the Third Amendment, the Fourth Amendment, the
Fifth Amendment, the Canadian Security Agreements, the Pledge
Agreements, the Disbursement Letter, the Guarantees, the Guaranty
Reaffirmation and Consent, the Tel-Save Intercreditor Agreement, the
Lockbox Agreements, any Mortgages hereafter delivered by Borrower to
Foothill, the Suretyship Agreement, any note or notes executed by
Borrower and payable to Foothill, and any other agreement entered
into, now or in the future, in connection with this Agreement."
f. SECTION 1.1 of the Loan Agreement is hereby amended,
effective as of September 30, 1998, by deleting the following defined term in
its entirety and replacing it in its entirety with the defined term set forth
below:
"SPECIFIED AMOUNT" means, with respect to each of Borrower's
fiscal quarters set forth below, the corresponding amount set forth
below.
<TABLE>
<CAPTION>
QUARTER ENDING SPECIFIED AMOUNT
-------------- ----------------
<S> <C>
September 30, 1998 < $23,000,000 >
December 31, 1998 < $35,700,000 >
March 31, 1999 < $46,200,000 >
June 30, 1999 < $49,200,000 >
September 30, 1999 < $45,200,000 >
December 31, 1999 < $43,200,000 >
</TABLE>
g. SECTION 1.1 of the Loan Agreement is hereby amended by
deleting the following defined terms in their entirety:
3.
<PAGE>
"ADJUSTED CONSOLIDATED NET WORTH"
"GUARANTY REAFFIRMATION AND CONSENT"
"WXLC"
h. SECTION 1.2 of the Loan Agreement is hereby amended by
inserting the following in its entirety immediately after the final sentence
thereof:
"Should any Person become an additional Borrower after the Closing
Date with the consent of Foothill by executing and delivering a joinder to this
Agreement, Borrower and Foothill will negotiate in good faith to, at Foothill's
option, either redetermine the relevant accounting or financial amounts or
ratios herein for Borrower or determine new accounting or financial amounts or
ratios in respect of such additional Borrower on a separate basis, in each case,
at reasonable levels within thirty days following the date of such joinder
taking into account the effect of such joinder."
(The foregoing shall not apply to the entry of Holdings into a joinder
in connection with this Amendment.)
i. SECTION 1.4 of the Loan Agreement is hereby amended by
deleting final sentence thereof in its entirety and replacing it with the
following:
"Any reference in this Agreement or in the Loan Documents to this
Agreement or any of the Loan Documents shall include all alterations,
amendments, changes, extensions, modifications, renewals, replacements,
joinders, substitutions, and supplements, thereto and thereof, as applicable."
j. Effective as of September 30, 1998, SECTION 6.11 of the Loan
Agreement hereby is deleted in its entirety and the following is hereby
substituted in lieu thereof:
"6.11 FINANCIAL COVENANT. Maintain minimum Tangible Net Worth of not
less than the Specified Amount, measured on a fiscal quarter-end basis."
k. Effective as of September 30, 1998, SECTION 7.8(b) of the
Loan Agreement hereby is deleted in its entirety and the following is hereby
substituted in lieu thereof:
"(b) pay any principal with respect to any Indebtedness that is
subordinated to the Obligations under a Subordination Agreement (regardless
of the maturity or principal amortization terms of such subordinated
Indebtedness as between Borrower and the holders thereof), or make any
payment with respect to such subordinated Indebtedness in violation of the
terms of the Subordination Agreement applicable thereto (giving maximum
effect to any optional or discretionary right of Borrower to subordinate or
defer payment of such subordinated Indebtedness to payment of the
Obligations); PROVIDED, HOWEVER, that Borrower may make principal payments
with respect to such subordinated Indebtedness (i) during any fiscal year in
an amount not to exceed $300,000, so long as after giving effect to such
payment, Borrower has Total Availability of not less than $1,000,000, and
(ii) during any fiscal year in an amount in excess of $300,000 so long as (y)
at the time of the making of such payment, Borrower has a
4.
<PAGE>
Tangible Net Worth equal to the Specified Amount plus $5,000,000, or greater,
and (z) so long as after giving effect to such payment, Borrower has Total
Availability of not less than $2,000,000; and"
l. The following new SECTION 6.20 is added to the Loan
Agreement in its entirety, immediately following the existing SECTION 6.19
thereof:
"6.20 JOINDER. In connection with any means an acquisition of all or
substantially all of the assets or Stock of any existing Borrower by any
Subsidiary or Affiliate of any other existing Borrower, subject to the prior
written consent of Foothill and in accordance with the terms of this Agreement
(a "Permitted Acquisition"), so long as no Event of Default shall have occurred
and be continuing or would result from the consummation of the Permitted
Acquisition, such other existing Borrower shall cause each of the following to
be satisfied: (a) cause each such Subsidiary or Affiliate to execute and deliver
all appropriate joinder documents to make it a Borrower under this Agreement,
(b) cause each such Subsidiary or Affiliate to execute and deliver any other
appropriate joinder documents to the Loan Documents and of appropriate UCC-1
financing statements, fixture filings, Collateral Access Agreements, in each
case as determined by Foothill in its sole credit judgment; (c) cause the
execution and delivery by the holders of the capital stock of any such
Subsidiary or Affiliate of appropriate supplements to the Pledge Agreement, and
the delivery to Foothill of possession of the original stock certificates,
respecting all of the issued and outstanding shares of stock of such Subsidiary
or Affiliate, together with stock powers with respect thereto endorsed in blank.
3. CONSENT TO CERTAIN TRANSACTIONS. Anything contained in the Loan
Agreement or the other Loan Documents to the contrary notwithstanding, Foothill
hereby consents:
a. to the change of the name of WXLC to "WorldxChange
Communications, Inc.;"
b. to the creation of Holdings as a new Subsidiary of WXCC; and
c. to the contribution of 100% of the capital stock of CTST to
Holdings.
4. OMNIBUS AMENDMENT TO OTHER LOAN DOCUMENTS. Each reference to
"WXL Communications, Ltd." and all other references to "WXLC" contained in each
other Loan Document is hereby deleted and replaced in its entirety with
"WorldxChange Communications, Inc." and "WXC," MUTATIS MUTANDIS.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Amendment and of the Loan Agreement, as amended by this Amendment, are within
its corporate powers, have been duly authorized by all necessary corporate
action, and are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any arbitrator, court, or
governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) this Amendment and the Loan Agreement, as
amended by this Amendment, constitute Borrower's legal, valid, and binding
obligation, enforceable against Borrower in accordance with its terms.
5.
<PAGE>
6. CONDITIONS PRECEDENT TO AMENDMENT. The satisfaction of each of
the following on or before the Fifth Amendment Closing Date shall constitute
conditions precedent to the effectiveness of this Amendment:
a. Each Guarantor shall have executed and delivered the
Guaranty Reaffirmation and Consent in form and substance satisfactory to
Foothill;
b. Holdings shall have executed and delivered a joinder to the
Loan Agreement in form and substance satisfactory to Foothill;
c. WXCC shall have executed and delivered appropriate
supplements to the Pledge Agreement, and the delivery to Foothill of
possession of the original stock certificates, respecting all of the issued
and outstanding shares of stock of Holdings, together with stock powers with
respect thereto endorsed in blank, in form and substance satisfactory to
Foothill;
d. Foothill shall have received an amendment fee in the amount
of $10,000 in connection herewith;
e. Borrower shall have executed and delivered an officer's
certificate with respect to this Fifth Amendment in form and substance
satisfactory to Foothill;
f. Foothill shall have received the acknowledgment and
agreement of each of its Participants in the secured credit facilities
extended to Borrower under the Agreement to this Amendment;
g. The representations and warranties in this Amendment, the
Loan Agreement as amended by this Amendment, and the other Loan Documents shall
be true and correct in all respects on and as of the date hereof, as though made
on such date (except to the extent that such representations and warranties
relate solely to an earlier date);
h. No Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default shall have occurred and
be continuing on the date hereof, nor shall result from the consummation of the
transactions contemplated herein;
i. No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against Borrower, Foothill, or any of their
Affiliates;
j. The Collateral shall not have declined materially in value
from the values set forth in the most recent appraisals or field examinations
previously done by Foothill; and
k. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Foothill
and its counsel.
6.
<PAGE>
7. EFFECT ON LOAN AGREEMENT. The Loan Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Amendment shall not operate as a waiver of or,
except as expressly set forth herein, as an amendment, of any right, power, or
remedy of Foothill under the Loan Agreement, as in effect prior to the date
hereof. The consents contained herein are limited to the specifics hereof,
shall not apply with respect to any facts or occurrences other than those on
which each such consents are based, shall not excuse future non-compliance with
the Loan Agreement or any other Loan Document, (as they may from time to time be
amended), except and only to the extent expressly set forth herein, shall not
operate as a waiver of an amendment of any right, power or remedy of Foothill,
nor as a consent to any further or other matter, under any of the Loan
Documents.
8. FURTHER ASSURANCES. Borrower shall, and shall cause Guarantor
to, execute and deliver all agreements, documents, and instruments, in form and
substance satisfactory to Foothill, and take all actions as Foothill may
reasonably request from time to time, to perfect and maintain the perfection and
priority of Foothill's security interests in the Collateral, and to fully
consummate the transactions contemplated under this Amendment and the Loan
Agreement, as amended by this Amendment.
9. MISCELLANEOUS.
a. Upon the effectiveness of this Amendment, each reference in
the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or words
of like import referring to the Loan Agreement shall mean and refer to the Loan
Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof"
or words of like import referring to the Loan Agreement shall mean and refer to
the Loan Agreement as amended by this Amendment.
c. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart.
[Remainder of page intentionally left blank]
7.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
------------------------------
Title:
------------------------------
COMMUNICATION TELESYSTEMS
INTERNATIONAL, dba
WORLDxCHANGE COMMUNICATIONS,
a California corporation
By /s/ Edward S. Soren
------------------------------
Title: Chairman of the Board
-------------------------
WXL COMMUNICATIONS, LTD.,
a Canadian corporation
By /s/ Edward S. Soren
------------------------------
Title: President
-----------------------------
CTS TELCOM, INC.,
a Florida corporation
By /s/ Edward S. Soren
------------------------------
Title: President
-----------------------------
[APPROVED BY
LEGAL DEPT.
- -----------
/s/ [ILLEGIBLE]
- ---------------
ATTORNEY, DATE]
- ---------------
8.
<PAGE>
AMENDMENT NUMBER SIX TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER SIX TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is entered into as of March 15, 1999, by and between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333, on the one hand, and, on the other hand, COMMUNICATION TELESYSTEMS
INTERNATIONAL, dba WORLDxCHANGE Communications, a California corporation
("WXCC"), with its chief executive office located at 9999 Willow Creek Road, San
Diego, California 92131, WORLDxCHANGE COMMUNICATIONS, INC., a Canadian
corporation ("WXC"), with its chief executive office located at 9999 Willow
Creek Road, San Diego, California 92131, CTS TELCOM HOLDINGS, INC., a Delaware
corporation ("Holdings"), with its chief executive office located at 9999 Willow
Creek Road, San Diego, California 92131 and CTS TELCOM, INC., a Florida
corporation ("CTST"), with its chief executive office located at 9999 Willow
Creek Road, San Diego, California 92131 (WXCC, WXC, Holdings, and CTST, and each
of them, and any one or more of them, jointly and severally, individually and
collectively, "Borrower"), with reference to the following facts:
A. WHEREAS, Foothill, as lender, and Borrower are parties to that
certain Loan and Security Agreement, dated as of March 11, 1997, as
amended by that certain Amendment Number One to Loan and Security
Agreement, dated as of December 31, 1997, as amended by that certain
Amendment No. Two to the Loan and Security Agreement, dated as of
February 20, 1998, as amended by that certain Amendment Number Three
to Loan and Security Agreement, dated as of April 27, 1998, as amended
by that certain Amendment Number Four to Loan and Security Agreement,
dated as of August 25, 1998, as amended by that certain Amendment
Number Five to Loan and Security Agreement, dated as of December 29,
1998, (as from time to time amended, modified, supplemented, renewed,
extended, or restated, including, without limitation, by this
Amendment Number Six and by the prior amendments to the aforesaid loan
agreement specifically referred to above, the "Loan Agreement");
B. WHEREAS, Holdings as "New Subsidiary," together with WXCC, WXC,
and CTST on the one hand and Foothill on the other hand are parties to
that certain Subsidiary Joinder, dated as of February 4, 1999,
pursuant to which Holdings has agreed to become a party to the Loan
Agreement and the other Loan Documents;
C. WHEREAS, Borrower has requested Foothill to amend the Loan
Agreement to extend the Special Bridge Advance Component Termination
Date and revise the amortization of the Reducing Amount;
D. WHEREAS, Foothill is willing to (i) so amend the Loan Agreement
in accordance with the terms and conditions hereof to extend the
Special Bridge Advance Component Termination Date and revise the
amortization of the Reducing Amount as set forth herein;
1.
<PAGE>
E. NOW, THEREFORE, in consideration of the above recitals and the
mutual promises contained herein, Foothill and Borrower hereby agree
as follows:
1. INITIALLY CAPITALIZED TERMS.
All capitalized terms used herein and not defined herein shall have
the meanings ascribed to them in the Loan Agreement, as amended hereby.
2. AMENDMENTS TO THE LOAN AGREEMENT.
a. SECTION 1.1 of the Loan Agreement hereby is amended by
adding the following defined terms in alphabetical order:
"HOLDINGS means, CTS Telcom Holdings, Inc., a Delaware
corporation."
"SIXTH AMENDMENT means, that certain Amendment Number Six to Loan
and Security Agreement, dated as of March 15, 1999, between Foothill and
Borrower."
b. SECTION 1.1 of the Loan Agreement is hereby amended by
deleting the following defined terms in their entirety and replacing them in
their entirety with the defined terms set forth below in alphabetical order:
"BORROWER means WXCC, WXC, Holdings, and CTST, and each of
them, and any one or more of them, collectively and individually, and
jointly and severally, and any other Person that now or in the future
executes and delivers a joinder to this Agreement as a Borrower."
"GUARANTY REAFFIRMATION AND CONSENT" means that certain
guaranty reaffirmation and consent, dated as of March 15, 1999,
entered into by each of the Guarantors in favor of Foothill."
"LOAN DOCUMENTS means, this Agreement, the First Amendment,
the Second Amendment, the Third Amendment, the Fourth Amendment, the
Fifth Amendment, the Sixth Amendment, the Canadian Security
Agreements, the Pledge Agreements, the Disbursement Letter, the
Guarantees, the Guaranty Reaffirmation and Consent, the Tel-Save
Intercreditor Agreement, the Lockbox Agreements, any Mortgages
hereafter delivered by Borrower to Foothill, the Suretyship Agreement,
any note or notes executed by Borrower and payable to Foothill, and
any other agreement entered into, now or in the future, in connection
with this Agreement."
"REDUCING AMOUNT means, as of any date of determination thereof,
$5,000,007.01, as of the Closing Date, reduced cumulatively on the first
and the fifteenth day of each calendar month, commencing April 1, 1999, and
continuing thereafter on the first and the fifteenth day of each succeeding
calendar month, by a bi-monthly reduction of $150,000.00."
2.
<PAGE>
"SPECIAL BRIDGE ADVANCE COMPONENT TERMINATION DATE means the
earlier of (a) the Termination Date, and (b) the first date that Foothill
receives a signed written notice from Borrower stating in substance that
Borrower has elected irrevocably to terminate, and reduce to Zero Dollars,
the Special Bridge Advance Component."
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Amendment and of the Loan Agreement, as amended by this Amendment, are within
its corporate powers, have been duly authorized by all necessary corporate
action, and are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any arbitrator, court, or
governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) this Amendment and the Loan Agreement, as
amended by this Amendment, constitute Borrower's legal, valid, and binding
obligation, enforceable against Borrower in accordance with its terms.
4. CONDITIONS PRECEDENT TO AMENDMENT. The satisfaction of each of
the following on or before April 1, 1999, shall constitute conditions precedent
to the effectiveness of this Amendment:
a. Each Guarantor shall have executed and delivered the
Guaranty Reaffirmation and Consent in form and substance satisfactory to
Foothill;
b. Foothill shall have received an amendment fee in the amount
of $10,000 in connection herewith;
c. Borrower shall have executed and delivered an officer's
certificate with respect to this Sixth Amendment in form and substance
satisfactory to Foothill;
d. Foothill shall have received the acknowledgment and
agreement of each of its Participants in the secured credit facilities extended
to Borrower under the Agreement to this Amendment;
e. The representations and warranties in this Amendment, the
Loan Agreement as amended by this Amendment, and the other Loan Documents shall
be true and correct in all respects on and as of the date hereof, as though made
on such date (except to the extent that such representations and warranties
relate solely to an earlier date);
f. No Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default shall have occurred and
be continuing on the date hereof, nor shall result from the consummation of the
transactions contemplated herein;
g. No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against Borrower, Foothill, or any of their
Affiliates;
h. The Collateral shall not have declined materially in value
from the values set forth in the most recent appraisals or field examinations
previously done by Foothill; and
3.
<PAGE>
i. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Foothill
and its counsel.
5. EFFECT ON LOAN AGREEMENT. The Loan Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Amendment shall not operate as a waiver of or,
except as expressly set forth herein, as an amendment, of any right, power, or
remedy of Foothill under the Loan Agreement, as in effect prior to the date
hereof. The consents contained herein are limited to the specifics hereof,
shall not apply with respect to any facts or occurrences other than those on
which each such consents are based, shall not excuse future non-compliance with
the Loan Agreement or any other Loan Document, (as they may from time to time be
amended), except and only to the extent expressly set forth herein, shall not
operate as a waiver of an amendment of any right, power or remedy of Foothill,
nor as a consent to any further or other matter, under any of the Loan
Documents.
6. FURTHER ASSURANCES. Borrower shall, and shall cause Guarantor
to, execute and deliver all agreements, documents, and instruments, in form and
substance satisfactory to Foothill, and take all actions as Foothill may
reasonably request from time to time, to perfect and maintain the perfection and
priority of Foothill's security interests in the Collateral, and to fully
consummate the transactions contemplated under this Amendment and the Loan
Agreement, as amended by this Amendment.
7. MISCELLANEOUS.
a. Upon the effectiveness of this Amendment, each reference in
the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or words
of like import referring to the Loan Agreement shall mean and refer to the Loan
Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof"
or words of like import referring to the Loan Agreement shall mean and refer to
the Loan Agreement as amended by this Amendment.
c. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart.
[Remainder of page intentionally left blank]
4.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
------------------------------
Title:
---------------------------
COMMUNICATION TELESYSTEMS
INTERNATIONAL dba
WORLDxCHANGE COMMUNICATIONS,
a California corporation
By:
------------------------------
Title:
--------------------------
WORLDxCHANGE COMMUNICATIONS,
INC., a Canadian corporation
By:
------------------------------
Title:
----------------------------
CTS TELCOM HOLDINGS, INC.,
a Delaware corporation
By:
------------------------------
Title:
---------------------------
CTS TELCOM, INC.,
a Florida corporation
By:
------------------------------
Title:
----------------------------
5.
<PAGE>
AMENDMENT NUMBER SEVEN TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER SEVEN TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of June 16, 1999, by and between FOOTHILL
CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of
business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025-3333, on the one hand, and, on the other hand, COMMUNICATION
TELESYSTEMS INTERNATIONAL, dba WORLDxCHANGE Communications, a California
corporation ("WXCC"), with its chief executive office located at 9999 Willow
Creek Road, San Diego, California 92131, WORLDxCHANGE COMMUNICATIONS, INC., a
Canadian corporation ("WXC"), with its chief executive office located at 9999
Willow Creek Road, San Diego, California 92131, CTS TELCOM HOLDINGS, INC., a
Delaware corporation ("Holdings"), with its chief executive office located at
9999 Willow Creek Road, San Diego, California 92131 and CTS TELCOM, INC., a
Florida corporation ("CTST"), with its chief executive office located at 9999
Willow Creek Road, San Diego, California 92131 (WXCC, WXC, Holdings, and CTST,
and each of them, and any one or more of them, jointly and severally,
individually and collectively, "Borrower"), with reference to the following
facts:
A. WHEREAS, Foothill, as lender, and Borrower are parties to that
certain Loan and Security Agreement, dated as of March 11, 1997, as
amended by that certain Amendment Number One to Loan and Security
Agreement, dated as of December 31, 1997, as amended by that certain
Amendment No. Two to the Loan and Security Agreement, dated as of
February 20, 1998, as amended by that certain Amendment Number Three
to Loan and Security Agreement, dated as of April 27, 1998, as amended
by that certain Amendment Number Four to Loan and Security Agreement,
dated as of August 25, 1998, as amended by that certain Amendment
Number Five to Loan and Security Agreement, dated as of December 29,
1998, and as amended by that certain Amendment Number Six to Loan and
Security Agreement, dated as of March 15, 1999 (as so amended and as
otherwise amended, modified, supplemented, renewed, extended, or
restated from time to time, including, without limitation, by this
Amendment the "Loan Agreement");
B. WHEREAS, Borrower has requested Foothill to amend the Loan
Agreement to (i) increase the advance rate for Advances, (ii) increase
the Permitted Capital Expenditure Amount, and (ii) provide for an
Advance to fund, in part, the consideration to be paid by Borrower in
connection with the acquisition of a share in a submarine cable;
C. WHEREAS, Foothill is willing to so amend the Loan Agreement in
accordance with the terms and conditions hereof;
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained herein, Foothill and Borrower hereby agree as follows:
1. INITIALLY CAPITALIZED TERMS.
<PAGE>
All capitalized terms used herein and not defined herein shall have
the meanings ascribed to them in the Loan Agreement, as amended hereby.
2. AMENDMENTS TO THE LOAN AGREEMENT.
a. SECTION 1.1 of the Loan Agreement hereby is amended by
adding the following defined terms in alphabetical order:
"SEVENTH AMENDMENT means, that certain Amendment Number Seven to
Loan and Security Agreement, dated as of June 16, 1999, between Foothill
and Borrower."
"SOUTHERN CROSS LOAN" means an Advance to fund a portion of the
consideration paid by Borrower for the acquisition of an IRU interest in a
submarine cable from Southern Cross Cables Limited, such Advance to be in
an amount not to exceed the lesser of (a) $1,400,000, and (b) 80% of the
total consideration paid by Borrower for such acquisition.
b. SECTION 1.1 of the Loan Agreement is hereby amended by
deleting the following defined terms:
"BASE PERMITTED CAPITAL EXPENDITURE AMOUNT"
"CARRYOVER AMOUNT"
c. SECTION 1.1 of the Loan Agreement is hereby amended by
deleting the following defined terms in their entirety and replacing them in
their entirety with the defined terms set forth below in alphabetical order:
"DIRECT ACCOUNT DILUTION RESERVE" means, as of any date of
determination by Foothill, which determinations shall not be made more
frequently than monthly without the consent of Borrower unless an Event of
Default has occurred and is continuing, an amount sufficient to reduce
Foothill's advance rate against Direct Accounts by one percentage point
for each percentage point by which Direct Account Dilution is in excess of
five percent (5%).
"LOAN DOCUMENTS means, this Agreement, the Canadian Security
Agreements, the Pledge Agreements, the Disbursement Letter, the Guarantees,
the Tel-Save Intercreditor Agreement, the Lockbox Agreements, any
Mortgages hereafter delivered by Borrower to Foothill, the Suretyship
Agreement, any note or notes executed by Borrower and payable to Foothill,
and any other agreement entered into, now or in the future, in connection
with this Agreement."
"REDUCING AMOUNT" means, as of any date of determination thereof,
the sum of (a) $5,000,007.01, as of the Closing Date, reduced cumulatively
on the first and fifteenth day of each calendar month, commencing April 1,
1999, and continuing thereafter on the first and fifteenth day of each
succeeding calendar month, by a bi-monthly reduction of $150,000, PLUS (b)
from and after the making of the Southern
<PAGE>
Cross Loan, an amount equal to the Southern Cross Loan.
d. SECTION 1.1 of the Loan Agreement is hereby amended,
effective as of March 31, 1999, by deleting the following defined terms in their
entirety and replacing them in their entirety with the defined terms set forth
below in alphabetical order:
"PERMITTED CAPITAL EXPENDITURE AMOUNT" means (a) $100,000,000 for
Borrower's fiscal year ending September 30, 1999, and (b) an amount equal
to the result of $175,000,000, MINUS the amount of capital expenditures
made by Borrower during Borrower's fiscal year ending September 30, 1999,
for Borrower's fiscal year ending September 30, 2000.
e. CLAUSES (w) AND (x) of the definition of "Borrowing Base"
contained in SECTION 2.1 of the Loan Agreement hereby are amended and restated
in their entirety to read as follows:
(w) eighty-five percent (85%) of the result of the following
calculation: (the amount of Eligible Direct Accounts, LESS the amount, if
any, of the Direct Account Dilution Reserve), PLUS
(x) fifty percent (50%) of Eligible Unbilled Direct Accounts,
PLUS
f. SECTION 7.10 of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:
7.10 CAPITAL EXPENDITURES. (a) Make any capital expenditures in
the aggregate in excess of the Permitted Capital Expenditure Amount during
any fiscal year; or (b) make any capital expenditures (other than capital
expenditures financed with purchase money Indebtedness) at any time unless
Total Availability at such time is equal to or greater than $3,000,000
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Amendment and of the Loan Agreement, as amended by this Amendment, are within
its corporate powers, have been duly authorized by all necessary corporate
action, and are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any arbitrator, court, or
governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) this Amendment and the Loan Agreement, as
amended by this Amendment, constitute Borrower's legal, valid, and binding
obligation, enforceable against Borrower in accordance with its terms.
4. TERMINATION OF GUARANTY. Foothill hereby agrees that the
Guarantees executed by each of Roger B. Abbott, Rosalind Abbott, and Edward S.
Soren, shall be terminated.
5. CONDITIONS PRECEDENT TO AMENDMENT. The satisfaction of each of
the following on or before June 25, 1999, shall constitute conditions precedent
to the effectiveness of this Amendment:
<PAGE>
a. Foothill shall have received an amendment fee in the amount
of $12,500 in connection herewith;
b. Borrower shall have executed and delivered an officer's
certificate with respect to this Seventh Amendment in form and substance
satisfactory to Foothill;
c. Borrower shall have delivered to Foothill, the Sixth
Amendment, duly executed by Borrower, together with all agreements and documents
entered into or executed in connection therewith;
d. Foothill shall have received the acknowledgment and
agreement of each of its Participants in the secured credit facilities extended
to Borrower under the Agreement to this Amendment;
e. The representations and warranties in this Amendment, the
Loan Agreement as amended by this Amendment, and the other Loan Documents shall
be true and correct in all respects on and as of the date hereof, as though made
on such date (except to the extent that such representations and warranties
relate solely to an earlier date);
f. No Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default shall have occurred and
be continuing on the date hereof, nor shall result from the consummation of the
transactions contemplated herein;
g. No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against Borrower, Foothill, or any of their
Affiliates;
h. The Collateral shall not have declined materially in value
from the values set forth in the most recent appraisals or field examinations
previously done by Foothill; and
i. All other documents and legal matters in connection with the
transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to Foothill
and its counsel.
6. EFFECT ON LOAN AGREEMENT. The Loan Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its respective
terms and hereby is ratified and confirmed in all respects. The execution,
delivery, and performance of this Amendment shall not operate as a waiver of or,
except as expressly set forth herein, as an amendment, of any right, power, or
remedy of Foothill under the Loan Agreement, as in effect prior to the date
hereof. The consents contained herein are limited to the specifics hereof,
shall not apply with respect to any facts or occurrences other than those on
which each such consents are based, shall not excuse future non-compliance with
the Loan Agreement or any other Loan Document, (as they may from time to time be
amended), except and only to the extent expressly set forth herein, shall not
operate as a waiver or an amendment of any right, power or remedy of Foothill,
nor as a consent to any further or other matter, under any of the Loan
Documents.
<PAGE>
7. FURTHER ASSURANCES. Borrower shall, and shall cause Guarantor
to, execute and deliver all agreements, documents, and instruments, in form and
substance satisfactory to Foothill, and take all actions as Foothill may
reasonably request from time to time, to perfect and maintain the perfection and
priority of Foothill's security interests in the Collateral, and to fully
consummate the transactions contemplated under this Amendment and the Loan
Agreement, as amended by this Amendment.
8. MISCELLANEOUS.
a. Upon the effectiveness of this Amendment, each reference in
the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or words
of like import referring to the Loan Agreement shall mean and refer to the Loan
Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference in
the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof"
or words of like import referring to the Loan Agreement shall mean and refer to
the Loan Agreement as amended by this Amendment.
c. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart. Delivery of an executed counterpart of this Amendment by
fax shall be equally as effective as a manually executed counterpart. Any party
delivering any executed counterpart to this Amendment by fax shall also deliver
a manually executed counterpart, but the failure to so deliver a manually
executed counterpart shall not affect the effectiveness or validity hereof.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
------------------------------
Title:
------------------------------
COMMUNICATION TELESYSTEMS
INTERNATIONAL dba
WORLDxCHANGE COMMUNICATIONS,
a California corporation
By: /s/ Edward S. Soren
------------------------------
Title: Executive Vice President
-------------------------
WORLDxCHANGE COMMUNICATIONS,
INC., a Canadian corporation
By: /s/ Edward S. Soren
------------------------------
Title: President
-----------------------------
CTS TELCOM HOLDINGS, INC.,
a Delaware corporation
By: /s/ Edward S. Soren
------------------------------
Title: President
-----------------------------
CTS TELCOM, INC.,
a Florida corporation
By: /s/ Edward S. Soren
------------------------------
Title: President
-----------------------------
<PAGE>
AMENDMENT NUMBER EIGHT TO
LOAN AND SECURITY AGREEMENT
This AMENDMENT NUMBER EIGHT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is entered into as of August 24th, 1999, by and between FOOTHILL
CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of
business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025-3333, on the one hand, and, on the other hand,
COMMUNICATION TELESYSTEMS INTERNATIONAL, DBA WORLDxCHANGE Communications, a
California corporation ("WXCC"), with its chief executive office located at
9999 Willow Creek Road, San Diego, California 92131, WORLDxCHANGE
COMMUNICATIONS, INC., a Canadian corporation ("WXC"), with its chief
executive office located at 9999 Willow Creek Road, San Diego, California
92131, CTS TELCOM HOLDINGS, INC., a Delaware corporation ("Holdings"), with
its chief executive office located at 9999 Willow Creek Road, San Diego,
California 92131 and CTS TELCOM, INC., a Florida corporation ("CTST"), with
its chief executive office located at 9999 Willow Creek Road, San Diego,
California 92131 (WXCC, WXC, Holdings, and CTST, and each of them, and any
one or more of them, jointly and severally, individually and collectively,
"Borrower"), with reference to the following facts:
A. WHEREAS, Foothill, as lender, and Borrower are parties to that
certain Loan and Security Agreement, dated as of March 11, 1997,
as amended by that certain Amendment Number One to Loan and
Security Agreement, dated as of December 31, 1997, as amended by
that certain Amendment No. Two to the Loan and Security
Agreement, dated as of February 20, 1998, as amended by that
certain Amendment Number Three to Loan and Security Agreement,
dated as of April 27, 1998, as amended by that certain Amendment
Number Four to Loan and Security Agreement, dated as of August
25, 1998, as amended by that certain Amendment Number Five to
Loan and Security Agreement, dated as of December 29, 1998, and
as amended by that certain Amendment Number Six to Loan and
Security Agreement, dated as of March 15, 1999, as amended by
that certain Amendment Number Seven to Loan and Security
Agreement, dated as of June 16, 1999, (as so amended, and as
otherwise amended, modified, supplemented, renewed, extended, or
restated from time to time, including, without limitation, by
this Amendment Number Eight, the "Loan Agreement");
B. WHEREAS, Borrower has requested Foothill to (i) amend the Loan
Agreement to extend the Termination Date, (ii) consent to the
issuance of 30,000 shares of 4%, cumulative convertible Series A
Preferred Stock (the "Series A Preferred Stock") pursuant to that
certain Certificate of Determination of Preferences of Series A
Preferred Stock of Communication Telesystems International, dated
on or about the date hereof, and (iii) consent to the payment of
dividends payable with respect to the Series A Preferred Stock to
Gold & Appel Transfer S.A., a British Virgin Islands corporation
("Purchaser"), as the purchaser of the Series A Preferred Stock
pursuant to that certain Stock Purchase Agreement, dated on or
about the date hereof, entered into between Purchaser and WXCC;
<PAGE>
C. WHEREAS, Foothill is willing to so amend the Loan Agreement in
accordance with the terms and conditions hereof and to consent to
the issuance of the Series A Preferred Stock;
NOW, THEREFORE, in consideration of the above recitals and the
mutual promises contained herein, Foothill and Borrower hereby agree as
follows:
1. INITIALLY CAPITALIZED TERMS.
All capitalized terms used herein and not defined herein shall
have the meanings ascribed to them in the Loan Agreement, as amended hereby.
2. AMENDMENTS TO THE LOAN AGREEMENT.
a. SECTION 1.1 of the Loan Agreement hereby is amended by
adding the following defined terms in alphabetical order:
"EIGHTH AMENDMENT means, that certain Amendment Number
Eight to Loan and Security Agreement, dated as of August 24, 1999,
between Foothill and Borrower."
"SERIES A CERTIFICATE OF DETERMINATION means that certain
Certificate of Determination of Preferences of Series A Convertible
Preferred Stock of Communication Telesystems International, dated on or
about the date of the Eighth Amendment."
"SERIES A PREFERRED STOCK means up to 30,000 shares of 4%,
cumulative Series A Convertible Preferred Stock of WXCC, issued pursuant
to the Series A Certificate of Determination.
"STOCK PURCHASE AGREEMENT means that certain Stock
Purchase Agreement, relating to the Series A Preferred Stock dated on or
about the date of the Eighth Amendment, entered into between Purchaser
and WXCC"
"PURCHASER" means Gold & Appel Transfer S.A., a British Virgin
Islands corporation."
b. SECTION 1.1 of the Loan Agreement hereby is amended by
deleting the following defined terms in their entirety and replacing them in
their entirety with the defined terms set forth below in alphabetical order:
"APPLICABLE PERCENTAGE" means (a) from and after the Closing
Date and through and including the first anniversary of the Closing
Date, four percent (4.00%), (b) from and after the first anniversary of
the Closing Date and through and including March 15, 2000 (i) if and
only if the termination of this Agreement and repayment of the
Obligations is occurring contemporaneously with, or within 180 days
after, the consummation of a public or private equity offering in excess
of $20,000,000 by Borrower, or a sale of substantially all of the assets
of Borrower (including a sale effected by one or more mergers or any
pooling merger), and as direct result of either
<PAGE>
thereof, under circumstances where the thirty-day prior notice requirement
of Section 3.6 has been complied with, one percent (1.00%), or
(ii) otherwise, two percent (2.00%), and (c) thereafter, $100,000.
"LOAN DOCUMENTS means, this Agreement, the First Amendment, the
Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth
Amendment, the Sixth Amendment, the Seventh Amendment, and the Eighth
Amendment, the Canadian Security Agreements, the Pledge Agreements, the
Disbursement Letter, the Guarantees, the Guaranty Reaffirmation and Consents,
the TelSave Intercreditor Agreement, the Lockbox Agreements, any Mortgages
hereafter delivered by Borrower to Foothill, the Suretyship Agreement, any
note or notes executed by Borrower and payable to Foothill, and any other
agreement entered into, now or in the future, in connection with this
Agreement."
"TERMINATION DATE" means October 1, 2000.
c. SECTION 3.4 of the Loan Agreement is hereby amended and restated
in its entirety as follows:
3.4 TERM AND TERMINATION. This Agreement shall become effective
upon the execution and delivery hereof by Borrower and Foothill and shall
continue in full force and effect for a term ending on the Termination Date.
The foregoing notwithstanding, Foothill shall have the right to terminate
its obligations under this Agreement immediately and without notice upon
the occurrence and during the continuation of an Event of Default.
d. The word "and" at the end of existing clause (g) of SECTION 7.1 of
the Loan Agreement is deleted in its entirety, the period at the end of
existing clause (h) thereof is deleted and replaced in its entirety with
"; and," and the following new clause (i) is inserted immediately following
existing clause (h) thereof in its entirety as follows:
"(i) Indebtedness of WXCC incurred in connection with the
issuance of the Series A Preferred Stock pursuant to the terms and conditions
of the Stock Purchase Agreement."
c. SECTION 7.3 of the Loan Agreement is hereby amended by adding the
following new sentence at the end thereof in its entirety as follows:
"Anything contained in the foregoing to the contrary notwithstanding,
Borrower shall not amend, modify, revise, or otherwise alter the Series A
Certificate of Determination without the prior written consent of Foothill.
f. SECTION 7.12 of the Loan Agreement is hereby amended and restated
in its entirety to read as follows;
"7.12 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any of Borrower's capital stock, of any
class, whether now or hereafter
<PAGE>
outstanding, except that, so long as no Event of Default has occurred and
is continuing, (a) WXCC may declare and pay dividends with respect to its
Series A Preferred Stock in accordance with the rights, preferences, and
terms of the Series A Certificate of Determination as in effect on date
of the Eighth Amendment, and (b) WXCC may repurchase shares of its stock
in connection with immediately exercisable options granted pursuant to
WXCC's stock option plan, for total consideration not to exceed $100,000
during any fiscal year of WXCC, or $250,000 in the aggregate from and
after the Closing Date until the Obligations are finally paid in cash.
3. ANNIVERSARY FACILITY FEE. Borrower and Foothill hereby agree that
the "Anniversary Facility Fee" set forth in SECTION 2.8 (a) of the Loan
Agreement shall not be payable on March 14, 2000. It being understood that
such fee shall remain due and payable on each anniversary of the Closing Date
other than March 14, 2000, in accordance with the terms of the Loan Agreement.
4. CONSENT TO INCURRENCE OF INDEBTEDNESS IN CONNECTION WITH THE
ISSUANCE OF SERIES A PREFERRED STOCK. Subject to the terms and conditions
hereof, and not withstanding any contrary provision of the Loan Agreement as
amended, Foothill hereby consents to (i) the issuance of the Series A
Preferred Stock pursuant to the Series A Certificate of Determination, and
(ii) to the payment of dividends in connection therewith in accordance with
Section 7.12 of the Loan Agreement as amended by the Eighth Amendment. In
connection with issuance of the Series A Preferred Stock and the purchase
thereof by Purchaser, Borrower promptly shall provide Foothill with copies of
the Series A Certificate of Determination, the Stock Purchase Agreement, and
all other documents, instruments, and agreements entered into by Borrower in
connection therewith.
5. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of
this Amendment and of the Loan Agreement, as amended by this Amendment, are
within its corporate powers, have been duly authorized by all necessary
corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter
or bylaws, or of any contract or undertaking to which it is a party or by
which any of its properties may be bound or affected, and (b) this Amendment
and the Loan Agreement, as amended by this Amendment, constitute Borrower's
legal, valid, and binding obligation, enforceable against Borrower in
accordance with its terms.
6. CONDITIONS PRECEDENT TO AMENDMENT. The satisfaction of each of the
following on or before August 16, 1999, shall constitute conditions precedent
to the effectiveness of this Amendment:
a. Foothill shall have received an amendment fee in the
amount of $67,500 in connection herewith, such amendment fee being fully
earned and non-refundable when paid;
b. Borrower shall have executed and delivered an officer's
certificate with respect to this Eighth Amendment in form and substance
satisfactory to Foothill;
c. Foothill shall have received the acknowledgment and
agreement of each of its Participants in the secured credit facilities
extended to Borrower under the Agreement to this Amendment;
<PAGE>
d. The representations and warranties in this Admendment,
the Loan Agreement as amended by this Amendment, and the other Loan Documents
shall be true and correct in all respects on and as of the date hereof, as
though made on such date (except to the extent that such representations and
warranties relate solely to an earlier date);
e. No Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date hereof, nor shall result from the
consummation of the transactions contemplated herein;
f. No injunction, writ, restraining order, or other order
of any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force
by any governmental authority against Borrower, Foothill, or any of their
Affiliates;
g. The Collateral shall not have declined materially in
value from the values set forth in the most recent appraisals or field
examinations previously done by Foothill; and
h. All other documents and legal matters in connection with
the transactions contemplated by this Amendment shall have been delivered or
executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
7. EFFECT ON LOAN AGREEMENT. The Loan Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its
respective terms and hereby is ratified and confirmed in all respects. The
execution, delivery, and performance of this Amendment shall not operate as a
waiver of or, except as expressly set forth herein, as an amendment, of any
right, power, or remedy of Foothill under the Loan Agreement, as in effect
prior to the date hereof. The consents contained herein are limited to the
specifics hereof, shall not apply with respect to any facts or occurrences
other than those on which each such consents are based, shall not excuse
future non-compliance with the Loan Agreement or any other Loan Document, (as
they may from time to time be amended), except and only to the extent
expressly set forth herein, shall not opeate as a waiver or an amendment of
any right, power or remedy of Foothill, nor as a consent to any further or
other matter, under any of the Loan Documents.
8. FURTHER ASSURANCES. Borrower shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time
to time, to perfect and maintain the perfection and priority of Foothill's
security interests in the Collateral, and to fully consummate the
transactions contemplated under this Amendment and the Loan Agreement, as
amended by this Amendment.
9. MISCELLANEOUS.
a. Upon the effectiveness of this Amendment, each reference
in the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or
words of like import referring to the Loan Agreement shall mean and refer to
the Loan Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each reference
in the Loan Documents to the "Loan Agreement", "thereunder", "therein",
"thereof" or words of like import
<PAGE>
referring to the Loan Agreement shall mean and refer to the Loan Agreement as
amended by this Amendment.
c. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by
signing any such counterpart. Delivery of an executed counterpart of this
Amendment by fax shall be equally as effective as a manually executed
counterpart. Any party delivering an executed counterpart of this Amdendment
by fax shall also deliver a manually executed counterpart, but the failure to
so deliver a manually executed counterpart shall not affect the
effectiveness or validity hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ [Illegible]
--------------------------
Title: Assistant Vice President
--------------------------
COMMUNICATION TELESYSTEMS
INTERNATIONAL dba WORLDxCHANGE
COMMUNICATIONS,
a California corporation
By: /s/ Edward S. Soren
--------------------------
Title: Executive Vice President
--------------------------
WORLDxCHANGE COMMUNICATIONS, INC.,
a Canadian corporation
By: /s/ Edward S. Soren
--------------------------
Title: President
--------------------------
CTS TELCOM HOLDINGS, INC.,
a Delaware corporation
By: /s/ Edward S. Soren
--------------------------
Title: President
--------------------------
CTS TELCOM, INC.,
a Florida corporation
By: /s/ Edward S. Soren
--------------------------
Title: President
--------------------------
<PAGE>
TPC-5 CABLE NETWORK
CONSTRUCTION AND MAINTENANCE AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH PAGE
- --------- ----
<S> <C>
1. Definitions 3
2. Cable Network Configuration and Segments 8
3. Provision and Construction of Segments 12
4. Procurement Group 13
5. Supply of Segments G, H, I, J, T1 and T2 14
6. Obligation to Provide Transiting. 15
Facilities to Extend TPC-5 Cable Network Capacity
7. Obligation to Connect TPC-5 Cable Network with 16
Inland Systems
8. Ownership of Segments 17
9. Establishment of the TPC-5 Management Committee 18
10. Definition of Capital Costs of Segments G, H, I, J, 21
T1 and T2
11. Capital Costs of Segments G, H, I, J, T1 and T2 - 23
Allocation and Billing
12. Path Assignment and Use of Capacity 27
13. Reassignment of Capacity and Expansion of Assigned 31
Capacity
14. Increase or Decrease of Design Capacity 31
15. Duties and Rights as to Operation and Maintenance 32
of Segments
16. Operation and Maintenance Costs of Segments G, H, I, J, 35
T1 and T2 - Allocation and Billing
17. Keeping and Inspection of Books for Segments G, H, I, J, 38
T1 and T2
18. Use of Cable Stations 40
19. Currency and Place of Payment 47
- i -
<PAGE>
<CAPTION>
PARAGRAPH PAGE
- --------- ----
<S> <C>
20. Duration of Agreement and Realization of Assets 47
21. Obtaining of Licenses 50
22. Privileges for Documents or Communications 51
23. Relationship of Parties 52
24. Assignment and Default 52
25. Admission of Additional Parties 54
26. Waiver 55
27. Paragraph Headings 55
28. Intrepretation of Agreement 55
29. Ratification of Prior Decisions and Actions 56
30. Resolution of Disputes 56
31. Execution of Agreement 57
32. Successors Bound 57
Testimonium 58
</TABLE>
- ii -
<PAGE>
SCHEDULES
- ---------
Schedule A - Parties to the Agreement
Schedule B - Investment Shares and Voting Interests in the TPC-5
Cable Network
Schedule C - Ownership Interests in Segments G, H, I and J
Schedule D - IRU Interests in Segments T1 and T2
Schedule E - Allocation of Capital, Operation, and Maintenance
Costs of Segments A, B, C, D, E, F, G, H, I, J,
T1 and T2
Schedule F - Half MIU Capacity Assigned by Path
Schedule G1 - Path Assignment of MIUs in the U.S. Mainland - Hawaii
Path
Schedule G2 - Path Assignment of MIUs in the Hawaii - Guam Path
Schedule G3 - Path Assignment of MIUs in the Guam - Japan Path
Schedule G4 - Path Assignment of MIUs in the Japan - U.S. Mainland
Path
Schedule G5 - Path Assignment of MIUs in the U.S. Mainland - Guam Path
Schedule G6 - Path Assignment of MIUs in the Hawaii - Japan Path
ANNEXES
- -------
Annex 1 - Terms of Reference for the Procurement Group
Annex 2 - Terms of Reference for the Operational Assignments, Routing
and Restoration Subcommittee; Operations and Maintenance
Subcommittee; and Budget and Billing Subcommittee;
Annex 3 - Terms of Reference for the Network Administrator
Attachment 1 - Configuration of the TPC-5 Cable Network
Attachment 2 - TPC-5 Cable Network - Explanation of Investment Shares and
Computation of MIU Cost
- iii -
<PAGE>
TPC-5 Cable Network
CONSTRUCTION AND MAINTENANCE AGREEMENT
THIS AGREEMENT, made and entered into this 29th day of October,
1992, between and among the Parties signatory hereto (hereinafter
collectively called "Parties" and individually called "Party"), which Parties
are identified in Schedule A,
WITNESSETH:
WHEREAS, digital telecommunications services are being provided
among the North American Continent, the State of Hawaii, the Island of Guam,
Japan and the Pacific Ocean Region by means of submarine cable and satellite
facilities; and
WHEREAS, other digital lightwave submarine cable systems, presently
in service in the Pacific Ocean Region, have facilitated a rapid growth of
new telecommunications requirements designed to take advantage of abundant,
reliable, secure and economically priced services based on available digital
technology; and
WHEREAS, it is now apparent that this rapid growth in traffic demand
and the interconnection of the TPC-4 Cable System
<PAGE>
- 2 -
with other digital lightwave submarine cable systems in the Pacific Ocean
Region, such as the G-P-T Cable System and the H-J-K Cable System, and the
future requirement for interconnection with the PacRim Cable Systems and the
APC System, will lead to a greater demand for facilities among the U.S.
Mainland, Hawaii, Guam, Japan and points beyond than was previously
forecasted and necessitates the construction of additional transpacific fiber
optic submarine cable facilities linking such points (hereinafter referred to
as the "TPC-5 Cable Network"); and
WHEREAS, the reliability of telecommunications services and its
usefulness to customers depends on the availability of the appropriate
facilities, including the TPC-5 Cable Network, for diverse routing and
service restoration; and
WHEREAS, a Memorandum of Understanding to plan the TPC-5 Cable
Network was signed by AT&T and KDD (the "Initial Parties") on August 1, 1991
(hereinafter referred to as the "Initial MOU") to permit certain
pre-construction activities, as defined in the Initial MOU; and
WHEREAS, by the TPC-5 Cable Network Supplemental Memorandum of
Understanding No. 1 signed on September 13, 1991, the TPC-5 Cable Network
Supplemental Memorandum of Understanding No. 2 signed on February 5, 1992,
and the TPC-5 Cable Network Supplemental Memorandum of Understanding No. 3
signed on
<PAGE>
- 3 -
October 29, 1992, 45 additional telecommunications entities became Parties to
the Initial MOU; and
WHEREAS, the Initial MOU and the Supplemental MOU are hereinafter
collectively called the "MOU"; and
WHEREAS, the Initial MOU states that it shall continue in force
until the signing, by the Parties, of the TPC-5 Cable Network Construction
and Maintenance Agreement; and
WHEREAS, the Parties now desire to construct the TPC-5 Cable Network
as a fully integrated transpacific network comprised of six mutually
restorable fiber optic submarine cable segments; and
WHEREAS, the Parties now desire to define the terms and conditions
upon which the TPC-5 Cable Network will be provided, constructed, operated
and maintained;
NOW, THEREFORE, the Parties hereto, in consideration of the mutual
covenants herein expressed, covenant and agree with each other as follows:
DEFINITIONS
1. The following definitions shall apply to certain terms used in
this Agreement:
(i) Basic System Module:
<PAGE>
- 4 -
A Basic System Module of the TPC-5 Cable Network shall
consist of a 155,520,000 bits per second digital line
section in each direction with interface in accordance
with the appropriate CCITT Recommendations.
(ii) Cable Landing Point:
Cable Landing Point shall be the beach joint or the mean
high water mark of ordinary spring tides if there is no
beach joint.
(iii) Carrier Parties:
The Carrier Parties shall mean all of the Parties to this
Agreement, except Transpacific.
(iv) Country:
The word "country" as used in this Agreement shall mean a
country, territory or place, as appropriate.
(v) Design Capacity:
The Design Capacity of each cable segment of the TPC-5 Cable
Network shall be two fiber pairs, one Service Fiber Pair and
one Restoration Fiber Pair, each providing 32 Basic System
Modules having a total of 2016 MIUs, or any increase or
decrease agreed pursuant to Subparagraph 14(a).
(vi) Initial Parties:
The Initial Parties are AT&T and KDD.
(vii) Japanense Carrier Parties:
The Japanese Carrier Parties are IDC, ITJ and KDD.
<PAGE>
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(viii) Minimum Investment Unit:
A unit designated as the minimum unit of investment in the
TPC-5 Cable Network, allowing the use of 2.048 Mbit/s and the
additional 420,571.43 bits per second required for
multiplexing in each direction. The Minimum Investment Unit
is hereinafter called "MIU".
(ix) Network Interface:
The Network Interface shall be the nominal 155 Megabits per
second (Mbit/s) digital input/output ports on the TPC-5
Cable Network service/restoration equipment or its equivalent
(including such equipment) where the 155 Mbit/s digital line
section connects with other transmission facilities or
equipment.
(x) Network RFS Date:
The Network RFS Date shall be the date the Parties agree that
the entire TPC-5 Cable Network has been placed into operation.
For purposes of this Agreement, the Network RFS Date shall be
on December 31, 1996 or such other date as may be agreed by
the TPC-5 Management Committee to be formed pursuant to
subparagraph 9(a) of this Agreement.
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(xi) Node:
A Node shall be an entrance point or an exit point to the
TPC-5 Cable Network at either the U.S. Mainland, Hawaii,
Guam or Japan.
(xii) Path:
The Paths between the Nodes of the TPC-5 Cable Network shall
be as follows:
U.S. Mainland - Hawaii
Hawaii - Guam
Guam - Japan
Japan - U.S. Mainland
U.S. Mainland - Guam
Hawaii - Japan
(xiii) Path Assignment:
A Path Assignment is the capacity assigned to a Party on a
Path in the TPC-5 Cable Network. Path Assignments will be
expressed in MIUs.
(xiv) Provisional Acceptance:
The issuance of a Certificate of Provisional Acceptance
pursuant to the terms and conditions set forth in the
applicable Supply Contracts.
(xv) Restoration Fiber Pair:
The Restoration Fiber Pair is that optical fiber pair in the
TPC-5 Cable Network which is used for traffic in the event of
a failure of the Service Fiber Pair.
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(xvi) Schedules:
Schedules shall be the initial schedules attached hereto and made a
part hereof and any written amendments thereto or any schedules
substituted therefor in accordance with the provisions of this
Agreement.
(xvii) Segment RFS Date(s):
The Segment RFS Date(s) of a given submarine cable segment of the
TPC-5 Cable Network, as described in Paragraph 2 herein, shall be
the date(s) the Parties agree to place such segment of the TPC-5
Cable Network into operation. For purposes of this Agreement, the
Segment RFS Dates shall be as follows, or such other dates as may
be agreed upon by the TPC-5 Management Committee:
Segment G - June 30, 1995,
Segment H - December 31, 1995,
Segment I - June 30, 1995,
Segment J - December 31, 1996,
Segment T1 - December 31, 1996,
Segment T2 - June 30, 1995.
(xviii) Service Fiber Pair:
The Service Fiber Pair is that optical fiber pair in the TPC-5
Cable Network upon which all transmission capacity of the Parties
is assigned.
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(xix) Supply Contracts:
Supply Contract refers to the contracts to be placed with the
Suppliers pursuant to Subparagraph 5(a).
(xx) United States Carrier Parties:
The United States Carrier Parties are AT&T, HTC, IDB, IT&E, MCII,
TRT/FTC and US Sprint.
CABLE NETWORK CONFIGURATION AND SEGMENTS
2. The configuration of the TPC-5 Cable Network shall be as shown
in Attachment 1, which shall be regarded as consisting of the following
segments:
Segment A: A cable station at Coos Bay, Oregon, U.S.A.
Segment B: A cable station at San Luis Obispo, California, U.S.A.
Segment C: A cable station at Keawaula, Hawaii, U.S.A.
Segment D: A cable station at Tumon Bay, Guam.
Segment E: A cable station at Miyazaki, Japan.
Segment F: A cable station at Ninomiya, Japan.
Segments A, B, C, D, E and F shall each consist of:
(i) an appropriate share of land and buildings at the specified
locations for the cable landing and for the cable route
including cable rights-of-way and ducts or conduits between
the cable station and its respective Cable Landing Point, and
an
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appropriate share of common services and equipment at each of
the locations; and
(ii) cable station equipment including multiplex equipment down to
the primary level, as required, in each of the cable stations
associated solely and directly with the TPC-5 Cable Network.
Segment G: The whole of the submarine cable provided between and
including the Network Interface at the cable station at San Luis
Obispo, California on the U.S. Mainland, and the Network Interface
at the cable station at Keawaula, Hawaii, and containing two
optical fiber pairs, each such fiber pair capable of operating at
4.8 Gigabits per second (Gbit/s), one of which is the Service Fiber
Pair and the other of which is the Restoration Fiber Pair.
Segment H: The whole of the submarine cable provided between and
including the Network Interface at the cable station at Keawaula,
Hawaii, and the Network Interface at the cable station at Tumon
Bay, Guam, and containing two optical fiber pairs, each such fiber
pair capable of operating at 4.8 Gbit/s, one of which is the
Service Fiber Pair and the other of which is the Restoration Fiber
Pair.
Segment I: The whole of the submarine cable provided
<PAGE>
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between and including the Network Interface at the cable station at
Tumon Bay, Guam, and the Network Interface at the cable station at
Miyazaki, Japan, and containing two optical fiber pairs, each such
fiber pair capable of operating at 4.8 Gbit/s, one of which is the
Service Fiber Pair and the other of which is the Restoration Fiber
Pair.
Segment J: The whole of the submarine cable provided between and
including the Network Interface at the cable station at Ninomiya,
Japan, and the Network Interface at the cable station at Coos Bay,
Oregon on the U.S. Mainland, and containing two optical fiber
pairs, each such fiber pair capable of operating at 4.8 Gbit/s, one
of which is the Service Fiber Pair and the other of which is the
Restoration Fiber Pair.
Segment T1: The whole of the submarine cable provided between and
including the Network Interface at the cable station at Coos Bay,
Oregon on the U.S. Mainland, and the Network Interface at the cable
station at San Luis Obispo, California, also on the U.S. Mainland,
and containing two optical fiber pairs, each such fiber pair
capable of operating at 4.8 Gbit/s, one of which is the Service
Fiber Pair, and the other of which is the Restoration Fiber Pair.
<PAGE>
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Segment T2: The whole of the submarine cable provided between and
including the Network Interface at the cable station at Miyazaki,
Japan, and the Network Interface at the cable station at Ninomiya
also in Japan, and containing two optical fiber pairs, each such
fiber pair capable of operating at 4.8 Gbit/s, one of which is the
Service Fiber Pair, and the other of which is the Restoration Fiber
Pair.
Segments G, H, I, J, T1 and T2 shall include:
(i) all transmission, power feeding and special test equipment
specifically associated with, and required to operate and
maintain the submersible plant;
(ii) the power equipment provided wholly for use with the
equipment listed in (i) above;
(iii) the transmission cable equipped with appropriate repeaters
and joint housings between the cable stations; and
(iv) the sea earth cable and electrode system and/or the land
earth system, or an appropriate share thereof, associated
with the terminal power feeding equipment.
In this Agreement, references to any Segment, however expressed, shall be
deemed to include, unless the context otherwise requires, additional property
incorporated therein by agreement of the Parties. Each Segment shall be
regarded as including its related spare and standby units and components,
including, but
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not limited to, submersible repeaters, cable lengths, and terminal equipment.
PROVISION AND CONSTRUCTION OF SEGMENTS
3. (a) Segment A of the TPC-5 Cable Network shall consist of a
new cable station at Coos Bay, Oregon on the U.S. Mainland, to be designed,
provided, constructed and installed, or caused to be designed, provided,
constructed and installed by AT&T.
(b) Segments B, C and D of the TPC-5 Cable Network shall
consist of an appropriate share of the existing cable stations at San Luis
Obispo, California on the U.S. Mainland, Keawaula, Hawaii, and Tumon Bay,
Guam, respectively, and shall be provided by AT&T.
(c) Segments E and F of the TPC-5 Cable Network shall consist
of an appropriate share of the existing cable stations at Miyazaki and
Ninomiya, Japan, respectively, and shall be provided by KDD.
(d) Segments G, H, I, J, T1 and T2 of the TPC-5 Cable Network
shall be engineered, provided, and installed, or caused to be engineered,
provided, and installed, in accordance with the terms set forth in Paragraphs
4, 5, 10, 11 and 17 of this Agreement.
(e) AT&T in respect of Segments A, B, C and D, and KDD in
respect of Segments E and F shall each make available to the other Parties
hereto reasonable information requested by
<PAGE>
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the Parties relating to the provision, construction, or installation of those
Segments.
PROCUREMENT GROUP
4. (a) A Procurement Group shall be formed, consisting of
representatives from AT&T and KDD. This group shall act as trustees for the
Parties to this Agreement and be solely responsible for all actions as may be
required to contract with the Suppliers to provide Segments G, H, I, J, T1
and T2 of the TPC-5 Cable Network.
(b) The Procurement Group's responsibilities are contained in
Annex 1.
(c) In the event that Segments G, H, I, J, T1 or T2 of the
TPC-5 Cable Network fails to meet the specifications in the Supply Contracts
for its provision or is not engineered, provided, installed and ready in
sufficient time for Provisional Acceptance on or before the date(s) specified
in the Supply Contracts or, if a Supplier is otherwise in material breach of
its Supply Contract, the Procurement Group shall take such action as may be
necessary to exercise the rights and remedies available under the terms and
conditions of the Supply Contracts. Such actions by the Procurement Group
shall be subject to any direction deemed necessary by the TPC-5 Management
Committee.
(d) The Procurement Group shall not be liable to any other
Party for any loss or damage sustained by reason of the Suppliers' failure to
perform in accordance with the terms and conditions of the Supply Contracts,
or as a result of Segments G,
<PAGE>
- 14 -
H, I, J, T1 or T2 of the TPC-5 Cable Network not being ready for Provisional
Acceptance on or before their scheduled Segment RFS Dates, or if the TPC-5
Cable Network does not perform in accordance with the technical
specifications and other requirements of the Supply Contracts, or if the
TPC-5 Cable Network is not placed into operation. The Parties to this
Agreement recognize that the Procurement Group does not guarantee or warrant
(i) the performance of the Supply Contracts by the Suppliers, (ii) the
performance or reliability of Segments G, H, I, J, T1 or T2 of the TPC-5
Cable Network, or (iii) that the TPC-5 Cable Network will be placed into
operation; and the Parties hereby agree that nothing in this Agreement shall
be construed as such a warranty or guarantee.
(e) No decisions of the Procurement Group shall override any
provisions of this Agreement or in any way diminish the rights or prejudice
the interests granted to any Party under this Agreement.
SUPPLY OF SEGMENTS G, H, I, J, T1 AND T2
5. (a) The supply of Segments G, H, I, J, T1 and T2 shall be
through the Supply Contracts to be placed by the Procurement Group with
Suppliers to be designated by the Procurement Group. The placing of the
Supply Contracts by the Procurement Group shall be subject to authorization
by the TPC-5 Management Committee.
(b) Each of the Parties shall be entitled on request, to
receive a copy of the Supply Contracts subject to the
<PAGE>
- 15 -
acceptance by each such Party of any reasonable conditions of confidentiality
imposed by the Supply Contracts.
OBLIGATION TO PROVIDE TRANSITING
FACILITIES TO EXTEND TPC-5 CABLE NETWORK CAPACITY
6. (a) Except as otherwise provided hereinafter in this
Paragraph 6, each of the Carrier Parties shall use all reasonable efforts to
furnish and maintain, or cause to be furnished and maintained, in efficient
working order, for the Carrier Parties not from that Party's country, and for
telecommunications entities not from that Party's country that are not
Parties hereto but which may acquire an Indefeasible Right of Use
(hereinafter referred to as "IRU") interest in capacity in the TPC-5 Cable
Network or are otherwise permitted use of such capacity, for the duration of
this Agreement, such transmission facilities in its respective country as may
be suitable and reasonably required by such other Parties and
telecommunications entities for the purpose of handling communications
transiting its respective country. No Party shall be required under this
Agreement to furnish such facilities in its country to other Carrier Parties
or telecommunications entities from its respective country. The provision of
facilities pursuant to this Subparagraph 6(a) shall be the subject of
separate agreements acceptable to the affected parties.
(b) The facilities provided pursuant to Subparagraph 6(a)
shall be suitable for extending capacity in the
<PAGE>
- 16 -
TPC-5 Cable Network and shall be furnished and maintained on terms and
conditions which shall be no less favorable than those granted to other
international telecommunications entities for transmission facilities of
similar type and quantity transiting the location involved. Such terms and
conditions shall not be inconsistent with applicable governmental regulations
in the locations in which the facilities are located.
(c) Where facilities are provided under this Paragraph 6,
such facilities need not necessarily be intrinsically digital. Furthermore,
Parties providing digital facilities are obligated to provide them only in a
bit sequence independent manner at rates of 64,000 and 2,048,0000 bits per
second.
OBLIGATION TO CONNECT TPC-5
CABLE NETWORK WITH INLAND SYSTEMS
7. (a) Each of the Carrier Parties to this Agreement, at its own
expense, on or before a Segment RFS Date, shall do, or cause to be done, all
such acts and things as may be necessary within its operating country to
provide suitable connection of the TPC-5 Cable Network with its appropriate
inland communication systems in its operating country.
(b) Upon request, AT&T shall provide to the other United
States Carrier Parties hereto suitable space and connection with the TPC-5
Cable Network at the cable stations at Coos Bay, San Luis Obispo, Keawaula,
and Tumon Bay for operating and technical control purposes relating to
capacity assigned, or
<PAGE>
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to be assigned, to them in the TPC-5 Cable Network. AT&T may provide such
space in a building separate from its cable stations but adjacent to its
cable stations and located on the land which forms part of Segments A, B, C
and D. Such United States Carrier Parties shall have the right to provide
their own personnel and equipment in such space. Such United States Carrier
Parties shall reimburse AT&T for the reasonable costs incurred by AT&T in
providing such space and connection pursuant to this Subparagraph 6(d),
including, but not limited to, the costs of any additional building that may
be reasonably required.
OWNERSHIP OF SEGMENTS
8. (a) Segments A, B, C, and D of the TPC-5 Cable Network shall
be owned by AT&T. Other Parties shall have IRU interests in these Segments
pursuant to Paragraph 18 of this Agreement.
(b) Segments E and F of the TPC-5 Cable Network shall be
owned by KDD. Other Parties shall have IRU interests in these Segments
pursuant to Paragraph 18 of this Agreement.
(c) Segments G, H, I and J of the TPC-5 Cable Network shall
be owned by the Parties in common and undivided shares, in the proportions
set forth in Schedule C.
(d) Segment T1 of the TPC-5 Cable Network shall be owned by
AT&T. Other Parties shall have IRU interests in Segment T1 in the proportions
set forth in Schedule D.
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(e) Segment T2 of the TPC-5 Cable Network shall be owned by
KDD. Other Parties shall have IRU interests in Segment T2 in the proportions
set forth in Schedule D.
(f) Notwithstanding Subparagraphs 8(d) and 8(e) of this
Agreement, a Party thereby granted an IRU interest in Segments T1 and T2 may,
prior to the commencement of that IRU interest, elect to renounce its IRU
interest entitlement and to instead have use of Segments T1 and T2 for the
duration of this Agreement on such terms and conditions as are agreed upon
between that Party and the owners of Segments T1 and T2, respectively, and in
such event the provisions of Subparagraphs 8(d) and 8(e) shall apply in
relation to such use except insofar as they may be modified by such
agreements. This Subparagraph 8(f) shall not operate to confer on a Party any
financial or other benefit of substance to which the Party would not
otherwise be entitled under this Agreement.
ESTABLISHMENT OF THE TPC-5 MANAGEMENT COMMITTEE
9. (a) The Parties shall form a TPC-5 Cable Network Management
Committee (herein called the "TPC-5 Management Committee"), consisting of one
representative of each of the Carrier Parties to this Agreement. Except as
otherwise stated in this Agreement, which exception shall include decisions
as to procurement which shall be made by the Procurement Group, the TPC-5
Management Committee shall make all major decisions necessary on behalf of
the Parties to effectuate the purposes of this Agreement.
<PAGE>
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(b) Two or more Parties may designate the same person to serve
as their representative at specific meetings of the TPC-5 Management
Committee and its subcommittees established pursuant to Subparagraph 9(e) of
this Agreement. AT&T and KDD shall jointly provide the Co-Chairmen of the
TPC-5 Management Committee which will meet on the call of a Co-Chairman or
whenever requested by one or more Parties representing at least 5% of the
total voting interests specified in Schedule B. A Co-Chairman shall give at
least 30 days' advance notice of each meeting, together with a copy of the
draft agenda. In cases of emergency, such notice period may be reduced where
at least 75% of the total voting interests are in agreement. Documents for
the meeting should be made available to members at least 14 days before the
meeting, but the TPC-5 Management Committee may agree to discuss papers
distributed on less than 14 days' notice.
(c) All decisions made by the TPC-5 Management Committee shall
be subject, in the first place, to consultation among the Parties which shall
make every reasonable effort to reach agreement with respect to matters to be
decided. However, in the event agreement cannot be reached, the decision will
be carried on the basis of a vote of at least four Parties, including at
least two western parties and two eastern Parties (for purposes of this
subparagraph, a western Party shall be of Asia or the South Pacific, and all
other Parties shall be eastern Parties), representing a simple majority of
the total voting interests as specified in Schedule B. Voting interests of
the members of the TPC-5 Management Committee shall be as specified
<PAGE>
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in Schedule B. A member of the TPC-5 Management Committee representing more
than one Party shall separately cast the votes to which each Party he
represents is entitled.
(d) No decisions of the TPC-5 Management Committee, its
subcommittees or any other groups established by the TPC-5 Management
Committee shall override any provisions of this Agreement or in any way
diminish the rights or prejudice the interests granted to any Party under
this Agreement.
(e) To aid the TPC-5 Management Committee in the performance
of its duties, the following subcommittees shall be formed, and said
subcommittees, under the direction of the TPC-5 Management Committee, shall
be responsible for their respective areas of interset listed in Annex 2 and
any other areas of interest designated by the TPC-5 Management Committee:
(i) Operational Assignments, Routing, and Restoration
Subcommittee (hereinafter called "A&R Subcommittee")
(ii) Operations and Maintenance Subcommittee (hereinafter
called "O&M Subcommittee")
(iii) Budget and Billing Subcommittee (hereinafter called "B&B
Subcommittee")
The TPC-5 Management Committee may establish such other subcommittees or
groups as it shall determinie within its discretion to provide assistance in
the performance of its responsibilities. Subcommittees shall meet at least
once annually after the date of this Agreement and more frequently if
necessary, until three years following the Network RFS Date and thereafter as
may be appropriate. Meetings of a subcommittee may
<PAGE>
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be called to consider specific questions at the discretion of its Chairman or
whenever requested by one or more Parties representing at least 5% of the
total voting interests specified in Schedule B. The respective Chairman of
each subcommittee, or a designated representative of each subcommittee, shall
attend the TPC-5 Management Committee meetings and meetings of each other
subcommittee in an advisory capacity as necessary. On or about three (3)
years after the Network RFS date, the TPC-5 Management Committee shall
determine whether any of its subcommittees should remain in existence. Except
as provided for in Subparagraph 9(f) of this Agreement, if the TPC-5
Management Committee determines that one or more of its subcommittees shall
not remain in existence, the responsibilities assigned to a subcommittee
whose existence has been terminated under this Subparagraph 9(e) shall revert
to the TPC-5 Management Committee.
(f) The TPC-5 Management Committee shall appoint AT&T the
Network Administrator, whose responsibilities shall be as specified in Annex
3 of this Agreement. The Network Administrator shall also assume the
responsibilities of the A&R Subcommittee upon termination of that
Subcommittee.
DEFINITION OF CAPITAL COSTS OF SEGMENTS G, H, I, J, T1 AND T2
10. Costs, or capital costs, as used herein, with reference to
engineering, providing, and constructing facilities for Segments G, H, I, J,
T1 and T2 of the TPC-5 Cable Network, or causing them to be engineered,
provided, and contructed, or to laying or causing to be laid cables,
repeaters and joint
<PAGE>
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housings, or to installing or causing to be installed cable system equipment,
shall be of a cost incurred type or a fixed cost type. The costs, or capital
costs, or Segments G, H, I, J, T1 and T2 shall be as specified in the Supply
Contracts. The costs, or capital costs, of Segments G, H, I, J, T1 and T2
shall also include any costs directly incurred pursuant to the MOU such as
desk top surveys, marine surveys and other activities required to be
undertaken prior to entry into force of this Agreement and those costs, or
capital costs, directly incurred by AT&T and KDD which shall be fair and
reasonable in amount and not included in the Supply Contracts, and which have
been directly and reasonably incurred for the purpose of, or to be properly
chargeable in respect of, such engineering, provision, construction,
installation and laying of Segments G, H, I, J, T1 and T2 including, but not
limited to, the costs of engineering, design, materials, manufacturing,
procurement and inspection, installation, removing (with appropriate
reduction for salvage), cable ship and other ship costs, route survey,
burying, testing associated with laying or installation, customs duties,
taxes (except income tax imposed upon the net income of a party), financial
charges attributable to other Parties' shares of costs incurred, supervision,
billing activities, overheads and insurance or a reasonable allowance in lieu
of insurance if such Party elects to carry a risk itself, being a risk which
is similar to one against which such Party has insured or against which
insurance is usual or recognized or would have been reasonable. The capital
costs shall also include the cost of the
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Network Administrator that are incurred up to the time of the Network RFS
Date. Such costs shall exclude costs incurred by the Parties hereto in the
holding of TPC-5 Management Committee meetings, Procurement Group meetings
and meetings of the subcommittees established pursuant to Subparagraph 9(e)
hereof or the attendance by the Parties' representatives at such meetings.
CAPITAL COSTS OF SEGMENTS G, H, I, J, T1 AND T2
ALLOCATION AND BILLING
11. (a) The costs, or capital costs, of engineering, providing,
constructing and installing Segments G, H, I, J, T1 and T2 of the TPC-5 Cable
Network, including any additional work or property incorporated in Segments
G, H, I, J, T1 and T2 subsequent to a Segment RFS Date by agreement of the
Parties, shall be borne by the Parties in the proportions set forth in
Schedule E.
(b) Unless the TPC-5 Management Committee shall authorize
changes to the procedure for the rendering of bills for costs or capital
costs of Segments G, H, I, J, T1 and T2 of the TPC-5 Cable Network, AT&T and
KDD shall promptly render bills in accordance with this Paragraph 11 to each
of the Parties for such Parties' pro rata shares of costs for items directly
incurred by AT&T and KDD and for the costs due and included in the Supply
Contracts (including costs incurred and financial charges attributable to
other Parties' shares of such costs). Such bills shall be rendered by AT&T
and KDD not more frequently than once a month and in accordance with Schedule
E and shall contain a
<PAGE>
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reasonable amount of detail to substantiate them. On the basis of such bills,
each Party shall pay to AT&T and KDD or to such entity as AT&T and KDD may
designate, such amounts as may be owed by the end of the calendar month
following the calendar month in which the bill was rendered. In the case of
bills containing costs billed on a preliminary billing basis, appropriate
adjustments will be made in subsequent bills promptly after the actual costs
involved are determined.
(c) As soon as practicable, AT&T and KDD shall make such
adjustments and render such bills or arrange for such credits as appropriate
due to changes in the cost of cost incurred items.
(d) As soon as practicable after a Segment RFS Date, the
amount of each Party's share of the costs of Segments G, H, I, J, T1 and T2
shall be computed by AT&T and KDD and they shall each make appropriate
adjustments and render any necessary bills or arrange for any necessary
refunds by way of final settlement in order that each Party may bear its
proper share of the costs as provided in this Paragraph 11.
(e) For purposes of this Agreement, financial charges shall be
computed at a rate equal to the lowest publicly announced prime rate or
commercial lending rate, however described, for 90-day loans in the
currencies of the United States and Japan by the following banks on the
fifteenth day of the month in which the costs were incurred by the billing
Party. If such a day is not a business day, the rate prevailing on the next
business day shall be used.
<PAGE>
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(i) Bills rendered by AT&T:
-----------------------
Citibank, N.A., New York City;
Chase Manhattan Bank N.A., New York City; and
Chemical Banking Corporation, New York City.
(ii) Bills rendered by KDD:
----------------------
The Industrial Bank of Japan, Limited, Tokyo;
The Dai-Tchi Kangyo Bank Limited, Tokyo; and
The Bank of Tokyo, Limited, Tokyo.
In the event that applicable law does not allow the imposition of financial
charges at the rate established in accordance with this Subparagraph 11(e),
financial charges shall be at the highest rate permitted by applicable law,
which in no event shall be higher than the rate computed in accordance with
this Subparagraph 11(e).
(f) Bills not paid when due shall accrue extended payment
charges from the day following the day on which payment was due until paid.
For purposes of this Agreement, extended payment charges shall be computed as
follows:
(i) Bills rendered by AT&T:
-----------------------
125% of the lowest publicly announced prime rate or commercial
lending rate, however described, for 90-day loans in the
currency of the United States, by the banks referenced in
Subparagraph 11(e)(i) on the day following the date payment of
the bill was due.
(ii) Bills rendered by KDD:
----------------------
A rate equal to the lowest standard penalty interest rate,
applicable on the day following the date payment
<PAGE>
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of the bill was due, by the banks referenced in Subparagraph
11(e)(ii) when customers fail to perform obligations arising
from short-term prime rate loans.
In the event that applicable law does not allow the imposition of extended
payment charges at the rate established in accordance with this Subparagraph
11(f), extended payment charges shall be at the highest rate permitted by
applicable law, which in no event shall be higher than the rate computed in
accordance with this Subparagraph 11(f). For purposes of this Agreement,
"paid" shall mean that the funds are immediately available for use by the
recipient.
(g) Credits for refunds of financial charges and bills for
extended payment charges shall not be rendered if the amount of charges
involved is less than one hundred dollars U.S. for credits or bills rendered
by AT&T, or ten thousand Japanese yen for credits or bills rendered by KDD.
(h) A bill shall be deemed to have been accepted by the Party
to whom it is rendered if that Party does not present a written objection on
or before the date when payment is due. If such objection is made, the
Parties concerned shall make every reasonable effort to settle promptly the
dispute concerning the bill in question. If the objection is sustained and
the billed Party has paid the disputed bill, the agreed upon overpayment
shall be promptly refunded to the objecting Party by the billing Party
together with any financial charges calculated thereon at a rate determined
in accordance with Subparagraph 11(e) of this Agreement from the date of
payment of
<PAGE>
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the bill to the date on which the refund is transmitted to the objecting
Party. If the objection is not sustained and the billed Party has not paid
the disputed bill, said Party will pay such bill promptly together with any
extended payment charges calculated thereon at a rate determined in
accordance with Subparagraph 11(f) of this Agreement from the day following
the day on which payment was due until paid. Nothing in this Subparagraph
11(h) shall relieve a Party from paying those parts of a bill that are not in
dispute.
PATH ASSIGNMENT AND USE OF CAPACITY
12. (a) Capacity in the TPC-5 Cable Network shall be assigned to
the Parties on the Paths of the TPC-5 Cable Network in accordance with
Schedules G1 to G6. Such assignments represent the intended capacity
requirements of the Parties through the year 2010.
(b) Capacity on the Paths of the TPC-5 Cable Network shall be
jointly assigned to two Parties or wholly assigned to one Party, on a MIU
basis as set forth in this Paragraph 12.
(c) Jointly assigned MIUs of a Path Assignment shall be
considered as consisting of two half-interests in a MIU with each
half-interest assigned-to one of the two Parties involved.
(d) Wholly assigned MIUs of a Path Assignment shall be
considered as consisting of two half-interests in a MIU assigned to one Party.
<PAGE>
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(e) Half-interests in wholly assigned MIUs may be made
available to other Parties on an ownership basis with the approval of the
TPC-5 Management Committee with respect to the timing of such transfer of
half-interests.
(f) Half-interests in wholly assigned MIUs may be made
available to other Parties or telecommunications entities not Parties hereto
at any time, on such bais, other than by transfer of ownership interests, as
the Parties concerned may agree.
(g) Half-interests in jointly assigned MIUs may be made
available to other Parties or telecommunications entities not Parties hereto
on such basis, other than by transfer of ownership interests, as the parties
concerned may agree, subject to the consent of the other Party to whom the
MIUs are jointly assigned.
(h) A Party may make any of its half-interests in the MIUs
assigned to it available to other Parties that are located within the same
country by way of transfer of an ownership interest prior to the Network RFS
Date in such quantity at least equal to its interest in one MIU. Both before
and after the Network RFS Date, a Party may make available any of its
interests in the MIUs assigned to it to other Parties or to
telecommunications entities not Parties hereto that are located within the
same country as such Party, in such quantity at least equal to its
half-interest in one MIU, on such basis, other than by transfer of an
ownership interest in the TPC-5 Cable Network,
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as such Party and the other Party or telecommunications entity not Party
hereto concerned may agree.
(i) Schedules B, C, D, E, F and G shall be modified, as
appropriate, to reflect any revised assignments of capacity on an ownership
basis pursuant to this Paragraph 12.
(j) No Party may transfer its interest in fractions of MIUs to
other Parties or telecommunications entities not Parties hereto.
(k) For the interim period effective from a Segment(s) RFS
Date(s) until the date to be determined in accordance with Subparagraph 12(1)
of this Agreement, the Parties may use capacity in such Segment(s) for their
telecommunications services as required.
(l) At a date after the Network RFS Date, and to be determined
by the TPC-5 Management Committee, capacity routing of all Parties shall be
established in such a way as to ensure balanced loading of all cable segments
and to achieve the most efficient utilization of the entire TPC-5 Cable
Network, taking into account the principle of 50/50 diverse routing, where
appropriate. Such capacity routing shall be determined by the Network
Administrator pursuant to the Terms of Reference as set forth in Annex 3 of
this Agreement.
(m) No Party may use Segments T1 or T2 unless such use is in
conjunction with the use of one or more of cable segment(s) G, I or J of the
TPC-5 Cable Network.
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(n) A Party may use either one or both of the cable stations
in the U.S. Mainland and/or Japan to enter the TPC-5 Cable Network.
(o) The TPC-5 Management Committee may authorize utilization
of the reserved restoration capacity and any capacity not in active service,
for restoration of telecommunications services on a preemptible basis. The
terms and conditions of such utilization shall be determined by the TPC-5
Management Committee based on terms to be agreed to by the relevant cable
station owners of the TPC-5 Cable Network, in recognition of the technical
and operational impact on the cable station operations.
(p) Capacity in the Restoration Fiber Pair and the unassigned
capacity in the Service Fiber Pair shall be held by the Parties in common and
undivided shares in the same proportion as their investment shares in the
TPC-5 Cable Network.
(q) The communications capability of any capacity assigned in
Schedules G1 to G6 may be optimized by the Parties to whom such capacity is
assigned by the use of equipment which will more efficiently use such
capacity provided that the use of such equipment does not cause an
interruption of, or interference, impairment, or degradation to, the use of
any other capacity in the TPC-5 Cable Network or prevent the use of similar
equipment by other Parties. A Party to whom capacity is assigned shall permit
the use of such equipment by a telecommunications entity to which such Party
has made available the use of any such capacity, provided that such entity
agrees that its use of the equipment will satisfy the conditions set forth in
this
<PAGE>
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Subparagraph 12(q). Such equipment, if used, shall not constitute a part of
the TPC-5 Cable Network.
REASSIGNMENT OF CAPACITY AND
EXPANSION OF ASSIGNED CAPACITY
13. (a) At times to be determined by the TPC-5 Management
Committee, the Path Assignments of the Parties shall be reviewed by the TPC-5
Management Committee with a view to making necessary reassignment of capacity
as agreed by the Parties affected, and expansion of assigned capacity until
the TPC-5 Cable Network is utilized to the fullest possible extent.
(b) In the event of a reassignment and expansion of capacity
pursuant to Subparagraph 13(a), the investment shares of the Parties shall be
re-calculated based on the revised Path Assignments of MIUs, and the
necessary financial adjustments shall be made between and among the Parties
based on the terms and conditions to be determined by the TPC-5 Management
Committee.
(c) Schedules B, C, D, E, F and G shall be appropriately
modified to reflect the revised Path Assignments of capacity of the Parties.
INCREASE OR DECREASE OF DESIGN CAPACITY
14. (a) If, subsequent to the Network RFS Date, the Design
Capacity of the TPC-5 Cable Network is increased or decreased pursuant to
agreement of the Parties or otherwise, capacity reassignment and financial
adjustment shall be made
<PAGE>
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among the Parties, as necessary, based on the terms and conditions to be
determined by the TPC-5 Management Committee.
(b) Schedules B, C, D, E, F and G shall be appropriately
modified to reflect the revised Path Assignments of capacity associated with
such increase or decrease of the Design Capacity.
DUTIES AND RIGHTS AS TO OPERATION
AND MAINTENANCE OF SEGMENTS
15. (a) AT&T shall be responsible for the operation and
maintenance of Segments A, B, C, D, and T1 and those portions of Segments G,
H, I, and J between the Network Interfaces at the cable stations at Coos Bay,
San Luis Obispo, Keawaula, and Tumon Bay, and their respective Cable Landing
Points. AT&T shall use all reasonable efforts to maintain or cause to be
maintained economically Segments A, B, C, D and T1 and such portions of
Segments G, H, I, and J in efficient working order.
(b) KDD shall be responsible for the operation and
maintenance of Segments E, F and T2 and that portion of Segments I and J
between the Network Interfaces at the cable stations at Miyazaki, and
Ninomiya, and their respective Cable Landing Points. KDD shall use all
reasonable efforts to maintain or cause to be maintained economically
Segments E, F and T2 and such portions of Segments I and J in efficient
working order.
(c) AT&T and KDD shall be jointly responsible for the
operation and maintenance of Segments G, H, I and J except those portions of
Segments G, H, I and J referred to in
<PAGE>
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advice. Upon such notification, the O&M Subcommittee shall initiate action to
convene an ad hoc meeting for such review.
(e) Each Maintenance Authority shall be authorized to pursue
claims in its own name, on behalf of the Parties, in the event of any damage
or loss to the TPC-5 Cable Network and may file appropriate lawsuits or other
proceedings on behalf of the Parties. Subject to obtaining the prior
concurrence of the TPC-5 Management Committee, a Maintenance Authority may
settle or compromise any such claims and execute releases and settlement
agreements on behalf of the Parties as necessary to effect a settlement or
compromise.
(f) Each Party that has designed or procured equipment used
in the TPC-5 Cable Network shall give necessary information relating to the
operation and maintenance of such equipment to the Maintenance Authority
responsible for operating and maintaining such equipment, as reflected in
this Paragraph 15. Each Maintenance Authority shall have prompt access
necessary for the performance of its duties to all system maintenance
information appropriate to those parts of the TPC-5 Cable Network not covered
by its authority.
(g) No Party hereto shall be liable to any other Party for
any loss or damage sustained by reason of any failure in, or breakdown of,
the facilities constituting the TPC-5 Cable Network or any interruption of
service, whatsoever shall be the cause of such failure, breakdown, or
interruption, and however long it shall last, but, in the event of a failure
or breakdown of any such facilities, if the Maintenance Authority responsible,
<PAGE>
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as specified in Subparagraphs 15(a), (b) and (c) of this Agreement, fails to
restore those facilities to efficient working order and operation within a
reasonable time after having been called upon to do so by any other Party to
whom capacity is assigned by this Agreement, the TPC-5 Management Committee
may, to the extent that it is practical to do so, place, or cause to be
placed, such facilities in efficient working order and operation and charge
the Parties their proportionate shares of the costs reasonably incurred in
doing so.
(h) Each Party to this Agreement, at its own expense, shall
have the right to inspect from time to time the operation and maintenance of
any portion of the TPC-5 Cable Network and to obtain copies of the
maintenance records. For this purpose, the Maintenance Authority shall retain
significant records, including recorder charts, for a period of not less than
five (5) years from the date of the record. If these records are destroyed at
the end of this period, a summary of important items should be retained for
the life of the TPC-5 Cable Network.
OPERATION AND MAINTENANCE COSTS OF
SEGMENTS G, H, I, J, T1 AND T2 - ALLOCATION AND BILLING
16. (a) The costs of operation and maintenance of Segments G, H, I,
J, T1 and T2 of the TPC-5 Cable Network shall be shared by the Parties in the
proportions specified in Schedule E.
(b) The costs associated with the operation and maintenance
duties to which Subparagraphs 15(a), (b) and (c) of
<PAGE>
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this Agreement refer are the costs reasonably incurred in operation and
maintenance of the facilities involved, including, but not limited to, the
cost of attendance, testing, adjustments, repairs and replacements, cable
ships (including standby costs), cable depots, maintenance and repair devices
that are or may hereafter become available, customs duties, taxes (except
income tax imposed upon the net income of a Party) paid in respect of such
facilities, billing activities, financial charges attributable to other
Parties' shares of costs incurred by a Maintenance Authority, supervision,
overheads and costs and expenses reasonably incurred on account of claims
made by or against other persons in respect of such facilities or any part
thereof and damages or compensation payable by the Parties concerned on
account of such claims, and any costs of the Network Administrator that are
incurred subsequent to the Network RFS Date. Costs, expenses, damages, or
compensation payable to the Parties on account of claims made against other
persons shall be shared by the Parties in the same proportions as they share
the costs of operations and maintenance of Segments G, H, I, J, T1 and T2 of
the TPC-5 Cable Network under Subparagraph 16(a) of this Agreement.
(c) The Maintenance Authorities shall each render bills to the
other Parties for the expenditures herein referred not more frequently than
once a month in accordance with procedures to be established by the TPC-5
Management Committee. The Party rendering a bill shall furnish such further
details of such bill as the other Parties may reasonably require. On the
<PAGE>
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basis of such bills, each Party shall pay such amounts as may be owed by the
end of the calendar month following the calendar month in which the bill was
rendered.
(d) Bills not paid when due shall accrue extended payment
charges from the day following the day on which payment was due until paid.
Such extended payment charges shall be computed in accordance with, and
subject to the terms of, Subparagraph 11(f) of this Agreement. Credits for
refunds of financial charges and bills for extended payment charges will not
be rendered if the amount involved is less than one hundred dollars U.S. for
credits or bills rendered by AT&T, and ten thousand Japanese yen for credits
or bills rendered by KDD.
(e) A bill shall be deemed to have been accepted by the Party
to whom it is rendered if that Party does not present a written objective on
or before the date when payment is due. If such objection is made, the
Parties concerned shall make every reasonable effort to settle promptly the
dispute concerning the bill in question. If the objection is sustained and
the billed Party has paid the disputed bill, the agreed upon overpayment
shall be refunded promptly to the objecting Party by the billing Party
together with any financial charges calculated thereon at a rate determined
in accordance with Subparagraph 11(e) of this Agreement from the date of
payment of the bill to the date on which the refund is transmitted to the
objecting Party. If the objection is not sustained and the billed Party has
not paid the disputed bill, said Party will pay such bill promptly together
with any extended payment charges
<PAGE>
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calculated thereon at a rate determined in accordance with Subparagraph 11(f)
of this Agreement from the date payment of the bill was due until paid.
Nothing in this Subparagraph 16(e) shall relieve a Party from paying those
parts of a bill that are not in dispute.
KEEPING AND INSPECTION OF BOOKS
FOR SEGMENTS G, H, I, J, T1 AND T2
17. (a) For those portions of Segments G, H, I, J, T1 and T2
specified in the Supply Contracts as cost incurred items, the Procurement
Group shall ensure that the Supply Contracts require the Suppliers to keep
and maintain such books, records, vouchers and accounts of all such costs
with respect to the engineering, provision and installation of those items
for a period of five (5) years from the dates of Provisional Acceptance as
specified in the Supply Contracts.
(b) For those portions of Segments G, H, I, J, T1 and T2
specified in the Supply Contracts as fixed cost items, the Procurement Group
shall ensure that the Supply Contracts require the Suppliers to keep and
maintain records with respect to their billing of those items for a period of
five (5) years from the dates of Provisional Acceptance as specified in the
Supply Contracts.
(c) The Procurement Group shall ensure that the Supply
Contracts require the Suppliers to obtain from their contractors,
subcontractors, and suppliers, such supporting records, for other than the
cost of fixed cost items, as may be
<PAGE>
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reasonably required by this Paragraph 17 and to maintain such records for a
period of five (5) years from the dates of Provisional Acceptance as
specified in the Supply Contracts.
(d) The Procurement Group shall ensure that the Supply
Contracts shall afford the Parties to this Agreement the right to review the
books, records, vouchers, and accounts required to be kept, maintained, and
obtained pursuant to Subparagraphs 17(a), (b) and (c) of this Agreement. Such
right shall only be exercisable by the B&B Subcommittee in accordance with
the B&B Subcommittee's audit procedures.
(e) With respect to additions to Segments G, H, I, J, T1 and
T2 comparable records to those specified in Subparagraphs 17(a), (b) and (c)
of this Agreement shall be maintained by the Party providing such addition
for a period of five (5) years from the installation date of such addition.
(f) AT&T and KDD shall each keep and maintain such books,
records, vouchers, and accounts of all costs, as defined in Paragraph 10,
that they incur directly in the engineering, provision, and installation of
Segments G, H, I, J, T1 and T2, which are not included in the Supply
Contracts, for a period of five (5) years from the date the work is completed.
(g) With respect to the operation and maintenance costs of
Segments G, H, I, J, T1 and T2, AT&T and KDD shall each keep and maintain
such books, records, vouchers, and accounts of costs, as are relevant, for a
period of five (5) years from the date on which the corresponding bills are
rendered to the Parties to this Agreement.
<PAGE>
- 40 -
(h) AT&T and KDD shall afford the Parties to this Agreement
the reasonable right to review books, records, vouchers, and accounts of
costs maintained pursuant to Subparagraphs 17(f) and (g) of this Agreement.
Such right shall only be exercisable by the B&B Subcommittee in accordance
with the B&B Subcommittee's audit procedures.
USE OF CABLE STATIONS
18. (a) The owners of the TPC-5 cable stations hereby grant an
IRU interest to each Party in Segments A, B, C, D, E and F, respectively,
including any additions thereto, for the purpose of landing and terminating
the TPC-5 Cable Network in the U.S. Mainland, Hawaii, Guam and Japan
respectively, and carrying on the related activities at those locations in
accordance with this Agreement. However, Transpacific shall have the IRU
interest in Segments E and F granted to AT&T. Such IRU interest shall
commence on the relevant Segment RFS Date or on the date a Party first
places any of its capacity into operation, whichever occurs first, and such
IRU interest shall continue for the duration of this Agreement. In the event
that an agreement for another cable system utilizing any cable station of the
TPC-5 Cable Network is terminated prior to the termination of this Agreement,
the owner of Segments A, B, C, D, E or F, with the agreement of the Parties
hereto, shall take all necessary measures to ensure that the cable station in
question will be available for the TPC-5 Cable Network for the duration of
this Agreement on fair and equitable terms. If the cable station in
<PAGE>
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question is not available for the landing and terminating of the TPC-5 Cable
Network for any reason, the owner of the cable station shall provide
reasonable advance notice to all Parties and such owner, in agreement with
the Parties hereto, shall take all necessary measures to ensure that another
appropriate cable station will be available for the TPC-5 Cable Network for
the duration of this Agreement on terms and conditions similar to those
contained in this Agreement.
(b) For the IRU interest in each of the cable stations
involved, the Parties hereto shall pay that portion of the capital costs and
of the operation and maintenance costs of the cable station, including
additions thereto, allocable to the TPC-5 Network on the basis of use. Where
the use of a cable station or of certain equipment situated therein, such as
power supply or testing and maintenance equipment, is shared, by agreement of
the Parties, by the TPC-5 Cable Network and other communications systems
terminating at that cable station, the capital, operation and maintenance
costs of such shared cable station or equipment (not solely attributable to a
particular communication system or systems) will be allocated among the
systems involved in the proportions in which they use the shared equipment or
facility. For such purposes, use of a shared cable station or of shared cable
station equipment therein attributable to a particular system shall be
determined on the basis of the ratio of: (i) the installed cost of the cable
station equipment (excluding shared equipment) associated with the particular
cable system to (ii) the installed cost of the cable station
<PAGE>
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equipment (excluding shared equipment) associated with all systems, including
the TPC-5 Cable Network, which make use of the shared facility.
(c) Capital costs, as used in this Paragraph 18 with reference
to the provision of each cable station (including land, access roads, cable
rights-of-way, ducts, conduits and buildings at such station), or causing
them to be provided and constructed, or to installing or causing to be
installed cable station equipment, shall include all expenditures incurred
which shall be fair and reasonable in amount and either to have been directly
and reasonably incurred for the purpose of, or to be properly chargeable in
respect of, such provision, construction, and installation, including, but
not limited to, the purchase costs of land, building costs, amounts incurred
for development, engineering, design, materials, manufacturing, procurement
and inspection, installation, removing (with appropriate reduction for
salvage), testing associated with installation, customs duties, taxes (except
income tax imposed upon the net income of a Party), financial charges
attributable to other Parties' shares of costs, supervision, billing
activities, overheads and insurance or a reasonable allowance in lieu
thereof. Losses against which insurance was not provided, or for which an
allowance in lieu thereof was not taken, shall constitute capital costs.
Operation and maintenance costs as used in this Paragraph 18 with reference
to each of the cable stations shall include costs reasonably incurred in
operation and maintenance of the facilities involved, including, but not
limited to, the cost
<PAGE>
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of attendance, testing, adjustments, repairs and replacements, customs
duties, taxes (except income tax imposed upon the net income of a Party) paid
in respect of such facilities, billing activities, administrative costs,
financial charges attributable to other Parties' shares of costs, and costs
and expenses reasonably incurred on account of claims made by or against
other persons in respect of such facilities or any part thereof and damages
or compensation payable by the cable station owner on account of such claims.
Costs, expenses, damages, or compensation payable to the cable station owner
on account of claims made against other persons shall be shared by the
Parties acquiring an IRU interest in the respective cable station in the same
proportions as they share the costs of operation and maintenance of the
aforementioned cable station.
(d) The capital costs and operations and maintenance costs of
the respective cable stations shall be borne by the Parties to this Agreement
in the proportions specified in Schedule E.
(e) Billing and payment for the capital costs of Segments A,
B, C, D, E and F shall be made in accordance with the following procedures:
(i) The cable station owner shall determine the amount of the
initial payment of the net capital cost of the applicable
cable station (i.e., capital cost less accrued
depreciation determined in accordance with the accounting
practices of the owner) which will be due
<PAGE>
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from the Parties hereto to the parties to other
communications systems terminating at that cable station
entitled to a share of such payments at the time the IRU
interests in that cable station commence pursuant to
Subparagraph 18(a) of this Agreement.
(ii) At least sixty (60) days before the relevant Segment RFS
Date, the cable station owner shall render bills to the
Parties hereto, on an actual or preliminary billing basis, as
appropriate, for their proportionate shares of the amount
referred to in Subparagraph 18(e)(i) of this Agreement. In
the case of preliminary bills, appropriate adjustments will
be made as soon as practicable after the actual costs are
determined.
(iii) At least sixty (60) days before the relevant Segment RFS
Date, the cable station owner shall render bills to the
Parties hereto, on an actual or preliminary billing basis, as
appropriate, for their proportionate shares of the capital
cost of cable station equipment (excluding equipment shared
with other cable systems). In the case of preliminary bills,
appropriate adjustments
<PAGE>
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will be made as soon as practicable after the actual costs
are determined.
(iv) The billed Parties shall pay such bills to the cable station
owner on or before the date on which the IRU interest in the
applicable cable station granted to the Parties hereto
pursuant to Subparagraph 18(a) becomes effective.
(v) As soon as practicable after receiving payment for bills
rendered pursuant to Subparagraph 18(e)(ii), the cable
station owner shall distribute said payment among the parties
to the other communications systems terminating at the
respective cable station in the proportions to which they
are entitled.
(f) The cable station owner shall bill each of the Parties for,
and each Party shall pay, its proportionate share of, (1) the portion of any
capital costs of the cable station allocable to this Agreement incurred after
the effective date of the grant to the Parties hereto of an IRU interest in
such cable station, and (2) the portion of the operation and maintenance
costs of the cable station allocable to this Agreement, commencing at the
time such IRU grant becomes effective, in accordance with applicable billing
methods specified in Paragraphs 11 and 16 of this Agreement.
<PAGE>
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(g) With respect to capital costs and operation and
maintenance costs of Segments A, B, C, D, E and F, such books, records,
vouchers and accounts of costs, as are relevant, shall be kept and maintained
by AT&T and KDD for a period of five (5) years from the date on which the
corresponding bills to the Parties to this Agreement are rendered. AT&T and
KDD shall afford the Parties to this Agreement the right to review said
books, records, vouchers, and accounts of costs. Such right shall only be
exercisable by the B&B Subcommittee in accordance with the B&B Subcommittee's
audit procedures.
(h) In the event of a sale or other disposition of Segments A,
B, C, D, E or F, or part thereof prior to the termination of this Agreement,
the owner shall share with the other Parties hereto any net proceeds, or
costs, of such sale or disposition received, or expended, by the owner, to
the extent allocable to the TPC-5 Cable Network, in the proportions in which
the Parties' interests in the subject of the sale or disposition are
determined at the time of the sale or disposition.
(i) Notwithstanding Subparagraphs 8(a), 8(b) and 18(a), a
Party thereby granted an IRU interest in Segments A, B, C, D, E and F may,
prior to the commencement of that IRU interest, elect to renounce its IRU
interest entitlement and to instead have use of Segments A, B, C, D, E and F
for the duration of this Agreement on such terms and conditions as are agreed
upon between that Party and the owners of Segments A, B, C, D, E and F,
respectively, and in such event the provisions of Subparagraphs 18(a)-(h)
shall apply in relation to such use
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continuous operation of the said Initial Party's cable station after the
initial period.
(c) Upon the effective date of termination of participation of
a Party, Schedules A, B, C, D, E, F, and G of this Agreement shall be
appropriately modified. The remaining Parties to this Agreement shall assume
the capital, operation, and maintenance interests of the Party terminating
its participation in proportion to their interests assigned immediately
preceding such effective date of termination, except for the continuing
rights and obligations of the terminating Party as specified in Subparagraphs
20(e) and (f) of this Agreement. No credit for capital costs will be made to
a Party that terminates its participation in accordance with Subparagraph
20(a).
(d) The interests of a Party or Parties in Segments G, H, I, J,
T1 and T2 of the TPC-5 Cable Network which come to an end by reason of the
termination of its or their participation in this Agreement or the termination
of this Agreement shall be deemed to continue for as long as is necessary for
effectuating the purposes of Subparagraphs 20(e) and (f) of this Agreement,
and Segments G, H, I, J, T1 and T2 shall accordingly thereafter be held as
respects such interests upon the appropriate trusts by the Parties hereto.
Should the doctrine of trusts not be recognized under the laws of the country
where the property to which such interests relate is located, then the Party
or Parties who are the owners thereof
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shall nevertheless be expressly bound to comply with the provisions of
Subparagraphs 20(e) and (f) of this Agreement.
(e) Upon termination of this Agreement, the Parties shall use
all reasonable efforts to liquidate Segments G, H, I, J, T1 and T2 of the
TPC-5 Cable Network, within a reasonable time, by sale or other disposition
between the Parties or any of them or by sale to other entities or persons;
but no sale or disposition shall be effected except by agreement between or
among the Parties to this Agreement at the time this Agreement is terminated.
In the event agreement cannot be reached, the decision will be carried on the
basis of a vote of at least four Parties, including at least two western
Parties and two eastern Parties (for purposes of this subparagraph, a western
Party shall be of Asia or the South Pacific, and all other Parties shall be
eastern Parties), representing a simple majority of the total voting
interests as specified in Schedule B. The net proceeds, or costs, of every
sale or other disposition shall be divided between or among the Parties to
this Agreement who have or were deemed to have interests in the subject
thereof, in the proportions in which such Parties' interests are specified in
Schedules C and D immediately preceding the first time any Party terminates
its participation in this Agreement or this Agreement is terminated pursuant
to Subparagraph 20(a), whichever occurs first. The Parties shall execute such
documents and take such action as may be necessary to effectuate any sale or
other disposition made pursuant to this Paragraph 20.
<PAGE>
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(f) Unless the TPC-5 Management Committee shall otherwise
determine, a Party's termination of its participation in this Agreement or
the termination of this Agreement, pursuant to Subparagraph 20(a), shall not
relieve that Party or the Parties hereto from any liabilities arising on
account of claims made by third parties in respect of such facilities or any
part thereof and damages or compensation payable on account of such claims,
or obligations which may arise in relation to the TPC-5 Cable Network due to
any law, order or regulation made by any government or supranational legal
authority pursuant to any international convention, treaty or agreement. Any
such liabilities or costs incurred or benefits accruing in satisfying such
obligations shall be divided among the Parties hereto in the proportions in
which such Parties' interests are specified in Schedules C and D immediately
preceding the first time any Party terminates its participation in this
Agreement or this Agreement is terminated pursuant to Subparagraph 20(a),
whichever occurs first.
OBTAINING OF LICENSES
21. (a) The performance of this Agreement by the Parties is
contingent upon the obtaining and continuance of such governmental approvals,
consents, authorizations, licenses, and permits as may be required or be
deemed necessary by the Parties and as may be satisfactory to them, and the
Parties shall use all reasonable efforts to obtain and to have continued in
effect such approvals, consents, authorizations, licenses, and permits.
<PAGE>
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(b) The Japanese Carrier Parties shall handle matters
relating to the obtaining and continuance of governmental approvals,
consents, authorizations, licenses, and permits for the landing, construction
and operation of the TPC-5 Cable Network in Japan. The United States Carrier
Parties shall handle matters relating to the obtaining and continuance of
governmental approvals, consents, authorizations, licenses, and permits for
the landing, construction and operation of the TPC-5 Cable Network in the
United States.
PRIVILEGES FOR DOCUMENTS OR COMMUNICATIONS
22. Each Party hereto specifically reserves, and is granted by
each of the other Parties, in any action arbitration or other proceeding
between or among the Parties or any of them in a country other than that
Party's own country, the right of privilege, in accordance with the laws of
that Party's own country, with respect to any documents or communications
which are material and pertinent to the subject matter of the action,
arbitration or proceeding as respects which privilege could be claimed or
asserted by that Party in accordance with those laws, and such privilege,
whatever may be its nature and whenever it be claimed or asserted, shall be
allowed to that Party as it would be allowed if the action, arbitration or
other proceeding had been brought in a court of, or before an arbitrator in,
the Party's own country.
<PAGE>
- 52 -
RELATIONSHIP OF PARTIES
23. The relationship among the Parties shall not be that of
partners, and nothing herein contained shall be deemed to constitute a
partnership among them. The common enterprise between and among the Parties
shall be limited to the express provisions of this Agreement.
ASSIGNMENT AND DEFAULT
24. (a) Subject to the provisions of Subparagraphs 24(b) and (c)
and Paragraphs 12 and 25 of this Agreement, during the continuance of this
Agreement no Party shall, without the consent of the other Parties, sell,
assign, transfer, or dispose of its rights or obligations under this
Agreement or of any interest in the TPC-5 Cable Network except to a successor
or subsidiary of such Party or a corporation controlling, or under the same
effective control as, such Party, in which case written notice shall be given
in a timely manner by the Party making said sale, assignment, transfer, or
disposition.
(b) If any Party fails to make any payment required by this
Agreement on the date when it is due and such default continues for a period
of at least two (2) months after the time for the submission of a written
objection, the billing Party may notify the billed Party in writing of its
intent to notify the TPC-5 Management Committee of the status of the matter
and to request the reclamation of capacity, as provided for in this Paragraph
24, if full payment is not received within six (6) months of such
notification to the billed Party. If full
<PAGE>
- 53 -
payment is not received within such specified period, the billing Party may
notify the TPC-5 Management Committee of the status of the matter and request
that the TPC-5 Management Committee reclaim the capacity in the TPC-5 Cable
Network assigned to the billed Party.
(c) The TPC-5 Management Committee shall consider any
extenuating circumstances not within the specific control of the billed Party
in determining whether or not to reclaim the capacity assigned to such billed
Party. If the TPC-5 Management Committee nevertheless reclaims any capacity
in the TPC-5 Cable Network assigned to such defaulting Party, the defaulting
Party shall not be entitled to any payment or credit for capital costs for
the reclaimed capacity. The TPC-5 Management Committee shall determine
arrangements for disposition of any reclaimed capacity taking into account
the interests of the Party or Parties holding jointly assigned capacity with
the defaulting Party. Such of the remaining Parties hereto as shall agree to
take the reclaimed capacity of a defaulting Party which is to be reassigned
shall make appropriate payments to the TPC-5 Management Committee which shall
then distribute the payments to those Parties to this Agreement entitled to
the proceeds. All rights of a defaulting Party under this Agreement shall
terminate as of the time all its capacity in the TPC-5 Cable Network is
reclaimed by the TPC-5 Management Committee; and concurrent with such
reclamation of capacity, the defaulting Party will no longer be deemed to be
a Party to this Agreement. This Agreement shall be appropriately
<PAGE>
- 54 -
amended to reflect the default of a Party and the reassignment of the
interest herein of such defaulting Party.
ADMISSION OF ADDITIONAL PARTIES
25. (a) The TPC-5 Management Committee shall be empowered, prior
to the Network RFS Date, to admit entities not signatory hereto as additional
Parties provided, however, that the following conditions are met:
(i) the additional Party agrees to acquire an investment share
corresponding to the quantity of MIUs required to meet its
needs for the TPC-5 Cable Network through at least the
year 2010;
(ii) agreement is reached between all of the Parties whose Path
Assignments in the relevant Schedules G1-G6 will be
changed by admitting the additional Party;
(iii) payment is made by the additional Party of its
proportionate share of costs or capital costs, including
interest during construction, already incurred under this
Agreement in accordance with Schedule E, as amended to
reflect the admission of the additional Party;
(iv) such additional Party accepts the terms and conditions of
this Agreement and the
<PAGE>
- 55 -
decisions already taken by the Parties in relation to the
TPC-5 Cable Network.
(b) Additional Parties shall be admitted by amendatory
agreements to this Agreement. The Initial Parties are hereby authorized to
act as representatives and agents of all Parties to execute such amendatory
agreements for the admission of additional Parties. Such amendatory
agreements shall be approved by the TPC-5 Management Committee prior to
execution. Schedules A, B, C, D, E, F, and GI-G5 shall be appropriately
modified.
WAIVER
26. The failure of any Party, on one or more occasions, to enforce
any of the provisions of this Agreement or to exercise any right or privilege
hereunder shall not thereafter be construed as a waiver of any breach or
default, or as a waiver of any such provision, right, or privilege hereunder.
PARAGRAPH HEADINGS
27. The headings of the paragraphs do not form part of this
Agreement and shall not have any effect on the interpretation thereof.
INTERPRETATION OF AGREEMENT
28. If any difference shall arise between or among the Parties or
any of them respecting the interpretation or effect of this Agreement or any
part of provision thereof or their rights
<PAGE>
- 56 -
and obligations thereunder, and by reason thereof there shall arise the need
to decide the question by what municipal or national law this Agreement or
such part or provision thereof is governed, the following facts shall be
excluded from consideration, namely, that this Agreement was made in a
particular country and that it may appear by reason of its form, style,
language or otherwise to have been drawn preponderantly with reference to a
particular system of municipal or national law; the intention of the Parties
being that such facts shall be regarded by the Parties and in all courts and
tribunals wherever situated as irrelevant to the question aforesaid and to
the decision thereof.
RATIFICATION OF PRIOR DECISIONS AND ACTIONS
29. Each Party to this Agreement does hereby, and each additional
Party admitted pursuant to Paragraph 25 shall thereby unconditionally ratify
and accept as binding on it, its successors, permitted assigns or trustees
all decisions and actions theretofore taken directly or indrectly by any
other Party or Parties or any committee or subcommittee or group pursuant to
and in accordance with this Agreement or the MOU.
RESOLUTION OF DISPUTES
30. If a dispute should arise under this Agreement between or among
the Parties they shall make every reasonable effort to resolve such dispute.
However, in the event that they are unable to resolve such dispute. However,
in the event that they are unable to resolve such dispute, the matter shall
be referred
<PAGE>
- 57 -
to the TPC-5 Management Committee which shall either resolve the matter or
determine the method by which the matter should be resolved.
EXECUTION OF AGREEMENT
31. (a) This Agreement shall be executed in 48 identical
counterparts in the English language. Each such counterpart when so executed
shall be an original, and such counterparts shall together, as well as
separately, constitute one and the same instrument. Except as provided in
subparagraphs 25(b) and 31(b), this Agreement and any of its provisions may
be altered or added to only by another agreement in writing signed by a duly
authorized person on behalf of each Party to this Agreement. Only one
original of such amendatory agreement shall be executed. AT&T shall retain
the signed original amendatory agreement and will provide the other Parties
with certified copies.
(b) Subparagraph 31(a) shall not apply to any Schedule modified
in accordance with any other provision of this Agreement and any Schedules so
modified shall be deemed to be a part of this Agreement in substitution for
the immediately preceding version of that Schedule.
SUCCESSORS BOUND
32. This Agreement shall be binding on the Parties, their
successors, and permitted assigns.
<PAGE>
- 58 -
IN WITNESS WHEREOF, the Parties hereto have severally subscribed
these presents or caused them to be subscribed in their names and on their
behalf of their respective officers thereunto duly authorized.
AMERICAN TELEPHONE AND TELEGRAM COMPANY
By: [Illegible]
------------------------------------
AUSSAT PTY LTD. (ACN 008 570 330)
By: [Illegible]
------------------------------------
AUSTRALIAN AND OVERSEAS TELECOMMUNICATIONS
CORPORATION LIMITED ACN 051 775 556
By: [Illegible]
------------------------------------
BELGACOM
By: [Illegible]
------------------------------------
<PAGE>
- 59 -
BRITISH TELECOMMUNICATIONS PLC
By: [Illegible]
------------------------------------
BUNDESMINISTERIUM FUER OEFFENTLICHE WIRTSCHAFT
UND VERKEHR, GENERALDIRECKTION FUER DIE POST-UND
TELEGRAPHENVERWALTUNG
By: [Illegible]
------------------------------------
CICI, INC. D/B/A IDB INTERNATIONAL
By: [Illegible]
------------------------------------
COMPANHIA PORTUGUESE RADIO MARCONI
By: /s/ Charles D. Hogan
------------------------------------
DACOM CORPORATION
By: [Illegible]
------------------------------------
DEUTSCHE BUNDESPOST TELEKOM
By: [Illegible]
------------------------------------
<PAGE>
- 60 -
DIRECTORATE GENERAL OF TELECOMMUNICATIONS
By: [Illegible]
------------------------------------
EASTERN TELECOMMUNICATIONS PHILIPPINES, INCORPORATED
By: [Illegible]
------------------------------------
EMPRESA NACIONAL DE TELECOMMUNICATIONES (ENTEL-BOLIVIA)
By: [Illegible]
------------------------------------
EMPRESA NACIONAL DE TELECOMMUNICACIONES (ENTEL-PERU)
By: [Illegible]
------------------------------------
FRANCE TELECOM
By: [Illegible]
------------------------------------
GENERAL DIRECTORATE OF TURKISH PTT
By: [Illegible]
------------------------------------
GTE HAWAIIAN TELEPHONE COMPANY
By: [Illegible]
------------------------------------
<PAGE>
- 61 -
HONG KONG TELECOM INTERNATIONAL LIMITED
By: [Illegible]
------------------------------------
INTERNATIONAL DIGITAL COMMUNICATIONS INC.
By: [Illegible]
------------------------------------
PT (PERSERO) INDOSAT
By: [Illegible]
------------------------------------
IT&E OVERSEAS, INC.
By: [Illegible]
------------------------------------
ITALCABLE S.P.A.
By: [Illegible]
------------------------------------
INTERNATIONAL TELECOMMUNICATION DEVELOPMENT CORP.
By: [Illegible]
------------------------------------
INTERNATIONAL TELECOM JAPAN INC.
By: [Illegible]
------------------------------------
<PAGE>
- 62 -
KOKUSAI DENSHIN DENWA CO., LTD
By: [Illegible]
------------------------------------
KOREA TELECOM
By: [Illegible]
------------------------------------
ENTREPRISE DES POSTES ET TELECOMMUNICATIONS DU LUXEMBOURG
By: [Illegible]
------------------------------------
MCI INTERNATIONAL, INC.
By: [Illegible]
------------------------------------
MERCURY COMMUNICATIONS LIMITED
By: [Illegible]
------------------------------------
NORWEGIAN TELECOM
By: [Illegible]
------------------------------------
<PAGE>
- 63 -
PTT TELECOM BV
By: [Illegible]
------------------------------------
PHILIPPINE GLOBAL COMMUNICATIONS, INC.
By: [Illegible]
------------------------------------
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
By: [Illegible]
------------------------------------
POSTS AND TELECOMMUNICATIONS OF FINLAND
By: [Illegible]
------------------------------------
ENERPRISE DES POSTES, TELEPHONES ET TELEGRAPHS SUISSES
By: [Illegible]
------------------------------------
SINGAPORE TELECOMMUNICATIONS PRIVATE LIMITED
By: [Illegible]
------------------------------------
<PAGE>
- 64 -
SPRINT COMMUNICATIONS COMPANY LIMITED PARTNERSHIP
By: [Illegible]
------------------------------------
SWEDISH TELECOM
By: [Illegible]
------------------------------------
TELEKOM MALAYSIA BERHAD
By: [Illegible]
------------------------------------
TELECOM DENMARK
By: [Illegible]
------------------------------------
TELECOM PURCHASING LIMITED
By: [Illegible]
------------------------------------
TELECOMMUNICACIONES INTERNCIONALES DE ARGENTINA
By: [Illegible]
------------------------------------
TELEFONICA DE ESPANA, S.A.
By: [Illegible]
------------------------------------
<PAGE>
- 65 -
TELEFONOS DE MEXICO, S.A. DE C.V.
By: [Illegible]
------------------------------------
TELEGLOBE CANADA INC.
By: [Illegible]
------------------------------------
TRANSPACIFIC COMMUNICATIONS, INCORPORATED
By: [Illegible]
------------------------------------
TRT/FTC COMMUNICATIONS, INC.
By: [Illegible]
------------------------------------
VIDESH SANCHAR NIGAM LIMITED
By: /s/ Charles D. Hogan
------------------------------------
<PAGE>
LIST OF OMITTED SCHEDULES, ANNEXES AND ATTACHMENTS
The following Schedules, Annexes and Attachments to the TPC-5 Cable
Network Construction and Maintenance Agreement have been omitted from this
Exhibit and shall be furnished supplementally to the Commission upon request:
Schedule A - Parties to the Agreement
Schedule B - Investment Shares and Voting Interests in the TPC-5 Cable
Network
Schedule C - Ownership Interests in Segments G, H, I and J
Schedule D - IRU Interests in Segments T1 and T2
Schedule E - Allocation of Capital and Operation and Maintenance Costs
of Segments A, B, C, D, E, F, G, H, I, J, T1 and T2
Schedule F - Half MIU Capacity Assigned by Path
Schedule G-1 - Path Assignment of MIUs in the TPC-5 Cable Network (U.S.
Mainland Hawaii)
Schedule G-2 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Guam)
Schedule G-3 - Path Assignment of MIUs in the TPC-5 Cable Network
(Guam-Japan)
Schedule G-4 - Path Assignment of MIUs in the TPC-5 Cable Network
(Japan-U.S. Mainland)
Schedule G-5 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland Guam)
Schedule G-6 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Japan)
Annex 1- Terms of Reference (Procurement Group)
Annex 2 - Terms of Reference (Operational Assignments, Routing and
Restoration Subcommittee)
Annex 3 - Terms of Reference (Network Administrator)
Attachment 1 - TPC-5 Cable Newtork
Attachment 2 - Explanation of Investment Shares and Computation of MIU
Costs
<PAGE>
The following Revised Schedules, effective December 31, 1995, to the
TPC-5 Cable Network Construction and Maintenance Agreement have been omitted
from this Exhibit and shall be furnished supplementally to the Commission
upon request:
Schedule B - Investment Shares and Voting Interests in the TPC-5 Cable
Network
Schedule C - Ownership Interests in Segments G, H, I and J
Schedule D - IRU Interests in Segments T1 and T2
Schedule E - Allocation of Capital and Operation and Maintenance Costs
of Segments A, B, C, D, E, F, G, H, I, J, T1 and T2
Schedule F - Half MIU Capacity Assigned by Path
Schedule G-1 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland-Hawaii)
Schedule G-2 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Guam)
Schedule G-3 - Path Assignment of MIUs in the TPC-5 Cable Network
(Guam-Japan)
Schedule G-4 - Path Assignment of MIUs in the TPC-5 Cable Network
(Japan-U.S. Mainland)
Schedule G-5 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland Guam)
Schedule G-6 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Japan)
The following Revised Schedules, effective September 1, 1996, to the
TPC-5 Cable Network Construction and Maintenance Agreement have been omitted
from this Exhibit and shall be furnished supplementally to the Commission
upon request:
Schedule B - Investment Shares and Voting Interests in the TPC-5 Cable
Network
Schedule C - Ownership Interests in Segments G, H, I and J
Schedule D - IRU Interests in Segments T1 and T2
Schedule E - Allocation of Capital and Operation and Maintenance Costs
of Segments A, B, C, D, E, F, G, H, I, J, T1 and T2
Schedule F - Half MIU Capacity Assigned by Path
-2-
<PAGE>
Schedule G-1 - Path Assignment of MIUs in the TPC-5 Cable Network (U.S.
Mainland Hawaii)
Schedule G-2 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Guam)
Schedule G-3 - Path Assignment of MIUs in the TPC-5 Cable Network
(Guam-Japan)
Schedule G-4 - Path Assignment of MIUs in the TPC-5 Cable Network
(Japan-U.S. Mainland)
Schedule G-5 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S.Mainland-Guam)
Schedule G-6 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Japan)
The following Revised Schedules, effective April 5, 1996, to the TPC-5
Cable Network Construction and Maintenance Agreement have been omitted from
this Exhibit and shall be furnished supplementally to the Commission upon
request:
Schedule B - Investment Shares and Voting Interests in the TPC-5 Cable
Network
Schedule C - Ownership Interests in Segments G, H, I and J
Schedule D - IRU Interests in Segments T1 and T2
Schedule E - Allocation of Capital and Operation and Maintenance Costs
of Segments A, B, C, D, E, F, G, H, I, J, T1 and T2
Schedule F - Half MIU Capacity Assigned by Path
Schedule G-1 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland-Hawaii)
Schedule G-2 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Guam)
Schedule G-3 - Path Assignment of MIUs in the TPC-5 Cable Network
(Guam-Japan)
Schedule G-4 - Path Assignment of MIUs in the TPC-5 Cable Network
(Japan-U.S. Mainland)
Schedule G-5 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland-Guam)
Schedule G-6 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Japan)
-3-
<PAGE>
The following Revised Schedules, effective July 15, 1996, to the TPC-5
Cable Network Construction and Maintenance Agreement have been omitted from
this Exhibit and shall be furnished supplementally to the Commission upon
request:
Schedule B - Investment Shares and Voting Interests in the TPC-5 Cable
Network
Schedule C - Ownership Interests in Segments G, H, I and J
Schedule D - IRU Interests in Segments T1 and T2
Schedule E - Allocation of Capital and Operation and Maintenance Costs
of Segments A, B, C, D, E, F, G, H, I, J, T1 and T2
Schedule F - Half MIU Capacity Assigned by Path
Schedule G-1 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland-Hawaii)
Schedule G-2 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Guam)
Schedule G-3 - Path Assignment of MIUs in the TPC-5 Cable Network
(Guam-Japan)
Schedule G-4 - Path Assignment of MIUs in the TPC-5 Cable Network
(Japan-U.S. Mainland)
Schedule G-5 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland-Guam)
Schedule G-6 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Japan)
The following Revised Schedules, effective December 1, 1998, to the
TPC-5 Cable Network Construction and Maintenance Agreement have been omitted
from this Exhibit and shall be furnished supplementally to the Commission
upon request:
Schedule B - Investment Shares and Voting Interests in the TPC-5 Cable
Network
Schedule C - Ownership Interests in Segments G, H, I and J
Schedule D - IRU Interests in Segments T1 and T2
Schedule E - Allocation of Capital and Operation and Maintenance Costs
of Segments A, B, C, D, E, F, G, H, I, J, T1 and T2
Schedule F - Half MIU Capacity Assigned by Path
-4-
<PAGE>
Schedule G-1 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland-Hawaii)
Schedule G-2 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Guam)
Schedule G-3 - Path Assignment of MIUs in the TPC-5 Cable Network
(Guam-Japan)
Schedule G-4 - Path Assignment of MIUs in the TPC-5 Cable Network
(Japan-U.S. Mainland)
Schedule G-5 - Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland Guam)
Schedule G-6 - Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Japan)
TPC-5 Cable System Cost Summary
-5-
<PAGE>
TPC-5
CABLE NETWORK
AMENDATORY AGREEMENT NO. 1
TO THE
CONSTRUCTION AND MAINTENANCE AGREEMENT
Certified as a True and Accurate Copy
of the TPC-5 Cable Network Amendatory
Agreement No. 1 to the Construction
and Maintenance Agreement.
By: /s/ R.C. Mascola
-------------------------
R.C. Mascola
AT&T
June 8, 1995
<PAGE>
TPC-5
CABLE NETWORK
AMENDATORY AGREEMENT NO. 1
TO THE
CONSTRUCTION AND MAINTENANCE AGREEMENT
<PAGE>
TPC-5 CABLE NETWORK
AMENDATORY AGREEMENT NO. 1
TO THE CONSTRUCTION AND MAINTENANCE AGREEMENT
THIS AGREEMENT (hereinafter referred to as "Amendatory Agreement No. 1"),
is made between and among the Parties signatory hereto (hereinafter collectively
called "the Parties"), which Parties are identified in Schedule A.
WITNESSETH
WHEREAS, an Agreement was entered into, effective October 29, 1992
(hereinafter referred to as the "TPC-5 Cable Network C&MA") to provide,
construct, maintain and operate the TPC-5 Cable Network, and
WHEREAS, the Parties identified in Schedule A1 hereto (hereinafter referred
to as the "Additional Parties") each desire to become a Party to the TPC-5 Cable
Network C&MA, and acquire an assignment of Minimum Investment Units ("MIUs") as
shown in replacement Schedules F and G attached hereto, and as further reflected
in replacement Schedules B, C, D and E attached hereto, and
WHEREAS, in accordance with Paragraph 25 of the TPC-5 Cable Network
C&MA, the Management Committee has agreed to admit the Additional Parties as
Parties
1
<PAGE>
to the TPC-5 Cable Network C&MA, commensurate with the requirements of the
Additional Parties and other Parties to the TPC-5 Cable Network C&MA, and
WHEREAS, in accordance with Subparagraph 13(a) of the TPC-5 Cable Network
C&MA, certain existing Parties desire to reassign their MIU Path Assignments or
to expand their assigned capacity in the TPC-5 Cable Network and thereby make
commensurate changes in their Investment Shares, Voting Interests, Ownership
Interests, and Allocation of Capital, Operation, and Maintenance Costs in the
TPC-5 Cable Network, and to reflect such changes in replacement Schedules B, C,
D, E, F, and G of the TPC-5 Cable Network C&MA, and
WHEREAS, certain existing Parties in the TPC-5 Cable Network C&MA have
undergone organizational changes, resulting in new addresses or new
descriptions, or in a different entity becoming their assignee or successor in
interest, and the Parties now desire to reflect such changes in the TPC-5 Cable
Network C&MA by incorporating such changes in replacement Schedules A, B, C, D,
E, F and G attached hereto, and
WHEREAS, AT&T as owner of Segment A of the TPC-5 Cable Network, the new
Cable Station at Coos Bay, Oregon, as a result of a definition of the geographic
site of that Cable Station, wishes to redefine its location to Bandon, Oregon;
and
NOW, THEREFORE, the Parties hereto agree with each other as follows:
2
<PAGE>
1. The identification of the Parties, the investment shares, the voting
interests, the ownership interests, the allocation of capital, operating and
maintenance costs and the assignment of MIUs of the TPC-5 Cable Network are
revised in accordance with Schedules A, B, C, D, E, F and G hereto. As of the
effective date of this Amendatory Agreement No. 1, Schedules A, B, C, D, E,
F, and G hereto shall replace the previous Schedules A, B, C, D, E, F, and G
of the TPC-5 Cable Network C&MA.
2. Each of the Additional Parties hereby:
(a) agrees to accept and abide by the terms and conditions of the
TPC-5 Cable Network C&MA, which is incorporated by reference and made a part
hereof;
(b) agrees to assume responsibility to pay its proportionate share
of any costs incurred under the TPC-5 Cable Network C&MA prior to becoming a
Party thereto; and
(c) agrees to accept and abide by all decisions already taken in
relation to the TPC-5 Cable Network by the Parties to the TPC-5 Cable Network
C&MA prior to its becoming a Party thereto.
3. Unless otherwise required by the context, VNPT and TI shall be
collectively referred to as "Vietnamese Party" or "VP" in the TPC-5 Cable
Network C&MA, under which VNPT and TI shall assume, jointly but not on a
several basis in shares as agreed between VNPT and TI, all interests, rights,
obligations and liabilities allocable to VP under TPC-5 Cable Network C&MA.
All interests, rights, obligations and liabilities of VP under the TPC-5
Cable Network C&MA shall transfer to VNPT, upon the
3
<PAGE>
date of TI's notification to other Parties in writing of such title transfer.
Upon such transfer, notwithstanding Paragraph 20, all rights and obligations of
TI independently under the TPC-5 Cable Network C&MA shall cease, and any
reference to VP in the agreements in association with the TPC-5 Cable Network
C&MA shall be deemed to be a reference to VNPT. Notwithstanding the foregoing,
such notification by TI shall not relieve TI from any liabilities, costs,
damages or obligations incurred prior to such notification being made.
4. AT&T and KDD shall bill the Additional Parties and the existing Parties
acquiring capacity for their proportional shares, as specified in Schedule E of
this Amendatory Agreement No. 1, of the costs of the TPC-5 Cable Network
incurred by AT&T and KDD to the date of this Amendatory Agreement No. 1. These
and subsequent bills shall be calculated, rendered and paid in accordance with
the TPC-5 Cable Network C&MA and any applicable decisions of the Management
Committee.
5. Upon execution of this Amendatory Agreement No. 1, the Additional
Parties are hereby admitted as signatories to the TPC-5 Cable Network C&MA and
deemed to be Parties thereto.
4
<PAGE>
6. The assigned capacity of the TPC-5 Cable Network is hereby expanded in
accordance with Subparagraph 13(a) of the TPC-5 Cable Network C&MA, as reflected
in Schedules F and G of this Amendatory Agreement No. 1.
7. Financial adjustments relating to the change in Path Assignment of the
TPC-5 Cable Network pursuant to Subparagraph 13(a) of the TPC-5 C&MA shall be
made in accordance with Subparagraph 13(b) of the TPC-5 C&MA.
8. Paragraph 2, Subparagraphs 3(a), 7(b), and 15(a), are hereby amended and
Attachment 1 is hereby replaced, to reflect the new identification of Segment A
of the TPC-5 Cable Network, by changing Coos Bay, Oregon to Bandon, Oregon.
9. In accordance with Subparagraph 31(a) of the TPC-5 Cable Network
C&MA, only one (1) original copy of this Amendatory Agreement No. 1 shall be
executed. AT&T shall retain the signed original version of this Amendatory
Agreement No. 1 and each of the other Parties will be promptly provided with
certified photo copies hereof.
10. Except as specifically amended by this Amendatory Agreement No. 1, the
TPC-5 Cable Network C&MA shall remain unchanged and in full force and effect.
5
<PAGE>
11. The performance of this Amendatory Agreement No. 1 is contingent upon
the obtaining and continuance of such governmental approvals, consents,
authorizations, licenses and permits as may be required or deemed necessary by
the Parties and as may be satisfactory to them.
12. This Amendatory Agreement No. 1 shall be effective as of the 16th day
of May, 1995.
6
<PAGE>
TESTIMONIUM
IN WITNESS WHEREOF, the Parties hereto have severally subscribed these
presents or caused them to be subscribed in their names and on their behalf by
their respective officers thereunto duly authorized.
AT&T CORP.
By: /s/ Charles D. Hogan
-------------------------
BELGACOM S.A.
By: /s/ Charles D. Hogan
-------------------------
BORD TELECOM EIREANN
By: /s/ Charles D. Hogan
-------------------------
BRITISH TELECOMMUNCATIONS PLC
By: /s/ [Illegible]
-------------------------
BUNDESMINISTERIUM FUER OEFFENTLICHE WIRTSCHAFT UND VERKEHR,
GENERALDIREKTION FUER DIE POST-UND TELEGRAPHENVERWALTUNG
By: /s/ Charles D. Hogan
-------------------------
CAPWIRE
By: /s/ [Illegible]
-------------------------
7
<PAGE>
CELLULAR COMMUNICATIONS NETWORK
By: /s/ [Illegible]
-------------------------
THE COMMUNICATIONS AUTHORITY OF THAILAND
By: /s/ [Illegible]
-------------------------
COMMUNICATION TELESYSTEMS INTERNATIONAL
By: /s/ [Illegible]
-------------------------
COMPANHIA PORTUGUESE RADIO MARCONI
By: /s/ Charles D. Hogan
-------------------------
DACOM CORPORATION
By: /s/ [Illegible]
-------------------------
DEUTSCHE TELEKOM AG
By: /s/ [Illegible]
-------------------------
DIGITAL TELECOMMUNICATIONS PHILS., INC.
By: /s/ [Illegible]
-------------------------
DIRECTORATE GENERAL OF TELECOMMUNICATIONS
By: /s/ [Illegible]
-------------------------
8
<PAGE>
EASTERN TELECOMMUNICATIONS PHILIPPINES, INCORPORATED
By: /s/ [Illegible]
-------------------------
EMPRESA BRASILEIRA DE TELECOMMUNICACOES, S.A. EMBRATEL
By: /s/ Charles D. Hogan
-------------------------
EMPRESA NACIONAL DE TELECOMUNICACIONES (ENTEL-BOLVIA)
By: /s/ Charles D. Hogan
-------------------------
FRANCE TELECOM
By: /s/ [Illegible]
-------------------------
GENERAL DIRECTORATE OF TURKISH PTT
By: /s/ F. I. James
-------------------------
GTE HAWAIIAN TELEPHONE COMPANY
By: /s/ [Illegible]
-------------------------
9
<PAGE>
HONG KONG TELECOM INTERNATIONAL LIMITED
By: /s/ [Illegible]
-------------------------
IDB WORLDCOM SERVICES INC.
By: /s/ [Illegible]
-------------------------
INTERNATIONAL DIGITAL COMMUNICATIONS INC.
By: /s/ [Illegible]
-------------------------
PT (PERSERO) INDOSAT
By: /s/ [Illegible]
-------------------------
INTERNATIONAL COMMUNICATIONS CORPORATION
By: /s/ [Illegible]
-------------------------
INTERNATIONAL TELECOMMUNICATIONS DEVELOPMENT CORP.
By: /s/ [Illegible]
-------------------------
INTERNATIONAL TELECOM JAPAN INC.
By: /s/ [Illegible]
-------------------------
ISLA COMMUNICATIONS CO. INC.
By: /s/ [Illegible]
-------------------------
10
<PAGE>
IT&E OVERSEAS, INC.
By: /s/ [Illegible]
-------------------------
KOKUSAI DENSHIN DENWA CO., LTD
By: /s/ [Illegible]
-------------------------
KOREA TELECOM
By: /s/ [Illegible]
-------------------------
ENTERPRISE DES POSTES ET TELECOMMUNICATIONS DU LUXEMBOURG
By: /s/ Charles D. Hogan
-------------------------
MCI INTERNATIONAL, INC.
By: /s/ [Illegible]
-------------------------
MERCURY COMMUNICATIONS LIMITED
By: /s/ [Illegible]
-------------------------
NORWEGIAN TELECOM
By: /s/ Jan Crovent
-------------------------
OPTUS NETWORKS PTY LIMITED (ACN 008 570 330)
By: /s/ [Illegible]
-------------------------
11
<PAGE>
PACIFIC GATEWAY EXCHANGE
By: /s/ Robert F. Craven
-------------------------
PHILIPPINE GLOBAL COMMUNICATIONS, INC.
By: /s/ [Illegible] 5/16/95
-------------------------
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
By: /s/ [Illegible]
-------------------------
PTT TELECOM BV
By: /s/ [Illegible]
-------------------------
ROSTELECOM JOINT STOCK COMPANY
By: /s/ Charles D. Hogan
-------------------------
PT SATELIT PALAPA INDONESIA
By: /s/ [Illegible]
-------------------------
SINGAPORE TELECOMMUNICATIONS PRIVATE LIMITED
By: /s/ [Illegible]
-------------------------
SPRINT COMMUNICATIONS COMPANY LIMITED PARTNERSHIP
By: /s/ [Illegible]
-------------------------
12
<PAGE>
SWISS TELECOM PTT
By: /s/ [Illegible]
-------------------------
TELECOM DENMARK
By: /s/ Jan Crovent
-------------------------
TELECOM FINLAND LTD.
By: /s/ Jan Crovent
-------------------------
TELECOM ITALIA/S.P.A.
By: /s/ [Illegible]
-------------------------
TELECOM PURCHASING LIMITED
By: /s/ [Illegible]
-------------------------
TELECOMUNICACIONES INTERNACIONALES DE ARGENTINA
By: /s/ Charles D. Hogan
-------------------------
TELEFONICA DE ESPANA, S.A.
By: /s/ Charles D. Hogan
-------------------------
TELEFONICA DEL PERU
By: /s/ [Illegible]
-------------------------
13
<PAGE>
TELEFONOS DE MEXICO, S.A. DE C.V.
By: /s/ [Illegible] - SPRINT
-------------------------
TELEGLOBE CANADA INC.
By: /s/ [Illegible]
-------------------------
TELEKOM MALAYSIA BERHAD
By: /s/ [Illegible]
-------------------------
TELIA
By: /s/ [Illegible]
-------------------------
TELSTRA CORPORATION LIMITED (ACN 051 775 556)
By: /s/ F. I. James
-------------------------
TELSTRA INTERNATIONAL, LIMITED (ACN 003 429 883)
By: /s/ F. I. James
-------------------------
TRANSOCEANIC COMMUNICATIONS, INCORPORATED
By: /s/ [Illegible]
-------------------------
14
<PAGE>
TRT/FTC COMMUNICATIONS, INC
By: /s/ [Illegible]
-------------------------
VIDESH SANCHAR NIGAM LIMITED
By: /s/ Charles D. Hogan
-------------------------
VIETNAM POSTS AND TELECOMMUNICATIONS
By: /s/ [Illegible]
-------------------------
15
<PAGE>
LIST OF OMITTED SCHEDULES AND ATTACHMENT
The following Schedules and Attachment to the TPC-5 Cable Network
Amendatory Agreement No. 1 to the Construction and Maintenance Agreement have
been omitted from this Exhibit and shall be furnished supplementally to the
Commission upon request:
Schedule A -- Parties to the Agreement
Schedule A-1 -- Additional Parties
Schedule B -- Investment Shares and Voting Interests in the TPC-5
Cable Network
Schedule C -- Ownership Interests in Segments G, H, I and J
Schedule D -- IRU Interests in Segments T1 and T2
Schedule E -- Allocation of Capital and Operation and Maintenance
Costs of Segments A, B, C, D, E, F, G, H, I, J, T1
and T2
Schedule F -- Half MIU Capacity Assigned by Path
Schedule G-1 -- Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland-Hawaii)
Schedule G-2 -- Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Guam)
Schedule G-3 -- Path Assignment of MIUs in the TPC-5 Cable Network
(Guam-Japan)
Schedule G-4 -- Path Assignment of MIUs in the TPC-5 Cable Network
(Japan-U.S. Mainland)
Schedule G-5 -- Path Assignment of MIUs in the TPC-5 Cable Network
(U.S. Mainland-Guam)
Schedule G-6 -- Path Assignment of MIUs in the TPC-5 Cable Network
(Hawaii-Japan)
Attachment 1-- TPC-5 Cable Network
<PAGE>
TASMAN 2 CABLE SYSTEM
INDEFEASIBLE RIGHT OF USE AGREEMENT
BETWEEN
WORLDXCHANGE (NEW ZEALAND) LIMITED
AND
WORLDXCHANGE PTY LIMITED
THIS AGREEMENT is made and entered into as of this 1st day of April,
1997, between and among WorldxChange (New Zealand) Limited, a company duly
incorporated under the laws of New Zealand and having its registered office at
Level 6, Tower II, Shortland Centre, 55 Shortland Street, Auckland City
(hereinafter called "WxC NZ" which expression shall include its successors and
assigns), and WorldxChange Pty Limited, a company incorporated under the laws of
Australia and having an office at 53 Walker Street, Level 1, North Sydney, NSW
2060 (hereinafter referred to as "Purchaser" which expression shall include its
successors and assigns).
WITNESSETH:
WHEREAS, WxC NZ (hereinafter referred to as "Grantor") has entered into
an agreement with other international telecommunications entities dated December
5, 1990, and as amended by the First Supplementary Agreement dated February 14,
1992, the Second Supplementary Agreement dated October 6, 1992, the Third
Supplementary Agreement dated October 20, 1993, the Fourth Supplementary
Agreement dated October 31, 1995, the Fifth Supplementary Agreement dated July
25, 1996 and the Sixth Supplementary Agreement dated December 3, 1996
(hereinafter collectively referred to as the "TASMAN 2 C&MA), which provides for
the construction, maintenance, and operation of a submarine cable system
1
<PAGE>
connecting Takaphuna, Auckland and Paddington, North Sydney known as Tasman 2
Cable System (hereinafter referred to as the "Cable System"); and
WHEREAS, pursuant to the TASMAN 2 C&MA, the Cable System consists of the
following Segments:
Segment A: A cable station at Takaphuna, Auckland.
Segment B: The whole of the Submarine cable provided between, and
including, the System Interfaces at the cable stations at Takaphuna, Auckland
and Paddington, North Sydney.
Segment C: A cable station at Paddington, North Sydney.
Segments A and C shall consist of:
(i) an appropriate share of land and buildings at the specified
locations for the cable landing and for the cable route between
the cable station and its respective Cable Landing Point, and an
appropriate share of common services and equipment at each of the
locations; and
(ii) multiplex equipment in each of the cable stations, as required,
associated solely and directly with assigned capacity in the
Tasman 2 Cable System.
2
<PAGE>
Segment B shall also include:
(i) all transmission, power feeding and special test equipment
directly associated with the submersible plant;
(ii) the power equipment provided wholly for use with the equipment
listed in (i) above;
(iii) the transmission cable equipped with appropriate repeaters and
joint housings between the cable stations; and
(iv) the sea earth cable and electrode systems and/or the land earth
system, or an appropriate share thereof, associated with the
terminal power feeding equipment.
WHEREAS, the Tasman 2 C&MA, including its subsequent amendments, defines
the Cable System capacity for the purposes of ownership allocations as follows:
Facility Designation: AVC/WXL - SYD/WXL 30NO01
MAOU Utilisation: 30 MAUO
Cable Allocation: AVC/T - SYD/P 630 N002/21 132-7-3
WHEREAS, the Tasman 2 C&MA defines Minimum Investment Unit (hereinafter
3
<PAGE>
"MIU") as a unit designated as the minimum unit of investment in the Tasman 2
Cable System, allowing the use of 2.048Mbits (30 MAUOs) and the additional
162,539.68 bits per second required for miltiplexing in each direction.
WHEREAS, Grantor has been assigned the whole-interest in certain MIU's in
the Cable System; and
WHEREAS, Purchaser desires to acquire from Grantor and Grantor is willing
to grant to Purchaser, on an indefeasible right of user ("IRU") basis, a
whole-interest in certain MIUs in the Cable System; and
WHEREAS, the parties desire to define the terms and conditions under
which said IRU interests in the Cable System will be granted to Purchaser;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein expressed, covenant and agree with each other as follows:
1. Effective as of April 1, 1997, Grantor grants to Purchaser for the
term of this Agreement the following:
(a) whole-interest, on an IRU basis, in one (1) MIU in the
Takaphuna-Paddington optical fiber path of Segment B of the Cable System, and
4
<PAGE>
(b) an interest, on an IRU basis, in Segments A and C to the
extent required by Purchaser to use its IRU interest in MIUs in the Cable
System, as acquired in subparagraph 1 (a) directly above.
2. For the IRU interest granted pursuant to this Agreement, Purchaser
shall pay Grantor the following:
(a) a lump sum amount equal to Six Hundred Eighty-Thousand
Three Hundred and Eleven Australian Dollars (AUS$ 680,311.00) allocable to the
whole-interest in MIUs granted to Purchaser hereunder. Purchaser shall pay such
lump sum amount to Grantor on or before June 1, 1997.
(b) an amount equal to one hundred five percent (105%) of the
cost of operating and maintaining Segments A, B, and C (as those costs are
defined in the Tasman 2 C&MA), associated with the Segment in which IRU is
granted hereunder, including additions thereto, multiplied by the number of MIUs
in which IRU is granted and divided by the applicable design capacity expressed
in MIUs. As WxC NZ incurs costs and receives bills for the maintenance and
operation of the Cable System, Grantor will render bills monthly to Purchaser
for its proportionate share of such costs. Purchaser shall pay such bills to
Grantor within one (1) calendar month after the end of the month in which the
bills are rendered.
(c) amounts equal to one hundred five percent (105%) of the
portion of the
5
<PAGE>
costs incurred for repairing the Cable System, allocable to the IRU interests in
MIUs granted to Purchaser hereunder on a pro rata basis. Bills for such amounts
shall be rendered by Grantor to Purchaser as soon as practicable after such
costs are charged to the accounts of Grantor. Such bills shall be payable by
Purchaser within one (1) calendar month after the end of the month in which the
bills are rendered.
3. Grantor shall bill Purchaser for the costs specified in
subparagraphs 2 (b) and (c) as those costs are incurred, commencing on the
effective date of this Agreement.
4. (a) Bills not paid when due shall accrue extended payment
charges from the day following the day on which payment was due until paid. For
purposes of this Agreement, extended payment charges shall be equal to one
percent (1%) of the lowest publicly announced prime rate or minimum commercial
lending rate of National Bank, Auckland, New Zealand, on the day following the
date payment of the bill was due. In the event that applicable law does not
allow the imposition of extended payment charges at the rate established in
accordance with this Paragraph, extended payment charges shall be at the highest
rate permitted by applicable law. For purposes of this Agreement, "paid" shall
mean that the funds are available for immediate use by Grantor.
(b) A bill shall be deemed to have been accepted by Purchaser
if Purchaser does not present a written objection before the date when payment
is due. If an objection is presented, the parties shall make every reasonable
effort to settle promptly the dispute
6
<PAGE>
concerning the bill in question. If the objection is sustained and Purchaser has
paid the disputed bill, the amount of overpayment shall be refunded to Purchaser
promptly, with interest at a rate determined in the manner described in
subparagraph 4 (a), from the date payment of the disputed amount was received
until the refund is transmitted to Purchaser. If the objection is not sustained
and Purchaser has not paid the disputed amount, Purchaser shall pay such amount
promptly with interest at a rate determined in the manner described in
subparagraph 4 (a), from the date on which payment of the bill was due until
paid. Nothing in this subparagraph shall relieve Purchaser from paying those
portions of a bill that are not in dispute.
5. If Purchaser fails to make any payment required by this Agreement
on the day it is due, or otherwise is in breach of this Agreement, and such
default continues for a period of at least thirty (30) days, Grantor may notify
Purchaser in writing of their intent to reclaim the whole-interest in the MIUs
assigned hereunder if full payment is not received or such breach is not
remedied within ten (10) calendar days of such notification. If at the end of
the 10-day period Purchaser has not paid in full the amounts due hereunder or
remedied such breach, Grantor may terminate this Agreement by giving Purchaser
written notice thereof and reclaim the IRU whole-interests in the MIUs assigned
to Purchaser pursuant to this Agreement, and Grantor shall be relieved of any
liability to Purchaser arising out of such reclamation and termination. The
rights and obligations of Purchaser under this Agreement shall terminate as of
the date of reclamation, except the reclamation shall not relieve Purchaser of
its obligation to make full payment of all amounts incurred under this Agreement
up to and including the day of termination.
7
<PAGE>
6. During the duration of this Agreement, Purchaser shall bear the
portion of the operating, maintenance and repair costs of the Cable System
allocable to the capacity granted under this Agreement.
7. (a) In the event that the total number of MIUs which each
Segment or Subsegment of the Cable System is capable of providing is reduced as
a result of physical deterioration, or for other reasons beyond the control of
the parties to the Tasman II C&MA during the term of this Agreement, the number
of whole-interests in MIUs in which IRU is granted hereunder shall be reduced in
the same proportion as the total number of whole-interests in MIUs in the given
Segment or Subsegment reduced, except that such reduction shall not create
fractions of whole interests in MIUs.
(b) During the term of this Agreement, if the design capacity
in a given Segment or Subsegment specified in this Agreement is increased,
Purchaser shall have the option, on payment of an agreed amount, to have the
number of whole-interest in MIUs granted hereunder increased in the same
proportion as the total number of interests in MIUs in the given Segment or
Subsegment increased, except that such increase shall not create fractions of
interests in MIUs. Such option shall be exercised in writing within three (3)
months after receipt by Purchaser of written notice from Grantor of a proposed
increase in the MIU capacity.
(c) If the above exceptions with respect to fractions of
interests in MIUs should become applicable, an appropriate adjustment will be
made in Purchaser's payment with
8
<PAGE>
respect to the maintenance, operating and repair costs of the given Segment or
Subsegment of the Cable System. In any event, whether or not the exception set
forth above with respect to fractions of interests in MIUs should become
applicable, all costs incurred in connection with maintaining, operating and
repairing the Cable System payable by Purchaser, from and after the date when
the total number of MIUs in the given Segment or Subsegment of the Cable System
shall have been changed, shall be adjusted so that Purchaser shall bear its
appropriate proportionate share of such costs.
8. Grantor shall render bills under this Agreement in such dollars as
rendered by the Cable owners from time to time, and such amounts shall be
payable in such dollars to the designated office of Grantor.
9. Grantor shall keep and maintain for a period of not less than two
(2) years such books, records, vouchers and accounts, as may be appropriate to
support their billings under this Agreement, and they shall at all reasonable
times make them available for the inspection of Purchaser at Purchaser's sole
costs.
10. The Cable System shall be maintained in accordance with the Tasman
2 C&MA; provided, however, that no party to the Tasman 2 C&MA shall be liable to
Purchaser for any loss or damage sustained by reason of any failure in or
breakdown of the Cable System or of the facilities associated with the Cable
System or for any interruption of service, whatsoever shall be the cause of such
failure, breakdown or interruption, and however long it shall last.
9
<PAGE>
11. (a) The operation by Purchaser of the interests in MIUs granted
to it hereunder and any equipment associated therewith shall be such as not to
interrupt, interfere with, or impair service over any of the facilities
comprising the Cable System, any MIUs or other capacity of Grantor or any MIUs
or other capacity of Grantor's associated, affiliated or connecting companies or
of any Cable System owner or purchaser; impair privacy of any communications
over such facilities, cause damage to plant, or create hazards to the employees
of any of the aforementioned companies or of any owner if the aforementioned
facilities or to the public. Purchaser shall bear the cost of any additional
protective apparatus reasonably required to be installed because of the use of
such facilities by Purchaser, any lessee of Purchaser, or any customer or
customers of Purchaser or of any such lessee.
(b) Grantor will use their best efforts to cause all other
purchasers of capacity in the Cable System to undertake obligations comparable
to those of Purchaser set forth in the foregoing subparagraph 11(a), and
Purchaser shall cause all permitted purchasers of the IRU interest granted
hereunder to undertake comparable obligations.
12. The interest in MIUs granted to Purchaser hereunder shall be made
available to WxC NZ, at such times agreeable to WxC NZ and Purchaser, to permit
WxC NZ or the parties to the Tasman 2 C&MA to make such tests and adjustments as
may be necessary for such capacity to be maintained in efficient working order.
13. The performance of this Agreement by the parties is contingent
upon the
10
<PAGE>
continued operation of the Cable System, and upon the obtaining and continuance
of such approvals, consents, governmental authorizations, licenses and permits
as may be required or deemed necessary by the parties and as may be satisfactory
to them. The parties shall use all reasonable efforts to obtain and continue,
and to have continued, such approvals, consents, licenses and permits.
14. No license under patents is granted by Grantor or shall be implied
or arise by estoppel in Purchaser's favor with respect to any apparatus, system
or method used by Purchaser in connection with the use of the interests in MIUs
granted to it hereunder.
15. No assignment of this Agreement, or of any rights thereunder, by
Purchaser, or any subsequent permitted assignee, shall be valid without the
written consent of Grantor, which may be granted or withheld in Grantor's sole
discretion. Nothing in this Paragraph 15, however, shall restrict the right of
any party to sell, assign, transfer or dispose of its rights or obligations
under this Agreement to a legal successor or a subsidiary of, or a corporation
or entity controlling or under the same control as such party, in which case due
written notice shall be given in a timely manner.
16. The relationship between and among the parties hereto shall not be
that of partners and nothing herein contained shall be deemed to constitute a
partnership between or among them. The common enterprise between and among the
parities hereto shall be limited to the express provisions of this Agreement.
11
<PAGE>
17. This Agreement and any of the provisions hereof may be altered or
added to only by an agreement in writing signed by a duly authorized person on
behalf of each party.
18. This Agreement shall be construed in accordance with and be
subject to the Tasman 2 C&MA.
19. (a) This Agreement shall become effective on the date set forth
above and shall continue in effect for the duration of the Tasman 2 C&MA.
Grantor shall give Purchaser prompt notice in writing of termination of the
Tasman 2 C&MA. Termination of the Tasman 2 C&MA in accordance with its
provisions shall not terminate subparagraph 20 (a) or 20 (b) of this Agreement
or prejudice the operation or effect thereof.
(b) Any notice of termination pursuant to subparagraph (a) of
this Paragraph 19 shall be signed by a duly authorized representative of WxC NZ
and shall be deemed to have been served at the expiration of thirty (30) days
from the date of dispatch of a certified or registered letter containing such
notice addressed to Purchaser in accordance with subparagraph 22 (a) of this
Agreement.
20. (a) In the event of the liquidation of the Cable System, or any
part thereof, by sale or other disposition, or termination of the Tasman 2 C&MA,
as provided in the Tasman 2 C&MA, Purchaser will share in any net proceeds or
costs of such sale or disposition in the same proportion in which Purchaser
operates capacity in the affected part of the Cable System. The
12
<PAGE>
proportion in which Purchaser operates in the affected part of the Cable System
shall be determined by treating the IRU interests granted hereunder as ownership
interests.
(b) Liquidation of the Cable System or termination of the
Tasman 2 C&MA shall not relieve Purchaser from any liability arising on account
of claims made by third parties in respect of the Cable System or any part
thereof and damages or compensation payable on account of such claims, or
obligations which may arise in relation to the Cable System due to any law,
order or regulation made by any government or supranational legal authority
pursuant to any international convention, treaty or agreement. Any such
liabilities or costs incurred or benefits accruing in satisfying such claims or
obligations shall be divided among the Grantor and Purchaser in the same
proportions in which the Grantor and Purchaser operate capacity in the Cable
System. The percentage of such claims or obligations to be borne by Purchaser
shall be the same percentage figure as that resulting from treating the IRU
interests granted hereunder as ownership interests.
21. If any of the provisions of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceablity shall not invalidate or render
unenforceable the entire Agreement, but rather the entire Agreement shall be
construed as if not containing the particular invalid or unenforceable provision
or provisions, and the rights and obligations of the parties shall be construed
and enforced accordingly.
13
<PAGE>
22. (a) For purposes of notices hereunder, the addresses of the
parties shall be as follows, unless otherwise designated in writing by the
respective parties:
WorldxChange (New Zealand) Limited WorldxChange Pty Limited
Level 6, Tower II 53 Walker Street, Level 1
55 Shortland Street North Sydney, NSW 2060
Auckland City Australia
New Zealand
Attention: Steven Stanford Attention: Richard Vincent
Any notice under this Agreement, including notice of termination pursuant to
Paragraph 20 hereof, shall be delivered by hand, first class mail with postage
prepaid, telex or facsimile and shall be deemed to have been given: (i) when
delivered if delivered by hand, telex (with answer back receive) or facsimile
(with receipt acknowledged) or (ii) at the expiration of ten (10) days (or
thirty (30) days, if a notice of termination of the Tasman 2 C&MA) from the date
of dispatch if delivered by mail.
(b) For purposes of billing and making payments hereunder, the
addresses of the parties shall be as follows, unless otherwise designated in
writing by the respective parties:
WorldxChange (New Zealand) Limited WorldxChange Pty Limited
Level 6, Tower II 53 Walker Street, Level 1
55 Shortland Street North Sydney, NSW 2060
Auckland City Australia
New Zealand
Attention: Steven Stanford Attention: Richard Vincent
14
<PAGE>
23. The provisions of this Agreement shall be binding upon the parties
and their successors and permitted assigns.
24. This Agreement shall be executed in two (2) counterparts in the
English language. Each counterpart when so executed and delivered shall be an
original, and such counterparts shall together (as well as separately)
constitute one and the same instrument. This Agreement shall be construed in
accordance with the laws of the Country of New Zealand.
IN WITNESS WHEREOF, the parties hereto have severally subscribed these
present or caused them to be subscribed in their name and behalf by their
respective officers thereunto duly authorized.
WorldxChange (New Zealand) Limited
By:
------------------------------------
Its:
------------------------------------
WorldxChange Pty Limited
By:
------------------------------------
Its:
------------------------------------
15
<PAGE>
[LOGO]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONSTRUCTION AND MAINTENANCE AGREEMENT
REVISION NO 1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5 DECEMBER 1990
CANBERRA
<PAGE>
TASMAN 2 CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE AGREEMENT
REVISION NO. 1
Certified as a true and
accurate copy of the TASMAN 2 Cable System
Construction and Maintenance Agreement
Revision No. 1
/s/ J E Spencer
J E Spencer
Secretary
OTC Limited
17 December 1990
<PAGE>
TASMAN 2 CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE AGREEMENT
REVISION NO. 1
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH NO. HEADING PAGE NO.
- ------------- ------- --------
<S> <C> <C>
1. DEFINITIONS 3
2. CABLE SYSTEM SEGMENTS 5
3. PROVISION AND CONSTRUCTION OF SEGMENT B 6
4. PROVISION AND CONSTRUCTION OF SEGMENTS A AND C 8
5. OWNERSHIP OF SEGMENTS AND ADDITIONAL PROPERTY 8
6. MANAGEMENT COMMITTEE 9
7. OWNERS PROJECT TEAM 11
8. DEFINITION OF SEGMENT B CAPITAL COSTS 12
9. ALLOCATION AND BILLING OF SEGMENT B CAPITAL COSTS 13
10. USE OF SEGMENTS A AND C 16
11. OBLIGATION TO CONNECT THE CABLE SYSTEM WITH 20
INLAND SYSTEMS
12. OBLIGATION TO PROVIDE TRANSITING FACILITIES 20
TO EXTEND CABLE SYSTEM CAPACITY
13. ALLOCATION AND USE OF CAPACITY 21
14. EXPANSION OF NOTIONAL CAPACITY 26
<PAGE>
PARAGRAPH NO. HEADING PAGE NO.
- ------------- ------- --------
<S> <C> <C>
15. DECREASE OR INCREASE OF DESIGN CAPACITY 27
16. DUTIES AND RIGHTS AS TO OPERATION AND MAINTENANCE 28
OF SEGMENTS
17. OPERATING AND MAINTENANCE COSTS OF SEGMENT B - 31
ALLOCATION AND BILLING
18. SHARING OF CONTRACTUAL OBLIGATIONS AND LIABILITY 32
19. KEEPING AND INSPECTION OF BOOKS FOR SEGMENT B 34
20. GOVERNMENTAL APPROVALS 35
21. ASSIGNMENT OF RIGHTS AND OBLIGATIONS 35
22. DEFAULT 36
23. ADMISSION OF ADDITIONAL PARTIES 37
24. REPLACEMENT OF AGREEMENT AND RATIFICATION OF
PRIOR DECISIONS AND ACTIONS 38
25. RESOLUTION OF DISPUTES 39
26. RELATIONSHIP OF PARTIES TO EACH OTHER 40
27. PRIVILEGES FOR DOCUMENTS OR COMMUNICATIONS 40
28. PERIOD OF AGREEMENT AND REALISATION OF ASSETS 40
29. BILLS, PAYMENTS AND NOTICES 43
30. WAIVER 43
31. EXECUTION OF AGREEMENT AND AMENDMENTS 44
<PAGE>
PARAGRAPH NO. HEADING PAGE NO.
- ------------- ------- --------
<S> <C> <C>
32. INTERPRETATION OF AGREEMENT 44
33. SUCCESSORS BOUND 45
TESTIMONIUM 45
</TABLE>
SCHEDULES
Schedule A - Parties to this Agreement
Schedule B - Voting Interests in the Cable System
Schedule C - Ownership Interests and Allocation of Capital, Operating and
Maintenance Costs of Segment B; and Proportions of Capital,
Operating and Maintenance Costs for Use of Segments A and C.
Schedule D - Assignment of Capacity in Segment B in Half Interests in MAUOs.
ANNEXES
Annex 1 - Terms of Reference of Subcommittees
Annex 2 - Owners Project Team Responsibilities
<PAGE>
TASMAN 2 CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE AGREEMENT
REVISION NO.1
THIS AGREEMENT, made and entered into as of this 5th day of December 1990,
between and among the parties signatory hereto (hereinafter collectively
called "Parties" and individually called "Party"), which Parties are
identified in Schedule A attached hereto and made a part hereof, as it may be
amended from time to time in accordance with this Agreement.
WITNESSETH:
WHEREAS
A. Telecommunication services are being provided within the Pacific region
and beyond by means of submarine cable, satellite and other facilities; and
B. The Parties propose to supplement such facilities by providing a high
capacity optical fibre submarine cable system linking Australia and New
Zealand to be known as the TASMAN 2 Cable System (hereinafter called the
"Cable System") which will be used to provide telecommunication services
between and among points in or reached via Australia and New Zealand; and
C. It is the intention of the Parties to each acquire an investment share
in the Cable System corresponding to at least the quantity of MAUOs required
to meet their respective needs for the use of the Cable System through the
year 2005; and
D. It is the intention of the Parties that the Cable System provide service
protection for other cable facilities in the Pacific region in which the
Parties have an interest; and
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E. OTC and Telecom Corporation of New Zealand Limited (hereinafter called
"TCNZ") have heretofore entered into an agreement entitled "TASMAN 2 Cable
System Construction and Maintenance Agreement" with effect from 25 November,
1988, (hereinafter called "TASMAN 2 C&MA") which set out terms and conditions
upon which the Cable System would be provided, constructed, maintained and
operated; and
F. In advance of signing the TASMAN 2 C&MA, OTC and TCNZ executed a
Memorandum of Understanding (hereinafter called "the MOU") on 17 December
1987 relating to the execution by them of a contract with Tasman Cable
Company Pty Limited (hereinafter called "the Supplier") for the provision,
laying and installation of Segment B of the Cable System (hereinafter called
"the Supply Contract") and simultaneously executed the Supply Contract with
the Supplier; and
G. The Supply Contract became effective on 15 December 1988 and was amended
by a supplemental agreement made 13 June 1990 (the term "Supply Contract"
hereinafter to mean the Supply Contract as so amended); and
H. By an agreement dated 10 November 1989, TCNZ assigned to Telecom
Networks and International Ltd. (TNI) all of the benefits and obligations of,
inter alia, the TASMAN 2 C&MA effective from 1 April 1989; and
I. OTC and TNI and the other Parties desire that the TASMAN 2 C&MA be
replaced in its entirety with this Agreement (the expression "this Agreement"
wherever used herein meaning the first revision of the TASMAN 2 C&MA set out
in this document) and that the other Parties shall become owners in the Cable
System by execution of this Agreement; and
J. Simultaneously with this Agreement, the Supply Contract will be amended
to substitute TNI as a party to the Supply Contract in place of TCNZ; and
K. OTC and TCNZ or TNI as the case may be, as parties to the TASMAN 2 C&MA,
have made and entered into commitments and agreements relating to the
realisation of the object of the TASMAN 2 C&MA and OTC and TNI and the other
Parties desire, unconditionally, that the said commitments and agreements
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shall continue in full force and effect, which desire shall be evidenced by
their becoming Parties to this Agreement.
NOW, THEREFORE, the Parties, in consideration of the mutual covenants herein
expressed, covenant and agree with each other as follows:
1. DEFINITIONS
The following definitions shall apply to certain terms used in this
Agreement:
<TABLE>
<S> <C>
Annexes: Annexes shall be the annexes attached hereto
and made a part hereof.
Basic System Module: A Basic System Module of the Cable System shall
consist of a 139,264,000 bits per second digital
line section with interface in accordance with
CCITT Recommendation G.703 (Blue Book).
Cable Landing Point: Cable Landing Point shall be the beach joint
or, if there is no beach joint, the mean high
water mark of ordinary spring tides.
Carrier Parties: Carrier Parties shall mean all of the Parties
other than Transpacific.
Common Reserve Capacity in excess of the Notional Capacity and
Capacity: being the difference between the Notional
Capacity and the Design Capacity.
Country: The word "country" as used in this Agreement
shall mean a country, territory or place, as
appropriate.
Date of The Date of Provisional Acceptance shall be the
Provisional date specified in the Certificate of Provisional
Acceptance: Acceptance issued in accordance with the Supply
Contract.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Design Capacity: The Design Capacity of the Cable System shall be
two (2) fibre pairs, each pair providing four
(4) Basic System Modules, providing 15,120
MAUOs, or any increase or decrease pursuant
to Subparagraph 15(a).
Initial Parties: OTC and TNI.
Management Management Committee refers to the TASMAN 2
Committee: Cable System Management Committee to be
established under Paragraph 6.
Minimum Assignable A unit designated as the minimum practical
Unit of Ownership: unit of ownership, allowing the use of
(MAUO) 73,684.656 bits per second in each direction
between System Interface locations. The
Minimum Assignable Unit of Ownership (MAUO) in
the Cable System shall consist of 64,000
usable bits per second and the additional
9,684.656 bits per second required for
multiplexing each of the 1890 such MAUOs which
constitute a Basic System Module and is used
for purposes of ownership allocation. Such
ownership allocation shall be in terms of half
interests in MAUOs allocated to Parties in
accordance with Paragraph 13 and Schedule D.
Notional The capacity assigned to the Parties as shown
Capacity: in Schedule D.
Ready for Service: Ready for Service (RFS) refers to the date when
(RFS) the Parties agree to place the Cable System into
operation. For purposes of this Agreement, RFS
shall be on or before 1 December 1991 or such
other date as may be agreed upon by the
Management Committee.
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Schedule: Schedules shall be the initial schedules
attached hereto and made a part hereof and any
written amendments thereto or any schedules
substituted therefor in accordance with the
provisions of this Agreement.
Supply Contract: Supply Contract means the contract referred to
in Subparagraph 3(a) and recitals F,G and J.
System Interface: The nominal 140 Megabits per second digital
input/output ports on the digital distribution
frame (excluding the digital distribution frame
itself) where the Basic System Module connects
with other transmission facilities or equipment.
</TABLE>
2. CABLE SYSTEM SEGMENTS
In accordance with the arrangements contained in this Agreement, the Cable
System shall be provided, constructed, maintained and operated between
Australia and New Zealand and, for the purposes of this Agreement, shall
be regarded as consisting of the following segments:
SEGMENT A: A cable station at Sydney, Australia.
SEGMENT B: The whole of the submarine cable system provided between
and including the System Interfaces at the cable stations in Australia and
New Zealand, and shall also include:
(i) all transmission, power feeding and special test equipment
directly associated with the submersible plant;
(ii) the power equipment provided wholly for use with the
equipment listed in (i) above;
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(iii) the transmission cable equipped with appropriate repeaters
and joint housings between the cable stations; and
(iv) the sea earth cable and/or the land earth system and the
earth electrode system, or an appropriate share thereof,
associated with the Cable System power feeding equipment.
Segment C: A cable station at Whenuapai, New Zealand.
Segments A and C shall each consist of:
(i) an appropriate share of the land and buildings at the specified
locations for the cable landing and for the cable route between the
cable station and its respective Cable Landing Point and an
appropriate share of common services and equipment at each of those
locations together with equipment in each of those cable stations
solely associated with the Cable System, but which is not a part of
Segment B; and
(ii) multiplex equipment down to the primary level of 2 Mbit/s associated
solely and directly with assigned capacity in the Cable System,
wherever such multiplex equipment is located.
In the event such multiplex equipment is located away from the
cable station, the cable station provider shall be solely
responsible for the entire cost of the provision and maintenance
of adequate connecting facilities between the cable station and
the location of the multiplex equipment.
3. PROVISION AND CONSTRUCTION OF SEGMENT B
(a) The provision and construction of Segment B shall be through the
Supply Contract between OTC and TNI with Tasman Cable Company Pty
Limited.
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(b) Each of the Initial Parties shall hold in trust for the Parties in
the separate percentages set forth in Schedule C all the rights,
benefits, privileges, claims, entitlements, commitments, covenants,
warranties, guarantees, indemnities, conditions, promises,
agreements or undertakings created by or arising out of or in
connection with the Supply Contract or made or given by the
Supplier to the Initial Parties pursuant to the Supply Contract and
any monies paid to the Initial Parties pursuant to or arising out of
or in connection with the Supply Contract.
(c) Each of the Parties shall be entitled on request to receive a copy
of the Supply Contract, subject to the acceptance by each such
Party of any reasonable conditions of confidentiality imposed by
the Supply Contract.
(d) In the event that Segment B fails to meet the specifications
referenced in the Supply Contract for its provision, fails to
provide the specified capacity, or is not engineered, provided,
installed and ready in sufficient time to meet the Date of
Provisional Acceptance, or if the Supplier is otherwise in material
breach of the Supply Contract, the Initial Parties shall take such
actions as may be necessary to exercise the rights and remedies
available under the terms and conditions of the Supply Contract.
Such actions by the Initial Parties shall be subject to any
direction deemed necessary by the Management Committee.
(e) The Initial Parties shall not be liable to any other Party for any
loss or damage sustained by reason of the Supplier's failure to
perform in accordance with the terms and conditions of the Supply
Contract, or as a result of the Cable System not being ready for
provisional acceptance on or before the date specified in the
Supply Contract, or if the Cable System does not perform in accordance
with the technical specifications and other requirements of the Supply
Contract, or if the Cable System is not placed into operation. The
Parties recognise that the Initial Parties do not guarantee or warrant
(i) the performance of the Supply Contract by the Supplier, (ii) the
performance or
<PAGE>
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reliability of Segment B of the Cable System, or (iii) that the
Cable System will be placed into operation; and the Parties hereby
agree that nothing in this Agreement shall be construed as such a
warranty or guarantee.
4. PROVISION AND CONSTRUCTION OF SEGMENTS A AND C
(a) Segment A of the Cable System shall consist of the appropriate
share of the existing cable station at Sydney and shall be provided
and made available by OTC for use in accordance with Paragraph 10.
(b) Segment C of the Cable System shall consist of an appropriate share
of a new cable station at Whenuapai to be designed, provided,
constructed and installed, or caused to be designed, provided,
constructed and installed, by TNI and shall be made available by
TNI for use in accordance with Paragraph 10.
(c) OTC in respect of Segment A and TNI in respect of Segment C shall
each make available to the other Parties any reasonable information
required by the Parties relating to the provision, construction or
installation of those Segments, subject to any reasonable
conditions of confidentiality imposed by the respective owners of
those Segments.
5. OWNERSHIP OF SEGMENTS AND ADDITIONAL PROPERTY
(a) Segment A of the Cable System shall be owned by OTC.
(b) Segment B of the Cable System shall be owned by the Parties in
common and undivided shares, in the proportions set forth in
Schedule C. Ownership of Segment B shall vest in the Parties upon
ownership vesting in the Initial Parties in accordance with the
Supply Contract.
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(c) Segment C of the Cable System shall be owned by TNI.
(d) In this Agreement, references to any segment of the Cable System,
however expressed, shall be deemed to include, unless the context
otherwise requires, additional property incorporated therein by
agreement of the Parties. Each segment shall be regarded as
including its related spare and standby units and components
including, but not limited to, submersible repeaters, cable lengths
and terminal equipment.
6. MANAGEMENT COMMITTEE
(a) The Parties shall form a TASMAN 2 Cable System Management Committee
(herein referred to as the "Management Committee") as the successor
to the management committee established pursuant to the TASMAN 2 C&MA.
The Management Committee shall consist of one representative of
each of the Parties to this Agreement. Except as otherwise provided
in this Agreement, the Management Committee shall make all decisions
necessary on behalf of the Parties to effect the purposes of this
Agreement. The Management Committee shall elect a Chairman from
among its members.
(b) Decisions may be made by the Management Committee by resolution at
meetings or by correspondence and shall be subject, in the first
place, to consultation among the designated representatives of the
Parties who shall make every reasonable effort to reach agreement
with respect to matters to be decided. However, in the event
agreement cannot be reached, with the exception of those matters to
be determined pursuant to Subparagraphs 13(q), 15(a) and 23(b), the
decision will be carried on the basis of a vote of at least three
(3) Parties representing a simple majority of the total voting
interests of the Parties as specified in Schedule B. A member of
the Management Committee representing more than one Party shall
separately cast the votes to which each Party it represents is
entitled.
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(c) Two or more Parties may designate the same person to serve as their
representative at specific meetings of the Management Committee and
its subcommittees established pursuant to Subparagraph 6(e). The
Management Committee will meet at the request of the Chairman or
one or more Parties representing at least 5% of the total voting
interests specified in Schedule B. The Chairman shall cause at
least 30 days advance notice of all meetings to be given in writing
to each of the Parties, which notice shall include a draft agenda.
In cases of emergency, such period of notice may be reduced if
Parties representing at least 75% of the total voting interests so
agree. Discussion documents for each meeting should be made
available to members 14 days before the meeting but the Management
Committee may agree to discuss papers distributed less than 14 days
before a meeting.
(d) No decision of the Management Committee or its subcommittees or any
other group established by the Management Committee shall override
any provisions of this Agreement.
(e) The Operations and Maintenance Subcommittee (hereinafter called
"O&M Subcommittee") and the Financial and Administrative
Subcommittee (hereinafter called "F&A Subcommittee") and all other
subcommittees or other groups established pursuant to
Subparagraph 6(e) of the TASMAN 2 C&MA to assist the management
committee in the performance of the duties and responsibilities
assigned to it under the TASMAN 2 C&MA are hereby confirmed and
shall continue to act for the purposes for which they were so
established. The O&M Subcommittee and the F&A Subcommittee, under
the direction of the Management Committee, shall be responsible for
their respective areas of interest listed in Annex 1 and any other
areas of interest designated by the Management Committee. Likewise,
the Management Committee may establish other subcommittees or other
groups as it considers necessary to assist in the performance of
its responsibilities.
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Subcommittees shall meet at least once annually and more frequently
if necessary, until two years following the RFS date and thereafter
as may be appropriate. Meetings of a subcommittee may be called to
consider specific questions at the discretion of its Chairman or
whenever requested by one or more Parties representing at least 5%
of the voting interests specified in Schedule B. The respective
Chairman of each subcommittee, or a designated representative of
each subcommittee, shall attend Management Committee meetings and
meetings of each other subcommittee in an advisory capacity as
necessary. On or about two years after RFS, the Management
Committee shall determine whether any of its subcommittees should
remain in existence. If the Management Committee determines that
one or more of its subcommittees shall not remain in existence, the
responsibilities assigned to a subcommittee whose existence has
been terminated under this Subparagraph 6(e) shall revert to the
Management Committee.
7. OWNERS PROJECT TEAM
(a) The Owners Project Team established under the TASMAN 2 C&MA to
undertake the on-going tasks of coordinating and managing the
overall construction of the Cable System is hereby confirmed and
shall continue to act for the purposes for which it was so
established. The Owners Project Team shall consist of representatives
from the Initial Parties. A Project Controller shall be appointed
by OTC and a Deputy Project Controller shall be appointed by TNI,
provided that any persons so appointed under or pursuant to the
TASMAN 2 C&MA shall be deemed to have been appointed pursuant to
this Agreement. The Owners Project Team shall be chaired by the
Project Controller who shall also act as its coordinator and
spokesman.
<PAGE>
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(b) The responsibilities of the Owners Project Team are contained in
Annex 2. Upon termination of existence of the Owners Project Team,
the Management Committee shall determine the need for any assignment
of residual responsibilities to another group under this Agreement.
(c) No decision of the Owners Project Team shall override any provisions
of this Agreement.
8. DEFINITION OF SEGMENT B CAPITAL COSTS
(a) Capital costs, as used in this Agreement, refers to costs incurred
in engineering, providing and constructing Segment B, or causing it
to be engineered, provided and constructed, or to laying or causing
to be laid cables, repeaters and joint housing, or to installing or
causing to be installed cable system equipment, and shall include:
(i) appropriate costs, including financial charges attributable
to other Parties' shares of such costs, incurred by OTC and
TCNZ or TNI as the case may be in respect of specific
activities such as desk top surveys, marine surveys and cable
system development activities required to be undertaken prior
to entry into force of the TASMAN 2 C&MA;
(ii) those costs payable to the Supplier under the Supply Contract;
(iii) those costs directly incurred by OTC and TCNZ or TNI as the
case may be which shall be fair and reasonable in amount and
not included in the Supply Contract, and which have been
directly and reasonably incurred for the purpose of, or to be
properly chargeable in respect of, such engineering,
provision, construction, installation and
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laying of Segment B, including, but not limited to,
the costs of engineering, design, materials, manufacturing,
procurement and inspection, installation, removing
(with appropriate reduction for salvage), cable ship
and other ship costs, route survey, burying, testing
associated with laying or installation, customs duties,
taxes (except income tax imposed upon the income of a
Party), financial charges attributable to other Parties'
shares of costs incurred, supervision, billing activities,
overheads and insurance or a reasonable allowance in lieu
of insurance if such Party elects to carry a risk itself,
being a risk which is similar to one against which the
Supplier has insured or against which insurance is usual or
recognised or would have been reasonable; and
(iv) interest during construction.
(b) Such costs shall exclude all costs incurred by the Parties in holding
Management Committee meetings and meetings of the subcommittees
established pursuant to Subparagraph 6(e) or the attendance by the
Parties' representatives at such meetings.
9. ALLOCATION AND BILLING OF SEGMENT B CAPITAL COSTS
(a) The total capital costs of Segment B, including any additional work
or property incorporated in Segment B subsequent to RFS by agreement
of the Parties, shall be borne by the Parties in the proportions set
forth in Schedule C.
(b) OTC and TNI shall promptly render bills for the capital costs of
Segment B to each Party for payment by such Party of its pro rata
share of such costs in accordance with Schedule C. Such bills shall
not be rendered more frequently than once a month and shall contain
a reasonable amount of detail to substantiate them. On
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receipt of such bills, each Party shall pay to OTC and TNI the
amounts specified in the bills by the last day of the calendar
month which follows the calendar month in which the bill was
rendered. In the case of bills containing costs billed on an
estimated basis, appropriate adjustments will be made in subsequent
bills promptly after the actual costs involved are determined.
(c) As soon as practicable after RFS, the amount of each Party's share
of the costs of Segment B shall be computed by OTC and/or TNI, as
appropriate, each of which shall make appropriate adjustments and
render any necessary bills or arrange for any necessary refunds by
way of final settlement in order that each Party may bear its proper
share of the costs as provided in this Paragraph 9.
(d) If, subsequent to RFS, additional property or equipment is
incorporated in the Cable System by agreement of the Management
Committee, the costs thereof shall be borne by the Parties in the
proportions as set forth in Schedule C.
(e) For purposes of this Agreement, financial charges shall be computed
at a rate equal to the lowest publicly announced prime overdraft rate
in the currencies of Australia and New Zealand, as applicable,
charged by the following banks on the fifteenth day of the month in
which the costs were incurred by the billing Parties:
(i) BILLS RENDERED BY OTC:
Westpac Banking Corporation, Sydney.
(ii) BILLS RENDERED BY TNI
Bank of New Zealand, Wellington.
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(f) Amounts billed and not paid when due shall accrue extended
payment charges from and including the day following the day on
which payment was due until paid. For purposes of this Agreement,
paid shall mean that the funds are available for immediate use by
the recipient. For purposes of this Agreement, extended payment
charges shall be computed at rates equal to 125% of the relevant
rates for financial charges as defined in Subparagraph 9(e) on the
day following the day on which payment was due.
(g) In the event that applicable law does not allow the imposition of
financial charges or extended payment charges at the rates
established in accordance with Subparagraphs 9(e) or 9(f)
respectively, financial charges and extended payment charges shall
be at the highest rates permitted by applicable law, which in no
event shall be higher than the rates computed in accordance with
Subparagraphs 9(e) or 9(f), as appropriate.
(h) A bill shall be deemed to have been accepted by the Party to whom
it is rendered if that Party does not present a written objection
before the date when payment is due. If such objection is filed,
all Parties concerned shall make every reasonable effort to settle
promptly the dispute concerning the bill in question. If the
objection is sustained and the objecting Party has paid the disputed
bill, the amount of overpayment agreed upon shall be refunded
promptly to the objecting Party by the Party by or for whom the bill
was rendered, together with any financial charges calculated thereon
at the relevant rate determined in accordance with Subparagraph 9(e)
from and including the date of payment of the bill to the date on
which the refund is transmitted to the objecting Party. If the
objection is not sustained and the objecting Party has not paid the
disputed bill, said Party shall pay such bill promptly together
with any extended payment charges calculated thereon at the
relevant rate determined in accordance with Subparagraph 9(f) from
and including the day following the day on which payment of the
bill was due until paid. Nothing in this Subparagraph 9(h) shall
relieve a Party from paying those parts of a bill that are not in
dispute.
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(i) Credits for refunds of appropriate financial charges and bills for
extended payment charges will not be rendered if the amount of
charges involved is less than one hundred dollars Australian for
credits or bills rendered by OTC or one hundred dollars New Zealand
for credits or bills rendered by TNI.
10. USE OF SEGMENTS A AND C
(a) Each Party which has no ownership interest in Segments A and C
shall be permitted to use Segments A and C, including any additions
thereto, to the extent required for the purpose of using the Cable
System and carrying on the related activities at those locations in
accordance with this Agreement. Such use will be deemed to commence
from RFS or from the date a Party first places any of its capacity
into operation, whichever occurs first, and shall continue for the
duration of this Agreement.
(b) For the use of Segments A and C, the Parties shall pay OTC and TNI
respectively an amount calculated by reference to the capital costs
reasonably incurred in providing Segments A and C and periodic
charges based upon the costs of maintenance, supervision and
operation, in the proportions specified in Schedule C. Where the use
of Segments A and C or of certain equipment situated therein, such as
power supply or testing and maintenance equipment, is shared by the
Cable System and other communications systems terminating at Segments
A and C, the capital, operating, maintenance and supervision costs of
such shared cable stations or equipment (not solely attributable to a
particular communications system or systems) will be allocated among
the systems involved in the proportions in which they use the shared
equipment or facility. For such purposes, use of a shared cable
station or of shared cable station equipment therein attributable to
a particular system shall be determined on the basis of the ratio
of: (1) the installed cost of the cable station equipment (excluding
shared equipment) associated with the particular cable
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system to (11) the installed cost of the cable station equipment
(excluding shared equipment) associated with all systems, including
the Cable System, which make use of the shared facility.
(c) Capital costs, as used in this Paragraph 10 with reference to the
provision of Segments A and C, including land, access roads, cable
rights-of-way, ducts and buildings located at Segments A and C, or
causing them to be provided and constructed, or to installing or
causing to be installed Segments A and C equipment, shall include all
expenditures incurred which shall be fair and reasonable in amount
and either to have been directly and reasonably incurred for the
purpose of, or to be properly chargeable in respect of, such
provision, construction and installation, including, but not limited
to, the purchase costs of land, building costs, amounts incurred for
development, engineering, design, materials, manufacturing,
procurement and inspection, installation, removing (with appropriate
reduction for salvage), testing associated with installation,
customs duties, taxes (except income tax imposed upon the income of
a Party), financial charges attributable to other Parties' shares
of costs, supervision, billing activities, overheads and insurance
or a reasonable allowance in lieu thereof. Losses against which
insurance was not provided, or for which an allowance in lieu
thereof was not provided, or for which an allowance in lieu thereof
was not taken, shall constitute capital costs. Operating and
maintenance costs for Segments A and C, as used in this Paragraph
10, shall include costs reasonably incurred in operating and
maintaining the facilities involved, including, but not limited to,
the cost of attendance, testing, adjustments, repairs and
replacements, customs duties, taxes (except income tax imposed upon
the income of a Party) paid in respect of such facilities, billing
activities, administrative costs, financial charges attributable to
other Parties' shares of costs, and costs and expenses reasonably
incurred on account of claims made by or against other persons in
respect of such facilities or any part thereof and damages or
compensation payable
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by OTC and TNI on account of such claims. Costs, expenses, damages,
or compensation payable to OTC and TNI on account of claims made
against other persons shall be shared by the Parties in the same
proportions as they share the costs of operating and maintaining
Segments A and C.
(d) In the event that the cable station located at Segment A or the
cable station located at Segment C is not available for the landing
and termination of the Cable System for any reason, OTC or TNI as
appropriate, with the agreement of the other Parties, shall take all
necessary measures to ensure that another suitable cable station will
be available for the Cable System for the duration of this Agreement
on fair and equitable terms.
(e) In the event of a sale or other disposition of Segment A or Segment
C or part thereof prior to the termination of this Agreement, OTC
or TNI as appropriate shall share with the other Parties any net
proceeds, or costs, of such sale or disposition received, or
expended, by OTC or TNI, to the extent allocable to the Cable
System, in the proportions specified in Schedule C at the time of
the sale or disposition.
(f) Subject to Subparagraph 10(e), nothing contained in this Agreement
shall be deemed to vest in any Parties other than OTC and TNI, any
salvage rights in Segments A and C or any cable stations substituted
therefor.
(g) OTC and TNI shall keep and maintain such books, records, vouchers,
and accounts of all costs that are incurred in the design,
engineering, provision, construction and installation, as
appropriate, of Segments A and C for a period of three (3) years
from RFS or the date the work is completed, whichever is later.
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(h) With respect to operating and maintenance costs of Segments A and C,
such books, records, vouchers and accounts of costs, as are relevant, shall
be kept and maintained by OTC and TNI for a period of three (3) years from
the date on which the corresponding bills to the Parties are rendered.
(i) In keeping and maintaining books, records, vouchers, and accounts of
costs pursuant to Subparagraphs 10(g) and 10(h), OTC and TNI shall
afford the other Parties the right to review or audit said books,
records, vouchers, and accounts of costs. In affording the right to
review or audit, OTC and TNI shall be permitted to recover, from
the Party or Parties requesting the review or audit, the entire
cost reasonably incurred in complying with the review or audit.
Such right of review and audit pursuant to this Subparagraph 10(1)
shall only be exercisable through the F&A Subcommittee in
accordance with the F&A Subcommittee's audit procedures.
(j) After RFS the Management Committee shall arrange for a final audit to be
conducted by the F&A Subcommittee. The costs of such audit shall be borne
by the Parties in the proportions specified in Schedule C.
(k) In respect of bills rendered pursuant to this Paragraph 10,
each Party shall pay OTC or TNI as appropriate, in the currency in
which the bill is rendered, the amount owed by the end of the
calendar month following the calendar month in which the bill was
rendered. In the case of bills containing costs billed on a
preliminary basis, appropriate adjustments will be made in
subsequent bills promptly after the actual costs involved are
determined.
(l) Amounts billed pursuant to this Paragraph 10 and not paid when
due shall accrue extended payment charges from and including the
day following the day on which payment was due until paid, said
charges to be computed and applied in accordance with Subparagraphs
9(f) and 9(g).
<PAGE>
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(m) The billing procedures specified in Subparagraphs 9(h) and 9(i) shall
be applicable to all bills rendered pursuant to this Paragraph 10.
11. OBLIGATION TO CONNECT THE CABLE SYSTEM WITH INLAND SYSTEMS
Each of the Parties, at its own expense, on or before RFS shall do, or
cause to be done, all such acts and things as may be necessary within its
operating territory to provide and maintain throughout the period of this
Agreement suitable connection of capacity in, or of capacity connected with
capacity in, the Cable System with appropriate inland communications
facilities in its operating territory.
12. OBLIGATION TO PROVIDE TRANSITING FACILITIES TO EXTEND CABLE SYSTEM
CAPACITY
Each of the parties shall use its best endeavours to furnish and
maintain, or cause to be furnished and maintained, in efficient
working order, for Carrier Parties not from that Party's country,
and for telecommunications entities not from that Party's country
that are not Parties but which are permitted to use capacity in the
Cable System, for the duration of this Agreement, such facilities
in its respective country as may be suitable and reasonably
required by such other Parties and telecommunications entities for
the purpose of handling communications transiting its respective
country subject to the following conditions:
(i) such facilities shall be suitable for the intended use;
(ii) the use of the facilities shall not cause interference to other
users of the facilities; and
<PAGE>
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(iii) the facilities shall be furnished and maintained on terms and
conditions which are no less favourable than those granted to
other telecommunications entities for transmission facilities of
similar type, routing and quantity transiting the location
involved. Such terms and conditions shall not be inconsistent
with applicable governmental regulations in the location in which
the facilities are located.
No Party shall be required under this Agreement to furnish such facilities in
its country to other Carrier Parties or telecommunications entities not Parties
from its respective country. The provision of facilities pursuant to this
Paragraph 12 shall be the subject of separate agreements acceptable to the
affected parties.
13. ALLOCATION AND USE OF CAPACITY
ASSIGNMENT OF NOTIONAL CAPACITY
(a) The Notional Capacity in Segment B shall be assigned to the Parties in
accordance with Schedule D. Such assignments represent the intended
capacity requirements of the Parties through at least the year 2005.
(b) Capacity jointly assigned to two Parties shall be considered as
consisting of two half interests in a MAUO, with each half
interest assigned to one of the two Parties involved. Such
capacity is assigned to the Parties for the provision of
telecommunications services between such Parties.
(c) Capacity wholly assigned to one Party shall be considered as
consisting of two half interests in a MAUO, with both half
interests assigned to one Party. Such capacity is assigned to the
Party for provision of telecommunications services between such
Party and other identified telecommunications entity(ies) not
Party(ies) or between two identified telecommunications entities
not Parties.
<PAGE>
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ARRANGEMENT OF NOTIONAL CAPACITY
(d) Capacity of 30 or more MAUOs jointly assigned between any two
Parties or wholly assigned to a Party shall, if required by the
Party or Parties concerned, be initially arranged so as to ensure
complete fascicles of 30, 90, 630 or 1890 MAUOs in the smallest
number of fascicles possible. In addition, one or more Parties
assigned in the aggregate 30, or more than 30, MAUOs in the Cable
System may, by agreement with the Parties to whom such capacity is
jointly assigned, combine their MAUOs to avail themselves of the
right afforded in this Subparagraph 13(d) with respect to the
initial arrangement of capacity.
(e) Capacity of 90 MAUOs, or multiples of 90 MAUOs, jointly assigned
between any two Parties or wholly assigned to a Party, or in
combination with one or more Parties as provided in Subparagraph
13(d), may be operated, by agreement with such Parties, at a rate
of 6,312,000 bits per second with up to four component modules
operating at 1,544,000 bits per second each containing up to
twenty-four 64,000 usable bits per second channels. The resulting
higher number of 64,000 usable bits per second channels shall not
constitute an increase in the Cable System capacity for purposes of
ownership and cost allocation.
(f) When, on a partially used channel operating at 6,312,000 bits per
second, the placement of 1,544,000 bits per second component
modules conflicts with the placement of 2,048,000 bits per second
component modules, the latter shall take precedence.
(g) Subsequent to the initial arrangement of capacity as provided in
Subparagraph 13(d), capacity in the aggregate of 30, or more than
30, MAUOs assigned to one or more Parties may be rearranged, if so
requested by such Parties, so far as reasonably possible, to ensure
complete fascicles of 30, 90, 630 or 1890 MAUOs in the smallest
number of such fascicles possible, provided:
<PAGE>
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(i) the agreement of the relevant cable station owner is obtained
which agreement shall not be unreasonably withheld;
(ii) the agreement of other Parties with assigned capacity that
would be affected by the proposed rearrangement is obtained
which agreement shall not be unreasonably withheld; and
(iii) all costs arising from the proposed rearrangement are first
paid by the Parties requesting it.
DISPOSITION OF NOTIONAL CAPACITY
(h) Prior to RFS, a Party to whom capacity is wholly assigned, in
accordance with Subparagraph 13(c), may make half interests in such
capacity available to additional Parties in such quantity at least
equal to a half interest in one MAUO on a transfer of ownership
basis provided that the additional Party(ies) is(are) the
identified telecommunications entity(ies) pursuant to Subparagraph
13(c). At any time, a Party may make half interests in such wholly
assigned capacity available to the identified telecommunications
entities pursuant to Subparagraph 13(c) in such quantity at least
equal to a half interest in one MAUO on such basis, other than by
transfer of ownership interest, as they may agree.
(i) A Party may make interests in any of the capacity jointly assigned
to it pursuant to Subparagraph 13(b) available to other Parties or
telecommunications entities not Parties (hereinafter referred to as
"non-Parties") that are located within the same country as such
Party, in such quantity at least equal to a half interest in one
MAUO and on such basis as that Party and the other Party or
non-Party concerned may agree other than, in the case of any
non-Party, by transfer of ownership interest.
<PAGE>
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(j) A Party whose initial joint assignment of capacity with another
Party does not exceed 30 MAUOs may make its interests in any of the
capacity jointly assigned with the other Party available to
non-Parties for service with the other Party, in such quantity at
least equal to a half interest in one MAUO and on such basis, other
than by transfer of ownership interest, as that Party and the
non-Parties concerned may agree.
(k) Except as provided in Subparagraphs 13(h), 13(i) and 13(j), no
Party may make any interests in any of the capacity assigned to it
available on any basis to other Parties or to non-Parties until
the Notional Capacity has been expanded to the Design Capacity,
except with the agreement of all the Parties. After the Notional
Capacity has been expanded to the Design Capacity, any Party may
make interests in any of the capacity assigned to it available to
other Parties or to non-Parties, in such quantity at least equal
to a half interest in one MAUO and on such basis as that Party and
the other Party or non-Party concerned may agree other than, in the
case of any non-Party, by transfer of ownership interest and, in
the case of transfer of ownership interest to another Party,
subject to the approval of the Management Committee.
(l) Where capacity is jointly assigned in accordance with Subparagraph
13(b), neither Party may make interests in such capacity available
to other Parties or to non-Parties without the consent of the other
Party to whom the capacity is jointly assigned, which consent will
not be unreasonably withheld.
(m) In the event of any transfers of ownership between Parties pursuant
to this Paragraph 13, payments will be made as may be agreed
between the affected Parties and Schedules B, C and D shall be
modified as appropriate.
OPTIMISATION OF NOTIONAL CAPACITY ASSIGNMENTS
(n) The communications capability of any capacity assigned in Schedule
D may be optimised by the Party or Parties to whom such capacity
<PAGE>
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is assigned by the use of equipment which will more efficiently use
such capacity, provided that the use of such equipment does not
cause an interruption of, or interference to, the use of any other
capacity in the Cable System or prevent the use of similar
equipment by other Parties. A Party to whom capacity is assigned
shall permit the use of such equipment by a telecommunications
entity to which such Party has made available the use of any such
capacity, provided that such entity agrees that its use of the
equipment will satisfy the conditions set forth in this
Subparagraph 13(n). Such equipment, if used, shall not constitute a
part of the Cable System.
ALLOCATION AND UTILISATION OF COMMON RESERVE CAPACITY
(o) The Common Reserve Capacity shall be held by the Parties in common
and undivided shares in the same proportion as their percentage
interests are set forth in Schedule C.
(p) A proportionate share of the Common Reserve Capacity up to the
equivalent capacity limit represented by its respective percentage
interests pursuant to Subparagraph 13(o) may be temporarily
allocated to a Party for utilization without charge for purposes of
restoration of telecommunications services provided by that Party.
The utilization of Common Reserve Capacity for purposes of
restoration, other than as specifically provided for in this
Subparagraph 13(p), shall require the concurrence specified in
Subparagraph 13(q). This Subparagraph 13(p) shall not be construed
as assuring the availability for Common Reserve Capacity for
restoration nor shall it be construed as requiring the provision of
any additional facilities. Any additional costs shall be borne by
Party(ies) using the Common Reserve Capacity for restoration
pursuant to this Subparagraph 13(p). This Subparagraph 13(p) shall
also not be construed as precluding the Parties from agreeing to
the establishment of broad-based restoration arrangements using
Common Reserve Capacity.
<PAGE>
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(q) The Management Committee may authorize the temporary use of Common
Reserve Capacity for temporary or occasional purposes, including
restoration, if the concurrence of at least 75% of the total voting
interests of the Parties is obtained which must include the
concurrence of the owners of Segments A and C, in recognition of
the potential technical, financial and operational impact on cable
station operations. With such concurrence, the Management Committee
may establish procedures, and the terms and conditions applicable,
including payment of any reasonable additional costs incurred by
the owners of Segments A and C in connection with such use of
Common Reserve Capacity. Any procedures determined by the
Management Committee pursuant to this Subparagraph 13(q) may also
include arrangements for the administration of the utilization of
the Common Reserve Capacity.
(r) The Management Committee shall accord priority to increases in
Notional Capacity pursuant to Paragraph 14 over any utilisation of
Common Reserve Capacity pursuant to Subparagraphs 13(p) and 13(q).
14. EXPANSION OF NOTIONAL CAPACITY
Subject to the approval of the Management Committee, the Notional
Capacity of the Cable System may be increased at the request of any
Party or for the admission of additional Parties pursuant to Paragraph 23.
In the event of an increase in the Notional Capacity, financial
adjustments will be made between and among the Parties as necessary to
adjust their contributions to the costs of the Cable System based on an
expanded Notional Capacity and Schedules B, C and D shall be
appropriately modified. The terms and conditions, including pricing
arrangements, for increasing the Notional Capacity shall be determined
by the Management Committee.
<PAGE>
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15. DECREASE OR INCREASE OF DESIGN CAPACITY
(a) If, subsequent to RFS, the Design Capacity of Segment B is
increased or decreased pursuant to agreement of the Parties, or
otherwise, the additional or reduced Design Capacity will be added to
or subtracted from the Common Reserve Capacity. The Management
Committee shall have authority to increase the Design Capacity of the
Cable System with the concurrence of at least 75% of the total voting
interests of the Parties which must include the concurrence of the
owners of Segments A and C, in recognition of the potential
technical, financial and operational impact on cable station
operations.
(b) In the event that the capacity which Segment B is capable of
providing upon RFS, or such other date as the Parties may agree, is
less than the Notional Capacity, or in the event that the capacity
which Segment B is capable of providing during the term of this
Agreement is reduced below the Notional Capacity as a result of
physical deterioration or for other reasons beyond the control of
the Parties, the capacity assigned to the Parties in accordance
with Schedule D shall be reduced in the proportions in which the
capacity provided was assigned to the Parties immediately preceding
such decrease in capacity. The assignment of fractional interests
in capacity less than a half interest in one MAUO resulting from
such reductions shall be determined by agreement of the Parties.
(c) In the event of such a decrease of Design Capacity as provided for
in Subparagraph 15(b), payments will be made between and among the
Parties as necessary to adjust the contribution to the capital
costs of the Cable System theretofore made by each Party to reflect
any Party's revised assignment of capacity. Such payments will be
based on terms and conditions to be determined by the Management
Committee. In addition, appropriate adjustments will be made in
each Party's share of the capital costs and of the
<PAGE>
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operating and maintenance costs relating to Segment B thereafter
incurred to reflect that Party's revised assignment of capacity in
the Cable System. In each such case, Schedules B, C and D shall be
appropriately modified.16.
16. DUTIES AND RIGHTS AS TO OPERATION AND MAINTENANCE OF SEGMENTS
(a) OTC shall be responsible for the operation and maintenance of
Segment A and that portion of Segment B between the System Interface
at the cable station at Sydney and its respective Cable Landing Point.
OTC shall use all reasonable efforts to maintain Segment A and said
portion of Segment B, or to cause Segment A and said portion of
Segment B to be maintained, economically and in efficient working
order.
(b) TNI shall be responsible for the operation and maintenance of
Segment C and that portion of Segment B between the System Interface
at the cable station at Whenuapai and its respective Cable Landing
Point. TNI shall use all reasonable efforts to maintain Segment C and
said portion of Segment B, or to cause Segment C and said portion of
Segment B to be maintained, economically and in efficient working
order.
(c) OTC and TNI shall be jointly responsible for the operation and
maintenance of Segment B except those portions of Segment B between
the appropriate System Interfaces at the cable stations at Sydney
and Whenuapai and their respective Cable Landing Points. Such
joint responsibility shall be apportioned between OTC and TNI as
those Parties may mutually agree. OTC and TNI, for the purposes of
Paragraphs 16 and 17 called the "Maintenance Authorities", shall
perform their responsibilities in a manner consistent with
applicable international cable maintenance agreements and shall use
all reasonable efforts to maintain or to cause to be maintained
economically said portion of Segment B in
<PAGE>
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efficient working order and with an objective of achieving
effective and timely repairs when necessary. The Maintenance
Authorities shall have the right to deactivate Segment B, or any
part thereof, in order to perform their duties. Prior to such
deactivation, reasonable notice shall be given to, and coordination
shall be made with, the other Parties. To the extent possible,
sixty days prior to initiating action, the Maintenance Authority
involved shall advise the other Parties in writing of the timing,
scope and costs of significant planned maintenance operations or
arrangements; of significant changes to existing operation and
maintenance methods; and of contractual arrangements for cable
ships or other maintenance facilities or devices that will have a
significant impact on operation or maintenance costs. Should one or
more Parties representing at least 5% of the total voting interests
specified in Schedule B wish to review such a contractual
arrangement, operation or change prior to its occurrence, such
Party or Parties shall notify the appropriate Maintenance Authority
and the Chairman of the O&M Subcommittee in writing within thirty
(30) days of such advice. Upon such notification, the O&M
Subcommittee shall initiate action to convene an ad hoc meeting for
such review.
(d) The responsibilities for the operation and maintenance of Segment B
shall be reviewed, and recommendations shall be made as
appropriate, by the O&M Subcommittee at its discretion.
(e) Each Party concerned shall give necessary information, relating to
the operation and maintenance of the equipment which that Party may
have designed or procured and which is used in the Cable System, to
the Maintenance Authority by whom that equipment, by reason of the
provisions of this Paragraph 16, is to be operated and maintained.
Each Maintenance Authority with responsibility for the maintenance
of any segment of the Cable System, in accordance with
Subparagraphs 16(a), (b), (c) and (d), shall have prompt access,
necessary to the performance of its duties, to all system
maintenance information appropriate to those parts of the Cable
System not covered by its authority.
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(f) Each Maintenance Authority shall be authorized to pursue claims in
its own name, on behalf of the Parties, in the event of any damage
or loss to the Cable System and may file appropriate lawsuits or
other proceedings on behalf of the Parties. Subject to obtaining
the prior concurrence of the Management Committee, a Maintenance
Authority may settle or compromise any claims and execute releases
and settlement agreements on behalf of the Parties as necessary to
effect a settlement or compromise.
(g) None of the Parties shall be liable to any other Party for any loss
or damage sustained by reason of any failure in, or breakdown of,
the facilities constituting the Cable System or any interruption of
service, whatsoever shall be the cause of such failure, breakdown
or interruption and however long it shall last, but in the event of
a failure or breakdown of any such facilities, if the Maintenance
Authority responsible for maintaining and operating the facilities
involved as specified in Subparagraphs 16(a), (b), (c) and (d)
fails to restore those facilities to efficient working order and
operation within a reasonable time after having been called upon to
do so by any other Party to whom capacity is assigned by this
Agreement, the Management Committee may, to the extent that it is
practical to do so, place, or cause to be placed, such facilities
in efficient working order and operation and charge the Parties
their proportionate shares of the costs reasonably incurred in
doing so.
(h) Each Party, at its own expense, shall have the right to inspect from
time to time the operation and maintenance of any portion of the
Cable System and to obtain copies of the maintenance records. For
this purpose, each Maintenance Authority responsible for
maintaining any segment of the Cable System, as specified in
Subparagraphs 16(a), (b), (c) and (d), shall retain significant
records, including recorder charts, for a period of not less than
five (5) years from the date of the record. If these records are
destroyed at the end of this period, a summary of important items
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should be retained for the life of the Cable System. Such right of
inspection pursuant to this Subparagraph 16(h) shall be subject to
reasonable conditions of confidentiality.
17. OPERATING AND MAINTENANCE COSTS OF SEGMENT B - ALLOCATION AND BILLING
(a) The costs of operating and maintaining Segment B shall be shared
by the Parties in the relevant proportions specified in Schedule C.
(b) The operating and maintenance costs to which Subparagraph 17(a)
refers are the costs reasonably incurred in operating and
maintaining the facilities involved, including, but not limited to,
the cost of attendance, testing, adjustments, storage of plant and
equipment, repairs (including repairs at sea) and replacements,
cable ships (including an appropriate share of standby costs) and
maintenance and repair devices that are or may hereafter become
available (including an appropriate share of standby costs), cable
depots, reburial and the replacement of plant, tools and test
equipment, customs duties, taxes (except income tax imposed upon
the income of a Party) paid in respect of such facilities, billing
activities, financial charges attributable to other Parties' shares
of costs incurred by a Maintenance Authority, supervision,
overheads and costs and expenses reasonably incurred on account of
claims made by or against other persons in respect of such
facilities or any part thereof and damages or compensation payable
by the Parties concerned on account of such claims. Cost,
expenses, damages, or compensation payable to the Parties on
account of claims made against other persons, shall be shared by
the Parties in the proportions specified in Schedule C.
(c) Subject to Paragraph 16, the Maintenance Authorities may authorize
the purchase and use of special tools and test equipment for use on
board cable ships which are required for the maintenance and
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repair of the Cable System and also any spare terminal equipment
considered necessary to ensure that the facilities constituting the
Cable System are returned to efficient working order and operation
as soon as possible following the failure, breakdown or interruption
of such facilities. The related costs may include, but not be
limited to, the costs, or an appropriate share thereof, for the
purchase, storage and maintenance of this equipment.
(d) Each Maintenance Authority shall render to the other Parties bills
for the expenditures and receipts herein referred to not more
frequently than monthly in accordance with procedures to be
established by the Management Committee. The Maintenance
Authorities shall also from time to time furnish such further
details of such bills as the other Parties may reasonably require.
On the basis of such bills, each Party shall pay, in the currency
in which the bill is rendered, such amounts as may be owed by the
end of the calendar month following the calendar month in which the
bills are rendered.
(e) Amounts billed and not paid when due shall accrue extended payment
charges from and including the day following the day on which payment
was due until paid, said charges to be computed and applied in
accordance with Subparagraphs 9(f) and 9(g).
(f) The billing procedures specified in Subparagraphs 9(h) and 9(i) shall
be applicable to all bills rendered pursuant to this Paragraph 17.
18. SHARING OF CONTRACTUAL OBLIGATIONS AND LIABILITY
(a) Each Party shall indemnify and shall keep indemnified and hold
harmless the other Parties and each of their employees, servants
and agents to the extent hereinafter agreed, from and against all
claims, demands, actions, suits, proceedings, writs, judgements,
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orders and decrees brought, made or rendered against them or any of
them and all damages, losses and expenses suffered or incurred by
them or any of them howsoever arising out of or related to any
aspect of providing, constructing, laying or installing the Cable
System or of its operation and maintenance. This indemnity shall
not, however, relieve the Initial Parties of their obligations
undertaken pursuant to Paragraph 3 nor shall any Party be
indemnified for intentional miscounduct or reckless acts or
omissions.
(b) If a Party assumes obligations, commits monies in the name or on
behalf of the other Parties pursuant to this Agreement or to an
assignment under the provisions of this Agreement or is obliged by
final judgement of a competent tribunal or under a settlement
approved by the Management Committee to discharge any claim in
damages or other liability, including costs or expenses associated
therewith, to any person or entity which is not a Party to this
Agreement and resulting from any aspect of providing, constructing,
laying or installing the Cable System or of its operation and
maintenance, that Party shall be entitled to reimbursement from the
other Parties in the proportions set forth in Schedule C (unless
any such claim for reimbursement arises from the intentional
misconduct or reckless act or omission of the Party seeking
reimbursement).
(c) If a claim, demand, action, suit, proceeding, writ, judgement,
order or decree as referred to in Subparagraph 18(a) is brought,
made or rendered against a Party or any Party suffers or incurs any
damages, losses or expenses in respect thereof, that Party shall,
as a condition of reimbursement under Subparagraph 18(b),
immediately notify all the other Parties and give them the
opportunity to advise and recommend through the Management
Committee on the means to defend or to settle same and, to the
extent permitted by the relevant jurisdiction, to be joined in any
proceedings relating thereto.
<PAGE>
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(d) Except as provided in Subparagraph 16(f), as a precondition to the
initiation of any legal proceedings by any Party or Parties for
the benefit of any other Party or Parties, the Party or Parties
planning to initiate such proceedings shall give notice,
appropriate under the circumstances, to all other Parties.
(e) The costs and benefits of any proceedings referred to in
Subparagraph 18(d) shall be shared between the Parties in the
manner described in Subparagraph 18(b).
19. KEEPING AND INSPECTION OF BOOKS FOR SEGMENT B
(a) OTC and TNI shall each keep and maintain such books, records,
vouchers and accounts of all capital costs that are incurred in
the engineering, provision and installation of Segment B and not
included in the Supply Contract, as defined in Subparagraph
8(a) (iii), which they incur directly, for a period of three (3)
years from RFS or the date the work is completed, whichever is
later.
(b) With respect to operating and maintenance costs of Segment B, such
books, records, vouchers and accounts of costs, as are relevant,
shall be kept and maintained by OTC and TNI for a period of three
(3) years from the date on which the corresponding bills to the
Parties are rendered.
(c) Any Party keeping and maintaining books, records, vouchers and
accounts of costs pursuant to Subparagraphs 19(a) and 19(b) shall
afford the Parties the right to review or audit said books,
records, vouchers and accounts of costs. In affording the right
to review or audit, any such Party shall be permitted to recover,
from the Party or Parties requesting the review or audit, the
entire cost reasonably incurred in complying with the review or
audit. Such right of review and audit pursuant to this
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Subparagraph 19(c) shall only be exercisable through the F&A
Subcommittee in accordance with the F&A Subcommittee's audit
procedures.
(d) After RFS the Management Committee shall arrange for a final audit
to be conducted by the F&A Subcommittee. The costs of such audit
shall be borne by the Parties in proportion to their ownership
interests shown in Schedule C.
(e) The Parties' right to review the books, records, vouchers and
accounts required to be kept under the Supply Contract shall only
be exercisable through the F&A Subcommittee in accordance with the
F&A Subcommittee's audit procedures.
20. GOVERNMENTAL APPROVALS
The performance of this Agreement by the Parties is contingent upon the
obtaining and continuance of such governmental approvals, consents,
authorisations, licenses and permits as may be required or be deemed
necessary by the Parties and as may be satisfactory to them and the
Parties shall use all reasonable efforts to obtain and have continued in
effect such approvals, consents, authorisations, licenses and permits.
21. ASSIGNMENT OF RIGHTS AND OBLIGATIONS
Except as otherwise provided in Paragraphs 13, 14, 15, 22 and 23, during
the continuance of this Agreement no Party shall without the consent of
the other Parties sell, assign, transfer or dispose of its rights or
obligations under this Agreement or of any interest in the Cable System
except to a successor or subsidiary of such Party or a corporation
controlling, or under the same control as, such Party, in which case
written notice shall be given to the other Parties in a timely manner by
the Party making said sale, assignment, transfer or disposition, and
<PAGE>
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provided that in the case of any assignments of capacity in the Cable
System to a subsidiary pursuant to this Paragraph 21, the consent of the
other Party or Parties to whom the capacity is jointly assigned shall be
obtained pursuant to Subparagraph 13(l), which consent shall not be
unreasonably withheld.
22. DEFAULT
(a) If any Party fails to make any payment required by this Agreement
on the date when it is due and such default continues for a period
of at least two months after the date when payment is due, the
billing Party may notify the billed Party in writing of its intent
to notify the Management Committee of the status of the matter and
to request the reclamation of capacity, as provided for in this
Paragraph 22, if full payment is not received within four months
of such notification to the billed Party. If full payment is not
received within such specified period, the billing Party may
notify the Management Committee of the status of the matter and
request that the Management Committee reclaim the capacity in the
Cable System assigned to the billed Party.
(b) The Management Committee shall have the option of reclaiming the
capacity assigned to a Party that is in default of this Agreement
pursuant to Subparagraph 22(a), if such default has existed for a
period of six (6) months. The Management Committee shall consider
any extenuating circumstances not within the specific control of
the defaulting Party and the interests of any Party or Parties
that have jointly assigned capacity with the defaulting Party in
determining whether or not to reclaim any or all of the capacity
assigned to such defaulting Party. The Management Committee shall
determine arrangements for disposition of any reclaimed capacity
taking into account the interests of the Party or Parties holding
jointly assigned capacity with the defaulting Party. Such of the
remaining Parties as shall agree to take the reclaimed capacity of
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a defaulting Party which is to be reassigned shall make
appropriate payments which shall then be distributed to those
remaining Parties entitled to the proceeds. The remaining
Parties shall not be obligated to make any payments or credits
for capital costs to the defaulting Party for the reclaimed
capacity. All rights of a defaulting Party under this Agreement
shall terminate as of the time the Management Committee reclaims
all of the capacity previously assigned to the defaulting Party; and
concurrent with such reclamation of capacity, the defaulting
Party shall cease to be a Party to this Agreement. This Agreement
shall be appropriately amended to reflect the default of a Party
and the reallocation of interests pursuant to arrangements
determined by the Management Committee.
23. ADMISSION OF ADDITIONAL PARTIES
(a) The Management Committee is hereby empowered on one or more
occasions prior to RFS to admit telecommunications entities not
signatory hereto as additional Parties. In being so admitted,
an additional Party shall acquire the same rights and obligations
as the other Parties subject to the following:
(i) the admission of additional Parties shall be on terms and
conditions to be determined by the Management Committee;
(ii) the additional Party accepts responsibility to pay its
proportionate share of any costs incurred under this
Agreement prior to its becoming a Party; and
(iii) the additional Party accepts and abides by the terms and
conditions of this Agreement and all decisions properly
taken under this Agreement prior to its becoming a Party.
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(b) The Management Committee with the concurrence of at least 75%
of the total voting interests of the Parties may agree to admit
telecommunications entities not signatory hereto as additional
Parties after RFS subject to terms and conditions to be
decided.
(c) Additional Parties shall be admitted by Supplementary Agreements
to this Agreement. The Initial Parties are hereby authorised to
act jointly as representatives and agents of all Parties to
execute such Supplementary Agreements for the admission of
additional Parties. Schedules A, B, C and D shall be appropriately
modified.
24. REPLACEMENT OF AGREEMENT AND RATIFICATION OF PRIOR DECISIONS AND ACTIONS
(a) This Agreement replaces in its entirety the TASMAN 2 C&MA with
effect from the date of this Agreement and all the rights,
interests, shares, benefits, privileges, claims, entitlements,
commitments, covenants, warranties, guarantees, indemnities,
conditions, promises, agreements, undertakings, duties and
obligations of all or any of the Parties relating to any matter
or thing herein referred to shall henceforth be determined and
governed by this Agreement to the exclusion of the TASMAN 2 C&MA,
EXCEPT THAT:
(i) nothing in this Agreement shall prejudice or affect the
rights, interests, shares, benefits, privileges, claims,
entitlements, commitments, covenants, warranties,
guarantees, indemnities, conditions, promises, agreements,
undertakings, duties, obligations or acts (save as may be
hereby expressly released or otherwise provided herein) of
or made, done, given or granted to or by OTC and TCNZ or
TNI as the case may be or any of them by, in or pursuant
to or in accordance with the TASMAN 2 C&MA or in any way
arising out of anything done, caused or omitted to be done
<PAGE>
- 39 -
pursuant to or in accordance with or in default or in breach
of the TASMAN 2 C&MA or purported to have been so done and, in
any such case or event, up to the date of this Agreement; and
(ii) any claim or cause or right of action which has accrued to OTC
and TCNZ or TNI as the case may be or any of them by reason of
any breach or non-compliance with or default in observing and
performing any part of the TASMAN 2 C&MA or the Supply
Contract herein described up to the date of this Agreement
shall not be affected or prejudiced by this Agreement.
The expression "TASMAN 2 C&MA" when used in this Subparagraph 24(a)
shall, unless the context otherwise requires, include the MOU.
(b) Each Party to this Agreement does hereby, and each additional Party
admitted pursuant to Paragraph 23 shall thereby unconditionally
ratify and accept as binding (in the same manner and to the same
extent as if made or done under this Agreement) on it, its
successors, permitted assigns or trustees, all decisions and
actions theretofore taken directly or indirectly by any other Party
or Parties or TCNZ or any committee or subcommittee or group pursuant
to this Agreement, the TASMAN 2 C&MA or the MOU.
25. RESOLUTION OF DISPUTES
(a) If a dispute should arise under this Agreement between or among the
Parties they shall make every reasonable effort to resolve such
dispute. However, in the event that they are unable to resolve such
dispute, the matter shall be referred to the Management Committee
which shall either resolve the matter or determine the method by
which the matter should be resolved. This procedure shall be the
sole and exclusive remedy for any dispute which may arise under this
Agreement between or among the Parties.
<PAGE>
-40-
(b) The performance of this Agreement by the Parties shall continue
during the resolution of any dispute.
26. RELATIONSHIP OF PARTIES TO EACH OTHER
The relationship between or among the Parties shall not be that of
partners and nothing herein contained shall be deemed to constitute a
partnership between or among them, and the common enterprise among the
Parties shall be limited to the express provisions of this Agreement.
27. PRIVILEGES FOR DOCUMENTS OR COMMUNICATIONS
Each Party specifically reserves, and is granted by each of the other
Parties, in any action, arbitration or other proceeding between or among
the Parties or any of them in a country other than that Party's own
country, the right of privilege, in accordance with the laws of that
Party's own country, with respect to any documents or communications
which are material and pertinent to the subject matter of the action,
arbitration or proceeding as respects which privilege could be claimed or
asserted by that Party in accordance with those laws, and such privilege,
whatever may be its nature and whenever it be claimed or asserted, shall be
allowed to that Party as it would be allowed if the action, arbitration or
other proceeding had been brought in a court of, or before an arbitrator
in, the Party's own country.
28. PERIOD OF AGREEMENT AND REALISATION OF ASSETS
(a) This Agreement shall become effective on the day and year first
above written and shall continue in operation for at least an initial
period of twenty five (25) years following RFS and shall be terminable
thereafter by agreement of the Parties. However any Party may
terminate its participation in this Agreement at the end
<PAGE>
-41-
of the initial period or any time thereafter by giving not less than
one (1) year's prior notice thereof, in writing, to the other Parties.
Upon the effective date of termination of participation of a Party,
Schedules A, B, C and D shall be appropriately modified. The remaining
Parties shall assume the capital, operating and maintenance interests
of the Party terminating its participation in proportion to their
interests assigned immediately preceding such effective date of
termination, except for the continuing rights and obligations of the
terminating Party as specified in Subparagraphs 28(c) and 28(d). No
credit for capital costs will be made to a Party that terminates its
participation in accordance with this Subparagraph 28(a).
(b) The interests of a Party or Parties in Segment B of the Cable System
which come to an end by reason of the termination of its or their
participation in this Agreement or the termination of this Agreement
shall be deemed to continue for as long as is necessary for effecting
the purposes of Subparagraphs 28(c) and 28(d) and in the case of
interests which come to an end by reason of a Party or Parties
terminating its or their participation in this Agreement, Segment B
shall accordingly thereafter be held as respects such interests as at
the time any Party terminates its participation in this Agreement, upon
the appropriate trusts by the Parties who are the owners thereof.
Should the doctrine of trusts not be recognised under the laws of the
country, territory or place where the property to which such interests
relate is located, then the Party or Parties who are the owners thereof
shall nevertheless be expressly bound to comply with the provisions of
Subparagraphs 28(c) and 28(d).
(c) Upon termination of this Agreement the Parties shall use their best
efforts to liquidate Segment B of the Cable System within a reasonable
time by sale or other disposition, but no sale or disposition shall be
effected except by agreement between or among the Parties who have
interests in the subject thereof at the time
<PAGE>
-42-
this Agreement is terminated. In the event agreement cannot be
reached, the decision will be carried on the basis of a simple majority
of the total voting interests as specified in Schedule B. The costs or
net proceeds of every sale or other disposition shall be divided
between or among the Parties who have or were deemed to have interests
in the subject thereof in the proportions in which such Parties'
ownership interests are specified in Schedule C immediately preceding
the first time any Party terminates its participation in this Agreement
or this Agreement is terminated pursuant to Subparagraph 28(a),
whichever occurs first. The Parties shall execute such documents and
take such action as may be necessary to effect any sale or other
disposition made pursuant to this Paragraph 28.
(d) A Party's termination of its participation in this Agreement or the
termination of this Agreement pursuant to Subparagraph 28(a) shall not
relieve that Party or Parties from any liabilities, costs, damages or
obligations which may arise in connection with claims made by third
parties with respect to the Cable System, the facilities that comprise
the Cable System or any part or portion thereof, or which may arise in
relation to the Cable System due to any law, order or regulation made
by any government or supranational legal authority pursuant to any
international convention, treaty or agreement. Any such liabilities,
costs, damages or obligations incurred or benefits accruing in
satisfying such obligations shall be divided among the Parties in the
proportions in which such Parties' ownership interests are specified in
Schedule C immediately preceding the first time any Party terminates
its participation in this Agreement or this Agreement is terminated
pursuant to Subparagraph 28(a), whichever occurs first.
<PAGE>
-43-
29. BILLS, PAYMENTS AND NOTICES
(a) OTC shall render bills due under this Agreement in
Australian dollars, and such bills shall be payable
in Australian dollars to the designated office of OTC.
TNI shall render bills due under this Agreement in New
Zealand dollars, and such bills shall be payable in
New Zealand dollars to the designated office of TNI.
OTC and TNI may also render bills in the currencies
specified in the Supply Contract for payment to the
Supplier, and such bills shall be payable in the
currency(ies) in which they are rendered.
(b) Unless otherwise designated by the Party concerned,
bills rendered, payments made and notices issued under
this Agreement shall be addressed to the respective
Parties by registered airmail, dispatch of which shall
be advised by a telex or facsimile giving a summary of
the payments due, expenses concerned or notices issued.
(c) All amounts billed or payable under this Agreement shall be
paid in full without deduction of any taxes, duties or other
withholdings.
30. WAIVER
The waiver by any Party of a breach of, or a default under, any of
the provisions of this Agreement, or the failure of any Party, on
one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder shall not
thereafter be construed as a waiver of any subsequent breach or default
of a similar nature, or as a waiver of any such provision, right or
privilege hereunder.
<PAGE>
-44-
31. EXECUTION OF AGREEMENT AND AMENDMENTS
(a) This Agreement, any amendment thereof and any Supplementary
Agreement pursuant to Subparagraph 23(c) shall each be executed
as one original in the English language.
(b) OTC shall be the custodian of this Agreement and any such
amendment or Supplementary Agreement and shall accord access to
them to a Party upon reasonable notice. Each Party shall be
provided with a certified photocopy of this Agreement and any
such amendment or Supplementary Agreement and any revised
Schedules. A notarised copy of this Agreement and any such
amendment or Supplementary Agreement shall be provided to a Party
upon request, and at the requesting Party's expense.
(c) Subject to Subparagraphs 23(c) and 31(d), this Agreement and any
of the provisions hereof may be altered or added to only by
another agreement in writing signed by a duly authorized
person on behalf of each and every Party to this Agreement.
(d) Subparagraph 31(c) shall not apply to any Schedule modified in
accordance with any other provision of this Agreement and any
Schedule so modified shall be deemed to be a part of this
Agreement in substitution for the immediately preceding version
of that Schedule.
32. INTERPRETATION OF AGREEMENT
(a) If any difference shall arise between or among the Parties or any
of them respecting the interpretation or effect of this Agreement or
any part or provision thereof or their rights and obligations
thereunder, and by reason thereof there shall arise the need to
decide the question by what municipal or national law this Agreement
or such part or provision thereof is governed, the following facts
shall be excluded from consideration, namely, that
<PAGE>
-45-
this Agreement was made in a particular country and that it may
appear by reason of its form, style, language or otherwise to have
been drawn preponderantly with reference to a particular system of
municipal or national law; the intention of the Parties being that
such facts shall be regarded by the Parties and in all courts and
tribunals wherever situated as irrelevant to the question aforesaid
and to the decision thereof.
(b) Unless the context otherwise requires, words importing the singular
number include the plural number and words importing the plural
number include the singular number and words importing the
masculine gender include female.
(c) The paragraph headings do not form part of this Agreement and shall
not have any effect on the interpretation thereof.
33. SUCCESSORS BOUND
This Agreement shall be binding on the Parties, their successors and
permitted assigns.
TESTIMONIUM
IN WITNESS WHEREOF the Parties hereto have severally subscribed these
presents or caused them to be subscribed in their names and on their
behalf by their respective officers thereunto duly authorised.
<PAGE>
-46-
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
BY: /s/ [ILLEGIBLE]
BORD, TELECOM EIREANN
BY: /s/ [ILLEGIBLE]
BRITISH TELECOMMUNICATIONS PLC
BY: /s/ [ILLEGIBLE]
BUNDESMINISTERIUM FUR OFFENTLICHE WIRTSCHAFT UND VERKEHR.
GENERALDIREKTION FUR DIE POST - UND TELEGRAPHENVERWALTUNG
BY: /s/ [ILLEGIBLE]
THE COMMUNICATIONS AUTHORITY OF THAILAND
BY: /s/ [ILLEGIBLE]
DEUTSCHE BUNDESPOST TELEKOM
BY: /s/ [ILLEGIBLE]
ENTREPRISE DES POSTES, TELEPHONES ET TELEGRAPHES SUISSES
BY: /s/ [ILLEGIBLE]
<PAGE>
-47-
FRANCE TELECOM
BY: /s/ [ILLEGIBLE]
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED
BY: /s/ [ILLEGIBLE]
HONG KONG TELECOM INTERNATIONAL LIMITED
BY: /s/ [ILLEGIBLE]
INTERNATIONAL DIGITAL COMMUNICATIONS INC.
BY: /s/ [ILLEGIBLE]
INTERNATIONAL TELECOM JAPAN INC.
BY: /s/ [ILLEGIBLE]
INTERNATIONAL TELECOMMUNICATION DEVELOPMENT CORPORATION
BY: /s/ [ILLEGIBLE]
ITALCABLE S.P.A.
BY: /s/ [ILLEGIBLE]
<PAGE>
-48-
KOKUSAI DENSHIN DENWA CO., LTD.
BY: /s/ [ILLEGIBLE]
KOREA TELECOMMUNICATION AUTHORITY
BY: /s/ [ILLEGIBLE]
MCI INTERNATIONAL, INC.
BY: /s/ [ILLEGIBLE]
MERCURY COMMUNICATIONS LIMITED
BY: /s/ [ILLEGIBLE]
OTC LIMITED
BY: /s/ [ILLEGIBLE]
OVERSEAS TELECOMMUNICATIONS, INC.
BY: /s/ [ILLEGIBLE]
PHILIPPINE GLOBAL COMMUNICATIONS, INC.
BY: /s/ [ILLEGIBLE]
<PAGE>
- 49 -
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
BY: /s/ [Illegible]
PTT TELECOM BV
BY: /s/ [Illegible]
REGIE DES TELEGRAPHES ET DES TELEPHONES DE BELGIQUE
BY: /s/ [Illegible]
SWEDISH TELECOM
BY: /s/ [Illegible]
SYARIKAT TELEKOM MALAYSIA BERHAD
BY: /s/ [Illegible]
TELECOM NETWORKS AND INTERNATIONAL LTD.
BY: /s/ [Illegible]
TELECOMMUNICATION AUTHORITY OF SINGAPORE
BY: /s/ [Illegible]
<PAGE>
- 50 -
TELEGLOBE CANADA INC.
BY: /s/ [Illegible]
TRANSPACIFIC COMMUNICATIONS, INCORPORATED
BY: /s/ [Illegible]
TRT/FTC COMMUNICATIONS, INC.
BY: /s/ [Illegible]
US SPRINT COMMUNICATIONS COMPANY LIMITED PARTNERSHIP
BY: /s/ [Illegible]
WORLD COMMUNICATIONS INC.
BY: /s/ [Illegible]
<PAGE>
List of Omitted Schedules and Annexes
The following Schedules and Annexes to the Tasman 2 Construction and
Maintenance Agreement Revision No. 1 have been omitted from this Exhibit and
shall be furnished supplementally to the Commission upon request:
Schedule A - Parties to this Agreement
Schedule B - Voting Interests in the Cable System
Schedule C - Ownership Interests and Allocation of Capital, Operating
and Maintenance Costs of Segment B; and Proportions of
Capital, Operating and Maintenance Costs for Use of
Segments A and C
Schedule D - Assignment of Capacity in Segment B in Half Interests in
MAUOs
Annex 1 - Terms of Reference of Subcommittees
Annex 2 - Owners Project Team Responsibilities
<PAGE>
SIXTH SUPPLEMENTARY AGREEMENT
TO THE
TASMAN 2 CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE AGREEMENT REVISION NO 1
Certified as a true and accurate copy
of the Sixth Supplementary Agreement
to the TASMAN 2 Cable System
Construction and Maintenance Agreement
Revision No 1 effective 3 December 1996
J. Pratts
for Telstra
30 December 1996
<PAGE>
SIXTH SUPPLEMENTARY AGREEMENT TO THE
TASMAN 2 CABLE SYSTEM CONSTRUCTION AND
MAINTENANCE AGREEMENT REVISION NO 1
THIS SIXTH SUPPLEMENTARY AGREEMENT is made and entered into this 3rd day of
December 1996 in Fukuoka, Japan between and among the Parties identified in
Schedule A attached hereto.
WITNESSETH
WHEREAS, the TASMAN 2 Cable System Construction and Maintenance Agreement
Revision No 1 was entered into, effective 5 December 19990, as amended by the
First Supplementary Agreement dated 14 February 1992, the Second
Supplementary Agreement dated 6 October 1992, the Third Supplementary
Agreement dated 20 October 1993, the Fourth Supplementary Agreement dated 31
October 1995 and the Fifth Supplementary Agreement dated 25 July 1996
(hereinafter referred to as the "TASMAN 2 C&MA Revision No 1") to provide,
construct, maintain and operate the TASMAN 2 Cable System.
WHEREAS, Schedules B, C and D of the TASMAN 2 C&MA Revision No 1 were further
revised effective 1 September 1996.
WHEREAS, the TASMAN 2 C&MA Revision No 1 provides for the admission of
additional Parties by Supplementary Agreements and authorises the Initial
Parties (TELSTRA and TNZL) to act jointly as representatives and agents of
all Parties to the TASMAN 2 C&MA Revision No 1 to execute such Supplementary
Agreements.
WHEREAS, the Party identified in paragraph 1 of Annex l (hereinafter called the
"Additional Party") wishes to accede and become a Party to the TASMAN 2 C&MA
Revision No 1.
WHEREAS, in accordance with the TASMAN 2 C&MA Revision No 1, the Management
Committee has agreed to admit the Additional Party as a Party to the TASMAN 2
C&MA Revision No 1 and expand the National Capacity commensurate with the
requirements of the Additional Party and other Parties to the TASMAN 2 C&MA
Revision No 1.
WHEREAS, the TASMAN 2 C&MA Revision No 1 provides for the replacement of
Schedules A, B, C and D thereto to reflect the admission of additional
Parties, expansion of National Capacity and transfers of capacity.
WHEREAS, the Management Committee has agreed that TELSTRA shall act as
Financial Coordinator with respect to the admission of additional Parties to
the TASMAN 2 C&MA Revision No 1 and expansion of National Capacity.
<PAGE>
2
NOW THEREFORE, the Parties in consideration of the mutual covenants herein
expressed, covenant and agree with each other as follows:
1. The Additional Party hereby:
1.1 agrees to accept and abide by the terms and conditions of the TASMAN
2 C&MA Revision No 1, as duly amended from time to time, which is
incorporated herein by reference and made a part hereof;
1.2 agrees to assume responsibility to pay its proportionate share of
costs incurred under the TASMAN 2 C&MA Revision No 1 prior to its
becoming a Party thereto; and
1.3 agrees to accept and abide by all decisions taken in relation to the
TASMAN 2 Cable System by the Parties, or any of them, to the TASMAN
2 C&MA Revision No 1 prior to its becoming a Party thereto.
2. The Additional Party is hereby admitted to the TASMAN 2 C&MA Revision
No 1 with effect from the effective date of this Sixth Supplementary
Agreement.
3. Schedules A, B, C and D attached hereto shall replace the corresponding
Schedules in the TASMAN 2 C&MA Revision No 1.
4. TELSTRA, as the Financial Coordinator, shall bill the Additional Party
for its respective proportional share of the costs of the TASMAN 2 Cable
System incurred to the effective date of this Sixth Supplementary
Agreement and make financial adjustments necessary to the other Parties'
contributions to such costs pursuant to the expansion of National
Capacity. These and subsequent bills and financial adjustments shall be
calculated, rendered and paid in accordance with the TASMAN 2 C&MA
Revision No 1 and any applicable terms and conditions determined by the
Management Committee.
5. Except as provided in this Sixth Supplementary Agreement, all other terms
and conditions of the TASMAN 2 C&MA Revision No 1 remain unchanged and in
full force and effect.
6. Notwithstanding the date above written, this Sixth Supplementary Agreement
shall be effective as of 3 December 1996.
IN WITNESS WHEREOF the Additional Party and the Initial Parties (in their own
right and as joint representatives and agents of the Parties to the TASMAN 2
C&MA Revision No 1) have severally subscribed these presents or caused them
to be subscribed in their names and behalf by their respective officers
thereunto duly authorised.
<PAGE>
3
TELECOM NEW ZEALAND LIMITED
By /s/ [ILLEGIBLE]
----------------------------
TELSTRA CORPORATION LIMITED ACN 01 775 556
By /s/ James A. Nelson
-----------------------------
WORLDxCHANGE (NEW ZEALAND) LIMITED
-
By /s/ [ILLEGIBLE]
------------------------------
<PAGE>
ANNEX 1
1. ADDITIONAL PARTY
WORLDxCHANGE (New Zealand) Limited (Company No AK/687419),
a company duly incorporated under the laws of New Zealand and
having its registered office at Level 6, Tower II, Shortland
Centre, 55 Shortland Street, Auckland City (herein called
"WxC NZ" which expression shall include its successors).
2. INITIAL PARTIES
Telecom New Zealand Limited, a duly incorporated company under
the Companies Act 1955 (New Zealand) having its registered office
at 68-86 Jervois Quay, Wellington 1 (herein called "TNZL" which
expression shall include its successors).
Telstra Corporation Limited ACN 051 775 556, a company incorporated
under the laws of Australia and having an office at 231 Elizabeth
Street, Sydney, New South Wales (herein called "TELSTRA" which
expression shall include its successors).
<PAGE>
LIST OF OMITTED SCHEDULES
The following Schedules to the Sixth Supplementary Agreement to the
Tasman 2 Cable System Construction and Maintenance Agreement Revision No. 1
have been omitted from this Exhibit and shall be furnished supplementally to
the Commission upon request:
Schedule A- Parties to this Agreement
Schedule B- Voting Interests in the Cable System
Schedule C- Ownership Interests and Allocation of Capital Operating
and Maintenance Costs of Segment B and Proportions of
Capital Operating and Maintenance Costs for Use of
Segments A and C
Schedule D- Assignment of Capacity in Segment B in Half Interests
in MAUOs
The following Revised Schedules, effective December 3, 1996, to the
Sixth Supplementary Agreement to the Tasman 2 Cable System Construction and
Maintenance Agreement Revision No. 1 have been omitted from this Exhibit and
shall be furnished supplementally to the Commission upon request:
Schedule B- Voting Interests in the Cable System
Schedule C- Ownership Interests and Allocation of Capital Operating
and Maintenance Costs of Segment B and Proportions of
Capital Operating and Maintenance Costs for Use of
Segments A and C
Schedule D- Assignment of Capacity in Segment B in Half Interests in
MAUOs
<PAGE>
PACRIMEAST CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE AGREEMENT
Certified as a true and
accurate copy of the
PacRimEast Cable System
Construction and Maintenance
Agreement
J E Spencer
Secretary
OTC Limited
December 1990
<PAGE>
PACRIMEAST CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH NO. HEADING PAGE NO.
- ------------- ------- --------
<S> <C> <C>
1. DEFINITIONS 2
2. CABLE SYSTEM SEGMENTS 5
3. PROCUREMENT GROUP 6
4. PROVISION AND CONSTRUCTION OF SEGMENT B 7
5. PROVISION OF SEGMENTS A AND C 8
6. OWNERSHIP OF SEGMENTS AND ADDITIONAL PROPERTY 8
7. MANAGEMENT COMMITTEE 9
8. DEFINITION OF SEGMENT B CAPITAL COSTS 11
9. ALLOCATION AND BILLING OF SEGMENT B CAPITAL COSTS 12
10. USE OF SEGMENT A 15
11. USE OF SEGMENT C 19
12. OBLIGATION TO CONNECT THE CABLE SYSTEM WITH 24
INLAND SYSTEMS
13. OBLIGATION TO PROVIDE TRANSITING FACILITIES 25
TO EXTEND CABLE SYSTEM CAPACITY
14. ALLOCATION AND USE OF CAPACITY 26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PARAGRAPH NO. HEADING PAGE NO.
- ------------- ------- --------
<S> <C> <C>
15. EXPANSION OF NOTIONAL CAPACITY 31
16. DECREASE OR INCREASE OF DESIGN CAPACITY 31
17. DUTIES AND RIGHTS AS TO OPERATION AND MAINTENANCE 32
OF SEGMENTS
18. OPERATING AND MAINTENANCE COSTS OF SEGMENT B - 35
ALLOCATION AND BILLING
19. SHARING OF CONTRACTUAL OBLIGATIONS AND LIABILITY 37
20. KEEPING AND INSPECTION OF BOOKS FOR SEGMENT B 38
21. GOVERNMENTAL APPROVALS 40
22. ASSIGNMENT OF RIGHTS AND OBLIGATIONS 40
23. DEFAULT 41
24. ADMISSION OF ADDITIONAL PARTIES 42
25. RATIFICATION OF PRIOR DECISIONS AND ACTIONS 43
26. RESOLUTION OF DISPUTES 43
27. RELATIONSHIP OF PARTIES TO EACH OTHER 44
28. PRIVILEGES FOR DOCUMENTS OR COMMUNICATIONS 44
29. PERIOD OF AGREEMENT AND REALISATION OF ASSETS 44
30. BILLS, PAYMENTS AND NOTICES 46
</TABLE>
<PAGE>
PACRIMEAST CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE AGREEMENT
THIS AGREEMENT, made and entered into as of the 5th day of December 1990,
between and among the parties signatory hereto (hereinafter collectively called
"Parties" and individually called "Party"), which Parties are identified in
Schedule A attached hereto and made a part hereof, as it may be amended from
time to time in accordance with this Agreement,
WITNESSETH:
WHEREAS
A. Telecommunication services are being provided within the Pacific Region
and beyond by means of submarine cable, satellite and other facilities; and
B. The Parties propose to supplement such facilities by providing a high
capacity optical fibre submarine cable system linking New Zealand and Hawaii
to be known as the PacRimEast Cable System (hereinafter called the "Cable
System") which will be used to provide telecommunication services between and
among points in or reached via New Zealand and Hawaii; and
C. It is the intention of the Parties to each acquire an investment share
in the Cable System corresponding to at least the quantity of MAUOs required
to meet their respective needs for the use of the Cable System through the
year 2005; and
D. It is the intention of the Parties that the Cable System provide service
protection for other cable facilities in the Pacific region in which the
Parties have an interest; and
<PAGE>
- 2 -
E. An agreement entitled "The Initial Agreement To Cooperate In The
Provision of Digital Cables To Interconnect Australia And New Zealand With USA
And Japan" has been entered into between AT&T, KDD, OTC and TNI effective 28
September 1987 (hereinafter called the "Initial Agreement") under which
certain initial activities relating to provision of the Cable System, as
therein defined, have proceeded in advance of this Agreement; and
F. By a First Supplemental Agreement to the Initial Agreement effective
8 February 1988, a Second Supplemental Agreement to the Initial Agreement
effective 9 March 1988, a Third Supplemental Agreement to the Initial
Agreement effective 24 May 1988, a Fourth Supplemental Agreement to the
Initial Agreement effective 28 August 1988, a Fifth Supplemental Agreement to
the Initial Agreement effective 26 June 1989, a Sixth Supplemental Agreement
to the Initial Agreement effective 28 September 1989 and a Seventh
Supplemental Agreement to the Initial Agreement effective 4 December 1990, 32
additional parties were admitted as parties to the Initial Agreement; and
G. The Parties now desire to define the terms and conditions upon which the
Cable System will be provided, constructed, maintained and operated,
NOW, THEREFORE, the Parties, in consideration of the mutual covenants herein
expressed, covenant and agree with each other as follows:
1. DEFINITIONS
The following definitions shall apply to certain terms used in this
Agreement:
Annexes: Annexes shall be the annexes attached hereto and
made a part hereof.
Basic System Module: A Basic System Module of the Cable System shall
consist of a 139,264,000 bits per second digital
line section with interface in accordance with
CCITT Recommendation G.703 (Blue Book).
<PAGE>
- 3 -
Cable Landing Point: Cable Landing Point shall be the beach joint or,
if there is no beach joint, the mean high water
mark of ordinary spring tides.
Carrier Parties: Carrier Parties shall mean all of the Parties
other than Transpacific.
Common Reserve Capacity in excess of the Notional Capacity and
Capacity: being the difference between the Notional Capacity
and the Design Capacity.
Country: The word "country" as used in this Agreement shall
mean a country, territory or place, as
appropriate.
Date of The Date of Provisional Acceptance shall be the
Provisional date specified in the Certificate of Provisional
Acceptance: Acceptance issued in accordance with a Supply
Contract.
Design Capacity: The Design Capacity of the Cable System shall be
one (1) fibre pair providing four (4) Basic System
Modules, providing 7,560 MAUOs, or any increase or
decrease pursuant to Subparagraph 16(a).
Initial Parties: AT&T, KDD, OTC and TNI.
Management Management Committee refers to the PacRimEast
Committee: Cable System Management Committee to be
established under Paragraph 7.
Minimum Assignable A unit designated as the minimum practical unit of
Unit of Ownership: ownership, allowing the use of 73,684.656 bits per
(MAUO) second in each direction between System Interface
locations. The Minimum Assignable Unit of
Ownership (MAUO) in the Cable System shall consist
<PAGE>
- 4 -
of 64,000 usable bits per second and the
additional 9,684.656 bits per second required for
multiplexing each of the 1890 such MAUOs which
constitute a Basic System Module and is used for
purposes of ownership allocation. Such ownership
allocation shall be in terms of half interests in
MAUOs allocated to Parties in accordance with
Paragraph 14 and Schedule D.
Notional The capacity assigned to the Parties as shown
Capacity: in Schedule D.
Ready for Service: Ready for Service (RFS) refers to the date when
(RFS) the Parties agree to place the Cable System into
operation. For purposes of this Agreement, RFS
shall be on or before 31 March 1993, or such other
date as may be agreed upon by the Management
Committee.
Schedules: Schedules shall be the initial schedules attached
hereto and made a part hereof and any written
amendments thereto or any schedules substituted
therefor in accordance with the provisions of this
Agreement.
Supply Contract: Supply Contract refers to any contract entered
into pursuant to Subparagraph 4(a).
System Interface: The nominal 140 Megabits per-second digital
input/output ports on the digital distribution
frame (excluding the digital distribution frame
itself) where the Basic System Module connects
with other transmission facilities or equipment.
United States The United States Carrier Parties are AT&T,
Carrier Parties: HTC, MCII, OTI, TRT/FTC, US SPRINT and WORLDCOM.
<PAGE>
- 5 -
2. CABLE SYSTEM SEGMENTS
In accordance with the arrangements contained in this Agreement, the
Cable System shall be provided, constructed, maintained and operated
between New Zealand and Hawaii and, for the purposes of this Agreement,
shall be regarded as consisting of the following segments:
SEGMENT A: A cable station at Takapuna, New Zealand.
SEGMENT B: The whole of the submarine cable system provided between
and including the System Interfaces at the cable stations in New Zealand
and Hawaii, and shall also include:
(i) all transmission, power feeding and special test equipment
directly associated with the submersible plant;
(ii) the power equipment provided wholly for use with the
equipment listed in (i) above;
(iii) the transmission cable equipped with appropriate repeaters
and joint housings between the cable stations; and
(iv) the sea earth cable and electrode system and/or the land
earth system, or an appropriate share thereof, associated
with the Cable System power feeding equipment.
SEGMENT C: A cable station at Keawaula, Hawaii.
Segments A and C shall each consist of:
(i) an appropriate share of the land and buildings at the
specified locations for the cable landing and for the cable
route between a cable station and its respective Cable
Landing Point and an appropriate share of common services
and equipment at each of those locations together
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with equipment in each of those cable stations solely
associated with the Cable System, but which is not a part
of Segment B; and
(ii) multiplex equipment down to the primary level of 2 Mbit/s
associated solely and directly with assigned capacity in
the Cable System, wherever such multiplex equipment is
located.
In the event such multiplex equipment is located away from
the cable station, the cable station provider shall be
solely responsible for the entire cost of the provision
and maintenance of adequate connecting facilities between
the cable station and the location of the multiplex
equipment.
3. PROCUREMENT GROUP
(a) A Procurement Group shall be formed, comprised of the Initial
Parties. This Group shall act as trustees for the Parties and be solely
responsible for all actions as may be required to contract, on a joint
but not several basis, in shares as agreed between them, with the
supplier(s) to provide Segment B of the Cable System. The Procurement
Group shall assume the responsibilities and continue the activities of
the Initial Procurement Group established under the Initial Agreement in
respect of the Initial Procurement Group's work related to the Cable
System and shall undertake the on-going tasks of coordinating and
managing the overall project during construction.
(b) The Procurement Group's terms of reference are contained in
Annex 1.
(c) No decision of the Procurement Group shall override any provisions
of this Agreement or in any way diminish the rights granted to any of the
Parties under this Agreement.
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4. PROVISION AND CONSTRUCTION OF SEGMENT B
(a) The provision and construction of Segment B shall be through
contract(s) to be placed by the Procurement Group as trustees for each of
the Parties with supplier(s) (herein referred to as the "Supply
Contract(s)") designated by the Procurement Group itself. The placing of
the Supply Contract(s) by the Procurement Group shall be subject to
authorisation by the Management Committee.
(b) Each of the Procurement Group shall hold in trust for the Parties
in the separate percentages set forth in Schedule C all the rights,
benefits, privileges, claims, entitlements, commitments, convenants,
warranties, guarantees, indemnities, conditions, promises, agreements or
undertakings created by or arising out of or in connection with any
Supply Contract or made or given by any supplier to the Procurement Group
pursuant to any Supply Contract and any monies paid to the Procurement
Group pursuant to or arising out of or in connection with any Supply
Contract.
(c) Each of the Parties to this Agreement shall be entitled on request
to receive a copy of the Supply Contract(s), subject to the acceptance by
each such Party of any reasonable conditions of confidentiality imposed
by the Supply Contract(s).
(d) In the event that Segment B fails to meet the specifications
referenced in the Supply Contract(s) for its provision, fails to provide
the specified capacity, or is not engineered, provided, installed and
ready in sufficient time to meet the Date of Provisional Acceptance, or
if the supplier(s) is (are) otherwise in material breach of the relevant
Supply Contract(s), the Procurement Group shall take such actions as may
be necessary to exercise the rights and remedies available under the
terms and conditions of the Supply Contract(s). Such actions by the
Procurement Group shall be subject to any direction deemed necessary by
the Management Committee.
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(e) The members of the Procurement Group shall not be liable to any
other Party for any loss or damage sustained by reason of a supplier's
failure to perform in accordance with the terms and conditions of its
Supply Contract, or as a result of the Cable System not being ready for
provisional acceptance on or before the date specified in the Supply
Contract(s), or if the Cable System does not perform in accordance with
the technical specifications and other requirements of the Supply
Contract(s), or if the Cable System is not integrated or placed into
operation. The Parties recognise that the Procurement Group does not
guarantee or warrant (i) the performance of the Supply Contract(s) by the
supplier(s), (ii) the performance or reliability of Segment B of the
Cable System, or (iii) that the Cable System will be integrated or placed
into operation; and the Parties hereby agree that nothing in this
Agreement shall be construed as such a warranty or guarantee.
5. PROVISION OF SEGMENTS A AND C
(a) Segment A of the Cable System shall be provided and made available
by TNI for use in accordance with Paragraph 10.
(b) Segment C of the Cable System shall be provided and made available
by AT&T for use in accordance with Paragraph 11.
(c) TNI in respect of Segment A and AT&T in respect of Segment C shall
each make available to the other Parties any reasonable information
required by the Parties relating to the provision, construction or
installation of those Segments, subject to any reasonable conditions of
confidentiality imposed by the respective owners of those Segments.
6. OWNERSHIP OF SEGMENTS AND ADDITIONAL PROPERTY
(a) Segment A of the Cable System shall be owned by TNI.
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(b) Segment B of the Cable System shall be owned by the Parties in
common and undivided shares, in the proportions set forth in Schedule C.
Ownership of Segment B shall vest in the Parties upon ownership vesting
in the Procurement Group in accordance with the Supply Contract(s).
(c) Segment C of the Cable System shall be owned by AT&T.
(d) In this Agreement, references to any segment of the Cable System,
however expressed, shall be deemed to include, unless the context
otherwise requires, additional property incorporated therein by agreement
of the Parties. Each segment shall be regarded as including its related
spare and standby units and components including, but not limited to,
submersible repeaters, cable lengths and terminal equipment.
7. MANAGEMENT COMMITTEE
(a) The Parties shall form a PacRimEast Cable System Management
Committee (herein referred to as the "Management Committee"), which
shall consist of one representative of each of the Parties to this
Agreement. Except as otherwise provided in this Agreement (which
exception shall include decisions related to procurement which shall be
made by the Procurement Group in accordance with Paragraphs 3 and 4), the
Management Committee shall make all decisions necessary on behalf of the
Parties to effect the purposes of this Agreement.
(b) Two or more Parties may designate the same person to serve as
their representative at specific meetings of the Management Committee and
its subcommittees established pursuant to Subparagraph 7(e). OTC shall
provide a person to act as the Coordinator of the Management Committee.
The Management Committee will meet on the call of the Coordinator or
whenever requested by one or more Parties representing at least 5% of the
total voting interests specified in Schedule B. The Coordinator shall
give at least 30 days' advance notice, which shall include a draft
agenda, of each meeting to the Parties. In cases of
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emergency, such notice period may be reduced if Parties representing at
least 75% of the total voting interests so agree. Discussion documents
for each meeting should be made available to members 14 days before the
meeting, but the Management Committee may agree to discuss papers
distributed on less than 14 days' notice. For the conduct of its
meetings, the Management Committee shall elect a Chairman at each
meeting.
(c) All decisions made by the Management Committee shall be subject,
in the first place, to consultation among the designated representatives
of the Parties who shall make every reasonable effort to reach agreement
with respect to matters to be decided. However, in the event agreement
cannot be reached, with the exception of those matters to be determined
pursuant to Subparagraphs 14(q), 16(a) and 24(b), the decision will be
carried on the basis of a vote representing a simple majority of the
total voting interests of the Parties as specified in Schedule B,
provided such simple majority includes at least one Party from south of
the equator and two Parties from north of the equator. A member of the
Management Committee representing more than one Party shall separately
cast the votes to which each Party it represents is entitled.
(d) No decision of the Management Committee, or its subcommittees or
any other group established by the Management Committee shall override
any provisions of this Agreement.
(e) To aid the Management Committee in the performance of its duties,
the Management Committee may establish such subcommittees or groups as it
shall determine within its discretion, to provide assistance in the
performance of its responsibilities. The following subcommittees shall
initially be formed, and said subcommittees, under the direction of the
Management Committee, shall be responsible for their respective areas of
interest listed in Annex 2 and any other areas of interest designated by
the Management Committee:
(i) Operations and Maintenance Subcommittee (hereinafter called
"O&M Subcommittee"); and
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(ii) Financial and Administrative Subcommittee (hereinafter
called "F&A Subcommittee").
Subcommittees shall meet at least once annually after the date of this
Agreement and more frequently if necessary, until two years following the
RFS date and thereafter as may be appropriate. Meetings of a subcommittee
may be called to consider specific questions at the discretion of its
chairman, or whenever requested by one or more Parties representing at
least 5% of the voting interests specified in Schedule B. The respective
chairman of each subcommittee, or a designated representative of each
subcommittee, shall attend Management Committee meetings and meetings of
each other subcommittee in an advisory capacity as necessary. On or about
two years after RFS, the Management Committee shall determine whether any
of its subcommittees should remain in existence. If the Management
Committee determines that one or more of its subcommittees shall not
remain in existence, the responsibilities assigned to a subcommittee
whose existence has been terminated under this Subparagraph 7(e) shall
revert to the Management Committee.
8. DEFINITION OF SEGMENT B CAPITAL COSTS
(a) Capital costs, as used in this Agreement, refers to costs incurred
in engineering, providing, and constructing Segment B, or causing it to
be engineered, provided, and constructed, or to laying or causing to be
laid cables, repeaters and joint housing, or to installing or causing to
be installed cable system equipment, and shall include:
(i) appropriate costs, including financial charges attributable
to other Parties' shares of such costs, incurred in respect
of specific activities such as desk top surveys, marine
surveys and cable system development activities, in respect
of the Cable System, required to be undertaken prior to
entry into force of this Agreement;
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(ii) those costs payable to the supplier(s) under the Supply
Contract(s); and
(iii) those costs directly incurred by OTC, AT&T and TNI which
shall be fair and reasonable in amount and not included in
the Supply Contract(s), and which have been directly and
reasonably incurred for the purpose of, or to be properly
chargeable in respect of, such engineering, provision,
construction, installation and laying of Segment B,
including, but not limited to, the costs of engineering,
design, materials, manufacturing, procurement and
inspection, installation, removing (with appropriate
reduction for salvage), cable ship and other ship costs,
route survey, burying, testing associated with laying or
installation, customs duties, taxes (except income tax
imposed upon the income of a Party), financial charges
attributable to other Parties' shares of costs incurred,
supervision, billing activities, overheads and insurance or
a reasonable allowance in lieu of insurance if such Party
elects to carry a risk itself, being a risk which is
similar to one against which a supplier has insured or
against which insurance is usual or recognised or would
have been reasonable.
(b) Such costs shall exclude costs incurred by the Parties in
the holding of Management Committee meetings, Procurement Group
meetings and meetings of the subcommittees established pursuant to
Subparagraph 7(e) or the attendance by the Parties'
representatives at such meetings.
9. ALLOCATION AND BILLING OF SEGMENT B CAPITAL COSTS
(a) The total capital costs of engineering, providing, constructing
and installing Segment B, including any additional work or property
incorporated in Segment B subsequent to RFS by agreement of the Parties,
shall be borne by the Parties in the proportions set forth in
Schedule C.
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(b) OTC, AT&T and TNI shall promptly render bills to each of the other
Parties for such Parties' pro rata shares of costs payable under the
Supply Contract(s) and for costs directly incurred by OTC, AT&T and TNI
in accordance with Paragraph 8 and financial charges attributable to
other Parties' shares of such costs. Such bills shall be rendered by OTC,
AT&T and TNI not more frequently than once a month and in accordance with
Schedule C and shall contain a reasonable amount of detail to
substantiate them. On the basis of such bills, each Party shall pay to
OTC, AT&T and TNI or to such entity as OTC, AT&T and TNI may designate,
the amounts owed by the end of the calendar month following the calendar
month in which the bill was rendered. In the case of bills containing
costs billed on a preliminary billing basis, appropriate adjustments will
be made in subsequent bills promptly after the actual costs involved are
determined.
(c) As soon as practicable after RFS, the amount of each Party's share
of the costs of Segment B shall be computed by OTC, AT&T and TNI, as
appropriate, and they shall make appropriate adjustments and render any
necessary bills or arrange for any necessary refunds by way of final
settlement in order that each Party may bear its proper share of the
costs as provided in this Paragraph 9.
(d) If, subsequent to RFS, additional property or equipment is
incorporated in the Cable System by agreement of the Management
Committee, the costs thereof shall be borne by the Parties in the
proportions as set forth in Schedule C.
(e) For purposes of this Agreement, financial charges shall be
computed at as follows:
(i) For bills rendered by OTC and TNI, financial charges shall
be computed at a rate equal to the lowest publicly
announced prime overdraft rate in the currencies of
Australia and New Zealand by the following banks on the
fifteenth day of the month in which the costs were incurred
by the billing Parties:
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A. BILLS RENDERED BY OTC;
Westpac Banking Corporation, Sydney
B. BILLS RENDERED BY TNI;
Bank of New Zealand, Wellington
(ii) For bills rendered by AT&T, financial charges shall be
computed at a rate equal to the lowest publicly announced
prime rate or commercial lending rate, however described,
for 90-day loans in the currency of the United States of
America, as applicable, by the following banks on the
fifteenth day of the month in which the costs were incurred
by AT&T:
Citibank, N.A., New York City;
Chase Manhattan Bank N.A., New York City;
and Manufacturer's Hanover Trust Company, New York City
(f) Amounts billed and not paid when due shall accrue extended payment
charges from and including the day following the day on which payment was
due until paid. For purposes of this Agreement, paid shall mean that the
funds are available for immediate use by the recipient. For purposes of
this Agreement, extended payment charges shall be computed at rates equal
to 125 percent of the relevant rates for financial charges as defined in
Subparagraph 9(e) on the day following the day on which payment was due.
(g) In the event that applicable law does not allow the imposition of
financial charges or extended payment charges at the rates established in
accordance with Subparagraph 9(e) or 9(f) respectively, financial
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charges and extended payment charges shall be at the highest rates
permitted by applicable law, which in no event shall be higher than the
rates computed in accordance with Subparagraphs 9(e) and 9(f)
respectively.
(h) A bill shall be deemed to have been accepted by the Party to whom
it is rendered if that Party does not present a written objection before
the date when payment is due. If such objection is filed, all Parties
concerned shall make every reasonable effort to settle promptly the
dispute concerning the bill in question. If the objection is sustained
and the objecting Party has paid the disputed bill, the amount of
overpayment shall be refunded promptly to the objecting Party by the
Party by or for whom the bill was rendered, together with any financial
charges calculated thereon at the relevant rate determined in accordance
with Subparagraph 9(e) from and including the date of payment of the bill
to the date on which the refund is transmitted to the objecting Party. If
the objection is not sustained and the objecting Party has not paid the
disputed bill, said Party shall pay such bill promptly together with any
extended payment charges calculated thereon at the relevant rate
determined in accordance with Subparagraph 9(f) from and including the
day following the day on which payment of the bill was due until paid.
Nothing in this Subparagraph 9(h) shall relieve a Party from paying those
parts of a bill that are not in dispute.
(i) Credits for refunds of appropriate financial charges and bills for
extended payment charges will not be rendered if the amount of charges
involved is less than US$100 or its equivalent in the currency of
billing.
10. USE OF SEGMENT A
(a) Each Party which has no ownership interest in Segment A shall be
permitted to use Segment A, including any additions thereto, to the
extent required for the purpose of using the Cable System and carrying on
the related activities at that location in accordance with this
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Agreement. Such use will be deemed to commence from RFS or from the date
a Party first places any of its capacity into operation, whichever occurs
first, and shall continue for the duration of this Agreement.
(b) For the use of Segment A, the Parties shall pay TNI an amount
calculated by reference to the capital costs reasonably incurred in
providing Segment A and periodic charges based upon the costs of
maintenance, supervision and operation, in the proportions specified in
Schedule C. Where the use of Segment A or of certain equipment situated
therein, such as power supply or testing and maintenance equipment, is
shared by the Cable System and other communications systems terminating
at Segment A, the capital, operating, maintenance and supervision costs
of such shared cable station or equipment (not solely attributable to a
particular communications system or systems) will be allocated among the
systems involved in the proportions in which they use the shared
equipment or facility. For such purposes, use of a shared cable station
or of shared cable station equipment therein attributable to a particular
system shall be determined on the basis of the ratio of: (i) the
installed cost of the cable station equipment (excluding shared
equipment) associated with the particular cable system to (ii) the
installed cost of the cable station equipment (excluding shared
equipment) associated with all systems, including the Cable System,
which make use of the shared facility.
(c) Capital costs, as used in this Paragraph 10 with reference to the
provision of Segment A, including land, access roads, cable
rights-of-way, ducts and buildings located at Segment A, or causing it to
be provided and constructed, or to installing or causing to be installed
Segment A equipment, shall include all expenditures incurred which shall
be fair and reasonable in amount and either to have been directly and
reasonably incurred for the purpose of, or to be properly chargeable in
respect of, such provision, construction and installation, including, but
not limited to, the purchase costs of land, building costs, amounts
incurred for development, engineering, design, materials, manufacturing,
procurement and inspection, installation, removing (with appropriate
reduction for salvage), testing associated with
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installation, customs duties, taxes (except income tax imposed upon the
income of a Party), financial charges attributable to other Parties'
shares of costs, supervision, billing activities, overheads and insurance
or a reasonable allowance in lieu thereof. Losses against which insurance
was not provided, or for which an allowance in lieu thereof was not
provided, or for which an allowance in lieu thereof was not taken, shall
constitute capital costs. Operating and maintenance costs for Segment A,
as used in this Paragraph 10, shall include costs reasonably incurred in
operating and maintaining the facilities involved, including, but not
limited to, the cost of attendance, testing, adjustments, repairs and
replacements, customs duties, taxes (except income tax imposed upon the
income of a Party) paid in respect of such facilities, billing
activities, administrative costs, financial charges attributable to other
Parties' shares of costs, and costs and expenses reasonably incurred on
account of claims made by or against other persons in respect of such
facilities or any part thereof and damages or compensation payable by TNI
on account of such claims. Costs, expenses, damages, or compensation
payable to TNI on account of claims made against other persons shall be
shared by the Parties in the same proportions as they share the costs of
operating and maintaining Segment A.
(d) In the event that the cable station located at Segment A is not
available for the landing and termination of the Cable System for any
reason, TNI, with the agreement of the other Parties, shall take all
necessary measures to ensure that another suitable cable station will be
available for the Cable System for the duration of this Agreement on fair
and equitable terms.
(e) In the event of a sale or other disposition of Segment A or part
thereof prior to the termination of this Agreement, TNI shall share with
the other Parties any net proceeds, or costs, of such sale or disposition
received, or expended, by TNI, to the extent allocable to the Cable
System, in the proportions specified in Schedule C at the time of the
sale or disposition.
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(f) Subject to Subparagraph 10(e), nothing contained in this Agreement
shall be deemed to vest in any Party other than TNI, any salvage rights
in Segment A or any cable station substituted therefor.
(g) TNI shall keep and maintain such books, records, vouchers, and
accounts of all costs that are incurred in the design, engineering,
provision, construction and installation, as appropriate, of Segment A
for a period of three (3) years from RFS or the date the work is
completed, whichever is later.
(h) With respect to operating and maintenance costs of Segment A, such
books, records, vouchers and accounts of costs, as are relevant, shall be
kept and maintained by TNI for a period of three (3) years from the date
on which the corresponding bills to the Parties are rendered.
(i) In keeping and maintaining books, records, vouchers, and accounts
of costs pursuant to Subparagraphs 10(g) and 10(h), TNI shall afford the
other Parties the right to review or audit said books, records, vouchers,
and accounts of costs. In affording the right to review or audit, TNI
shall be permitted to recover, from the Party or Parties requesting the
review or audit, the entire cost reasonably incurred in complying with
the review or audit. Such right of review and audit pursuant to this
Subparagraph 10(i) shall only be exercisable through the F&A Subcommittee
in accordance with the F&A Subcommittee's audit procedures.
(j) After RFS the Management Committee shall arrange for a final audit
to be conducted by the F&A Subcommittee. The costs of such audit shall be
borne by the Parties in the proportions specified in Schedule C.
(k) In respect of bills rendered pursuant to this Paragraph 10, each
party shall pay TNI, in the currency in which the bill is rendered, the
amount owed by the end of the calendar month following the calendar month
in which the bill was rendered. In the case of bills containing costs
billed on a preliminary basis, appropriate adjustments will be made in
subsequent bills promptly after the actual costs involved are determined.
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(l) Amounts billed pursuant to this Paragraph 10 and not paid when due
shall accrue extended payment charges from and including the day
following the day on which payment was due until paid, said charges to be
computed and applied in accordance with Subparagraphs 9(f) and 9(g).
(m) The billing procedures specified in Subparagraphs 9(h) and 9(i)
shall be applicable to all bills rendered pursuant to this Paragraph 10.
11. USE OF SEGMENT C
(a) Each Party which has no ownership interest in Segment C is hereby
granted by AT&T an IRU interest in Segment C, including any additions
thereto, to the extent required for the purpose of using the Cable System
and carrying on the related activities at that location in accordance
with this Agreement. Such IRU interest will be deemed to commence from
RFS or from the date a Party first places any of its capacity into
operation, whichever occurs first, and shall continue for the duration of
this Agreement.
(b) For the IRU interest in Segment C, the Parties shall pay AT&T that
portion of the capital costs and of the operating and maintenance costs
of Segment C including additions thereto, allocable to the Cable System
on the basis of use. Where the use of Segment C or of certain equipment
situated therein, such as power supply or testing and maintenance
equipment, is shared by the Cable System and other communications systems
terminating at Segment C, the capital, operating, maintenance and
supervision costs of such shared cable station or equipment (not solely
attributable to a particular communications system or systems) will be
allocated among the systems involved in the proportions in which they use
the shared equipment or facility. For such purposes, use of a shared
cable station or of shared cable station equipment therein attributable
to a particular system shall be determined on the basis of the ratio of:
(i) the installed cost of the cable station equipment (excluding shared
equipment) associated with the particular cable system to (ii) the
installed cost of the cable station equipment (excluding shared
equipment) associated with all systems, including the Cable System, which
make use of the shared facility.
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(c) In the event that the cable station located at Segment C is not
available for the landing and termination of the Cable System for any
reason, AT&T, with the agreement of the other Parties, shall take all
necessary measures to ensure that another suitable cable station will be
available for the Cable System for the duration of this Agreement on
terms and conditions similar to those contained in this Agreement.
(d) Capital costs, as used in this Paragraph 11 with reference to the
provision of Segment C, including land, access roads, cable
rights-of-way, ducts and buildings located at Segment C, or causing
it to be provided and constructed, or to installing or causing to
be installed Segment C equipment, shall include all expenditures
incurred which shall be fair and reasonable in amount and either to
have been directly and reasonably incurred for the purpose of, or to
be properly chargeable in respect of, such provision, construction
and installation, including, but not limited to, the purchase costs
of land, building costs, amounts incurred for development,
engineering, design, materials, manufacturing, procurement and
inspection, installation, removing (with appropriate reduction for
salvage), testing associated with installation, customs duties, taxes
(except income tax imposed upon the income of a Party), financial
charges attributable to other Parties' shares of costs, supervision,
billing activities, overheads and insurance or a reasonable allowance
in lieu thereof. Losses against which insurance was not provided, or
for which an allowance in lieu thereof was not taken, shall
constitute capital costs. Operating and maintenance costs for Segment
C, as used in this Paragraph 11, shall include costs reasonably
incurred in operating and maintaining the facilities involved,
including, but not limited to, the cost of attendance, testing,
adjustments, repairs and replacements, customs duties, taxes (except
income tax imposed upon the income of a Party) paid in respect of
such facilities, billing activities, administrative costs, financial
charges attributable to other Parties' shares of costs, and costs and
expenses reasonably incurred on account of claims made by or against
other persons in respect of such facilities or any part thereof and
damages or compensation payable by AT&T on account of such claims.
Costs, expenses, damages, or compensation payable to AT&T on
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account of claims made against other persons shall be shared by the
Parties acquiring an IRU interest in Segment C in the same proportions as
they share the costs of operating and maintaining Segment C.
(e) The portion of the capital costs and operating and maintenance
costs of Segment C to be borne by the Parties acquiring an IRU interest
in Segment C pursuant to this Agreement shall be shared by them in the
proportions specified in Schedule C.
(f) Payments due under this Paragraph 11 shall be made in accordance
with the following settlement plan:
(i) AT&T shall determine the amount of the initial payment of
the net capital cost of Segment C (i.e., capital cost less
accrued depreciation determined in accordance with the
accounting practices of AT&T) which will be due from the
Parties acquiring an IRU interest in Segment C to the
parties to other communications systems terminating at
Segment C entitled to a share of such payments at the time
the IRU interests in Segment C commence pursuant to
Subparagraph 11(a).
(ii) At least sixty days before RFS, AT&T shall render bills to
the Parties acquiring an IRU interest in Segment C, on an
actual or preliminary billing basis, for their
proportionate shares of the amount referred to in
Subparagraph 11(f) (i). In the case of preliminary bills,
appropriate adjustments will be made as soon as practicable
after the actual costs are determined.
(iii) At least sixty days before RFS, AT&T shall render bills to
the Parties acquiring IRU interest in Segment C, on an
actual or preliminary billing basis, for their
proportionate shares of the capital cost of cable station
equipment (excluding equipment shared with other cable
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systems). In the case of preliminary bills, appropriate
adjustments will be made as soon as practicable after the
actual costs are determined.
(iv) The billed Parties shall pay such bills to AT&T
on or before the date on which the IRU interest in
Segment C granted to the Parties pursuant to
Subparagraph 11(a) becomes effective. As soon as
practicable after receiving such payment, AT&T shall
distribute said payments among the parties to the other
communications systems terminating at Segment C in the
proportions to which they are entitled.
(v) AT&T shall bill each of the Parties for, and each Party
shall pay its proportionate share of, (1) the portion of
any capital costs of Segment C allocable to this Agreement
incurred after the effective date of the grant to the
Parties of an IRU interest in Segment C, and (2) the
portion of the operating and maintenance costs of Segment C
allocable to this Agreement, commencing at the time such
IRU grant becomes effective.
(g) In the event of a sale or other disposition of Segment C or part
thereof prior to the termination of this Agreement, AT&T shall share with
the other Parties any net proceeds, or costs, of such sale or disposition
received, or expended, by AT&T, to the extent allocable to the Cable
System, in the proportions in which the Parties' interests in the subject
of the sale or disposition are determined at the time of the sale or
disposition.
(h) Subject to Subparagraph 11(g), nothing contained in this Agreement
shall be deemed to vest in any Party other than AT&T, any salvage rights
in Segment C or any cable station substituted therefor.
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(i) AT&T shall keep and maintain such books, records, vouchers and
accounts of all costs that are incurred in the design, engineering,
provision, construction and installation, as appropriate, of Segment C
for a period of three (3) years from RFS or the date the work is
completed, whichever is later.
(j) With respect to operating and maintenance costs of Segment C,
such, books, records, vouchers and accounts of costs, as are relevant,
shall be kept and maintained by AT&T for a period of three (3) years from
the date on which the corresponding bills to the Parties are rendered.
(k) In keeping and maintaining books, records, vouchers, and accounts
of costs pursuant to Subparagraphs 11(i) and 11(j), AT&T shall afford
the other Parties the right to review or audit said books, records,
vouchers, and accounts of costs. In affording the right to review or
audit, AT&T shall be permitted to recover, from the Party or Parties
requesting the review or audit, the entire cost reasonably incurred in
complying with the review or audit. Such right of review and audit
pursuant to this Subparagraph 11(k) shall only be exercisable through the
F&A Subcommittee in accordance with the F&A Subcommittee's audit
procedures.
(l) After RFS the Management Committee shall arrange for a final audit
to be conducted by the F&A Subcommittee. The costs of such audit shall
be borne by the Parties in the proportions specified in Schedule C.
(m) Amounts billed pursuant to this Paragraph 11 and not paid when due
shall accrue extended payment charges from and including the day
following the day on which payment was due until paid, said charges to be
computed and applied in accordance with Subparagraphs 9(f) and 9(g).
(n) The billing procedures specified in Subparagraphs 9(h) and 9(i)
shall be applicable to all bills rendered pursuant to this Paragraph 11.
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(o) Notwithstanding Subparagraph 11(a), a Party thereby granted an IRU
interest in Segment C may, prior to the commencement of that IRU
interest, elect to renounce its IRU interest entitlement and to instead
have use of Segment C for the duration of this Agreement on such terms
and conditions as are agreed upon between that Party and AT&T and in such
event the provisions of Subparagraphs 11(a)-(n) shall apply in relation
to such use except insofar as they may be modified by such agreements.
This Subparagraph 11(o) shall not operate to confer on a Party any
financial or other benefit of substance to which the Party would not
otherwise be entitled under this Agreement.
(p) Upon request, AT&T shall provide to the other United States
Carrier Parties hereto suitable space and connection with the Cable
System at Segment C for operating and technical control purposes relating
to capacity assigned, or to be assigned, to them in the Cable System.
AT&T may provide such space in a building separate from its cable station
but adjacent to its cable station and located on the land which forms a
part of Segment C. Such United States Carrier Parties shall have the
right to provide their own personnel and equipment in such space. Such
United States Carrier Parties shall reimburse AT&T for the reasonable
costs incurred by AT&T in providing such space and connection pursuant to
this Subparagraph 11(p), including, but not limited to, the costs of any
additional building that may reasonably be required.
12. OBLIGATION TO CONNECT THE CABLE SYSTEM WITH INLAND SYSTEMS
Each of the Parties, at its own expense, on or before the RFS date, shall
do, or cause to be done, all such acts and things as may be necessary
within its operating territory to provide and maintain throughout the
period of this Agreement suitable connection of capacity in, or of
capacity connected with capacity in, the Cable System with appropriate
inland communications facilities in its operating territory.
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13. OBLIGATION TO PROVIDE TRANSITING FACILITIES TO EXTEND CABLE SYSTEM
CAPACITY
Each of the Parties shall use its best endeavors to furnish and
maintain, or cause to be furnished and maintained, in efficient working
order, for Carrier Parties not from that Party's country, and for
telecommunications entities not from that Party's country that are not
Parties but which are permitted to use capacity in the Cable System, for
the duration of this Agreement, such transmission facilities in its
respective country as may be suitable and reasonably required for
extending capacity assigned to them for the purpose of handling
communications transiting its respective country subject to the following
conditions:
(i) the use of the facilities shall not cause interference to
other users of the facilities; and
(ii) the facilities shall be furnished and maintained on terms
and conditions which are no less favourable than those
granted to other telecommunications entities for facilities
of similar type, routing and quantity transiting the
location involved. Such terms and conditions shall not be
inconsistent with applicable governmental regulations in
the location in which the facilities are located.
No Party shall be required under this Agreement to furnish such
facilities in its country to other Carrier Parties or telecommunications
entities not Parties from its respective country. The provision of
facilities pursuant to this Paragraph 13 shall be the subject of separate
agreements acceptable to the affected parties.
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14. ALLOCATION AND USE OF CAPACITY
ASSIGNMENT OF NOTIONAL CAPACITY
(a) The Notional Capacity in Segment B shall be assigned to the
Parties in accordance with Schedule D. Such assignments represent the
intended capacity requirements of the Parties through at least the year
2005.
(b) Capacity jointly assigned to two Parties shall be considered as
consisting of two half interests in a MAUO, with each half interest
assigned to one of the two Parties involved. Such capacity is assigned
to the Parties for the provision of telecommunications services between
such Parties.
(c) Capacity wholly assigned to one Party shall be considered as
consisting of two half interests in a MAUO, with both half interests
assigned to one Party. Such capacity is assigned to the Party for
provision of telecommunications services between such Party and other
identified telecommunications entity(ies) not Party(ies) or between two
identified telecommunications entities not Parties.
ARRANGEMENT OF NOTIONAL CAPACITY
(d) Capacity of 30 or more MAUOs jointly assigned between any two
Parties or wholly assigned to a Party shall, if required by the Party or
Parties concerned, be Initially arranged so as to ensure complete
fascicles of 30, 90, 630 or 1890 MAUOs in the smallest number of such
fascicles possible. In addition, one or more Parties assigned in the
aggregate 30, or more than 30, MAUOs in the Cable System may, by
agreement with the Parties to whom such capacity is jointly assigned,
combine their MAUOs to avail themselves of the right afforded in this
Subparagraph 14(d) with respect to the initial arrangement of capacity.
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(e) Capacity of 90 MAUOs, or multiples of 90 MAUOs, jointly assigned
between any two Parties or wholly assigned to a Party, or in combination
with one or more Parties as provided in Subparagraph 14(d), may be
operated, by agreement with such Parties, at a rate of 6,312,000 bits per
second with up to four component modules operating at 1,544,000 bits per
second each containing up to twenty-four 64,000 usable bits per second
channels. The resulting higher number of 64,000 usable bits per second
channels shall not constitute an increase in the Cable System capacity
for purposes of ownership and cost allocation.
(f) When on a partially used channel operating at 6,312,000 bits per
second, the placement of 1,544,000 bits per second component modules
conflicts with the placement of 2,048,000 bits per second component
modules, the latter shall take precedence.
(g) Subsequent to the initial arrangement of capacity as provided in
Subparagraph 14(d), capacity in the aggregate of 30, or more than 30,
MAUOs assigned to one or more Parties may be rearranged, if so requested
by such Parties, so far as reasonably possible, to ensure complete
fascicles of 30, 90, 630 or 1890 MAUOs in the smallest number of such
fascicles possible, provided:
(i) the agreement of the relevant cable station owner is
obtained, which agreement shall not be unreasonably
withheld;
(ii) the agreement of other Parties with assigned capacity that
would be affected by the proposed rearrangement is
obtained, which agreement shall not be unreasonably
withheld; and
(iii) all costs arising from the proposed rearrangement are
first paid by the Parties requesting it.
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DISPOSITION OF NOTIONAL CAPACITY
(h) Prior to RFS, a Party to whom capacity is wholly assigned, in
accordance with Subparagraph 14(c), may make half interests in such
capacity available to Parties or to additional Parties in such quantity
at least equal to a half interest in one MAUO on a transfer of ownership
basis provided that the additional Party(ies) is (are) the identified
telecommunications entity(ies) pursuant to Subparagraph 14(c). At any
time, a Party may make half interests in such wholly assigned capacity
available to the identified telecommunications entities pursuant to
Subparagraph 14(c) in such quantity at least equal to a half interest in
one MAUO on such basis, other than by transfer of ownership interest, as
they may agree.
(i) A Party may make interests in any of the capacity jointly assigned
to it pursuant to Subparagraph 14(b) available to other Parties or
telecommunications entities not Parties (hereinafter referred to as
"non-Parties") that are located within the same country as such Party, in
such quantity at least equal to a half interest in one MAUO and on such
basis as that Party and the other Party or non-Party concerned may agree
other than, in the case of any non-Party, by transfer of ownership
interest.
(j) A Party whose initial joint assignment of capacity with another
Party does not exceed 30 MAUOs may make its interests in any of the
capacity jointly assigned with the other Party available to non-Parties
for service with the other Party, in such quantity at least equal to a
half interest in one MAUO and on such basis, other than by transfer of
ownership interest, as that Party and the non-Parties concerned may
agree.
(k) Except as provided in Subparagraphs 14(h), 14(i) and 14(j), no
Party may make interests in any of the capacity assigned to it available
on any basis to other Parties or to non-Parties until the Notional
Capacity has been expanded to the Design Capacity, except with the
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agreement of all the Parties. After the Notional Capacity has been
expanded to the Design Capacity, any Party may make interests in any of
the capacity assigned to it available to other Parties or to non-Parties,
in such quantity at least equal to a half interest in one MAUO and on
such basis as that Party and the other Party or non-Party concerned may
agree other than, in the case of any non-Party, by transfer of ownership
interest and, in the case of transfer of ownership interest to another
Party, subject to the approval of the Management Committee.
(l) Where capacity is jointly assigned in accordance with Subparagraph
14(b), neither Party may make interests in such capacity available to
other Parties or to non-Parties without the consent of the other Party to
whom the capacity is jointly assigned, which consent will not be
unreasonably withheld.
(m) In the event of any transfers of ownership between Parties
pursuant to this Paragraph 14, payments will be made as may be agreed
between the affected Parties and Schedules B, C and D shall be modified
as appropriate.
OPTIMISATION OF NOTIONAL CAPACITY ASSIGNMENTS
(n) The communications capability of any capacity assigned in
Schedule D may be optimized by the Party or Parties to whom such capacity
is assigned by the use of equipment which will more efficiently use such
capacity; provided that the use of such equipment does not cause an
interruption of, or interference to, the use of any other capacity in the
Cable System or prevent the use of similar equipment by other Parties. A
Party to whom capacity is assigned shall permit the use of such equipment
by a telecommunications entity to which such Party has made available the
use of any such capacity, provided that such entity agrees that its use
of the equipment will satisfy the conditions set forth in this
Subparagraph 14(n). Such equipment, if used, shall not constitute a part
of the Cable System.
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ALLOCATION AND UTILISATION OF COMMON RESERVE CAPACITY
(o) The Common Reserve Capacity shall be held by the Parties in common
and undivided shares in the same proportion as their percentage interests
are set forth in Schedule C.
(p) A proportionate share of the Common Reserve Capacity up to the
equivalent capacity limit represented by its respective percentage
interests pursuant to Subparagraph 14(o) may be temporarily allocated to
a Party for utilization without charge for purposes of restoration of
telecommunications services provided by that Party. The utilization of
Common Reserve Capacity for purposes of restoration, other than as
specifically provided for in this Subparagraph 14(p), shall require the
concurrence specified in Subparagraph 14(q). This Subparagraph 14(p)
shall not be construed as assuring the availability of Common Reserve
Capacity for restoration nor shall it be construed as requiring the
provision of any additional facilities. Any additional costs shall be
borne by Party(ies) using the Common Reserve Capacity for restoration
pursuant to this Subparagraph 14(p). This Subparagraph 14(p) shall also
not be construed as precluding the Parties from agreeing to the
establishment of broad-based restoration arrangements using Common
Reserve Capacity.
(q) The Management Committee may authorise the temporary use of Common
Reserve Capacity for temporary or occasional purposes, including
restoration, if the concurrence of at least 75% of the total voting
interests of the Parties is obtained which must include the concurrence
of the owners of Segments A and C, in recognition of the potential
technical, financial and operational impact on cable station operations.
With such concurrence, the Management Committee may establish procedures
and the terms and conditions applicable, including payment of any
reasonable additional costs incurred by the owners of Segments A and C in
connection with such use of Common Reserve Capacity. Any procedures
determined by the Management Committee pursuant to this Subparagraph
14(q) may also include arrangements for the administration of the
utilization of the Common Reserve Capacity.
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(r) The Management Committee shall accord priority to increases in
Notional Capacity pursuant to Paragraph 15 over any utilisation of Common
Reserve Capacity pursuant to Subparagraphs 14(p) and 14(q).
15. EXPANSION OF NOTIONAL CAPACITY
The Management Committee may increase the Notional Capacity of the Cable
System at the request of any Party or for the admission of additional
Parties pursuant to Paragraph 24. In the event of an increase in the
Notional Capacity, financial adjustments will be made between and among
the Parties as necessary to adjust their contributions to the costs of
the Cable System based on an expanded Notional Capacity and
Schedules B, C and D shall be appropriately modified. The terms and
conditions, including pricing arrangements, for increasing the Notional
Capacity shall be determined by the Management Committee.
16. DECREASE OR INCREASE OF DESIGN CAPACITY
(a) If, subsequent to RFS, the Design Capacity of Segment B is
increased or decreased pursuant to agreement of the Parties to this
Agreement, or otherwise, the additional or reduced Design Capacity will
be added to or subtracted from the Common Reserve Capacity. The
Management Committee shall have authority to increase the Design Capacity
of the Cable System with the concurrence of at least 75% of the total
voting interests of the Parties which must include the concurrence of the
owners of Segments A and C, in recognition of the potential technical,
financial and operational impact on cable station operations.
(b) In the event that the capacity which Segment B is capable of
providing upon RFS, or such other date as the Parties may agree, is less
than the Notional Capacity, or in the event that the capacity which
Segment B is capable of providing during the term of this Agreement is
reduced below the Notional Capacity as a result of physical
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deterioration, or for other reasons beyond the control of the Parties,
the capacity assigned to the Parties in accordance with Schedule D shall
be reduced in the proportions in which the capacity provided was assigned
to the Parties immediately preceding such decrease in capacity. The
assignment of fractional interests in capacity less than one MAUO
resulting from such reductions shall be determined by agreement of the
Parties. In the event of such a decrease of Design Capacity, payments
will be made between and among the Parties as necessary to adjust the
contribution to the capital costs of the Cable System theretofore made by
each Party to reflect any Party's revised assignment of capacity. Such
payments will be based on terms and conditions to be determined by the
Management Committee. In addition, appropriate adjustments will be made
in each Party's share of the capital costs and of the operating and
maintenance costs relating to Segment B thereafter incurred to reflect
that Party's revised assignment of capacity in the Cable System. In each
such case, Schedules B, C and D shall be appropriately modified.
17. DUTIES AND RIGHTS AS TO OPERATION AND MAINTENANCE OF SEGMENTS
(a) TNI shall be responsible for the operation and maintenance of
Segment A and that portion of Segment B between the System Interface at
the cable station in New Zealand and its respective Cable Landing Point.
TNI shall use all reasonable efforts to maintain Segment A and said
portion of Segment B or cause Segment A and said portion of Segment B to
be maintained, economically and in efficient working order.
(b) AT&T shall be responsible for the operation and maintenance of
Segment C and that portion of Segment B between the System Interface at
the cable station in Hawaii and its respective Cable Landing Point. AT&T
shall use all reasonable efforts to maintain Segment C and said portion
of Segment B or cause Segment C and said portion of Segment B to be
maintained, economically and in efficient working order.
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(c) TNI and AT&T shall be jointly responsible for the operation and
maintenance of Segment B except those portions of Segment B between the
appropriate System Interfaces at the cable stations in New Zealand and
Hawaii and their respective Cable Landing Points. Such joint
responsibility shall be apportioned between TNI and AT&T as those Parties
may mutually agree. TNI and AT&T, for the purposes of Paragraphs 17 and
18 called the "Maintenance Authorities", shall perform their
responsibilities in a manner consistent with applicable international
cable maintenance agreements and shall use all reasonable efforts to
maintain or cause to be maintained economically said portion of Segment B
of the Cable System in efficient working order and with an objective of
achieving effective and timely repairs when necessary. The Maintenance
Authorities shall have the right to deactivate Segment B, or any part
thereof, in order to perform their duties. Prior to such deactivation,
reasonable notice shall be given to, and coordination shall be made with,
the other Parties. To the extent possible, sixty days prior to initiating
action, the Maintenance Authority involved shall advise the other Parties
in writing of the timing, scope, and costs of significant planned
maintenance operations or arrangements; of significant changes to
existing operation and maintenance methods; and of contractual
arrangements for cable ships or other maintenance facilities or devices
that will have a significant impact on operation or maintenance costs.
Should one or more Parties representing at least five percent (5%) of the
total voting interests specified in Schedule B wish to review such a
contractual arrangement, operation or change prior to its occurrence,
such Party or Parties shall notify the appropriate Maintenance Authority
and the O&M Subcommittee Chairman in writing within thirty (30) days of
such advice. Upon such notification, the O&M Subcommittee shall initiate
action to convene an ad hoc meeting for such review.
(d) The responsibilities for the operation and maintenance of
Segment B shall be reviewed, and recommendations shall be made as
appropriate by the O&M Subcommittee at its discretion.
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(e) Each Party concerned shall give necessary information, relating to
the operation and maintenance of the equipment which that Party may have
designed or procured and which is used in the Cable System, to the
Maintenance Authority by whom that equipment, by reason of the provisions
of this Paragraph 17, is to be operated and maintained. Each Maintenance
Authority with responsibility for the maintenance of any segment of the
Cable System, in accordance with Subparagraphs 17(a), (b), (c) and (d),
shall have prompt access, necessary to the performance of its duties, to
all system maintenance information appropriate to those parts of the
Cable System not covered by its authority.
(f) Each Maintenance Authority shall be authorized to pursue claims in
its own name, on behalf of the Parties, in the event of any damage or
loss to the Cable System and may file appropriate lawsuits or other
proceedings on behalf of the Parties. Subject to obtaining the prior
concurrence of the Management Committee, a Maintenance Authority may
settle or compromise any claims and execute releases and settlement
agreements on behalf of the Parties as necessary to effect a settlement
or compromise.
(g) None of the Parties shall be liable to any other Party for any
loss or damage sustained by reason of any failure in, or breakdown of,
the facilities constituting the Cable System or any interruption of
service, whatsoever shall be the cause of such failure, breakdown, or
interruption, and however long it shall last, but, in the event of a
failure or breakdown of any such facilities, if the Maintenance Authority
responsible for maintaining and operating the facilities involved as
specified in Subparagraphs 17(a), (b), (c) and (d) fails to restore those
facilities to efficient working order and operation within a reasonable
time after having been called upon to do so by any other Party to whom
capacity is assigned by this Agreement, the Management Committee may, to
the extent that it is practical to do so, place, or cause to be placed,
such facilities in efficient working order and operation and charge the
Parties their proportionate shares of the costs reasonably incurred in
doing so.
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(h) Each Party, at its own expense, shall have the right to inspect
from time to time the operation and maintenance of any portion of the
Cable System and to obtain copies of the maintenance records. For this
purpose, each Maintenance Authority responsible for maintaining any
segment of the Cable System, as specified in Subparagraphs 17(a), (b),
(c) and (d), shall retain significant records, including recorder charts,
for a period of not less than five (5) years from the date of the record.
If these records are destroyed at the end of this period, a summary of
important items should be retained for the life of the Cable System. Such
right of inspection pursuant to this Subparagraph 17(h) shall be subject
to reasonable conditions of confidentiality.
18. OPERATING AND MAINTENANCE COSTS OF SEGMENT B - ALLOCATION AND BILLING
(a) The costs of operating and maintaining Segment B shall be shared
by the Parties in the proportions specified in Schedule C.
(b) The operating and maintenance costs to which Subparagraph 18(a)
refers are the costs reasonably incurred in operating and maintaining the
facilities involved, including, but not limited to, the cost of
attendance, testing, adjustments, storage of plant and equipment, repairs
(including repairs at sea) and replacements, cable ships (including an
appropriate share of standby costs) and maintenance and repair devices
that are or may hereafter become available (including an appropriate
share of standby costs), cable depots, reburial and the replacement of
plant, tools and test equipment, customs duties, taxes (except income tax
imposed upon the income of a Party) paid in respect of such facilities,
billing activities, financial charges attributable to other Parties'
shares of costs incurred by a Maintenance Authority, supervision,
overheads and costs and expenses reasonably incurred on account of claims
made by or against other persons in respect of such facilities or any
part thereof and damages or compensation payable by the Parties concerned
on account of such claims. Costs, expenses, damages, or compensation
payable to the Parties on account of claims
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made against other persons, shall be shared by the Parties in the
proportions specified in Schedule C.
(c) Subject to Paragraph 17, the Maintenance Authorities may authorise
the purchase and use of special tools and test equipment for use on board
cable ships which are required for the maintenance and repair of the Cable
System and also any spare terminal equipment considered necessary to
ensure that the facilities constituting the Cable System are returned to
efficient working order and operation as soon as possible following the
failure, breakdown or interruption of such facilities. The related costs
may include, but are not limited to, the costs, or an appropriate share
thereof, for the purchase, storage and maintenance of this equipment.
(d) Each Maintenance Authority shall render to the other Parties bills
for the expenditures and receipts herein referred to not more frequently
than monthly in accordance with procedures to be established by the
Management Committee. The Maintenance Authorities shall also from time to
time furnish such further details of such bills as the other Parties may
reasonably require. On the basis of such bills, each Party shall pay, in
the currency in which the bill is rendered, such amounts as may be owed
by the end of the calendar month following the calendar month in which
the bills are rendered.
(e) Amounts billed and not paid when due shall accrue extended payment
charges from and including the day following the day on which payment was
due until paid, said charges to be computed and applied in accordance
with Paragraph 9.
(f) The billing procedures specified in Subparagraphs 9(h) and 9(i)
shall be applicable to all bills rendered pursuant to this Paragraph 18.
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19. SHARING OF CONTRACTUAL OBLIGATIONS AND LIABILITY
(a) Each Party shall indemnify and shall keep indemnified and hold
harmless the other Parties and each of their employees, servants, and
agents to the extent hereinafter agreed, from and against all claims,
demands, actions, suits, proceedings, writs, judgements, orders and
decrees brought, made or rendered against them or any of them and all
damages, losses and expenses suffered or incurred by them or any of them
howsoever arising out of or related to any aspect of providing,
constructing, laying or installing the Cable System or of its operation
and maintenance. This indemnity shall not, however, relieve the Initial
Parties of their obligations undertaken pursuant to Paragraphs 3 and 4
nor shall any Party be indemnified for intentional misconduct or reckless
acts or omissions.
(b) If a Party assumes obligations, commits moneys in the name or on
behalf of the other Parties pursuant to this Agreement or is obliged by
final judgement of a competent tribunal or under a settlement approved by
the Management Committee to discharge any claim in damages or other
liability, including costs or expenses associated therewith, to any
person or entity which is not a Party to this Agreement and resulting
from any aspect of providing, constructing, laying or installing the
Cable System or of its operation and maintenance, that Party shall be
entitled to reimbursement from the other Parties in the proportions set
forth in Schedule C (unless any such claim for reimbursement arises from
the intentional misconduct or reckless act or omission of the Party
seeking reimbursement).
(c) If a claim, demand, action, suit, proceeding, writ, judgement,
order or decree as referred to in Subparagraph 19(a) is brought, made or
rendered against a Party or any Party suffers or incurs any damages,
losses or expenses in respect thereof, that Party shall, as a condition
of reimbursement under Subparagraph 19(b), immediately notify all the
other Parties and give them the opportunity to advise and recommend
through the Management Committee on the means to defend or to settle
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same and, to the extent permitted by the relevant jurisdiction, to be
joined in any proceedings relating thereto.
(d) Except as provided in Subparagraph 17(f), as a precondition to the
initiation of any legal proceedings by any Party or Parties on behalf of
and for the benefit of any other Party or Parties, the Party or Parties
planning to initiate such proceedings shall give notice, appropriate
under the circumstances, to all other Parties.
(e) The costs and benefits of any proceedings referred to in
Subparagraph 19(d) shall be shared between the Parties in the manner
described in Subparagraph 19(b).
20. KEEPING AND INSPECTION OF BOOKS FOR SEGMENT B
(a) For those portions of Segment B, if any, specified in the Supply
Contract(s) as cost incurred items, the Procurement Group shall ensure
that the Supply Contract(s) require(s) the supplier(s) to keep and
maintain such books, records, vouchers and accounts of all such costs
with respect to the engineering, provision and installation of those
items for a period of three (3) years from the Date of Provisional
Acceptance.
(b) For those portions of Segment B, if any, specified in the Supply
Contract(s) as fixed cost items subject to raw material adjustment, the
Procurement Group shall ensure that the Supply Contract(s) require(s) the
supplier(s) to keep and maintain such books, records, vouchers, and
accounts of all costs with respect to any raw material adjustments for a
period of three (3) years from the Date of Provisional Acceptance.
(c) For those portions of Segment B specified in the Supply
Contract(s) as fixed cost items, the Procurement Group shall ensure that
the Supply Contract(s) require(s) the supplier(s) to keep and maintain
records with respect to its (their) billing of those items for a period
of three (3) years from the Date of Provisional Acceptance.
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(d) The Procurement Group shall ensure that the Supply Contract(s)
require(s) the supplier(s) to obtain from its (their) contractors and
subcontractors such supporting records, for other than the cost of fixed
cost items, as may be reasonably required by this Paragraph 20 and to
maintain such records for a period of three (3) years from the Date of
Provisional Acceptance.
(e) The Procurement Group shall ensure that the Supply Contract(s)
shall afford the Parties the right to review the books, records,
vouchers, and accounts required to be kept, maintained, and obtained
pursuant to Subparagraphs 20(a), 20(b), 20(c) and 20(d). Such right shall
only be exercisable through the F&A Subcommittee in accordance with the
F&A Subcommittee's audit procedures.
(f) With respect to additions to Segment B, comparable records to
those specified in Subparagraphs 20(a), 20(b), 20(c) and 20(d), as
appropriate, shall be maintained by the Party providing such addition for
a period of three (3) years from the installation date of such addition.
(g) OTC, AT&T and TNI shall each keep and maintain such books,
records, vouchers, and accounts of all costs that are incurred in the
engineering, provision, and installation of Segment B and not included in
the Supply Contract(s), as defined in Paragraph 8, which they incur
directly, for a period of three (3) years from RFS or the date the work
is completed, whichever is later.
(h) With respect to operating and maintenance costs of Segment B, such
books, records, vouchers, and accounts of costs, as are relevant, shall
be kept and maintained by TNI and AT&T for a period of three (3) years
from the date on which the corresponding bills to the Parties are
rendered.
(i) Any Party keeping and maintaining books, records, vouchers, and
accounts of costs pursuant to Subparagraphs 20(f), 20(g) and 20(h) shall
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afford the Parties the right to review or audit said books, records,
vouchers, and accounts of costs. In affording the right to review or
audit, any such Party shall be permitted to recover, from the Party or
Parties requesting the review or audit, the entire cost reasonably
incurred in complying with the review or audit. Such right of review and
audit pursuant to this Subparagraph 20(i) shall only be exercisable
through the F&A Subcommittee in accordance with the F&A Subcommittee's
audit procedures.
(j) After RFS the Management Committee shall arrange for a final audit
to be conducted by the F&A Subcommittee. The costs of such audit shall be
borne by the Parties in proportion to their ownership interests shown in
Schedule C.
21. GOVERNMENTAL APPROVALS
The performance of this Agreement by the Parties is contingent upon the
obtaining and continuance of such governmental approvals, consents,
authorisations, licenses and permits as may be required or be deemed
necessary by the Parties and as may be satisfactory to them and the
Parties shall use all reasonable efforts to obtain and have continued in
effect such approvals, consents, authorisations, licenses and permits.
22. ASSIGNMENT OF RIGHTS AND OBLIGATIONS
Except as otherwise provided in Paragraphs 14, 15, 16, 23 and 24, during
the continuance of this Agreement no Party shall, without the consent of
the other Parties, sell, assign, transfer, or dispose of its rights or
obligations under this Agreement or of any interest in the Cable System
except to a successor or subsidiary of such Party or a corporation
controlling, or under the same control as, such Party, in which case
written notice shall be given in a timely manner by the Party making said
sale, assignment, transfer, or disposition, and provided that in
<PAGE>
- 41 -
the case of any assignments of capacity in the Cable System to a
subsidiary pursuant to this Paragraph 22, the consent of the other Party
or Parties to whom the capacity is jointly assigned shall be obtained
pursuant to Subparagraph 14(l), which consent shall not be unreasonably
withheld.
23. DEFAULT
(a) If any Party fails to make any payment required by this Agreement
on the date when it is due and such default continues for a period of at
least two months after the date when payment is due, the billing Party
may notify the billed Party in writing of its intent to notify the
Management Committee of the status of the matter and to request the
reclamation of capacity, as provided for in this Paragraph 23, if full
payment is not received within four months of such notification to the
billed Party. If full payment is not received within such specified
period, the billing Party may notify the Management Committee of the
status of the matter and request that the Management Committee reclaim
the capacity in the Cable System assigned to the billed Party.
(b) The Management Committee shall have the option of reclaiming the
capacity assigned to a Party that is in default of this Agreement
pursuant to Subparagraph 23(a), if such default has existed for a period
of six (6) months. The Management Committee shall consider any
extenuating circumstances not within the specific control of the
defaulting Party and the interests of any Party or Parties that have
jointly assigned capacity with the defaulting Party in determining
whether or not to reclaim any or all of the capacity assigned to such
defaulting Party. The Management Committee shall determine arrangements
for disposition of any reclaimed capacity taking into account the
interests of the Party or Parties holding jointly assigned capacity with
the defaulting Party. Such of the remaining Parties as shall agree to
take the reclaimed capacity of a defaulting Party which is to be
reassigned shall make appropriate payments which shall then be
<PAGE>
- 42 -
distributed to those remaining Parties entitled to the proceeds. The
remaining Parties shall not be obligated to make any payments or credits
for capital costs to the defaulting Party for the reclaimed capacity. All
rights of a defaulting Party under this Agreement shall terminate as of
the time the Management Committee reclaims all of the capacity previously
assigned to the defaulting Party; and concurrent with such reclamation of
capacity, the defaulting Party shall cease to be a Party to this
Agreement. This Agreement shall be appropriately amended to reflect the
default of a Party and the reallocation of interests pursuant to
arrangements determined by the Management Committee.
24. ADMISSION OF ADDITIONAL PARTIES
(a) The Management Committee shall be empowered on one or more
occasions prior to RFS to admit telecommunications entities not signatory
hereto as additional Parties. In being so admitted, an additional Party
shall acquire the same rights and obligations as the other Parties
subject to the following:
(i) the admission of additional Parties shall be on terms and
conditions to be determined by the Management Committee;
(ii) the additional Party accepts responsibility to pay its
proportionate share of any costs incurred under this
Agreement prior to its becoming a Party; and
(iii) the additional Party accepts and abides by the terms and
conditions of this Agreement and all decisions properly
taken under this Agreement prior to its becoming a Party.
(b) The Management Committee with the concurrence of at least 75% of
the total voting interests of the Parties may agree to admit
telecommunications entities not signatory hereto as additional Parties
after RFS subject to terms and conditions to be decided.
<PAGE>
- 43 -
(c) Additional Parties shall be admitted by Supplementary Agreements
to this Agreement. The Initial Parties are hereby authorised to act as
representatives and agents of all Parties to execute such Supplementary
Agreements for the admission of additional Parties. Schedules A, B, C
and D shall be appropriately modified.
25. RATIFICATION OF PRIOR DECISIONS AND ACTIONS
Each Party to this Agreement does hereby, and each additional Party
admitted pursuant to Paragraph 24 shall thereby unconditionally ratify
and accept as binding on it, its successors, permitted assigns or
trustees all decisions and actions theretofore taken directly or
indirectly by any other Party or Parties or any committee or subcommittee
or group pursuant to this Agreement or the Initial Agreement.
26. RESOLUTION OF DISPUTES
(a) If a dispute should arise under this Agreement between or among
the Parties they shall make every reasonable effort to resolve such
dispute. However, in the event that they are unable to resolve such
dispute, the matter shall be referred to the Management Committee which
shall either resolve the matter or determine the method by which the
matter should be resolved. This procedure shall be the sole and exclusive
remedy for any dispute which may arise under this Agreement between or
among the Parties.
(b) The performance of this Agreement by the Parties shall continue
during the resolution of any dispute.
<PAGE>
- 44 -
27. RELATIONSHIP OF PARTIES TO EACH OTHER
The relationship between or among the Parties shall not be that of
partners and nothing herein contained shall be deemed to constitute a
partnership between or among them, and the common enterprise among the
Parties shall be limited to the express provisions of this Agreement.
28. PRIVILEGES FOR DOCUMENTS OR COMMUNICATIONS
Each Party specifically reserves, and is granted by each of the other
Parties, in any action, arbitration or other proceeding between or among
the Parties or any of them in a country other than that Party's own
country, the right of privilege, in accordance with the laws of that
Party's own country, with respect to any documents or communications
which are material and pertinent to the subject matter of the action,
arbitration or proceeding in which privilege could be claimed or asserted
by that Party in accordance with those laws, and such privilege, whatever
may be its nature and whenever it be claimed or asserted, shall be
allowed to that Party as it would be allowed if the action, arbitration
or other proceeding had been brought in a court of, or before an
arbitrator in, the Party's own country.
29. PERIOD OF AGREEMENT AND REALISATION OF ASSETS
(a) This Agreement shall become effective on the day and year first
above written and shall continue in operation for at least an initial
period of twenty five (25) years following RFS and shall be terminable
thereafter by agreement of the Parties. However any Party may terminate
its participation in this Agreement at the end of the initial period or
any time thereafter by giving not less than one (1) year's prior notice
thereof, in writing, to the other Parties. Upon the effective date of
termination of participation of a Party, Schedules A, B, C and D shall be
appropriately modified. The remaining Parties shall assume the
<PAGE>
- 45 -
capital, operating, and maintenance interests of the Party terminating
its participation in proportion to their interests assigned immediately
preceding such effective date of termination, except for the continuing
rights and obligations of the terminating Party as specified in
Subparagraphs 29(c) and (d). No credit for capital costs will be made to
a Party that terminates its participation in accordance with this
Subparagraph 29(a).
(b) The interests of a Party or Parties in Segment B of the Cable
System which come to an end by reason of the termination of its or their
participation in this Agreement or the termination of this Agreement
shall be deemed to continue for as long as is necessary for effecting the
purposes of Subparagraphs 29(c) and (d) and in the case of interests
which come to an end by reason of a Party or Parties terminating its or
their participation in this Agreement, Segment B shall accordingly
thereafter be held as respects such interests as at the first time any
Party terminates its participation in this Agreement, upon the
appropriate trusts by the Parties who are the owners thereof. Should the
doctrine of trusts not be recognised under the laws of the country,
territory or place where the property to which such interests relate is
located, then the Party or Parties who are the owners thereof shall
nevertheless be expressly bound to comply with the provisions of
Subparagraphs 29(c) and (d).
(c) Upon termination of this Agreement the Parties shall use their
best efforts to liquidate Segment B of the Cable System within a
reasonable time by sale or other disposition, but no sale or disposition
shall be effected except by agreement between or among the Parties who
have interests in the subject thereof at the time this Agreement is
terminated. In the event agreement cannot be reached, the decision will
be carried on the basis of a simple majority of the total voting
interests as specified in Schedule B. The costs or net proceeds of every
sale or other disposition shall be divided between or among the Parties
who have or were deemed to have interests in the subject thereof in the
proportions in which such Parties' ownership interests are
<PAGE>
- 46 -
specified in Schedule C immediately preceding the first time any Party
terminates its participation in this Agreement or this Agreement is
terminated pursuant to Subparagraph 29(a), whichever occurs first. The
Parties shall execute such documents and take such action as may be
necessary to effect any sale or other disposition made pursuant to this
Paragraph 29.
(d) A Party's termination of its participation in this Agreement or
the termination of this Agreement pursuant to Subparagraph 29(a) shall
not relieve that Party or Parties from any liabilities, costs, damages or
obligations which may arise in connection with claims made by third
parties with respect to the Cable System, the facilities that comprise
the Cable System or any part or portion thereof, or which may arise in
relation to the Cable System due to any law, order or regulation made by
any government or supranational legal authority pursuant to any
international convention, treaty or agreement. Any such liabilities,
costs, damages or obligations incurred or benefits accruing in satisfying
such obligations shall be divided among the Parties in the proportions in
which such Parties' ownership interests are specified in Schedule C
immediately preceding the first time any Party terminates its
participation in this Agreement or this Agreement is terminated pursuant
to Subparagraph 29(a), whichever occurs first.
30. BILLS, PAYMENTS AND NOTICES
(a) OTC shall render bills due under this Agreement in Australian
dollars, and such bills shall be payable in Australian dollars to the
designated office of OTC. AT&T shall render bills due under this
Agreement in U.S. dollars, and such bills shall be payable in U.S.
dollars to the designated office of AT&T. TNI shall render bills due
under this Agreement in New Zealand dollars, and such bills shall be
payable in New Zealand dollars to the designated office of TNI. OTC, AT&T
and TNI may also render bills in the currencies specified in the Supply
Contract(s) for payment to the supplier(s), and such bills shall be
payable in the currency(ies) in which they are rendered.
<PAGE>
- 47 -
(b) Unless otherwise designated by the Party concerned, bills
rendered, payments made and notices issued under this Agreement shall be
addressed to the respective Parties by registered airmail, dispatch of
which shall be advised by a telex or facsimile giving a summary of the
payments due, expenses concerned or notices issued.
(c) All amounts billed or payable under this Agreement shall be paid
in full without deduction of any taxes, duties or other withholdings.
31. WAIVER
The waiver by any Party of a breach of, or a default under, any of the
provisions of this Agreement, or the failure of any Party, on one or more
occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder shall not thereafter be
construed as a waiver of any subsequent breach or default of a similar
nature, or as a waiver of any such provision, right, or privilege
hereunder.
32. PARAGRAPH HEADINGS
The paragraph headings do not form part of this Agreement and shall not
have any effect on the interpretation thereof.
33. EXECUTION OF AGREEMENT AND AMENDMENTS
(a) This Agreement, any amendment thereof and any Supplementary
Agreement pursuant to Subparagraph 24(c) shall each be executed as one
original in the English language.
(b) OTC shall be the custodian of this Agreement and any such
amendment or Supplementary Agreement and shall accord access to them to a
Party upon reasonable notice. Each Party shall be provided with a
certified photocopy of this Agreement and any such amendment or
<PAGE>
- 48 -
Supplementary Agreement and any revised Schedules. A notarised copy of
this Agreement and any such amendment or Supplementary Agreement shall be
provided to a Party upon request, and at the requesting Party's expense.
(c) Subject to Subparagraphs 24(c) and 33(d), this Agreement and any
of the provisions hereof may be altered or added to only by another
agreement in writing signed by a duly authorized person on behalf of each
and every Party to this Agreement.
(d) Subparagraph 33(c) shall not apply to any Schedule modified in
accordance with any other provision of this Agreement and any Schedule so
modified shall be deemed to be a part of this Agreement in substitution
for the immediately preceding version of that Schedule.
34. INTERPRETATION OF AGREEMENT
If any difference shall arise between or among the Parties or any of them
respecting the interpretation or effect of this Agreement or any part of
provision thereof or their rights and obligations thereunder, and by
reason thereof there shall arise the need to decide the question by what
municipal or national law this Agreement or such part or provision
thereof is governed, the following facts shall be excluded from
consideration, namely, that this Agreement was made in a particular
country and that it may appear by reason of its form, style, language or
otherwise to have been drawn preponderantly with reference to a
particular system of municipal or national law; the intention of the
Parties being that such facts shall be regarded by the Parties and in all
courts and tribunals wherever situated as irrelevant to the question
aforesaid and to the decision thereof.
<PAGE>
- 49 -
35. SUCCESSORS BOUND
This Agreement shall be binding on the Parties, their successors and
permitted assigns.
TESTIMONIUM
IN WITNESS WHEREOF the Parties hereto have severally subscribed these
presents or caused them to be subscribed in their names and on their
behalf by their respective representatives thereunto duly authorised.
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
BY: /s/ [ILLEGIBLE]
BORD TELECOM EIREANN
BY: /s/ [ILLEGIBLE]
BRITISH TELECOMMUNICATIONS PLC
BY: /s/ [ILLEGIBLE]
BUNDESMINISTERIUM FUR OFFENTLICHE WIRTSCHAFT UND VERKEHR,
GENERALDIREKTION FUR DIE POST- UND TELEGRAPHENVERWALTUNG
BY: /s/ [ILLEGIBLE]
<PAGE>
- 50 -
DEUTSCHE BUNDESPOST TELEKOM
BY: /s/ [ILLEGIBLE]
ENTREPRISE DES POSTES, TELEPHONES ET TELEGRAPHES SUISSES
BY: /s/ [ILLEGIBLE]
FRANCE TELECOM
BY: /s/ [ILLEGIBLE]
GTE HAWAIIAN TELEPHONE COMPANY INCORPORATED
BY: /s/ [ILLEGIBLE]
HONG KONG TELECOM INTERNATIONAL LIMITED
BY: /s/ [ILLEGIBLE]
INTERNATIONAL DIGITAL COMMUNICATIONS INC.
BY: /s/ [ILLEGIBLE]
INTERNATIONAL TELECOM JAPAN INC.
BY: /s/ [ILLEGIBLE]
<PAGE>
- 51 -
INTERNATIONAL TELECOMMUNICATION DEVELOPMENT CORPORATION
BY: /s/ [ILLEGIBLE]
ITALCABLE S.P.A.
BY: /s/ [ILLEGIBLE]
KOKUSAI DENSHIN DENWA CO., LTD.
BY: /s/ [ILLEGIBLE]
MCI INTERNATIONAL, INC.
BY: /s/ [ILLEGIBLE]
MERCURY COMMUNICATIONS LIMITED
BY: /s/ [ILLEGIBLE]
OTC LIMITED
BY: /s/ [ILLEGIBLE]
OVERSEAS TELECOMMUNICATIONS, INC.
BY: /s/ [ILLEGIBLE]
<PAGE>
- 52 -
PHILIPPINE GLOBAL COMMUNICATIONS, INC.
BY: /s/ [ILLEGIBLE]
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
BY: /s/ [ILLEGIBLE]
PTT TELECOM BV
BY: /s/ [ILLEGIBLE]
REGIE DES TELEGRAPHES ET DES TELEPHONES DE BELGIQUE
BY: /s/ [ILLEGIBLE]
SWEDISH TELECOM
BY: /s/ [ILLEGIBLE]
TELECOM NETWORKS AND INTERNATIONAL LTD.
BY: /s/ [ILLEGIBLE]
TELEGLOBE CANADA INC.
BY: /s/ [ILLEGIBLE]
<PAGE>
- 53 -
TRANSPACIFIC COMMUNICATIONS, INCORPORATED
BY: /s/ [ILLEGIBLE]
TRT/FTC COMMUNICATIONS, INC.
BY: /s/ [ILLEGIBLE]
US SPRINT COMMUNICATIONS COMPANY LIMITED PARTNERSHIP
BY: /s/ [ILLEGIBLE]
WORLD COMMUNICATIONS INC.
BY: /s/ [ILLEGIBLE]
<PAGE>
LIST OF OMITTED SCHEDULES
The following Schedules to the PacRimEast Cable System Construction
and Maintenance Agreement have been omitted from this Exhibit and shall be
furnished supplementally to the Commission upon request:
Schedule A - Parties to this Agreement
Schedule B - Voting Interests in the Cable System
Schedule C - Ownership Interests and Allocation of Capital Operating
and Maintenance Costs of Segment B and Proportions of
Capital, Operating and Maintenance Costs for Use of
Segments A and C
Schedule D - Assignment of Capacity in Segment B in Half Interest in
MAUOs
Annex 1 - Procurement Group Terms of Reference
Annex 2 - Terms of Reference of Subcommittees
The following Revised Schedules, effective January 31, 1996, to the
PacRimEast Cable System Construction and Maintenance Agreement have been omitted
from this Exhibit and shall be furnished supplementally to the Commission upon
request:
Schedule B - Voting Interests in the Cable System
Schedule C - Ownership Interests and Allocation of Capital Operating
and Maintenance Costs of Segment B and Proportions of
Capital, Operating and Maintenance Costs for Use of
Segments A and C
Schedule D - Assignment of Capacity in Segment B in Half Interest in
MAUOs
The following Revised Schedules, effective September 1, 1996, to the
PacRimEast Cable System Construction and Maintenance Agreement have been omitted
from this Exhibit and shall be furnished supplementally to the Commission upon
request:
Schedule B - Voting Interests in the Cable System
Schedule C - Ownership Interests and Allocation of Capital Operating
and Maintenance Costs of Segment B and Proportions of
Capital, Operating and Maintenance Costs for Use of
Segments A and C
Schedule D - Assignment of Capacity in Segment B in Half Interest in
MAUOs
<PAGE>
THIRD SUPPLEMENTARY AGREEMENT
TO THE
PACRIMEAST CABLE SYSTEM
CONSTRUCTION AND MAINTENANCE AGREEMENT
Certified as a true and accurate copy
of the Third Supplementary Agreement
to the PacRimEast Cable System
Construction and Maintenance Agreement
/s/ J. Nelson
J Nelson
for Telstra
7 November 1995
<PAGE>
THIRD SUPPLEMENTARY AGREEMENT TO THE
PACRIMEAST CABLE SYSTEM CONSTRUCTION AND
MAINTENANCE AGREEMENT
THIS THIRD SUPPLEMENTARY AGREEMENT is made and entered into this 31st day of
October 1995 in Osaka, Japan between and among the Parties identified in
Schedule A attached hereto.
WITNESSETH
WHEREAS, the PacRimEast Cable System Construction and Maintenance Agreement
was entered into, effective 5 December 1990, as amended by the First
Supplementary Agreement dated 8 October 1992 and the Second Supplementary
Agreement dated 19 October 1993 (hereinafter referred to as the "PacRimEast
C&MA") to provide, construct, maintain and operate the PacRimEast Cable
System.
WHEREAS, Schedules B, C and D of the PacRimEast C&MA were further revised
effective 31 May 1994, 12 October 1994 and 19 May 1995.
WHEREAS, the PacRimEast C&MA provides for the admission of additional Parties
by Supplementary Agreements and authorises the Initial Parties (AT&T, KDD,
TELSTRA and TPL) to act jointly as representatives and agents of all Parties
to the PacRimEast C&MA to execute such Supplementary Agreements.
WHEREAS, the Party identified in paragraph 1 of Annex 1 (hereinafter called
the "Additional Party") wishes to accede and become a Party to the PacRimEast
C&MA.
WHEREAS, in accordance with the PacRimEast C&MA, the Management Committee has
agreed to admit the Additional Party as a Party to the PacRimEast C&MA and
expand the Notional Capacity commensurate with the requirements of the
Additional Party and other Parties to the PacRimEast C&MA.
WHEREAS, the PacRimEast C&MA provides for the replacement of Schedules A, B, C
and D thereto to reflect the admission of additional Parties, expansion of
Notional Capacity and transfers of capacity.
WHEREAS, the Management Committee has agreed that TELSTRA shall act as
Financial Coordinator with respect to the admission of additional Parties to
the PacRimEast C&MA and expansion of Notional Capacity.
<PAGE>
2
WHEREAS, certain existing Parties to the PacRimEast C&MA have undergone
organisational changes resulting in new addresses or new descriptions or in a
different entity becoming their assignee or successor in interest, and the
Parties now desire to reflect such changes in the PacRimEast C&MA by
incorporating such changes in the replacement Schedules A, B, C and D attached
hereto.
NOW THEREFORE, the Parties in consideration of the mutual covenants herein
expressed, covenant and agree with each other as follows:
1. The Additional Party hereby:
1.1 agrees to accept and abide by the terms and conditions of the
PacRimEast C&MA, as duly amended from time to time, which is
incorporated herein by reference and made a part hereof;
1.2 agrees to assume responsibility to pay its proportionate share
of costs incurred under the PacRimEast C&MA prior to its becoming
a Party thereto; and
1.3 agrees to accept and abide by all decisions taken in relation to
the PacRimEast Cable System by the Parties, or any of them, to the
PacRimEast C&MA prior to its becoming a Party thereto.
2. The Additional Party is hereby admitted to the PacRimEast C&MA with
effect from the date of this Third Supplementary Agreement.
3. Schedules A, B, C and D attached hereto shall replace the
corresponding Schedules in the PacRimEast C&MA.
4. TELSTRA, as the Financial Coordinator, shall bill the Additional Party
for its respective proportional share of the costs of the PacRimEast
Cable System incurred to the date of this Third Supplementary
Agreement and make financial adjustments necessary to the other Parties'
contributions to such costs pursuant to the expansion of Notional
Capacity. These and subsequent bills and financial adjustments shall be
calculated, rendered and paid in accordance with the PacRimEast C&MA and
any applicable terms and conditions determined by the Management
Committee.
5. Except as provided in this Third Supplementary Agreement, all other
terms and conditions of the PacRimEast C&MA remain unchanged and in full
force and effect.
<PAGE>
3
IN WITNESS WHEREOF the Additional Party and the Initial Parties (in their own
right and as joint representatives and agents of the Parties to the
PacRimEast C&MA) have severally subscribed these presents or caused them to
be subscribed in their names and behalf by their respective officers
thereunto duly authorised.
AT&T CORP.
By /s/ [illegible]
------------------------
COMMUNICATIONS TELESYSTEMS INTERNATIONAL D/B/A WORLDXCHANGE COMMUNICATIONS
By /s/ [illegible]
------------------------
KOKUSAI DENSHIN DENWA CO., LTD.
By /s/ [illegible]
------------------------
TELECOM PURCHASING LIMITED
By /s/ [illegible]
------------------------
<PAGE>
4
TELSTRA CORPORATION LIMITED ACN 051 775 556
By /s/ [illegible]
------------------------
<PAGE>
ANNEX 1
1. ADDITIONAL PARTY
Communication TeleSystems International d/b/a WorldxChange Communications, a
corporation organized and existing under the laws of the State of California
and having its principal office at 4350 La Jolla Village Drive, San Diego,
California (herein called "CTS" which expression shall include its
successors).
2. INITIAL PARTIES
AT&T Corp., a corporation organized and existing under the laws of the
State of New York and having an office at 412 Mount Kemble Avenue,
Morristown, New Jersey (herein called "AT&T" which expression shall include
its successors).
Kokusai Denshin Denwa Co. Ltd., a corporation having its principal office
at 3-2, Nishi-Shinjuku 2-Chome, Shinjuku-ku, Tokyo (herein called "KDD"
which expression shall include its successors).
Telecom Purchasing Limited, a duly incorporated company under the Companies
Act of 1955, organized and existing under the laws of New Zealand and
having an office at 13-27 Manners Street, Wellington (herein called "TPL"
which expression shall include its successors). TPL has appointed Telecom
New Zealand International Limited (TNZI) as its agent and granted TNZI a
power of attorney to enable TNZI to carry out all management functions,
duties and rights (including exercising all voting rights and attending all
relevant Management Committee and other meetings) and otherwise to do any
and all things which TPL itself could do pursuant to or in relation to this
Agreement.
Telstra Corporation Limited ACN 051 775 556, a company incorporated under
the laws of Australia and having an office at 231 Elizabeth Street, Sydney,
New South Wales (herein called "TELSTRA" which expression shall include its
successors).
<PAGE>
LIST OF OMITTED SCHEDULES
The following Schedules to the Third Supplementary Agreement to the
PacRimEast Cable System Construction & Maintenance Agreement have been
omitted from this Exhibit and shall be furnished supplementally to the
Commission upon request:
Schedule A--Parties to this Agreement
Schedule B--Voting Interests in the Cable System
Schedule C--Ownership Interests and Allocation of Capital Operating
and Maintenance Costs of Segment B and Proportions of
Capital, Operating and Maintenance Costs for Use of
Segments A and C
Schedule D--Assignment of Capacity in Segment B in Half Interest in
MAUOs
<PAGE>
INDEFEASIBLE RIGHT OF USE AGREEMENT AND FINANCING AGREEMENT
BETWEEN
TELEGLOBE USA INC.
WORLDXCHANGE COMMUNICATIONS
<PAGE>
- 1 -
THIS AGREEMENT, made and entered into as of October 5, 1998 (the "EFFECTIVE
DATE").
<TABLE>
<S> <C>
BY AND BETWEEN: TELEGLOBE USA INC. a Delaware corporation
having its principal office at 1751 Pinnacle Drive,
Suite 1600, McLean, Virginia 22102 hereinafter
referred to as "TELEGLOBE";
AND: WORLDXCHANGE COMMUNICATIONS, a corporation
incorporated under the laws of California, having
its principal office at 4350 La Jolla Village
Drive, Suite 100, San Diego, California 92122,
hereinafter referred to as "WORLDXCHANGE".
</TABLE>
WHEREAS, Teleglobe has acquired certain rights to trans-atlantic fiber optic
capacity on the AC-1 Submarine Cable System and to associated backhaul
capacity which will connect such trans-atlantic capacity to inland termination
points as described in the Atlantic Crossing/AC-1 Submarine Cable System
Capacity Purchase Agreement dated January 21, 1998 (the "Teleglobe Cable
System"); and
WHEREAS, WorldxChange desires to take and pay for the right to use certain
capacity in the Teleglobe Cable System as more fully set forth herein.
NOW, THEREFORE, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. This Section 1.1 lists defined terms used in this
Agreement. Capitalized terms used in any provision of this Agreement and not
otherwise defined therein shall have the following meanings, respectively,
unless the context otherwise requires.
(A) "AGREEMENT" shall mean this Agreement and the schedule attached
hereto, as amended from time to time;
(B) "DOLLAR" and "DOLLARS" and the symbol "$" shall mean lawful money of
the United States of America;
<PAGE>
- 2 -
(C) "EFFECTIVE DATE" shall mean the date that the obligations arising
under this Agreement shall be deemed to be in full force and effect
notwithstanding the formal date of its execution by the Parties;
(D) "MIU" shall mean a unit designated as the minimum unit of
investment in the Teleglobe Cable System and shall consist of a
Virtual Container 12 (VC-12), allowing the use of 2,048,000 bits
per second (nominal 2 Mbit/s) digital stream. A MIU may be
expressed in terms of whole or half-MIUs.
(E) "OPERATION AND MAINTENANCE" or "O&M" shall mean the operation and
maintenance of the submarine trans-atlantic cable capacity
contained in the Teleglobe Cable System between the United States
and the United Kingdom. Such operation and maintenance activities
may include testing, adjustment, and storage of plant and
equipment, repairs, maintenance, and reburial and replacement of
plant;
(F) "PARTIES" shall mean all of the parties hereto collectively; and
"PARTY" shall mean any one of them;
(G) "PERSON" shall mean an individual, corporation, company,
cooperative, partnership, trust or unincorporated association and
pronouns have a similarly extended meaning;
(H) "RELEVANT C&MA" shall refer collectively the following agreements
which are attached hereto and are incorporated herein by reference
as the same may be amended from time to time:
(1) That certain Capacity Purchase Agreement ("Capacity
Purchase Agreement") (including attachments and annexes)
dated January 21, 1998 between Global Telesystems, Ltd.
and Teleglobe.
(2) That certain Indefeasible Right of Use Agreement in Inland
Capacity dated March 6, 1998 between GT Landing Corp. and
Teleglobe.
(3) That certain Broadbend Services Agreement dated March 20,
1998 between Racal Telecommunications Limited and Teleglobe.
(I) "SERVICE DATE" shall mean the date of completion of installation,
acceptance testing, and implementation of the Capacity and the
Backhaul Capacity to provide a full circuit from 60 Hudson Street,
New York, New York to Telehouse, London, England, the completion of
which shall be confirmed in writing by Teleglobe to the
WorldxChange. Subject to the compliance of both Parties of their
respective obligations hereunder, it is anticipated that the
Service Date will occur on or about July 31, 1998. Should the
Service Date not occur prior to October 30, 1998, WorldxChange
shall have the right, upon written notice to Teleglobe, to cancel
this Agreement without any liability and Teleglobe shall promptly
return any payments made by WorldxChange pursuant to this Agreement.
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(J) "TELEGLOBE CABLE SYSTEM" shall mean the Teleglobe's interest in that
certain Atlantic Crossing/AC-1 Submarine Cable System trans-atlantic
capacity between Brookhaven, New York and White Sands, United
Kingdom, plus backhaul capacity between Brookhaven, New York and
60 Hudson Street, New York, New York, and between White Sands, UK and
Telehouse, London, England, as more fully described in the relevant
C&MA.
1.2 GENDER. Any reference in this Agreement to any gender shall include all
genders and words used herein importing the singular number only shall include
the plural and vice versa.
1.3 HEADINGS. The division of this Agreement into Articles, Sections,
Subsections and other Subdivisions and the insertion of headings are for
convenience of reference only and shall not affect or be utilized in the
construction or interpretation hereof.
1.4 SEVERABILITY. Any Article, Section, Subsection or other Subdivision of
this Agreement or any other provision of this Agreement which is proven to be
illegal, invalid or unenforceable shall be severed herefrom and shall be
ineffective to the extent of such illegality, invalidity or unenforceability
and shall not affect or impair the remaining provisions hereof, which
provisions shall be severed from any illegal, invalid or unenforceable
Article, Section, Subsection or other subdivision of this Agreement or any
other provision of this Agreement and shall otherwise remain in full force
and effect.
1.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement by and
between the Parties pertaining to the subject matter hereof and supersedes
all prior agreements, understandings, negotiations and discussions, whether
oral or written, of the Parties. Except as provided for herein, this
Agreement may be amended only by an instrument in writing signed by both
Parties.
1.6 GOVERNING LAW. This Agreement shall be interpreted and construed in
accordance with the laws of Virginia, without giving effect to the laws of
such state governing conflicts of laws.
1.7 OWNERSHIP. EXCEPT FOR THE RIGHTS SPECIFICALLY GRANTED TO WORLDXCHANGE
UNDER THIS AGREEMENT, nothing in this Agreement shall vary the existing
rights of ownership in those segments of the Teleglobe Cable System in which
IRUs have been granted to WorldxChange. Ownership of all segments of the
Teleglobe Cable System shall remain with Teleglobe and the other signatories
to the Relevant C&MA as applicable.
ARTICLE 2
GRANTING OF IRU AND BACKHAUL CAPACITY
2.1 GRANTING. Subject to WorldxChange making all payments to Teleglobe when
due hereunder, as of and from the Service Date, Teleglobe grants to
WorldxChange, on an IRU basis, an interest in one (1) STM-1 (155.52 Mbps) of
capacity (the "Capacity") on the Teleglobe Cable System, with termination
points at the beachhead cable station of the Teleglobe Cable System in
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Brookhaven, New York on the west end, and at the beachhead cable station of
the Teleglobe Cable System in White Sands, United Kingdom on the east end.
2.2 BACKHAUL CAPACITY. In addition to the grant of Capacity hereunder,
subject to WorldxChange making all payments to Teleglobe when due hereunder,
Teleglobe shall provide WorldxChange as of and from the Service Date with
access to and use of one (1) STM-1 (15552 Mbps) of backhaul capacity (the
"Backhaul Capacity") between the beachhead cable station of the Teleglobe
Cable System in the United States and Teleglobe's point of presence at 60
Hudson Street, New York, NY, and between the beachhead cable station of the
Teleglobe Cable Station in the United Kingdom and Teleglobe's point of
presence at Telehouse, 5th Floor, Corriander Avenue, East India Docks,
London, England, all of which shall be provided per the terms of this
Agreement and for a term consistent with the IRU in the Capacity granted
hereunder. The Backhaul Capacity is provided by Teleglobe as a service, and
not on an IRU basis and is provided upon the same terms and conditions upon
which Teleglobe has acquired it under its Atlantic Crossing/AC-1 Submarine
Cable System Indefeasible Right of Use Agreement in Inland Capacity (United
States) and Racal Telecommunications Limited Broadband Services Agreement
(UK), which are attached hereto.
2.3 O&M. Subject to WorldxChange making the required payments set forth in
Articles 3 and 4 hereof, Teleglobe shall use reasonable efforts to ensure
that the trans-atlantic submarine fiber optic cable capacity contained in the
Teleglobe Cable System and the Backhaul Capacity is maintained in accordance
with the Relevant C&MA between Teleglobe or its affiliate(s) and the owners
of such capacity. Any charges incurred by Teleglobe relating to the
operation and maintenance of the Backhaul Capacity, if any, shall be fully
reimbursed by WorldxChange upon demand by Teleglobe, provided however, such
charges shall not exceed the pro-rata amount of the total charges incurred by
Teleglobe with respect to all equivalent capacity controlled by Teleglobe
(including the Backhaul Capacity); and provided further that WorldxChange
shall be permitted to take advantage of any periodic payment terms that
Teleglobe receives.
2.4 SUBMARINE CABLE RESTORATION. Restoration will not be available on the
trans-atlantic capacity contained in the Teleglobe Cable System until a
complete loop is constructed between the US and UK beachhead cable stations,
which is estimated to be complete by March 31, 1999. When such restoration
becomes available to Teleglobe, Teleglobe agrees to provide such restoration
to WorldxChange on a non-discriminatory basis with the capacity in the
Atlantic Crossing/AC-1 Submarine Cable System retained by Teleglobe for its
own use. Additionally, until such time as restoration on the trans-Atlantic
capacity becomes available, Teleglobe agrees to permit WorldxChange to
participate in any interim restoration arrangements available to Teleglobe
pursuant to paragraph 2(j) of the Atlantic Crossing/AC-1 Submarine Cable
System Capacity Purchase Agreement, at the same price and on the same terms
as such interim restoration arrangements are obtained by Teleglobe.
ARTICLE 3
IRU GRANTING PRICE AND PRICE FOR BACKHAUL CAPACITY
3.1 IRU FEE AND BACKHAUL FEE. In consideration of the grant of the Capacity
by Teleglobe to WorldxChange, WorldxChange agrees to pay to Teleglobe an IRU
fee of Eight Million Two Hundred Fifty Thousand
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Dollars (US$8,250,000) (the "IRU and Backhaul Fee") which Teleglobe shall
finance over five (5) years at 12% per annum on a declining balance basis.
3.2 PAYMENT OF IRU FEE AND BACKHAUL FEE. WorldxChange hereby agrees and
covenants to pay the IRU and Backhaul Fee over a five (5) year term on a
monthly basis by pay the sum of One Hundred Eighty Three Thousand Five
Hundred Seventeen Dollars ($183,517) by wire transfer, certified cheque,
commencing on the first day of the month immediately after the Effective Date
of this Agreement and continuing on the first day of each successive month
until fully paid.
3.3 TAXES. All prices and charges due hereunder are exclusive of all
applicable taxes, including value added tax, sales taxes, and duties or
levies imposed by any authority, government or government agency (except
income tax or other corporate taxes attributable to Teleglobe), all of which
shall be paid promptly when due by WorldxChange.
ARTICLE 4
PAYMENT OF CHARGES AND EXPENSES
4.1 ANNUAL O&M CHARGE. In consideration of Teleglobe's provision of O&M in
connection with the IRU granted for the Capacity and Backhaul Capacity,
WorldxChange shall pay to Teleglobe annually in advance the sum of Two
Hundred Eighty Five Thousand ($285,000) (the "Annual O&M Charge"), which
Annual O&M Charge shall increase by three percent (3%) each year, compounded
annually but shall not exceed Three Hundred Thirty Thousand ($330,000) during
the term of this Agreement.
4.2 INVOICING AND PAYMENTS. On the Service Date and on each anniversary
thereof, Teleglobe shall submit to WorldxChange an invoice for the O&M Charge
provided for in this Article 4 and for any applicable non-recurring cost.
WorldxChange shall make full payment on all such invoices within thirty (30)
days of such invoice. Invoices shall be paid in US Dollars in the manner set
forth in Article 3.3.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF WORLDXCHANGE
REPRESENTATIONS AND WARRANTIES. WorldxChange represents and warrants to
Teleglobe that WorldxChange has obtained, or will obtain prior to the Service
Date, all relevant telecommunications licenses necessary for the acquisition
of the Capacity, the execution and delivery of, and the performance of, its
obligations under this Agreement and shall use all reasonable efforts to have
continued in effect such exemptions, approvals, consents, authorizations,
licenses and permits as long as it shall have obligations under this
Agreement.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF TELEGLOBE
6.1 REPRESENTATIONS AND WARRANTIES. Teleglobe represents and warrants to
WorldxChange that:
(A) it is authorized to sell and lease interests in the Capacity as
contemplated hereunder;
(B) the execution of this Agreement by Teleglobe will not constitute a
breach of any other agreement to which Teleglobe is a party or
bound; and,
(C) as of the Service Date, Teleglobe had fully performed all
obligations required on its part to be performed pursuant to the
Relevant CM&A.
6.2 NO REPRESENTATION ON THE CAPACITY. Except as expressly set forth in this
Agreement, Teleglobe has not made or shall not be deemed to have made any
representations or warranties whatsoever with respect to the Capacity or the
Backhaul Capacity. Teleglobe expressly disclaims with respect to WorldxChange
and WorldxChange hereby expressly waives, releases and renounces, all
warranties, obligations and liabilities of Teleglobe and all rights, claims
and remedies against Teleglobe, express or implied, arising by law or
otherwise, with respect to any failure, delay in installation, cancellation
of, non-conformance, temporary or permanent failure of or defect in the
Teleglobe Cable System or the Capacity or the Backhaul Capacity, as the case
my be, whatsoever shall have been the cause and however long it shall have
lasted (whether or not Teleglobe has been advised of the possibility of such
loss or damage arising). Without limiting the generality of the foregoing,
WorldxChange acknowledges and agrees that the Capacity and the Backhaul
Capacity is being sold and leased on an "as is, where is" basis.
Notwithstanding anything to the contrary contained herein, this provision
shall not release Teleglobe from any liability for breach of any of the
representations or warranties set for in Article 6.1, or the failure of
Teleglobe to perform any obligations set forth in Article 7.2 hereof, or
willful misconduct on the part of Teleglobe.
ARTICLE 7
COVENANTS OF WORLDXCHANGE AND TELEGLOBE
7.1 During the term of this Agreement, WorldxChange shall:
(A) pay to Teleglobe (or its designee, as may be notified in writing to
WorldxChange, as the case may be) when they become due all amounts
payable under this Agreement and otherwise comply with all other
provisions of this Agreement;
(B) maintain, at its own expense, an appropriate insurance policy with
terms and coverage thresholds equal to or greater than the industry
standard for major global telecommunications carriers for protection
against all risks associated with the Capacity and Backhaul Capacity
as reasonably deemed necessary by WorldxChange acting reasonably;
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(C) until all payment have been paid pursuant to Article 3.1, to
undertake to keep the Capacity and Backhaul Capacity free of
liens, charges and other encumbrances (including any inchoate
liens or floating charges) and shall reimburse Teleglobe (or its
designee, as the case may be), and in the event of accidental
breach, to take all steps required to discharge such liens,
charges and other encumbrances;
(D) not use the Capacity or Backhaul Capacity for any illegal,
unlawful, fraudulent or unauthorized purposes and, without
limiting the generality of the foregoing, use the Capacity and
Backhaul Capacity, at all times, in a manner consistent with the
applicable authorization, licenses and permits for the landing,
construction and operation of the Teleglobe Cable System;
(E) use the Capacity and Backhaul Capacity in such a way as to avoid
degrading the overall performance of the Teleglobe Cable System or
causing interruptions of, or interference with, impairment or
degradation of the use of any other capacity in the Teleglobe Cable
System, or impair privacy of any communications over such facilities.
If, after notification by Teleglobe, WorldxChange does not take
immediate and effective action to comply with its obligations,
Teleglobe may take reasonable action required to protect the other
capacity in the Teleglobe Cable System up to and including the
interruption of the Capacity and Backhaul Capacity responsible for
the interruption, interference, impairment or degradation.
WorldxChange shall bear the total cost of any protective measures
reasonably required by Teleglobe to be installed on the Teleglobe
Cable System resulting from the use of the Teleglobe Cable System
by WorldxChange or any lessee, assignee, or customer of WorldxChange.
WorldxChange shall cause all other purchasers of capacity on the
Teleglobe Cable System to undertake obligations comparable to those
of WorldxChange set forth in this Article;
(F) upon reasonable prior notice or, at any time, if the situation or
circumstance so justify, make available to Teleglobe the Capacity
and Backhaul Capacity for such test and adjustment as may be
necessary for the Capacity and Backhaul Capacity to be maintained
in efficient working order.
7.2 During the term of this Agreement, Teleglobe shall:
(A) Maintain and continue in effect such exemptions, approvals,
consents, authorizations, licenses and permits required to perform
its obligations under this Agreement; and,
(B) perform all of its obligations under the Relevant CM&A.
<PAGE>
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ARTICLE 8
ADDITIONAL TERMS
RELEVANT C&MA. WorldxChange understands that the Teleglobe Cable System is
subject to the terms and conditions of a Relevant C&MA, in which case,
provided that such Relevant C&MA terms are applicable to Teleglobe and/or the
Teleglobe Cable System, such Relevant C&MA terms shall similarly apply to the
grant of Capacity or Backhaul Capacity by Teleglobe hereunder.
ARTICLE 9
INTELLECTUAL PROPERTY RIGHTS
9.1 NO LICENSE. No license under patents is granted by Teleglobe or shall be
implied or arise by estoppel in favor of WorldxChange with respect to any
apparatus, system or method used by WorldxChange in connection with the use
of the Capacity and Backhaul Capacity granted to WorldxChange under this
Agreement.
9.2 SPECIFIC INDEMNIFICATION. With respect to claims of patent infringement
made by third Persons, WorldxChange will save Teleglobe and the other
signatories to the Relevant C&MA harmless against claims arising out of or
based on the use by WorldxChange, in combination or in connection with the
Capacity and the Backhaul Capacity, any apparatus, system or method provided
by WorldxChange, or any lessee, assignee, or customer of WorldxChange.
ARTICLE 10
LATE PAYMENTS AND PERFORMANCES
10.1 In the event that WorldxChange shall fail to make any payment under this
Agreement when due, such amounts shall accrue interest, from the date such
payment is due until paid, including accrued interest at an annual rate equal
to one hundred fifty percent (150%) of the prime rate of interest published
by the Wall Street Journal as the base rate on corporate loans posted by a
percentage of the nation's largest banks on the date any such payment is due,
or if lower, the highest percentage allowed by law.
ARTICLE 11
TERM
11.1 The term of this Agreement shall begin on the Effective Date and subject
to the provisions of Section 11.2, shall continue until the twenty-fifth
anniversary of the ready for service date of the System as described in
Article 9(a) of the Relevant Capacity Purchase Agreement;
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11.2 Upon the expiration of the Term hereof all of WorldxChange's rights
to the use of Capacity and Backhaul Capacity subject to this Agreement shall
revert to Teleglobe without reimbursement of any fees or other payments
previously made with respect thereto, and from and after such time
WorldxChange shall have no further rights or obligations with respect thereto.
11.3 Notwithstanding the termination of this Agreement, all payment
obligations of WorldxChange for amounts still due or payable under this
Agreement for the period ending at the date of termination shall survive
until full payment.
ARTICLE 12
EVENT OF DEFAULT
The occurrence of any one or more of the following events shall constitute an
Event of Default under this Agreement:
(A) If WorldxChange fails to make full payment of the IRU Fee or the
Backhaul Fee as contemplated in Section 3 of this Agreement or
any other payments required to be made hereunder, including
without limitation the Annual O&M Charge and any applicable
non-recurring charges, when the same becomes due and payable as
herein provided and such default has not been cured within
fifteen (15) days after receipt by WorldxChange of a notice to
that effect;
(B) If WorldxChange fails to duly observe, perform and discharge the
covenants, conditions and obligations on its part to be observed,
performed or discharged hereunder (other than the default of
payment of amounts under any provisions of this Agreement) and
such default has not been cured within THIRTY (30) days after
receipt by WorldxChange of a notice from Teleglobe;
(C) If WorldxChange has defaulted on its payment obligations to
Teleglobe or any of its affiliates under any telecommunications
service agreements during such time as WorldXChange continues to be
obligated to make payments pursuant to the provision of Article
3.1, herein, or if WorldxChange files for bankruptcy, or a
petition for involuntary bankruptcy is filed which has not been
dismissed within forty-five (45) days from the date of filing, or
is adjudged bankrupt or has a receiver, administrative
receiver, or manager appointed over the whole or substantially all
of its assets, (or the IRU granted herein), or goes into
liquidation (compulsory or voluntary), otherwise than for the
purpose of an amalgamation or reconstruction (but always subject
to the provisions of Article 16.1 herein or makes any arrangements
with its creditors or has any form of execution or distress levied
upon its assets or ceases to carry on its business.
(D) If Teleglobe fails to observe, perform, discharge the covenants,
conditions, an obligations on its part to be observed, performed,
or discharged hereunder when
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such default has not been cured within thirty (30) days after
receipt by Teleglobe of a notice from WorldxChange. Upon the
occurrence of an event of default by Teleglobe, WorldxChange will
have the right to terminate this Agreement and pursue all remedies
available at law or in equity.
ARTICLE 13
TERMINATION
13.1 TERMINATION UPON DEFAULT. Upon the occurrence of an Event of
Default, Teleglobe shall have the right to terminate this Agreement
immediately, and, in addition to any other remedies available hereunder, at
law or in equity, shall be entitled to repossess the Capacity and cease
providing the Backhaul Capacity without any other notice or action, with or
without legal process. In addition, upon occurrence of an Event of Default,
or in the event that any representation or warranty made by WorldxChange in
article 5 hereof shall prove at any time to be materially untrue, Teleglobe
may temporarily discontinue use of the Capacity and/or Backhaul Capacity
without incurring any liability to WorldxChange, its assignees, its lessees
or its customers, until the default, or breach of representation or warranty,
is duly cured by WorldxChange to the reasonable satisfaction of Teleglobe.
13.2 OTHER REMEDIES. Termination of this Agreement by the Party not in
default in accordance with the terms hereof shall be without prejudice to any
other rights or remedies such Party shall have hereunder, at law or in equity.
ARTICLE 14
GENERAL INDEMNIFICATION
WorldxChange shall indemnify and save Teleglobe harmless from and against any
direct or consequential claims, demands, actions, causes or action, damages,
losses (which shall include any reduction in value), liabilities, costs or
expenses (including, without limitation, interest, penalties and reasonable
attorneys' fees and disbursements) (collectively, the "LOSSES") which may be
made against Teleglobe or which Teleglobe may suffer or incur as a result of,
arising out of or relating to:
(A) any non-performance of or non-compliance with any covenant,
agreement or obligation of WorldxChange under or pursuant to
this Agreement;
(B) any incorrectness in, or breach of, any representation or
warranty made by WorldxChange;
(C) any action, suit, claim, trial, demand, investigation,
arbitration or other proceeding by any Person containing
allegations which, if true, would constitute an event described
in this Section 14.
<PAGE>
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ARTICLE 15
DISPUTE RESOLUTION
ARBITRATION. Any difference, controversy or claim arising out of or relating
to this Agreement, its interpretation or performance, shall be considered a
"DISPUTE". Any Dispute may, by the written mutual agreement of the Parties,
be referred to binding arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce in effect on the date
the arbitration is submitted to the tribunal of arbitration. Any arbitration
proceedings shall be conducted in Washington, D.C. in the English language.
ARTICLE 16
MISCELLANEOUS
16.1 ASSIGNMENT. Neither this Agreement nor any rights, remedies,
liabilities or obligations arising under it or by reason of it shall be
assignable by WorldxChange to a non-affiliated party (an affiliated shall be
a party in which WorldXChange owns or controls [either directly or indirectly]
more that fifty percent (50%) of the voting equity) without the prior written
consent of Teleglobe which consent shall not be unreasonably be withheld.
WorldXChange may upon prior written notice to Teleglobe assign it rights (but
not its obligations) under this Agreement to an affiliated party. Teleglobe
may assign this Agreement and its rights, remedies, liabilities and
obligations hereunder without the consent of WorldxChange; provided, however
that Teleglobe shall give WorldxChange written notice of the assignment of
Teleglobe's interest hereunder to any Person that is not an affiliate of
Teleglobe, and provided further that Teleglobe shall remain liable to
WorldxChange for any breach or nonperformance of this Agreement by it's
assignee or any successive assignee. Subject to the foregoing, this Agreement
shall inure to the benefit of and be binding on the Parties and their
respective successors and permitted assigns. Notwithstanding anything to the
contrary contained in this Article 16.1, the Parties further understand and
agree that WorldXChange may lease the Capacity or grant IRUs in the capacity
to third parties, but always subject to the provisions of this Agreement,
including without limitation, Article 8 herein.
16.2 FURTHER ASSURANCES. The Parties shall, with reasonable diligence,
do all things and provide all reasonable assurances as may be required to
consummate the transactions contemplated by this Agreement, and each Party
shall provide further documents or instruments required by the other Party as
may be reasonably necessary or desirable to effect the purpose of this
Agreement.
16.3 NOTICES. Any notice, consent, request, authorization, permission,
direction or other communication required or permitted to be given hereunder
shall be in writing and shall be delivered either by personal delivery or by
TELEX, telecopier or similar telecommunications device, return receipt
requested, and addressed as follows:
(A) in the case of Teleglobe:
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TELEGLOBE USA INC.
1751 Pinnacle Drive
Suite 1600
McLean, Virginia 22102
Attention: Vice President & General Manager
Facsimile: (703) 714-6653
(B) in the case of WorldxChange:
WORLDXCHANGE COMMUNICATIONS
4350 La Jolla Village Drive, Suite 100
San Diego, California 92122
Attention: MR. ERIC G. LIPOFF, SENIOR VICE PRESIDENT AND
GENERAL COUNSEL
Facsimile: (619) 452-3780
Any notice, consent, request, authorization, permission, direction or other
communication delivered as aforesaid shall be deemed to have been effectively
received, if sent by TELEX, telecopier or similar telecommunication device, on
the Business Day next following transmission thereof, or, if personally
delivered, on the date of such delivery, provided, however, that if such date
is not a Business Day then it shall be deemed to have been received on the
Business Day next following such delivery, provided that on the next Business
Day such Party sends such notice, consent, request, authorization, permission
or other communication by registered mail. An address may be modified by
written notice delivered as aforesaid.
16.4 NO PARTNERSHIP. The relationship between Teleglobe and WorldxChange
under this Agreement shall not be that of partners or joint venturers and
nothing herein contained shall be deemed to constitute a partnership or joint
venture between them and the rights and obligations of the Parties shall be
limited to the express provisions of this Agreement.
16.5 CONFIDENTIALITY AND PUBLIC ANNOUNCEMENT. It is expected that the
Parties may disclose to each other proprietary or confidential technical,
financial and business information ("PROPRIETARY INFORMATION"). Except as
necessary to perform its obligations under this Agreement, the receiving
Party shall not make any use of Proprietary Information for its own benefit
or for the benefit of any other Person, and, except with the prior written
consent of the disclosing Party or as otherwise specifically provided herein,
the receiving Party will not, during and for a period of three (3) years
after the termination of this Agreement, duplicate, use or disclose any
Proprietary Information to any Person.
The receiving Party shall not disclose all or any part of the disclosing
Party's Proprietary Information to any affiliates, agents, officers,
directors, employees or representatives (collectively, "REPRESENTATIVES") of
the receiving Party, except on a need to know basis. Such Representatives
shall be informed of the confidential and proprietary nature of the
Proprietary Information. Each Party shall maintain the other Party's
Proprietary Information with at least the
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same degree of care each Party uses to maintain its own proprietary
information. The receiving Party shall immediately advise the disclosing
Party in writing of any misappropriation or misuse by any Person of the
disclosing Party's Proprietary Information of which the receiving Party is
aware.
All Proprietary Information in whatever form shall be promptly returned by the
receiving Party to the disclosing Party upon written request by the
disclosing Party for any reason or upon termination of this Agreement.
Each receiving Party acknowledges that the Proprietary Information of the
disclosing Party is central to the disclosing Party's business and was
developed by or for the disclosing Party at a significant cost. Each
receiving Party further acknowledges that damages would not be an adequate
remedy for any breach of this Agreement by the receiving Party or its
Representatives and that the disclosing Party may obtain injunctive or other
equitable relief to remedy or prevent any breach or threatened breach of this
Agreement by the receiving Party or any of its Representatives. Such remedy
shall not be deemed to be the exclusive remedy for any such breach of this
Section 16.5, but shall be in addition to all other remedies available at law
or in equity to the disclosing Party.
None of the Parties shall disclose or make any public announcement of the
existence of this Agreement, the transaction contemplated hereby or the
contents hereof without in each case the prior written consent of the other,
unless such disclosure is required by law and then only after prior notice to
the other Party.
16.6 GRANT OF SECURITY INTEREST. WorldxChange hereby grants to
Teleglobe, as security for the payment of all amounts due from WorldxChange
and the performance of all other obligations of WorldxChange hereunder until
such time as all payments have been made as set forth in Article 3.1 herein,
a first-priority security interest in and continuing lien upon all of
WorldxChange's right (including any right WorldxChange may have to convey
title thereto), title and interest in (i) the Capacity, (ii) all rights of
WorldxChange under this Agreement, and (iii) any and all proceeds of the
foregoing, all payments thereon, and any and all additions thereto.
Simultaneously with the execution of this Agreement, and at any subsequent
time during the Term of this Agreement upon request of Teleglobe,
WorldxChange will execute and deliver to Teleglobe such financing statements
and continuation statements as Teleglobe may require for purposes of
perfecting and continuing the perfection of each security interest and
continuing lien.
16.7 WAIVER. No waiver of any right under this Agreement shall be deemed
effective unless contained in writing signed by the Party charged with such
waiver, and no waiver of any right arising from any breach or failure to
perform shall be deemed to be a waiver of any future such right or any other
right arising under this Agreement.
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16.8 FORCE MAJEURE. Neither Party shall be responsible for failures to
perform or delays in performing its obligations, (except for any payment
obligations hereunder) due to causes beyond its reasonable control and
without its fault or negligence.
IN WITNESS WHEREOF the Parties have signed this Agreement as of the date
first above written.
TELEGLOBE USA INC. WORLDXCHANGE
COMMUNICATIONS
By: /s/ John C. Cahill, Jr. By: /s/ Edward S. Soren
------------------------ ---------------------
Name: John C. Cahill, Jr. Name: Edward S. Soren
Title: President and General Manager Title: President
Date: 10/5/98 Date: 10/5/98
----------------------- ------------------
<PAGE>
[WORLDxCHANGE COMMUNICATIONS LETTERHEAD]
October 12, 1998
John C. Cahill
Teleglobe USA, Inc.
1751 Pinnacle Drive VIA FEDERAL EXPRESS
McLean, VA 22102
Dear John:
Thank you for your October 8, 1998 letter addressed to Roger Abbott,
enclosing the Atlantic Crossing IRU Agreements. Roger has counter-initialed
the changed pages, and one fully executed original is enclosed for your files.
Roger has asked me to confirm that the effectiveness of the enclosed Atlantic
Crossing IRU contract is expressly conditioned upon the agreement between
WorldxChange and Teleglobe that the Administrative Lease Agreement dated
August 6, 1997 between WorldxChange and Teleglobe for Cantat-3 capacity (the
"Lease") that will be terminated as of the date when the Atlantic Crossing
capacity is placed in service, and neither Teleglobe nor WorldxChange will
thereafter have any further obligations under the Lease, except for
WorldxChange's obligation to pay for all service used through the date of
termination.
Please sign this letter at the place indicated below, to indicate Teleglobe's
acceptance of this condition. In the event that Teleglobe is unwilling to
accept this condition, please mark the enclosed Atlantic Crossing contract as
canceled and return the original to my attention.
Thank you for your cooperation in this matter.
Sincerely, * Provided that Teleglobe will be
given the opportunity to supply
to WorldxChange, international
/s/ Eric G. Lipoff leased line circuits that
- ------------------------------ WorldxChange may require from
Eric G. Lipoff time to time (in its sole
Senior Vice President and discretion), up to, collectively
General Counsel 45 Mbps, provided that Teleglobe's
prices, terms and conditions are
equal to or better than competing
The above is accepted and agreed to:* offers.
Teleglobe USA Inc. /s/ JCC
/s/ John Cahill
- -------------------------------
By: John Cahill
Its: President
--------------------------
<PAGE>
[LOGO]
SOUTHERN CROSS CABLE NETWORK
CAPACITY USE AGREEMENT
SOUTHERN CROSS CABLES LIMITED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS AND INTERPRETATION . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . 5
2. CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Condition precedent . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Condition subsequent. . . . . . . . . . . . . . . . . . . . . . 6
2.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. READY FOR SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 RFS Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Earlier RFS for a Traffic Path. . . . . . . . . . . . . . . . . 6
3.3 Earlier Assignment of Capacity. . . . . . . . . . . . . . . . . 6
4. GRANT OF MIU POINTS AND IRU INTEREST . . . . . . . . . . . . . . . . . . 7
4.1 MIU-points. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Assignment of Capacity. . . . . . . . . . . . . . . . . . . . . 7
4.3 Grant of IRU in respect of Assigned Capacity. . . . . . . . . . 7
4.4 Purchaser's obligations . . . . . . . . . . . . . . . . . . . . 8
4.5 Assignment of Unassigned MIU points . . . . . . . . . . . . . . 8
5. PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1 Payments for Purchaser's Assigned Capacity. . . . . . . . . . . 9
5.2 Payment of O&M Fees . . . . . . . . . . . . . . . . . . . . . . 9
5.3 Invoicing . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.4 Interest on unpaid amounts. . . . . . . . . . . . . . . . . . .10
5.5 Disputed invoices . . . . . . . . . . . . . . . . . . . . . . .10
5.6 No deductions for withholding taxes . . . . . . . . . . . . . .10
5.7 Other taxes . . . . . . . . . . . . . . . . . . . . . . . . . .11
6. ADDITIONAL COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
7. SCCL TO KEEP RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . .11
7.1 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
7.2 Access to records . . . . . . . . . . . . . . . . . . . . . . .11
7.3 Purchaser audit . . . . . . . . . . . . . . . . . . . . . . . .11
7.4 Cost of audit and adjustment payments . . . . . . . . . . . . .11
8. CHANGE IN CAPACITY AND CONFIGURATION . . . . . . . . . . . . . . . . . .12
8.1 Notification of changes . . . . . . . . . . . . . . . . . . . .12
8.2 Reduction of Purchaser's Assigned Capacity. . . . . . . . . . .12
8.3 Addition of Segments, Cable Stations and Landing Parties. . . .12
9. FORUMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
9.1 Assignment, Routing and Restoration Forum . . . . . . . . . . .12
9.2 Costs of external restoration . . . . . . . . . . . . . . . . .13
9.3 Purchaser's responsibilities. . . . . . . . . . . . . . . . . .13
9.4 O&M Forum . . . . . . . . . . . . . . . . . . . . . . . . . . .13
<PAGE>
ii
10. ACKNOWLEDGMENT AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . .13
10.1 Representations and warranties. . . . . . . . . . . . . . . . .13
10.2 Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . .14
10.3 Representations and warranties by the Purchaser . . . . . . . .14
11. LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
11.1 Exclusion . . . . . . . . . . . . . . . . . . . . . . . . . . .15
11.2 No warranty . . . . . . . . . . . . . . . . . . . . . . . . . .15
11.3 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
11.4 Indemnity in respect of third party claims. . . . . . . . . . .15
12. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
12.1 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
12.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . .16
12.3 Termination by SCCL . . . . . . . . . . . . . . . . . . . . . .16
12.4 Without prejudice . . . . . . . . . . . . . . . . . . . . . . .16
12.5 Continuing obligations. . . . . . . . . . . . . . . . . . . . .16
13. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
13.1 Confidential Information. . . . . . . . . . . . . . . . . . . .17
13.2 Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . .17
14. RESOLUTION OF DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . .17
15. RELATIONSHIP BETWEEN PARTIES . . . . . . . . . . . . . . . . . . . . . .17
16. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
16.1 Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . .18
16.2 SCCL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
17. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
18. GOVERNING LAW AND JURISDICTION . . . . . . . . . . . . . . . . . . . . .18
18.1 Governing law . . . . . . . . . . . . . . . . . . . . . . . . .18
18.2 Submission to jurisdiction. . . . . . . . . . . . . . . . . . .19
19. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
19.1 Method of service . . . . . . . . . . . . . . . . . . . . . . .19
19.2 Time of service . . . . . . . . . . . . . . . . . . . . . . . .19
20. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
21. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
22. AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
23. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
<PAGE>
iii
24. ATTORNEYS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
SCHEDULE 1 - MIU POINTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
SCHEDULE 2 - PAYMENT SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . . .22
SCHEDULE 3 - NETWORK DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . .23
PART A - NETWORK DESCRIPTION . . . . . . . . . . . . . . . . . . . . . .23
PART B - PHASES ONE AND TWO. . . . . . . . . . . . . . . . . . . . . . .25
PART C - TRAFFIC PATHS . . . . . . . . . . . . . . . . . . . . . . . . .26
SCHEDULE 4 - PAYMENT TERMS . . . . . . . . . . . . . . . . . . . . . . . . . .27
SCHEDULE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
PART A - CAPACITY ASSIGNMENT NOTICE. . . . . . . . . . . . . . . . . . .28
PART B - CAPACITY ASSIGNMENT CONFIRMATION NOTICE . . . . . . . . . . . .29
PART C - CAPACITY RESERVATION NOTICE . . . . . . . . . . . . . . . . . .30
SCHEDULE 6 - O & M COST SHARING ARRANGEMENT. . . . . . . . . . . . . . . . . .31
SCHEDULE 7 - LANDING PARTIES . . . . . . . . . . . . . . . . . . . . . . . . .34
SCHEDULE 8 - AR&R FORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
SCHEDULE 9 - OPERATIONS AND MAINTENANCE FORUM. . . . . . . . . . . . . . . . .36
SCHEDULE 10 - RESOLUTION OF DISPUTES . . . . . . . . . . . . . . . . . . . . .38
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . .38
2. Notification of Dispute . . . . . . . . . . . . . . . . . . . . .38
3. Reasonable efforts to resolve Dispute . . . . . . . . . . . . . .38
4. Independent expert. . . . . . . . . . . . . . . . . . . . . . . .38
5. Procedure for mediation . . . . . . . . . . . . . . . . . . . . .39
6. Role of the mediator. . . . . . . . . . . . . . . . . . . . . . .39
7. Confidentiality and prejudice . . . . . . . . . . . . . . . . . .40
8. Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
9. Termination of dispute resolution process . . . . . . . . . . . .40
10. Breach of this clause . . . . . . . . . . . . . . . . . . . . . .40
11. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . .40
</TABLE>
<PAGE>
CAPACITY USE AGREEMENT
AGREEMENT dated 1998
BETWEEN SOUTHERN CROSS CABLES LIMITED, a company incorporated in Bermuda
of 41 Cedar Avenue, Hamilton HM12, Bermuda ('SCCL')
AND The party specified in SCHEDULE 1 ('PURCHASER')
RECITALS
A. SCCL is constructing, and will operate, maintain and market the Network.
B. The Purchaser wishes to obtain capacity on one or more Traffic Paths of
the Network.
C. SCCL will finance part of the cost of construction of the Network by
raising financial accommodation which will be secured by (among other
things) the Purchaser's commitment to pay the Capacity Payments.
D. The parties have recorded in this document the terms of their agreement
regarding the basis on which SCCL will grant to the Purchaser an
indefeasible right of use of part of the Capacity on the Network, and
will cause the Landing Party Services to be provided to the Purchaser.
AGREEMENT
1. DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this agreement, unless the contrary intention appears, the following
words have the following meanings indicated.
'AR&R FORUM' has the meaning given in CLAUSE 9.1.
'ASSIGNED CAPACITY' means the amount of Capacity assigned to the
Purchaser on a particular Traffic Path, calculated in accordance with
CLAUSE 4.2, expressed in half-MIUs and specified in a Capacity Assignment
Confirmation Notice.
'AUTHORISATIONS' means all licences, permits and approvals of any type
required for the Purchaser to use the Network.
'AVAILABLE CAPACITY' means the Capacity of a Traffic Path available for
assignment by SCCL to Capacity Users at a relevant time, calculated as
follows:
AVAILABLE CAPACITY = TOTAL CAPACITY - TOTAL ASSIGNED CAPACITY
'AVAILABLE CAPACITY NOTICE' has the meaning given in CLAUSE 4.5.
[ILLEGIBLE COPY]
<PAGE>
2
Bermuda and New Zealand excluding Saturdays, Sundays and public holidays
in that place.
'CABLE STATION' means the facility provided by a Landing Party for the
interconnection of a Traffic Path with other telecommunications networks
and to connect Segments of the Network.
'CAPACITY' means an amount of Carriage that can be conducted
simultaneously on a telecommunications facility.
'CAPACITY ASSIGNMENT NOTICE' means a notice in the form of PART A of
SCHEDULE 5.
'CAPACITY ASSIGNMENT CONFIRMATION NOTICE' means a notice in the form of
PART B of SCHEDULE 5.
'CAPACITY PAYMENT' means an amount specified in column 1 of SCHEDULE 2 to
be made by the Purchaser in accordance with CLAUSE 5.1 on a Capacity
Payment Date.
'CAPACITY PAYMENT DATE' means a date specified in column 2 of SCHEDULE 2
on which a Capacity Payment is due.
'CAPACITY RESERVATION NOTICE' means a notice in the form of PART C of
SCHEDULE 5.
'CAPACITY USER' means a person with an IRU Interest in one or more
Traffic Paths.
'CARRIAGE' means the transmitting, receiving or switching of
communications by means of guided electromagnetic energy.
'CONFIDENTIAL INFORMATION' of a party means all confidential information
given or made available by that party to another party including, without
limitation:
(a) technology or intellectual property owned or licensed to the
party;
(b) industry information, plans, trade secrets, commercially sensitive
information and confidential know-how; and
(c) financial information.
'DISPUTE' has the meaning given in CLAUSE 14.
'ESTIMATED O&M FEE' means, in respect of a period, the amount which SCCL
reasonably estimates will be the O&M Fee for that period.
'FINANCE DOCUMENTS' means the documents entered or to be entered into by
SCCL in connection with the raising of the financial accommodation
referred to in RECITAL C.
'FIRST CAPACITY PAYMENT DATE' means the first day on which a Capacity
Payment must be made in accordance with CLAUSE 5.1 set out in SCHEDULE 2.
'FUTURE MIU-POINTS' means, at a particular time, the aggregate of all
MIU-points scheduled to be granted by SCCL to a purchaser of MIU-points
on dates in the future, subject to relevant payments being made by that
purchaser on those dates.
<PAGE>
3
'HALF-MIU' means a half interest in a MIU. Two Half-MIUs are required to
establish an end to end MIU.
'INDEFEASIBLE RIGHT TO USE' means an indefeasible right to use a
specified portion of the Capacity of one or more Traffic Paths but
conveys no proprietary right to those Traffic Paths.
'INTEREST RATE' means an annual rate of 6% above the rate for US dollar
LIBOR for one month as quoted in THE WALL STREET JOURNAL on the first
Business Day after payment is due.
'IRU INTEREST' means the rights granted under CLAUSE 4.3 by SCCL.
'LANDING PARTY' means each of the parties set out in SCHEDULE 7.
'LANDING PARTY AGREEMENT' means each of the agreements between SCCL and a
Landing Party relating to the provision by the Landing Party of services
required (among other things) to connect segments of the Network.
'LANDING PARTY SERVICES' means the services required by the Purchaser
(among other things) for the use of the Assigned Capacity and to connect
Segments of the Network provided by the Landing Party pursuant to a
Landing Party Agreement.
'MIU' means a unit of capacity mapped on to a VC12 which permits the
effective use/transmission on a Traffic Path of 2.048 Mbits per second in
each direction.
'MIU-POINT' means a MIU-point granted by SCCL to a purchaser in respect
of the Network. In the case of the Purchaser, its MIU Points are as
specified in SCHEDULE 1.
'MIU-POINT CONVERSION FACTOR' means the number of MIU-points required for
a half-MIU on a Traffic Path as set out in, or varied in accordance with,
SCHEDULE 1.
'MIU-POINT HOLDER' has the meaning given in CLAUSE 4.5.
'NETWORK' means the fibre optic submarine cable network to be developed,
constructed and operated by SCCL described in detail in PART A of
SCHEDULE 3.
'NETWORK INTERFACE' means the digital/optical or electrical input/output
ports on the digital/optical distribution frame (excluding the
digital/optical or electrical distribution frame itself) where Capacity
connects with other transmission facilities or equipment.
'O&M ADJUSTMENT' has the meaning given in CLAUSE 5.2.
'O&M COSTS' has the meaning given in SCHEDULE 6.
'O&M FEE' for a Capacity User means the aggregate of the Capacity User's
O&M Segment Costs (as determined in accordance with SCHEDULE 6).
'O&M FORUM' has the meaning given in CLAUSE 9.4
`O&M SEGMENT COST` has the meaning given in SCHEDULE 6.
<PAGE>
4
'PHASE ONE' has the meaning given in PART B of SCHEDULE 3.
'PHASE TWO' has the meaning given in PART B of SCHEDULE 3.
'PRE-SELF RESTORATION PERIOD' has the meaning given in CLAUSE 9.2.
'QUARTER' means each period of three calendar months commencing on 1
January, 1 April, 1 July and 1 October during the Term of this agreement.
'RELATED CORPORATION' means any corporation which is controlled by the
Purchaser or the ultimate holding company of the Purchaser. For the
purposes of this definition the Purchaser or ultimate holding company of
the Purchaser will 'control' a corporation if the Purchaser or its
ultimate holding company (as the case may be) controls more than 50% of
the voting, legal or equitable interests in that corporation.
'RFS DATE' has the meaning given in CLAUSE 3.
'SEGMENT' means each of Segments and Cable Stations which comprise the
Network more particularly described in PART A of SCHEDULE 3.
'TAX' includes a tax, levy, duty or charge (and associated penalty or
interest) imposed or withheld by any government, public authority, a
minister of a government, a government department, a government agency or
entity, a statutory corporation or authority, a semi-government, fiscal
or judicial entity, tribunal or a central bank of or in any relevant
jurisdiction.
'TERM' has the meaning given in CLAUSE 12.1(a).
'TOTAL ASSIGNED CAPACITY' means the aggregate Capacity assigned to
Capacity Users on a particular Traffic Path, expressed in half-MIUs.
'TOTAL CAPACITY' means the total current Capacity of a Traffic Path,
expressed in half-MIUs.
'TRAFFIC PATH' means connectivity on the Network between any two Network
Interfaces, independent of the actual physical links used to connect
those Network Interfaces, each Traffic Path being specified in
SCHEDULE 3.
'UNASSIGNED MIU-POINTS' means at a particular time, the number of
MIU-points granted by SCCL and available for assignment by a purchaser of
MIU-points, calculated in accordance with the following formula:
UNASSIGNED MIU-POINTS = TMP - AMP
where,
'TMP' is the total number of MIU-points that purchaser has been
granted by SCCL prior to that time; and
'AMP' is the number of MIU-points which, prior to that time, have
been the subject of a Capacity Assignment Confirmation Notice
given to that purchaser.
<PAGE>
5
1.2 INTERPRETATION
In this agreement, headings are for ease of reference only and do not
affect the meaning of this agreement and unless the contrary intention
appears:
(a) the recitals form part of this agreement, but not an operative
part;
(b) the singular includes the plural and VICE VERSA and words
importing a gender include other genders;
(c) other grammatical forms of defined words or expressions have
corresponding meanings;
(d) a reference to a clause, paragraph, schedule or attachment is a
reference to a clause or paragraph of or schedule or attachment to
this agreement and a reference to this agreement includes any
schedules and attachments;
(e) a reference to a document or agreement, including this agreement,
includes a reference to that document or agreement as novated,
altered or replaced from time to time;
(f) a reference to 'US$', '$US', 'dollar' or '$' is a reference to the
lawful currency of the United States of America;
(g) a reference to a specific time for the performance of an
obligation is a reference to that time in the state, territory,
country or other place where that obligation is to be performed;
(h) a reference to a person includes its successors and permitted
assigns; and
(i) words and expressions importing natural persons include
partnerships, bodies corporate, associations, governments and
governmental and local authorities and agencies.
2. CONDITIONS
2.1 CONDITION PRECEDENT
This agreement (other than CLAUSES 1, 2, 13, and 15) is conditional on
and will have no effect unless and until:
(a) each Finance Document has been executed by each party to it; and
(b) each of the conditions precedent to drawdown under the Finance
Documents (other than the provision of a drawdown notice and this
agreement becoming unconditional) has been satisfied or waived.
<PAGE>
6
2.2 CONDITION SUBSEQUENT
The Purchaser will have no obligation to pay:
(a) any Capacity Payments to SCCL, and SCCL will have no obligation to
assign Capacity to the Purchaser, if the RFS Date does not occur
by 31 March 2001; or
(b) any Capacity Payments due after 31 March 2002 if SCCL has not
notified the Purchaser that Phase Two is ready for service prior
to 31 March 2002.
2.3 TERMINATION
This agreement will terminate if each of the conditions precedent in
CLAUSE 2.1 have not been satisfied or waived by each of the parties on or
before 31 March 2001 (or such later date as the parties may agree in
writing).
3. READY FOR SERVICE
3.1 RFS DATE
SCCL will notify the Purchaser in writing of the date when Phase One is
ready for service ('RFS DATE').
3.2 EARLIER RFS FOR A TRAFFIC PATH
If a particular Traffic Path is ready for service before the RFS Date,
SCCL may notify the Purchaser that that Traffic Path is ready for service
and permit the Purchaser to elect:
(a) to make its first Capacity Payment in advance of the First
Capacity Payment Date; and
(b) on making that payment, to be granted that number of MIU-points
specified in ITEM 2 of SCHEDULE 1 which it would have been granted
if it had made its First Capacity Payment on the First Capacity
Payment Date specified in SCHEDULE 2.
3.3 EARLIER ASSIGNMENT OF CAPACITY
If the Purchaser elects to pay for and receive MIU-points in advance of
the first Capacity Payment Date in accordance with CLAUSE 3.2 then the
Purchaser may give to SCCL a Capacity Assignment Notice in accordance
with CLAUSE 4.2 in respect of an assignment of Capacity on the Traffic
Path referred to in CLAUSE 3.2.
<PAGE>
7
4. GRANT OF MIU-POINTS AND IRU INTEREST
4.1 MIU-POINTS
On each Capacity Payment Date, SCCL will, subject to the Purchaser paying
to SCCL the Capacity Payment payable by the Purchaser on that date, grant
to the Purchaser the number of MIU-points specified in item 2 of SCHEDULE
1 in respect of that Capacity Payment Date.
4.2 ASSIGNMENT OF CAPACITY
(a) At any time on or after the First Capacity Payment Date the
Purchaser may, by giving to SCCL a Capacity Assignment Notice,
request SCCL to convert all or part of the Purchaser's Unassigned
MIU-points at that date into half-MIUs for assignment to one or
more Traffic Paths by dividing the MIU-points the Purchaser has
requested be assigned to a particular Traffic Path by the MIU-
point Conversion Factor for that Traffic Path.
(b) If the Purchaser requires Capacity for use with another Capacity
User, the Purchaser must specify in the relevant Capacity
Assignment Notice the other Capacity User with whom its Capacity
will be matched.
(c) Subject to:
(i) the request for assignment of Capacity set out in the
relevant Capacity Assignment Notice not exceeding the
Purchaser's Unassigned MIU-points;
(ii) there being sufficient Available Capacity on the Traffic
Path or Traffic Paths on which the Purchaser wishes to be
assigned Capacity; and
(iii) the assignment of the Capacity not being prohibited by any
Regulation,
SCCL will, within 5 Business Days of receiving the Capacity
Assignment Notice:
(A) assign to the Purchaser, on each of the Traffic Paths
identified in the Capacity Assignment Notice, the Capacity
requested in that notice and determined in accordance with
PARAGRAPH (a) above; and
(B) give to the Purchaser a Capacity Assignment Confirmation
Notice setting out the Capacity the Purchaser has been
assigned in accordance with this clause.
4.3 GRANT OF IRU IN RESPECT OF ASSIGNED CAPACITY
Subject to this agreement, by giving to the Purchaser a Capacity
Assignment Confirmation Notice in accordance with CLAUSE 4.2, SCCL grants
to the Purchaser an Indefeasible Right to Use the Assigned Capacity
specified in that notice and agrees to cause Landing Party Services to be
provided to the Purchaser from the date of that notice until the end of
the Term.
<PAGE>
8
4.4 PURCHASER'S OBLIGATIONS
The Purchaser must:
(a) comply with all reasonable requests made by SCCL in relation to
the Purchaser's Assigned Capacity or in relation to the Network;
(b) relinquish the Purchaser's Assigned Capacity, at such times as
SCCL may reasonably require from time to time, to permit SCCL or
another person to make any tests and adjustments that may be
necessary for that capacity to be provided efficiently and for the
Network to be maintained in efficient working order; and
(c) obtain and maintain all Authorisations required for it to enter
into and to perform its obligations under this agreement.
4.5 ASSIGNMENT OF UNASSIGNED AND FUTURE MIU-POINTS
Within 30 days of the date on which the aggregate of the total number of:
(a) Unassigned MIU-points; and
(b) Future MIU-points,
held by holders of MIU-points (each a 'MIU-POINT HOLDER') equals the
Available Capacity on any Traffic Path, SCCL will give to all MIU-point
Holders, written notice ('AVAILABLE CAPACITY NOTICE'):
(i) that the aggregate of the total number of Unassigned MIU-points
held by MIU-point Holders and Future MIU-points equals the
Available Capacity on the relevant Traffic Path; and
(ii) that SCCL will:
(A) in relation to Unassigned MIU-points, assign on that
Traffic Path Unassigned MIU-points held by a MIU-point
Holder if such an assignment is requested by that MIU-point
Holder in accordance with CLAUSE 4.2 within 30 days of the
date of the Available Capacity Notice; and
(B) in relation to Future MIU-points, reserve on that Traffic
Path the amount of Capacity specified by a MIU-point
Holder in a Capacity Reservation Notice delivered to SCCL
within 30 days of the date of the Available Capacity
Notice.
For the purposes of CLAUSE 4.5 (ii)(B), SCCL will not reserve on
a Traffic Path Capacity requested to be reserved in a Capacity
Reservation Notice which exceeds the amount of Capacity determined
by dividing the aggregate of the Unassigned MIU-points and Future
MIU-points held by the relevant MIU-point Holder at the date of
that notice by the MIU-point Conversion Factor for that Traffic
Path.
<PAGE>
9
5. PAYMENT
5.1 PAYMENTS FOR PURCHASER'S ASSIGNED CAPACITY
The Purchaser must pay to SCCL the Capacity Payments on the Capacity
Payment Dates set out in SCHEDULE 2 on the terms and conditions set out
in SCHEDULE 4.
5.2 PAYMENT OF O&M FEES
(a) The Purchaser must pay to SCCL, in accordance with CLAUSE 5.3, the
Estimated O&M Fee for each quarter.
(b) An adjustment payment (the 'O&M ADJUSTMENT') will be made each
quarter to reflect and appropriately compensate for any difference
between:
(i) the O&M Fee for preceding quarters; and
(ii) the Estimated O&M Fee paid to SCCL by the Purchaser for
those preceding quarters.
(c) The O&M Adjustment will be made as follows:
(i) if the O&M Fee for the preceding quarter exceeds the
Estimated O&M Fee paid to SCCL by the Purchaser for the
preceding quarter, the Purchaser will pay to SCCL an
amount equal to the O&M Adjustment; and
(ii) if the O&M Fee for the preceding quarter is less than the
Estimated O&M Fee paid to SCCL by the Purchaser for the
preceding quarter, SCCL will pay to the Purchaser an
amount equal to the O&M Adjustment.
5.3 INVOICING
(a) Promptly following the beginning of each quarter (commencing with
the quarter in which the RFS Date is expected occur, or earlier, if
CLAUSE 3.2 or CLAUSE 3.3 apply), SCCL will issue an invoice to the
Purchaser detailing:
(i) in respect of each Traffic Path on which the Purchaser has
Assigned Capacity, the amounts (if any) payable by the
Purchaser to SCCL:
(A) in respect of the Estimated O&M Fees for that
quarter;
(B) under CLAUSE 5.2(c)(i) and which have not
previously been included in an invoice under this
CLAUSE 5.3; and
(C) under CLAUSE 6 and which have not previously been
included in an invoice under this CLAUSE 5.3; and
(ii) the amount (if any) payable by SCCL to the Purchaser under
<PAGE>
10
CLAUSE 5.2(c)(ii) and which has not previously been
included in an invoice under this CLAUSE 5.3; and
(iii) the net amount payable in respect of O&M Fees by the
Purchaser to SCCL (or by SCCL to the Purchaser).
(b) If the net amount specified in an invoice under CLAUSE 5.3(a)(iii)
is payable by the Purchaser to SCCL, then the Purchaser must pay
that net amount to SCCL within 30 days of the date on which the
invoice was issued, in freely transferable funds, without set-off
or counterclaim and free and clear of any withholding or deduction
(unless and to the minimum extent required by law).
(c) If the net amount specified in an invoice under CLAUSE 5.3(a)(iii)
is payable by SCCL to the Purchaser, then SCCL must pay that net
amount to the Purchaser within 30 days of the date on which the
invoice was issued. SCCL must pay that amount free and clear of
any withholding or deduction (unless and to the minimum extent
required by law) but may set off against that amount any amount
owing to it by the Purchaser on any account whatever.
5.4 INTEREST ON UNPAID AMOUNTS
Any amount payable by either party under this agreement which is not paid
when due will bear interest from the due date until the date of actual
payment calculated on a daily basis at the Interest Rate. Interest under
this CLAUSE 5.4 will be payable on demand.
5.5 DISPUTED INVOICES
(a) If the Purchaser disputes the whole or any part of an amount
stated to be payable by either party in an invoice provided under
CLAUSE 5.3, then the Purchaser must, by the date referred to in
CLAUSE 5.3(b) notify SCCL that a dispute has arisen in accordance
with SCHEDULE 10.
(b) If and to the extent that the amount disputed is subsequently
found to be payable, the party obliged to pay it must pay that
amount together with interest in accordance with CLAUSE 5.4, as if
that amount were an overdue amount which became due on the date
which is ten Business Days after the date of the invoice in which
it was included.
5.6 NO DEDUCTIONS FOR WITHHOLDING TAXES
If the Purchaser must deduct or withhold Taxes from a payment to SCCL it
must:
(a) make those deductions or withholdings (or both); and
(b) pay the full amount deducted or withheld as required by the
relevant law; and
(c) give SCCL a receipt for each payment; and
(d) increase its payment to SCCL to an amount which will result in
SCCL receiving the full amount which would have been received if
no deduction or withholding had been required.
<PAGE>
11
5.7 OTHER TAXES
Payments under this agreement are exclusive of any applicable value added
taxes or other federal, state or local sales, use, excise, privilege,
gross receipts and other similar taxes, duties, and charges imposed by
any governmental authority. Such taxes duties and charges (if any) will
be charged to and paid by the Purchaser in addition to the relevant
payment unless the Purchaser provides SCCL with a valid tax exemption
certificate or other evidence reasonably satisfactory to SCCL that the
Purchaser is not subject to such taxes, duties and charges.
6. ADDITIONAL COSTS
The Purchaser must pay to SCCL any amount incurred by SCCL or for which
SCCL may be liable in connection with the installation of any additional
equipment or other costs incurred because of the use by the Purchaser,
its lessees, customers or any other person associated with the Purchaser
of:
(a) the Purchaser's Assigned Capacity; or
(b) any other capacity of the Network.
7. SCCL TO KEEP RECORDS OF COSTS
7.1 RECORDS
SCCL must keep sufficient records for five years of all O&M Costs and the
additional costs incurred as described in CLAUSE 6.
7.2 ACCESS TO RECORDS
(a) Subject to CLAUSE 7.2(b), the Purchaser is entitled on giving
reasonable notice to access not more than once per year, during
SCCL's normal business hours through an employee of, or consultant
or adviser to, the Purchaser (at the cost of the Purchaser ) to
inspect the records of SCCL referred to in CLAUSE 7.1.
(b) Before an inspection occurs or access is permitted under
CLAUSE 7.2(a), an employee of, or consultant or adviser to, the
Purchaser must sign a confidentiality undertaking in favour of
SCCL containing obligations substantially the same as those
outlined in CLAUSE 13.
7.3 PURCHASER AUDIT
On reasonable request from the Purchaser, SCCL will co-operate to permit
an audit of the books and records relating to payments received from the
Purchaser in respect of O&M Costs under this agreement. Each party must
consent to the choice of the independent third party performing the
audit, which consent must not be unreasonably withheld.
7.4 COST OF AUDIT AND ADJUSTMENT PAYMENTS
<PAGE>
12
If the audit shows that the Purchaser has:
(a) paid to SCCL more than 5% over the amount determined by the audit
to have been properly payable, SCCL will pay the cost of the
audit; or
(b) paid to SCCL not more than 5% over the amount determined by the
audit to have been properly payable, the Purchaser will pay the
cost of the audit, including the reasonable costs incurred by SCCL
in complying with the audit,
but in any event the parties will make any adjustment payment necessary
to correct any error in the amounts invoiced.
8. CHANGE IN CAPACITY AND CONFIGURATION
8.1 NOTIFICATION OF CHANGES
As soon as practicable after becoming aware of any material reduction in
the Capacity of any Traffic Path, SCCL must notify the Purchaser in
writing of:
(a) the extent of the reduction; and
(b) if the reduction is not of a permanent nature, the likely period
during which the Capacity of the Traffic Path will be affected.
8.2 REDUCTION OF PURCHASER'S ASSIGNED CAPACITY
If the Capacity of a Traffic Path is reduced as a result of physical
deterioration or for other reasons below the Total Assigned Capacity of
that Traffic Path, SCCL will reduce the Purchaser's Assigned Capacity for
that Traffic Path in the same proportion as the Total Assigned Capacity
for that Traffic Path has been reduced, rounded down to the nearest MIU.
8.3 ADDITION OF SEGMENTS, CABLE STATIONS AND LANDING PARTIES
SCCL may, from time to time, add or vary Segments, Cable Stations, or
Landing Parties. In that event, SCCL will advise the Purchaser and issue
replacement schedules 3,6,7 and 9 as necessary which will, on issue, be
incorporated into and form part of this agreement.
9. FORUMS
9.1 ASSIGNMENT, ROUTING AND RESTORATION FORUM
During the term of this agreement, SCCL will, from time to time, convene
a forum at which SCCL will disseminate information and Capacity Users may
discuss with SCCL matters relating to assignment, routing and, in
particular, external restoration plans for the Network (`AR&R FORUM').
The protocol for the AR&R Forum is set out in SCHEDULE 8.
<PAGE>
13
9.2 COSTS OF EXTERNAL RESTORATION
(a) Subject to PARAGRAPH (b), during the period between the RFS Date
and the date SCCL notifies the Purchaser that Phase Two is ready
for service ('PRE-SELF RESTORATION PERIOD'), all costs incurred by
SCCL in connection with the acquisition of restoration capacity
will be shared by the Capacity Users which have requested the
provision of restoration capacity at AR&R Forums held in
accordance with SCHEDULE 8.
(b) SCCL will, during the Pre-Self Restoration Period, apply any
surplus revenue it receives from the provision of restoration
capacity on the Network to other submarine cable networks after
payment of all related costs, to reduce the aggregate amount
payable by the Capacity Users referred to in PARAGRAPH (a) above
in accordance with policies formulated in conjunction with AR&R
Forums held in accordance with SCHEDULE 8.
9.3 PURCHASER'S RESPONSIBILITIES
The Purchaser must:
(a) promptly after it becomes aware of any material deterioration or
impairment of the performance of the Network, notify SCCL of the
relevant circumstances; and
(b) on request by SCCL, conduct any test which SCCL reasonably
requires,
and SCCL may, in accordance with the procedures to be developed by the
AR&R Forum, take steps to restore the performance of the Network
including, without limitation, requiring the Purchaser to implement and
co-operate in the implementation of those procedures.
9.4 O&M FORUM
During the term of this agreement, SCCL will, from time to time, convene
a forum at which SCCL and Capacity Users will discuss and decide certain
matters relating to the operation and maintenance of the Network ('O&M
FORUM'). The protocol for the O&M Forum is set out in SCHEDULE 9.
10. ACKNOWLEDGMENT AND WARRANTIES
10.1 REPRESENTATIONS AND WARRANTIES
Each party represents and warrants to the other that:
(a) it is a corporation duly incorporated and validly existing and in
good standing under the laws of the jurisdiction of its
incorporation;
(b) it has the corporate power to enter into and perform its
obligations under this agreement and to carry out the transactions
contemplated by this agreement;
(c) it has taken all necessary corporate action to authorise the entry
into and
<PAGE>
14
performance of this agreement and to carry out the transactions
contemplated by this agreement;
(d) this agreement constitutes a valid and binding obligation; and
(e) neither the execution and performance by it of this agreement nor
any transaction contemplated by this agreement will violate in any
respect any provision of:
(i) its constituent documents; or
(ii) any other document, agreement or other arrangement binding
on it or its assets.
10.2 DISCLAIMER
Each party acknowledges that:
(a) it has relied on its own enquiries in respect of all matters
relating to this agreement and has not relied on any
representation, warranty, condition or statement made by or on
behalf of the other party other than as set out in this agreement;
and
(b) any conditions or warranties which may otherwise be implied by law
into this agreement are expressly excluded to the extent permitted
by law,
and each party releases the other party from all actions, claims, demands
and liability (whether or not known) which it may have or claim to have,
or but for this release, it might have had against the other party
arising out of any representation, warranty, covenant or provision not
set out or referred to in this agreement.
10.3 REPRESENTATIONS AND WARRANTIES BY THE PURCHASER
The Purchaser represents and warrants that the exercise by the Purchaser
of the IRU Interest and any equipment used by it in connection with its
exercise of the IRU Interest will not:
(a) interfere with any of the facilities comprising the Network or
other capacity or facilities of other Capacity Users, Landing
Parties or persons providing maintenance to the Network;
(b) impair privacy of any communications over those facilities;
(c) cause damage to plant or equipment; or
(d) create hazards to any of the persons referred to in CLAUSE 10.3(a),
any owner of the facilities comprising the Network, any of their
respective employees, contractors or agents or the public
generally.
<PAGE>
15
11. LIABILITY
11.1 EXCLUSION
SCCL will not be liable to the Purchaser for any loss or damage (direct,
indirect or consequential and whether in contract or tort or under
statute or otherwise) which the Purchaser may suffer, incur or be liable
to pay as a result, directly or indirectly, of:
(a) any failure to provide or any interruption in the provision of
Carriage or any failure in or breakdown of the Network (or any
part of it) or any facilities associated with the Network;
(b) any defect or deficiency in the quality, availability or
reliability of Carriage or the Network (or any part of it) or any
facilities associated with the Network; or
(c) the failure of Carriage, the Network (or any part of it) or any
facilities associated with the Network to comply with any
particular technical specification,
for whatever cause and whether or not the relevant circumstances are
within the control of SCCL.
11.2 NO WARRANTY
Without limiting CLAUSE 11.1, any express or implied warranty as to the
quality, availability, reliability or other technical specification of
Carriage, the Network (or any part of it) or any facilities associated
with the Network is, to the extent permitted by law, excluded.
11.3 RELEASE
The Purchaser unconditionally releases SCCL from all actions, suits,
claims and demands (whether or not known) under or in connection with
this agreement, any breach by SCCL of any term, condition, representation
or warranty or other obligation under this agreement and the
circumstances giving rise to that breach, to the extent that the
Purchaser would otherwise be entitled to claim or to recover an amount in
respect of which liability is excluded under this CLAUSE 11.
11.4 INDEMNITY IN RESPECT OF THIRD PARTY CLAIMS
The Purchaser must defend and indemnify SCCL from and against all
liabilities, expenses, damages, losses and costs (including legal costs
on a full indemnity basis and whether incurred or awarded against a
party) which are suffered or incurred by SCCL to the extent that those
liabilities, expenses, damages, losses and costs arise, whether directly
or indirectly, in connection with a claim or demand made, or proceedings,
action or suit commenced by, a person to whom the Purchaser provides
services or who, directly or indirectly, uses any of the Purchaser's
Assigned Capacity on the Network.
<PAGE>
16
12. TERMINATION
12.1 TERM
(a) This agreement commences on the date of this agreement and expires
on the 15th anniversary of the RFS Date or at the end of the
period by which this agreement is extended in accordance with
clause 12.1(b) ('TERM').
(b) Subject to clause 12.1(c), the Term may be extended up to five
times, in each case by a period of one year, by the Purchaser
giving SCCL written notice of its intention to extend not less
than 3 months prior to the end of the Term.
(c) The Term must expire on or before the 20th anniversary of the RFS
Date.
12.2 TERMINATION
This agreement will be terminated:
(a) if SCCL notifies the Purchaser of termination under CLAUSE 12.3;
or
(b) at the end of the Term.
12.3 TERMINATION BY SCCL
SCCL may terminate this agreement with immediate effect by giving notice
to the Purchaser if:
(a) the Purchaser fails to pay any amount when due under this
agreement and does not, within 15 Business Days of being requested
to do so by notice from SCCL, remedy that failure;
(b) the Purchaser materially breaches any other provision of this
agreement and does not, within 15 Business Days of being requested
to do so by notice from SCCL, remedy that breach where it is
capable of being remedied;
(c) the Purchaser materially breaches any provision of this agreement,
which breach is not capable of being remedied;
(d) the Purchaser disposes of the whole or a substantial part of its
assets or agrees to do so; or
(e) an Insolvency Event occurs in relation to the Purchaser.
12.4 WITHOUT PREJUDICE
Termination of this agreement will be without prejudice to any accrued
rights or remedies of either party.
12.5 CONTINUING OBLIGATIONS
The obligations imposed on the parties under CLAUSES 11, 13 and 14 are
continuing obligations and survive termination of this agreement.
<PAGE>
17
13. CONFIDENTIALITY
13.1 CONFIDENTIAL INFORMATION
Each party agrees in relation to the Confidential Information of the
other party:
(a) to keep confidential the Confidential Information;
(b) to use the Confidential Information solely for the purposes of the
performance of its obligations and the exercise of its rights
under this agreement; and
(c) to disclose the Confidential Information only to those of its
employees, advisors, related entities and shareholders who have a
need to know (and only to the extent each has a need to know) and
who are aware and agree that the Confidential Information must be
kept confidential.
13.2 EXCEPTIONS
The obligations of confidentiality under this agreement do not extend to
information which (whether before or after this agreement is executed):
(a) is disclosed to a party under this agreement, but at the time of
disclosure is rightly known to that party and not subject to an
obligation of confidentiality on that party;
(b) at the time of disclosure is within the public domain or after
disclosure comes into the public domain other than by a breach or
breaches of any obligation under this CLAUSE 13; or
(c) is required by law or the rules of any securities exchange to be
disclosed and the party required to make the disclosure ensures
that information is disclosed only to the extent required.
14. RESOLUTION OF DISPUTES
A party must not start court proceedings (except proceedings seeking
interlocutory relief) in respect of a dispute arising out of this
agreement ('DISPUTE') unless it has complied with the procedures set out
in SCHEDULE 10.
15. RELATIONSHIP BETWEEN PARTIES
This agreement does not create a relationship of employment, agency or
partnership between the parties.
<PAGE>
18
16. ASSIGNMENT
16.1 PURCHASER
(a) The Purchaser must not assign, mortgage, charge, encumber or
otherwise deal with (or purport to do so) any of its rights or
obligations under this agreement without the prior written consent
of SCCL, which consent may not be unreasonably withheld or
delayed. For the purposes of this CLAUSE 16.1, SCCL's consent will
not be unreasonably withheld or delayed if it is withheld in
accordance with the Finance Documents.
(b) Despite CLAUSE 16.1(a), the Purchaser may assign all its rights
under this agreement to a Related Corporation of the Purchaser.
(c) Any assignment will not affect the assignor's liability in
relation to the performance of all the Purchaser's obligations
under this agreement unless:
(i) the assignee is a corporation of at least equivalent
financial substance and technical expertise as the
assignor;
(ii) the assignee enters into a deed under which it agrees to
be bound by this agreement as 'Purchaser'; and
(iii) SCCL, in its absolute discretion, agrees in writing to
release the assignor from its obligations under this
agreement.
16.2 SCCL
SCCL may assign, mortgage, charge, encumber or otherwise deal with (or
purport to do so) any right or obligation under this agreement without
the prior written consent of the Purchaser.
17. WAIVER
The failure of a party at any time to require performance of any
obligation under this agreement is not a waiver of that party's right:
(a) to insist on performance of, or claim damages for breach of, that
obligation unless that party acknowledges in writing that the
failure is a waiver; and
(b) at any other time to require performance of that or any other
obligation under this agreement.
18. GOVERNING LAW AND JURISDICTION
18.1 GOVERNING LAW
This agreement is governed by the law applicable in New Zealand.
<PAGE>
19
18.2 SUBMISSION TO JURISDICTION
Each party submits to the non-exclusive jurisdiction of the courts of New
Zealand.
19. NOTICE
19.1 METHOD OF SERVICE
A party giving notice or notifying under this agreement must do so in
writing in the English language:
(a) directed to the recipient's address specified in this clause, as
varied by any notice; and
(b) hand delivered or sent by prepaid mail (by air, if international)
or facsimile to that address, except as provided below,
The parties' addresses and facsimile numbers are:
Attention: Company Secretary
Southern Cross Cables Limited
41 Cedar Avenue, Hamilton HM12, Bermuda
Fax: +1 441 292 8666
Attention: Legal Department
WorldxChange Communications
9999 Willow Creek Road
San Diego
California 92131
USA
Fax:+1 619 452 3780
A party may from time to time by notice to the other party vary its
address for service of notices under this clause. Any notice to cure
pursuant to Section 12.3 must be hand delivered.
19.2 TIME OF SERVICE
A notice given in accordance with CLAUSE 19.1 is taken to be received:
(a) if hand delivered, on delivery during business hours of the
recipient;
(b) if sent by prepaid mail to an address within the same country,
three Business Days after the date of posting;
(c) if sent by prepaid mail to an address within another country, ten
Business Days after the date of posting;
(d) if sent by facsimile, when the sender's facsimile system generates
a message confirming successful transmission of the total number
of pages of the notice unless:
<PAGE>
20
(i) within 24 hours after that transmission, the recipient
informs the sender that it has not received the entire
notice; or
(ii) that message is generated at a time which is not a
business day or is after 5pm (local time) in the place to
which it is sent, in which case the notice will be taken
to be received at 9.00am (local time) on the next
following business day in the place to which it is sent.
20. ENTIRE AGREEMENT
This agreement including its schedules and any attachments:
(a) constitutes the entire agreement between the parties as to its
subject matter; and
(b) in relation to that subject matter, supersedes any prior
understanding or agreement between the parties and any prior
condition, warranty, indemnity or representation imposed, given or
made by a party.
21. SEVERABILITY
Any provision in this agreement which is invalid or unenforceable in any
jurisdiction is to be read down for the purposes of that jurisdiction, if
possible, so as to be valid and enforceable, and is otherwise capable of
being severed to the extent of the invalidity or unenforceability,
without affecting the remaining provisions of this agreement or affecting
the validity or enforceability of that provision in any other
jurisdiction.
22. AMENDMENT
This agreement may only be amended, supplemented or waived in writing
signed by each party.
23. COUNTERPARTS
This agreement may be executed in counterparts both of which together
will be taken to constitute one instrument.
24. ATTORNEYS
Where this agreement is executed on behalf of a party by an attorney,
that attorney by executing declares and warrants that the attorney has
been duly appointed and has no notice of the revocation of the power of
attorney under the authority of which the attorney executes the agreement
on behalf of that party.
<PAGE>
21
EXECUTED as an agreement.
SIGNED for and on behalf of )
SOUTHERN CROSS CABLES LIMITED ) /s/ [ILLEGIBLE]
By /s/ [ILLEGIBLE] ) --------------------
---------------------------- )
Its Director
----------------------------
in the presence of:
/s/ Debra Randall
- -------------------------------
Signature of Witness
Debra Randall
- -------------------------------
Name of Witness
Executive Secretary
- -------------------------------
Occupation
#3 Manse Rd., Bermuda
- -------------------------------
Address
SIGNED for and on behalf of )
WORLDxCHANGE COMMUNICATIONS )
By /s/ [ILLEGIBLE] ) --------------------
---------------------------- )
Its Chief Executive Officer
----------------------------
in the presence of:
/s/ Desiree M. Kates
- -------------------------------
Signature of Witness
Desiree M. Kates
- -------------------------------
Name of Witness
Executive Assistant
- -------------------------------
Occupation
9999 Willow Creek Rd S.D. CA 92131
- -------------------------------
Address
<PAGE>
22
SCHEDULE 2 - PAYMENT SCHEDULE
<TABLE>
<CAPTION>
--------------------------------------------------------------------
CAPACITY PAYMENT SCHEDULE
--------------------------------------------------------------------
AMOUNT OF CAPACITY PAYMENT ($US) CAPACITY PAYMENT DATE
--------------------------------------------------------------------
<S> <C>
$5,000,000 RFS Date
--------------------------------------------------------------------
$2,000,000 1st Anniversary of RFS
--------------------------------------------------------------------
$2,000,000 2nd Anniversary of RFS
--------------------------------------------------------------------
$0 3rd Anniversary of RFS
--------------------------------------------------------------------
$0 4th Anniversary of RFS
--------------------------------------------------------------------
TOTAL: $9,000,000
--------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 4 - PAYMENT TERMS
By the 15th of June 1998, the Purchaser will deposit the sum of US$1,800,000
with a trustee mutually agreed by the Purchaser and SCCL ('Trustee');
The Trustee will place the sum on interest bearing deposit and will only
disburse the sum and any interest earned thereon in accordance with the terms
set out in this schedule.
On the RFS Date the Trustee will pay the US$1,800,000 plus all interest earned
on that amount to SCCL which will be deemed to be a US$1,800,000 part payment of
the Capacity Payment due on RFS Date.
If this agreement terminates in accordance with clause 2.3 or if the RFS Date
does not occur by 31 March 2001, the Trustee will return the deposit and all
interest earned thereon to the Purchaser.
SCCL will waive this requirement for the Purchaser if and for so long as the
Purchaser maintains a minimum long-term credit rating of BBB or higher as
assessed by a credit reporting agency nominated by SCCL.
<PAGE>
LIST OF OMITTED SCHEDULES
The following Schedules to the Southern Cross Cable Network Capacity
Use Agreement have been omitted from this Exhibit and shall be furnished
supplementally to the Commission upon request:
Schedule 1 - MIU - Points for Bonus Plan
Schedule 3 - Part A - Network Description
Part B - Phases One and Two
Part C - Traffic Paths
Schedule 5 - Part A - Capacity Assignment Notice
Part B - Capacity Assignment Confirmation Notice
Part C - Capacity Reservation Notice
Schedule 6 - O & M Cost Sharing Arrangement
Schedule 7 - Landing Parties
Schedule 8 - Terms of Reference for Assignment, Routing &
Restoration Forum
Schedule 9 - Operations and Maintenance Forum
Schedule 10 - Resolution of Disputes
<PAGE>
TAINO-CARIB CABLE SYSTEM
INDEFEASIBLE RIGHT OF USER AGREEMENT
BETWEEN
AT&T CORP.
AND
TRANSOCEANIC COMMUNICATIONS, INCORPORATED
AND
CTS COMMUNICATION TELESYSTEMS INTERNATIONAL
THIS AGREEMENT is made and entered into as of this 26th day of October,
1995, between and among AT&T Corp., a corporation organized and existing
under the laws of the State of New York and having an office at 340 Mount
Kemble Avenue, Morristown, New Jersey 07960 U.S.A. (hereinafter called "AT&T"
which expression shall include its successors and assigns), Transoceanic
Communications, Incorporated, a corporation organized and existing under the
laws of the State of Delaware and having an office at 340 Mount Kemble
Avenue, Morristown, New Jersey 07960 U.S.A. (hereinafter referred to as
"TOCI" which expression shall include its successors and assigns) and CTS
Communication Telesystems International, a corporation organized and existing
under the laws of California and having an office at 4350 LaJolla Village
Drive, Suite 100, San Diego, CA 92122, (hereinafter referred to as
"Purchaser" which expression shall include its successors and assigns).
WITNESSETH:
WHEREAS, AT&T and TOCI (hereinafter collectively referred to as
"Grantors") have entered into an agreement with other international
telecommunications entities dated January 17, 1992, as amended by the First
Amendment dated March 24, 1992, as
<PAGE>
- 2 -
amended by the Second Amendment dated October 13, 1992 and as amended by the
Third Amendment dated December 23, 1992 (hereinafter collectively referred to as
the "TAINO-CARIB C&MA"), which provides for the construction, maintenance, and
operation of a submarine cable system connecting Puerto Rico to St. Thomas in
the United States Virgin Islands and to Tortola in the British Virgin Islands
(hereinafter referred to as the "Cable System"); and
WHEREAS, the Cable System consists of the following Segments and
Subsegments:
Segment A: A cable station in Miramar, Puerto Rico.
Segment B: A cable station in Isla Verde, Puerto Rico.
Segment C: A cable station at Magens Bay, St. Thomas, United States
Virgin Islands, consisting of the following three subsegments:
Subsegment C1: That part of the cable station at Magens Bay associated
with the optical fiber pairs in Subsegment E3 which connect to
Segment A.
Subsegment C2: That part of the cable station at Magens Bay associated
with the optical fiber pairs in Subsegment E3 which connect to
Segment B.
<PAGE>
- 3 -
Subsegment C3: That part of the cable station at Magens Bay associated
with the optical fiber pairs in Subsegment E4 which connect to
Segment D.
Segment D: A cable station in Chalwell, Tortola, British Virgin
Islands.
Segment E: The whole of the submarine cable provided between and
among, and including, the System Interfaces at the cable stations at Miramar,
Isla Verde, Magens Bay and Chalwell, consisting of the following four
subsegments:
Subsegment E1: That part of Segment E between the System Interface at
Segment A and the Branching Unit, including a one-third portion of the
Branching Unit, and containing six (6) optical fiber pairs, three (3)
of which are connected at the Branching Unit to three (3) optical
fiber pairs in Subsegment E2 and the remaining three (3) of which are
connected at the Branching Unit to three (3) optical fiber pairs in
Subsegment E3.
Subsegment E2: That part of Segment E between the System Interface at
Segment B and the Branching Unit, including a one-third portion of the
Branching Unit, and containing six (6) optical fiber pairs, three (3)
<PAGE>
- 4 -
of which are connected at the Branching Unit to three (3) optical
fiber pairs in Subsegment E1 and the remaining three (3) of which are
connected at the Branching Unit to three (3) optical fiber pairs in
Subsegment E3.
Subsegment E3: That part of Segment E between the System Interfaces at
Subsegments C1 and C2 and the Branching Unit, including a one-third
portion of the Branching Unit, and containing six (6) optical fiber
pairs.
Subsegment E4: That part of Segment E between the System Interfaces at
Subsegment C3 and Segment D, and containing six (6) optical fiber
pairs.
Segments A, B, C, and D shall also include:
(i) an appropriate share of land and buildings at the specified
locations for the cable landing and for the cable route between a
cable station and its associated Cable Landing Point, and an
appropriate share of common services and equipment (other than
multiplex equipment described in (ii) below) solely associated
with the Taino-Carib System, but not as part of Segment E; and
<PAGE>
- 5 -
(ii) multiplex equipment in each cable station required to
operate and interface between the 140 Mbps Digital Input/Output
Ports on the digital distribution frame (excluding the digital
distribution frame itself) and the multiplex equipment's nominal
2.048 Mbps operating point, associated solely and directly with
assigned capacity in the Taino-Carib Cable System.
Segment E shall also include:
(a) all transmission and special test equipment, in each cable
station, directly associated with the Taino-Carib Cable System
submersible plant;
(b) the power equipment provided wholly for use with the
equipment referenced in (i) above;
(c) the sea cable and electrode system and/or the land earth
system, if any, or an appropriate share thereof.
WHEREAS, the Design Capacity of Subsegments E1, E2, E3, and E4 of the
Taino-Carib Cable System shall consist of twenty-four (24) Basic System Modules.
Each Basic System Module shall provide sixty-three (63) MIUs or any increase or
decrease pursuant to the TAINO-CARIB C&MA.
<PAGE>
- 6 -
WHEREAS, a MIU is designated as the Minimum Investment Unit in the
Cable System allowing the effective use of 2.048 Mbit/s (30 channels) and the
additional 162,539.68 bps required for multiplexing in each direction; and
WHEREAS, Grantors have been assigned the whole interest in certain
MIUs in the Cable System; and
WHEREAS, Purchaser desires to acquire from Grantors and Grantors are
willing to grant to Purchaser, on an indefeasible right of user ("IRU") basis, a
whole-interest in certain MIUs in the Cable System; and
WHEREAS, the parties desire to define the terms and conditions under
which said IRU interests in the Cable System will be granted to Purchaser;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein expressed, covenant and agree with each other as follows:
1. Effective as of November 1, 1995, Grantors grant to Purchaser for
the term of this Agreement the following:
(a) whole-interests, on an IRU basis, in (i) 1 MIU in the Puerto
Rico - Branching Unit optical fiber path of
<PAGE>
- 7 -
Subsegment E1; and (ii) 1 MIU in the Branching Unit - St. Thomas optical fiber
path of Subsegment E3; and
(b) an interest, on an IRU basis, in Segment A and Subsegments
C1 to the extent required by Purchaser to use its IRU interests in MIUs
in the Cable System, as acquired in subparagraph 1(a) directly above.
2. For the IRU interest granted pursuant to this Agreement,
Purchaser shall pay Grantors the following:
(a) a lump sum amount equal to US$18,978 allocable to the
whole-interests in MIUs granted to Purchaser hereunder. Purchaser shall pay
such lump sum amount to Grantors within one (1) calendar month after the end
of the month in which the bills are rendered.
(b) an amount equal to the cost of operating and maintaining
Segment A and Subsegments C1, E1 and E3 (as those costs are defined in the
TAINO-CARIB C&MA), associated with the Segment and/or Subsegments in which IRU
is granted hereunder, including additions thereto, multiplied by the number of
MIUs in which IRU is granted and divided by the applicable design capacity
expressed in MIUs. As AT&T and TOCI incur costs and receive bills for the
maintenance and operation of the Cable System, Grantors will render bills
monthly to Purchaser for its proportionate share of such costs. Purchaser shall
pay such
<PAGE>
- 8 -
bills to Grantors within one (1) calendar month after the end of the month in
which the bills are rendered.
(c) amounts equal to the portion of the costs incurred for
repairing the Cable System, allocable to the IRU interests in MIUs granted to
Purchaser hereunder on a pro rata basis. Bills for such amounts shall be
rendered by Grantors to Purchaser as soon as practicable after such costs are
charged to the accounts of Grantors. Such bills shall be payable by Purchaser
within one (1) calendar month after the end of the month in which the bills are
rendered.
3. Grantors shall bill Purchaser for the costs specified in
subparagraphs 2(b) and (c) as those costs are incurred, commencing on the
effective date of this Agreement.
4. (a) Bills not paid when due shall accrue extended payment charges
from the day following the day on which payment was due until paid. For purposes
of this Agreement, extended payment charges shall be equal to one-hundred
twenty-five percent (125%) of the lowest publicly announced prime rate or
minimum commercial lending rate of Citibank, N.A., New York City or Chase
Manhattan Bank N.A., New York City, on the day following the date payment of the
bill was due. In the event that applicable law does not allow the imposition of
extended payment charges at the rate established in accordance with this
Paragraph, extended payment charges shall be at the highest rate permitted by
<PAGE>
- 9 -
applicable law. For purposes of this Agreement, "paid" shall mean that the funds
are available for immediate use by Grantors.
(b) A bill shall be deemed to have been accepted by Purchaser if
Purchaser does not present a written objection before the date when payment is
due. If an objection is presented, the parties shall make every reasonable
effort to settle promptly the dispute concerning the bill in question. If the
objection is sustained and Purchaser has paid the disputed bill, the amount of
overpayment shall be refunded to Purchaser promptly, with interest at a rate
determined in the manner described in subparagraph 4(a), from the date payment
of the disputed amount was received until the refund is transmitted to
Purchaser. If the objection is not sustained and Purchaser has not paid the
disputed amount, Purchaser shall pay such amount promptly with interest at a
rate determined in the manner described in subparagraph 4(a), from the date on
which payment of the bill was due until paid. Nothing in this subparagraph shall
relieve Purchaser from paying those portions of a bill that are not in dispute.
5. If Purchaser fails to make any payment required by this Agreement
on the day it is due, or otherwise is in breach of this Agreement, and such
default continues for a period of at least two (2) months, Grantors may notify
Purchaser in writing of their intent to reclaim the interest in the MIUs
assigned hereunder if full payment is not received or such breach is not
<PAGE>
- 10 -
remedied within thirty (30) calendar days of such notification. If at the end
of the 30-day period, Purchaser has not paid in full the amounts due
hereunder or remedied such breach, Grantors may terminate this Agreement by
giving Purchaser written notice thereof and reclaim the IRU interests in the
MIUs assigned to Purchaser pursuant to this Agreement, and Grantors shall be
relieved of any liability to Purchaser arising out of such reclamation and
termination. The rights and obligations of Purchaser under this Agreement
shall terminate as of the date of reclamation, except the reclamation shall
not relieve Purchaser of its obligation to make full payment of all amounts
incurred under this Agreement up to and including the day of termination.
6. During the duration of this Agreement, Purchaser shall bear
the portion of the operating, maintenance and repair costs of the Cable
System allocable to the capacity granted under this Agreement.
7. (a) In the event that the total number of MIUs which each
Segment or Subsegment of the Cable System is capable of providing is reduced
as a result of physical deterioration, or for other reasons beyond the
control of the parties to the TAINO-CARIB C&MA during the term of this
Agreement, the number of whole-interests in MIUs in which IRU is granted
hereunder shall be reduced in the same proportion as the total number of MIUs
in the given Segment or Subsegment is reduced, except that such reduction
shall not create fractions of whole-interests in MIUs.
<PAGE>
- 11 -
(b) During the term of this Agreement, if the design capacity
in a given Segment or Subsegment specified in this Agreement is increased,
Purchaser shall have the option, on payment of an agreed amount, to have the
number of whole-interests in MIUs granted hereunder increased in the same
proportion as the total number of interests in MIUs in the given Segment or
Subsegment is increased, except that such increase shall not create fractions
of whole-interests in MIUs. Such option shall be exercised in writing within
three (3) months after receipt by Purchaser of written notice from Grantors
of a proposed increase in the MIU capacity.
(c) If the above exceptions with respect to fractions of
whole-interests in MIUs should become applicable, an appropriate adjustment
will be made in Purchaser's payments with respect to the maintenance,
operating, and repair costs of the given Segment or Subsegment of the Cable
System. In any event, whether or not the exception set forth above with
respect to fractions of whole-interests in MIUs should become applicable, all
costs incurred in connection with maintaining, operating and repairing the
Cable System payable by Purchaser, from and after the date when the total
number of MIUs in the given Segment or Subsegment of the Cable System shall
have been changed, shall be adjusted so that Purchaser shall bear its
appropriate proportionate share of such costs.
<PAGE>
- 12 -
8. Grantors shall render bills under this Agreement in U.S.
dollars, and such amounts shall be payable in U.S. dollars to the designated
office of Grantors.
9. Grantors shall keep and maintain for a period of not less than
two (2) years such books, records, vouchers, and accounts, as may be
appropriate to support their billings under this Agreement, and they shall at
all reasonable times make them available for the inspection of Purchaser at
Purchaser's sole costs.
10. The Cable System shall be maintained in accordance with the
TAINO-CARIB C&MA; provided, however, that no party to the TAINO-CARIB C&MA
shall be liable to Purchaser for any loss or damage sustained by reason of
any failure in or breakdown of the Cable System or of the facilities
associated with the Cable System or for any interruption of service,
whatsoever shall be the cause of such failure, breakdown or interruption, and
however long it shall last.
11. (a) The operation by Purchaser of the interests in MIUs
granted to it hereunder and any equipment associated therewith shall be such
as not to interrupt, interfere with, or impair service over any of the
facilities comprising the Cable System, any MIUs or other capacity of
Grantors or any MIUs or other capacity of Grantors' associated, affiliated
or connecting companies or of any Cable System owner or IRU purchaser; impair
<PAGE>
- 13 -
privacy of any communications over such facilities, cause damage to plant, or
create hazards to the employees of any of the aforementioned companies or of
any owner of the aforementioned facilities or to the public. Purchaser shall
bear the cost of any additional protective apparatus reasonably required to
be installed because of the use of such facilities by Purchaser, any lessee
of Purchaser, or any customer or customers of Purchaser or of any such lessee.
(b) Grantors will use their best efforts to cause all other
purchasers of capacity in the Cable System to undertake obligations
comparable to those of Purchaser set forth in the foregoing subparagraph
11(a), and Purchaser shall cause all permitted purchasers of the IRU interest
granted hereunder to undertake comparable obligations.
12. The interest in MIUs granted to Purchaser hereunder shall be
made available to AT&T, at such times agreeable to AT&T and Purchaser, to
permit AT&T or the parties to the TAINO-CARIB C&MA to make such tests and
adjustments as may be necessary for such capacity to be maintained in
efficient working order.
13. At the request of Purchaser, TOCI and AT&T of Puerto Rico,
Inc. ("AT&T-PRII) will provide and maintain multiplexing equipment at the
Miramar and/or St. Thomas Cable Station, respectively, required for use of
the capacity granted
<PAGE>
- 14 -
to Purchaser by this Agreement. Said equipment shall be provided on a lease
or IRU basis, at the option of Purchaser. If leased, the equipment will be
provided at reasonable and nondiscriminatory charges. If on an IRU basis,
Purchaser will pay all of the operating and maintenance costs of the
equipment. Additionally, at the request of Purchaser, TOCI and AT&T-PR shall
each respectively afford Purchaser suitable connection with Segment B and/or
Subsegments C1 and C3, as applicable in respect of the IRU interests granted
hereunder, and provide an arrangement to suitably extend the capacity granted
herein from Subsegments C1 and C3, in the case of TOCI and/or Segment B, in
the case of AT&T-PR, to a point of interconnection in an efficient and
economical manner. The provision and maintenance of such multiplex equipment,
the connection and extension arrangement shall be the subject of separate
agreements acceptable to Purchaser and TOCI and/or AT&T-PR.
14. The performance of this Agreement by the parties is contingent
upon the continued operation of the Cable System, and upon the obtaining and
continuance of such approvals, consents, governmental authorizations,
licenses and permits as may be required or deemed necessary by the parties
and as may be satisfactory to them. The parties shall use all reasonable
efforts to obtain and continue, and to have continued, such approvals,
consents, licenses and permits.
15. No license under patents is granted by Grantors or
<PAGE>
- 15 -
shall be implied or arise by estoppel in Purchaser's favor with respect to
any apparatus, system or method used by Purchaser in connection with the use
of the interests in MIUs granted to it hereunder.
16. No assignment of this Agreement, or of any rights thereunder,
by Purchaser, or any subsequent permitted assignee, shall be valid without
the written consent of Grantors. Such consent shall not be unreasonably
withheld but shall not be granted unless the assignee agrees to undertake
obligations comparable to those set forth in subparagraph 11(a) herein and
in this Paragraph 16. Nothing in this Paragraph 16, however, shall restrict
the right of any party to sell, assign, transfer or dispose of its rights or
obligations under this Agreement to a legal successor or a subsidiary of, or
a corporation or entity controlling or under the same control as such party,
in which case due written notice shall be given in a timely manner.
17. The relationship between and among the parties hereto shall
not be that of partners and nothing herein contained shall be deemed to
constitute a partnership between or among them. The common enterprise between
and among the parties hereto shall be limited to the express provisions of
this Agreement.
18. This Agreement and any of the provisions hereof may be altered
or added to only by an agreement in writing signed by a duly authorized
person on behalf of each party.
<PAGE>
- 16 -
19. This Agreement shall be construed in accordance with and be
subject to the TAINO-CARIB C&MA.
20. (a) This Agreement shall become effective on the date set forth
above and shall continue in effect for the duration of the TAINO-CARIB C&MA.
Grantors shall give Purchaser prompt notice in writing of termination of the
TAINO-CARIB C&MA. Termination of the TAINO-CARIB C&MA in accordance with its
provisions shall not terminate subparagraph 21(a) or 21(b) of this Agreement or
prejudice the operation or effect thereof.
(b) Any notice of termination pursuant to subparagraph (a) of
this Paragraph 20 shall be signed by a duly authorized representative of AT&T or
TOCI and shall be deemed to have been served at the expiration of thirty (30)
days from the date of dispatch of a certified or registered letter containing
such notice addressed to Purchaser in accordance with subparagraph 23(a) of this
Agreement.
21. (a) In the event of the liquidation of the Cable System, or any
part thereof, by sale or other disposition, or termination of the TAINO-CARIB
C&MA, as provided in the TAINO-CARIB C&MA, Purchaser will share in any net
proceeds or costs of such sale or disposition in the same proportion in which
Purchaser operates capacity in the affected part of the Cable System. The
proportion in which Purchaser operates in the
<PAGE>
- 17 -
affected part of the Cable System shall be determined by treating the IRU
interests granted hereunder as ownership interests.
(b) Liquidation of the Cable System or termination of the
TAINO-CARIB C&MA shall not relieve Purchaser from any liability arising on
account of claims made by third parties in respect of the Cable System or any
part thereof and damages or compensation payable on account of such claims, or
obligations which may arise in relation to the Cable System due to any law,
order or regulation made by any government or supranational legal authority
pursuant to any international convention, treaty or agreement. Any such
liabilities or costs incurred or benefits accruing in satisfying such claims or
obligations shall be divided among the Grantors and Purchaser in the same
proportions in which the Grantors and Purchaser operate capacity in the Cable
System. The percentage of such claims or obligations to be borne by Purchaser
shall be the same percentage figure as that resulting from treating the IRU
interests granted hereunder as ownership interests.
22. If any of the provisions of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Agreement, but rather the entire Agreement shall
be construed as if not containing the particular invalid or unenforceable
provision or provisions, and the rights and obligations of the parties shall be
construed and enforced accordingly.
<PAGE>
- 18 -
23. (a) For purposes of notices hereunder, the addresses of the
parties shall be as follows, unless otherwise designated in writing by the
respective parties:
AT&T Corp. Transoceanic Communications,
340 Mount Kemble Avenue Incorporated
Room S240 340 Mount Kemble Avenue
Morristown, New Jersey 07960 Room 240
U.S.A. Morristown, New Jersey 07960
U.S.A.
Attention: IRU & Transit
Manager Attention: IRU & Transit
Manager
CTS Communication Telesystems
International
4350 LaJolla Village Drive,
Suite 100
San Diego, CA 92122
Attention: ____________________
Any notice under this Agreement, including notice of termination pursuant to
Paragraph 20 hereof, shall be delivered by hand, first class mail with
postage prepaid, telex or facsimile and shall be deemed to have been given:
(i) when delivered if delivered by hand, telex (with answer back received) or
facsimile (with receipt acknowledged) or (ii) at the expiration of ten (10)
days (or thirty (30) days, if a notice of termination of the TAINO-CARIB
C&MA) from the date of dispatch if delivered by mail.
<PAGE>
- 19 -
(b) For purposes of billing and making payments hereunder, the
addresses of the parties shall be as follows, unless otherwise designated in
writing by the respective parties:
AT&T Corp. Transoceanic Communications,
340 Mount Kemble Avenue Incorporated
Room N125 340 Mount Kemble Avenue
Morristown, New Jersey 07960 Room N125
U.S.A. Morristown, New Jersey 07960
U.S.A.
Attention: Manager - Attention: Manager -
Accounting Operations Accounting Operations
CTS Communications Telesystems
International
4350 LaJolla Village Drive,
Suite 100
San Diego, CA 92122
Attention: Chief Financial
Officer
24. The provisions of this Agreement shall be binding upon the
parties and their successors and permitted assigns.
25. This Agreement shall be executed in three (3) counterparts in the
English language. Each such counterpart when so executed and delivered shall
be an original, and such counterparts shall together (as well as separately)
constitute one and the same instrument. This Agreement shall be construed in
accordance with the laws of the State of New York and the United States of
America.
<PAGE>
- 20 -
IN WITNESS WHEREOF, the parties hereto have severally subscribed these
presents or caused them to be subscribed in their name and behalf by their
respective officers thereunto duly authorized.
AT&T CORP.
By: /s/ Charles W. Bruton
-----------------------------------
Charles W. Bruton
Deputy Director
TRANSOCEANIC COMMUNICATIONS, INCORPORATED
By: /s/ Charles W. Bruton
--------------------------------------
Charles W. Bruton
Deputy Director
CTS COMMUNICATION TELESYSTEMS INTERNATIONAL
By: /s/ Edward S. Soren
--------------------------------------
--------------------------------------
<PAGE>
- 21 -
AT&T of Puerto Rico, Inc. hereby concurs in the commitments contained in
Paragraph 13 of the attached Taino-Carib Cable System Indefeasible Right of User
Agreement with respect to the provision and maintenance of multiplex equipment
and the connection and extension arrangement at the Miramar Cable Station.
Dated: 10/26/95 AT&T OF PUERTO RICO, INC.
----------------------
By: /s/ Charles W. Bruton
--------------------------
<PAGE>
HAW-5 CABLE SYSTEM
INDEFEASIBLE RIGHT OF USER AGREEMENT
BETWEEN
AT&T CORP.
AND
COMMUNICATION TELESYSTEMS INTERNATIONAL
THIS AGREEMENT is made and entered into as of this 9th day of
March, 1995, between and among AT&T Corp., a corporation organized and
existing under the laws of the State of New York and having an office at 340
Mount Kemble Avenue, Morristown, New Jersey 07960 U.S.A. (hereinafter called
"AT&T" which expression shall include its successors and assigns), and
Communication TeleSystems International, a corporation organized and existing
under the laws of California and having an office at 4350 LaJolla Village
Drive, Suite 100, San Diego, California 92122 (hereinafter referred to as
"Purchaser" which expression shall include its successors and assigns).
WITNESSETH:
WHEREAS, AT&T (hereinafter referred to as "Grantor") have entered
into an agreement with other international telecommunications entities dated
October 16, 1990, and as amended by the First Amendatory Agreement dated
October 6, 1992 and the Second Amendatory Agreement dated October 22, 1993
(hereinafter collectively referred to as the "HAW-5 C&MA"), which provides
for the construction, maintenance, and operation of a submarine cable system
connecting the United States Mainland and the State of Hawaii known as the
HAW-5 Cable System (hereinafter referred to as the "Cable System"); and
<PAGE>
- 2 -
WHEREAS, pursuant to the HAW-5 C&MA, the Cable System consists of
the following Segments:
Segment A: A cable station at San Luis Obispo, California.
Segment B: The whole of the submarine cable provided between,
and including, the System Interfaces at the cable stations at San Luis
Obispo, California and Keawaula, Hawaii.
Segment C: A cable station at Keawaula, Hawaii.
Segments A and C shall each consist of:
(i) an appropriate share of land and buildings at the specified
locations for the cable landing and for the cable route
between the cable station and its respective Cable Landing
Point, and an appropriate share of common services and
equipment at each of the locations; and
(ii) multiplex equipment in each of the cable stations, as
required, associated solely and directly with assigned
capacity in the HAW-5 Cable System.
Segment B shall also include:
<PAGE>
- 3 -
(i) all transmission, power feeding and special test equipment
directly associated with the submersible plant;
(ii) the power equipment provided wholly for use with the equipment
listed in (i) above;
(iii) the transmission cable equipped with appropriate repeaters and
joint housings between the cable stations; and
(iv) the sea earth cable and electrode system and/or the land earth
system, or an appropriate share thereof, associated with the
terminal power feeding equipment.
WHEREAS, the HAW-5 C&MA, including its subsequent amendments,
defines the Cable System capacity for the purposes of ownership allocations
as follows:
San Luis Obispo-Keawaula two lightguide pairs consisting of 8
Basic System Modules, providing 504 MIUs.
WHEREAS, the HAW-5 C&MA defines a Minimum Investment Unit
(hereinafter "MIU") as a unit designated as the minimum unit of investment in
the HAW-5 Cable System, allowing the use of
<PAGE>
- 4 -
2.048 Mbit/s (30 MAUOs) and the additional 162,539.68 bits per second
required for multiplexing in each direction.
WHEREAS, Grantor have been assigned the whole interest in certain
MIUs in the Cable System; and
WHEREAS, Purchaser desires to acquire from Grantor and Grantor are
willing to grant to Purchaser, on an indefeasible right of user ("IRU")
basis, a whole-interest in certain MIUs in the Cable System; and
WHEREAS, the parties desire to define the terms and conditions
under which said IRU interests in the Cable System will be granted to
Purchaser;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants herein expressed, covenant and agree with each other as follows:
1. Effective as of April 4, 1995, Grantor grant to Purchaser for
the term of this Agreement the following:
(a) whole-interest, on an IRU basis, in 1 MIU in the San Luis
Obispo-Keawaula optical fiber path of Segment B of the Cable System, and
<PAGE>
- 5 -
(b) an interest, on an IRU basis, in Segments A and C to the
extent required by Purchaser to use its IRU interest in MIUs in the Cable
System, as acquired in subparagraph 1(a) directly above.
2. For the IRU interest granted pursuant to this Agreement,
Purchaser shall pay Grantor the following:
(a) a lump sum amount equal to US$330,480 allocable to the
whole-interest in MIUs granted to Purchaser hereunder. Purchaser shall pay
such lump sum amount to Grantor within one (1) calendar month after the end
of the month in which the bills are rendered.
(b) an amount equal to the cost of operating and maintaining
Segments A, B, and C (as those costs are defined in the HAW-5 C&MA),
associated with the Segment in which IRU is granted hereunder, including
additions thereto, multiplied by the number of MIUs in which IRU is granted
and divided by the applicable design capacity expressed in MIUs. As AT&T
incur costs and receive bills for the maintenance and operation of the Cable
System, Grantor will render bills monthly to Purchaser for its proportionate
share of such costs. Purchaser shall pay such bills to Grantor within one (1)
calendar month after the end of the month in which the bills are rendered.
<PAGE>
- 6 -
(c) amounts equal to the portion of the costs incurred for
repairing the Cable System, allocable to the IRU interests in MIUs granted to
Purchaser hereunder on a pro rata basis. Bills for such amounts shall be
rendered by Grantor to Purchaser as soon as practicable after such costs are
charged to the accounts of Grantor. Such bills shall be payable by Purchaser
within one (1) calendar month after the end of the month in which the bills
are rendered.
3. Grantor shall bill Purchaser for the costs specified in
subparagraphs 2(b) and (c) as those costs are incurred, commencing on the
effective date of this Agreement.
4. (a) Bills not paid when due shall accrue extended payment
charges from the day following the day on which payment was due until paid.
For purposes of this Agreement, extended payment charges shall be equal to
one-hundred twenty-five percent (125%) of the lowest publicly announced prime
rate or minimum commercial lending rate of Citibank, N.A., New York City or
Chase Manhattan Bank N.A., New York City, on the day following the date
payment of the bill was due. In the event that applicable law does not allow
the imposition of extended payment charges at the rate established in
accordance with this Paragraph, extended payment charges shall be at the
highest rate permitted by applicable law. For purposes of this Agreement,
"paid" shall mean that the funds are available for immediate use by Grantor.
<PAGE>
- 7 -
(b) A bill shall be deemed to have been accepted by Purchaser
if Purchaser does not present a written objection before the date when
payment is due. If an objection is presented, the parties shall make every
reasonable effort to settle promptly the dispute concerning the bill in
question. If the objection is sustained and Purchaser has paid the disputed
bill, the amount of overpayment shall be refunded to Purchaser promptly, with
interest at a rate determined in the manner described in subparagraph 4(a),
from the date payment of the disputed amount was received until the refund is
transmitted to Purchaser. If the objection is not sustained and Purchaser has
not paid the disputed amount, Purchaser shall pay such amount promptly with
interest at a rate determined in the manner described in subparagraph 4(a),
from the date on which payment of the bill was due until paid. Nothing in
this subparagraph shall relieve Purchaser from paying those portions of a
bill that are not in dispute.
5. If Purchaser fails to make any payment required by this
Agreement on the day it is due, or otherwise is in breach of this Agreement,
and such default continues for a period of at least two (2) months, Grantor
may notify Purchaser in writing of their intent to reclaim the whole-interest
in the MIUs assigned hereunder if full payment is not received or such
breach is not remedied within thirty (30) calendar days of such notification.
If at the end of the 30-day period, Purchaser has not paid in full the
amounts due hereunder or remedied such breach, Grantor
<PAGE>
- 8 -
may terminate this Agreement by giving Purchaser written notice thereof and
reclaim the IRU whole-interests in the MIUs assigned to Purchaser pursuant to
this Agreement, and Grantor shall be relieved of any liability to Purchaser
arising out of such reclamation and termination. The rights and obligations
of Purchaser under this Agreement shall terminate as of the date of
reclamation, except the reclamation shall not relieve Purchaser of its
obligation to make full payment of all amounts incurred under this Agreement
up to and including the day of termination.
6. During the duration of this Agreement, Purchaser shall bear the
portion of the operating, maintenance and repair costs of the Cable System
allocable to the capacity granted under this Agreement.
7. (a) In the event that the total number of MIUs which each
Segment or Subsegment of the Cable System is capable of providing is reduced
as a result of physical deterioration, or for other reasons beyond the
control of the parties to the HAW-5 C&MA during the term of this Agreement,
the number of whole-interests in MIUs in which IRU is granted hereunder shall
be reduced in the same proportion as the total number of whole-interests in
MIUs in the given Segment or Subsegment is reduced, except that such
reduction shall not create fractions of whole-interests in MIUs.
<PAGE>
- 9 -
(b) During the term of this Agreement, if the design capacity
in a given Segment or Subsegment specified in this Agreement is increased,
Purchaser shall have the option, on payment of an agreed amount, to have the
number of whole-interests in MIUs granted hereunder increased in the same
proportion as the total number of interests in MIUs in the given Segment or
Subsegment is increased, except that such increase shall not create fractions
of interests in MIUs. Such option shall be exercised in writing within three
(3) months after receipt by Purchaser of written notice from Grantor of a
proposed increase in the MIU capacity.
(c) If the above exceptions with respect to fractions of
interests in MIUs should become applicable, an appropriate adjustment will be
made in Purchaser's payments with respect to the maintenance, operating and
repair costs of the given Segment or Subsegment of the Cable System. In any
event, whether or not the exception set forth above with respect to fractions
of interests in MIUs should become applicable, all costs incurred in
connection with maintaining, operating and repairing the Cable System payable
by Purchaser, from and after the date when the total number of MIUs in the
given Segment or Subsegment of the Cable System shall have been changed,
shall be adjusted so that Purchaser shall bear its appropriate proportionate
share of such costs.
<PAGE>
- 10 -
8. Grantor shall render bills under this Agreement in U.S.
dollars, and such amounts shall be payable in U.S. dollars to the designated
office of Grantor.
9. Grantor shall keep and maintain for a period of not less than
two (2) years such books, records, vouchers, and accounts, as may be
appropriate to support their billings under this Agreement, and they shall at
all reasonable times makes them available for the inspection of Purchaser at
Purchaser's sole costs.
10. The Cable System shall be maintained in accordance with the
HAW-5 C&MA; provided, however, that no party to the HAW-5 C&MA shall be
liable to Purchaser for any loss or damage sustained by reason of any failure
in or breakdown of the Cable System or of the facilities associated with the
Cable System or for any interruption of service, whatsoever shall be the
cause of such failure, breakdown or interruption, and however long it shall
last.
11. (a) The operation by Purchaser of the interests in MIUs
granted to it hereunder and any equipment associated therewith shall be such
as not to interrupt, interfere with, or impair service over any of the
facilities comprising the Cable System, any MIUs or other capacity of Grantor
or any MIUs or other capacity of Grantor' associated, affiliated or
connecting companies or of any Cable System owner or IRU purchaser; impair
<PAGE>
- 11 -
privacy of any communications over such facilities, cause damage to plant, or
create hazards to the employees of any of the aforementioned companies or of
any owner of the aforementioned facilities or to the public. Purchaser shall
bear the cost of any additional protective apparatus reasonably required to
be installed because of the use of such facilities by Purchaser, any lessee
of Purchaser, or any customer or customers of Purchaser or of any such lessee.
(b) Grantor will use their best efforts to cause all other
purchasers of capacity in the Cable System to undertake obligations
comparable to those of Purchaser set forth in the foregoing subparagraph
11(a), and Purchaser shall cause all permitted purchasers of the IRU interest
granted hereunder to undertake comparable obligations.
12. The interest in MIUs granted to Purchaser hereunder shall be
made available to AT&T, at such times agreeable to AT&T and Purchaser, to
permit AT&T or the parties to the HAW-5 C&MA to make such tests and
adjustments as may be necessary for such capacity to be maintained in
efficient working order.
13. The performance of this Agreement by the parties is contingent
upon the continued operation of the Cable System, and upon the obtaining and
continuance of such approvals, consents, governmental authorizations,
licenses and permits as
<PAGE>
- 12 -
may be required or deemed necessary by the parties and as may be satisfactory
to them. The parties shall use all reasonable efforts to obtain and continue,
and to have continued, such approvals, consents, licenses and permits.
14. No license under patents is granted by Grantor or shall be
implied or arise by estoppel in Purchaser's favor with respect to any
apparatus, system or method used by Purchaser in connection with the use of
the interests in MIUs granted to it hereunder.
15. No assignment of this Agreement, or of any rights thereunder,
by Purchaser, or any subsequent permitted assignee, shall be valid without
the written consent of Grantor. Such consent shall not be unreasonably
withheld but shall not be granted unless the assignee agrees to undertake
obligations comparable to those set forth in subparagraph 11(a) herein and in
this Paragraph 15. Nothing in this Paragraph 15, however, shall restrict the
right of any party to sell, assign, transfer or dispose of its rights or
obligations under this Agreement to a legal successor or a subsidiary of, or
a corporation or entity controlling or under the same control as such party,
in which case due written notice shall be given in a timely manner.
16. The relationship between and among the parties hereto shall not
be that of partners and nothing herein contained shall be deemed to
constitute a partnership between or among
<PAGE>
- 13 -
them. The common enterprise between and among the parties hereto shall be
limited to the express provisions of this Agreement.
17. This Agreement and any of the provisions hereof may be altered
or added to only by an agreement in writing signed by a duly authorized
person on behalf of each party.
18. This Agreement shall be construed in accordance with and be
subject to the HAW-5 C&MA.
19. (a) This Agreement shall become effective on the date set
forth above and shall continue in effect for the duration of the HAW-5 C&MA.
Grantor shall give Purchaser prompt notice in writing of termination of the
HAW-5 C&MA. Termination of the HAW-5 C&MA in accordance with its provisions
shall not terminate subparagraph 20(a) or 20(b) of this Agreement or
prejudice the operation or effect thereof.
(b) Any notice of termination pursuant to subparagraph (a) of
this Paragraph 19 shall be signed by a duly authorized representative of AT&T
and shall be deemed to have been served at the expiration of thirty (30) days
from the date of dispatch of a certified or registered letter containing such
notice addressed to Purchaser in accordance with subparagraph 22(a) of this
Agreement.
<PAGE>
- 14 -
20. (a) In the event of the liquidation of the Cable System, or
any part thereof, by sale or other disposition, or termination of the HAW-5
C&MA, as provided in the HAW-5 C&MA, Purchaser will share in any net proceeds
or costs of such sale or disposition in the same proportion in which
Purchaser operates capacity in the affected part of the Cable System. The
proportion in which Purchaser operates in the affected part of the Cable
System shall be determined by treating the IRU interests granted hereunder as
ownership interests.
(b) Liquidation of the Cable System or termination of the
HAW-5 C&MA shall not relieve Purchaser from any liability arising on account
of claims made by third parties in respect of the Cable System or any part
thereof and damages or compensation payable on account of such claims, or
obligations which may arise in relation to the Cable System due to any law,
order or regulation made by any government or supranational legal authority
pursuant to any international convention, treaty or agreement. Any such
liabilities or costs incurred or benefits accruing in satisfying such claims
or obligations shall be divided among the Grantor and Purchaser in the same
proportions in which the Grantor and Purchaser operate capacity in the Cable
System. The percentage of such claims or obligations to be borne by Purchaser
shall be the same percentage figure as that resulting from treating the IRU
intersts granted hereunder as ownership interests.
<PAGE>
- 15 -
21. If any of the provisions of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate or
render unenforceable the entire Agreement, but rather the entire Agreement
shall be construed as if not containing the particular invalid or
unenforceable provision or provisions, and the rights and obligations of the
parties shall be construed and enforced accordingly.
22. (a) For purposes of notices hereunder, the addresses of the
parties ahall be as follows, unless otherwise designated in writing by the
respective parties:
AT&T Corp. Communication TeleSystems
340 Mount Kemble Avenue International
Room S240 4350 LaJolla Village Drive
Morristown, New Jersey 07960 Suite 100
U.S.A. San Diego, California 92122
Attention: IRU & Transit Manager Attention: Eric G. Lipoff
-------------------
Any notice under this Agreement, including notice of termination pursuant to
Paragraph 20 hereof, shall be delivered by hand, first class mail with
postage prepaid, telex or facsimile and shall be deemed to have been given:
(i) when delivered if delivered by hand, telex (with answer back receive) or
facsimile (with receipt acknowledged) or (ii) at the expiration of ten (10)
days (or thirty (30) days, if a notice of termination of the HAW-5 C&MA from
the date of dispatch if delivered by mail.
<PAGE>
- 16 -
(b) For purposes of billing and making payments hereunder,
the addresses of the parties shall be as follows, unless other wise
designated in writing by the respective parties:
AT&T Corp. Communication TeleSystems
340 Mount Kemble Avenue International
Room S240 4350 LaJolla Village Drive
Morristown, New Jersey 07960 Suite 100
U.S.A. San Diego, California 92122
Attention: IRU & Transit Manager Attention: Eric G. Lipoff
------------------
23. The provisions of this Agreement shall be binding upon the
parties and their successors and permitted assigns.
24. This Agreement shall be executed in two (2) counterparts in
the English language. Each such counterpart when so executed and delivered
shall be an original, and such counterparts shall together (as well as
separately) constitute one and the same instrument. This Agreement shall be
construed in accordance with the laws of the State of New York and the United
States of America.
<PAGE>
- 17 -
IN WITNESS WHEREOF, the parties hereto have severally subscribed
these presents or caused them to be subscribed in their name and behalf by
their respective officers thereunto duly authorized.
AT&T CORP.
By: /s/ Charles W. Bruton
---------------------
Charles W. Bruton
Deputy Director
COMMUNICATION TELESYSTEMS INTERNATIONAL
By: /s/ [ILLEGIBLE]
---------------------
President
<PAGE>
[LOGO]
- -------------------------------------------------------------------------------
A. M. LUNN 340 MT. KEMBLE AVE
INTERNATIONAL IRU/TRANSIT ROOM S240-E334
FINANCIAL MANAGER MORRISTOWN, NJ 07960
TEL: 201-326-2772
FAX: 201-326-3766
DATE: MAY 13, 1996
# PAGES: 3
TO: MR. R. SABACEK TEL: 619 625 5589
COMMUNICATIONS TELESYSTEMS INT'L FAX: 619 452 2041
- -------------------------------------------------------------------------------
SUBJECT: OUTSTANDING IRU BILL
ACCORDING TO MY RECORDS THE ATTACHED BILL FOR $330,480 WAS DUE ON JUNE 30TH,
1995 AND REMAINS OUTSTANDING. PLEASE BE ADVISED THAT PENALTY INTEREST WILL
CONTINUE TO ACCUMULATE UNTIL PAYMENT IS RECEIVED.
I WOULD APPRECIATE YOUR COMMENTS ON THIS ISSUE SINCE NON-PAYMENT WILL
JEOPARDIZE ANY FUTURE NEGOTIATIONS FOR CAPACITY. ALSO ATTACHED IS A
PRELIMINARY BILL WHICH WILL BE RE-ISSUED THIS MONTH AS IT WAS INITIALLY SENT
TO THE WRONG ADDRESS IN JANUARY.
I AWAIT YOUR COMMENTS,
REGARDS,
/s/ [ILLEGIBLE]
COPY TO: J. CONHAIM
C. BRUTON
<PAGE>
[LOGO]
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- ----------------------------------------
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
4350 LA JOLLA VILLAGE DRIVE, SUITE 100
SAN DIEGO, CA 92122
- ----------------------------------------
Bill No. A295050008
Issue Date: 05/23/95
Payment Due Date: 06/30/95
Customer Code: 7269
- ------------------------- --------------------------
Remit Payment by Wire to: Remit Payment by Check to:
- ------------------------- --------------------------
Chase Manhattan Bank AT&T
1 Chase Manhattan Plaza P.O. Box 840348
New York, N.Y. 10081 Dallas, TX 75284-0348
Account No. 910-2-521177
ABA No. 021000021
- ------------------------- --------------------------
- -------------------------------------------------------------------------------
PLEASE INDICATE BILL NUMBER(S) AND CUSTOMER CODE ON REMITTANCE
- -------------------------------------------------------------------------------
YOUR SHARE OF CHARGES FOR 2 HALF MIUS IN HAW-5 CABLE SYSTEM GRANTED ON AN IRU
BASIS, EFFECTIVE APRIL 4, 1995.
AMOUNT DUE: $330,480.00
DETAILS ATTACHED:
- -------------------------------------------------------------------------------
Please Refer Questions Related
CERTIFIED CORRECT: To This Bill To:
Manager - Financial Operations
340 Mt. Kemble Ave. Room N125
P.O. Box 1923
/s/ K. Murphy Morristown, NJ 07962-1923
- ------------------------------ USA
MANAGER - FINANCIAL OPERATIONS Fax: +1 201 326 2903
Voice: +1 201 326 3814
Telex: 49606544 or 49606566
<PAGE>
[LOGO]
- -------------------------------------------------------------------------------
- ----------------------------------------
COMMUNICATIONS TELESYSTEMS INT'L
4350 LA JOLLA VILLAGE DRIVE
SUITE 100
SAN JOSE 1000 COSTA RICA
- ----------------------------------------
Bill No. UP96010002
Issue Date: 05/09/96
Payment Due Date: 06/30/96
Customer Code: 7269
- ------------------------- --------------------------
Remit Payment by Wire to: Remit Payment by Check to:
- ------------------------- --------------------------
Chase Manhattan Bank AT&T
1 Chase Manhattan Plaza P.O. Box 840348
New York, N.Y. 10081 Dallas, TX 75284-0348
Account No. 910-2-521177
ABA No. 021000021
- ------------------------- --------------------------
- -------------------------------------------------------------------------------
PLEASE INDICATE BILL NUMBER(S) AND CUSTOMER CODE ON REMITTANCE
- -------------------------------------------------------------------------------
YOUR SHARE OF COSTS FOR 2 HALF MUI'S IN TAINO-CARIB (PUERTO RICO-ST. THOMAS
SEG) CABLE SYSTEM GRANTED ON AN IRU BASIS, EFFECTIVE NOVEMBER 1, 1995
AMOUNT DUE: $18,978.00
DETAILS ATTACHED:
- -------------------------------------------------------------------------------
Please Refer Questions Related
CERTIFIED CORRECT: To This Bill To:
Manager - Financial Operations
340 Mt. Kemble Ave. Room N125
P.O. Box 1923
/s/ [ILLEGIBLE] Morristown, NJ 07962-1923
- ------------------------------ USA
MANAGER - FINANCIAL OPERATIONS Fax: +1 201 326 2903
Voice: +1 201 326 3814
Telex: 49606544 or 49606566
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR ANY STATE SECURITIES LAW, AND NEITHER THIS WARRANT NOR
SUCH SECURITIES MAY BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THE ACT OR SUCH SECURITIES LAWS OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE.
COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A.
WORLDXCHANGE COMMUNICATIONS
WARRANT TO PURCHASE COMMON STOCK
No. W-1 Date: December 31, 1998
EXERCISABLE COMMENCING ON THE DATE OF ISSUANCE
HEREOF AND ENDING ON THE EXPIRATION DATE
Communication TeleSystems International d.b.a. WorldxChange
Communications, a California corporation (the "COMPANY"), certifies for value
received that Gold & Appel Transfer S.A., a British Virgin Islands
corporation, or its registered assigns is, subject to and in accordance with
the terms and conditions herein set forth, the registered holder
("WARRANTHOLDER") of a warrant to purchase up to Twenty Thousand (20,000)
shares (as adjusted from time to time in accordance with this Warrant) (the
"WARRANT SHARES"), of the Company's Common Stock, no par value ("COMMON
STOCK"), at an exercise price determined as provided hereinafter (such
exercise price per share as adjusted from time to time being referred to
herein as the "EXERCISE PRICE"), at any time prior to the Expiration Date (as
defined in SECTION 1) at the Company's principal executive office, with the
appropriate form of Election to Purchase set forth herein, duly executed and
by paying in full the Exercise Price, plus transfer taxes, if any, in the
manner set forth in SECTION 1.
1. EXERCISE; EXPIRATION AND TERMINATION. Subject to adjustment
pursuant to SECTION 3, the initial Exercise Price shall be $12.05. This
Warrant may be exercised from time to time, in whole or in part, at the
Company's principal executive office from the date hereof until 5:00 p.m.,
San Diego, California time on December 15, 2001 (the "EXPIRATION DATE"), by
delivering a duly completed and executed Election to Purchase in the form
attached hereto (indicating the number of the Warrant Shares to be purchased)
and paying in full the applicable Exercise Price, plus transfer taxes, if
any, in cash or by wire transfer or cashier's check payable to the order of
the Company.
2. ISSUANCE OF SHARE CERTIFICATES. Upon surrender of this Warrant,
delivery of a duly completed and executed form of Election to Purchase and
payment of the applicable Exercise Price, the Company shall issue
certificates representing the Warrant Shares ("SHARE CERTIFICATES") in the
name of the tendering Warrantholder or its designee and deliver the Share
1
<PAGE>
Certificates to the tendering Warrantholder or its designee, together with a
new Warrant for any portion of this Warrant not exercised. If the securities
of the Company deliverable upon exercise of this Warrant have not been
registered for resale under the 1933 Act, any Share Certificate delivered
shall bear appropriate private placement legends thereon, including, without
limitation, a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY
STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN
REGISTERED UNDER THE 1933 ACT OR SUCH SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE."
3. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares purchasable upon the exercise
of this Warrant are subject to adjustment from time to time upon the
occurrence of the events specified in this SECTION 3.
3.1 ADJUSTMENTS FOR STOCK SPLITS AND COMBINATIONS. If, while
this Warrant is outstanding, the Company effects a subdivision of the
outstanding Common Stock, the Exercise Price then in effect shall be
proportionately decreased and the number of Warrant Shares issuable upon
exercise of this Warrant shall be increased in proportion to such
increase of outstanding Common Stock, and conversely, if, while this
Warrant is outstanding, the Company combines the outstanding Common
Stock, the Exercise Price then in effect shall be proportionately
increased and the number of Warrant Shares issuable upon exercise of
this Warrant shall be decreased in proportion to such decrease in
outstanding Common Stock. Any adjustment under this SECTION 3.1 shall
become effective as of the record date for such event and if such
subdivision or combination is not consummated in full the Exercise Price
and the number of Warrant Shares shall be readjusted accordingly. For
purposes of this SECTION 3.1, a stock dividend shall be considered a
stock split.
3.2 ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If,
while this Warrant is outstanding, the Company makes a dividend or other
distribution payable in securities of the Company other than shares of
Common Stock, then and in each event provision shall be made so that the
Warrantholder shall receive upon exercise of this Warrant (but only to
the extent this Warrant is exercised), in addition to the Warrant Shares
receivable thereupon, the amount of securities of the Company which the
Warrantholder would have received had it owned such Warrant Shares on
the date of such event.
3.3 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the Warrant Shares issuable upon exercise of this
Warrant are changed into the same or a different number of shares of the
same or any other class or classes of stock,
2
<PAGE>
whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares provided for in SECTION 3.1), then
and in any such event the Warrantholder shall have the right thereafter,
upon exercise of this Warrant, to receive in lieu of Warrant Shares the
kind and amount of stock and other securities and property receivable
upon such recapitalization, reclassification or other change, in an
amount equal to the amount that the Warrantholder would have been entitled
to had this Warrant been exercised to such extent prior to such event.
3.4 DETERMINATION OF ADJUSTMENT. Any determination as to whether
an adjustment is required to be made under SECTION 3 to (i) the Exercise
Price in effect hereunder, (ii) the number of Warrant Shares issuable upon
exercise of this Warrant, or (iii) as to the amount of any such adjustment
described in clauses (i) or (ii) of this SECTION 3.4, shall be binding
upon the Warrantholder and the Company if made in good faith by the
Company's Board of Directors.
4. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. The Company shall not be
required to issue fractional shares of Common Stock on the exercise of this
Warrant or issue fractions of warrants on any distribution of warrants to the
Warrantholder or distribute warrant certificates that evidence fractional
warrants. If more than one warrant shall be presented for exercise in full
at the same time by the same Warrantholder, the number of full shares of
Common Stock which shall be issuable upon the exercise thereof shall be
computed on the basis of the aggregate number of shares of Common Stock
represented by the warrants so presented. If any fraction of a share would,
except for the provisions of this SECTION 4, be issuable on the exercise of
any warrant (or specified portion thereof), the Company shall pay an amount
in cash equal to the same fraction of the then current fair market value of a
full share of Common Stock, as determined in good faith by the Company's
Board of Directors, unless the Company has then listed shares of its Common
Stock for trading on a national securities exchange or for quotation on The
Nasdaq Stock Market, in which case the current fair market value shall be the
most recent closing sale price of or the last sale price paid for, shares of
Common Stock, respectively, which occurred prior to the day on which the
Warrant was exercised.
5. EXCHANGE OF WARRANT. This Warrant may be divided or combined upon
request to the Company by the Warrantholder, into a certificate or
certificates representing the right to purchase the same aggregate number of
Warrant Shares. Unless the context indicates otherwise, the term
"WARRANTHOLDER" shall include any transferee or transferees of this Warrant
and the term "WARRANT" shall include any and all warrants issued upon
division, exchange, substitution or transfer of this Warrant.
6. MUTILATED OR MISSING WARRANT. If this Warrant shall be mutilated,
lost, stolen or destroyed, the Company shall issue and deliver, in exchange
and substitution for and upon cancellation of the mutilated Warrant, or in
lieu of and substitution for the lost, stolen or destroyed Warrant, a new
warrant of like tenor, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of this
Warrant and an indemnity or bond, if requested, reasonably satisfactory to
the Company. The applicant shall also comply
3
<PAGE>
with such other reasonable regulations and pay such other reasonable
administrative charges as the Company may prescribe.
7. NO IMPAIRMENT. The Company will not hereafter reorganize, dissolve
or take any other voluntary action, a primary purpose or effect of which is
to avoid or seek to avoid the observance or performance of any of the terms
of this Warrant.
8. RESERVATION AND ISSUANCE OF WARRANT SHARES. The Company represents
and warrants that (i) there have been reserved, and the Company shall at all
times keep reserved so long as this Warrant remains outstanding, out of its
authorized capital a number of shares of Common Stock sufficient to provide
for the exercise of the rights of purchase represented by this Warrant, and
(ii) the Common Stock issued upon exercise of this Warrant will, upon
issuance in accordance with the terms of this Warrant, be duly and validly
issued, fully paid and nonassessable shares of Common Stock.
9. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes
attributable to the initial issuance of Common Stock issuable upon the
exercise of this Warrant; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax or other charges that may be payable in respect of
any transfer involved in the issuance of any warrants or any Share
Certificates in a name other than that of the Warrantholder of record, and
the Company shall not be required to issue or deliver such Share Certificates
unless and until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to
the reasonable satisfaction of the Company that such tax has been paid.
10. RESTRICTIONS ON TRANSFER. The Warrantholder, by its acceptance
hereof, represents, warrants, covenants and agrees, and upon the exercise of
this Warrant shall be deemed to have represented, warranted, covenanted and
agreed as of the date of such exercise, that (i) the Warrantholder has
sufficient knowledge of the business and affairs of the Company and the
Company has made available to the Warrantholder or its agents all documents
and information relating to an investment in the Warrant Shares requested by
or on behalf of the Warrantholder; (ii) the Warrantholder is acquiring the
Warrant Shares for investment for its or his own account, and not with a view
to or for sale in connection with any distribution thereof; (iii) the
Warrantholder understands that the Warrant Shares to be purchased have not
been registered pursuant to the 1933 Act or any state securities laws, and
the offer and sale of the Warrant Shares is intended to be exempt from
registration under the 1933 Act and under applicable state securities laws,
which exemption depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Warrantholder's representations as
expressed herein; (iv) if the Warrant Shares are not listed for trading on a
national securities exchange or quoted on The Nasdaq Stock Market, the
Warrantholder understands that no public market exists for the Warrant Shares
and that there is no assurance that a public market will ever exist for the
Warrant Shares; (v) the Warrantholder has such knowledge and experience in
financial and business matters so as to be capable of evaluating the merits
and risks of its investment in the Warrant Shares, and the Warrantholder is
capable of bearing the economic risks of such investment, including the risk
of loss of its entire investment in the Warrant Shares; and (vi) absent an
effective registration statement under the 1933 Act (and/or compliance with
any applicable state securities law registration requirements) covering the
4
<PAGE>
disposition of this Warrant or the Warrant Shares issued or issuable upon
exercise of this Warrant, neither this Warrant nor the Warrant Shares issued or
issuable upon exercise of this Warrant may be sold, transferred, assigned,
hypothecated or otherwise disposed of without first providing the Company with
evidence reasonably satisfactory to the Company that such sale, transfer,
assignment, hypothecation or other disposal will be exempt from the registration
and prospectus delivery requirements of applicable Federal and state securities
laws and regulations.
11. NO RIGHTS AS A SHAREHOLDER. Nothing contained herein shall be
construed as conferring upon the Warrantholder any rights whatsoever as a
shareholder of the Company, including the right to vote, to receive dividends
(except as provided in SECTION 3.2), to consent or to receive notices as a
shareholder in respect of any meeting of shareholders for the election of
directors of the Company or any other matter. If, however, at any time prior to
the expiration of this Warrant and prior to its exercise, any of the following
events shall occur:
(i) any action which would require an adjustment pursuant to SECTION
3; or
(ii) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger or sale of its property, assets
and business, as an entirety) shall be proposed;
then in any one or more of said events, the Company shall give notice
in writing of such event to the Warrantholder at least 15 days prior to the
date fixed as a record date or the date of closing the transfer books or other
applicable date with respect thereto. Such notice shall specify such record date
or the date of closing the transfer books, as the case may be.
12. "MARKET STAND-OFF" AGREEMENT. The Warrantholder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of this Warrant or any Warrant Shares in a market transaction during a
period deemed by the underwriter (in its sole judgment) to be necessary or
appropriate following the effective date of a registration statement of the
Company filed under the 1933 Act, provided that Roger B. Abbott, Rosalind
Abbott, and Edward S. Soren are subject to such an agreement for the same
period. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to this Warrant and the Warrant Shares
until the end of such period.
13. NOTICE. Any notice or other communication hereunder must be given in
writing and (i) delivered in person, (ii) transmitted by telex, telefax or
telecommunications mechanism or (iii) mailed by certified or registered mail,
postage prepaid), receipt requested as follows:
IF TO WARRANTHOLDER, ADDRESSED TO:
Gold & Appel Transfer S.A.
P.O. Box 985
Wickhams Cay Road Town
Tortula, British Virgin Islands
5
<PAGE>
WITH A COPY TO:
Mr. Walt Anderson
Entree International
3050 K Street, N.W. Suite 250
Washington D.C., 20036
Facsimile No: (202) 736-5065
IF TO THE COMPANY, ADDRESSED TO:
WORLDxCHANGE
9999 Willow Creek Road
San Diego, California 92131
Attn: Legal Department
Facsimile No: (619) 625-0217
14. SUPPLEMENTS AND AMENDMENTS. Neither this Warrant nor any term hereof
may be changed or waived except pursuant to an instrument in writing signed by
the party against which enforcement of the change or waiver is sought.
15. SUCCESSORS. All the representations, warranties, agreements, covenants
and provisions of this Warrant by or for the benefit of the Company or the
Warrantholder shall bind and inure to the benefit of their respective permitted
successors and assigns hereunder.
16. GOVERNING LAW. This Warrant shall be construed for all purposes in
accordance with the laws of the State of California, without regard to conflicts
of law principles thereof.
17. BENEFITS OF THIS WARRANT. Nothing in this Warrant shall be construed
to give to any person or entity other than the Company and the Warrantholder
any legal or equitable right, remedy or claim under this Warrant; and this
Warrant shall be for the sole and exclusive benefit of the Company and the
Warrantholder.
18. INVALIDITY OF PROVISIONS. If any provision of this Warrant is or
becomes invalid, illegal or unenforceable in any respect, such provision shall
be deemed amended to the extent necessary to cause it to express the intent of
the parties to the maximum possible extent and be valid, legal and enforceable.
The invalidity or deemed amendment of such provision shall not affect the
validity, legality or enforceability of any other provision hereof.
19. SECTION HEADINGS. The section headings contained in this Warrant are
for convenience only and shall be without substantive meaning or content.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary, as of the day and year first above written.
COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A.
WORLDXCHANGE COMMUNICATIONS
By: /s/ Edward S. Soren
-----------------------------
Name Edward S. Soren
-----------------------------
Title Executive Vice President
-----------------------------
ACCEPTED AND AGREED TO:
- -----------------------
GOLD & APPEL TRANSFER S.A.
By: /s/ Walt Anderson
-------------------------
Name Walt Anderson
-------------------------
Title Power of Attorney in Fact
-------------------------
7
<PAGE>
List of Omitted Exhibits
The following Exhibits to the Warrant Purchase Agreement have been
omitted from this Exhibit and shall be furnished supplementally to the
Commission upon request:
Exhibit A - Form of Election to Purchase
Exhibit B - Form of Assignment
<PAGE>
CONFIDENTIAL TREATMENT
CAPACITY LEASE AND IRU AGREEMENT
THIS CAPACITY LEASE AND IRU AGREEMENT ("Agreement") is made and
entered into as of the 11th day of February, 1999, by and between LEVEL 3
COMMUNICATIONS, LLC, a Delaware limited liability company ("Grantor") and
Communication TeleSystems International, d/b/a "WorldxChange Communications",
a California corporation ("Grantee")
RECITALS
A. Grantor is currently constructing a nationwide multiconduit
fiber optic communications system (the "Grantor System") connecting the
cities identified on Exhibit "A" attached hereto. In addition, Grantor has
and will enter into various arrangements with carriers pursuant to which
Grantor has leased or obtained the right to use fibers, fiber capacity or
transport capacity connecting the cities identified on Exhibit "A" (the
"Leased System").
B. Grantee desires to obtain the right to use transport capacity
along the Leased System and the Grantor System.
C. Grantor desires to grant to Grantee, and Grantee desires to
obtain from Grantor, a lease in the Capacity (as defined below) and (after
such lease term expires) an indefeasible right to use the Capacity, all upon
and subject to the terms and conditions set forth below. Grantor and Grantee
further desire that the provisions of this Agreement would be generally
applicable to future orders for transport capacity submitted by Grantee and
accepted by Grantor under the terms of this Agreement.
ARTICLE 1
DEFINITIONS
1.1 "Acceptance Date" shall mean the date when Grantee delivers (or
is deemed to have delivered) notice of acceptance of a
Completion Notice with respect to a Segment in accordance with
Article 8.
1.2 "Acceptance Testing" shall have the meaning set forth in
Article 8.
1.3 "Access Points" shall have the meaning set forth in Article 9.
1.4 "Affiliate" shall mean, with respect to any specified Person,
any other Person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under
common control with, such specified Person ("control,"
"controlled by" and "under common control with" shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or
credit arrangement, as trustee or executor, or otherwise).
1.5 "Availability Notice" shall have the meaning set forth in
Section 7.3.
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1.6 "Capacity" shall mean the transmission capacity ordered by
Grantee and provided by Grantor under the terms of this
Agreement. Capacity shall include, for purposes of this
Agreement, transmission capacity between two points each of
which is a Grantor "gateway" facilities in each city set forth
in Exhibit "A" (all of which are within the continental United
States), as well as additional cities ("Additional Cities")
when and as Grantor establishes a "gateway" facility in such
cities and commences delivery of private line service to other
customers through the Leased System or the Grantor System to
and from such gateway facilities.
1.7 "Capacity Fee" shall mean the fee calculated in accordance with
Exhibit "B" and due and payable in accordance with Section 5.1.
1.8 "Committed Capacity" shall have the meaning set forth in
Section 7.7.
1.9 "Completion Notice" shall have the meaning set forth in
Section 8.2.
1.10 "Dispute Notice" shall have the meaning set forth in
Article 20.
1.11 "Effective Date" shall have the meaning set forth in Article 6.
1.12 "Force Majeure Event" shall have the meaning set forth in
Article 15.
1.13 "Grantor System" shall have the meaning set forth in the
Recitals.
1.14 "IRU" shall have the meaning set forth in Article 4.
1.15 "IRU Term" shall have the meaning set forth in Article 6.
1.16 "Leased System" shall have the meaning set forth in the
Recitals.
1.17 "Lease Term" shall have the meaning set forth in Article 6.
1.18 "Mileage" shall mean the distance between the Segment End
Points for each Segment, measured on a straight line or "air
miles" basis (regardless of the route miles for the Grantor
System or the Leased System).
1.19 "Operations and Maintenance Fee" shall mean the fee calculated
in accordance with Exhibit "B" and due and payable in
accordance with Section 5.1.
1.20 "Person" shall mean any natural person, corporation,
partnership, limited liability company, business trust, joint
venture, association, company or governmental authority.
1.21 "Prime Rate" shall mean, as of any relevant date, the interest
rate most recently published in the Money Rates Section of THE
WALL STREET JOURNAL as the prime rate.
1.22 "Proprietary Information" shall have the meaning set forth in
Section 19.1.
1.23 "Segments" shall have the meaning set forth in Section 2.1.
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1.24 "Segment End Points" shall have the meaning set forth in
Section 2.1.
1.25 "System Route" shall have the meaning set forth in Section 2.1.
1.26 "Term" shall have the meaning set forth in Article 6.
ARTICLE 2
GRANTOR SYSTEM
2.1 The Grantor System will connect the city pairs identified on
Exhibit "A" attached hereto (each city identified on Exhibit
"A" and each Additional City (as applicable) is herein called a
"Segment End Point" (each of which shall be located in
Grantor's "gateway" facility in such city), the route between
the applicable Segment End Points is herein called a "Segment",
and all of the Segments together are herein called the "System
Route"). The specific location of the System Route between
Segment End Points is subject to Grantor obtaining the
applicable permits, rights and rights of way; however, the
System Route will connect the Segment End Points for each
Segment. Each Segment End Point of the Grantor System and the
Leased System shall be served by at least one of the local
exchange carriers specified on Exhibit "D" attached hereto (the
"Qualified LECs") which has sufficient capacity available at
the Segment End Points to permit Grantee to obtain
interconnection of the Capacity to Grantee's network.
2.2 Notwithstanding anything to the contrary contained herein,
Grantor may elect, at its option, to acquire any portion of the
Grantor System from third parties (whether under a lease,
sublease, indefeasible right of use, or otherwise) in lieu of
constructing and installing the Grantor System respecting such
portion; provided, any such acquisition shall not relieve
Grantor of its obligation to provide the Capacity in accordance
with the terms of this Agreement.
ARTICLE 3
LEASED SYSTEM
The Capacity will be made available to Grantee over the Leased System
between the cities identified on Exhibit "A" and each Additional City,
as applicable. Upon completion of the Grantor System, Grantor shall be
permitted to migrate Capacity from the Leased System to the Grantor System,
which migration shall be performed at no cost to Grantee. Grantor shall
cooperate with Grantee to perform such migration in a manner and at a time
which is reasonably designed to minimize the extent and duration of any
interruption in Grantee's use of the Capacity, including performance of a
parallel "hot cut." Grantor agrees that the Segment End Points shall not be
altered as a result of migration of the Capacity from the Leased System to
the Grantor System. Grantor shall provide at least sixty (60) days prior
notice to Grantee of the migration for each Segment involved. Additionally,
Grantor shall reimburse Grantee for all reasonable costs and expenses
incurred by Grantee which are required as a result of such migration.
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<PAGE>
ARTICLE 4
LEASE OF CAPACITY AND GRANT OF IRU
As of the Effective Date for each particular Segment along which Capacity is
delivered by Grantor to Grantee hereunder, Grantor hereby leases to Grantee,
and Grantee hereby leases from Grantor for the Lease Term (as defined in
Article 6 hereof), the Capacity between the Segment End Points for each such
Segment. Upon expiration of each Lease Term (and provided that Grantee is not
then in default in the performance hereof, including (but not limited to) its
payment in full of the Capacity Fee and the Operations and Maintenance Fee),
Grantor shall grant to Grantee, and Grantee shall acquire from Grantor, an
exclusive indefeasible right of use in, for the purposes described herein and
for the IRU Term (as defined in Article 6 hereof), the Capacity between the
Segment End Points for each such Segment (the "IRU").
ARTICLE 5
FEES AND PAYMENT
5.1 The Capacity Fee shall be calculated on the basis of the
Mileage for each Segment as set forth on Exhibit "B". [ * ]
of the Capacity Fee for each Segment (the "Initial Payment")
shall be due and payable within five (5) days after the
Acceptance Date for each Segment. The balance of the Capacity Fee
shall accrue interest at the rate of [ * ] per annum and shall
be due and payable monthly in advance (with the first payment due
on the first day of the month following the Acceptance Date and
subsequent payments due on the first day of each month
thereafter) over sixty (60) months, in equal monthly installments
of principal and interest. The first monthly installment of the
Capacity Fee shall include a prorated payment (based on a thirty
(30) day month) of the Capacity Fee for the period of time from
and after the Acceptance Date until the date such first monthly
installment is due.
5.2 In addition to the Capacity Fee, Grantee shall, on the
Acceptance Date and on or before the first day of each month
thereafter during the Term, pay Grantor the Operations and
Maintenance Fee calculated on the basis of the Mileage for each
Segment as set forth on Exhibit "B". The Operations and
Maintenance Fee for the first and last month of the Term shall
be prorated based on a thirty (30) day month. The Operations
and Maintenance Fee set forth in Exhibit "B" shall be increased
on each anniversary of the Acceptance Date of the first Segment
by the lesser of (a) the increase, if any, in the Consumer
Price Index, All Urban Consumers (CPI-U), U.S. City Average,
published by the United States Department of Labor, Bureau of
Labor Statistics, for the preceding twelve (12) month period,
or (b) [ * ]. In the event the above-described index shall
cease to be computed or published, Grantor may, in its reasonable
discretion, designate a successor index to be used in determining
any increase to the Operations and Maintenance Fee.
5.3 Nonrecurring charges for reconfigurations or swaps on the
Capacity shall be as set forth in Exhibit "F", and shall be
paid within thirty (30) days of Grantee's receipt of an invoice
for such charges.
* Confidential treatment has been requested for a portion of this Exhibit
-4-
<PAGE>
5.4 All payments made by Grantee under this Article shall be made
without any deduction or withholding for or on account of any
tax, duty or other charges of whatever nature imposed by any
taxing or governmental authority, but excluding taxes or other
impositions relating to the income or profits of Grantor
(collectively "Taxes"). If Grantee is or was required by law to
make any deduction or withholding from any payment due
hereunder to Grantor (other than as a result of Grantee's
receipt of a garnishment from a taxing authority respecting
taxes owed or allegedly owed by Grantor), then, notwithstanding
anything to the contrary contained in this Agreement, the gross
amount payable by Grantee to Grantor will be increased so that,
after any such deduction or withholding for Taxes, the net
amount received by Grantor will not be less than Grantor would
have received had no such deduction or withholding been
required.
5.5 Except for taxes based on Grantor's net income and except with
respect to ad valorem personal and real property taxes imposed
on Grantor's property, Grantee shall be responsible for payment
of all sales, use, gross receipts, excise, access, bypass,
surcharge, franchise or other local, state and federal taxes,
fees, charges, or surcharges, however designated, imposed on or
based upon the provision, sale or use of the Capacity delivered
by Grantor. Any such taxes required to be paid by Grantor shall
be separately noted and added to the Operations and Maintenance
Fee. Any federal, state or local tax, fee, charge, or surcharge
shall be payable only for Capacity that is subject to such
imposition.
5.6 Any sums not paid by Grantee when due shall bear interest at
the rate of [ * ] per month or the highest rate permitted by
law (whichever is lower), from the date payment was due until
paid in full.
ARTICLE 6
TERM
The lease of Capacity with respect to each Segment shall become effective on
the first day when both (i) the Acceptance Date with respect to the Segment
has occurred and (ii) Grantor has received the Initial Payment due to Grantor
under Section 5.1 with respect to such Capacity (the "Effective Date"). The
term of the lease of Capacity shall expire, with respect to each order for
Capacity, on the fifth anniversary of the Effective Date (or such sooner date
as provided in Article 16 hereof) (the "Lease Term"). The IRU with respect to
Capacity ordered shall commence upon expiration of the Lease Term for such
Capacity (provided that the Lease Term has not been terminated under Article
16 hereof and further provided that Grantee is not then in material default
hereof). Subject to the provisions of Article 16, the IRU with respect to
each Segment shall terminate fifteen (15) years after the termination of the
Lease Term (the "IRU Term"). The Lease Term and the IRU Term shall
collectively be referred to as the "Term."
ARTICLE 7
ORDERS FOR CAPACITY
7.1 Grantee may (but is not hereby obligated, except as otherwise
provided in Section 7.7 hereof), for a period of five (5) years
after execution of this Agreement, submit orders to Grantor for
the delivery of Capacity ("Orders") under the terms of this
Agreement.
* Confidential treatment has been requested for a portion of this Exhibit
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<PAGE>
Grantor shall, except as otherwise provided herein, deliver
such Capacity between the Segment End Points under the terms of
this Agreement.
7.2 Any Order for the delivery of Capacity by Grantee shall be made
in writing and shall contain the following information: (a) the
level or amount of Capacity requested (Grantee shall be
permitted to order Capacity in increments of no less than [ * ]
and no greater than [ * ]), (b) the city pairs between which
such Capacity is requested, (c) any date(s) upon which Grantee
requires such Capacity (which, unless otherwise agreed by
Grantor, shall be no later than ninety (90) days from the date
of the request), and (d) such other information Grantee deems
reasonably necessary including required Ancillary Services as
set forth in Exhibit "F" hereto. Grantee must submit such
requests to Grantor by facsimile or E-Mail as mutually agreed
upon to the contact identified by Grantor.
7.3 Grantor shall, within five (5) days after the receipt of such
Order, either (a) request additional information from Grantee
respecting such request (but only in the event that information
on Grantor's standard order form has not been supplied by
Grantee), (b) deliver written notice to Grantee that Grantor
will not provide the requested Capacity, setting forth in such
notice the reason(s) why such requested Capacity cannot be
provided or (c) deliver written notice to Grantee (the
"Availability Notice") stating that the requested Capacity can
be provided on terms contained in this Agreement and in the
written request. In the event that Grantor fails to respond to
an Order within five (5) days after receipt thereof, Grantee
shall provide Grantor's designated representative with E-Mail
or facsimile notice, as mutually agreed upon by both parties,
of such failure and Grantor shall have one (1) business day
after receipt of such E-Mail or facsimile notice within which
to cure its failure to respond to the Order. In the event
Grantor fails to so cure, Grantor shall be deemed to have
refused to provide the requested Capacity. The Availability
Notice shall include a specification of the channel facility
assignment to one of the Qualified LECs, if then known to
Grantor, as well as a Letter of Agency ("LOA") which authorizes
Grantee to order the necessary local facilities. If Grantor is
unable to provide specification of the channel facility
assignment to a Qualified LEC at the time of the Availability
Notice, Grantor shall provide such specification (together with
the LOA) on the last to occur of (a) fifteen (15) days after
delivery of the Availability Notice, or (b) thirty (30) days
prior to the requested start date for the subject Capacity. The
failure of Grantor to provide a written specification of the
channel facility assignment or the LOA within the time
specified above shall be treated as a rejection by Grantor of
the Order and shall entitle Grantee to pursue the remedy set
forth in Section 16.4 of this Agreement. Grantor's issuance of
the Availability Notice constitutes a firm order and Grantee
will then have until ten (10) days prior to the requested start
date for the subject Capacity to cancel the Order with no
cancellation charges. Should Grantee cancel the order after the
period 10 days prior to the requested start date for the subject
Capacity, Grantee will then be obligated to pay a cancellation
fee in the amount set forth in Exhibit "F". In the event Grantee
cancels an order for Capacity, Grantor shall have no obligation
to provide the Capacity specified therein, and Grantee shall not
be obligated to accept such Capacity. Grantee may not cancel any
order after Grantor has provided a Completion Notice for the
subject Capacity.
7.4 Grantee shall, no later than ten (10) days prior to the
requested start date for the subject Capacity, provide Grantor
with the "Design Layout Record" or "DLR" for the local
* Confidential treatment has been requested for a portion of this Exhibit
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<PAGE>
facility to which such Capacity shall be connected. Grantee's failure to
deliver such information to Grantor as within the time stated above shall
extend, on a day-for-day basis, the time within which Grantor is
otherwise obligated to deliver such Capacity to Grantee.
7.5 The terms and provisions of this Agreement shall, unless otherwise
agreed in writing by the parties, be applicable to the delivery of the
Capacity.
7.6 Grantor agrees to deliver a Completion Notice with respect to Capacity
ordered between the Segment Endpoints listed on Exhibit "A" within the
following times:
(a) [ * ] days after receipt of an Order for any Orders
submitted within the first [ * ] after execution hereof;
(b) [ * ] after receipt of an Order (other than Orders
submitted within the first [ * ] after execution hereof) for
DS-3 Capacity;
(c) [ * ] after receipt of an Order (other than
Orders submitted within the first [ * ] after execution
hereof) for OC-3 Capacity.
PROVIDED, however, that Capacity to and from each Segment End Point may
not be ordered by Grantee at any time prior to the dates set forth in
Exhibit "A". Notwithstanding the foregoing, in no event shall Grantor be
obligated (unless otherwise agreed in writing by Grantor which
references this Section 7.6) to install more than [ * ] circuits or
more than [ * ] circuit along any Segment in any calendar month. Grantor
shall under no circumstances be obligated to deliver Capacity, and the
remedies set forth in Section 16.4 shall not apply to, either (a) any
Capacity which is ordered after Grantee has satisfied the Committed
Capacity requirement set forth in Section 7.7 below, other than an order
pursuant to the provisions of Section 7.8 for a swap of Capacity where
the new Capacity ordered will replace Capacity which was originally
ordered as part of the Committed Capacity or previously swapped for
Capacity which was part of the Committed Capacity, or (b) any Capacity
ordered for a city pair where Grantee has previously ordered [ * ] or
more DS-3's (or the equivalent thereof). Grantee's sole remedy for default
in the performance of this Section is set forth in Section 16.4. In the
event that a Force Majeure Event (as defined in Article 15) prevents
Grantor from satisfying the requirements of this Section, then,
notwithstanding Article 15, Grantee shall be entitled to the remedies set
forth in Section 16.4. A schedule of Grantee's currently forecasted
Capacity orders is set forth as Exhibit "C". Although this forecast
represents Grantee's present estimate of future needs, it is not binding
and shall not affect the obligations of Grantor and Grantee under this
Agreement under any circumstances.
7.7 Grantee hereby agrees that, in the first nine (9) months after execution
of this Agreement, Grantee shall submit orders for Capacity between the
Segment End Points listed on Exhibit "A" which equal or exceed
[ * ] (the "Committed Capacity"). Grantor's sole remedy for default in
the performance of this Section is set forth in Section 16.5.
* Confidential treatment has been requested for a portion of this Exhibit
-7-
<PAGE>
7.8 Grantee shall be permitted to swap Capacity which has been ordered
between two Segment End Points for Capacity between two other Segment
End Points. In the event that the total DS-0 Mileage for the new Capacity
is equal to or less than the total DS-0 Mileage for the old Capacity, no
additional Capacity Fee will be assessed. In the event that the total
DS-0 Mileage for the new Capacity is greater than the total DS-0 Mileage
for the old Capacity, an additional Capacity Fee shall be due and
payable within five (5) days after the Acceptance Date for the new
Capacity. Grantee shall in no event be entitled to a refund, rebate or
reduction in the Capacity Fee as a result of a request to swap Capacity,
but any Capacity lost by Grantee as a result of a swap may be used on a
mile for mile basis on future Orders for Capacity. Delivery of the new
Capacity shall be governed by the provisions hereof applicable to
ordering and delivery of Capacity, except that no new Capacity Fee shall
be payable on that portion of a future order attributable to swapped
Capacity. Nonrecurring charges, as specified in Exhibit "F", shall be
due and payable in the event Grantee requests to swap Capacity.
Notwithstanding anything in this Section, Grantee shall not be permitted
to request a swap of Capacity at any time during the first year after
the Acceptance Date for such Capacity.
7.9 Grantee shall be permitted to delay the requested installation date for
Capacity two (2) times with respect to any order, provided that (a) each
such request shall be submitted in writing, (b) each such request must
be received by Grantor no later than five (5) days prior to the
then-scheduled installation date, and (c) Grantee shall be permitted to
extend the date for installation by no more than thirty (30) days with
respect to each request (so that installation for Capacity may be
delayed by a maximum of sixty (60) days from the originally scheduled
installation date.)
ARTICLE 8
ACCEPTANCE TESTING AND COMPLETION
8.1 Grantor shall test the Capacity and the Ancillary Services relating
thereto in accordance with generally acceptable industry standards
("Acceptance Testing"). Grantor shall provide Grantee with prior notice
of the date and time of Acceptance Testing and Grantee shall have the
right, but not the obligation, at Grantee's cost and expense, to
participate in the end to end Acceptance Testing.
8.2 When Grantor has reasonably determined that the results of the
Acceptance Testing with respect to a particular Segment show that the
Capacity and the Ancillary Services relating thereto so tested is
operating substantially in conformity with the applicable specifications
required to meet the Acceptance Testing, Grantor shall provide written
notice of same to Grantee (a "Completion Notice"). Grantee shall, within
five (5) days of receipt of the Completion Notice, either accept or
reject the Completion Notice (specifying, if rejected, the defect or
failure in the Acceptance Testing and/or the items or matters to be
remedied) by delivery of written notice to Grantor. In the event Grantee
rejects the Completion Notice, Grantor shall promptly, and at no cost of
Grantee, commence to remedy the defect or failure specified in Grantee's
notice. Thereafter Grantor shall again give Grantee a Completion Notice
with respect to such Segment. The foregoing procedure shall apply again
and successively thereafter until Grantor has remedied all defects or
failures specified by Grantee. However, the failure of Grantor to
provide Capacity which is operating substantially in conformity with the
applicable
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<PAGE>
requirements of the Acceptance Testing by the date which is the later of
(i) within fifteen (15) days after Grantor's initial delivery of a
Completion Notice; (ii) the date upon which the Capacity was due under
Section 7.6; and (iii) the requested start date contained in Grantee's
Order, shall constitute a failure of delivery and shall entitle Grantee
to pursue the remedy set forth in Section 16.4 of this Agreement. Any
failure by Grantee to timely reject a Completion Notice shall be deemed
to constitute acceptance for purposes of this Agreement and Grantee
shall be deemed to have delivered a notice of acceptance on the
fifteenth day after delivery of the Completion Notice.
ARTICLE 9
ACCESS
Subject to payment of the fees and charges specified in Exhibit "F" and "G"
attached hereto, Grantor shall provide Grantee with access to, and Grantee
shall have the right to interconnect its communications system with, the
Capacity at the Segment End Points and, subject to the consent of Grantor, at
other technically feasible access points (the "Access Points"). Grantor shall
permit Grantee to connect with a local carrier at each Segment End Point,
provided that such local carrier is listed on Exhibit "D". Grantee shall have
the right (subject to availability of space in Grantor's facilities on a
non-discriminatory basis) to obtain colocation space from Grantor in each
Segment End Point for the purpose of interconnecting its communications
systems with the Capacity. The terms and conditions applicable to each such
colocation are specified in Exhibit "E" and the rates for each such
colocation are set forth in Exhibit "G". These rates, terms and conditions
shall be memorialized in individual Customer order forms for each requested
colocation space. In addition, Grantee shall have the right to lease
capacity on Grantor's entrance facilities at the Segment End Points at the
rates then being offered by Grantor to other customers with similar usage and
term commitment levels as Grantee requests.
ARTICLE 10
MAINTENANCE AND REPAIR
10.1 Grantor shall use reasonable efforts to cause the Capacity which is
leased or in which an IRU has been granted hereunder to be maintained in
efficient working order and in accordance with industry standards.
10.2 Should any condition exist in any Capacity which is leased or in which an
IRU has been granted hereunder that may impair the integrity of such
Capacity, Grantor shall take reasonable actions to initiate or cause to
be initiated maintenance on such Capacity which may include the
deactivation of such Capacity. Grantor shall, to the extent reasonably
practicable, advise Grantee in writing at least 30 days (or such shorter
period as may be agreed) prior to the initiation of a planned maintenance
operation of the timing and scope of such planned maintenance operation.
10.3 In the event of disruption of operation of the Capacity, Grantor shall
use commercially reasonable efforts to cause service to be restored as
quickly as reasonably possible, and Grantor shall take such measures as
are reasonably necessary to obtain such objective.
-9-
<PAGE>
10.4 Grantor shall, in the performance of its obligations set forth in this
Article 10, use the same level of efforts to maintain and restore the
Capacity as Grantor employs in connection with the maintenance and
restoration of Grantor's own service and facilities.
10.5 Grantor shall provide Ancillary Services in a commercially reasonable
manner, and in accordance with industry standards.
10.6 If total outages for any given circuit (including outages attributable
to maintenance or Force Majeure Events) exceed [ * ] in any
twelve (12) month period, Grantee shall have the right (exercisable
within thirty (30) days after total outages exceed such level) to
terminate delivery of the circuit and receive a refund of the unused
portion of the Capacity Fee paid for such circuit as set forth in
Section 16.3.
ARTICLE 11
USE OF CAPACITY
11.1 Grantee represents and warrants that it will use the Capacity and the
IRU hereunder in compliance with all applicable government codes,
ordinances, laws, rules and regulations.
11.2 Subject to the provisions of this Agreement, Grantee may use the
Capacity and the IRU for any lawful purpose. Grantee acknowledges and
agrees that it has no right to use any fibers included or incorporated
in the Leased System or the Grantor System, and that Grantee shall keep
any and all of the Leased System and the Grantor System free from any
liens, rights or claims of any third party attributable to Grantee.
11.3 Notwithstanding anything to the contrary contained in this Agreement,
Grantee covenants and agrees that Grantee shall not, that Grantee
shall have no right to, and that Grantor may enjoin Grantee from any
attempt to, assign, sell, lease, sublease, transfer, or convey the IRU
granted hereunder with respect to any Segment. Grantee may sell
services using the Capacity or lease portions of the Capacity to third
parties without restriction. By way of example regarding the
foregoing, Grantee would be prohibited from transferring any Segment
to a third party on an IRU basis but would have the unrestricted right
to lease all or a portion of the Capacity to third parties. No such
sale or lease shall, however, eliminate or affect either party's
obligations under this Agreement.
11.4 Grantee shall not use the Capacity in a way which physically
interferes in any way with or otherwise adversely affects the use of
the fibers, cable or conduit of any other Person using the Leased
System, the Grantor System or capacity therein.
11.5 Grantee and Grantor agree to cooperate with and support each other in
complying with any requirements applicable to their respective rights
and obligations hereunder by any governmental authority, so long as
(i) such cooperation does not materially increase a party's costs or
efforts in connection with the performance of this Agreement and
(ii) the party requesting such support or cooperation shall reimburse
the other party for all costs and expenses incurred in connection
therewith.
* Confidential treatment has been requested for a portion of this Exhibit
-10-
<PAGE>
ARTICLE 12
INDEMNIFICATION
12.1 Subject to the provisions of Article 13, Grantor hereby agrees to
indemnify, defend, protect and hold harmless Grantee and its
employees, officers and directors, from and against, and assumes
liability for: (i) any injury, loss or damage to any Person, tangible
property of facilities of any Person (including reasonable attorney
fees and costs) to the extent arising out of or resulting from the
negligence or willful misconduct of Grantor, its officers, employees,
servants, affiliates, agents, contractors, licensees, invitees and
vendors arising out of or in connection with the performance by
Grantor of its obligations under this Agreement; and (ii) any claims,
liabilities or damages arising out of any violation by Grantor of any
regulation, rule, statute or court order of any governmental authority
in connection with the performance by Grantor of its obligations under
this Agreement.
12.2 Subject to the provisions of Article 13, Grantee hereby agrees to
indemnify, defend, protect and hold harmless Grantor, and its
employees, officers and directors, from and against, and assumes
liability for: (i) any injury, loss or damage to any Person, tangible
property or facilities of any Person (including reasonable attorney
fees and costs) to the extent arising out of or resulting from the
negligence or willful misconduct of Grantee, its officers, employees,
servants, affiliates, agents, contractors, licensees, invitees and
vendors arising out of or in connection with the exercise by Grantee
of its rights under this Agreement; and (ii) any claims, liabilities
or damages arising out of any violation by Grantee of any regulation,
rule, statute or court order of any governmental authority in connection
with the exercise by Grantee of its rights under this Agreement.
12.3 Grantor and Grantee agree to promptly provide each other with notice
of any claim which may result in an indemnification obligation
hereunder. The indemnifying party may defend such claim with counsel
of its own choosing provided that no settlement or compromise of any
such claim shall occur without the consent of the indemnified party,
which consent shall not be unreasonably withheld or delayed.
12.4 Grantor and Grantee each expressly recognize and agree that its
obligation to indemnify, defend, protect and save the other harmless
is not a material obligation to the continuing performance of its other
obligations, if any, hereunder. In the event that a party shall fail
for any reason to so indemnify, defend, protect and save the other
harmless, the injured party hereby expressly recognizes that its sole
remedy in such event shall be the right to bring legal proceedings
against the other party for its damages as a result of the other
party's said failure to indemnify, defend, protect and save harmless.
These obligations shall survive the expiration or termination of this
Agreement.
ARTICLE 13
LIMITATION OF LIABILITY
Notwithstanding any provision in any other Article of this Agreement to the
contrary and except to the extent caused by the willful misconduct of a
party, neither party shall be liable to the other party for any special,
incidental, indirect, punitive or consequential damages, whether
-11-
<PAGE>
foreseeable or not, arising out of, or in connection with such party's
failure to perform its respective obligations hereunder, including, but not
limited to, loss of profits or revenue (whether arising out of transmission
interruptions or problems, any interruption or degradation of service or
otherwise), or claims of customers, whether occasioned by any construction,
reconstruction, relocation, repair or maintenance performed by, or failed to
be performed by, the other party or any other cause whatsoever, including
breach of contract, breach of warranty, negligence, or strict liability, all
claims for which damages are hereby specifically waived. This Article shall
not eliminate the right of the parties to pursue and obtain the relief
specified in Sections 16.4 and 16.5. Nothing contained herein shall operate
as a limitation on the right of either party hereto to bring an action for
damages against any third party, including claims for indirect, special or
consequential damages, based on any acts or omissions of such third party.
ARTICLE 14
INSURANCE
14.1 During the term of this Agreement, each party shall obtain and
maintain, and shall require any of its permitted subcontractors to
obtain and maintain, the following insurance, naming the other party as
an additional insured: (i) not less than $5,000,000.00 combined single
limit liability insurance, on an occurrence basis, for personal injury
and property damage, including injury or damage arising from the
operation of vehicles or equipment and liability for completed
operations; (ii) worker's compensation insurance in amounts required by
applicable law and employer's liability insurance with a limit of at
least $1,000,000.00 per occurrence; and (iii) automobile liability
insurance covering death or injury to any person or persons, or damage
to property arising from the operation of vehicles or equipment, with
limits of not less than $1,000,000.00 per occurrence.
14.2 Both parties expressly acknowledge that a party shall be deemed to be
in compliance with the provisions of this Article if it maintains an
approved self-insurance program providing for a retention of up to
$1,000,000.00. If either party provides any of the foregoing coverages
on a claims made basis, such policy or policies shall be for at least a
three (3) year extended reporting or discovery period.
14.3 Unless otherwise agreed, all insurance policies shall be obtained and
maintained with companies rated A or better by Best's Key Rating Guide
and each party shall, upon request, provide the other party with an
insurance certificate confirming compliance with the requirements of
this Article.
14.4 Grantee and Grantor shall each obtain from the insurance companies
providing the coverages required by this Agreement, the permission of
such insurers to allow such party to waive all rights of subrogation
and such party does hereby waive all rights of said insurance companies
to subrogation against the other party, its affiliates, subsidiaries,
assignees, officers, directors and employees.
14.5 In the event either party fails to maintain the required insurance
coverages and a claim is made or suffered, such party shall indemnify
and hold harmless the other party from any and all claims for which the
required insurance would have provided coverage.
-12-
<PAGE>
ARTICLE 15
FORCE MAJEURE
Except with respect to (a) Grantee's obligations to pay the Capacity Fee and
the Operations and Maintenance Fee, and (b) the rights and obligations of
Grantor and Grantee under Sections 10.6 and 16.4, neither party shall be in
default under this Agreement if and to the extent that any failure or delay
in such party's performance of one or more of its obligations hereunder is
caused by any of the following conditions, and such party's performance of
such obligation or obligations shall be excused and extended for and during
the period of any such delay: act of God; fire; flood; fiber or cable cuts;
government codes, ordinances, laws, rules, regulations or restrictions; war
or civil disorder; or any other cause beyond the reasonable control of such
party (each a "Force Majeure Event"). The party claiming relief under this
Article shall notify the other in writing of the existence of the event
relied on and the cessation or termination of said event, and shall use its
best efforts to avoid or minimize the delay caused by the Force Majeure Event.
ARTICLE 15
DEFAULT
16.1 If (i) Grantee makes a general assignment for the benefit of its
creditors, files a voluntary petition in bankruptcy or any
petition or answer seeking, consenting to, or acquiescing in
reorganization, arrangement, adjustment, composition, liquidation,
dissolution or similar relief; (ii) an involuntary petition in
bankruptcy, other insolvency protection against Grantee as filed
and not dismissed with 120 days; (iii) Grantee fails to pay the
Capacity Fee on a timely basis and such failure continues for a
period of twenty (20) days after written notice thereof; or (iv)
Grantee fails to observe and perform any other term or provision of
this Agreement and such failure continues for a period of thirty
(30) days after written notice from Grantor (or if such failure is
not susceptible of a cure within such thirty (30) day period, cure
has not been commenced and diligently pursued thereafter to
completion), then Grantor may (A) terminate this Agreement or the
Term with respect to any Capacity, in whole or in part, in which
event Grantor shall have no further duties or obligations
hereunder, and (B) subject to Article 13, pursue any legal remedies
it may have under applicable law or principles of equity relating
to such default, including an action for damages, payment of the
unpaid Capacity Fee or Operations and Maintenance Fee, specific
performance and/or injunctive relief.
16.2 If (i) Grantor makes a general assignment for the benefit of its
creditors, files a voluntary petition in bankruptcy or any petition
or answer seeking, consenting to, or acquiescing in reorganization,
arrangement, adjustment, composition, liquidation, dissolution or
similar relief; (ii) an involuntary petition in bankruptcy, other
insolvency protection against Grantor as filed and not dismissed
with 120 days; (iii) Grantor fails to observe and perform the terms
and provisions of this Agreement and such failure continues for a
period of thirty (30) days after written notice from Grantee (or to
such failure as not susceptible of a cure within such thirty (30)
day period, cure has not been commenced and diligently pursued
thereafter to completion), then Grantee may, subject to Section
16.3 below, (A) terminate this Agreement and the Term, in whole or
in part, in which event Grantee shall have no further duties or
obligations hereunder, and (B) subject to Article 13, pursue any
legal remedies it may have under applicable law or principles of
-13-
<PAGE>
equity relating to such default, including an action for damages,
specific performance and/or injunctive relief.
16.3 Except with respect to a failure to make Capacity available within
the time set forth in Article 7 and Section 8.2 (the remedy for
which is set forth in Section 16.4 below), Grantee's sole and
exclusive remedy with respect to each Segment for any failure of
Grantor to delivery the Capacity within such Segment in accordance
with this Agreement shall be to terminate the Term of such Segment,
in which event Grantor shall refund a prorated portion of the
Capacity Fee for the remaining unused balance of the Term with
respect to such Segment, together with interest thereon at the
Prime Rate plus [ * ] from the date payment was made to
Grantor until the date of the refund.
16.4 In the event that Grantor fails to make Capacity available within
the time(s) set forth in Section 7.6, Grantee shall provide
Grantor with written notice of such failure and Grantor shall have
a period of fifteen (15) days after receipt of such written notice
within which to cure such failure (either by providing the Capacity
(in working order and having passed Acceptance Testing) via the
Leased System or the Grantor System, or through "off-net"
arrangements). If Grantor fails to make the Capacity available
within such fifteen (15) day period, or if Grantor fails to provide
working capacity within the time(s) required by Section 8.2
("Non-Delivered Capacity), Grantee may elect to acquire replacement
services for such Non-Delivered Capacity of equal or lesser
capacity and receive a credit off of the Capacity Fee equal to
the sum of (a) all reasonable nonrecurring charges (including
reasonable order expedite charges) incurred by Grantee in
connection with such replacement services and (b) the extent to
which the total monthly recurring charges incurred by Grantee for
such replacement services through the date which is sixty (60) days
after Grantor makes the Non-delivered Capacity available to Grantee
in working order and having passed Acceptance Testing) exceeds
[*] per DS-0 mile.
Grantee shall obtain replacement services on a month-to-month
basis, shall use its best efforts to obtain a minimum of three (3)
price quotations for the delivery of such replacement services
from reputable suppliers, and shall provide copies of such
quotations to Grantor (unless prohibited by nondisclosure
agreements, in which event Grantee shall provide as much
information to Grantor as possible without violating such
nondisclosure agreements). Upon receipt of such quotations, Grantor
shall have the right to select the carrier which shall deliver
replacement services to Grantee; provided, however, if Grantor
fails to make such selection by written notice to Grantee by
facsimile within one (1) business day of Grantor's receipt of the
quotations, Grantee shall have the right to make such selection. In
the event that Grantee is prohibited from disclosing quotations to
Grantor as a result of nondisclosure agreements and Grantee is
unable, after making efforts to do so, to obtain the consent of the
supplier to disclose the quotation to Grantor, then Grantee may
make such selection itself (provided that Grantee shall be
obligated to select such replacement carrier on a commercially
reasonable basis). Any credit due under the foregoing shall be
applied to sums due from Grantee hereunder for a period of six (6)
months after Grantee incurs such expense. In the event that the
aggregate credits are not fully used within such time, Grantor
shall pay the remaining balance of the credit to Grantee in cash.
The total credit to which Grantee shall be entitled under this
Section shall in no event be greater than the total Capacity Fee
for the Non-Delivered Capacity (provided that, if the total credit
amount exceeds the cap set
* Confidential treatment has been requested for a portion of this
Exhibit
-14-
<PAGE>
forth in this sentence, Grantee shall not thereafter be obligated to
accept the Non-Delivered Capacity from Grantor when and if grantor
makes such Capacity available). In the event that Grantee receives
a credit under this Section as a result of a failure of Grantor to
deliver requested Capacity, and Grantor subsequently delivers such
Capacity to Grantee, then the Term of Grantee's use of the Capacity
shall be deemed to have commenced on the date that Grantee first
received the replacement services purchased by it.
16.5 In the event that Grantee fails to satisfy the Committed Capacity
requirement set forth in Section 7.7, Grantor shall provide Grantee
with written notice of such failure and Grantee shall have a
period of thirty (30) days after receipt of such notice to submit
orders so that the aggregate amount of Capacity ordered is equal to
or exceeds the Committed Capacity. In the event that Grantee fails
to do so, then, commencing on the date which is thirty (30) days
after receipt of the written notice and on a monthly basis
thereafter, Grantee shall be liable to pay to Grantor an additional
charge (the "Shortfall Fee") (in addition to the amount payable by
Grantee for Capacity which is actually delivered hereunder) equal
to the difference between the Capacity Fee payable by Grantee for
Capacity which is then being delivered to Grantee and the amount of
the Capacity Fee (including any Initial Payments) that Grantee
would have been required to pay had Grantee satisfied the Committed
Capacity requirement and such level of Capacity had been provided
to Grantee hereunder. The portion of the Shortfall Fee which
represents the Initial Payment for unordered Capacity shall be
credited to the Initial Payment that would otherwise be due on
Orders for Capacity submitted by Grantee.
By way of example concerning the Shortfall Fee, assume that Grantee
fails to place any orders during the first nine (9) months of the
Term and that Grantor provided Grantee with written notice of such
failure. In this example, assuming further that Grantee fails to
submit any Orders within thirty (30) days after receipt of such
notice, on the thirty-first (31st) day after receipt of such
notice, Grantee would be required to pay Grantor the sum of
[*] (representing the total of all Initial Payments that Grantee would
have been required to pay had Grantee satisfied the Committed Capacity
requirement and such level of Capacity had been provided to Grantee
hereunder) and Grantee would also be required to commence payment of
the monthly installments for the balance of the Capacity Fee.
ARTICLE 17
ASSIGNMENT
17.1 Neither party shall assign, encumber or otherwise transfer this
Agreement to any other Person without the prior written consent of
the other party, which consent shall not be unreasonably withheld;
provided, each party shall have the right, without the other
party's consent, but with prior written notice to the other party,
to assign or otherwise transfer this Agreement (i) as collateral to
any institutional lender of such party subject to the prior rights
and obligations of the parties hereunder; and (ii) to any Affiliate
of such party, or to any entity into which such party may be
merged or consolidated or which purchases all or substantially all
of the assets of such party; provided that such party shall not be
released from its obligations hereunder. Any assignee or transferee
shall continue to be subject to all of the provisions of this
Agreement, (except that any lender referred to in clause (i) above
shall not incur any obligations under this Agreement nor shall it
be
* Confidential treatment has been requested for a portion of this
Exhibit
-15-
<PAGE>
restricted from exercising any right of enforcement of foreclosure with
respect to any related security interest or lien, so long as the purchaser in
foreclosure is subject to the provisions of this Agreement).
17.2 This Agreement and each of the parties' respective rights and
obligations under this Agreement, shall be binding upon and shall inure
to the benefit of the parties hereto and each of their respective
permitted successors and assigns.
ARTICLE 18
REPRESENTATIONS AND WARRANTIES
18.1 Each party represents and warrants that: (i) it has the full right and
authority to enter into, execute, deliver and perform its obligations
under this Agreement; (ii) it has taken all requisite corporate action
to approve the execution, delivery and performance of this Agreement;
(iii) this Agreement constitutes a legal, valid and binding obligation
enforceable against such party in accordance with its terms, subject to
bankruptcy, insolvency, creditors' rights and general equitable
principles; and (iv) its execution of and performance under this
Agreement shall not violate any applicable existing regulations, rules,
statutes or court orders of any local, state or federal government
agency, court or body.
18.2 EXCEPT AS SET FORTH IN THE FOREGOING SECTION OR IN ARTICLE 10, GRANTOR
MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE CAPACITY,
INCLUDING ANY WARRANTY OR MERCHANTABILITY OR FITNESS FOR PARTICULAR
PURPOSE, AND ALL SUCH WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED.
ARTICLE 19
CONFIDENTIALITY
19.1 Grantor and Grantee hereby agree that if either party provides
confidential or proprietary information to the other party
("Proprietary Information"), such Proprietary Information shall
be held in confidence, and the receiving party shall afford such
Proprietary Information the same care and protection as it affords
generally to its own confidential and proprietary information
(which in any case shall be not less than reasonable care) in order to
avoid disclosure to or unauthorized use by any third party. The parties
acknowledge and agree that all information disclosed by either party to
the other in connection with or pursuant to this Agreement shall be
deemed to be Proprietary Information, provided that written information
is clearly marked in a conspicuous place as being confidential or
proprietary and verbal information is indicated as being confidential or
proprietary when given and promptly confirmed in writing as such
thereafter. All Proprietary Information, unless otherwise specified in
writing, shall remain the property of the disclosing party, shall be
used by the receiving party only for the intended purpose, and such
written Proprietary Information, including all copies thereof,
shall be returned to the disclosing party or destroyed after the
receiving party's need for it has expired or upon the request of the
disclosing party. Proprietary Information shall not be reproduced except
to the extent necessary to accomplish the purpose and intent of this
Agreement, or as otherwise may be permitted in writing by the
disclosing party.
-16-
<PAGE>
19.2 Section 19.1 shall not apply to any Proprietary Information which (i)
becomes publicly available other than through the disclosing party;
(ii) is required to be disclosed by a governmental or judicial law,
order, rule or regulation; (iii) is independently developed by the
receiving party; or (iv) becomes available to the receiving party
without restriction from a third party.
19.3 Notwithstanding Sections 19.1 and 19.2 either party may disclose
Proprietary Information to its employees, agents, and legal and
financial advisors and providers to the extent necessary or
appropriate in connection with the negotiation and/or performance of
this Agreement or in obtaining financing, provided that each such
party is notified of the confidential and proprietary nature of such
Proprietary Information and is subject to or agrees to be bound by
similar restrictions on its use and disclosure.
19.4 Neither party shall issue any public announcement or press
release relating to the execution of this Agreement without the prior
approval of the other party.
19.5 In the event either party shall be required to disclose all or
any part of this Agreement in, or attach all or any part of this
Agreement in, any regulatory filing or statement, each party agrees to
discuss and work cooperatively, in good faith, with the other party,
to protect, to the extent possible, those items or matters which the
other party deems confidential and which may, in accordance
with applicable laws, be deleted therefrom.
19.6 The provisions of this Article shall survive expiration or termination
of this Agreement.
ARTICLE 20
DISPUTE RESOLUTION
If the parties are unable to resolve any dispute arising under or relating to
this Agreement, the parties shall resolve such disagreement or dispute as
follows:
(a) Either party may refer the matter to the appropriate managers of
the parties by written notice to the other party (the "Dispute
Notice"). Within fifteen (15) days after delivery of the Dispute
Notice such managers of both parties will use good faith efforts
to schedule a meeting at a mutually acceptable time and place to
attempt to resolve the dispute.
(b) If the matter has not been resolved within thirty (30) days after
delivery of the Dispute Notice, or if such officers fail to meet
within fifteen (15) days after delivery of such Dispute Notice,
either party may initiate mediation in accordance with the
procedures set forth in (c) below. All negotiations conducted by
such officers shall be confidential and shall be treated as
compromise and settlement negotiations for purposes of federal
and state rules of evidence.
(c) If such officers are unable to resolve the dispute or have failed
to meet, the parties may elect to participate in a nonbinding
mediation procedure as follows:
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(i) A mediator will be selected by having counsel for each party
agree on a single person to act as mediator. The parties'
counsel as well as up to three (3) representatives of each of
the parties will appear before the mediator at a time and
place determined by the mediator, but not more than sixty
(60) days after delivery of the Dispute Notice. The fees of
the mediator and other costs of the mediation will be shared
equally by the parties.
(ii) Each party will present a review of the matter and its
position with respect to such matter. At the conclusion of
both presentations the parties may ask questions of each
other. Either party may abandon the mediation procedure at
the end of the presentation and question periods and the
mediation procedure shall not be binding on either party.
(d) If the matter is not resolved after applying the mediation
procedure set forth above, or if either party refuses to take
part in the mediation process, either party may initiate legal
proceedings to resolve their dispute. Any such legal proceedings
shall take place in Denver, Colorado.
ARTICLE 21
NOTICES
All notices or other communications which are required or permitted herein
shall be in writing and sufficient if delivered personally, sent by prepaid
overnight air courier, or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:
IF TO GRANTOR (prior to July 1, 1999):
LEVEL 3 COMMUNICATIONS, LLC
1450 Infinite Drive
Louisville, Colorado 80027
Attn: General Counsel
(after July 1, 1999):
LEVEL 3 COMMUNICATIONS, LLC
1025 Eldorado Drive
Broomfield, Colorado 80021
Attn: General Counsel
IF TO GRANTEE: WORLDxCHANGE COMMUNICATIONS
9999 Willow Creek Road
San Diego, CA 92131
Attn: Legal Department
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<PAGE>
or at such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such
communication shall be deemed to have been given when delivered if delivered
personally, on the business day after dispatch if sent by overnight air
courier, or on the third business day after posting if sent by mail.
ARTICLE 22
ENTIRE AGREEMENT; AMENDMENT
This Agreement constitutes the entire and final agreement and understanding
between the parties with respect to the subject matter hereof and supersedes
all prior agreements relating to the subject matter hereof, which are of no
further force or effect. The Exhibits referred to herein are integral parts
hereof and are hereby made a part of this Agreement. This Agreement may only
be modified or supplemented by an instrument in writing executed by a duly
authorized representative of each party.
ARTICLE 23
RELATIONSHIP OF THE PARTIES
The relationship between Grantee and Grantor shall not be that of partners,
agents, or joint venturers for one another, and nothing contained in this
Agreement shall be deemed to constitute a partnership or agency agreement
between them for any purposes, including but not limited to federal income
tax purposes.
ARTICLE 24
COUNTERPARTS
This Agreement may be executed in one or more counterparts, all of which
taken together shall constitute one and the same instrument.
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<PAGE>
ARTICLE 25
ANCILLARY SERVICES
Grantor shall, at the request of Grantee, provide the ancillary services set
forth in Exhibit "F" (the "Ancillary Services"). Except as noted on Exhibit "A",
Grantor shall deliver Ancillary Services which are requested on the same Order
form as an Order for Capacity within the time frames set forth in Section 7.6 of
this Agreement. Grantor shall use its reasonable efforts to deliver Ancillary
Services which are requested separate from an Order for Capacity within
commercially reasonable times. The charges for Ancillary Services are set forth
in Exhibit "F", shall be fixed for the Term of the Agreement and shall be
payable by Grantee on a monthly basis.
IN WITNESS WHEREOF, Grantor and Grantee have executed this Agreement as of the
date first above written.
LEVEL 3 COMMUNICATIONS, LLC, a
Delaware limited liability company
By: /s/ [ILLEGIBLE]
----------------------------------------
Title: Vice President
--------------------------------------
COMMUNICATION TELESYSTEMS INTERNATIONAL,
a California corporation
By: /s/ [ILLEGIBLE]
----------------------------------------
Title: CEO
--------------------------------------
[STAMP]
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<PAGE>
EXHIBIT "A"
SEGMENT ENDPOINTS AND IN-SERVICE DATES
<TABLE>
<CAPTION>
City In-Service Date
---------------------------------------------------------------
<S> <C>
New York, New York [ * ]
Washington, D.C. [ * ]
Philadelphia, Pennsylvania [ * ]
Boston, Massachusetts [ * ]
Atlanta, Georgia [ * ]
Detroit, Michigan [ * ]
Chicago, Illinois [ * ]
Houston, Texas [ * ]
Dallas, Texas [ * ]
Denver, Colorado [ * ]
San Diego, California [ * ]
Los Angeles, California [ * ]
San Jose, California [ * ]
San Francisco, California [ * ]
Seattle, Washington [ * ]
Las Vegas, Nevada [ * ]
St. Louis, Missouri [ * ]
Salt Lake City, Utah [ * ]
Phoenix, Arizona [ * ]
Baltimore, Maryland [ * ]
Cincinnati, Ohio [ * ]
</TABLE>
* Confidential treatment has been requested for a portion of this Exhibit
-21-
<PAGE>
<TABLE>
<S> <C>
Miami, Florida [ * ]
Newark, New Jersey [ * ]
Orlando, Florida [ * ]
Stamford, Connecticut [ * ]
Tampa, Florida [ * ]
</TABLE>
* Confidential treatment has been requested for a portion of this Exhibit
** With respect to Las Vegas, Salt Lake City and Phoenix only, until such time
as Grantor's gateway facility is completed, Grantor shall have an extra
thirty (30) days to deliver M 1/3 multiplexing.
-22-
<PAGE>
EXHIBIT "B"
CAPACITY FEE, OPERATIONS AND MAINTENANCE FEE
A. THE CAPACITY FEE.
[*]
B. THE OPERATIONS AND MAINTENANCE FEE.
[*]
C. CALCULATION OF FEES.
The Capacity Fee and the Operations and Maintenance Fee shall be calculated
based on "V&H" miles between Grantor's gateway facilities. [*]
*Confidential treatment has been requested for a portion of this Exhibit
-23-
<PAGE>
EXHIBIT "C"
GRANTEE'S CAPACITY FORECAST
<TABLE>
<CAPTION>
City Pair Quantity of DS-3's
- ----------- -----------------------
<S> <C>
New York - Los Angeles [ * ]
Dallas - Los Angeles [ * ]
Dallas - Chicago [ * ]
Chicago - New York [ * ]
Chicago - Los Angeles [ * ]
Los Angeles - Las Vegas [ * ]
Los Angeles - Phoenix [ * ]
San Francisco - Portland [ * ]
New York - Atlanta [ * ]
New York - Miami [ * ]
</TABLE>
*Confidential treatment has been requested for a portion of this Exhibit
-24-
<PAGE>
EXHIBIT "D"
QUALIFIED LECs
<TABLE>
<S> <C>
New York, New York Bell, WorldCom
Washington, D.C. Bell, WorldCom
Philadelphia, Pennsylvania Bell, WorldCom
Boston, Massachusetts Bell, WorldCom
Atlanta, Georgia Bell, WorldCom
Detroit, Michigan Bell, WorldCom
Chicago, Illinois Bell, WorldCom
Houston, Texas Bell, WorldCom
Dallas, Texas Bell, WorldCom
Denver, Colorado Bell, WorldCom
San Diego, California Bell, WorldCom
Los Angeles, California Bell, WorldCom
San Jose, California Bell, WorldCom
San Francisco, California Bell, WorldCom
Seattle, Washington Bell, WorldCom
Las Vegas, Nevada Bell, WorldCom
St. Louis, Missouri Bell, WorldCom
Salt Lake City, Utah Bell, WorldCom
Phoenix, Arizona Bell, WorldCom
</TABLE>
This List may be amended by mutual agreement of Grantor and Grantee as new local
exchange carriers are added to those available in the Gateways and POP's above
and as new Gateways and POP's are added to the list along with their serving
local exchange carriers
-25-
<PAGE>
EXHIBIT "E"
COLOCATION TERMS AND CONDITIONS
-26-
<PAGE>
TERMS AND CONDITIONS
TELEPHONY COLOCATION
The following Terms and Conditions shall be applicable to Customer's use of
space within Level 3 facilities used for the purpose of colocating
telecommunications equipment (the "Space") ordered by Customer under any
Customer Order.
1. Upon execution and performance of Customer's obligations under a Customer
Order for use of Space, Customer shall be granted the right to occupy the Space
identified therein. Customer may submit multiple Customer Orders requesting use
of different Space, each of which shall be governed by the terms hereof.
2. Customer shall be permitted to use the Space only for: (a) placement and
maintenance of communications equipment which shall be interconnected to the
network services offered by Level 3, or (b) to cross connect to the facilities
of other communications carriers. The nonrecurring and monthly recurring charges
for the Space and any Services ordered by Customer shall be set forth in each
Customer Order.
4. Level 3 shall perform such janitorial services, environmental systems
maintenance, power plant maintenance and other actions as are reasonably
required to maintain the facility in which the Space is located in good
condition which is suitable for the placement of communications equipment.
Customer shall maintain the Space in orderly and safe condition, and shall
return the Space to Level 3 at the conclusion of the term set forth in the
Customer Order in the same condition (reasonable wear and tear excepted) as when
such Space was delivered to Customer. EXCEPT AS EXPRESSLY STATED HEREIN OR IN
ANY CUSTOMER ORDER, THE SPACE SHALL BE DELIVERED AND ACCEPTED "AS IS" BY
CUSTOMER, AND NO REPRESENTATION HAS BEEN MADE BY LEVEL 3 AS TO THE FITNESS OF
THE SPACE FOR CUSTOMER'S INTENDED PURPOSE.
5. The term of use of the Space shall begin on the later to occur of the date
requested by Customer or the date that Level 3 completes the build-out of the
Space. Customer's use of the Space shall continue for the term of the Capacity
Lease and IRU Agreement, subject to cancellation by Customer upon not less than
120 days prior notice.
6. Level 3 shall use reasonable efforts to complete the build-out and make the
Space available to Customer on or before the date requested by the Customer. In
the event that Level 3 fails to complete the build-out within sixty (60) days of
the date requested by Customer, then Customer may terminate its rights to use
such Space and receive a refund of any fees paid for the use or build-out of
such Space.
7. Customer shall abide by any posted or otherwise communicated reasonable
rules relating to use of, access to, or security measures respecting the
Space. In the event that unauthorized parties gain access to the Space
through access cards, keys or other access devices provided to Customer,
Customer shall be responsible for any damages incurred as a result thereof.
Customer shall be responsible for the cost of replacing any security devices
lost or stolen after delivery thereof to Customer. In addition, Level 3 shall
have the right to terminate Customer's use of the Space in the event that:
(a) Level 3's rights to use the facility within which the Space is located
terminates or expires for any reason; (b) Customer has violated the terms
hereof and (if such violation is susceptible of cure) has failed to cure such
violation within twenty (20) days after written notice thereof; (c) Customer
makes any material alterations to the Space without first obtaining the
written consent of Level 3 (which consent shall not be unreasonably
withheld); (d) Customer allows personnel or contractors to enter the Space
who have not been approved by Level 3 in advance; or (e) Customer violates
any posted or otherwise communicated rules relating to use of or access to
the Space and (if such violation is susceptible of cure) has failed to cure
such violation within twenty (20) days after written notice thereof. Level 3
shall use reasonable efforts to notify Customer of any events that may result
in termination of the use of the Space.
8. Customer shall pay all monthly recurring fees, cross-connect fees, power
charges and nonrecurring fees specified in each Customer Order for the agreed
term thereof. In the event that Customer terminates a Customer Order for Space
or in the event that the Customer Order is terminated due to a failure of
Customer to satisfy the requirements set forth herein or in the Customer Order
prior to the end of the agreed term, Customer shall pay a termination charge
equal to the costs incurred by Level 3 in returning the Space to a condition
suitable for use by other parties, plus the percentage of the monthly recurring
fees for the terminated Space calculated as follows:
A. 100% of the monthly recurring fees that would have been charged for the
Space for months 1-12 of the agreed term; plus
Page 1 of 2
<PAGE>
B. 75% of the monthly recurring fees that would have been charged for the
Space for months 13-24 of the agreed term; plus
C. 50% of the monthly recurring fees that would have been charged for the Space
for months 25 through the end of the agreed term.
9. Level 3 reserves the right to change the location or configuration of the
Space, provided, however, that Level 3 shall not arbitrarily or discriminatorily
require such changes. Level 3 and Customer shall work in good faith to minimize
any disruption in Customer's services that may be caused by such changes in
location or configuration of the Space.
10. Prior to occupancy and during the term of use of any Space, Customer
shall procure and maintain the following minimum insurance coverage: (a)
Workers' Compensation in compliance with all applicable statutes of
appropriate jurisdiction. Employer's Liability with limits of $500,000 each
accident; (b) Commercial General Liability with combined single limits of
$1,000,000 each occurrence; and (c) "All Risk" Property insurance covering
all of Customers personal property located in the Space. Customer's
Commercial General Liability policy shall be endorsed to show Level 3 (and
any underlying property owner, as requested by Level 3) as an additional
insured. All policies shall provide that Customer's insurers waive all rights
of subrogation against Level 3. Customer shall furnish Level 3 with
certificates of insurance demonstrating that Customer has obtained the
required insurance coverages prior to occupancy of the Space. Such
certificates shall contain a statement that the insurance coverage shall not
be materially changed or cancelled without at least thirty (30) days' prior
written notice to Level 3. Customer shall require any contractor entering the
Space on its behalf to procure and maintain the same types, amounts and
coverage extensions as required of Customer above.
11. The liability of Level 3 for damages arising out of the furnishing of
Space, including but not limited to mistakes, omissions, interruptions, delays,
tortious conduct or errors, or other defects arising out of the failure to
furnish Space, whether caused by acts of commission or omission, shall be
limited to a prorated refund of the charges paid by Customer for the use of the
Space hereunder. The extension of such refunds shall be the sole remedy of
Customer and the sole liability of Level 3. However this provision shall not
limit the liability of Level 3 for willful misconduct.
Page 2 of 2
<PAGE>
EXHIBIT "F"
ANCILLARY CHARGES
Charges and Rates set forth in this Exhibit "F" shall remain effective for the
Term of the Agreement.
A. NONRECURRING CHARGES FOR RECONFIGURATIONS AND SWAPS.
[*]
[*]
B. OTHER ANCILLARY SERVICES AND CHARGES.
Echo Cancellers [*]
M1/3 Multiplexing [*]
DS-3 Cross Connects
<TABLE>
<S> <C>
1. Level 3 DS-1 IXC to DS-1 Local Access [*]
Bypass or Colocate
2. Level 3 DSX Cross Connect Panel [*]
Bypass or Colocate
3. Non Level 3 DS-1 Facilities to [*]
Non Level 3 DS-1 Facilities
4. Level 3 DS-3 IXC to DS-3 Local [*]
Access Bypass or Colocate
5. Non Level 3 DS-3 Facilities to [*]
Non Level 3 DS-3 Facilities
</TABLE>
** Grantee must accept and pay for such services for a minimum term of one year
from date of installation.
C. CANCELLATION CHARGES
[*]
[*]
*Confidential treatment has been requested for a portion of this Exhibit
-27-
<PAGE>
EXHIBIT "G"
COLOCATION CHARGES
Charges and Rates set forth in this Exhibit "G" shall remain effective for a
minimum period of five (5) years from the date of execution of the Agreement.
Thereafter, Grantor may, on a non-discriminatory basis, adjust such charges
upon thirty (30) days advance written notice to Grantee; provided that such
charges shall not exceed those then being charged by Grantor to other similarly
situated customers for equivalent services.
<TABLE>
<CAPTION>
Enclosed Cabinet: Nonrecurring Installation Charge Monthly Recurring Charge
<S> <C> <C>
1 Year Term [*] [*]
2 Year Term [*] [*]
3 Year Term [*] [*]
</TABLE>
<TABLE>
<CAPTION>
AC and DC Power: Nonrecurring Installation Charge Monthly Recurring Charge
<S> <C> <C>
[*] [*]
[*]
[*]
</TABLE>
Scheduled or unscheduled Maintenance Charges: [*]
*Confidential treatment has been requested for a portion of this Exhibit
-28-
<PAGE>
CONFIDENTIAL TREATMENT
CAPACITY LEASE AGREEMENT
This CAPACITY LEASE AGREEMENT (the "AGREEMENT") is entered into as of the
26 day of March, 1999 (the "EFFECTIVE DATE"), by and between COMMUNICATION
TELESYSTEMS INTERNATIONAL D/B/A WORLDxCHANGE COMMUNICATIONS, a California
corporation, with its principal place of business located at 9999 Willow Creek
Road, San Diego, California 92131 ("CUSTOMER"), and WORLDCOM NETWORK SERVICES,
INC., a Delaware corporation, with its principal place of business located at
6929 North Lakewood Avenue, Tulsa, Oklahoma 74117 ("MCI WORLDCOM").
R E C I T A L S:
A. MCI WorldCom currently owns and operates telecommunications facilities
within the continental United States (the "MCI WORLDCOM NETWORK").
B. Customer wishes to obtain the right to use transport capacity along
certain routes on MCI WorldCom's Network all as more particularly described
herein.
C. In connection therewith, MCI WorldCom desires to grant to Customer and
Customer desires to obtain from MCI WorldCom, a lease in the Leased Capacity (as
defined herein), all upon the terms and conditions set forth below.
NOW, THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. TERM; TERMINATION.
(A) This Agreement shall commence as of the Effective Date and shall
continue through and include May 31, 2019 (the "LEASE TERM"), subject to
earlier termination as described in Subsections (B) or (C) below.
(B) The following shall constitute an event of default ("EVENT OF
DEFAULT") by Customer: (i) Customer makes a general assignment for the
benefit of its creditors, files a voluntary petition in bankruptcy or
any petition or answer seeking, consenting to, or acquiescing in
reorganization, arrangement, adjustment, composition, liquidation,
dissolution or similar relief; (ii) an involuntary petition in
bankruptcy, other insolvency protection against Customer is filed and
not dismissed with one hundred twenty (120) days; (iii) Customer fails
to pay any amount due under SECTION 3 when due and fails to cure such
non-payment within ten (10) days after receipt of written notice of
default from MCI WorldCom; or (iv) Customer materially fails to observe
and perform any other material term or provision of this Agreement and
such failure continues for a period of thirty (30) days after written
notice of default from MCI WorldCom (or if such failure is not
reasonably susceptible of a cure within such thirty (30) day period,
cure has not been commenced and diligently pursued thereafter to
completion). Upon the occurrence of an Event of Default by Customer,
then MCI WorldCom may terminate this Agreement or the Term with respect
to any Leased Capacity, in whole or in part, in which event MCI WorldCom
shall have no further duties or obligations hereunder. In the event that
MCI WorldCom shall, at the request of Customer, reinstitute the
provision of Services
EXECUTION COPY Page 1 of 18
CONFIDENTIAL
<PAGE>
hereunder, Customer shall be liable for any costs and expenses arising out
of and occasioned by such suspension and reinstitution.
(C) If (i) MCI WorldCom makes a general assignment for the benefit of
its creditors, files a voluntary petition in bankruptcy or any petition
or answer seeking, consenting to, or acquiescing in reorganization,
arrangement, adjustment, composition, liquidation, dissolution or similar
relief; (ii) an involuntary petition in bankruptcy, other insolvency
protection against MCI WorldCom is filed and not dismissed with one
hundred twenty (120) days; or (iii) MCI WorldCom fails to observe and
perform any other term or provision of this Agreement and such failure
continues for a period of thirty (30) days after written notice from
Customer (or if such failure is not reasonably susceptible of a cure
within such thirty (30) day period, cure has not been commenced and
diligently pursued thereafter to completion), then Customer may,
terminate this Agreement or the Term with respect to any Leased
Capacity, in whole or in part, in which event Customer shall have no
further duties or obligations hereunder.
(D) Termination of this Agreement shall not operate as a waiver of any
breach by a party of any of the provisions hereof and shall be without
prejudice to any rightful remedies of either party which may arise as a
consequence of such breach or which may have accrued hereunder up to the
date of such termination.
2. LEASED CAPACITY; ANCILLARY SERVICES.
(A) In consideration for the payment by Customer to MCI WorldCom of the
Purchase Price and the O&M Fees (as described in SECTION 3 below), subject
to Subsection (B) below, MCI WorldCom hereby leases to Customer for the
Lease Term (as defined in SECTION 1 above) 20,500 V&H miles of private line
interexchange service at the DS-3 level (hereinafter referred to as the
"LEASED CAPACITY") between those cities set forth on Schedule 1 attached
hereto (the "AVAILABLE LEASE CITIES"). For purposes of this Agreement, a
"DS-3" shall mean a two point channel for the simultaneous two-way
transmission of asynchronous serial bipolar data at a nominal rate of
44.736 megabits per second. Further, each DS-3 is comprised of 672 voice
grade equivalent (VGE) circuits.
(B) On or before April 1, 1999 (the "BLOCK A LEASE DATE"), Customer agrees
to submit a Service Order in accordance with Section 4 below, identifying
the number of initial DS-3 circuits as well as the specific Available Lease
Cities between which Customer desires to obtain capacity ("BLOCK A LEASED
CIRCUITS").
(C) Customer agrees to submit within five (5) days after execution of this
Agreement by all parties, a good faith forecast regarding the Block B
Leased Circuits which forecast shall not constitute a binding commitment of
Customer and shall not result in liability to Customer or alter the
obligations of MCI WorldCom if Customer's actual requirements for Block B
Leased Circuits differ from the forecast. Thereafter, subject to SECTION 4
below, Customer agrees to submit Service Orders from time to time in
accordance with SECTION 4 below identifying the number of DS-3 circuits as
well as the specific Available Lease Cities between which Customer desires
to obtain capacity for the remainder of the Leased Capacity (the "BLOCK B
LEASED CIRCUITS"); provided, however, in no event will the total number of
Block A Leased Circuits and Block B Leased Circuits exceed 20,500
EXECUTION COPY Page 2 of 18
CONFIDENTIAL
<PAGE>
V&H miles. Customer may order the Block B Leased Circuits in any number
of individual orders submitted from time to time in accordance with
SECTION 4. The Block A Leased Circuits and the Block B Leased Circuits
are collectively referred to as the "LEASED CIRCUITS".
(D) Customer acknowledges that the Leased Circuits can not exceed (i)
twenty-four (24) DS-3 level Circuits between any two Available Lease
Cities, and (ii) forty-eight (48) circuits over any MCI WorldCom network
cross-section. For purposes of this Subsection (D), a "network
cross-section" means the most efficient (as reasonably determined by MCI
WorldCom) "linear" network segment which traverses more than one pair of
Available Lease Cities. For example, the network segment between New York
City, New York and Newark, New Jersey would constitute a network
cross-section common to the city pairs of (a) New York City and Newark, and
(b) New York City and Washington, D.C.
(E) The Leased Circuits will be subject to the Installation and Ancillary
Service charges described on Schedule 2 attached hereto.
(F) MCI WorldCom shall, at the request of Customer, provide the Ancillary
Services set forth on Schedule 2 attached hereto ("ANCILLARY SERVICES").
The charges for installation and Ancillary Services, which are described on
Schedule 2 attached hereto, shall be fixed for the Lease Term and shall be
payable by Customer on a monthly basis.
3. PAYMENT.
(A) In consideration of the provision by WorldCom of the Leased Capacity,
Customer agrees to pay WorldCom [*] (the "PURCHASE PRICE") as follows:
(i) On or before May 1, 1999, Customer agrees (i) to pay MCI
WorldCom ten percent (10%) of the Block A Purchase Price as
described below, and (ii) pay the remainder of the Block A Purchase
Price in accordance with Schedule 3 attached hereto (the "BLOCK A
REMAINDER AMOUNT"). The Block A Remainder Amount will accrue
interest at the rate of [*] per annum on the outstanding declining
balance and shall be due and payable monthly in advance (with the
first payment due on or before June 1, 1999, and subsequent
payments due on the first day of each month thereafter) over
[*] months, in equal installments of principal and interest.
The "BLOCK A PURCHASE PRICE" will be determined by multiplying (x)
the Purchase Price [*] times (y) a fraction, the denominator of
which is [*] and the numerator of which is the [*]
(ii) On or before the dates specified below, Customer agrees (i)
to pay MCI WorldCom the "Block B Down Payment Amount" (as described
below), and (ii) pay the remainder of the Block B Purchase Price in
accordance with Schedule 4 attached hereto (the "BLOCK B REMAINDER
AMOUNT"). The Block B Remainder Amount will accrue interest at the
rate of [*] per annum on the outstanding declining balance and
shall be due and payable monthly in advance (with the first payment
due on or before September 1, 1999, and subsequent payments due on
the first day of each month thereafter) over [*] months, in equal
installments of principal and interest. The "BLOCK B
*Confidential treatment has been requested for a portion of this Exhibit.
EXECUTION COPY Page 3 of 18
CONFIDENTIAL
<PAGE>
PURCHASE PRICE" will be determined by subtracting (x) the Block A
Purchase Price from (y) the Purchase Price [*]. The "BLOCK B DOWN
PAYMENT AMOUNT" will be equal to ten percent (10%) of the Block B
Purchase Price and will be payable as follows:
(i) Ten percent (10%) of the Block B Down Payment Amount
will be due and payable on or before June 1, 1999;
(ii) Twenty (20%) of the Block B Down Payment Amount will be
due and payable on or before July 1, 1999;
(iii) Thirty percent (30%) of the Block B Down Payment Amount
will be due and payable on or before August 1, 1999; and
(iv) Forty percent (40%) of the Block B Down Payment Amount
will be due and payable on or before September 1, 1999.
[*]
(B) In addition to payment of the Purchase Price described in
Subsection (A) above, Customer agrees to pay MCI WorldCom a monthly
operations and maintenance fee equal to [*] comprising each Leased Circuit
(the "MONTHLY 0&M FEE"). The Monthly O&M Fee will be due and payable as
follows:
(i) On or before the Block A Lease Date and on or before the first
day of each successive month through the end of the Lease Term,
Customer agrees to pay MCI WorldCom a portion of the Monthly O&M
Fee equal to [*] times the number of voice grade equivalents
associated with the Block A Leased Circuits (the "BLOCK A MONTHLY 0&M
FEE").
(ii) Commencing (a) June 1, 1999, Customer agrees to pay MCI WorldCom
a portion of the Monthly O&M Fee equal to [*] of the number of voice
grade equivalents associated with the Block B Leased Circuits,
(b) July 1, 1999, Customer agrees to pay MCI WorldCom a portion of the
Monthly O&M Fee equal to [*] of the number of voice grade equivalents
associated with the Block B Leased Circuits, (c) August 1, 1999,
Customer agrees to pay MCI WorldCom a portion of the Monthy O&M Fee
equal to [*] of the number of voice grade
*Confidential treatment has been requested for a portion of this Exhibit
EXECUTION COPY Page 4 of 18
CONFIDENTIAL
<PAGE>
equivalents associated with the Block B Leased Circuits, and
(d) September 1, 1999, and on or before the first day of each
successive month through the end of the Lease Term, Customer agrees to
pay MCI WorldCom a portion of the Monthly O&M Fee equal to [*] times
the number of voice grade equivalents associated with the Block B
Leased Circuits (the "BLOCK B MONTHLY 0&M FEE"). The Block A Monthly
O&M Fee and the Block B Monthly O&M Fee are collectively referred to
as the "MONTHLY O&M FEE".
(iii) The Block A Monthly O&M Fee shall be increased on each
anniversary of the Block A Lease Date and the Block B Monthly O&M Fee
shall be increased each September 1 commencing with September 1, 2000,
by the lesser of (x) three percent (3%), or (y) the increase, if any,
in the Consumer Price Index, All Urban Consumers (CPI-U), U.S. City
Average, published by the United States Department of Labor, Bureau of
Labor Statistics, for the preceding twelve (12) month period. In the
event the above-described index shall cease to be computed or
published, MCI WorldCom may, in its reasonable discretion, designate a
succesor index to be used in determining any increase to the Monthly
O&M Fees. WorldCom shall invoice Customer for the Monthly O&M Fee
and/or pro rata portion thereof in advance (i.e., on or about the
20th day of each month) and Customer agrees to pay such invoice within
thirty (30) days of the date of receipt of such invoice.
(C) Customer acknowledges that the Purchase Price and the Monthly O&M Fees
are exclusive of applicable taxes, including but not limited to sales,
value added or such other similar taxes as may be levied from time to time
by any taxing or governmental authority.
(D) MCI WorldCom shall be entitled to charge and receive interest on any
past due amounts at the rate of one and one-half percent (1 1/2%) per
month, or the maximum rate allowable by law, whichever is less, until the
date of payment in full, whether before or after any judgment. Such
interest shall be calculated and shall accrue on a daily basis.
(E) As security for Customer's payment of the Purchase Price and the
Monthly O&M Fee, Customer agrees to grant MCI WorldCom a security interest
in the Leased Capacity and the Leased Circuits. Upon the occurrence of an
Event of Default (as described in SUBSECTION 1(B) above) by Customer, MCI
WorldCom will have the right to "reclaim" the Leased Capacity and the
Leased Circuits and will have no further obligation to provide Customer
with the Leased Circuits as described in this Agreement.
(F) Notwithstanding anything to the contrary in this Agreement or any
other Agreement between Customer and MCI WorldCom or its Affiliates,
Customer's default under any other agreement with MCI WorldCom or its
Affiliates will not be deemed to be an Event of Default under the terms
this Agreement, and an Event of Default under the terms of this Agreement
will not be deemed to be a default under the terms of any other agreement
Customer has with MCI WorldCom or its Affiliates.
(G) Customer agrees to pay MCI WorldCom in full for all amounts due
hereunder and agrees not to offset or net against such amounts, or
otherwise withhold or deduct any
*Confidential treatment has been requested for a portion of this Exhibit
EXECUTION COPY Page 5 of 18
CONFIDENTIAL
<PAGE>
amounts, that it may be owed by MCI WorldCom or any of its Affiliates under
any other agreement.
4. SERVICE ORDERS.
(A) All Service Orders for Leased Circuits under this Agreement shall be
made in writing and shall contain at least the following information:
(i) the level or amount of requested capacity (provided Customer may only
order capacity in increments of no less than DS-3), (ii) the city pairs
between which such capacity is requested, (iii) any date(s) upon which
Customer requires such capacity (which, unless otherwise agreed to by MCI
WorldCom, shall be no later than one hundred twenty (120) days from the
date of such request), (iv) any Ancillary Services requested by Customer
in connection with the Leased Circuits, and (v) such other relevant
information MCI WorldCom reasonably deems necessary to provide the Leased
Circuits.
(B) MCI WorldCom shall, within five (5) days after receipt of a firm order
for Leased Capacity, either (i) request additional information from
Customer with respect to such Service Order (provided such information is
reasonably necessary to provide such Leased Capacity), (ii) deliver
written notice to Customer that MCI WorldCom can not provide the requested
capacity (the "REJECTION NOTICE"), or (ii) deliver written notice to
Customer (the "AVAILABILITY NOTICE") stating that the requested capacity
can be provided on terms contained in this Agreement and in the Service
Order. In the event MCI WorldCom fails to respond to an order within five
(5) days after receipt thereof, Customer shall provide MCI WorldCom's
designated representative with telephonic notice of such failure and MCI
WorldCom shall have two (2) business days after receipt of such telephonic
notice within which to cure its failure to respond to the order. In the
event MCI WordCom fails to so cure, MCI WorldCom shall be deemed to have
provided a Rejection Notice with respect to the order. The Availability
Notice shall include a specification of the channel facility assignment
where Customer may interconnect with the Leased Capacity, if then known to
MCI WorldCom, as well as a letter of agency ("LOA") which authorizes
Customer to order the necessary local facilities. If MCI WorldCom is unable
to provide specification of the channel facility assignment to a local
service provider ("LEC") at the time of the Availability Notice, MCI
WorldCom shall provide such specification (together with the LOA) on the
last to occur of (a) fifteen (15) days after the delivery of the
Availability Notice, or (b) thirty (30) days prior to the requested start
date for the subject Leased Circuit. The failure of MCI WorldCom to provide
a written specification of the channel facility assignment or the LOA
within the time specified above shall be treated as the service of a
Rejection Notice by MCI WorldCom.
(C) In the event Customer desires to obtain the capacity as specified in
any Availability Notice, Customer shall, within five (5) days after
Customer's receipt of the Availability Notice, notify MCI WorldCom in
writing (the "ACCEPTANCE NOTICE") of its commitment to order such capacity.
In the event Customer fails to respond within such 5-day period, MCI
WorldCom shall have no obligation to provide the capacity requested by
Customer.
EXECUTION COPY Page 6 of 18
CONFIDENTIAL
<PAGE>
(D) MCI WorldCom agrees to deliver a Completion Notice (as described in
Section 6 below) with respect to capacity ordered hereunder within sixty
(60) days following the Acceptance Notice. Provided, however, in no event
will MCI WorldCom be required to install more than three (3) DS-3 circuits
between any city pair in any thirty (30) day period. In the event MCI
WorldCom is unable to deliver a Completion Notice within the delivery time
specified herein (including delivery failures attributable to a Force
Majeure Event), Customer's sole and exclusive remedy will be as set forth
in SUBSECTION 6(B) below.
(E) Customer shall be permitted to delay the requested installation date
for Leased Circuits two (2) times with respect to any Service Order,
provided that (i) each such request shall be submitted in writing, (ii)
each such request must be received by MCI WorldCom no later than five (5)
days prior to the then-scheduled installation date, and (iii) Customer
shall be permitted to extend the date for installation by no more than
thirty (30) days with respect to each request (so that installation for
Leased Circuits hereunder may be delayed by a maximum of sixty (60) days
from the originally scheduled installation date).
(F) MCI WorldCom shall deliver Ancillary Services which are requested as
part of an order for Leased Circuits within the time frames set forth in
SUBSECTION 4(D) of this Agreement. MCI WorldCom shall deliver Ancillary
Services which are relevant to and used solely in conjunction with the
Leased Capacity under this Agreement but requested separate from an order
for Leased Circuits within commercially reasonable times.
5. MAINTENANCE AND REPAIR.
(A) MCI WorldCom shall use reasonable efforts to cause the Leased Capacity
and Ancillary Services to be provided and maintained in efficient working
order and in accordance with prevailing telecommunications industry
standards (the "TECHNICAL STANDARDS").
(B) Should any condition exist in the Leased Capacity or Ancillary
Services that may impair the integrity of such Leased Capacity, MCI
WorldCom shall take reasonable actions to initiate or cause to be
initiated maintenance on such Leased Capacity which may include the
deactivation of such Leased Capacity. MCI WorldCom shall, to the extent
reasonably practicable, advise Customer in writing at least thirty (30)
days (or such shorter period as may be agreed) prior to the initiation of a
planned maintenance operation of the timing and scope of such planned
maintenance operation.
(C) In the event of any delay, interruption, omission, mistake, accident
or error in the Leased Capacity or Ancillary Services (hereinafter a
"DEFECT"), MCI WorldCom shall use commercially reasonable efforts to cause
the Leased Capacity or Ancillary Services to be restored in accordance with
the Technical Standards as quickly as reasonably possible.
(D) MCI WorldCom shall, in the performance of its obligations set forth in
this SECTION 5, use the same level of efforts to maintain and restore the
Leased Capacity as MCI WorldCom employs in connection with the maintenance
and restoration of service and facilities for its other similarly situated
wholesale customers.
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(E) In the event there is any Defect in any Leased Circuit or Ancillary
Services relating thereto (including without limitation Defects caused by
or attributable to a Force Majeure Event), and such Defect causes the
Leased Circuit to be unavailable for more than forty-four (44) hours in any
consecutive twelve (12) month period, Customer's exclusive remedy
(exercisable within thirty (30) days after the total outages exceed such
level) is to notify MCI WorldCom of such Defect; abandon the defective
Service in question and the number of V&H miles relevant thereto; and,
receive a credit equal to a pro rata amount of the Purchase Price which has
been paid by Customer for the defective Leased Capacity in question (the
"NON-PERFORMANCE REFUND AMOUNT"). In such case, the Non-Performance Refund
Amount shall be computed by first multiplying (x) the Purchase Price (i.e.,
[*] by (y) a fraction, the denominator of which is [*] and the numerator of
which is the [*], and then multiplying the product of (x) and (y) by a
fraction, the denominator of which is [*] and the numerator of which is
[*].
6. ACCEPTANCE TESTING AND COMPLETION.
(A) Subject to SUBSECTION 4(D) above, as soon as MCI WorldCom has
reasonably determined that the Leased Circuit(s) requested by Customer are
operating substantially in conformity with the performance warranty set
forth in SECTION 5 above, MCI WorldCom shall provide Customer written
notice of the availability of such Leased Circuit (the "COMPLETION
NOTICE"). Customer shall, within five (5) days of receipt of the
Completion Notice, either accept or reject the Completion Notice, and in
the case of a rejection, specify the defect or failure and/or the matters
to be remedied, by providing written notice to MCI WorldCom. In the event
Customer fails to respond to the Completion Notice within the 5-day
period, Customer will be deemed to have accepted the Completion Notice. In
the event Customer rejects the Completion Notice, MCI WorldCom, at its sole
cost, shall remedy the defect or failure specified in Customer's notice and
give Customer a Completion Notice with respect to such city pair.
(B) If MCI WorldCom (i) provides a Rejection Notice with respect to an
order for a Leased Circuit; or (ii) fails to provide a Leased Circuit which
is operating substantially in conformity with the Technical Standards
within fifteen (15) days following MCI WorldCom's initial delivery of a
Completion Notice, Customer's sole and exclusive remedy will be to abandon
the order for the Service in question and the number of V&H miles relevant
thereto and receive a credit equal to a pro rata amount of the Purchase
Price paid by Customer for the undelivered Leased Capacity in question (the
"NON-DELIVERY REFUND AMOUNT"). In such case, the Non-Delivery Refund Amount
shall be computed by multiplying (x) the Purchase Price [*] by (y) a
fraction, the denominator of which is [*] and the numerator of which is
[*]. Provided, however, nothing contained herein will require MCI WorldCom
to refund any amount in excess of the amount actually paid by Customer.
7. SUBSTITUTE SERVICES. Provided a Block A Leased Circuit or a Block B
Leased Circuit has remained in Service for at least [*] months following (i)
April 1, 1999, with respect to Block A Leased Circuits, and (ii) the date of
the applicable Completion Notice with
*Confidential treatment has been requested for a portion of this Exhibit
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respect to Block B Leased Circuits, Customer may, by submitting a Service Order
to MCI WorldCom in accordance with SECTION 4, "reconfigure" a Leased Circuit
with a Leased Circuit between a different pair of Available Lease Cities
("SUBSTITUTE LEASED CIRCUIT"); provided, however, the total number of V&H miles
associated with all of Customer's Leased Circuits (including all Substitute
Leased Circuits) shall not exceed 20,500 V&H miles at any time and a Change of
Service Charge will apply in accordance with SCHEDULE 2 attached hereto. In the
event a request for a Substitute Leased Circuit would cause Customer's aggregate
number of V&H miles with respect to all of Customer's Leased Circuits to exceed
20,500, MCI WorldCom will not be obligated to honor the reconfiguration request.
In the event MCI WorldCom does not honor a request, MCI WorldCom agrees to use
reasonable efforts to notify Customer of such refusal.
8. USE OF SERVICES.
(A) Customer warrants that it holds such licenses and such other
authorizations and consents as may be required to perform its obligations
hereunder and to use or resell the Leased Capacity and the Ancillary
Services.
(B) Customer represents and warrants that it will use the Leased Capacity
and the Ancillary Services in compliance with all applicable codes,
ordinances, laws, rules and regulations of any governmental agency having
jurisdiction over the Leased Capacity or the Ancillary Services.
(C) Subject to the provisions of this Agreement, Customer may use the
Leased Capacity and the Ancillary Services for any lawful purpose. Customer
acknowledges and agrees that it has no right to use any particular fibers
or equipment comprising the means by which the Leased Capacity or Ancillary
Services are provided or in any manner associated with MCI WorldCom's
network, and that except as expressly permitted by SUBSECTION 14(A) of this
Agreement, Customer shall keep any and all of the Leased Capacity and MCI
WorldCom's network free from any liens, rights or claims of any third party
attributable to Customer.
(D) Customer may sell services using the Leased Capacity or the Ancillary
Services or lease portions of the Leased Capacity or the Ancillary Services
to third parties without restriction. No such sale or lease shall, however,
eliminate or affect Customer's obligations under this Agreement.
(E) Customer shall not use the Leased Capacity or the Ancillary Services
in a way which physically interferes in any way with or otherwise adversely
affects the use of the fibers, cable or conduit of any other Person (as
defined in SUBSECTION 14(C)(iii) below) using the Leased Capacity, the
Ancillary Services or MCI WorldCom's network.
(F) Customer and MCI WorldCom agree to cooperate with and reasonably
support each other in complying with any requirements applicable to their
respective rights and obligations hereunder imposed by any governmental
authority, so long as (i) such cooperation does not materially increase a
party's costs or efforts in connection with its performance of this
Agreement, and (ii) the party requesting such support or cooperation agrees
to reimburse the other party for all costs and expenses incurred in
connection with providing it.
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(G) MCI WorldCom and Customer acknowledge and agree that this Agreement,
to the extent that is subject to FCC regulation, is an inter-carrier
agreement which is not subject to the filing requirements of Section 211(a)
of the Communications Act of 1934 (47 U.S.C. Section 211(a)) as implemented
in 47 CFR Section 43.51.
9. LIABILITY. EXCEPT AS SPECIFICALLY SET FORTH HEREIN, AND EXCEPT TO THE
EXTENT CAUSED BY THE WILLFUL MISCONDUCT OF A PARTY, IN NO EVENT SHALL EITHER
PARTY BE LIABLE TO THE OTHER OR ITS CUSTOMERS OR ANY OTHER THIRD PARTY FOR ANY
INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL OR PUNITIVE LOSS OR DAMAGE, DUE TO
OR ARISING OUT OF ANY FAILURE, DEGRADATION, MISTAKE, ACCIDENTS, ERRORS,
OMISSIONS, INTERRUPTIONS OR DEFECTS IN TRANSMISSION, OR DELAYS RELATING TO
EITHER PARTY'S FACILITIES OR NETWORK OR ANY OTHER FACILITIES, NETWORK OR
CONNECTION RELATED TO THE PROVISION OF THE LEASED CAPACITY HEREUNDER. WITHOUT
LIMITING THE FOREGOING, NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL,
CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES OF ANY KIND, REGARDLESS OF THE
CAUSE OF SUCH DAMAGES OR WHETHER SUCH DAMAGES MAY HAVE BEEN FORESEEABLE OR SUCH
PARTY WAS AWARE OF THE POSSIBILITY OF SUCH DAMAGES.
10. FORCE MAJEURE. Any delay or failure to perform an obligation under this
Agreement by a party (the "AFFECTED PARTY") shall not constitute a breach of
this Agreement to the extent that such delay or failure to perform is due to any
cause beyond a party's reasonable control affecting the performance by that
party of its obligations hereunder including, but not limited to, acts of God,
insurrection or civil disorder, war or military operations, national or local
emergency, acts or omissions of Government regulatory or highway authority,
industrial disputes of any kind (not involving that party's employees), fiber
cuts, fire, flood, lightning, explosion, subsidence, inclement weather and acts
or omissions of persons or bodies beyond the reasonable control of the affected
party (a "FORCE MAJEURE EVENT"). An Affected Party shall promptly notify the
other party in writing of the estimated extent and duration of the inability to
perform its obligations. Upon the cessation of the Force Majeure Event, the
Affected Party shall promptly notify the other party in writing of such
cessation. The Affected Party shall use all reasonable endeavors to mitigate the
effect of any Force Majeure Event. If, due to a Force Majeure Event, a party's
performance is unable to materially perform its obligations for a period of more
than three (3) months, the other party may terminate this Agreement upon written
notice to the Affected Party. Notwithstanding anything to the contrary contained
in this Section 10, however, the provisions of this Section 10 shall not apply
to the obligations of MCI WorldCom and the rights of Customer pursuant to
SUBSECTIONS 5(E) AND 6(B) of this Agreement and Customer's payment obligation
for Services rendered under this Agreement.
11. INDEMNIFICATION.
(A) Subject to the provisions of SECTION 9, MCI WorldCom hereby agrees
to indemnify, defend, protect and hold harmless Customer and its employees,
officers and directors, from and against, and assumes liability for: (i)
any injury, loss or damage to any person, tangible personal property of
any person (including reasonable attorney fees and costs) to the extent
arising out of or resulting from the gross negligence or willful misconduct
of MCI WorldCom, its officers, employees, servants, Affiliates, agents,
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contractors, licensees, invitees and vendors caused solely by MCI WorldCom
and arising out of or in connection with the performance by MCI WorldCom of
its obligations under this Agreement; and (ii) any claims, liabilities or
damages arising out of any violation by MCI WorldCom of any regulation,
rule, statute or court order of any governmental authority in connection
with the performance by MCI WorldCom of its obligations under this
Agreement.
(B) Subject to the provisions of SECTION 9, Customer hereby agrees to
indemnify, defend, protect and hold harmless MCI WorldCom and its
employees, officers and directors, from and against, and assumes liability
for: (i) any injury, loss or damage to any person, tangible personal
property of any person (including reasonable attorney fees and costs) to
the extent arising out of or resulting from the gross negligence or willful
misconduct of Customer, its officers, employees, servants, Affiliates,
agents, contractors, licenseees, invitees and vendors caused solely by
Customer and arising out of or in connection with the exercise by Customer
of its rights under this Agreement; and (ii) any claims, liabilities or
damages arising out of any violation by Customer of any regulation, rule,
statute or court order of any governmental authority in connection with the
exercise by Customer of its rights under this Agreement.
(C) In addition to Customer's indemnity obligation under Subsection (A)
above, in the event parties other than Customer shall have use of the
Leased Capacity or the Ancillary Services through Customer, then Customer
agrees to forever indemnify and hold MCI WorldCom and any third party
provider or operator of facilities employed in the provision of the Leased
Capacity or the Ancillary Services harmless from and against any and all
claims, demands, suits, actions, losses, damages, assessments or payments
which may be asserted by said parties, arising out of or relating to any
Defect (as defined in SUBSECTION 5(C) above) in the Leased Capacity or the
Ancillary Services.
(D) MCI WorldCom and Customer agree to promptly provide each other with
notice of any claim, which may result in an indemnification obligation
hereunder. The indemnifying party may defend such claim with counsel of its
own choosing provided that no settlement or compromise of any such claim
shall occur without the consent of the indemnified party, which consent
shall not be unreasonably withheld or delayed.
(E) MCI WorldCom and Customer each expressly recognize and agree that its
obligation to indemnify, defend, protect and save the other harmless is not
a material obligation to the continuing performance of its other
obligations, if any, hereunder. In the event that a party shall fail for
any reason to so indemnify, defend, protect and save the other harmless,
the injured party hereby expressly recognizes that its sole remedy in such
event shall be the right to bring legal proceedings against the other party
for its damages as a result of the other party's said failure to indemnify,
defend, protect and save harmless. These obligations shall survive the
expiration or termination of this Agreement.
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12. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTIES.
(A) Each party represents and warrants that:
(i) it has the full right and authority to enter into, execute, deliver
and perform its obligations under this Agreement;
(ii) it has taken all requisite corporate action to approve the execution,
delivery and performance of this Agremeent;
(iii) this Agreement constitutes a legal, valid and binding obligation
enforceable against such party in accordance with its terms, subject to
bankruptcy, insolvency, creditors' rights and general equitable principles;
and
(iv) its execution of and performance under this Agreement shall not
violate any applicable existing regulations, rules, statutes or court
orders of any local, state or federal government agency, court or body.
(B) EXCEPT AS SET FORTH IN SUBSECTION 12(A) ABOVE AND SECTION 5 OF THIS
AGREEMENT, MCI WORLDCOM MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT
TO THE LEASED CAPACITY OR THE ANCILLARY SERVICES, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND ALL SUCH WARRANTIES
ARE HEREBY EXPRESSLY DISCLAIMED.
13. CONFIDENTIALITY; PRESS RELEASES.
(A) Subject to Subsection (B) below, with respect to Confidential
Information (as defined herein) each party shall (i) only use such
Confidential Information for the purposes of this Agreement; (ii) only
disclose such Confidential Information to a third party with the prior
written consent of the other party; and (iii) ensure that any third party,
to which Confidential Information is disclosed under this SECTION 13
executes a confidentiality agreement acknowledging the terms of this
SECTION 13. For purposes of this Agreement, "CONFIDENTIAL INFORMATION"
means all information (whether written, oral or in electronic format)
designated as such by the disclosing party, together with all such other
information which relates to the business, affairs, customers, products,
developments, trade secrets, know-how and personnel of the disclosing party
which may reasonably be regarded as the confidential information of the
disclosing party.
(B) The provisions of Subsection (A) above shall not apply to any
Confidential Information which (i) is in or comes into the public domain
other than by default of the receiving party; (ii) is or has already been
independently generated by the receiving party; (iii) is in the possession
of or is known by the receiving party prior to its receipt from the
disclosing party; (iv) is properly disclosed pursuant to and in accordance
with a relevant statutory or regulatory obligation or (with the prior
consent of either party, such consent not to be unreasonably withheld) to
obtain or maintain any listing on a stock exchange; or (v) is required to
be disclosed pursuant to an order of government, court of competent
jurisdiction, or other relevant authority.
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(C) Notwithstanding Subsections (A) and (B) above, either party may
disclose Confidential Information to its employees, agents, and legal and
financial advisors and lenders to the extent necessary or appropriate in
connection with the negotiation and/or performance of this Agreement or
in obtaining financing, provided that each such party is notified of the
confidential and proprietary nature of such Confidential Information and is
subject to or agrees to be bound by similar restrictions on its use and
disclosure.
(D) All Confidential Information, unless otherwise specified in
writing, shall remain the property of the disclosing party, shall be used
by the receiving party only for the intended purpose, and such written
Confidential Information, including all copies thereof, shall upon request
by the disclosing party be returned to the disclosing party or destroyed.
Confidential Information shall not be reproduced except to the extent
necessary to accomplish the purpose and intent of this Agreement, or as
otherwise may be permitted in writing by the disclosing party.
(E) In this event either party shall be required to disclose all or any
part of this Agreement in, or attach all or any part of this Agreement in,
any regulatory filing or statement, each party agrees to discuss and work
cooperatively, in good faith, with the other party, to protect, to the
extent possible, those items or matters which the other party deems
confidential and which may, in accordance with applicable laws, be deleted
therefrom.
(F) The provisions of this SECTION 13 shall survive expiration or
termination of this Agreement.
(G) Neither party shall issue any public announcement or press release
relating to the execution of this Agreement without the prior approval of
the other party.
14. ASSIGNMENT.
(A) Neither party shall assign, encumber or otherwise transfer this
Agreement to a third party without the prior written consent of the other
party, which consent shall not be unreasonably withheld; provided, each
party shall have the right, without the other party's consent, but with
prior written notice to the other party, to assign or otherwise transfer
this Agreement (i) as collateral to any institutional lender of such party
subject to the prior rights and obligations of the parties hereunder; and
(ii) to any Affiliate (as defined in Subsection (C) below) of such party,
or to any entity into which such party may be merged or consolidated or
which puchases all or substantially all of the assets of such party;
provided that such party shall not be released from its obligations
hereunder. Any assignee or transferee shall continue to be subject to all
of the provisions of this Agreement, (except that any lender referred to in
clause (i) above shall not incur any obligations under this Agreement nor
shall it be restricted from exercising any right of enforcement or
foreclosure with respect to any related security interest or lien, so long
as the purchaser in foreclosure is subject to the provisions of this
Agreement).
(B) This Agreement and each of the parties' respective rights and
obligations under this Agreement, shall be binding upon and shall inure to
the benefit of the parties hereto and each of their respective permitted
successors and assigns.
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(C) For purposes of this SECTION 14 and other applicable Sections of this
Agreement, the following definitions shall apply:
(i) "AFFILIATES" shall mean any Person (as defined herein) or
entity Controlling, Controlled by or under common Control with such
party.
(ii) "CONTROL" whether used as a verb or noun, means to have the
power, directly or indirectly, to cause the direction of the
management or policies of another shall Person, whether through the
ownership of voting securities, by contract, agency or otherwise.
(iii) "PERSON" includes any general partnership, limited
partnership, corporation, limited liability company, joint venture,
trust, governmental or administrative agency or body, cooperative,
association, individual or other entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such
Person, as the context may require.
15. SEVERABILITY.
(A) The invalidity or unenforceability for any reason of any part of this
Agreement shall not prejudice or affect the validity or enforceability of
the remainder of this Agreement.
(B) If further lawful performance of this Agreement or any part of it
shall be made impossible by the final judgment or final order of any court
of competent jurisdiction, commission or government agency or similar
authority having jurisdiction over either party, the parties shall
forthwith reasonably amend this Agreement so as to comply with such
judgment or order provided such amendment does not materially alter the
obligations or liabilities of either party.
16. AMENDMENTS. No variation, modification or addition to or cancellation of
any provision of this Agreement shall be effective unless agreed in writing by a
duly authorized representative of each of MCI WorldCom and Customer.
17. PARTNERSHIP. Nothing herein shall be deemed to constitute a partnership or
joint venture between the parties or to constitute one party as the agent of the
other for any purpose whatsoever.
18. WAIVER. Failure by either party at any time to enforce any of the
provisions of this Agreement shall not be construed as a waiver of any rights or
remedies hereunder nor in any way affect the validity of this Agreement or any
part of it. No waiver shall be effective unless given in writing and no waiver
of a breach of this Agreement shall constitute a waiver of any antecedent or
subsequent breach.
19. NOTICES.
(A) Any notice required or authorized by this Agreement shall be in
writing sent by prepaid certified mail, return receipt requested, facsimile
transmission (immediately confirmed by prepaid certified mail, return
receipt requested) or express courier (e.g.,
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Federal Express, DHL or Airborne Express) and shall be deemed to have been
received forty eight (48) hours after such mailing or transmission. Any
such notices shall be addressed as follows:
MCI WORLDCOM: CUSTOMER:
------------------------- ------------------
WorldCom Network Services, Inc. Communication TeleSystems International
6929 North Lakewood Avenue 9999 Willow Creek Road
Tulsa, Oklahoma 74117 San Diego, California 92131
Attn: Contract Administration Attn: Legal Department
----------------------- Facsimile No.: 619-452-3780
Facsimile No.: 918-590-0764
------------
(B) Either party may amend its address and facsimile number specified in
Subsection (A) by notice to the other party.
20. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
between the parties relating to the Leased Capacity and supersedes all previous
agreements, understandings or commitments between the parties or representations
made by either party whether oral or written with respect to the Leased
Capacity.
21. GOVERNING LAW; FORUM.
(A) Without regard to the place of execution or performance of this
Agreement, this Agreement shall be governed and construed in accordance
with the laws of the State of Oklahoma in all respects including matters of
construction, enforcement and performance, without giving effect to the
choice of law principles thereof.
(B) Any legal action or proceeding with respect to this Agreement may be
brought in the Courts of the State of Oklahoma in and for the County of
Tulsa or the United States of America for the Northern District of
Oklahoma. By execution of this Agreement, both Customer and MCI WORLDCOM
hereby submit to such nonexclusive jurisdiction, hereby expressly waiving
whatever rights may correspond to either of them by reason of their present
or future domicile.
22. DISPUTE RESOLUTION. If the parties are unable to resolve any dispute
arising under or relating to this Agreement, the parties may resolve such
disagreement or dispute as follows:
(A) Either party may, by written notice to the other party (the "DISPUTE
NOTICE"), request that a designated representative from each of the parties
attempt to resolve the matter. Within fifteen (15) days after delivery of
the Dispute Notice such representatives of both parties will use good faith
efforts to schedule a meeting at a mutually acceptable time and place to
attempt to resolve the dispute.
(B) If the matter has not been resolved within thirty (30) days after
delivery of the Dispute Notice, or if such representatives fail to meet
within fifteen (15) days after delivery of such Dispute Notice, either
party may initiate mediation in accordance with the procedures set forth in
(C) below. All negotiations conducted by such representatives shall be
confidential and shall be treated as compromise and settlement negotiations
for purposes of federal and state rules of evidence.
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(C) If such representatives are unable to resolve the dispute or have
failed to meet, the parties may elect to participate in a nonbinding
mediation procedure as follows:
(i) A mediator will be selected by having counsel for each party
agree on a single person to act as mediator. The parties' counsel as
well as up to three (3) representatives of each of the parties will
appear before the mediator at a time and place determined by the
mediator, but not more than sixty (60) days after delivery of the
Dispute Notice. The fees of the mediator and other costs of the
mediation will be shared equally by the parties.
(ii) Each party will present a review of the matter and its position
with respect to such matter. At the conclusion of both presentations
the parties may ask questions of each other. Either party may abandon
the mediation procedure at the end of the presentation and question
periods and the mediation procedure shall not be binding on either
party.
(iii) If the matter is not resolved after applying the mediation
procedure set forth above, or if either party refuses to take part in
the mediation process, either party may initiate legal proceedings to
resolve their dispute.
(D) The provisions of this Section 22 shall not preclude a party from
instituting legal proceedings seeking injunctive relief (including, without
limitation, a temporary restraining order) prior to the commencement or
completion of the specified dispute resolution procedures.
23. REPLACEMENT OF EXISTING SERVICES. The parties acknowledge that Customer
and MCI WorldCom are parties to a Digital Service Agreement dated December 9,
1992, as amended and supplemented by a Supplemental Agreement dated February
14, 1994, an Amended and Restated Supplemental Agreement dated September 1,
1995, and extension letter agreements dated September 29, 1995, and December
19, 1995 (collectively, the "PRIOR AGREEMENT"). The parties further
acknowledge that a portion of the Block A Lease Circuits to be ordered by
Customer under this Agreement will replace service which is currently being
provided to Customer under the Prior Agreement. In order to accomplish the
transition of Customer's service from the Prior Agreement to this Agreement,
MCI WorldCom and Customer agree that: (i) Schedule 5 attached hereto sets
forth a listing of Leased Circuits which will constitute a portion of the
Block A Leased Circuits to be ordered by Customer under this Agreement (the
"REPLACEMENT CIRCUITS"); (ii) Schedule 5 attached hereto also identifies, on
an individual circuit-by-circuit basis, the circuits currently being provided
to Customer pursuant to the Prior Agreement (the "EXISTING CIRCUITS") which
will be replaced by the Replacement Circuits; (iii) MCI WorldCom will not
disconnect any Existing Circuit (or ancillary services relating thereto)
until such time as the corresponding Replacement Circuit, as identified on
Schedule 5 attached hereto, is operational; (iv) commencing as of April 1,
1999, Customer will be billed for the Replacement Circuits (and related
Ancillary Services) in accordance with the billing procedures for the Block A
Leased Circuits, as set forth in this Agreement, even though installation of
the Replacement Circuits and related Ancillary Services may not have been
completed as of such date; (v) except as provided in Subpart (iv) above,
Customer shall have no obligation to pay for any of the Existing Circuits (or
ancillary services relating thereto) under the terms of the Prior Agreement
which have been replaced by the Replacement Circuits on or after April 1,
1999, and (vi) as of March 31, 1999, the Prior Agreement shall be terminated
solely with
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respect to the Existing Circuits which have been replaced by the Replacement
Circuits as described herein.
24. ACCESS.
(A) MCI WorldCom shall provide Customer with access to, and Customer
shall have the right to interconnect its communications systems with, the
Leased Capacity at the end-points of each Leased Circuit. MCI WorldCom
shall permit Customer to connect with any LEC which has been approved by
MCI WorldCom for connectivity into MCI WorldCom's point of presence in
question and provided MCI WorldCom generally provides its wholesale
customers with connectivity to such LEC. Additionally, Customer shall have
the right, but not the obligation, to utilize MCI WorldCom's entrance
facility capacity over local servicing arrangements with local access
providers ("LSA CAPACITY") for a monthly charge. LSA Capacity will be
provided hereunder on a month-to-month basis unless otherwise agreed to in
writing by the parties. The charges and applicable terms and conditions
for LSA Capacity shall be as set forth in Subsections (B) and (D) below.
(B) During the Lease Term, MCI WorldCom will provide LSA Capacity (for
switched service or private line service application) used solely in
connection with the Leased Capacity from the relevant MCI WorldCom
point-of-presence ("POP") over MCI WorldCom's Local Service Arrangements
(LSA) to MCI WorldCom's designated serving wire center for the POP in
question. Subject to Subsection (D) below, the monthly recurring charge for
LSA Capacity under this Agreement for each DS-1 will be equal to an amount
determined as follows: [*]. The monthly charge for LSA Capacity at the DS-1
level shall be due at the same time all other monthly recurring charges
are due under this Agreement.
[*]
(C) The monthly recurring charge for DS-1 service over the relevant LSA
(i) will be determined in accordance with the formula described in
Subsection (B) above and the relevant tariffs in effect as of April 1,
1999, and (ii) may be subject to adjustment only once each year commencing
April 1, 2000, and annually thereafter, following either party's notice to
the other of a change in of the relevant tariff under which the current
charge was determined. In such event, the parties shall consider all LSA
charges and current relevant tariffs for DS-3 service in conformity with
the above formula. Any changes to the LSA charges (increase or decrease)
based upon such annual review will be prospective only and effective not
sooner than the first day of a calendar month following sixty (60) days
written notice by a party regarding a modification in the change in charges
and the basis for such modification.
*Confidential treatment has been requested for a portion of this Exhibit.
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(D) Notwithstanding anything to the contrary contained herein, in no
event shall the charges for LSA Capacity as determined hereunder be greater
than that charged or subject to charge by MCI WorldCom for LSA Capacity
ordered by any other carrier customer of MCI WorldCom. Provided, however,
the foregoing provision shall not apply with respect to any lower charge
for LSA Capacity by MCI WorldCom to: (i) any entity, business organization
or enterprise affiliated with MCI WorldCom; (ii) any entity, business
organization or enterprise that provides or operates transmission
facilities used by MCI WorldCom to a significant extent for its customers,
provided the price of the services being purchased by MCI WorldCom from
such entity, business organization or enterprise in total is at least [*];
or, (iii) any department; branch or agency of the federal or any state
government.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
WORLDCOM NETWORK SERVICES, INC. COMMUNICATION TELESYSTEMS
INTERNATIONAL
D/B/A WORLDxCHANGE COMMUNICATIONS
By: /s/ John W. Barnett, Jr. By: /s/ Roger B. Abbott
--------------------------- -----------------------------
Print Name: John W. Barnett, Jr. Print Name: Roger B. Abbott
-------------------- ----------------------
Title: President Whl Svcs Title: Chief Executive Officer
------------------------- ---------------------------
SCHEDULES:
Schedule 1 - Available Lease Cities
Schedule 2 - Installation and Ancillary Charge Schedule
Schedule 3 - Block A Remainder Amount Payment Schedule
Schedule 4 - Block B Remainder Amount Payment Schedule
Schedule 5 - Replacement Circuit Schedule
*Confidential treatment has been requested for a portion of this Exhibit.
EXECUTION COPY Page 18 of 18
CONFIDENTIAL
<PAGE>
SCHEDULE 1
AVAILABLE LEASE CITIES
----------------------
CITY
----
Atlanta, Georgia
Baltimore, Maryland
Boston, Massachusetts
Chicago, Illinois
Cincinnati, Ohio
Dallas, Texas
Denver, Colorado
Detroit, Michigan
Houston, Texas
Los Angeles, California
Miami, Florida
New York City, New York
Newark, New Jersey
Orlando, Florida
Philadelphia, Pennsylvania
San Diego, California
San Francisco, California
San Jose, California
Seattle, Washington
St. Louis, Missouri
Stamford, Connecticut
Tampa, Florida
Washington, DC
<PAGE>
SCHEDULE 2
INSTALLATION AND ANCILLIARY SERVICE
<TABLE>
<CAPTION>
NON-RECURRING CHARGE SCHEDULE
SERVICE TYPE (Carrier Digital Service) DS-3
- --------------------------------------------------------------------------------------------------
<S> <C>
1. INSTALLATION CHARGES:
PER IXC FOR BLOCK A CIRCUITS AND BLOCK B CIRCUITS [ * ]
PER LOCAL ACCESS ASR* [ * ]
2. ORDER EXPEDITE CHARGES:
PER IXC [ * ]
PER CROSS-CONNECT [ * ]
INITIAL LOCAL ACCESS ASR* [ * ]
MODIFICATION TO ASR* [ * ]
3. CHANGE OF REQUESTED SERVICE DATE ONLY CHARGES:
FIRST CHANGE & STANDARD NOTICE:
PER IXC OR CROSS-CONNECT [ * ]
PER LOCAL ACCESS ASR* [ * ]
PLUS ANY CHARGES INCURRED BY WOLRDCOM
FROM THIRD PARTY SERVICE PROVIDERS
SUBSEQUENT CHANGES OR SHORT NOTICE:
PER IXC [ * ]
PER CROSS-CONNECT [ * ]
PER LOCAL ACCESS ASR* [ * ]
PLUS ANY CHARGES INCURRED BY WOLRDCOM
FROM THIRD PARTY SERVICE PROVIDERS
4. CHANGE OF ORDER CHARGES:
ADMINISTRATIVE CHARGES:
PER IXC OR CROSS-CONNECT [ * ]
PER LOCAL ACCESS ASR* [ * ]
PRE-ENGINEERING:
PER IXC [ * ]
PER CROSS-CONNECT [ * ]
PER LOCAL ACCESS ASR* [ * ]
POST-ENGINEERING:
PER IXC [ * ]
PER CROSS-CONNECT [ * ]
PER LOCAL ACCESS ASR* [ * ]
5. ORDER CANCELLATION CHARGES:
PRE-ENGINEERING:
PER IXC [ * ]
PER CROSS-CONNECT [ * ]
PER LOCAL ACCESS ASR* [ * ]
POST-ENGINEERING:
PER IXC [ * ]
PER CROSS-CONNECT [ * ]
PER LOCAL ACCESS ASR* [ * ]
6. CHANGE OF SERVICE CHARGES:
ADMINISTRATIVE CHANGES:
PER IXC OR CROSS-CONNECT [ * ]
PER LOCAL ACCESS ASR* [ * ]
RE-ENGINEERING CHARGES:
PER IXC [ * ]
PER LOCAL ACCESS ASR* [ * ]
PER CROSS-CONNECT [ * ]
7. CROSS-CONNECT REARRANGEMENT CHARGES:
PER DS-1 CROSS-CONNECT NOT
ASSOCIATED WITH DCS OR M13 [ * ]
M13 RE-ARRANGEMENT CHARGES
PER DS-1 CONNECTION [ * ]
MAXIMUM PER ORDER [ * ]
*Confidential treatment has been requested for a portion of this Exhibit.
Page 1 of 8
<PAGE>
NON-RECURRING CHARGE SCHEDULE
DCS RE-ARRANGEMENT CHARGE
PER DS-0 CONNECTION [ * ]
MAXIMUM PER ORDER [ * ]
LEC D4 CHANNEL BANK
PER SPECIAL ACCESS ASR* [ * ]
8. ROLL-UP CHARGES (PRE-ENGINEERING & CHANGE OF CROSS-CONNECTS):
ROLL-UP DS-0 TO DS-1 IXC [ * ]
ROLL-UP DS-0 TO DS-1 ASR'S [ * ]
ROLL-UP DS-1 TO DS-3 IXC [ * ]
ROLL-UP DS-1 TO DS-3 ASR'S [ * ]
9. ADDITIONAL INSTALLATION/MAINTENANCE/ENGINEERING CHARGES:
DURING NORMAL HOURS [ * ] PER HOUR PER PERSON
AFTER NORMAL HOURS [ * ] PER HOUR PER PERSON
<CAPTION>
Monthly Recurring Non-Recurring
Charge Charge
----------------- -------------
<S> <C> <C>
10. CROSS-CONNECT CHARGES:
A. WORLDCOM DS-1 IXC TO DS-1 LOCAL
ACCESS, BYPASS OR CO-LOCATE [ * ] [ * ]
B. WORLDCOM DSX CROSS CONNECT PANEL
BYPASS OR COLLOCATE [ * ] [ * ]
C. NON-WORLDCOM DS-1 FACILITIES TO
NON-WORLDCOM DS-1 FACILITIES [ * ] [ * ]
D. WORLDCOM DS-3 IXC TO DS-3 LOCAL
ACCESS, BYPASS OR CO-LOCATE [ * ] [ * ]
E. NON-WORLDCOM DS-3 FACILITIES TO
NON-WORLDCOM DS-3 FACILITIES [ * ] [ * ]
11. M13 MULTIFLEXING CHARGES:**
PER M13 [ * ] [ * ]
12. DCS (OR DACS) SERVICE:***
PER DS-1 CONNECTION [ * ] [ * ]
13. SUB-RATE MAINTENANCE CHARGES:
A. DS-3 SUB RATE MAINTENANCE
PER DS-1 CHANNEL [ * ] [ * ]
MAXIMUM PER DS-3 [ * ] [ * ]
B. DS-1 SUB-RATE MAINTENANCE
PER DS-0 CHANNEL [ * ] [ * ]
MAXIMUM PER DS-1 [ * ] [ * ]
14. ECHO CANCELLATION CHARGES (PRE CANCELLER)**:
TYPE SERVICE - DS-0 IXC WITH VF ACCESS:
CIRCUITS GREATER THAN OR EQUAL TO 1,200 ROUTE MILES [ * ] [ * ]
CIRCUITS LESS THAN 1,200 ROUTE MILES [ * ] [ * ]
*Confidential treatment has been requested for a portion of this Exhibit.
Page 2 of 8
<PAGE>
<CAPTION>
Monthly Recurring Non-Recurring
Charge Charge
----------------- -------------
<S> <C> <C>
TYPE SERVICE - DS-1 IXC:
CIRCUITS GREATER THAN OR EQUAL TO 1,200 ROUTE MILES [ * ] [ * ]
CIRCUITS LESS THAN 1,200 ROUTE MILES [ * ] [ * ]
15. LOCAL ACCESS BILLING ADMINISTRATION:
(Applies when WorldCom orders Local Access on Customer's behalf)
PER DS-1 LOCAL LOOP [ * ] [ * ]
PER DS-3 LOCAL LOOP [ * ] [ * ]
</TABLE>
NOTES:
* PLUS APPLICABLE LAP CHARGES.
** PRE START OF SERVICE CANCELLATIONS WILL BE SUBJECT TO THE STATED
NON-RECURRING CHARGE, IF ANY, AND TWELVE (12) TIMES THE STATED MONTHLY
RECURRING CHARGE. CANCELLATION FOLLOWING START OF SERVICE AND BEFORE
COMPLETING TWELVE (12) MONTHS OF SERVICE, WILL BE SUBJECT TO A CANCELLATION
CHARGE EQUAL TO THE DIFFERENCE BETWEEN THE TOTAL RECURRING CHARGES FOR THE
SERVICE PERIOD COMPLETED AND TWELVE (12) TIMES THE STATED MONTHLY RECURRING
CHARGE.
*** PRE START OF SERVICE CANCELLATIONS WILL BE SUBJECT TO THE STATED
NON-RECURRING CHARGE, IF ANY, AND THREE (3) TIMES THE STATED MONTHLY
RECURRING CHARGE. CANCELLATION FOLLOWING START OF SERVICE AND BEFORE
COMPLETING THREE (3) MONTHS OF SERVICE, WILL BE SUBJECT TO A CANCELLATION
CHARGE EQUAL TO THE DIFFERENCE BETWEEN THE TOTAL RECURRING CHARGES FOR THE
SERVICE PERIOD COMPLETED AND THREE (3) TIMES THE STATED MONTHLY RECURRING
CHARGE.
N/A = NOTE APPLICABLE
N/C = NO CHARGE
ASR = ACCESS SERVICE REQUEST
CFA = CONNECTING FACILITY ASSIGNMENT
ICB = INDIVIDUAL CASE BASIS
IXC = INTEREXCHANGE CIRCUIT
LAP = LOCAL ACCESS PROVIDER/LOCAL EXCHANGE CARRIER
LEC = LOCAL EXCHANGE CARRIER/LOCAL ACCESS PROVIDER
INSTALLATION AND ANCILLIARY SERVICE
DEFINITIONS AND APPLICATION OF CHARGES
1. INSTALLATION CHARGES:
Installation charges apply when WorldCom provides new or additional
Interexchange Service (IXC) or when WorldCom obtains new or
additional Local Access (including feature group service) on
Customer's behalf. WorldCom will charge Customer for IXC
installation and for issuing an Access Service Request (ASR) to the
Local Access Provider (LAP), i.e., Local Exchange Carrier (LEC) or
by-pass carrier. LAP installation charges will also be billed to
the Customer.
2. EXPEDITE CHARGES:
Expedite charges apply when WorldCom provides installation of
Service (IXC, Local Access or Ancillary Service) in less time than
otherwise established by WorldCom's published intervals. WorldCom
will charge for the expedited handling of the order and will pass
along to Customer any LAP expedite charges associated with
Customer's request for expedited installation. When LAP expedite
charges are incurred for reasons other than Customer's expedite
request, these charges will not be passed on to Customer.
3. CHANGE OF REQUESTED SERVICE DATE CHARGES:
These charges apply when a charge of the Requested Service Date is
the only Customer requested modification to the original Service
Order relevant to the Service in question. The amount of the
charge depends on when in the stage of order processing Customer's
request is made to WorldCom and whether the Requested Service Date
for the Service in question has been previously modified. If the
first request to change an IXC Requested Service Date is received
more than ten (10) working days prior to the original
*Confidential treatment has been requested for a portion of this Exhibit.
Page 3 of 8
<PAGE>
Requested Service Date ("Standard Notice"), there will be no
charge. If the Requested Service Date has been changed once
already, or if the request is made within ten (10) working days of
the established Requested Service Date ("Short Notice"), the
applicable charge will apply. An ASR charge will be assessed
whenever a change of Requested Service Date is made with respect to
Service Orders pursuant to which WorldCom is to act as agent to
obtain Local Access. When Customer requests that a Requested
Service Date be pushed out, the new Requested Service Date is to be
within thirty (30) days of the previous Requested Service Date. If
the new Requested Service Date is more than thirty (30) days
following the previous Requested Service Date, or is unknown, the
Service affected thereby will be deemed to be canceled by Customer
and subject to applicable cancellation charges. In no event will
WorldCom be obligated to accept more than three (3) changes to a
Requested Service Date, and as of the fourth (4th) such request the
Service in question will be deemed to be canceled by Customer and
subject to applicable cancellation charges. A change of Requested
Service Date charge also applies when Customer requests an earlier
Requested Service Date that does not require an expedited
installation interval. If an expedited interval is required, the
Order Expedite Charge supersedes the Change of Requested Service
Date Charge. Customer will also be charged for any changes
incurred by WorldCom from third party providers of facilities or
services relevant to Service affected by a change of Requested
Service Date.
4. CHANGE OF ORDER CHARGES:
Change of Order Charges apply when Customer requests a modification
to the information contained in a fully executed or binding Service
Order prior to completion of installation of the circuit (ICOM)
other than a change of Requested Service Date. Administrative
changes (e.g. billing address, contact, etc.) on IXC only orders
will be made without charge. There will be an ASR charge for
Administrative Changes with respect to Service Orders pursuant to
which WorldCom is to act as agent to obtain Local Access. Change
of Order is defined as a change of Local Access Service type (voice
grade to data grade or vice versa), change of transmission speed
(speed of DS-0, e.g. 4.8 to 9.6), transmission mode or termination
interface, or to reflect a partial cancellation of the order.
Change of Order Charges will not apply if the origination or
termination city changes (i.e., changes of termination interface
are permitted, e.g., WASH.CPT to WASH.ICC, but not changes in city,
e.g., DLLS.SWB to HSTN.SWB). Order modifications outside this
Change of Order definition will be deemed as Customer's
cancellation of affected service and as an order for a new Service
which must be described in a Service Order.
Charges for Change of Order are lower if the change is received
prior to circuit engineering. While the exact time of circuit
engineering may vary, to afford a verifiable date,
"pre-engineering" is defined as being within five (5) working days
of the date the order was entered into the WorldCom P&E system
(i.e., WorldCom's order processing system) for standard interval
circuits. All expedited orders are deemed to be in
"post-engineering" two (2) working days after the order is entered
into the P&E system. IXC Change of Order Charges apply if the
change necessitates a modification of the IXC portion of the
circuit (e.g. change IXC from ESF to B8ZS or 56K/DSO to 56K DDS).
Local Access ASR Change of Order Charges apply if the change
requires a change in a LAP ASR or that a new ASR be sent. For
example, a change on a DS-O order from 2-wire to 4-wire local
loops requires a new ASR, but does not require any change to the
WorldCom IXC. There would, therefore, be an ASR Change of Order
charge, but not an IXC Change of Order charge. Charges apply per
affected circuit or ASR, not per Service Order in which the
affected Service (which may be comprised of multiple circuits one
or more of which may be affected by the change order) was
originally described.
5. ORDER CANCELLATION CHARGES:
Order Cancellation Charges apply for orders canceled prior to
completion of installation (ICOM). These charges are applied in
addition to any cancellation charges specified in the relevant
Service agreement between WorldCom and Customer or cancellation
charges relevant to associated M13, DCS, Echo Cancellation
equipment or incurred by WorldCom from third party service
providers. Cancellation charges apply per IXC and per ASR and
differ by pre and post engineering. The definition of both
pre-engineering and post-engineering are the same as under Change
of Order Charges. Order Cancellation Charges are in addition to
installation charges which will also apply with respect to orders
canceled prior to ICOM.
Page 4 of 8
<PAGE>
6. CHANGE OF SERVICE CHARGES:
Change of Service charges apply to Customer orders for changes made
after a circuit has completed installation (ICOM). Administrative
changes, i.e., changes to Customer's files such as billing address,
billing contact, etc., will only be charged on affected Service
for which WorldCom also administers relevant Local Access. The
Change of Service Charge will be applied per Local Access ASR.
Changes to initial cross-connects requested by Customer are
covered under Cross-connect Re-arrangement Charges.
Re-engineering charges apply to orders that are re-engineered due
to Customer requested change in Local Access Service type (e.g.,
2-wire to 4-wire), transmission speed, transmission mode (e.g., AMI
to B8ZS), IXC or Local Access termination location or terminating
equipment (DACS, MUX, cross-connect, etc.). Changes which require
only modification of Local Access, but do not affect relevant IXC
(e.g. 2-wire loop to 4-wire loop) will only result in a charge for
the ASR(s) required to effect the order. Any LAP charges or third
party service provider charges incurred by WorldCom because of a
Customer requested change will be passed on to Customer.
7. CROSS-CONNECT RE-ARRANGEMENT CHARGES:
Cross-connect Re-arrangement Charges apply either when Customer
requests additional cross-connects or changes to existing
cross-connects after initial installation. If a new cross-connect
is part of a new WorldCom IXC order (adding a DS-0 IXC to a DS-1
Pan-Out or a DS-1 IXC off an M13) no additional Cross-connect
Re-arrangement Charge will apply since the IXC installation charge
includes an initial cross-connect. When cross-connects are within
the same piece of the DCS equipment or M13, the charge is per lower
level (transmission speed) circuit with a maximum per DCS or M13.
8. ROLL-UP CHARGES:
When permitted by terms of the relevant Service agreement between
WorldCom and Customer or as otherwise agreed to in a writing
subscribed to by authorized representatives of Customer and
WorldCom, Customer requested upgrades of either multiple WorldCom
provided DS-0's to a new WorldCom provided DS-1 IXC or Local Access
circuit, or multiple WorldCom provided DS-1's to a new WorldCom
provided DS-3 IXC or Local Access circuit, will be subject to a
single lump-sum re-engineering and/or ASR charge, rather than a
charge for the re-engineering of each of the existing circuits
individually. There is no charge for rolling an FT-1 (Fractional
DS-1) up to a full DS-1 IXC.
9. ADDITIONAL INSTALLATION/MAINTENANCE CHARGES:
Additional Installation and/or Maintenance Charges apply when
Customer requests installation or circuit changes to be effected
during non-business hours for WorldCom or when Customer requests a
WorldCom technician at the Customer premise for trouble that
results from problems in non-WorldCom provided facilities. These
charges also apply when Customer requests and WorldCom agrees to
perform other engineering, design or activities which are not
provided by WorldCom as part of its then standard design and
installation of Service.
10. CROSS-CONNECT CHARGES:
Service Description/Application:
A cross-connect is an electrical connection made between two DS-1
circuits on a DSX-1 cross-connect panel or two DS-3 circuits on a
DSX-3 cross-connect panel in a WorldCom or WorldCom designated
third party Point of Presence (POP).
Charges:
Cross-connect Charges are determined by the level and type of
facilities being connected. Initial cross-connects will be
provided at no additional charge when there is an associated
WorldCom provided IXC of the same level (i.e. DS-1 cross-connect
with associated WorldCom provided DS-1 IXC). Charges for
additional cross-connects after initial installation or
reconfiguration of existing cross-connects are covered under
Cross-Connect Re-Arrangement Charges. For cross-connects within a
DACS or MUX, see respectively the Digital Cross-Connect Service
Description and Charges and M13 Multiplexing Service Description
and Charges.
Page 5 of 8
<PAGE>
11. M13 MULTIPLEXING (DS-3 TO DS-1) CHARGES:
Service Description/Applications:
This Service provides M13 multiplex equipment (MUX) in a WorldCom
or WorldCom designated third party POP to perform the function of
deriving up to twenty-eight (28) DS-1 level circuits out of a
single DS-3 level circuit. M13 Multiplexing Service is only
available at WorldCom approved M13 locations.
Charges:
M13 Multiplexing Charges are applied on a per M13 basis and
automatically apply when FT-3 (fractional DS-3) Service is
provided. M13's will not be provided without an associated
WorldCom provided full DS-3 or FT-3 IXC. Initial cross-connects
necessary to establish this Service are included in the M13
Multiplexing Charges. Charges for additional cross-connects after
initial installation or reconfiguration of existing cross-connects
are covered under Cross-Connect Re-Arrangement Charges. Charges
for DS-3 to DS-1 Drop & Insert applications are applied based upon
the number of M13's utilized. When Customer requires that WorldCom
be able to isolate and test individual DS-1 channels on a DS-3 IXC
connected to M13 multiplexing equipment, the DS-3 Sub-Rate
Maintenance Charge will also apply.
12. DIGITAL CROSS-CONNECT SERVICE (DCS OR DACS) CHARGES:
Service Description/Applications:
Digital Cross-Connect Service (DCS or DACS) can be used within the
WorldCom Network for two basic applications: DS-1/DS-0 Drop &
Insert Service or DS-1/DS-0 Fan-Out (SEE attached diagrams for
these two applications). DCS equipment located in a WorldCom
designated POP is used to electronically multiplex-demultiplex DS-0
(VF/DDS) level channels from a DS-1 level circuit and then
electronically cross-connect those DS-0 channels to either a DS-0
circuit or to a different DS-1 circuit. DCS is WorldCom's
alternative to the use of DS-1/DS-0 channel banks and VF/DDS
electrical distribution frames within WorldCom designated POP's.
DCS Service is only available at WorldCom approved DCS locations.
Charges:
The charge for DCS is applied per associated WorldCom DS-1 IXC or
corresponding Local Access DCS termination. WorldCom is under no
obligation to provide DCS for use in conjunction with transmission
services not provided by WorldCom. Initial DS-0 cross-connects
within the DCS necessary to establish this Service are included in
the charge. Charges for additional cross-connects after initial
installation or reconfiguration of existing cross-connects are
covered under Cross-Connect Re-Arrangement Charges. In cases where
a DS-1 IXC is terminated in DCS for connection to VF or DDS (DS-0
level) Local Access facilities, or when DCS is used for DS-1 Drop
and Insert (DS-0 cross-connections between DS-1 IXC's), the DS-1
Sub-Rate Maintenance Charge will also apply.
13. SUB-RATE MAINTENANCE CHARGES:
Service Description/Application:
Sub-Rate Maintenance Charges are applied to recover and compensate
WorldCom for the additional administration and maintenance costs
incurred by WorldCom when higher capacity service (DS-3 and DS-1)
is broken down into lower level channels which require individual
tracking, testing and maintenance. Sub-Rate Maintenance will
automatically be provided by WorldCom on WorldCom provided DS-3 IXC
with M13 MUX and WorldCom provided DS-1 IXC with attached DCS
UNLESS Customer signs a waiver form acknowledging that WorldCom
will not be responsible for the testing and maintenance of
associated lower level IXC channels. DS-3 Sub-Rate Maintenance
Charges will apply when a DS-3 IXC has associated M13 MUX equipment
and WorldCom is responsible for testing and maintaining individual
DS-1 channels within the DS-3 IXC. DS-1 Sub-Rate Maintenance
Charges will apply when DS-1 IXC is connected to multiple DS-0
level (VF or DDS) Local Access channels either through WorldCom DCS
or through LAP provided D4 Channel Banks. DS-1 Sub-Rate
Maintenance Charges will also apply when WorldCom DCS equipment is
used to Drop & Insert channels between DS-1 IXC's and WorldCom is
responsible for testing and maintaining individual DS-0 channels
within a DS-1 IXC.
Page 6 of 8
<PAGE>
Charges:
Pricing for DS-3 and DS-1 Sub-Rate Maintenance are applied per
sub-rate Local Access channel or IXC and with a maximum charge per
DCS or M13 MUX. Where M13 or DCS connections are to be made between
different Service provided to two different WorldCom Customers, the
customer ordering the connection(s) will be charged by WorldCom for
the applicable Sub-Rate Maintenance.
14. ECHO CANCELLATION CHARGE:
Service Description/Application:
With this service option, WorldCom will provide echo cancellation
equipment on Customer's WorldCom provided DS-0 or DS-1 IXC's
necessary to cancel the echo caused by the total cumulative
physical length of transmission path (route miles) traveled by the
circuit from origination to termination. Echo cancellation applies
only to voice applications of DS-0 and DS-1 Service. WorldCom will
employ echo cancellation equipment free of charge on DS-0 and DS-1
IXC's that are, by WorldCom design, greater than 1200 route miles.
In cases where Customer requested routing or other Customer
(directly or indirectly) controlled circumstances cause the circuit
length to exceed 1200 route miles. Customer will be charged for
Echo Cancellation Service. Echo Cancellation Service provided by
WorldCom on a temporary basis due to a re-route around WorldCom
Network blockage or damage will not be charged to Customer.
Charges:
Echo Cancellation Charges are applied per canceller and per
associated DS-0 or DS-1 IXC provided by WorldCom.
15. DIAGRAMS:
The diagrams shown below are provided to illustrate the physical design
characteristic of a "DS-1 Fan-Out," "DS-1 IXC to DS-0 Access," "FT-1 with
Shared Access & Tail" and "Drop & Insert."
/s/ [ILLEGIBLE]
*Confidential treatment has been requested for a portion of this Exhibit.
Page 7 of 8
<PAGE>
DS-1 IXC TO DS-0 ACCESS DS-1 FAN-OUT
[GRAPHIC] [GRAPHIC]
DACS CHARGE [ * ]
DS-1 SUB-RATE DACS CHARGE [ * ]
MAINTENANCE
CHARGES [ * ]
TOTAL [ * ]
FT-1 W/SHARED ACCESS & TAIL DROP & INSERT
[GRAPHIC] [GRAPHIC]
DACS CHARGE A [ * ] DACS CHARGE [ * ]
DACS CHARGE B [ * ]
DACS CHARGE C [ * ]
TOTAL [ * ]
Note: DACS charge is per DS-1 transmission.
/s/ [ILLEGIBLE]
*Confidential treatment has been requested for a portion of this Exhibit.
Page 8 of 8
<PAGE>
Schedule 3
Block A Payments
[ * ]
/s/ [ILLEGIBLE]
*Confidential treatment has been requested for a portion of this Exhibit.
<PAGE>
March/18/1999
Page 2 of 3
AMORTIZATION FOR: WorldxChange
Prepared By: MCI WorldCom
<TABLE>
<S><C>
Annual Interest Rate [ * ] Compound Frequency Annual
Effective Annual Rate [ * ] Payment Frequency Monthly Schedule 3
Periodic Rate [ * ] Loan Start Date [ * ] Block A Payment
Daily Rate [ * ] Pmt Start Date [ * ]
Number of Payments [ * ] Loan End Date [ * ]
Amortization Method = U.S. Rule (Simple) Loan Amount [ * ]
- -----------------------------------------------------------------------------------------------------------------
Period Interest Principal Balance Due
Pmt # Date Payment Interest Paid Paid Interest Principal Total
- -----------------------------------------------------------------------------------------------------------------
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
*Confidential treatment has been requested for a portion of this exhibit.
<PAGE>
March/18/1999
Page 3 of 3
AMORTIZATION FOR: WorldxChange
Prepared By: MCI WorldCom
<TABLE>
<S><C>
Annual Interest Rate [ * ] Compound Frequency [ * ]
Effective Annual Rate [ * ] Payment Frequency [ * ] Schedule 3
Periodic Rate [ * ] Loan Start Date [ * ] Block A Payment
Daily Rate [ * ] Pmt Start Date [ * ]
Number of Payments [ * ] Loan End Date [ * ]
Amortization Method = U.S. Rule (Simple) Loan Amount [ * ]
- -----------------------------------------------------------------------------------------------------------------
Period Interest Principal Balance Due
Pmt # Date Payment Interest Paid Paid Interest Principal Total
- -----------------------------------------------------------------------------------------------------------------
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
[ * ]
</TABLE>
*Confidential treatment has been requested for a portion of this exhibit.
<PAGE>
Page 1 of 3
Schedule 4
Block B Payments
[ * ]
*Confidential treatment has been requested for a portion of this exhibit.
<PAGE>
March/12/1999 Page 2 of 3
AMORTIZATION FOR: WorldxChange
Prepared By: MCI WorldCom
<TABLE>
<S><C>
Annual Interest Rate [ * ] Compound Frequency [ * ]
Effective Annual Rate [ * ] Payment Frequency [ * ] Schedule 4
Periodic Rate [ * ] Loan Start Date [ * ] Block B Payments
Daily Rate [ * ] Pmt Start Date [ * ]
Number of Payments [ * ] Loan End Date [ * ]
Amortization Method = U.S. Rule (Simple) Loan Amount [ * ]
- -----------------------------------------------------------------------------------------------------------------
Period Interest Principal Balance Due
Pmt # Date Payment Interest Paid Paid Interest Principal Total
- -----------------------------------------------------------------------------------------------------------------
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
*Confidential treatment has been requested for a portion of this exhibit.
<PAGE>
March/12/1999 Page 3 of 3
AMORTIZATION FOR: WorldxChange
Prepared By: MCI WorldCom
<TABLE>
<S><C>
Annual Interest Rate [ * ] Compound Frequency [ * ]
Effective Annual Rate [ * ] Payment Frequency [ * ] Schedule 4
Periodic Rate [ * ] Loan Start Date [ * ] Block B Payments
Daily Rate [ * ] Pmt Start Date [ * ]
Number of Payments [ * ] Loan End Date [ * ]
Amortization Method = U.S. Rule (Simple) Loan Amount [ * ]
- -----------------------------------------------------------------------------------------------------------------
Period Interest Principal Balance Due
Pmt # Date Payment Interest Paid Paid Interest Principal Total
- -----------------------------------------------------------------------------------------------------------------
[ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ] [ * ]
</TABLE>
*Confidential treatment has been requested for a portion of this exhibit.
<PAGE>
SCHEDULE 5
WORLDxCHANGE
- ----------------------------------------------------------------------
CIRCUIT CITY PAIRS VH MILES
- ----------------------------------------------------------------------
[ * ] [ * ] [ * ]
TOTAL DS-3 V&H MILES 16,708
WorldCom and Customer agree that the above described DS-3 circuits and only
the above described DS-3 circuits having end points in the following cities
will be accepted as comprising a portion of the Leased Capacity
notwithstanding the fact that the following cities are not otherwise
available as Leased Cities:
[ * ]
WorldCom is not obligated to accept any further Service Requests for Leased
Capacity between such cities without its prior written approval executed by
an authorized officer of WorldCom.
No Non-Recurring Ancillary Service Charges, e.g., installation, shall apply to
the above circuits.
*Confidential treatment has been requested for a portion of this exhibit.
<PAGE>
[MCI WORLDCOM Letterhead]
[Stamp]
March 22, 1999
Mr. Roger B. Abbott
Communication Telesystems International
d/b/a WorldxChange Communications
9999 Willow Creek Road
San Diego, CA 92131
Dear Roger:
In connection with and as a condition to the execution and delivery of that
certain Capacity Lease Agreement (the "Lease Agreement") dated March 26, 1999,
between WorldCom Network Services, Inc. ("MCI WorldCom") and Communication
Telesystems International d/b/a WorldxChange Communications ("WorldxChange"),
the parties agree that commencing with the Effective Date of the Lease Agreement
and continuing until MCI WorldCom has received all of the payments set forth on
the Payment Schedule attached hereto (the "Payment Period"), Subsection 3(F) of
the Lease Agreement will be waived and will not be applicable. Therefore, during
the Payment Period, (i) WorldxChange's default under any other agreement with
MCI WorldCom or its affiliates after taking into account any applicable cure
periods set forth in such other agreement, or (ii) WorldxChange's failure to
timely pay any amounts due as set forth in the Payment Schedule if such
non-payment is not cured within twenty-four (24) hours after WorldxChange's
receipt of Notice of Default from MCI WorldCom, will be deemed to be an Event of
Default (as defined in the Lease Agreement), and MCI WorldCom will be entitled
to exercise any remedies available to it under the Lease Agreement.
Upon MCI WorldCom's receipt of all payments set forth on the Payment
Schedule and continuing through the end of the Lease Term, Subsection 3(F) will
be in effect and Customer will not be deemed to be in default of the Lease
Agreement if WorldxChange is in default of any other agreement with MCI WorldCom
or its affiliates.
Please evidence your agreement with the terms and conditions set forth in
this letter by executing a copy of this letter and returning it directly to me.
Sincerely,
/s/ Robert Allen Brejcha
Robert Allen Brejcha
Vice President
AGREED TO THIS 26th DAY OF MARCH, 1999.
---- ------
COMMUNICATION TELESYSTEMS INTERNATIONAL
d/b/a WorldxChange Communications
By: /s/ Roger B. Abbott
----------------------------------
Print Name: Roger B. Abbott
-----------------------------
Title: Chief Executive Officer
----------------------------------
<PAGE>
WORLDCOM
WXC PAYMENT SCHEDULE
DATE AMOUNT APPLICATION
[*] [*] [*]
TOTAL [*]
(1) Payment as dated above or upon receipt of WorldCom payment of monthly
invoice whichever is later.
*Confidential treatment has been requested for a portion of this Exhibit
<PAGE>
TERMINATION AND SEVERANCE AGREEMENT
This Termination and Severance Agreement ("Agreement") is made this 24th
day of July, 1998 between Communication TeleSystems International d/b/a
WorldxChange Communications, a California corporation (hereinafter referred to
as "CTS") and Holly Mead (hereinafter referred to as "Mead").
WHEREAS, Mead is currently employed by CTS;
WHEREAS, Mead has tendered her resignation which CTS has accepted; and
WHEREAS, Mead has requested the payment of severance benefits, which CTS
has agreed to on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto, and other valuable consideration, the receipt and sufficiency is
hereby acknowledged, the parties hereto agree as follows:
1. TERMINATION OF EMPLOYMENT: The termination of Mead's employment
with CTS, based upon Mead's voluntary resignation, shall be effective as of
July 31, 1998 (the "Termination Date").
2. PAYMENT OF WAGES: Mead acknowledges that she has previously
received payment from CTS for all amounts due and owing as wages for services
performed by Mead through and including July 31, 1998.
3. SEVERANCE PAYMENTS: CTS shall pay to Mead Five Hundred Seventy Four
Thousand Seven Hundred Fifty Dollars ($574,750) in severance benefits (the
"Severance
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<PAGE>
Payments"), on the dates and in the amounts set forth in Exhibit "A" to this
Agreement. Notwithstanding anything to the contrary contained herein, however,
any Severance Payments which would otherwise be payable on or after August 1,
1999 and which have not already been paid to Mead, shall not be payable after
the closing of a "CTS Event" as defined below. The term "CTS Event" shall mean
a public offering of CTS stock or a merger in which shareholders of CTS common
stock receive stock which is publicly traded.
4. DEDUCTIONS: All payments made to Mead pursuant to this Agreement
shall be subject to any and all deductions and withholding requirements
required by law.
5. CONTINUING OBLIGATIONS OF MEAD: Mead agrees to the following
continuing obligations:
(a) For a period of twenty-four (24) months following the
Termination Date, Mead will not, for herself or on behalf of any other person,
firm, partnership or cooperation, directly or indirectly, call upon or serve
any Customers of CTS or its affiliates for the purpose of soliciting or
offered in the market place any products or services which are the same as or
substantially similar to those provided to customers by CTS or its affiliates.
For purposes of this Agreement "Customers of CTS" shall include but not be
limited to, all customers contacted, solicited or served by CTS or its
affiliates within twelve (12) months prior to the Termination Date.
(b) For a period of eighteen (18) months following the Termination
Date, Mead will not, directly or through another person or entity, for herself
or on behalf of any other person, firm, partnership or cooperation, directly
or indirectly seek to persuade any director, officer or employee of CTS to
discontinue that individuals status or employment with CTS, or employ or
engage as a consultant any person who was employed by CTS as of the
Termination Date.
(c) For a period of nine (9) months following the Termination Date,
Mead will not, directly or indirectly, alone or as an employee, independent
contractor of any type, partner, officer, director, creditor, stockholder, or
holder of any option or right to become a stockholder in any entity or
organization, (i) engage in the long distance telecommunications business in
the United States, Canada, Europe or Australia or (ii) engage in direct
competition with any other business operation
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<PAGE>
actively conducted by CTS or its affiliates, and any business pertaining to
the sale, distribution, manufacture, marketing, production or provision or
products or services similar to or in competition with any products or
services produced, designed, manufactured, sold, distributed or rendered, as
the case may be, by CTS or its affiliates.
(d) For a period of nine (9) months following the Termination Date,
Mead shall not advance credit, lend money, furnish quarters or give advice,
directly or indirectly to any person, corporation or business entity of any
kind which is engaged in any business or operation described in sub-paragraph
5(c).
(e) Mead shall not in any way publicly disparage CTS or its
affiliates at any time.
(f) For a period of twenty four (24) months following the
Termination Date, Mead agrees to provide to CTS and its affiliates truthful
and complete cooperation including, but not limited to, appearance at
interviews and depositions at reasonable times in all regulatory and
litigation matters relating to CTS and her prior employment by CTS whether or
not such matters have been commenced at the time of such termination at no
additional compensation, provided however, that to CTS will reimburse Mead
for all reasonable expenses incurred in connection with such requested
cooperation.
(g) Notwithstanding the foregoing, nothing contained in Section
5(c) or (d) shall prevent Mead from investing in cooperate securities which
are traded on a nationally recognized stock exchange, so long as Mead own
less than 5% of the outstanding voting securities of the company involved.
(h) If any of the restrictions on competitive activities contained
in Section 5 of this Agreement shall for any reason be held by a court or
arbitration tribunal of competent jurisdiction to be excessively broad as to
duration, geographical scope, activity subject or otherwise, such
restrictions shall be construed so as to be enforceable to the extend
compatible with applicable law as it shall then exist; it begin understood
that by execution of this Agreement the parties hereto regard such
restrictions as reasonable and compatible with their respective rights and
expectations.
6. CESSATION OF PAYMENTS AND INJUNCTIVE RELIEF: In the event of any
breach or threatened breach my Mead of any of the provisions of Section 5 of
this Agreement, CTS shall
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<PAGE>
be entitled to : (i) immediately terminate all further payment of the
Severance Payments and any other compensation or benefits that may be payable
under this Agreement; (ii) recover provable damages and reasonable attorney's
fees; and (iii) to an immediate injunction restraining Mead from committing
or continuing to commit a breach of such provisions without the need to show
or prove actual damages. In the event of Mead's breach or threatened breach of
any of the provisions of Section 5 of this Agreement, CTS shall not be
required to make any further Severance Payments to Mead, regardless of
whether CTS seeks or obtains injunctive relief under this paragraph and
regardless of whether such breach is subsequently cured.
7. RETURN OF PROPERTY: On or before the Termination Date, Mead shall
return to CTS all property of CTS, which shall include but not be limited to
all property in Mead's possession or under her control which was purchased or
reimbursed by CTS or its affiliates, and all records and documents belonging
to CTS or its affiliates, furnished to Mead by CTS or its affiliates or
generated by Mead or any other CTS employee or consultant in the course of
their employment or other activities on behalf of CTS or its affiliates.
8. INVENTIONS: Mead agrees that all improvements, discoveries,
inventions, designs, or other data relating to the business of CTS or its
affiliates (whether or not patentable) conceived, developed, made, perfected,
acquired, or first reduced to practice by Mead, in whole or part, during the
term of her employment with CTS, both during off-duty hours and away from the
premises of CTS as well as in the regular course of employment by Mead during
development and research, shall be and at all times remain the property of
CTS. Mead further agrees that, upon request by CTS at any time, she will join
and render assistance in any proceedings, and execute any papers necessary to
file and prosecute applications for, and to acquire, maintain and enforce,
letters, patents, trademarks, registrations and/or copyrights, both domestic
and foreign, with respect to such improvements, discoveries, inventions,
designs, documents or other data as required for vesting title to same in
CTS. The provisions of this paragraph shall not, however, apply to any
invention that Mead developed entirely on her own time without using CTS's
equipment, supplies, facilities or trade secret information except for those
inventions that either: (i) relate at the time of conception
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<PAGE>
or reduction or practice of the invention to the business of CTS, or actual
or demonstrably anticipated research or development of CTS; or (ii) result
for any work performed by Mead for CTS.
9. STOCK OPTIONS: Mead acknowledges and agrees that: (i) Exhibit "B"
to this Agreement contains a full, complete and accurate description of all
stock options granted to Mead by CTS and its affiliates (the "Stock Option
Grants"), including the number of options granted to Mead which will be
vested as of the Termination Date; (ii) all options previously granted to
Mead which have not vested as of the Termination Date will be forfeited; and
(iii) pursuant to the provisions of the 1996 Stock Option/Stock Issuance Plan
adopted by CTS (the "Plan"), the period for exercising stock options granted
to Mead under the Plan which have vested as of the Termination Date ("Plan
Options") shall be reduced to a three (3) month period commencing with the date
of Mead's cessation of service with CTS, after which such Plan Options shall
terminate and cease to be outstanding. In the event Mead desires to exercise
any or all of the Plan Options, CTS shall extend a full recourse a loan to
Mead for such purpose with a term of three (3) years, with interest at the
rate of ten percent (10%) per annum and principal and all accrued interested
payable at the end of the loan term, to be fully secured by all shares
acquired with the loan proceeds until such time as the loan is fully repaid.
In order to obtain such loan, Mead shall be required to execute a promissory
note and pledge agreement in form and substance satisfactory to CTS.
10. RELEASE: Except as to (i) such rights or claims as may be created
by this Agreement, and (ii) rights or claims relating to the Stock Option
Grants, Mead hereby releases and discharges CTS and its affiliates and their
respective agents, employees, partners, representatives, shareholders,
officers, directors, attorneys, insurers, affiliates, subsidiaries, and
predecessors and successors in interest from any and all claims, demands and
cause or causes of action here for or hereafter arising out of, connected
with or incidental to Mead's employment by CTS or any dealings between Mead
and CTS or its affiliates prior to the Termination Date, including but not
limited to, and without limiting the generality of the foregoing, any claims
for wages, vacation pay, expense reimbursement, or severance benefits. Mead
specifically waives the benefit of the provisions of Section 1542 of the
CIVIL CODE of the State of California, which provides as follows:
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<PAGE>
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN THIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY EFFECTED HIS
SETTLEMENT WITH THE DEBTOR".
The release granted by Mead shall apply to all claims, whether known or
unknown.
11. ASSIGNMENT: Neither this Agreement nor any other benefits to accrue
hereunder shall be assigned or transferred by Employee, either in whole or
in part (except a transfer effective upon the death of Employee of any
payments due hereunder), without the written consent of CTS, and any purported
assignment in violation hereof shall be void.
12. CHOICE OF LAW: This Agreement is entered into in accordance with
and shall be governed by California law; provided that if any California law
shall dictate that the laws of another jurisdiction be applied in any
proceeding, such California law shall be superseded by this paragraph and the
remaining laws of California shall nevertheless be applied in such proceeding.
13. PARTIAL INVALIDITY: If any term, provision, covenant, or condition
of this Agreement is held by a Court of competent jurisdiction to be
invalid, void or unenforceable, the rest of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalided.
14. ENTIRE AGREEMENT: This Agreement contains the entire agreement
between the parties concerning the subject matter of this Agreement. It
supersedes all negotiations, statements, promises, or understandings, if any,
made prior to the execution of this Agreement. Any such negotiations,
statement promises or understandings shall not be used to interpret or
constitute this Agreement.
15. GENDER AND NUMBER: As used in this Agreement, the masculine,
feminine or
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<PAGE>
neuter gender, and the singular or plural number, shall each be deemed to
include the others whenever the context so indicates.
16. VENUE: The venue of any civil action, arbitration or other legal
proceeding between Mead, on one hand, and CTS and/or its officers, directors
and employees or its affiliates, on the other hand, arising out of or relating
to this Agreement, the employment of Mead by CTS, the termination of Mead's
employment with CTS, or any other dealings between Mead and CTS or its
affiliates, lies only in San Diego, California, and Mead and CTS waive any
right they may have under any statute or law to cause such action or
proceeding to be transferred to any other venue.
17. AMENDMENT AND WAIVER: The terms of this Agreement may be amended,
modified or eliminated, or the observance or performance of any term, covenant
or provision herein may be omitted or waived (either generally or in a
particular instance, and either prospectively or retroactively) only by a
writing signed by Mead and CTS. The waiver by CTS of any breach by Mead of any
term or provisions of this Agreement shall not be construed as a waiver of any
subsequent breach.
18. INUREMENT: This Agreement shall be binding upon and inure to the
benefit of all heirs, assigns (to the extent permitted) and successors in
interest of the parties hereto.
19. HEADLINES AND CONSTRUCTION: Both parties have been represented by
legal counsel and have cooperated in the drafting of this Agreement, which
shall not be construed against either party. The titles and headlines herein
are for convenience only and shall not be used to interpret this Agreement.
20. ARBITRATION: Any claim or controversy arising out of or relating to
this Agreement, the termination of Mead's employment with CTS or any dealings
between Mead, on one hand, and CTS or its affiliates and/or the officers,
directors, employees or agents of CTS, or its affiliates, on the other hand,
shall be settled before J.A.M.S./ENDISPUTE ("JAMS") in accordance
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<PAGE>
with the then obtaining Comprehensive Arbitration Rules and Procedures of
JAMS, as modified herein. A single arbitrator shall be appointed directly by
JAMS (without input from the parties) within five (5) days after receipt of a
demand for arbitration from any party to this Agreement. The arbitrator may
not limit, expand or otherwise modify the terms of this Agreement. The award
in such arbitration proceeding may be entered in any Court of competent
jurisdiction specified in paragraph 16 of this Agreement.
21. DEFINITION OF CTS AFFILIATE: For purposes of this Agreement, the
term "affiliate(s)" shall mean and refer to any direct or indirect parent or
subsidiary corporation of CTS, as well as CTS Telcom, Inc., a Florida
corporation and WorldxChange Limited, a New Zealand corporation.
22. MODIFICATION OF AGREEMENT TO ACCOMPLISH POOLING TRANSACTION: In the
event it is determined at any time by the certified public accountants of CTS,
the certified public accountants of any acquiror of CTS or any regulatory
agency that any of the monetary or non-monetary consideration furnished or to
be furnished to Mead pursuant to this Agreement would preclude accounting for
a proposed transaction involving CTS as a "pooling of interests", then in such
event Mead shall be required to immediately restore such consideration and/or
take such other action as may be required by such accountants or regulatory
agency so that the proposed transaction may be accounted for as a "pooling of
interests".
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
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<PAGE>
IT SO AGREED:
COMMUNICATION TELESYSTEMS INTERNATIONAL
BY: /s/ Edward S. Soren
------------------------------------
ITS: Chairman
-----------------------------------
/s/ Holly Mead
- ---------------------------------------
HOLLY MEAD, INDIVIDUALLY
EDS
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9
<PAGE>
EXHIBIT "A"
SCHEDULE OF SEVERANCE PAYMENTS
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
August 1, 1998 $11,200.00*
August 7, 1998 $65,175.00
September 1, 1998 $26,375.00
October 1, 1998 $26,375.00
November 1, 1998 $26,375.00
December 1, 1998 $26,375.00
January 1, 1999 $76,375.00
February 1, 1999 $26,375.00
March 1, 1999 $26,375.00
April 1, 1999 $26,375.00
May 1, 1999 $26,375.00
June 1, 1999 $26,375.00
July 1, 1999 $26,375.00
August 1, 1999 $26,375.00
September 1, 1999 $26,375.00
October 1, 1999 $26,375.00
November 1, 1999 $26,375.00
December 1, 1999 $26,375.00
January 1, 2000 $26,375.00
</TABLE>
*The August 1, 1998 payment in the amount of $11,200.00 was previously
advanced to Mead, and Mead acknowledges receipt and full payment thereof.
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EXHIBIT "B"
SCHEDULE OF STOCK OPTIONS
<TABLE>
<CAPTION>
Number
Number of Shares
of Shares Exercise Vested at
Grant Date Type of Grant Granted Price Termination
- ---------- ------------- --------- -------- -----------
<S> <C> <C> <C> <C>
January 5, 1995 Letter Agreement 120,000 $0.4166 120,000
April 5, 1995 Letter Agreement 60,000 $0.6666 52,500
December 6, 1996 Corporate Plan 102,000 $5.00 51,000
December 1, 1997 Corporate Plan 30,000 $9.00 6,000
-------
TOTAL 229,500
</TABLE>
NOTE: Share amounts and exercise prices listed take into account all stock
splits.
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<PAGE>
TERMINATION AND SEVERANCE AGREEMENT
-----------------------------------
This Termination and Severance Agreement ("Agreement") is made effective
this 11th day of May, 1999 between Communication TeleSystems International
d/b/a WorldxChange Communications, a California corporation (hereinafter
referred to as "CTS") and Ralph Brandifino (hereinafter referred to as
"Brandifino").
WHEREAS, Brandifino was employed by CTS through and including May 7,
1999 (the "Termination Date");
WHEREAS, Brandifino has tendered his resignation which CTS has accepted;
and
WHEREAS, Brandifino has requested the payment of severance benefits,
which CTS has agreed to on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto, and other valuable consideration, the receipt and sufficiency is
hereby acknowledged, the parties hereto agree as follows:
1. TERMINATION OF EMPLOYMENT: The termination of Brandifino's
employment with CTS, based upon Brandifino's voluntary resignation, shall be
effective as of the Termination Date.
2. PAYMENT OF WAGES AND ACCRUED VACATION: Brandifino acknowledges that
he has previously received payment from CTS for all amounts due and owing as
wages and accrued vacation for services performed by Brandifino through and
including the Termination Date.
3. SEVERANCE PAYMENTS: CTS shall pay Brandifino severance payments in
the total amount of $78,000.00, payable on the dates and in the amounts set
forth on Exhibit "A" hereto.
RTB Eds
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<PAGE>
4. DEDUCTIONS: All payments made to Brandifino pursuant to this
Agreement shall be subject to any and all deductions and withholding
requirements required by law.
5. INVENTIONS: Brandifino agrees that all improvements, discoveries,
inventions, designs, or other data relating to the business of CTS or its
affiliates (whether or not patentable) conceived, developed, made, perfected,
acquired, or first reduced to practice by Brandifino, in whole or part,
during the term of his employment with CTS, both during off-duty hours and
away from the premises of CTS as well as in the regular course of employment
by Brandifino during development and research, shall be and at all times
remain the property of CTS. Brandifino further agrees that, upon request by
CTS at any time, he will join and render assistance in any proceedings, and
execute any papers necessary to file and prosecute applications for, and to
acquire, maintain and enforce, letters, patents, trademarks, registrations
and/or copyrights, both domestic and foreign, with respect to such
improvements, discoveries, inventions, designs, documents or other data as
required for vesting title to same in CTS. The provisions of this paragraph
shall not, however, apply to any invention that Brandifino developed entirely
on his own time without using CTS's equipment, supplies, facilities or trade
secret information except for those inventions that either: (i) relate at the
time of conception or reduction or practice of the invention to the business
of CTS, or actual or demonstrably anticipated research or development of CTS;
or (ii) result for any work performed by Brandifino for CTS.
6. STOCK OPTIONS: Brandifino acknowledges and agrees that: (i) Exhibit
"B" to this Agreement contains a full, complete and accurate description of
all stock options granted to Brandifino by CTS and its affiliates (the "Stock
Option Grants"), including the number of options granted to Brandifino which
will be vested as of the Termination Date; (ii) all options previously
granted to Brandifino which have not vested as of the Termination Date will be
forfeited; and (iii) pursuant to the provisions of the 1996 Stock
Option/Stock Issuance Plan adopted by CTS (the "Plan"), the period for
exercising stock options granted to Brandifino under the Plan which have
vested as of the Termination Date ("Vested Plan Options") shall be reduced to
a three (3) month
RTB Eds
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<PAGE>
period commencing with the date of Brandifino's cessation of service with
CTS, after which such Vested Plan Options shall terminate and cease to be
outstanding. In the event Brandifino desires to exercise any or all of the
Vested Plan Options, CTS shall, upon Brandifino's written request, extend a
full recourse a loan to Brandifino for such purpose with a term of three (3)
years, with interest at the rate of ten percent (10%) per annum and principal
and all accrued interested payable at the end of the loan term, to be fully
secured by all shares acquired with the loan proceeds until such time as the
loan is fully repaid. In order to obtain such loan, Brandifino shall be
required to execute a promissory note and pledge agreement in the form of
Exhibit "C" hereto.
7. RELEASE: Except as to (i) such rights or claims as may be created
by this Agreement, and (ii) rights or claims relating to the Vested Plan
Options, Brandifino hereby releases and discharges CTS and its affiliates and
their respective agents, employees, partners, representatives, shareholders,
officers, directors, attorneys, insurers, affiliates, subsidiaries, and
predecessors and successors in interest from any and all claims, demands and
cause or causes of action heretofore or hereafter arising out of, connected
with or incidental to Brandifino's employment by CTS or any dealings between
Brandifino and CTS or its affiliates prior to the Termination Date, including
but not limited to, and without limiting the generality of the foregoing, any
claims for wages, vacation pay, expense reimbursement, or severance benefits
or any other claims relating to Brandifino's employment by CTS or the
termination thereof. Brandifino specifically waives the benefit of the
provisions of Section 1542 of the CIVIL CODE of the State of California,
which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH A CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR".
The release granted by Brandifino shall apply to all claims, whether known or
unknown.
RTB Eds
---- ----
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<PAGE>
8. ASSIGNMENT: Neither this Agreement nor any other benefits to accrue
hereunder shall be assigned or transferred by Brandifino, either in whole or
in part (except a transfer effective upon the death of Brandifino of any
payments due hereunder), without the written consent of CTS, and any
purported assignment in violation hereof shall be void.
9. CHOICE OF LAW: This Agreement is entered into in accordance with
and shall be governed by California law; provied that if any California law
shall dictate that the laws of another jurisdiction be applied in any
proceeding, such California law shall be superseded by this paragraph and the
remaining laws of California shall nevertheless be applied in such proceeding.
10. PARTIAL INVALIDITY: If any term, provision, covenant, or
condition of this Agreement is held by a Court of competent jurisdiction to
be invalid, void or unenforceable, the rest of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalided.
11. ENTIRE AGREEMENT: This Agreement contains the entire agreement
between the parties concerning the subject matter of this Agreement. It
supersedes all negotiations, statements, promises, or understandings, if any,
made prior to the execution of this Agreement. Any such negotiations,
statements promises or understandings shall not be used to interpret or
constitute this Agreement.
12. GENDER AND NUMBER: As used in this Agreement, the masculine,
feminine or neuter gender, and the singular or plural number, shall each be
deemed to include the others whenever the context so indicates.
13. VENUE: The venue of any civil action, arbitration or other legal
proceeding between Brandifino, on one hand, and CTS and/or its officers,
directors and employees or it affiliates, on the other hand, arising out of
or relating to this Agreement, the employment of Brandifino by CTS, the
termination of Brandifino's employment with CTS, or any other dealings
between Brandifino and CTS
RTB Eds
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<PAGE>
or its affiliates, lies only in San Diego, California, and Brandifino and CTS
waive any right they may have under any statute or law to cause such action
or proceeding to be transferred to any other venue.
14. AMENDMENT AND WAIVER: The terms of this Agreement may be amended,
modified or eliminated, or the observance or performance of any term,
covenant or provision herein may be omitted or waived (either generally or in
a particular instance, and either prospectively or retroactively) only by a
writing signed by Brandifino and CTS. The waiver by CTS of any breach by
Brandifino of any term or provision of this Agreement shall not be construed
as a waiver of any subsequent breach.
15. INUREMENT: This Agreement shall be binding upon and inure to the
benefit of all heirs, assigns (to the extent permitted) and successors in
interest of the parties hereto.
16. HEADLINES AND CONSTRUCTION: Both parties have been represented by
legal counsel and have cooperated in the drafting of this Agreement, which
shall not be construed against either party. The titles and headlines herein
are for convenience only and shall not be used to interpret this Agreement.
17. ARBITRATION: Any claim or controversy arising out of or relating
to this Agreement, the termination of Brandifino's employment with CTS or any
dealings between Brandifino, on one hand, and CTS or its affiliates and/or
the officers, directors, employees or agents of CTS, or its affiliates, on
the other hand, shall be settled before J.A.M.S/ENDISPUTE ("JAMS") in
accordance with the then obtaining Comprehensive Arbitration Rules and
Procedures of JAMS, as modified herein. A single arbitrator shall be
appointed directly by JAMS (without input from the parties) within five (5)
days after receipt of a demand for arbitration from any party to this
Agreement. The arbitration hearing shall commence within ninety (90) days
after an arbitrator is appointed and shall continue thereafter on each
successive business day, unless adjournment is necessary to accommodate the
schedule of the arbitrator. The arbitrator may not limit, expand or
otherwise modify the terms of this Agreement. The award in such arbitration
proceeding may be entered in any Court of competent jurisdiction specified in
paragraph 13 of this Agreement.
RTB Eds
---- ----
5 Initial Initial
<PAGE>
18. DEFINITION OF CTS AFFILIATE: For purposes of this Agreement, the
term "affiliate(s)" shall mean and refer to any direct or indirect parent or
subsidiary corporation of CTS.
19. COOPERATION: For a period of twenty four (24) months following the
Termination Date, Brandifino agrees to provide to CTS and its affiliates
truthful and complete cooperation including, but not limited to, appearance
at interviews and depositions at reasonable times in all regulatory and
litigation matters relating to CTS and his prior employment by CTS whether or
not such matters have been commenced at the time of such termination at no
additional compensation, provided however, that to CTS will reimburse
Brandifino for all reasonable expenses incurred in connection with such
requested cooperation.
20. RESIGNATION AS DIRECTOR: Brandifino agrees to and does hereby
resign as a director of each CTS affiliate which he presently serves as a
director of, including but not limited to WorldxChange Communications S.A.
(France).
21. ATTORNEYS' FEES AND COSTS: In the event of any arbitration or
other legal procedures arising out of or relating to this Agreement, the
prevailing party shall be awarded its reasonable attorneys' fees and costs.
IT SO AGREED:
COMMUNICATION TELESYSTEMS INTERNATIONAL
BY: /s/ Edward S. Soren
----------------------------
ITS:
---------------------------
/s/ Ralph Brandifino
- -------------------------------
Ralph Brandifino, INDIVIDUALLY
RTB Eds
---- ----
6 Initial Initial
<PAGE>
EXHIBIT "A"
SEVERANCE PAYMENTS
<TABLE>
<S> <C>
May 28, 1999 $12,000
June 11, 1999 $12,000
June 25, 1999 $12,000
July 9, 1999 $12,000
July 23, 1999 $12,000
August 6, 1999 $12,000
August 20, 1999 $6,000
</TABLE>
RTB Eds
---- ----
Initial Initial
<PAGE>
EXHIBIT "B"
SCHEDULE OF STOCK OPTIONS
<TABLE>
<CAPTION>
Number of Shares Number of Shares
---------------- ----------------
Grant Date Type of Grant Granted Exercise Price Vested at Termination
- ---------- ------------- ------- -------------- ---------------------
<S> <C> <C> <C> <C>
April 24, 1997 Corporate Plan 94,500 $ 7.00 47,249
February 1, 1999 Corporate Plan 50,000 $ 10.00 3,125
------- -------
TOTAL 144,500 50,374
RTB Eds
---- ----
Initial Initial
</TABLE>
<PAGE>
EXHIBIT "C"
PROMISSORY NOTE & PLEDGE AGREEMENT
Eds
---- ----
Initial Initial
<PAGE>
PETER J. LYONS
President
Broadband Carrier Division
April 7, 1999
Mr. Roger B. Abbott
Chief Executive Officer
WorldxChange Communications
9999 Willow Creek Road
San Diego, CA 92131
Dear Roger:
In an effort to resolve the current situation between Communication
TeleSystems International, d/b/a WorldxChange Communications (WorldxChange)
and Siemens Information and Communication Networks, Inc. (Siemens) relating
to your deployment of the EWSD switching system and the resulting network
problems and, along with your request for further financial assistance,
Siemens is pleased to offer the following in return for WorldxChange's
acceptance of the below listed conditions:
(1) Siemens will immediately provide an additional $6 million in U.S.
lease financing from its Telecommunications Finance Group (TFG), at
its then current lease rate (not to exceed 11 1/2% per annum) and
other lease terms customarily offered to WorldxChange with the
provision that the value of any single item to be leased shall be
no less than $20,000. This financing may also be applied to
reimburse WorldxChange for equipment purchases, the type of which
customarily qualify for TFG leasing, made or paid for during the
past ninety (90) days.
(2) With the exception of Lease #185161/Seattle, WA; #185224/Honolulu,
HI; and #185232/New York, NY; TFG will continue to defer payments
on all other
SIEMENS INFORMATION AND COMMUNICATION NETWORKS, INC.
400 Rinehart Road Tel: (407) 942-5077
Lake Mary, Florida 32746 Fax: (407) 942-5701
<PAGE>
existing U.S. leases (including the Dallas and Los Angeles EWSD
leases as well as the additional $6 million referenced in paragraph
1, which have not yet commenced) as follows: a) lease #185161,
#185224 and #185232 will be restructured as of April 10, 1999, by
extending the term of these leases by 9 months, with interest for
these leases beginning to accrue as of April 10, 1999, at the
contract rate and payments on these leases to resume on May 1,
1999; b) payment on all other U.S. leases shall commence on
December 1, 1999, with interest on these leases beginning to accrue
as of April 10, 1999. The interest rate from April 10, 1999,
through December 1, 1999, shall be 6.5% per annum, after which the
interest rate shall revert back to the contract rate specified in
each such lease. Sometime in early November, the prior deferral
period and the interest attributable to the current deferral will
be incorporated into a restructured lease payment amount/term for
each lease; c) It is acknowledged and agreed that no interest will
be owed or payable by WorldxChange on any of the existing U.S.
leases for the period July 1, 1998 through April 9, 1999.
(3) Siemens will provide EWSD line side software for all features
available up through Release 16 for up to 10,000 subscriber lines
for each of the three existing EWSD systems currently located in
New York, NY; Los Angeles, CA; and Dallas, TX. The license for the
use of such software will be granted at no additional charge. The
terms and conditions of the license will be the same as those for
the existing software on those switches. Any hardware required to
2
<PAGE>
implement the line side software function will be offered to
WorldxChange at Siemens' most preferred customer discounts based on
equivalent volumes.
(4) Siemens will provide Local Number Portability software at no cost
to WorldxChange for all existing U.S. based DCO and EWSD systems on
a network buyout basis.
(5) Siemens will grant a 10% Third Party Vendor ("TPV") allowance for
each new U.S. switch purchase through September 30, 1999. As the
ratio between Siemens and TPV equipment on lease becomes more in
balance, the TPV allowance will be reviewed for possible
modification.
(6) The total principal balance, on which lease payments will resume on
May 1, 1999, shall be limited to an aggregate amount of $6 million.
In return for the above, WorldxChange agrees to:
(7) drop all claims for damages and liabilities, including without
limitation, those for lost revenue, that it has or may have
asserted against Siemens and agrees to accept and execute the
enclosed Release and Covenant Not to Sue;
(8) WorldxChange unconditionally accepts all EWSD switches through
Release 16 as they are designed and functioning as of the date of
this letter (except that the Dallas and Los Angeles EWSD switches
will be so accepted upon completion of installation). Nothing
herein shall limit the responsibility of Siemens (including
3
<PAGE>
but not limited to warranty obligations) with respect to future
releases after Release 16;
(9) WorldxChange agrees that the design and content of any future
releases and their associated features and functions will be under
the sole control of Siemens, however, in this regard, Siemens will,
upon WorldxChange's request, evaluate for potential inclusion in
future releases those features and functions that WorldxChange
deems to be critical to its business;
(10) WorldxChange agrees to treat Siemens as its worldwide preferred
vendor of choice and in this regard agrees to provide Siemens with
a reasonable opportunity to bid on any future purchases by
WorldxChange during the next 24 months of products or services
which WorldxChange is aware that are offered by Siemens or its
affiliates;
(11) WorldxChange agrees to execute and deliver lease restructure
documents for all Canadian leases to incorporate existing payment
arrearages into a revised lease term. Monthly payments for these
leases will resume on May 1, 1999.
(12) All amounts due Siemens for open account purchases (Account No.
66155) will immediately be paid and WorldxChange will resume making
payments for this account based on Net 30 Day terms.
4
<PAGE>
Please indicate your acceptance of the above by signing in the space provided
below one of the two originals of this letter and returning same to the
undersigned along with the executed Release and Covenant Not to Sue.
Sincerely,
/s/ Peter J. Lyons
Peter J. Lyons
President, Broadband Carrier Division
Enclosure
Agreed and Accepted:
WorldxChange Communications
By: /s/ Roger B. Abbott
--------------------------------
Roger B. Abbott
Chief Executive Officer
5
<PAGE>
[WORLDXCHANGE COMMUNICATIONS LETTERHEAD]
April 8, 1999
Peter J. Lyons
Siemens
400 Rinehart Rd.
Lake Mary, FL 32746
Dear Pete:
In reviewing the agreement we have been working on, Roger raised the point
that, while the length of the lease extension is specified for the three (3)
leases on which payment will resume on May 1st, we did not specify the length
of the lease extensions on the remaining U.S. leases and the Canada leases.
Our understanding is that on the Canada leases (on which payments will also
resume on May 1st) and the balance of the U.S. leases (which will resume
monthly payments on December 1, 1999), those leases will be restructured so
that whatever term was remaining when the deferral started on July 1, 1998
will still remain when the monthly payments resume.
Please confirm that Siemens agrees with this understanding by countersigning
this letter at the place indicated below and transmitting it back to me by
facsimile. I've enclosed copies of the letter agreement and release which
Roger has already signed, so that this will be a done deal when I receive
your fax.
Thanks again for your help in working this out. Roger and I look forward to
continuing our long standing relationship with you and Siemens.
Sincerely,
/s/ Eric G. Lipoff
Eric G. Lipoff
Senior Vice President
and General Counsel
enclosure
EGL/sm
The above is agreed and accepted to:
By: /s/ Peter J. Lyons
-----------------------
Date: 4/8/99
-----------------------
<PAGE>
RELEASE AND COVENANT NOT TO SUE
Communication TeleSystems International d/b/a WorldxChange Communications
(WorldxChange), with offices at 9999 Willow Creek Road, San Diego, CA, 92131,
on behalf of itself, its parent corporations and affiliates and their
respective officers, directors and employees (hereinafter referred to as
"WorldxChange"), for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, does hereby release, remise,
acquit, set aside and forever discharge Siemens Information and Communication
Networks, Inc., also known as Telecommunications Finance Group, its parents,
subsidiaries, affiliates, predecessors, successors, assigns, employees,
agents, officers and directors (hereinafter referred to as "Siemens") of and
from all manner of claims, causes of action, suit, debts, controversies,
agreements, promises, damages, liabilities, costs, expenses, compensation,
judgments, executions and demands whatsoever, in law or in equity, in
contract or tort, whether known or unknown, WorldxChange ever had, now has or
hereafter can, shall or may have against Siemens from the beginning of the
world through the date of this Release and Covenant Not to Sue relating to,
concerning or arising out of or connected with, directly or indirectly,
delivery, installation, turnover and operation of any and all EWSD switching
equipment and EWSD computer software and other associated equipment and
computer software through and including Release 16 provided by or through
Siemens to WorldxChange.
WorldxChange expressly agrees and covenants not to jointly or severally bring
any litigation against Siemens for any claims, disputes or causes of action
whatsoever relating to, concerning or arising out of any of the foregoing
business dealings.
It is expressly understood and agreed that this Release and Covenant Not to
Sue is given to compromise doubtful and disputed allegations and claims made
by WorldxChange and that the provision of the aforementioned consideration by
Siemens to WorldxChange does not constitute any admission of legal liability
or responsibility on the part of any person released and that each of the
persons released denies any such legal liability or responsibility.
This Release and Covenant Not to Sue shall be governed and construed
according to the laws of the State of Florida without regard to the
principles governing conflicts of law.
IN WITNESS WHEREOF, WorldxChange has caused this Release and Covenant Not to
Sue to be executed by its duly authorized representative dated this 7th day
of April, 1999.
WorldxChange Communications
By: /s/ Roger B. Abbott
----------------------------
Roger B. Abbott
Chief Executive Officer
6
<PAGE>
REGISTRATION RIGHTS AGREEMENT
"THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") which shall
be effective as of July 29, 1999, is made and entered into by and among
Communication Telesystems International d.b.a. WorldxChange Communications, a
California corporation (the "COMPANY"), Roger B. Abbott and Rosalind Abbott
(the "ABBOTTS").
RECITALS
WHEREAS, in order to provide for a more orderly distribution of the
Company's shares into the public market, the Company has agreed to provide
the registration rights set forth in this Agreement with respect to the
"REGISTRABLE SECURITIES" (as such term is defined in Section 1);
NOW THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties, intending to
be legally bound, hereby agree as follows:
1. DEFINITIONS. FOR PURPOSES OF THIS AGREEMENT:
(a) the term "BONA FIDE PUBLIC OFFERING" means an underwritten
public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended ("1933 ACT") covering
the offer and sale of Common Stock of the Company in which aggregate
proceeds to the Company and the selling shareholders exceed
$25,000,000;
(b) the term "COMMON STOCK" means the Company's authorized
voting common stock, no par value, and any class of securities
issued in exchange for the Common Stock or into which the Common
Stock is converted;
(c) the term "HOLDER" means the Abbotts or any permitted
transferee of Registrable Securities in accordance with Section 10
hereof;
(d) the term "INITIATING HOLDERS" means the Holders of 30% or
more of the Registrable Securities then outstanding;
(e) the term "REGISTRABLE SECURITIES" means: (i) the
14,214,857 shares of Common Stock owned of record as of the date of
this Agreement by the Abbotts, and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in
replacement of such Securities;
(f) the term "REGISTRATION EXPENSES" means all expenses
incurred by the Company in complying with Sections 2 and 3 hereof,
including,
<PAGE>
without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company,
accountants' fees and expenses, and blue sky fees and expenses;
(g) the terms "REGISTER," "REGISTERED" and "REGISTRATION"
refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with 1933
Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the Securities and Exchange
Commission;
(h) the term "SELLING EXPENSES" means all underwriting
discounts and selling commissions applicable to the sale of
Registrable Securities, the fees and disbursements of any counsel
engaged by the Holders and any other expenses incurred by the
Holders in connection with the registration and sale of the
Registrable Securities;
(i) the number of shares of Registrable Securities "THEN
OUTSTANDING" shall be the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock
which upon issuance of then exercisable or convertible securities
will be, Registrable Securities; and
(j) the term "THIRD PARTY HOLDER" means any person other than
a Holder with registration rights with respect to securities of the
Company.
2. DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive, at any time during the
one-year period commencing three years after the date of this
Agreement (and in such additional years as may be required by Section
2(d)), a written request from the Initiating Holders with respect to
the Registrable Securities that the Company file a registration
statement under the 1933 Act covering the registration of
Registrable Securities having an estimated aggregate initial public
offering price of not less than $5,000,000, provided that a Bona
Fide Public Offering has not been commenced by the Company, the
Company shall promptly give written notice of such request to all
Holders and shall use reasonable efforts to effect the registration
under the 1933 Act of all such Registrable Securities which the
Initiating Holders request to be registered, together with all of
the Registrable Securities of any other Holder or Holders who so
request by notice to the Company which is given within 10 days after
receipt of the notice from the Company described above.
Notwithstanding the foregoing, if the Company shall furnish to the
Initiating Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company for a
registration statement to be filed in the near future, then the
Company's obligation to use its reasonable efforts to file a
registration statement shall be deferred for a period not to exceed
90 days (provided, however, that the Company may make only one such
deferral with respect to each demand registration). Securities of
the Company to be sold by the
2
<PAGE>
Company or by a Third Party Holder may be included in such
registration statement, subject to the provisions of Section 2(c)
below.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2 and the Company shall include such information in the written
notice referred to in Section 2(a). In such event, the right of any Holder
to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating
Holders, by the underwriter, by the Company, and by such Holder) to the
extent provided herein.
(c) All Holders and Third Party Holders proposing to
distribute their securities through such underwriting (together with
the Company as provided in Section 4(e)) shall enter into an
underwriting agreement in customary form with the representative of
the underwriter or underwriters selected for such underwriting by
the Company, or if no underwriter is selected by the Company, by a
majority in interest of the Initiating Holders and reasonably
acceptable to the Company. Notwithstanding any other provisions of
this Section 2, if the underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of
shares to be underwritten, the Initiating Holders shall so advise
all Holders of Registrable Securities, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting by the Holders shall be allocated among all Holders
thereof, all Third Party Holders, and the Company, pro rata based on
the number of shares for which registration was requested. No
Registrable Securities excluded from the underwriting by reason of
the marketing limitation shall be included in such registration. If
any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the underwriter and, unless otherwise
provided, the Initiating Holders.
(d) The Company is obligated to effect only one demand
registration for the Holders pursuant to this Section 2; provided,
however, that if any Registrable Securities of a Holder requested to
be registered (regardless of whether a Holder withdraws such
Registrable Securities pursuant to Section 2(c) or Section 6) are
excluded by the underwriter in a demand registration pursuant to
Section 2(c) or in a "piggyback" registration pursuant to Section 6
(which excluded Registrable Securities are referred to herein as the
"EXCLUDED SECURITIES"), then the Company, upon the demand of the
Initiating Holders three or more years after the date of this
Agreement, shall be obligated to effect one additional demand
registration under this Section 2 each year with respect to the
Excluded Securities of such Holder, until such time as (i) such
Holder may freely (except as may be restricted by Rule 144 under the
1933 Act) sell all of the Excluded Securities without registration
under the 1933 Act within the then
3
<PAGE>
following six months and (ii) the Excluded Securities are listed on a
securities exchange or qualified for trading on an over-the-counter system
selected by the Company.
(e) The demand registration rights provided by the Company to
any Holder pursuant to Section 2 of this Agreement shall immediately
terminate upon the closing of a Bona Fide Public Offering by the Company.
(f) A registration requested pursuant to this Section 2 shall
not be deemed to have been effected (a) unless a registration statement
with respect thereto has become effective or (b) if after it has become
effective, the effectiveness of such registration statement is terminated
or suspended by a stop order, injunction or other order of the SEC or
other governmental agency or court, unless such order, injunction or
other order is lifted or stayed within 30 days of the issuance of such
stop order, injunction or other order. The Company shall use its reason-
able best efforts to keep such registration statement effective for up to
60 days after such registration statement has become effective.
3. PIGGY-BACK REGISTRATION RIGHTS. If at any time the Company
proposes to register (including for this purpose a registration effected by
the Company for shareholders other than the Holders) any of its securities
under the 1933 Act in connection with the public offering of such securities
solely for cash (other than a registration form relating to: (a) a
registration of a stock option, stock purchase or compensation or incentive
plan or of stock issued or issuable pursuant to any such plan, or a dividend
investment plan; (b) a registration of securities proposed to be issued in
exchange for securities or assets of, or in connection with a merger or
consolidation with, another corporation; or (c) a registration of securities
proposed to be issued in exchange for other securities of the Company), the
Company shall, each such time, promptly give each Holder written notice of
such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of any Holder given within 30 days
after receipt of such written notice from the Company in accordance with
Section 14, the Company shall (subject to the provisions of Section 6 in the
case of an underwritten offering) cause to be registered under the 1933 Act
all of the Registrable Securities that each such Holder has requested to be
registered; provided, however, in the event and to the extent such a Holder may
freely (except as may be restricted by Rule 144 under the 1933 Act) sell all
of its Registrable Securities without registration under the 1933 Act and the
person acquiring the securities does not acquire "restricted securities"
within the meaning of Rule 144, the Company may elect not to register such
Registrable Securities.
4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such
Registrable
4
<PAGE>
Securities and use its best efforts to cause such registration statement to
become effective;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities
owned by them;
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws
of such jurisdictions as shall be necessary for the distribution of the
securities covered by the registration statement and such jurisdictions as the
Holders participating in the offering shall reasonably request, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction, and further provide that (anything in this
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified
shall require that expenses incurred in connection with the qualification of
the securities in that jurisdiction be borne by selling shareholders, such
expenses shall be payable by the selling Holders pro rata, to the extent
required by such jurisdiction;
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with
commercially reasonable and customary terms generally satisfactory to the
managing underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement; and
(f) Use its reasonable best efforts to cause all such
Registrable Securities to be listed on a securities exchange or to qualify
such Registrable Securities for trading on an over-the-counter system
selected by the Company;
(g) Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement and thereafter maintain such a transfer agent and registrar;
(h) In the event of any underwritten public offering, make
available for inspection, at reasonable times during normal business hours,
by any underwriter participating in such public offering and any attorney,
accountant or other agent retained by such underwriter, such financial and
other records,
5
<PAGE>
pertinent corporate documents and properties of the Company as may be
reasonably requested by such underwriter, and cause the Company's officers,
directors, employees and independent accountants to supply such information
as may be reasonably requested by any such underwriter, attorney, accountant
or agent in connection with such public offering (provided, however, that such
inspection and supplying of records and documents shall be subject to the
execution by each requesting party of a confidentiality and non-disclosure
agreement in a form reasonably acceptable to the Company);
(i) Permit any Holder participating in such registration,
which Holder, in such Holder's reasonable judgement, might be deemed to be an
underwriter or controlling person of the Company, to participate in the
preparation of the registration statement in connection with such
registration and to propose the insertion therein of material which in the
reasonable judgment of such Holder and its counsel should be included;
(j) In connection with underwritten offerings, make available
appropriate management personnel for participation in the preparation and
drafting of such registration or comparable statement, for due diligence
meetings and for "road show" meetings;
(k) In the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification
of any Registrable Securities included in such registration statement for
sale in any jurisdiction, the Company will use its reasonable best efforts
promptly to obtain the withdrawal of such order, provided that in the
Company's opinion, in consultation with its counsel, there is a good faith
argument for the removal of such order;
(l) Obtain a cold comfort letter from the Company's
independent public accountants addressed to the selling Holders of Registrable
Securities in customary form and covering such matters of the type
customarily covered by cold comfort letters as the Holders of a majority of
the Registrable Securities being sold reasonably request; and
(m) Furnish, at the request of Holders of a majority of the
Registrable Securities participating in the registration, to each seller of
Registrable Securities a signed counterpart, addressed to such seller (and
underwriters, if any) of an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing under
the underwriting agreement), reasonably satisfactory in form and substance to
such Holder covering substantially the same matters with respect to such
registration (and the prospectus included therein) as are customarily
covered in opinions of issuer's counsel to underwriters in underwritten
public offerings.
6
<PAGE>
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method
of disposition of such securities as shall be required to effect the
registration of their Registrable Securities. In that connection, each
selling Holder shall be required to represent to the Company that all such
information which is given is both complete and accurate in all material
respects.
6. UNDERWRITING REQUIREMENTS. The right of any Holder to
"piggyback" in an underwritten public offering of the Company's securities
pursuant to Section 3 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and any other holders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for underwriting
by the Company. Notwithstanding any other provision of Section 3 and this
Section 6, if the underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, and (a) if such
registration is the first registered offering of the Company's securities to
the public, the underwriter may exclude some or all of the Registrable
Securities from such registration and underwriting, provided that the Holders
are allowed to participate in the offering in the same proportion (based on
the total number of securities requested to be registered) as any other
shareholder of the Company participating in the offering, and (b) if such
registration is other than the first registered offering of the Company's
securities to the public, the underwriter may exclude some or all Registrable
Securities from such registration and underwriting, provided that all of the
shares requested to be registered by shareholders other than Holders and
Third Party Holders shall first be excluded and thereafter, only to the
extent deemed necessary by the underwriter, shares requested to be registered
by Holders and Third Party Holders shall be reduced pro rata based on the
number of securities respectively requested by them to be registered. Any
reduction in the number of Registrable Securities included in such
registration shall be borne equally by the Holders and any Third Party
Holders as a group pro rata based on the number of shares for which
registration was requested. If any Holder disapproves of the terms of any
such underwriting, it may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
Third Party Holders "piggybacking" on a demand registration demanded by the
Initiating Holders under Section 2 above shall be subject to the same
conditions, requirements and limitations that are applicable to a Holder
under this Section 6 in the event of an underwritten public offering.
7. EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with any registration, qualification or compliance pursuant to
this Agreement shall be borne by the Company, and all Selling Expenses shall
be borne by the Holders of the securities so registered pro rata on the basis
of the number of shares so registered.
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8. DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Agreement.
9. INDEMNIFICATION. If any Registrable Securities are included in
a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors and partners of
each Holder, any underwriter (as defined in the 1933 Act) for such
Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 ACT"), against any losses, claims, damages,
or liabilities (joint or several) to which they or any of them may
become subject under the 1933 Act, the 1934 Act or any other federal or
state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise from or are based upon any of the
following statements, omissions or violations (collectively, a
"VIOLATION"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading; and the
Company will reimburse each such Holder, officer, director or partner,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 9 shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises from or is
based upon a violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with
such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the registration statement, each person, if
any, who controls the Company within the meaning of the 1933 Act, any
underwriter (within the meaning of the 1933 Act) for the Company, any
person who controls such underwriter, any other Holder selling
securities in such registration statement or any of its directors or
officers or any person who controls such Holder against any losses,
claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, or underwriter or
other such Holder or director, officer or controlling person may become
subject, under the 1933 Act, the 1934 Act or any other federal or state
law, insofar as such losses,
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claims, damages, or liabilities (or actions in respect thereto) arise
from or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company
or any such director, officer, controlling person, underwriter or
controlling person, other Holder, officer, director or controlling
person in connection with investigation or defending any such loss,
claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 9 shall not apply to
amounts paid in settlement of any such loss, claim damage, liability or
action if such settlement is effected without the consent of the Holder
which consent shall not be unreasonably withheld.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section
9 is applicable but for any reason is held to be unavailable from the
Company or any Holder, the Company and the Holders participating in the
registration shall contribute to the aggregate losses, claims, damages
and liabilities (including any investigation, legal and other expenses
incurred in connection with, and any amount paid in settlement of, any
action, suit or proceeding or any claims asserted) to which the Company
and the participating Holders may be subject in such proportion so that
the participating Holders are responsible for that portion of the
foregoing amount represented by the ratio of the proceeds received by
the participating Holders in the offering to the total proceeds received
from the offering by the Company and all selling shareholders (other
than participating Holders) and the Company shall be responsible for the
portion represented by the ratio of proceeds received by the Company to
the total proceeds received by the Company to the total proceeds
received by the Company and all selling shareholders (other than
participating Holders); provided, however, that such portions shall be
adjusted as may be just and equitable to take into account the relative
fault of the participating Holders and the Company; provided further,
however, that no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 9(c), each person, if
any, who controls the Company or any Holder within the meaning of the
1933 Act, each officer of the Company who shall have signed the
registration statement and each director of the Company shall have the
same rights to contribution as the Company.
(d) No settlement shall be effected without the prior written
consent of the Holders participating in a registration unless (i) the
obligations of the Company for indemnification or contribution pursuant
to this Agreement survive and are not extinguished by reason of the
settlement and remain in full force and effect under applicable federal
and state laws, rules, regulations and orders or (ii) all claims and
actions against the participating Holders and each person who controls a
participating holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act are extinguished by the settlement and
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the indemnifying party obtains a full release of all claims and actions
against the participating Holders and each such control person, which
release shall be to the reasonable satisfaction of the participating
Holders.
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
9, notify the indemnifying party in writing of the commencement thereof
and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any
such action, to the extent prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 9, but the omission so to notify
the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 9.
(f) The obligations of the Company and the Holders under this
Section 9 shall survive through the completion of any offering of
Registrable Securities in a registration statement made under the terms
of this Agreement.
10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of a Holder
under this Agreement may be assigned by a Holder in connection with a
transfer of Registrable Securities that otherwise is in compliance with
applicable federal and state securities laws and regulations; provided,
however, that: (i) the transferee shall agree in writing to be bound by the
terms of this Agreement, (ii) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee and the securities with respect to which such registration rights
are being assigned, and (iii) no such assignment shall be effective (and the
transferee shall have no rights hereunder) if, immediately following the
transfer, the transferee is free to dispose of all of such securities without
regard to any restrictions imposed under the 1933 Act.
11. SUBSEQUENT REGISTRATION RIGHTS. The Company may grant
registration rights to parties other than the Holders; provided, however,
that in the event the Company shall grant any person registration rights
containing terms more favorable than the terms granted herein, the more
favorable terms shall automatically be deemed granted to the Holders and
incorporated herein by reference. Prior to the date of this Agreement, the
Company has not granted registration rights to any other person that are
still in effect and that are on terms more favorable than the terms granted
herein.
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12. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that
it shall not, to the extent requested by the Company and an underwriter of
Common Stock (or other securities) of the Company, sell or otherwise transfer
or dispose of any Registrable Securities in a market transaction during a
period deemed by the underwriter to be necessary or appropriate following the
effective date of a registration statement of the Company filed under the
1933 Act. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
13. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the Company has obtained the written consent
of Holders of at least a majority of the then outstanding Registrable
Securities. Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof with respect to a matter which relates exclusively
to the rights of Holders of Registrable Securities whose securities are being
sold pursuant to a registration statement and which does not directly or
indirectly affect the rights of other holders of Registrable Securities may
be given by the holders of a majority of the Registrable Securities being
sold; provided, however, that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence.
14. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one business day after being sent,
when sent by professional overnight courier service from and to locations
within the continental United States, or (c) five days after posting when
sent by registered or certified mail (return receipt requested), addressed to
the Company or the Abbotts at their address set forth on the signature pages
hereof. Any party hereto may from time to time by notice in writing served
upon the others as provided herein, designate a different mailing address or
a different person to which such notices or demands are thereafter to be
addressed or delivered.
15. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original
instrument, effective in the same manner as if the parties hereto had
executed one and the same instrument.
16. CAPTIONS. Captions are provided herein for convenience only
and they are not to serve as a basis for interpretation or construction of
this Agreement, nor as evidence of the intention of the parties hereto.
17. CROSS-REFERENCES. All cross-references in this Agreement,
unless specifically directed to another agreement or document, refer to
provisions within this Agreement.
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18. GOVERNING LAW. This Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the internal
laws, and not the laws pertaining to conflicts or choices of laws, of the
State of California applicable to agreements made and to be performed wholly
within the State of California. In the event a judicial or other proceeding
is necessary to resolve any dispute hereunder, the sole forum for resolving
disputes arising under or relating to this Agreement shall be the Municipal
and Superior Courts for the County of San Diego, State of California, or the
federal district court for the district of California associated with such
county and all related appellate courts and the parties hereby consent to the
jurisdiction of such courts, and that venue shall be in such county.
19. SEVERABILITY. The provisions of this Agreement are severable.
The invalidity, in whole or in part, of any provision of this Agreement shall
not affect the validity or enforceability of any other of its provisions. If
one or more provisions hereof shall be declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof.
The parties further agree to replace such void or unenforceable provisions of
this Agreement with valid and enforceable provisions which will achieve, to
the extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
20. ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersedes all prior written and oral agreements, understandings,
commitments and practices between the parties, including all prior agreements
with respect to registration rights.
21. CONSIDERATION FOR APPROVALS OR WAIVERS. No consideration
shall be paid to any Holder to obtain such Holder's approval for or waiver of
any amendment of this Agreement or any matter requiring the approval or
consent of the Holders hereunder unless such consideration is also offered to
all Holders, pro rata based upon the number of Registerable Securities held
by the Holders.
22. REMEDIES. Subject to Section 8 (Delay of Registration), each
Holder of Registrable Securities, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performances of its rights under this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement with the intent and agreement that the same
shall be effective as of the day and year first above written.
THE COMPANY:
Communication Telesystems International
d.b.a. WorldxChange Communications,
a California corporation
By: /s/ Edward S Soren
-----------------------------------
Title: Executive Vice President
--------------------------------
Address: 9999 Willow Creek Road
San Diego, California 92131
Attn: Roger B. Abbott
Fax: (619) 625-0217
ABBOTTS:
/s/ Roger B. Abbott
- ----------------------------------
Roger B. Abbott
/s/ Rosalind Abbott
- ----------------------------------
Rosalind Abbott
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INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement") is made as of
_________________, 1999 by and between Communication TeleSystems
International d.b.a. WORLDxCHANGE Communications, a California corporation
(the "Company"), and __________________________ (the "Indemnitee").
BACKGROUND
The Indemnitee currently is serving as a director and/or officer of
the Company and the Company wishes the Indemnitee to continue in such
capacity. In order to induce the Indemnitee to continue to serve as a
director and/or officer for the Company and in consideration of Indemnitee's
continued service, the Company and the Indemnitee hereby agree as follows:
AGREEMENT
SECTION 1. DEFINITIONS
As used in this Agreement:
(a) A "Change in Control" shall be deemed to have occurred
if (i) during any period of two consecutive years, individuals who at the
beginning of the two year period constitute the Board of Directors of the
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute a
majority of the Board of Directors, or (ii) the shareholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior to such a merger or
consolidation continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 50%
of the total voting power represented by the voting securities of the Company
or the surviving entity outstanding immediately after the merger or
consolidation, or the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company (in one transaction or a series of transactions) of all or
substantially all the Company's assets.
(b) The term "Expenses" includes, without limitation,
attorneys' fees, disbursements and retainers, accounting and witness fees,
travel and deposition costs, expenses of investigations, judicial or
administrative proceedings or appeals, amounts paid in settlement by or on
behalf of Indemnitee, and any expenses of establishing a right to
indemnification, pursuant to this Agreement or otherwise, including
reasonable compensation for time spent by the Indemnitee in connection with
the investigation, defense or appeal of a Proceeding or action for
indemnification for which he is not otherwise compensated by the Company or
any third
<PAGE>
party. The term "Expenses" does not include the amount of judgments, fines,
penalties or ERISA excise taxes actually levied against the Indemnitee.
(c) The term "Proceeding" shall include any threatened,
pending or completed action, suit or proceeding, whether brought by or in the
name of the Company or otherwise and whether of a civil, criminal or
administrative or investigative nature, by reason of the fact that the
Indemnitee is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director, officer, employee or
agent of another enterprise, whether or not he or she is serving in such
capacity at the time any liability or Expense is incurred for which
indemnification or reimbursement is to be provided under this Agreement.
SECTION 2. INDEMNIFICATION
2.1 INDEMNIFICATION IN THIRD PARTY ACTIONS
The Company shall indemnify the Indemnitee in accordance with the
provisions of this subsection 2.1 if the Indemnitee is a party to or
threatened to be made a party to or otherwise involved in any Proceeding
(other than a Proceeding by or in the name of the Company to procure a
judgment in its favor), by reason of the fact that the Indemnitee is or was a
director or officer of the Company, or is or was serving at the request of
the Company as a director, officer, employee or agent of another enterprise
against all Expenses, judgements, fines, penalties and ERISA excise taxes
actually and reasonably incurred by the Indemnitee in connection with the
defense or settlement of the Proceeding, to the fullest extent permitted by
applicable law; provided that any settlement shall be approved in writing by
the Company.
2.2 INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE
COMPANY
The Company shall indemnify the Indemnitee in accordance with the
provisions of this subsection 2.2 if the Indemnitee is a party to or
threatened to be made a party to or otherwise involved in any Proceeding by
or in the name of the Company to procure a judgment in its favor by reason of
the fact that Indemnitee was or is a director or officer of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another enterprise, against all Expenses actually and
reasonably incurred by Indemnitee in connection with the defense or
settlement of the Proceeding, to the fullest extent permitted by applicable
law.
2.3 PARTIAL INDEMNIFICATION
If the Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of, but not
the total amount of, the Expenses, judgments, fines, penalties or ERISA
excise taxes actually and reasonably incurred by him in the investigation,
defense, appeal or settlement of any Proceeding, the Company shall
nevertheless indemnify the Indemnitee for the portion of the Expenses,
judgments, fines, penalties or ERISA excise taxes to which the Indemnitee is
entitled.
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2.4 INDEMNIFICATION HEREUNDER NOT EXCLUSIVE
The indemnification provided by this Agreement shall not be
deemed exclusive of any other rights to which the Indemnitee may be entitled
under the Articles of Incorporation, the Bylaws, any agreement, any vote of
shareholders or disinterested directors, applicable law or otherwise, both as
to action in his official capacity and as to action in another capacity on
behalf of the Company while holding office.
2.5 INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY
Notwithstanding any other provisions of this Agreement, to the
extent that the Indemnitee has been successful in defense of any Proceeding
or in defense of any claim, issue or matter in the Proceeding, on the merits
or otherwise, including the dismissal of a Proceeding without prejudice, the
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith to the fullest extent permitted by applicable law.
SECTION 3. PRESUMPTIONS
3.1 PRESUMPTION REGARDING STANDARD OF CONDUCT
The Indemnitee shall be conclusively presumed to have met the
relevant standards of conduct as defined by applicable law for
indemnification pursuant to this Agreement, unless a determination that the
Indemnitee has not met the relevant standards is made by (i) the shareholders
of the Company by majority vote, or (ii) in a written opinion by independent
legal counsel, selection of whom has been approved by the Indemnitee in
writing.
3.2 DETERMINATION OF RIGHT TO INDEMNIFICATION
If a claim under this Agreement is not paid by the Company within
30 days of receipt of written request from the Indemnitee, the right to
indemnification as provided by this Agreement shall be enforceable by the
Indemnitee in any court of competent jurisdiction. The burden of proving by
clear and convincing evidence that indemnification or advances are not
appropriate shall be on the Company. Neither the failure of the directors or
shareholders of the Company or independent legal counsel to have made a
determination prior to the commencement of the action that indemnification or
advances are proper in the circumstances because the Indemnitee has met the
applicable standard of conduct, nor an actual determination by the directors
or shareholders of the Company or independent legal counsel that the
Indemnitee has not met the applicable standard of conduct, shall be a defense
to the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct.
The Indemnitee's Expenses incurred in connection with any
Proceeding concerning his right to indemnification or advances in whole or in
part pursuant to this Agreement also shall be indemnified by the Company
regardless of the outcome of the Proceeding, unless a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in the Proceeding was not made in good faith or was frivolous.
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SECTION 4. ADVANCES OF EXPENSES
The Expenses incurred by the Indemnitee in any Proceeding shall
be paid promptly by the Company in advance of the final disposition of the
Proceeding at the written request of the Indemnitee to the fullest extent
permitted by applicable law; provided that if applicable law requires an
undertaking, the Indemnitee shall undertake in writing to repay the amount
advanced to the extent that it is ultimately determined that the Indemnitee
is not entitled to indemnification.
SECTION 5. CHANGE IN CONTROL
The Company agrees that if there is a Change in Control of the
Company (other than a Change in Control which has been approved by a majority
of the Company's Board of Directors who were directors immediately prior to
the Change in Control), then with respect to all matters thereafter arising
concerning the rights of Indemnitee to indemnify payments and Expense
advances under this Agreement or any other agreement, the Company's Articles
of Incorporation, or the Company's Bylaws in effect relating to claims for
indemnifiable events, the Company shall seek legal advice only from
independent counsel selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld), and who has not otherwise
performed services for the Company or Indemnitee within the last five years
(other than in connection with such matters) ("Special Independent Counsel").
The Special Independent Counsel, among other things, shall render its written
opinion to the Company and Indemnitee as to whether and to what extent the
Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Special Independent Counsel
and may fully indemnify the Special Independent Counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement.
SECTION 6. INDEMNIFICATION PROCEDURE
6.1 NOTICE
Promptly after receipt by the Indemnitee of notice of the
commencement of any Proceeding, the Indemnitee will, if a claim is to be made
against the Company under this Agreement, notify the Company of the
commencement of the Proceeding. The omission to notify the Company will not
relieve it from any liability which it may have to the Indemnitee otherwise
than under this Agreement.
6.2 COMPANY PARTICIPATION
With respect to any Proceeding for which indemnification is
requested, the Company will be entitled to participate in the Proceeding at
its own expense and, except as otherwise provided below, to the extent that
it may wish, the Company may assume the defense of the Proceeding, with
counsel reasonably satisfactory to the Indemnitee. After notice from the
Company to the Indemnitee of its election to assume the defense of a
Proceeding, during the Company's good faith active defense, the Company will
not be liable to the Indemnitee under this Agreement for any legal or other
expenses subsequently incurred by the Indemnitee in connection with the
defense of the Proceeding, other than reasonable costs of investigation or as
4
<PAGE>
otherwise provided below. The Company shall not settle any Proceeding in any
manner which would impose any penalty or limitation on the Indemnitee without
the Indemnitee's written consent. The Indemnitee shall have the right to
employ his counsel in any Proceeding but the fees and expenses of the counsel
incurred after notice from the Company of its assumption of the defense of
the Proceeding shall be at the expense of the Indemnitee, unless (i) the
employment of counsel by the Indemnitee has been authorized by the Company,
(ii) the Indemnitee shall have reasonably concluded that there may be
conflict of interest between the Company and the Indemnitee in the conduct of
the defense of a Proceeding, or (iii) the Company shall not in fact have
employed counsel to assume the defense of a Proceeding, in each of which
cases the reasonable fees and expenses of the Indemnitee's counsel shall be
at the expense of the Company. The Company shall not be entitled to assume
the defense of any Proceeding brought by or on behalf of the Company or as to
which the Indemnitee has made the conclusion that there may be a conflict of
interest between the Company and the Indemnitee.
SECTION 7. LIMITATIONS ON INDEMNIFICATION
No payments pursuant to this Agreement shall be made by the
Company:
(a) to indemnify or advance Expenses to the Indemnitee with
respect to Proceedings initiated or brought voluntarily by the Indemnitee and
not by way of defense, except with respect to Proceedings brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under applicable law, but the
indemnification or advancement of Expenses may be provided by the Company in
specific cases if the Board of Directors finds it to be appropriate;
(b) to indemnify the Indemnitee for any Expenses, judgements,
fines, penalties or ERISA excise taxes for which payment is actually made to
the Indemnitee under a valid and collectible insurance policy, except in
respect of any excess beyond the amount of payment under the insurance;
(c) to indemnify the Indemnitee for any Expenses, judgements,
fines or penalties sustained in any Proceeding for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934, the rules and regulations promulgated thereunder and amendments thereto
or similar provisions of any federal, state or local statutory law;
(d) to indemnify the Indemnitee for any Expenses, judgements,
fines, penalties or ERISA excise taxes resulting from Indemnitee's conduct
which is finally adjudged to have been willful misconduct, knowingly
fraudulent or deliberately dishonest; or
(e) if a court of competent jurisdiction shall finally determine
that any indemnification hereunder is unlawful.
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SECTION 8. MAINTENANCE OF LIABILITY INSURANCE
8.1 AFFIRMATIVE COVENANT OF THE COMPANY
The Company covenants and agrees that, as long as the Indemnitee
shall continue to serve as a director or officer of the Company and
thereafter so long as the Indemnitee shall be subject to any possible
Proceeding, the Company, subject to subsection 8.3 of this Agreement, shall
promptly obtain and maintain in full force and effect directors' and
officers' liability insurance ("D&O Insurance") in reasonable amounts from
established and reputable insurers.
8.2 INDEMNITEE NAMED AS INSURED
In all D&O Insurance policies, the Indemnitee shall be named as
an insured in a manner that provides the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Company's
directors and officers.
8.3 EXEMPTION FROM MAINTENANCE OF INSURANCE
Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in
its sole discretion that insurance is not reasonably available, the premium
costs are, in its opinion, disproportionate to the amount of coverage
provided, the coverage provided by insurance is so limited by exclusions that
it provides an insufficient benefit, or the Indemnitee is covered by similar
insurance maintained by a subsidiary of the Company.
SECTION 9. MISCELLANEOUS
9.1 SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon, and shall inure to the
benefit of the Indemnitee and his heirs, personal representatives and
assigns, and the Company and its successors and assigns.
9.2 SEVERABILITY
Each provision of this Agreement is a separate and distinct
agreement and independent of the others, so that if any provision of this
Agreement shall be held to be invalid or unenforceable for any reason, the
invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions of this Agreement. To the extent
required, any provision of this Agreement may be modified by a court of
competent jurisdiction to preserve its validity and to provide the Indemnitee
with the broadest possible indemnification permitted under applicable law.
9.3 SAVINGS CLAUSE
If this Agreement or any portion of it is invalidated on any
ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee as to Expenses, judgments, fines, penalties
or ERISA excise taxes with respect to any Proceeding to
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the fullest extent permitted by any applicable portion of this Agreement that
shall not have been invalidated or by any other applicable law.
9.4 INTERPRETATION; GOVERNING LAW
This Agreement shall be construed as a whole and in accordance
with its fair meaning. Headings are for convenience only and shall not be
used in construing meaning. This Agreement shall be governed and interpreted
in accordance with the laws of the State of California, without regard to the
conflicts of laws principles thereof.
9.5 AMENDMENTS
No amendment, waiver, modification, termination or cancellation
of this Agreement shall be effective unless in writing signed by the party
against whom enforcement is sought. The indemnification rights afforded to
the Indemnitee by this Agreement are contract rights and may not be
diminished, eliminated or otherwise affected by amendments to the Company's
Articles of Incorporation, Bylaws or agreements including D&O Insurance
policies.
9.6 COUNTERPARTS
This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each party and
delivered to the other.
9.7 NOTICES
Any notice required to be given under this Agreement shall be
directed to Communication TeleSystems International d.b.a. WORLDXCHANGE
Communications at 1999 Willow Creek Road, San Diego, California 92131,
Attention: Legal Department and to Indemnitee at the address set forth below
or to another address as either shall designate in writing.
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
INDEMNITEE
___________________________________
Name: _____________________________
Address: __________________________
__________________________
__________________________
__________________________
COMMUNICATION TELESYSTEMS INTERNATIONAL
d.b.a. WORLDxCHANGE COMMUNICATIONS,
a California corporation
By: _______________________________
Name: _____________________________
Title: ____________________________
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EXHIBIT A
Each of the following officers and/or directors have entered into
an Indemnification Agreement in substantially the foregoing form:
Walt Anderson
Roger B. Abbott
Christopher Bantoft
Edward S. Soren
Patrick M. Aelvoet
Barbara H. Jamaleddin
Eric G. Lipoff
William Moskowitz
Tom Cirrito
Dann V. Angeloff
Paul Laxalt
-1-
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COMMUNICATION TELESYSTEMS INTERNATIONAL
1999 STOCK OPTION PLAN/STOCK ISSUANCE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
1. THE PLAN........................................................ 1
1.1 Purpose......................................................... 1
1.2 Administration and Authorization; Power and Procedure........... 1
1.3 Participation................................................... 2
1.4 Shares Available for Awards; Share Limits....................... 2
1.5 Grant of Awards................................................. 3
1.6 Award Period.................................................... 3
1.7 Limitations on Exercise and Vesting of Awards................... 4
1.8 Acceptance of Notes to Finance Exercise......................... 4
1.9 No Transferability; Limited Exception to Transfer Restrictions.. 4
2. OPTIONS......................................................... 5
2.1 Grants.......................................................... 5
2.2 Option Price.................................................... 5
2.3 Limitations on Grant and Terms of Incentive Stock Options....... 6
2.4 Option Repricing/Cancellation and Regrant/Waiver of
Restrictions.................................................... 7
2.5 Options and Rights in Substitution for Stock Options Granted by
Other Corporations.............................................. 7
3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED
STOCK APPRECIATION RIGHTS)...................................... 7
3.1 Grants.......................................................... 7
3.2 Exercise of Stock Appreciation Rights........................... 8
3.3 Payment......................................................... 8
3.4 Limited Stock Appreciation Rights............................... 9
4. RESTRICTED STOCK AWARDS......................................... 9
4.1 Grants.......................................................... 9
Restrictions.................................................... 9
Return to the Corporation....................................... 10
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES...................... 10
5.1 Grants of Performance Share Awards.............................. 10
5.2 Special Performance-Based Share Awards.......................... 10
5.3 Grants of Stock Bonuses......................................... 12
5.4 Deferred Payments............................................... 12
5.5 Cash Bonus Awards............................................... 12
6. OTHER PROVISIONS................................................ 12
6.1 Rights of Eligible Persons, Participants and Beneficiaries...... 12
6.2 Effects of Termination of Employment; Discretionary Provisions.. 13
6.3 Adjustments; Acceleration....................................... 14
6.4 Compliance with Laws............................................ 15
6.5 Tax Withholding................................................. 16
6.6 Plan Amendment, Termination and Suspension...................... 17
6.7 Privileges of Stock Ownership................................... 17
6.8 Effective Date of the Plan...................................... 18
6.9 Term of the Plan................................................ 18
6.10 Governing Law/Construction/Severability......................... 18
6.11 Captions........................................................ 18
6.12 Effect of Change of Subsidiary Status........................... 19
6.13 Non-Exclusivity of Plan......................................... 19
6.14 No Restriction on Corporate Powers.............................. 19
6.15 Effect on Other Benefits........................................ 19
7. DEFINITIONS..................................................... 19
</TABLE>
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COMMUNICATION TELESYSTEMS INTERNATIONAL
1999 STOCK OPTION PLAN/STOCK ISSUANCE PLAN
1. THE PLAN.
1.1 PURPOSE. The purpose of this Plan is to promote the success of the
Company and the interests of its shareholders by attracting, motivating,
retaining and rewarding directors, officers, employees and other
eligible persons with awards and incentives for high levels of
individual performance and improved financial performance of the
Company. Capitalized terms used herein are defined in Section 7.
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE.
1.2.1 COMMITTEE. This Plan will be administered by and all Awards will
be authorized by the Committee. Action of the Committee with respect to
the administration of this Plan will be taken pursuant to a majority
vote or by written consent of its members.
1.2.2 PLAN AWARDS; INTERPRETATION; POWERS OF COMMITTEE. Subject to the
express provisions of this Plan and any express limitations on the
delegated authority of a Committee, the Committee will have the
authority to:
(a) determine eligibility and the particular Eligible Persons who
will receive Awards;
(b) grant Awards to Eligible Persons, determine the price at
which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons,
and determine the other specific terms and conditions of
such Awards consistent with the express limits of this Plan,
and establish the installments (if any) in which such Awards
will become exercisable or will vest, or determine that no
delayed exercisability or vesting is required, and establish
the events of termination or reversion of such Awards;
(c) approve the forms of Award Agreements (which need not be
identical either as to type of Award or among Participants);
(d) construe and interpret this Plan and any Award or other
agreements defining the rights and obligations of the Company
and Participants under this Plan, further define the terms
used in this Plan, and prescribe, amend and rescind rules and
regulations relating to the administration of this Plan;
(e) cancel, modify, or waive the Corporation's rights with
respect to, or modify, discontinue, suspend, or terminate any
or all outstanding Awards held by Eligible Persons, subject to
any required consent under Section 6.6;
<PAGE>
(f) accelerate or extend the exercisability or extend the term of
any or all such outstanding Awards within the maximum
ten-year term of Awards under Section 1.6; and
(g) make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable
for the administration of this Plan and the effectuation of
its purposes.
1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating
or pursuant to this Plan will be within the absolute discretion
of that entity or body and will be conclusive and binding upon
all persons. No member of the Board or Committee, or officer of
the Corporation or any Subsidiary, will be liable for any such
action or inaction of the entity or body, of another person or,
except in circumstances involving bad faith, of himself or
herself. Subject only to compliance with the express provisions
hereof, the Board and Committee may act in their absolute
discretion in matters within their authority related to this Plan.
1.2.4 RELIANCE ON EXPERTS. In making any determination or in taking or
not taking any action under this Plan, the Committee or the
Board, as the case may be, may obtain and may rely upon the
advice of experts, including employees of and professional
advisors to the Corporation. No director, officer or agent of the
Company will be liable for any such action or determination taken
or made or omitted in good faith.
1.2.5 BIFURCATION OF PLAN ADMINISTRATION; DELEGATION. Subject to the
limits of Section 7, the Board may delegate different levels of
authority to different Committees with administration and grant
authority under this Plan, provided that each designated
Committee granting any Awards hereunder shall consist exclusively
of a member or members of the Board. A majority of the members of
the acting Committee shall constitute a quorum. The vote of a
majority of a quorum or the unanimous written consent of the
Committee shall constitute action by the Committee. A Committee
may delegate ministerial, non-discretionary functions to
individuals who are officers or employees of the Company.
1.3 PARTICIPATION. Awards may be granted by the Committee only to those
persons that the Committee determines to be Eligible Persons. An Eligible
Person who has been granted an Award may, if otherwise eligible, be
granted additional Awards if the Committee so determines.
1.4 SHARES AVAILABLE FOR AWARDS; SHARE LIMITS.
1.4.1 SHARES AVAILABLE. Subject to the provisions of Section 6.3, the
capital stock that may be delivered under this Plan will be shares
of the Corporation's authorized but unissued Common Stock and any
shares of its Common Stock held as treasury shares. The shares
may be delivered for any lawful consideration.
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1.4.2 SHARE LIMITS. The maximum number of shares of Common Stock that
may be delivered pursuant to Awards granted under this Plan
will not exceed 4,000,000 shares (the "SHARE LIMIT"). The
maximum number of shares subject to those Options and Stock
Appreciation Rights that are granted during any calendar year
to any one individual will be limited to 600,000 and the
maximum individual limit on the number of shares in the
aggregate subject to all Awards that during any calendar year
are granted under this Plan to any one individual will be
600,000. Each of the foregoing numerical limits will be
subject to adjustment as contemplated by this Section 1.4 and
Section 6.3.
1.4.3 SHARE RESERVATION; REPLENISHMENT AND REISSUE OF UNVESTED
AWARDS. No Award may be granted under this Plan unless, on the
date of grant, the sum of (i) the maximum number of shares
issuable at any time pursuant to such Award, plus (ii) the
number of shares that have previously been issued pursuant to
Awards granted under this Plan, other than reacquired shares
available for reissue consistent with any applicable legal
limitations, plus (iii) the maximum number of shares that may
be issued at any time after such date of grant pursuant to
Awards that are outstanding on such date, does not exceed the
Share Limit. Shares that are subject to or underlie Awards
that expire or for any reason are canceled or terminated, are
forfeited, fail to vest, or for any other reason are not paid
or delivered under this Plan, as well as reacquired shares,
will again, except to the extent prohibited by law or the
terms of this Plan, be available for subsequent Awards under
this Plan. Shares of Common Stock issued pursuant to the terms
hereof (including shares of Common Stock offset in
satisfaction of applicable withholding taxes or the exercise
price of an Award) shall reduce on a share-for-share basis the
number of shares of Common Stock remaining available under
this Plan. Except as limited by law, if an Award is or may be
settled only in cash, such Award need not be counted against
any of the limits under this Section 1.4.
1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan, the
Committee will determine the number of shares of Common Stock subject to
each Award, the price (if any) to be paid for the shares or the Award
and, in the case of performance share awards, in addition to matters
addressed in Section 1.2.2, the specific objectives, goals and
performance criteria (such as increase in sales, market value, earnings,
book value over a base period, the years of service before vesting, the
relevant job classification or level of responsibility, or other
factors) that further define the terms of the performance share award.
Each Award will be evidenced by an Award Agreement signed by the
Corporation and, if required by the Committee, by the Participant.
1.6 AWARD PERIOD. Any Option, SAR, warrant or similar right shall expire and
any other Award shall either vest or be forfeited not more than 10 years
after the date of grant; provided, however, that any payment of cash or
delivery of stock pursuant to an Award may be delayed until a future
date if specifically authorized by the Committee in writing; provided
further that each Award will be subject to earlier termination as
provided in or pursuant to Sections 6.2 and 6.3.
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<PAGE>
1.7 LIMITATIONS ON EXERCISE AND VESTING OF AWARDS.
1.7.1 PROVISIONS FOR EXERCISE. Unless the Committee otherwise
expressly provides, no Award will be exercisable or will vest
until at least six months after the initial Award Date, and
once exercisable an Award will remain exercisable until the
expiration or earlier termination of the Award.
1.7.2 PROCEDURE. Any exercisable Award will be deemed to be
exercised when the Corporation recleives written notice of
such exercise from the Participant (on a form and in such
manner as may be required by the Committee), together with any
required payment made in accordance with Section 2.2.2 or the
applicable Award Agreement and any written statement required
pursuant to Section 6.4.
1.7.3 FRACTIONAL SHARES/MINIMUM ISSUE. Fractional share interests
will be disregarded, but may be accumulated. The Committee,
however, may determine in the case of Eligible Persons that
cash, other securities, or other property will be paid or
transferred in lieu of any fractional share interests. No
fewer than [100] shares may be purchased on exelrcise of any
Award at one time unless the number purchased is the total
number at the time available for purchase under the Award.
1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE. The Corporation may, with the
Committee's express approval, accept one or more notes from any eligible
Person in connection with the exercise or receipt of any outstanding
Award, but any such note will be subject to the following terms and
conditions:
1.8.1 PRINCIPAL. The principal of the note will not exceed the
amount required to be paid to the Corporation upon the
exercise or receipt of one or more Awards under this Plan and
the note will be delivered directly to the Corporation in
consideration of such exercise or receipt.
1.8.2 TERM. The initial term of the note will be determined by the
Committee; but the term of the note, including extensions,
will not exceed a period of five years.
1.8.3 RECOURSE; SECURITY. The note will provide for full recourse to
the Participant and will bear interest at a rate determined by
the Committee but not less than the interest rate necessary to
avoid the imputation of interest under the Code. If required
by the Committee or by applicable law, the note will be
secured by a pledge of any shares or rights financed thereby
in compliance with applicable law. The terms, repayment
provisions, and collateral release provisions of the note and
the pledge securing the note will conform with applicable
rules and regulations of the Federal Reserve Board as then in
effect.
1.9 NO TRANSFERABILITY; LIMITED EXCEPTION TO TRANSFER RESTRICTIONS.
1.9.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise expressly
provided in (or pursuant to) this Section 1.9, by applicable
law and by the Award Agreement, as the same may be amended,
(i) all Awards are non-transferable and will not be subject in
any manner to sale, transfer, anticipation, alienation,
assignment,
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pledge, encumbrance or charge; Awards will be exercised only
by the Participant; and (ii) amounts payable or shares
issuable pursuant to an Award will be delivered only to (or
for the account of) the Participant.
1.9.2 EXCEPTIONS. The Committee may permit Awards to be exercised by
and paid only to certain persons or entities related to the
Participant pursuant to such conditions and procedures as the
Committee may establish. Any permitted transfer will be
subject to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made for estate
and/or tax planning purposes and without consideration (other
than nominal consideration). Notwithstanding anything else in
this Section 1.9.2 or in Section 1.9.3 to the contrary,
Incentive Stock Options and Restricted Stock Awards will be
subject to any and all transfer restrictions under the Code
applicable to such awards.
1.9.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise and
transfer restrictions in Section 1.9.1 will not apply to:
(a) transfers to the Corporation,
(b) the designation of a beneficiary to receive benefits if
the Participant dies or, if the Participant has died,
transfers to or exercises by the Participant's
beneficiary, or, in the absence of a validly designated
beneficiary, transfers by will or the laws of descent and
distribution,
(c) transfers pursuant to a QDRO if approved or ratified by
the Committee,
(d) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by
the Participant's legal representative, or
(e) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for
the purpose of (or who otherwise facilitate) the exercise
of Awards consistent with applicable laws and the express
authorization of the Committee.
2. OPTIONS.
2.1 GRANTS. One or more Options may be granted under this Section 2 to any
Eligible Person. Each Option granted will be designated in the
applicable Award Agreement, by the Committee, as either an Incentive
Stock Option, subject to Section 2.3, or a Nonqualified Stock Option.
2.2 OPTION PRICE.
2.2.1 PRICING LIMITS. The purchase price per share of the Common
Stock covered by each Option will be determined by the
Committee at the time of the Award, but in the case of
Incentive Stock Options will not be less than 100% (110% in
the case of a Participant described in Section 2.3.4) of the
Fair Market Value of the
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Common Stock on the date of grant and in all cases will not be
less than the par value thereof.
2.2.2 PAYMENT PROVISIONS. The purchase price of any shares purchased
on exercise of an Option granted under this Section 2 will be
paid in full at the time of each purchase in one or a
combination of the following methods: (i) in cash or by
electronic funds transfer, (ii) by certified cashier's check
payable to the order of the Corporation; (iii) if authorized by
the Committee or specified in the applicable Award Agreement,
by a promissory note of the Participant consistent with the
requirements of Section 1.8; (iv) by notice and third party
payment in such manner as may be authorized by the Committee;
or (v) by the delivery of shares of Common Stock of the
Corporation already owned by the Participant, but the
Committee may in its absolute discretion limit the
Participant's ability to exercise an Award by delivering such
shares, and any shares delivered that were initially acquired
upon exercise of a stock option must have been owned by the
Participant at least six months as of the date of delivery.
Shares of Common Stock used to satisfy the exercise price of
an Option will be valued at their Fair Market Value on the
date of exercise. Without limiting the generality of the
foregoing, the Committee may provide that the Option can be
exercised and payment made by delivering a properly executed
exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Corporation the amount of
sale proceeds necessary to pay the exercise price and, unless
otherwise prohibited by the Committee or applicable law, any
applicable tax withholding under Section 6.5. The Corporation
will not be obligated to deliver certificates for the shares
unless and until it receives full payment of the exercise
price therefor and any related withholding obligations and
other conditions to exercise have been satisfied.
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS.
2.3.1 $100,000 LIMIT. To the extent that the aggregate "FAIR MARKET
VALUE" of stock with respect to which incentive stock options
first become exercisable by a Participant in any calender year
exceeds $100,000, taking into account both Common Stock
subject to Incentive Stock Options under this Plan and stock
subject to incentive stock options under all other plans of
the Company or any parent corporation, such options will be
treated as Nonqualified Stock Options. For this purpose, the
"FAIR MARKET VALUE" of the stock subject to options will be
determined as of the date the options were awarded. In
reducing the number of options treated as incentive stock
options to meet the $100,000 limit, the most recently granted
options will be reduced first. To the extent a reduction of
simultaneously granted options is necessary to meet the
$100,000 limit, the Committee may, in the manner and to the
extent permitted by law, designate which shares of Common
Stock are to be treated as shares acquired pursuant to the
exercise of an Incentive Stock Option.
2.3.2 OPTION PERIOD. Subject to Section 1.6, each Option and all
rights thereunder will expire no later than 10 years after the
Award Date.
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2.3.3 OTHER CODE LIMITS. Incentive Stock Options may only be granted to
Eligible Employees of the Corporation or a Subsidiary that
satisfies the other eligibility requirements of the Code. There
will be imposed in any Award Agreement relating to Incentive Stock
Options such other terms and conditions as from time to time are
required in order that the Option be an "incentive stock option"
as that term is defined in Section 422 of the Code.
2.3.4 LIMITS ON 10% HOLDERS. No Incentive Stock Option may be granted to
any person who, at the time the Option is granted, owns (or is
deemed to own under Section 424(d) of the Code) shares of
outstanding Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation,
unless the exercise price of such Option is at least 110% of the
Fair Market Value of the stock subject to the Option and such
Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.
2.3.5 ISO NOTICE OF SALE REQUIREMENT. Any Participant who exercises an
Incentive Stock Option shall give prompt written notice to the
Corporation of any sale or other transfer of the shares of Common
Stock acquired within one year after the exercise date or two
years after the date of grant.
2.4 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS.
Subject to Section 1.4 and Section 6.6 and the specific limitations on
Awards contained in this Plan, the Committee from time to time may
authorize, generally or in specific cases only, for the benefit of any
Eligible Person any adjustment in the exercise or purchase price, the
vesting schedule, the number of shares subject to, or the restrictions
upon the term of, an Award granted under this Section 2 by cancellation
of an outstanding Award and a subsequent regranting of an Award, by
amendment, by substitution of an outstanding Award, by waiver or by
other legally valid means. Such amendment or other action may result
among other changes in an exercise or purchase price that is higher or
lower than the exercise or purchase price of the original or prior
Award, provide for a greater or lesser number of shares subject to the
Award, or provide for a longer or shorter vesting or exercise period.
2.5 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options and Stock Appreciation Rights may be granted to
Eligible Persons under this Plan in substitution for employee stock
options granted by other entities, in connection with a distribution,
merger or reorganization by or with the granting entity or an affiliated
entity, or the acquisition by the Company, directly or indirectly, of
all or a substantial part of the stock or assets of the employing entity.
3. STOCK APPRECIATION RIGHTS (INCLUDING LIMITED STOCK APPRECIATION RIGHTS).
3.1 GRANTS. The Committee may grant to any Eligible Person Stock
Appreciation Rights either concurrently with the grant of another Award
or in respect of an outstanding Award, in whole or in part, or
independently of any other Award. Any Stock
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Appreciation Right granted in connection with an Incentive Stock Option
will contain such terms as may be required to comply, with the
provisions of Section 422 of the Code and the regulations promulgated
thereunder, unless the holder otherwise agrees.
3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.
3.2.1 EXERCISABILITY. Unless the Award Agreement or the Committee
otherwise provides, a Stock Appreciation Right related to another
Award will be exercisable at such times, and to the extent, that
the related Award will be exercisable.
3.2.2 EFFECT ON AVAILABLE SHARES. To the extent that a Stock
Appreciation Right is exercised, only the actual number of
delivered shares of Common Stock will be charged against the
maximum amount of Common Stock that may be delivered pursuant to
Awards under this Plan. The number of shares subject to the Stock
Appreciation Right and the related Option of the Participant will,
however, be reduced by the number of underlying shares as to which
the exercise related, unless the Award Agreement otherwise
provides.
3.2.3 STAND-ALONE SARS. A Stock Appreciation Right granted independently
of any other Award will be exercisable pursuant to the terms of
the Award Agreement but in no event earlier than six months after
the Award Date, except in the case of death or Total Disability.
3.2.4 PROPORTIONATE REDUCTION. If an SAR extends to less than all the
shares covered by the related Award and if a portion of the
related Awards is thereafter exercised, the number of shares
subject to the unexercised SAR shall be reduced only if and to the
extent that the remaining number of shares covered by such related
Award is less than the remaining number of shares subject to such
SAR.
3.3 PAYMENT.
3.3.1 AMOUNT. Unless the Committee otherwise provides, upon exercise of
a Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant will be
entitled to receive, subject to Section 6.5, payment of an amount
determined by multiplying:
(a) the difference (which shall not be less than zero) obtained
by subtracting the exercise price per share of Common Stock
under the related Award (if applicable) or the initial share
value specified in the Award from the Fair Market Value of a
share of Common Stock on the date of exercise of the Stock
Appreciation Right, by
(b) the number of shares with respect to which the Stock
Appreciation Right has been exercised.
3.3.2 FORM OF PAYMENT. The Committee, in its sole discretion, will
determine the form in which payment will be made of the amount
determined under Section 3.3.1 above, either solely in cash,
solely in shares of Common Stock (valued at Fair
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<PAGE>
Market Value on the date of exercise of the Stock Appreciation
Right), or partly in such shares and partly in cash, but the
Committee will have determined that such exercise and payment are
consistent with applicable law. If the Committee permits the
Participant to elect to receive cash or shares (or a combination
thereof) on such exercise, any such election will be subject to
such conditions as the Committee may impose.
3.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant to any
Eligible Person Stock Appreciation Rights exercisable only upon or in
respect of a change in control or any other specified event ("LIMITED
SARs") and such Limited SARs may relate to or operate in tandem or
combination with, or substitution for, Options, other SARs or other
Awards (or any combination thereof), and may be payable in cash or
shares based on the spread between the base price of the SAR and a
price based upon or equal to the Fair Market Value of the Common Stock
during a specified period or at a specified time within a specified
period before, after or including the date of such event.
4. RESTRICTED STOCK AWARDS.
4.1 GRANTS. The Committee may grant one or more Restricted Stock Awards to
any Eligible Person. Each Restricted Stock Award Agreement will specify
the number of shares of Common Stock to be issued to the Participant,
the date of such issuance, the consideration for such shares (but not
less than the minimum lawful consideration under applicable state law)
to be paid by the Participant, the extent (if any) to which and the
time (if ever) at which the Participant will be entitled to dividends,
voting and other rights in respect of the shares prior to vesting, and
the restrictions (which may be based on performance criteria, passage
of time or other factors or any combination thereof) imposed on such
shares and the conditions of release or lapse of such restrictions.
Such restrictions will not lapse earlier than six months after the
Award Date, except to the extent the Committee may otherwise provide.
Stock certificates evidencing shares of Restricted Stock pending the
lapse of the restrictions ("RESTRICTED SHARES") will bear a legend
making appropriate reference to the restrictions imposed hereunder and
will be held by the Corporation or by a third party designated by the
Committee until the restrictions on such shares have lapsed and the
shares have vested in accordance with the provisions of the Award and
Section 1.7. Upon issuance of the Restricted Stock Award, the
Participant may be required to provide such further assurances and
documents as the Committee may require to enforce the restrictions.
4.2 RESTRICTIONS.
4.2.1 PRE-VESTING RESTRAINTS. Except as provided in Sections 4.1 and
1.9, restricted shares comprising any Restricted Stock Award may
not be sold, assigned, transferred, pledged or otherwise disposed
of or encumbered, either voluntarily or involuntarily, until the
restrictions on such shares have lapsed and the shares have become
vested.
4.2.2 DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in the
applicable Award Agreement, a Participant receiving a Restricted
Stock Award will be
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entitled to cash dividend and voting rights for all shares issued
even though they are not vested, but such rights will terminated
immediately as to any Restricted Shares which cease to be eligible
for vesting.
4.2.3 CASH PAYMENTS. If the Participant has paid or received cash
(including any dividends) in connection with the Restricted Stock
Award, the Award Agreement will specify whether and to what extent
such cash will be returned (with or without an earnings factor)
as to any restricted shares that cease to be eligible for vesting.
4.3 RETURN TO THE CORPORATION. Unless the Committee otherwise expressly
provides, Restricted Shares that remain subject to restrictions at the
time of termination of employment, or are subject to other conditions to
vesting that have not been satisfied by the time specified in the
applicable Award Agreement, will not vest and will be returned to the
Corporation in such manner and on such terms as the Committee provides.
5. PERFORMANCE SHARE AWARDS AND STOCK BONUSES.
5.1 GRANTS OF PERFORMANCE SHARE AWARDS. The Committee may grant Performance
Share Awards to Eligible Employees based upon such factors as the
Committee deems relevant in light of the specific type and terms of the
award. An Award Agreement will specify the maximum number of shares of
Common Stock (if any) subject to the Performance Share Award, the
consideration (but not less than the minimum lawful consideration) to be
paid for any such shares as may be issuable to the Participant, the
duration of the Award and the conditions upon which delivery of any
shares or cash to the Participant will be based. The amount of cash or
shares or other property that may be deliverable pursuant to such Award
will be based upon the degree of attainment over a specified period of
not more than 10 years (a "PERFORMANCE CYCLE") as may be established by
the Committee of such measure(s) of the performance of the company (or
any part thereof) or the Participant as may be established by the
Committee. The Committee may provide for full or partial credit, prior
to completion of such performance cycle or their attainment of the
performance achievement specified in the Award, in the event of the
Participant's death, Retirement, or Total Disability, a Change in
Control Event or in such other circumstances as the Committee
(consistent with Section 6.10.3(b), if applicable) may determined.
5.2 SPECIAL PERFORMANCE-BASED SHARE AWARDS. Options or SAR's granted with an
exercise price not less than Fair Market Value at the applicable date of
grant for Section 162(m) purposes to Eligible Employees which otherwise
satisfy the conditions to deductibility under Section 162(m) are deemed
"Qualifying Awards". Without limiting the generality of the foregoing,
and in addition to Qualifying Awards granted under other provisions of
this Plan, other performance-based awards within the meaning of Section
162(m) ("PERFORMANCE-BASED AWARDS"), whether in the form of restricted
stock, performance stock, phantom stock or other rights, the vesting of
which depends on the performance of the Company on a consolidated,
segment, subsidiary, or division basis, with reference to revenue
growth, net earnings (before or after taxes or before or after taxes,
interest, depreciation, and/or amortization), cash flow, return on
equity or on assets or on net
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investment, stock appreciation, total shareholder return, or cost
containment or reduction, or any combination thereof (the "BUSINESS
CRITERIA") relative to preestablished performance goals, may be granted
under this Plan. To the extent so defined, these terms are used as
applied under generally accepted accounting principles and in the
Company's financial reporting. The applicable business criterion or
criteria and the specific performance goals must be approved by the
Committee in advance of applicable deadlines under the Code and while
the performance relating to such goals remains substantially uncertain.
The applicable performance measurement period may not be less than one
(except as provided in Section 1.6) not more than 10 years. Other types
of performance and non-performance awards may also be granted under the
other provisions of this Plan. The following provisions related to all
Performance-Based Awards (other than Qualifying Awards) granted under
this Plan:
5.2.1 ELIGIBLE CLASS. The eligible class of persons for Awards under
this Section 5.2 is executive officers of the Corporation.
5.2.2 MAXIMUM AWARD. Subject to Section 1.4.2, in no event will grants
in any calendar year to any one individual under this Section 5.2
relate to more than 600,000 shares or, (if payable solely in
cash) a cash amount of more than $1,000,000.
5.2.3 COMMITTEE CERTIFICATION. To the extent required by Section
162(m), before any Performance-Based Award under this Section 5.2
is paid, the Committee must certify that the material terms of
the Performance-Based Award were satisfied.
5.2.4 TERMS AND CONDITIONS OF AWARDS. The Committee will have
discretion to determine the restrictions or other limitations of
the individual Awards under this Section 5.2 (including the
authority to reduce Awards, payouts or vesting or to pay no
Awards, in its sole discretion, if the Committee preserves such
authority at the time of grant by language to this effect in its
authorizing resolutions or otherwise).
5.2.5 STOCK PAYOUT FEATURES. In lieu of cash payment of an Award, the
Committee may require or allow all or a portion of the Award to
be paid in the form of stock, Restricted Shares, an Option, or
another Award.
5.2.6 ADJUSTMENTS FOR MATERIAL CHANGES. Performance goals or other
features of an Award under this Section 5.2 may provide that they
(i) shall be adjusted to reflect a change in corporate
capitalization, a corporate transaction (such as a
reorganization, combination, separation, or merger) or a complete
or partial corporate liquidation, or (ii) shall be calculated
either without regard for or to reflect any change in accounting
policies or practices affecting the Company and/or the business
criteria or performance goals or targets, or (iii) shall be
adjusted for any other circumstance or event, or (iv) any
combination of (i) through (iii), but only the to extent in each
case that such adjustment or determination in respect of
Performance-Based Awards would be consistent with
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the requirements of Section 162(m) to qualify as
performance-based compensation.
5.3 GRANTS OF STOCK BONUSES. The Committee may grant a Stock Bonus to any
Eligible Person to reward exceptional or special services, contributions
or achievements in the manner and on such terms and conditions
(including any restrictions on such shares) as determined from time to
time by the Committee. The number of shares so awarded will be
determined by the Committee. The Award may be granted independently or
in lieu of a cash bonus.
5.4 DEFERRED PAYMENTS. The Committee may authorize for the benefit of any
Eligible Person the deferral of any payment of cash or shares that may
become due or of cash otherwise payable under this Plan, and provide for
accredited benefits thereon based upon such deferment, at the election
or at the request of such Participant, subject to the other terms of
this Plan. Such deferral will be subject to such further conditions,
restrictions or requirements as the Committee may impose, subject to any
then vested rights of Participants.
5.5 CASH BONUS AWARDS.
5.5.1 PERFORMANCE GOALS. The Committee may establish a program of
annual incentive awards that are payable in cash to Eligible
Persons based upon the extent to which performance goals are met
during the performance period. The performance goals may depend
upon the performance of the Company on a consolidated, subsidiary
division basis with reference to any one or combination of the
business criteria (as such term is used in Section 5.2). In
addition, the award may depend upon the Eligible Person's
individual performance.
5.5.2 PAYMENT IN RESTRICTED STOCK. In lieu of cash payment of an
Award, the Committee may require or allow all or a portion of the
Award to be paid in the form of stock, Restricted Stock, an
Option or other Award.
6. OTHER PROVISIONS.
6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.
6.1.1 EMPLOYMENT STATUS. Status as an Eligible Person will not be
construed as a commitment that any Award will be granted under
this Plan to an Eligible Person or to Eligible Persons generally.
6.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or in
any other documents related to this Plan or to any Award) will
confer upon any Eligible Person or other Participant any right to
continue in the employ or other service of the Company or
constitute any contract or agreement of employment or other
service, nor will interfere in any way with the right of the
Company to otherwise change such person's compensation or other
benefits or to terminate the employment of such person, with or
without cause, but nothing contained in this
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Plan or any related document will adversely affect any
independent contractual right of such person without the person's
consent.
6.1.3 PLAN NOT FUNDED. Awards payable under this Plan will be payable
in shares or from the general assets of the Corporation, and
(except as provided in Section 1.4.3) no special or separate
reserve, fund or deposit will be made to assure payment of such
Awards. No Participant, Beneficiary or other person will have any
right, title or interest in any fund or in any specific asset
(including shares of Common Stock, except as expressly otherwise
provided) of the Company by reason of any Award hereunder.
Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor any
action taken pursuant to the provisions of this Plan will create,
or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and any Participant, Beneficiary
or other person. To the extent that a Participant, Beneficiary or
other person acquires a right to receive payment pursuant to any
Award hereunder, such right will be no greater than the right of
any unsecured general creditor of the Company.
6.1.4 CHARTER DOCUMENTS. The Articles of Incorporation and By-Laws of
the Corporation, as either of them may be amended from time to
time, may provide for additional restrictions and limitations
with respect to the Common Stock (including additional
restrictions and limitations on the transfer of shares). To the
extent that these restrictions and limitations are greater than
those set forth in this Plan or any Award Agreement, such
restrictions and limitations shall apply to any shares of Common
Stock acquired pursuant to the exercise of Awards and are
incorporated herein by reference.
6.2 EFFECTS OF TERMINATION OF EMPLOYMENT; DISCRETIONARY PROVISIONS.
6.2.1 TERMINATION OF EMPLOYMENT OR SERVICES. The Committee shall
establish in respect of each Award the Participant's rights and
benefits (if any) to the Award, which shall be set forth in the
related Award Agreement, should the Participant's employment by
or services to the Company terminate and in so doing may make
distinctions based upon the cause of termination, the nature of
the Award, or otherwise.
6.2.2 COMMITTEE DISCRETION. Notwithstanding Section 6.2.1, in the
event of, or in anticipation of, a termination of employment with
the Company for any reason, other than discharge for cause, the
Committee may increase the portion of the Participant's Award
available to the Participant, or Participant's Beneficiary or
Personal Representative, as the case may be, or, subject to the
provisions of Section 1.6, extend the exercisability period upon
such terms as the Committee determines and expressly sets forth
in or by amendment to the Award Agreement.
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6.3 ADJUSTMENTS; ACCELERATION
6.3.1 ADJUSTMENTS. The following provisions will apply if any
extraordinary dividend or other extraordinary distribution occurs
in respect of the Common Stock (whether in the form of cash,
Common Stock, other securities, or other property), or any
reclassification, recapitalization, stock split (including a
stock split in the form of a stock dividend), reverse stock
split, reorganization, merger, combination, consolidation,
split-up, spin-off, combination, repurchase, or exchange of
Common Stock or other securities of the Corporation, or any
similar, unusual or extraordinary corporate transaction (or event
in respect of the Common Stock) or a sale of substantially all
the assets of the Corporation as an entirety occurs. The
Committee will, in such manner and to such extent (if any) as it
deems appropriate and equitable.
(a) proportionately adjust any or all of (i) the number and type
of shares of Common Stock (or other securities) that
thereafter may be made the subject of Awards (including the
specific maxima and numbers of shares set forth elsewhere in
this Plan), (ii) the number, amount and type of shares of
Common Stock (or other securities or property) subject to
any or all outstanding Awards, (iii) the grant, purchase, or
exercise price of any or all outstanding Awards, (iv) the
securities, cash or other property deliverable upon exercise
of any outstanding Awards, or (v) the performance standards
appropriate to any outstanding Awards, or
(b) in the case of an extraordinary dividend or other
distribution, recapitalization, reclassification, merger,
reorganization, consolidation, combination, sale of assets,
split up, exchange, or spin off, make provision for a cash
payment or for the substitution or exchange of any or all
outstanding Awards or the cash, securities or property
deliverable to the holder of any or all outstanding Awards
based upon the distribution or consideration payable to
holders of the Common Stock upon or in respect of such event.
In each case, with respect to Incentive Stock Options, no such
adjustment will be made that would cause this Plan to violate
Section 422 or 424(a) of the Code or any successor provisions
without the written consent of the holders materially adversely
affected thereby. In any of such events, the Committee may take
such action sufficiently prior to such event if necessary to
permit the Participant to realize the benefits intended to be
conveyed with respect to the underlying shares in the same manner
as is available to shareholders generally.
6.3.2 POSSIBLE ACCELERATION OF AWARDS UPON CHANGE IN CONTROL. Upon
the occurrence of a Change in Control Event, the Committee
may provide that:
(a) each Option and Stock Appreciation Right will become
immediately vested and exercisable;
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(b) Restricted Stock will immediately vest free of restrictions;
and
(c) each Performance Share Award become payable to the
Participant;
subject, in each case, to the Committee's authority to provide
that certain Awards will not accelerate or determine that only
certain or limited benefits under any or all Awards will be
accelerated and the extent to which they will be accelerated,
and/or establish a different time in respect of such Change in
Control Event for such acceleration.
Notwithstanding the foregoing, the Committee may expressly
provide for the accelerated vesting and/or payment of an Award in
the applicable Award Agreement and may accord any Eligible Person
a right to refuse any acceleration, whether pursuant to the Award
Agreement or otherwise, in such circumstances as the Committee
may approve. Any acceleration of Awards will comply with
applicable legal requirements.
6.3.3 POSSIBLE EARLY TERMINATION OF AWARDS. In the event of (i) a
dissolution of the Corporation, or (ii) an event described in
Section 6.3.1 that the Corporation does not survive, or (iii) the
consummation of an event described in Section 6.3.1 involving a
Change in Control Event approved by the Board, each Option or
other right (whether or not vested and/or exercisable at that
time, but only to the extent not previously exercised) will
terminate; subject to any provision that has been expressly made
by the Committee through a plan of reorganization approved by the
Board or otherwise for the survival, substitution, assumption,
exchange or other settlement of such Option or right.
6.4 COMPLIANCE WITH LAWS.
6.4.1 GENERAL. This Plan, the granting and vesting of Awards under
this Plan and the offer, issuance and delivery of shares of
Common Stock and/or the payment of money under this Plan or under
Awards granted hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations
(including but not limited to state and federal securities law,
and federal margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the
opinion of counsel for the Corporation, be necessary or advisable
in connection therewith. Any securities delivered under this Plan
will be subject to such restrictions, and to any restrictions the
Committee may require to preserve a pooling of interests under
generally accepted accounting principles, and the person
acquiring such securities will, if requested by the Corporation,
provide such assurances and representatives to the Corporation as
the Corporation may deem necessary or desirable to assure
compliance with all applicable legal requirements.
6.4.2 COMPLIANCE WITH SECURITIES LAWS. No Participant shall sell,
pledge or otherwise transfer shares of Common Stock acquired
pursuant to an Award or any interest in such shares except in
accordance with the express terms of this Plan and the
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applicable Award Agreement. Any attempted transfer in violation
of this Section 6.4 shall be void and of no effect. Without in
any way limiting the provisions set forth above, no Participant
shall make any disposition of all or any portion of shares
acquired pursuant to an Award, except in compliance with all
applicable federal and state securities laws and unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration
statement; or
(b) such disposition is made in accordance with Rule 144 under
the Securities Act; or
(c) such Participant notifies the Corporation of the proposed
disposition and furnishes the Corporation with a statement
of the circumstances surrounding the proposed disposition,
and, if requested by the Corporation, such Participant
furnishes the Corporation with an opinion of counsel
acceptable to the Corporation's counsel, that such
disposition will not require registration under the
Securities Act and will be in compliance with all applicable
state securities laws.
Notwithstanding anything else herein to the contrary, the Company
has no obligation to register the Common Stock or file any
registration statement under either federal or state securities
laws.
6.5 TAX WITHHOLDING.
6.5.1 PROVISION FOR TAX WITHHOLDING OFFSET. Upon any exercise,
vesting, or payment of any Award or upon the disposition of
shares of Common Stock acquired pursuant to the exercise of an
Incentive Stock Option prior to satisfaction of the holding
period requirements of Section 422 of the Code, the Company shall
have the right at its option to (i) require the Participant (or
Personal Representative or Beneficiary, as the case may be) to
pay or provide for payment of the amount of any taxes which the
Company may be required to withhold with respect to such Award
event or payment, or (ii) deduct from any amount payable in cash
the amount of any taxes which the Company may be required to
withhold with respect to such cash payment. In any case where a
tax is required to be withheld in connection with the delivery of
shares of Common Stock under this Plan, the Committee may in its
sole discretion (subject to Section 6.4) grant (either at the
time of the Award or thereafter) to the Participant the right to
elect, pursuant to such rules and subject to such conditions as
the Committee may establish, to have the Corporation reduce the
number of shares to be delivered by (or otherwise reacquire) the
appropriate number of shares valued at their then Fair Market
Value, to satisfy such withholding obligation. In no event will
the value of shares withheld by the Corporation exceed the
minimum amount of required withholding under applicable law.
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6.5.2 TAX LOANS. If so provided in the Award Agreement, the Company
may, to the extent permitted by law, authorize a loan to an
Eligible Person in the amount of any taxes that the Company may
be required to withhold with respect to shares of Common Stock
received (or disposed of, as the case may be) pursuant to a
transaction described in Section 6.6.1. Such a loan will be for a
term, at a rate of interest and pursuant to such other terms and
conditions as the Company, under applicable law, may establish
and such loan need not comply with the provisions of Section 1.8.
6.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION.
6.6.1 BOARD AUTHORIZATION. The Board may, at any time, terminate or,
from time to time, amend, modify or suspend this Plan, in whole
or in part. No Awards may be granted during any suspension of
this Plan or after termination of this Plan, but the Committee
will retain jurisdiction as to Awards then outstanding in
accordance with the terms of this Plan.
6.6.2 SHAREHOLDER APPROVAL. To the extent then required under Sections
422 and 424 of the Code or any other applicable law, or deemed
necessary or advisable by the Board, any amendment to this Plan
shall be subject to shareholder approval.
6.6.3 AMENDMENTS TO AWARDS. Without limiting any other express
authority of the Committee under but subject to the express
limits of this Plan, the Committee by agreement or resolution may
waive conditions of or limitations on Awards to Eligible Persons
that the Committee in the prior exercise of its discretion has
imposed, without the consent of a Participant, and may make other
changes to the terms and conditions of Awards that do not affect
in any manner materially adverse to the Participant, the
Participant's rights and benefits under an Award; provided that
changes contemplated by Section 6.3 will not be deemed to
constitute changes or amendments for purposes of this Section 6.6.
6.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No amendment,
suspension or termination of this Plan or change of or affecting
any outstanding Award will, without written consent of the
Participant, affect in any manner materially adverse to the
Participant any rights or benefits of the Participant or
obligations of the Corporation under any Award granted under this
Plan prior to the effective date of such change. Changes
contemplated by Section 6.3 will not be deemed to constitute
changes or amendments for purposes of this Section 6.6.
6.7 PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise expressly authorized
by the Committee or this Plan, a Participant will not be entitled to any
privilege of stock ownership as to any shares of Common Stock not
actually delivered to and held of record by the Participant. No
adjustment will be made for dividends or other rights as a shareholder
for which a record date is prior to such date of delivery.
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6.8 EFFECTIVE DATE OF THE PLAN. This Plan is effective upon its approval by
the Board (the "EFFECTIVE DATE"), subject to approval by the
shareholders of the Corporation within twelve months after the date of
such Board approval.
6.9 TERM OF THE PLAN. Unless earlier terminated by the Board, this Plan will
terminate at the close of business on the day before the tenth
anniversary of the Effective Date (the "TERMINATION DATE") and no Awards
may be granted under this Plan after that date. Unless otherwise
expressly provided in this Plan or in an applicable Award Agreement, any
Award granted prior to the Termination Date may extend beyond such date,
and all authority of the Committee with respect to Awards hereunder,
including the authority to amend an Award, will continue during any
suspension of this Plan and in respect of Awards outstanding on the
Termination Date.
6.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.
6.10.1 CHOICE OF LAW. This Plan, the Awards, all documents evidencing
Awards and all other related documents will be governed by, and
construed in accordance with, the laws of the state of
California.
6.10.2 SEVERABILITY. If a court of competent jurisdiction holds any
provision invalid and unenforceable, the remaining provisions of
this Plan will continue in effect.
6.10.3 PLAN CONSTRUCTION.
(a) RULE 16b-3. It is the intent of the Corporation that
transactions involving the Awards under this Plan, in the
ease of Participants who are or may be subject to Section 16
of the Exchange Act, satisfy to the extent feasible the
requirements for applicable exemptions under Rule 16 so that
such persons (unless they otherwise agree) will be entitled
to the benefits of Rule 16b-3 or other exemptive rules under
Section 16 of the Exchange Act in respect of those
transactions and will not be subjected to avoidable liability
thereunder.
(b) SECTION 162(m). It is the further intent of the Company that
Options or SARs with an exercise or base price not less than
Fair Market Value on the date of grant and Performance-Based
Awards under Section 5.2 of this Plan that are granted to or
held by a person subject to Section 162(m) will qualify as
performance-based compensation under Section 162(m) to the
extent that the Committee authorizing the Award (or the
payment thereof, as the case may be) satisfies the
administrative requirements thereof. This Plan shall be
interpreted consistent with such intent.
6.11 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate
reference. Such headings will not be deemed in any way material or
relevant to the construction or interpretation of this Plan or any
provision thereof.
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6.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS. For purposes of this Plan and any
Award hereunder, if an entity ceases to be a Subsidiary, a termination
of employment and service will be deemed to have occurred with respect
to each Eligible Person in respect of such Subsidiary who does not
continue as an Eligible Person in respect of another entity within the
Company.
6.13 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan will limit or be deemed to
limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to the
Common Stock, under any other plan or authority.
6.14 NO RESTRICTION ON CORPORATE POWERS. The existence of the Plan and the
Awards granted hereunder shall not affect or restrict in any way the
right or power of the Board or the shareholders of the Corporation to
make or authorize any adjustment, recapitalization, reorganization or
other change in the Corporation's capital structure or its business, any
merger or consolidation of the Corporation, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting
the Corporation's capital stock or the rights thereof, the dissolution
or liquidation of the Corporation or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding.
6.15 EFFECT ON OTHER BENEFITS. Payments and other benefits received by a
Participant under an Award made pursuant to this Plan shall not be
deemed a part of a Participant's regular, recurring compensation for
purposes of the termination, indemnity or severance pay law of any
country or state and shall not be included in, nor have any effect on,
the determination of benefits under any other employee benefit plan or
similar arrangement provided by the Corporation or a Subsidiary unless
expressly so provided by such other plan or arrangements. Awards under
this Plan may be made in combination with or in tandem with, or as
alternatives to, grants, awards or payments under any other Corporation
or Subsidiary plan.
7. DEFINITIONS.
"AWARD" means an award of any Option, Stock Appreciation Right, Restricted
Stock, Stock Bonus, performance share award, dividend equivalent or deferred
payment right or other right or security that would constitute a "derivative
security" under Rule 16a-1(c) of the Exchange Act, or any combination
thereof, whether alternative or cumulative, authorized by and granted under
this Plan.
"AWARD AGREEMENT" means any writing setting forth the terms of an Award that
has been authorized by the Committee.
"AWARD DATE" means the date upon which the Committee took the action granting
an Award or such later date as the Committee designates as the Award Date at
the time of the Award.
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"BENEFICIARY" means the person, persons, trust or trusts designated by a
Participant, or, in the absence of a designation, entitled by will or the
laws of descent and distribution, to receive the benefits specified in the
Award Agreement and under this Plan if the Participant dies, and means the
Participant's executor or administrator if no other Beneficiary is designated
and able to act under the circumstances.
"BOARD" means the Board of Directors of the Corporation.
"CHANGE IN CONTROL EVENT" means any of the following:
(a) Approval by the shareholders of the Corporation of the dissolution
or liquidation of the Corporation;
(b) Approval by the shareholders of the Corporation of an agreement to
merge or consolidate, or otherwise reorganize, with or into one or more
entities that are not Subsidiaries or other affiliates, as a result of
which less than 50% of the outstanding voting securities of the
surviving or resulting entity immediately after the reorganization are,
or will be, owned, directly or indirectly, by shareholders of the
Corporation immediately before such reorganization (assuming for
purposes of such determination that there is no change in the record
ownership of the Corporation's securities from the record date for such
approval until such approval until such reorganization and that such
record owners hold no securities of the other parties to such
reorganization), but including in such determination any securities of
the other parties to such reorganization held by affiliates of the
Corporation);
(c) Approval by the shareholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to a
person or entity that is not a Subsidiary or other affiliate; or
(d) Any "PERSON" (as such term is used in Sections (13(d) and 14(d) of
the Exchange Act but excluding any person described in and satisfying
the conditions of Rule 13d-1(b)(1) thereunder), other than a Current
Affiliate, becomes the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Corporation representing more than 50% of the combined voting power of
the Corporation's then outstanding securities entitled to then vote
generally in the election of directors of the Corporation; provided,
however, that a Change in Control Event will not be deemed to have
occurred if a Current Affiliate transfers to an organization described
under Section 501 of the Code beneficial ownership of more than 50% of
the combined voting power of the Corporation's then outstanding
securities entitled to then vote generally in the election of directors
of the Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time.
"COMMISSION" means the Securities and Exchange Commission.
"COMMITTEE" means the Board or any one or more committees of director(s)
appointed by the Board to administer this Plan with respect to the Awards
within the scope of authority delegated by the Board. At least one committee
will be comprised only of two or more directors, each of
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whom, in respect of any decision involving both (i) a Participant affected by
the decision who is or may be subject to Section 162(m), and (ii)
compensation intended as performance-based compensation within the meaning of
Section 162(m), will be Disinterested; in acting on any transaction with or
for the benefit of a Section 16 Person, the participating members of such
Committee also shall be Non-Employee Directors within the meaning of Rule
16b-3.
"COMMON STOCK" means the Common Stock of the Corporation and such other
securities or property as may become the subject of Awards, or become subject
to Awards, pursuant to an adjustment made under Section 6.3 of this Plan.
"COMPANY" means, collectively, the Corporation and its Subsidiaries.
"CORPORATION" means Communication TeleSystems International, a California
corporation, and its successors.
"CURRENT AFFILIATE" means Roger B. Abbott, Rosalind M. Abbott, Gold & Appel
Transfer S.A., Walt Anderson, Atocha, L.P., Tom Cirrito, and/or Edward S.
Soren, or any of their affiliates (within the meaning of the Exchange Act),
successors, heirs, descendants or members of their immediate family.
"DISINTERESTED" means a director who is an "outside director" within the
meaning of Section 162(m) and any applicable legal or regulatory requirements.
"ELIGIBLE EMPLOYEE" means an officer (whether or not a director) or employee
of the Company.
"ELIGIBLE PERSON" means an Eligible Employee, or any Other Eligible Person,
as determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time.
"FAIR MARKET VALUE" on any date means (a) if the stock is listed or admitted
to trade on a national securities exchange, the closing price of the stock on
the Composite Tape, as published in the Western Edition of THe Wall Street
Journal, of the principal national securities exchange on which the stock is
so listed or admitted to trade, on such date, or, if there is no trading of
the stock on such date, then the closing price of the stock as quoted on such
Composite Tape on the next preceding date on which there was trading in such
shares; (b) if the stock is not listed or admitted to trade on a national
securities exchange, the last/closing price for the stock on such date, as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar organization
if the NASD is no longer reporting such information; (c) if the stock is not
listed or admitted to trade on a national securities exchange and is not
reported on the National Market Reporting System, the mean between the bid
and asked price for the stock on such date, as furnished by the NASD or a
similar organization; or (d) if the stock is not listed or admitted to trade
on a national securities exchange, is not reported on the National Market
Reporting System and if bid and asked prices for the stock are not furnished
by the NASD or a similar organization, the value as established by the
Committee at such time for purposes of this Plan.
21
<PAGE>
"INCENTIVE STOCK OPTION" means an Option that is designated and intended as
an incentive stock option within the meaning of Section 422 of the Code, the
award of that contains such provisions (including but not limited to the
receipt of shareholder approval of this Plan, if the award is made prior to
such approval) and is made under such circumstances and to such persons as
may be necessary to comply with that section.
"NONQUALIFIED STOCK OPTION" means an Option that is designated as a
Nonqualified Stock Option and will include any Option intended as an
Incentive Stock Option that fails to meet the applicable legal requirements
thereof. Any Option granted hereunder that is not designated as an incentive
stock option will be deemed to be designated a nonqualified stock option
under this Plan and not an incentive stock option under the Code.
"NON-EMPLOYEE DIRECTOR" means a member of the Board of Directors of the
Corporation who is not an officer or employee of the Company.
"OPTION" means an option to purchase Common Stock granted under this Plan.
The Committee will designate any Option granted to an Eligible Person as a
Nonqualified Stock Option or an Incentive Stock Option.
"OTHER ELIGIBLE PERSON" means (i) any individual consultant or advisor or
agent who renders or has rendered BONA FIDE services (other than services in
connection with the offering or sale of securities of the Company in a
capital raising transaction) to the Company, and who (to the extent provided
in the next sentence) is selected to participate in this Plan by the
Committee; or (ii) any director of the Corporation. A person who is neither
an employee, officer, nor director who provides BONA FIDE services to the
Company may be selected as an Other Eligible Person only if such person's
participation in this Plan would not adversely affect (a) the Corporation's
eligibility to use Form S-8 to register under the Securities Act, the
offering of shares issuable under this Plan by the Company, or (b) the
Corporation's compliance with any other applicable laws.
"PARTICIPANT" means an Eligible Person who has been granted an Award under
this Plan.
"PERFORMANCE SHARE AWARD" means an Award of a right to receive shares of
Common Stock under Section 5.1, or to receive shares of Common Stock or other
compensation (including cash) under Section 5.2, the issuance or payment of
which is contingent upon, among other conditions, the attainment of
performance objectives specified by the Committee.
"PERSONAL REPRESENTATIVE" means the person or persons who, upon the
disability or incompetence of a Participant, has acquired on behalf of the
Participant, by legal proceeding or otherwise, the power to exercise the
rights or receive benefits under this Plan by virtue of having become the
legal representative of the Participant.
"PLAN" means this Communication TeleSystems International 1999 Stock Option
Plan/Stock Issuance Plan, as it may hereafter be amended from time to time.
"QDRO" means a qualified domestic relations order as defined in Section
414(p) of the Code or Title I, Section 206(d)(3) of the Employee Retirement
Income Security Act of 1974, as amended )to the same extent as if this Plan
were subject thereto), or the applicable rules thereunder.
22
<PAGE>
"RESTRICTED SHARES" or "RESTRICTED STOCK" means shares of Common Stock
awarded to a Participant under this Plan, subject to payment of such
consideration, if any, and such conditions on vesting (which may include,
among others, the passage of time, specified performance objectives or other
factors) and such transfer and other restrictions as are established in or
pursuant to this Plan and the related Award Agreement, for so long as such
shares remain unvested under the terms of the applicable Award Agreement.
"RULE 16b-3" means Rule 16b-3 as promulgated by the Commission pursuant to
the Exchange Act, as amended from time to time.
"SECTION 16 PERSON" means a person subject to Section 16(a) of the Exchange
Act.
"SECTION 162(m)" means Section 162(m) of the Code and the regulations
promulgated thereunder.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time.
"STOCK APPRECIATION RIGHT" or "SAR" means a right authorized under this Plan
to receive a number of shares of Common Stock or an amount of cash, or a
combination of shares and cash, the aggregate amount or value of which is
determined by reference to a change in the Fair Market Value of the Common
Stock.
"STOCK BONUS" means an Award of shares of Common Stock granted under this
Plan for no consideration other than past services and without restriction
other than such transfer or other restrictions as the Committee may deem
advisable to assure compliance with law.
"SUBSIDIARY" means any corporation or other entity a majority of whose
outstanding voting stock or voting power is beneficially owned directly or
indirectly by the Corporation.
"TOTAL DISABILITY" means a disability where the Participant is unable to
effectively engage in the material activities required for the Participant's
position with the Company be reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted
or can be expected to last for a period of 180 consecutive days of for shorter
periods aggregating 180 days in any consecutive 12 month period.
23
<PAGE>
COMMUNICATION TELESYSTEMS INTERNATIONAL
1996 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1996 Stock Option/Stock Issuance Plan is intended to promote
the interests of Communication TeleSystems International, a California
corporation, by providing eligible persons with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in
the Corporation as an incentive for them to remain in the service of the
Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options
to purchase shares of Common Stock, and
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus
for services rendered the Corporation (or any Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs shall be administered by the Board.
Beginning with the Section 12 Registration Date, the Primary Committee shall
have sole and exclusive authority to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to Section 16 Insiders.
<PAGE>
B. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate
in those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. The members of
the Secondary Committee may be Board members who are Employees eligible to
receive discretionary option grants or direct stock issuances under the Plan
or any other stock option, stock appreciation, stock bonus or other stock
plan of the Corporation (or any Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate
the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the
Discretionary Option Grant and Stock Issuance Programs and to make such
determinations under, and issue such interpretations of, the provisions of
such programs and any outstanding options or stock issuances thereunder as it
may deem necessary or advisable. Decisions of the Plan Administrator within
the scope of its administrative functions under the Plan shall be final and
binding on all parties who have an interest in the Discretionary Option Grant
and Stock Issuance Programs under its jurisdiction or any option or stock
issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any
act or omission made in good faith with respect to the Plan or any option
grants or stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
2.
<PAGE>
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or
times when such option grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times when each
option is to become exercisable, the vesting schedule (if any) applicable to
the option shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to be issued
to each Participant, the vesting schedule (if any) applicable to the issued
shares and the consideration for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or
to effect stock issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
1,000,000 shares. In addition, on the first business day each calendar year,
commencing the first such date in 1998, there shall be added to the maximum
number of shares available for issuance under the Plan that number of shares
necessary to cause such maximum number, including shares previously issued
pursuant to the Plan and any options then outstanding, to equal 5% of the
total number of shares of Common Stock of the Company issued and outstanding
as of said meeting.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances
for more than 50,000 shares of Common Stock in the aggregate per calendar
year, beginning with the 1996 calendar year.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent those options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently cancelled or repurchased by the
Corporation, at the original issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and
shall accordingly be available for reissuance through one or more subsequent
option grants or direct stock issuances under the Plan. However, should the
exercise price of an option under the Plan be paid with shares of Common
Stock or should shares of Common Stock otherwise issuable under the Plan be
withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting
3.
<PAGE>
of a stock issuance under the Plan, then the number of shares of Common Stock
available for issuance under the Plan shall be reduced by the gross number of
shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance. Notwithstanding the above, no
additional adjustment shall be made to any shares or class of shares with
respect to any transaction occurring prior to the completion of an offering
of shares of the Common Stock of the Company to the public pursuant to an
effective registration statement.
D. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under this
Plan per calendar year, and (iii) the number and/or class of securities and
the exercise price per share in effect under each outstanding option under
the Plan. Such adjustments to the outstanding options are to be effected in
a manner which shall preclude the enlargement or dilution of rights and
benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. Each document
evidencing an Incentive Option shall, in addition, be subject to the
provisions of the Plan applicable to such options.
A. EXERCISE PRICE
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the
Fair Market Value per share of Common Stock on the option grant date,
provided that the Plan Administrator may fix the exercise price at less than
85% if the optionee, at the time of the option grant, shall have made a
payment to the Company (including payment made by means of a salary
reduction) equal to the excess of the Fair Market Value of the Common Stock
on the option grant date over such exercise price.
4.
<PAGE>
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Four and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate exercise price payable for the purchased
shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason
of such exercise and (b) the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in order to
complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as
shall be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the
personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution.
5.
<PAGE>
(iii) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to
one or more additional installments in which the Optionee would have
vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until
such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
6.
<PAGE>
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-Statutory Option may be assigned in whole or in part during the
Optionee's lifetime. The assigned portion may only be exercised by the person
or persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions
of Articles One, Two and Four shall be applicable to Incentive Options.
Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or Subsidiary) may
for the first time become exercisable as Incentive Options during any one
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as Incentive
Options shall be applied on the basis of the order in which such options are
granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share
of Common Stock on the option grant date, and the option term shall not
exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable with respect to the
7.
<PAGE>
total number of shares of Common Stock at the time subject to such option and
may be exercised for any or all of those shares as fully-vested shares of
Common Stock. However, an outstanding option shall not so accelerate if and
to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such
option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares
at the time of the Corporate Transaction and provides for subsequent payout
in accordance with the same vesting schedule applicable to those option
shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall
be made by the Plan Administrator, and its determination shall be final,
binding and conclusive.
B. All outstanding repurchase rights shall terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction
had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments to reflect such Corporate Transaction
shall also be made to (i) the exercise price payable per share under each
outstanding option, PROVIDED the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan and
(iii) the maximum number and/or class of securities for which any one person
may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances under the Plan per calendar year.
E. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed or replaced and do
not otherwise accelerate. Any options so accelerated shall remain exercisable
for fully-vested shares until the EARLIER of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary
8.
<PAGE>
Termination. In addition, the Plan Administrator may provide that one or more
of the Corporation's outstanding repurchase rights with respect to shares
held by the Optionee at the time of such Involuntary Termination shall
immediately terminate, and the shares subject to those terminated repurchase
rights shall accordingly vest in full.
F. The Plan Administrator shall have full power and authority to
grant options under the Discretionary Option Grant Program which will
automatically accelerate in the event the Optionee's Service subsequently
terminates by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Change in Control. Each option so accelerated shall remain exercisable for
fully-vested shares until the EARLIER of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares
subject to those terminated repurchase rights shall accordingly vest in full.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as
an Incentive Option only to the extent the applicable One Hundred Thousand
Dollar limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell
or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per
share based on the Fair Market Value per share of Common Stock on the new
grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
9.
<PAGE>
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect
between the exercise of the underlying option for shares of Common Stock
and the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair Market Value on the
option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the LATER of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holidng one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option
to the Corporation, to the extent the option is at the time exercisable
for vested shares of Common Stock. In return for the surrendered option,
the Optionee shall receive a cash distribution from the Corporation in
an amount equal to the excess of (A) the Take-Over Price of the shares
of Common Stock which are at the time vested under each surrendered
option (or surrendered portion thereof) over (B) the aggregate exercise
price payable for such shares. Such cash distribution shall be paid
within five (5) days following the option surrender date.
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(iii) Neither the approval of the Plan Administrator nor
the consent of the Board shall be required in connection with such
option surrender and cash distribution.
(iv) The balance of the option (if any) shall remaining
outstanding and exercisable in accordance with the documents evidencing
such option.
ARTICLE THREE
STOCK ISSUANCE PROGRAM
1. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening
option grants. Each such stock issuance shall be evidenced by a Stock
Issuance Agreement which complies with the terms specified below.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section 1 of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for any
of the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation,
or
(ii) past services rendered to the Corporation (or
any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified
performance objectives. The elements of the vesting schedule applicable to
any unvested shares of Common Stock issued under the Stock Issuance Program,
namely:
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(i) the Service period to be completed by the Participant
or the performance objectives to be attained,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which
the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be issued subject to
(i) the same vesting requirements applicable to the Participant's unvested
shares of Common Stock and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the
Stock Issuance Program, whether or not the Participant's interest in those
shares is vested. Accordingly, the Participant shall have the right to vote
such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase-money indebtedness), the Corporation shall repay
to the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase-money
note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock
which would otherwise
12.
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occur upon the cessation of the Participant's Service or the non-attainment
of the performance objectives applicable to those shares. Such waiver shall
result in the immediate vesting of the Participant's interest in the shares
as to which the waiver applies. Such waiver may be effected at any time,
whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation
rights under the Stock Issuance Program shall terminate automatically, and
all the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except
to the extent (i) those repurchase/cancellation rights are to be assigned to
the successor corporation (or parent thereof) in connection with such
Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or
any time while the Corporation's repurchase/cancellation rights remain
outstanding under the Stock Issuance Program, to provide that those rights
shall automatically terminate in whole or in part, and the shares of Common
Stock subject to those terminated rights shall immediately vest, in the event
the Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Corporate Transaction in
which those repurchase/cancellation rights are assigned to the successor
corporation (or parent thereof).
C. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or
any time while the Corporation's repurchase/cancellation rights remain
outstanding under the Stock Issuance Program, to provide that those rights
shall automatically terminate in whole or in part, and the shares of Common
Stock subject to those terminated rights shall immediately vest, in the event
of the Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
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ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one
or more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability
incurred by the Optionee or the Participant in connection with the option
exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common
Stock upon the exercise of options or the issuance or vesting or such shares
under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any
or all holders of Non-Statutory Options or unvested shares of Common Stock
under the Plan with the right to use shares of Common Stock in satisfaction
of all or part of the Taxes incurred by such holders in ocnnection with the
exercise of their options or the vesting of their shares. Such right may be
provided to any such holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a portion
of those shares with an aggregate Fair Market Value equal to the percentage
of the Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
STOCK DELIVERY: The election to delivery to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting
triggering the Taxes) with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated
by the holder.
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III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the
Plan Effective Date. Options may be granted under the Discretionary Option
Grant at any time on or after the Plan Effective Date. However, no options
granted under the Plan may be exercised, and no shares shall be issued under
the Plan, until the Plan is approved by the Corporation's stockholders. If
such stockholder approval is not obtained within twelve (12) months after the
Plan Effective Date, then all options previously granted under this Plan
shall terminate and cease to be outstanding, and no further options shall be
granted and no shares shall be issued under the Plan.
B. The Plan shall terminate upon the EARLIEST of (i) the
tenth anniversary of the Plan Effective Date, (ii) the date on which all
shares available for issuance under the Plan shall have been issued as
fully-vested shares or (iii) the termination of all outstanding options in
connection with a Corporate Transaction. Upon such plan termination, all
outstanding option grants and unvested stock issuances shall thereafter
continue to have force and effect in accordance with the provisions of the
documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no
such amendment or modification shall adversely affect the rights and
obligations wiht respect to stock options or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification. In addition, certain amendments
may require stockholder approval if so determined by the Board or pursuant to
applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any
excess shares actually issued under those programs shall be held in escrow
until there is obtained any required approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under
the Plan. If such approval is not obtained within twelve (12) months after
the date the first such excess issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease
to be outstanding and (ii) the Corporation shall promptly refund to the
Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the
shares were held in escrow, and such shares shall thereupon be automatically
cancelled and cease to be outstanding.
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V. USE OF PROCEEDS
Any cash proceeds received by the Corporation form the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the stock options granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance
with all applicable requirements of Federal and state securities laws,
including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by
each, to terminate such person's Service at any time for any reason, with or
without cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
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(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Communication TeleSystems International, a
California corporation, and its successors.
G. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in question,
as such price is reported on the Nasdaq National Market or any successor
system. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in question
on the Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially quoted
in the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the Underwriting
Date, the Fair Market Value shall be deemed to be equal to the price per
share at which the Common Stock is to be sold in the initial public
offering pursuant to the Underwriting Agreement.
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(iv) For purposes of any option grants made prior to the
Underwriting Date, the Fair Market Value shall be determined by the Plan
Administrator, after taking into account such factors as it deems
appropriate.
K. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled
by, or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
L. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
M. INVOLUNTARY TERMINATION shall mean the termination shall mean the
termination of the Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her level of responsibility, (B) a reduction in his or
her level of compensation (including base salary, fringe benefits and
participation in any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
N. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts of omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds
for the dismissal or discharge of any Optionee, Participant or other person
in the Service of the Corporation (or any Parent or Subsidiary).
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
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P. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
Q. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant Program.
R. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
S. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
T. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more.
U. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan, as set forth in this document.
V. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with
respect to the persons under its jurisdiction.
W. PLAN EFFECTIVE DATE shall mean the date on which the Plan was
adopted by the Board.
X. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to
Section 16 Insiders.
Y. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
Z. SECTION 12 REGISTRATION DATE shall mean the date on which the Common
Stock is first registered under Section 12(g) or Section 15 of the 1934 Act.
AA. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of
the 1934 Act.
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AB. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
AC. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
AD. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
AE. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
AF. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
AG. TAKE-OVER PRICE shall mean the GREATER of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest
reported price per share of Common Stock paid by the tender offeror in
effecting such Hostile Take-Over. However, if the surrendered option is an
Incentive Option, the Take-Over Price shall not exceed the clause (i) price
per share.
AH. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or
the vesting of those shares.
AL. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any
Parent or Subsidiary).
AJ. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AK. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public
offering of the Common Stock.
A-5.
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 1st day of
August, 1999 between COMMUNICATION TELESYSTEMS INTERNATIONAL, a California
corporation, having its principal office at 9999 Willow Creek Road, San
Diego, California 92131, (hereinafter referred to as "CTS" or the "Company")
and ROGER B. ABBOTT (hereinafter referred to as "Employee" and/or "Abbott").
This Agreement is made and entered into with reference to the
following facts:
WHEREAS, CTS and Abbott are parties to an employment agreement
dated December 16, 1993 (the "Existing Agreement");
WHEREAS, the parties desire to replace the Existing Agreement with
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the
parties hereto, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT: Abbott's employment by CTS shall be governed by
the terms and conditions of this Agreement commencing as of August 1, 1999
(the "Commencement Date").
2. GENERAL DUTIES OF EMPLOYEE: Employee shall have the title of
Chief Executive Office of CTS. Employee shall perform such duties as
reasonably requested by CTS and, upon request, serve on the Board of
Directors of CTS and/or its subsidiaries.
3. COMPENSATION: As Employee's sole and complete compensation,
CTS will pay to Employee, subject to the conditions and limitations set forth
in this Agreement and all applicable withholding requirements and authorized
deductions, the following compensation:
(a) SALARY: CTS shall pay Employee a salary of FIFTY THOUSAND
DOLLARS ($50,000.00) per month.
(b) VACATION: Employee shall be entitled to twenty (20)
business days of vacation per year.
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(c) EMPLOYEE BENEFITS: Employee shall participate in such
medical, dental, disability insurance and life insurance programs or plans
that are generally available to executives of CTS.
4. ADVANCES: CTS may, in its sole discretion, upon the written
request of Employee, make payments to Employee as advances on compensation
expected to become earned pursuant to this Agreement. Employee agrees that
each such advance constitutes a personal indebtedness of Employee to CTS,
repayable by Employee in full immediately upon demand by CTS, until such time
as the compensation on which the advance is made becomes fully earned.
5. TERMINATION OF EMPLOYMENT:
(a) DEATH OR DISABILITY: Employee's employment shall
terminate automatically upon Employee's death. If the Company reasonably
determines that the Disability of Employee has occurred (pursuant to the
definition of Disability set forth below), it may give to Employee written
notice of its intention to terminate Employee's employment. In such event,
Employee's employment with the Company shall terminate effective on the 90th
day after receipt of such notice by Employee, provided that, within the 90
days after such receipt, Employee shall not have returned to full-time
performance of his duties. For purposes of this Agreement, "Disability" shall
mean a physical or mental impairment which substantially limits a major life
activity of Employee and which renders Employee unable to perform the
essential functions of his position, even with reasonable accommodation which
does not impose an undue hardship on the Company.
(b) The Company may terminate Employee's employment for
"Cause". As used in this Section 5, the term "Cause" shall mean: (i) the
Employee's conviction of or entrance of a plea of guilty or nolo contendere
to a felony; or (ii) fraudulent conduct by the Employee in connection with
the business affairs of the Company or the theft, embezzlement, or other
criminal misappropriation of funds by the Employee from the Company; (iii)
the Employee's bad faith refusal to perform the duties of the Company's Chief
Executive Officer.
(c) OTHER THAN CAUSE OR DEATH OR DISABILITY: The Company may
terminate Employee's employment at any time without Cause upon ninety (90)
days' prior written notice to Employee.
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(d) OBLIGATIONS OF THE COMPANY UPON TERMINATION:
(1) DEATH OR DISABILITY: If Employee's employment is
terminated by reason of Employee's Death or Disability, this Agreement shall
terminate without further obligations to Employee or his legal
representatives under this Agreement, other than for (a) payment of the sum
of (i) Employee's salary through the date of termination to the extent not
theretofore paid and (ii) any compensation previously deferred by Employee
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (i) and (ii) shall be hereinafter referred to as
the "Accrued Obligations"), which shall be paid to Employee or his estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the date
of termination; and (b) payment to Employee or his estate or beneficiary, as
applicable, of any amounts due pursuant to the terms of any applicable
welfare benefit plans.
(2) CAUSE: If Employee's employment is terminated by
the Company for "Cause", this Agreement shall terminate without further
obligation to Employee other than for the timely payment of Accrued
Obligations. If it is subsequently determined that the Company did not have
Cause for termination in any arbitration or other proceeding under this
Agreement, then the Company's termination shall be deemed to have been
"without Cause" under Paragraph 5(c) and the amounts payable under Paragraph
5(d)(3) of this Agreement for a termination other than for Cause, death, or
disability shall be the only amounts Employee may receive for his termination.
(3) OTHER THAN CAUSE OR DEATH OR DISABILITY: If the
Company terminates Employee's employment for other than Cause (as defined in
Section 5(b) hereof) or Death or Disability, or in the event of a
"Constructive Termination" of Employee's employment as defined below, this
Agreement shall terminate without further obligations to Employee other than
(a) the timely payment of Accrued Obligations, and (b) a lump sum cash
payment to Employee in an amount equal to (i) the amount of compensation that
Employee would have earned pursuant to Section 3(a) of this Agreement from
the date of such termination through July 31, 2002; plus (ii) the cost for
Employee to obtain benefits equivalent to those in effect pursuant to Section
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3(c) of this Agreement at the time of such termination, from the date of such
termination through July 31, 2002. As used in this Section 5, the term
"Constructive Termination" shall mean: (i) a material reduction by the
Company in the kind or level of employee benefits to which the Employee was
entitled at the commencement of this Agreement with the result that the
Employee's overall benefits package is significantly reduced; (ii) the
relocation of the Employee to a facility or a location more than forty (40)
miles from the Employee's then present location, without the Employee's
express written consent; or (iii) the failure of the Company to obtain the
assumption of this agreement by any successor entity or (iv) any act or set
of facts or circumstances which would, under California case law or statute
constitute a constructive termination of the Employee.
6. COMPENSATION AFTER TERMINATION OF EMPLOYMENT: Except as
expressly provided in Section 5 of this Agreement and in any written option
plan or agreement, Employee shall have no further right to salary or any
other compensation after termination of Employee's employment with CTS,
irrespective of the time, manner or cause of such termination.
7. PLACE OF EMPLOYMENT: Abbott's primary place of employment for
CTS shall be at the Company's executive corporate offices, which are
presently located at 9999 Willow Creek Road, San Diego, California. During
the term of this Agreement, Abbott shall not be required to work at a
location outside of San Diego County, California, except for occasional
business travel consistent with past practices.
8. RECORDS TO REMAIN PROPERTY OF CTS: All records of CTS, and
all records and documents prepared or generated by Employee, CTS or any other
person or entity in connection with the performance of Employee under this
Agreement, including but not limited to account cards, invoice copies,
customer lists, leads and all documents containing the names or addresses of
or information relating to clients who have done business with CTS, are and
shall remain the property of CTS at all times during the term of Employee's
employment with CTS, and after termination of such employment for any reason.
None of such records, nor any part of them may be used by Employee either in
original form or in computerized, duplicated, or copied form except for the
purpose of conducting the business of CTS and the names,
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addresses, and other information and data in such records are not to be
transmitted verbally, in writing, or in computerized form by Employee except
in the ordinary course of conducting business for CTS. All of said records or
any part of them are the sole proprietary information of CTS and shall be
treated by Employee as confidential information of CTS. In the event of the
termination of Employee's employment with CTS for any reason, Employee shall
return to CTS all such records and any copies or summaries thereof in
computerized, duplicated, copied or any other form.
9. LIMITATIONS ON EMPLOYEE'S USE OF PROPRIETARY INFORMATION:
During the term of Employee's employment with CTS, and for a period of
eighteen (18) months after the termination of Employee's employment with CTS,
irrespective of the time, manner or cause of such termination Employee shall
not, in any manner, directly or indirectly divulge, disclose or communicate
to any other person, firm or corporation, nor shall Employee use for his own
benefit other than in connection with the performance of Employee's duties
under this Agreement: (i) any of the names, addresses, telephone numbers of
or other data relating to carrier vendors or customers of CTS, prospective
customers of CTS or persons, firms or corporations to whom Employee may have
provided services in his capacity as a representative of CTS or to whom other
representatives of CTS have provided such services at any time; or (ii) any
of the records or documents referred to in Paragraph 8 of this Agreement.
Notwithstanding the foregoing, however, these limitations shall not apply to
information which: (i) was actually known to Employee prior to the
commencement of his employment with CTS; or (ii) is widely known among firms
engaged in CTS' business.
10. INVENTIONS: All improvements, discoveries, inventions,
designs, documents or other data related to the Company's business (whether
or not deemed patentable) conceived, developed, made, perfected, acquired, or
first reduced to practice, in whole or in part, during off-duty hours and
away from the Company's premises as well as in the regular course of
employment by Employee during development and research, of the Company or its
subsidiaries and affiliates shall be promptly disclosed to the Company, and
Employee shall hereby assign and transfer his right, interest and title
thereto and such improvements,
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discoveries, inventions, designs, documents, or other data shall become the
property of the Company. During the term of Employee's employment and any
time thereafter, upon request and at the expense of the Company, Employee
will join and render reasonable assistance in any proceedings, and execute
any papers necessary to file and prosecute applications for, and to acquire,
maintain and enforce letters, patent, trademarks, registrations and/or
copyrights, both domestic and foreign, with respect to such improvements
discoveries, inventions, designs, documents, or other data as required for
vesting title to same in the Company.
11. ASSIGNMENT: Neither this Agreement nor any other benefits to
accrue hereunder shall be assigned or transferred by Employee, either in
whole or in part (except a transfer effective upon the death of Employee of
any payments due hereunder), without the written consent of CTS and any
purported assignment in violation hereof shall be void. This Agreement may be
assigned to and assumed by a successor to Company upon notice to Employee.
12 INDEMNITY: CTS and Employee shall have such indemnity rights and
obligations as provided by California law.
13. CHOICE OF LAW: This Agreement shall be construed under the laws of
the State of California without regard to choice of law principles.
14. PARTIAL INVALIDITY: If any term, provision, covenant, or condition
of this Agreement is held by a Court of competent jurisdiction to be invalid,
void or unenforceable, the rest of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated. In the
event any provision contained in Paragraphs 8, 9 or 10 of this Agreement
should ever be deemed to exceed the law in any respect, then the parties
hereto agree that such provision shall be amended automatically to provide
CTS with the maximum protection permitted by law.
15. ENTIRE AGREEMENT: This Agreement contains the entire agreement
between the parties concerning the subject matter of this Agreement. It
supersedes all negotiations, statements, promises, or understandings, if any,
made prior to the execution of this Agreement. Any such negotiations,
promises,
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or understandings shall not be used to interpret or constitute this
Agreement.
16. GENDER: As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall each be deemed to
include the others whenever the context so indicates.
17. OUTSIDE EMPLOYMENT: During the term of Employee's employment with
CTS, Employee shall not engage in any other employment or outside business
activity without the prior written consent of CTD. The term "outside business
activity" shall not include (i) totally passive investments of any kind, with
the exception of investments in competitors of CTS which are not publicly
traded, or (ii) serving on the board of directors or as an occasional
consultant to a non-profit organization.
18. VENUE: The venue of any civil action, arbitration or other legal
proceeding between Employee, on one hand, and CTS and/or its officers,
directors and employees, on the other hand, arising out of or relating to
this Agreement, the employment of Employee by CTS, the termination of
Employee's employment with CTS, or any other dealings between Employee and
CTS, lies only in San Diego, California, and Employee and CTS waive any right
they may have under any statute or law to cause such action or proceeding to
be transferred to any other venue.
19. AMENDMENT AND WAIVER: The terms of this Agreement may be amended,
modified or eliminated, or the observance or performance of any term,
covenant or provision herein may be omitted or waived (either generally or in
a particular instance, and either prospectively or retroactively) only by a
writing signed by Employee and CTS. The waiver by CTS of any breach by
Employee of any term or provision of this Agreement shall not be construed as
a waiver of any subsequent breach.
20. SURVIVAL OF PROVISIONS: The provisions contained in Paragraphs 8,
9, 10, 12, 16 and 23 of this Agreement, and the other provisions hereof to
the extent applicable, shall survive the termination of Employee's employment
with CTS.
21. INUREMENT: This Agreement shall be binding upon and inure to the
benefit of all heirs, assigns (to the extent permitted) and successors in
interest of the parties hereto.
22. HEADLINES: The titles and headlines herein are for convenience
only and shall not be
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used to interpret this Agreement.
23. ARBITRATION: Any claim or controversy between Employee, on one
hand, and CTS and/or its officers, directors and employees, on the other
hand, arising out of or relating to this Agreement (including the Option
Agreement and other attachments hereto), the employment of Employee by CTS,
the termination of Employee's employment with CTS, or any other dealings
between Employee and CTS, shall be resolved by final and binding arbitration
before J.A.M.S./ENDISPUTE ("JAMS") in accordance with the then obtaining
Comprehensive Arbitration Rules and Procedures of JAMS, as modified herein.
The arbitrator may not limit, expand or otherwise modify the terms of this
Agreement and shall not have authority to award punitive or other
non-compensatory damages to either party. The award in such arbitration
proceeding may be entered in any Court specified in Paragraph 18 of this
Agreement.
24. INTERPRETATION: The contract rule of interpretation against the
drafter of a document shall not apply in any interpretation of this Agreement.
25. SECTION 280G PROVISIONS: Notwithstanding contained in this
Agreement to the contrary, to the extent that any payment or distribution of
any type to or for the Employee by the Company or any of its affiliates,
whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise (including, without limitation, any
accelerated vesting of stock options or restricted stock granted by the
Company pursuant to this Agreement or otherwise) (collectively, the "Total
Payments") is or will be subject to the excise tax imposed under Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), then the total
Payments shall be reduced (but not below zero) (the "Reduction") so that the
maximum amount of the Total Payments (after the Reduction) shall be one
dollar($1.00) less than the amount which would cause the Total Payments to be
subject to the excise tax imposed by Section 4999 of the Code, provided that
the Total Payments shall only be reduced if the Reduction results in a
greater net benefit (after giving effect to all income, employment, excise,
and other taxes due) to the Employee than had the Reduction not been made.
Unless the Employee shall have given prior written notice to the Company to
effectuate a reduction in the Total Payments if such a reduction is required,
the Company
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shall reduce or eliminate the Total Payments by first reducing or eliminating
any cash severance benefits, then by reducing or eliminating any accelerated
vesting of stock options, then by reducing or eliminating any accelerated
vesting of restricted stock, then by reducing or eliminating any other
remaining Total Payments. The preceding provisions of this Section shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Employee's rights and entitlements to any benefits or
compensation.
Any determination that Total Payments to the Employee must be reduced or
eliminated in accordance with the forgoing provisions of this Section and the
assumptions to be utilized in arriving at such determination, shall be made
by a nationally recognized accounting firm or consulting firm with experience
in such matters selected by the Company (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Company and the Employee
within fifteen (15) business days after the date such calculation is
requested by the Company or the Employee. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the change in control, the Employee shall appoint another
nationally recognized accounting or consulting firm with experience in such
matters to made the determinations required hereunder (which accounting firm
shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. If a
Reduction to the Employee in accordance with the foregoing is necessary based
on the Accounting Firm's determination, the Accounting Firm shall furnish the
Employee with a written opinion that failure to limit the amount of the Total
Payments would result in the imposition of a tax under Section 4999 of the
Code and that the Employee's net benefits would be greater after the
Reduction than had the Reduction not otherwise been made. Any determination
by the Accounting Firm shall be binding upon the Company and the Employee. As
a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Total Payments to the Employee which will not have been made by
the Company should have been made ("Underpayment"). The Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
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Underpayment shall be promptly paid by the Company to or for the benefit of
the Employee. In the event that any Total Payment made to the Employee shall
be determined by the Accounting Firm to result in the imposition of any tax
under Section 4999 of the Code and the Accounting Firm determines that the
Employee's net benefits would be greater after a Reduction, the amount of
such excess Total Payment shall be a loan from the Company to the Employee,
and the Employee shall promptly reimburse the Company for the amount of such
excess together with interest on such amount (at the same rate as is applied
to determine the present value of payments under Section 280G or any
successor thereto), from the date the reimbursable payment was received by
the Executive to the date the same is repaid to the Company.
IT IS SO AGREED:
EMPLOYEE:
/s/ Roger B. Abbott
---------------------------------
(Signature)
Roger B. Abbott
---------------------------------
(Print Name)
CTS:
By: /s/ Chris Bantoft
---------------------------------
Chris Bantoft
Its: President
---------------------------------
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 23RD day of April
1998 between COMMUNICATION TELESYSTEMS INTERNATIONAL, a California
Corporation, having its principal office at 9999 Willow Creek Road, San
Diego, California 92122, (hereinafter referred to as "CTS" or "Company") and
CHRIS BANTOFT, of Titcheners, Cotmandene, Dorking, Surrey, RH4 2BN, England
(hereinafter referred to as "Employee").
In consideration of the mutual promises of the parties hereto, and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT: CTS hereby agrees to hire Employee as an employee of
CTS, commencing on May 1, 1998 (the "Commencement Date").
2. GENERAL DUTIES OF EMPLOYEE: Employee shall have the title of
President and Chief Operating Officer of CTS. Employee shall perform such
duties as requested by CTS and, upon request, serve on the Board of Directors
of CTS and/or its subsidiaries and affiliates. Employee may, at the sole
discretion of CTS, be assigned to work anywhere in the United States and/or
outside the United States and may be transferred between locations from time
to time on a permanent or temporary basis; provided however, Employee shall
be given at least thirty (30) days prior notice of a permanent transfer, and
provided further that Company shall reimburse Employee for reasonable moving
expenses in connection with all transfers. Notwithstanding any other
provision contained herein, for the duration of any period during which
Employee remains bound by the Employment Continuation Incentive Agreement
dated October 17, 1997 between Employee and ACC Long Distance UK ("ACC"),
Employee shall not have any direct or indirect duties or responsibilities in
connection with any operations of the Company, or its subsidiaries or
affiliates, in the United Kingdom.
3. CONDUCT OF EMPLOYEE: Employee shall use his best efforts to promote
the interests of CTS and shall refrain from any acts which may adversely
affect the reputation or business of CTS. Employee shall adhere to all laws
and ethical standards applicable to his conduct as an Employee for CTS, shall
abide by and observe all rules, regulations and policies of CTS presently in
effect and any amendments and additions thereto made from time to time and
shall perform in a manner consistent with generally accepted procedures for
his profession.
4. COMPENSATION: As Employee's sole and complete compensation, CTS will
pay to Employee, subject to the conditions and limitations set forth in this
Agreement and all applicable withholding requirements and authorized
deductions, the following compensation:
(a) SALARY: CTS shall pay Employee a salary of Three Hundred Fifty
Thousand Dollars ($350,000.00) per year.
(b) HEALTH INSURANCE: Employee shall participate in such medical
programs or plans that are generally available to employees of CTS.
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(c) VACATION: Employee shall receive twenty (20) days of paid
vacation per year.
(d) DUAL LIVING ALLOWANCE: Employee shall receive a dual living
allowance of Three Thousand Dollars ($3,000.00) per month during the first
six (6) months of his employment with CTS.
(e) TRAVEL REIMBURSEMENT: During each year of Employee's employment,
CTS will reimburse Employee for the reasonable equivalent value (on a
discounted fare/advance purchase basis) of four (4) round-trip business class
airline tickets between London and San Diego, for travel by Employee's spouse
or dependent children.
(f) BONUS PROGRAM: Company shall provide Employee with a bonus
program which provides Employee with the opportunity to earn up to $50,000 in
additional compensation during each year of his employment with the Company.
The terms of this bonus program, which shall be based upon achievement of
financial performance levels, shall be finalized within thirty (30) days
after the Commencement Date.
5. RECORDS TO REMAIN PROPERTY OF CTS: All records of CTS, and its
subsidiaries, all records pertaining or relating to clients of CTS and its
subsidiaries, and all records and documents prepared or generated by
Employee, CTS or any other person or entity in connection with the
performance of Employee under this Agreement, including but not limited to
account cards, invoice copies, customer lists, leads and all documents
containing the names or addresses of or information relating to clients who
have done business with CTS, or its subsidiaries are and shall remain the
property of CTS at all times during the term of Employee's employment with
CTS, and after termination of such employment for any reason. None of such
records, nor any part of them may be used by Employee either in original form
or in computerized, duplicated, or copied form except for the purpose of
conducting the business of CTS and the names, addresses, and other
information and data in such records are not to be transmitted verbally, in
writing, or in computerized form by Employee except in the ordinary course of
conducting business for CTS. All of said records or any part of them are the
sole proprietary information of CTS and shall be treated by Employee as
confidential information of CTS. In the event of the termination of
Employee's employment with CTS for any reason, Employee shall return to CTS
all such records and any copies or summaries thereof in computerized,
duplicated, copied or any other form.
6. LIMITATIONS ON EMPLOYEE'S USE OF PROPRIETARY INFORMATION: Employee
shall not at any time, or in any manner, directly or indirectly divulge,
disclose or communicate to any other person, firm or corporation, nor shall
Employee use for his own benefit other than in connection with the
performance of Employee's duties under this Agreement: (i) any of the names,
addresses, telephone numbers of or other data relating to clients of CTS,
prospective customers of CTS or persons, firms or corporations to whom
Employee may have provided services in his capacity as a representative of
CTS or to whom other representatives of CTS have provided such services at
any time; (ii) any of the records or documents referred to in Paragraph 5 of
this Agreement; or (iii) any other information acquired by Employee as a
consequence of his employment with CTS.
7. INVENTIONS: All improvements, discoveries, inventions, designs,
documents or other data related to the Company's business (whether or not
deemed patentable) conceived, developed, made, perfected, acquired, or first
reduced to practice, in whole or in part, during off-duty hours and away from
the Company's
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premises as well as in the regular course of employment by Employee during
development and research, of the Company or its subsidiaries and affiliates
shall be promptly disclosed to the Company, and Employee shall hereby assign
and transfer his right, interest and title thereto and such improvements,
discoveries, inventions, designs, documents, or other data shall become the
property of the Company. During the term of Employee's employment and anytime
thereafter, upon request of the Company. Employee will join and render
assistance in any proceedings, and execute any papers necessary to file and
prosecute applications for, and to acquire, maintain and enforce letters,
patent, trademarks, registrations and/or copyrights, both domestic and
foreign, with respect to such improvements, discoveries, inventions, designs,
documents, or other data as required for vesting title to same in the
Company. The requirement under this Agreement that Employee assign his rights
in inventions shall not apply to an invention that Employee developed
entirely on his own time without using the Company's equipment, supplies,
facilities, or trade secret information except for those inventions that
either: (i) relate at the time of conception or reduction to practice of the
invention to the Company's business, or actual or demonstrably anticipated
research or development of the Company; or (ii) result from any work
performed by Employee for the Company.
8. CUSTOMER SOLICITATION: During the term or this Agreement, and for a
period of one (1) year after the termination of this Agreement for any
reason, Employee will not, for himself or on behalf of any other person,
firm, partnership or corporation, call upon or deal with any Customers of
CTS or its subsidiaries for the purpose of soliciting or providing to such
Customer any products or services which are the same as or substantially
similar to those provided to Customers by CTS or its subsidiaries. For the
purposes of this Agreement "Customer" shall mean those Customers with whom
Employee has dealt with in the course of the Company's or its subsidiaries
business at any time within twelve (12) months prior to termination of his
employment.
9. SOLICITATION OF OTHER EMPLOYEES: During the term of this Agreement,
and for a period of one (1) year after the termination of this Agreement for
any reason, Employee will not, directly or through another person or entity,
for himself or on behalf of any other person, firm, partnership, or
corporation, directly or indirectly, seek to persuade any director or officer
of the Company, or its subsidiaries, or any person employed in a managerial
or technical capacity or a sales representative or in a skilled supervisory
role to discontinue that individual's status or employment with the Company
or its subsidiaries.
10. COMPENSATION AFTER TERMINATION OF EMPLOYMENT: Except as otherwise
expressly provided in this Agreement or in any written option agreement or
plan. Employee shall have no further right to salary or any other
compensation after termination of Employee's employment with CTS,
irrespective of the time, manner or cause of such termination.
11. TERMINATION OF EMPLOYMENT:
(a) DEATH OR DISABILITY: Employee's employment shall terminate
automatically upon Employee's death. If the Company determines in good faith
that the Disability of Employee has occurred (pursuant to the definition of
Disability set forth below), it may give to Employee written notice of its
intention
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to terminate Employee's employment. In such event, Employee's employment with
the Company shall terminate effective on the 30th day after receipt of such
notice by Employee, provided that, within the 30 days after such receipt,
Employee shall not have returned to full-time performance of his duties. For
purposes of this Agreement, "Disability" shall mean a physical or mental
impairment which substantially limits a major life activity of Employee and
which renders Employee unable to perform the essential functions of his
position, even with reasonable accommodation which does not impose an undue
hardship on the Company. The Company reserves the right, in good faith, to
make the determination of disability under this Agreement based upon
information supplied by Employee and/or his medical personnel, as well as
information from medical personnel (or others) selected by the Company or its
insurers.
(b) CAUSE: The Company may terminate Employee's employment for
Cause. For purposes of this Agreement, "Cause" shall mean that the Company,
acting in good faith based upon the information then known to the Company,
determines that Employee has engaged in or committed wilful misconduct,
abandonment of employment or excessive absences, conflict of interest or
breach of fiduciary duty involving his responsibilities as an employee
involving intent for or obtainment of material personal or family profit,
sexual harassment, conviction of any criminal offense which constitutes a
felony under the laws of the United States or of any state, or a material
breach of this Agreement, or that a court or regulatory agency has issued an
order prohibiting Employee's continued employment with CTS or a final cease
and desist order.
(c) OTHER THAN CAUSE OR DEATH OR DISABILITY: The Company or
Employee may terminate Employee's employment at any time without cause upon
thirty (30) days' written notice to the other party.
(d) OBLIGATIONS OF THE COMPANY UPON TERMINATION:
(1) DEATH OR DISABILITY: If Employee's employment is
terminated by reason of Employee's Death or Disability, this Agreement shall
terminate without further obligations to Employee for his legal
representatives under this Agreement, other than for (a) payment of the sum
of (i) Employee's base salary through the date of termination to the extent
not theretofore paid and (ii) any compensation previously deferred by
Employee (together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (i) and (ii) shall be hereinafter
referred to as the "Accrued Obligations"), which shall be paid to Employee or
his estate or beneficiary, as applicable, in a lump sum in cash within 30
days of the date of termination; and (b) payment to Employee or his estate or
beneficiary, as applicable, of any amounts due pursuant to the terms of any
applicable welfare benefit plans.
(2) CAUSE: If Employee's employment is terminated by the
Company for Cause, this Agreement shall terminate without further obligations
to Employee other than for the timely payment of Accrued Obligations. If it
is subsequently determined that the Company did not have Cause for
termination in any arbitration or other proceeding under this Agreement, then
the Company's termination shall be deemed to have been "without cause" under
Paragraph 11(e) and the amounts payable under Paragraph 11(d)(3) of this
Agreement for a termination other than for cause, death, or disability shall
be the only amounts Employee may receive for his termination.
(3) OTHER THAN FOR CAUSE OR DEATH OR DISABILITY: If the
Company terminates Employee's employment
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for other than Cause or Death or Disability, this Agreement shall terminate
without further obligations to Employee other than (a) the timely payment of
Accrued Obligations and (b) the continued payment to Employee of Employee's
compensation set forth in Paragraphs 4(a) through 4(c) of this Agreement
through and including the date which is the three hundred sixty-fifth (365th)
day after the Commencement Date.
(4) ORDER PROHIBITING EMPLOYEE'S EMPLOYMENT: It is the
intention and expectation of the Company and Employee that neither this
Agreement nor any action undertaken by Employee within the scope and course
of his employment with Company violates or constitutes, or will violate or
constitute, a breach by Employee of his employment agreements with ACC. In
the event, however, that a court issues an order prohibiting Employee's
continued employment with CTS on account of the ACC Employment Continuation
Incentive Agreement between Employee and ACC dated October 17, 1997, the
Company will continue to pay Employee the compensation set forth in paragraph
4(a) through 4(e) of this Agreement for the shorter of the following periods:
(i) the duration of the court order prohibiting Employee's continued
employment with CTS; (ii) six (6) months; or (iii) through and including the
date which is the three hundred sixty-fifth (365th) day after the
Commencement Date.
(5) EXCLUSIVE REMEDY: Employee agrees that the payments
contemplated by this Agreement shall constitute the exclusive and sole remedy
for any termination of his employment and Employee covenants not to assert or
pursue any other remedies, at law or in equity, with respect to any
termination of employment.
12. ASSIGNMENT: Neither this Agreement nor any other benefits to
accrue hereunder shall be assigned or transferred by Employee, either in
whole or in part (except a transfer effective upon the death of Employee of
any payments due hereunder), without the written consent of CTS, any any
purported assignment in violation hereof shall be void.
13. CHOICE OF LAW: This Agreement is executed and intended to be
performed in the State of California and the laws of the State of California
shall govern its interpretation and effect.
14. PARTIAL INVALIDITY: If any term, provision, covenant, or condition
of this Agreement is held by a Court of competent jurisdiction to be invalid,
void or unenforceable, the rest of this Agreement shall remain in full force
and effect and shall in no way be effected, impaired or invalidated. In the
event any provision contained in Paragraphs 5, 6, 7, 8, or 9 of this
Agreement should ever be deemed to exceed the law in any respect, then the
parties hereto agree that such provision shall be amended automatically to
provide CTS with the maximum protection permitted by law.
15. ENTIRE AGREEMENT: This Agreement contains the entire agreement
between the parties concerning the subject matter of this Agreement. It
supersedes all negotiations, statements, promises, or understandings, if any,
made prior to the execution of this Agreement. Any such negotiations,
promises or understandings shall not be used to interpret or constitute this
Agreement.
16. GENDER: As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall each be deemed to
include the others whenever the context so indicates.
17. OUTSIDE EMPLOYMENT: During the term of Employee's employment with
CTS, Employee shall not engage in any other employment or outside business
activity without the prior written consent of CTS.
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This provision shall not prohibit passive investments by employee.
18. VENUE: The venue of any civil action, arbitration or other legal
proceeding between Employee, on one hand, and CTS and/or its officers,
directors and employees, on the other hand, arising out of or relating to
this Agreement, the employment of Employee by CTS, the termination of
Employee's employment with CTS, or any other dealings between Employee and
CTS, lies only in San Diego, California, and Employee and CTS waive any right
they may have under any statute or law to cause such action or proceeding to
be transferred to any other venue.
19. AMENDMENT OR WAIVER: The terms of this Agreement may be amended,
modified or eliminated, or the observance or performance of any term,
covenant or provision herein may be omitted or waived (either generally or in
a particular instance, and either prospectively or retroactively) only by a
writing signed by Employee and CTS. The waiver by CTS of any breach by
Employee of any term or provision of this Agreement shall not be construed as
a waiver of any subsequent breach.
20. SURVIVAL OF PROVISIONS: The provisions contained in Paragraphs 5,
6, 7, 8, 9, 18 and 24 of this Agreement, and the other provisions hereof to
the extent applicable, shall survive the termination of Employee's employment
with CTS.
21. INUREMENT: This Agreement shall be binding upon and inure to the
benefit of all heirs, assigns (to the extent permitted) and successors in
interest of the parties hereto.
22. HEADLINES AND CONSTRUCTION: Both parties have cooperated in the
drafting of this Agreement, which shall not be construed against either
party. The titles and headlines herein are for convenience only and shall not
be used to interpret this Agreement.
23. EFFECTIVE DATE: This Agreement shall be effective as of the date
written on the first page hereof.
24. ARBITRATION: Any claim or controversy arising out of or relating
to this Agreement or any dealings between Employee, on one hand, and CTS
and/or CTS' officers, directors, employees or agents, on the other hand,
shall be settled before J.A.M.S./ENDISPUTE ("JAMS") in accordance with the
then obtaining Comprehensive Arbitration Rules and Procedures of JAMS, as
modified herein. The arbitrator may not limit, expand or otherwise modify the
terms of this Agreement. The award in such arbitration proceeding may be
entered in any Court of competent jurisdiction specified in Paragraph 18 of
this Agreement.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
6
<PAGE>
IT IS SO AGREED:
THIS IS A BINDING LEGAL AGREEMENT WHICH SETS FORTH THE TERMS
AND CONDITIONS OF YOUR EMPLOYMENT, INCLUDING COMPENSATION
MATTERS. READ THIS AGREEMENT CAREFULLY BEFORE SIGNING IT.
THIS AGREEMENT ALSO CONTAINS AN ARBITRATION AGREEMENT, WHICH
YOU SHOULD STUDY CAREFULLY. ARBITRATION IS GENERALLY FINAL AND
BINDING ON THE PARTIES. BY AGREEING TO ARBITRATION, YOU ARE
WAIVING YOUR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE
RIGHT TO A JURY TRIAL. PRE-ARBITRATION DISCOVERY IS GENERALLY
MORE LIMITED AND DIFFERENT FROM COURT PROCEEDINGS.
ADDITIONALLY, THE ARBITRATORS' AWARD IS NOT REQUIRED TO
INCLUDE FACTUAL FINDINGS OR LEGAL REASONING AND ANY PARTY'S
RIGHT TO APPEAL OR SEEK MODIFICATION OF RULINGS BY THE
ARBITRATORS IS STRICTLY LIMITED.
EMPLOYEE:
/s/ Chris Bantoft
------------------------------
(Signature)
CHRIS BANTOFT
------------------------------
(PRINT NAME)
CTS:
Communication TeleSystems International
By: /s/ Edward S. Soren
-------------------------
Its:
-------------------------
7
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 16th day of December,
1993 between COMMUNICATION TELESYSTEMS INTERNATIONAL, a California Corporation,
having its principal office at 4350 La Jolla Village Drive, Suite 100, San
Diego, California 92122, (hereinafter referred to as "CTS") and EDWARD S. SOREN
(hereinafter referred to as "Employee").
In consideration of the mutual promises of the parties hereto, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT: This Agreement sets forth the terms and conditions of
Employee's employment with CTS, commencing as of January 1, 1994 (the "Effective
Date").
2. GENERAL DUTIES OF EMPLOYEE: Employee shall have the title of President
for CTS. Employee shall perform such duties as requested by CTS and upon
request, serve on the Board of Directors of CTS and/or its subsidiaries and
affiliates.
3. CONDUCT OF EMPLOYEE: Employee shall use his best efforts to promote
the interests of CTS and shall refrain from any acts which may adversely affect
the reputation or business of CTS. Employee shall adhere to all laws and ethical
standards applicable to his conduct as an Employee for CTS, shall abide by and
observe all rules, regulations and policies of CTS presently in effect and any
amendments and additions thereto made from time to time and shall perform in a
manner consistent with generally accepted procedures for his profession.
4. COMPENSATION: As Employee's sole and complete compensation, CTS will
pay to Employee, subject to the conditions and limitations set forth in this
Agreement and all applicable withholding requirements and authorized deductions,
the following compensation:
(a) SALARY: CTS shall pay Employee the base salary listed on
Addendum "A" hereto.
(b) HEALTH INSURANCE: Employee shall participate in such medical
programs or plans that are generally available to employees of CTS.
(c) VACATION: Employee shall be entitled to twenty (20) business days
of vacation per year.
(d) Employee shall be eligible to earn bonus compensation as set forth
in Addendum "A" hereto.
5. ADVANCES: CTS may, in its sole discretion, make payments to Employee
as advances on compensation expected to become earned pursuant to this
Agreement. Employee agrees that each such advance constitutes a personal
indebtedness of Employee to CTS, repayable by Employee in full immediately
1
<PAGE>
upon demand by CTS, until such time as the compensation on which the advance is
made becomes fully earned.
6. COMPENSATION CHANGES: Notwithstanding any other provision contained in
this Agreement, the rates and terms of salary and other compensation payable to
Employee by CTS are subject to change by CTS upon ten (10) days prior written
notice to Employee.
7. RECORDS TO REMAIN PROPERTY OF CTS: All records of CTS, all records
pertaining or relating to clients of CTS, and all records and documents prepared
or generated by Employee, CTS or any other person or entity in connection with
the performance of Employee under this Agreement, including but not limited to
account cards, invoice copies, customer lists, leads and all documents
containing the names or addresses of or information relating to clients who have
done business with CTS, are and shall remain the property of CTS at all times
during the term of Employee's employment with CTS, and after termination of such
employment for any reason. None of such records, nor any part of them may be
used by Employee either in original form or in computerized, duplicated, or
copied form except for the purpose of conducting the business of CTS and the
names, addresses, and other information and data in such records are not to be
transmitted verbally, in writing, or in computerized form by Employee except in
the ordinary course of conducting business for CTS. All of said records or any
part of them are the sole proprietary information of CTS and shall be treated by
Employee as confidential information of CTS. In the event of the termination of
Employee's employment with CTS for any reason, Employee shall return to CTS all
such records and any copies or summaries thereof in computerized, duplicated,
copied or any other form.
8. LIMITATIONS ON EMPLOYEE'S USE OF PROPRIETARY INFORMATION: Employee
shall not at any time, or in any manner, directly or indirectly divulge,
disclose or communicate to any other person, firm or corporation, nor shall
Employee use for his own benefit other than in connection with the performance
of Employee's duties under this Agreement: (i) any of the names, addresses,
telephone numbers of or other data relating to clients of CTS, prospective
customers of CTS or persons, firms or corporations to whom Employee may have
provided services in his capacity as a representative of CTS or to whom other
representatives of CTS have provided such services at any time; (ii) any of the
records or documents referred to in Paragraph 7 of this Agreement; or (iii) any
other information acquired by Employee as a consequence of his employment with
CTS.
9. INVENTIONS: All improvements, discoveries, inventions, designs,
documents or other data related to the Company's business (whether or not deemed
patentable) conceived, developed, made, perfected, acquired, or first reduced to
practice, in whole or in part, during off-duty hours and away from the Company's
premises as well as in the regular course of employment by Employee during
development and research, of the Company or its subsidiaries and affiliates
shall be promptly disclosed to the Company, and Employee shall hereby assign and
transfer his right, interest and title thereto and such improvements,
discoveries, inventions,
2
<PAGE>
designs, documents, or other data shall become the property of the Company.
During the term of Employee's employment and anytime thereafter, upon request of
the Company, Employee will join and render assistance in any proceedings, and
execute any papers necessary to file and prosecute applications for, and to
acquire, maintain and enforce letters, patent, trademarks, registrations and/or
copyrights, both domestic and foreign, with respect to such improvements,
discoveries, inventions, designs, documents, or other data as required for
vesting title to same in the Company.
10. TERMINATION OF EMPLOYMENT: EMPLOYEE AND CTS SHALL AT ALL TIMES HAVE
THE RIGHT TO TERMINATE EMPLOYEE'S EMPLOYMENT WITH CTS, WITH OR WITHOUT CAUSE, BY
ORAL OR WRITTEN NOTIFICATION TO THE OTHER PARTY.
11. COMPENSATION AFTER TERMINATION OF EMPLOYMENT: Employee shall have no
further right to salary or any other compensation after termination of
Employee's employment with CTS, irrespective of the time, manner or cause of
such termination.
12. ASSIGNMENT: Neither this Agreement nor any other benefits to accrue
hereunder shall be assigned or transferred by Employee, either in whole or in
part (except a transfer effective upon the death of Employee or any payments due
hereunder), without the written consent of CTS, and any purported assignment in
violation hereof shall be void.
13. INDEMNITY: CTS and Employee shall have such indemnity rights and
obligations as provided by California law. Additionally, CTS and Employee shall
indemnify, defend and hold harmless each other from, against and with respect to
any claim, liability, obligation, loss, damage, assessment, judgement, cost or
expense (including without limitation, reasonable attorneys' fees and costs and
expenses reasonably incurred in investigating, preparing, defending against or
prosecuting any litigation or claim), in any action, suit, proceeding or demand,
of any kind or character, arising out of or in any manner, incident, relating or
attributable to any breach of this Agreement.
14. CHOICE OF LAW: This Agreement is executed and intended to be
performed in the State of California and the laws of the State of California
shall govern its interpretation and effect.
15. PARTIAL INVALIDITY: If any term, provision, covenant, or condition of
this Agreement is held by a Court of competent jurisdiction to be invalid, void
or unenforceable, the rest of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. In the event
any provision contained in Paragraphs 7, 8 or 9 of this Agreement should ever be
deemed to exceed the law in any respect, then the parties hereto agree that such
provision shall be amended automatically to provide CTS with the maximum
protection permitted by law.
16. ENTIRE AGREEMENT: This Agreement contains the entire agreement
between the parties concerning the subject matter of this Agreement. It
supersedes all negotiations, statements, promises, or understandings, if any,
made prior to the execution of this Agreement. Any such negotiations, promises,
or
3
<PAGE>
understandings shall not be used to interpret or constitute this Agreement.
17. GENDER: As used in this Agreement, the masculine, feminine or neuter
gender, and the singular or plural number, shall each be deemed to include the
others whenever the context so indicates.
18. OUTSIDE EMPLOYMENT: During the term of Employee's employment with
CTS, Employee shall not engage in any other employment or outside business
activity without the prior written consent of CTS.
19. VENUE: The venue of any civil action, arbitration or other legal
proceeding between Employee, on one hand, and CTS and/or its officers, directors
and employees, on the other hand, arising out of or relating to this Agreement,
the employment of Employee by CTS, the termination of Employee's employment with
CTS, or any other dealings between Employee and CTS, lies only in San Diego,
California, and Employee and CTS waive any right they may have under any statute
or law to cause such action or proceeding to be transferred to any other venue.
20. AMENDMENT AND WAIVER: The terms of this Agreement may be amended,
modified or eliminated, or the observance or performance of any term, covenant
or provision herein may be omitted or waived (either generally or in a
particular instance, and either prospectively or retroactively) only by a
writing signed by Employee and CTS. The waiver by CTS of any breach by Employee
of any term or provision of this Agreement shall not be construed as a waiver of
any subsequent breach.
21. SURVIVAL OF PROVISIONS: The provisions contained in Paragraphs 7, 8,
9, 13, 19 and 25 of this Agreement, and the other provisions hereof to the
extent applicable, shall survive the termination of Employee's employment with
CTS.
22. INUREMENT: This Agreement shall be binding upon and inure to the
benefit of all heirs, assigns (to the extent permitted) and successors in
interest of the parties hereto.
23. HEADLINES: The titles and headlines herein are for convenience only
and shall not be used to interpret this Agreement.
24. EFFECTIVE DATE: This Agreement shall be effective as of the date
written on the first page hereof.
25. ARBITRATION: Any claim or controversy arising out of or relating to
this Agreement or any dealings between Employee, on one hand, and CTS and/or
CTS' officers, directors, employees or agents, on the other hand, shall be
settled before the American Arbitration Association ("AAA") in accordance with
the then obtaining Comprehensive Arbitration Rules and Procedures of AAA. The
arbitrator may not limit, expand or otherwise modify the terms of this
Agreement. The award in such arbitration proceeding may be entered in any Court
of competent jurisdiction specified in paragraph 19 of this Agreement.
4
<PAGE>
ADDENDUM "A"
TO EMPLOYMENT AGREEMENT OF EDWARD S. SOREN
1. BASE SALARY: Employee shall receive a base salary of $12,000.00 per month
during the 1994 calendar year, and a base salary of $15,000.00 per month during
the 1995 year.
2. BONUS COMPENSATION: Employee shall also receive:
(a) 1% of the gross billings for direct dialed traffic (except carrier),
after deduction for in-house write-offs and billing and bad debt adjustments;
(b) 1/2% of billings for carrier traffic, after bad debt adjustments; and
(c) $0.075 per call on operator service traffic.
IT IS SO AGREED:
EMPLOYEE:
/s/ Edward S. Soren
------------------------------------------------
(Signature)
EDWARD S. SOREN
------------------------------------------------
(PRINT NAME)
CTS:
Communication TeleSystems International
By: /s/ [ILLEGIBLE]
-------------------------------------------
Its: Secretary
-------------------------------------------
5
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement ("Agreement") is made
effective as of this 1st day of June 1999 between COMMUNICATION TELESYSTEMS
INTERNATIONAL, a California Corporation, having its principal office at 9999
Willow Creek Road, San Diego, California 92131, (hereinafter referred to as
"CTS") and PATRICK AELVOET (hereinafter referred to as "Employee").
In consideration of the mutual promises of the parties hereto, and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT: The parties agree that the terms of this Agreement shall
govern Employee's employment by CTS effective as of June 1, 1999 (the
"Effective Date").
2. GENERAL DUTIES OF EMPLOYEE: Employee shall have the title of Senior
Vice-President Chief Financial Officer. Employee shall perform such duties as
requested by CTS and, upon request, serve on the Board of Directors of CTS
and/or its subsidiaries and affiliates.
3. CONDUCT OF EMPLOYEE: Employee shall use his best efforts to promote
the interests of CTS and shall refrain from any acts which may adversely
affect the reputation or business of CTS. Employee shall adhere to all laws
and ethical standards applicable to his conduct as an Employee for CTS, shall
abide by and observe all rules, regulations and policies of CTS presently in
effect and any amendments and additions thereto made from time to time and
shall perform in a manner consistent with generally accepted procedures for
his profession.
4. COMPENSATION: As Employee's sole and complete compensation, CTS will
pay to Employee, subject to the conditions and limitations set forth in this
Agreement and all applicable withholding requirements and authorized
deductions, the following compensation:
(a) SALARY: CTS shall pay Employee a salary of Eighteen Thousand
Three Hundred Thirty Three Dollars and Thirty Three Cents ($18,333.33) per
month.
(b) HEALTH INSURANCE: Employee shall participate in such medical
programs or plans that are generally available to employees of CTS.
(c) VACATION: Employee shall receive fifteen (15) days of paid
vacation per year.
(d) BONUS: Employee shall be eligible to earn the bonus set forth on
Addendum "A" hereto.
5. ADVANCES: CTS may, in its sole discretion, make payments to Employee
as advances on compensation expected to become earned pursuant to this
Agreement. Employee agrees that each such advance constitutes a personal
indebtedness of Employee to CTS, repayable by Employee in full immediately
upon demand by CTS, until such time as the compensation on which the advance
is made becomes fully earned.
6. RECORDS TO REMAIN PROPERTY OF CTS: All records of CTS, all records
pertaining or relating to clients of CTS, and all records and documents
prepared or generated by Employee, CTS or any other person or entity in
connection with the performance of Employee under this Agreement, including
but not limited
1
<PAGE>
to account cards, invoice copies, customer lists, leads and all
documents containing the names or addresses of or information relating to
clients who have done business with CTS, are and shall remain the property of
CTS at all times during the term of Employee's employment with CTS, and after
termination of such employment for any reason. None of such records, nor any
part of them may be used by Employee either in original form or in
computerized, duplicated, or copied form except for the purpose of conducting
the business of CTS and the names, addresses, and other information and data
in such records are not to be transmitted verbally, in writing, or in
computerized form by Employee except in the ordinary course of conducting
business for CTS. All of said records or any part of them are the sole
proprietary information of CTS and shall be treated by Employee as
confidential information of CTS. In the event of the termination of
Employee's employment with CTS for any reason, Employee shall return to CTS
all such records and any copies or summaries thereof in computerized,
duplicated, copied or any other form.
7. LIMITATIONS ON EMPLOYEE'S USE OF PROPRIETARY INFORMATION: Employee
shall not at any time, or in any manner, directly or indirectly divulge,
disclose or communicate to any other person, firm or corporation, nor shall
Employee use for his own benefit other than in connection with the performance
of Employee's duties under this Agreement: (i) any of the names, addresses,
telephone numbers of or other data relating to clients of CTS, prospective
customers of CTS or persons, firms or corporations to whom Employee may have
provided services in his capacity as a representative of CTS or to whom other
representatives of CTS have provided such services at any time; (ii) any of
the records or documents referred to in Paragraph 6 of this Agreement; or
(iii) any other information acquired by Employee as a consequence of his
employment with CTS.
8. INVENTIONS: All improvements, discoveries, inventions, designs,
documents or other data related to the Company's business (whether or not
deemed patentable) conceived, developed, made, perfected, acquired, or first
reduced to practice, in whole or in part, during off-duty hours and away from
the Company's premises as well as in the regular course of employment by
Employee during development and research, of the Company or its subsidiaries
and affiliates shall be promptly disclosed to the Company, and Employee shall
hereby assign and transfer his right, interest and title thereto and such
improvements, discoveries, inventions, designs, documents, or other data
shall become the property of the Company. During the term of Employee's
employment and anytime thereafter, upon request of the Company, Employee will
join and render assistance in any proceedings, and execute any papers
necessary to file and prosecute applications for, and to acquire, maintain
and enforce letters, patent, trademarks, registrations and/or copyrights,
both domestic and foreign, with respect to such improvements, discoveries,
inventions, designs, documents, or other data as required for vesting title
to same in the Company.
9. COMPENSATION AFTER TERMINATION OF EMPLOYMENT: Except as otherwise
expressly provided in any written option agreement or plan, Employee shall
have no further right to salary or any other compensation after termination
of Employee's employment with CTS, irrespective of the time, manner or cause
of such termination.
2
<PAGE>
10. TERMINATION OF EMPLOYMENT:
(a) EXCEPT AS EXPRESSLY PROVIDED IN PARAGRAPH 10(b) BELOW EMPLOYEE
AND CTS SHALL AT ALL TIMES HAVE THE RIGHT TO TERMINATE EMPLOYEE'S EMPLOYMENT
WITH CTS, WITH OR WITHOUT CAUSE, BY WRITTEN NOTIFICATION TO THE OTHER PARTY;
(b) In the event that CTS terminates the employment of employee
other than for "cause" as defined below, CTS shall, at its option, either:
(i) provide Employee with at least ninety (90) days advance notice of such
termination; or (ii) pay Employee a severance payment in the amount of Fifty
Thousand Dollars ($50,000.00). As used herein "cause" shall mean personal
dishonesty, incompetence, willful misconduct, abandonment of employment or
extensive absences, conflict of interest or breach of fiduciary duty
involving intent for or obtainment of material personal or family profit,
violation of any law rule or regulation (other than minor traffic offenses
or the like), a court order prohibiting Employee's continued employment with
CTS, a final cease-and-desist order issued by a regulatory agency, or a
material breach by Employee of any provision of this Agreement which is not
cured within ten (10) days after written notice thereof is provided to
Employee by CTS.
11. ASSIGNMENT: Neither this Agreement nor any other benefits to
accrue hereunder shall be assigned or transferred by Employee, either in
whole or in part (except a transfer effective upon the death of Employee of
any payments due hereunder), without the written consent of CTS, and any
purported assignment in violation hereof shall be void.
12. INDEMNITY: CTS and Employee shall have such indemnity rights and
obligations as provided by California law. Additionally, CTS and Employee
shall indemnify, defend and hold harmless each other from, against and with
respect to any claim, liability, obligation, loss, damage, assessment,
judgement, cost or expense (including without limitation, reasonable
attorneys' fees and costs and expenses reasonably incurred in
investigating, preparing, defending against or prosecuting any litigation or
claim), in any action, suit, proceeding or demand, of any kind or character,
arising out of or in any manner, incident, relating or attributable to any
breach of this Agreement.
13. CHOICE OF LAW: This Agreement is executed and intended to be
performed in the State of California and the laws of the State of California
shall govern its interpretation and effect.
14. PARTIAL INVALIDITY: If any term, provision, covenant, or condition
of this Agreement is held by a Court of competent jurisdiction to be invalid,
void or unenforceable, the rest of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated. In the
event any provision contained in Paragraphs 6, 7 or 8 of this Agreement should
ever be deemed to exceed the law in any respect, then the parties hereto agree
that such provision shall be amended automatically to provide CTS with the
maximum protection permitted by law.
15. ENTIRE AGREEMENT: This Agreement contains the entire agreement
between the parties concerning the subject matter of this Agreement. It
supersedes all negotiations, statements, promises, or understandings, if any,
made prior to the execution of this Agreement. Any such negotiations,
promises, or understandings shall not be used to interpret or constitute this
Agreement.
3
<PAGE>
16. GENDER: As used in this Agreement, the masculine, feminine or neuter
gender, and the singular or plural number, shall each be deemed to include
the others whenever the context so indicates.
17. OUTSIDE EMPLOYMENT: During the term of Employee's employment with
CTS, Employee shall not engage in any other employment or outside business
activity without the prior written consent of CTS.
18. VENUE: The venue of any civil action, arbitration or other legal
proceeding between Employee, on one hand, and CTS and/or its officers,
directors and employees, on the other hand, arising out of or relating to
this Agreement, the employment of Employee by CTS, the termination of
Employee's employment with CTS, or any other dealings between Employee and
CTS, lies only in San Diego, California, and Employee and CTS waive any right
they may have under any statute or law to cause such action or proceeding to
be transferred to any other venue.
19. AMENDMENT AND WAIVER: The terms of this Agreement may be amended,
modified or eliminated, or the observance or performance of any term,
covenant or provision herein may be omitted or waived (either generally or in
a particular instance, and either prospectively or retroactively) only by a
writing signed by Employee and CTS. The waiver by CTS of any breach by
Employee of any term or provision of this Agreement shall not be construed as
a waiver of any subsequent breach.
20. SURVIVAL OF PROVISIONS: The provisions contained in Paragraphs 6, 7,
8, 12, 18, 24 and 25 of this Agreement, and the other provisions hereof to
the extent applicable, shall survive the termination of Employee's employment
with CTS.
21. INUREMENT: This Agreement shall be binding upon and inure to the
benefit of all heirs, assigns (to the extent permitted) and successors in
interest of the parties hereto.
22. HEADLINES: The titles and headlines herein are for convenience only
and shall not be used to interpret this Agreement.
23. EFFECTIVE DATE: This Agreement shall be effective as of the date
written on the first page hereof.
24. ARBITRATION: Any claim or controversy arising out of or relating to
this Agreement or any dealings between Employee, on one hand, and CTS and/or
CTS' officers, directors, employees or agents, on the other hand, shall be
settled before J.A.M.S/ENDISPUTE ("JAMS") in accordance with the then
obtaining Comprehensive Arbitration Rules and Procedures of JAMS, as modified
herein. The arbitrator may not limit, expand or otherwise modify the terms of
this Agreement. The award in such arbitration proceeding may be entered in
any Court of competent jurisdiction specified in paragraph 18 of this
Agreement.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
4
<PAGE>
IT IS SO AGREED:
THIS IS A BINDING LEGAL AGREEMENT WHICH SETS FORTH THE TERMS AND
CONDITIONS OF YOUR EMPLOYMENT, INCLUDING COMPENSATION MATTERS.
READ THIS AGREEMENT CAREFULLY BEFORE SIGNING IT.
THIS AGREEMENT ALSO CONTAINS AN ARBITRATION AGREEMENT, WHICH YOU
SHOULD STUDY CAREFULLY. ARBITRATION IS GENERALLY FINAL AND BINDING
ON THE PARTIES. BY AGREEING TO ARBITRATION, YOU ARE WAIVING YOUR
RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO A JURY
TRIAL. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED AND
DIFFERENT FROM COURT PROCEEDINGS. ADDITIONALLY, THE ARBITRATORS'
AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL
REASONING AND ANY PARTY'S RIGHT TO APPEAL OR SEEK MODIFICATION OF
RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
EMPLOYEE:
/s/ Patrick Aelvoet
------------------------------
(Signature)
PATRICK AELVOET
-----------------------------
(PRINT NAME)
CTS:
Communication TeleSystems International
By:/s/ Edward S. Soren
--------------------------
Its: Executive Vice President
-------------------------
5
<PAGE>
ADDENDUM "A"
TO EMPLOYMENT AGREEMENT OF PATRICK AELVOET
1. Employee shall be eligible to earn Bonus Payments of up to One
Hundred Fifty Thousand Dollars ($150,000.00) (the "Bonus Payments") during
the period from June 1, 1999 through May 30, 2000 (the "Bonus Period").
2. The following general terms and conditions apply to each of the
bonus incentives provided herein:
(A) In order to earn a Bonus Payment, the event which gives rise to
payment entitlement must actually occur and be completed during the
Bonus Period. With respect to the raising of equity, consummation of an
liquidity event or public offering and the arrangement of a strategic
partner investment, the event must actually close and fund during the
Bonus Period in order for Employee to earn the bonus compensation.
(B) With respect to each of the bonus incentives listed below, no Bonus
Payment will be earned unless Employee was still actually employed by
CTS on the date or within sixty (60) days prior to the date when the
event which gives rise to the bonus compensation was completed (i.e.,
the date of the actual close of the liquidity event). In the event that,
for any reason, Employee is terminated more than sixty (60) days prior
to the completion of the event, Employee will not be entitled to any
Bonus Payment or other compensation on account thereof, notwithstanding
the fact that Employee may have devoted substantial time and effort
thereto prior to the termination of his employment.
(C) Any and all Bonus Payments earned by Employee will be due and
payable by CTS to Employee when earned, except that CTS may, in its
discretion, withhold from Bonus Payments for the duration of the Bonus
Period the sum of Forty Thousand Dollars ($40,000.00) as a reserve with
respect to the Foothill Default contingency described in Section 3(D)
below.
(D) Nothing in this bonus program shall in any way alter the at-will
nature of Employee's employment with CTS.
(E) In all cases, CTS shall have sole and absolute discretion with
respect to whether or not to enter into any equity sale, liquidity
event, public offering, strategic partner arrangement or other
transaction which would make Employee eligible for a Bonus Payment. In
the event that CTS determines, for any reason in its sole discretion, not
to consummate any proposed transaction Employee shall not be entitled to
any Bonus Payment or other compensation on account thereof.
3. Employee shall earn a Bonus Payment in the amount specified below,
upon the successful completion of the events listed below prior to the end of
the Bonus Period:
(A) Employee will earn a bonus payment in the amount of Ten Thousand
Dollars ($10,000) for each $5 million of equity (as opposed to debt)
raised by CTS during the Bonus Period, from sources other than, Tom
Cirrito, Atocha, L.P., Telecom Venture Group, Walt Anderson, Gold &
Appel Transfer S.A., Henry Lukin, Don Burns, Daniel Borislow or any of
their affiliates (the "Excluded Investors") or an initial public
offering. The maximum bonus which Employee may earn under this
sub-paragraph 3(A) is Thirty Thousand Dollars ($30,000).
(B) Employee will earn a bonus payment in the amount of Ten Thousand
Dollars ($10,000) for each $5 million of new capital leasing capacity
obtained and utilized by CTS during the Bonus Period. The maximum bonus
which may be earned by Employee under this sub-paragraph 3(B) is Thirty
Thousand Dollars ($30,000).
6
<PAGE>
(C) Employee will earn a Bonus Payment in the amount of Twenty-Five
Thousand Dollars ($25,000.00) in the event of a consummation of a
successful public offering of the common stock of CTS or the
consummation of a merger of CTS into public company, prior to the end of
the Bonus Period.
(D) Employee shall earn a bonus payment in the amount of Twenty
Thousand Dollars ($20,000.00) if an event of default does not occur at
any time during the Bonus Period with respect to the Loan and Security
Agreement with Foothill Capital Corporation or any replacement facility
("Foothill Default"). In the event, however, that an event of default
does occur at any time during the Bonus Period under such Loan and
Security Agreement, the amount of Forty Thousand Dollars ($40,000.00)
shall be deducted from any other Bonus Payment compensation earned by
Employee pursuant to this Addendum. For purposes of this provision, an
event of default shall be as defined in the Loan and Security Agreement,
and shall be deemed to have occurred regardless of whether or not
Foothill waives the default or elects to enforce available remedies.
(E) Employee shall earn a Bonus Payment in the amount of Twenty-Five
Thousand ($25,000.00) if CTS, on a consolidated basis calculated
according to generally accepted accounting principals consistently
applied, reports a net after-tax loss not to exceed $61,000,000 for the
fiscal year ending September 30, 1999.
(F) Employee will earn a Bonus Payment of Twenty Thousand Dollars
($20,000.00) upon the consummation of a business transaction with a
strategic partner engaged in the telecommunications business (other than
the Excluded Investors), which results in investment by such strategic
partner of at least $25 million in CTS during the Bonus Period.
(G) Employee will earn a Bonus of Twenty Thousand ($20,000) upon
delivery to CTS of an unqualified opinion without a going concern
exception in the opinion, by its independent auditors for the financial
statements for the fiscal year ending September 30, 1999.
IT IS SO AGREED:
EMPLOYEE:
/s/ Patrick Aelvoet
-----------------------------
(Signature)
PATRICK AELVOET
-----------------------------
(PRINT NAME)
CTS:
Communication TeleSystems International
By:/s/ Edward S. Soren
--------------------------
Its: Executive Vice President
-------------------------
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<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 10TH day of
NOVEMBER, 1995, between COMMUNICATION TELESYSTEMS INTERNATIONAL, a California
Corporation, having its principal office at 4350 La Jolla Village Drive,
Suite 100, San Diego, California 92122, (hereinafter referred to as "CTS")
and BARBARA H. JAMALEDDIN of L5R1, Lake Lotawana, Missouri 64086 (hereinafter
referred to as "Employee").
In consideration of the mutual promises of the parties hereto, and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT: CTS hereby agrees to hire Employee as an employee of CTS,
commencing on DECEMBER 21, 1995 (the "Commencement Date").
2. GENERAL DUTIES OF EMPLOYEE: Employee shall have the title of Director
of Network Operations for CTS.
3. CONDUCT OF EMPLOYEE: Employee shall use her best efforts to promote
the interests of CTS and shall refrain from any acts which may adversely
affect the reputation or business of CTS. Employee shall adhere to all laws
and ethical standards applicable to her conduct as an Employee for CTS, shall
abide by and observe all rules, regulations and policies of CTS presently in
effect and any amendments and additions thereto made from time to time and
shall perform in a manner consistent with generally accepted procedures for
her profession.
4. COMPENSATION: As Employee's sole and complete compensation, CTS will
pay to Employee, subject to the conditions and limitations set forth in this
Agreement and all applicable withholding requirements and authorized
deductions, the following compensation:
(a) SALARY: CTS shall pay Employee a salary of Seven Thousand Nine
Hundred Sixteen Dollars and Sixty Seven Cents ($7,916.67) per month.
(b) HEALTH INSURANCE: Employee shall participate in such medical
programs or plans that are generally available to employees of CTS, after the
standard ninety (90) day waiting period required for all employees.
(c) VACATION: Employee shall be entitled to ten (10) business days
of vacation per year.
(d) BONUS INCENTIVES: Employee shall also be eligible for certain
bonus incentives in the amounts and subject to the conditions set forth in
Addendum "A" to this Agreement.
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(e) MOVING EXPENSES: CTS shall reimburse Employee for reasonable
moving expenses not to exceed Ten Thousand Dollars ($10,000.00), incurred in
connection with her permanent relocation to the San Diego, California
metropolitan area pursuant to this Agreement.
5. ADVANCES: CTS may, in its sole discretion, make payments to Employee
as advances on compensation expected to become earned pursuant to this
Agreement. Employee agrees that each such advance constitutes a personal
indebtedness of Employee to CTS, repayable by Employee in full immediately
upon demand by CTS, until such time as the compensation on which the advance
is made becomes fully earned.
6. COMPENSATION CHANGES: Notwithstanding any other provision contained in
this Agreement, the rates and terms of salary and other compensation payable
to Employee by CTS are subject to change by CTS, upon ten (10) days prior
written notice to Employee.
7. RECORDS TO REMAIN PROPERTY OF CTS: All records of CTS, all records
pertaining or relating to clients of CTS, and all records and documents
prepared or generated by Employee, CTS or any other person or entity in
connection with the performance of Employee under this Agreement, including
but not limited to account cards, invoice copies, customer lists, leads and
all documents and containing the names or addresses of or information
relating to clients who have done business with CTS, are and shall remain the
property of CTS at all times during the term of Employee's employment with
CTS, and after termination of such employment for any reason. None of such
records, nor any part of them may be used by Employee either in original form
or in computerized, duplicated, or copied from except for the purpose of
conducting the business of CTS and the names, addresses, and other
information and data in such records are not to be transmitted verbally, in
writing, or in computerized form by Employee except in the ordinary course of
conducting business for CTS. All of said records or any part of them are the
sole proprietary information of CTS and shall be treated by Employee as
confidential information of CTS. In the event of the termination of
Employee's employment with CTS for any reason, Employee shall return to CTS
all such records and any copies or summaries thereof in computerized,
duplicated, copied or any other form.
8. LIMITATIONS ON EMPLOYEE'S USE OF PROPRIETARY INFORMATION: Employee
shall not at any time, or in any manner, directly or indirectly divulge,
disclose or communicate to any other person, firm or corporation, nor shall
Employee use for her own benefit other than in
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connection with the performance of Employee's duties under this Agreement:
(i) any of the names, addresses, telephone numbers of or other data relating
to clients of CTS, prospective customers of CTS or persons, firms or
corporations to whom Employee may have provided services in her capacity as a
representative of CTS or to whom other representatives of CTS have provided
such services at any time; (ii) any of the records or documents referred to
in Paragraph 9 of this Agreement; or (iii) any other information acquired by
Employee as a consequence of her employment with CTS.
9. INVENTIONS: All improvements, discoveries, inventions, designs,
documents or other data related to the Company's business (whether or
not deemed patentable) conceived, developed, made, perfected, acquired, or
first reduced to practice, in whole or in part, during off-duty hours and
away from the Company's premises as well as in the regular course of
employment by Employee during development and research, of the Company or its
subsidiaries and affiliates shall be promptly disclosed to the Company, and
Employee shall hereby assign and transfer her right, interest and title
thereto and such improvements, discoveries, inventions, designs, documents,
or other data shall become the property of the Company. During the term of
Employee's employment and anytime thereafter, upon request of the Company,
Employee will join and render assistance in any proceedings, and execute any
papers necessary to file and prosecute applications for, and to acquire,
maintain and enforce letters, patent, trademarks, registrations and/or
copyrights, both domestic and foreign, with respect to such improvements,
discoveries, inventions, designs, documents, or other data as required for
vesting title to same in the Company.
10. COMPENSATION AFTER TERMINATION OF EMPLOYMENT: Employee shall have no
further right to salary or any other compensation after termination of
Employee's employment with CTS, irrespective of the time, manner or cause of
such termination.
11. TERMINATION OF EMPLOYMENT: EMPLOYEE AND CTS SHALL AT ALL TIMES HAVE
THE RIGHT TO TERMINATE EMPLOYEE'S EMPLOYMENT WITH CTS, WITH OR WITHOUT CAUSE,
BY ORAL OR WRITTEN NOTIFICATION TO THE OTHER PARTY.
12. ASSIGNMENT: Neither this Agreement nor any other benefits to accrue
hereunder shall be assigned or transferred by Employee, either in whole or in
part (except a transfer effective upon the death of Employee of any payments
due hereunder), without the written consent of CTS, and any purported
assignment in violation hereof shall be void.
13. INDEMNITY: CTS and Employee shall have such indemnity rights
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and obligations as provided by California law. Additionally, CTS and Employee
shall indemnify, defend and hold harmless each other from, against and with
respect to any claim, liability, obligation, loss, damage, assessment,
judgement, cost or expense (including without limitation, reasonable
attorneys' fees and costs and expenses reasonably incurred in investigating,
preparing, defending against or prosecuting any litigation or claim), in any
action, suit, proceeding or demand, of any kind or character, arising out of
or in any manner, incident, relating or attributable to any breach of this
Agreement.
14. CHOICE OF LAW: This Agreement is executed and intended to be
performed in the State of California and the laws of the State of California
shall govern its interpretation and effect.
15. PARTIAL INVALIDITY: If any term, provision, covenant, or condition
of this Agreement is held by a Court of competent jurisdiction to be invalid,
void or unenforceable, the rest of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated. In the
event any provision contained in Paragraphs 7, 8 or 9 of this Agreement
should ever be deemed to exceed the law in any respect, then the parties
hereto agree that such provision shall be amended automatically to provide
CTS with the maximum protection permitted by law.
16. ENTIRE AGREEMENT: This Agreement contains the entire agreement
between the parties concerning the subject matter of this Agreement. It
supersedes all negotiations, statements, promises, or understandings, if any,
made prior to the execution of this Agreement. Any such negotiations,
promises, or understandings shall not be used to interpret or constitute this
Agreement.
17. GENDER: As used in this Agreement, the masculine, feminine or neuter
gender, and the singular or plural number, shall each be deemed to include
the others whenever the context so indicates.
18. OUTSIDE EMPLOYMENT: During the term of Employee's employment with
CTS, Employee shall not engage in any other employment or outside business
activity without the prior written consent of CTS.
19. VENUE: The venue of any civil action, arbitration or other legal
proceeding between Employee, on one hand, and CTS and/or its officers,
directors and employees, on the other hand, arising out of or relating to
this Agreement, the employment of Employee by CTS, the termination of
Employee's employment with CTS, or any other dealings between Employee and
CTS, lies only in San Diego, California, and Employee and CTS waive any right
they have under any statute or law
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<PAGE>
to cause such action or proceeding to be transferred to any other venue.
20. AMENDMENT AND WAIVER: The terms of this Agreement may be amended,
modified or eliminated, or the observance or performance of any term,
covenant or provision herein may be omitted or waived (either generally or in
a particular instance, and either prospectively or retroactively) only by a
writing signed by Employee and CTS. The waiver by CTS of any breach by
Employee of any term or provision of this Agreement shall not be construed as
a waiver of any subsequent breach.
21. SURVIVAL OF PROVISIONS: The provisions contained in Paragraphs 7, 8,
9, 13, 19 and 25 of this Agreement, and the other provisions hereof to the
extent applicable, shall survive the termination of Employee's employment
with CTS.
22. INUREMENT: This Agreement shall be binding upon and inure to the
benefit of all heirs, assigns (to the extent permitted) and successors in
interest of the parties hereto.
23. HEADLINES: The titles and headlines herein are for convenience only
and shall not be used to interpret this Agreement.
24. EFFECTIVE DATE: This Agreement shall be effective as of the date
written on the first page hereof.
25. ARBITRATION: Any claim or controversy between Employee, on one hand,
and CTS and/or its officers, directors, or other employees, on the other
hand, arising out of or relating to this Agreement, Employee's employment
with CTS, the termination of Employee's employment with CTS or any other
dealings between Employee and CTS, shall be settled by arbitration before the
American Arbitration Association ("AAA") in accordance with the AAA's
commercial arbitration rules in effect at the time such arbitration is
commenced. The award in any arbitration proceeding between Employee and CTS
shall be binding and final, and may be entered in any court of competent
jurisdiction specified in Paragraph 19 of this Agreement.
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<PAGE>
IT IS SO AGREED:
THIS IS A BINDING LEGAL AGREEMENT WHICH SETS FORTH THE TERMS AND
CONDITIONS OF YOUR EMPLOYMENT, INCLUDING COMPENSATION MATTERS. READ
THIS AGREEMENT CAREFULLY BEFORE SIGNING IT.
THIS AGREEMENT ALSO CONTAINS AN ARBITRATION AGREEMENT, WHICH YOU
SHOULD STUDY CAREFULLY. ARBITRATION IS GENERALLY FINAL AND BINDING
ON THE PARTIES. BY AGREEING TO ARBITRATION, YOU ARE WAIVING YOUR
RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO A JURY
TRIAL. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED AND
DIFFERENT FROM COURT PROCEEDINGS. ADDITIONALLY, THE ARBITRATORS'
AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL
REASONING AND ANY PARTY'S RIGHT TO APPEAL OR SEEK MODIFICATION OF
RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED.
EMPLOYEE:
/s/ Barbara H. Jamaleddin
--------------------------------------------------
(Signature)
Barbara H. Jamaleddin
--------------------------------------------------
(Print Name)
CTS:
Communication TeleSystems International
By: /s/ Edward S. Soren
---------------------------------------------
Its:
---------------------------------------------
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ADDENDUM "A"
STOCK OPTION AGREEMENT
CTS grants Employee a non-qualified stock option to purchase a total of One
Thousand Four Hundred (1,400) shares of common stock of Communication
TeleSystems International ("the Company") (the "Shares"). The option to
acquire the Shares is granted upon the following terms and conditions:
1. The exercise price for each share of common stock is $2.00.
2. The following amount of options will vest as follows if the Employee
is employed by the Company on the following dates:
a. 1,400 shares on the date one (1) year after the Commencement Date
of your employment with CTS.
If, for any reason whatsoever, you are not employed by the Company on any
of the indicated dates, you shall not earn any options as of that date.
Additionally, nothing herein shall alter the at-will nature of your
employment with Company and that Company at all times shall have the right to
terminate your employment, with or without cause.
3. Subject to Paragraph 5 herein, any options which you receive in
accordance with the schedule set forth in Paragraph 2 above may be exercised
at any time on or before the earliest of the following dates ("Expiration
Date"): April 5, 2002; or sixty (60) days after written notice and demand for
exercise given by company, which may be given by Company only in the event of
a merger or acquisition. No partial exercise of such option may be for less
than 100 full shares. In no event shall the Company be required to transfer
fractional shares to the Employee.
4. The option granted under this Agreement shall be exercisable within
the time period stated herein, by the delivery of written notice of intent to
exercise to the Secretary of the Company, accompanied by payment in cash to
the Company of the full purchase price of the shares which the Employee
elects to purchase. The Company shall not be required to transfer or deliver
any certificate or certificates for shares of the Company's common shares
purchased upon exercise of the option granted under this Agreement until all
then applicable requirements of law have been met.
5. Any option and all rights granted by this Agreement, to the extent
those rights have not been exercised, or otherwise expired will terminate and
become null and void on April 5, 2002. If the Employee dies, the person or
persons to whom his vested rights under this Agreement shall pass, whether by
will or by the applicable laws of descent and distribution, may exercise all
options which had vested as of the date of Employee's death. Such exercise
must be made by the earliest of the following dates: (i) within one (1) year
after Employee's death; (ii) April 5, 2002; or (iii) sixty (60) days after
notice and demand for exercise given by company.
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Notwithstanding the above, Employee's rights to all options received by
Employee which have not been exercised, and all rights granted by this
Agreement shall in all events terminate and become null and void if Employee
is employed either as an employee or consultant by any company, joint
venture, partnership or individual which the Company determines is in
competition with the Company.
6. During the lifetime of the Employee the options and all rights granted
in this Agreement shall be exercisable only by the Employee, and except as
Paragraph 5 otherwise provides, the options and all rights granted under this
contract shall not be transferred, assigned, pledged, or hypothecated in any
way (whether by operation of law or otherwise), and shall not be subject to
execution, attachment, or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate, or otherwise dispose of such option or of such
rights contrary to the provisions in this Agreement, or upon the levy of any
attachment or similar process upon such option or such rights, such option
and such rights shall immediately become null and void.
7. Upon the sale of all or substantially all of the assets of the Company
or change in control or seventy percent (70%) of the outstanding voting
shares of the Company (excluding any such change in control resulting from
transfers in trust or to related or affiliated parties), all non-vested
options shall immediately vest.
8. In the event of any change in the common shares of the Company subject
to the option granted hereunder, through merger, consolidation,
reorganization, recapitalization, stock split, stock dividend, or other
change in the corporate structure, appropriate adjustment shall be made by
the Company, without consideration, in the number of shares subject to such
option and the price per share. Upon the dissolution or liquidation of the
Company, the option granted under this Agreement shall terminate and become
null and void. Employee shall have the right immediately prior to such
dissolution or liquidation to exercise all options granted hereunder
(including non-vested) to the full extent not before exercised.
9. Neither the Employee nor his executor, administration, heirs, or
legatees, shall be or have any rights or privileges of a shareholder of the
Company in respect of the shares transferable upon exercise of the option
granted under this Agreement, unless and until certificates representing such
shares shall have been endorsed, transferred, and delivered and the
transferee has caused his name to be entered as the shareholder of record on
the books of the Company.
10. THE SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION CERTIFICATE ARE
PRECLUDED FROM TRANSFERABILITY WITHOUT WRITTEN AUTHORIZATION FROM THE COMPANY.
11. The Company does not attempt to advise you any consequences arising
from your acquisition of the Shares through the exercise of the option. For
tax consequences to you, please consult with your tax advisor.
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 1st day of October,
1996 between COMMUNICATION TELESYSTEMS INTERNATIONAL, a California
corporation, having its principal office at 4350 La Jolla Village Drive,
Suite 100, San Diego, California 92122, (hereinafter referred to as "CTS" or
the "Company") and ERIC G. LIPOFF of 3455 Lebon, #1010, San Diego, California
92122 (hereinafter referred to as "Employee").
This Agreement is made and entered into with reference to the following
facts:
WHEREAS, CTS and Employee's law firm, Raring & Lipoff, are parties to an
Amended and Restated Agreement for Legal Services dated January 19, 1993 (the
"Prior Agreement");
WHEREAS, the parties desire to modify the terms of their relationship as
set forth in the Prior Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. EMPLOYMENT: CTS hereby agrees to hire Employee as an employee of
CTS, effective as of January 1, 1997 (the "Commencement Date").
2. GENERAL DUTIES OF EMPLOYEE: Employee shall have the title of
General Counsel for CTS. Employee shall perform such duties as reasonably
requested by CTS and, upon request and agreement of Employee, serve on the
Board of Directors of CTS and/or its subsidiaries and affiliates.
3. CONDUCT OF EMPLOYEE: Employee shall use his best efforts to promote
the interests of CTS and shall refrain from any acts which may adversely
affect the reputation or business of CTS. Employee shall adhere to all laws
and ethical standards applicable to his conduct as an Employee for CTS, shall
abide by and observe all rules, regulations and policies of CTS presently in
effect and any amendments
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<PAGE>
and additions thereto made from time to time which are applicable to all
employees of CTS and shall perform in a manner consistent with generally
accepted procedures for his profession.
4. COMPENSATION: As Employee's sole and complete compensation, CTS
will pay to Employee, subject to the conditions and limitations set forth in
this Agreement and all applicable withholding requirements and authorized
deductions, the following compensation:
(a) SALARY: CTS shall pay Employee a salary of EIGHTY THREE
THOUSAND THREE HUNDRED THIRTY-THREE Dollars ($83,333.00) per month.
(b) EMPLOYEE BENEFITS: Employee shall participate in such
medical, dental, disability insurance and life insurance programs or plans
that are generally available to executives of CTS.
(c) VACATION: Employee shall be entitled to twenty (20) business
days of vacation per year.
(d) OPTION PLAN: Employee shall be entitled to earn stock options
under the terms and conditions of the Non-Qualified Option Agreement attached
hereto as Exhibit "A".
5. ADVANCES: CTS may, in its sole discretion, upon the written request
of Employee, make payments to Employee as advances on compensation expected
to become earned pursuant to this Agreement. Employee agrees that each such
advance constitutes a personal indebtedness of Employee to CTS, repayable by
Employee in full immediately upon demand by CTS, until such time as the
compensation on which the advance is made becomes fully earned.
6. TERMINATION OF EMPLOYMENT:
(a) At all times prior to January 1, 2000, CTS may not terminate
Employee's employment except in the following cases: (i) upon written notice
to Employee within thirty (30) days after the occurrence of a "Trigger Event"
as defined below; (ii) for "Cause" as defined below; or (iii) upon written
notice to Employee within thirty (30) days after the closing of an initial
public offering of Company's stock. As used herein, a "Trigger Event" shall
mean: (i) if the beneficial ownership of 50% or more of the voting
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<PAGE>
securities of the Company is transferred (excluding transfers in trust or by
operation of law) to person(s) other than shareholders of the Company as of
the Effective Date of this Agreement (the "present shareholders") and
relatives and affiliates of the present shareholders (a "stock sale"); (ii)
actual consummation of a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or the parent of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company, surviving entity or
parent of the surviving entity outstanding immediately after such merger or
consolidation (a "merger"); or (iii) complete liquidation of the Company or
the sale or disposition by the Company of all or substantially all the
Company's assets (an "asset sale"). As used herein, the term "cause" shall
mean: willful misconduct of a serious nature, abandonment of employment or
excessive absences after reasonable notice, conflict of interest or breach of
fiduciary duty involving his responsibilities as an employee involving intent
for or obtainment of material personal or family profit, conviction of any
criminal offense which constitutes a felony under the laws of the United
States or any state, a court order prohibiting Employee's continued
employment with CTS which is not vacated or removed within ten (10) days
after entry, a final cease-and-desist order issued by a regulatory agency, or
a material breach by Employee of any provision of this Agreement which is not
cured within ten (10) days after written notice Employee.
(b) At any time on or after January 1, 2000, CTS may terminate
Employee's employment, with or without cause, upon written notice.
7. COMPENSATION AFTER TERMINATION OF EMPLOYMENT: Except as expressly
provided in this Agreement and in any written option plan or agreement,
Employee shall have no further right to salary or any other compensation
after termination of Employee's employment with CTS, irrespective of the
time, manner or cause of such termination.
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<PAGE>
8. PAYMENT UPON CERTAIN EVENTS:
(a) Upon the occurrence of a "trigger event" as defined in
paragraph 6 of this Agreement, CTS shall pay Employee the lesser of the
following amounts: (i) five percent (5%) of the following -- in the case of
an asset sale, the total consideration received by CTS for the assets sold;
in the case of a stock sale, the price or value per-share paid for the stock
sold, multiplied by the total number of shares of CTS common stock then
outstanding; or, in the case of a merger, the value attributed to CTS in the
merger; or (ii) seven-tenths of one percent (0.7%) of the gross monthly
revenues of CTS and WXL Communications Ltd., a Canadian Corporation ("WXL")
(after deduction only for bad debt, in-house write-offs and inter-company
write-offs) for the last full calendar month immediately prior to the closing
of the subject transaction, multiplied by the number of months (including the
pro-rata portion of any partial month) remaining from the closing date of the
subject transaction through December 31, 1999. The amount payable pursuant to
this provision shall be paid to Lipoff upon the closing of the subject
transaction.
(b) In the event that any division or customer base asset of CTS
or WXL is sold, CTS shall pay to Employee the lesser of the following
amounts: (i) five percent (5%) of the total consideration received by CTS or
WXL for the division or customer base asset sold; or (ii) seven-tenths of one
percent (0.7%) of the gross monthly revenues (after deduction only for bad
debt and in-house write-offs) generated by the division or customer base
asset sold during the last full calendar month immediately prior to the
closing of the subject transaction, multiplied by the number of months
(including the pro-rata portion of any partial month) remaining from the
closing of the subject transaction through December 31, 1999. The amount
payable pursuant to this provision shall be paid to Lipoff upon the closing
of the subject transaction.
(c) In the event Company exercises its right to terminate
Employee's employment in the event of an initial public offering ("IPO") as
provided in Paragraph 6(a)(iii) of this Agreement, CTS shall pay to Employee
the lesser of the following amounts: (i) five percent (5%) of the following
amount -- the price per share received by CTS in the IPO, multiplied by the
total number of shares of CTS outstanding
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<PAGE>
immediately after closing of the IPO; or (ii) seven-tenths of one-percent
(0.7%) of the gross monthly revenues of CTS and WXL (after deduction only for
bad-debt, in-house write-offs and inter-company write-offs) for the last full
calendar month immediately prior to the closing of the IPO, multiplied by the
number of months (including the pro-rata portion of any partial month)
remaining from the closing of the IPO through December 31, 1999. The amount
payable pursuant to this provision shall be paid to Lipoff upon termination
of his Employment.
9. RECORDS TO REMAIN PROPERTY OF CTS: All records of CTS, and all
records and documents prepared or generated by Employee, CTS or any other
person or entity in connection with the performance of Employee under this
Agreement, including but not limited to account cards, invoice copies,
customer lists, leads and all documents containing the names or addresses of
or information relating to clients who have done business with CTS, are and
shall remain the property of CTS at all times during the term of Employee's
employment with CTS, and after termination of such employment for any reason.
None of such records, nor any part of them may be used by Employee either in
original form or in computerized, duplicated, or copied form except for the
purpose of conducting the business of CTS and the names, addresses, and other
information and data in such records are not to be transmitted verbally, in
writing, or in computerized form by Employee except in the ordinary course of
conducting business for CTS. All of said records or any part of them are the
sole proprietary information of CTS and shall be treated by Employee as
confidential information of CTS. In the event of the termination of
Employee's employment with CTS for any reason, Employee shall return to CTS
all such records and any copies or summaries thereof in computerized,
duplicated, copied or any other form.
10. LIMITATIONS ON EMPLOYEE'S USE OF PROPRIETARY INFORMATION: During
the term of Employee's employment with CTS, and for a period of eighteen
(18) months after the termination of Employee's employment with CTS,
irrespective of the time, manner or cause of such termination Employee shall
not, in any manner, directly or indirectly divulge, disclose or communicate to
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<PAGE>
any other person, firm or corporation, nor shall Employee use for his own
benefit other than in connection with the performance of Employee's duties
under this Agreement: (i) any of the names, addresses, telephone numbers of
or other data relating to carrier vendors or customers of CTS, prospective
customers of CTS or persons, firms or corporations to whom Employee may have
provided services in his capacity as a representative of CTS or to whom other
representatives of CTS have provided such services at any time; (ii) any of
the records or documents referred to in Paragraph 9 of this Agreement; or
(iii) any other information acquired by Employee as a consequence of his
employment with CTS. Notwithstanding the foregoing, however, these
limitations shall not apply to information which: (i) was actually known to
Employee prior to the commencement of his employment with CTS; or (ii) is
widely known among firms engaged in CTS' business.
11. INVENTIONS: All improvements, discoveries, inventions, designs,
documents or other data related to the Company's business (whether or not
deemed patentable) conceived, developed, made, perfected, acquired, or first
reduced to practice, in whole or in part, during off-duty hours and away from
the Company's premises as well as in the regular course of employment by
Employee during development and research of the Company or its subsidiaries
and affiliates shall be promptly disclosed to the Company, and Employee shall
hereby assign and transfer his right, interest and title thereto and such
improvements, discoveries, inventions, designs, documents, or other data
shall become the property of the Company. During the term of Employee's
employment and any time thereafter, upon request and at the expense of the
Company, Employee will join and render reasonable assistance in any
proceedings, and execute any papers necessary to file and prosecute
applications for, and to acquire, maintain and enforce letters, patent,
trademarks, registrations and/or copyrights, both domestic and foreign, with
respect to such improvements, discoveries, inventions, designs, documents, or
other data as required for vesting title to same in the Company.
6
<PAGE>
12. NON-COMPETITION AND NON-SOLICITATION PROVISIONS: During the term
of Employee's employment with CTS, and for a period of one (1) year after the
termination of Employee's employment with CTS, irrespective of the time,
manner or cause of such termination, Employee shall not without the prior
written consent of Company; directly or indirectly: (i) be employed by or
consult for any person or entity engaged in the business of, or be engaged in
the business of, offering or providing long-distance or international
telecommunications service; (ii) knowingly solicit, assist any other person,
firm or corporation in soliciting or be a principal in any firm or
corporation soliciting any of the CTS customers served by Employee or by any
other employee of CTS during the term of Employee's employment with CTS;
(iii) knowingly purchase, assist others in purchasing or be a principal in
any firm or corporation purchasing international termination service from any
vendor utilized by CTS during the term of Employee's employment with CTS,
with the exception of carrier vendor sources which are widely known among or
known firms engaged in CTS' business; or (iv) knowingly solicit, assist
others in soliciting or be a principal in any firm or corporation soliciting
any employee of CTS or its affiliates to terminate his or her employment with
CTS or offer, assist others in offering or be a principal in any firm or
corporation which offers employment to any person who is then employed by CTS
or its affiliates or has been employed by CTS or its affiliates within the
six (6) month period before such offer of employment is made.
13. PLACE OF EMPLOYMENT: Employee shall not be required to work at a
place of employment more than forty (40) miles away from the location where
the CTS corporate headquarters is located as of the Commencement Date, except
at such other location where the primary corporate headquarters of CTS may be
moved in the future.
14. ASSIGNMENT: Neither this Agreement nor any other benefits to
accrue hereunder shall be assigned or transferred by Employee, either in
whole or in part (except a transfer effective upon the death of Employee of
any payments due hereunder), without the written consent of CTS, and any
purported assignment in violation hereof shall be void. This Agreement may be
assigned to and assumed by a
7
<PAGE>
successor to Company upon notice to Employee.
15. INDEMNITY: CTS and Employee shall have such indemnity rights and
obligations as provided by California law.
16. CHOICE OF LAW: This Agreement shall be construed under the laws of
the State of California without regard to choice of law principles.
17. PARTIAL INVALIDITY: If any term, provision, covenant, or condition
of this Agreement is held by a Court of competent jurisdiction to be invalid,
void or unenforceable, the rest of this Agreement shall remain in full force
and effect and shall in no way be affected, impaired or invalidated. In the
event any provision contained in Paragraphs 9, 10, 11, 12 or 13 of this
Agreement should ever be deemed to exceed the law in any respect, then the
parties hereto agree that such provision shall be amended automatically to
provide CTS with the maximum protection permitted by law.
18. ENTIRE AGREEMENT: This Agreement contains the entire agreement
between the parties concerning the subject matter of this Agreement. It
supersedes all negotiations, statements, promises, or understandings, if any,
made prior to the execution of this Agreement. Any such negotiations,
promises, or understandings shall not be used to interpret or constitute this
Agreement.
19. GENDER: As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall each be deemed to
include the others whenever the context so indicates.
20. OUTSIDE EMPLOYMENT: During the term of Employee's employment with
CTS, Employee shall not engage in any other employment (other than for
affiliates of CTS) or outside business activity (as defined below) without
the prior written consent of CTS. The term "outside business activity" shall
not include (i) totally passive investments of any kind, with the exception
of investments in competitors of CTS which are not publicly traded, or (ii)
serving on the board of directors or as an occasional consultant to a
non-profit organization, or (iii) Employee's involvement as counsel of record
in the Multivest Class Action litigation presently pending in the United
States District Court for the Southern District of Florida
8
<PAGE>
21. VENUE: The venue of any civil action, arbitration or other legal
proceeding between Employee, on one hand, and CTS and/or its officers,
directors and employees, on the other hand, arising out of or relating to
this Agreement, the employment of Employee by CTS, the termination of
Employee's employment with CTS, or any other dealings between Employee and
CTS, lies only in San Diego, California, and Employee and CTS waive any right
they may have under any statute or law to cause such action or proceeding to
be transferred to any other venue.
22. AMENDMENT OR WAIVER: The terms of this Agreement may be amended,
modified or eliminated, or the observance or performance of any term,
covenant or provision herein may be omitted or waived (either generally or in
a particular instance, and either prospectively or retroactively) only by a
writing signed by Employee and CTS. The waiver by CTS of any breach by
Employee of any term or provision of this Agreement shall not be construed as
a waiver of any subsequent breach.
23. SURVIVAL OF PROVISIONS: The provisions contained in Paragraphs 9,
10, 11, 12, 13, 15, 21 and 27 of this Agreement, and the other provisions
hereof to the extent applicable, shall survive the termination of Employee's
employment with CTS.
24. INUREMENT: This Agreement shall be binding upon and inure to the
benefit of all heirs, assigns (to the extent permitted) and successors in
interest of the parties hereto.
25. HEADLINES: The titles and headlines herein are for convenience
only and shall not be used to interpret this Agreement.
26. EFFECTIVE DATE: This Agreement shall be effective as of the date
written on the first page hereof.
27. ARBITRATION: Any claim or controversy between Employee, on one
hand, and CTS and/or its officers, directors and employees, on the other
hand, arising out of or relating to this Agreement (including the Option
Agreement and other attachments hereto), the employment of Employee by CTS,
9
<PAGE>
the termination of Employee's employment with CTS, the Consulting
Relationship or any other dealings between Employee and CTS, shall be
resolved by final and binding arbitration before J.A.M.S./ENDISPUTE ("JAMS")
in accordance with the then obtaining Comprehensive Arbitration Rules and
Procedures of JAMS, as modified herein. The arbitrator may not limit, expand
or otherwise modify the terms of this Agreement and shall not have authority
to award punitive or other non-compensatory damages to either party. The
award in such arbitration proceeding may be entered in any Court specified in
Paragraph 21 of this Agreement.
28. INTERPRETATION: This Agreement is the product of good faith, arm's
length negotiations between the parties during which each of the parties was
represented by competent counsel. It has been drafted, reviewed and commented
upon by counsel for each party. Accordingly, the contract rule of
interpretation against the drafter of a document shall not apply.
IT IS SO AGREED:
EMPLOYEE:
/s/ Eric G. Lipoff
------------------------------
(Signature)
ERIC G. LIPOFF
------------------------------
(Print Name)
CTS:
By: /s/ Edward S. Soren
-------------------------
Edward S. Soren
Its: President
-------------------------
10
<PAGE>
EXHIBIT "A" TO EMPLOYMENT AGREEMENT
NON-QUALIFIED OPTION AGREEMENT
1. Employee is hereby granted non-qualified options to purchase up to
Eighty Three Thousand Three Hundred Forty (83,340) shares of Communication
TeleSystems International's ("CTS or Company") common stock ("Options"),
which Options shall be earned and vest on the terms and conditions set forth
in this agreement ("Option Agreement").
2. The Options will vest as follows: one thirty-sixth (1/36) of the
Options (2315 shares) will vest on the first day of each month ("Monthly
Vesting Date") from January of 1997 through December of 1999 if, and only if,
Employee is still employed by CTS on such Monthly Vesting Date.
3. The exercise price of each share of common stock covered by each
Option granted under this Option Agreement is fifteen dollars ($15.00) per
share.
4. Except as provided in Paragraph 5 hereof, vested Options earned by
Employee must be exercised on the earliest of the following dates: (i) at any
time on or before December 31, 2004 or (ii) ten (10) days after written
demand by Company, which may only be given upon the occurrence of a Trigger
Event as defined in Paragraph 6 of Employee's Employment Agreement with
Company dated October 1, 1996. No partial exercise of any Option may be for
less than one hundred (100) full shares. In no event shall the Company be
required to transfer fractional shares to Lipoff.
5. Any vested Options earned under this Option Agreement shall be
exercisable within the time period stated herein, by the delivery of written
notice of intent to exercise to the Secretary of the Company accompanied by
payment in cash to the Company of the full purchase price of the
1
<PAGE>
shares which the Employee elects to purchase. In the event that any Options
would terminate pursuant to any provision of this Agreement prior to December
31, 2004, the Employee shall have the option to pay the exercise price
thereof with a promissory note having an interest rate equal to the then
applicable mid-term adjusted federal rate assuming annual compounding,
payable in four equal installments on the first, second, third and fourth
anniversary dates of the date of execution of such promissory note, which
note shall be secured by a pledge of the stock covered by the exercise (with
25% of the pledged shares released upon each annual payment), in form
reasonably acceptable to Company. The Company shall not be required to
transfer or deliver any certificate or certificates for shares of the
Company's common shares purchased upon exercise of any Option granted
hereunder until all then applicable requirements of law have been met, but
shall be obligated to transfer or deliver such certificates promptly after
all their applicable requirements have been met.
6. Any Option and all rights granted hereunder, to the extent those
rights have not been exercised, will terminate and become null and void on
December 31, 2004. If the Employee dies, the person or persons to whom his
vested rights under this Agreement shall pass, whether by will or by the
applicable laws of descent and distribution, may exercise all Options which
had vested as of the date of Employee's death. Such exercise must be made by
December 31, 2004.
7. Except as Paragraph 6 hereof otherwise provides, during the lifetime
of the Employee the Options and all rights granted hereunder shall be
exercisable only by the Employee, and the Options and all rights granted
under this contract shall not be transferred, assigned, pledged, or
hypothecated in any way (whether by operation of law or otherwise),
2
<PAGE>
and shall not be subject to execution, attachment, or similar process. Upon
any attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of
such Option or of such rights contrary to the provisions hereof, or upon the
levy of any attachment or similar process upon such Option or such rights,
such Option and such rights shall immediately become null and void.
8. In the event of any forward or reverse split in, stock dividend with
respect to or reclassification of the Company's common stock, the amount of
Options and price per share specified in this Option Agreement shall be
adjusted accordingly. In the event of any other change in the capital
structure of Company, including but not limited to the issuance of additional
shares, the amount of Options and price per share set forth herein shall not
be adjusted.
9. Neither the Employee nor his executor, administration, heirs, or
legatees, shall be or have any rights or privileges of a shareholder of the
Company in respect of the shares transferable upon exercise of the Option
obtainable hereunder, unless and until certificates representing such shares
shall have been endorsed, transferred, and delivered and the transferee has
caused his name to be entered as the shareholder of record on the books of
the Company.
10. THE SHARES TO BE ISSUED UPON EXERCISE OF THE OPTIONS HEREUNDER 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)
EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL
OR OTHER
3
<PAGE>
EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE
NOT REQUIRED, OR (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITIES.
11. The Company does not attempt to advise Employee regarding any
consequences arising hereunder or from acquisition of the shares through the
exercise of Options. Employee should consult his personal tax advisor with
respect to such tax matters.
12. By receipt of this Option, by its execution, and by its exercise in
whole or in part, Employee represents to the Company that Employee
understands that:
(i) both this Option and any shares purchased upon its exercise
are securities, the issuance by the Company of which requires compliance with
federal and state securities laws;
(ii) these securities are made available to Employee only on the
condition that Employee makes the representations contained in this Section
24 to the Company;
(iii) Employee has make a reasonable investigation of the affairs
of the Company sufficient to be well informed as to the rights and the value
of these securities;
(iv) Employee understands that the securities have not been
registered under the Securities Act of 1933, as amended (the "Act") in
reliance upon one or more specific exemptions contained in the Act, if
available, or which may depend upon (a) Employee's bona fide investment
intention in acquiring these securities; (b) Employee's intention to hold
these securities for Employees own benefit for an indefinite period; (c)
Employee having no present intention of selling or transferring any part
thereof (recognizing that the Option is not transferable); and (d) there
being certain restrictions on transfer of the shares subject to the
4
<PAGE>
Option;
(v) Employee understands that the Shares subject to this Option,
in addition to other restrictions on transfer, must be held indefinitely
unless subsequently registered under the Act, or unless an exemption from
registration is available; that Rule 144, the usual exemption from
registration, is only available after the satisfaction of certain holding
periods and in the presence of a public market for the Shares; that there is
no certainty that a public market for the Shares will exist, and that
otherwise it will be necessary that the Shares be sold pursuant to
another exemption from registration which may be difficult to satisfy; and
(vi) Employee understands that the certificate representing the
Shares will bear a legend prohibiting their transfer in the absence of
their registration or the opinion of
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
counsel for the Company that registration is not required.
IT IS SO AGREED:
EMPLOYEE:
/s/ Eric G. Lipoff
-----------------------------
(Signature)
ERIC G. LIPOFF
-----------------------------
(Print Name)
CTS:
By: /s/ Edward S. Soren
-------------------------
Edward S. Soren
Its:
------------------------
President
6
<PAGE>
NON-QUALIFIED OPTION AGREEMENT
This Non-Qualified Option Agreement ("Agreement") is entered into
effective as of this 1st day of September, 1995, by and between WXL
International Australia, Inc., a Delaware Corporation ("Company") and Eric
G. Lipoff ("Lipoff"), and is made with reference to the following facts:
WHEREAS, Lipoff is presently performing legal services for Company and
Company's parent corporation, Communication TeleSystems, International
("CTS"); and
WHEREAS, Company and Lipoff wish to modify the terms of their agreement
regarding such services;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Company and Lipoff agree as follows:
1. During the time period that Lipoff is performing legal services for
CTS under the current agreement between Lipoff and CTS or any replacement
thereto, Lipoff shall also perform similar legal services for Company without
additional compensation.
2. Lipoff is hereby granted non-qualified options to purchase Two
Hundred Seven Thousand Six Hundred Forty-Nine (207,649) shares of Company's
common stock ("Options").
3. The exercise price of each share of common stock covered by each
Option granted under this Option Agreement is ten cents ($0.10) per share.
4. Except as provided in Paragraph 6 hereof, vested Options earned by
Lipoff must be exercised on the earliest of the following dates: (i) at any
time on or before December 31,
1
<PAGE>
2004 or (ii) ten (10) days after written demand by Company, which may only be
given upon a merger or acquisition of Company or CTS. No partial exercise of
any Option may be for less than one hundred (100) full shares. In no event
shall the Company be required to transfer fractional shares to Lipoff.
5. Any vested Options earned under this Option Agreement shall be
exercisable within the time period stated herein, by the delivery of written
notice of intent to exercise to the Secretary of the Company, accompanied by
payment in cash to the Company of the full purchase price of the shares which
Lipoff elects to purchase.
6. Any Option and all rights granted hereunder, to the extent those
rights have not been exercised, will terminate and become null and void on
December 31, 2004. If Lipoff dies, the person or persons to whom his vested
rights under this Agreement shall pass, whether by will or by the applicable
laws of descent and distribution, may exercise all Options which had vested
as of the date of Lipoff's death. Such exercise must be made by December 31,
2004.
7. Except as Paragraph 6 hereof otherwise provides, during the
lifetime of Lipoff the Options and all rights granted hereunder shall be
exercisable only by Lipoff, and the Options and all rights granted under this
contract shall not be transferred, assigned, pledged, or hypothecated in any
way (whether by operation of law or otherwise), and shall not be subject to
execution, attachment, or similar process. Upon any attempt to transfer,
assign, pledge, hypothecate, or otherwise dispose of such Option or of such
rights contrary to the provisions hereof, or upon the levy of any attachment
or similar process upon such Option or such rights, such Option and such
rights shall immediately become null and void.
2
<PAGE>
8. In the event of any forward or reverse split in, stock dividend
with respect to or reclassification of the Company's common stock, the amount
of Options and price per share specified in this Option Agreement shall be
adjusted accordingly. In the event of any other change in the capital
structure of the Company, including but not limited to the issuance of
additional shares, the amount of Options and price per share set forth herein
shall not be adjusted.
9. Neither Lipoff nor his executor, administration, heirs, or
legatees, shall be or have any rights or privileges of a shareholder of the
Company in respect of the shares transferable upon exercise of the Option
obtainable hereunder, unless and until certificates representing such shares
shall have been endorsed, transferred, and delivered and the transferee has
caused his name to be entered as the shareholder of record on the books of
the Company.
10. THE SHARES TO BE ISSUED UPON EXERCISE OF THE OPTIONS HEREUNDER 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)
EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL
OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, OR (iii) RECEIPT OF NO-ACTION LETTERS FROM
THE APPROPRIATE GOVERNMENTAL AUTHORITIES.
11. The Company does not attempt to advise Lipoff regarding any
consequences
3
<PAGE>
arising hereunder or from acquisition of the shares through the exercise of
Options. Lipoff should consult his personal tax advisor with respect to such
tax matters.
12. By receipt of this Option, by its execution, and by its exercise in
whole or in part, Lipoff represents to the Company that Lipoff understands
that:
(i) both this option and any shares purchased upon its exercise
are securities, the issuance by the Company of which requires compliance with
federal and state securities laws;
(ii) these securities are made available to Lipoff only on the
condition that Lipoff makes the representations contained in this Section 24
to the Company;
(iii) Lipoff has make a reasonable investigation of the affairs of
the Company sufficient to be well informed as to the rights and the value of
these securities;
(iv) Lipoff understands that the securities have not been
registered under the Securities Act of 1933, as amended (the "Act") in
reliance upon one or more specific exemptions contained in the Act, if
available, or which may depend upon (a) Lipoff's bona fide investment
intention in acquiring these securities; (b) Lipoff's intention to hold these
securities for Lipoff's own benefit for an indefinite period; (c) Lipoff
having no present intention of selling or transferring any part thereof
(recognizing that the Option is not transferable); and (d) there being
certain restrictions on transfer of the shares subject to the Option;
(v) Lipoff understands that the Shares subject to this Option, in
addition to other restrictions on transfer, must be held indefinitely unless
subsequently registered under
4
<PAGE>
the Act, or unless an exemption from registration is available; that Rule
144, the usual exemption from registration, is only available after the
satisfaction of certain holding periods and in the presence of a public
market for the Shares; that there is no certainty that a public market for
the Shares will exist, and that otherwise it will be necessary that the
Shares be sold pursuant to another exemption from registration which may be
difficult to satisfy; and
(vi) Lipoff understands that the certificate representing the
Shares will bear a legend prohibiting their transfer in the absence of their
registration or the opinion of counsel for the Company that registration is
not required.
IT IS SO AGREED:
/s/ Eric G. Lipoff
------------------------------
(Signature)
ERIC G. LIPOFF
------------------------------
(Print Name)
WXL INTERNATIONAL AUSTRALIA, INC.:
By: /s/ Edward S. Soren
-------------------------
Edward S. Soren
Its:
-------------------------
President
5
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this 28th day of April
1999 between COMMUNICATION TELESYSTEMS INTERNATIONAL d/b/a WorldxChange
Communications, a California Corporation, having its principal office at 9999
Willow Creek Road, San Diego, California 92131, (hereinafter referred to as
"CTS" or "Company") and WILLIAM MOSKOWITZ (hereinafter referred to as
"Employee").
In consideration of the mutual promises of the parties hereto, and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT: CTS hereby agrees to hire Employee as an employee of
CTS, commencing on May 24, 1999 (the "Commencement Date").
2. GENERAL DUTIES OF EMPLOYEE: Employee shall have the title of Chief
Information Officer of CTS. Employee shall perform such duties as requested
by CTS and, upon request, serve on the Board of Directors of CTS and/or its
subsidiaries and affiliates.
3. CONDUCT OF EMPLOYEE: Employee shall use his best efforts to promote
the interests of CTS and shall refrain from any acts which may adversely
affect the reputation or business of CTS. Employee shall adhere to all laws
and ethical standards applicable to his conduct as an Employee for CTS,
shall abide by and observe all rules, regulations and policies of CTS
presently in effect and any amendments and additions thereto made from time
to time and shall perform in a manner consistent with generally accepted
procedures for his profession.
4. COMPENSATION: As Employee's sole and complete compensation, CTS
will pay to Employee, subject to the conditions and limitations set forth in
this Agreement and all applicable withholding requirements and authorized
deductions, the following compensation:
(a) SALARY: CTS shall pay Employee a salary of One Hundred
Seventy Thousand Dollars ($170,000.00) per year.
(b) HEALTH INSURANCE: Employee shall participate in such medical
programs or plans that are generally available to employees of CTS.
(c) VACATION: Employee shall receive fifteen (15) days of paid
vacation per year.
(d) DUAL LIVING ALLOWANCE: Employee shall receive a dual living
allowance of Two Thousand Dollars ($2,000.00) per month during the first four
(4) months of his employment with CTS.
(e) MOVING REIMBURSEMENT: Company shall reimburse Employee for
the actual and reasonable moving and relocation expenses incurred in
connection with his relocation to the San Diego, California area, not to
exceed Ten Thousand Dollars ($10,000.00).
(f) BONUS PROGRAM Employee shall receive consideration for
quarterly bonuses of Ten Thousand Six Hundred Twenty Five Dollars
($10,625.00) per calendar quarter during the first year of Employee's
employment. The bonus shall be based upon the Company's assessment of
Employee's performance, including
WAM Eds
------- -------
1 Initial Initial
<PAGE>
performance objectives to be discussed between Employee and his immediate
supervisor. The determination as to whether Employee has earned this bonus
shall be in the sole and absolute discretion of the Company, the Company
shall not have any liability under any circumstances in the event that
Employee fails to receive any bonus payment(s).
5. RECORDS TO REMAIN PROPERTY OF CTS: All records of CTS, and its
subsidiaries, all records pertaining or relating to clients of CTS and its
subsidiaries, and all records and documents prepared or generated by
Employee, CTS or any other person or entity in connection with the
performance of Employee under this Agreement, including but not limited to
account cards, invoice copies, customer lists, leads and all documents
containing the names or addresses of or information relating to clients who
have done business with CTS, or its subsidiaries are and shall remain the
property of CTS at all times during the term of Employee's employment with
CTS, and after termination of such employment for any reason. None of such
records, nor any part of them may be used by Employee either in original form
or in computerized, duplicated, or copied form except for the purpose of
conducting the business of CTS and the names, addresses, and other
information and data in such records are not to be transmitted verbally, in
writing, or in computerized form by Employee except in the ordinary course of
conducting business for CTS. All of said records or any part of them are the
sole proprietary information of CTS and shall be treated by Employee as
confidential information of CTS. In the event of the termination of
Employee's employment with CTS for any reason, Employee shall return to CTS
all such records and any copies or summaries thereof in computerized,
duplicated, copied or any other form.
6. LIMITATIONS ON EMPLOYEE'S USE OF PROPRIETARY INFORMATION: Employee
shall not at any time, or in any manner, directly or indirectly divulge,
disclose or communicate to any other person, firm or corporation, nor shall
Employee use for his own benefit other than in connection with the
performance of Employee's duties under this Agreement: (i) any of the names,
addresses, telephone numbers of or other data relating to clients of CTS,
prospective customers of CTS or persons, firms or corporations to whom
Employee may have provided services in his capacity as a representative of
CTS or to whom other representatives of CTS have provided such services at
any time; (ii) any of the records or documents referred to in Paragraph 5 of
this Agreement; or (iii) any other information acquired by Employee as a
consequence of his employment with CTS.
7. INVENTIONS: All improvements, discoveries, inventions, designs,
documents or other data related to the Company's business (whether or not
deemed patentable) conceived, developed, made, perfected, acquired, or first
reduced to practice, in whole or in part, during off-duty hours and away from
the Company's premises as well as in the regular course of employment by
Employee during development and research, of the Company or its subsidiaries
and affiliates shall be promptly disclosed to the Company, and Employee
shall hereby assign and transfer his right, interest and title thereto and
such improvements, discoveries, inventions, designs, documents, or other
data shall become the property of the Company. During the term of Employee's
employment and anytime thereafter, upon request of the Company, Employee will
join and render assistance in any proceedings, and execute any papers
necessary to file and prosecute applications for, and to acquire, maintain
and enforce letters, patent, trademarks, registrations and/or copyrights,
both domestic and foreign, with respect to such
WAM Eds
------- -------
2 Initial Initial
<PAGE>
improvements, discoveries, inventions, designs, documents, or other data as
required for vesting title to same in the Company. The requirement under this
Agreement that Employee assign his rights in inventions shall not apply to an
invention that Employee developed entirely on his own time without using the
Company's equipment, supplies, facilities, or trade secret information except
for those inventions that either: (i) relate at the time of conception or
reduction to practice of the invention to the Company's business, or actual
or demonstrably anticipated research or development of the Company; or (ii)
result from any work performed by Employee for the Company.
8. CUSTOMER SOLICITATION: For a period of one (1) year after the
termination of this Agreement for any reason, Employee will not, for himself
or on behalf of any other person, firm, partnership or corporation, directly
or indirectly call upon or deal with any Customer of CTS or its subsidiaries
for the purpose of soliciting or providing to such Customer any products or
services which are the same as or substantially similar to those provided to
Customers by CTS or its subsidiaries. For the purposes of this Agreement
"Customer" shall mean any person or entity who purchased products or services
from CTS or its subsidiaries within twelve (12) months prior to the
termination of Employee's employment with CTS.
9. SOLICITATION OF OTHER EMPLOYEES: During the term of this Agreement,
and for a period of one (1) year after the termination of this Agreement for
any reason, Employee shall not directly or through another person or entity,
for himself or on behalf of any other person, firm, partnership or
corporation, directly or indirectly seek to persuade any director, officer or
employee of CTS, or its subsidiaries, to discontinue that individual's status
with CTS, or its affiliates or subsidiaries, or hire, engage as a consultant,
or employ any individual who was employed by CTS or its subsidiaries during
the preceding twelve (12) months.
10. COMPENSATION AFTER TERMINATION OF EMPLOYMENT: Except as otherwise
expressly provided in this Agreement or in any written option agreement or
plan, Employee shall have no further right to salary or any other
compensation after termination of Employee's employment with CTS,
irrespective of the time, manner or cause of such termination.
11. TERMINATION OF EMPLOYMENT:
(a) EMPLOYEE AND CTS SHALL AT ALL TIMES HAVE THE RIGHT TO
TERMINATE EMPLOYEE'S EMPLOYMENT WITH CTS, WITH OR WITHOUT CAUSE, BY ORAL OR
WRITTEN NOTIFICATION TO THE OTHER PARTY;
12. ASSIGNMENT: Neither this Agreement nor any other benefits to accrue
hereunder shall be assigned or transferred by Employee, either in whole or in
part (except a transfer effective upon the death of Employee of any payments
due hereunder), without the written consent of CTS, and any purported
assignment in violation hereof shall be void.
13. CHOICE OF LAW: This Agreement is executed and intended to be
performed in the State of California and the laws of the State of California,
without regard to choice law principles, shall govern its interpretation and
effect.
14. PARTIAL INVALIDITY: If any term, provision, covenant, or condition
of this Agreement is
WAM Eds
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3 Initial Initial
<PAGE>
held by a Court of competent jurisdiction to be invalid, void or
unenforceable, the rest of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. In the event
any provision contained in Paragraphs 5, 6, 7, 8, or 9 of this Agreement
should ever be deemed to exceed the law in any respect, then the parties
hereto agree that such provision shall be amended automatically to provide CTS
with the maximum protection permitted by law.
15. ENTIRE AGREEMENT: This Agreement contains the entire agreement
between the parties concerning the subject matter of this Agreement. It
supersedes all negotiations, statements, promises, or understandings, if any,
made prior to the execution of this Agreement. Any such negotiations,
promises, or understandings shall not be used to interpret or constitute this
Agreement.
16. GENDER: As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural number, shall each be deemed to
include the others whenever the context so indicates.
17. OUTSIDE EMPLOYMENT: During the term of Employee's employment with
CTS, Employee shall not engage in any other employment or outside business
activity without the prior written consent of CTS.
18. VENUE: The venue of any civil action, arbitration or other legal
proceeding between Employee, on one hand, and CTS and/or its officers,
directors and employees, on the other hand, arising out of or relating to
this Agreement, the employment of Employee by CTS, the termination of
Employee's employment with CTS, or any other dealings between Employee and
CTS, lies only in San Diego, California, and Employee and CTS waive any
right they may have under any statute or law to cause such action or
proceeding to be transferred to any other venue.
19. AMENDMENT AND WAIVER: The terms of this Agreement may be amended,
modified or eliminated, or the observance or performance of any term,
covenant or provision herein may be omitted or waived (either generally or
in a particular instance, and either prospectively or retroactively) only by
a writing signed by Employee and CTS. The waiver by CTS of any breach by
Employee of any term or provision of this Agreement shall not be construed as
a waiver of any subsequent breach.
20. SURVIVAL OF PROVISIONS: The provisions contained in Paragraphs 5,
6, 7, 8, 9, 18 and 24 of this Agreement, and the other provisions hereof to the
extent applicable, shall survive the termination of Employee's employment
with CTS.
21. INUREMENT: This Agreement shall be binding upon and inure to the
benefit of all heirs, assigns (to the extent permitted) and successors in
interest of the parties hereto.
22. HEADLINES AND CONSTRUCTION: Both parties have cooperated in the
drafting of this Agreement, which shall not be construed against either
party. The titles and headlines herein are for convenience only and shall not
be used to interpret this Agreement.
23. EFFECTIVE DATE: This Agreement shall be effective as of the date
written on the first page hereof.
24. ARBITRATION: Any claim or controversy arising out of or relating to
this Agreement or any dealings between Employee, on one hand, and CTS and/or
CTS' officers, directors, employee or agents, on the
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4 Initial Initial
<PAGE>
other hand, shall be settled before J.A.M.S/ENDISPUTE ("JAMS") in accordance
with the then obtaining Comprehensive Arbitration Rules and Procedures of
JAMS, as modified herein. The arbitrator may not limit, expand or otherwise
modify the terms of this Agreement. The award in such arbitration proceeding
may be entered in any Court of competent jurisdiction specified in paragraph
18 of this Agreement.
IT IS SO AGREED:
THIS IS A BINDING LEGAL AGREEMENT WHICH SETS FORTH
THE TERMS AND CONDITIONS OF YOUR EMPLOYMENT,
INCLUDING COMPENSATION MATTERS. READ THIS AGREEMENT
CAREFULLY BEFORE SIGNING IT.
THIS AGREEMENT ALSO CONTAINS AN ARBITRATION
AGREEMENT, WHICH YOU SHOULD STUDY CAREFULLY.
ARBITRATION IS GENERALLY FINAL AND BINDING ON THE
PARTIES. BY AGREEING TO ARBITRATION, YOU ARE WAIVING
YOUR RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE
RIGHT TO A JURY TRIAL. PRE-ARBITRATION DISCOVERY IS
GENERALLY MORE LIMITED AND DIFFERENT FROM COURT
PROCEEDINGS. ADDITIONALLY, THE ARBITRATORS' AWARD IS
NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL
REASONING AND ANY PARTY'S RIGHT TO APPEAL OR SEEK
MODIFICATION OF RULINGS BY THE ARBITRATORS IS
STRICTLY LIMITED.
EMPLOYEE:
/s/ William A. Moskowitz
------------------------------
(Signature)
WILLIAM MOSKOWITZ
------------------------------
(Print Name)
CTS:
Communication TeleSystems International
By: /s/ Edward S Soren
--------------------------
Its: Executive Vice President
--------------------------
WAM Eds
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5 Initial Initial
<PAGE>
TELECOMMUNICATIONS FINANCE GROUP
LEASE AGREEMENT
This LEASE AGREEMENT, is effective on October 4, 1993 between
TELECOMMUNICATIONS FINANCE GROUP ("hereinafter Lessor") and Communication
TeleSystems International Corporation with its principal office located at
4350 LaJolla Village Drive, Suite 100, San Diego, CA 92122 ("hereinafter
Lessee").
1. LEASE.
Lessor, subject to the conditions set forth in Section 25 hereof, agrees
to lease to Lessee and Lessee agrees to lease from Lessor hereunder,
those items of personal property (the "Equipment") which are described
on Schedule 1 of Exhibit A hereto. Lessee agrees to execute and deliver
to Lessor a certificate of delivery and acceptance in substantively the
form of Exhibit A hereto (a "Delivery Certificate") immediately after
Turnover of the Equipment, and such execution shall constitute
Lessee's irrevocable acceptance of such items of Equipment for all
purposes of this Lease. The Delivery Certificate shall constitute a part
of this Lease to the same extent as if the provisions thereof were set
forth herein.
2. DEFINITIONS.
"AMORTIZATION DEDUCTIONS" as defined in Section 11 (b) (i) hereof.
"APPRAISAL PROCEDURE" shall mean the following procedure for determining
the Fair Market Sale Value of any item of Equipment. If either Lessor or
Lessee shall request by notice (the "Appraisal Request") to the other
that such value be determined by the Appraisal Procedure, (i) Lessor and
Lessee shall, within 15 days after the Appraisal Request, appoint an
independent appraiser mutually satisfactory to them, or (ii) if the
parties are unable to agree on a mutually acceptable appraiser within
such time, Lessor and Lessee shall each appoint one independent
appraiser (PROVIDED that if either party hereto fails to notify the
other party hereto of the identity of the independent appraiser chosen
by it within 30 days after the Appraisal Request, the determination of
such value shall be made by the independent appraiser chosen by such
other party), and (iii) if such appraisers cannot agree on such value
within 20 days after their appointment and if one appraisal is not
within 5 percent of the other appraisal, Lessor and Lessee shall choose a
third independent appraiser mutually satisfactory to them (or, if they
fail to agree upon a third appraiser within 25 days after the
appointment of the first two appraisers, such third independent
appraiser shall within 20 days thereafter be appointed by the American
Arbitration Association), and such value shall be determined by such third
independent appraiser within 20 days after his appointment, after
consultation with the other two independent appraisers. If the first two
appraisals are within 5% of each other, then the average of the two
appraisals shall be the Fair Market Sale Value. The fees and expenses of
all appraisers shall be paid by Lessee.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of Florida.
"CODE" shall mean the Internal Revenue Code of 1954, as amended, or any
comparable successor law.
"COMMENCEMENT DATE" as defined in Section 3 hereof.
"DEFAULT" shall mean any event or condition which after the giving of
notice or lapse of time or both would become an Event of Default.
"DELIVERY CERTIFICATE" as defined in Section 1 hereof.
"EQUIPMENT" as defined in Section 1 hereof.
"EVENT OF DEFAULT" as defined in Section 18 hereof.
"EVENT OF LOSS" shall mean, with respect to any item of Equipment, the
actual or constructive total loss of such item of Equipment or the use
thereof, due to theft, destruction, damage beyond repair or rendition
thereof permanently unfit for normal use from any reason whatsoever, or
the condemnation, confiscation or seizure of, or requisition of title to
or use of, such item of Equipment.
"FAIR MARKET SALE VALUE" shall, at any time with respect to any item of
Equipment, be equal to the sale value of such item of Equipment which
would be obtained in an arm's-length transaction between an informed and
willing seller under no compulsion to sell and an informed and willing
buyer-user (other than a lessee currently in possession or a used
equipment or scrap dealer). For purposes of Section 7(b) hereof, Fair
Market Sale Value shall be determined by (i) an independent appraiser
(at Lessee's expense) selected by Lessor or (ii) by the Appraiser
Procedure if the Appraisal Request is made at least 90 days (but not
more than 360 days) prior to the termination or expiration of the Lease
Term, as the case may be, which determination shall be made (a) without
deduction for any costs or expenses of dismantling or removal; and (b)
on the assumption that such item of Equipment is free and clear of all
Liens and is in the condition and repair in which it is required to be
returned pursuant to Section 7(a) hereof. For purposes of Section 19(c)
hereof, Fair Market Sale Value shall be determined (at Lessee's expense)
by an independent appraiser selected by Lessor, on an "as-is, where-is"
basis, without regard to the provisions of clauses (a) and (b) above;
PROVIDED that if Lessor shall have sold any item of Equipment pursuant
to Section 19(b) hereof prior to giving the notice referred to in
Section 19(c) hereof, Fair Market Sale Value of such item of Equipment
shall be the net process of such sale of after deduction of all costs and
expenses incurred by Lessor in connection therewith; PROVIDED FURTHER,
that if for any reason Lessor is not able to obtain possession of any
item of Equipment pursuant to Section 19(a) hereof, the Fair Market Sale
Value of such item of Equipment shall be zero.
"IMPOSITION" as defined in Section 11(a) hereof.
"INDEMNITEE" as defined in Section 17 hereof.
"LATE CHARGE RATE" shall mean an interest rate per annum equal to the
higher of two percent (2%) over the Reference Rate or eighteen percent
(18%), but not to exceed the highest rate permitted by applicable law.
"LEASE" and the terms "hereof", "herein", "hereto" and "hereunder", when
used in this Lease Agreement, shall mean and include this Lease
Agreement. Exhibits and the Delivery Certificate hereto as the same may
from time to time be amended, modified or supplemented.
"LEASE TERM" shall mean, with respect to any item of Equipment, the term
of the lease of such item of Equipment hereunder specified in Section 3
hereof.
"LESSEE" as defined in the introductory paragraph to this Lease.
"LESSOR" as defined in the introductory paragraph to this Lease.
<PAGE>
"LESSOR'S VALUE" shall mean, with respect to any item of Equipment, and
installation if applicable, the total amount set forth in Schedule 1 of
Exhibit A hereto.
"LESSOR'S LIENS" shall mean (i) any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement, title retention or
any other right or claim of any person claiming through or under
Lessor, not based upon or relating to ownership of the Equipment or the
lease thereof hereunder and (ii) any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement, title retention or
any other right or claim of Owner (other than Lessor) claiming through
or under Lessor in connection with the transactions described in Section
21(b) hereof.
"LIENS" shall mean any mortgage, pledge, lien, security interest,
charge, encumbrance, financing statement, title retention or any other
right or claim of any person, other than any Lessor's lien.
"LOSS PAYMENT DATE" shall mean with respect to any item of Equipment the
date on which payment, as described in Section 16(b) hereof, is made to
the Lessor by the Lessee as the result of an Event of Loss with respect
to such item. The Loss Payment Date shall be within ninety (90) days of
the said Event of Loss.
"OWNER" shall mean the entity or person having ownership interest to the
Equipment as contemplated by the provisions of Section 21(b) hereof and
may be a person other than Lessor.
"OWNER'S ECONOMICS" shall mean the after-tax yield and periodic
after-tax cash flow anticipated by Owner as of the date of this Lease,
in connection with the transactions contemplated by this Lease as
determined by Owner unless Lessor shall have transferred its interest in
the Equipment to another person as contemplated by the provisions of
Section 21(b) hereof in which case "Owner's Economics" shall mean the
after-tax yield and periodic after-tax cash flow anticipated by such
person as of the date of the lease between such person and Lessor
contemplated by said provisions, in connection with the transactions
contemplated by such lease as determined by such person.
"RECOVERY DEDUCTIONS" as defined in Section 11(b) (i) hereof.
SEE ATTACHED AMENDMENT
"RENT PAYMENT DATE" shall mean each date on which an installment of rent
is due and payable pursuant to Section 5(a) hereof.
"STIPULATED LOSS VALUE" shall mean, with respect to any item of
Equipment, the amount determined by multiplying the Lessor's VALUE of
such item of Equipment by the percentage set forth in Schedule A hereto
opposite the applicable Rent Payment Date; PROVIDED, that for purposes
of Sections 16(b) and 19(c) hereof, any determination of Stipulated Loss
Value as of a date occurring after the final Rent Payment Date with
respect to such Item of Equipment, shall be made as of such final Rent
Payment Date.
"TAX BENEFITS" shall mean the right to claim such deductions, credits,
and other benefits as are provided by the Code to an owner of property,
including the Recovery Deductions and Amortization Deductions.
"TURNOVER" shall mean that point in time when the equipment installation
personnel complete testing of the equipment, or when the equipment is
placed into service, whichever first occurs.
All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles.
3. LEASE TERM.
The term of the lease of Equipment hereunder shall commence on the
Commencement Date specified in the Delivery Certificate ("Commencement
Date") and, unless earlier terminated pursuant to the provisions hereof
or at law or equity, shall continue for a term of sixty (60) months
from such Commencement Date. The Commencement Date specified in the
Delivery Certificate shall be the date on which Turnover occurs at a
site provided by Lessee in accordance with the provisions of Section 4
hereof.
4. INSTALLATION.
Lessor shall arrange for installation of the Equipment, the cost of
which installation shall be deemed to be part of Lessor's Value. Exhibit
A hereto shall indicate whether such costs is included or excluded from
the monthly rent payments due in accordance with Section 5(a) hereof. If
excluded from such monthly rent payments, Lessor shall separately
invoice Lessee for such installation upon completion thereof and Lessee
shall pay such invoice within (30) days from the date thereof. Lessee
shall be obligated to timely provide a suitable site for the
installation of the Equipment in accordance with the Equipment
manufacturer's practices attached hereto as Exhibit C. Lessee shall be
responsible for compliance with environmental requirements and central
office grounding procedures specified in Exhibit C hereto and for
providing adequate space, lighting, heating, air-conditioning and
A/C power at the installation site. Unavailability of Lessee furnished
facilities shall be cause for adjustments to the installation price set
forth in Schedule 1 of Exhibit A hereto.
5. RENT: UNCONDITIONAL OBLIGATIONS.
SEE SCHEDULE G
(b) Lessee shall also pay to Lessor, on demand, interest at the Late
Charge Rate on any installment of rent and on any other amount owing
hereunder which is not paid on its due date, for any period for which
the same shall be overdue. Each payment made under this Lease shall be
applied first to the payment of interest then owing and then to rent or
other amounts owing hereunder. Interest shall be computed on the basis
of a 360-day year and actual days elapsed.
(c) This Lease is a net lease, and Lessee's obligation to pay all rent
and all other amounts payable hereunder is ABSOLUTE and UNCONDITIONAL
under any and all circumstances and shall not be affected by any
circumstances of any character whatsoever, including, without
limitation, (i) any set-off, counterclaim, recoupment, defense,
abatement or reduction or any right which Lessee may have against
Lessor, the manufacturer or supplier of any of the Equipment or anyone
else for any reason what-
2
<PAGE>
soever; (ii) any defect in the title, condition, design, or operation of,
or lack of fitness for use of, or any damage to, or loss of, all or any
part of the Equipment from any cause whatsoever; (iii) the existence of
any Liens with respect to the Equipment; (iv) the invalidity,
unenforceability or disaffirmance of this Lease or any other document
related hereto; or (v) the prohibition of or interference with the use or
possession by Lessee of all or any part of the Equipment, for any reason
whatsoever, including without limitation, by reason of (1) claims for
patent, trademark or copyright infringement; (2) present or future
governmental laws, rules or orders; (3) the insolvency, bankruptcy or
reorganization of any person; and (4) any other cause whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. Lessee hereby waives, to the extent permitted by
applicable law, any and all rights which it may now have or which may at
any time hereafter be conferred upon it, by statute or otherwise, to
terminate, cancel, quit or surrender the lease of any Equipment. If for
any reason whatsoever this Lease or any Supplement, other than pursuant
to Section 16(b) hereof, shall be terminated in whole or in part by
operation of law or otherwise, Lessee will nonetheless pay to Lessor an
amount equal to each installment of rent at the time such installment
would have become due and payable in accordance with the terms hereof.
Each payment of rent or other amount paid by Lessee hereunder shall be
final and Lessee will not seek to recover all or any part of such payment
from Lessor for any reason whatsoever.
6. WARRANTY DISCLAIMER;
ASSIGNMENT OF WARRANTIES
(a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE AND LESSEE
HEREBY EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR
PURPOSE, FREEDOM FROM INTERFERENCE OR INFRINGEMENT OR THE LIKE, OR AS TO
THE TITLE TO OR LESSOR'S OR LESSEE'S INTEREST IN THE EQUIPMENT OR AS TO
ANY OTHER MATTER RELATING TO THE EQUIPMENT OR ANY PART THEREOF.
LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND EACH PART THEREOF
ON THE BASIS OF ITS OWN JUDGEMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON
ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR.
LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION
OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO THE
TRANSACTIONS CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES
AND/OR TAX TREATMENT THEREOF.
(b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS LESSOR MAY HAVE (TO
EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL MANUFACTURERS'
AND SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT; PROVIDED,
HOWEVER, THAT THE FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO LESSOR
UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT
HEREUNDER, OR UPON THE RETURN OF THE EQUIPMENT TO LESSOR. LESSEE AGREES
TO SETTLE ALL CLAIMS WITH RESPECT TO THE EQUIPMENT DIRECTLY WITH THE
MANUFACTURERS OR SUPPLIERS THEREOF, AND TO GIVE LESSOR PROMPT NOTICE OF
ANY SUCH SETTLEMENT AND THE DETAILS OF SUCH SETTLEMENT, HOWEVER, IN THE
EVENT ANY WARRANTIES ARE NOT ASSIGNABLE, THE LESSOR AGREES TO ACT ON
BEHALF OF THE LESSEE IN SETTLING CLAIMS ARISING UNDER THE WARRANTY WITH
THE MANUFACTURER OR SUPPLIER.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF REVENUE OR PROFITS,
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR
FROM ANY CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
7. DISPOSITION OF EQUIPMENT.
(a) RETURN.
Lessee shall, upon the expiration of the Lease Term of each item of
Equipment, subject to paragraph (b) below, return such item of Equipment
to Lessor at such place within the continental United States of America
as Lessor shall designate in writing to Lessee. Until such item of
Equipment is returned to Lessor pursuant to the provisions of this
Section, all of the provisions of this Lease with respect thereto shall
continue in full force and effect. Lessee shall pay all the costs and
expenses in connection with or incidental to the return of the Equipment,
including, without limitation, the cost of removing, assembling, packing,
insuring and transporting the Equipment. At the time of such return, the
Equipment shall be in the condition and repair required to be maintained
by Section 12 hereof and free and clear of all Liens.
(b) PURCHASE OPTION SEE SCHEDULE D
8. REPRESENTATION AND WARRANTIES.
In order to induce Lessor to enter into this Lease and to lease the
Equipment to Lessee hereunder, Lessee represents and warrants that:
(a) ORGANIZATION.
Lessee is duly organized, validly existing and in good standing under the
laws of the State of California and is duly qualified to do business and
is in good standing in the State in which the Equipment will be located.
(b) POWER AND AUTHORITY.
Lessee has full power, authority and legal right to execute, deliver and
perform this Lease, and the execution, delivery and performance hereof
has been duly authorized by Lessee's governing body or officer(s).
(c) ENFORCEABILITY.
This Lease has been duly executed and delivered by Lessee and constitutes
a legal, valid and binding obligation of Lessee enforceable in accordance
with its terms.
(d) CONSENTS AND PERMITS.
The execution, delivery and performance of this Lease does not require
any approval or consent of any trustee, shareholder, partner, sole
proprietor or holders of any
3
<PAGE>
indebtedness or obligations of Lessee, and will not contravene any law,
regulation, judgment or decree applicable to Lessee, or the certificate
of partnership or incorporation or by-laws of Lessee, or contravene the
provisions of, or constitute a default under, or result in the creation
of any Lien upon any property of Lessee under any mortgage, instrument
or other agreement to which Lessee is a party or by which Lessee or its
assets may be bound or affected; and no authorization, approval, license,
filing or registration with any court or governmental agency or
instrumentality is necessary in connection with the execution, delivery,
performance, validity and enforceability of this Lease.
(e) FINANCIAL CONDITION OF THE LESSEE.
The financial statements of Lessee heretofore furnished to Lessor are
complete and correct and fairly present the financial condition of Lessee
and the results of operations for the respective periods covered thereby,
there are no known contingent liabilities or liabilities for taxes of
Lessee which are not reflected in said financial statements and since the
date thereof, there has been no material adverse change in such financial
condition or operations.
(f) NO LITIGATION.
There is no action, suit, investigation or proceeding by or before any
court, arbitrator, administrative agency or other governmental authority
pending or threatened against or affecting Lessee (A) which involves the
transactions contemplated by this Lease or the Equipment; or (B) which,
if adversely determined, could have a material adverse effect on the
financial condition, business or operations of Lessee.
(g) UNITED STATES SOURCE INCOME.
No items of Equipment shall be used in a way that results in the creation
of an item of income to Lessor, the source of which for Federal Income
Tax purposes is without the United States.
9. LIENS.
Lessee will not directly or indirectly create, incur, assume, suffer, or
permit to exist any Lien on or with respect to the Equipment.
10. INSURANCE.
Lessee shall maintain at all times on the Equipment, at its expense,
property damage, direct damage and liability insurance in such amounts,
against such risks, in such form and with such insurers as shall be
satisfactory to Lessor and any other Owner; provided, that the amount of
direct damage insurance shall not on any date be less than the greater of
the full replacement value of the Stipulated Loss Value of the Equipment
as of such date. Each insurance policy will, among other things, name
Lessor and any other Owner as an additional insured or as loss payee (as
the case may be) as their interests may appear, require that the insurer
give Lessor and any such Owner at least thirty (30) days prior written
notice of any alteration in or cancellation of the terms of such policy,
and require that the interest of Lessor and any such Owner be continued
insured regardless of any breach of or violation by Lessee of any
warranties, declarations or conditions contained in such insurance
policy. At Lessor's or such Owner's option, Lessee shall furnish to
Lessor and such Owner a certificate or other evidence satisfactory to
Lessor that such insurance coverage is in effect provided, however, that
Lessor and such Owner shall be under no duty to ascertain the existence
of adequacy of such insurance.
11. TAXES.
(a) GENERAL TAX PROVISIONS.
Lessee shall pay, and shall indemnify and hold Lessor harmless from and
against, all fees, taxes (whether sales, uses, excise, personal property
or other taxes), imposts, duties, withholdings, assessments and other
governmental charges of whatever kind or character, however designated
(together with any penalties, fines or interest thereon), all the
foregoing being herein collectively called "impositions", which are at
any time levied or imposed against Lessor, Lessee, this Lease, the
Equipment or any part thereof by any Federal, State or Local Government
or taxing authority in the United States or by any foreign government or
any subdivision or taxing authority thereof upon, with respect to, as a
result of or measured by (i) the Equipment (or any part thereof), or this
Lease or the interests of the Lessor therein; or (ii) the purchase,
ownership, delivery, leasing, possession, maintenance, use, operation,
return, sale or other disposition of the Equipment or any part thereof;
or (iii) the rentals, receipts or earnings payable under this Lease or
otherwise arising from the Equipment or any part thereof; EXCLUDING,
HOWEVER, taxes based on or measured by the net income of Lessor that are
imposed by (1) the United States of America, or (2) the State of Florida
or any political subdivision of the State of Florida, or (3) any other
State of the United States of America or any political subdivision of any
such State in which Lessor is subject to impositions as the result
(whether solely or in part) of business or transactions unrelated to this
Lease. In case any report or return is required to be filed with respect
to any obligation of Lessee under this Section or arising out of this
Section, Lessee will notify Lessor of such requirement and make such
report or return in such manner as shall be satisfactory to Lessor;
PROVIDED, that the payment of any use taxes shall be made in such manner
as specified by Lessor in writing to Lessee; or (iv) The provisions of
this Section shall survive the expiration or earlier termination of this
Lease.
(b) SPECIAL TAX PROVISIONS.
(i) The owner of the items of Equipment, shall be entitled to take into
account in computing its Federal income tax liability, Current Tax Rate
and such deductions, credits, and other benefits as are provided by the
Code to an owner of property, including, without limitation;
(A) Recovery deductions ("Recovery Deductions") under Section 168(a)
of the Code for each item of Equipment in an amount determined,
commencing with the 1993 taxable year, by multiplying the Owner's
Cost of such item of Equipment by the percentages applicable under
Section 168(b) of the Code with respect to "(5)-year property" within
the meaning of Section 168(c)(2) of the Code;
(B) Amortization of expenses ("Amortization Deductions") paid or to
be paid by Owner in connection with this Lease at a rate no less rapid
than straight line over the Lease Term.
(ii) For the purposes of this Subsection 11(b) only, the term "Owner"
shall include the "common parent" and all other corporations included in
the affiliated group, within the meaning of Section 1504 of the Code (or
any other successor section thereto), of which Owner is or becomes a
member.
12. COMPLIANCE WITH LAWS; OPERATION AND MAINTENANCE.
(a) Lessee will use the Equipment in a careful and proper manner, will
comply with and conform to all governmental laws, rules and regulations
relating thereto, and will cause the Equipment to be operated in
accordance with the manufacturer's or supplier's instructions or manuals.
(b) Lessee will, at his own expense, keep and maintain the Equipment in
good repair, condition and working order and furnish all parts,
replacements, mechanisms, devices and servicing required therefor so that
the value, condition and operating efficiency therefore will at all times
be maintained and preserved reasonable wear and tear excepted. All such
repairs, parts, mechanisms, devices and replacements shall immediately,
without further act, become the property of Lessor and part of the
Equipment.
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(c) Lessee will not make or authorize any improvement, change, addition
or alteration to the Equipment (i) if such improvement, change, addition
or alteration will impair the originally intended function or use of the
Equipment or impair the value of the Equipment as it existed immediately
prior to such improvement, change, addition or alteration; or (ii) if
any parts installed in or attached to or otherwise becoming a part of
the Equipment as a result of any such improvement, change, addition, or
alteration shall not be readily removable without damage to the
Equipment. Any part which is added to the Equipment without violating
the provisions of the immediately preceding sentence and which is not a
replacement or substitution for any property which was a part of the
Equipment, shall remain the property of Lessee and may be removed by
Lessee at any time prior to the expiration or earlier termination of the
Lease Term. All such parts shall be and remain free and clear of any
Liens. Any such part which is not so removed prior to the expiration or
earlier termination of the Lease Term shall, without further act, become
property of Lessor.
13. INSPECTION.
Upon prior notice, Lessor or its authorized representative may at any
reasonable time or times inspect the Equipment when it deems necessary
to protect its interest therein.
14. IDENTIFICATION.
Lessee shall, at its expense, attache to each item of Equipment a notice
satisfactory to Lessor disclosing Owner's ownership of such item of
Equipment.
15. PERSONAL PROPERTY.
Lessee represents that the Equipment shall be and at all times remain
separately identifiable personal property. Lessee shall, at its expense,
take such action (including the obtaining and recording of waivers) as
may be necessary to prevent any third party from acquiring any right to
or interest in the Equipment by virtue of the Equipment being deemed to
be real property or a part of real property or a part of other personal
property, and if at any time any person shall claim any such right or
interest, Lessee shall, at its expense, cause such claim to be waived in
writing or otherwise eliminated to Lessor's satisfaction within 30 days
after such claim shall have first become known to Lessee.
16. LOSS OR DAMAGE.
(a) All risk of loss, theft, damage or destruction to the Equipment or
any part thereof, however incurred or occasioned, shall be borne by
Lessee and, unless such occurrence constitutes an Event of Loss pursuant
to paragraph (b) of this Section, Lessee shall promptly give Lessor
written notice hereof and shall promptly cause the affected part or parts
of the Equipment to be replaced or restored to the condition and repair
required to be maintained by Section 12 hereof.
(b) If an Event of Loss with respect to any item of Equipment shall
occur, Lessee shall promptly give Lessor written notice thereof, and
Lessee shall pay to Lessor as soon as it receives insurance proceeds
with respect to said Event of Loss but in any event no later than 180
days after the occurrence of said Event of Loss an amount equal to the
sum of (i) the Stipulated Loss Value of such item of Equipment computed
as of the Rent Payment Date with respect to such item of Equipment on or
immediately preceding the date of the occurrence of such Event of Loss;
and (ii) all rent and other amounts due and owing hereunder for such
item of Equipment on or prior to the Loss Payment Date. Upon payment of
such amount to Lessor, the lease of such item of Equipment hereunder
shall terminate, and Lessor will transfer within forty days to Lessee,
Lessor's right, title and interest in and to such item of Equipment, on
an "as-is, where-is" basis, without recourse and without representation
or warranty, express or implied, other than a representation and
warranty that such item of Equipment is free and clear of any Lessor's
Liens.
SEE SCHEDULE F
17. GENERAL INDEMNITY.
Lessee assumes liability for, and shall indemnify, protect save and keep
harmless Lessor and its agents, servants, successors and assigns (an
"Indemnitee") from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses,
including reasonable legal expenses, of whatsoever kind and nature,
imposed on, incurred by or asserted against an Indemnitee, in any way
relating to or arising out of this Lease or the enforcement hereof, or
the manufacture, purchase, acceptance, rejection, ownership, possession,
use selection, delivery, lease, operation, condition, sale, return or
other disposition of the Equipment or any part thereof (including,
without limitation, latent or other defects, whether or not discoverable
by Lessee or any other person, any claim in tort for strict liability
and any claim for patent, trademark or copyright infringement);
PROVIDED, however, that Lessee shall not be required to indemnify any
Indemnitee for loss or liability arising from acts or events which occur
after the Equipment has been returned to Lessor in accordance with the
Lease, or for loss or liability resulting solely from the willful
misconduct or gross negligence of such Indemnitee. The provisions of this
Section shall survive the expiration or earlier termination of this Lease.
18. EVENTS OF DEFAULT.
The following events shall each constitute an event of default (herein
called "Event of Default") under this Lease:
(i) Lessee shall fail to execute and deliver to Lessor (or Lessor's
agent) the "Delivery Certificate" within twenty-four (24) hours of
Turnover of the Equipment to Lessee.
(ii) Lessee shall fail to commence lease payments on the first day of
the month following the Commencement Date, or such other initiation of
lease payments as specified in Section 5 of this Lease.
(iii) Lessee shall fail to make any payment of rent or other amount
owing hereunder after notice has been given that payment is past due; or
(iv) Lessee shall fail to maintain the insurance required by Section 10
hereof or to perform or observe any of the covenants contained in
Sections 21 or 22 hereof; or
(v) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it with respect to
this Lease and such failure shall continue unremedied for 30 days after
the earlier of (a) the date on which Lessee obtains, or should have
obtained knowledge of such failure; or (b) the date on
5
<PAGE>
which notice thereof shall be given by Lessor to Lessee; or
(vi) Any representation or warranty made by Lessee herein or in any
document, certificate or financial or other statement now or hereafter
furnished Lessor in connection with this Lease shall prove at any time to
have been untrue, incomplete or misleading in any material respect as of
the time when made; or
(vii) The entry of a decree or order for relief by a court having
jurisdiction in respect of Lessee, adjudging Lessee a bankrupt or
insolvent, or approving as properly filed a petition seeking a
reorganization, arrangement, adjustment or composition of or in respect
of Lessee in an involuntary proceeding or case under the Federal
bankruptcy laws, as now or hereafter constituted, or any other
applicable Federal or State bankruptcy, insolvency or other similar law,
or appointing a receiver, liquidator, assignee, custodian, trustee or
sequestrator (or similar official) of Lessee or of any substantial part
of this property, or ordering the winding-up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 30 days; or
(viii) The institution by Lessee of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the commencement by
Lessee of a voluntary proceeding or case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal
or state bankruptcy, insolvency or other similar law, or the consent by
it to the filing of any such petition or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of Lessee or of any substantial
part of its property, or the making by it of any assignment for the
benefit of creditors or the admission by it of its inability to pay its
debts generally as they become due or its willingness to be adjudicated
a bankrupt or the failure of Lessee generally to pay its debts as they
become due or the taking of corporate action by Lessee in furtherance of
any of the foregoing.
19. REMEDIES.
SEE SCHEDULE F
(a) demand that Lessee, and Lessee shall at its expense upon such
demand, return the Equipment promptly to Lessor at such place in
the continental United States of America as Lessor shall specify,
or Lessor and/or its agents, at its option, may with or without
entry upon the premises where the Equipment is located and disable
the Equipment, or make the Equipment inoperable permanently or
temporarily in Lessor's sole discretion, and/or take immediate
possession of the Equipment and remove the same by summary
proceedings or otherwise, all without liability for by reason of
such entry or taking of possession, whether for the restoration of
damage to property caused by such taking or for disabling or
otherwise;
(b) sell the Equipment at public or private sale, with or without
notice, advertisement or publication, as Lessor may determine, or
otherwise dispose of, hold, use, operate, lease to others or keep
idle the Equipment as Lessor in its sole discretion may determine,
all free and clear of any rights of Lessee and without any duty to
account to Lessee with respect to such action or inaction or for
any proceeds with respect thereto;
(c) by written notice to Lessee specifying a payment date which
shall be not earlier than 20 days after the date of such notice,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor,
on the payment date specified in such notice, as liquidated damages
for loss of a bargain and not as a penalty, all accrued and unpaid
rent for the Equipment due on all Rent Payment Dates up to and
including the payment date specified in such notice PLUS an amount
(together with interest on such amount at the Late Charge Rate, from
the payment date specified in such notice to the date of actual
payment) equal to the excess, if any, of the Stipulated Loss Value
of the Equipment as of the payment date specified in such notice
over the Fair Market Sale Value of the Equipment as of such date;
(d) Lessor may exercise any other right or remedy which may be
available to it under applicable law or proceed by appropriate
court action to enforce the terms hereof or to recover damages for
the breach hereof or to rescind this Lease. Lessor is entitled to
recover any amount that fully compensates the Lessor for any damage
to or loss of the Lessor's residual interest in the leased property
caused by the Lessee's default.
In the event any present value discounting is applied, the discount
rate used shall be the Federal Reserve Board Discount Rate.
In addition, Lessee shall be liable for any and all unpaid rent and
other amounts due hereunder before or during the exercise of any of the
foregoing remedies and for all reasonable legal fees and other costs and
expenses incurred by reason of the occurrence of any Event of Default or
the exercise of Lessor's remedies with respect thereto, including all
reasonable costs and expenses incurred in connection with the placing of
the Equipment in the condition required by Section 12 hereof.
No remedy referred to in this Section 19 is intended to be exclusive,
but each shall be cumulative and in addition to any other remedy
referred to herein or otherwise available to Lessor at law or in
equity; and the exercise or beginning of exercise by Lessor of any one
or more of such remedies shall not preclude the simultaneous or later
exercise by Lessor of any or all such other remedies. No express or
implied waiver by Lessor of an Event of Default shall in any way be, or
be construed to be, a waiver of any future or subsequent Event of
Default. To the extent permitted by applicable law, Lessee hereby waives
any rights now or hereafter conferred by statute or otherwise which may
require Lessor to sell or lease or otherwise use the Equipment in
mitigation of Lessor's damages or losses or which may otherwise limit or
modify any of Lessor's rights or remedies under this Lease.
20. LESSOR'S RIGHT TO PERFORM.
If Lessee fails to make any payment required to be made by it hereunder
or fails to perform or comply with any of its other agreements contained
herein, Lessor may itself make such payment or perform or comply with such
agreement, and the amount of such payment and the amount of the
reasonable expenses of Lessor incurred in connection with such payment or
the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Late Charge Rate, shall be
deemed to be additional rent, payable by Lessee within 30 days of notice.
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21. LOCATION; ASSIGNMENT OR SUBLEASE;
TITLE TRANSFER.
(a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE LOCATION SPECIFIED IN
SCHEDULE 1 OF EXHIBIT A WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUCH
CONSENT NOT TO BE UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE THE
CONTINENTAL U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT ALL TIMES BE
IN THE SOLE POSSESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT
THE PRIOR WRITTEN CONSENT OF LESSOR (WHICH MAY NOT BE UNREASONABLY
WITHHELD), ASSIGN THIS LEASE OR ANY INTEREST HEREIN OR SUBLEASE OR
OTHERWISE TRANSFER ITS INTEREST IN ANY OF THE EQUIPMENT, AND ANY
ATTEMPTED ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY LESSEE IN VIOLATION
OF THESE PROVISIONS SHALL BE VOID.
(b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY TRANSFER ITS
INTEREST IN THE EQUIPMENT TO AN OWNER OTHER THAN LESSOR. LESSOR MAY
CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER AND
(ii) MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE
ABOVE-DESCRIBED TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE (i)
THAT ANY SUCH ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE LESSEE'S
DUTIES AND OBLIGATION HEREUNDER, (ii) THAT SUCH ASSIGNMENT DOES NOT
MATERIALLY INCREASE THE BURDEN OR RIGHT IMPOSED ON THE LESSEE, AND (iii)
THAT THE ASSIGNMENT IS PERMITTED EVEN IF THE ASSIGNMENT COULD BE DEEMED TO
MATERIALLY AFFECT THE INTEREST OF THE LESSEE.
22. STATUS CHANGES IN LESSEE.
Lessee will not without thirty (30) days prior written notice to Lessor,
(a) enter into any transaction of merger or consolidation unless it is
the surviving corporation or after giving effect to such merger or
consolidation its net worth equals or exceeds that which existed prior to
such merger or consolidation; or (b) change the form of organization of
its business which may not be unreasonably withheld; or (c) change its
name or its chief place of business. Lessee must obtain Lessor's prior
written concurrence before Lessee may undertake any actions to (a)
liquidate or dissolve or similar action of the Lessee's organization, or
(b) sell, transfer or otherwise dispose of all or any substantial part of
Lessee's assets.
23. FURTHER ASSURANCES; FINANCIAL INFORMATION.
(a) Lessee will, at its expense, promptly and duly execute and deliver to
Lessor such further documents and assurances and take such further action
as Lessor may from time to time reasonably request in order to establish
and protect the rights, interests and remedies created or intended to be
created in favor of Lessor hereunder, including, without limitation, the
execution and filing of Uniform Commercial Code financing statements
covering the Equipment and proceeds therefrom in the jurisdictions in
which the Equipment is located from time to time. To the extent permitted
by applicable law, Lessee hereby authorizes Lessor to file any such
financing statements without the signature of Lessee.
(b) Lessee will qualify to do business and remain qualified in good
standing, in each jurisdiction in which the Equipment is from time to
time located.
(c) Lessee will furnish to Lessor as soon as available, but in any event
not later than 90 days after the end of each fiscal year of Lessee, a
consolidated balance sheet of Lessee as at the end of such fiscal year,
and consolidated statements of income and changes in financial position
of Lessee for such fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles applied on a
basis consistently maintained throughout the period involved. These
reports will not be disclosed to anyone other than the Lessor and/or
Owner as provided in Section 21(b).
24. NOTICES.
All notices, demands and other communications hereunder shall be in
writing, and shall be deemed to have been given or made when deposited
in the United States mail, first class postage prepaid, addressed as
follows or to such other address as any of the following persons may from
time to time designate in writing to the other persons listed below:
Lessor: Telecommunications Finance Group
400 Rinehart Road
Lake Mary, Florida 32746
Lessee: Communication TeleSystems International
4350 LaJolla Village Drive, Suite 100
San Diego, CA 92122
25. CONDITIONS PRECEDENT:
(a) Lessor shall not be obligated to lease the items of Equipment
described herein to Lessee hereunder unless:
(i) Such Uniform Commercial Code financing statements covering
Equipment and proceeds therefrom and landlord and/or mortgagee waivers
or disclaimers and/or severance agreements with respect to the items
of Equipment covered by this Lease as Lessor shall deem necessary or
desirable in order to perfect and protect its interests therein shall
have been duly executed and filed, at Lessee's expense, in such
public offices as Lessor shall direct;
(ii) All representations and warranties of Lessee contained herein
or in any document or certificate furnished Lessor in connection
herewith shall be true and correct on and as of the date of this
Lease with the same force and effect as if made on and as of such
date; no Event of Default or Default shall be in existence on such date
or shall occur as a result of the lease by Lessee of the Equipment
specified in Schedule 1 of Exhibit A;
(iii) In the sole judgment of Lessor, there shall have been no
material adverse change in the financial condition of business or
Lessee;
(iv) All proceedings to be taken in connection with the transactions
contemplated by this Lease, and all documents incidental thereto,
shall be satisfactory in form and substance to Lessor and its counsel;
(v) Lessor shall have received from Lessee, in form and substance
satisfactory to it, such other documents and information as Lessor
shall reasonably request;
(vi) All legal matters in connection with the transactions
contemplated by this Lease shall be satisfactory to Lessor's counsel;
and
(vii) No Change in Tax Law, which in the sole judgment of Lessor
would adversely affect Lessor's Economics, shall have occurred or
shall appear, in Lessor's good faith judgment, to be imminent.
26. SOFTWARE LICENSE.
Reference is made to the form of DCO Software License Agreement attached
hereto as Exhibit B (the "License Document"). Lessor has arranged for the
Equipment manufacturer to grant Lessee a license to use the Software as
defined in the License Document in conjunction with the equipment leased
hereunder in accordance with the
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terms of the License Document. The original license fee is contained in
the lease rate. To avail itself of the license grant, Lessee must execute
the License Document, upon commencement of the Lease. The option to
obtain a fully paid up license as provided in Article 2 of the License
Document may be exercised by the Lessee and the payment made directly to
the equipment manufacturer named in the License Document. "Buyer" and
"Licensee" as used in the License Document are synonymous with lessee.
27. LIMITATION OF LIABILITY.
LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR REVENUE, SPECIAL,
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY NATURE OR
FROM ANY CAUSE WHETHER BASED IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, OR
OTHER LEGAL THEORY EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. LESSEE HEREBY AGREES THAT LESSOR WILL NOT BE LIABLE FOR ANY
LOST PROFITS OR REVENUE OR FOR ANY CLAIM OR DEMAND AGAINST LESSEE BY ANY
OTHER PARTY.
28. MISCELLANEOUS.
(a) Any provision of this Lease which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such
provisions in any other jurisdiction. To the extent permitted by
applicable law, Lessee hereby waives any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
(b) No terms or provisions of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which the enforcement of the change, waiver,
discharge or termination is sought. No delay or failure on the part of
Lessor to exercise any power or right hereunder shall operate as a waiver
thereof, nor as an acquiescence in any default, no shall any single or
partial exercise of any power or right preclude any other or further
exercise thereof, or the exercise of any other power or right. After the
occurrence of any Default or Event of Default, the acceptance by Lessor
of any payment of rent or other sum owed by Lessee pursuant hereto shall
not constitute a waiver by Lessor of such Default or Event of Default,
regardless of Lessor's knowledge or lack of knowledge thereof at the time
of acceptance of any such payment, and shall not constitute a
reinstatement of this Lease, if this Lease shall have been declared in
default by Lessor pursuant to Section 18 hereof or otherwise, unless
Lessor shall have agreed in writing to reinstate the Lease and to waive
the Default or Event of Default.
In the event Lessee tenders payment to Lessor by check or draft containing
a qualified endorsement purporting to limit or modify Lessee's liability
or obligations under this Lease, such qualified endorsement shall be of
no force and effect even if Lessor processes the check or draft for
payment.
(c) This Lease with exhibits contains the full, final and exclusive
statement of the agreement between Lessor and Lessee relating to the
Lease of the Equipment.
(d) This Lease shall constitute an agreement of an operating lease, and
nothing herein shall be construed as conveying to Lessee any right, title
or interest in the Equipment except as Lessee only.
(e) This Lease and the covenants and agreements contained herein shall be
binding upon, and inure to the benefit of, Lessor and its successors and
assigns and Lessee and, to the extent permitted by Section 21 hereof, its
successors and assigns.
(f) The headings of the Sections are for convenience of reference only,
are not a part of this Lease and shall not be deemed to affect the
meaning or construction of any of the provisions hereof.
(g) This Lease may be executed by the parties hereto on any number of
separate counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together constitute but
one and the same instrument.
(h) This Lease is deemed made and entered into in the State of Florida
and shall be governed by and construed under and in accordance with the
laws of the State of Florida as if both parties were residents of Florida.
(i) Lessee hereby irrevocably consents and agrees that any legal action,
suit, or proceeding arising out of or in any way in connection with this
Lease shall be instituted or brought in the courts of the State of
Florida, or the United States Courts for the District of Florida, and by
execution and delivery of this Lease, Lessee hereby irrevocably accepts
and submits to, for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of any such court, and to
all proceedings in such courts. Lessee irrevocably consents to service of
any summons and/or legal process by registered or certified United States
mail, postage prepaid, to Lessee at the address set forth in Section 24
hereof, such method of service to constitute, in every respect, sufficient
and effective service of process in any legal action or proceeding.
Nothing in this Lease shall affect the right to service of process in any
other manner permitted by law or limit the right of Lessor to bring
actions, suits or proceedings in the court of any other jurisdiction.
Lessee further agrees that final judgment against it in any such legal
action, suit or proceeding shall be conclusive and may be enforced in any
other jurisdiction, within or outside the United States of America, by
suit on the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and the amount of the liability.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed as of the day and year first above written and by its signature
below Lessee expressly acknowledges that this Lease may not be modified
unless done so in a writing signed by each of the parties hereto or their
successors in interest.
TELECOMMUNICATIONS FINANCE GROUP COMMUNICATION TELESYSTEMS INTERNATIONAL
- -------------------------------- ---------------------------------------
(Lessee)
By: CC Callaway By: Edward S. Soren
- -------------------------------- ---------------------------------------
Edward S. Soren - President
- -------------------------------- ---------------------------------------
(Authorized Representative of (Name & Title)
Telecommunications Finance Group)
Date Signed: 5/26/94 Date Signed: 12-20-93
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AMENDMENT TO LEASE AGREEMENT DATED OCTOBER 4, 1993 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP (LESSOR) AND
COMMUNICATION TELESYSTEMS INTERNATIONAL (LESSEE)
FOR A USED DCO-CS LOCATED IN SEATTLE, WASHINGTON
"REFERENCE RATE" shall mean the rate of interest publicly announced
by Citibank, N.A. in New York, New York from time to time as its prime
rate.
The reference rate is not intended to be the lowest rate of interest
charged by Citibank, N.A. in connection with extensions of credit to
debtors. The Reference Rate shall be determined at the close of
business on the 15th day of each calendar month (if the 15th day is
not a Business Day, then on the first preceding Business Day) and
shall become effective as of the first day of the calendar month
succeeding such determination and shall continue in effect to, and
including, the last day of said calendar month.
TELECOMMUNICATIONS FINANCE GROUP COMMUNICATION TELESYSTEMS INTERNATIONAL
- -------------------------------- ---------------------------------------
(Lessee)
By: CC Callaway By: Edward S. Soren
- -------------------------------- ---------------------------------------
Edward S. Soren - President
- -------------------------------- ---------------------------------------
(Authorized Representative of (Name & Title)
Telecommunications Finance Group)
Date Signed: 5/26/94 Date Signed: 12-20-93
<PAGE>
LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Schedules and Exhibits to the Lease Agreement (10/4/93)
have been omitted from this Exhibit and shall be furnished supplementally to
the Commission upon request:
Schedule A - Stipulated Loss Value
Schedule B - Amendment to Lease Agreement
Schedule C - Amendment to Lease Agreement
Schedule D - Amendment to Lease Agreement
Schedule E - Buyout Price on 60 Month Lease, with a Three Month Payment
Deferral, as a Percentage of Lessors Cost as Shown in
Schedule 1 of Exhibit A of the Lease
Schedule F - Amendment to Lease Agreement
Schedule G - Amendment to Lease Agreement
Exhibit A - Certificate of Delivery and Acceptance
Exhibit B - Software License Agreement
Exhibit C - Assignment of Purchase Order
<PAGE>
LEASE AGREEMENT
This LEASE AGREEMENT, is effective on June 2, 1992 between
TELECOMMUNICATIONS FINANCE GROUP (hereinafter "Lessor"), and Communication
Telesystems International, a California corporation with its principal office
located at 4350 LaJolla Village Drive, Suite 800, San Diego, California 92122
(hereinafter "Lessee").
1. LEASE.
Lessor, subject to the conditions set forth in Section 25 hereof,
agrees to lease to Lessee and Lessee agrees to lease from Lessor hereunder,
those items of personal property (the "Equipment") which are described on
Schedule 1 of Exhibit A hereto. Lessee agrees to execute and deliver to Lessor a
certificate of delivery and acceptance in substantively the form of Exhibit A
hereto (a "Delivery Certificate") immediately after Turnover of the Equipment,
and such execution shall constitute Lessee's irrevocable acceptance of such
items of Equipment for all purposes of this Lease. The Delivery Certificate
shall constitute a part of this Lease to the same extent as if the provisions
thereof were set forth herein.
2. DEFINITIONS.
"AMORTIZATION DEDUCTIONS" as defined in Section 11(b)(i) hereof.
"APPRAISAL PROCEDURE" shall mean the following procedure for
determining the Fair Market Sale Value of any item of Equipment. If
either Lessor or Lessee shall request by notice (the "Appraisal
Request") to the other that such value be determined by the Appraisal
Procedure, (i) Lessor and Lessee shall, within 15 days after the
Appraisal Request, appoint an independent appraiser mutually
satisfactory to them, or (ii) if the parties are unable to agree on a
mutually acceptable appraiser within such time, Lessor and Lessee
shall each appoint one independent appraiser (PROVIDED that if either
party hereto fails to notify the other party hereto of the identity of
the independent appraiser chosen by it within 30 days after the
Appraisal Request, the determination of such value shall be made by
the independent appraiser chosen by such other party), and (iii) if
such appraisers cannot agree on such value within 20 days after their
appointment and if one appraisal is not within 5% of the other
appraisal, Lessor and Lessee shall choose a third independent
appraiser mutually satisfactory to them (or, if they fail to agree
upon a third appraiser within 25 days after the appointment of the
first two appraisers, such third independent appraiser shall within 20
days thereafter be appointed by the American Arbitration Association),
and such value shall be determined by such third independent appraiser
within 20 days after his appointment, after consultation with the
other two
-1-
<PAGE>
independent appraisers. If the first two appraisals are within 5% of
each other, then the average of the two appraisals shall be the Fair
Market Sale Value. The fees and expenses of all appraisers shall be
paid by Lessee.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of Florida.
"CODE" shall mean the Internal Revenue Code of 1954, as amended, or
any comparable successor law.
"COMMENCEMENT DATE" as defined in Section 3 hereof.
"DEFAULT" shall mean any event or condition which after the giving of
notice or lapse of time or both would become an Event of Default.
"DELIVERY CERTIFICATE" as defined in Section 1 hereof.
"EQUIPMENT" as defined in Section 1 hereof.
"EVENT OF DEFAULT" as defined in Section 18 hereof.
"EVENT OF LOSS" shall mean, with respect to any item of Equipment, the
actual or constructive total loss of such item of Equipment or the use
thereof, due to theft, destruction, damage beyond repair or rendition
thereof permanently unfit for normal use from any reason whatsoever,
or the condemnation, confiscation or seizure of, or requisition of
title to or use of, such item of Equipment.
"FAIR MARKET SALE VALUE" shall, at any time with respect to any item
of Equipment, be equal to the sale value of such item of Equipment
which would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an
informed and willing buyer-user (other than a lessee currently in
possession or a used equipment or scrap dealer). For purposes of
Section 7(b) hereof, Fair Market Sale Value shall be determined by (i)
an independent appraiser (at Lessee's expense) selected by Lessor or
(ii) by the Appraiser Procedure if the Appraisal Request is made at
least 90 days (but not more than 360 days) prior to the termination or
expiration of the Lease Term, as the case may be, which determination
shall be made (a) without deduction for any costs or expenses of
dismantling or removal; and (b) on the assumption that such item of
Equipment is free and clear of all Liens and is in the condition and
repair in which it is required to be returned pursuant to Section 7(a)
hereof. For purposes of Section 19(c) hereof, Fair Market Sale Value
shall
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be determined (at Lessee's expense) by an independent appraiser
selected by Lessor, on an "as-is, where-is" basis, without regard to
the provisions of clauses (a) and (b) above; PROVIDED that if Lessor
shall have sold any item of Equipment pursuant to Section 19(b) hereof
prior to giving the notice referred to in Section 19(c) hereof, Fair
Market Sale Value of such item of Equipment shall be the net proceeds
of such sale after deduction of all costs and expenses incurred by
Lessor in connection therewith; PROVIDED, FURTHER, that if for any
reason Lessor is not able to obtain possession of any item of
Equipment pursuant to Section 19(a) hereof, the Fair Market Sale Value
of such item of Equipment shall be zero.
"IMPOSITION" as defined in Section 11(a) hereof.
"INDEMNITEE" as defined in Section 17 hereof.
"LATE CHARGE RATE" shall mean an interest rate per annum equal to the
higher of two percent (2%) over the Reference Rate or eighteen percent
(18%), but not to exceed the highest rate permitted by applicable law.
"LEASE" and the terms "hereof", "herein", "hereto" and "hereunder",
when used in this Lease Agreement, shall mean and include this Lease
Agreement, Exhibits and the Delivery Certificate hereto as the same
may from time to time be amended, modified or supplemented.
"LEASE TERM" shall mean, with respect to any item of Equipment, the
term of the lease of such item of Equipment hereunder specified in
Section 3 hereof.
"LESSEE" as defined in the introductory paragraph to this Lease.
"LESSOR" as defined in the introductory paragraph of this Lease.
"LESSOR'S VALUE" shall mean, with respect to any item of Equipment and
installation if applicable, the total amount set forth in Schedule 1
of Exhibit A hereto.
"LESSOR'S LIENS" shall mean (i) any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement, title retention or
any other right or claim of any person claiming through or under
Lessor, not based upon or relating to ownership of the Equipment or
the lease thereof hereunder and (ii) any mortgage, pledge, lien,
security interest, charge, encumbrance, financing statement, title
retention or any other right or claim of Owner (other than Lessor)
claiming through or under Lessor in connection with the transactions
described in Section 21(b) hereof.
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"LIENS" shall mean any mortgage, pledge, lien, security interest,
charge, encumbrance, financing statement, title retention or any other
right or claim of any person, other than any Lessor's Lien.
"LOSS PAYMENT DATE" shall mean with respect to any item of Equipment
the date on which payment, as described in Section 16(b) hereof, is
made to the Lessor by the Lessee as the result of an Event of Loss
with respect to such item. The Loss Payment Date shall be within
ninety (90) days of the said Event of Loss.
"OWNER" shall mean the entity or person having ownership interest to
the Equipment as contemplated by the provisions of Section 21(b)
hereof and may be a person other than Lessor.
"OWNER'S ECONOMICS" shall mean the after-tax yield and periodic
after-tax cash flow anticipated by Owner as of the date of this
Lease, in connection with the transactions contemplated by this
Lease as determined by Owner unless Lessor shall have transferred
its interest in the Equipment to another person as contemplated by
the provisions of Section 21(b) hereof in which case "Owner's
Economics" shall mean the after-tax yield and periodic after-tax
cash flow anticipated by such person as of the date of the lease
between such person and Lessor contemplated by said provisions, in
connection with the transactions contemplated by such lease as
determined by such person.
"RECOVERY DEDUCTIONS" as defined in Section 11(b)(i) hereof.
"REFERENCE RATE" shall mean the rate of interest publicly announced by
Citibank, N.A. in New York, New York from time to time as its prime
rate.
The reference rate is not intended to be the lowest rate of interest
charged by Citibank, N.A. in connection with extensions of credit to
debtors. The Reference Rate shall be determined at the close of
business on the 15th day of each calendar month (if the 15th day is
not a Business Day, then on the first preceding Business Day) and
shall become effective as of the first day of the calendar month
succeeding such determination and shall continue in effect to, and
including, the last day of said calendar month.
"RENT PAYMENT DATE" shall mean each date on which an installment of
rent is due and payable pursuant to Section 5(a) hereof.
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"STIPULATED LOSS VALUE" shall mean, with respect to any item of
Equipment, the amount determined by multiplying the Lessors Value of
such item of Equipment by the percentage set forth in Schedule A
hereto opposite the applicable Rent Payment Date; provided, that for
purposes of Sections 16(b) and 19(c) hereof, any determination of
Stipulated Loss Value as of a date occurring after the final Rent
Payment Date with respect to such item of Equipment, shall be made as
of such final Rent Payment Date.
"TAX BENEFITS" shall mean the right to claim such deductions, credits,
and other benefits as are provided by the Code to an owner of
property, including the Recovery Deductions and Amortization
Deductions.
"TURNOVER" shall mean that point in time when the equipment
installation personnel complete testing of the equipment, or when the
equipment is placed into service, whichever first occurs.
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles.
3. LEASE TERM.
The term of the lease of the Equipment hereunder shall commence on the
Commencement Date specified in the Delivery Certificate ("Commencement Date")
and, unless earlier terminated pursuant to the provisions hereof or at law or
equity, shall continue for a term of sixty (60) months from such Commencement
Date. The Commencement Date specified in the Delivery Certificate shall be the
date on which Turnover occurs at a site provided by Lessee in accordance with
the provisions of Section 4 hereof.
4. INSTALLATION.
Lessor shall arrange for installation of the Equipment, the cost of
which installation shall be deemed to be part of Lessor's Value. Exhibit A
hereto shall indicate whether such cost is included or excluded from the monthly
rent payments due in accordance with Section 5(a) hereof. If excluded from such
monthly rent payments, Lessor shall separately invoice Lessee for such
installation upon completion thereof and Lessee shall pay such invoice within
thirty (30) days from the date thereof. Lessee shall be obligated to timely
provide a suitable site for the installation of the Equipment in accordance with
the Equipment manufacturer's practices attached hereto as Exhibit C. Lessee
shall be responsible for compliance with environmental requirements and central
office grounding procedures specified in Exhibit C hereto and for providing
adequate space, lighting, heating, air-conditioning and A/C power at the
installation site. Unavailability of Lessee furnished facilities shall be cause
for adjustments to the installation price set forth in Schedule 1 of Exhibit A
hereto.
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5. RENT; UNCONDITIONAL OBLIGATIONS.
(a) Lessee agrees to pay to Lessor, at the address specified in
Section 24 hereof or at such other address as Lessor may specify, rent for the
Equipment at a rate not to exceed $22.244 per $1,000 of the total Lessor's Value
of such items of Equipment, as set forth in Schedule 1 of Exhibit A dated June
2, 1992, or as from time to time amended, (plus applicable sales or use taxes)
per month, in sixty (60) consecutive monthly installments, with the first
installment of rent being due on the Commencement date unless the Commencement
Date is other than the first day of a calendar month, in which event the first
installment of rent shall be due on the first day of the month following the
Commencement Date, and succeeding installments being due on the same date of
each month thereafter.
(b) Lessee shall also pay to Lessor, on demand, interest at the Late
Charge Rate on any installment of rent and on any other amount owing hereunder
which is not paid within fifteen (15) days of its due date, for any period for
which the same shall be overdue. Each payment made under this Lease shall be
applied first to the payment of interest then owing and then to rent or other
amounts owing hereunder. Interest shall be computed on the basis of a 360-day
year and actual days elapsed.
(c) This Lease is a net lease, and Lessee's obligation to pay all
rent and all other amounts payable hereunder is ABSOLUTE AND UNCONDITIONAL under
any and all circumstances and shall not be affected by any circumstances of any
character whatsoever, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense, abatement or reduction or any right which
Lessee may have against Lessor, the manufacturer or supplier of any of the
Equipment or anyone else for any reason whatsoever; (ii) any defect in the
title, condition, design, or operation of, or lack of fitness for use of, or any
damage to, or loss of, all or any part of the Equipment from any cause
whatsoever; (iii) the existence of any Liens with respect to the Equipment; (iv)
the invalidity, unenforceability or disaffirmance of this Lease or any other
document related hereto; or (v) the prohibition of or interference with the use
or possession by Lessee of all or any part of the Equipment, for any reason
whatsoever, including without limitation, by reason of (1) claims for patent,
trademark or copyright infringement; (2) present or future governmental laws,
rules or orders; (3) the insolvency, bankruptcy or reorganization of any person;
and (4) any other cause whether similar or dissimilar to the foregoing, any
present or future law to the contrary notwithstanding. Lessee hereby waives, to
the extent permitted by applicable law, any and all rights which it may now have
or which may at any time hereafter be conferred upon it, by statute or
otherwise, to terminate, cancel, quit or surrender the lease of any Equipment.
If for any reason whatsoever this Lease or any Supplement, other than pursuant
to Section 16(b) hereof, shall be terminated in whole or in part by operation of
law or otherwise, Lessee will nonetheless pay to Lessor an amount equal to each
installment of rent at the time such installment would have become due and
payable in accordance with the terms hereof. Each payment of rent or other
amount paid by Lessee hereunder shall be final and Lessee will not seek to
recover all or any part of such payment for Lessor for any reason whatsoever.
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(d) In the event Communication Telesystems International (CTI) has a
liquidated damage claim against Siemens Stromberg-Carlson (SS-C), with the
concurrence of SS-C these liquidated damages may be offset against Lease
payments and Lessor will collect the offset amounts from SS-C.
(e) In the event CTI exercises their rights under item 11 of the Contract
Modification between SS-C and CTI, and, subject to approval of SS-C, CTI is
authorized to assign the lease to SS-C.
6. WARRANTY DISCLAIMER; ASSIGNMENT OF WARRANTIES.
(a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE AND LESSEE
HEREBY EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE, FREEDOM
FROM INTERFERENCE OR INFRINGEMENT OR THE LIKE, OR AS TO THE TITLE TO OR LESSOR'S
OR LESSEE'S INTEREST IN THE EQUIPMENT OR AS TO ANY OTHER MATTER RELATING TO THE
EQUIPMENT OR ANY PART THEREOF.
LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND EACH PART
THEREOF ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS RELIANCE
UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR.
LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO THE
TRANSACTIONS CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES AND/OR TAX
TREATMENT THEREOF.
(b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS LESSOR MAY HAVE
(TO EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL MANUFACTURERS'
AND SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT; PROVIDED, HOWEVER,
THAT THE FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO LESSOR UPON THE
OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT HEREUNDER, OR
UPON THE RETURN OF THE EQUIPMENT TO LESSOR. LESSEE AGREES TO SETTLE ALL
CLAIMS WITH RESPECT TO THE EQUIPMENT DIRECTLY WITH THE MANUFACTURERS OR
SUPPLIERS THEREOF, AND TO GIVE LESSOR PROMPT NOTICE OF ANY SUCH SETTLEMENT
AND THE DETAILS OF SUCH SETTLEMENT. HOWEVER, IN THE EVENT ANY WARRANTIES ARE
NOT ASSIGNABLE, THE LESSOR AGREES TO ACT ON BEHALF OF THE LESSEE IN SETTLING
CLAIMS ARISING UNDER THE WARRANTY WITH THE MANUFACTURER OR SUPPLIER.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF REVENUE OR
PROFITS, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR
FROM ANY CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
7. DISPOSITION OF EQUIPMENT.
(a) RETURN.
Lessee shall, upon the expiration of the Lease Term of each item of
Equipment, subject to paragraph (b) below, return such item of Equipment to
Lessor at such place within the continental United States of America as Lessor
shall designate in
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writing to Lessee. Until such item of Equipment is returned to Lessor pursuant
to the provisions of this Section, all of the provisions of this Lease with
respect thereto shall continue in full force and effect. Lessee shall pay all
the costs and expenses in connection with or incidental to the return of the
Equipment, including, without limitation, the cost of removing, assembling,
packing, insuring and transporting the Equipment. At the time of such return,
the Equipment shall be in the condition and repair required to be maintained by
Section 12 hereof and free and clear of all Liens.
(b) PURCHASE OPTION.
So long as no Default or Event of Default shall have occurred and be
continuing, Lessee may, by written notice given to Lessor at least 120 days (but
not more than 360 days) prior to the expiration date of the Lease Term of any
item of Equipment (which notice shall be irrevocable), elect to purchase such
item of Equipment on such expiration date for a cash purchase price equal to the
Fair Market Sale Value of such item of Equipment determined as of such
expiration date, plus an amount equal to all taxes (other than income taxes on
any gain on such sale), costs and expenses (including legal fees and expenses)
incurred or paid by Lessor in connection with such sale. Upon payment by Lessee
of such purchase price, and of all other amounts then due and payable by Lessee
hereunder, Lessor shall transfer title to such items of Equipment to Lessee on
an "as-is, where-is" basis, without recourse and without representation or
warranty of any kind, express or implied, other than a representation and
warranty that such item of Equipment is free and clear of any Lessor's Liens.
8. REPRESENTATION AND WARRANTIES.
In order to induce Lessor to enter into this Lease and to lease the
Equipment to Lessee hereunder, Lessee represents and warrants that:
(a) ORGANIZATION.
Lessee is duly organized, validly existing and in good standing under
the laws of the State of California and is duly qualified to do business and is
in good standing in the State in which the Equipment will be located.
(b) POWER AND AUTHORITY.
Lessee has full power, authority and legal right to execute, deliver
and perform this Lease, and the execution, delivery and performance hereof has
been duly authorized by Lessee's governing body or officer(s).
(c) ENFORCEABILITY.
This Lease has been duly executed and delivered by Lessee and
constitutes a legal, valid and binding obligation of Lessee enforceable in
accordance with its terms.
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(d) CONSENTS AND PERMITS.
The execution, delivery and performance of this Lease does not
require any approval or consent of any trustee, shareholder, partner, sole
proprietor, or holders of any indebtedness or obligations of Lessee, and will
not contravene any law, regulation, judgment or decree applicable to Lessee,
or the certificate of partnership or incorporation or by-laws of Lessee, or
contravene the provisions of, or constitute a default under, or result in the
creation of any Lien upon any property of Lessee under any mortgage,
instrument or other agreement to which Lessee is a party or by which Lessee
or its assets may be bound or affected; and no authorization, approval,
license, filing or registration with any court or governmental agency or
instrumentality is necessary in connection with the execution, delivery,
performance, validity and enforceability of this Lease.
(e) FINANCIAL CONDITION OF THE LESSEE.
The financial statements of Lessee heretofore furnished to Lessor are
complete and correct and fairly present the financial condition of Lessee and
the results of its operations for the respective periods covered thereby, there
are no known contingent liabilities or liabilities for taxes of Lessee which are
not reflected in said financial statements and since the date thereof, there has
been no material adverse change in such financial condition or operations.
(f) NO LITIGATION.
There is no action, suit, investigation or proceeding by or before any
court, arbitrator, administrative agency or other governmental authority pending
or threatened against or affecting Lessee (A) which involves the transactions
contemplated by this Lease or the Equipment; or (B) which, if adversely
determined, could have a material adverse effect on the financial condition,
business or operations of Lessee.
(g) UNITED STATES SOURCE INCOME.
No items of Equipment shall be used in a way that results in the
creation of an item of income to Lessor, the source of which for Federal Income
Tax purposes is without the United States.
9. LIENS.
Lessee will not directly or indirectly create, incur, assume, suffer,
or permit to exist any Lien on or with respect to the Equipment.
10. INSURANCE.
Lessee shall maintain at all times on the Equipment, at its expense,
property damage, direct damage and liability insurance in such amounts, against
such risks, in such form and with such insurers as shall be reasonably
satisfactory to Lessor and any other Owner; provided, that the amount of direct
damage
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insurance shall not on any date be less than the greater of the full replacement
value or the Stipulated Loss Value of the Equipment as of such date. Each
insurance policy will, among other things, name Lessor and any other Owner as an
additional insured or as loss payee (as the case may be) as their interests may
appear, require that the insurer give Lessor and any such Owner at least thirty
(30) days prior written notice of any alteration in or cancellation of the terms
of such policy, and require that the interest of Lessor and any such Owner be
continued insured regardless of any breach of or violation by Lessee of any
warranties, declarations or conditions contained in such insurance policy. At
Lessor's or such Owner's option, Lessee shall furnish to Lessor and such Owner a
certificate or other evidence satisfactory to Lessor that such insurance
coverage is in effect provided, however, that Lessor and such Owner shall be
under no duty to ascertain the existence or adequacy of such insurance.
11. TAXES.
(a) GENERAL TAX PROVISIONS.
Lessee shall pay, and shall indemnify and hold Lessor harmless from
and against, all fees, taxes (whether sales, use, excise, personal property or
other taxes), imposts, duties, withholdings, assessments and other governmental
charges of whatever kind or character, however designated (together with any
penalties, fines or interest thereon), all of the foregoing being herein
collectively called "Impositions", which are at any time levied or imposed
against Lessor, Lessee, this Lease, the Equipment or any part thereof by any
Federal, State, or Local Government or taxing authority in the United States or
by any foreign government or any subdivision or taxing authority thereof upon,
with respect to, as a result of or measured by (i) the Equipment (or any part
thereof), or this Lease or the interest of the Lessor therein; or (ii) the
purchase, ownership, delivery, leasing, possession, maintenance, use, operation,
return, sale or other disposition of the Equipment or any part thereof; or (iii)
the rentals, receipts or earnings payable under this Lease or otherwise arising
from the Equipment or any part thereof; EXCLUDING, HOWEVER, taxes based on or
measured by the net income of Lessor that are imposed by (1) the United States
of America, or (2) the State of Florida or any political subdivision of the
State of Florida, or (3) any other State of the United States of America or any
political subdivision of any such State in which Lessor is subject to
Impositions as the result (whether solely or in part) of business or
transactions unrelated to this Lease. In case any report or return is required
to be filed with respect to any obligation of Lessee under this Section or
arising out of this Section, Lessee will notify Lessor of such requirement and
make such report or return in such manner as shall be satisfactory to Lessor;
PROVIDED, that the payment of any use taxes shall be made in such manner as
specified by Lessor in writing to Lessee; or (iv) The provisions of this Section
shall survive the expiration or earlier termiation of this Lease.
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(b) SPECIAL TAX PROVISIONS.
(i) The Owner of the items of Equipment, shall be entitled to
take into account in computing its Federal income tax liability, Current Tax
Rate and such deductions, credits, and other benefits as are provided by the
Code to an owner of property.
(ii) For the purposes of this Subsection 11(b) only, the term
"Owner" shall include the "common parent" and all other corporations included in
the affiliated group, within the meaning of Section 1504 of the Code (or any
other successor section thereto), of which Owner is or becomes a member.
12. COMPLIANCE WITH LAWS; OPERATION AND MAINTENANCE.
(a) Lessee will use the Equipment in a careful and proper manner,
will comply with and conform to all governmental laws, rules and regulations
relating thereto, and will cause the Equipment to be operated in accordance with
the manufacturer's or supplier's instructions or manuals.
(b) Lessee will, at its own expense, keep and maintain the Equipment
in good repair, condition and working order and furnish all parts, replacements,
mechanisms, devices and servicing required therefor so that the value, condition
and operating efficiency therefor will at all times be maintained and preserved,
reasonable wear and tear excepted. All such repairs, parts, mechanisms, devices
and replacements shall immediately, without further act, become the property of
Lessor and part of the Equipment.
(c) Lessee will not make or authorize any improvement, change,
addition or alteration to the Equipment (i) if such improvement, change,
addition or alteration will impair the originally intended function or use of
the Equipment or impair the value of the Equipment as it existed immediately
prior to such improvement, change, addition or alteration; or (ii) if any parts
installed in or attached to or otherwise becoming a part of the Equipment as a
result of any such improvement, change, addition or alteration shall not be
readily removable without damage to the Equipment. Any part which is added to
the Equipment without violating the provisions of the immediately preceding
sentence and which is not a replacement or substitution for any property which
was a part of the Equipment, shall remain the property of Lessee and may be
removed by Lessee at any time prior to the expiration or earlier termination of
the Lease Term. All such parts shall be and remain free and clear of any Liens.
Any such part which is not so removed prior to the expiration or earlier
termination of the Lease Term shall, without further act, become the property of
Lessor.
13. INSPECTION.
Upon prior notice, Lessor or its authorized representatives may at any
reasonable time or times inspect the Equipment when it deems it necessary to
protect its interest therein.
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14. INDEMNIFICATION.
Lessee shall, at its expense, attach to each item of Equipment a
notice satisfactory to Lessor disclosing Owner's ownership of such item of
Equipment.
15. PERSONAL PROPERTY.
Lessee represents that the Equipment shall be and at all times remain
separately identifiable personal property. Lessee shall, at its expense, take
such action (including the obtaining and recording of waivers) as may be
necessary to prevent any third party from acquiring any right to or interest in
the Equipment by virtue of the Equipment being deemed to be real property or a
part of real property or a part of other personal property, and if at any time
any person shall claim any such right or interest, Lessee shall, at its expense,
cause such claim to be waived in writing or otherwise eliminated to Lessor's
satisfaction within 30 days after such claim shall have first become known to
Lessee.
16. LOSS OR DAMAGE.
(a) All risk of loss, theft, damage or destruction to the Equipment
or any part thereof, however incurred or occasioned, shall be borne by Lessee
and, unless such occurrence constitutes an Event of Loss pursuant to paragraph
(b) of this Section, Lessee shall promptly give Lessor written notice hereof
and shall promptly cause the affected part or parts of the Equipment to be
replaced or restored to the condition and repair required to be maintained by
Section 12 hereof.
(b) If an Event of Loss with respect to any item of Equipment shall
occur, Lessee shall promptly give Lessor written notice thereof, and Lessee
shall pay to Lessor as soon as it receives insurance proceeds with respect to
said Event of Loss but in any event no later than 180 days after the occurrence
of said Event of Loss an amount equal to the sum of (i) the Stipulated Loss
Value of such item of Equipment computed as of the Rent Payment Date with
respect to such item of Equipment on or immediately preceding the date of the
occurrence of such Event of Loss; and (ii) all rent and other amounts due and
owing hereunder for such item of Equipment on or prior to the Loss Payment Date.
Upon payment of such amount to Lessor, the lease of such item of Equipment
hereunder shall terminate, and Lessor will transfer within forty days to Lessee,
Lessor's right, title and interest in and to such item of Equipment, on an
"as-is, where-is" basis, without recourse and without representation or
warranty, express or implied, other than a representation and warranty that
such item of Equipment is free and clear of any Lessor's Liens.
(c) Any payments received at any time by Lessor or Lessee from any
insurer with respect to loss or damage to the Equipment shall be applied as
follows: (i) if such payments are received with respect to an Event of Loss,
payments for all physical damage shall be paid to Lessor, but to the extent
received by Lessor, they shall reduce or discharge, as the case may be, Lessee's
obligation to pay the amounts due to Lessor under Section 16(b) hereof with
respect to such Event of Loss. To the
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extent payment received by Lessor is greater than the amount owed to Lessor as
provided in Section 18(b) hereof, such excess shall be paid to Lessee within 15
days from receipt by the Lessor of said payment; or (ii) if such payments are
received with respect to any loss of or damage to the Equipment other than an
Event of Loss, such payments shall, unless a Default or Event of Default shall
have occurred and be continuing, be paid over to Lessee to reimburse Lessee for
its payment of the costs and expenses incurred by Lessee in replacing or
restoring pursuant to Section 16(a) hereof the part or parts of the Equipment
which suffered such loss or damage.
17. GENERAL INDEMNITY.
Lessee assumes liability for, and shall indemnify, protect save and
keep harmless Lessor and its agents, servants, successors and assigns (an
"Indemnitee") from and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits, costs and expenses, including
reasonable legal expenses, of whatsoever kind and nature, imposed on, incurred
by or asserted against any Indemnitee, in any way relating to or arising out of
this Lease or the enforcement hereof, or the manufacture, purchase, acceptance,
rejection, ownership, possession, use, selection, delivery, lease, operation,
condition, sale, return or other disposition of the Equipment or any part
thereof (including, without limitation, latent or other defects, whether or not
discoverable by Lessee or any other person, any claim in tort for strict
liability and any claim for patent, trademark or copyright infringement);
provided, however, that Lessee shall not be required to indemnify any Indemnitee
for loss or liability arising from acts or events which occur after the
Equipment has been returned to Lessor in accordance with the Lease, or for loss
or liability resulting solely from the willful misconduct or gross negligence of
such Indemnitee. The provisions of this Section shall survive the expiration or
earlier termination of this Lease.
18. EVENTS OF DEFAULT.
The following event shall each constitute an event of default (herein
called "Event of Default") under this Lease:
(i) Lessee shall fail to execute and deliver to Lessor (or Lessor's
agent) the "Delivery Certificate" within twenty-four (24) hours of Turnover of
the Equipment to Lessee.
(ii) Lessee shall fail to commence lease payments on the first day of
the month following the Commencement Date, or such other initiation of lease
payments as specified in Section 5 of this Lease.
(iii) Lessee shall fail to make any payment of rent or other amount
owing hereunder after notice has been given that payment is past due; or
(iv) Lessee shall fail to maintain the insurance required by Section
10 hereof or to perform or observe any of the covenants contained in Sections 21
or 22 hereof; or
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(v) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it with respect to this
Lease and such failure shall continue unremedied for 30 days after the earlier
of (a) the date on which Lessee obtains, or should have obtained knowledge of
such failure; or (b) the date on which notice thereof shall be given by Lessor
to Lessee; or
(vi) Any representation or warranty made by Lessee herein or in any
document, certificate or financial or other statement now or hereafter furnished
Lessor in connection with this Lease shall prove at any time to have been
untrue, incomplete or misleading in any material respect as of the time when
made; or
(vii) The entry of a decree or order for relief by a court having
jurisdiction in respect of Lessee, adjudging Lessee a bankrupt or insolvent, or
approving as properly filed a petition seeking a reorganization, arrangement,
adjustment or composition of or in respect of Lessee in an involuntary
proceeding or case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or State bankruptcy, insolvency or
other similar law, or appointing a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or similar official) of Lessee or of any substantial
part of its property, or ordering the winding-up or liquidation of its affairs,
and the continuance of any such decree or order unstayed and in effect for a
period of 30 days; or
(viii) The institution by Lessee or proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the commencement by Lessee of a voluntary
proceeding or case under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy, insolvency or
other similar law, or the consent by it to the filing of any such petition or to
the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian or sequestrator (or other similar official) of Lessee or of
any substantial part of its property, or the making by it of any assignment for
the benefit of creditors or the admission by it of its inability to pay its
debts generally as they become due or its willingness to be adjudicated a
bankrupt or the failure of Lessee generally to pay its debts as they become due
or the taking of corporate action by Lessee in furtherance of any of the
foregoing.
19. REMEDIES. If an Event of Default specified in Subsection 18(vii) or
(viii) above shall occur, then, and in any such event, Lessor shall not be
obligated to purchase or lease any of the Equipment and this Lease shall,
without any declaration or other action by Lessor, be in default. If an Event of
Default, other than an Event of Default specified in Subsection 18(vii) or
(viii) above, shall occur, Lessor may, at its option, declare this Lease to be
in default. Lessee will have ten (10) days from the date Lessor declares the
Lease to be in default to cure the specified Event of Default. At any time after
this Lease is in default under the first sentence of this Section 19, or ten
(10) days after Lessor has declared this Lease to be in default under the second
sentence of this Section 19, and Lessee has not cured
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<PAGE>
the Event of Default, Lessor and/or its representative may do any one or more of
the following with respect to all of the Equipment or any part thereof as Lessor
in its sole discretion shall elect, to the extent permitted by applicable law
then in effect:
(a) demand that Lessee, and Lessee shall at its expense upon
such demand, return the Equipment promptly to Lessor at such place in the
continental United States of America as Lessor shall specify, or Lessor and/or
its agents, at its option, may with or without entry upon the premises where the
Equipment is located and disable the Equipment, or make the Equipment inoperable
permanently or temporarily in Lessor's sole discretion, and/or take immediate
possession of the Equipment and remove the same by summary proceedings or
otherwise, all without liability for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused by such
taking or for disabling or otherwise;
(b) sell the Equipment at public or private sale, with or
without notice, advertisement or publication, as Lessor may determine, or
otherwise dispose of, hold, use, operate, lease to others or keep idle the
Equipment as Lessor in its sole discretion may determine, all free and clear of
any rights of Lessee and without any duty to account to Lessee with respect to
such action or inaction or for any proceeds with respect thereto;
(c) by written notice to Lessee specifying a payment date which
shall be not earlier than 20 days after the date of such notice, demand that
Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date
specified in such notice, as liquidated damages for loss of a bargain and not as
a penalty, all accrued and unpaid rent for the Equipment due on all Rent Payment
Dates up to and including the payment date specified in such notice PLUS an
amount (together with interest on such amount at the Late Charge Rate, from the
payment date specified in such notice to the date of actual payment) equal to
the excess, if any, of the Stipulated Loss Value of the Equipment as of the
payment date specified in such notice over the Fair Market Sale Value of the
Equipment as of such date;
(d) Lessor may exercise any other right or remedy which may be
available to it under applicable law or proceed by appropriate court action to
enforce the terms hereof or to recover damages for the breach hereof or to
rescind this Lease. Lessor is entitled to recover any amount that fully
compensates the Lessor for any damage to or loss of the Lessor's residual
interest in the leased property caused by the Lessee's default.
In the event any present value discounting is applied, the discount rate
used shall be the Federal Reserve Board Discount Rate.
In addition, Lessee shall be liable for any and all unpaid rent and other
amounts due hereunder before or during the exercise of any of the foregoing
remedies and for all reasonable legal fees and other costs and expenses incurred
by reason of the occurrence of any Event of Default or the exercise of Lessor's
remedies with respect thereto, including all reasonable costs and expenses
incurred in connection with the placing of the Equipment in the condition
required by Section 12 hereof.
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<PAGE>
No remedy referred to in this Section 19 is intended to be exclusive, but
each shall be cumulative and in addition to any other remedy referred to herein
or otherwise available to Lessor at law or in equity; and the exercise or
beginning of exercise by Lessor of any one or more of such remedies shall not
preclude the simultaneous or later exercise by Lessor of any or all such other
remedies. No express or implied waiver by Lessor of an Event of Default shall in
any way be, or be construed to be, a waiver of any future or subsequent Event of
Default. To the extent permitted by applicable law, Lessee hereby waives any
rights now or hereafter conferred by statute or otherwise which may require
Lessor to sell or lease or otherwise use the Equipment in mitigation of Lessor's
damages or losses or which may otherwise limit or modify any of Lessor's rights
or remedies under this Lease.
20. LESSOR'S RIGHT TO PERFORM. If Lessee fails to make any payment
required to be made by it hereunder or fails to perform or comply with any of
its other agreements contained herein, Lessor may itself make such payment or
perform or comply with such agreement, and the amount of such payment and the
amount of the reasonable expenses of Lessor incurred in connection with such
payment or the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Late Charge Rate, shall be deemed to
be additional rent, payable by Lessee within 30 days of notice.
21. LOCATION; ASSIGNMENT OR SUBLEASE; TITLE TRANSFER.
(a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE LOCATION SPECIFIED
IN SCHEDULE 1 OF EXHIBIT A WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, SUCH
CONSENT NOT TO BE UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE THE CONTINTENTAL
U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT ALL TIMES BE IN THE SOLE
POSSESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN
CONSENT OF LESSOR, WHICH MAY NOT BE UNREASONABLY WITHHELD, ASSIGN THIS LEASE OR
ANY INTEREST HEREIN OR SUBLEASE OR OTHERWISE TRANSFER ITS INTEREST IN ANY OF THE
EQUIPMENT, AND ANY ATTEMPTED ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY LESSEE IN
VIOLATION OF THESE PROVISIONS SHALL BE VOID.
(b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY TRANSFER ITS
INTEREST IN THE EQUIPMENT TO AN OWNER OTHER THAN LESSOR. LESSOR MAY
CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER, AND (ii)
MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE ABOVE-DESCRIBED
TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE (i) THAT ANY SUCH
ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE LESSEE'S DUTIES AND OBLIGATIONS
HEREUNDER, (ii) THAT SUCH ASSIGNMENT DOES NOT MATERIALLY INCREASE THE BURDEN OR
RIGHT IMPOSED ON THE LESSEE, AND (iii) THAT THE ASSIGNMENT IS PERMITTED EVEN IF
THE ASSIGNMENT COULD BE DEEMED TO MATERIALLY AFFECT THE INTEREST OF THE LESSEE.
22. STATUS CHANGES IN LESSEE. Lessee will not without thirty (30) days
prior written notice to Lessor, (a) enter into any transaction of merger or
consolidation unless it is the
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<PAGE>
surviving corporation or after giving effect to such merger or consolidation its
net worth equals or exceeds that which existed prior to such merger or
consolidation; or (b) change the form of organization of its business; or (c)
change its name or its chief place of business. Lessee may obtain Lessor's prior
written concurrence, which may not be unreasonably withheld, before Lessee may
undertake any actions to (a) liquidate or dissolve or similar action of the
Lessee's organization, or (b) sell, transfer or otherwise dispose of all or any
substantial part of Lessee's assets.
23. FURTHER ASSURANCES; FINANCIAL INFORMATION.
(a) Lessee will, at its expense, promptly and duly execute and
deliver to Lessor such further documents and assurances and take such further
action as Lessor may from time to time reasonably request in order to establish
and protect the rights, interests and remedies created or intended to be created
in favor of Lessor hereunder, including, without limitation, the execution and
filing of Uniform Commercial Code financing statements covering the Equipment
and proceeds therefrom in the jurisdictions in which the Equipment is located
from time to time. To the extent permitted by applicable law, Lessee hereby
authorizes Lessor to file any such financing statements without the signature of
Lessee.
(b) Lessee will qualify to do business and remain qualified in good
standing, in each jurisdiction in which the Equipment is from time to time
located.
(c) Lessee will furnish to Lessor as soon as available, but in any
event not later than 90 days after the end of each fiscal year of Lessee, a
consolidated balance sheet of Lessee as at the end of such fiscal year, and
consolidated statements of income and changes in financial position of Lessee
for such fiscal year, all in reasonable detail, prepare in accordance with
generally accepted accounting principles applied on a basis consistently
maintained throughout the period involved. These reports will not be disclosed
to anyone other than the Lessor and/or the Owner as provided in Section 21(b).
24. NOTICES. All notices, demands and other communications hereunder
shall be in writing, and shall be deemed to have been given or made when
deposited in the United States mail, first class postage prepaid, addressed as
follows or to such other address as any of the following persons may from time
to time designate in writing to the other persons listed below:
Lessor: Telecommunications Finance Group
400 Rinehart Road
Lake Mary, Florida 32746
Lessee: Communication Telesystems International
4350 LaJolla Village Drive
Suite 800
San Diego, CA 92122
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<PAGE>
25. CONDITIONS PRECEDENT:
(a) Lessor shall not be obligated to lease the items of Equipment
described herein to Lessee hereunder unless:
(i) Such Uniform Commercial Code financing statements covering
Equipment and proceeds therefrom and landlord and/or mortgagee waivers or
disclaimers and/or severance agreements with respect to the items of Equipment
covered by this Lease as Lessor shall deem necessary or desirable in order to
perfect and protect its interests therein shall have been duly executed and
filed, at Lessee's expense, in such public offices as Lessor shall direct;
(ii) All representations and warranties of Lessee contained
herein or in any document or certificates furnished Lessor in connection
herewith shall be true and correct on and as of the date of this Lease with the
same force and effect as if made on and as of such date; no Event of Default or
Default shall be in existence on such date or shall occur as a result of the
lease by Lessee of the Equipment specified in Schedule 1 of Exhibit A;
(iii) In the sole judgment of Lessor, there shall have been no
material adverse change in the financial condition or business of Lessee;
(iv) All proceedings to be taken in connection with the
transactions contemplated by this Lease, and all documents incidental thereto,
shall be satisfactory in form and substance to Lessor and its counsel;
(v) Lessor shall have received from Lessee, in form and
substance satisfactory to it, such other documents and information as Lessor
shall reasonably request;
(vi) All legal matters in connection with the transactions
contemplated by this Lease shall be satisfactory to Lessor's counsel; and
(vii) No Change in Tax Law, which in the sole judgment of Lessor
would adversely affect Lessor's Economics, shall have occurred or shall appear,
in Lessor's good faith judgment, to be imminent.
26. SOFTWARE LICENSE. Reference is made to the form of DCO Software
Product License Agreement attached hereto as Exhibit B (the "License
Document"). Lessor has arranged for the Equipment manufacturer to grant Lessee a
license to use the Software as defined in the License Document in conjunction
with the equipment leased hereunder in accordance with the terms of the License
Document. The original license fee is contained in the lease rate. To avail
itself of the license grant, Lessee must execute the License Document, upon
Commencement of the Lease. The option to obtain a fully paid up license as
provided in Article 2 of the License Document may be exercised by the Lessee and
the payment made directly to the equipment manufacturer named in the License
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<PAGE>
Document.
27. LIMITATION OF LIABILITY.
LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR REVENUE, SPECIAL,
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY NATURE OR FROM
ANY CAUSE WHETHER BASED IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, OR OTHER
LEGAL THEORY EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. LESSEE HEREBY AGREES THAT LESSOR WILL NOT BE LIABLE FOR ANY LOST
PROFITS OR REVENUE OR FOR ANY CLAIM OR DEMAND AGAINST LESSEE BY ANY OTHER
PARTY.
28. MISCELLANEOUS.
(a) Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction. To the extent
permitted by applicable law, Lessee hereby waives any provision of law which
renders any provision hereof prohibited or unenforceable in any respect.
(b) No terms or provisions of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which the enforcement of the change, waiver, discharge or
termination is sought. No delay or failure on the part of Lessor to exercise any
power or right hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof, or the exercise
of any other power or right. After the occurrence of any Default or Event of
Default, the acceptance by Lessor of any payment of rent or other sum owed by
Lessee pursuant hereto shall not constitute a waiver by Lessor of such Default
or Event of Default, regardless of Lessor's knowledge or lack of knowledge
thereof at the time of acceptance of any such payment, and shall not constitute
a reinstatement of this Lease, if this Lease shall have been declared in default
by Lessor pursuant to Section 18 hereof or otherwise, unless Lessor shall have
agreed in writing to reinstate the Lease and to waive the Default or Event of
Default.
In the event Lessee tenders payment to Lessor by check or draft containing
a qualified endorsement purporting to limit or modify Lessee's liability or
obligations under this Lease, such qualified endorsement shall be of no force
and effect even if Lessor processes the check or draft for payment.
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<PAGE>
(c) This Lease with exhibits contains the full, final and exclusive
statement of the agreement between Lessor and Lessee relating to the lease of
the Equipment.
(d) This Lease shall constitute an agreement of an operating lease,
and nothing herein shall be construed as conveying to Lessee any right, title or
interest in the Equipment except as Lessee only.
(e) This Lease and the covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, Lessor and its successors
and assigns and Lessee and, to the extent permitted by Section 21 hereof, its
successors and assigns.
(f) The headings of the Sections are for convenience of reference
only, are not a part of this Lease and shall not be deemed to affect the meaning
or construction of any of the provisions hereof.
(g) This Lease may be executed by the parties hereto on any number of
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument.
(h) This Lease is deemed made and entered into in the State of
Florida and shall be governed by and construed under and in accordance with the
laws of the State of Florida as if both parties were residents of Florida.
(i) Lessee hereby irrevocably consents and agrees that any legal
action, suit, or proceeding arising out of or in any way in connection with this
Lease shall be instituted or brought in the courts of the State of Florida, or
the United States Courts for the District of Florida, and by execution and
delivery of this Lease, Lessee hereby irrevocably accepts and submits to, for
itself and in respect of its property, generally and unconditionally, the
non-exclusive jurisdiction of any such court, and to all proceedings in such
courts. Lessee irrevocably consents to service of any summons and/or legal
process by registered or certified United States mail, postage prepaid, to
Lessee at the address set forth in Section 24 hereof, such method of service to
constitute, in every respect, sufficient and effective service of process in any
legal action or proceeding. Nothing in this Lease shall affect the right to
service of process in any other manner permitted by law or limit the right of
Lessor to bring actions, suits or proceedings in the court of any other
jurisdiction. Lessee further agrees that final judgment against it in any such
legal action, suit or proceeding shall be conclusive and may be enforced in any
other jurisdiction, within or outside the United States of America, by suit on
the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and the amount of the liability.
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<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed as of the day and year first above written and by its signatures
below Lessee expressly acknowledges that this Lease may not be modified unless
done so in a writing signed by each of the parties hereto or their successors in
interest.
COMMUNICATION TELESYSTEMS
INTERNATIONAL
By: /s/ [ILLEGIBLE]
--------------------------------
Sec & Tres
-----------------------------------
(Name & Title)
Dated Signed:
----------------------
TELECOMMUNICATIONS FINANCE GROUP
By: /s/ [ILLEGIBLE]
--------------------------------
-----------------------------------
Authorized Representative of
Telecommunications Finance Group
Dated Signed: 6/9/92
----------------------
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<PAGE>
LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Schedules and Exhibits to the Lease Agreement (6/2/92) have
been omitted from this Exhibit and shall be furnished supplementally to the
Commission upon request:
Schedule A - Stipulated Loss Value
Schedule B - Amendment to Lease Agreement
Schedule C - Amendment to Lease Agreement
Schedule D - Buyout Price on 60 Month Lease, with a Three Month Payment
Deferral, as a Percentage of Lessors Cost as Shown in Schedule 1
of Exhibit A of the Lease
Schedule E - Amendment to Lease Agreement
Exhibit A - Certificate of Delivery and Acceptance
Exhibit B - Software License Agreement
Secretary's Certificate
Exhibit A to Assignment of Purchase Order
<PAGE>
TELECOMMUNICATIONS FINANCE GROUP
LEASE AGREEMENT
THIS LEASE AGREEMENT, IS EFFECTIVE ON February 23, 1993
------------------------------------------
BETWEEN TELECOMMUNICATIONS FINANCE GROUP ("HEREINAFTER LESSOR") AND
------------
Communication Telesystems International , a
- --------------------------------------------------- -------------------------
California Corporation
- --------------------------------------------------------------------------------
WITH ITS PRINCIPAL OFFICE LOCATED AT 4350 LaJolla Village Drive, Suite 100,
- --------------------------------------------------------------------------------
San Diego, CA 92122
- ---------------------------------------------------------("HEREINAFTER LESSEE").
1. LEASE.
Lessor, subject to the conditions set forth in Section 25 hereof, agrees
to lease to Lessee and Lessee agrees to lease from Lessor hereunder,
those items of personal property (the "Equipment") which are described
on Schedule 1 of Exhibit A hereto. Lessee agrees to execute and deliver
to Lessor a certificate of delivery and acceptance in substantively the
form of Exhibit A hereto (a "Delivery Certificate") immediately after
Turnover of the Equipment, and such execution shall constitute Lessee's
irrevocable acceptance of such items of Equipment for all purposes of
this Lease. The Delivery Certificate shall constitute a part of this
Lease to the same extent as if the provisions thereof were set forth
herein.
2. DEFINITIONS.
"AMORTIZATION DEDUCTIONS" as defined in Section 11(b)(i) hereof.
"APPRAISAL PROCEDURE" shall mean the following procedure for
determining the Fair Market Sale Value of any item of Equipment. If
either Lessor or Lessee shall request by notice (the "Appraisal
Request") to the other that such value be determined by the Appraisal
Procedure, (i) Lessor and Lessee shall, within 15 days after the
Appraisal Request, appoint an independent appraiser mutually
satisfactory to them, or (ii) if the parties are unable to agree on a
mutually acceptable appraiser within such time, Lessor and Lessee shall
each appoint one independent appraiser (PROVIDED that if either party
hereto fails to notify the other party hereto of the identity of the
independent appraiser chosen by it within 30 days after the Appraisal
Request, the determination of such value shall be made by the
independent appraiser chosen by such other party), and (iii) if such
appraisers cannot agree on such value within 20 days after their
appointment and if one appraisal is not within 5% of the other
appraisal, Lessor and Lessee shall choose a third independent appraiser
mutually satisfactory to them (or, if they fail to agree upon a third
appraiser within 25 days after the appointment of the first two
appraisers, such third independent appraiser shall within 20 days
thereafter be appointed by the American Arbitration Association), and
such value shall be determined by such third independent appraiser
within 20 days after his appointment, after consultation with the other
two independent appraisers. If the first two appraisals are within 5%
of each other, then the average of the two appraisals shall be the Fair
Market Sale Value. The fees and expenses of all appraisers shall be
paid by Lessee.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of Florida.
"CODE" shall mean the Internal Revenue Code of 1954, as amended, or any
comparable successor law.
"COMMENCEMENT DATE" as defined in Section 3 hereof.
"DEFAULT" shall mean any event or condition which after the giving of
notice or lapse of time or both would become an Event of Default.
"DELIVERY CERTIFICATE" as defined in Section 1 hereof.
"EQUIPMENT" as defined in Section 1 hereof.
"EVENT OF DEFAULT" as defined in Section 18 hereof.
"EVENT OF LOSS" shall mean with respect to any item of Equipment, the
actual or constructive total loss of such item of Equipment or the use
thereof, due to theft, destruction, damage beyond repair or rendition
thereof permanently unfit for normal use from any reason whatsoever, or
the condemnation, confiscation or seizure of, or requisition of title to
or use of, such item of Equipment.
"FAIR MARKET SALE VALUE" shall, at any time with respect to any item of
Equipment, be equal to the sale value of such item of Equipment which
would be obtained in an arm's-length transaction between an informed and
willing seller under no compulsion to sell and an informed and willing
buyer-user (other than a lessee currently in possession or a used
equipment or scrap dealer). For purposes of Section 7(b) hereof. Fair
Market Sale Value shall be determined by (i) an independent appraiser
(at Lessee's expense) selected by Lessor or (ii) by the Appraiser
Procedure if the Appraisal Request is made at least 90 days (but not
more than 360 days) prior to the termination or expiration of the Lease
Term, as the case may be, which determination shall be made (a) without
deduction for any costs or expenses of dismantling or removal; and (b)
on the assumption that such item of Equipment is free and clear of all
Liens and is in the condition and repair in which it is required to be
returned pursuant to Section 7(a) hereof. For purposes of Section 19(c)
hereof, Fair Market Sale Value shall be determined (at Lessee's expense)
by an independent appraiser selected by Lessor, on an "as-is, whereas"
basis, without regard to the provisions of clauses (a) and (b) above;
PROVIDED that is Lessor shall have sold any item of Equipment pursuant
to Section 19(b) hereof prior to giving the notice referred to in
Section 19(c) hereof, Fair Market Sale Value of such item of Equipment
shall be the net proceeds of such sale after deduction of all costs and
expenses incurred by Lessor in connection therewith; PROVIDED FURTHER,
that if for any reason Lessor is not able to obtain possession of any
item of Equipment pursuant to Section 19(a) hereof, the Fair Market Sale
Value of such item of Equipment shall be zero.
"IMPOSITION" as defined in Section 11(a) hereof.
"INDEMNITEE" as defined in Section 17 hereof.
"LATE CHARGE RATE" shall mean an interest rate per annum equal to the
higher of two percent (2%) over the Reference Rate or eighteen percent
(18%), but not to exceed the highest rate permitted by applicable law.
"LEASE" and the terms "hereof", "herein", "hereto" and "hereunder", when
used in this Lease Agreement, shall mean and include this Lease Agreement.
Exhibits and the Delivery Certificate hereto as the same may from time to
time be amended, modifies or supplemented.
"LEASE TERM" shall mean, with respect to any item of Equipment, the term
of the lease of such item of Equipment hereunder specified in Section 3
hereof.
"LESSEE" as defined in the introductory paragraph to this Lease.
"LESSOR" as defined in the introductory paragraph of this Lease.
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<PAGE>
"LESSOR'S VALUE" shall mean with respect to any item of Equipment, and
installation if applicable, the total amount set forth in Schedule 1 of
Exhibit A hereto.
"LESSOR'S LIENS" shall mean (i) any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement, title retention or
any other right or claim of any person claiming through or under Lessor,
not based upon or relating to ownership of the Equipment or the lease
thereof hereunder and (ii) any mortgage, pledge, lien, security interest,
charge, encumbrance, financing statement, title retention or any other
right or claim of Owner (other than Lessor) claiming through or under
Lessor in connection with the transactions described in Section 21(b)
hereof.
"LIENS" shall mean any mortgage, pledge, lien, security interest, charge,
encumbrance, financing statement, title retention or any other right or
claim of any person, other than any Lessor's Lien.
"LOSS PAYMENT DATE" shall mean with respect to any item of Equipment the
date on which payment, as described in Section 16(b) hereof, is made to
the Lessor by the Lessee as the result of an Event of Loss with respect
to such item. The Loss Payment Date shall be within ninety (90) days of
the said Event of Loss.
"OWNER" shall mean the entity or person having ownership interest to the
Equipment as contemplated by the provisions of Section 21(b) hereof and
may be a person other than Lessor.
"OWNER'S ECONOMICS" shall mean the after-tax yield and periodic after-tax
cash flow anticipated by Owner as of the date of this Lease, in
connection with the transactions contemplated by this Lease as
determined by Owner unless Lessor shall have transferred its interest in
the Equipment to another person as contemplated by the provisions of
Section 21(b) hereof in which case "Owner's Economics" shall mean the
after-tax yield and periodic after-tax cash flow anticipated by such
person as of the date of the lease between such person and Lessor
contemplated by said provisions, in connection with the transactions
contemplated by such lease as determined by such person.
"RECOVERY DEDUCTIONS" as defined in Section 11(b)(i) hereof.
"REFERENCE RATE" shall mean the rate of interest publicly announced by
Manufacturers Hanover Trust Company ("MHT") in New York, New York from
time to time as its reference rate.
The reference rate is not intended to be the lowest rate of interest
charged by MHT in connection with extensions of credit to debtors. The
Reference Rate shall be determined at the close of business on the 15th
day of each calendar month (if the 15th day is not a Business Day, then
on the first preceding Business Day) and shall become effective as of
the first day of the calendar month succeeding such determination and
shall continue in effect to, and including, the last day of said
calendar month.
"RENT PAYMENT DATE" shall mean each date on which an installment of rent
is due and payable pursuant to Section 5(a) hereof.
"STIPULATED LOSS VALUE" shall mean, with respect to any item of
Equipment, the amount determined by multiplying the Lessor's Value of
such item of Equipment by the percentage set forth in Schedule A hereto
opposite the applicable Rent Payment Date; PROVIDED, that for purposes
of Sections 16(b) and 19(c) hereof, any determination of Stipulated Loss
Value as of a date occurring after the final Rent Payment Date with
respect to such item of Equipment, shall be made as of such final Rent
Payment Date.
"TAX BENEFITS" shall mean the right to claim such deductions, credits, and
other benefits as are provided by the Code to an owner of property,
including the Recovery Deductions an Amortization Deductions.
"TURNOVER" shall mean that point in time when the equipment installation
personnel complete testing of the equipment, or when the equipment is
placed into service, whichever first occurs.
All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles.
3. LEASE TERM.
The term of the lease of Equipment hereunder shall commence on the
Commencement Date specified in the Delivery Certificate ("Commencement
Date") and, unless earlier terminated pursuant to the provisions hereof
or at law or equity, shall continue for a term of sixty (60) months from
such Commencement Date. The Commencement Date specified in the Delivery
Certificate shall be the date on which Turnover occurs at a site
provided by Lessee in accordance with the provisions of Section 4 hereof.
4. INSTALLATION.
Lessor shall arrange for installation of the Equipment, the cost of which
installation shall be deemed to be part of Lessor's Value. Exhibit
A hereto shall indicate whether such cost is included or excluded from
the monthly rent payments due in accordance with Section 5(a) hereof.
If excluded from such monthly rent payments, Lessor shall separately
invoice Lessee for such installation upon completion thereof and Lessee
shall pay such invoice within thirty (30) days from the date thereof.
Lessee shall be obligated to timely provide a suitable site for the
installation of the Equipment in accordance with the Equipment
manufacturer's practices attached hereto as Exhibit C. Lessee shall be
responsible for compliance with environmental requirements and central
office grounding procedures specified in Exhibit C hereto and for
providing adequate space, lighting, heating, air-conditioning and A/C
power at the installation site. Unavailability of Lessee furnished
facilities shall be cause for adjustments to the installation price set
forth in Schedule 1 of Exhibit A hereto.
5. RENT: UNCONDITIONAL OBLIGATIONS.
(a) Lessee agrees to pay to Lessor, at the address specified in Section
24 hereof or at such other address as Lessor may specify, rent for the
Equipment at a rate not to exceed $21.993 per $1000 of the total Lessors
Value of such items of Equipment, as set forth in Schedule 1 of Exhibit
A dated February 23, 1993 or as from time to time amended, (plus
applicable sales or use taxes) per month, in sixty (60) consecutive
monthly installments, with the first installment of rent being due on
the Commencement Date unless the Commencement Date is other than the
first day of a calendar month, in which event the first installment of
rent shall be due on the first day of the month following the
Commencement Date, and succeeding installments being due on the same
date of each month thereafter.
(b) Lessee shall also pay to Lessor, on demand, interest at the Late
Charge Rate on any installment of rent and on any other amount owing
hereunder which is not paid within 15 days of its due date, for any
period for which the same shall be overdue. Each payment made under this
Lease shall be applied first to the payment of interest than owing and
then to rent or other amounts owing hereunder. Interest shall be
computed on the basis of a 360-day year and actual days elapsed.
(c) This Lease is a net lease, and Lessee's obligation to pay all rent an
all other amounts payable hereunder is ABSOLUTE and UNCONDITIONAL under
any and all circumstances and shall not be affected by any circumstances
of any character whatsoever, including, without limitation, (i) any
set-off, counterclaim, recoupment, defense, abatement or reduction or any
right which Lessee may have against Lessor, the manufacturer or supplier
of any of the Equipment or anyone else for any reason what-
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soever; (ii) any defect in the title, condition, design, or operation of,
or lack of fitness for use of, or any damage to, or loss of, all or any
part of the Equipment from any cause whatsoever; (iii) the existence of
any Liens with respect to the Equipment; (iv) the invalidity,
unenforceability or disaffirmance of this Lease or any other document
related hereto; or (v) the prohibition of or interference with the use or
possession by Lessee of all or any part of the Equipment, for any reason
whatsoever, including without limitation, by reason of (1) claims for
patent, trademark or copyright infringement; (2) present or future
governmental laws, rules or orders; (3) the insolvency, bankruptcy or
reorganization of any person; and (4) any other cause whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. Lessee hereby waives, to the extent permitted by
applicable law, any and all rights which it may now have or which may at
any time hereafter be conferred upon it, by statute or otherwise, to
terminate, cancel, quit or surrender the lease of any Equipment. If for
any reason whatsoever this Lease or any Supplement, other than pursuant
to Section 16(b) hereof, shall be terminated in whole or in part by
operation of law or otherwise, Lessee will nonetheless pay to Lessor an
amount equal to each installment of rent at the time such installment
would have become due and payable in accordance with the terms hereof.
Each payment of rent or other amount paid by Lessee hereunder shall be
final and Lessee will not seek to recover all or any part of such payment
from Lessor for any reason whatsoever.
6. WARRANTY DISCLAIMER:
ASSIGNMENT OF WARRANTIES.
(a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE AND LESSEE HEREBY
EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY
PARTICULAR PURPOSE, FREEDOM FROM INTERFERENCE OR INFRINGEMENT OR THE
LIKE, OR AS TO THE TITLE TO OR LESSOR'S OR LESSEE'S INTEREST IN THE
EQUIPMENT OR AS TO ANY OTHER MATTER RELATING TO THE EQUIPMENT OR ANY
PART THEREOF.
LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND EACH PART THEREOF ON
THE BASIS OF ITS OWN JUDGEMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON ANY
STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR.
LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION
OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO THE
TRANSACTIONS CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES
AND/OR TAX TREATMENT THEREOF.
(b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS LESSOR MAY HAVE (TO
EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL MANUFACTURERS'
AND SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT; PROVIDED,
HOWEVER, THAT THE FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO LESSOR
UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT
HEREUNDER, OR UPON THE RETURN OF THE EQUIPMENT TO LESSOR, LESSEE AGREES
TO SETTLE ALL CLAIMS WITH RESPECT TO THE EQUIPMENT DIRECTLY WITH THE
MANUFACTURERS OR SUPPLIERS THEREOF, AND TO GIVE LESSOR PROMPT NOTICE OF
ANY SUCH SETTLEMENT AND THE DETAILS OF SUCH SETTLEMENT, HOWEVER, IN THE
EVENT ANY WARRANTIES ARE NOT ASSIGNABLE, THE LESSOR AGREES TO ACT ON
BEHALF OF THE LESSEE IN SETTLING CLAIMS ARISING UNDER THE WARRANTY WITH
THE MANUFACTURER OR SUPPLIER.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF REVENUE OR PROFITS,
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR
FROM ANY CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
7. DISPOSITION OF EQUIPMENT.
(a) RETURN.
Lessee shall, upon the expiration of the Lease Term of each item of
Equipment, subject to paragraph (b) below, return such item of Equipment
to Lessor at such place within the continental United States of America
as Lessor shall designate in writing to Lessee. Until such item of
Equipment is returned to Lessor pursuant to the provisions of this
Section, all of the provisions of this Lease with respect thereto shall
continue in full force and effect. Lessee shall pay all the costs and
expenses in connection with or incidental to the return of the
Equipment, including, without limitation, the cost of removing,
assembling, packing, insuring and transporting the Equipment. At the
time of such return, the Equipment shall be in the condition and repair
required to be maintained by Section 12 hereof and free and clear of all
Liens.
(b) PURCHASE OPTION.
So long as no Default or Event of Default shall have occurred and be
continuing, Lessee may, by written notice given to Lessor at least 120
days (but not more than 360 days) prior to the expirations date of the
Lease Term of any item of Equipment (which notice shall be irrevocable),
elect to purchase such item of Equipment on such expiration date for a
cash purchase price equal to the Fair Market Sale Value of such item of
Equipment determined as of such expiration date, plus an amount equal to
all taxes (other than income taxes on any gain on such sale), costs and
expenses (including legal fees and expenses) incurred or paid by Lessor
in connection with such sale. Upon payment by Lessee of such purchase
price, and of all other amounts then due and payable by Lessee
hereunder, Lessor shall transfer title to such items of Equipment to
Lessee on an "as-is, where-is" basis, without recourse and without
representation or warranty of any kind, express or implied, other than a
representation and warranty that such item of Equipment is free and
clear of any Lessor's Liens.
8. REPRESENTATION AND WARRANTIES.
In order to induce Lessor to enter into this Lease and to lease the
Equipment to Lessee hereunder, Lessee represents and warrants that:
(a) ORGANIZATION.
Lessee is duly organized, validly existing and in good standing under
the laws of the State of California and is duly qualified to do business
and is in good standing in the State in which the Equipment will be
located.
(b) POWER AND AUTHORITY.
Lessee has full power, authority and legal right to execute, deliver and
perform this Lease, and the execution, delivery and performance hereof
has been duly authorized by Lessee's governing body or officer(s).
(c) ENFORCEABILITY.
This Lease has been duly executed and delivered by Lessee and constitutes
a legal, valid and binding obligation of Lessee enforceable in accordance
with its terms.
(d) CONSENTS AND PERMITS.
The execution, delivery and performance of this Lease does not require
any approval or consent of any trustee, shareholder, partner, sole
proprietor or holders of any
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indebtedness or obligations of Lessee, and will not contravene any law,
regulation, judgment or decree applicable to Lessee, or the certificate of
partnership or incorporation or by-laws of Lessee, or contravene the
provisions of, or constitute a default under, or result in the creation of
any Lien upon any property of Lessee under any mortgage, instrument or other
agreement to which Lessee is a party or by which Lessee or its assets may be
bound or affected; and no authorization, approval, license, filing or
registration with any court or governmental agency or instrumentality is
necessary in connection with the execution, delivery, performance, validity
and enforceability of this Lease.
(e) FINANCIAL CONDITION OF THE LESSEE.
The financial statements of Lessee heretofore furnished to Lessor are
complete and correct and fairly present the financial condition of Lessee
and the results of its operations for the respective periods covered
thereby, there are no known contingent liabilities or liabilities for taxes
of Lessee which are not reflected in said financial statements and since the
date thereof, there has been no material adverse change in such financial
condition or operations.
(f) NO LITIGATION.
There is no action, suit, investigation or proceeding by or before any
court, arbitrator, administrative agency or other governmental authority
pending or threatened against or affecting Lessee (A) which involves the
transactions contemplated by this Lease or the Equipment; or (B) which, if
adversely determined, could have a material adverse effect on the financial
condition, business or operations of Lessee.
(g) UNITED STATES SOURCE INCOME.
No items of Equipment shall be used in a way that results in the creation of
an item of income to Lessor, the source of which for Federal Income Tax
purposes is without the United States.
9. LIENS.
Lessee will not directly or indirectly create, incur, assume, suffer, or
permit to exist any Lien on or with respect to the Equipment.
10. INSURANCE.
Lessee shall maintain at all times on the Equipment, at its expense,
property damage, direct damage and liability insurance in such amounts,
against such risks, in such form and with such insurers as shall be
reasonably satisfactory to Lessor and any other Owner; provided, that the
amount of direct damage insurance shall not on any date be less than the
greater of the full replacement value or the Stipulated Loss Value of the
Equipment as of such date. Each insurance policy will, among other things,
name Lessor and any other Owner as an additional insured or as loss payee
(as the case may be) as their interests may appear, require that the insurer
give Lessor and any such Owner at least thirty (30) days prior written
notice of any alteration in or cancellation of the terms of such policy, and
require that the interest of Lessor and any such Owner be continued insured
regardless of any breach of or violation by Lessee of any warranties,
declarations or conditions contained in such insurance policy. At Lessor's
or such Owner's option, Lessee shall furnish to Lessor and such Owner a
certificate or other evidence satisfactory to Lessor that such insurance
coverage is in effect provided, however, that Lessor and such Owner shall be
under no duty to ascertain the existence or adequacy of such insurance.
11. TAXES.
(a) GENERAL TAX PROVISIONS.
Lessee shall pay, and shall indemnify and hold Lessor harmless from and
against, all fees, taxes (whether sales, use, excise, personal property
or other taxes), imposts, duties, withholdings, assessments and other
governmental charges of whatever kind or character, however designated
(together with any penalties, fines or interest thereon), all of the
foregoing being herein collectively called "Impositions", which are at
any time levied or imposed against Lessor, Lessee, this Lease, the
Equipment or any part thereof by any Federal, State, or Local Government
or taxing authority in the United States or by any foreign government or
any subdivision or taxing authority thereof upon, with respect to, as a
result of or measured by (i) the Equipment (or any part thereof), or this
Lease or the interests of the Lessor therein; or (ii) the purchase,
ownership, delivery, leasing, possession, maintenance, use, operation,
return, sale or other disposition of the Equipment or any part thereof;
or (iii) the rentals, receipts of earnings payable under this Lease or
otherwise arising from the Equipment or any part thereof; EXCLUDING,
HOWEVER, taxes based on or measured by the net income of Lessor that are
imposed by (1) the United States of America, or (2) the State of Florida
or any political subdivision of the State of Florida, or (3) any other
State of the United States of America or any political subdivision of any
such State in which Lessor is subject to Impositions as the result
(whether solely or in part) of business or transactions unrelated to this
Lease. In case any report or return is required to be filed with respect
to any obligation of Lessee under this Section or arising out of this
Section, Lessee will notify Lessor of such requirement and make such
report or return in such manner as shall be satisfactory to Lessor;
PROVIDED, that the payment of any use taxes shall be made in such manner
as specified by Lessor in writing to Lessee; or (iv) The provisions of
this Section shall survive the expiration or earlier termination of this
Lease.
(b) SPECIAL TAX PROVISIONS.
(i) The owner of the items of Equipment, shall be entitled to take into
account in computing its Federal income tax liability. Current Tax Rate
and such deductions, credits, and other benefits as are provided by the
Code to an owner of property, including, without limitation:
(A) Recovery deductions ("Recovery Deductions") under Section 168(a)
of the Code for each item of Equipment in an amount determined,
commencing with the 1993 taxable year, by multiplying the Owner's
Cost of such item of Equipment by the percentages applicable under
Section 168(b) of the Code with respect to "(5)-year property" within
the meaning of Section 168(c) (2) of the Code;
(B) Amortization of expenses ("Amortization Deductions") paid or to
be paid by Owner in connection with this Lease at a rate no less
rapid than straight line over the Lease Term.
(ii) For the purposes of this Subsection 11(b) only, the term "Owner"
shall include the "common parent" and all other corporations included in
the affiliated group, within the meaning of Section 1504 of the Code (or
any other successor section thereto), of which Owner is or becomes a
member.
12. COMPLIANCE WITH LAWS; OPERATION AND MAINTENANCE.
(a) Lessee will use the Equipment in a careful and proper manner, will
comply with and conform to all governmental laws, rules and regulations
relating thereto, and will cause the Equipment to be operated in accordance
with the manufacturer's or supplier's instructions or manuals.
(b) Lessee will, at his own expense, keep and maintain the Equipment in
good repair, condition and working order and furnish all parts,
replacements, mechanisms, devices and servicing required therefor so that
the value, condition and operating efficiency therefor will at all times
be maintained and preserved reasonable wear and tear excepted. All such
repairs, parts, mechanisms, devices and replacements shall immediately,
without further act, become the property of Lessor and part of the
Equipment.
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(c) Lessee will not make or authorize any improvement, change, addition
or alteration to the Equipment (i) if such improvement, change, addition
or alteration will impair the originally intended function or use of the
Equipment or impair the value of the Equipment as it existed immediately
prior to such improvement, change, addition, or alteration; or (ii) if
any parts installed in or attached to or otherwise becoming a part of the
Equipment as a result of any such improvement, change, addition, or
alteration shall not be readily removable without damage to the
Equipment. Any part which is added to the Equipment without violating the
provisions of the immediately preceding sentence and which is not a
replacement or substitution for any property which was a part of the
Equipment, shall remain the property of Lessee and may be removed by
Lessee at any time prior to the expiration or earlier termination of the
Lease Term. All such parts shall be and remain free and clear of any
Liens. Any such part which is not so removed prior to the expiration or
earlier termination of the Lease Term shall, without further act, become
property of Lessor.
13. INSPECTION.
Upon prior notice, Lessor or its authorized representative may at any
reasonable time or times inspect the Equipment when it deems it necessary to
protect its interest therein.
14. IDENTIFICATION.
Lessee shall, at its expense, attach to each item of Equipment a notice
satisfactory to Lessor disclosing Owner's ownership of such item of
Equipment.
15. PERSONAL PROPERTY.
Lessee represents that the Equipment shall be and at all times remain
separately identifiable personal property. Lessee shall, at its expense,
take such action (including the obtaining and recording of waivers) as
may be necessary to prevent any third party from acquiring any right to
or interest in the Equipment by virtue of the Equipment being deemed to be
real property or a part of real property or a part of other personal
property, and if at any time any person shall claim any such right or
interest, Lessee shall, at its expense, cause such claim to be waived in
writing or otherwise eliminated to Lessor's satisfaction within 30 days
after such claim shall have first become known to Lessee.
16. LOSS OR DAMAGE.
(a) All risk of loss, theft, damage or destruction to the Equipment or
any part thereof, however incurred or occasioned, shall be borne by
Lessee and, unless such occurrence constitutes an Event of Loss pursuant
to paragraph (b) of this Section, Lessee shall promptly give Lessor
written notice hereof and shall promptly cause the affected part or parts
of the Equipment to be replaced or restored to the condition and repair
required to be maintained by Section 12 hereof.
(b) If an Event of Loss with respect to any item of Equipment shall
occur, Lessee shall promptly give Lessor written notice thereof, and
Lessee shall pay to Lessor as soon as it receives insurance proceeds with
respect to said Event of Loss but in any event no later than 180 days
after the occurrence of said Event of Loss an amount equal to the sum of
(i) the Stipulated Loss Value of such item of Equipment computed as of
the Rent Payment Date with respect to such item of Equipment on or
immediately preceding the date of the occurrence of such Event of Loss;
and (ii) all rent and other amounts due and owing hereunder for such item
of Equipment on or prior to the Loss Payment Date. Upon payment of such
amount to Lessor, the lease of such item of Equipment hereunder shall
terminate, and Lessor will transfer within forty days to Lessee, Lessor's
right, title and interest in and to such item of Equipment, on an "as-is,
where-is" basis, without recourse and without representation or warranty,
express or implied, other than a representation and warranty that such
item of Equipment is free and clear of any Lessor's Liens.
(c) Any payments received at any time by Lessor or Lessee from any
insurer with respect to loss or damage to the Equipment shall be applied
as follows: (i) if such payments are received with respect to an Event of
Loss they shall be paid to Lessor, but to the extent received by Lessor,
they shall reduce or discharge, as the case may be, Lessee's obligation
to pay the amounts due to Lessor under Section 16(b) hereof with respect
to such Event of Loss; or (ii) if such payments are received with respect
to any loss of or damage to the Equipment other than an Event of Loss,
such payments shall, unless a Default or Event of Default shall have
occurred and be continuing, be paid over to Lessee to reimburse Lessee
for its payment of the costs and expenses occurred by Lessee in replacing
or restoring pursuant to Section 16(a) hereof the part or parts of the
Equipment which suffered such loss or damage.
17. GENERAL INDEMNITY.
Lessee assumes liability for, and shall indemnify, protect save and keep
harmless Lessor and its agents, servants, successors and assigns (an
"Indemnitee") from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses,
including reasonable legal expenses, of whatsoever kind and nature,
imposed on, incurred by or asserted against an Indemnitee, in any way
relating to or arising out of this Lease or the enforcement hereof, or
the manufacture, purchase, acceptance, rejection, ownership, possession,
use selection, delivery, lease, operation, condition, sale, return or
other disposition of the Equipment or any part thereof (including,
without limitation, latent or other defects, whether or not discoverable
by Lessee or any other person, any claim in tort for strict liability and
any claim for patent, trademark or copyright infringement); PROVIDED,
however, that Lessee shall not be required to indemnify any Indemnitee
for loss or liability arising from acts or events which occur after the
Equipment has been returned to Lessor in accordance with the Lease, or
for loss or liability resulting solely from the willful misconduct or
gross negligence of such Indemnitee. The provisions of this Section shall
survive the expiration or earlier termination of this Lease.
18. EVENTS OF DEFAULT.
The following events shall each constitute an event of default (herein
called "Event of Default") under this Lease:
(i) Lessee shall fail to execute and deliver to Lessor (or Lessor's
agent) the "Delivery Certificate" within twenty-four (24) hours of
Turnover of the Equipment to Lessee.
(ii) Lessee shall fail to commence lease payments on the first day of the
month following the Commencement Date, or such other initiation of lease
payments as specified in Section 5 of this Lease.
(iii) Lessee shall fail to make any payment of rent or other amount owing
hereunder after notice has been given that payment is past due; or
(iv) Lessee shall fail to maintain the insurance required by Section 10
hereof or to perform or observe any of the covenants contained in
Sections 21 or 22 hereof; or
(v) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it with respect to
this Lease and such failure shall continue unremedied for 30 days after
the earlier of (a) the date on which Lessee obtains, or should have
obtained knowledge of such failure; or (b) the date on
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which notice thereof shall be given by Lessor to Lessee; or
(vi) Any representation or warranty made by Lessee herein or in any
document, certificate or financial or other statement now or hereafter
furnished Lessor in connection with this Lease shall prove at any time to
have been untrue, incomplete or misleading in any material respect as of
the time when made; or
(vii) The entry of a decree or order for relief by a court having
jurisdiction in respect of Lessee, adjudging Lessee a bankrupt or
insolvent, or approving as properly filed a petition seeking a
reorganization, arrangement, adjustment or composition of or in respect of
Lessee in an involuntary proceeding or case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal or
State bankruptcy, insolvency or other similar law, or appointing a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or
similar official) of Lessee or of any substantial part of its property,
or ordering the winding-up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a
period of 30 days; or
(viii) The institution by Lessee of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the commencement by
Lessee of a voluntary proceeding or case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal or
state bankruptcy, insolvency or other similar law, or the consent by it
to the filing of any such petition or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of Lessee or of any substantial
part of its property, or the making by it of any assignment for the benefit
of creditors or the admission by it of its inability to pay its debts
generally as they become due or its willingness to be adjudicated a bankrupt
or the failure of Lessee generally to pay its debts as they become due or
the taking of corporate action by Lessee in furtherance of any of the
foregoing.
19. REMEDIES.
If an Event of Default specified in Subsection 18 (vii) or (viii) above
shall occur, then, and in any such event, Lessor shall not be obligated
to purchase or lease any of the Equipment and this Lease shall, without
any declaration or other action by Lessor, be in default. If an Event of
Default, other than an Event of Default specified in Subsection 18 (vii)
or (viii) above, shall occur, Lessor may, at its option, declare this
Lease to be in default. At any time after this Lease is in default under
the first sentence of this Section 19, Lessor has declared this Lease to be
in default under the second sentence of this Section 19, Lessor and/or its
representative may do any one or more of the following with respect to all
of the Equipment or any part thereof as Lessor in its sole discretion shall
elect, to the extent permitted by applicable law then in effect;
(a) demand that Lessee, and Lessee shall at its expense upon such
demand, return the Equipment promptly to Lessor at such place in the
continental United States of America as Lessor shall specify, or
Lessor and/or its agents, at its option, may with or without entry
upon the premises where the Equipment is located and disable the
Equipment, or make the Equipment inoperable permanently or
temporarily in Lessor's sole discretion, and/or take immediate
possession of the Equipment and remove the same by summary
proceedings or otherwise, all without liability for by reason of such
entry or-taking of possession, whether for the restoration of damage
to property caused by such taking or for disabling or otherwise:
(b) sell the Equipment at public or private sale, with or without
notice, advertisement or publication, as Lessor may determine, or
otherwise dispose of, hold, use, operate, lease to others or keep
idle the Equipment as Lessor in its sole discretion may determine,
all free and clear of any rights of Lessee and without any duty to
account to Lessee with respect to such action or inaction or for any
proceeds with respect thereto;
(c) by written notice to Lessee specifying a payment date which
shall be not earlier than 20 days after the date of such notice,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on
the payment date specified in such notice, as liquidated damanges for
loss of a bargain and not as a penalty, all accrued and unpaid rent
for the Equipment due on all Rent Payment Dates up to and including
the payment date specified in such notice plus an amount (together
with interest on such amount at the Late Charge Rate, from the
payment date specified in such notice to the date of actual payment)
equal to the excess, if any, of the Stipulated Loss Value of the
Equipment as of the payment date specified in such notice over the
Fair Market Sale Value of the Equipment as of such date;
(d) Lessor may exercise any other right or remedy which may be
available to it under applicable law or proceed by appropriate court
action to enforce the terms hereof or to recover damages for the
breach hereof or to rescind this Lease. Lessor is entitled to recover
any amount that fully compensates the Lessor for any damage to or
loss of the Lessor's residual interest in the leased property caused
by the Lessee's default.
In the event any present value discounting is applied, the discount
rate used shall be the Federal Reserve Board Discount Rate.
In addition, Lessee shall be liable for any and all unpaid rent and other
amounts due hereunder before or during the exercise of any of the
foregoing remedies and for all reasonable legal fees and other costs and
expenses incurred by reason of the occurrence of any Event of Default or
the exercise of Lessor's remedies with respect thereto, including all
reasonable costs and expenses incurred in connection with the placing of
the Equipment in the condition required by Section 12 hereof. No remedy
referred to in this Section 19 is intended to be exclusive, but each
shall be cumulative and in addition to any other remedy referred to
herein or otherwise available to Lessor at law or in equity; and the
exercise or beginning of exercise by Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Lessor
of any or all such other remedies. No express or implied waiver by Lessor
of an Event of Default shall in any way be, or be construed to be, a
waiver of any future or subsequent Event of Default. To the extent
permitted by applicable law, Lessee hereby waives any rights now or
hereafter conferred by statue or otherwise which may require Lessor to
sell or lease or otherwise use the Equipment in mitigation of Lessor's
damages or losses or which may otherwise limit or modify any of Lessor's
rights or remedies under this Lease.
20. LESSOR'S RIGHT TO PERFORM.
If Lessee fails to make any payment required to be made by it hereunder
or fails to perform or comply with any of its other agreements contained
herein, Lessor may itself make such payment or perform or comply with
such agreement, and the amount of such payment and the amount of the
reasonable expenses of Lessor incurred in connection with such payment or
the performance of or compliance with such agreement, as the case may be,
together with interest thereon at the Late Charge Rate, shall be deemed
to be additional rent, payable by Lessee within 30 days of notice.
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<PAGE>
21. LOCATION; ASSIGNMENT OR SUBLEASE; TITLE TRANSFER.
(a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE LOCATION SPECIFIED IN
SCHEDULE 1 OF EXHIBIT A WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR,
SUCH CONSENT NOT TO BE UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE THE
CONTINENTAL U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT TIMES BE IN
THE SOLE POSSESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT
THE PRIOR WRITTEN CONSENT OF LESSOR WHICH MAY NOT BE UNREASONABLY
WITHHELD, ASSIGN THIS LEASE OR ANY INTEREST HEREIN OR SUBLEASE OR
OTHERWISE TRANSFER ITS INTEREST IN ANY OF THE EQUIPMENT, AND ANY
ATTEMPTED ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY LESSEE IN VIOLATION
OF THESE PROVISIONS SHALL BE VOID.
(b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY TRANSFER ITS
INTEREST IN THE EQUIPMENT TO ANY OWNER OTHER THAN LESSOR, LESSOR MAY
CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER,
AND (ii) MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE
ABOVE-DESCRIBED TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE
(i) THAT ANY SUCH ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE
LESSEE'S DUTIES AND OBLIGATION HEREUNDER, (ii) THAT SUCH ASSIGNMENT DOES
NOT MATERIALLY INCREASE THE BURDEN OR RIGHT IMPOSED ON THE LESSEE, AND
(iii) THAT THE ASSIGNMENT IS PERMITTED EVEN IF THE ASSIGNMENT COULD BE
DEEMED TO MATERIALLY AFFECT THE INTEREST OF THE LESSEE.
22. STATUS CHANGES IN LESSEE.
Lessee will not without thirty (30) days prior written notice to Lessor,
(a) enter into any transaction of merger or consolidation unless it is
the surviving corporation or after giving effect to such merger or
consolidation its net worth equals or exceeds that which existed prior
to such merger or consolidation; or (b) change the form of organization
of its business; or (c) change its name or its chief place of business.
Lessee must obtain Lessor's prior written concurrence unreasonably
withheld before Lessee may undertake any actions to (a) liquidate or
dissolve or similar action of the Lessee's organization, or (b) sell,
transfer or otherwise dispose of all or any substantial part of Lessee's
assets.
23. FURTHER ASSURANCES; FINANCIAL INFORMATION.
(a) Lessee will, at its expense, promptly and duly execute and deliver
to Lessor such further documents and assurances and take such further
action as Lessor may from time to time [illegible copy] request in order
to establish and protect the rights. Interests and remedies created or
intended to be created in favor of Lessor hereunder, including, without
limitation, the execution and filing of Uniform Commercial Code
financing statements covering the Equipment and proceeds therefrom in
the jurisdictions in which the Equipment is located from time to time.
To the extent permitted by applicable law, Lessee hereby authorizes
Lessor to file any such financing statements without the signature of
Lessee.
(b) Lessee will qualify to do business and remain qualified in good
standing, in each jurisdiction in which the Equipment is from time to
time located.
(c) Lessee will furnish to Lessor as soon as available, but in any
event not later than 90 days after the end of each fiscal year of
Lessor, a consolidated balance sheet of Lessee as at the end of such
fiscal year, and consolidated statements of income and changes in
financial position of Lessee for such fiscal year, all in reasonable
detail, prepared in accordance with general accepted accounting
principles applied on a basis consistently maintained throughout the
period involved. These reports will not be disclosed to anyone other
than the Lessor and/owner Owner as provided in Section 21(b).
24. NOTICES.
All notices, demands and other communications hereunder shall be in
writing, and shall be deemed to have been given or made when deposited
in the United States mail, first class postage prepaid, addressed as
follows or to such other address as any of the following persons may
from time to time designate in writing to other persons listed below:
Lessor: Telecommunications Finance Group
400 Rinehart Road
Lake Mary, Florida 32746
Lessee: Communications Telesystems International
4350 LaJolla Village Drive
Suite 100
San Diego, CA 92122
25. CONDITIONS PRECEDENT:
(a) Lessor shall not be obligated to lease the items of Equipment
described herein to Lessee hereunder unless:
(i) Such Uniform Commercial Code financing statements covering
Equipment and proceeds therefrom and landlord and/or mortgagee
waivers or disclaimers and/or severance agreements with respect to
the items of Equipment covered by this Lease as Lessor shall deem
necessary or desirable in order to perfect and protect its interests
therein shall have been duly executed and filed, at Lessee's expense,
in such public offices as Lessor shall direct;
(ii) All representations and warranties of Lessee contained herein or
in any document or certificate furnished Lessor in connection
herewith shall be true and correct on and as of the date of this
Lease with the same force and effect as if made on and as of such
date; no Event of Default or Default shall be in existence on such
date or shall occur as a result of the lease by Lessee of the
Equipment specified in Schedule 1 of Exhibit A;
(iii) In the sole judgment of Lessor, there shall have been no
material adverse change in the financial condition of business or
Lessee;
(iv) All proceedings to be taken in connection with the transactions
contemplated by this Lease, and all documents incidental thereto,
shall be satisfactory in form and substance to Lessor and its counsel;
(v) Lessor shall have received from Lessee, in form and substance
satisfactory to it, such other documents and information as Lessor
shall reasonably request;
(vi) All legal matters in connection with the transactions
contemplated by this Lease shall be satisfactory to Lessor's counsel;
and
(vii) No Change in Tax Law, which in the sole judgment of Lessor
would adversely affect Lessor's Economics, shall have occurred or
shall appear, in Lessor's good faith judgment, to be imminent.
26. SOFTWARE LICENSE.
Reference is made to the form of DCO Software License Agreement attached
hereto as Exhibit B (the "License Document"). Lessor has arranged for
the Equipment manufacturer to grant Lessee a license to use the Software
as defined in the License Document in conjunction with the equipment
leased hereunder in accordance with the
-7-
<PAGE>
terms of the License Document. The original license fee is contained in
the lease rate. To avail itself of the license grant, Lessee must
execute the License Document, upon commencement of the Lease. The option
to obtain a fully paid up license as provided in Article 2 of the
License Document may be exercised by the Lessee and the payment made
directly to the equipment manufacturer named in the License Document.
"Buyer" and "Licensee" as used in the License Document are synonymous
with lessee.
27. LIMITATION OF LIABILITY.
LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR REVENUE, SPECIAL,
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY NATURE OR
FROM ANY CAUSE WHETHER BASED IN CONTRACT OR TORT, INCLUDING NEGLIGENCE,
OR OTHER LEGAL THEORY EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. LESSEE HEREBY AGREES THAT LESSOR WILL NOT BE LIABLE FOR
ANY LOST PROFITS OR REVENUE OR FOR ANY CLAIM OR DEMAND AGAINST LESSEE BY
ANY OTHER PARTY.
28. MISCELLANEOUS.
(a) Any provision of this Lease which is prohibited or unenforceable in
jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such
provisions in any other jurisdiction. To the extent permitted by
applicable law, Lessee hereby waives any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
(b) No terms or provisions of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which the enforcement of the change, waiver,
discharge or termination is sought. No delay or failure on the part of
Lessor to exercise any power or right hereunder shall operate as a
waiver thereof, nor as an acquiescence in any default, nor shall any
single or partial exercise of any power or right preclude any other or
further exercise thereof, or the exercise of any other power or right.
After the occurrence of any Default or Event of Default, the acceptance
by Lessor of any payment of rent or other sum owed by Lessee pursuant
hereto shall not constitute a waiver by Lessor of such Default or Event
of Default, regardless of Lessor's knowledge or lack of knowledge
thereof at the time of acceptance of any such payment, and shall not
constitute a reinstatement of this Lease, if this Lease shall have been
declared in default by Lessor pursuant to Section 18 hereof or
otherwise, unless Lessor shall have agreed in writing to reinstate the
Lease and to waive the Default or Event of Default.
In the event Lessee tenders payment to Lessor by check or draft
containing a qualified endorsement purporting to limit or modify
Lessee's liability or obligations under this Lease, such qualified
endorsement shall be of no force and effect even if Lessor processes the
check or draft for payment.
(c) This Lease with exhibits contains the full, final and exclusive
statement of the agreement between Lessor and Lessee relating to the
Lease of the Equipment.
(d) This Lease shall constitute an agreement of an operating lease, and
nothing herein shall be construed as conveying to Lessee any right,
title or interest in the Equipment except as Lessee only.
(e) This Lease and the covenants and agreements contained herein shall
be binding upon, and inure to the benefit of, Lessor and its successors
and assigns and Lessee and, to the extent permitted by Section 21
hereof, its successors and assigns.
(f) The headings of the Sections are for convenience of reference only,
are not a part of this Lease and shall not be deemed to affect the
meaning or construction of any of the provisions hereof.
(g) This Lease may be executed by the parties hereto on any number of
separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
(h) This Lease is deemed made and entered into in the State of Florida
and shall be governed by and construed under and in accordance with the
laws of the State of Florida as if both parties were residents of Florida.
(i) Lessee hereby irrevocably consents and agrees that any legal action,
suit, or proceeding arising out of or in any way in connection with this
Lease shall be instituted or brought in the courts of the State of
Florida, or the United States Courts for the District of Florida, and by
execution and delivery of this Lease, Lessee hereby irrevocably accepts
and submits to, for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of any such court, and
to all proceedings in such courts. Lessee irrevocably consents to
service of any summons and/or legal process by registered or certified
United States mail, postage prepaid, to Lessee at the address set forth
in Section 24 hereof, such method of service to constitute, in every
respect, sufficient and effective service of process in any legal action
or proceeding. Nothing in this Lease shall affect the right to service
of process in any other manner permitted by law or limit the right of
Lessor to bring actions, suits or proceedings in the court of any other
jurisdiction. Lessee further agrees that final judgment against it in
any such legal action, suit or proceeding shall be conclusive and may be
enforced in any other jurisdiction, within or outside the United States
of America, by suit on the judgment, a certified or exemplified copy of
which shall be conclusive evidence of the fact and the amount of the
liability.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed as of the day and year first above written and by its signature
below Lessee expressly acknowledges that this Lease may not be modified
unless done so in writing signed by each of the parties hereto or their
successors in interest.
<TABLE>
<CAPTION>
<S> <C>
TELECOMMUNICATIONS FINANCE GROUP COMMUNICATION TELESYSTEMS INTERNATIONAL (LESSEE)
By: /s/ C.E. CALLOWAY By: /s/ EDWARD S. SOREN
--------------------------------- --------------------------------------------
EDWARD S. SOREN, PRESIDENT
- ------------------------------------ -----------------------------------------------
(Authorized Representative of (Name & Title)
Telecommunications Finance Group)
Date Signed: 3/9/93 Date Signed: 2/26/93
------------------------ -----------------------------------
</TABLE>
-8-
<PAGE>
AMENDMENT TO LEASE AGREEMENT DATED FEBRUARY 23, 1993 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP (LESSOR) AND
COMMUNICATION TELESYSTEMS INTERNATIONAL (LESSEE)
FOR A DCO-CS TO BE LOCATED IN DALLAS, TEXAS
"REFERENCE RATE" shall mean the rate of interest publicly
announced by Citibank, N.A. in New York, New York from time to
time as its prime rate.
The reference rate is not intended to be the lowest rate of
interest charged by Citibank, N.A. in connection with
extensions of credit to debtors. The Reference Rate shall be
determined at the close of business on the 15th day of each
calendar month (if the 15th day is not a Business Day, then
on the first preceding Business Day) and shall become
effective as of the first day of the calendar month
succeeding such determination and shall continue in effect to,
and including, the last day of said calendar month.
COMMUNICATION TELESYSTEMS
TELECOMMUNICATIONS FINANCE GROUP INTERNATIONAL
By: /s/ C.E. CALLOWAY By: /s/ EDWARD S. SOREN
--------------------------------- --------------------------------
EDWARD S. SOREN, PRESIDENT
- ------------------------------------ -----------------------------------
(AUTHORIZED REPRESENTATIVE OF (NAME & TITLE)
TELECOMMUNICATIONS FINANCE GROUP)
DATE SIGNED: 3/9/93 DATE SIGNED: 2/26/93
------------------------ -----------------------
0295-8 (1894)
<PAGE>
LIST OF OMITTED SCHEDULES AND ATTACHMENTS
The following Schedules and Attachments to the Lease Agreement
(2/23/93) have been omitted from this Exhibit and shall be furnished
supplementally to the Commission upon request:
Schedule A - Stipulated Loss Value
Schedule B - Amendment to Lease Agreement
Schedule C - Amendment to Lease Agreement
Schedule D - Amendment to Lease Agreement
Schedule E - Buyout Price on 60 Month Lease, with a Three Month
Payment Deferral, as a Percentage of Lessors Cost as
Shown in Schedule 1 of Exhibit A of the Lease
Schedule F - Amendment to Lease Agreement
Certificate of Delivery and Acceptance
Assignment of Purchase Order
<PAGE>
TELECOMMUNICATIONS FINANCE GROUP
LEASE AGREEMENT
THIS LEASE AGREEMENT, IS EFFECTIVE ON February 20, 1995
------------------------------------------
BETWEEN TELECOMMUNICATIONS FINANCE GROUP ("HEREINAFTER LESSOR") AND
------------
Communication TeleSystems International , a
- --------------------------------------------------- -------------------------
California Corporation
- --------------------------------------------------------------------------------
WITH ITS PRINCIPAL OFFICE LOCATED AT 4350 LaJolla Village Drive, Suite 100,
- --------------------------------------------------------------------------------
San Diego, CA 92122
- ---------------------------------------------------------("HEREINAFTER LESSEE").
1. LEASE.
Lessor, subject to the conditions set forth in Section 25 hereof, agrees
to lease to Lessee and Lessee agrees to lease from Lessor hereunder,
those items of personal property (the "Equipment") which are described
on Schedule 1 of Exhibit A hereto. Lessee agrees to execute and deliver
to Lessor a certificate of delivery and acceptance in substantively the
form of Exhibit A hereto (a "Delivery Certificate") immediately after
Turnover of the Equipment, and such execution shall constitute Lessee's
irrevocable acceptance of such items of Equipment for all purposes of
this Lease. The Delivery Certificate shall constitute a part of this
Lease to the same extent as if the provisions thereof were set forth
herein.
2. DEFINITIONS.
"AMORTIZATION DEDUCTIONS" as defined in Section 11(b)(i) hereof.
"APPRAISAL PROCEDURE" shall mean the following procedure for
determining the Fair Market Sale Value of any item of Equipment. If
either Lessor or Lessee shall request by notice (the "Appraisal
Request") to the other that such value be determined by the Appraisal
Procedure, (i) Lessor and Lessee shall, within 15 days after the
Appraisal Request, appoint an independent appraiser mutually
satisfactory to them, or (ii) if the parties are unable to agree on a
mutually acceptable appraiser within such time, Lessor and Lessee shall
each appoint one independent appraiser (PROVIDED that if either party
hereto fails to notify the other party hereto of the identity of the
independent appraiser chosen by it within 30 days after the Appraisal
Request, the determination of such value shall be made by the
independent appraiser chosen by such other party), and (iii) if such
appraisers cannot agree on such value within 20 days after their
appointment and if one appraisal is not within 5% of the other
appraisal, Lessor and Lessee shall choose a third independent appraiser
mutually satisfactory to them (or, if they fail to agree upon a third
appraiser within 25 days after the appointment of the first two
appraisers, such third independent appraiser shall within 20 days
thereafter be appointed by the American Arbitration Association), and
such value shall be determined by such third independent appraiser
within 20 days after his appointment, after consultation with the other
two independent appraisers. If the first two appraisals are within 5%
of each other, then the average of the two appraisals shall be the Fair
Market Sale Value. The fees and expenses of all appraisers shall be
paid by Lessee.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or legal
holiday under the laws of the State of Florida.
"CODE" shall mean the Internal Revenue Code of 1954, as amended, or any
comparable successor law.
"COMMENCEMENT DATE" as defined in Section 3 hereof.
"DEFAULT" shall mean any event or condition which after the giving of
notice or lapse of time or both would become an Event of Default.
"DELIVERY CERTIFICATE" as defined in Section 1 hereof.
"EQUIPMENT" as defined in Section 1 hereof.
"EVENT OF DEFAULT" as defined in Section 18 hereof.
"EVENT OF LOSS" shall mean with respect to any item of Equipment, the
actual or constructive total loss of such item of Equipment or the use
thereof, due to theft, destruction, damage beyond repair or rendition
thereof permanently unfit for normal use from any reason whatsoever, or
the condemnation, confiscation or seizure of, or requisition of title to
or use of, such item of Equipment.
"FAIR MARKET SALE VALUE" shall, at any time with respect to any item of
Equipment, be equal to the sale value of such item of Equipment which
would be obtained in an arm's-length transaction between an informed and
willing seller under no compulsion to sell and an informed and willing
buyer-user (other than a lessee currently in possession or a used
equipment or scrap dealer). For purposes of Section 7(b) hereof. Fair
Market Sale Value shall be determined by (i) an independent appraiser
(at Lessee's expense) selected by Lessor or (ii) by the Appraiser
Procedure if the Appraisal Request is made at least 90 days (but not
more than 360 days) prior to the termination or expiration of the Lease
Term, as the case may be, which determination shall be made (a) without
deduction for any costs or expenses of dismantling or removal; and (b)
on the assumption that such item of Equipment is free and clear of all
Liens and is in the condition and repair in which it is required to be
returned pursuant to Section 7(a) hereof. For purposes of Section 19(c)
hereof, Fair Market Sale Value shall be determined (at Lessee's expense)
by an independent appraiser selected by Lessor, on an "as-is, where-as"
basis, without regard to the provisions of clauses (a) and (b) above;
PROVIDED that if Lessor shall have sold any item of Equipment pursuant
to Section 19(b) hereof prior to giving the notice referred to in
Section 19(c) hereof, Fair Market Sale Value of such item of Equipment
shall be the net proceeds of such sale after deduction of all costs and
expenses incurred by Lessor in connection therewith; PROVIDED FURTHER,
that if for any reason Lessor is not able to obtain possession of any
item of Equipment pursuant to Section 19(a) hereof, the Fair Market Sale
Value of such item of Equipment shall be zero.
"IMPOSITION" as defined in Section 11(a) hereof.
"INDEMNITEE" as defined in Section 17 hereof.
"LATE CHARGE RATE" shall mean an interest rate per annum equal to the
higher of two percent (2%) over the Reference Rate or eighteen percent
(18%), but not to exceed the highest rate permitted by applicable law.
"LEASE" and the terms "hereof", "herein", "hereto" and "hereunder", when
used in this Lease Agreement, shall mean and include this Lease Agreement,
Exhibits and the Delivery Certificate hereto as the same may from time to
time be amended, modified or supplemented.
"LEASE TERM" shall mean, with respect to any item of Equipment, the term
of the lease of such item of Equipment hereunder specified in Section 3
hereof.
"LESSEE" as defined in the introductory paragraph to this Lease.
"LESSOR" as defined in the introductory paragraph of this Lease.
-1-
<PAGE>
"LESSOR'S VALUE" shall mean with respect to any item of Equipment, and
installation if applicable, the total amount set forth in Schedule 1 of
Exhibit A hereto.
"LESSOR'S LIENS" shall mean (i) any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement, title retention or
any other right or claim of any person claiming through or under Lessor,
not based upon or relating to ownership of the Equipment or the lease
thereof hereunder and (ii) any mortgage, pledge, lien, security interest,
charge, encumbrance, financing statement, title retention or any other
right or claim of Owner (other than Lessor) claiming through or under
Lessor in connection with the transactions described in Section 21(b)
hereof.
"LIENS" shall mean any mortgage, pledge, lien, security interest, charge,
encumbrance, financing statement, title retention or any other right or
claim of any person, other than any Lessor's Lien.
"LOSS PAYMENT DATE" shall mean with respect to any item of Equipment the
date on which payment, as described in Section 16(b) hereof, is made to
the Lessor by the Lessee as the result of an Event of Loss with respect
to such item. The Loss Payment Date shall be within ninety (90) days of
the said Event of Loss.
"OWNER" shall mean the entity or person having ownership interest to the
Equipment as contemplated by the provisions of Section 21(b) hereof and
may be a person other than Lessor.
"OWNER'S ECONOMICS" shall mean the after-tax yield and periodic after-tax
cash flow anticipated by Owner as of the date of this Lease, in
connection with the transactions contemplated by this Lease as
determined by Owner unless Lessor shall have transferred its interest in
the Equipment to another person as contemplated by the provisions of
Section 21(b) hereof in which case "Owner's Economics" shall mean the
after-tax yield and periodic after-tax cash flow anticipated by such
person as of the date of the lease between such person and Lessor
contemplated by said provisions, in connection with the transactions
contemplated by such lease as determined by such person.
"RECOVERY DEDUCTIONS" as defined in Section 11(b)(i) hereof.
"REFERENCE RATE" shall mean the rate of interest publicly announced by
Manufacturers Hanover Trust Company ("MHT") in New York, New York from
time to time as its reference rate.
The reference rate is not intended to be the lowest rate of interest
charged by MHT in connection with extensions of credit to debtors. The
Reference Rate shall be determined at the close of business on the 15th
day of each calendar month (if the 15th day is not a Business Day, then
on the first preceding Business Day) and shall become effective as of
the first day of the calendar month succeeding such determination and
shall continue in effect to, and including, the last day of said
calendar month.
"RENT PAYMENT DATE" shall mean each date on which an installment of rent
is due and payable pursuant to Section 5(a) hereof.
"STIPULATED LOSS VALUE" shall mean, with respect to any item of
Equipment, the amount determined by multiplying the Lessor's Value of
such item of Equipment by the percentage set forth in Schedule A hereto
opposite the applicable Rent Payment Date; PROVIDED, that for purposes
of Sections 16(b) and 19(c) hereof, any determination of Stipulated Loss
Value as of a date occurring after the final Rent Payment Date with
respect to such item of Equipment, shall be made as of such final Rent
Payment Date.
"TAX BENEFITS" shall mean the right to claim such deductions, credits, and
other benefits as are provided by the Code to an owner of property,
including the Recovery Deductions an Amortization Deductions.
"TURNOVER" shall mean that point in time when the equipment installation
personnel complete testing of the equipment, or when the equipment is
placed into service, whichever first occurs.
All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles.
3. LEASE TERM.
The term of the lease of Equipment hereunder shall commence on the
Commencement Date specified in the Delivery Certificate ("Commencement
Date") and, unless earlier terminated pursuant to the provisions hereof
or at law or equity, shall continue for a term of sixty (60) months from
such Commencement Date. The Commencement Date specified in the Delivery
Certificate shall be the date on which Turnover occurs at a site
provided by Lessee in accordance with the provisions of Section 4 hereof.
4. INSTALLATION.
Lessor shall arrange for installation of the Equipment, the cost of which
installation shall be deemed to be part of Lessor's Value. Exhibit
A hereto shall indicate whether such cost is included or excluded from
the monthly rent payments due in accordance with Section 5(a) hereof.
If excluded from such monthly rent payments, Lessor shall separately
invoice Lessee for such installation upon completion thereof and Lessee
shall pay such invoice within thirty (30) days from the date thereof.
Lessee shall be obligated to timely provide a suitable site for the
installation of the Equipment in accordance with the Equipment
manufacturer's practices attached hereto as Exhibit C. Lessee shall be
responsible for compliance with environmental requirements and central
office grounding procedures specified in Exhibit C hereto and for
providing adequate space, lighting, heating, air-conditioning and A/C
power at the installation site. Unavailability of Lessee furnished
facilities shall be cause for adjustments to the installation price set
forth in Schedule 1 of Exhibit A hereto.
5. RENT: UNCONDITIONAL OBLIGATIONS.
(a) Lessee agrees to pay to Lessor, at the address specified in Section
24 hereof or at such other address as Lessor may specify, rent for the
Equipment at a rate not to exceed $_______ per $1000 of the total Lessors
Value of such items of Equipment, as set forth in Schedule 1 of Exhibit
A dated __________, 19___ or as from time to time amended, (plus
applicable sales or use taxes) per month, in sixty (60) consecutive
monthly installments, with the first installment of rent being due on
the Commencement Date unless the Commencement Date is other than the
first day of a calendar month, in which event the first installment of
rent shall be due on the first day of the month following the
Commencement Date, and succeeding installments being due on the same
date of each month thereafter.
(b) Lessee shall also pay to Lessor, on demand, interest at the Late
Charge Rate on any installment of rent and on any other amount owing
hereunder which is not paid within 15 days of its due date, for any
period for which the same shall be overdue. Each payment made under this
Lease shall be applied first to the payment of interest than owing and
then to rent or other amounts owing hereunder. Interest shall be
computed on the basis of a 360-day year and actual days elapsed.
(c) This Lease is a net lease, and Lessee's obligation to pay all rent and
all other amounts payable hereunder is ABSOLUTE and UNCONDITIONAL under any
and all circumstances and shall not be affected by any circumstances of
any character whatsoever, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense, abatement or reduction or any right
which Lessee may have against Lessor, the manufacturer or supplier of any
of the Equipment or anyone else for any reason what-
-2-
<PAGE>
soever; (ii) any defect in the title, condition, design, or operation of,
or lack of fitness for use of, or any damage to, or loss of, all or any
part of the Equipment from any cause whatsoever; (iii) the existence of
any Liens with respect to the Equipment; (iv) the invalidity,
unenforceability or disaffirmance of this Lease or any other document
related hereto; or (v) the prohibition of or interference with the use or
possession by Lessee of all or any part of the Equipment, for any reason
whatsoever, including without limitation, by reason of (1) claims for
patent, trademark or copyright infringement; (2) present or future
governmental laws, rules or orders; (3) the insolvency, bankruptcy or
reorganization of any person; and (4) any other cause whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. Lessee hereby waives, to the extent permitted by
applicable law, any and all rights which it may now have or which may at
any time hereafter be conferred upon it, by statute or otherwise, to
terminate, cancel, quit or surrender the lease of any Equipment. If for
any reason whatsoever this Lease or any Supplement, other than pursuant
to Section 16(b) hereof, shall be terminated in whole or in part by
operation of law or otherwise, Lessee will nonetheless pay to Lessor an
amount equal to each installment of rent at the time such installment
would have become due and payable in accordance with the terms hereof.
Each payment of rent or other amount paid by Lessee hereunder shall be
final and Lessee will not seek to recover all or any part of such payment
from Lessor for any reason whatsoever.
6. WARRANTY DISCLAIMER:
ASSIGNMENT OF WARRANTIES.
(a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE AND LESSEE HEREBY
EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY
PARTICULAR PURPOSE, FREEDOM FROM INTERFERENCE OR INFRINGEMENT OR THE
LIKE, OR AS TO THE TITLE TO OR LESSOR'S OR LESSEE'S INTEREST IN THE
EQUIPMENT OR AS TO ANY OTHER MATTER RELATING TO THE EQUIPMENT OR ANY
PART THEREOF.
LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND EACH PART THEREOF ON
THE BASIS OF ITS OWN JUDGEMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON ANY
STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR.
LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION
OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO THE
TRANSACTIONS CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES
AND/OR TAX TREATMENT THEREOF.
(b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS LESSOR MAY HAVE (TO
EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL MANUFACTURERS'
AND SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT; PROVIDED,
HOWEVER, THAT THE FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO LESSOR
UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT
HEREUNDER, OR UPON THE RETURN OF THE EQUIPMENT TO LESSOR, LESSEE AGREES
TO SETTLE ALL CLAIMS WITH RESPECT TO THE EQUIPMENT DIRECTLY WITH THE
MANUFACTURERS OR SUPPLIERS THEREOF, AND TO GIVE LESSOR PROMPT NOTICE OF
ANY SUCH SETTLEMENT AND THE DETAILS OF SUCH SETTLEMENT, HOWEVER, IN THE
EVENT ANY WARRANTIES ARE NOT ASSIGNABLE, THE LESSOR AGREES TO ACT ON
BEHALF OF THE LESSEE IN SETTLING CLAIMS ARISING UNDER THE WARRANTY WITH
THE MANUFACTURER OR SUPPLIER.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF REVENUE OR PROFITS,
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR
FROM ANY CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
7. DISPOSITION OF EQUIPMENT.
(a) RETURN.
Lessee shall, upon the expiration of the Lease Term of each item of
Equipment, subject to paragraph (b) below, return such item of Equipment
to Lessor at such place within the continental United States of America
as Lessor shall designate in writing to Lessee. Until such item of
Equipment is returned to Lessor pursuant to the provisions of this
Section, all of the provisions of this Lease with respect thereto shall
continue in full force and effect. Lessee shall pay all the costs and
expenses in connection with or incidental to the return of the
Equipment, including, without limitation, the cost of removing,
assembling, packing, insuring and transporting the Equipment. At the
time of such return, the Equipment shall be in the condition and repair
required to be maintained by Section 12 hereof and free and clear of all
Liens.
(b) PURCHASE OPTION.
So long as no Default or Event of Default shall have occurred and be
continuing, Lessee may, by written notice given to Lessor at least 120
days (but not more than 360 days) prior to the expiration date of the
Lease Term of any item of Equipment (which notice shall be irrevocable),
elect to purchase such item of Equipment on such expiration date for a
cash purchase price equal to the Fair Market Sale Value of such item of
Equipment determined as of such expiration date, plus an amount equal to
all taxes (other than income taxes on any gain on such sale), costs and
expenses (including legal fees and expenses) incurred or paid by Lessor
in connection with such sale. Upon payment by Lessee of such purchase
price, and of all other amounts then due and payable by Lessee
hereunder, Lessor shall transfer title to such items of Equipment to
Lessee on an "as-is, where-is" basis, without recourse and without
representation or warranty of any kind, express or implied, other than a
representation and warranty that such item of Equipment is free and
clear of any Lessor's Liens.
8. REPRESENTATION AND WARRANTIES.
In order to induce Lessor to enter into this Lease and to lease the
Equipment to Lessee hereunder, Lessee represents and warrants that:
(a) ORGANIZATION.
Lessee is duly organized, validly existing and in good standing under
the laws of the State of CALIFORNIA and is duly qualified to do business
and is in good standing in the State in which the Equipment will be
located.
(b) POWER AND AUTHORITY.
Lessee has full power, authority and legal right to execute, deliver and
perform this Lease, and the execution, delivery and performance hereof
has been duly authorized by Lessee's governing body or officer(s).
(c) ENFORCEABILITY.
This Lease has been duly executed and delivered by Lessee and constitutes
a legal, valid and binding obligation of Lessee enforceable in accordance
with its terms.
(d) CONSENTS AND PERMITS.
The execution, delivery and performance of this Lease does not require
any approval or consent of any trustee, shareholder, partner, sole
proprietor or holders of any
-3-
<PAGE>
indebtedness or obligations of Lessee, and will not contravene any law,
regulation, judgment or decree applicable to Lessee, or the certificate of
partnership or incorporation of by-laws of Lessee, or contravene the
provisions of, or constitute a default under, or result in the creation of
any Lien upon any property of Lessee under any mortgage, instrument or other
agreement to which Lessee is a party or by which Lessee or its assets may be
bound or affected; and no authorization, approval, license, filing or
registration with any court or governmental agency or instrumentality is
necessary in connection with the execution, delivery, performance, validity
and enforceability of this Lease.
(e) FINANCIAL CONDITION OF LESSEE.
The financial statements of Lessee heretofore furnished to Lessor are
complete and correct and fairly present the financial condition of Lessee
and the results of its operations for the respective periods covered
thereby, there are no known contingent liabilities or liabilities for taxes
of Lessee which are not reflected in said financial statements and since the
date thereof, there has been no material adverse change in such financial
condition or operations.
(f) NO LITIGATION.
There is no action, suit, investigation or proceeding by or before any
court, arbitrator, administrative agency or other governmental authority
pending or threatened against contemplated Lessee (A) which involves the
transactions contemplated by this Lease or the Equipment; or (B) which, if
adversely determined, could have a material adverse effect on the financial
condition, business or operations of Lessee.
(g) UNITED STATES SOURCE INCOME.
No items of Equipment shall be used in a way that results in the creation of
an item of income to Lessor, the source of which for Federal Income Tax
purposes is without the United States.
9. LIENS.
Lessee will not directly or indirectly create, incur, assume, suffer, or
permit to exist any Lien on or with respect to the Equipment.
10. INSURANCE.
Lessee shall maintain at all times on the Equipment, at its expense,
property damage, direct damage and liability insurance in such amounts,
against such risks, in such form and with such insurers as shall be
reasonably satisfactory to Lessor and any other Owner; provided, that the
amount of direct damage insurance shall not on any date be less than the
greater of the full replacement value or the Stipulated Loss Value of the
Equipment as of such date. Each insurance policy will, among other things,
name Lessor and any other Owner as an additional insured or as loss payee
(as the case may be) as their interests may appear, require that the insurer
give Lessor and any such Owner at least thirty (30) days prior written
notice of any alteration in or cancellation of the terms of such policy, and
require that the interest of Lessor and any such Owner be continued insured
regardless of any breach of or violation by Lessee of any warranties,
declarations or conditions contained in such insurance policy. At Lessor's
or such Owner's option, Lessee shall furnish to Lessor and such Owner a
certificate or other evidence satisfactory to Lessor that such insurance
coverage is in effect provided, however, that Lessor and such Owner shall be
under no duty to ascertain the existence or adequacy of such insurance.
11. TAXES.
(a) GENERAL TAX PROVISIONS.
Lessee shall pay, and shall indemnify and hold Lessor harmless from and
against, all fees, taxes (whether sales, use, excise, personal property
or other taxes), imposts, duties, withholdings, assessments and other
governmental charges of whatever kind or character, however designated
(together with any penalties, fines or interest thereon), all of the
foregoing being herein collectively called "Impositions", which are at
any time levied or imposed against Lessor, Lessee, this Lease, the
Equipment or any part thereof by any Federal, State, or Local Government
or taxing authority in the United States or by any foreign government or
any subdivision or taxing authority thereof upon, with respect to, as a
result of or measured by (i) the Equipment (or any part thereof), or this
Lease or the interests of the Lessor therein; or (ii) the purchase,
ownership, delivery, leasing, possession, maintenance, use, operation,
return, sale or other disposition of the Equipment or any part thereof;
or (iii) the rentals, receipts or earnings payable under this Lease or
otherwise arising from the Equipment or any part thereof; EXCLUDING,
HOWEVER, taxes based on or measured by the net income of Lessor that are
imposed by (1) the United States of America, or (2) the State of Florida
or any political subdivision of the State of Florida, or (3) any other
State of the United States of America or any political subdivision of any
such State in which Lessor is subject to Impositions as the result
(whether solely or in part) of business or transactions unrelated to this
Lease. In case any report or return is required to be filed with respect
to any obligation of Lessee under this Section or arising out of this
Section, Lessee will notify Lessor of such requirement and make such
report or return in such manner as shall be satisfactory to Lessor;
PROVIDED, that the payment of any use taxes shall be made in such manner
as specified by Lessor in writing to Lessee; or (iv) The provisions of
this Section shall survive the expiration or earlier termination of this
Lease.
(b) SPECIAL TAX PROVISIONS.
(i) The owner of the items of Equipment, shall be entitled to take into
account in computing its Federal income tax liability. Current Tax Rate
and such deductions, credits, and other benefits as are provided by the
Code to an owner of property, including, without limitation:
(A) Recovery deductions ("Recovery Deductions") under Section 168(a)
of the Code for each items of Equipment in an amount determined,
commencing with the 1994 taxable year, by multiplying the Owner's
Cost of such item of Equipment by the percentages applicable under
Section 168(b) of the Code with respect to "(5)-year property" within
the meaning of Section 168(c) (2) of the Code;
(B) Amortization of expenses ("Amortization Deductions") paid or to
be paid by Owner in connection with this Lease at a rate no less
rapid than straight line over the Lease Term.
(ii) For the purposes of this Subsection 11(b) only, the term "Owner"
shall include the "common parent" and all other corporations included in
the affiliated group, within the meaning of Section 1504 of the Code (or
any other successor section thereto), of which Owner is or becomes a
member.
12. COMPLIANCE WITH LAWS; OPERATION AND MAINTENANCE.
(a) Lessee will use the Equipment in a careful and proper manner, will
comply with and conform to all governmental laws, rules and regulations
relating thereto, and will cause the Equipment to be operated in accordance
with the manufacturer's or supplier's instructions or manuals.
(b) Lessee will, at his own expense, keep and maintain the Equipment in
good repair, condition and working order and furnish all parts,
replacements, mechanisms, devices and servicing required therefor so that
the value, condition and operating efficiency therefor will at all tiems
be maintained and preserved reasonable wear and tear excepted. All such
repairs, parts, mechanisms, devices and replacements shall immediately,
without further act, become the property of Lessor and part of the
Equipment.
<PAGE>
(c) Lessee will not make or authorize any improvement, change, addition
or alteration to the Equipment (i) if such improvement, change, addition
or alteration will impair the originally intended function or use of the
Equipment or impair the value of the Equipment as it existed immediately
prior to such improvement, change, addition, or alteration; or (ii) if
any parts installed in or attached to or otherwise becoming a part of the
Equipment as a result of any such improvement, change, addition, or
alteration shall not be readily removable without damage to the
Equipment. Any part which is added to the Equipment without violating the
provisions of the immediately preceding sentence and which is not a
replacement or substitution for any property which was a part of the
Equipment, shall remain the property of Lessee and may be removed by
Lessee at any time prior to the expiration or earlier termination of the
Lease Term. All such parts shall be and remain free and clear of any
Liens. Any such part which is not so removed prior to the expiration or
earlier termination of the Lease Term shall, without further act, become
property of Lessor.
13. INSPECTION.
Upon prior notice, Lessor or its authorized representative may at any
reasonable time or times inspect the Equipment when it deems necessary to
protect its interest therein.
14. IDENTIFICATION.
Lessee shall, at its expense, attach to each item of Equipment a notice
satisfactory to Lessor disclosing Owner's ownership of such item of
Equipment.
15. PERSONAL PROPERTY.
Lessee represents that the Equipment shall be and at all times remain
separately identifiable personal property. Lessee shall, at its expense,
take such action (including the obtaining and recording of waivers) as
may be necessary to prevent any third party from acquiring any right to
or interest in the Equipment virtue of the Equipment being deemed to be
real property or a part of the real property or a part of other personal
property, and if at any time any person shall claim any such right or
interest, Lessee shall, at its expense, cause such claim to be waived in
writing or otherwise eliminated to Lessor's satisfaction within 30 days
after such claim shall have first become known to Lessee.
16. LOSS OR DAMAGE.
(a) All risk of loss, theft, damage or destruction to the Equipment or
any part thereof, however incurred or occasioned, shall be borne by
Lessee and, unless such occurrence constitutes an Event of Loss pursuant
to paragraph (b) of this Section, Lessee shall promptly give Lessor
written notice hereof and shall promptly cause the affected part or parts
of the Equipment to be replaced or restored to the condition and repair
required to be maintained by Section 12 hereof.
(b) If an Event of Loss with respect to any item of Equipment shall
occur, Lessee shall promptly give Lessor written notice thereof, and
Lessee shall pay to Lessor as soon as it receives insurance proceeds with
respect to said Event of Loss but in any event no later than 180 days
after the occurrence of said Event of Loss and amount equal to the sum of
(i) the Stipulated Loss Value of such item of Equipment computed as of
the Rent Payment Date with respect to such item of Equipment on or
immediately preceding the date of the occurrence of such Event of Loss;
and (ii) all rent and other amounts due and owing hereunder for such item
of Equipment on or prior to the Loss Payment Date. Upon payment of such
amount to Lessor, the lease of such item of Equipment hereunder shall
terminate, and Lessor will transfer within forty days to Lessee, Lessor's
right, title and interest in and to such item of Equipment, on an "as-is,
where-is" basis, without recourse and without representation or warranty,
express or implied, other than a representation and warranty that such
item of Equipment is free and clear of any Lessor's Liens.
(c) Any payments received at any time by Lessor or Lessee from any
insurer with respect to loss or damage to the Equipment shall be applied
as follows: (i) if such payments are received with respect to an Event of
Loss they shall be paid to Lessor, but to the extent received by Lessor,
they shall reduce or discharge, as the case may be, Lessee's obligation
to pay the amounts due to Lessor under Section 16(b) hereof with respect
to such Event of Loss; or (ii) if such payments are received with respect
to any loss of or damage to the Equipment other than an Event of Loss,
such payments shall, unless a Default or Event of Default shall have
occurred and be continuing, be paid over to Lessee to reimburse Lessee
for its payment of the costs and expenses occurred by Lessee in replacing
or restoring pursuant to Section 16(a) hereof the part or parts of the
Equipment which suffered such loss or damage.
17. GENERAL INDEMNITY.
Lessee assumes liability for, and shall indemnify, protect save and keep
harmless Lessor and its agents, servants, successors and assigns (an
"Indemnitee") from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses,
including reasonable legal expenses, of whatsoever kind and nature,
imposed on, incurred by or asserted against an Indemnitee, in any way
relating to or arising out of this Lease or the enforcement hereof, or
the manufacture, purchase, acceptance, rejection, ownership, possession,
use selection, delivery, lease, operation, condition, sale, return or
other disposition of the Equipment or any part thereof (including,
without limitation, latent or other defects, whether or not discoverable
by Lessee or any other person, any claim in tort for strict liability and
any claim for patent, trademark or copyright infringement); PROVIDED,
however, that Lessee shall not be required to indemnify any indemnitee
for loss or liability arising from acts or events which occur after the
Equipment has been returned to Lessor in accordance with the Lease, or
for loss or liability resulting solely from the willful misconduct or
gross negligence of such Indemnitee. The provisions of this Section shall
survive the expiration or earlier termination of this Lease.
18. EVENTS OF DEFAULT.
The following events shall each constitute an event of default (herein
called "Event of Default") under this Lease:
(i) Lessee shall fail to execute and deliver to Lessor (or Lessor's
agent) the "Delivery Certificate" within twenty-four (24) hours of
Turnover of the Equipment to Lessee.
(ii) Lessee shall fail to commence lease payments on the first day of the
month following the Commencement Date, or such other initiation of lease
payments as specified in Section 5 of this Lease.
(iii) Lessee shall fail to make any payment of rent or other amount owing
hereunder after notice has been given that payment is past due; or
(iv) Lessee shall fail to maintain the insurance required by Section 10
hereof or to perform or observe any of the covenants contained in
Sections 21 or 22 hereof; or
(v) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it with respect to
this Lease and such failure shall continue unremedied for 30 days after
the earlier of (a) the date on which Lessee obtains, or should have
obtained knowledge of such failure; or (b) the date on
<PAGE>
which notice thereof shall be given by Lessor to Lessee; or
(vi) Any representation or warranty made by Lessee herein or in any
document, certificate or financial or other statement now or hereafter
furnished Lessor in connection with this Lease shall prove at any time to
have been untrue, incomplete or misleading in any material respect as of
the time when made; or
(vii) The entry of a decree or order for relief by a court having
jurisdiction in respect of Lessee, adjudging Lessee a bankrupt or
insolvent, or approving as properly filed a petition seeking a
reorganization, arrangement, adjustment or composition of or in respect of
Lessee in an involuntary proceeding or case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal or
State bankruptcy, insolvency or other similar law, or appointing a
receiver, liquidator, assignee, custodian, trustee or sequestrator (or
similar official) of Lessee or of any substantial part of its property,
or ordering the winding-up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a
period of 30 days; or
(viii) The institution by Lessee of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the commencement by
Lessee of a voluntary proceeding or case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal or
state bankruptcy, insolvency or other similar law, or the consent by it
to the filing of any such petition or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of Lessee or of any substantial
part of its property, or the making by it of any assignment for the
benefit of creditors or the admission by it of its inability to pay its
debts generally as they become due or its willingness to be adjudicated a
bankrupt or the failure of Lessee generally to pay its debts as they
become due or the taking of corporate action by Lessee in furtherance of
any of the foregoing.
19. REMEDIES.
If an Event of Default specified in Subsection 18(vii) or (viii) above
shall occur, then, and in any such event, Lessor shall not be obligated
to purchase or lease any of the Equipment and this Lease shall, without
any declaration or other action by Lessor, be in default. If an Event of
Default, other than an Event of Default specified in Subsection 18(vii)
or (viii) above, shall occur, Lessor may, at its option, declare this
Lease to be in default. At any time after this Lease is in default under
the first sentence of this Section 19, Lessor has declared this Lease to
be in default under the second sentence of this Section 19, Lessor and/or
its representative may do any one or more of the following with respect
to all of the Equipment or any part thereof as Lessor in its sole
discretion shall elect, to the extent permitted by applicable law then in
effect;
(a) demand that Lessee, and Lessee shall at its expense upon such
demand, return the Equipment promptly to Lessor at such place in the
continental United States of America as Lessor shall specify, or
Lessor and/or its agents, at its option, may with or without entry
upon the premises where the Equipment is located and disable the
Equipment, or make the Equipment inoperable permanently or
temporarily in Lessor's sole discretion, and/or take immediate
possession of the Equipment and remove the same by summary
proceedings or otherwise, all without liability for by reason of such
entry or taking of possession, whether for the restoration of damage
to property caused by such taking or for disabling or otherwise:
(b) sell the Equipment at public or private sale, with or without
notice, advertisement or publication, as Lessor may determine, or
otherwise dispose of, hold, use, operate, lease to others or keep
idle the Equipment as Lessor in its sole discretion may determine,
all free and clear of any rights of Lessee and without any duty to
account to Lessee with respect to such action or inaction or for any
proceeds with respect thereto;
(c) by written notice to Lessee specifying a payment date which
shall be not earlier than 20 days after the date of such notice,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on
the payment date specified in such notice, as liquidated damages for
loss of a bargain and not as a penalty, all accrued and unpaid rent
for the Equipment due on all Rent Payment Dates up to and including
the payment date specified in such notice PLUS an amount (together
with interest on such amount at the Late Charge Rate, from the
payment date specified in such notice to the date of actual payment)
equal to the excess, if any, of the Stipulated Loss Value of the
Equipment as of the payment date specified in such notice over the
Fair Market Sale Value of the Equipment as of such date;
(d) Lessor may exercise any other right or remedy which may be
available to it under applicable law or proceed by appropriate court
action to enforce the terms hereof or to recover damages for the
breach hereof or to rescind this Lease. Lessor is entitled to recover
any amount that fully compensates the Lessor for any damage to or
loss of the Lessor's residual interest in the leased property caused
by the Lessee's default.
In the event any present value discounting is applied, the discount
rate used shall be the Federal Reserve Board Discount Rate.
In addition, Lessee shall be liable for any and all unpaid rent and other
amounts due hereunder before or during the exercise of any of the
foregoing remedies and for all reasonable legal fees and other costs and
expenses incurred by
[illegible copy]
fails to make any payment required to be made by it hereunder
or fails to perform or comply with any of its other agreements contained
herein, Lessor may itself make such payment or perform or comply with
such agreement, and the amount of such payment and the amount of the
reasonable expenses of Lessor incurred in connection with such payment or
the performance of or compliance with such agreement, as the case may be,
together with interest thereon at the Late Charge Rate, shall be deemed
to be additional rent, payable by Lessee within 30 days of notice.
<PAGE>
21. LOCATION; ASSIGNMENT OR SUBLEASE; TITLE TRANSFER.
(a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE LOCATION SPECIFIED IN
SCHEDULE 1 OF EXHIBIT A WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR,
SUCH CONSENT NOT TO UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE THE
CONTINENTAL U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT TIMES BE IN
THE SOLE POSSESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT
THE PRIOR WRITTEN CONSENT OF LESSOR (WHICH MAY NOT BE UNREASONABLY
WITHHELD) ASSIGN THIS LEASE OR ANY INTEREST HEREIN OR SUBLEASE OR
OTHERWISE TRANSFER ITS INTEREST IN ANY OF THE EQUIPMENT, AND ANY
ATTEMPTED ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY LESSEE IN VIOLATION
OF THESE PROVISIONS SHALL BE VOID.
(b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY TRANSFER ITS
INTEREST IN THE EQUIPMENT TO AN OWNER OTHER THAN LESSOR, LESSOR MAY
CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER,
AND (ii) MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE
ABOVE-DESCRIBED TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE
(i) THAT ANY SUCH ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE
LESSEE'S DUTIES AND OBLIGATION HEREUNDER, (ii) THAT SUCH ASSIGNMENT DOES
NOT MATERIALLY INCREASE THE BURDEN OR RIGHT IMPOSED ON THE LESSEE, AND
(iii) THAT THE ASSIGNMENT IS PERMITTED EVEN IF THE ASSIGNMENT COULD BE
DEEMED TO MATERIALLY AFFECT THE INTEREST OF THE LESSEE.
22. STATUS CHANGES IN LESSEE.
Lessee will not without thirty (30) days prior written notice to Lessor,
(a) enter into any transaction or merger or consolidation unless it is
the surviving corporation or after giving effect to such merger or
consolidation its net worth equals or exceeds that which existed prior
to such merger or consolidation; or (b) change the form of organization
of its business; or (c) change its name or its chief place of business
which may not be unreasonably withheld. Lessee must obtain Lessor's
prior written concurrence before Lessee may undertake any actions to (a)
liquidate or dissolve or similar action of the Lessee's organization, or
(b) sell, transfer or otherwise dispose of all or any substantial part of
Lessee's assets.
23. FURTHER ASSURANCES; FINANCIAL INFORMATION.
(a) Lessee will, at its expense, promptly and duly execute and deliver
to Lessor such further documents and assurances and take such further
action as Lessor may from time to time reasonably request in order
to establish and protect the rights, interests and remedies created or
intended to be created in favor of Lessor hereunder, including, without
limitation, the execution and filing of Uniform Commercial Code
financing statements covering the Equipment and proceeds therefrom in
the jurisdictions in which the Equipment is located from time to time.
To the extent permitted by applicable law, Lessee hereby authorizes
Lessor to file any such financing statements without the signature of
Lessee.
(b) Lessee will qualify to do business and remain qualified in good
standing, in each jurisdiction in which the Equipment is from time to
time located.
(c) Lessee will furnish to Lessor as soon as available, but in any
event not later than 90 days after the end of each fiscal year of
Lessee, a consolidated balance sheet of Lessee as at the end of such
fiscal year, and consolidated statements of income and changes in
financial position of Lessee for such fiscal year, all in reasonable
detail, prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout the
period involved. These reports will not be disclosed to anyone other
than the Lessor and/or Owner as provided in Section 21(b).
24. NOTICES.
All notices, demands and other communications hereunder shall be in
writing, and shall be deemed to have been given or made when deposited
in the United States mail, first class postage prepaid, addressed as
follows or to such other address as any of the following persons may
from time to time designate in writing to other persons listed below:
Lessor: Telecommunications Finance Group
400 Rinehart Road
Lake Mary, Florida 32746
Lessee: Communications TeleSystems International
4350 LaJolla Village Drive,
Suite 100
San Diego, CA 92122
25. CONDITIONS PRECEDENT:
(a) Lessor shall not be obligated to lease the items of Equipment
described herein to Lessee hereunder unless:
(i) Such Uniform Commercial Code financing statements covering
Equipment and proceeds therefrom and landlord and/or mortgagee
waivers or disclaimers and/or severance agreements with respect to
the items of Equipment covered by this Lease as Lessor shall deem
necessary or desirable in order to perfect and protect its interests
therein shall have been duly executed and filed, at Lessee's expense,
in such public offices as Lessor shall direct;
(ii) All representations and warranties of Lessee contained herein or
in any document or certificate furnished Lessor in connection
herewith shall be true and correct on and as of the date of this
Lease with the same force and effect as if made on and as of such
date; no Event of Default or Default shall be in existence on such
date or shall occur as a result of the lease by Lessee of the
Equipment specified in Schedule 1 of Exhibit A;
(iii) In the sole judgment of Lessor, there shall have been no
material adverse change in the financial condition of business or
Lessee;
(iv) All proceedings to be taken in connection with the transactions
contemplated by this Lease, and all documents incidental thereto,
shall be satisfactory in form and substance to Lessor and its counsel;
(v) Lessor shall have received from Lessee, in form and substance
satisfactory to it, such other documents and information as Lessor
shall reasonably request;
(vi) All legal matters in connection with the transactions
contemplated by this Lease shall be satisfactory to Lessor's counsel;
and
(vii) No Change in Tax Law, which in the sole judgment of Lessor
would adversely affect Lessor's Economics, shall have occurred or
shall appear, in Lessor's good faith judgment, to be imminent.
26. SOFTWARE LICENSE.
Reference is made to the form of DCO Software License Agreement attached
hereto as Exhibit B (the "License Document"). Lessor has arranged for
the Equipment manufacturer to grant Lessee a license to use the Software
as defined in the License Document in conjunction with the equipment
leased hereunder in accordance with the
<PAGE>
terms of the License Document. The original license fee is contained in
the lease rate. To avail itself of the license grant, Lessee must
execute the License Document, upon commencement of the Lease. The option
to obtain a fully paid up license as provided in Article 2 of the
License Document may be exercised by the Lessee and the payment made
directly to the equipment manufacturer named in the License Document.
"Buyer" and "Licensee" as used in the License Document are synonymous
with lessee.
27. LIMITATION OF LIABILITY.
LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR REVENUE, SPECIAL,
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY NATURE OR
FROM ANY CAUSE WHETHER BASED IN CONTRACT OR TORT, INCLUDING NEGLIGENCE,
OR OTHER LEGAL THEORY EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. LESSEE HEREBY AGREES THAT LESSOR WILL NOT BE LIABLE FOR
ANY LOST PROFITS OR REVENUE OR FOR ANY CLAIM OR DEMAND AGAINST LESSEE BY
ANY OTHER PARTY.
28. MISCELLANEOUS.
(a) Any provision of this Lease which is prohibited or unenforceable in
jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability
in any jurisdiction shall not invalidate or render unenforceable such
provisions in any other jurisdiction. To the extent permitted by
applicable law, Lessee hereby waives any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
(b) No terms or provisions of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which the enforcement of the change, waiver,
discharge or termination is sought. No delay or failure on the part of
Lessor to exercise any power or right hereunder shall operate as a
waiver thereof, nor as an acquiescence in any default, nor shall any
single or partial exercise of any power or right preclude any other or
further exercise thereof, or the exercise of any other power or right.
After the occurrence of any Default or Event of Default, the acceptance
by Lessor of any payment of rent or other sum owed by Lessee pursuant
hereto shall not constitute a waiver by Lessor of such Default or Event
of Default, regardless of Lessor's knowledge or lack of knowledge
thereof at the time of acceptance of any such payment, and shall not
constitute a reinstatement of this Lease, if this Lease shall have been
declared in default by Lessor pursuant to Section 18 hereof or
otherwise, unless Lessor shall have agreed in writing to reinstate the
Lease and to waive the Default or Event of Default.
In the event Lessee tenders payment to Lessor by check or draft
containing a qualified endorsement purporting to limit or modify
Lessee's liability or obligations under this Lease, such qualified
endorsement shall be of no force and effect even if Lessor processes the
check or draft for payment.
(c) This Lease with exhibits contains the full, final and exclusive
statement of the agreement between Lessor and Lessee relating to the
Lease of the Equipment.
(d) This Lease shall constitute an agreement of an operating lease, and
nothing herein shall be construed as conveying to Lessee any right,
title or interest in the Equipment except as Lessee only.
(e) This Lease and the covenants and agreements contained herein shall
be binding upon, and inure to the benefit of, Lessor and its successors
and assigns and Lessee and, to the extent permitted by Section 21
hereof, its successors and assigns.
(f) The headings of the Sections are for convenience of reference only,
are not a part of this Lease and shall not be deemed to affect the
meaning or construction of any of the provisions hereof.
(g) This Lease may be executed by the parties hereto on any number of
separate counterparts, each of which when so executed and delivered
shall be any original, but all such counterparts shall together
constitute but one and the same instrument.
(h) This Lease is deemed made and entered into in the State of Florida
and shall be governed by and construed under and in accordance with the
laws of the State of Florida as if both parties were residents of Florida.
(i) Lessee hereby irrevocably consents and agrees that any legal action,
suit, or proceeding arising out of or in any way in connection with this
Lease shall be instituted or brought in the courts of the State of
Florida, or the United States Courts for the District of Florida, and by
execution and delivery of this Lease, Lessee hereby irrevocably accepts
and submits to, for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of any such court, and
to all proceedings in such courts. Lessee irrevocably consents to
service of any summons and/or legal process by registered or certified
United States mail, postage prepaid, to Lessee at the address set forth
in Section 24 hereof, such method of service to constitute, in every
respect, sufficient and effective service of process in any legal action
or proceeding. Nothing in this Lease shall affect the right to service
of process in any other manner permitted by law or limit the right of
Lessor to bring actions, suits or proceedings in the court of any other
jurisdiction. Lessee further agrees that final judgment against it in
any such legal action, suit or proceeding shall be conclusive and may be
enforced in any other jurisdiction, within or outside the United States
of America, by suit on the judgment, a certified or exemplified copy of
which shall be conclusive evidence of the fact and the amount of the
liability.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed as of the day and year first above written and by its signature
below Lessee expressly acknowledges that this Lease may not be modified
unless done so in writing signed by each of the parties hereto or their
successors in interest.
<TABLE>
<CAPTION>
<S> <C>
TELECOMMUNICATIONS FINANCE GROUP COMMUNICATION TELESYSTEMS INTERNATIONAL (LESSEE)
By: /s/ C.E. CALLOWAY By: /s/ MARK D. BUCKNER
--------------------------------- --------------------------------------------
MARK D. BUCKNER, EVP
- ------------------------------------ -----------------------------------------------
(Authorized Representative of (Name & Title)
Telecommunications Finance Group)
Date Signed: 23 May 1995 Date Signed:
------------------------ -----------------------------------
</TABLE>
<PAGE>
AMENDMENT TO LEASE AGREEMENT DATED FEBRUARY 20, 1995 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP (LESSOR) AND
COMMUNICATION TELESYSTEMS INTERNATIONAL (LESSEE)
FOR A DCO-CS TO BE LOCATED IN LOS ANGELES, CALIFORNIA
"REFERENCE RATE" shall mean the rate of interest publicly announced
by Citibank, N.A. in New York, New York from time to time as its
prime rate.
The reference rate is not intended to be the lowest rate of interest
charged by Citibank, N.A. in connection with extensions of credit to
debtors. The Reference Rate shall be determined at the close of
business on the 15th day of each calendar month (if the 15th day is
not a Business Day, then on the first preceding Business Day) and
shall become effective as of the first day of the calendar month
succeeding such determination and shall continue in effect to, and
including, the last day of said calendar month.
TELECOMMUNICATIONS FINANCE GROUP COMMUNICATION TELESYSTEMS
INTERNATIONAL
BY: /s/ C.E. Callaway BY: /s/ Mark D. Buckner
----------------------------- -----------------------------
Mark D. Buckner EVP
- --------------------------------- ---------------------------------
AUTHORIZED REPRESENTATIVE OF (NAME & TITLE)
TELECOMMUNICATIONS FINANCE GROUP
DATE SIGNED: 23 May 1995 DATE SIGNED:
-------------------- --------------------
<PAGE>
LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Schedules and Exhibits to the Lease Agreement
(2/20/95) have been omitted from this Exhibit and shall be furnished
supplementally to the Commission upon request:
Schedule B - Amendment to Lease Agreement
Schedule C - Amendment to Lease Agreement
Schedule D - Amendment to Lease Agreement
Schedule F - Amendment to Lease Agreement
Schedule G - Amendment to Lease Agreement
Exhibit A - Certificate of Delivery and Acceptance
Exhibit B - Software License Agreement
<PAGE>
LEASE AGREEMENT
This LEASE AGREEMENT, is effective on March 8, 1995 between
TELECOMMUNICATIONS FINANCE GROUP (hereinafter "Lessor"), and Communication
TeleSystems International, a California corporation with its principal office
located at 4350 LaJolla Village Drive, San Diego, CA 92122, (hereinafter
"Lessee").
1. LEASE.
Lessor, subject to the conditions set forth in Section 25 hereof,
agrees to lease to Lessee and Lessee agrees to lease from Lessor hereunder,
those items of personal property (the "Equipment") which are described on
Schedule 1 of Exhibit A hereto. Lessee agrees to execute and deliver to Lessor a
certificate of delivery and acceptance in substantively the form of Exhibit A
hereto (a "Delivery Certificate") immediately after Turnover of the Equipment,
and such execution shall constitute Lessee's irrevocable acceptance of such
items of Equipment for all purposes of this Lease. The Delivery Certificate
shall constitute a part of this Lease to the same extent as if the provisions
thereof were set forth herein.
2. DEFINITIONS.
"AMORTIZATION DEDUCTIONS" as defined in Section 11 (b)(i)
hereof.
"APPRAISAL PROCEDURE" shall mean the following procedure for
determining the Fair Market Sale Value of any item of Equipment.
If either Lessor or Lessee shall request by notice (the "Appraisal
Request") to the other that such value be determined by the
Appraisal Procedure, (i) Lessor and Lessee shall, within 15 days
after the Appraisal Request, appoint an independent appraiser
mutually satisfactory to them, or (ii) if the parties are unable
to agree on a mutually acceptable appraiser within such time,
Lessor and Lessee shall each appoint one independent appraiser
(PROVIDED that if either party hereto fails to notify the other
party hereto of the identity of the independent appraiser chosen
by it within 30 days after the Appraisal Request, the
determination of such value shall be made by the independent
appraiser chosen by such other party), and (iii) if such
appraisers cannot agree on such value within 20 days after their
appointment and if one appraisal is not within 5% of the other
appraisal, Lessor and Lessee shall choose a third independent
appraiser mutually satisfactory to them (or, if they fail to agree
upon a third appraiser within 25 days after the appointment of the
first two appraisers, such third independent appraiser shall
within 20 days thereafter be appointed by the American Arbitration
Association), and such value shall be determined by such third
independent appraiser within 20 days after his appointment, after
consultation with the other two independent appraisers. If the
first two appraisals are within 5% of each other, then the average
of the two appraisals shall be the Fair Market Sale Value. The
fees and expenses of all appraisers shall be paid by Lessee.
"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or
legal holiday under the laws of the State of Florida.
"CODE" shall mean the Internal Revenue Code of 1954, as amended,
or any comparable successor law.
"COMMENCEMENT DATE" as defined in Section 3 hereof.
"DEFAULT" shall mean any event or condition which after the giving
of notice or lapse of time or both would become an Event of
Default.
"DELIVERY CERTIFICATE" as defined in Section 1 hereof.
"EQUIPMENT" as defined in Section 1 hereof.
"EVENT OF DEFAULT" as defined in Section 18 hereof.
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<PAGE>
"EVENT OF LOSS" shall mean, with respect to any item of Equipment,
the actual or constructive total loss of such item of Equipment or
the use thereof, due to theft, destruction, damage beyond repair
or rendition thereof permanently unfit for normal use from any
reason whatsoever, or the condemnation, confiscation or seizure
of, or requisition of title to or use of, such item of Equipment.
"FAIR MARKET SALE VALUE" shall, at any time with respect to any
item of Equipment, be equal to the sale value of such item of
Equipment which would be obtained in an arm's-length
transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer-user
(other than a lessee currently in possession or a used
equipment or scrap dealer). For purposes of Section 7(b)
hereof, Fair Market Sale Value shall be determined by (i) an
independent appraiser (at Lessee's expense) selected by Lessor
or (ii) by the Appraiser Procedure if the Appraisal Request is
made at least 90 days (but not more than 360 days) prior to the
termination or expiration of the Lease Term, as the case may
be, which determination shall be made (a) without deduction for
any costs or expenses of dismantling or removal; and (b) on the
assumption that such item of Equipment is free and clear of all
Liens and is in the condition and repair in which it is
required to be returned pursuant to Section 7 (a) hereof. For
purposes of Section 19(c) hereof, Fair Market Sale Value shall
be determined (at Lessee's expense) by an independent appraiser
selected by Lessor, on an "as-is, where-is" basis, without
regard to the provisions of clauses (a) and (b) above; PROVIDED
that if Lessor shall have sold any item of Equipment pursuant
to Section 19(b) hereof prior to giving the notice referred to
in Section 19(c) hereof, Fair Market Sale Value of such item of
Equipment shall be the net proceeds of such sale after
deduction of all costs and expenses incurred by Lessor in
connection therewith; PROVIDED FURTHER, that if for any reason
Lessor is not able to obtain possession of any item of
Equipment pursuant to Section 19(a) hereof, the Fair Market
Sale Value of such item of Equipment shall be zero.
"IMPOSITION" as defined in Section 11 (a) hereof.
"INDEMNITEE" as defined in Section 17 hereof.
"LATE CHARGE RATE" shall mean an interest rate per annum equal to
the higher of two percent (2%) over the Reference Rate or eighteen
percent (18%), but not to exceed the highest rate permitted by
applicable law.
"LEASE" and the terms "hereof", "herein", "hereto" and
"hereunder", when used in this Lease Agreement, shall mean and
include this Lease Agreement, Exhibits and the Delivery
Certificate hereto as the same may from time to time be amended,
modified or supplemented.
"LEASE TERM" Shall mean, with respect to any item of Equipment,
the term of the lease of such item of Equipment hereunder
specified in Section 3 hereof.
"LESSEE" as defined in the introductory paragraph to this Lease.
"LESSOR" as defined in the introductory paragraph of this Lease.
"LESSOR'S VALUE" shall mean, with respect to any item of Equipment
and installation if applicable, the total amount set forth in
Schedule 1 of Exhibit A hereto.
"LESSOR'S LIENS" shall mean (i) any mortgage, pledge, lien,
security interest, charge, encumbrance, financing statement, title
retention or any other right or claim of any person claiming
through or under Lessor, not based upon or relating to ownership
of the Equipment or the lease thereof hereunder and (ii) any
mortgage, pledge, lien, security interest, charge, encumbrance,
financing statement, title retention or any other right or claim
of Owner (other than Lessor) claiming through or under Lessor in
connection with the transactions described in Section 21 (b)
hereof.
"LIENS" shall mean any mortgage, pledge, lien, security interest,
charge, encumbrance, financing statement, title retention or any
other right or claim of any person, other than any Lessor's Lien.
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<PAGE>
"LOSS PAYMENT DATE" shall mean with respect to any item of
Equipment the date on which payment, as described in Section 16
(b) hereof, is made to the Lessor by the Lessee as the result of
an Event of Loss with respect to such item. The Loss Payment Date
shall be within ninety (90) days of the said Event of Loss.
"OWNER" shall mean the entity or person having ownership interest
to the Equipment as contemplated by the provisions of Section 21
(b) hereof and may be a person other than Lessor.
"OWNER'S ECONOMICS" shall mean the after-tax yield and periodic
after-tax cash flow anticipated by Owner as of the date of this
Lease, in connection with the transactions contemplated by this
Lease as determined by Owner unless Lessor shall have transferred
its interest in the Equipment to another person as contemplated by
the provisions of Section 21 (b) hereof in which case "Owner's
Economics" shall mean the after-tax yield and periodic after-tax
cash flow anticipated by such person as of the date of the lease
between such person and Lessor contemplated by said provisions, in
connection with the transactions contemplated by such lease as
determined by such person.
"RECOVERY DEDUCTIONS" as defined in Section 11 (b)(i) hereof.
"REFERENCE RATE" shall mean the rate of interest publicly
announced by Citibank, NA in New York, New York from time to time
as its prime rate.
The reference rate is not intended to be the lowest rate of
interest charged by Citibank, NA in connection with extensions of
credit to debtors. The Reference Rate shall be determined at the
close of business on the 15th day of each calendar month (if the
15th day is not a Business Day, then on the first preceding
Business Day) and shall become effective as of the first day of
the calendar month succeeding such determination and shall
continue in effect to, and including, the last day of said
calendar month.
"RENT PAYMENT DATE" shall mean each date on which an installment
of rent is due and payable pursuant to Section 5(a) hereof.
"STIPULATED LOSS VALUE" shall mean, with respect to any item of
Equipment, the amount determined by multiplying the Lessors Value
of such item of Equipment by the percentage set forth in Schedule
A hereto opposite the applicable Rent Payment Date; provided, that
for purposes of Sections 16 (b) and 19 (c) hereof, any
determination of Stipulated Loss Value as of a date occurring
after the final Rent Payment Date with respect to such item of
Equipment, shall be made as of such final Rent Payment Date.
"TAX BENEFITS" shall mean the right to claim such deductions,
credits, and other benefits as are provided by the Code to an
owner of property, including the Recovery Deductions and
Amortization Deductions.
"TURNOVER" shall mean that point in time when the equipment
installation personnel complete testing of the equipment, or when
the equipment is placed into service, whichever first occurs.
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting
principles.
3. LEASE TERM.
The term of the lease of the Equipment hereunder shall commence on
the Commencement Date specified in the Delivery Certificate ("Commencement
Date") and, unless earlier terminated pursuant to the provisions hereof or at
law or equity, shall continue for a term of sixty (60) months from such
Commencement Date. The Commencement Date specified in the Delivery Certificate
shall be the date on which Turnover occurs at a site provided by Lessee in
accordance with the provisions of Section 4 hereof.
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<PAGE>
4. INSTALLATION.
Lessor shall arrange for installation of the Equipment, the cost
of which installation shall be deemed to be part of Lessor's Value. Exhibit A
hereto shall indicate whether such cost is included or excluded from the monthly
rent payments due in accordance with Section 5(a) hereof. If excluded from such
monthly rent payments, Lessor shall separately invoice Lessee for such
installation upon completion thereof and Lessee shall pay such invoice within
thirty (30) days from the date thereof. Lessee shall be obligated to timely
provide a suitable site for the installation of the Equipment in accordance with
the Equipment manufacturer's practices attached hereto as Exhibit C. Lessee
shall be responsible for compliance with environmental requirements and central
office grounding procedures specified in Exhibit C hereto and for providing
adequate space, lighting, heating, air-conditioning and A/C power at the
installation site. Unavailability of Lessee furnished facilities shall be cause
for adjustments to the installation price set forth in Schedule 1 of Exhibit A
hereto.
5. RENT; UNCONDITIONAL OBLIGATIONS.
(a) Lessee agrees to pay to Lessor, at the address specified in
Section 24 hereof or at such other address as Lessor may specify, rent for the
Equipment at a rate not to exceed $(see Schedule G) per $1,000 of the total
Lessor's Value of such items of Equipment, as set forth in Schedule 1 of Exhibit
A dated March 8, 1995, or as Schedule 1 of Exhibit A to the Certificate of
Delivery and Acceptance is from time to time amended, (plus applicable sales or
use taxes) per month, in sixty (60) consecutive monthly installments, with the
first installment of rent being due on the Commencement date unless the
Commencement Date is other than the first day of a calendar month, in which
event the first installment of rent shall be due on the first day of the month
following the Commencement Date, and succeeding installments being due on the
same date of each month thereafter.
(b) Lessee shall also pay to Lessor, on demand, interest at the
Late Charge Rate on any installment of rent and on any other amount owing
hereunder which is not paid on its due date, for any period for which the
same shall be overdue. Each payment made under this Lease shall be applied
first to the payment of interest then owing and then to rent or other amounts
owing hereunder. Interest shall be computed on the basis of a 360-day year
and actual days elapsed.
(c) This Lease is a net lease, and Lessee's obligation to pay
all rent and all other amounts payable hereunder is ABSOLUTE AND
UNCONDITIONAL under any and all circumstances and shall not be affected by
any circumstances of any character whatsoever, including, without limitation,
(i) any set-off, counterclaim, recoupment, defense, abatement or reduction or
any right which Lessee may have against Lessor, the manufacturer or supplier
of any of the Equipment or anyone else for any reason whatsoever; (ii) any
defect in the title, condition, design, or operation of, or lark of fitness
for use of, or any damage to, or loss of, all or any part of the Equipment
from any cause whatsoever; (iii) the existence of any Liens with respect to
the Equipment; (iv) the invalidity, unenforceability or disaffirmance of this
Lease or any other document related hereto; or (v) the prohibition of or
interference with the use or possession by Lessee of all or any part of the
Equipment, for any reason whatsoever, including without limitation, by reason
of (1) claims for patent, trademark or copyright infringement; (2) present or
future governmental laws, rules or orders; (3) the insolvency, bankruptcy or
reorganization of any person; and (4) any other cause whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. Lessee hereby waives, to the extent permitted by applicable
law, any and all rights which it may now have or which may at any time
hereafter be conferred upon it, by statute or otherwise, to terminate,
cancel, quit or surrender the lease of any Equipment. If for any reason
whatsoever this Lease or any Supplement, other than pursuant to Section 16
(b) hereof, shall be terminated in whole or in part by operation of law or
otherwise, Lessee will nonetheless pay to Lessor an amount equal to each
installment of rent at the time such installment would have become due and
payable in accordance with the terms hereof. Each payment of rent or other
amount paid by Lessee hereunder shall be final and Lessee will not seek to
recover all or any part of such payment for Lessor for any reason whatsoever.
6. WARRANTY DISCLAIMER; ASSIGNMENT OF WARRANTIES.
(a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE AND
LESSEE HEREBY EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE, FREEDOM
FROM INTERFERENCE OR
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<PAGE>
INFRINGEMENT OR THE LIKE OR AS TO THE TITLE TO OR LESSOR'S OR LESSEE'S
INTEREST IN THE EQUIPMENT OR AS TO ANY OTHER MATTER RELATING TO THE EQUIPMENT
OR ANY PART THEREOF.
LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND EACH PART THEREOF
ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON ANY
STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR.
LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION
OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO THE TRANSACTIONS
CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES AND/OR TAX TREATMENT
THEREOF.
(b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS LESSOR MAY HAVE (TO
EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL MANUFACTURERS' AND
SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT; PROVIDED, HOWEVER, THAT THE
FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO LESSOR UPON THE OCCURRENCE AND
DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT HEREUNDER, OR UPON THE RETURN OF
THE EQUIPMENT TO LESSOR. LESSEE AGREES TO SETTLE ALL CLAIMS WITH RESPECT TO THE
EQUIPMENT DIRECTLY WITH THE MANUFACTURERS OR SUPPLIERS THEREOF, AND TO GIVE
LESSOR PROMPT NOTICE OF ANY SUCH SETTLEMENT AND THE DETAILS OF SUCH SETTLEMENT.
HOWEVER, IN THE EVENT ANY WARRANTIES ARE NOT ASSIGNABLE, THE LESSOR AGREES TO
ACT ON BEHALF OF THE LESSEE IN SETTLING CLAIMS ARISING UNDER THE WARRANTY WITH
THE MANUFACTURER OR SUPPLIER.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF REVENUE OR PROFITS,
SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR FROM ANY
CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7. DISPOSITION OF EQUIPMENT.
(a) RETURN.
Lessee shall, upon the expiration of the Lease Term of each item
of Equipment, subject to paragraph (b) below, return such item of Equipment to
Lessor at such place within the continental United States of America as Lessor
shall designate in writing to Lessee. Until such item of Equipment is returned
to Lessor pursuant to the provisions of this Section, all of the provisions of
this Lease with respect thereto shall continue in full force and effect. Lessee
shall pay all the costs and expenses in connection with or incidental to the
return of the Equipment, including, without limitation, the cost of removing,
assembling, packing, insuring and transporting the Equipment. At the time of
such return, the Equipment shall be in the condition and repair required to be
maintained by Section 12 hereof and free and clear of all Liens.
(b) PURCHASE OPTION.
So long as no Default or Event of Default shall have occurred and
be continuing, Lessee may, by written notice given to Lessor at least 120 days
(but not more than 360 days) prior to the expiration date of the Lease Term of
any item of Equipment (which notice shall be irrevocable), elect to purchase
such item of Equipment on such expiration date for a cash purchase price equal
to the Fair Market Sale Value of such item of Equipment determined as of such
expiration date, plus an amount equal to all taxes (other than income taxes on
any gain on such sale), costs and expenses (including legal fees and expenses)
incurred or paid by Lessor in connection with such sale. Upon payment by Lessee
of such purchase price, and of all other amounts then due and payable by Lessee
hereunder, Lessor shall transfer title to such items of Equipment to Lessee on
an "as-is, where-is" basis, without recourse and without representation or
warranty of any kind, express or implied, other than a representation and
warranty that such item of Equipment is free and clear of any Lessor's Liens.
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<PAGE>
8. REPRESENTATION AND WARRANTIES.
In order to induce Lessor to enter into this Lease and to lease
the Equipment to Lessee hereunder, Lessee represents and warrants that:
(a) ORGANIZATION.
Lessee is duly organized, validly existing and in good standing
under the laws of the State of California and is duly qualified to do business
and is in good standing in the State in which the Equipment will be located.
(b) POWER AND AUTHORITY.
Lessee has full power, authority and legal right to execute,
deliver and perform this Lease, and the execution, delivery and performance
hereof has been duly authorized by Lessee's governing body or officer(s).
(c) ENFORCEABILITY.
This Lease has been duly executed and delivered by Lessee and
constitutes a legal, valid and binding obligation of Lessee enforceable in
accordance with its terms.
(d) CONSENTS AND PERMITS.
The execution, delivery and performance of this Lease does not
require any approval or consent of any trustee, shareholder, partner, sole
proprietor, or holders of any indebtedness or obligations of Lessee, and will
not contravene any law, regulation, judgment or decree applicable to Lessee, or
the certificate of partnership or incorporation or by-laws of Lessee, or
contravene the provisions of, or constitute a default under, or result in the
creation of any Lien upon any property of Lessee under any mortgage, instrument
or other agreement to which Lessee is a party or by which Lessee or its assets
may be bound or affected; and no authorization, approval, license, filing or
registration with any court or governmental agency or instrumentality is
necessary in connection with the execution, delivery, performance, validity and
enforceability of this Lease.
(e) FINANCIAL CONDITION OF THE LESSEE.
The financial statements of Lessee heretofore furnished to Lessor
are complete and correct and fairly present the financial condition of Lessee
and the results of its operations for the respective periods covered thereby,
there are no known contingent liabilities or liabilities for taxes of Lessee
which are not reflected in said financial statements and since the date thereof,
there has been no material adverse change in such financial condition or
operations.
(f) NO LITIGATION.
There is no action, suit, investigation or proceeding by or
before any court, arbitrator, administrative agency or other governmental
authority pending or threatened against or affecting Lessee (A) which involves
the transactions contemplated by this Lease or the Equipment; or (B) which, if
adversely determined, could have a material adverse effect on the financial
condition, business or operations of Lessee.
(g) UNITED STATES SOURCE INCOME.
No items of Equipment shall be used in a way that results in the
creation of an item of income to Lessor, the source of which for Federal Income
Tax purposes is without the United States.
9. LIENS.
Lessee will not directly or indirectly create, incur, assume,
suffer, or permit to exist any Lien on or with respect to the Equipment.
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<PAGE>
10. INSURANCE.
Lessee shall maintain at all times on the Equipment, at its
expense, property damage, direct damage and liability insurance in such amounts,
against such risks, in such form and with such insurers as shall be reasonably
satisfactory to Lessor and any other Owner, provided, that the amount of direct
damage insurance shall not on any date be less than the greater of the full
replacement value or the Stipulated Loss Value of the Equipment as of such date.
Each insurance policy will, among other things, name Lessor and any other Owner
as an additional insured or as loss payee (as the case may be) as their
interests may appear, require that the insurer give Lessor and any such Owner at
least thirty (30) days prior written notice of any alteration in or cancellation
of the terms of such policy, and require that the interest of Lessor and any
such Owner be continued insured regardless of any breach of or violation by
Lessee of any warranties, declarations or conditions contained in such insurance
policy. Lessee shall furnish to Lessor and such Owner a certificate or other
evidence satisfactory to Lessor that such insurance coverage is in effect
provided, however, that Lessor and such Owner shall be under no duty to
ascertain the existence or adequacy of such insurance.
11. TAXES.
(a) GENERAL TAX PROVISIONS.
Lessee shall pay, and shall indemnify and hold Lessor harmless
from and against, all fees, taxes (whether sales, use, excise, personal
property or other taxes), imposts, duties, withholdings, assessments and other
governmental charges of whatever kind or character, however designated (together
with any penalties, fines or interest thereon), all of the foregoing being
herein collectively called "Impositions", which are at any time levied or
imposed against Lessor, Lessee, this Lease, the Equipment or any part thereof by
any Federal, State, or Local Government or taxing authority in the United States
or by any foreign government or any subdivision or taxing authority thereof
upon, with respect to, as a result of or measured by (i) the Equipment (or any
part thereof), or this Lease or the interests of the Lessor therein; or (ii) the
purchase, ownership, delivery, leasing, possession, maintenance, use, operation,
return, sale or other disposition of the Equipment or any part thereof; or
(iii) the rentals, receipts or earnings payable under this Lease or otherwise
arising from the Equipment or any part thereof; EXCLUDING, HOWEVER, taxes based
on or measured by the net income of Lessor that are imposed by (1) the United
States of America, or (2) the State of Florida or any political subdivision of
the State of Florida, or (3) any other State of the United States of America or
any political subdivision of any such State in which Lessor is subject to
Impositions as the result (whether solely or in part) of business or
transactions unrelated to this Lease. In case any report or return is required
to be filed with respect to any obligation of Lessee under this Section or
arising out of this Section, Lessee will notify Lessor of such requirement and
make such report or return in such manner as shall be satisfactory to Lessor;
PROVIDED, that the payment of any use taxes shall be made in such manner as
specified by Lessor in writing to Lessee; or (iv) The provisions of this Section
shall survive the expiration or earlier termination of this Lease.
(b) SPECIAL TAX PROVISIONS.
(i) The Owner of the items of Equipment, shall be entitled
to take into account in computing its Federal income tax liability, Current Tax
Rate and such deductions, credits, and other benefits as are provided by the
Code to an owner of property, including, without limitation:
(A) Recovery deductions ("Recovery Deductions") under
Section 168 (a) of the Code for each item of Equipment in an amount determined,
commencing with the 1995 taxable year, by multiplying the Owner's Cost of such
item of Equipment by the percentages applicable under Section 168 (b) of the
Code with respect to "(5)-year property" within the meaning of Section 168
(c)(2) of the Code;
(B) Amortization of expenses ("Amortization Deductions")
paid or to be paid by Owner in connection with this Lease at a rate no less
rapid than straight line over the Lease Term.
(ii) For the purposes of this Subsection 11 (b) only, the
term "Owner" shall include the "common parent" and all other corporations
included in the affiliated group, within the meaning of Section 1504 of the Code
(or any other successor section thereto), of which Owner is or becomes a member.
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12. COMPLIANCE WITH LAWS; OPERATION AND MAINTENANCE.
(a) Lessee will use the Equipment in a careful and proper manner,
will comply with and conform to all governmental laws, rules and regulations
relating thereto, and will cause the Equipment to be operated in accordance with
the manufacturer's or supplier's instructions or manuals.
(b) Lessee will, at its own expense, keep and maintain the
Equipment in good repair, condition and working order and furnish all parts,
replacements, mechanisms, devices and servicing required therefor so that the
value, condition and operating efficiency therefor will at all times be
maintained and preserved, reasonable wear and tear excepted. All such repairs,
parts, mechanisms, devices and replacements shall immediately, without further
act, become the property of Lessor and part of the Equipment.
(c) Lessee will not make or authorize any improvement, change,
addition or alteration to the Equipment (i) if such improvement, change,
addition or alteration will impair the originally intended function or use of
the Equipment or impair the value of the Equipment as it existed immediately
prior to such improvement, change, addition or alteration; or (ii) if any parts
installed in or attached to or otherwise becoming a part of the Equipment as a
result of any such improvement, change, addition or alteration shall not be
readily removable without damage to the Equipment. Any part which is added to
the Equipment without violating the provisions of the immediately preceding
sentence and which is not a replacement or substitution for any property which
was a part of the Equipment, shall remain the property of Lessee and may be
removed by Lessee at any time prior to the expiration or earlier termination of
the Lease Term. All such parts shall be and remain free and clear of any Liens.
Any such part which is not so removed prior to the expiration or earlier
termination of the Lease Term shall, without further act, become the property of
Lessor.
13. INSPECTION.
Upon prior notice, Lessor or its authorized representatives may at
any reasonable time or times inspect the Equipment when it deems it necessary to
protect its interest therein.
14. IDENTIFICATION.
Lessee shall, at its expense, attach to each item of Equipment a
notice satisfactory to Lessor disclosing Owner's ownership of such item of
Equipment.
15. PERSONAL PROPERTY.
Lessee represents that the Equipment shall be and at all times
remain separately identifiable personal property. Lessee shall, at its expense,
take such action (including the obtaining and recording of waivers) as may be
necessary to prevent any third party from acquiring any right to or interest in
the Equipment by virtue of the Equipment being deemed to be real property or a
part of real property or a part of other personal property, and if at any time
any person shall claim any such right or interest, Lessee shall, at its expense,
cause such claim to be waived in writing or otherwise eliminated to Lessor's
satisfaction within 30 days after such claim shall have first become known to
Lessee.
16. LOSS OR DAMAGE.
(a) All risk of loss, theft, damage or destruction to the
Equipment or any part thereof, however incurred or occasioned, shall be borne by
Lessee and, unless such occurrence constitutes an Event of Loss pursuant to
paragraph (b) of this Section, Lessee shall promptly give Lessor written notice
hereof and shall promptly cause the affected part or parts of the Equipment to
be replaced or restored to the condition and repair required to be maintained by
Section 12 hereof.
(b) If an Event of Loss with respect to any item of Equipment
shall occur, Lessee shall promptly give Lessor written notice thereof, and
Lessee shall pay to Lessor as soon as it receives insurance proceeds with
respect to said Event of Loss but in any event no later than 90 days after the
occurrence of said Event of Loss an amount equal to the sum of (i) the
Stipulated Loss Value of such item of Equipment computed as of the Rent Payment
Date with
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respect to such item of Equipment, or immediately preceding the date of the
occurrence of such Event of Loss; and (ii) all rent and other amounts due and
owing hereunder for such item of Equipment on or prior to the Loss Payment
Date. Upon payment of such amount to Lessor, the lease of such item of
Equipment hereunder shall terminate, and Lessor will transfer within forty
days to Lessee, Lessor's right, title and interest in and to such item of
Equipment, on an "as-is, where-is" basis, without recourse and without
representation or warranty, express or implied, other than a representation
and warranty that such item of Equipment is free and clear of any Lessor's
Liens.
(c) Any payments received at any time by Lessor or Lessee from
any insurer with respect to loss or damage to the Equipment shall be applied
as follows: (i) if such payments are received with respect to an Event of
Loss they shall be paid to Lessor, but to the extent received by Lessor, they
shall reduce or discharge, as the case may be, Lessee's obligation to pay the
amounts due to Lessor under Section 16 (b) hereof with respect to such Event
of Loss; or (ii) if such payments are received with respect to any loss of or
damage to the Equipment other than an Event of Loss, such payments shall,
unless a Default or Event of Default shall have occurred and be continuing,
be paid over to Lessee to reimburse Lessee for its payment of the costs and
expenses incurred by Lessee in replacing or restoring pursuant to Section
16 (a) hereof the part or parts of the Equipment which suffered such loss or
damage.
17. GENERAL INDEMNITY.
Lessee assumes liability for, and shall indemnify, protect save
and keep harmless Lessor and its agents, servants, successors and assigns
(an "Indemnitee") from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses,
including reasonable legal expenses, of whatsoever kind and nature, imposed
on, incurred by or asserted against any Indemnitee, in any way relating to or
arising out of this Lease or the enforcement hereof, or the manufacture,
purchase, acceptance, rejection, ownership, possession, use, selection,
delivery, lease, operation, condition, sale, return or other disposition of
the Equipment or any part thereof (including, without limitation, latent or
other defects, whether or not discoverable by Lessee or any other person, any
claim in tort for strict liability and any claim for patent, trademark or
copyright infringement); provided, however, that Lessee shall not be required
to indemnify any Indemnitee for loss or liability arising from acts or events
which occur after the Equipment has been returned to Lessor in accordance
with the Lease, or for loss or liability resulting solely from the willful
misconduct or gross negligence of such Indemnitee. The provisions of this
Section shall survive the expiration or earlier termination of this Lease.
18. EVENTS OF DEFAULT.
The following events shall each constitute an event of default
(herein called "Event of Default") under this Lease:
(i) Lessee shall fail to execute and deliver to Lessor (or
Lessor's agent) the "Delivery Certificate" within twenty-four (24) hours of
Turnover of the Equipment to Lessee.
(ii) Lessee shall fail to commence lease payments on the first day
of the month following the Commencement Date, or such other initiation of lease
payments as specified in Section 5 of this Lease.
(iii) Lessee shall fail to make any payment of rent or other
amount owing hereunder after notice has been given that payment is past due; or
(iv) Lessee shall fail to maintain the insurance required by
Section 10 hereof or to perform or observe any of the covenants contained in
Sections 21 or 22 hereof; or
(v) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it with respect to this
Lease and such failure shall continue unremedied for 30 days after the earlier
of (a) the date on which Lessee obtains, or should have obtained knowledge of
such failure; or (b) the date on which notice thereof shall be given by Lessor
to Lessee; or
(vi) Any representation or warranty made by Lessee herein or in
any document, certificate or financial or other statement now or hereafter
furnished Lessor in connection with this Lease shall prove at any time to have
been untrue, incomplete or misleading in any material respect as of the time
when made; or
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(vii) The entry of a decree or order for relief by a court
having jurisdiction in respect of Lessee, adjudging Lessee a bankrupt or
insolvent, or approving as properly filed a petition seeking a
reorganization, arrangement, adjustment or composition of or in respect of
Lessee in an involuntary proceeding or case under the Federal bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal or
State bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee or sequestrator (or similar
official) of Lessee or of any substantial part of its property, or ordering
the winding-up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 30 days; or
(viii) The institution by Lessee of proceedings to be adjudicated
a bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it, or the commencement by Lessee of a
voluntary proceeding or case under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state bankruptcy,
insolvency or other similar law, or the consent by it to the filing of any such
petition or to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other similar
official) of Lessee or of any substantial part of its property, or the making by
it of any assignment for the benefit of creditors or the admission by it of its
inability to pay its debts generally as they become due or its willingness to be
adjudicated a bankrupt or the failure of Lessee generally to pay its debts as
they become due or the taking of corporate action by Lessee in furtherance of
any of the foregoing.
19. REMEDIES. If an Event of Default specified in Subsection 18(vii)
or (viii) above shall occur, then, and in any such event, Lessor shall not be
obligated to purchase or lease any of the Equipment and this Lease shall,
without any declaration or other action by Lessor, be in default. If an Event of
Default, other than an Event of Default specified in Subsection 18(vii) or
(viii) above, shall occur, Lessor may, at its option, declare this Lease to be
in default. At any time after this Lease is in default under the first sentence
of this Section 19, Lessor has declared this Lease to be in default under the
second sentence of this Section 19, Lessor and/or its representative may do any
one or more of the following with respect to all of the Equipment or any part
thereof as Lessor in its sole discretion shall elect, to the extent permitted by
applicable law then in effect:
(a) demand that Lessee, and Lessee shall at its expense upon
such demand, return the Equipment promptly to Lessor at such place in the
continental United States of America as Lessor shall specify, or Lessor and/or
its agents, at its option, may with or without entry upon the premises where the
Equipment is located and disable the Equipment, or make the Equipment inoperable
permanently or temporarily in Lessor's sole discretion, and/or take immediate
possession of the Equipment and remove the same by summary proceedings or
otherwise, all without liability for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused by such
taking or for disabling or otherwise;
(b) sell the Equipment at public or private sale, with or
without notice, advertisement or publication, as Lessor may determine, or
otherwise dispose of, hold, use, operate, lease to others or keep idle the
Equipment as Lessor in its sole discretion may determine, all free and clear of
any rights of Lessee and without any duty to account to Lessee with respect to
such action or inaction or for any proceeds with respect thereto;
(c) by written notice to Lessee specifying a payment date which
shall be not earlier than 20 days after the date of such notice, demand that
Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date
specified in such notice, as liquidated damages for loss of a bargain and not as
a penalty, all accrued and unpaid rent for the Equipment due on all Rent Payment
Dates up to and including the payment date specified in such notice PLUS an
amount (together with interest on such amount at the Late Charge Rate, from the
payment date specified in such notice to the date of actual payment) equal to
the excess, if any, of the Stipulated Loss Value of the Equipment as of the
payment date specified in such notice over the Fair Market Sale Value of the
Equipment as of such date;
(d) Lessor may exercise any other right or remedy which may be
available to it under applicable law or proceed by appropriate court action to
enforce the terms hereof or to recover damages for the breach hereof or to
rescind this Lease. Lessor is entitled to recover any amount that fully
compensates the Lessor for any damage to or loss of the Lessor's residual
interest in the leased property caused by the Lessee's default.
In the event any present value discounting is applied, the discount rate
used shall be the Federal Reserve Board Discount Rate.
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In addition, Lessee shall be le for any and all unpaid rent and
other amounts due hereunder before or during the exercise of any of the
foregoing remedies and for all reasonable legal fees and other costs and
expenses incurred by reason of the occurrence of any Event of Default or the
exercise of Lessor's remedies with respect thereto, including all reasonable
costs and expenses incurred in connection with the placing of the Equipment
in the condition required by Section 12 hereof.
No remedy referred to in this Section 19 is intended to be exclusive,
but each shall be cumulative and in addition to any other remedy referred to
herein or otherwise available to Lessor at law or in equity; and the
exercise or beginning of exercise by Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Lessor of
any or all such other remedies. No express or implied waiver by Lessor of an
Event of Default shall in any way be, or be construed to be, a waiver of any
future or subsequent Event of Default. To the extent permitted by applicable
law, Lessee hereby waives any rights now or hereafter conferred by statute or
otherwise which may require Lessor to sell or lease or otherwise use the
Equipment in mitigation of Lessor's damages or losses or which may otherwise
limit or modify any of Lessor's rights or remedies under this Lease.
20. LESSOR'S RIGHT TO PERFORM. If Lessee fails to make any payment
required to be made by it hereunder or fails to perform or comply with any of
its other agreements contained herein, Lessor may itself make such payment or
perform or comply with such agreement, and the amount of such payment and the
amount of the reasonable expenses of Lessor incurred in connection with such
payment or the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Late Charge Rate, shall be deemed to
be additional rent, payable by Lessee within 30 days of notice.
21. LOCATION; ASSIGNMENT OR SUBLEASE; TITLE TRANSFER.
(a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE LOCATION
SPECIFIED IN SCHEDULE 1 OF EXHIBIT A WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, SUCH CONSENT NOT TO BE UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE
THE CONTINENTAL U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT ALL TIMES BE IN
THE SOLE POS SESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT THE
PRIOR WRITTEN CONSENT OF LESSOR, SUCH CONSENT NOT TO BE UNREASONABLY
WITHHELD, ASSIGN THIS LEASE OR ANY INTEREST HEREIN OR SUB LEASE OR OTHERWISE
TRANSFER ITS INTEREST IN ANY OF THE EQUIPMENT, AND ANY ATTEMPTED ASSIGNMENT,
SUBLEASE OR OTHER TRANSFER BY LESSEE IN VIOLATION OF THESE PROVISIONS SHALL
BE VOID.
(b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY TRANSFER
ITS INTEREST IN THE EQUIPMENT TO AN OWNER OTHER THAN LESSOR. LESSOR MAY
CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER, AND
(ii) MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE
ABOVE-DESCRIBED TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE (i) THAT
ANY SUCH ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE LESSEE'S DUTIES AND
OBLIGATION HEREUNDER, (ii) THAT SUCH ASSIGNMENT DOES NOT MATERIALLY INCREASE
THE BURDEN OR RIGHT IMPOSED ON THE LESSEE, AND (iii) THAT THE ASSIGNMENT IS
PERMITTED EVEN IF THE ASSIGNMENT COULD BE DEEMED TO MATERIALLY AFFECT THE
INTEREST OF THE LESSEE.
22. STATUS CHANGES IN LESSEE. Lessee will not without thirty (30) days
prior written notice to Lessor, (a) enter into any transaction of merger or
consolidation unless it is the surviving corporation or after giving effect to
such merger or consolidation its net worth equals or exceeds that which existed
prior to such merger or consolidation; or (b) change the form of organization of
its business; or (c) change its name or its chief place of business. Lessee must
obtain Lessor's prior written concurrence, such concurrence not to be
unreasonably withheld, before Lessee may undertake any actions to (a) liquidate
or dissolve or similar action of the Lessee's organization, or (b) sell,
transfer or otherwise dispose of all or any substantial part of Lessee's assets.
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23. FURTHER ASSURANCE, FINANCIAL INFORMATION.
(a) Lessee will, at its expense, promptly and duly execute and
deliver to Lessor such further documents and assurances and take such further
action as Lessor may from time to time reasonably request in order to establish
and protect the rights, interests and remedies created or intended to be created
in favor of Lessor hereunder, including, without limitation, the execution and
filing of Uniform Commercial Code financing statements covering the Equipment
and proceeds therefrom in the jurisdictions in which the Equipment is located
from time to time. To the extent permitted by applicable law, Lessee hereby
authorizes Lessor to file any such financing statements without the signature of
Lessee.
(b) Lessee will qualify to do business and remain qualified in
good standing, in each jurisdiction in which the Equipment is from time to time
located.
(c) Lessee will furnish to Lessor as soon as available, but in
any event not later than 90 days after the end of each fiscal year of Lessee,
a consolidated balance sheet of Lessee as at the end of such fiscal year, and
consolidated statements of income and changes in financial position of Lessee
for such fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles applied on a basis consistently
maintained throughout the period involved. These reports will not be
disclosed to anyone other than the Lessor and/or the Owner as provided in
Section 21 (b).
24. NOTICES. All notices, demands and other communications
hereunder shall be in writing, and shall be deemed to have been given or made
when deposited in the United States mail, first class postage prepaid,
addressed as follows or to such other address as any of the authorized
representatives of the following entities may from time to time designate in
writing to the other listed below:
Lessor: Telecommunications Finance Group
400 Rinehart Road
Lake Mary, Florida 32746
Lessee: Communications TeleSystems International
4350 LaJolla Village Drive
San Diego, CA 92122
25. CONDITIONS PRECEDENT:
(a) Lessor shall not be obligated to lease the items of Equipment
described herein to Lessee hereunder unless:
(i) Such Uniform Commercial Code financing statements
covering Equipment and proceeds therefrom and landlord and/or mortgagee waivers
or disclaimers and/or severance agreements with respect to the items of
Equipment covered by this Lease as Lessor shall deem necessary or desirable in
order to perfect and protect its interests therein shall have been duly executed
and filed, at Lessee's expense, in such public offices as Lessor shall direct;
(ii) All representations and warranties of Lessee contained
herein or in any document or certificate furnished Lessor in connection herewith
shall be true and correct on and as of the date of this Lease with the same
force and effect as if made on and as of such date; no Event of Default or
Default shall be in existence on such date or shall occur as a result of the
lease by Lessee of the Equipment specified in Schedule 1 of Exhibit A;
(iii) In the sole judgment of Lessor, there shall have been
no material adverse change in the financial condition or business of Lessee;
(iv) All proceedings to be taken in connection with the
transactions contemplated by this Lease, and all documents incidental
thereto, shall be satisfactory in form and substance to Lessor and its
counsel;
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(v) Lessor shall have received from Lessee, in form and
substance satisfactory to it, such other documents and information as Lessor
shall reasonably request;
(vi) All legal matters in connection with the transactions
contemplated by this Lease shall be satisfactory to Lessor's counsel; and
(vii) No Change in Tax Law, which in the sole judgment of
Lessor would adversely affect Lessor's Economics, shall have occurred or shall
appear, in Lessor's good faith judgment, to be imminent.
26. SOFTWARE LICENSE. Reference is made to the form of DCO Software
Product License Agreement attached hereto as Exhibit B (the "License Document").
Lessor has arranged for the Equipment manufacturer to grant Lessee a license to
use the Software as defined in the License Document in conjunction with the
equipment leased hereunder in accordance with the terms of the License Document.
The original license fee is contained in the lease rate. To avail itself of the
license grant, Lessee must execute the License Document, upon Commencement of
the Lease. The option to obtain a fully paid up license as provided in Article 2
of the License Document shall be exercised by the Lessee and the payment made
directly to the equipment manufacturer named in the License Document and must be
exercised in conjunction with the option provided in Section 7(b) of the Lease,
to purchase the Equipment. "Buyer" and "Licensee" as used in the License
Document are synonymous with lessee.
27. LIMITATION OF LIABILITY.
LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR REVENUE,
SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY
NATURE OR FROM ANY CAUSE WHETHER BASED IN CONTRACT OR TORT, INCLUDING
NEGLIGENCE, OR OTHER LEGAL THEORY EVEN IF LESSOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. LESSEE HEREBY AGREES THAT LESSOR WILL NOT BE
LIABLE FOR ANY LOST PROFITS OR REVENUE OR FOR ANY CLAIM OR DEMAND AGAINST
LESSEE BY ANY OTHER PARTY.
28. MISCELLANEOUS.
(a) Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction. To the extent permitted
by applicable law, Lessee hereby waives any provision of law which renders any
provision hereof prohibited or unenforceable in any respect.
(b) No terms or provisions of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which the enforcement of the change, waiver, discharge or
termination is sought. No delay or failure on the part of Lessor to exercise any
power or right hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof, or the exercise
of any other power or right. After the occurrence of any Default or Event of
Default, the acceptance by Lessor of any payment of rent or other sum owed by
Lessee pursuant hereto shall not constitute a waiver by Lessor of such Default
or Event of Default, regardless of Lessor's knowledge or lack of knowledge
thereof at the time of acceptance of any such payment, and shall not constitute
a reinstatement of this Lease, if this Lease shall have been declared in default
by Lessor pursuant to Section 18 hereof or otherwise, unless Lessor shall have
agreed in writing to reinstate the Lease and to waive the Default or Event of
Default.
In the event Lessee tenders payment to Lessor by check or draft
containing a qualified endorsement purporting to limit or modify Lessee's
liability or obligations under this Lease, such qualified endorsement shall be
of no force and effect even if Lessor processes the check or draft for payment.
(c) This Lease with exhibits contains the full, final and
exclusive statement of the agreement between Lessor and Lessee relating to
the lease of the Equipment.
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(d) This Lease shall constitute an agreement of an operating
lease, and nothing herein shall be construed as conveying to Lessee any
right, title or interest in the Equipment except as Lessee only.
(e) This Lease and the covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, Lessor and its
successors and assigns and Lessee and, to the extent permitted by Section 21
hereof, its successors and assigns.
(f) The headings of the Sections are for convenience of
reference only, are not a part of this Lease and shall not be deemed to
affect the meaning or construction of any of the provisions hereof.
(g) This Lease may be executed by the parties hereto on any
number of separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
(h) This Lease is deemed made and entered into in the State of
Florida and shall be governed by and construed under and in accordance with
the laws of the State of Florida as if both parties were residents of Florida.
(i) Lessee hereby irrevocably consents and agrees that any
legal action, suit, or proceeding arising out of or in any way in connection
with this Lease shall be instituted or brought in the courts of the State of
Florida, or the United States Courts for the District of Florida, and by
execution and delivery of this Lease, Lessee hereby irrevocably accepts and
submits to, for itself and in respect of its property, generally and
unconditionally, the nonexclusive jurisdiction of any such court, and to all
proceedings in such courts. Lessee irrevocably consents to service of any
summons and/or legal process by registered or certified United States mail,
postage prepaid, to Lessee at the address set forth in Section 24 hereof,
such method of service to constitute, in every respect, sufficient and
effective service of process in any legal action or proceeding. Nothing in
this Lease shall affect the right to service of process in any other manner
permitted by law or limit the right of Lessor to bring actions, suits or
proceedings in the court of any other jurisdiction. Lessee further agrees
that final judgment against it in any such legal action, suit or proceeding
shall be conclusive and may be enforced in any other jurisdiction, within or
outside the United States of America, by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and the
amount of the liability.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Lease to be
duly executed as of the day and year first above written and by its signature
below Lessee expressly acknowledges that this Lease may not be modified unless
done so in a writing signed by each of the parties hereto or their successors in
interest.
COMMUNICATIONS TELESYSTEMS
INTERNATIONAL (Lessee)
By: /s/ Mark D. Buckner
---------------------------
Mark D. Buckner EVP
------------------------------
(Name & Title)
Date Signed: 3-9-95
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TELECOMMUNICATIONS FINANCE GROUP
By: /s/ CR Calloway
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Authorized Representative of
Telecommunications Finance Group
Date Signed: 23 May 1995
------------------
-14-
<PAGE>
LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Schedules and Exhibits to the Lease Agreement (3/8/95) have
been omitted from this Exhibit and shall be furnished supplementally to the
Commission upon request:
Schedule B - Amendment to Lease Agreement
Schedule C - Amendment to Lease Agreement
Schedule D - Amendment to Lease Agreement
Schedule F - Amendment to Lease Agreement
Schedule G - Amendment to Lease Agreement
Exhibit A - Certificate of Delivery and Acceptance
Exhibit B - Software License Agreement
<PAGE>
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611 WILSHIRE BOULEVARD
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Lease
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TENANT: COMMUNICATIONS TELESYSTEMS INTERNATIONAL, DBA WORLDXCHANGE
COMMUNICATIONS
DATE: SEPTEMBER 17, 1997
<PAGE>
==================================
611 WILSHIRE BOULEVARD
==================================
Lease
==================================
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF LEASE TERMS............................................................. 1
AGREEMENT.......................................................................... 3
1. PREMISES.............................................................. 3
2. TERM.................................................................. 3
3. RENT.................................................................. 3
4. RENT ESCALATION....................................................... 3
5. TAX ON TENANT'S PROPERTY; OTHER TAXES................................. 6
6. SECURITY DEPOSIT...................................................... 7
7. LATE PAYMENTS......................................................... 7
8. USE OF PREMISES....................................................... 7
9. BUILDING SERVICES..................................................... 8
10. CONDITION OF PREMISES.................................................10
11. DAMAGE TO PREMISES OR BUILDING........................................10
12. EMINENT DOMAIN........................................................11
13. DEFAULT...............................................................12
14. REMEDIES UPON DEFAULT.................................................12
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY............................14
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL..................15
17. ASSIGNMENT AND SUBLETTING.............................................15
18. TRANSFER OF LANDLORD'S INTEREST.......................................19
19. HOLDING OVER..........................................................19
20. NOTICES...............................................................19
21. QUIET ENJOYMENT.......................................................19
22. TENANT'S FURTHER OBLIGATIONS..........................................19
23. ESTOPPEL CERTIFICATE BY LESSEE........................................20
24. SUBORDINATION AND ATTORNMENT..........................................20
25. RIGHTS RESERVED TO LANDLORD...........................................20
26. FORCE MAJEURE.........................................................21
27. WAIVER OF CLAIMS; INDEMNITY...........................................21
28. INSURANCE.............................................................22
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS.........................23
30. MECHANIC'S LIENS......................................................24
31. ALTERNATE SPACE.......................................................24
32. HAZARDOUS MATERIALS...................................................24
33. MISCELLANEOUS.........................................................25
34. RULES AND REGULATIONS AFFECTING TELECOMMUNICATIONS USE................28
35. "AS IS" CONDITION.....................................................28
36. ROOF SPACE............................................................29
</TABLE>
EXHIBITS AND RIDERS
<PAGE>
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611 WILSHIRE BOULEVARD
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Lease
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COMMUNICATION TELESYSTEMS INTERNATIONAL, DBA WORLDXCHANGE COMMUNICATIONS
THIS LEASE is made as of the 17th day of September, 1997, between Downtown
Properties, L.L.C., a California Limited Liability Company (hereinafter
called "Landlord"), and Communications TeleSystems International, dba
WorldxChange Communications, a California corporation (hereinafter called
"Tenant").
SUMMARY OF LEASE TERMS
A. Addresses:
<TABLE>
<S> <C>
1. Tenant's Premises and Notice Address: 611 Wilshire Boulevard, Suite 601, Los Angeles, CA 90017
2. Landlord's Notice Address: Downtown Properties, L.L.C., c/o Kennedy-Wilson Management
818 West 7th Street, Suite 980, Los Angeles, CA 90017
3. Landlord's Address for Rent Payments: Downtown Properties, L.L.C., c/o Kennedy-Wilson Management
818 West 7th Street, Suite 980, Los Angeles, CA 90017
B. Approximate Rentable Area of the Premises:
6,390 rentable square feet. The parties agree that such figure is only a
reasonable estimate of the area of the Premises. The figures in Items E,
G, H and J below and the other provisions of this Lease shall not be
adjusted due to any difference between the actual area of the Premises
and the estimated area shown above.
C. Lease Term: 5 years and 0 months.
D. 1. Estimated Commencement Date: October 1, 1997.
2. Commencement Date: The later of the following 2 dates:
(a) The Estimated Commencement Date; or
(b) The date upon which Landlord tenders possession of the Premises to Tenant.
</TABLE>
<PAGE>
E. Schedule of Monthly Base Rents:
The following schedule of monthly Base Rents shall apply during the term of
the Lease:
<TABLE>
<CAPTION>
Monthly Monthly
Period Base Rent Rent Credit
------ --------- -----------
<S> <C> <C>
From October 1, 1997 to May 31, 1998 $10,650.00 $5,325.00
From June 1, 1998 to September 30, 2002 $10,650.00 None
</TABLE>
The Base Rent for the period from October 1, 1998 to October 31, 1998,
shall be prepaid by Tenant upon execution of this Lease. If the actual
Commencement Date is before or after the Estimated Commencement Date,
than all dates set forth above shall be correspondingly accelerated or
delayed, as the case may be. In the event of any default by Tenant under
this Lease which is not cured within the applicable cure period set forth
in Section 13.2, Tenant shall be obligated to pay to Landlord, without
any further notice from Landlord, as sum equal to all rent credits
previously credited to Tenant pursuant to the above schedule, and no
further rent credits shall be applicable for the balance of the Lease
term.
F. Base Years for Expenses: Real Estate Taxes--1997-1998: Operating and
Utility Costs--1997.
G. Tenant's "Percentage Share" of Real Estate Taxes, Operating and Utility
Costs: 4.35%.
H. Security Deposit: $10,650.00.
I. Permitted Use: Installation and operation of telecommunications switching
equipment and related office use.
J. Maximum Tenant Improvement Allowance: None. Tenant to take Premises "as
is" as described in Section 35.
K. Tenant's Parking Allotment: 2 parking spaces.
L. Landlord's Brokers: None.
M. Riders:
The following exhibits, riders and addenda are attached to and are part of
this Lease:
Exhibit A -- Floor Plan of Premises
Exhibit B -- Rules and Regulations
Exhibit C -- Waiver and Consent per Telecommunications Finance Group
Exhibit D -- Waiver and Consent per Foothill Capital Corporation
Backup Power Generator Rider
Parking Space Rider
Telecommunications Conduit Rider
Extension Option Rider
N. Guaranty: None.
2
<PAGE>
AGREEMENT
1. PREMISES. Landlord hereby leases the Premises to Tenant and
Tenant hereby hires and takes the Premises from Landlord. The Premises are
located at the address set forth in Section A(l) on page 1 and are more
particularly shown on Exhibit "A" attached hereto and incorporated herein by
this reference. The office building in which the Premises are located is
referred to herein as the "Building."
2. TERM.
2.1 The term of this Lease shall commence on the "Commencement
Date" indicated in Section D on Page 1 and shall extend for the period set
forth in Section C on Page 1. In the event that Landlord, for any reason,
cannot tender possession of the Premises to Tenant on or before the
"Estimated Commencement Date" indicated in Section D on Page 1, this Lease
shall not be void or voidable, nor shall Landlord be liable to Tenant in any
way as a result of such failure to tender possession. In the event that
Landlord cannot tender possession of the Premises to Tenant for any reason
other than the acts or omissions of Tenant, Tenant's obligation to pay rent
hereunder shall be deferred by a period of time equal to the delay in
Landlord's delivery of possession not caused by Tenant. If such inability to
tender possession of the Premises for reasons other than the acts or
omissions of Tenant continues for a period in excess of 90 days after the
Estimated Commencement Date, Tenant shall have the right, exercisable by
notice to Landlord, to terminate this Lease, but the suspension of rent
obligations and the right of termination pursuant to this Section 2.1 shall
be Tenant's sole remedies in the circumstances herein described.
2.2 In the event that Tenant is allowed to enter into possession
of the Premises prior to the Commencement Date, such possession shall be
deemed to be pursuant to, and shall be governed by, the terms, covenants and
conditions of this Lease, including without limitation the covenant to pay
rent, as though the Commencement Date occurred upon the date of taking of
possession by Tenant.
2.3 In the event that the Commencement Date falls on other than
the first day of a month, rent for any initial partial month of the term
hereof shall be appropriately prorated; and if the date of commencement of
Tenant's rent obligations is delayed, pursuant to Section 2.1, the end of the
term hereof shall be correspondingly delayed. At the request of either party
hereto, both parties shall execute a memorandum confirming the date of
commencement of Tenant's rent obligations.
3. RENT. Beginning on the Commencement Date (subject to
adjustment pursuant to Section 2.1 above), the base rent ("Base Rent") for
the Premises shall be in accordance with the Schedule of Monthly Base Rents
set forth in Section E on Page 2. Each installment of Base Rent shall be
payable in advance on the first day of each and every month throughout the
term of this Lease. Tenant agrees to pay all rent, without offset, demand or
deduction of any kind, to Landlord by mail to the address set forth in
Section A(3) on page 1 or in such manner, to such other person or at such
other place as Landlord may from time to time designate. Tenant agrees that
no payment made to Landlord by check or other instrument shall contain a
restrictive endorsement of any kind; and if any such instrument should
contain a restrictive endorsement in violation of the foregoing, that
endorsement shall have no legal effect whatever, notwithstanding that such
item is processed for payment.
4. RENT ESCALATION.
4.1 Tenant shall pay, as monthly rent hereunder, in addition to
the Base Rent, the sums provided in this Section 4. Tenant shall be advised
of any change, from time to time, in rent escalation payments required
hereunder by written notice from Landlord, which shall include information in
such detail as Landlord may reasonably determine to be necessary in support of
such change. Tenant shall have 30 days after the receipt of any such notice
to protest the change indicated therein, and Tenant's failure to make such
protest in a written notice to Landlord within such 30-day period shall be
conclusively deemed to be Tenant's agreement to such changes. Notwithstanding
any such protest all rent escalation payments falling due after service of
such notice shall be made in accordance with such notice until the protest
has been resolved, whereupon any necessary adjustment shall be made between
Landlord and Tenant. Any audit arising out of such a protest by Tenant shall
be done, at Tenant's expense, in accordance with generally accepted auditing
and management standards by a major public accounting firm selected by Tenant
and approved by Landlord in its reasonable discretion. Such audit shall be
performed at Landlord's offices in Los Angeles or at such other location in
the United States as Landlord may select from time to time for the
maintenance of its accounting records for the Building.
4.2 Following the first December 31 during the term of the Lease,
Tenant shall pay Landlord in a single lump sum upon billing therefor, Tenant's
Percentage Share (as defined in Section G on Page 2 of the Lease) of each of
the following amounts (collectively, "Excess Expenses"): (1) the amount (if
any) by which Real Estate Taxes for the then current tax fiscal year exceed
the Real Estate Taxes for the Base Year for Real Estate Taxes set forth in
Section F on Page 2; (2) the amount (if any) by which Operating Costs for the
just completed calendar year exceed the Operating Costs for the Base Year for
Operating Costs set forth in Section F on Page 2; and (3) the amount (if any)
by which Utility Costs for the just completed calendar year exceed the
Utility Costs for the Base Year for Utility Costs set forth in Section F on
Page 2. At the same time Tenant shall also pay to Landlord one-twelfth of
Tenant's Percentage Share of such amounts for each month that has
3
<PAGE>
commenced since December 31, as estimated payments towards Tenant's share
of the Excess Expenses for the following year. (If Landlord estimates in
good faith that the Excess Expenses for the following year will exceed
the Excess Expenses for the just completed calendar year, Landlord shall
notify Tenant in writing of such estimate, and Tenant's new monthly
payment shall be one-twelfth of Tenant's Percentage Share of Landlord's
estimate of the annual Excess Expenses. Landlord may revise such estimate
and Tenant's monthly payment not more than twice during any calendar
year.) Following each succeeding December 31, Landlord again shall
determine in the same fashion the increase or decrease (if any) in annual
Real Estate Taxes, Operating Costs, and Utility Costs over or under those
for the previous year. If there is an increase in one or more of the
three categories, Tenant shall pay to Landlord in a single lump sum upon
billing Tenant's Percentage Share of the increase. Tenant shall pay
Landlord at the same time one-twelfth of Tenant's Percentage Share of
such increase (or if Landlord gives a written estimate as described above
that Excess Expenses will increase in the new year, then one-twelfth of
Landlord's new estimate of annual Excess Expenses) for each month that
has then commenced in the new calendar year. If there is a decrease in
one or more of the three categories, Landlord shall refund to Tenant or,
at Landlord's option, credit against the next rent falling due under the
Lease the amount of the overpayment made by Tenant during the preceding
calendar year, provided that the amount of such refund or credit shall in
no event exceed the total payments previously made by Tenant for such
calendar year toward Tenant's Percentage Share of excess charges for the
category in question. Thereafter, with each month's Base Rent until the
next adjustment hereunder, Tenant shall pay one-twelfth of Tenant's
Percentage Share of each of the following amounts; (i) the excess (if
any) of annual Real Estate Taxes (based on the then-current fiscal year)
over the Base Year Real Estate Taxes; (ii) the excess (if any) of annual
Operating Costs (based on the preceding calendar year) over the Base Year
Operating Costs; and (iii) the excess (if any) of annual Utility Costs
(based on the preceding calendar year) over Base Year Utility Costs. The
Real Estate Taxes for any partial fiscal year at the end of the Lease
term and the Operating Costs and Utility Costs for any partial calendar
year at the end of the Lease term shall be appropriately prorated.
For purposes hereof, "Real Estate Taxes" shall include any form of
assessment, license fee, license tax, business license fee, commercial rental
tax, levy, penalty, charge, tax or similar imposition (other than net income,
inheritance or estate taxes), imposed by any authority having the direct or
indirect power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage, flood control,
public transit or other special district thereof, as against any legal or
equitable interest of Landlord in the Premises or in the real property of
which the Premises and the Building are a part, including, but not limited
to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to
other income from the Premises or as against Landlord's business of leasing
the Premises;
(ii) Any assessment, tax, fee, levy or charge in
substitution, partially or totally, of any assessment, tax, fee, levy or
charge previously included within the definition of Real Estate Taxes, it
being acknowledged by Tenant and Landlord that Proposition 13 was adopted
by the voters of the State of California in the June, 1978 Election and
that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other governmental
services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new
and increased assessments, taxes, fees, levies and charges be included
within the definition of "Real Property Taxes" for the purpose of this
Lease;
(iii) Any assessment, tax, fee, levy or charge allocable
to or measured by the area of the Premises or the rent payable hereunder,
including, without limitation, any gross income tax or excise tax levied by
the State, City or Federal government, or any political subdivision thereof,
with respect to the receipt of such rent, or upon or with respect to the
possession, leasing, operating, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge upon this
transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises;
(v) Any assessment, tax, fee, levy or charge by any
governmental agency related to any transportation plan, fund or system
instituted within the geographic area of which the Building is a part; or
(vi) Reasonable legal and other professional fees,
costs and disbursements incurred in connection with proceedings to contest,
determine or reduce real property taxes.
The definition of "Real Estate Taxes," including any additional tax
the nature of which was previously included within the definition of "Real
Estate Taxes," shall include any increases in such taxes, levies, charges or
assessments occasioned by increases in tax rates or increases in assessed
valuations, whether occurring by sale or otherwise.
As used in this Lease, the term "Operating Costs" shall mean all
costs and expenses of management, operation, maintenance, overhaul,
improvement or repair of the Building, the common areas and the site, as
determined by standard accounting practices, including the following costs by
way of illustration but not limitation:
4
<PAGE>
(a) Any and all assessments imposed with respect to the
Building, common areas, and/or the site on which the Building is located,
pursuant to any covenants, conditions and restrictions affecting the site,
common areas or Building;
(b) Any costs, levies or assessments resulting from
statutes or regulations promulgated by any governmental authority in
connection with the use or occupancy of the Building or the Premises;
(c) Costs of all insurance obtained by Landlord;
(d) Wages, salaries and other labor costs (including
but not limited to social security taxes, unemployment taxes, other payroll
taxes and governmental charges and the costs, if any, of providing
disability, hospitalization, medical welfare, pension, retirement or other
employee benefits, whether or not imposed by law) of employees, independent
contractors and other persons engaged in the management, operation,
maintenance, overhaul, improvement or repair of the Building;
(e) Building management office and storage rental;
(f) Management and administrative fees (which Tenant
acknowledges are presently 6% of accrued gross revenues of the Building and
which may be adjusted from time to time);
(g) Supplies, materials, equipment and tools;
(h) Costs of, and appropriate reserves for, repair,
painting, resurfacing, and maintenance of the Building, the common areas, the
site and the parking facilities, and their respective fixtures and equipment
systems, including but not limited to the elevators, the structural portions
of the Building, and the plumbing, heating, ventilation, air-conditioning,
telephone cable riser, and electrical systems installed or furnished by
Landlord;
(i) Depreciation on a straight-line basis and rental of
personal property used in maintenance;
(j) Amortization on a straight-line basis over the
useful life (together with interest at the interest rate defined in
Subsection 33.9 of this Lease on the unamortized balance) of all costs of a
capital nature (including, without limitation, capital improvements, capital
replacements, capital repairs, capital equipment and capital tools);
(1) reasonably intended to produce a reduction in
Operating Costs, Utility Costs or energy consumption; or
(2) required under any governmental or
quasi-governmental law, rule, order, ordinance or regulation that was not
applicable to the Building at the time it was originally constructed; or
(3) for repair or replacement of any Building
equipment needed to operate the Building at the same quality levels as prior
to the replacement;
(k) Costs and expenses of gardening and landscaping;
(l) Maintenance of signs (other than signs of tenants of
the Building);
(m) Personal property taxes levied on or attributable to
personal property used in connection with the Building, the common areas, or
the site;
(n) Costs of all service contracts pertaining to the
Premises, the Building or the site;
(o) Reasonable accounting, audit, verification, legal and
other consulting fees;
(p) Costs and expenses of lighting, janitorial service,
cleaning, refuse removal, security and similar items, including appropriate
reserves;
(q) Any costs incurred with respect to a transportation
systems manager, rider share coordinator or any private transportation system
established for the benefit of tenants in the Building, whether or not
imposed by any governmental authority;
(r) If the Building has a helipad, its costs to the
extent not covered by user fees; and
(s) Fees imposed by any federal, state or local
government for fire and police protection, trash removal or other similar
services which do not constitute Real Estate Taxes.
5
<PAGE>
The following shall be excluded from Operating Costs: federal and
state income taxes imposed on Landlord's net income; any and all costs or
expenses to procure tenants for the Building, including but not limited to
brokerage commissions, legal fees, and costs of remodeling suites; costs of
asbestos removal work excluded from Operating Costs by Section 32.4 below;
mortgage or debt service; and depreciation, except that amortization of
improvements of the type specified in Subsection (j) above shall in no event
be considered "depreciation."
For purposes hereof, "Utility Costs" shall include all charges,
surcharges and other costs of all utilities paid for by Landlord in
connection with the Premises and/or Building, including without limitation
costs of heating, ventilation and air conditioning for the Premises and/or
Building, costs of furnishing gas, electricity and other fuels or power
sources to the Premises and/or Building, and costs of furnishing water and
sewer services to the Premises and/or Building.
The term "Building" as used in this Section 4.2 shall be deemed to
include not only the Building but also any parking facility owned, leased or
operated by Landlord in order to meet the parking requirements of the
Building.
If the average occupancy of the rentable area of the Building during
the Tenant's Base Year for Operating and Utility Costs as set forth in
Section F on page 2 or during any other calendar year of the Lease term is
less than 90% of the total rentable area of the Building, the Operating
Costs and Utility Costs shall be adjusted by Landlord for such Base Year or
other calendar year, prior to the pass-through of Operating Costs and Utility
Costs to Tenant pursuant to this Section 4.2, to reflect what they would have
been had 90% of the rentable area been occupied during that year. In making
such calculation, the Landlord's reasonable opinion of what portion, if any,
of each costs was affected by changes in occupancy shall be binding upon the
parties.
5. TAX ON TENANT'S PROPERTY; OTHER TAXES.
5.1 Tenant shall be liable for, and shall pay at least 10 days
before delinquency, and Tenant hereby indemnifies and holds Landlord harmless
from and against any liability in connection with, all taxes levied directly
or indirectly against any personal property, fixtures, machinery, equipment,
apparatus, systems and appurtenances placed by Tenant in or about, or
utilized by Tenant in, upon or in connection with, the Premises ("Equipment
Taxes"). If any Equipment Taxes are levied against Landlord or Landlord's
property or if the assessed value of Landlord's property is increased by the
inclusion therein of a value placed upon such personal property, fixtures,
machinery, equipment, apparatus, systems or appurtenances of Tenant, and if
Landlord, after written notice to Tenant, pays the Equipment Taxes or taxes
based upon such an increased assessment (which Landlord shall have the right
to do regardless of the validity of such levy, but only under proper protest
if requested by Tenant prior to such payment and if payment under protest is
permissible), Tenant shall pay to Landlord upon demand, as additional rent
hereunder, the taxes so levied against Landlord or the proportion of such
taxes resulting from such increase in the assessment; provided, however, that
in any such event Tenant shall have the right, in the name of Landlord and
with Landlord's full cooperation, but at no cost to Landlord, to bring suit
in any court of competent jurisdiction to recover the amount of any such tax
so paid under protest, and any amount so recovered shall belong to tenant.
5.2 If the tenant improvements in the Premises, whether installed
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which tenant
improvements conforming to Landlord's building standards in other space in
the Building are assessed, then the real property taxes and assessments
levied against Landlord or Landlord's property by reason of such excess
assessed valuation shall be deemed to be Equipment Taxes and shall be
governed by the provisions of Section 5.1. Any such amounts, and any similar
amounts attributable to excess improvements by other tenants of the Building
and recovered by Landlord from such other tenants under comparable lease
provisions, shall not be included in Real Estate Taxes for purposes of rent
escalation under Section 4 of this Lease.
5.3 Tenant shall pay, as additional rent hereunder, upon demand
and in such manner and at such times as Landlord shall direct from time to
time by written notice to Tenant, any excise, sales privilege or other tax,
assessment or other charge (other than income or franchise taxes) imposed,
assessed or levied by any governmental or quasi-governmental authority or
agency upon Landlord on account of this Lease, the rent or other payments
made by Tenant hereunder, any other benefit received by Landlord hereunder,
Landlord's business as a lessor hereunder, or otherwise in respect of or as
a result of the agreement or relationship of Landlord and Tenant hereunder.
6. SECURITY DEPOSIT. A deposit (the "Security Deposit") in the
amount set forth in Section H on page 2 shall be paid by Tenant upon
execution of this Lease and shall be held by Landlord without liability for
interest and as security for the performance by Tenant of Tenant's covenants
and obligations under this Lease, it being expressly understood that the
Security Deposit shall not be considered an advance payment of rent or a
measure of Landlord's damages in case of default by Tenant. Upon the
occurrence of any default under this Lease by Tenant, Landlord may, from time
to time, without prejudice to any other remedy, use the Security Deposit or
any portion thereof to the extent necessary to make good any arrearages of
rent or any other damage, injury, expense, or liability caused to Landlord by
such breach or default. Following any application of the Security Deposit,
Tenant shall pay to Landlord on demand an amount to restore the Security
Deposit to its original amount. In the event of bankruptcy or other debtor
relief proceedings by or against Tenant, the Security Deposit shall be deemed
to be applied first to the payment of rent and other charges due Landlord. In
the order that such rent
6
<PAGE>
or charges became due and owing, for all periods prior to filing of such
proceedings. Landlord shall not be required to keep the Security Deposit
separate from its general funds. Upon termination of this Lease any remaining
balance of the Security Deposit shall be returned by Landlord to Tenant's
tenancy.
7. LATE PAYMENTS. All covenants and agreements to be performed
by Tenant under any of the terms of this Lease shall be performed by Tenant
at Tenant's sole cost and expense and without any abatement of rent. Tenant
acknowledges that the late payment by Tenant to Landlord of any sums due
under this Lease will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such cost being extremely difficult and
impractical to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Landlord by the
terms of any note or other obligation secured by any encumbrance covering the
Premises or the Building of which the Premises are a part. Therefore, if any
monthly installment of rent is not received by Landlord by the date five (5)
calendar days after it is due, or if Tenant fails to pay any other sum of
money due hereunder, Tenant shall pay to Landlord, as additional rent, the
sum of ten percent (10%) of the overdue amount as a late charge. Landlord's
acceptance of any late charge, or interest pursuant to Section 33.9, shall
not be deemed to be liquidated damages, nor constitute a waiver of Tenant's
default with respect to the overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies available to Landlord under
this Lease or any law now or hereafter in effect. Further, in the event such
late charge is imposed by Landlord for 3 consecutive months for whatever
reason, Landlord shall have the option to require that, beginning with the
first payment of rent due following the imposition of the second consecutive
late charge, rent shall no longer be paid in monthly installments but shall
be payable 3 months in advance.
8. USE OF PREMISES. Tenant, and any permitted subtenant or
assignee, shall use the Premises only for the use described in Section I on
page 2. Any other use of the Premises is absolutely prohibited. Tenant shall
not use or occupy the Premises in violation of any recorded covenants,
conditions and restrictions affecting the land on which the Building is
located nor of any law, ordinance, rule and regulation. Tenant shall not do
or permit to be done anything which will invalidate or increase the cost of
any fire, extended coverage or any other insurance policy covering the
Building or property located therein and shall comply with all rules, orders
regulations and requirements of any applicable fire rating bureau or other
organization performing a similar function. Tenant shall promptly upon demand
reimburse Landlord as additional rent for any additional premium charged for
any insurance policy by reason of Tenant's failure to comply with the
provisions of this Section 8. Tenant shall not do or permit anything to be
done in or about the Premises which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Building, or injure or
annoy them, or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises. Tenant shall not commit or suffer
to be committed any waste in or upon the Premises and shall keep the
Premises in first class repair and appearance. Tenant shall not place a load
upon the Premises exceeding the average pounds of live load per square foot
of floor area specified for the Building by Landlord's architect, with any
partitions to be considered a part of the live load. Tenant acknowledges that
as of execution of this Lease, the maximum live load permitted by Landlord,
before improvements, is 70 pounds per usable square foot. Landlord reserves
the right to prescribe the weight and position of all safes, files and heavy
equipment which Tenant desires to place in the Premises so as to distribute
properly the weight thereof. Tenant's business machines and mechanical
equipment which cause vibration or noise that may be transmitted to the
Building structure or to any other space in the Building shall be so
installed, maintained and used by Tenant as to eliminate such vibration or
noise. Tenant shall be responsible for the cost of all structural engineering
required to determine structural load. In any event, unless specifically
authorized herein, Tenant shall not prepare or serve, or authorize the
preparation or service of, food or beverages in the Premises, except only the
occasional preparation of coffee, tea, hot chocolate and other such common
refreshments for Tenant and its employees. Tenant shall not conduct any
auction in or about the Premises or the Building without Landlord's prior
written consent.
9. BUILDING SERVICES.
9.1 Throughout the term of this Lease, subject to shortage and
accidents beyond Landlord's reasonable control, and subject to reimbursement
pursuant to Section 4.2, Landlord shall repair and maintain all structural
elements of the Building and common areas (including, without limitation, the
structural walls, doors, floors, ceilings, roof, elevators, stairwells,
lobby, heating system, air conditioning system, telephone cable riser for
Building-standard service from the Building's main terminal to the terminal
box on the same floor as the Premises [but excluding Tenant's telephone
equipment and the cable and wiring from such equipment to the terminal box],
plumbing and electrical wiring) and maintain the exterior of the Premises,
including grounds, walks, drives and loading area, if any. Tenant shall
reimburse Landlord upon demand, as additional rent hereunder, for the cost of
any repairs or extraordinary maintenance necessitated by acts of Tenant or
Tenant's employees, contractors, agents, licensees or invitees.
9.2 Provided that Tenant is not in default hereunder, subject to
shortages and accidents beyond Landlord's reasonable control, Landlord shall
furnish building standard heating and air conditioning service Monday through
Friday from 8:00 A.M. to 6:00 P.M., and Saturday from 8:00 A.M. to 1:00 P.M.,
except for holidays. No heating or air conditioning will be furnished by
Landlord on Sundays, holidays or during hours other than as set forth above,
except upon prior arrangement with Tenant and at an extra charge based on
Landlord's actual cost plus Landlord's administrative fees, as may be agreed
to between Landlord and Tenant. For purposes of this Section 9.2, "holidays"
shall mean and refer to the holidays of Christmas, New Year's Day, Martin
Luther King Day, President's Day, Memorial Day, the Fourth of July, Labor Day,
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Thanksgiving and the day after Thanksgiving, as those holidays are defined,
recognized or established by governmental authorities or agencies from time
to time and such other days the New York Stock Exchange is closed. Tenant
shall install, at its expense, such additional air conditioning equipment as
may be reasonably determined by Landlord to be necessary in order to maintain
building air conditioning standards resulting from Tenant's installation and
operation of computer equipment or other special equipment or facilities
placing a greater burden on the air conditioning system than would general
office use. Without limiting the foregoing. Tenant shall have the right to
install in the Premises at its expense its own self-contained 24-hour
heating, ventilating and air-conditioning unit, subject to compliance with
the other provisions of this Lease, including but not limited to obtaining
Landlord's prior written consent to the plans and specifications for the work
and electrical requirements of the unit. Tenant shall in no event be
permitted to exhaust such system out of the west, south or north sides of the
Building, but may only exhaust such system out of the east side of the
Building. Tenant shall pay all costs of electricity for such unit. The
electrical requirements for such unit, as well as all of Tenant's other
electrical requirements, shall be separately metered to Tenant at Tenant's
expense as described below.
During the initial 8-week period of the Lease term commencing with
the Commencement Date, Landlord shall furnish electric current to the
Premises in amounts reasonably sufficient for normal non-telecommunications
business use, including operation of building standard lighting and operation
of typewriters and standard fractional horsepower office machinery. Following
such Initial 8-week period, Landlord shall also furnish electric current
reasonably sufficient as determined by Landlord in its reasonable discretion,
for normal telecommunications operations and machinery, but in no event,
however, shall the total amount of electric current furnished to the Premises
exceed 200 amps at 120/208 volts, three-phase wiring. Further, the provision
of such electrical current shall be subject to the obligations of Tenant for
payment of the costs of such electricity as provided herein. Notwithstanding
the foregoing, Tenant agrees that, at all times during the term of this
Lease, Tenant's use of electric current shall never exceed the capacity of
the feeders to the Building or the risers or wiring installation in the
Building. Any transformer or other special equipment required to connect
Tenant's facilities to Landlord's electrical supply shall be provided and
installed at Tenant's expense. Landlord may, at its election, separately
meter at Tenant's expense the electrical usage of some or all of Tenant's
equipment, facilities or Premises. Tenant shall pay the charges for all such
separately metered electrical usage, together with Landlord's 10%
administrative fee, within 15 days after receipt of a billing therefor.
Except as provided above. Tenant shall not install or use or permit
the Installation or use upon or about the Premises of any computer or
electronic data processing or other equipment requiring in excess of 120
volts or requiring power in excess of 1800 watts, without the excess prior
written consent of Landlord. Such consent shall not be unreasonably withheld,
conditioned or delayed. Landlord shall not use its approval rights to
arbitrarily or discriminatorily prevent Tenant's installation of and use of
equipment customarily used in a telecommunications business, but Landlord may
impose reasonable conditions on such installation and use, regarding such
matters as the placement, venting, power sources, and structural requirements
for such equipment.
Tenant shall pay monthly upon billing as additional rent under this
Lease such sums as Landlord's building engineer may reasonably determine to
be necessary in order to reimburse Landlord for the additional cost of any
utilities which have not been separately metered to Tenant (including,
without limitation, electricity, gas and other fuels or power sources, and
water, and Landlord's reasonable costs of administration, which costs of
administration shall not exceed 10% of the other costs) attributable to any
requirements in excess of those for normal office use by reason of the
operation of computer or telecommunications equipment or other special
equipment or facilities, or attributable to Tenant's conducting business
beyond the business hours described in the first sentence of this Section 9.2.
Any utility charges billed directly to Tenant shall not be included
in the Building's "Utility Costs" for purposes of Section 4 above. Any extra
maintenance charges or service calls attributable to the actions of Tenant
(E.G., continual adjustments of the thermostats or the failure to keep window
coverings closed as necessary) shall be payable by Tenant to Landlord upon
demand, as additional rent hereunder.
9.3 Landlord shall furnish unheated water from mains for
drinking, lavatory and toilet purposes drawn through fixtures installed by
Landlord, or by Tenant with Landlord's express prior written consent, and
heated water for lavatory purposes from regular building supply in such
quantities as required in Landlord's judgment for the comfortable and normal
use of the Premises. Tenant shall pay Landlord for additional water which is
furnished for any other purpose. The amount that Tenant shall pay Landlord
for such additional water shall be the average price per gallon charged to
the Landlord for the Building by the entity providing water, increased by 10%
to cover Landlord's administrative expense.
9.4 Landlord shall furnish janitor service (including washing of
windows with reasonable frequency as determined by Landlord) in and about the
Premises, to the extent necessitated by normal office use of the Premises,
Monday through Friday, holidays excepted. Landlord shall have no obligation
to furnish janitor service for any portion of the Premises which is occupied
after 7:00 p.m., is locked or may be used (to the extent permitted under this
Lease) for the preparation, dispensing or consumption of food or beverages or
for any purpose other than general office use, and Tenant shall keep all such
portions of the Premises in a clean and orderly condition at Tenant's sole
cost and expense. In the event that Tenant shall fail to keep such portions
of the Premises in a clean and orderly condition, Landlord may do so and any
costs incurred by Landlord in connection therewith shall be payable by Tenant
to Landlord upon demand, as additional rent hereunder.
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Tenant shall also pay to Landlord, as additional rent hereunder, amounts
equal to any increase in cost of janitor service in and about the Premises if
such increase in costs is due to (a) use of the Premises by Tenant during
hours other than normal business hours, or (b) location in or about the
Premises of any fixtures, improvements, materials or finish items (including
without limitation wall coverings and floor coverings) other than those which
are of the standard type adopted by Landlord for the Building. Only those
persons who have been approved by Landlord may perform janitorial services.
9.5 Landlord shall furnish passenger and freight elevator
service in common with Landlord and other tenants Monday through Friday from
8:00 A.M. to 6:00 P.M. and Saturday from 8:00 A.M. to 1:00 P.M. Landlord
shall provide limited passenger elevator service daily at all times such
normal passenger service is not furnished.
9.6 Landlord does not warrant that any service will be free from
interruptions caused by repairs, renewals, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, accidents, inability to
obtain fuel, steam, water or supplies or other cause. Landlord agrees to give
Tenant notice of any extended interruptions of which Landlord has prior
knowledge. No interruption of service shall be deemed an eviction or
disturbance of Tenant's use and possession of the Premises or any part
thereof, nor relieve Tenant from payment of rent or performance of Tenant's
other obligations under this Lease except as provided below in this Section
9.6. Landlord shall not be responsible for correcting any such interruption
in service which is not curable by Landlord on a commercially reasonable
basis, as determined by Landlord in its sole discretion. Subject to Section
11 below, and subject to Landlord's rights to recover certain costs under
other provisions of this Lease, if Landlord determines that such interruption
in service is curable on such a commercially reasonable basis, Landlord shall
make good faith efforts to so correct the interruption within a reasonable
time after Landlord receives written notice from Tenant of the interruption
in service. In doing such work Landlord shall use commercially reasonable,
good faith efforts to interfere as little as reasonably practicable with the
conduct of Tenant's business in the Premises, without, however, being
obligated to incur liability for overtime or other premium payment to its
agents, employees or contractors in connection therewith. Landlord shall in
no event be liable for any injury to or interference with Tenant's business
or any punitive, incidental or consequential damages, whether foreseeable or
not, arising from the making of or failure to make any repairs, alterations
or improvements, or provision of or failure to provide or restore any service
in or to any portion of the Building, Including the Premises, or the
fixtures, appurtenances and equipment therein. However, if Tenant's
beneficial use of all or a substantial portion of the Premises is prevented
for a period in excess of 5 consecutive business days (excluding Saturdays,
Sundays, and holidays) due to interruptions in service, the Base Rent shall
be equitably abated commencing with the sixth business day and continuing
until such use is no longer prevented. Moreover, if Tenant's beneficial use
of all or substantial portion of the Premises is prevented by such an
interruption in services, Tenant shall have the right to terminate the Lease
in the manner and subject to the time limitations set forth in more detail in
Section 11.1 below. Such abatement and such right of termination, to the
extent provided above, shall be Tenant's sole remedies. Except as provided
above, Tenant shall not be entitled to any abatement or reduction of rent or
other remedy by reason of Landlord's failure to furnish any of the services
or Building systems called for by this Lease whether such failure is caused
by accident, breakage, repairs, strikes, lockouts or other labor disturbances
or labor disputes of any character, or any other cause. As a material
inducement to Landlord's entry into this Lease, Tenant waives and releases
any rights it may have to make repairs at Landlord's expense under Section
1941 and 1942 of the California Civil Code.
10. CONDITION OF PREMISES. By occupying the Premises, Tenant
shall be deemed to accept the same and acknowledge that they comply fully
with Landlord's covenants and obligations hereunder, subject to completion of
any items which it is Landlord's responsibility hereunder to furnish and
which are listed by Landlord and Tenant upon Inspection of the Premises prior
to the Commencement Date. Tenant acknowledges that neither Landlord nor any
agent, employee or representative of Landlord has made any representation or
warranty with respect to any matters, including but not limited to any matter
regarding the Building or Premises, the applicable zoning or the effect of
other applicable laws, or the suitability or fitness of the Building or
Premises for the conduct of Tenant's business or any other purpose. Tenant
is relying solely on its own investigations with respect to all such matters.
During the term of this Lease, Tenant shall maintain the Premises in as good
condition as when Tenant took possession, ordinary wear and tear and repairs
which are specifically made the responsibility of Landlord hereunder
excepted, and shall repair all damage or inquiry to the Building or to
fixtures, appurtenances and equipment of the Building caused by Tenant's
installation or removal of its property or resulting from the negligence or
tortious conduct of Tenant, its employees, contractors, agents, licensees and
invitees. In the event of failure by Tenant to perform its covenants of
maintenance and repair hereunder, Landlord may perform such maintenance and
repair, and any amounts expended by Landlord in connection therewith shall be
payable by Tenant to Landlord upon demand, as additional rent hereunder.
11. DAMAGE TO PREMISES OR BUILDING.
11.1 In the event that the Building should be totally destroyed
by fire or other casualty, this Lease shall terminate as of the date of such
casualty. If the Building is damaged but not totally destroyed by the
casualty or if there is an interruption in services or utilities provided by
Landlord pursuant to Section 9.6 of this Lease, and if such damage or
interruption in services or utilities prevents Tenant's beneficial use of all
or a substantial portion of the Premises, then Landlord shall notify Tenant
in writing, within 45 days after the date Tenant's beneficial use is so
prevented, of whether Landlord intends to restore the Building or the
services or utilities in question and of how long, in Landlord's opinion, the
restoration will take to complete. In the event that the repairs and
restoration can, in Landlord's reasonable opinion, be
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completed within 270 days after the date Tenant's beneficial use is so
prevented, and Landlord will receive insurance proceeds sufficient to cover
the costs of such repairs and restoration, Landlord shall restore the
Building or the services or utilities in question. In the event the Premises
or a substantial portion of the Building or the delivery system for Building
services or utilities should be so damaged or destroyed that restoration or
repairs cannot, in Landlord's opinion, be completed within 270 days after the
date Tenant's beneficial use is so prevented, or Landlord will not receive
insurance proceeds sufficient to cover the costs of such repairs and
restoration, Landlord may at its option terminate this Lease upon notice to
Tenant, or Landlord may elect to proceed to restore the Building. Similarly,
in the event Landlord's notice notifies Tenant that the restoration in
Landlord's opinion will not be completed within 270 days after the date
Tenant's beneficial use is so prevented. Tenant shall have twenty (20) days
from the date of Tenant's receipt of Landlord's notice to elect to terminate
this Lease by delivering written notice of such termination to Landlord. If
either Landlord or Tenant terminates this Lease as provided above, such
termination shall be effective immediately upon the other party's receipt of
the notice of termination, and Tenant shall be entitled to an abatement of
the Base Rent as provided below as of the date 5 business days after Tenant's
beneficial use of the Premises was first prevented. In the event that
Landlord is obligated or elects to restore the Building or the services or
utilities in question, Landlord shall commence such work reasonably promptly
and shall proceed with reasonable diligence to restore the Building or the
services or utilities to substantially the condition in which they were
immediately prior to the casualty, except that Landlord shall not be required
to rebuild, repair or replace any part of the partitions, fixtures,
alterations, decorations or other improvements which may have been
constructed by or specifically for Tenant, or by or for other tenants within
the Building.
If neither Landlord nor Tenant terminates this Lease due to the
casualty, the Lease shall remain in full force and effect. However, if Tenant
is dispossessed by reason of such casualty from all or a substantial portion
of the Premises for more than 5 consecutive business days, Tenant shall be
entitled to a ratable abatement of the Base Rent during the time and to the
extent the Premises are unfit for occupancy, commencing with the sixth
business day. After Landlord completes Landlord's restoration work on the
Premises (i.e., any necessary repair work on the Building shell and the
Building systems originally provided by Landlord in the core of the
Building), Tenant shall diligently complete Tenant's repairs to its tenant
improvements. If Tenant is unable to conduct its business in all or a
substantial portion of the Premises during Tenant's repairs, then Tenant's
ratable rental abatement shall continue during such repairs, but in no event
for more than 90 days after Landlord completes Landlord's restoration
opinion, that is feasible and appropriate. Tenant shall have the right to
terminate this Lease upon notice served upon Landlord prior to actual
completion of Landlord's restoration work on the Premises if such restoration
work is not substantially completed within 365 days after the date Tenant's
beneficial use is first prevented (provided, however, that if Landlord's
original notice to Tenant estimated that the restoration work would take more
than 270 days after the date Tenant's beneficial use is so prevented, and
Tenant did not elect to terminate the Lease on that basis, then Tenant shall
not be entitled to terminate the Lease pursuant to this sentence unless
Landlord fails to substantially complete such restoration work at least
within 95 days after the estimated restoration period given in Landlord's
original notice). For purpose of this Section, "Substantial completion" shall
not require full completion of all "punch list" type items which do not
materially affect Tenant's use of the Premises. Rental abatement or lease
termination, to the extent provided above, shall be Tenant's sole remedies.
Notwithstanding the foregoing to the contrary, if the damage is due to the
negligence or willful misconduct of Tenant or any of Tenant's agents,
employees or invitees, there shall be no abatement of rent. Except for
abatement of rent as provided above, Tenant shall not be entitled to any
compensation or damages for loss of, or interference with, Tenant's business
or use of access of all or any part of the Premises resulting from any such
damage, repair, reconstruction or restoration.
11.2 In the event of any damage or destruction of all or any
part of the Premises or any interruption in utilities or services, Tenant
shall immediately notify Landlord thereof.
11.3 In the event any holder of a mortgage or deed of trust on
the Building should require that the insurance proceeds payable upon damage
or destruction to the Building by fire other casualty be used to retire the
debt secured by such mortgage or deed of trust, or in the event any lessor
under any underlying or ground lease should require that such proceeds be
paid to such lessor, Landlord shall in no event have any obligation to
rebuild, and at Landlord's election this Lease shall terminate.
11.4 With the exception of insurance required to be carried by
Tenant under Section 28 of this Lease, any insurance which may be carried by
Landlord or Tenant against loss or damage to the Building or the Premises
shall be for the sole benefit of the party carrying such insurance and under
its sole control. Landlord shall not be required to carry insurance of any
kind on Tenant's property and, except by reason of the breach by Landlord of
any of its obligations hereunder, shall not be obligated to repair any damage
thereto or to replace the same.
11.5 In addition to its termination rights in Subsection 11.1
above, Landlord shall have the right to terminate this Lease if any damage to
the Building or Premises occurs during the last 12 months of the Term of this
Lease and Landlord estimates that the repair, reconstruction of such damage
cannot be completed within the earlier of (a) the scheduled expiration date
of the Lease Term, or (b) 60 days after the date of such casualty.
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11.6 Tenant, as a material inducement to Landlord's entering into
this Lease, irrevocably waives and releases its rights under the provisions
of Sections 1932(2) and 1933(4) of the California Civil Code (and any successor
statutes permitting Tenant to terminate this Lease as a result of any damage
or destruction), it being the intention of the parties hereto that the
express terms of this Lease shall control under any circumstances in which
those provisions might otherwise apply.
12. EMINENT DOMAIN.
12.1 In the event that the whole of the Premises, or so much
thereof as to render the balance unusable to Tenant for the purposes leased
hereunder, as reasonably determined by Landlord, shall be lawfully condemned
or taken in any manner for any public or quasi-public use, or conveyed by
Landlord in lieu thereof (a "Taking"), this Lease and the term hereby granted
shall forthwith cease and terminate on the date of the taking of possession
by the condemning authority (the "Date of Taking").
12.2 In the event of a Taking of a portion of the Premises which
does not result in the termination of this Lease pursuant to Section 12.1,
above, the Base Rent shall be abated in proportion to the part of the
Premises so taken and thereby rendered unusable to Tenant for the purposes
leased hereunder, as reasonably determined by Landlord.
12.3 In the event that there is a Taking of a portion of the
Building other than the Premises, and if, in the opinion of Landlord, the
Taking is so substantial as to render the remainder of the Building
uneconomic to maintain despite reasonable reconstruction or remodeling, or if
it would be necessary to alter the Building or Premises materially, Landlord
may terminate this Lease by notifying Tenant of such termination within 60 days
following the Date of Taking, and this Lease shall end on the date specified
in the notice of termination, which shall not be less than 60 days after the
giving of such notice.
12.4 No temporary Taking of the Building or Premises and/or of
Tenant's rights therein or under this Lease shall terminate this Lease or
give Tenant any right to abatement of rent hereunder. Tenant shall be
entitled to receive such portion of any award as is specifically made for
such a temporary use with respect to the period of the Taking which is within
the term of this Lease, provided that the Taking renders the Premises
unusable to Tenant for the purposes leased hereunder, as reasonably
determined by Landlord. If such Taking shall remain in force at the
expiration or earlier termination of this Lease, then Tenant shall pay to
Landlord a sum equal to the reasonable costs of performing Tenant's
obligations under Section 15 with respect to Tenant's surrender of the
Premises and, upon such payment, shall be excused from such obligations. For
purposes of this Section 12.4, a temporary Taking shall be defined as a
Taking for a period of 270 days or less.
12.5 Except for the award in the event of a temporary Taking as
contemplated in Section 12.4, above, Tenant hereby releases and shall have no
interest in, or right to participate with respect to the determination of,
any compensation for any Taking, except only that Tenant shall be entitled
to the portion of any award specifically designated by the condemning
authority to be for any personal property of Tenant included in any such
Taking or for any relocation expenses or business interruption loss incurred
by Tenant.
13. DEFAULT.
13.1 The following events shall be deemed to be events of default
by Tenant under this Lease, if not cured as provided below in Section 13.2:
(a) If Tenant shall fail to pay any installment of rent or
any other sum required to be paid by Tenant under this Lease as due.
(b) If Tenant shall fail to comply with any term, provision
or covenant of this Lease, other than provisions pertaining to the payment of
money.
(c) If Tenant shall make an assignment for the benefit of
creditors.
(d) If Tenant shall file a petition under any section or
chapter of the federal Bankruptcy Code, as amended from time to time, or
under any similar law or statute of the United States or any State thereof
pertaining to bankruptcy, insolvency or debtor relief, or Tenant shall have a
petition or other proceedings filed against Tenant under any such law or
chapter thereof and such petition or proceeding shall not be vacated or set
aside within 60 days after such filing.
(e) If a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall not be
terminated and possession of such assets restored to Tenant within 30 days
after such appointment.
(f) If Tenant shall desert or vacate any substantial portion
of the Premises and the same shall remain unoccupied for more than 14 days
thereafter.
(g) If Tenant shall assign this Lease or sublet the Premises
in violation of the terms hereof.
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13.2 Any shorter period for cure provided by law notwithstanding,
and in lieu thereof, including without limitation California Code of Civil
Procedure Section 1161, Tenant may cure any monetary default under Subsection
13.1(a), above, at any time within 5 days after written notice of default is
received by Tenant from Landlord; and (except as specifically provided
otherwise in Section 24) Tenant may cure any non-monetary default within 15
days after written notice of default is received by Tenant from Landlord,
provided that if such non-monetary default is curable but is of such a nature
that the cure cannot be completed within 15 days, Tenant shall be allowed to
cure the default if Tenant promptly commences the cure upon receipt of the
notice and diligently prosecutes the same to completion, which completion
shall occur not later than 60 days from the date of such notice from Landlord.
14. REMEDIES UPON DEFAULT.
14.1 Upon the occurrence of any event of default by Tenant,
Landlord shall have, in addition to any other remedies available to Landlord
at law or in equity, the option to pursue any one or more of the following
remedies (each and all of which shall be cumulative and non-exclusive)
without any notice or demand whatsoever.
(a) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the
Premises and expel or remove Tenant and any other person who may be occupying
the Premises or any part thereof, without being liable for prosecution or any
claim or damages therefor; and Landlord may recover from Tenant the following:
(1) The worth at the time of award of any unpaid rent
which has been earned at the time of such termination; plus
(2) The worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus
(3) The worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(4) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom, specifically including but not limited to
attorneys' fees, removal and storage (or disposal) of Tenant's personal
property, unreimbursed leasehold improvement costs (e.g., the amounts
Landlord has expended for leasehold improvements which have not been
recovered as of the termination of the Lease when amortized on a
straight-line basis over the originally scheduled lease term), brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and
(5) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time
by applicable law.
The term "rent" as used in this Subsection 14.1(a) shall be deemed to be and
to mean all sums of every nature required to be paid by Tenant pursuant to
the terms of this Lease, whether to Landlord or to others. Any such sums
which are based on percentages of income, increased costs or other historical
data shall be reasonable estimates or projections computed by Landlord on the
basis of the amounts thereof accruing during the 24-month period immediately
prior to default, except that if it becomes necessary to compute such sums
before a 24-month period has expired, then the computation shall be made on
the basis of the amounts accruing during such shorter period. As used in
Subsections 14.1(a)(1) and (2), above, the "worth at the time of award" shall
be computed by allowing interest from the date the sums became due at the
lesser of (i) the Bank of America prime rate on the due date plus 6%, or (ii)
the maximum rate permitted by law. As used in Subsection 14.1(a)(3), above,
the "worth at the time of award" shall be computed by discounting such amount
at the discount rate of the Federal Reserve Bank of San Francisco at the time
of award plus 1%.
(b) In the event of any such default by Tenant, in addition
to any other remedies available to Landlord under this Lease, at law or in
equity, Landlord shall also have the right, with or without terminating this
Lease, to re-enter the Premises and remove all persons and property from the
Premises; such property may be removed, stored and/or disposed of pursuant to
any procedures permitted by applicable law, including but not limited to
those described in Section 15.3. No re-entry or taking possession of the
Premises by Landlord pursuant to this Subsection 14.1(b), and no acceptance
of surrender of the Premises or other action on Landlord's part, shall be
construed as an election to terminate this Lease unless a written notice of
such intention be given to Tenant or unless the termination thereof be
decreed by a court of competent jurisdiction.
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(c) In the event of any such default by Tenant, in addition
to any other remedies available to Landlord under this Lease, at law or in
equity, Landlord shall have the right to continue this Lease in full force
and effect, whether or not Tenant shall have abandoned the Premises. The
foregoing remedy shall also be available to Landlord pursuant to California
Civil Code Section 1951.4 and any successor statute in the event Tenant has
abandoned the Premises. In the event Landlord elects to continue this Lease
in full force and effect pursuant to this Subsection 14.1(c), than Landlord
shall be entitled to enforce all of its rights and remedies under this Lease,
including the right to recover rent as it becomes due. Landlord's election
not to terminate this Lease pursuant to this Subsection 14.1(c) or pursuant
to any other provision of this Lease, at law or in equity, shall not preclude
Landlord from subsequently electing to terminate this Lease or pursuing any
of its other remedies.
(d) Whether or not Landlord elects to terminate this Lease
on account of any default by Tenant, Landlord shall have the right to
terminate any and all subleases, licenses, concessions or other consensual
arrangements for possession entered into by Tenant and affecting the Premises
or may, in Landlord's sole discretion, succeed to Tenant's interest in such
subleases, licenses, concessions or arrangements. If Landlord so elects to
succeed to Tenant's interest, Tenant shall, as of the date of notice by
Landlord of such election, have no further right to or interest in the rent
or other consideration receivable thereunder.
14.2 Following the occurrence of an event of default by Tenant,
Landlord shall have the right to require that any or all subsequent amounts
paid by Tenant to Landlord hereunder, whether in cure of the default in
question or otherwise, be paid in the form of cash, money order, cashier's or
certified check drawn on an institution acceptable to Landlord, or by other
means approved by Landlord, notwithstanding any prior practice of accepting
payments in any different form.
14.3 All rights, options and remedies of Landlord contained in
this Section 14 and elsewhere in this Lease shall be construed and held to be
cumulative, and no one of them shall be exclusive of the other, and Landlord
shall have the right to pursue any one or more of such remedies or any other
remedy or relief which may be provided by law or in equity, whether or not
stated in this Lease. Nothing in this Section 14 shall be deemed to limit or
otherwise affect Tenant's indemnification of Landlord pursuant to any
provision of this Lease.
14.4 Landlord shall not be deemed in default in the
performance of any obligation required to be performed by Landlord under
this Lease unless Landlord has failed to perform such obligation within
30 days after the receipt of written notice from Tenant specifying in
detail Landlord's failure to perform; provided however, that if the
nature of Landlord's obligation is such that more than 30 days are
required for its performance, then Landlord shall not be deemed in
default if it commences such performance within such 30-day period and
thereafter diligently pursues the same to completion. Upon any such
uncured default by Landlord, Tenant shall be entitled, as Tenant's sole
and exclusive remedy, to recover from Landlord Tenant's actual damages
(but not lost profits or any punitive, incidental or consequential
damages) shown by Tenant to have been directly caused thereby; provided,
however: (a) Tenant shall have no right to offset or abate rent in the
event of any default by Landlord under this Lease, except to the extent
offset rights are specifically provided to Tenant in this Lease; (b)
Tenant shall in no event be entitled to terminate this Lease by reason of
Landlord's default; and (c) Tenant's rights and remedies hereunder shall
be subject to any specific limitations set forth in other provisions of
this Lease.
14.5 No waiver by Landlord or Tenant of any violation or breach of
any of the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other or later violation or breach of
the same or any other of the terms, provisions, and covenants herein
contained. Forbearance by Landlord in enforcement of one or more of the
remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default. The acceptance of any rent
hereunder by Landlord following the occurrence of any default, whether or not
known to Landlord, shall not be deemed a waiver of any such default, except
only a default in the payment of the rent so accepted, subject to the
provisions of Section 33.1.
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
15.1 No act or thing done by Landlord or any agent or employee of
Landlord during the term hereof shall be deemed to constitute an acceptance
by Landlord of a surrender of the Premises unless such intent is specifically
acknowledged in a writing signed by Landlord. The delivery of keys to the
Premises to Landlord or any agent or employee of Landlord shall not
constitute a surrender of the Premises or effect a termination of this Lease,
whether or not the keys are thereafter retained by Landlord, and
notwithstanding such delivery Tenant shall be entitled to the return of such
keys at any reasonable time upon request until this Lease shall have been
properly terminated. The voluntary or other surrender of this Lease by
Tenant, whether accepted by Landlord or not, or a mutual termination hereof,
shall not work a merger, and at the option of Landlord shall operate as an
assignment to Landlord of all subleases or subtenancies affecting the
Premises.
15.2 Upon the expiration of the term of this Lease, or upon any
earlier termination of this Lease, Tenant shall subject to the provisions of
this Section 15, quit and surrender possession of the Premises to Landlord
in as good order and condition as when Tenant took possession and as
thereafter improved by Landlord and/or Tenant, reasonable wear and tear and
repairs which are specifically made the responsibility of Landlord hereunder
excepted. Upon such expiration or termination, Tenant shall, without expense
to Landlord, remove or cause to be removed from the Premises all debris and
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rubbish, and such items of furniture, equipment, free-standing cabinet work,
movable partitions and other articles of personal property owned by Tenant or
installed or placed by Tenant at its expense in the Premises, and such
similar articles of any other persons claiming under Tenant, as Landlord may,
in its sole discretion, require to be removed, and Tenant shall repair at its
own expense all damage to the Premises and Building resulting from such
removal.
15.3 Whenever Landlord shall re-enter the Premises as provided in
this Lease, any personal property of Tenant not removed by Tenant upon the
expiration of the term of this Lease, or within 48 hours after a termination
by reason of Tenant's default as provided in this Lease, shall be deemed
abandoned by Tenant and may be disposed of by Landlord (without liability to
Tenant) in accordance with Sections 1980 through 1991 of the California Civil
Code and Section 1174 of the California Code of Civil Procedure, or in
accordance with any laws or judicial decisions which may supplement or
supplant those provisions from time to time, or in accordance with any other
legally permissible procedure, whether by public or private sale or
otherwise. Landlord shall be entitled to apply any proceeds of the sale of
such items to any sums due to Landlord by Tenant and to Landlord's costs of
removal, storage and sale of such items. Alternatively, Landlord shall be
entitled to treat Tenant's failure to remove such items from the Premises as
either a permitted or unpermitted holdover pursuant to Section 19 of this
Lease.
15.4 All fixtures, alterations, additions, repairs, improvements
and/or appurtenances attached to or built into or on or about the Premises
prior to or during the term hereof, whether by Landlord at its expense or at
the expense of Tenant, or by Tenant at its expense, or by previous occupants
of the Premises, shall be and remain part of the Premises and shall not be
removed by Tenant at the end of the term of this Lease. Such fixtures,
alterations, additions, repairs, improvements and/or appurtenances shall
include, without limitation, floor coverings, drapes, paneling, molding,
doors, kitchen and dishwashing fixtures and equipment, plumbing systems,
electrical systems, lighting systems, silencing equipment, all fixtures and
outlets for the systems mentioned above and for all telephone, radio,
telegraph and television purposes, and any special flooring or ceiling
installations (but excluding Tenant's telecommunications switch and other
telecommunications trade fixtures and equipment, which Tenant agrees to
remove upon the expiration or termination of this Lease). Notwithstanding the
foregoing, Landlord may, in its sole discretion, require Tenant, at Tenant's
sole cost and expense, to remove any fixtures, alterations, additions,
repairs, improvements and/or appurtenances attached or built into on or about
the Premises. Tenant shall repair any damage to the Building and Premises
occasioned by the installation, construction, operation and/or removal of any
fixtures, trade fixtures, equipment, alterations, additions, repairs,
improvements and/or appurtenances pursuant to this section. If Tenant shall
fail to complete such removal and repair such damage, Landlord may do so and
may charge the reasonable cost thereof to Tenant.
15.5 Tenant hereby waives all claims for damages or other
liability in connection with Landlord's re-entering and taking possession of
the Premises or removing, retaining, storing or selling the property of
Tenant as herein provided, and Tenant hereby indemnifies and holds Landlord
harmless from any such damages or other liability, and no such re-entry shall
be considered or construed to be a forcible entry.
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL.
16.1 If Tenant or Landlord shall bring any action for any relief,
declaratory or otherwise, against the other arising out of or under this
Lease, including any suit by Landlord for the recovery of rent or possession
of the Premises, the losing party shall pay the successful party its costs of
suit, including, without limitation, a reasonable sum for attorneys' and
other professional fees relating to such suit, and such fees shall be deemed
to have accrued on the commencement of such action and shall be paid whether
or not such action is contested or prosecuted to judgment.
16.2 In the event that Landlord shall, without fault on Landlord's
part, be made party to any litigation instituted by Tenant or by any third
party against Tenant, or by or against any person holding under or using the
Premises by license of Tenant, or for the foreclosure of any lien for labor
or material furnished to or for Tenant or of any such other person, Tenant
hereby indemnifies and holds Landlord harmless from and against all costs and
expenses, including reasonable attorneys' fees, incurred by Landlord in or in
connection with such litigation.
16.3 In order to limit the cost of resolving any disputes between
the parties, and as a material inducement to each party to enter into this
Lease, each party hereby waives the right to a jury trial with respect to any
litigation between the parties arising out of this Lease, Tenant's occupancy
of the Premises, or Landlord's ownership, operation or management of the
Building, irrespective of any rights to a jury trial which either party
otherwise then would have under applicable statutes, constitutions, judicial
decisions or other laws.
17. ASSIGNMENT AND SUBLETTING.
17.1 Except as hereinafter provided, Tenant shall not sublet all
or any part of the Premises, nor assign this Lease, nor enter any license,
"co-location agreement" or other agreement permitting a third party (other
than Tenant's employees and occasional guests) to use or occupy any portion
of the Premises, without Landlord's express prior written consent, which
consent shall not unreasonably be withheld. (For purposes of the balance of
this Section 17.1 and Sections 17.2 through 17.5, the term "sublease" shall
be deemed to include licenses, co-location agreements, and other agreements
for use or
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occupancy of the Premises as described in the preceding sentence. The terms
"subtenant" and "sublet" shall be construed accordingly.)
In order to assist Landlord in evaluating any proposed assignment or
sublease, Tenant agrees to provide Landlord with the proposed subtenant or
assignee's current financial statement and financial statements for the
preceding 2 years and such other information concerning the business
background and financial condition of the proposed subtenant or assignee and
of Tenant as Landlord may reasonably request.
Landlord and Tenant hereby agree that Landlord's disapproval of any
proposed sublease or assignment hereunder shall be deemed reasonable if based
upon any reasonable factor, including, without limitation, any or all of
the following factors:
(a) The proposed transfer would result in more than two
subleases of portions of the Premises being in effect at any time during the
term;
(b) The rent payable by the proposed transferee would
be less than the fair market rental value for the space as determined
pursuant to the last paragraph of this Section 17.1 (except as otherwise
provided in Section 17.2);
(c) The proposed transferee is an existing tenant or
occupant of the Building or has negotiated with Landlord within the last
twelve months for space in the Building or is another transferee prohibited
by the next to last paragraph of this Section 17.1;
(d) The proposed transferee is a governmental entity;
(e) The transaction calls for new demising walls to be
built, and the portion of the Premises proposed to be sublet or assigned is
irregular in shape and/or has inadequate means of ingress and egress;
(f) The use of the Premises by the proposed transferee
(i) is not permitted by the use provisions of this Lease, or (ii) might, in
Landlord's reasonable opinion, violate any right for an exclusive use granted
by Landlord to another Tenant in the Building;
(g) The transfer would likely result, in Landlord's
reasonable opinion, in a significant increase in the use of the parking areas
or common areas of the Building due to the transferee's employees or
visitors, and/or significant increase in the demand for utilities and
services to be provided by Landlord to the Premises;
(h) The assignee or subtenant does not, in Landlord's
reasonable opinion, have the financial capability to fulfill the obligations
imposed by the transfer, or in the case of an assignment, the assignee does
not, in Landlord's reasonable opinion, have income and net worth at least
equal to that of Tenant;
(i) The transferee is not, in the Landlord's reasonable
opinion, of reputable or good character or consistent with Landlord's desired
tenant mix;
(j) The transferee is a real estate developer or
landlord or is acting directly or indirectly on behalf of a real estate
developer or landlord;
(k) The proposed transferee may, in Landlord's
reasonable opinion, increase the chances of significant hazardous waste
contamination within the Premises of the Building; or
(l) In the reasonable judgment of the Landlord, the
purpose for which the transferee intends to use the Premises is not in
keeping with the standards of the Landlord for the Building or is in
violation of the terms of any other lease in the Building.
Notwithstanding the foregoing, Tenant may, subject to the rest of
the terms hereof, sublet all of the Premises or assign this Lease to any
entity controlling, controlled by or under common control with Tenant,
(including assignment or subletting to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern) provided
that, with regard to each such assignment or subletting: (A) Landlord
receives the financial statements prescribed above and such other financial
and background information as Landlord may request regarding the assignee or
subtenant at least 20 days prior to such proposed assignment or sublease; (B)
the Landlord determines, in its reasonable discretion, that the income and
net worth of the assignee or subtenant comply with the standards prescribed
in Item (h) above; (C) the use of the Premises is not altered; (D) the
Landlord determines, in its reasonable discretion, that the transaction is
not being entered into as a subterfuge to avoid the restrictions on
assignment and subletting in the Lease; and (E) the subtenant or assignee
expressly assumes the obligations of Tenant hereunder as prescribed below in
this Section 17.1.
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Neither this Lease nor the term hereby demised shall be mortgaged by
Tenant, nor shall Tenant mortgage, assign, pledge or otherwise transfer the
interest of Tenant in and to any sublease or the rentals payable thereunder
or in the Security Deposit.
Any sublease, assignment, mortgage, pledge, encumbrance, or transfer
made in violation of this Section 17.1 shall be void and at Landlord's
election shall terminate this Lease.
Each subtenant, assignee or transferee of Tenant, other than
Landlord, shall assume all obligations of Tenant under this Lease and shall
be and remain liable jointly and severally with Tenant for the payment of the
rent, and for the due performance of all the terms, covenants, conditions and
agreements herein contained on Tenant's part to be performed for the term of
this Lease (provided that in the case of a sublease, the subtenant's
obligations shall be limited to those obligations relating to the subleased
space and the common areas during the sublease term). No sublease or
assignment shall be deemed approved by Landlord unless such subtenant or
assignee and Tenant shall deliver to Landlord a counterpart of such sublease
or assignment and an instrument in a form acceptable to Landlord, which
contains a covenant of assumption by the subtenant or assignee satisfactory
in substance and form to Landlord, consistent with the requirements of this
Section 17.1, but the failure or refusal of the subtenant or assignee to
execute such instrument of assumption shall not release or discharge the
subtenant or assignee from its liability as set forth above.
No subtenant or assignee not complying with the foregoing
requirements shall have any interest in the Security Deposit. Any assignee
that does comply with the foregoing requirements shall automatically succeed
to Tenant's position with respect to the Security Deposit, and Landlord shall
have the right to refund all or any portion of the Security Deposit to the
assignee at any time or under any circumstances with no liability to the
assignor.
Landlord may require that the assignee or subtenant remit directly
to Landlord on a monthly basis, all monies due to Tenant by said assignee or
subtenant. In such event Landlord shall apply the sums received to the
obligations of Tenant and its successors under this Lease.
In the event of default by any assignee or subtenant or any
successor of Tenant in the performance of any of the terms hereof, Landlord
may proceed directly against Tenant without the necessity of exhausting
remedies against such assignee, subtenant or successor.
Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease with the assignee or
other successor of Tenant, and without obtaining Tenant's consent thereto,
and any such actions shall not relieve Tenant of liability under this Lease.
Consent by Landlord to one assignment or subletting shall not be
deemed consent to any subsequent assignment or subletting.
If Tenant is a corporation which, under California law, is not
deemed a publicly-held corporation, or is an unincorporated association or
partnership, the transfer, assignment or hypothecation of any stock or
interest controlling such corporation, association or partnership shall be
deemed an assignment within the meaning and provisions of this Section 17.
For purposes hereof, "control" shall be deemed to refer to any amount, in the
aggregate, exceeding 50% of the voting power of such corporation, association
or partnership. Notwithstanding the foregoing, the immediately preceding
sentence shall not apply to any transfer of stock of Tenant if Tenant is a
publicly-held corporation and such stock is transferred publicly over a
recognized security exchange or over-the-counter market.
Subject to Section 17.2, Tenant agrees that all advertising by
Tenant to market the space in the Premises to be sublet or assigned shall
require Landlord's prior written approval, which shall not be unreasonably
withheld. Subject to Section 17.2, Tenant further agrees that it shall not,
without Landlord's prior written consent, which may be granted or withheld in
Landlord's sole discretion, market any space in the Premises, assign the
lease or sublet any space in the Premises to existing tenants or occupants of
the Building, or to any entity controlling, controlled by, or under common
control with any existing tenant or occupant of the Building, except for any
entity controlling, controlled by or under common control with Tenant
(including assignment or subletting to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern).
17.2 Landlord acknowledges that Tenant's business to be conducted
on the Premises requires the installation on the Premises of certain
communications equipment by telecommunications customers of Tenant
("Customers") in order for such Customers to interconnect with Tenant's
terminal facilities. Notwithstanding anything contained elsewhere in this
Section 17, Landlord agrees not to withhold its consent to any license
agreement, sublease or "co-location agreement" between Tenant and such a
Customer for the purposes of permitting such a telecommunications connection,
so long as (a) such Customer agrees in writing (in a form approved by
Landlord in advance in writing, which approval shall not be unreasonably
withheld or delayed) to comply with all obligations imposed on Tenant under
this Lease to the extent relating to the portion of the Premises in question
(including but not limited to insurance, waiver and indemnity requirements);
(b)
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such licenses, subleases or co-location agreements do not collectively cover
more than 50% of the Premises at any one time; and (c) each such license,
sublease or co-location agreement is on a form for this purpose approved by
Landlord in writing in advance (which approval shall not be unreasonably
withheld or delayed). Provided that Tenant's transactions with Customers
comply with items (a), (b) and (c) above, they need not comply with those
requirements of Section 17.1 above regarding financial statements,
advertising, and minimum rental rates. Tenant represents that Tenant's
Customers will require only infrequent access to their equipment placed in
the Premises pursuant to such a transaction, and Tenant agrees not to permit
any Customers to have such access unless they are accompanied by a
representative of Tenant. Tenant shall be liable to Landlord for any
violation by its Customers of any provisions of this Lease.
17.3 In the event that Tenants desires to assign this Lease, or to
enter into a sublease, as to all or any portion of the Premises, except (a)
where the subtenant or assignee is an entity controlling, controlled by or
under common control with Tenant (including assignment or subletting to any
corporation resulting from a merger or consolidation with Tenant, or to any
person or entity which acquires all the assets of Tenant's business as a
going concern), or (b) as permitted under Section 17.2 herein, Tenant shall,
prior to solicitation of offers therefor, give Landlord notice of Tenant's
desire to assign or sublet and of the portion of the Premises to be affected
by the proposed assignment or sublease. Landlord shall have the right,
exercisable by notice to Tenant within 30 days after Landlord's receipt of
Tenant's notice of desire to assign or sublet, to terminate this Lease as to
the portion of the Premises affected by the proposed assignment or sublease,
such termination to be effective as of the date 30 days after notice by
Landlord to Tenant of such termination.
In the event of a termination of this Lease as to a portion of the
Premises pursuant to this Section 17.3, effective as of such termination, the
Premises shall be deemed to no longer include the portion of the Premises
subject to such termination, Tenant shall surrender possession of that
portion of the Premises in accordance with the provisions of this Lease, and
the rent payable hereunder and Tenant's Percentage Share shall be
appropriately adjusted based upon the rentable area remaining within the
Premises.
If Landlord does not elect to terminate pursuant to this Section 17.3,
and if Tenant does not enter into an assignment or sublease as specified in
Tenant's notice of desire to assign or sublet within 6 months after the
expiration of Landlord's 60-day period for election to terminate, then
Tenant shall again comply with the provisions of this Section 17.3 before
assigning this Lease, or entering into a sublease, as to all or any portion
of the Premises.
17.4 In the event that Tenant has sought and received Landlord's
consent to assign this Lease, or to enter into a sublease as to all or any
portion of the Premises, the monthly rent payable by Tenant to Landlord,
pursuant to Section 3, shall be increased by the amount to be received by
Tenant during each month pursuant to the terms of the assignment or sublease,
in excess of Tenant's monthly rental payable to Landlord for the space
subject to the assignment or sublease. The amounts referred to in the
previous sentence include rent, additional rent, or any other payment in
respect of use or occupancy, or in reimbursement of costs of leasehold
improvements installed by Tenant, and whether paid in a lump sum or periodic
payments; provided however, such amounts shall not include any fees charged
by Tenant to its Customers to the extent such fees are based on Tenant's
services (not square footage of space used by the Customers) as provided under
Section 17.2 herein. In no event shall the total sums payable to the
Landlord be less than the monthly rental Landlord would have received but for
such assignment or sublease.
The additional rent shall be due and payable to Landlord in
accordance with the schedule specified in the sublease or assignment
instrument, and the failure of any subtenant or assignee to make any payments
in accordance with that schedule shall not affect the obligation of Tenant to
pay the additional rent to Landlord.
The calculation of the amount of rentable space being sublet shall
be made by Landlord in accordance with its usual standards. Landlord may
require acknowledgement by Tenant of Tenant's concurrence on the Landlord's
calculation of the amount of rentable space being sublet as a condition to
Landlord's consent to any sublease.
The provisions of a sublease or assignment instrument consented to
by Landlord cannot be modified, nor the sublease or assignment terminated,
other than in accordance with its terms, without the prior written consent of
the Landlord, which consent shall not be unreasonably withheld. The terms of
this Section 17.4 shall apply to any subleasing or assignment by any
subtenant or assignee.
17.5 Tenant shall pay to Landlord, promptly upon receipt of a
billing from Landlord, the amount of Landlord's reasonable attorney fees
incurred in connection with Landlord's review or approval of any sublease or
assignment transaction requiring Landlord's consent hereunder.
18. TRANSFER OF LANDLORD'S INTEREST. In the event of any
transfer of Landlord's interest in the Building or Premises, other than a
transfer for security purposes only, the transferor shall be automatically
relieved of any and all obligations and liabilities on the part of Landlord
accruing from and after the date of such transfer, including, without
limitation, the obligation of Landlord to return the Security Deposit as
provided in this Lease; provided that the transferor shall, within a
reasonable time, transfer any Security Deposit then held by Landlord, or any
portion thereof remaining after proper deductions therefrom, to the
transferee and shall thereafter notify Tenant of such transfer, of any claims
made against
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the Security Deposit, and of the transferee's name and address, by written
notice delivered personally (in which case Tenant shall acknowledge receipt
of such notice by signing Landlord's copy of such notice) or by registered or
certified mail.
19. HOLDING OVER. If Tenant holds over after the term hereof,
with or without the express or implied consent of Landlord, such tenancy
shall be from month-to month only, and shall not constitute a renewal hereof
or an extension for any further term, and in such case, Base Rent shall be
payable at a monthly rate equal to the greater of: (a) two hundred percent
(200%) of the Base Rent applicable to the Premises immediately prior to the
date of such expiration or earlier termination; or (b) one hundred fifty
percent (150%) of the prevailing market rate excluding any rental or other
concessions (as reasonably determined by Landlord) for the Premises in
effect on the date of such expiration or earlier termination. Such
month-to-month tenancy shall be subject to every other term, covenant and
agreement contained herein. Nothing contained in this Section 19 shall be
construed as consent by Landlord to any holding over by Tenant, and Landlord
expressly reserves the right to require Tenant to surrender possession of the
Premises to Landlord as provided in this Lease upon the expiration or other
termination of this Lease.
20. NOTICES. In every case when, under the provisions of this
Lease, it shall be necessary or desirable for one party hereto to serve any
notice, request or demand on the other, such notice or demand shall be in
writing and shall be served personally or by deposit in the United States
mail, postage and fees fully prepaid, registered or certified mail, with
return receipt requested, addressed to the applicable address for notice set
forth in Section A on page 1. Landlord or Tenant may, from time to time, by
notice in writing served upon the other as aforesaid, designate a different
mailing address or a different person to whom all such notices or demands are
thereafter to be addressed. Service of any such notice or demand if given
personally shall be deemed complete upon-delivery, and if made by mail shall
be deemed complete on the day of actual delivery as shown by the addressee's
registry or certification receipt or at the expiration of 2 business days
after the date of mailing, whichever is earlier.
Notwithstanding the provisions of this Section 20, any pleadings or
notices given by either party to the other with respect to any judicial
proceeding between the parties shall be served in the manner prescribed by
applicable California law without reference to this paragraph, and shall be
deemed served at such time as is provided by such applicable law without
reference to this paragraph.
21. QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying
the rent and performing the covenants of this Lease on Tenant's part to be
performed, shall and may peaceably and quietly have, hold and enjoy the
Premises for the term of this Lease.
22. TENANT'S FURTHER OBLIGATIONS.
22.1 Except for ordinary wear and as otherwise provided in the
Lease, Tenant shall, at Tenant's expense, keep in good order, condition and
repair the interior of the Premises and shall promptly and adequately repair
all damage to the interior of the Premises and replace or repair all glass,
fixtures, equipment and appurtenances therein damaged or broken, under the
supervision and with the approval of Landlord and, if Tenant does not do so,
Landlord may, but need not, make such repairs and replacements. If Landlord
does so, Tenant shall pay Landlord the cost thereof promptly upon demand, as
additional rent hereunder.
22.2 Tenant shall comply with all laws, ordinances, rules,
regulations, orders and directives of governmental and quasi-governmental
bodies and authorities having jurisdiction over Tenant or the Premises from
time to time and shall obtain and keep in effect all licenses, permits
(including but not limited to conditional use permits) and other
authorizations required with respect to the business or businesses conducted
by Tenant within or from the Premises or with respect to any special
equipment or facilities of Tenant permitted under the other provisions of this
Lease. Tenant and its employees, agents, licenses and invitees shall also
comply with all reasonable rules and regulations which Landlord may adopt
from time to time for the protection and welfare of the Building and its
tenants and occupants; provided that Tenant shall not be responsible for
compliance with any rule or regulation adopted by Landlord unless or until
Tenant is furnished with a copy thereof. The present rules and regulations
for the Building are attached hereto as Exhibit "B". Landlord shall have no
liability to Tenant for the failure of any other tenant in the Building to
observe the rules and regulations.
23. ESTOPPEL CERTIFICATE BY TENANT. At any time and from time to
time, within 10 days after written request by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord a statement in writing certifying that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that this Lease is in full force and effect as modified and
stating the modifications), that Tenant knows of no default hereunder by
Landlord and has no right of offset or deduction against the rent or any
other charge payable to Landlord (or specifying any claimed), the amount of
any security posted by Tenant, the dates to which the rent and other charges
have been paid in advance, any increases or decreases of rent that are
anticipated, the commencement date of the Lease and such other matters as may
be reasonably requested by Landlord. It is intended that any statement
delivered pursuant to this Section 23 may be relied upon by any purchaser of
the fee or mortgagee or beneficiary or assignee of any mortgage or trust deed
upon the fee of the Building or Premises. Tenant's failure to deliver the
statement within the period specified above shall be conclusive and binding
upon Tenant that the Lease is in full force and effect without modification
except as may be represented by Landlord, that there are no uncured defaults
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in Landlord's performance and that Tenant has no right of offset,
counterclaim or deduction against rental, and that no more than one month's
rental has been paid in advance.
24. SUBORDINATION AND ATTORNMENT. This Lease is and at all times
shall be subject and subordinate to any ground or underlying leases,
mortgages, trust deeds or like encumbrances, which may now or hereafter
affect the Building or Premises, and to all renewals, modifications,
consolidations, replacements and extensions of any such lease, mortgage,
trust deed or like encumbrance. As a condition precedent to the
effectiveness of any such subordination of this Lease to any future ground or
underlying leases or the lien of any future mortgages, deeds of trust, or
like encumbrances, Landlord shall provide to Tenant a commercially reasonable
non-disturbance and attornment agreement in favor of Tenant executed by such
future ground lessor, master lessor, mortgagee or deed of trust beneficiary,
as the case may be, which shall provide that Tenant's quiet possession of the
Premises shall not be disturbed on account of such subordination to such
future lease or lien so long as Tenant is not in default under any provisions
of this Lease. Notwithstanding the foregoing, Landlord shall have the right
to subordinate or cause to be subordinated any or all ground or underlying
leases or the lien of any or all mortgages, deeds or trust or like
encumbrances to the Lease. In the event that any ground or underlying lease
terminates for any reason or any mortgage, deed of trust or like encumbrance
is foreclosed or a conveyance in lieu of foreclosure is made for any reason,
then at the election of Landlord's successor-in-interest, Tenant shall attorn
to and become the tenant of such successor. Tenant hereby waives its rights
under any current or future law which gives or purports to give Tenant any
right to terminate or otherwise adversely effect this Lease and the
obligations of Tenant hereunder in the event of any such foreclosure
proceeding or sale. Tenant covenants and agrees to execute and deliver to
Landlord in the form reasonably required by Landlord, within 10 days after
receipt of written demand by Landlord, any additional documents evidencing
the priority or subordination of this Lease with respect to any ground or
underlying lease or the lien of any mortgage, deed of trust, or like
encumbrance. Should Tenant fail to sign and return any such documents
within said 10-day period, Tenant shall be in default hereunder without the
benefit of any additional notice or cure periods, except as may be required
by statute.
25. RIGHTS RESERVED BY LANDLORD.
25.1 All portions of the Building are reserved to Landlord,
including exterior building walls, core corridor walls and doors and any core
corridor entrance, but excluding the premises and the inside surfaces of all
walls, windows and doors bounding the Premises. Landlord also reserves any
space in or adjacent to the Premises used for shafts, stacks, pipes,
conduits, fan rooms, ducts, electric or other utilities, sinks or other
building facilities, and the use thereof, as well as the right to access
thereto through the Premises for the purposes of operation, maintenance,
decoration and repair.
25.2 Landlord shall have the following rights exercisable without
notice and without liability to Tenant for damage or injury to property,
person or business (all claims for damage being hereby released), and without
effecting an eviction or disturbance of Tenant's use or possession or giving
rise to any claim for setoffs or abatement of rent:
(a) To enter the Premises at all reasonable times during
the term of this Lease for the purpose of inspecting the same, supplying
janitorial service, posting notices of non-responsibility, exhibiting the
Premises to prospective tenants, purchasers or others, or making such repairs
or replacements therein as may be required by this Lease or as Landlord may
deem appropriate; provided that Landlord shall use all reasonable efforts not
to disturb Tenant's use and occupancy and shall, when practical, give Tenant
prior notice of such repairs. For each of the foregoing purposes, Tenant
shall provide to Landlord a key with which to unlock at any time all of the
doors in, upon and about the Premises, excluding Tenant's vaults and safes.
Landlord may use any other means which Landlord may deem proper to open such
doors in an emergency in order to obtain entry to the Premises. Any entry to
the Premises obtained by Landlord by any means shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into,
or a detainer of, the Premises, or an eviction of Tenant from the Premises or
any portion thereof, or grounds for any abatement or reduction of rent. Any
damages or losses on account of any such entry by Landlord shall be Tenant's
sole responsibility except as otherwise expressly provided herein. Nothing
in this Section 25 shall be construed as obligating Landlord to perform any
repairs, alterations or decorations, except as otherwise expressly required in
this Lease.
(b) To change the name or street address of the Premises
or Building.
(c) To install and maintain signs on the exterior and
interior of the Building, except within the Premises.
(d) To have pass keys to the Premises.
(e) To decorate, remodel, repair, alter or otherwise
prepare the Premises for reoccupancy during the last 6 months of the term
hereof if, during or prior to such time, Tenant has vacated the Premises, or
at any time after Tenant abandons the Premises.
(f) To have access to all mail chutes according to the
rules of the United States Postal Service.
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(g) To do or permit to be done any work in or about the
exterior of the Building or any adjacent or nearby building, land, street or
alley.
(h) To grant to anyone the exclusive right to conduct any
business or tender any service in the Building, provided such exclusive right
shall not operate to exclude Tenant from the use expressly permitted by this
Lease.
26. FORCE MAJEURE. Whenever there is provided in this Lease a
time limitation for performance by Landlord or Tenant of any construction,
repair, maintenance or service, the time provided for shall be extended for
as long as and to the extent that delay in compliance with such limitation is
due to an act of God, governmental control or other factors beyond the
reasonable control of Landlord or Tenant, respectively.
27. WAIVER OF CLAIMS; INDEMNITY.
27.1 Tenant, as a material part of the consideration to
Landlord, hereby assumes all risk of, and waives all claims it may have
against Landlord, its agents, employees, partners, officers, directors,
affiliates and successors in interest (collectively, the "Landlord Group")
for damage to or loss of property or personal injury or loss of life
resulting from the Building or Premises or any part thereof becoming out of
repair, by reason of any repair or alteration thereof, or resulting from any
accident within the Building or Premises or on or about any space adjoining
the Building or Premises, or resulting directly or indirectly from any act or
omission of any person, or due to any condition, design or defect of the
Building or Premises, or any space adjoining the Building or Premises, or the
mechanical systems of the Building or Premises, which may exist or occur,
whether such damage, loss or injury results from conditions arising upon the
Premises or upon other portions of the Building, or from other sources or
places, and regardless of whether the cause of such damage, loss or injury or
the means of repairing the same is accessible to Tenant; provided such
assumption and waiver shall not apply to claims caused by the gross
negligence or willful misconduct of Landlord or its agents.
27.2 Tenant hereby agrees to indemnify, defend, and hold
Landlord and the Landlord Group harmless from and against (a) any and all
claims, demands, suits, fines, losses, expenses and liabilities
(collectively, "Claims") for or relating to injury or loss of life to persons
or damage to or loss of property arising from Tenant's use of the Building or
the Premises, or from the conduct of Tenant's business, or from any work
done, permitted or suffered by Tenant in or about the Premises or elsewhere,
or from any negligence or intentional conduct of Tenant or Tenant's agents,
employees, contractors, licensees, invitees, representatives or successors in
interest; (b) any and all Claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the
terms of this Lease; and (c) all costs, attorneys' and other professional
fees, expenses and liabilities incurred by Landlord or any member of the
Landlord Group in or in connection with any such Claim. In the event that any
action or proceeding is brought against Landlord or any member of the
Landlord Group by reason of any such Claim, Tenant upon notice from Landlord
shall defend such action or proceeding at Tenant's cost and expense by
counsel approved by Landlord, such approval not to be unreasonably withheld.
Tenant's obligations under this Section 27.2 shall survive the expiration or
termination of this Lease as to any matters arising prior to such expiration
or termination or prior to Tenant's vacation of the Building.
28. INSURANCE
28.1 Tenant shall procure and shall maintain in effect, at
Tenant's sole cost and expense throughout the term of this Lease, including
any extensions and renewals thereof, public liability and property damage
insurance against claims for bodily injury, death or property damage
occurring upon or about the Premises or Building, in each case naming
Landlord and its managing agents as additional insureds and, upon request by
Landlord, naming the holder of any mortgage, deed of trust or like
encumbrance or the lessor under any underlying lease covering the Building as
additional insured, with a limit of liability of not less than $3,000,000.00
single limit. If from time to time, the limits of liability set forth above
are, in the reasonable opinion of Landlord, inadequate, Tenant shall increase
such insurance coverage to an amount as shall be designated by Landlord's
notice to Tenant.
Tenant shall also procure and maintain, at Tenant's sole cost and
expense throughout the term of this Lease, casualty insurance on tenant's
personal property in the Premises and any leasehold improvements which the
Tenant installed at its own cost in an amount at least equal to the full
replacement cost of such property, providing coverage against all perils
insured against by a "fire and extended coverage" policy, as well as
sprinkler damage, vandalism and malicious mischief.
Tenant shall also obtain the following insurance:
(a) Worker's compensation and employer's liability
insurance in form and amount satisfactory to Landlord.
(b) Loss of income and extra expense insurance in such
amounts as will reimburse Tenant for direct or indirect loss of earnings
attributable to all perils commonly insured against by prudent tenants or
attributable to prevention of access to or use of the Premises or the
Building as a result of such perils.
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(c) Liquor liability insurance coverage in limits of not
less than Five Hundred Thousand Dollars ($500,000) if at any time during the
term hereof any alcoholic beverages of any nature are served on the Premises.
(d) Any other form or forms of insurance as Landlord or
Landlord's lender or ground or primary lessors may reasonably require from
time to time in form, in amounts, and for insurance risks against which a
prudent tenant of a comparable size and in a comparable business would
protect itself.
Such policies of insurance shall be with insurance companies
acceptable to Landlord, shall not have a deductible amount exceeding
$5,000.00 in the aggregate, and shall specifically provide that the insurance
afforded by such policies for the benefit of Landlord and its managing agents
and Landlord's mortgagees and ground lessors shall be primary, and that any
insurance carried by Landlord or Landlord's mortgagees and ground lessors
shall be excess and non-contributing. Such policies shall be evidenced by
certificates of insurance delivered to Landlord from time to time showing
such insurance to be at all times prepaid and in full force and effect and
providing that such insurance cannot be canceled or modified upon less than
30 days' prior written notice to Landlord, and such other evidence of
coverage requested by Landlord. (Such evidence may consist of copies of such
policies, including additional insured endorsements.) If at any time tenant
has not provided Landlord with a then currently effective certificate of
insurance or other evidence of coverage acceptable to Landlord as to any
insurance required to be maintained by Tenant, Landlord may, without further
inquiry as to whether such insurance is actually in force, obtain such a
policy and Tenant shall reimburse Landlord, upon demand as additional rent
hereunder, for the cost thereof, together with Landlord's administrative fee
equal to 25% of the premium.
28.2 Tenant hereby waives its rights against Landlord and its
managing agent and their respective partners, officers, directors,
shareholders, employees, agents, representatives, contractors, affiliates,
successors, licensees, and invitees with respect to any claims or damages
or losses (including any claims for bodily injury to persons and/or damage
to property) which are caused by or result from (a) risks insured against
under any insurance policy carried by Tenant at the time of such claim,
damage, loss or injury, or (b) risks which would have been covered under any
insurance required to be obtained and maintained by Tenant under this Lease
had such insurance been obtained and maintained as required. The foregoing
waivers shall be in addition to, and not a limitation of, any other waivers or
releases contained in this Lease.
28.3 Tenant shall cause each insurance policy required to be
obtained by it pursuant to this Section 28 to provide that the insurer waives
all rights of recovery by way of subrogation against Landlord and its
managing agent and their respective partners, officers, directors,
shareholders, employees, agents, representatives, contractors, affiliates,
successors, licensees, and invitees in connection with any claims, losses and
damages covered by such policy. If Tenant fails to maintain insurance
required hereunder, Tenant shall be deemed to be self-insured with a deemed
full waiver of subrogation as set forth in the immediately preceding sentence.
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS.
29.1 Except as otherwise provided in any rider to this Lease,
all improvements, fixtures and/or equipment which Tenant may install or place
in or about the Premises, and all alterations, repairs or changes to the
Premises, and all signs installed in, on or about the Premises, from time to
time, shall be at the sole cost of Tenant. Landlord shall be without any
obligation in connection therewith. Tenant hereby agrees to indemnify,
defend, and hold Landlord harmless from any liability, cost, obligation,
expense or claim of lien in any manner relating to the installation,
placement, removal or financing of any such alterations, repairs, changes,
improvements, fixtures, and/or equipment in, on or about the Premises.
Tenant's obligations under the preceding sentence shall survive the
expiration or termination of this Lease as to any matters arising prior to
such expiration or termination or prior to Tenant's vacation of the Building.
29.2 Notwithstanding any provision in this Section 29 to the
contrary, Tenant is absolutely prohibited from making any alterations,
additions, improvements or decorations which: (i) affect any area outside the
Premises; (ii) affect the Building's structure, equipment, services or
systems, or the proper functioning thereof, or Landlord's access thereto;
(iii) affect the outside appearance, character or use of the Building or the
common areas; (iv) weaken or impair the structural strength of the Building;
(v) in the reasonable opinion of Landlord, lessen the value of the Building;
(vi) will violate or require a change in any occupancy certificate applicable
to the Premises; or (vii) in the reasonable opinion of Landlord, will
increase the Building's Operating Costs or Utility Costs.
29.3 Before proceeding with any alteration, repair or change
which is not otherwise prohibited in Subsection 29.2 above, Tenant must first
obtain Landlord's written approval of (i) the plans and specifications for all
such work; (ii) with respect to any connecting lines that will be outside the
Premises (if such lines are permitted by Landlord in its sole discretion), a
description of the areas of the Building to which Tenant will require access
both for the initial work and for ongoing maintenance of the improvements or
installations; (iii) the names of all contractors and subcontractors who will
perform such work, all of whom shall be selected from Landlord's then-current
list of approved contractors, which Landlord may compile in Landlord's sole
discretion and will provide to Tenant within ten days following Landlord's
receipt of Tenant's written request; (iv) copies of all construction
contracts entered by Tenant with any contractor for the work; (v) copies of
all liability, casualty, worker's compensation and builder's risk insurance
applicable to the construction, maintenance and ongoing operation of the
improvements and installations; and (vi) copies of all governmental permits
required for the work. Landlord's
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consent to such matters shall not unreasonably be withheld; provided,
however, that with regard to any such matters which may affect the structural
members, the heating, ventilation, air conditioning or other building
systems, exterior walls, windows and doors of the Building, and with regard to
the installation of any signs outside the Premises, Landlord may grant or
withhold its consent in its unlimited discretion. Landlord may impose, as a
condition of its consent to any alterations, repairs or changes of the
Premises, such requirements as Landlord in its sole discretion may deem
desirable, including, but not limited to, the requirement that Tenant utilize
for such purposes only contractors, materials, mechanics and materialmen
previously used and currently approved by Landlord for work in the Building.
29.4 After Landlord has approved the change, repair or
alteration and the other items listed in Section 29.3, Tenant shall enter
into an agreement for the performance of such change, repair or alteration
with the contractors and subcontractors approved by Landlord, as provided in
Section 29.3. Before proceeding with any change, repair or alteration Tenant
shall (i) provide Landlord with 10 days' prior written notice thereof; and
(ii) pay to Landlord, within 10 days after written demand, the costs of any
increased insurance premiums incurred by Landlord as a result of such
changes, repairs or alterations. In addition, before proceeding with any
change, repair or alteration, Tenant's contractors shall obtain, on behalf of
tenant and at Tenant's sole cost and expense: (A) all necessary governmental
permits and approvals for the commencement and completion of such change,
repair or alteration; and (b) a completion and lien indemnity bond, or other
surety, satisfactory to Landlord for such change, repair or alteration.
Landlord's approval of permits pursuant to Section 29.3 shall not relive
Tenant of the obligation to obtain any other or supplemental permits required
by the preceding sentence.
29.5 Tenant shall pay to Landlord, as additional rent, the
reasonable costs of Landlord's engineers and other consultants (but not
Landlord's on-site management personnel) for review of all plans,
specifications and working drawings for the change, repair or alteration
within 10 business days after Tenant's receipt of invoices either from
Landlord or such consultants. In addition to such costs, Tenant shall pay to
Landlord, within 10 business days after completion of any change, repair or
alternation, the actual, reasonable costs incurred by Landlord for services
rendered by Landlord's management personnel and engineers to coordinate and/or
supervise any of the change, repair or alteration to the extent such services
are provided in excess of or after the normal on-site hours of such engineers
and management personnel.
29.6 All changes, repairs and alterations shall be performed:
(i) in accordance with the approved plans, specifications and working
drawings; (ii) lien-free and in a first-class and workmanlike manner; (iii)
in compliance with all laws, rules, and regulations of all governmental
agencies and authorities; (iv) in such a manner so as to not to interfere
with the occupancy of any other tenant in the Building, or impose any
additional expense or delay upon Landlord in the maintenance and operation of
the Building; and (v) at such times, in such manner and subject to rules and
regulations as Landlord may from time to time reasonably designate. Following
completion of the work, Tenant shall promptly provide to Landlord a set of
"as built" plans and specifications for the work and copies of all warranties
and guarantees provided by Tenant's contractors and subcontractors.
29.7 Throughout the performance of any such change, repair or
alteration Tenant shall obtain, or cause its contractors to obtain, worker's
compensation insurance and general liability insurance covering the work in
compliance with provisions of Section 28 of this lease, and builder's risk
insurance for the work reasonably acceptable to Landlord.
29.8 With respect to any construction, alteration, decorating
or repair work undertaken by Tenant's contractors under a direct contract
with Tenant, Tenant shall pay Landlord as additional rent a fee equal to 8%
of the contract price in order to compensate Landlord for monitoring the
compliance of Tenant's construction with the Building's rules and regulations
and the provisions of this Lease. Such fee shall be paid by Tenant to
Landlord in monthly progress payments as calculated and billed by Landlord in
its reasonable discretion. Tenant shall pay such amounts to Landlord within
15 days after Tenant's receipt of a billing therefor. Tenant acknowledges
that such monitoring of Tenant's construction is for Landlord's benefit only
and shall not release Tenant from any obligations hereunder, nor impose on
Landlord any obligation to Tenant or any third party relating to Tenant's
construction.
In the event Tenant orders any construction, alteration, decorating
or repair work directly from Landlord, or from the contractor selected by
Landlord, the charges for such work, together with Landlord's administration
fee equal to 15% of the contract price, shall be deemed additional net under
this Lease, payable upon billing therefor, either in advance of the start of
work, or periodically during construction, or upon the substantial completion
of such work, at Landlord's option.
30. MECHANIC'S LIENS. Tenant agrees to give Landlord written
notice of the commencement date of any alterations, improvements or repairs
to be made in, to or upon the premises not later than 10 days prior to the
commencement of any such work, in order to give Landlord time to post notices
of nonresponsibility. Tenant will not permit any mechanic's, materialman's or
other lien to be placed upon the premises or Building or improvements therein
during the term hereof; and in the event that any mechanic's, materialman's
or other lien is filed against the Premises or Building or improvements
therein in connection with any alteration, repair, improvement or change of,
or installation of fixtures or equipment in, the premises, Tenant shall cause
such lien to be released within 10 days after such filing, either by
satisfaction of such claim or by posting of a bond. Notwithstanding the
foregoing, Landlord shall have the right and privilege at Landlord's option
of paying the amount of any such lien or claim, or any portion, thereof,
without inquiry as to the validity thereof, and
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any amounts so paid, including expenses and interest, shall be deemed
additional rent hereunder due from Tenant to Landlord upon demand.
31. ALTERNATE SPACE. PARAGRAPH DELETED
32. HAZARDOUS MATERIALS.
32.1 In addition to its other obligations under this Lease,
Tenant covenants to comply with all laws relating to Hazardous Materials, as
defined below, with respect to the Premises and the Building. Tenant shall
have the right to use general office supplies typically used in an office
area in the ordinary course of business (such as copier toner, liquid paper,
glue, ink and cleaning solvents) and items typically used in a comparable
telecommunications business, provided that Tenant uses them in the manner for
which they were designed and only in accordance with all Hazardous Materials
laws and the highest standards prevailing in the industry for such use, and
then only in such amounts as may be normal for the office business operations
or telecommunications operations conducted by Tenant on the Premises.
Except as provided in the preceding sentence, neither Tenant nor any of
Tenant's agents, employees, contractors, subtenants, assignees, licensees,
invitees, successors, or representatives ("Tenant's Parties") shall use,
handle store or dispose of any Hazardous Materials in, on, under or about the
Premises, the Building or the site on which the Building is located. Tenant
shall promptly take all actions, at its sole cost and expense as are
necessary to return the Premises, Building and site to the condition existing
prior to the introduction of any such Hazardous Materials by Tenant or any
Tenant Parties, provided Landlord's approval of such actions shall first be
obtained. Furthermore, Tenant shall immediately notify Landlord of any
inquiry, test, investigation or enforcement proceeding by or against Tenant
or the Premises concerning the presence of any Hazardous Material.
32.2 Tenant's obligations under Section 27.2 to indemnity, defend
and hold Landlord harmless from and against certain Claims shall be deemed to
include, without limitation, any and all Claims (as defined in Section 27.2)
relating in any way to investigation and clean-up costs, attorneys' fees,
consultant fees and court costs that arise during or after the term of this
Lease as a result of the breach of any of the obligations and covenants set
forth in this Section 32, or relating in any way to any contamination of the
Premises, Building or site directly or indirectly arising from the activities
of Tenant or any Tenant Parties. Tenant's obligations under the preceding
sentence shall survive the expiration or earlier termination of this Lease as
to any matters arising prior to such expiration or termination or prior to
Tenant's vacation of the Building.
32.3 For purposes of this Lease, the term "Hazardous Materials"
shall mean, collectively, asbestos, any petroleum fuel, and any hazardous or
toxic substance, material or waste which is or becomes regulated or defined
as hazardous or toxic by any local governmental authority, the State of
California or the United States Government, including, but not limited to,
any material or substance defined as hazardous or toxic under the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601, ET SEQ.; the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901, ET SEQ.; the Toxic Substance Control Act, 15 U.S. C.
Sections 2601, ET SEQ.; the Federal Water Pollution Control Act, 33 U.S.C.
Sections 1251, ET SEQ.; the California Hazardous Substance Account Act,
California Health and Safety Code Sections 25330, ET SEQ.; the California
Hazardous Waste Control Act, California Health and Safety Code Sections
25100, ET SEQ.; the California Safe Drinking Water and Toxic Health
Enforcement Act, California Health and Safety Code Sections 252495, ET SEQ.;
California Health and Safety Code Sections 25280, ET SEQ. (Underground
Storage of Hazardous Substances); the California Hazardous Waste Treatment
Reform Act, California Health and Safety Code Sections 25179.1, ET SEQ.;
California Health and Safety Code Sections 25501, ET SEQ. (Hazardous
Materials Release Response Plans and inventory); Petroleum Underground
Storage Tank Cleanup, Health and Safety Code Sections 25299.10, ET SEQ. and
the Porter-Cologne Water Quality Control Act, California Water Code Sections
13000, ET SEQ., as such laws may be amended form time to time.
32.4 Tenant acknowledges that Tenant has received and read the
notice from Landlord regarding Landlord's asbestos in the Building. Landlord
agrees that the costs of asbestos removal work in the Building shall not be
charged to Tenant or included in the Building's Operating Costs for purposes
of calculating Tenant's obligations for rent escalations under Section 4
above. The preceding sentence shall not apply to costs for such work
necessitated by the acts or omissions of Tenant or Tenant's Parties (as
defined in Section 32.1), including but not limited to alteration work
undertaken by Tenant.
33. MISCELLANEOUS.
33.1 No receipt of money by Landlord from Tenant after the
termination of this Lease, the service of any notice, the commencement of
any suit or final judgment for possession shall reinstate, continue or extend
the term of this Lease or affect any such notice, demand, suit or judgment.
No payment by Tenant or receipt by Landlord of a lesser amount than the rent
payment herein stipulated shall be deemed to be other than on account of the
rent, 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 Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such rent or pursue any other
remedy provided in this Lease. Any amount billed by Landlord to Tenant under
this Lease or in connection with Tenant's occupancy of space in the
Building, with Tenant does not dispute in a written notice delivered to
Landlord within thirty days after Tenant's receipt of such billing, shall be
conclusively deemed to be correct, and Tenant shall be
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obligated for such amount. Such thirty-day period to give notice of a
dispute shall not be deemed to extend the due date for any payments, but
Tenant shall be entitled to make the payment in question under protest by
timely giving such notice, Tenant agrees that each of the foregoing covenants
and agreements shall be applicable to all obligations of Tenant to Landlord,
whether expressly contained in this Lease or imposed by any statute or at
common law.
33.2 If any provision of this Lease or its application to any
party or circumstances shall be determined by any court of competent
jurisdiction to be invalid or unenforceable to any extent, the remainder of
this Lease or the application of such provision to such person or
circumstances, other than those as to which it is so determined invalid or
unenforceable to any extent, shall not be affected thereby, and each
provision hereof shall be valid and shall be enforced to the fullest extent
permitted by law; and it is the intention of the parties to this Lease that
in lieu of each clause or provision of this Lease that its illegal, invalid
or unenforceable, there be added as a part of this Lease a clause or
provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and enforceable.
33.3 The covenants and obligations of Tenant pursuant to this
Lease shall be independent of performance by Landlord of the covenants and
obligations of Landlord pursuant to this Lease, and performance by Tenant of
each covenant and obligation of Tenant pursuant to this Lease shall be a
condition precedent to the duty of Landlord to perform the covenants and
obligations of Landlord pursuant to this Lease.
33.4 The headings of Sections of this Lease are for convenience
only and do not define, limit or construe the contents thereof. References
made in the Lease to numbered Sections, Paragraphs and Subparagraphs shall
refer to numbered Sections, Paragraphs or Subparagraphs of this Lease unless
otherwise indicated.
33.5 Where appropriate, words in the singular, including without
limitation the words "Landlord" and "Tenant", include the plural, and vice
versa. Words in the neuter gender include the masculine and feminine
genders, and vice versa, and words in the masculine gender include the
feminine gender, and vice versa.
33.6 If more than one person or entity executes this Lease as
Tenant: (a) each of them is and shall be jointly and severally liable for the
covenants, conditions, provisions and agreements of this Lease to be kept,
observed and performed by Tenant; and (b) the act or signature of, or notice
from or to, any one or more of them with respect to this Lease shall be
binding upon each and all of the persons and entities executing this Lease as
Tenant with the same force and effect as if each and all of them had so acted
or signed, or given or received such notice.
33.7 Time is of the essence of this Lease. Failure of either
party to perform any act strictly within the applicable period specified
herein shall entitle the other to exercise all remedies herein contemplated.
All references in this Lease to "days" shall mean calendar days unless
specifically stated herein to be "business" days.
33.8 This Lease shall be governed by and interpreted in
accordance with the laws of the State of California.
33.9 All monetary obligations of Tenant remaining past due 10
days or more after the date specified herein for payment shall bear interest
until paid at the lesser of (i) the Bank of America prime rate as of the due
date plus 6%, or (ii) the maximum rate permitted by law.
33.10 This instrument, along with any riders, exhibits and
attachments or other documents referred to in Section M on page 2 (all of
which riders, exhibits, attachments and other documents are hereby
incorporated into this instrument by this reference), constitutes the entire
and exclusive agreement between Landlord and Tenant relating to the Premises,
and this agreement and said riders, exhibits and attachments an other
documents may be altered, amended or revoked only by an instrument in writing
signed by the party to be charged thereby. All prior or contemporaneous oral
agreements, understandings and/or practices relative to the leasing of the
Premises are merged herein or revoked hereby. References in this instrument
to this "Lease" shall mean, refer to and include this instrument as well as
any riders, exhibits, attachments or other documents referred to in Section
M, and references to any covenant, condition, obligation and/or undertaking
"herein", "hereunder" or "pursuant hereto" (or language of like import) shall
mean, refer to and include the covenants, conditions, obligations and
undertakings existing pursuant to this instrument and such riders, exhibits,
attachments or other documents. All terms defined in this instrument shall
be deemed to have the same meanings in all riders, exhibits, attachments or
other documents referred to in Section M unless the context thereof clearly
requires the contrary.
33.11 Tenant hereby consents to amendment of this Lease as to the
extent required by any lender which makes a loan to Landlord secured in whole
or in part by the Building, provided that no such change shall increase the
rent payable hereunder or impair Tenant's use or the Premises; provided,
however, any such amendments shall not adversely affect tenant's interests in
any material respect.
33.12 Unless otherwise agreed in writing, if Tenant has dealt with
any real estate broker or other person or firm with respect to leasing or
renting space in the Building, Tenant shall be solely responsible for the
payment of any fee due said broker, person or firm and Tenant hereby
indemnifies and holds Landlord harmless from and against any liability with
respect
24
<PAGE>
thereto. Notwithstanding the foregoing, Landlord agrees to pay, and to hold
Tenant harmless from, the commission owing to the brokers identified in
Section L on page 2, as provided in a separate agreement between Landlord and
such brokers.
33.13 Tenant agrees to pay to Landlord as additional rent
hereunder any taxes required by law to be paid by Tenant and collected from
Tenant by Landlord.
33.14 Submission of this Lease for examination, even though
executed by Tenant, shall not bind Landlord in any manner, and no lease or
other obligation on the part of Landlord shall arise until this Lease is
executed and delivered by Landlord to Tenant. This Lease shall not be
binding and in effect until a counterpart hereof has been executed and
delivered by the parties, each to the other.
33.15 Tenant shall not cause the recordation of this Lease, a
short form memorandum of this Lease or any reference to this Lease.
33.16 Upon 10 days' prior written request from Landlord (which
Landlord may make at any time during the term but no more often than two
times in any calendar year), Tenant shall deliver to Landlord (a) a current
financial statement of Tenant and any guarantor of this Lease, and (b)
financial statements of Tenant and such guarantor for the two years prior to
the current financial statement year. Landlord shall use best efforts to
assure that any disclosure of such statements by Landlord to third parties
shall be made so as to preserve the confidential nature of such statements.
Such statements shall be prepared in accordance with general acceptable
accounting principles, and certified as true in all material respects by
Tenant (if Tenant is an individual) or by an authorized officer or general
partner of Tenant (if Tenant is a corporation or partnership, respectively).
33.17 Notwithstanding anything contained in this Lease to the
contrary, the obligations of Landlord under this Lease (including any actual
or alleged breach or default of Landlord) do not constitute personal
obligations of the individual partners, directors, officers, shareholders,
agents or employees of Landlord or of Landlord's partners or agents, and
Tenant shall not seek recourse against any such persons or entities or any of
their personal assets for satisfaction of any liability with respect to this
Lease. In addition, in consideration of the benefits accruing hereunder to
Tenant and notwithstanding anything contained in this Lease to the contrary,
Tenant hereby covenants and agrees for itself and all of its successors and
assigns that the liability of Landlord for its obligations under this Lease
(including any liability as a result of any actual or alleged failure, breach
or default hereunder by Landlord) shall be limited solely to, and Tenant's
and its successors' and assigns' sole and exclusive remedy shall be against,
Landlord's interest in the Building and proceeds therefrom, and no other
assets of Landlord.
33.18 If Tenant is identified herein as a corporation, then the
persons executing this Lease on behalf of Tenant hereby represent that they
are duly authorized to execute and deliver this Lease on behalf of Tenant
pursuant to Tenant's by-laws or a resolution of its board of directors.
If Tenant is identified herein as a partnership, the undersigned
represent that they are all of the general partners of Tenant, that
Tenant has been formed under the laws of the State of California, and is
duly qualified to do business in the State of California, and that this
Lease is being executed on behalf of Tenant. Each of the partners of
Tenant executing this Lease agrees that he or she and Tenant are
irrevocably bound by execution of any amendment to or modification of
this Lease by one or more of the partners of Tenant. Tenant agrees that
each new partner in Tenant shall be obligated under this Lease, in the
same fashion as the existing partners, and that each new partner shall
execute a copy of this Lease and deliver it to Landlord within 60 days
after that partner's admission to the partnership. In the event that such
newly admitted partner is a corporation, the principal or principal's for
whose benefit the corporation has been organized shall execute and
deliver to Landlord a lease guaranty in form acceptable to Landlord.
Each newly admitted partner in Tenant shall be jointly and severally
liable with the remaining partners for the performance and satisfaction
of all obligations of the Tenant under this Lease accruing from and after
the effective date of the admission of the new partner to the
Partnership. If the provisions of this paragraph are satisfied, the
admission of a new partner shall not be considered an assignment of the
lease for the purposes of Section 17 hereof.
33.19 Subject to the provisions of Section 17 above, and except as
otherwise provided in this Lease, all of the covenants, conditions and
provisions of this Lease shall be binding upon, and shall inure to the
benefit of the parties hereto and their respective heirs, personal
representatives and permitted successors and assigns; provided, however, that
no rights shall inure to the benefit of any transferee of Tenant unless the
transfer to such transferee is made in compliance with the provisions of
Section 17, and no options or other rights which are expressly made personal
to the original Tenant hereunder or in any rider attached hereto shall be
assignable to or exercisable by anyone other than the original Tenant under
this Lease.
33.20 The voluntary or other surrender of this Lease by Tenant or
a mutual termination thereof shall not work as a merger and shall, at the
option of Landlord, either (a) terminate all and any existing subleases, or
(b) operate as an assignment to Landlord of Tenant's interest under any or
all subleases.
25
<PAGE>
33.21 Except for Tenant's identity sign on the entry doors of
the Premises and Tenant's elevator lobby identity sign on any full floor of
the Building leased by Tenant (which signs shall be consistent with the
Building's signage program and otherwise subject to Landlord's prior written
approval), Tenant shall have no right to place any sign upon the Premises,
the Building or the site on which the Building is located of which can be
seen from outside the Premises.
33.22 The effectiveness of this Lease and Landlord's obligations
hereunder are subject to and conditional upon Tenant's delivery to Landlord
of a lease guaranty in the form prescribed by Landlord in its sole
discretion, fully executed by the guarantor or guarantors specified in
Section N on page 2 of this Lease.
33.23 EQUIPMENT FINANCING. Lessee may enter into secured
financing arrangements for which Lessee's furniture, fixtures and
equipment are security, provided that such arrangements shall not impair
or abridge the rights of Lessor under this Lease, and such secured party
agrees to pay lessor for its use or occupancy of the Premises and for any
damage resulting from its removal of the security, and to be bound by the
terms and provisions of this Lease from the time it succeeds to the
interest of Lessee under this Lease. Lessor shall, upon request of
Lessee, execute agreements in favor of Lessee's secured lender and
equipment financer, in the exact form of Exhibits "C" and "D" attached
hereto.
34. RULES AND REGULATIONS AFFECTING TELECOMMUNICATIONS USE.
Nothing in the Rules and Regulations attached hereto as Exhibit B (or any
further rules and regulations promulgated by Landlord as described in Section
22.2) shall be deemed to prohibit Tenant from installing in the Premises
telecommunications switching equipment or any other equipment specifically
permitted in the other provisions of this Lease, which does not pose a safety
hazard or create a nuisance or illegal condition; provided, however, that
Tenant shall comply with the provisions of this Lease (including the Rules
and Regulations) regarding the moving, installation, operation, use,
maintenance, removal, power requirements, and structural support of all such
equipment, and shall obtain any approvals from Landlord required under this
Lease as to such matters.
35. "AS IS" CONDITION. Tenant is taking the Premises in its
"as is" shall condition existing as of the execution date of this Lease.
Landlord shall have no obligation for the construction or modification of
tenant improvements for Tenant. In constructing its own tenant improvements to
the Premises, Tenant shall comply with the other applicable provisions of
this Lease (including but not limited to Section 29) and shall utilize only
contractors, materials, mechanics, materialmen, architects and engineers used
and currently approved in writing by Landlord for work in the Building.
36. ROOF SPACE. Tenant shall have the right during the Lease
term to use an area on the ninth floor roof of the Building (the "Roof
Space") sufficient in Landlord's reasonable discretion for the installation
and operation of a heating, ventilating and air-conditioning condenser unit
or units with up to 20-tons cooling capacity. Within 30 days after Landlord's
receipt of Tenant's written request for the Roof Space (which request shall
include the specifications for the proposed condenser unit or units),
Landlord shall designate, reasonably and in good faith, the size and location
for the Roof Space based on the condenser unit specifications provided to
Landlord. The installation and operation of the condenser unit or units shall
be at the sole cost and expense of Tenant (including, but not limited to,
costs of electrical supply, which, if Landlord so elects, shall be metered
separately to Tenant at Tenant's expense). Such installation and operation
shall be in accordance with the provisions of this Lease and shall require
Landlord's prior written approval of the items listed in Section 29.3. Such
approval shall not be unreasonably withheld or delayed, but may be
conditioned, among other things, upon Tenant's making or paying for any
reinforcement to the Roof Space reasonably deemed necessary by Landlord to
support the condenser unit or units.
26
<PAGE>
IN WITNESS WHEREOF, this instrument has been duly executed by the
parties hereto, as of the date first above written.
TENANT:
WORLDXCHANGE COMMUNICATIONS
a California corporation
By: /s/ Edward S. Soren
--------------------------------
Its: President
--------------------------
By:
--------------------------------
Its:
--------------------------
LANDLORD:
DOWNTOWN PROPERTIES, L.L.C.
a California Limited Liability Company
By: /s/ ILLEGIBLE
--------------------------------
Its: President
--------------------------
By:
--------------------------------
Its:
--------------------------
27
<PAGE>
======================
611 WILSHIRE BOULEVARD
======================
LEASE
======================
EXTENSION OPTION RIDER
Provided that Tenant is not in default under this Lease beyond any
applicable notice and cure period, Tenant shall have the option to extend the
term of this Lease for an additional five-year period following the expiration
of the initial term. Tenant may exercise such option only by giving Landlord
a written notice at least nine (9) months, but not more than twelve (12)
months, prior to the commencement of the five-year period, and only if tenant
is not in default beyond any applicable notice and cure period at the time
Tenant gives such notice. If Tenant has exercised such option, but is in
default beyond any applicable notice and cure period on the date the
additional five-year extended term is to commence, then at Landlord's
election, the extended term shall not commence until and unless the Tenant
timely cures such default.
With respect to the additional five-year term, the Lease shall be
adjusted to reflect the following: (a) a new Base Rent for the Premises equal
to 95% of the average Base Rents per rentable square foot charged by Landlord
for telecommunications space in the Building of comparable size and quality
in comparable renewal leases for a comparable term entered into by Landlord
within six months prior to the date Tenant exercises this option (provided,
however, that if no such comparable renewal leases were entered into within
such six month period, then the valuation shall be based on the Base Rent
Landlord would have been willing to accept at that time as reasonably
calculated by Landlord in good faith); and (b) a new rental rate for the
Conduit Space based on the then-prevailing rate being charged by Landlord for
similar interducts in the Building; and (c) a new fee for use of the
generator described in the Backup Power Generator Rider based on the
then-prevailing rate being charged by Landlord for comparable usage; and (d)
a new rental rate for the Roof Space based on the then-prevailing rate being
charged by Landlord for similar roof space on the Building.
Landlord shall advise Tenant of such rental adjustments within one
month after Landlord's receipt of Tenant's notice. Tenant shall have ten
business days following Tenant's receipt of notice of the rental adjustment
within which to accept such terms by executing any appropriate reasonable
documentation submitted by Landlord to Tenant. If Tenant fails to so accept
such terms, Tenant's rights to extend the term pursuant to this Rider shall
be cancelled.
In no event shall the terms offered by Landlord under this Rider
bind Landlord to offer such terms to Tenant or to any other person or entity
at any time except as explicitly set forth in this Rider, nor shall such terms
prevent Landlord from leasing the Premises to any person or entity on
different terms if Tenant does not timely accept the terms determined in
accordance with this Rider.
EOR-1
<PAGE>
LIST OF OMITTED EXHIBITS AND RIDERS
The following Exhibits and Riders to the 611 Wilshire Boulevard Lease
have been omitted from this Exhibit and shall be furnished supplementally to
the Commission upon request:
Exhibit A - Floor Plan of Premises
Exhibit B - Rules and Regulations
Exhibit C - Consent and Waiver by Owner, Landlord or Mortgagee of
Real Estate
Exhibit D - Waiver and Consent by Real Property Owner(s)
Backup Power Generator Rider
Parking Space Rider
Telecommunications Conduit Rider
<PAGE>
License: 10V/0252/95 LEASE
Printed: 1196LTO NEW SOUTH WALES
REAL PROPERTY ACT 1900
INSTRUCTIONS FOR FILLING OUT THIS FORM ARE AVAILABLE FROM THE LAND TITLES
OFFICE
Office of State Revenue use only
(A) PROPERTY LEASED
If appropriate, specify the part or premises.
VOLUME 9590 FOLIO 26 PART BEING LEVELS 3 AND 4, 1 ELIZABETH
PLAZA, NORTH SYDNEY
auto/consol 9590-26
(B) LODGED BY
LTO BOX 987T
Name, Address or DX and Telephone
LANDERER & COMPANY, SOLICITORS
LEVEL 31, 133 CASTLEREAGH STREET
SYDNEY NSW 2000
DX 1247 SYDNEY
REFERENCE (15 character maximum): EB:15-0530 TEL: 9261 4242
(C) LESSOR
NESOVA PTY LIMITED ACN 068 339 864
The lessor leases to the lessee the property described above.
Encumbrances (if applicable) 2064791
(E) LESSEE
L
WORLD XCHANGE PTY LIMITED ACN 064 817 474
(F) TENANCY:
(G) 1. TERM: Five (5) years
2. COMMENCING DATE: 15 August 1997
3. TERMINATING DATE: 14 August 2002
4. With an OPTION TO RENEW for a period of Five (5) years set out in
Item 3
6. Together with and reserving the RIGHTS set out in the Annexure
7. Incorporates the provisions set out in ANNEXURE hereto.
8. Incorporates the provisions set out in MEMORANDUM NO. Y119929 filed
in the Land Titles Office.
Page 1 of 11
<PAGE>
(H) DATE 14 July 1997 We certify this dealing correct for the purposes of
the Real Property Act 1900
FOR EXECUTION BY THE PARTIES REFER TO EXECUTION PAGE ANNEXED HERETO
(I) STATUTORY DECLARATION
I solemnly and sincerely declare that the time for the exercise of
Option to Renew/Purchase in expired lease No.__________ has ended and the
lessee under that lease has not exercised the option.
I make this solemn declaration conscientiously believing the same to be
true and by virtue of the Oaths Act 1900.
Made and subscribed at_________________ in the State of _________________
on ________________19____ in the presence of
------------------------------------
Signature of Witness
------------------------------------
Name of Witness (BLOCK LETTERS)
------------------------------------ --------------------------------
Address and Qualification of Witness Signature of Lessor
Page 2 of 11
<PAGE>
THIS IS ANNEXURE "A" REFERRED TO IN THE LEASE BETWEEN NESOVA PTY LIMITED (AS
LESSOR) AND WORLD XCHANGE PTY LIMITED (AS LESSEE) DATED THIS 14th Day of
July, 1997
1. The provisions of Memorandum Y119929 are deemed to be incorporated
herein with the following additions and alterations:
CLAUSE 1 - DEFINITIONS
1.1 Clause 1.1 is amended by adding the following:
""Index Number" means the Consumer Price Index (All Groups) for
the City of Sydney published from time to time in the
Commonwealth Statistician's Summary of Australian Statistics.
If the Commonwealth Statistician updates the reference base of
the Consumer Price Index (All Groups) for the City of Sydney
due conversion must be made to preserve the intended continuity
of calculation by using the appropriate arithmetical factor
determined by the said Statistician. If there is any suspension
or discontinuance of the Consumer Price Index (All Groups) by the
Commonwealth Authorities "Index Number" means such index
published at the commencement of the term and at the date of
suspension or discontinuance of the Consumer Price Index (All
Groups) in the Commonwealth Statistician's Summary of Australian
Statistics which reflects fluctuations in the cost of living in
Sydney and which the parties mutually agree on. If they are
unable to agree then "Index Number" means such index chosen by a
Valuer nominated by the President for the time being of the
Institute. Such determination binds the Lessor and the Lessee.
The cost of such determination will be borne equally by the
Lessor and the Lessee.
"Institute" means the Australian Institute of Valuers and Land
Economists Inc (NSW Division) or such other professional
organisation which succeeds that body."
CLAUSE 2 - RENT AND RENT REVIEWS
2.3 Clause 2.3 is amended by replacing "2" on line 2 with "2A".
2.3A Clause 2.3A is added as follows:
"On each date specified in Item 2B of the Reference Schedule (the
"CPI Review Dates") the Minimum Rent payable will be the higher
of:
(i) The Minimum Rent payable for the year immediately preceding
the relevant CPI Review Date increased by five per cent
(5%); or
(ii) The Minimum Rent payable for the year immediately preceding
the relevant CPI Review Date multiplied by the Index Number
for the quarter ending immediately prior to the relevant
CPI Review Date and divided by the Index Number for the
quarter ending twelve (12) months prior to the relevant CPI
Review Date."
2.5 Clause 2.5 is amended by deleting the words "the Australian
Institute of Valuers" and by inserting instead the words "the
Australian Institute of Valuers and Land Economists (Inc.)".
<PAGE>
2
2.6 Clause 2.6 is amended by deleting the words "the Australian
Institute of Valuers" and inserting instead the words "the
Australian Institute of Valuers and Land Economists (Inc.)".
2.12 Clause 2.12 is amended by deleting the words "the Australian
Institute of Valuers" and inserting instead the words "the
Australian Institute of Valuers and Land Economists (Inc.)".
2.13 Clause 2.13 is replaced by "The Minimum Rent as determined on any
Review Date shall not be less than the Minimum Rent payable
immediately prior to such determination."
CLAUSE 3 - LESSEE'S CONTRIBUTION TO OUTGOINGS
3.1 The definition of "the Base Figure" is amended by deleting the
words "31 March" and inserting instead the words "30 June".
The definition of "Lease Year" is amended by deleting the words
"31 March" and inserting instead the words "30 June".
CLAUSE 4 - CLEANING
4B(a) Clause 4B(a) is amended by inserting "in the absence of any
default, omission or negligence on the part of the Lessor" after
"workman of such person" on line 5.
CLAUSE 5 - OPTION FOR RENEWAL AND HOLDING OVER
5.1 Clause 5.1 is amended by deleting the words from lines 12 to 16
"at the rents equal to those which would have been payable
hereunder in accordance with clause 2 of this Lease and with the
Review Dates and the rent reviews occurring as if this lease had
been granted for the aggregate of the term hereof and the further
term stated in Item 3 and otherwise".
Delete from line 17 the words "this present clause 5.1 which
shall be omitted therefrom" and inserting instead the words:
"(a) This clause 5.1, 18.1(a), 18.2 and 18.3 shall be omitted
from the new lease and all words on the front page of the
Lease referring to an option to renew shall be omitted.
(b) The Minimum Rent payable by the Lessee in respect of such
renewed term shall be calculated and payable on the day
following the expiry of the original term herein.
(c) The Minimum Rent for the first year of the renewed term
shall be determined as if the first day of the renewed
term was a Review Date.
<PAGE>
3
(d) If the rent in the renewed term shall not have been
determined in accordance with the foregoing by the time of
the commencement of the new term then the Lessee shall pay
the same minimum rental as was payable by the Lessee to
the Lessor in the last year of the current Lease and on a
final determination of the new rent any additional rent
necessary shall be paid forthwith by the Lessee to the
Lessor in respect of the period commencing from the
commencement date of the renewed term until payment of
the additional amount as aforesaid.
(e) In the lease for the renewed term:
(i) the front of the lease shall be appropriately
amended to show the commencing date of the renewed
term and the terminating date of the renewed term;
(ii) Item 1 of the Reference Schedule and the amount
stated therein shall be deleted and replaced with
the amount of the Minimum Rent determined under this
option clause;
(iii) in Item 3 of the Reference Schedule the information
therein shall be replaced with the words "Not
applicable".
(iv) In Item 2A of the Reference Schedule the information
therein shall be replaced with "15 February 2005".
(f) The term shall be reviewed and adjusted in accordance
with the provisions of clause 2 hereof."
CLAUSE 8 - USE OF PREMISES
8.2 Clause 8.2 is amended by inserting "other than the Permitted Use"
after "Lessee" on line 2.
CLAUSE 9 - INSURANCE AND INDEMNITY
9.3 Clause 9.3 is amended by deleting the words "the Board of Fire
Commissioners of New South Wales" and by inserting instead the
words "the New South Wales Fire Brigades".
9.5(a) Clause 9.5(a) is amended by inserting the words "except as
arising out of any act or omission or the negligence of the
Lessor or persons under the Lessor's control" at the end of the
clause.
CLAUSE 10 - DAMAGE OR DESTRUCTION
10.1(d) Clause 10.1(d) is amended by deleting the words "is amended by
deleting the words "the Australian Institute of Valuers" and
inserting instead the words "the Australian Institute of Valuers
and Land Economists (Inc.)".
<PAGE>
4
CLAUSE 11 - COVENANTS BY LESSOR
11.1 Clause 11.1 is amended by:
(a) deleting the word "Lessee" in line 1 and by inserting the
word "Lessor";
CLAUSE 13 - DEFAULT
13.3 Clause 13.3 is amended by replacing "Should the Lessor become"
on line 1 with "Within sixty (60) days of the Lessor becoming".
CLAUSE 16 - BANK GUARANTEE
16.1 Clause 16.1 is added as follows:
16.1 (a) The Lessee on or before the earlier of its signing
of this Lease and the Commencing Date shall provide
to the Lessor a guarantee from a bank authorised to
carry on business under the Banking Act, 1959 of
the due observance and performance by the Lessee of
all the provisions contained herein on the part of
the Lessee to be observed or performed with a
maximum liability to the bank of the amount
specified in Item 12 of the Reference Schedule (the
"bank guarantee").
(b) Any bank guarantee provided pursuant to this clause
16 shall be upon terms and conditions required by
the Lessor including but not limited to an
irrevocable authority for the bank to pay the
Lessor upon demand by the Lessor all amounts
payable to the Lessor in consequence of the
Lessee's failure to duly observe or perform any
of such provisions.
(c) If at any time the Lessee fails to duly observe or
perform any of the provisions contained herein on
the part of the Lessee to be observed or performed
the Lessor may in its discretion at any time call
up the bank guarantee as may be necessary in the
opinion of the Lessor to compensate the Lessor for
any loss or damage suffered or which may be suffered
by the Lessor by reason of such failure. Any such
calling up by the Lessor shall not constitute a
waiver of such failure and shall not prejudice any
other remedy or right of the Lessor in respect of
such failure.
(d) If the bank guarantee is called up by the Lessor
in accordance with this clause and this Lease is
not terminated by the Lessor the Lessee shall
provide to the Lessor a further bank guarantee in
the amount so called up (as the case may be) to be
held in accordance with this clause.
<PAGE>
5
(e) If the Minimum Rent is increased during the term,
the Lessee must if requested by the Lessor, provide
to the Lessor a further bank guarantee so the
amount guaranteed at all time has the same
proportion to the Minimum Rent as at the
commencement date.
(f) If the Lessor's interest in the premises is
assigned or transferred the Lessor shall be at
liberty to assign the bank guarantee less all sums
called up by it in accordance with this clause to
any such assignee or transferee and thereupon the
Lessor shall be discharged from all liability to
the Lessee or any other person in respect of the
bank guarantee.
16.2 The calling up of the bank guarantee shall not deem the
Lessor to condone or waive the Lessee's breach of the
Lease and shall be without prejudice to the rights of the
Lessor in respect thereof.
CLAUSE 17 - MAIL DELIVERY
17.1 Clause 17.1 is added as follows:
"The Lessee acknowledges that it is aware that the Building does
not have a mail room and that a mail delivery service will not
be provided to the Building by Australia Post. The Lessee
agrees that it will be the Lessee's responsibility to arrange for
the collection of its mail from an office of Australia Post or
if Australia Post has ceased to exist then the postal authority
from time to time."
CLAUSE 18 - SPECIAL CONDITIONS
18.1 Clause 18.1 is added as follows:
"Subject to due compliance with the terms and conditions of this
Lease by the Lessee:
(a) the Lessee will be entitled to occupy:
(i) Level 3 of the Premises free of Minimum Rent only
from the Commencing Date to 31 August 1997; and
(ii) Level 4 of the Premises free of Minimum Rent only
from the Commencing Date to 30 November 1997.
(b) and in particular clause 2.2(a)(ii), the amount of the
Bank Guarantee as specified in Item 12 of the Reference
Schedule will be reduced to four (4) months of
instalments of Minimum Rent."
18.2 Clause 18.2 is added as follows:
"For the purposes of clause 18.1(a) the parties agree and
acknowledge that the Minimum Rent stated in Item 1 of the
Reference Schedule is apportioned as between Level 3 and Level
4 as follows:
<PAGE>
6
(a) Level 3 - $242,688.50; and
(b) Level 4 - $311,618.50."
18.3 Clause 18.3 is added as follows:
"(a) The Lessor must complete the following words ("the
Lessor's Works") to the Premises:
(i) replace ceiling tiles when necessary and restore
the lighting grid on Levels 3 and 4; and
(ii) re-carpet Levels 3 and 4; and
(iii) paint all walls on Levels 3 and 4; and
(iv) instal double entrance doors on Level 3; and
(v) restore to each of Levels 3 and 4 one pair of male
and female amenities
(b) Within seven (7) days of receiving this Lease duly
executed by the Lessee and Guarantors, the Lessor will
apply for council approval of the Lessor's Works. The
Lessor will commence such works within seven (7) days of
receiving council approval and the Lessee will not be
required to pay Minimum Rent until such works have been
substantially completed.
18.4 Subject to:
(a) any council approvals; and
(b) the Lessor's prior written approval which will not be
unreasonably withheld as to the quality, material,
dimensions and design and the precise positioning of the
Lessee's signage
the Lessee may instal a sign at the Lessee's cost above the
external entrance to Level 4 of the Building.
<PAGE>
7
REFERENCE SCHEDULE
ITEM 1 INITIAL RENT (Clause 2.1)
$554,307.00
ITEM 2 A. RENT REVIEW DATES B. CPI REVIEW DATES
(Clause 2.3) (Clause 2.3A)
15 February 2000 On each anniversary of the
Commencing Date
ITEM 3 OPTION PERIOD (Clause 5.1)
Five (5) years
ITEM 4(a) LESSEE'S PERCENTAGE OF INCREASE IN OUTGOINGS (Clause 3.1)
20.45%
ITEM 4(b) BASE YEAR (Clause 3.1)
1997
ITEM 5 CLEANING (Clause 4)
Lessor to clean
ITEM 6 USE (Clause 8.1)
Offices
ITEM 7(a) ACCESS (Clause 8.7)
Restricted 24 hour access
ITEM 7(b) CLOSURE OF BUILDING (Clause 8.8)
Before 8:00am and after 6:00pm on Monday to Friday, Saturdays,
Sundays and Public Holidays
<PAGE>
8
ITEM 8 PUBLIC RISK INSURANCE (Clause 9.1)
Ten Million Dollars ($10,000,000.00)
ITEM 9 GUARANTOR (Clause 14.1)
Not applicable
ITEM 10 INTEREST (Clause 2.14)
15%
ITEM 11 SERVICES PROVIDED BY THE LESSOR (Clause 11.1)
A lift service and air conditioning between the hours of 8:00am
and 6:00pm only on Monday to Friday (excluding Public Holidays
and any other times during which the Premises or the Building
are required to be closed by the Lessor or pursuant to Clause
8.8)
ITEM 12 BANK GUARANTEE (Clause 16.1 and Clause 18.1(b))
An amount equivalent to six (6) months of instalments of Minimum
Rent
<PAGE>
9
THIS IS THE EXECUTION PAGE REFERRED TO IN THE LEASE BETWEEN NESOVA PTY
LIMITED (AS LESSOR) AND WORLD XCHANGE PTY LIMITED (AS LESSEE) DATED THIS 14th
DAY OF JULY 1997
EXECUTED AS A DEED
We hereby certify this Lease to be correct for the purposes of the Real
Property Act, 1900.
THE COMMON SEAL of )
NESOVA PTY LIMITED ) [SEAL]
is affixed by authority of its Board )
of Directors and in the presence of: )
/s/ Greg Shaw /s/ Danny Goldberg
- ------------------------------------- ------------------------------------
Secretary/Director/Authorised Person Director
/s/ Greg Shaw /s/ Danny Goldberg
- ------------------------------------- ------------------------------------
Print name of signatory Print name of signatory
THE COMMON SEAL of )
WORLD XCHANGE PTY LIMITED ) [SEAL]
is affixed by authority of its Board )
of Directors and in the presence of: )
/s/ Roger B. Abbott /s/ Edward S. Soren
- ------------------------------------- ------------------------------------
Director Director
/s/ Roger B. Abbott /s/ Edward S. Soren
- ------------------------------------- ------------------------------------
Print name of signatory Print name of signatory
<PAGE>
CONSENT TO LEASE
LEASE between NESOVA PTY LIMITED (the LESSOR)
AND WORLD XCHANGE PTY LIMITED (the LESSEE)
OF PREMISES AT Levels 3 & 4, 1 Elizabeth Plaza, North Sydney (the PREMISES)
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
ACN 005 357 522 of Level 2, 100 Queen Street, Melbourne (the BANK)
the proprietor of Mortgage No. 2064791
over the land described in the Certificate of Title
Auto Consol 9590-26
at the request of the parties to the subject Lease CONSENTS to the granting
of the Lease and all other provisions of the Lease subject to these
provisions:
- This consent is without prejudice to the right of the Bank to
exercise its rights under its Mortgage subject to the rights of
the Lessee under the Lease.
- When the Bank exercises its rights under its Mortgage, it has
all the rights of the Lessor under the Lease:
- to enforce observance of all covenants in the Lease
relating to the use and occupation of the Premises;
- to exercise all rights, powers, privileges, remedies and
authorities of the Lessor (including all right of re-entry
and all incidental powers); and
- to do all acts and grant all consents and licenses to the
same extent as if those covenants, provisions, rights,
powers, privileges and authorities were given to the Bank.
- If the Bank exercises its rights under its Mortgage and gives a
written notice to the Lessee to pay the rent to it, the Lessee
must pay all future rents and other moneys payable under the
Lease to the Bank, who may demand and sue for them if not paid.
Upon receipt of that notice, the Lease is then deemed to be
executed by the Lessee and the Bank.
- All rights, powers and remedies of the Lessor under the Lease
are not capable of being enforced by the Lessor without the
consent in writing of the Bank until that notice is withdrawn
or the Mortgage is discharged. Until then the Bank will have
the same rights and remedies as the Lessor by virtue of the
Lease, but if the Lessee has any legal or equitable rights of
set-off against the Lessor, the Lessee cannot enforce them
against the Bank.
- Subject to the Lessee's right of quiet enjoyment of the
Premises, the Bank will not be liable to observe or perform any
of the obligations of the Lessor under the Lease unless it
becomes mortgagee in possesion.
<PAGE>
2.
- The Lessor and the Lessee must not:
- agree to assign or mortgage the Lease, or sublet all or
any part of the Premises, or change the use of the Premises;
or
- vary the terms and conditions of the Lease or any renewal
of it without the written consent of the Bank, which it
will not withhold unreasonably.
- If the Lessee does not observe the terms and conditions of this
consent, then the Bank's consent to the granting of the Lease may,
at the option of the Bank, become void and the rights of the Bank
as mortgagee can be enforced without reference to the Lease.
- Any statutory form of consent by the Bank is given without
prejudice to these conditions.
THE BANK AGREES that while the Lessee is not in default under
the Lease it will not interfere with the Lessee's use or
occupation of the Premises even though the Lessor is in default
under the Mortgage.
THE LESSOR AND THE LESSEE accept these conditions.
DATED this 15th day of October 1997.
EXECUTED IN MY PRESENCE BY ) AUSTRALIA AND NEW ZEALAND
GREGORY DAVID RUSSELL ) BANKING GROUP LIMITED
As attorney of AUSTRALIA AND ) By its Attorney
NEW ZEALAND BANKING ) GREGORY DAVID RUSSELL
GROUP LIMITED he being ) And I, the said Attorney,
personally known to me ) state that I have not received
) any Notices of the Revocation
) of the Power of Attorney
) Registered No. 878 Book 4001
) under the authority of which I
) have just executed this
) document.
)
/s/ Belinda Fong ) /s/ [ILLEGIBLE]
--------------------------- ) ------------------------------
Signature of Witness ) ACTING MANAGER SECURITIES for
Belinda Fong ) the time being of Australia
Name of Witness (Block ) and New Zealand Banking Group
Letters) ) Limited for New South Wales.
<PAGE>
THE COMMON SEAL of )
NESOVA PTY LIMITED ) [SEAL]
is affixed by authority of its Board )
of Directors and in the presence of: )
/s/ Greg Shaw /s/ Danny Goldberg
- ------------------------------------ ------------------------------------
Secretary/Director/Authorised Person Director
/s/ Greg Shaw /s/ Danny Goldberg
- ------------------------------------ ------------------------------------
Print name of signatory Print name of signatory
THE COMMON SEAL of )
WORLD XCHANGE PTY LIMITED ) [SEAL]
is affixed by authority of its Board )
of Directors and in the presence of: )
/s/ R.A.D. Vincent /s/ John A. Brennan
- ------------------------------------ ------------------------------------
Secretary Director
/s/ R.A.D. Vincent /s/ John A. Brennan
- ------------------------------------ ------------------------------------
Print name of signatory Print name of signatory
<PAGE>
- -----------------------------------------------------------------------------
UNIVISION CENTER
- -----------------------------------------------------------------------------
OFFICE LEASE AGREEMENT
Between
BEVERLY HILLS CENTER LLC
as Landlord
and
COMMUNICATION TELESYSTEMS INTERNATIONAL
DBA WORLDXCHANGE COMMUNICATIONS
as Tenant
Dated
May 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Paragraph 1. DEFINITIONS AND BASIC PROVISION . . . . . . . . . . . . . . . . . .1
Paragraph 2. GRANTING CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Paragraph 3. EARLY OCCUPANCY . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Paragraph 4. RENTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Paragraph 5. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Paragraph 6. SERVICES TO BE PROVIDED BY LANDLORD . . . . . . . . . . . . . . . . .3
Paragraph 7. REPAIR AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . .5
Paragraph 8. FIRE OR OTHER CASUALTY . . . . . . . . . . . . . . . . . . . . . . . .5
Paragraph 9. COMPLIANCE WITH LAWS AND USAGE . . . . . . . . . . . . . . . . . . . .6
Paragraph 10. LIABILITY AND INDEMNITY . . . . . . . . . . . . . . . . . . . . . . .6
Paragraph 11. ADDITIONS AND FIXTURES . . . . . . . . . . . . . . . . . . . . . . . .7
Paragraph 12. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . .7
Paragraph 13. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Paragraph 14. OPERATING EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . 10
Paragraph 15. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Paragraph 16. ACCESS BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . 12
Paragraph 17. LANDLORD'S LIEN . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Paragraph 18. DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Paragraph 19. NONWAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Paragraph 20. HOLDING OVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Paragraph 21. COMMON AREA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Paragraph 22. RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . 15
Paragraph 23. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Paragraph 24. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Paragraph 25. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Paragraph 26. PERSONAL LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 16
Paragraph 27. NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Paragraph 28. LANDLORD'S MORTGAGE . . . . . . . . . . . . . . . . . . . . . . . . 16
Paragraph 29. BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Paragraph 30. PREPAID RENTAL AND SECURITY DEPOSIT . . . . . . . . . . . . . . . . 16
Paragraph 31. SPRINKLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Paragraph 32. INTERCONNECTION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 17
Paragraph 33. EMERGENCY GENERATOR . . . . . . . . . . . . . . . . . . . . . . . . 18
i
<PAGE>
Paragraph 34. SUPPLEMENTAL HVAC . . . . . . . . . . . . . . . . . . . . . . . . . 18
Paragraph 35. DELIVERY OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . 19
Paragraph 36. REMOVAL OF ABOVE-CEILING ALTERATIONS . . . . . . . . . . . . . . . . 19
Paragraph 37. RENEWAL OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Paragraph 38. ROOFTOP RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Paragraph 39. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Paragraph 40. ENTIRE AGREEMENT AND BINDING EFFECT . . . . . . . . . . . . . . . . 23
EXHIBIT A LEASED PREMISES
EXHIBIT B LAND
EXHIBIT C RULES AND REGULATIONS
</TABLE>
ii
<PAGE>
OFFICE LEASE AGREEMENT
1. DEFINITIONS AND BASIC PROVISIONS.
A. Date of Lease: MAY 26, 1998. 1.E (1) Foothill Capital Corporation
11111 Santa Monica Boulevard
B. "Landlord": Beverly Hills Center LLC Suite 1500
Los Angeles, CA 90025
C. Address of Landlord: Attn: Documentation Department
2323 Bryan Street, Suite 2020
Lock Box 120
Dallas, Texas 75201
D. "Tenant": Communication Telesystems International
dba WorldxChange Communications
E. Address of Tenant:
9999 WILLOW CREEK ROAD
----------------------
SAN DIEGO, CA 92131
----------------------
F. "Building": The structure commonly known as the Univision Center
and which is located on the 0.8437 acre tract of land (the "Land") described by
metes and bounds on EXHIBIT B attached hereto and made a part hereof for all
purposes and whose address is 2323 Bryan Street, Dallas, Texas 75201.
G. "Leased Premises": Approximately 6,598 square feet of rentable
area on the fifteenth (15th) floor of the Building, as outlined and hatched on
the floor plan attached hereto as EXHIBIT A and made a part hereof for all
purposes. Tenant acknowledges that Tenant has had the opportunity to measure the
Leased Premises and that there has been applied to the usable square footage of
the Leased Premises a common area factor to arrive at the rentable square
footage of the Leased Premises. Therefore, Landlord and Tenant hereby stipulate
that notwithstanding anything herein to the contrary, the Leased Premises shall
be deemed to consist of 6,598 rentable square feet, and that no shortage or
overage in the rentable square feet of the Leased Premises purported by either
party shall be the basis for changing the number of rentable square feet herein
stipulated.
H. "Project": The Building, the parking facilities, parking garage,
the Skybridge and other structures, improvements, landscaping, fixtures,
appurtenances and other common areas now or hereafter, constructed or erected on
the Land.
I. "Rentable area in the Building" shall be 464,542 square feet of
rentable area, unless modified as provided herein.
J. "Commencement Date": February 15, 1998, or the date upon which
Tenant occupies the Leased Premises with the prior written consent of Landlord,
whichever shall first occur. Upon request of either party hereto, Landlord and
Tenant agree to execute and deliver a written declaration in recordable form
expressing the Commencement Date hereof.
K. "Term": Commencing on the Commencement Date and ending five (5)
years after the Commencement Date, plus any partial calendar month following the
Commencement Date, unless sooner terminated as provided herein.
L. "Base Rental" $164,950.00 per year for the first five (5) years
of the Term of this Lease, representing rental of $164,950.00 per year with
respect to the Leased Premises and a riser fee (the "Riser Fee") of $- 0 - per
year based upon Tenant's installation of nine (9) diameter inches of conduits or
equivalent cable runs (the "Initial Conduits") in the riser facilities of the
Building, payable in equal monthly installments of $13,745.83 each; each such
monthly installment shall be due and payable on the first day of each calendar
month, monthly in advance without demand and without setoff or deduction
whatsoever, except as otherwise specifically stated in this Lease. In the event
at Tenant's request Landlord permits Tenant to install additional conduits or
equivalent cable runs, Tenant shall pay an additional riser fee with respect to
such additional installations in an amount equal to the then prevailing market
riser fee rate; provided, however, that during the first five (5) years of the
Term, such additional riser fee shall be $250.00 per month per diameter inch of
additional conduit or equivalent cable run. The foregoing shall apply to all
conduits and equivalent cable runs used by Tenant, including, without
limitation, conduits and equivalent cable runs related to Tenant's
interconnection rights set forth in Paragraph 32, the Generator Installation and
the HVAC Installation (as defined in Paragraphs 33 and 34, respectively) which
exceed the Initial Conduits.
M. "Prepaid Rental": $13,745.83, to be applied to the first accruing
monthly installments of rental.
-1-
<PAGE>
N. "Security Deposit": $13,745.83.
0. "Permitted Use": The Leased Premises shall be used only for
office purposes and/or for the installation, maintenance, and operation of a
telecommunications facility, switching, operations and terminal service and
repair of Tenant's equipment and storage.
P. "Common Area": That part of the Project designated by Landlord
from time to time for the common use of all tenants, including among other
facilities, the Skybridge, sidewalks, service corridors, curbs, truckways,
loading areas, private streets and alleys, lighting facilities, mechanical and
electrical rooms, janitors' closets, halls, lobbies, delivery passages,
elevators, drinking fountains, meeting rooms, public toilets, parking areas and
garages, decks and other parking facilities, landscaping and other common rooms
and common facilities.
Q. "Prime Rate": The rate announced as such from time to time by
Chase Manhattan Bank, N.A., or its successors, at its principal office.
R. "Broker": The MTA Company
S. "Parking": Three (3) parking spaces, subject, however, to the
payment of prevailing market rental established from time to time for similar
parking spaces and further subject to the other terms, covenants and conditions
specified in Paragraph 25 hereof. Notwithstanding the foregoing or anything in
Paragraph 25 to the contrary, during the first five (5) years of the Term,
Tenant's rental obligations with respect to such three (3) parking spaces shall
be $120.00 (plus applicable taxes) per month per parking space utilized for a
vehicle and $250.00 (plus applicable taxes) per month per parking space utilized
for equipment.
T. "Base Operating Expenses Rate": The Actual Operating Expenses
Rate for the 1998 calendar year.
U. "Skybridge": The aerial walkway connecting the Building with the
Plaza of the Americas, together with any alterations, improvements and/or
replacements thereof.
Each of the foregoing definitions and basic provisions shall be
construed in conjunction with the references thereto contained in the other
provisions of this Lease and shall be limited by such other provisions. Each
reference in this Lease to any of the foregoing definitions and basic provisions
shall be construed to incorporate each term set forth above under such
definition or provision.
2. GRANTING CLAUSE. Landlord, in consideration of the covenants and
agreements to be performed by Tenant and upon the terms and conditions
hereinafter stated, does hereby lease, demise and let unto Tenant, and Tenant
does hereby lease from Landlord, the Leased Premises specified in Paragraph 1.G.
hereof to have and to hold for the Term of this Lease, as specified in Paragraph
1.K. hereof.
3. EARLY OCCUPANCY. Landlord shall permit Tenant and Tenant's agents
to enter the Leased Premises prior to the Commencement Date in order that
Tenant may perform the Tenant Finish Work (as defined in Paragraph 35 hereof)
through Tenant's own contractors. The foregoing license to enter prior to the
Commencement Date is conditioned upon Tenant's workmen and mechanics working
in harmony and not materially interfering with the labor employed by
Landlord, Landlord's mechanics or contractors or with any other tenant or
their contractors. Such license is further conditioned upon workers'
compensation and public liability insurance and property damage insurance,
all in amounts and with companies and on forms reasonably satisfactory to
Landlord, being provided and at all times maintained by Tenant's contractors
engaged in the performance of the Tenant Finish Work, and certificates of
such insurance being furnished to Landlord prior to proceeding with the work.
If at any time such entry shall cause material disharmony or interference to
other tenants, contractors or labor for any reason whatsoever including,
without limitation, strikes or other work stoppages and if Tenant has not
caused such disharmony or interference to cease promptly following notice
thereof to Tenant, then this license may be revoked by Landlord until such
disharmony or interference ceases. Any occupancy of the Leased Premises by
Tenant prior to the Commencement Date shall be subject to all of the terms
and provisions of this Lease excepting only those requiring the payment of
rental and other charges.
4. RENTAL. As rental for the lease and use of the Leased Premises,
Tenant will pay Landlord or Landlord's assigns, at the address of Landlord
specified in Paragraph 1.C. hereof, without demand and without deduction,
abatement or setoff (except as otherwise expressly provided for herein in
Paragraph 6 hereof, Paragraph 8 hereof and Paragraph 15 hereof), the Base
Rental in the manner specified in Paragraph 1.L. hereof, in lawful money of
the United States. If the Term of this Lease does not commence on the first
day of a calendar month, tenant shall pay to landlord in advance a pro rata
part of such sum as rental for such first partial month. Tenant shall not pay
any installment of rental more than one (1) month in advance. All past due
installments of rental or other payment specified herein after applicable
notice and cure period shall bear interest at the highest lawful rate per
annum from the date due until paid.
If Tenant fails to timely pay two (2) consecutive installments of Base
Rental, or other payment specified herein, or any combination thereof, after
any applicable notice and cure period, Landlord may require Tenant to
-2-
<PAGE>
pay (in addition to any interest) Base Rental and other payments specified
herein (as reasonably estimated by Landlord, if necessary) quarterly in
advance, and, in such event, all future payments shall be made on or before
the due date in cash or by cashier's check or money order, and the delivery
of Tenant's personal or corporate check shall no longer constitute payment
thereof. Any acceptance of Tenant's personal or corporate check thereafter by
Landlord shall not be construed as a waiver of the requirement that such
payments be made in cash or by cashier's check or money order. Any amount so
estimated by Landlord and paid by Tenant shall be adjusted promptly after
actual figures become available and paid or credited to Landlord or Tenant,
as the case may be.
5. USE. Tenant shall use the Leased Premises solely for the Permitted Use
specified in Paragraph 1.O hereof and for no other business or purpose without
the prior written consent of Landlord.
6. SERVICES TO BE PROVIDED BY LANDLORD.
A. Subject to the rules and regulations hereinafter referred to,
Landlord shall furnish Tenant, at Landlord's expense, the following services
during the Term of this Lease:
(1) Air conditioning and heating in season, at such times as Landlord
normally furnishes such services to other tenants in the Building, and at
such temperatures and in such amounts as are reasonably considered by
Landlord to be standard, but such service on Saturday afternoons, Sundays
and holidays to be furnished only upon the request of Tenant, who shall
bear the actual cost thereof. Tenant acknowledges that such service and
temperature may be subject to change by local, county, state or federal
regulation. Whenever machines or equipment that generate abnormal heat are
used in the Leased Premises which affect the temperature otherwise
maintained by the air conditioning system, Landlord shall have the right to
install supplemental air conditioning in the Leased Premises, and the
reasonable cost thereof, including the cost of installation, operation, use
and maintenance, shall be paid by Tenant to Landlord as additional rental
upon demand.
(2) Hot and cold water at those points of supply provided for general
use.
(3) Janitor service in and about the Building, and the Leased
Premises, as may be reasonably required; however, Tenant shall pay the
additional costs attributable to the cleaning of improvements within the
Leased Premises other than building standard improvements.
(4) Elevators for ingress to and egress from the Building as may be
reasonably required. Landlord may reasonably limit the number of elevators
in operation after usual and customary business hours and on Saturday
afternoons, Sundays and legal holidays, but, in all events except in cases
of emergency, at least one elevator shall be available.
(5) Replacement of fluorescent lamps in the building standard ceiling
mounted fixtures installed by Landlord and incandescent bulb replacement in
all public areas.
(6) 24 hours access to the Leased Premises, subject to Landlord's
reasonable security measures.
B. Landlord shall provide or cause to be provided to the Leased
Premises electrical current equal to the capacity of 200 amps, 480 volts
which shall originate from the Building's provided busway. Tenant shall be
responsible, at Tenant's sole cost, for the installation and disconnection of
Tenant's equipment and all costs to transform such electrical service to meet
Tenant's electrical needs, including, without limitation, the purchase and
installation of any transformers. Provided Tenant makes such election and
performs such work during the construction of the Tenant Finish Work,
Landlord shall increase Tenant's electrical capacity, provided Tenant pays to
Landlord an amount equal to $7,500.00 for each increase of 200 amps, 480
volts and that Tenant pay all costs related to the installation and
disconnection of Tenant's equipment and all costs to transform such
additional electrical service to meet Tenant's electrical needs. Without
Landlord's prior written consent, which consent shall not be unreasonably
withheld, Tenant shall not install any equipment which would result in
Tenant's connected load exceeding 3.0 watts per square foot of rentable area
within the Leased Premises or which would generate sufficient heat to affect
the temperature otherwise maintained in the Leased Premises by the normal
operation of the Building air conditioning equipment serving the Leased
Premises. The obligation of Landlord to provide or cause to be provided
electrical service shall be subject to the rules and regulations of the
supplier of such electricity and of any municipal or other governmental
authority regulating the business of providing electrical utility service.
Landlord shall not be liable or responsible to Tenant for any loss, damage or
expense which Tenant may sustain or incur if either the quantity or character
of the electric service is changed or is no longer available or no longer
suitable for Tenant's requirements. At any time when Landlord is furnishing
electric current to the Leased Premises pursuant to this Paragraph 6.B.,
Landlord may, at its option, upon not less than thirty (30) days prior
written notice to Tenant, discontinue the furnishing of such electric
current. If Landlord gives such notice of discontinuance, Landlord shall make
all reasonably necessary arrangements with the public utilities supplying the
electric current to the Project (as defined in Paragraph 14) with respect to
connecting electric current to the Leased Premises, but Tenant shall contract
directly with such public utility with respect to supplying such service.
Electrical usage in the Leased Premises shall be measured by installing a
submeter. The cost of purchase and installation of a submeter in the Leased
Premises shall be borne by Tenant.
-3-
<PAGE>
C. Tenant shall be obligated to pay to Landlord, as additional
rental, (1) Tenant's proportionate share of all electrical service to the Common
Area (collectively, "Common Area Electrical Service") and (2) the cost of
electrical service to the Leased Premises. Tenant's proportionate share of the
cost of Common Area Electrical Service shall be equal to the actual cost of such
service times a fraction in which the numerator is the rentable area of the
Leased Premises and the denominator is the rentable area of the Building. The
electrical service to the Leased Premises shall be submetered at Tenant's
expense. The cost of electrical service shall include without limitation all
fuel adjustment charges, demand charges and taxes. If, during any period of
time, the Building is 95% or less leased, then, for purposes of this Paragraph
6.C., the area of the Building shall be deemed to mean and include that portion
of the Building which is occupied (calculated on the basis of rentable area).
D. Prior to the Commencement Date, Landlord shall deliver to Tenant
a statement which sets forth the Estimated Monthly Charge (as hereinafter
defined) due and payable by Tenant under the terms of Paragraph 6.C. hereof for
electrical service each month during the Term. Tenant shall pay to Landlord on
the first day of each calendar month during the Term, commencing with the
Commencement Date, as additional rental, the Estimated Monthly Charge. In the
event the Commencement Date occurs on a day other than the first day of a
calendar month, the Estimated Monthly Charge payable in respect of the month in
which the Commencement Date falls shall be prorated and the Estimated Monthly
Charge, as so prorated, shall be due and payable on or before the Commencement
Date. Thereafter, as the actual amounts owed by Tenant for Tenant's
proportionate share of Common Area Electrical Service and electrical service to
the Leased Premises are determined, Landlord shall deliver to Tenant a statement
setting forth the electrical service utilized during the period in question and
the actual amount owed by Tenant under the terms of Paragraph 6.C. hereof in
respect of such electrical service. If the Estimated Monthly Charge previously
paid by Tenant is less than the amount owed by Tenant based upon Landlord's
actual utility bills (for the period covered in such bills), Tenant shall pay to
Landlord the amount of the deficiency for such period within ten (10) days after
receipt of Landlord's statement. In the event the Estimated Monthly Charge
exceeds Tenant's proportionate share of such costs, the excess payment shall be
credited against subsequent amounts due from Tenant for electrical service or
paid promptly to Tenant if the Term of this Lease has expired. From time to time
Landlord shall review the Estimated Monthly Charge and make such adjustments as
may appear to be appropriate in the reasonable discretion of Landlord. Landlord
shall have the right to revise the Estimated Monthly Charge at any time and from
time to time in the exercise of Landlord's reasonable judgment upon at least ten
(10) days prior written notice to Tenant. All payments due under this paragraph
6.D. after the expiration of such ten (10) day period shall be increased or
decreased as may be required to make such payments consistent with such revised
Estimated Monthly Charge. As used in this Paragraph 6.D., the term "Estimated
Monthly Charge" shall mean Landlord's reasonable estimate of the amount due and
payable by Tenant each month during the Term with respect to Tenant's
proportionate share of Common Area Electrical Service and electrical service to
be provided to the Leased Premises.
E. If Tenant's connected load for electrical design exceeds 3.0
watts per square foot and Tenant's usage is not being measured per subparagraph
B. above, Tenant shall pay as a surcharge a proportionate part of all electrical
service costs which are attributable to the aggregate over-standard electrical
consumption by all tenants in the Building. Such proportion shall be equal to
the product of the aggregate cost of all over-standard electrical consumption in
the Building (as reasonably determined by Landlord) times a fraction in which
the numerator is Tenant's electrical design load in excess of 3.0 watts per
square foot and the denominator is the aggregate of the total electrical design
load of all tenants in the Building in excess of 3.0 watts per square foot.
Tenant's proportionate share of such sums shall be due within ten (10) days
after the date of receipt of a statement therefor from Landlord setting forth
the amount of the charges involved and calculating Tenant's proportionate share
thereof.
F. No interruption or malfunction of any of such services shall
constitute an eviction or disturbance of Tenant's use and possession of the
Leased Premises or the Building or a breach by Landlord of any of Landlord's
obligations hereunder or render Landlord liable for damages or entitle Tenant to
be relieved from any of Tenant's obligations hereunder (including the obligation
to pay rental) or grant Tenant any right of setoff or recoupment. In the event
of any such interruption, however, Landlord shall use reasonable diligence to
restore such service or cause same to be restored in any circumstances in which
such restoration is within the reasonable control of Landlord. Notwithstanding
the foregoing, in the event that an interruption of any of those services to be
provided by Landlord under this Paragraph 6 shall render the Leased Premises
untenantable, such interruption was not caused by any act or omission of Tenant
or Tenant's employees, agents or contractors and such interruption shall
continue for a period in excess of five (5) consecutive business days, then
Tenant's Base Rental obligations under the Lease shall abate for such period
which exceeds five (5) consecutive business days; provided, however, that such
rental abatement shall be on a pro rata basis to reflect only that portion of
the Leased Premises affected by the interruption of services. The abatement of
rent provided for in this paragraph shall not be applicable in the case of any
interruption or malfunction resulting from a reduction or elimination of
electrical service to the Building from the electrical utility company or
governmental agency providing such electrical service or change in quality of
such service, nor shall such abatement be applicable in the event of any
interruption or malfunction of services due to regulations of any government or
governmental authority or any utility company providing electrical service
provided such interruption or malfunction is not due to the failure of Landlord
to make payment for such service or the failure to comply or perform its
contractual obligations or Landlord's failure to comply with existing applicable
rules or regulations. In the event (i) such interruption of services (A) was not
the result of a casualty described in
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Paragraph 8 of this Lease, (B) was not caused in whole or in part by Tenant or
Tenant's agents, employees or contractors, and (C) renders the Leased Premises
untenantable, (ii) the curing of such interruption of services is within the
reasonable control of Landlord, and (iii) such interruption of services shall
not be cured within sixty (60) days following the occurrence of such
interruption, Tenant shall have the right to terminate this Lease by delivering
to Landlord sixty (60) days notice of such termination.
G. Should Tenant desire any additional services beyond those
described in this Paragraph 6 hereof or rendition of any of such services
outside the normal times of Landlord for providing such service, Landlord may
(at Landlord's option), upon reasonable advance notice from Tenant to Landlord,
furnish such services, and Tenant agrees to pay Landlord such charges as may be
agreed on between Landlord and Tenant, but in no event at a charge less than
Landlord's actual cost plus overhead for the additional services provided.
7. REPAIR AND MAINTENANCE.
A. Landlord shall, at Landlord's own cost and expense, except as may
be provided elsewhere herein, make necessary repairs of damage to the Building
corridors, lobby, structural members of the Building and equipment used to
provide the services referred to in Paragraph 6 hereof, except to the extent any
such damage is caused by acts or omission of Tenant, or Tenant's agents,
employees or invitees, in which event, Tenant shall bear the cost of such
repairs to the extent so caused by Tenant, or Tenant's agents, employees or
invitees. Tenant shall promptly give Landlord notice of any damage in the Leased
Premises requiring repair by Landlord, as aforesaid.
B. Tenant shall not in any manner deface or injure the Leased
Premises or the Building but shall maintain the Leased Premises, including,
without limitation, all fixtures installed by Tenant and all plate glass, walls,
carpeting and other floor covering placed or found therein, in a clean,
attractive, first-class condition and in good repair, except as to damage
required to be repaired by Landlord, as provided in Paragraph 7.A. hereof. Upon
the expiration of the Term of this Lease, Tenant shall surrender and deliver up
the Leased Premises with all improvements located thereon (except as provided in
Paragraph 11.B. hereof) to Landlord broom-clean and in the same condition in
which they existed at the commencement of the Lease, excepting only ordinary
wear and tear and damage arising from any cause not required to be repaired by
Tenant, failing which Landlord may restore the Leased Premises to such
condition, and Tenant shall pay the cost thereof.
8. FIRE AND OTHER CASUALTY.
A. Notwithstanding anything in the Lease to the contrary, if the
Leased Premises or any portion of the Building shall be damaged or destroyed by
fire or other casualty, then Landlord shall have the right, at its sole
election, to terminate the Lease with written notice thereof to Tenant, but only
in the event that any one of the following conditions is met or circumstances
apply:
(i) such event of casualty shall occur in the last twelve
(12) months of the Term of the Lease;
(ii) such event of casualty is not covered by the property
insurance policy or policies procured and maintained by Landlord with
respect to the Building and the Leased Premises, and the necessary
repair and restoration of the Leased Premises and/or the Building
would cost in excess of $500,000.00;
(iii) the mortgagee under any mortgage or deed of trust
covering the Building shall require that any insurance proceeds
payable as a result of such event of casualty be withheld and applied
against the mortgage debt, and the necessary repair and restoration of
the Leased Premises and/or the Building would cost in excess of
$500,000.00; or
(iv) all other leases in the Building are terminated as a
result of such event of casualty.
B. In the event that Landlord shall not elect (or should not have
the right to elect) to terminate the Lease in the event of casualty as provided
above, and subject to Tenant's not exercising its right to terminate the Lease
in the event of casualty as hereinafter provided, Landlord, using all due
diligence, shall repair and restore the Building and the Leased Premises to
substantially the same condition in which they existed prior to such damage or
destruction, except that Landlord shall in no event be required to rebuild,
repair or replace any part of the partitions, fixtures and other improvements
installed by Tenant or other tenants within the Building.
C. In the event that the Leased Premises are damaged or destroyed by
fire or other casualty, or a portion of the Building is damaged or destroyed by
fire or other casualty so as to materially impair the use and occupancy by
Tenant of the Leased Premises, then Landlord shall be obligated to provide
written notice (the "Restoration Notice") to Tenant within sixty (60) days of
such event of casualty stating a good faith estimate, certified by an
independent architect, of the period of time (the "Stated Restoration Period")
which shall be required for the repair and restoration of the Leased Premises
and/or the Building. Tenant shall have the right, at its election, to terminate
the Lease if (i) such event of casualty shall occur in the last twelve (12)
months of the Term of the Lease, or (ii) either (A) the Stated Restoration
Period shall be in excess of one hundred eighty (180) days following the event
of casualty and Tenant terminates the Lease with written notice thereof to
Landlord within thirty (30) days following delivery of the Restoration Notice,
or (B) Landlord shall fail to substantially
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complete the repair and restoration of the Leased Premises or the Building
within the Stated Restoration Period (subject to extension as provided in
Paragraph 32.T. of the Lease) and Tenant delivers written notice of such
termination to Landlord within ten (10) days following the expiration of the
restoration deadline.
D. In any of the aforesaid circumstances, rental shall abate
proportionately during the period and to the extent that the Leased Premises are
unfit for use by Tenant in the ordinary conduct of Tenant's business. In the
event that this Lease is terminated as herein permitted, Landlord shall refund
to Tenant the prepaid rental (unaccrued as of the date of damage or destruction)
less any sum then owing Landlord by Tenant. If this Lease continues, then the
Term of this Lease shall be extended by a period of time equal to the period of
such repair and reconstruction. Any insurance which may be carried by Landlord
or Tenant against loss or damage to the Building or to the Leased Premises shall
be for the sole benefit of the party carrying such insurance under its control,
and it is understood that Landlord shall in no event be obligated to carry
insurance on Tenant's contents.
9. COMPLIANCE WITH LAWS AND USAGE. Tenant, at Tenant's own expense, (a)
shall comply with all federal, state, municipal, fire underwriting and other
laws, ordinances, orders, rules and regulations applicable to the Leased
Premises and the business conducted therein by Tenant, (b) shall not engage in
any activity which would cause Landlord's fire and extended coverage insurance
to be canceled or the rate therefor to be increased (or, at Landlord's option,
Tenant shall pay any such increase to Landlord immediately upon demand as
additional rental in the event of such rate increase by reason of such
activity), (c) shall not commit, and shall cause Tenant's agents, employees and
invitees not to commit, any act which is a nuisance or unreasonable annoyance to
Landlord or to other tenants, or which might, in the reasonable judgment of
Landlord, damage Landlord's goodwill or reputation, or tend to unreasonably
injure or depreciate the Building, (d) shall not commit or permit waste in the
Leased Premises or the Building, (e) shall comply with rules and regulations
from time to time reasonably promulgated by Landlord applicable to the Leased
Premises and/or the Building, (f) shall not paint, erect or display any sign,
advertisement, placard or lettering which is visible in the corridors or lobby
of the Building or from the exterior of the Building without Landlord's prior
written approval, and (g) shall not occupy or use, or permit any portion of
the Leased Premises to be occupied or used, for any business or purpose other
than the Permitted Use specified in Paragraph 1.O. hereof. If a controversy
arises concerning Tenant's compliance with any federal, state, municipal or
other laws, ordinances, orders, rules or regulations applicable to the Leased
Premises and the business conducted therein by Tenant, Landlord may retain
independent consultants of recognized standing to investigate Tenant's
compliance. If it is determined by such independent consultant that Tenant has
not complied as required, Tenant shall reimburse Landlord on demand for all
actual and reasonable consulting and other costs incurred by Landlord in such
investigation. Landlord and Tenant acknowledge that, in accordance with the
provisions of the Americans with Disabilities Act of 1990 and the Texas
Elimination of Architectural Barriers Act, each as amended from time to time,
and all regulations and guidelines issued by authorized agencies with respect
thereto (collectively, the "ADA" and the "EAB", respectively), responsibility
for compliance with the terms and conditions of Title III of the ADA and the EAB
may be allocated as between Landlord and Tenant. Notwithstanding anything to the
contrary contained in the Lease, Landlord and Tenant agree that the
responsibility for compliance with the ADA and the EAB shall be allocated as
follows: (i) Tenant shall be responsible for compliance with the provisions of
Title III of the ADA and with the provisions of the EAB with respect to the
Leased Premises, including restrooms within the Leased Premises, and (ii)
Landlord shall be responsible for compliance with the provisions of Title III of
the ADA and with the provisions of the EAB with respect to the exterior of the
Building, parking areas, sidewalks and walkways, and any and all areas
appurtenant thereto, together with all common areas of the Building not included
within the Leased Premises. The allocation of responsibility for ADA and EAB
compliance between Landlord and Tenant, and the obligations of Landlord and
Tenant established by such allocations, shall supersede any other provisions of
the Lease that may contradict or otherwise differ from the requirements of this
paragraph.
10. LIABILITY AND INDEMNITY.
A. Tenant agrees to indemnify and save Landlord harmless from all
third-party claims (including costs and expenses of defending against such
claims) arising or alleged to arise from any negligent act or omission or
willful misconduct of Tenant or Tenant's agents, employees, or contractors.
Landlord agrees to indemnify and save Tenant harmless from all third-party
claims (including costs and expenses of defending against such claims) arising
or alleged to arise from any negligent act or omission or willful misconduct of
Landlord or Landlord's agents, employees or contractors.
B. Notwithstanding any provision in this Lease to the contrary,
Landlord and Tenant each hereby waives any and all rights of recovery, claim,
action, or cause of action, against the other, its agents, officers, or
employees, for any loss or damage that may occur to the Leased Premises, or
any improvements thereto, or the Building of which the Leased Premises are a
part, or any improvements thereto, or any personal property of such party,
therein, by reason of fire, the elements, or any other cause which is or
would be insured against under the terms of the property insurance policies
carried or required to be carried under the terms of this Lease by the
respective parties hereto, regardless of cause or origin, including
negligence of the other party hereto, its agents, officers, or employees, and
covenants that no insurer shall hold any right of subrogation against such
other party (and all such insurance policies shall be amended or endorsed to
reflect such waiver of subrogation). This waiver of subrogation provision
shall be effective to the full extent, but only to the extent that it does
not impair the effectiveness of insurance policies of Landlord and Tenant.
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C. Tenant, to the extent permitted by law, waives all claims Tenant
may have against Landlord, and against Landlord's agents and employees for
injury to person or damage to or loss of property sustained by Tenant or by any
occupant of the Leased Premises, or by any other person, resulting from any part
of the Building or any equipment or appurtenances becoming out of repair, or
resulting from any accident in or about the Building or resulting directly or
indirectly from any act or neglect of any tenant or occupant of any part of the
Building or of any other person, unless such damage is a result of the
negligence or willful misconduct of Landlord, or Landlord's agents or employees
or Landlord's default in the performance of its obligations under this Lease. If
any damage results from any act or neglect of Tenant and if the cost of repair
of such damage would not be covered by a fire and extended coverage insurance
policy maintained by Landlord on the Project, then Landlord may, at Landlord's
option, repair such damage, and Tenant shall thereupon pay to Landlord the total
cost of such repair. All personal property belonging to Tenant or any occupant
of the Leased Premises that is in or on any part of the property belonging to
Tenant or any occupant of the Leased Premises that is in or on any part of the
Building shall be there at the risk of Tenant or of such other person only, and
Landlord, Landlord's agents and employees shall not be liable for any damage
thereto or for the theft or misappropriation thereof unless such damage, theft
or misappropriation is a result of the negligence or willful misconduct of
Landlord or Landlord's agents or employees.
11. ADDITIONS AND FIXTURES.
A. Tenant will make no alteration, change, improvement, repair,
replacement or physical addition in or to the Leased Premises without the prior
written consent of Landlord which consent shall not be unreasonably withheld. If
such prior written consent of Landlord is granted, the work in such connection
shall be at Tenant's expense but by workmen of Landlord or by workmen and
contractors reasonably approved in advance in writing by Landlord and in a
manner and upon terms and conditions and at times satisfactory to and approved
in advance in writing by Landlord. In any instance where Landlord grants such
consent, Landlord may grant such consent contingent and conditioned upon
Tenant's contractors, laborers, materialmen and others furnishing labor or
materials for Tenant's job working in harmony and not interfering with any labor
utilized by Landlord, Landlord's contractors or mechanics or by any other tenant
or such other tenant's contractors or mechanics; and if at any time such entry
by one (1) or more persons furnishing labor or materials for Tenant's work shall
cause disharmony or interference for any reason whatsoever without regard to
fault, the consent granted by Landlord to Tenant may be withdrawn at any time
upon written notice to Tenant.
B. Tenant, if Tenant so elects, may remove Tenant's trade fixtures,
office supplies and movable office furniture and equipment not attached to the
Building provided (i) such removal is made prior to the expiration of the Term
of this Lease, (ii) Tenant is not in default of any obligation or covenant under
this Lease at the time of such removal, and (iii) Tenant promptly repairs all
damage caused by such removal. All other property at the Leased Premises and any
alteration or addition to the Leased Premises (including wall-to-wall carpeting,
paneling or other wall covering) and any other article attached or affixed to
the floor, wall or ceiling of the Leased Premises shall become the property of
Landlord shall be in good condition, normal wear and tear excepted, and shall
remain upon and be surrendered with the Leased Premises as part thereof at the
expiration of the Term of this Lease, Tenant hereby waiving all rights to any
payment or compensation therefor. If, however, Landlord so requests in writing,
Tenant will, prior to the termination of this Lease, remove in a good and
workmanlike manner any and all alterations, additions, fixtures, equipment and
property placed or installed by Tenant in the Leased Premises and will repair
any damage occasioned by such removal.
12. ASSIGNMENT AND SUBLETTING.
A. Neither Tenant nor Tenant's legal representatives or
successors in interest by operation of law or otherwise shall assign this
Lease or sublease the Leased Premises or any part thereof or mortgage, pledge
or hypothecate its leasehold interest or grant any concession or license
within the Leased Premises without the prior express written permission of
Landlord, which permission shall not be unreasonably withheld, and any
attempt to do any of the foregoing without the prior express written
permission of Landlord shall be void and of no effect. In determining whether
to grant permission to Tenant's request to assign this lease or sublease the
Leased Premises, Landlord may consider any reasonable factor. Landlord and
Tenant agree that any one of the following factors, or any other reasonable
factor, will be reasonable grounds for deciding Tenant's request:
(i) The business reputation of the proposed assignee or
sublessee must be in accordance with generally acceptable commercial
standards and consistent with a class A office building environment;
(ii) The use of the Leased Premises by the proposed assignee
or sublessee must be only for the use permitted under this Lease;
(iii) The proposed assignee or sublessee may not be a tenant or
occupant in the Building, unless (a) such tenant or occupant is then
leasing premises on the same floor of the Building as Tenant or on a
floor immediately above or below the Leased Premises, and (b) the
Building is at least 95% leased; and
(iv) The use of the Leased Premises by the proposed assignee
or sublessee shall not violate any other agreements affecting the
Leased Premises, the Building, Landlord or other tenants.
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In the event Tenant requests Landlord's prior express permission as to any such
assignment, sublease or other transaction, Landlord shall have the right and
option, as of the requested effective date of such assignment, sublease or other
transaction (but no obligation), to cancel and terminate this Lease as to the
portion of the Leased Premises with respect to which Landlord has been requested
to permit such assignment, sublease or other transaction, and if Landlord elects
to cancel and terminate this Lease as to the aforesaid portion of the Leased
Premises, then the rental and other charges payable hereunder shall thereafter
be proportionately reduced. In the event of any such attempted assignment or
attempted sublease, or should Tenant, in any other nature of transaction, permit
or attempt to permit anyone to occupy the Leased Premises (or any portion
thereof) without the prior express written permission of Landlord, Landlord
shall thereupon have the right and option to cancel and terminate this Lease
effective upon ten (10) days' notice to Tenant given by Landlord at any time
thereafter either as to the entire Leased Premises or as to only the portion
thereof which Tenant shall have attempted to assign or sublease or otherwise
permitted some other party's occupancy without Landlord's prior express written
permission, and if Landlord elects to cancel and terminate this Lease as to the
aforesaid portion of the Leased Premises, then the rental and other charges
payable hereunder shall thereafter be proportionately reduced. This prohibition
against assignment or subletting shall be construed to include a prohibition
against any assignment or subletting by operation of law.
B. Notwithstanding that the prior express written permission of
Landlord to any of the aforesaid transactions may have been obtained, the
following shall apply:
(1) In the event of an assignment, contemporaneously with the
granting of Landlord's aforesaid consent, Tenant shall cause the assignee
to expressly assume in writing and agree to perform all of the covenants,
duties and obligations of Tenant hereunder, and such assignee shall be
jointly and severally liable therefor along with Tenant; Tenant shall
further cause such assignee to grant Landlord an express first and prior
contract lien and security interest in the manner hereinafter stated as
applicable to Tenant;
(2) A signed counterpart of all instruments relative thereto
(executed by all parties to such transactions with the exception of
Landlord) shall be submitted by Tenant to Landlord prior to or
contemporaneously with the request for Landlord's prior express written
permission thereto (it being understood that no such instrument shall be
effective without the prior express written permission of Landlord);
(3) Tenant shall subordinate to Landlord's statutory lien and
Landlord's aforesaid contract lien and security interest any liens or other
rights which Tenant may claim with respect to any fixtures, equipment,
goods, wares, merchandise or other property owned by or leased to the
proposed assignee or sublessee or other party intending to occupy the
Leased Premises;
(4) No usage of the Leased Premises different from the usage herein
provided to be made by Tenant shall be permitted, and all other terms and
provisions of this Lease shall continue to apply after any such
transaction;
(5) In any case where Landlord consents to an assignment, sublease,
grant of a concession or license or mortgage, pledge or hypothecation of
the leasehold, the undersigned Tenant will nevertheless remain directly and
primarily liable for the performance of all of the covenants, duties and
obligations of Tenant hereunder (including, without limitation, the
obligation to pay all rental and other sums herein provided to be paid),
and Landlord shall be permitted to enforce the provisions of this Lease
against the undersigned Tenant and/or any assignee, sublessee,
concessionaire, licensee or other transferee without demand upon or
proceeding in any way against any other person; and
(6) If the rental due and payable by a sublessee under any such
permitted sublease (or a combination of the rental payable under such
sublease plus any bonus or other consideration therefor or incident
thereto) exceeds the hereinabove provided rental payable under this Lease,
or if with respect to a permitted assignment, permitted license or other
transfer by Tenant permitted by Landlord, the consideration related to the
Lease payable to Tenant by the assignee, licensee or other transferee
exceeds the rental payable under this Lease, then Tenant shall be bound and
obligated to pay Landlord all such excess rental and other excess
consideration within ten (10) days following receipt thereof by Tenant from
such sublessee, assignee, licensee or other transferee, as the case might
be.
C. If Tenant is a corporation, then any transfer of this Lease from
Tenant by merger, consolidation or dissolution or any change in ownership or
power to vote a majority of the voting stock in Tenant outstanding at the time
of execution of this Lease shall constitute an assignment for the purpose of
this Lease; provided, however, that acquisition of all stock of a corporate
tenant by any corporation, the stock of which is registered pursuant to the
Securities Act of 1933 or the merger of a corporate tenant into such a
corporation, the stock of which is so registered, shall not itself be deemed to
be a violation of Paragraph 12.A. For purposes of this Paragraph 12.C., the term
"voting stock" shall refer to shares of stock regularly entitled to vote for the
election of directors of the corporation involved.
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If Tenant is a general partnership having one (1) or more corporations
as partners or if Tenant is a limited partnership having one (1) or more
corporations as general partners, the provisions of the preceding paragraph of
this Paragraph 12.C. shall apply to each of such corporations as if such
corporation alone had been the Tenant hereunder.
If Tenant is a general partnership (whether or not having any
corporations as partners) or if Tenant is a limited partnership (whether or not
having any corporations as general partners), the transfer of the partnership
interest or interests constituting a majority shall constitute an assignment for
the purposes of this Lease.
D. Consent by Landlord to a particular assignment or sublease or
other transaction shall not be deemed a consent to any other or subsequent
transaction. If this Lease is assigned, or if the Leased Premises are subleased
(whether in whole or in part), or in the event of the mortgage, pledge or
hypothecation of the leasehold interest or grant of any concession or license
within the Leased Premises without the prior express written permission of
Landlord, or if the Leased Premises are occupied in whole or in part by anyone
other than Tenant without the prior express written permission of Landlord, then
Landlord may nevertheless collect rental and other charges from the assignee,
sublessee, mortgagee, pledgee, party to whom the leasehold interest was
hypothecated, concessionaire or licensee or other occupant and apply the net
amount collected to the rental and other charges payable hereunder, but no such
transaction or collection of rental and other charges or application thereof by
Landlord shall be deemed a waiver of these provisions or a release of Tenant
from the further performance by Tenant of Tenant's covenants, duties and
obligations hereunder.
E. Notwithstanding anything to the contrary herein, an assignment of
the Lease shall not include, and the terms of Paragraph 12 of the Lease shall
not apply to, (i) a transfer of the Lease to an entity which is the parent of
Tenant, subsidiary of Tenant, affiliate of Tenant, or shall directly or
indirectly control, be controlled by or be under common control with Tenant;
(ii) a transaction in which Tenant becomes an entity whose shares of stock or
other ownership interests are, directly or indirectly, sold on a national stock
exchange or an inter-dealer quotation system; (iii) in the event the transaction
described in clause (ii) above shall have occurred, any subsequent sale of
ownership interests or issuance of new ownership interests, directly or
indirectly, in Tenant; and (iv) a transaction in which any entity succeeds to
all or substantially all of the assets of Tenant whether by merger, sale or
otherwise provided such successor entity has had substantial experience in the
operation of Tenant's business and assumes in full the obligations of Tenant
under this Lease; provided, however, that (i) Tenant shall remain liable for the
performance of all covenants, duties and obligations under the Lease,
irrespective of any such assignment, (ii) the use of the Leased Premises by the
assignee may not violate any other agreements affecting the Leased Premises, the
Building, Landlord or other tenants, and (iii) use of the Leased Premises by the
assignee shall conform with the uses permitted by this Lease. Tenant shall
notify Landlord, in writing, of any such assignment or sublease within ninety
(90) days of its occurrence and shall provide Landlord with all such reasonable
information as Landlord may request regarding the identity and status of such
assignee.
F. Landlord acknowledges that the business to be conducted by the
undersigned Tenant in the Leased Premises requires the installation of certain
communications equipment owned by customers and co-locators of the undersigned
Tenant ("Permitted Licensees") in (but not outside of) the Leased Premises, in
order for the Permitted Licensees to interconnect with Tenant's facilities. To
expedite the Permitted Licensees' access to the Leased Premises, Landlord
expressly agrees that Tenant may license the use of portions of the Leased
Premises to, or enter into other co-location agreements (collectively,
"Permitted Agreements") with, the Permitted Licensees without Landlord's further
consent. Landlord expressly waives its right to prior review of such Permitted
Agreements; provided, however, that Tenant shall promptly provide Landlord with
copies of all such Permitted Agreements and shall accede to Landlord's
reasonable requests, if any, as to floor plans and space layout. In addition,
Landlord expressly waives any right it may have to terminate this Lease or any
portion hereof as set forth in Paragraph 12.A. above with respect to such
Permitted Agreements. Paragraph 12.B.(6), 12.C. and 12.D. above shall not apply
with respect to Tenant's Permitted Agreements with Permitted Licensees.
Notwithstanding anything herein to the contrary, Tenant's Permitted Agreements
with the Permitted Licensees may not affect the Building's riser facilities or
the Common Area of the Building.
13. SUBORDINATION. Tenant accepts this Lease subject and subordinate to
any ground lease, mortgage, deed of trust or other lien presently existing or
hereafter placed upon the Leased Premises or upon the Building or any part
thereof, and to any renewals, modifications, extensions and refinancings
thereof, which might now or hereafter constitute a lien upon the Building or any
part thereof, and to zoning ordinances and other building and fire ordinances
and governmental regulations relating to the use of the Leased Premises, but
Tenant agrees that any such ground lessor, mortgagee and/or beneficiary of any
deed of trust or other lien ("Landlord's Mortgagee") and/or Landlord shall have
the right at any time to subordinate such ground lease, mortgage, deed of trust
or other lien to this Lease on such terms and subject to such conditions as such
Landlord's Mortgagee may deem appropriate in its discretion. Upon demand Tenant
agrees to execute such further instruments subordinating this Lease, as Landlord
may request, and such nondisturbance and attornment agreements, as any such
Landlord's Mortgagee shall request, in form satisfactory to Landlord's Mortgagee
and Tenant. Upon foreclosure of the Building or upon acceptance of a deed in
lieu of such foreclosure, Tenant hereby agrees to attorn to the new owner of
such property after such foreclosure or acceptance of a deed in lieu of
foreclosure, if so requested by such new owner of the Building. Notwithstanding
any contrary provision contained herein, the subordination of this Lease to
any mortgage deed of trust or other lien hereafter placed upon the Leased
Premises or the Building or any part thereof and Tenant's
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agreement to attorn to the holder of such mortgage, deed of trust or other lien
as provided in this Paragraph 13 shall be conditioned upon such holder's
entering into a non-disturbance and attornment agreement mutually acceptable to
Tenant and Landlord's Mortgagee.
14. OPERATING EXPENSES.
A. For purposes of this Paragraph 14, the following definitions and
calculations shall apply:
(1) The term "Operating Expenses" shall mean all reasonable expenses,
costs and disbursements of every kind and nature which Landlord shall pay
or become obligated to pay because of or in connection with the ownership,
operation, maintenance, repair, replacement, protection and security of the
Project, determined on an accrual basis in accordance with generally
accepted accounting principles, including, without limitation, the
following:
(i) Salaries and wages of all employees engaged in the
operation, maintenance and security of the Project, including taxes,
insurance and benefits (including pension, retirement and fringe
benefits) relating thereto;
(ii) Cost of all supplies and materials used in the operation,
maintenance and security of the Project;
(iii) Cost of all water and sewage service supplied to the
Project;
(iv) Cost of all maintenance and service agreements for the
Project and the equipment therein, including, without limitation,
alarm service, parking facilities, security (both on-site and
off-site), janitorial service, landscaping, fire protection,
sprinklers, window cleaning and elevator maintenance;
(v) Cost of all insurance relating to the Project, including
the cost of casualty, rental and liability insurance applicable to the
Project and Landlord's personal property used in connection
therewith;
(vi) All taxes, assessments and governmental charges (foreseen
or unforeseen, general or special, ordinary or extraordinary) whether
federal, state, county or municipal and whether levied by taxing
districts or authorities presently taxing the Project or by others
subsequently created or otherwise, and any other taxes and assessments
attributable to the Project or its operation, and all taxes of
whatsoever nature that are imposed in substitution for or in lieu of
any of the taxes, assessments or other charges herein defined;
provided, however, Operating Expenses shall not include taxes paid by
tenants of the Project as a separate charge on the value of their
leasehold improvements, death taxes, excess profits taxes, franchise
taxes and state and federal income taxes;
(vii) Cost of repairs and general maintenance, including,
without limitation, reasonable depreciation charges applicable to all
equipment used in repairing and maintaining the Project, but
specifically excluding repairs and general maintenance paid by
proceeds of insurance or by Tenant or by other third parties;
(viii) Cost of capital improvement items, including installation
thereof, which are acquired primarily for the purpose of reducing
Operating Expenses; and
(ix) Reasonable management fees paid by Landlord to third
parties or to management companies owned by, or management divisions
of, Landlord, not to exceed the then prevailing market rate for the
management of high quality class A office buildings comparable to the
Project.
To the extent that any Operating Expenses are attributable to the
Project and other projects of Landlord, a fair and reasonable allocation of
such Operating Expenses shall be made between the Project and such other
projects.
(2) The term "Operating Expenses" shall exclude the cost of
electrical energy supplied to the Project and to tenants of the Building.
(3) The term "Base Operating Expenses Rate" is stipulated to be the
rate specified in Paragraph 1.T. hereof per square foot of rentable area in
the Leased Premises.
(4) The term "Actual Operating Expenses" shall mean, with respect to
each calendar year during the Term of this Lease, the actual Operating
Expenses for such year. The term "Actual Operating Expenses Rate" shall
mean, with respect to each calendar year during the Term of this Lease, the
Actual Operating Expenses attributable to each square foot of rentable area
in the Building, and shall be calculated by dividing the Actual Operating
Expenses by the total number of square feet of rentable area in the
Building, as specified in Paragraph 1.I. hereof. The term "Tenant's
Proportionate Share of Actual Operating Expenses" shall mean,
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with respect to each calendar year during the Term of this Lease, an amount
equal to the product of (i) the positive difference (if any) obtained by
subtracting the Base Operating Expenses Rate from the Actual Operating
Expenses Rate, multiplied by (ii) the weighted average number of square
feet of rentable area in the Leased Premises in such year; provided,
however, if the Actual Operating Expenses Rate is determined on the basis
of a partial calendar year, then in making the foregoing calculation, the
Base Operating Expenses Rate shall be multiplied by a fraction, the
numerator of which is the number of days in such partial calendar year and
the denominator of which is 365, and the foregoing weighted average shall
be calculated only on the basis of the portion of such calendar year
covered by the Term of this Lease.
For example, if the Actual Operating Expenses Rate for a calendar year
is $3.20 and the Base Operating Expenses Rate is $3.00, and the Leased
Premises contains 19,000 square feet of rentable area during the entire
calendar year, Tenant's Proportionate Share of Actual Operating Expenses is
$3,800.00, calculated as follows: ($3.20 - $3.00) x 19,000 = $3,800.00.
B. If the Actual Operating Expenses Rate during any calendar year is
greater than the Base Operating Expenses Rate, Tenant shall be obligated to pay
to Landlord as additional rental an amount equal to Tenant's Proportionate Share
of Actual Operating Expenses. To implement the foregoing, Landlord shall provide
to Tenant within ninety (90) days (or as soon thereafter as reasonably possible)
after the end of the calendar year in which the Commencement Date occurs, a
reasonably detailed statement of the Actual Operating Expenses for such calendar
year, the Actual Operating Expenses Rate for such calendar year, and Tenant's
Proportionate Share of Actual Operating Expenses. If the Actual Operating
Expenses Rate for such calendar year exceeds the Base Operating Expenses Rate,
Tenant shall pay to Landlord, within thirty (30) days after Tenant's receipt of
such statement, an amount equal to Tenant's Proportionate Share of Actual
Operating Expenses for such calendar year.
C. Beginning with the Commencement Date of this Lease (or as soon
thereafter as reasonably possible), Landlord shall provide to Tenant a statement
of the projected annual Operating Expenses per square foot of rentable area in
the Project (the "Projected Operating Expenses Rate"). Tenant shall pay to
Landlord on the first day of each month an amount (the "Projected Operating
Expenses Installment") equal to one-twelfth (1/12) of the product of (i) the
positive difference (if any) obtained by subtracting the Base Operating Expenses
Rate from the Projected Operating Expenses Rate for such calendar year,
multiplied by (ii) the number of square feet of rentable area in the Leased
Premises on the first day of the prior month. Until Tenant has received the
statement of the Projected Operating Expenses Rate from Landlord, Tenant shall
continue to pay Projected Operating Expenses Installments to Landlord in the
same amount (if any) as required for the last month of the prior calendar year.
Upon Tenant's receipt of such statement of the Projected Operating Expenses
Rate, Tenant shall pay to Landlord, or Landlord shall pay to Tenant (whichever
is appropriate), the difference between the amount paid by Tenant prior to
receiving such statement and the amount payable by Tenant as set forth in such
statement. Landlord shall provide Tenant a statement within ninety (90) days (or
as soon thereafter as reasonably possible) after the end of each calendar year,
showing the Actual Operating Expenses Rate as compared to the Projected
Operating Expenses Rate for such calendar year. If Tenant's Proportionate Share
of Actual Operating Expenses for such calendar year exceeds the aggregate of the
Projected Operating Expenses Installments collected by Landlord from Tenant,
Tenant shall pay to Landlord, within thirty (30) days following Tenant's receipt
of such statement, the amount of such excess. If Tenant's Proportionate Share of
Actual Operating Expenses for such calendar year is less than the aggregate of
the Projected Operating Expenses Installments collected by Landlord from Tenant,
Landlord shall pay to Tenant, within thirty (30) days following Tenant's receipt
of such statement, the amount of such excess. Landlord shall have the right from
time to time during each calendar year to revise the Projected Operating
Expenses Installments on the basis of the revised statement. If the Commencement
Date of this Lease is not the first day of a calendar year, or the expiration or
termination date of this Lease is not the last day of a calendar year, then
Tenant's Proportionate Share of Actual Operating Expenses shall be prorated. The
foregoing adjustment provisions shall survive the expiration or termination of
the Term of this Lease.
D. Notwithstanding any other provision herein to the contrary, it is
agreed that if the Project is less than 95% occupied during any calendar year an
adjustment shall be made in computing the Actual Operating Expenses for such
year so that the Actual Operating Expenses are computed as though the Project
had been 95% occupied during such year. In no event shall the operation of this
provision of the Lease result in the recovery from the Building tenants of more
than 100% of the excess of the Operating Expenses in any one calendar year over
such tenants' base stops or year(s). Such gross-up clause only applies to
Operating Expenses which fluctuate in relation to the occupancy of the Building.
E. Landlord agrees to keep books and records reflecting the
Operating Expenses of the Project in accordance with generally accepted
accounting principles. Tenant, at its expense, shall have the right, within six
(6) months after receiving Landlord's statement of Actual Operating Expenses for
a particular year, to audit Landlord's books and records relating to the
Operating Expenses for such year if the Actual Operating Expenses Rate exceeds
the Base Operating Expenses Rate; or, at Landlord's sole option, Landlord may
provide such audit prepared by a certified public accountant selected by
Landlord. If conducted by Tenant, such audit shall be conducted only during
regular business hours at Landlord's office and only after Tenant gives Landlord
fourteen (14) days written notice. Tenant shall deliver to Landlord a copy of
the results of such audit within fifteen (15) days of its receipt by Tenant. No
such audit shall be conducted if any other tenant has conducted an audit for the
time period Tenant intends to audit and Landlord furnishes to Tenant a copy of
the results of such audit. No audit
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shall be conducted at any time that Tenant is in default of any of terms of the
lease. No subtenant shall have any right to conduct an audit and no assignee
shall conduct an audit for any period during which such assignee was not in
possession of the Leased Premises. Such audit must be conducted by an
independent nationally recognized accounting firm that is not being compensated
by Tenant on a contingency fee basis. All information obtained through the
Tenant's audit with respect to financial matters (including, without limitation,
costs, expenses, income) and any other matters pertaining to the Landlord and/or
the Project as well as any compromise, settlement, or adjustment reached between
Landlord and Tenant relative to the results of the audit shall be held in strict
confidence by the Tenant and its officers, agents, and employees; and Tenant
shall cause its auditor and any of its officers, agents, and employees to be
similarly bound. As a condition precedent to Tenant's exercise of its right to
audit, Tenant must deliver to Landlord a signed covenant from the auditor in a
form reasonably satisfactory to Landlord acknowledging that all of the results
of such audit as well as any compromise, settlement, or adjustment reached
between Landlord and Tenant shall be held in strict confidence and shall not be
revealed in any manner to any person except upon the prior written consent of
Landlord, which consent may be withheld in Landlord's sole discretion, or if
required pursuant to any litigation between Landlord and Tenant materially
related to the facts disclosed by such audit, or if required by law. Tenant
understands and agrees that this provision is of material importance to Landlord
and that any violation of the terms of this provision shall result in immediate
and irreparable harm to Landlord. Landlord shall have all rights allowed by law
or equity if Tenant, its officers, agents, or employees and/or the auditor
violate the terms of this provision, including, without limitation, the right to
terminate this Lease or the right to terminate Tenant's right to audit in the
future pursuant to this paragraph. Tenant shall indemnify, defend upon request,
and hold Landlord harmless from and against all costs, damages, claims,
liabilities, expenses, losses, court costs, and attorneys' fees suffered by or
claimed against Landlord, based in whole or in part upon the breach of this
paragraph by Tenant and/or its auditor, and shall cause its auditor to be
similarly bound. If within such six (6) month period Tenant does not give
Landlord written notice stating in reasonable detail any objection to the
statement of Actual Operating Expenses, Tenant shall be deemed to have approved
such statement in all respects.
15. EMINENT DOMAIN. If there shall be taken by exercise of the power of
eminent domain during the Term of this Lease any part of the Leased Premises or
the Building, Landlord may elect to terminate this Lease or to continue same in
effect if any one of the following conditions is met or circumstances apply:
(i) such event shall occur in the last twelve (12) months of
the Term of the Lease;
(ii) the mortgagee under any mortgage or deed of trust
covering the Building shall require that condemnation proceeds payable
as a result of such event be withheld and applied against the mortgage
debt, and the necessary repair and restoration of the Leased Premises
and/or the Building would cost in excess of $500,000.00; or
(iii) all other leases in the Building are terminated as a
result of such event.
If there shall be taken by exercise of the power of eminent domain any part of
the Leased Premises or the Building which materially affects Tenant's ability to
conduct its operations in the Leased Premises, then Tenant shall have the right
to terminate this Lease upon thirty (30) days' written notice to Landlord
following such taking. If this Lease continues, the rental shall be reduced in
proportion to the area of the Leased Premises so taken, and Landlord shall
repair any damage to the Leased Premises or the Building resulting from such
taking. All sums awarded or agreed upon between Landlord and the condemning
authority for the taking of the interest of Landlord or Tenant, whether as
damages or as compensation, will be the property of Landlord without prejudice,
however, to claims of Tenant against the condemning authority on account of the
unamortized cost of leasehold improvements paid for by Tenant taken by the
condemning authority. If this Lease should be terminated under any provision of
this Paragraph 15, rental shall be payable up to the date that possession is
taken by the condemning authority, and Landlord will refund to Tenant any
prepaid unaccrued rental less any sum then owing by Tenant to Landlord.
16. ACCESS BY LANDLORD. Landlord, Landlord's agents and employees shall
have access to and the right to enter upon any and all parts of the Leased
Premises at any reasonable time after reasonable prior notice, which notice
may be oral or written (except in cases of emergency, defined to be any
situation in which Landlord perceives imminent danger of injury to person
and/or damage to or loss of property, in which case Landlord may enter upon
any and all parts of the Leased Premises at any time) to examine the
condition thereof, to clean, to make any repairs, alterations or additions
required to be made by Landlord hereunder, to show the Leased Premises to
prospective purchasers or tenants or mortgage lenders (prospective or
current) and for any other purpose deemed reasonable by Landlord, and Tenant
shall not be entitled to any abatement or reduction of rental by reason
thereof.
17. LANDLORD'S LIEN. The parties agree that during the Term of this
Lease Tenant's cabling, conduits and other connecting equipment, including
without limitation the equipment and items described in Paragraph 32 of the
Lease (collectively, "Connecting Equipment"), the supplemental air
conditioner installed by Tenant and all of the telecommunications equipment
in the Leased Premises shall be deemed the property of Tenant, and not
fixtures of the Building. Landlord hereby waives its rights, statutory or
otherwise, to any lien on the telecommunications equipment in the Leased
Premises, the supplemental air conditioner installed by Tenant and the
Connecting Equipment. At the end of the term of the Lease, Tenant may, at its
election, or shall, if requested
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by Landlord, remove all of Tenant's telecommunication equipment, supplemental
air conditioner installed by Tenant and the Connecting Equipment in a safe and
workmanlike manner.
18. DEFAULTS.
A. Each of the following acts or omissions of Tenant or occurrences
shall constitute an "Event of Default":
(1) Failure or refusal by Tenant to pay rental or other payments
hereunder upon the expiration of a period of ten (10) days following
written notice to Tenant of such failure.
(2) Failure to perform or observe any covenant or condition of this
Lease by Tenant to be performed or observed upon the expiration of a period
of ten (10) days following written notice to Tenant of such failure;
provided, however, that in the event Tenant's failure to perform a covenant
or condition of this Lease cannot reasonably be cured within ten (10) days
following written notice to Tenant, Tenant shall not be in default if
Tenant commences to cure same within the ten (10) day period and thereafter
diligently prosecutes the curing thereof.
(3) The filing or execution or occurrence of any one of the
following: (i) a petition in bankruptcy or other insolvency proceeding by
or against Tenant, (ii) petition or answer by Tenant seeking relief under
any provision of the Bankruptcy Act, (iii) an assignment for the benefit of
creditors or composition, (iv) a petition or other proceeding by or against
Tenant for the appointment of a trustee, receiver or liquidator of Tenant
or any of Tenant's property, or (v) a proceeding by any governmental
authority for the dissolution or liquidation of Tenant. Notwithstanding the
foregoing, Tenant shall have one hundred twenty (120) days to obtain a
dismissal of an involuntary bankruptcy proceeding or other involuntary
proceeding before such an event shall constitute an Event of Default.
B. This Lease and the Term and estate hereby granted and the demise
hereby made are subject to the limitation that if and whenever any Event of
Default shall occur, Landlord may, at Landlord's option, in addition to all
other rights and remedies given hereunder or by law or equity, do any one (1) or
more of the following:
(1) Terminate this Lease, in which event Tenant shall immediately
surrender possession of the Leased Premises to Landlord.
(2) Enter upon and take possession of the Leased Premises and expel
or remove Tenant and any other occupant therefrom, with or without having
terminated the Lease.
(3) Alter locks and other security devices at the Leased Premises.
C. Exercise by Landlord of any one (1) or more remedies hereunder
granted or otherwise available shall not be deemed to be an acceptance of
surrender of the Leased Premises by Tenant, whether by agreement or by operation
of law, it being understood that such surrender can be effected only by the
written agreement of Landlord and Tenant. No such alteration of security devices
and no removal or other exercise of dominion by Landlord over the property of
Tenant or others at the Leased Premises shall be deemed unauthorized or
constitute a conversion, Tenant hereby consenting, after any Event of Default,
to the aforesaid exercise of dominion over Tenant's property within the
Building. All claims for damages by reason of such re-entry and/or possession
and/or alteration of locks or other security devices are hereby waived, as are
all claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings or other legal process. Tenant agrees
that any re-entry by Landlord may be pursuant to judgment obtained in forcible
detainer proceedings or other legal proceedings or without the necessity for any
legal proceedings, as Landlord may elect, and Landlord shall not be liable in
trespass or otherwise.
D. In the event that Landlord elects to terminate this Lease by
reason of an Event of Default, then, notwithstanding such termination, Tenant
shall be liable for and shall pay to Landlord, at the address specified in
Paragraph 1.C. hereof, the sum of all rental and other indebtedness accrued to
the date of such termination, plus, as damages, an amount equal to the then
present value of the rental reserved hereunder for the remaining portion of the
Term of this Lease (had such Term not been terminated by Landlord prior to the
expiration of the Term of this Lease), less the then present value of the fair
rental value of the Leased Premises for such period.
In the event that Landlord elects to terminate the Lease by reason of
an Event of Default, in lieu of exercising the rights of Landlord under the
preceding paragraph of this Paragraph 18.D., Landlord may instead hold Tenant
liable for all rental and other indebtedness accrued to the date of such
termination, plus such rental and other indebtedness as would otherwise have
been required to be paid by Tenant to Landlord during the period following
termination of the Term of this Lease measured from the date of such termination
by Landlord until the expiration of the Term of this Lease (had Landlord not
elected to terminate the Lease on account of such Event of Default) diminished
by any net sums thereafter received by Landlord through reletting the Leased
Premises during said period (after deducting expenses incurred by Landlord as
provided in Paragraph 18.F. hereof). Actions to collect amounts due by Tenant
provided for in this paragraph of this Paragraph 18.D. may be brought from
time to
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time by Landlord during the aforesaid period, on one (1) or more
occasions, without the necessity of Landlord's waiting until the expiration
of such period, and in no event shall Tenant be entitled to any excess of
rental (or rental plus other sums) obtained by reletting over and above the
rental provided for in this Lease.
E. In the event that Landlord elects to repossess the Leased
Premises without terminating this Lease, then Tenant shall be liable for and
shall pay to Landlord, at the address specified in Paragraph 1.C. hereof, all
rental and other indebtedness accrued to the date of such repossession, plus
rental required to be paid by Tenant to Landlord during the remainder of the
Term of this Lease until the expiration of the Term of this Lease, diminished
by any net sums thereafter received by Landlord through reletting the Leased
Premises during said period (after deducting expenses incurred by Landlord as
provided in Paragraph 18.F. hereof). In no event shall Tenant be entitled to
any excess of any rental obtained by reletting over and above the rental
herein reserved. Actions to collect amounts due by Tenant as provided in this
Paragraph 18.E. may be brought from time to time, on one (1) or more
occasions, without the necessity of Landlord's waiting until the expiration
of the Term of this Lease.
F. In case of an Event of Default, Tenant shall also be liable
for and shall pay to Landlord, at the address specified in Paragraph 1.C.
hereof, in addition to any sum provided to be paid above: (i) broker's fees
incurred by Landlord in connection with reletting the whole or in part of the
Leased Premises, (ii) the cost of removing and storing Tenant's or other
occupant's property, (iii) the cost of repairing, altering, remodeling or
otherwise putting the Leased Premises into condition acceptable to a new
tenant or tenants, and (iv) all reasonable expenses incurred by Landlord in
enforcing Landlord's remedies, including reasonable attorneys' fees. Past due
rental and other past due payments shall bear interest from maturity at the
highest lawful rate per annum until paid.
G. In the event of termination or repossession of the Leased
Premises for an Event of Default, Landlord shall not have any obligation to
relet or attempt to relet the Leased Premises, or any portion thereof, or to
collect rental after reletting; but Landlord shall have the option to relet
or attempt to relet; and in the event of reletting, Landlord may relet the
whole or any portion of the Leased Premises for any period to any tenant and
for any use and purpose.
H. If Tenant should fail to make any payment or cure any Event of
Default hereunder within the time herein permitted, Landlord, without being
under any obligation to do so and without thereby waiving such default, may
make such payment and/or remedy such other default for the account of Tenant
(and enter the Leased Premises for such purpose), and thereupon Tenant shall
be obligated to, and hereby agrees to, pay Landlord, upon demand, all costs,
expenses and disbursements (including reasonable attorneys' fees) incurred by
Landlord in taking such remedial action.
I. In the event of any default by Landlord, Tenant's exclusive
remedy shall be an action for damages and/or injunctive relief (Tenant hereby
waiving the benefit of any laws granting Tenant a lien (other than a
judgment lien) upon the property of Landlord and/or upon rental due
Landlord), but prior to any such action Tenant will give Landlord written
notice specifying such default with particularity, and Landlord shall
thereupon have thirty (30) days (plus such additional reasonable period as
may be required in the exercise by Landlord of due diligence) in which to
cure any such default. Unless and until Landlord fails to so cure any default
after such notice, Tenant shall not have any remedy or cause of action by
reason thereof. All obligations of Landlord hereunder will be construed as
covenants, not conditions; and all such obligations will be binding upon
Landlord only during the period of Landlord's possession of the Building and
not thereafter.
The term "Landlord" shall mean only the owner, for the time being,
of the Building, and in the event of the transfer by such owner of its
interest in the Building, such owner shall thereupon be released and
discharged from all covenants and obligations of the Landlord thereafter
accruing, but such covenants and obligations shall be binding during the Term
of this Lease upon each new owner for the duration of such owner's ownership.
19. NONWAIVER. Neither acceptance of rental or other payments by
Landlord nor failure by Landlord to complain of any action, nonaction or
default of Tenant shall constitute a waiver of any of Landlord's rights
hereunder. Waiver by Landlord of any right for any default of Tenant shall
not constitute a waiver of any right for either a subsequent default of the
same obligation or any other default. Receipt by Landlord of Tenant's keys to
the Leased Premises shall not constitute an acceptance of surrender of the
Leased Premises.
20. HOLDING OVER. If Tenant should remain in possession of the Leased
Premises after the expiration of the Term of this Lease, without the
execution by Landlord and Tenant of a new lease or an extension of this
Lease, then Tenant shall be deemed to be occupying the Leased Premises as a
tenant-at-sufferance, subject to all the covenants and obligations of this
Lease and at a daily rental of 150% of the per day rental provided for the
last month of the Term of this Lease computed on the basis of a thirty (30)
day month. The inclusion of the preceding sentence shall not be construed as
Landlord's consent for Tenant to hold over. If any property not belonging to
Landlord remains at the Leased Premises after the expiration of the Term of
this Lease and Tenant's vacating the Leased Premises, Tenant hereby
authorizes Landlord to make such disposition of such property as Landlord may
desire without liability for compensation or damages to Tenant in the event
that such property is the property of Tenant; and in the event that such
property is the property of someone other than Tenant, Tenant agrees to
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indemnify and hold Landlord harmless from all suits, actions, liability, loss,
damages and expenses in connection with or incident to any removal, exercise or
dominion over and/or disposition of such property by Landlord.
21. COMMON AREA. The Common Area, as defined in Paragraph 1.P. hereof,
shall be subject to Landlord's sole management and control and shall be
operated and maintained in such manner as Landlord in Landlord's reasonable
discretion shall determine. Landlord reserves the right to change from time
to time the dimensions and location of the Common Area, to construct
additional stories on the Building and to place, construct or erect new
structures or other improvements on any part of the Land without the consent
of Tenant. Tenant, and Tenant's employees and invitees shall have the
nonexclusive right to use the Common Area as constituted from time to time,
such use to be in common with Landlord, other tenants of the Building and
other persons entitled to use the same, and subject to such reasonable rules
and regulations governing use as Landlord may from time to time prescribe.
Tenant shall not solicit business or display merchandise within the Common
Area, or distribute handbills therein, or take any action which would
interfere with the rights of other persons to use the Common Area. Landlord
may temporarily close any part of the Common Area for such periods of time as
may be necessary to prevent the public from obtaining prescriptive rights or
to make repairs or alterations.
22. RULES AND REGULATIONS. Tenant, and Tenant's agents, employees and
invitees shall comply fully with all requirements of the rules and
regulations of the Building which are attached hereto as EXHIBIT C and made a
part hereof. Landlord shall at all times have the right to change such rules
and regulations or to amend or supplement them in such reasonable manner as
may be deemed advisable for the safety, care and cleanliness of the Leased
Premises and the Building and for preservation of good order therein, all of
which rules and regulations, changes and amendments shall be forwarded to
Tenant and shall be carried out and observed by Tenant. Tenant shall further
be responsible for the compliance with such rules and regulations by the
employees, agents and invitees of Tenant.
23. TAXES. Tenant shall be liable for the timely payment of all taxes
levied or assessed against personal property, furniture or fixtures or
equipment placed by Tenant in the Leased Premises. If any such taxes for
which Tenant is liable are levied or assessed against Landlord or Landlord's
property and if Landlord elects to pay the same, or if the assessed value of
Landlord's property is increased by inclusion of personal property, furniture
or fixtures or equipment placed by Tenant in the Leased Premises, and
Landlord elects to pay the taxes based on such increase, Tenant shall pay to
Landlord upon demand that part of such taxes for which Tenant is liable
hereunder.
24. INSURANCE. Tenant shall, at Tenant's expense, procure and maintain
throughout the Term of this Lease a policy or policies of comprehensive
public liability insurance, contractual liability insurance and property
damage insurance, issued by insurers of recognized responsibility, authorized
to do business in the State in which the Building is located, insuring Tenant
and Landlord against any and all liability for injury to or death of a person
or persons, occasioned by or arising out of or in connection with the use or
occupancy of the Leased Premises, the limits of such policy or policies to be
in an amount of not less than $2,000,000 combined single limit with respect
to any one (1) occurrence, and shall furnish evidence satisfactory to
Landlord of the maintenance of such insurance. Tenant shall obtain a written
obligation on the part of each insurer to notify Landlord at least fifteen
(15) days prior to modification or cancellation of such insurance. In the
event Tenant shall not have delivered to Landlord a policy or certificate
evidencing such insurance at least fifteen (15) days prior to the
Commencement Date and at least fifteen (15) days prior to the expiration
dates of each expiring policy, Landlord may obtain such insurance as Landlord
may reasonably require to protect Landlord's interest. The cost for such
policies shall be paid by Tenant to Landlord as additional rental upon demand
plus an administrative charge as determined by Landlord.
25. PARKING. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the number of parking spaces specified in Paragraph 1.S. hereof
in the parking facility from time to time associated with the Building at the
prevailing market rental established by Landlord from time to time for
similar parking spaces in such parking facility. Tenant shall pay to Landlord
the prevailing market rental from time to time established by Landlord for
such number of parking spaces as additional rental monthly together with and
in addition to Base Rental, whether or not such number of parking spaces are
in use. Tenant may not increase or decrease such number of parking spaces
without the prior written consent of Landlord. Tenant agrees to comply with
such reasonable rules and regulations as may be promulgated from time to time
for the use of such parking facility, including, without limitation, rules
and regulations requiring the parking of vehicles in designated spaces or
areas to the exclusion of other spaces or areas. Parking spaces will be
unassigned, provided that Landlord may at any time assign parking spaces.
Tenant shall, if requested by Landlord, furnish to Landlord a complete list
of the license plate numbers of all vehicles operated by Tenant, Tenant's
employees and agents. Landlord shall not be liable for any damage of any
nature whatsoever to, or any theft of, vehicles, or contents therein, in or
about such parking facility. During temporary periods of construction or
repair, Landlord shall use Landlord's best efforts to provide suitable
substitute parking facilities in reasonable proximity to the Building;
provided, however, if for any reason Landlord fails or is unable to provide
suitable substitute parking facilities in reasonable proximity to the
Building, Landlord shall not be deemed to be in default hereunder, but
Tenant's obligation to pay the prevailing market rental for any such parking
spaces shall cease for so long as Tenant does not have the use of such
parking spaces and such abatement shall constitute full settlement of all
claims that Tenant might otherwise have against Landlord by reason of such
failure or inability to provide such parking spaces.
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26. PERSONAL LIABILITY. The liability of Landlord to Tenant for any
default by Landlord under the terms of this Lease shall be limited to the
proceeds of sale on execution of the interest of Landlord in the Building and
in the Land, insurance proceeds, condemnation awards and rental income, and
neither Landlord, nor any party comprising Landlord, shall be personally
liable for any deficiency. This clause shall not be deemed to limit or deny
any remedies which Tenant may have in the event of default by Landlord
hereunder which do not involve the personal liability of Landlord.
27. NOTICE. Any notice which may or shall be given under the terms of
this Lease shall be in writing and shall be either delivered by hand
(including commercially recognized messenger and express mail service) or
sent by United States Mail, registered or certified, return receipt
requested, postage prepaid, if for Landlord, to the Building office and at
the address specified in Paragraph 1.C. hereof, or if for Tenant, to the
address specified in Paragraph 1.E. hereof, or if for Foothill, to the
address specified in Paragraph 1.E.(1), or at such other addresses as either
party may have theretofore specified by written notice delivered in
accordance herewith. Such address may be changed from time to time by either
party by giving notice as provided herein. Notice shall be deemed given when
delivered (if delivered by hand) or, whether actually received or not, five
(5) days after postmarked (it sent by mail). If the term "Tenant" as used in
this Lease refers to more than one (1) person and/or entity, and notice given
as aforesaid to any one of such persons and/or entities shall be deemed to
have been duly given to Tenant.
28. LANDLORD'S MORTGAGEE. If the Building and/or Leased Premises are at
any time subject to a ground lease, mortgage, deed of trust or other lien,
then in any instance in which Tenant gives notice to Landlord alleging
default by Landlord hereunder, Tenant will also simultaneously give a copy of
such notice to each Landlord's Mortgagee (provided Landlord or Landlord's
Mortgagee shall have advised Tenant of the name and address of Landlord's
Mortgagee) and each Landlord's Mortgagee shall have the right (but no
obligation) to cure or remedy such default during the period that is
permitted to Landlord hereunder, plus an additional period of thirty (30)
days, and Tenant will accept such curative or remedial action (if any) taken
by Landlord's Mortgagee with the same effect as if such action had been taken
by Landlord.
29. BROKERAGE. Each party represents and warrants that it has dealt
with no broker, agent or other person in connection with this transaction and
that no broker, agent or other person brought about this transaction, other
than Broker specified in Paragraph 1.R. hereof, and each party agrees to
indemnify and hold the other party harmless from and against any claims by
any other broker, agent or other person claiming a commission or other form
of compensation by virtue of having dealt with the indemnifying party with
regard to this leasing transaction. The provisions of this Paragraph 29 shall
survive the termination of this Lease.
30. PREPAID RENTAL AND SECURITY DEPOSIT. Landlord hereby acknowledges
receipt from Tenant of the sum stated in Paragraph 1.M. hereof to be applied
to the first accruing monthly installments of rental. Landlord further
acknowledges receipt from Tenant of a Security Deposit in the amount stated
in Paragraph 1.N. hereof to be held by Landlord as security for the
performance by Tenant of Tenant's covenants and obligations under this Lease,
it being expressly understood that such deposit shall not be considered an
advance payment of rental or a measure of Landlord's damages in case of
default by Tenant. The Security Deposit shall be held by Landlord without
liability to Tenant for interest, and Landlord may commingle such deposit
with any other funds held by Landlord. If Tenant should be late in the making
of any payment of rental or other sum due under this Lease, after any
applicable notice and cure period, three (3) or more times in a twelve (12)
month period, Tenant agrees that, upon request of Landlord, Tenant will
increase forthwith the amount of the Security Deposit to a sum double the
existing amount thereof. Upon the occurrence of any Event of Default, Landlord
may, from time to time, without prejudice to any other remedy, use such fund
to the extent necessary to make good any arrears of rental and any other
damage, injury, expense or liability caused to Landlord by such Event of
Default. Following any such application of the Security Deposit, Tenant shall
pay to Landlord on demand the amount so applied in order to restore the
Security Deposit to the amount thereof immediately prior to such application.
If Tenant is not then in default hereunder, any remaining balance of such
deposit shall be returned by Landlord to Tenant upon termination of this
Lease; provided, however, Landlord shall have the right to retain and expend
such remaining balance for cleaning and repairing the Leased Premises if
Tenant shall fail to deliver up the same at the expiration or earlier
termination of this Lease in the condition required by the provisions of this
Lease. If Landlord transfers Landlord's interest in the Leased Premises
during the Term of this Lease (including any renewal thereof), Landlord may
assign the Security Deposit to the transferee and thereafter shall have no
further liability for the return of the Security Deposit.
31. SPRINKLERS.
A. If there now is or shall be installed in the Building a
sprinkler system, and such system or any of its components shall be damaged
or injured or not in proper working order by reason of any negligence or
willful misconduct of Tenant, Tenant's agents servants, employees, or
licensees, then Tenant shall forthwith restore the same to good working
condition at Tenant's own expense; and if the Board of Fire Underwriters or
any bureau, department or official of the state or local government require
or recommend that any changes, modifications, alterations or additional
sprinkler heads or other equipment be made or supplied by reason of Tenant's
business, or the location of partitions, trade fixtures or other contents of
the Leased Premises, or for any other reason, or if any such changes,
modifications alterations, additional sprinkler heads or other equipment
become necessary to prevent the imposition of a penalty or charge against the
full allowance for a sprinkler system in the fire insurance rate as
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fixed by the Board of Fire Underwriters, or by any fire insurance company,
Tenant shall, at Tenant's expense, promptly make and supply such changes,
modifications, alterations, additional sprinkler heads or other equipment.
B. Subject to Landlord's prior written approval of the plans and
specifications, manner of installation thereof and the contractors who will
perform such work, such approvals not to be unreasonably withheld or delayed,
and subject to compliance with all applicable governmental laws, ordinances,
rules and regulations and the terms and conditions of Paragraph 36 of this
Lease, Tenant shall have the right to install a dry-pre-action fire sprinkler
system or cap off the existing sprinkler system in the Leased Premises and
install an FM200 gas system.
32. INTERCONNECTION RIGHTS.
A. Landlord acknowledges that the nature of Tenant's business may
require it to interconnect with other telecommunications companies which may
also be located in the Building. Landlord agrees that Tenant may, subject to
the payment of a Riser Fee as set forth in Paragraph 1.L. and subject to
Landlord's prior written approval, which approval, subject to the following
provisions, shall not be unreasonably withheld:
i. install, maintain and use cable, conduits, wires, cable
ducts, telephone closets and ladder racks for the conduct of its business
between the Leased Premises and other parts of the Building; and
ii. directly connect to, interface with, or otherwise attach
to, the lines and facilities of the public utilities supplying electrical
or telephone services to the Building, for additional electric energy and
telephone connection to the Leased Premises.
B. In the event that Tenant desires to make any of the foregoing
modifications or improvements, Tenant shall provide written notice to
Landlord describing the type, size, location and manner of such desired
modification or improvement. Landlord shall advise Tenant in writing of
Landlord's approval or disapproval of such requested modification or
improvement, or of the requirement that Tenant submit detailed drawings and
specifications of such modification or improvement. If Landlord notifies
Tenant of the requirement that Tenant submit detailed drawings and
specifications, Tenant may then elect to withdraw its request or submit
detailed drawings and specifications, at Tenant's sole cost and expense,
regarding such modification or improvement. Tenant agrees that Landlord's
disapproval of any of the foregoing modifications and improvements shall be
reasonable if any such modifications or improvements have a material
negative impact on any Building electrical, mechanical, plumbing or other
system or the structural or aesthetic integrity of the Building or if space
is not available for such installation after taking into consideration the
needs of Landlord and of other tenants existing as of the date hereof in the
Building. Subject to Landlord's prior written approval, Tenant shall have
access to and use of all common areas, lines, chase ways and ways of passage
in the Building and the Leased Premises necessary to effectuate the rights
set forth in this paragraph, provided said access and use does not
unreasonably interfere with the operation of the Building, the existing (as
of the date of this Lease) equipment of other tenants or Landlord's
obligations to other tenants in the Building which tenants occupy space in
the Building as of the date of this Lease. Any installation carried out by
Tenant pursuant to this paragraph shall be at Tenant's sole cost and expense,
shall be performed in accordance with the other provisions of this Lease, and
shall comply with all applicable federal, state and local laws and
ordinances. Tenant agrees to indemnify and hold Landlord harmless from and
against any and all loss, cost, claim and liability (including all reasonable
attorneys' fees) for injuries to all persons and for damage to or loss of all
property arising or alleged to arise from any negligence or willful
misconduct of Tenant or Tenant's agents, employees, or contractors relating
to the installation, maintenance, operation and removal of such improvements,
installations and modifications. Notwithstanding any contrary provision
herein, Landlord shall have the right to relocate, at Landlord's expense,
any and all of the improvements described in this Paragraph 32 to another
location in the Project, as Landlord shall elect at any time and from time to
time for a reasonable purpose to Landlord's operations or utilization of the
Project; provided, however, that no such relocation may have any detrimental
effect on Tenant's use and operation of such improvements. Tenant shall cause
such improvements to be moved to the new location, at Landlord's expense,
within a reasonable time after notice from Landlord containing the details of
the new location, and the license granted in this paragraph shall be deemed
amended to the new location effective upon the receipt of the notice. Upon
ten (10) days prior notice to Tenant, Landlord shall have the right, without
liability to Tenant, to remove such improvements from the previous location
if Tenant has not relocated such improvements to the new location within the
permitted time period, which removal may involve cutting any or all cables or
otherwise interrupting service through such improvements. In the event of
such action, Tenant shall save and hold Landlord harmless from and against
any and all demands, liability, liens, claims, losses, costs and expenses
(including reasonable attorneys' fees) relating to or arising from the
removal of such improvements and any interruption of service caused thereby.
C. Upon the expiration or earlier termination of the Term of
this Lease, Tenant shall remove, if requested by Landlord, any and all of the
improvements described in this Paragraph 33 in a good and workmanlike manner,
and Tenant will repair any damage occasioned by such removal. If Tenant fails
to remove such improvements within thirty (30) days after the expiration or
earlier termination of the Term of this Lease, Landlord shall have the right,
but not the obligation, to elect either (i) to remove such improvements at
Tenant's cost and expense, and Landlord shall have no liability for the
return of, or damage to, such improvements, or (ii) to treat such
improvements as abandoned by Tenant.
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D. Notwithstanding anything in this Paragraph 32 to the contrary,
the rights of Tenant and the obligations of Landlord contained in this Paragraph
32 shall apply only if no uncured Event of Default exists at the time any such
right becomes exercisable or any such obligation becomes performable.
33. EMERGENCY GENERATOR.
A. Tenant shall have the right, subject to Landlord's weight
stress, load bearing and ventilation requirements and at Tenant's sole cost
and expense, to install and maintain an emergency generator and associated
skid fuel tank in one of the parking spaces referenced in Paragraph 1.S. of
this Lease, at a location selected by Landlord and Tenant. Tenant shall
maintain, at Tenant's sole cost and expense, a fence around such emergency
generator and fuel tank. Additionally, subject to Landlord's prior written
approval of plans and specifications relating thereto, which approval shall
not be unreasonably withheld, Tenant shall have the right to install such
wire, conduits, cables and other materials as necessary to connect such
emergency generator to the Leased Premises (the emergency generator, skid
fuel tank and connecting material, being collectively referred to as the
"Generator Installation"). Tenant shall be responsible for all costs and
expenses arising from and relating to the Generator Installation. The
Generator Installation shall be in compliance with all applicable federal,
state and local laws and ordinances and Tenant shall indemnify and hold
Landlord harmless from and against any and all loss, cost, claim and
liability arising from Tenant's failure to satisfy such requirement. Landlord
agrees that Tenant and representatives designated by Tenant and reasonably
approved by Landlord shall have reasonable access to the Generator
Installation in order to install, operate, maintain, inspect and remove as
required, the Generator Installation, except when reasonable safety and
security requirements of Landlord preclude such access. Landlord shall not
unreasonably interfere with or impair Tenant's use, operation, maintenance or
repair of the Generator Installation. Subject to Landlord's obligation not to
unreasonably interfere with or impair Tenant's use, operation, maintenance or
repair of the Generator Installation, Landlord reserves the right to lease
space in the Project to other tenants, as Landlord may desire, for any
purpose, including the installation and operation of a separate emergency
generator. Notwithstanding any contrary provision contained herein, Landlord
shall have the right to relocate, at Landlord's sole expense, the Generator
Installation to another location in the Project, as Landlord shall elect;
provided, however, that no such relocation may result in any additional cost
or expense to Tenant or have any detrimental effect on Tenant's use and
operation of the Generator Installation.
B. Subject to Tenant's compliance with all applicable
governmental laws, rules and regulations, Tenant may install sealed batteries
for backup power ("Backup Batteries") in a location approved by Landlord.
C. Tenant agrees to indemnify and hold Landlord harmless from and
against any and all loss, cost, claim and liability (including all reasonable
attorneys' fees) for injuries to all persons and for damage to or loss of all
property arising or alleged to arise the installation, maintenance,
operation, existence and/or removal of the Generator Installation and/or the
Backup Batteries.
D. Upon the expiration or earlier termination of the Term of this
Lease, Tenant shall remove, if requested by Landlord, the Generator
Installation and the Back-up Batteries and related improvements in a good and
workmanlike manner, and Tenant will repair any damage occasioned by such
removal. If Tenant fails to remove the Generator Installation and/or the
Backup Batteries within thirty (30) days after the expiration or earlier
termination of the Term of this Lease, Landlord shall have the right, but not
the obligation, to elect either (i) to remove the Generator Installation
and/or the Backup Batteries at Tenant's cost and expense, and Landlord shall
have no liability for the return of, or damage to, the Generator
Installation and/or the Backup Batteries, or (ii) to treat the Generator
Installation and/or the Backup Batteries as abandoned by Tenant.
34. SUPPLEMENTAL HVAC.
A. Tenant shall have the right to install and maintain, at
Tenant's sole cost and expense, supplemental air-conditioning equipment in
one of the parking spaces referenced in Paragraph 1.S. of this Lease, at a
location selected by Landlord and Tenant. Tenant shall maintain, at Tenant's
sole cost and expense, a fence around such supplemental air conditioning
equipment. Additionally, subject to Landlord's prior written approval of
plans and specifications relating thereto, Tenant shall have the right to
install such air, conduits, cables and other materials as necessary to
connect such supplemental air conditioning equipment to the Leased Premises
(the supplemental air conditioning equipment and connecting material being
collectively referred to as the "HVAC Installation"). Landlord agrees not to
unreasonably withhold or delay its approval regarding matters involving the
HVAC Installation on which Landlord's approval is required. Tenant shall be
responsible for all costs and expenses arising from and relating to the HVAC
Installation. The HVAC Installation shall be in compliance with all
applicable federal, state and local laws and ordinances and Tenant shall
indemnify and hold Landlord harmless from and against any and all loss,
cost, claim and liability arising from Tenant's failure to satisfy such
requirement.
B. Tenant agrees to indemnify and hold Landlord harmless from and
against any and all loss, cost, claim and liability (including all
reasonable attorneys' fees) for injuries to all persons and for damage to or
loss of all property arising or alleged to arise from the installation,
maintenance, operation, existence and/or removal of the Installation.
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C. Landlord agrees that Tenant and representatives designated by
Tenant and approved by Landlord shall have reasonable access to the HVAC
Installation in order to install, operate, maintain, inspect and remove as
required, the HVAC Installation, except when reasonable safety and security
requirements of Landlord preclude such access. Landlord shall not unreasonably
interfere with or impair Tenant's use, operation, maintenance or repair of the
HVAC Installation.
D. Subject to Landlord's obligation not to unreasonably interfere
with or impair Tenant's use, operation, maintenance or repair of the HVAC
Installation, Landlord reserves the right to lease space in the Project to other
tenants, as Landlord may desire, for any purpose, including the installation and
operation of supplemental air conditioning equipment.
E. Notwithstanding any contrary provision contained herein, Landlord
shall have the right to relocate, at Landlord's sole expense, the HVAC
Installation to another location in the Project, as Landlord shall elect;
provided, however, that no such relocation may result in any additional cost or
expense to Tenant or have any detrimental effect on Tenant's use and operation
of the HVAC Installation.
F. Upon the expiration or earlier termination of the Term of this
Lease, Tenant shall remove, if requested by Landlord, the HVAC Installation and
related improvements in a good and workmanlike manner, and Tenant will repair
any damage occasioned by such removal. If Tenant fails to remove the HVAC
Installation within thirty (30) days after the expiration or earlier termination
of the Term of this Lease, Landlord shall have the right, but not the
obligation, to elect either (i) to remove the HVAC Installation at Tenant's cost
and expense, and Landlord shall have no liability for the return of, or damage
to, the HVAC Installation, or (ii) to treat the HVAC Installation as abandoned
by Tenant.
35. DELIVERY OF LEASED PREMISES.
A. Tenant hereby leases the Leased Premises on an "as is," "where
is" basis without representation or warranty, express or implied. Landlord shall
have no obligation to construct or install leasehold improvements in the Leased
Premises.
B. Tenant shall construct or have constructed in a first class and
workmanlike manner the tenant finish improvements (the "Tenant Finish Work") to
be constructed and installed in the Leased Premises. The Tenant Finish Work
shall be constructed in accordance with plans and specifications prepared or
caused to be prepared by Tenant, at Tenant's sole cost and expense, and
approved in advance, in writing, by Landlord, such approval not to be
unreasonably withheld or delayed. The Tenant Finish Work shall be constructed in
accordance with all applicable building laws and ordinances and all covenants,
conditions and restrictions affecting the Building. Tenant shall obtain
Landlord's written approval of Tenant's bid package prior to delivering the bid
package to prospective contractors, such approval not to be unreasonably
withheld or delayed.
C. Tenant shall not commence the construction of any portion of the
Tenant Finish Work until Landlord has approved, in writing, the contractors who
shall perform the Tenant Finish Work, such approval not to be unreasonably
withheld or delayed.
D. The costs and expenses of installing and constructing the Tenant
Finish Work shall be borne solely by Tenant; provided, however that Landlord
shall provide to Tenant an allowance (the "Tenant Finish Allowance") with
respect to the construction of the Tenant Finish Work in an amount equal to the
product of Three and No/100 Dollars ($3.00) multiplied by the number of rentable
square feet of area located in the Leased Premises. The Tenant Finish Allowance
shall be disbursed to Tenant within thirty (30) days following (a) the
completion of the Tenant Finish Work, as reasonably determined by a
representative of Landlord, and (b) Tenant's delivery to Landlord of the paid
bills or invoices for such work and final unconditional releases or waivers of
mechanic's and materialmen's liens from all parties who have furnished materials
or services or performed labor of any kind in connection with the Tenant Finish
Work. A construction management fee equal to five percent (5%) of the cost of
the Tenant Finish Work shall be deducted from the Tenant Finish Allowance and
paid to Landlord's designated construction manager. Tenant shall be entitled
only to that portion of the Tenant Finish Allowance which is evidenced by paid
bills or invoices for Tenant Finish Work actually performed by third parties,
and any unused portion of the Tenant Finish Allowance as of the Commencement
Date shall be the sole and exclusive property of Landlord.
36. REMOVAL OF ABOVE-CEILING ALTERATIONS. At the termination of this
Lease, Tenant shall, at Tenant's sole cost and expense, remove all above-ceiling
alterations made by or on behalf of Tenant to the Leased Premises, including,
without limitation, the initial alterations made to the Leased Premises, and
repair all damage caused thereby. In addition, Tenant shall, at Tenant's sole
cost and expense, replace all above-ceiling improvements removed by Tenant or on
behalf of Tenant from the Leased Premises so that Tenant shall return the
above-ceiling portion of the Leased Premises to Landlord in the same condition
as it exists on the date of this Lease. Such work shall be done in a good and
workmanlike manner and in accordance with the terms and conditions of Paragraph
11 of this Lease.
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37. RENEWAL OPTIONS. If there is no uncured Event of Default hereunder,
Tenant shall have the right to renew the Term of this Lease for two (2)
additional periods of five (5) years each upon the same terms, conditions and
provisions applicable to the primary term of this Lease (unless otherwise
expressly provided herein), except that the annual Base Rental (which shall
include a Riser Fee) for each additional term of five (5) years shall equal the
product of the number of square feet of rentable area then contained in the
Leased Premises multiplied by an amount equal to the then prevailing market base
rental rate (including market riser fee rate) per rentable square foot per annum
charged for comparable space in comparable buildings and with comparable use in
the central business district of Dallas, Texas, as reasonably determined by
Landlord (taking into account that the Base Operating Expenses Rate shall remain
unchanged and Tenant pays for certain utilities and services directly as
provided in this Lease).
Tenant shall evidence its intent to exercise its right of renewal
separately with respect to each renewal term by delivering to Landlord written
notice ("Tenant's Renewal Notice") of Tenant's desire to renew the Term of this
Lease as aforesaid at least six (6) months (but not more than twelve (12)
months) prior to the expiration of the then current Term of this Lease. Within
thirty (30) days following delivery of Tenant's Renewal Notice, Landlord shall
deliver to Tenant a written notice ("Landlord's Notice") specifying the Base
Rental rate (including Riser Fee rate) per rentable square foot per annum for
the applicable additional term of five (5) years. Tenant shall have thirty (30)
days following delivery of Landlord's Notice in which to notify Landlord of
Tenant's exercise of its rights to renew the Term hereof. Failure to notify
Landlord within such period or to timely deliver Tenant's Renewal Notice shall
automatically extinguish Tenant's rights to renew. Tenant shall have no right to
renew the Term of this Lease following the expiration of the second renewal term
of five (5) years detailed herein.
38. ROOFTOP RIGHTS. Landlord and Tenant contemplate entering into a
separate agreement to be negotiated with Tenant by Landlord or Landlord's roof
consultant addressing Tenant's rights, if any, with respect to the Building's
rooftop.
39. MISCELLANEOUS.
A. Provided Tenant complies with Tenant's covenants, duties and
obligations hereunder, Tenant shall quietly have, hold and enjoy the Leased
Premises subject to the terms and provisions of this Lease without hindrance
from Landlord or any person or entity claiming by, through or under Landlord.
B. In any circumstance where Landlord is permitted to enter upon the
Leased Premises during the Term of this Lease, whether for the purpose of curing
any default of Tenant, repairing damage resulting from fire or other casualty or
an eminent domain taking or is otherwise permitted hereunder or by law to go
upon the Leased Premises, no such entry shall constitute an eviction or
disturbance of Tenant's use and possession of the Leased Premises or a breach by
Landlord of any of Landlord's obligations hereunder or render Landlord liable
for damages for loss of business or otherwise or entitle Tenant to be relieved
from any of Tenant's obligations hereunder or grant Tenant any right of setoff
or recoupment or other remedy; and in connection with any such entry incident to
performance of repairs, replacements, maintenance or construction, all of the
aforesaid provisions shall be applicable notwithstanding that Landlord may elect
to take building materials in, to or upon the Leased Premises that may be
required or utilized in connection with such entry by Landlord. Landlord shall
use reasonable efforts not to interfere with the operation of Tenant's business
in the Leased Premises during such entry.
C. [Intentionally Deleted.]
D. The remedies of Landlord hereunder shall be deemed cumulative,
and no remedy of Landlord, whether exercised by Landlord or not, shall be
deemed to be in exclusion of any other. Except as may be otherwise herein
expressly provided, in all circumstances under this Lease where prior consent or
permission of one (1) party ("first party") is required before the other party
("second party") is authorized to take any particular type of action, the matter
of whether to grant such consent or permission shall be within the sole and
exclusive judgment and discretion of the first party; and it shall not
constitute any nature of breach by the first party hereunder or any defense to
the performance of any covenant, duty or obligation of the second party
hereunder that the first party delayed or withheld the granting of such consent
or permission, whether or not the delay or withholding of such consent or
permission was prudent or reasonable or based on good cause.
E. In all instances where Landlord or Tenant is required to pay any
sum or do any act at a particular indicated time or within an indicated period,
it is understood that time is of the essence.
F. The obligation of Tenant to pay all rental and other sums
hereunder provided to be paid by Tenant and the obligation of Tenant to perform
Tenant's other covenants and duties hereunder constitute independent,
unconditional obligations to be performed at all times provided for hereunder,
save and except only when an abatement thereof or reduction therein is
hereinabove expressly provided for and not otherwise. Tenant waives and
relinquishes all rights which Tenant might have to claim any nature of lien
against or withhold, or deduct from or offset against any rental and other sums
provided hereunder to be paid Landlord by Tenant. Tenant waives and relinquishes
any right to assert, either as a claim or as a defense, that Landlord is bound
to perform or is liable for the nonperformance of any implied covenant or
implied duty of Landlord not expressly herein set forth.
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G. Under no circumstances whatsoever shall Landlord or Tenant ever
be liable hereunder for consequential damages or special damages.
H. Landlord retains the exclusive right to create any additional
improvements to structural and/or mechanical systems, interior and exterior
walls and/or glass, which Landlord deems necessary without the prior consent of
Tenant. Landlord shall use reasonable efforts not to interfere with Tenant's
operation of its business in the Leased Premises during the exercise of the
foregoing right.
I. All monetary obligations of Landlord and Tenant (including,
without limitation, any monetary obligation of Landlord or Tenant for damages
for any breach of the respective covenants, duties or obligations of Landlord or
Tenant hereunder) are performable exclusively in the county in which the
Building is located.
J. The laws of the State in which the Building is located shall
govern the interpretation, validity, performance and enforcement of this Lease.
K. If any clause or provision of this Lease is or becomes illegal,
invalid, or unenforceable because of present or future laws or any rule or
regulation of any governmental body or entity, effective during the Term of this
Lease, the intention of the parties hereto is that the remaining parts of this
Lease shall not be affected thereby.
L. [Intentionally Deleted.]
M. It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of landlord and tenant, Tenant's use
or occupancy of the Leased Premises, and any emergency statutory or any other
statutory remedy.
N. [Intentionally Deleted.]
O. No receipt of money by Landlord from Tenant after the expiration
of the Term of this Lease, or after the service of any notice, or after the
commencement of any suit, or after final judgment for possession of the Leased
Premises, shall reinstate, continue or extend the Term of this Lease or affect
any such notice, demand or suit or imply consent for any action for which
Landlord's consent is required.
P. [Intentionally Deleted.]
Q. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular number shall be
held to include the plural, unless the context otherwise requires. The headings
of the Paragraphs of this Lease have been inserted for convenience only and are
not to be considered in any way in the construction or interpretation of this
Lease.
R. Tenant agrees that Tenant shall from time to time upon request by
Landlord and/or Landlord's Mortgagee execute and deliver to Landlord a statement
in recordable form certifying (i) that the Lease is unmodified and in full force
and effect (or, if there have been modifications, that the same is in full force
and effect as so modified), (ii) the dates to which rental and other charges
payable under this Lease have been paid, and (iii) that Landlord is not in
default hereunder (or, if Landlord is in default, specifying the nature of such
default). Tenant further agrees that Tenant shall from time to time upon request
by Landlord execute and deliver to Landlord an instrument in recordable form
acknowledging Tenant's receipt of any notice of assignment of this Lease by
Landlord.
S. In no event shall Tenant have the right to create or permit there
to be established any lien or encumbrance of any nature against the Leased
Premises or the Building for any improvement or improvements by Tenant, and
Tenant shall fully pay the cost of any improvement or improvements made or
contracted for by Tenant. Any mechanic's lien filed against the Leased Premises
or the Building for work claimed to have been done, or materials claimed to have
been furnished to Tenant, shall be duly discharged (by payment or bonding) by
Tenant within ten (10) days after the filing of the lien.
T. Whenever a period of time is herein prescribed for action to be
taken by a party (other than the payment of rental obligations hereunder), such
party shall not be liable or responsible for, and there shall be excluded from
the computation for any such period of time, any delays due to strikes, riots,
acts of God, shortages of labor or materials, war, governmental laws,
regulations or restrictions, or any other causes of any kind whatsoever which
are beyond the reasonable control of the party obligated to take such action.
U. This Lease shall not be recorded by either party without the
consent of the other.
V. Nothing herein contained shall be deemed or construed by the
parties hereto, nor by any third party, as creating the relationship of
principal and agent, or of partnership or of joint venture between the parties
hereto, it being understood and agreed that neither the method of the
computation of rental, nor any other
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provision contained herein, nor any acts of the parties hereto, shall be deemed
to create any relationship between the parties hereto other than the
relationship of landlord and tenant.
W. Whenever it is provided herein that a monetary sum shall be due
to Landlord together with interest at the highest lawful rate, if at such time
there shall be no highest rate prescribed by applicable law, interest shall be
due at the rate of two percent (2%) in excess of Prime Rate as defined in
Paragraph 1.Q. hereof.
X. Tenant acknowledges that Landlord's agents and employees have
made no representations or promises with respect to the Leased Premises or the
Building except as herein expressly set forth, and Tenant further acknowledges
that no rights, easements or licenses are acquired by Tenant by implication or
otherwise, except as herein expressly set forth.
Y. Tenant warrants that Tenant is, and shall remain throughout the
Term of this Lease, authorized to do business in the State in which the Building
is located. Tenant agrees, upon request by Landlord, to furnish Landlord
satisfactory evidence of Tenant's authority for entering into this Lease.
Z. If either party brings an action to enforce the terms hereof or
declare rights hereunder, the prevailing party in any such action, on trial or
appeal, shall be entitled to his reasonable attorney's fees to be paid by the
losing party as fixed by the court.
AA. In the event Tenant requests from Landlord the written consent of
Landlord to any proposed assignment of the Lease or subletting of any or all of
the Leased Premises, Landlord may require the payment of reasonable attorney's
fees incurred by Landlord in processing such request, regardless of whether such
consent is granted. Such fee shall be payable by Tenant at the time such request
is made by Tenant.
BB. Submission of this Lease for examination does not constitute
an offer, right of first refusal, reservation of, or option for, the Leased
Premises or any other premises in the Building. This Lease shall become
effective only upon execution and delivery by both Landlord and Tenant.
CC. If Tenant is composed of more than one (1) person or entity, each
person and/or entity comprising Tenant shall be jointly and severally liable for
the performance of the obligations of Tenant under this Lease, including
specifically, without limitation, the payment of rental and all other sums
payable hereunder.
DD. Landlord shall have the right at any time to change the name or
street address of the Building and to install and maintain a sign or signs on
the interior or exterior of the Building.
EE. Any charges against Tenant by Landlord for services or for work
done on the Leased Premises by order of Tenant, or otherwise accruing under this
Lease, shall be considered as rental due and shall be included in any lien for
rental.
FF. If at any time during the Term of this Lease a tax or excise on
rental, a sales tax or other tax however described (except any inheritance,
estate, gift, income or excess profit tax imposed upon Landlord) is levied or
assessed against Landlord by any taxing authority having jurisdiction on
account of Landlord's interest in this Lease, or the rentals or other charges
payable hereunder, as a substitute in whole or in part for, or in addition to,
the taxes described elsewhere in this paragraph. Tenant shall pay to Landlord as
additional rental upon demand the amount of such tax or excise. In the event
that any such tax or excise is levied or assessed directly against Tenant,
Tenant shall pay the same at such times and in such manner as such taxing
authority shall require.
GG. Tenant has no right to protest the real estate tax rate assessed
against the Project and/or the appraised value of the Project determined by any
appraisal review board or other taxing entity with authority to determine tax
rates and/or appraised values (each a "Taxing Authority"). Tenant hereby
knowingly, voluntarily and intentionally waives and releases any right, whether
created by law or otherwise, to (a) file or otherwise protest before any Taxing
Authority any such rate or value determination even though Landlord may elect
not to file any such protest; (b) receive, or otherwise require Landlord to
deliver, a copy of any reappraisal notice received by Landlord from any Taxing
Authority; and (c) appeal any order of a Taxing Authority which determines any
such protest. The foregoing waiver and release covers and includes any and all
rights, remedies and recourse of Tenant, now or at any time hereafter, under
Section 41.413 and Section 42.015 of the Texas Tax Code (as currently enacted or
hereafter modified) together with any other or further laws, rules or
regulations covering the subject matter thereof. Tenant acknowledges and agrees
that the foregoing waiver and release was bargained for by Landlord and Landlord
would not have agreed to enter into this Lease in the absence of this waiver and
release. If, notwithstanding any such waiver and release, Tenant files or
otherwise appeals any such protest, then Tenant will be in default under this
Lease and, in addition to Landlord's other rights and remedies, Tenant must pay
or otherwise reimburse Landlord for all costs, charges and expenses incurred by,
or otherwise asserted against, Landlord as a result of any tax protest or appeal
by Tenant, including, appraisal costs, tax consultant charges and attorneys'
fees (collectively, the "Tax Protest Costs"), If. as a result of Tenant's tax
protest or appeal, the appraised value for the Project is increased above that
previously determined by the Taxing Authority (such increase, the "Value
Increase") for the year covered by such tax protest or appeal (such year, the
"Protest Year"), then Tenant must pay Landlord, in addition to all Tax Protest
Costs, an amount (the "Additional Taxes") equal to the sum of
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the following: (i) the product of the Value Increase multiplied by the tax
rate in effect for the Protest Year; plus (ii) the amount of additional taxes
payable during the five (5) year period following the Protest Year, such
amount to be calculated based upon the Value Increase multiplied by the tax
rate estimated to be in effect for each year during such five (5) year
period. Tenant must pay all Additional Taxes - even those in excess of
Tenant's proportionate share and which may relate to years beyond the term of
this Lease. The Additional Taxes will be conclusively determined by a tax
consultant selected by Landlord, without regard to whether and to what extent
Landlord may be able in years following the Protest Year to reduce or
otherwise eliminate any Value Increase. All Tax Protest Costs and Additional
Taxes must be paid by Tenant within five (5) days following written demand by
Landlord.
40. ENTIRE AGREEMENT AND BINDING EFFECT. This Lease and any
contemporaneous workletter, addenda or exhibits signed by the parties constitute
the entire agreement between Landlord and Tenant; no prior written or prior
contemporaneous oral promises or representations shall be binding. This Lease
shall not be amended, changed or extended except by written instrument signed by
both parties hereto. The provisions of this Lease shall be binding upon and
inure to the benefit of the heirs, personal representatives, successors and
assigns of the parties, but this provision shall in no way alter the restriction
herein in connection with assignment, subletting and other transfer by Tenant.
EXECUTED in multiple counterparts, each of which shall have the force and
effect of an original, on the date specified in Paragraph 1.A. hereof.
LANDLORD:
BEVERLY HILLS CENTER LLC,
a California limited liability
company
By: M.T. Akhavizadah
----------------------------------
Name: M.T. Akhavizadah
--------------------------------
Title: Vice President
-------------------------------
TENANT:
COMMUNICATION TELESYSTEMS INTERNATIONAL DBA
WORLDXCHANGE COMMUNICATIONS
By: /s/ Edward S. Soren
---------------------------------
Edward S. Soren
President
APPROVED BY
LEGAL DEPT.
[ILLEGIBLE]
-----------------
ATTORNEY DATE
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<PAGE>
LIST OF OMITTED EXHIBITS AND ATTACHMENTS
The following Exhibits and Attachments to the Office Lease Agreement
have been omitted from this Exhibit and shall be furnished supplementally to the
Commission upon request:
Schedule A -- Leased Premises
Exhibit B -- Land
Exhibit C -- Rules and Regulations
Waiver and Consent by Real Property Owners
Consent and Waiver by Owner, Landlord or Mortgagee of Real Estate
<PAGE>
---------------------------------------
---------------------------------------
STANDARD FORM OF OFFICE LEASE
The Real Estate Board of New York, Inc.
---------------------------------------
---------------------------------------
AGREEMENT OF LEASE, made as of this day of January 1995,
between HUDSON TELEGRAPH ASSOCIATES, a New York limited partnership,
having an office c/o Williams Real Estate Co. Inc., 530 Fifth Avenue,
New York, New York 10036
party of the first part, hereinafter referred to as OWNER or LANDLORD, and
COMMUNICATION TELESYSTEMS INTERNATIONAL, a California corporation,
having and office at 4350 LaJolla Village Drive, Suite 100, San Diego,
California 92122 party of the second part, hereinafter referred to as
TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from
Owner a portion of the fifteenth (15th) floor, shown cross-hatched on
Exhibit A annexed hereto (the "premises" or "demised premises") in the
building known as 60 Hudson Street (the "Building") in the Borough of
Manhattan, City of New York, for the term (the "Term") of approximately
five (5) years and six (6) months (or until such Term shall sooner cease
and expire as hereinafter provided) to commence on the Commencement Date
(as defined in Article 37), and to end on June 30, 2000 (the "Expiration
Date"), both dates inclusive, at a fixed annual rental rate ("Fixed
Rent") of Thirty-Nine Thousand Sixty ($39,060) Dollars per annum which
Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the
time of payment, in equal monthly installments in advance on the first
day of each month during said term, at the office of Owner or such other
place as Owner may designate, without any set off or deduction
whatsoever, except that Tenant shall pay the first full monthly
installment(s) on the execution hereof (unless this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner
pursuant to the terms of another lease with Owner or with Owner's
predecessor in interest, Owner may at Owner's option and without notice
to Tenant add the amount of such arrears to any monthly installment of
rent payable hereunder and same shall by payable to Owner as additional
rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and
assigns, hereby covenant as follows:
Rent Occupancy
1. Tenant shall pay the rent as above and as hereinafter provided.
2. Tenant shall use and occupy demised premises for general and
executive office use and operation of a telecommunications switching
station and for no other purpose.
Tenant Alterations:
3. Tenant shall make no changes in or to the demised premises of any
nature without Owner's prior written consent. Subject to the prior
written consent of Owner, and to the provisions of this article, Tenant
at Tenant's expense, may make alterations, installations, additions or
improvements which are non-structural and which do not affect utility
services or plumbing and electrical lines, in or to the interior of the
demised premises by using contractors or mechanics first approved by
Owner. Tenant shall, before making any alterations, additions,
installations or improvements, at its expense, obtain all permits,
approvals and certificates required by any governmental or
quasi-governmental bodies and (upon completion) certificates of final
approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner and Tenant agrees to carry
and will cause Tenant's contractors and sub-contractors to carry such
workman's compensation, general liability, personal and property damage
insurance as Owner may require. If any mechanic's lien is filed against
the demised premises, or the building of which the same forms a part,
for work claimed to have been done for, or materials furnished to,
Tenant, whether or not done pursuant to this article, the same shall be
discharged by Tenant within thirty days thereafter, at Tenant's expense,
by filing the bond required by law. All fixtures and all paneling,
partitions, railings and like installations, installed in the premises
at any time, either by Tenant or by Owner in Tenant's behalf, shall,
upon installation, become the property of Owner and shall remain upon
and be surrendered with the demised premises unless Owner, by notice to
Tenant no later than twenty days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right thereto
and to have the removed by Tenant, in which event the same shall be
removed from the premises by Tenant prior to the expiration of the lease,
at Tenant's expense. Nothing in this Article shall be construed to give
Owner title to or to prevent Tenant's removal of trade fixtures,
moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be
required by Owner, Tenant shall immediately and at is expense, repair
and restore the premises to the condition existing prior to installation
and repair any damage to the demised premises or the building due to
such removal. All property permitted or required to be removed, by
Tenant at the end of the term remaining in the premises after Tenant's
removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or may be removed from the
premises by Owner, at Tenant's expense.
Maintenance and Repairs
4. Tenant shall, throughout the term of this lease, take good care of
the demised premises and the fixtures and appurtenances therein. Tenant
shall be responsible for all damage or injury to the demised premises or
any other part of the building and the systems and equipment thereof,
whether requiring structural or nonstructural repairs caused by or
resulting from carelessness, omission, neglect or improper conduct of
Tenant, Tenant's subtenants, agents, employees, invitees or licensees,
or which arise out of any work, labor, service or equipment done for or
supplied to Tenant or any subtenant or arising out of the installation,
use or operation of the property or equipment of Tenant or any
subtenant. Tenant shall also repair all damage to the building and the
demised premises caused by the moving of Tenant's fixtures, furniture
and equipment. Tenant shall promptly make, at Tenant's expense, all
repairs in and to the demised premises for which Tenant is responsible,
using only the contractor for the trade or trades in question, selected
from a list of at least two contractors per trade submitted by Owner.
Any other repairs in or to the building or the facilities and systems
thereof for which Tenant is responsible shall be performed by Owner at
the Tenant's expense. Owner shall maintain in good working order and
repair the exterior and the structural portions of the building,
including the structural portions of its demised premises, and the
public portions of the building interior and the building plumbing,
electrical, heating and ventilating systems (to the extent such systems
presently exist) serving the demised premises. Tenant agrees to give
prompt notice of any defective condition in the premises for which Owner
may be responsible hereunder. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by
reason of inconvenience, annoyance or injury to business arising from
Owner or others making repairs, alterations, additions or improvements
in or to any portion of the building or the demised premises or in and to
the fixtures, appurtenances or equipment thereof. It is specifically
agreed that Tenant shall not be entitled to any setoff or reduction of
rent by reason of any failure of Owner to comply with the covenants of
this or any other article of this Lease. Tenant agrees that Tenant's sole
remedy at law in such instance will be by way of an action for damages
for breach of contract. The provisions of this Article 4 shall not apply
in the case of fire or other casualty which are dealt with in Article 9
hereof.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any
window in the demised premises to be cleaned from the outside in
violation of Section 202 of the Labor Law or any other applicable law or
of the Rules of the Board of Standards and Appeals, or of any other Board
or body having or asserting jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter, Tenant, at Tenant's sole cost
and expense, shall promptly comply with all present and future laws,
orders and regulations of all state, federal, municipal and local
governments, departments, commissions and boards and any direction of
any public officer pursuant to law, and all orders, rules and regulations
of the New York Board of Fire Underwriters, Insurance Services Office, or
any similar body which shall impose any violation, order or duty upon
Owner or Tenant with respect to the demised premises, whether or not
arising out of Tenant's use or manner of use thereof, (including
Tenant's permitted use) or, with respect to the building if arising out
of Tenant's
<PAGE>
use or manner of use of the premises or the building (including the use
permitted under the lease). Nothing herein shall require Tenant to make
structural repairs or alternations unless Tenant has, by its manner of use of
the demised premises or method of operation therein, violated any such laws,
ordinances, orders, rules, regulations or requirements with respect thereto.
Tenant may, after securing Owner to Owner's satisfaction against all damages,
interest, penalties and expenses, including, but no limited to, reasonable
attorney's fees, by cash deposit or by surety bond in an amount and in a
company satisfactory to Owner, contest and appeal any such laws, ordinances,
orders, rules, regulations or requirements with respect thereto. Tenant may,
after securing Owner to Owner's satisfaction against all damages, interest,
penalties and expenses, including, but not limited to, reasonable attorney
fee's, by cash deposit or by surety bond in any amount and in a company
satisfactory to Owner, contest and appeal any such laws, ordinances, orders,
rules, regulations or requirements provided same is done with all reasonable
promptness and provided such appeal shall not subject Owner to prosecution
for a criminal offense or constitute a default under any lease or mortgage
under which Owner may be obligated, or cause the demised premises or any part
thereof to be condemned to vacated. Tenant shall not do or permit any act or
thing to be done in or to the demised premises which is contrary to law, or
which will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner with
respect to the demised premises or the building of which the demised premises
form a part, or which shall or might subject owner to any liability or
responsibility to any person or for property damage. Tenant shall not keep
anything in the demised premises except as now or hereafter permitted by the
Fire Department, Board of Fire Underwriters, Fire Insurance Rating
Organization or other authority having jurisdiction, and then only in such
manner and such quantity so as not to increase the rate for fire insurance
applicable to the building, or use the premises in a manner which increase
that insurance rate for the building or any property located therein over
that in effect prior to the commencement of Tenant's occupancy. Tenant shall
pay all costs, expenses, fines, penalties, or damages, which may be imposed
upon Owner by reason of Tenant's failure to comply with the provisions of
this article and if by reason of such failure the fire insurance rate shall,
at the beginning of this lease or at any time thereafter, by additional rent
hereunder, for the portion of all fire insurance premiums thereafter paid by
Owner which shall be been charged because of such failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable
to said premises shall be conclusive evidence of the facts therein stated and
of the several items and charges in the fire insurance rates then applicable
to said premises. Tenant shall not place load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed
to carry and which is allowed by law. Owner reserves the right to prescribe
the weight and position of all safes, business machines and mechanical
equipment. Such installations shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Owner's judgement, to absorb and
prevent vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground now or hereafter
affect such leases or the real property of which demised premises are a part
and to all renewals, modifications, consolidations, replacements and
extensions of any such underlying leases and mortgages. This clause shall be
self-operative and no further instrument of subordination shall be required
by any ground or underlying lessor or by any mortgagee, affecting any lease
or the real property of which the demised premises are a part. In
confirmation of such subordination, Tenant shall execute promptly any
certificate that Owner may request.
Property -- Loss, Damage, Reimbursement, Indemnity:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of
or damage to any property of Tenant by theft or otherwise, nor for any injury
or damage to persons or property resulting from any cause of whatsoever
nature, unless cause by or due to the negligence of Owner, its agents,
servants or employees. Owner or its agents will not be liable for any such
damage caused by other tenants or persons in, upon or about said building or
caused by operations in construction of any private, public or quasi-public
work.
If at any time any windows of the demised premises are temporarily closed,
darkened or bricked up (or permanently closed, darkened or bricked up, if
required by law) for any reason whatsoever including, but no limited to
Owner's own acts, Owner shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation therefor nor
abatement or domination of rent nor shall the same release Tenant from its
obligations hereunder nor constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be
reimbursed in insurance, including reasonable attorney's fees, paid, suffered
or incurred as a result of any breach by Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case any
action or proceeding is brought against Owner, will at Tenant's expense,
resist or defend such action or preceding by counsel approved by Owner in
writing, such approval not to be unreasonably withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give immediate notice thereof to Owner and
this lease shall continue in full force and effect except as hereinafter set
forth. (b) If the demised premises are partially damaged or rendered
partially unusable by fire or other casualty, the damages thereto shall be
repaired by and at the expense of Owner and the rent, until such repair shall
be substantially completed, shall be apportioned from the day following the
casualty according to the part of the premises which is usable. (c) If the
demised premises are totally damaged or rendered wholly unusable by fire or
other casualty, then the rent shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises
shall have been repaired and restored by Owner, subject to Owner's right to
elect not to restore the same as hereinafter provided. (d) If the demised
premises are rendered wholly unusable or (whether or not he demised premises
are damaged in whole or in part) if the building shall be so damaged that
Owner shall decide to demolish it or this lease by written notice to Tenant,
given within 90 days after such fire or casualty, specifying a date for
expiration of the lease, which date shall not be more than 60 days after the
giving of such notice, and upon the date specified in such notice the term of
this lease shall expire as fully and completely as if such date were the date
set forth above for the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to
Landlord's rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owning shall be paid up to
such date and any payments of rent made by Tenant which were on account of
any period subsequent to such date shall be returned to Tenant. Unless Owner
shall serve a termination notice as provided for herein, Owner shall make the
repairs and restorations under the conditions of (b) and (c) hereof, with all
reasonable expedition, subject to delays due to adjustment of insurance
claims, labor troubles and causes beyond Owner's control. After any such
casualty, Tenant shall cooperate with Owner's restoration by removing from
the premises as promptly as reasonably possible, all of Tenant's salvageable
inventory and movable equipment, furniture, and other property. Tenant's
liability for rent shall resume five (5) days after written notice from
Owner hat the premises are substantially ready for Tenant's occupancy. (e)
Nothing contained hereinabove shall relieve Tenant from liability that may
exist as a result of damage from fire or other insurance in its favor before
making any claim against the other party for recovery for loss or damage
resulting from fire or casualty, and to the extent that such insurance is in
force and collectively and to the extent permitted by law, Owner and Tenant
each hereby releases and waives all right of recovery against the other or
any one claiming through or under each of them by way or subrogation or
otherwise. The foregoing release and waiver shall be in force only if both
releasors' insurance policies contain a clause providing that such a release
or waiver shall not invalidate the insurance. If, and to the extent, that
such waiver can be obtained only by the payment of additional premiums, then
the party benefitting from the waiver shall pay such premium within ten days
after written demand or shall be deemed to have agreed that the party
obtaining insurance overage shall be free of any further obligation under the
provisions hereof with respect to waiver of subrogation. Tenant acknowledges
that Owner will carry insurance on Tenant's furniture and/or furnishings or
any fixtures or equipment, improvements, or appurtenances removable by Tenant
and agrees that Owner will not be obligated to repair any damage thereto or
replace the same. (f) Tenant hereby waives the provisions of Section 227 of
the Real Property Law and agrees that the provisions of this article shall
govern and control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose,
then and in that event, the term of this lease shall cease and terminate from
the date of title vesting in such proceeding and Tenant shall have no claim
for the value of any unexpired term of said lease and assigns to Owner,
Tenant's entire interest in any such award.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it
shall not assign, mortgage or encumber this agreement, nor underlet, or
others, without the prior written consent of Owner in each instance. Transfer
of the majority of the stock of corporate Tenant shall be deemed an
assignment. If this lease be assigned, or if the demised premises or any party
thereof be underlet or occupied by anybody other than the Tenant, Owner may,
after default by Tenant, collect rent from the assignee, under-tenant or
occupant as tenant or a release of Tenant from the further performance by
Tenant of covenants on the part of Tenant herein contained. The consent by
Owner to an assignment or underletting shall not in any wise be construed to
relieve Tenant from obtaining the express consent in writing of Owner to any
further assignment or underletting.
Electric Current:
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use an electrical equipment which, in
Owner's opinion, reasonably exercised, will overload such installations or
interfere with the use thereof by other tenants of the building. The change
at any time of the character of electric service shall in no wise make Owner
liable or responsible to Tenant, for any loss, damages or expenses which
Tenant may sustain.
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be obligated)
to enter the demised premises in any emergency at any time, and, at other
reasonable times, to examine the same and to make such repairs, replacements
and improvements and Owner may elect to perform. Tenant shall permit Owner to
use and maintain and replace pipes and conduits in and through the demised
premises and to erect new pipes and conduits therein provided they are
concealed within the walls, floor, or ceiling. Owner may, during the progress
of any work in the demised premises, take all necessary materials and
equipment into said premises without the same constituting and eviction nor
shall the Tenant be entitled to any abatement of rent while such work is in
progress nor to any damages by reason of loss or interruption of business or
otherwise. Throughout the term hereof Owner shall have the right to enter the
demised premises at reasonable hours for the purpose of showing the
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* Rider to be added if necessary.
<PAGE>
same to prospective purchasers or mortgages on the building, and during the
last six months of the term for the purpose of showing the same to
prospective tenants. If Tenant is not present to open and permit an entry
into the premises, Owner or Owner's agents may enter the same whenever such
entry may be necessary or permissible by master key or forcibly and provided
reasonable care is exercised to safeguard Tenant's property, such entry shall
not render Owner or its agents liable therefor, nor in any event shall the
obligations of Tenant hereunder be affected. If during the last month of the
term Tenant shall have removed all or substantially all of Tenant's property
therefrom Owner may immediately enter, alter, renovate or redecorate the
demised premises without limitation or abatement of rent, or incurring
liability to Tenant for any compensation and such act shall have no effect on
this lease or Tenant's obligations hereunder.
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder, anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding. Owner
makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the
property line of the building, which Tenant may be permitted to use and/or
occupy, is to be used and/or occupied under a revocable license, and if any
such license be revoked, or if the amount of such space or area be diminished
or required by any federal, state or municipal authority or public utility,
Owner shall not be subject to any liability nor shall Tenant be entitled to
any compensation or dimution or abatement of rent, nor shall such revocation,
dimution or requisition be deemed constructive or actual eviction. Any tax,
fee or charge of municipal authorities for such vault or area shall be paid
by Tenant.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation o the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts
them as is, subject to the riders annexed hereto with respect to Owner's
work, if any. In any event, Owner makes no representation as to the condition
of the premises and Tenant agrees to accept the same subject to violations,
whether or not of record.
BANKRUPTCY:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Owner by the sending of a written notice to
Tenant within a reasonable time after the happening of any one or more of the
following events: (1) the commencement of a case in bankruptcy or under the
laws of any state naming Tenant as the debtor; or (2) the making by Tenant of
an assignment or any other arrangement for the benefit of creditors under any
state statute. Neither Tenant nor any person claiming through or under
Tenant, or by reason of any statute or order of court, shall thereafter be
entitled to possession of the premises demised but shall forthwith quit and
surrender the premises. If this lease shall be assigned in accordance with
its terms, the provisions of this Article 16 shall be applicable only to the
party then owning Tenant's Interest in this lease.
(b) it is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference
between the rent reserved hereunder for the unexpired portion of the term
demised and the fair and reasonable rental value of the demised premises for
the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination
and the fair and reasonable rental value of the demised premises for the
period for which such installment was payable shall be discounted to the date
of termination at the rate of four percent (4%) per annum. If such premises
or any part thereof be relet by the Owner for the unexpired term of said
lease, or any part thereof, before presentation of proof of such liquidated
damages to any court, commission or tribunal, the amount of rent reserved upon
such reletting shall be deemed to be the fair and reasonable rental value for
the part or the whole of the premises so re-let during the term of the
re-letting. Nothing herein contained shall limit or prejudice the right of
the Owner to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, ad governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if
the demised premises become vacant or deserted; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property
whereupon the demised premises shall be taken or occupied by someone other
than Tenant; or if this lease be rejected under Section 235 of Title 11 of
the U.S. Code (bankruptcy code); or if Tenant shall fail to move into or take
possession of the premises within fifteen (15) days after the commencement of
the term of this lease, then, if any one or more of such events, upon Owner
serving a written five (5) days notice upon Tenant specifying the nature of
said default and upon the expiration of said five (5) days notice upon Tenant
specifying the nature of said default and upon the expiration of said (5)
days, if Tenant shall have failed to comply with or remedy such default, or
if the said default or omission complained of shall be of a nature that the
same cannot be completely cured or remedied within said five (5) day period,
and if Tenant shall not have diligently commenced curing such default within
such five (5) day period, and shall not thereafter with reasonable diligence
and in good faith, proceed to remedy or cure such default, then Owner may
serve a written three (3) days' notice of cancellation of this lease upon
Tenant, and upon the expiration of said three (3) days this lease and the
term thereunder shall end and expire as fully and completely as if the
expiration of such three (3) day period were the day herein definitely fixed
for the end and expiration of this lease and the term thereof and Tenant
shall then quit and surrender the demised premises to Owner but Tenant shall
remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein
required then and in any of such events Owner may without notice, re-enter
the demised premises either by force or otherwise, and dispossess Tenant by
summary proceedings or otherwise, and the legal representative of Tenant or
other occupant of demised premises and remove their effects and hold the
premises as if this lease had not been made, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal proceedings
to the end. If Tenant shall make default hereunder prior to the date fixed as
the commencement of any renewal or extension of this lease, Owner may cancel
and terminate such renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and
be paid up to the time of such re-entry, dispossess and/or expiration, (b)
Owner may re-let the premises or any part or parts thereof, either in the
name of Owner or otherwise for a term or terms, which may at Owner's option
be less than or exceed the period which would otherwise have constituted the
balance of the term of this lease and may grant concessions or free rent or
charge a higher rental than that in this lease, and/or (c) Tenant or the
legal representatives of Tenant shall also pay Owner as liquidated damages
for the failure of Tenant to observe and perform said Tenant's covenants
herein contained, any deficiency between the rent hereby reserved and/or
covenanted to be paid and the net amount, if any, of the rents collected on
account of the lease or leases of the demised premises for each month of the
period which would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises or any part or parts
thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Owner may incur in connection with re-letting, such as legal
expenses, attorney's fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the
rent day specified in this lease and any suit brought to collect the amount
of the deficient for any months shall not prejudice in any way the rights of
Owner to collect the deficiency for any subsequent month by a similar
proceeding. Owner, in putting the demised premises in good order or preparing
the same for re-rental may, at Owner's option, make such alterations,
repairs, replacements, and/or decorations in the demised premises as Owner,
in Owner's sole judgement, considers advisable and necessary for the purpose
of re-letting the demised premises, and the making of such alterations,
repairs, replacements, and/or decorations shall not operate or be construed
to release Tenant from liability hereunder as aforesaid. Owner shall in no
event be liable in any way whoever for failure to re-let the demised
premises, or in the event that the demised premises are re-let, for failure
to collect the rent thereof under such re-letting, and in no even shall
Tenant be entitled to receive any excess, if any, of such net rents collected
over the sums payable by Tenant to Owner hereunder. In the event of a breach
or threatened breach by Tenant of any of the covenants or provisions hereof,
Owner shall have the right of injunction and the right to invoke any remedy
allowed at law or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for. Mention in this lease of any
particular remedy, shall not preclude Owner from any other remedy, in law or
in equity. Tenant hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Owner
obtaining possession of demised premises, by reason of the violation by
Tenant of any of the covenants and conditions of this lease, or otherwise.
FEES AND EXPENSES:
19. If Tenant shall default in the observance or performance of any term or
covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, then, unless
otherwise provided elsewhere in this lease, Owner may immediately or at any
time thereafter and without notice perform the obligation of Tenant
thereunder. If Owner, in connection with the foregoing or in connection with
any default by Tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including
but not limited to attorney's fees, instituting, prosecuting or defending any
action or proceeding, then Tenant will reimburse Owner for such sums so paid
or obligations incurred with interest and costs. The foregoing expenses
incurred by reason of Tenant's default shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant therefor. If Tenant's lease term
shall have expired at the time of making of such expenditures or incurring of
such obligations, such sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets or other public parts of the
building and to change the name, number or designation by which the building
may be known. There shall be no allowance to Tenant for diminution of rental
value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner or other Tenants making
any repairs in the building or any such alterations, additions and
improvements. Furthermore, Tenant shall not have any claim against Owner by
reason of Owner's imposition of such controls of the manner of access to the
building by Tenant's social or business visitors as the Owner may deem
necessary for the security of the building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which
<PAGE>
It is erected or the demised premises, the rents, ???, expenses of operation
or any other matter or thing affecting or related to the premises except as
herein expressly set forth and no rights, easements or licenses are acquired
by Tenant by implication or otherwise except as expressly set forth in the
provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possession of the
demised premises by Tenant shall be conclusive evidence that the said
premises and the building of which the same form a part were in good and
satisfactory condition at the time such possession was so taken, except as to
latent defects. All understandings and agreements heretofore made between the
parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
End of Term:
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean,
in good order and condition, ordinary wear and damages which Tenant is not
required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property, Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If
the last day of the term of this Lease or any renewal thereof, falls on
Sunday, this lease shall expire at noon on the preceding Saturday unless it
will be a legal holiday which case it will expire at noon on the preceding
business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon tenant paying the rent
and additional rent and conditions, on Tenant's part to be observed and
performed, Tenant may peaceably and quietly enjoy the premises hereby demised,
subject, nevertheless, to the terms and conditions of this lease including,
but not limited to, Article 31 hereof and to the ground leases, underlying
leases and mortgages hereinbefore mentioned.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premises on the date
of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, Owner shall not be subject to any liability
for failure to give possession on said date and the validity of the lease
shall not be impaired under such circumstances, nor shall the same be
construed in any wise to extend the term of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for Owner's
inability to obtain possession) until after Owner shall have given Tenant
written notice that the premises are substantially ready for Tenant's
occupancy. If permission is given to Tenant to enter into the demised
premises prior to the date specified as the commencement of the term of this
lease, Tenant covenants and agrees that such occupancy shall be deemed to be
under all the terms, covenants, conditions and provisions of this lease,
except as to the covenant to pay rent. The provisions of this article are
intended to constitute "an express provision to the contrary" within the
meaning of Section 223-a of the New York Real Property Law.
No Waiver:
25. The failure of the Owner to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this lease or of
any of the Rules or Regulations, set forth of hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Owner of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach and no such provision of
this lease shall be deemed to have been waiver by Owner unless such waiver be
in writing signed by Owner. No payment by Tenant or receipt by Owner of a
lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any
endorsement or statement of any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Owner may accept
such check or payment without prejudice to Owner's right to recover the
balance of such rent or pursue any other remedy in this lease provided. No
act or thing done by Owner or Owner's agents during the term hereby demised
shall be deemed an acceptance of a surrender of said premises, and no
agreement to accept such surrender shall be valid unless in writing signed by
Owner. No employee of Owner or Owner's agent shall have any power to accept
the keys of said premises prior to the termination of the lease and the
delivery of keys to any such agent or employee shall not operate as a
termination of the lease or a surrender of the premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the respective
parties hereto shall and they hereby do waive trial by jury in any action,
proceeding of counter-claim brought by either of the parties hereto against
the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary
proceeding for possession of the premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding
including a counterclaim under Article 4.
Inability to Perform:
27. This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of the obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment
or fixtures if Owner is prevented or delayed from doing so by reason of
strike or labor troubles or any cause whatsoever including, but no limited
to, government preemption in connection with a National Emergency or by
reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions of supply and
demand which have been or are affected by war or other emergency.
Bills and Notices:
28. Except as otherwise in this lease provided, a bill, statement, notice or
communications which Owner may desire or be required to give to Tenant, shall
be deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address of business address of Tenant, and the time of the rendition
of such bill or statement and of the giving of such notice or communication
shall be deemed to be the time when the same is delivered to Tenant, mailed,
or left at the premises as herein provided. Any notice by Tenant to Owner
must be served by registered or certified mail addressed to Owner at the
address first hereinabove given or at such other address as Owner shall
designate by written notice.
Services Provided by Others:
29. As long as Tenant is not in default under any of the covenants of this
lease, Owner shall provide: (a) necessary elevator facilities on business
days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m. and have
one elevator subject to call at all other times; (b) heat to the demised
premises when and as required by law, on business days from 8 a.m. to 6 p.m.
and on Saturdays from 8 a.m. to 1 p.m.; (c) water for ordinary lavatory
purposes, but if Tenant uses or consumes water for any other purposes or in
unusual quantities (of which fact Owner shall be the sole judge). Owner may
install a water meter at Tenant's expense which order and repair to register
such water consumption and Tenant shall pay for water consumed as shown on
said meter as additional rent as and when bills are rendered; the premises
are to be kept clean by Tenant, which shall be done at Tenant's sole expense,
in a manner satisfactory to Owner and no one other than persons approved by
Owner shall be permitted to enter said premises of the building of which
they are a part for such purpose. Tenant shall pay Owner the cost of removal
of any of Tenant's refuse and rubbish from the building; Owner reserves the
right to stop services of the heating, elevators, plumbing, power systems or
other services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the
judgement of Owner for as long as may be reasonably required by reason
thereof. If the building of which the demised premises are a part supplies
manually-operated elevator service, Owner at any time may substitute
automatic-controlled elevator service and upon ten days' written notice to
Tenant, proceed with alterations necessary therefor without in any wise
affecting this lease or the obligation of Tenant hereunder. The same shall be
done with a minimum of inconvenience to Tenant and Owner shall pursue the
alteration with due diligence.
Captions:
30. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
Definitions:
31. The term "office", or "offices", wherever used in this lease, shall not be
construed to mean premises used as a store or stores, for the sale or
display, at any time, or goods, wares, or merchandise, of any kind, or as a
restaurant, shop, booth, bootblack or other stand, barber shop, or for other
similar purposes or for manufacturing. The term "Owner" means a landlord or
lessor, and as used in this lease only the owner, or the mortgagee in
possession, for the time being of the land and building (or the owner of a
lease of the building or of the land and building) of which the demised
premises form a part, so that in the event of lease of said building, or of
the land and building, the said Owner shall be and hereby is entirely freed
and relieved of all covenants and obligations of Owner hereunder, and it
shall be deemed and construed without further agreement between the parties
or any such sale, or the said lessee of the building has assumed and
hereunder. The words "re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning. The term "business days" as used
in this lease shall exclude Saturday (except such portion thereof as is
covered by specific hours in Article 29 hereof), Sundays and all days
observed by the State or Federal Government as legal holidays and those
designated as holidays by the applicable building service union employees
service contract or by the applicable Operating Engineers contract with
respect to HVAC service.
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* Rider to be added if necessary
ADJACENT EXCAVATION--SHORING:
32. If an excavation shall be made upon land adjacent to the demsied
premises, or shall be authorized to be made, Tenant shall afford to the
person causing or authorized to cause such excavation, license to enter upon
the demised premises for the purposes of doing such work as said person shall
deem necessary to preserve the wall or the building of which demised premises
form a part from injury or damage and to support the same by proper
foundations without any claim for damages or indemnity against Owner, or
diminution or abatement of rent.
RULES AND REGULATIONS
33. Tenant and Tenant's servants, employees, agents visitors, and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations
and such other and further reasonable Rules and Regulations as Owner or
Owner's agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter
made or adopted by Owner or Owner's agents, the parties hereto agree to
submit the question of the reasonableness of such Rule or Regulation for
decision to the New York office of the American Arbitration Association,
whose determination shall be final and conclusive upon the parties hereto. The
right to dispute the reasonableness of any additional Rule or Regulation upon
Tenant's part shall be deemed waived unless the same shall be asserted by
service of a notice, in writing upon Owner within ten (10) days after the
giving of notice thereof. nothing in this lease contained shall be construed
to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against
any other tenant and Owner shall not be liable to Tenant for violation of the
same by other tenant, its servants, employees, agents, visitors or licensees.
SECURITY:
34. Tenant has deposited with Owner the sum of $13,020.00* as security for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease,
including, but not limited to, the payment of rent and additional rent,
Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional
rent or any other sum as to which Tenant is in default or for any sum which
Owner may expend or may be required to expend by reason of Tenant's default
in respect of any of the terms, covenants and conditions of this lease,
including but not limited to, any damages or deficiency in the re-letting of
the premises, whether such damages or deficiency accrued before or after
summary proceedings or other re-entry by Owner. In the event that Tenant
shall fully and faithfully comply with all of the terms, provisions,
covenants and conditions of this lease, the security shall be returned to
Tenant after the date fixed as the end of the Lease and after delivery of
entire possession of the demised premises to Owner. In the event of a sale of
the land and building or leasing of the building, of which the demised
premises form a part, Owner shall have the right to transfer the security to
the vendee or lessee and Owner shall thereupon be released by Tenant from all
liability for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant forth covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment or attempted
assignment or attempted encumbrance.
ESTOPPEL CERTIFICATE
35. Tenant, at any time, and from time to time, upon at least 10 days' prior
notice by Owner, shall execute acknowledge and deliver to Owner, and/or to
any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent
and additional rent have been paid, and stating whether or not there exists
any default by Owner under this Lease, and, if so, specifying each such
default.
SUCCESSORS AND ASSIGNS:
36. The covenants, conditions and agreements contained in this lease shall
bind and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assign.s
SEE RIDER ANNEXED HERETO AND MADE A PART HEREOF.
- -------------------
* "Security Deposit"
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
HUDSON TELEGRAPH ASSOCIATES
By: PMFWH Newcorp, Inc.
Witness for Owner: By: /s/ [ILLEGIBLE]
--------------------------
/s/ [ILLEGIBLE]
- -----------------------------
COMMUNICATION TELESYSTEMS INTERNATIONAL
Witness for Tenant By: Edward S. Soren
-------------------------------
/s/ Patricia Coleman
- -----------------------------
ACKNOWLEDGMENTS
CORPORATE OWNER CORPORATE TENANT
STATE OF NEW YORK, SS.: STATE OF NEW YORK, SS.:
County of County of
On this ____ day of __________, On this ____ day of __________,
19__, before me personally came 19__, before me personally came
__________________________________ __________________________________
to me known, who being by me duly to me known, who being by me duly
sworn, did depose and say that he sworn, did depose and say that he
resides in ______________________ resides in ______________________
that he is the _______________ of that he is the _______________ of
__________________________________ __________________________________
the corporation described in and the corporation described in and
which executed the foregoing which executed the foregoing
instrument, as OWNER: that he knows instrument, as TENANT: that he knows
the seal of said corporation; that the seal of said corporation; that
the seal affixed to said the seal affixed to said
instrument is such corporate seal; instrument is such corporate seal;
that it was so affixed by order of that it was so affixed by order of
the Board of Directors of said the Board of Directors of said
corporation, and that he signed his corporation, and that he signed his
name thereto by like order. name thereto by like order.
-------------------------------- --------------------------------
INDIVIDUAL OWNER INDIVIDUAL TENANT
STATE OF NEW YORK, SS: STATE OF NEW YORK, SS.:
County of County of
On this ____ day of __________, On this ____ day of __________,
19__, before me personally came 19__, before me personally came
__________________________________ __________________________________
to me known and known to be the to me known and known to be the
individual _______________________ individual _______________________
described in and who, as OWNER, described in and who, as TENANT
executed the foregoing instrument executed the foregoing instrument
and acknowledged to me that and acknowledged to me that
__________________________________ __________________________________
he executed the same. he executed the same.
<PAGE>
OMITTED RIDER
The following Rider to the Lease Agreement (1/ /95) has been omitted
from this Exhibit and shall be furnished supplementally to the Commission
upon request:
Rider Consent and Waiver by Owner, Landlord or Mortgagee of Real Estate
<PAGE>
DATED 2ND DECEMBER 1994
(1) GLOBE TRUST LIMITED
(2) WORLD xCHANGE
COMMUNICATIONS LIMITED
-----------------------------
UNDERLEASE
relating to
Suite 9.02 Exchange Tower,
1 Harbour Exchange Square
London E14 9GB
-----------------------------
CLIFFORD CHANCE
200 Aldersgate Street
London EC1A 4JJ
<PAGE>
UNDERLEASE
<TABLE>
<CAPTION>
CLAUSE INDEX PAGE
<S> <C> <C>
PARTICULARS............................................ (1)
1. DEFINITIONS ........................................... 1
2. DEMISE PARCELS AND RENT................................ 5
3 LESSEE'S COVENANT ..................................... 6
3.1 PAY RENTS.............................................. 6
3.2 PAY OUTGOINGS.......................................... 6
3.3 PAY VALUE ADDED TAX ................................... 7
3.4 LESSEE'S INSURANCE COVENANT............................ 7
3.5 REPAIR................................................. 9
3.6 INTERNAL REDECORATION.................................. 9
3.7 MAINTAIN LESSOR'S FIXTURES............................. 9
3.8 INSPECTION ............................................ 10
3.9 ALTERATIONS ........................................... 11
3.10 USER .................................................. 11
3.11 OBSTRUCTIONS........................................... 12
3.12 REGULATIONS ........................................... 12
3.13 COMPLIANCE WITH STATUTORY ENACTMENTS .................. 12
3.14 ALIENATION ............................................ 13
3.15 REGISTRATION .......................................... 16
3.16 INFORMATION ........................................... 16
3.17 COSTS AND FEES ........................................ 16
3.18 PLANNING ACTS ......................................... 17
<PAGE>
3.19 FIRE FIGHTING EQUIPMENT ............................... 18
3.20 NOTICE OF RE-LETTING OR SALE........................... 18
3.21 NOT TO PERMIT ACQUISITION OF EASEMENTS................. 19
3.22 TO NOTIFY LESSOR ...................................... 19
3.23 INDEMNITY ............................................. 19
3.24 NEW SURETY OR GUARANTOR ............................... 19
3.25 PLEDGING CHATTELS AS SECURITY ......................... 20
3.26 PERFORM AND OBSERVE COVENANTS ......................... 20
3.27 AIR-CONDITIONING ...................................... 20
3.28 YIELD UP .............................................. 20
4. LESSOR'S COVENANTS .................................... 21
4.1 QUIET ENJOYMENT ....................................... 21
4.2 THE SUPERIOR LEASE .................................... 21
4.3 LESSOR'S INSURANCE COVENANT ........................... 21
4.4 PROVISION OF SERVICES.................................. 22
5. RENT REVIEW ........................................... 23
5.1 DEFINITIONS ........................................... 23
5.2 PAYMENT OF NEW RENT ................................... 25
5.3 DETERMINATION OF THE NEW RENT.......................... 25
5.4 ARREARS AND INTEREST................................... 26
5.5 RENT REVIEW MEMORANDUM ................................ 26
5.6 BINDING NATURE OF SURVEYOR'S DETERMINATION............. 26
5.7 STATUTORY OBLIGATIONS ................................. 26
5.8 TIME................................................... 27
<PAGE>
5.9 RIGHTS OF OTHERS...................................... 27
6. SERVICE CHARGE PAYMENT................................. 27
6.1 AMOUNT PAYABLE ........................................ 27
6.2 PAYMENT ON ACCOUNT .................................... 27
6.3 ESTIMATES AND CALCULATIONS ............................ 27
7 MISCELLANEOUS.......................................... 28
7.1 RE-ENTRY .............................................. 28
7 2 RENT ABATEMENT ........................................ 29
7.3 EXCLUSION OF LIABILITY ................................ 29
7.4 NOTICES ............................................... 30
7.5 SECTION 37 LTA ........................................ 30
7.6 EASEMENTS AND RIGHTS ENJOYED IN COMMON ................ 31
7.7 INTEREST ON OVERDUE MONIES ............................ 31
7.8 LESSOR'S POWERS OF DEALING ............................ 31
7.9 REGULATIONS ........................................... 32
7.10 PERMITTING AND SUFFERING .............................. 32
7.11 SUPERIOR LEASES........................................ 32
7.12 LESSOR AS LESSEE'S AGENT .............................. 32
7.13 DISTRESS .............................................. 33
7.14 SET-OFFS............................................... 33
8. SURETY ................................................ 33
9. OPTION TO DETERMINE.................................... 33
<PAGE>
THE FIRST SCHEDULE
THE PREMISES ................................................ 34
THE SECOND SCHEDULE
EASEMENTS AND RIGHTS IN FAVOUR OF THE LESSEE INCLUDED
IN THIS LEASE .............................................. 35
THE THIRD SCHEDULE
PART I
EASEMENTS AND RIGHTS THAT ARE EXCEPTED FROM THIS LEASE....... 37
PART II...................................................... 38
THE FOURTH SCHEDULE
REGULATIONS ................................................. 39
THE FIFTH SCHEDULE
EXPENDITURE TO BE TAKEN INTO ACCOUNT IN COMPUTING
THE SERVICE CHARGE .......................................... 41
SIXTH SCHEDULE
Covenants and Agreements by the Surety ...................... 47
</TABLE>
<PAGE>
PARTICULARS
- -------------------------------------------------------------------------------
1. DATE OF LEASE : 2nd day of December
- -------------------------------------------------------------------------------
2. LESSOR : GLOBE TRUST LIMITED
(formerly Charter Group Limited)
whose registered office is at
Exchange Tower 1 Harbour Exchange
Square London E14 9GB
(Company Number 1047832)
- -------------------------------------------------------------------------------
3. LESSEE : W 0 R L D x C H A N G E
COMMUNICATIONS LIMITED whose
registered office is at 33 Crwys
Road, Cardiff CF2 4YF (Company
Number 2974171)
- -------------------------------------------------------------------------------
4. SURETY : None
- -------------------------------------------------------------------------------
5. THE PREMISES : The premises more particularly
described in the FIRST SCHEDULE
- -------------------------------------------------------------------------------
6. THE BUILDING : The premises shown edged red on Plan
A together with the building or
buildings thereon at Harbour
Exchange Millwall Inner Dock in the
London Borough of Tower Hamlets
including:-
(1) in respect of the podium area
shown hatched green on Plan A
only the structures and soil
down to the roof of the
structure erected beneath such
podium and known as Harbour
Island Car Park (but for the
avoidance of doubt
specifically excluding the
said Harbour Island Car Park)
and
(2) the Car Park
(1)
<PAGE>
but excluding any land
structure or air space demised
to London Regional Transport
by the Lease dated 17th July
1987 and made between London
Docklands Development
Corporation (1) and London
Regional Transport (2)
- -------------------------------------------------------------------------------
7. RENT : (i) From 25th March 1990
until 1st November 1995
(inclusive) the yearly
rent of a peppercorn (if
demanded); and
(ii) Thereafter the yearly
rent of L25,156 subject
to upwards only rent
review as provided in
this Lease
- -------------------------------------------------------------------------------
8. INITIAL SERVICE CHARGE: : L2,478.82
- -------------------------------------------------------------------------------
9. TERM : 25 years from the 25th March
1990
- -------------------------------------------------------------------------------
10. USE : Offices
- -------------------------------------------------------------------------------
11. RENT REVIEW DATES : The 1st day of November 1999
and every fifth anniversary of
that date
- -------------------------------------------------------------------------------
<PAGE>
T H I S U N D E R L E A S E is made on the date stated in paragraph 1 of the
Particulars BETWEEN the LESSOR specified in paragraph 2 of the Particulars and
the LESSEE specified in paragraph 3 of the Particulars
THIS DEED W I T N E S S E T H as follows:-
1. DEFINITIONS
1.1 IN this Deed the following expressions shall where the context so admits
or requires be construed as follows:-
"THE BUILDING" means Exchange Tower 1 Harbour Exchange Square London E14
9GB as described in paragraph 6 of the Particulars
"THE CAR PARK" means the car park on basement levels 1, 2 and 3 of the
Building shown edged blue on Plans D, E and F
"THE COMPANY" means Harbour Exchange Management Company Limited
"COMMON AREAS" means those parts of the Development Area designated by
the Lessor from time to time for the common use and benefit of the
tenants and occupiers of the Development Area and others using or
visiting the Development Area and excluding those parts of the
Development Area demised or intended to be demised to tenants other than
the Company and being those areas shown coloured yellow on Plan B as
varied from time to time by the Lessor with the agreement of the
Superior Lessor
"CONDUITS" shall mean pipes wires cables channels chutes ducts gutters
sewers drains tanks and cisterns belonging to the Lessor or the Company
in whole or in part and all related receptacles valves switches and
safety devices
"DEVELOPMENT AREA" shall mean the Lessor's development at Harbour
Exchange Millwall Inner Dock London as the same is for identification
purposes edged red on Plan B or some part thereof or extension thereof
"FIRST ANNIVERSARY" shall mean the 31st December following the date
hereof
"FLOOR" means the 9th floor shown edged blue on Plan C
-1-
<PAGE>
"HARBOUR ISLAND CAR PARK" shall mean the structure erected by the Lessor
under that part of the Building and the adjoining premises shown
coloured green and hatched green on Plan A
"THE HEMCO DEED" shall mean the Deed dated the 21st October 1991 made
between the Lessor and the Company relating to the provision of certain
services to the Development Area
"INSURED RISKS" shall mean loss or damage by fire explosion lightning
aircraft articles dropped from aircraft storm tempest flood impact riot
malicious damage civil commotion earthquake (fire and shock) and
bursting and overflowing of water tanks apparatus and pipes and such
other risks as the Lessor or the Superior Lessor may from time to time
reasonably require to be insured against
"INTEREST" shall mean interest at the rate of four per centum per annum
above the Base Lending Rate from time to time of Barclays Bank Plc or
(if such rate shall cease to be published) such other reasonable or
comparable rate as the Lessor shall from time to time designate
compounded with monthly rests on the first day of each month
"LESSEE" shall include any person deriving title under the Lessee
"LESSOR" shall include the person for the time being entitled to the
reversion immediately expectant upon the determination of the Term and
all persons deriving title through the Lessor and shall (where
appropriate) include the Superior Lessor
"LESSOR'S SURVEYOR" shall mean any person employed by the Lessor for any
purpose under this Lease (including an employee of the Lessor or a
company which is a member of the same group of companies (as defined in
Section 42 Landlord and Tenant Act 1954) of which the Lessor is itself a
member)
"NET INTERNAL AREA" shall mean net internal area calculated in
accordance with the Code of Measuring Practice published by The Royal
Institution of Chartered Surveyors and the Incorporated Society of
Valuers and Auctioneers in January 1990
"PARTICULARS" means the Particulars appearing at the front of this Lease
"PLAN A" shall mean the annexed plan so entitled
"PLAN B" shall mean the annexed plan so entitled
-2-
<PAGE>
"PLAN C" shall mean the annexed plan so entitled
"PLAN D" shall mean the annexed plan so entitled
"PLAN E" shall mean the annexed plan so entitled
"PLAN F" shall mean the annexed plan so entitled
"PLANNING ACTS" shall mean the Town and Country Planning Act 1990 the
Planning (Listed Buildings and Conservation Areas) Act 1990 the Planning
(Hazardous Substances) Act 1990 the Planning (Consequential Provisions)
Act 1990 and any other legislation relating to the use development or
occupation of land or buildings and any statutory modification or
re-enactment thereof for the time being in force and any other
instrument plan regulation permission and directive made or issued or to
be made or issued thereunder or deriving validity therefrom
"PREMISES" shall mean Suite 9.02 On the ninth floor of the Building more
particularly described in the First Schedule hereto
"RENT" shall mean the rent first reserved by this Lease as specified in
paragraph 7 of the Particulars and as increased from time to time in
accordance with Clause 5
"SERVICES" shall mean the services which may be provided to the Building
and the Premises detailed in Parts I and II of the Fifth Schedule hereto
"SERVICE CHARGE" shall mean the service charge to be paid to the Lessor
by the Lessee pursuant to the Lessee's covenant contained in clause 6
hereof
"SUPERIOR LEASE" shall mean a lease dated 21st October 1991 and made
between the Superior Lessor (1) and the Lessor (2) as varied from time
to time
"SUPERIOR LESSOR" shall mean the London Docklands Development
Corporation and its successors in title and any person entitled to the
freehold or any intermediate reversion superior to the reversion
immediately expectant hereon created within eighty years of the date
hereof
"TERM" shall mean the term of years hereby granted and specified in
paragraph 9 of the Particulars which where applicable shall include the
period of any holding over or any extension or continuance thereof by
statute or at common law
-3-
<PAGE>
"TERMINATION DATE" shall mean the date of expiration or sooner
determination of the Term whether by effluxion of time or by any other
means or cause whatsoever
"UTILITIES" shall mean foul and surface water drainage electricity
electronic impulses gas water telephone heating ventilation air
conditioning the passage of smoke and fumes and all other utilities
services and facilities supplied or capable of being provided to the
Premises
1.2 Words importing only the masculine gender include the feminine gender
and also the neuter and words importing the singular include the plural
(and vice versa)
1.3 Throughout these presents where there are two or more persons included
in the expression "the Lessee" "the Lessor" or "the Surety" the
covenants expressed to be made by the Lessee or the Lessor or "the
Surety" as the case may be shall be deemed to be made by such persons
jointly and severally and where two or more persons constitute the
Lessee they shall be deemed to hold the Premises as joint tenants
legally and beneficially
1.4 References to any legislative provision shall be deemed to include
references to any further legislation for the time being in force
replacing amending or supplementing it together with all orders
regulations directions or consents made or given under it or deriving
validity from it and any relevant decisions of courts of competent
jurisdiction
1.5 Where anything is prohibited on the part of the Lessee the Lessee shall
not permit or suffer it to be done
1.6 Where any rights of entry or rights to do anything are excepted and
reserved in this Lease to the Lessor and/or any other person then
(except where the terms of this Lease shall otherwise expressly provide)
the person exercising such rights shall make good any damage caused to
the Premises but no other claim shall be made or compensation claimed by
the Lessee or any other person claiming through under or in trust for
the Lessee
1.7 References to "the Premises" shall (unless otherwise stated) include
each and every part of the Premises
1.8 References in this Lease to Value Added Tax include all other like taxes
levies charges and duties whether payable now or at any time in the
future
1.9 The details expressions and descriptions appearing in the Particulars
shall be included in and form part of this Lease
-4-
<PAGE>
1.10 References to Schedules are to Schedules in this Lease
1.11 The headings in this Lease are for information only and shall neither be
deemed to form part of this Lease nor affect the construction of it
2. DEMISE PARCELS AND RENT
THE Lessor in consideration of the Rent and of the covenants and
conditions herein reserved and contained HEREBY DEMISES unto the
Lessee ALL THAT the Premises TOGETHER WITH but EXCEPT AND RESERVED
the easements and rights set out respectively in the Second
Schedule and Part I of the Third Schedule hereto SUBJECT to the
matters referred to in Part II of the Third Schedule hereto TO
HOLD unto the Lessee for the Term YIELDING AND PAYING during the
Term:-
2.1 FIRST the Rent (varied as provided in this Lease) (and in proportion for
any less time than a year) such Rent to be paid in advance without any
set off or deduction whatsoever by quarterly payments on the usual
quarter days in each year the first proportionate payment to be made on
the 29th September 1995 for the period from the 2nd November 1995 to the
25th December 1995
2.2 SECONDLY by way of further rent the Service Charge such further rent to
be paid without any set-off or deduction as provided in Clause 6 hereto
and
2.3 THIRDLY on demand by way of further or additional rent a sum or sums of
money equal to the gross amount which the Lessor from time to time
incurs or expends:-
2.3.1 in or in respect of effecting or maintaining insurance of
2.3.1.1 the Premises in the Lessor's estimate of their full
reinstatement cost for the time being against the Insured
Risks and of the cost of demolition and site clearance and of
all architect's surveyor's and other professional fees and
incidental expenses in connection with demolition site
clearance and reinstatement (inclusive of Value Added Tax to
the extent applicable)
2.3.1.2 the Lessor's third party liability in relation to the
Premises and their use and occupation including but not
limited to liability under the Defective Premises Act 1972
and where the Premises are insured with other property the
Lessor shall attribute a fair proportion of the premiums to
the Premises and the Lessor's decision shall be final and
binding on the parties
-5-
<PAGE>
2.3.2 in or in respect of effecting or maintaining insurance against loss of
Rent and Service Charge (including a reasonable estimate on account of
Service Charge) in respect of the Premises for a period of four years or
such longer period as the Lessor may from time to time reasonably
determine including anticipated loss of Rent following a Rent review
(and if such insurance is effected prior to the agreement or
determination of the Rent upon review the amount of such Rent for the
purpose of insurance only shall be estimated by the Lessor's surveyor
whose decision shall be final and binding on the parties)
2.3.3 in respect of valuations of the Premises for insurance purposes if
required by the Lessor but not more frequently than once in every
three years and
2.4 On demand by way of further or additional rent Interest where payable
under the terms of this Lease
3. LESSEE'S COVENANTS
THE Lessee covenants with the Lessor that throughout the Term the
Lessee will:-
3.1 PAY RENTS
Pay the reserved rents at the times and in the manner specified in this
Lease (and if and for so long as required by the Lessor to pay the Rent
by Banker's standing order or direct debit to such bank account of the
Lessor as the Lessor shall from time to time direct)
3.2 PAY OUTGOINGS
3.2.1 Pay and indemnify the Lessor against all existing and future rates taxes
duties charges burdens assessments impositions and outgoings whatsoever
(in this sub-clause 3.2 collectively called "outgoings") and whether or
not of a non-recurring nature which now are or may be charged levied
assessed or imposed in respect of the Premises on either the owner or
occupier (other than taxes or duties payable in respect of any dealing
with the Lessor's or any superior interest or the receipt by the Lessor
of any moneys payable under the provisions hereof (save for Value Added
Tax payable on rents)) and also against all charges (including all
related meter and standing charges) in respect of Utilities provided to
the Premises
3.2.2 Not to claim any relief against payment of any of the outgoings and in
particular if prior to the Termination Date the Lessee has claimed or
been granted any relief from such outgoings (or any of them) in
connection with any non-occupation or use of the Premises by the Lessee
to repay to the Lessor a sum equal to the amount of the relief up to the
Termination Date
-6-
<PAGE>
3.2.3 Pay to the Lessor on demand a fair proportion (to be determined by the
Lessor's Surveyor whose decision shall be final and binding on the
parties) of
3.2.3.1 any outgoings which may at any time be assessed upon the
Premises together with other land and property or
3.2.3.2 the cost of the supply of Utilities to the Premises together
with other land and property (save only as previously
specified)
3.3 PAY VALUE ADDED TAX
3.3.1 Where by virtue of any of the provisions of this Lease the Lessee is
required to pay, repay or reimburse to the Lessor or any person or
persons any rents, premium, cost, fee, charge, insurance premium,
expense or other sum or amount whatsoever in respect of the supply of
any goods and/or services by the Lessor or any other person or persons
the Lessee shall also be required in addition to pay or (as the case may
be) keep the Lessor indemnified against:-
(a) The amount of any Value Added Tax which may be chargeable in
respect of such supply to the Lessee
(b) The amount of Value Added Tax chargeable on any other person (or
chargeable on the Lessor in the case of supplies which the
Lessor is deemed to make to itself) in respect of supplies the
cost of which is included in the calculation of the sums which
the Lessee is required to pay, repay or reimburse to the Lessor
and, in default of payment, the same shall be recoverable as rent in
arrear
3.3.2 Not object to (and if required by the Lessor to give any necessary
consents) the charge of Value Added Tax upon any such rents costs fees
or other sums whether such charge arises at the election of the Lessor
or otherwise
3.4 LESSEE'S INSURANCE COVENANT
3.4.1 Comply with all recommendations and requirements of the insurers and
fire authorities as to fire precautions and fire fighting equipment
relating to the Premises or the conduct of persons using the Building or
the Development Area and to comply with all such reasonable regulations
in this regard as the Lessor may from time to time notify to the Lessee
3.4.2 In the event of the Premises or any part thereof being destroyed or
damaged by any of the Insured Risks give notice thereof to the Lessor
as soon as possible
-7-
<PAGE>
3.4.3 Not leave the Premises vacant or unoccupied without first giving the
Lessor at least 28 days notice of the intention so to do and without
first paying any additional or increased premium required by the
insurers and without first providing such security as the Lessor shall
require in respect of any exclusions excesses limitations conditions or
qualifications which the insurers may impose upon the Insured Risks or
the policy
3.4.4 Not do or omit to do anything or bring on to the Premises any explosive
inflammable or toxic or otherwise harmful chemicals or materials or any
other matter or thing of whatsoever nature which shall or may cause the
policy or policies for the insurance of the Premises or any adjoining or
neighbouring property to become void or voidable or any premium payable
to be increased above the ordinary or common rate
3.4.5 If the Premises or any part thereof are destroyed or damaged by any of
the Insured Risks and any insurance money shall be wholly or partly
irrecoverable by reason solely or in part of any breach by the Lessee of
any of its obligations under this Lease or by any underlessee licensee
visitor or by any person under their control the Lessee will forthwith
pay to the Lessor the amount so refused
3.4.5.1 Insure and at all times keep insured any plate glass (in this
clause not including any material forming part of the
exterior of the Building) in the Premises against breakage
and damage in its full reinstatement cost and as often as any
such plate glass shall be broken or damaged to reinstate the
same as soon as possible (the Lessee making good from its own
resources any deficiency in the insurance money)
3.4.5.2 Effect such insurance as is referred to in clause 3.4.5.1 in
an insurance office approved by the Lessor in the names of
the Lessor and Lessee and (if required) of any Superior
Lessor and upon every request by the Lessor forthwith to
produce particulars of the policy of insurance and the
receipt for every premium payable for the then current year
3.4.5.3 If and whenever default shall be made in making and keeping
on foot such insurance as is referred to in Clause 3.4.5.1 or
in producing such particulars or receipt the Lessor may
effect and maintain such insurance and the Lessee shall repay
to the Lessor upon demand all money paid by the Lessor for
that purpose and such money if not so paid shall be
recoverable as rent in arrear
3.4.5.4 Save as provided above the Lessee will effect no insurances
in respect of the Premises
-8-
<PAGE>
3.5 REPAIR
3.5.1 At its own cost from time to time and at all times during the Term to
keep the whole of the Premises including (without prejudice to the
generality of that expression) the boundary walls and drains thereof and
the sanitary and water apparatus therein in good and substantial repair
and condition and yield up the same on the Termination Date in good and
substantial repair and condition in accordance with the covenants by the
Lessee herein contained
3.5.2 Repair cleanse and maintain and keep repaired cleansed and maintained
and free from obstruction all sewers drains and water and waste-pipes
and ducts belonging solely to or forming part of or solely serving the
Premises and keep any plumbed in sanitary or water equipment whatsoever
in or upon the Premises clean and operable and not suffer refuse to be
thrown there and keep all water pipes within the Premises reasonably
protected from frost and promptly replace all broken or cracked window
glass in the internal windows of the Premises
3.5.3 Clean the inside of all windows (including the interior of any
translucent or transparent parts of the exterior of the Building
bounding the Premises) of the Premises as often as may be necessary and
at least once in every month
3.6 INTERNAL REDECORATION
In every fifth year of the Term and in the last three months of
the Term however determined in a proper and workmanlike manner
(and in the last three months of the Term however determined in
tints colours patterns and materials to be approved by the Lessor
in writing)
3.6.1 Paint varnish treat or preserve to a high standard in accordance with
any applicable British Standard and any manufacturers instructions or
recommendations and using good quality materials in every case all the
inside wood metal plaster and other parts of the Premises and also the
Lessor's fixtures and fittings previously painted varnished treated or
preserved (as the case may be)
3.6.2 Clean and otherwise treat as appropriate those interior parts of the
Premises and the Lessor's fixtures and fittings which ought to be so
treated
3.7 MAINTAIN LESSOR'S FIXTURES
3.7.1 Maintain in good and serviceable condition the Lessor's fixtures and
fittings in or upon the Premises and replace such of them as may become
worn out lost or unfit for use by substituting others of a like nature
(but of no lesser quality)
-9-
<PAGE>
3.7.2 In addition replace all carpets and floor coverings in the Premises as
often as reasonably necessary
3.8 INSPECTION
Permit the Lessor and the Superior Lessor (or either of them) and their
respective agents or surveyors with or without workmen and others and
appliances at all reasonable times upon (save in case of emergency when
no notice shall be required) reasonable prior notice (in the case of the
Lessor the notice to be written) to enter the Premises or any part
thereof:
3.8.1 to view the state and condition of the same and to give or leave on the
Premises notice in writing to the Lessee of all defects wants of
reparation and breaches of covenants then and there found for which the
Lessee is liable hereunder and within sixty days after every such notice
or sooner if requisite the Lessee shall repair and make good the same
according to such notice and the covenants in that behalf herein
contained to the reasonable satisfaction of the Lessor's Surveyor and
the Superior Lessor's surveyor PROVIDED THAT if the Lessee shall fail to
comply with such notice or if the Lessee shall at any time make default
in the performance of any of the covenants herein contained for or
relating to the repair decoration or maintenance of the Premises it
shall be lawful (but without prejudice to the right of re-entry and
forfeiture hereinafter contained) for the Lessor and the Superior Lessor
(or either of them) their respective agents servants and workmen to
enter upon the Premises and to carry out or cause to be carried out all
or any of the works referred to in such notice and the cost of so doing
and all expenses incurred thereby together with Interest thereon from
the date of expenditure shall be paid by the Lessee on demand
3.8.2 to take schedules or inventories of the fixtures and fittings plant and
machinery belonging to the Lessor or the Superior Lessor or to be
yielded up on the Termination Date and
3.8.3 to execute any repairs decorations or other work upon or to any
adjoining or neighbouring premises or to carry out any repairs
decorations or other work which must or may be carried out under the
provisions of this Lease upon or to any part of the Development Area or
the Building or to cleanse or empty or renew the sewers drains gutters
or Conduits belonging to the same or to construct any building or
erection on the Development Area or alteration to the Building the
Lessor or the Superior Lessor (as the case may be) doing as little
damage nuisance and inconvenience as reasonably possible and making good
all damage occasioned thereby to the Premises as soon as reasonably
possible
3.8.4 to enter upon the Premises for any purpose connected with the interest
of the Lessor or the Superior Lessor in the Premises including (without
prejudice to the generality of the foregoing) for the purpose of valuing
or disposing of any interest of the Lessor or the
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Superior Lessor or doing anything which may be necessary to prevent a
forfeiture of the Superior Lease
3.9 ALTERATIONS
3.9.1 Not erect any new building or structure of any kind on the Premises
3.9.2 Not cut remove alter or damage the Premises nor make any structural
alteration addition or improvement whatsoever in or to the Premises
either internally or externally
3.9.3 Not make internal non-structural alterations to the Premises or remove
alter or damage any sanitary or water apparatus heating lighting
air-conditioning or electrical or other mechanical plant or apparatus
without the previous approval in writing of the Lessor and in accordance
with plans and specifications previously submitted to and approved in
writing by the Lessor (such approval not to be unreasonably withheld)
PROVIDED ALWAYS that the Lessor may as a condition of giving such
consent require the Lessee to enter into such covenants with the Lessor
as the Lessor may require for the execution and supervision of such
works and the reinstatement of the Premises at the expiry or sooner
determination of the Term (however determined) and such other covenants
as the Lessor may reasonably require
3.10 USER
3.10.1 Not do or allow to remain upon the Premises or any part thereof anything
which may be or become a nuisance annoyance or disturbance inconvenience
injury or damage to the Lessor or its tenants or the owners or occupiers
of the Building or of any property in the neighbourhood
3.10.2 Not use the Premises or any part thereof for any noxious noisy or
offensive trade or business nor for any illegal or immoral act or
purpose
3.10.3 Not discharge into any pipe or drain serving the Premises or the
Building or any other property any oil grease or other deleterious
matter or any substance which might be or become a source of danger or
injury to the drainage system of the Building or any such other property
or any part thereof nor drain discharge or deposit any matter or
substance of any nature into the water area adjoining the Development
Area
3.10.4 Not overload the lifts floors roofs or structure of the Building nor use
the Premises in any manner which will cause undue strain or interfere
therewith nor install any machinery on the Premises which shall be
unduly noisy or cause dangerous vibrations nor use the Premises or any
part thereof in such manner as to subject the same or the Building to
any strain beyond that which it is designed to bear
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3.10.5 Not attach or exhibit on the Premises any signboard or advertisement or
placard visible from the outside of the Premises save that the Lessee
may exhibit a plate or sign specifying only the name of the Lessee or
any permitted undertenant or occupier in the form design and position
specified from time to time by the Lessor:-
3.10.5.1 by the entrance to the Premises
3.10.5.2 in the areas of the Floor used in common and
3.10.5.3 in the entrance hall to the Building the Lessee removing the
same on the expiry or sooner determination of the Term and
making good all resulting damage
3.10.6 Not use the Premises for any purpose other than that stipulated in
paragraph 10 of the Particulars
3.11 OBSTRUCTIONS
3.11.1 Not park any vehicles on or obstruct or cause any obstructions to any
paths or roadways at the Development Area
3.11.2 Not damage or obstruct or cause to be damaged or obstructed or used in
such manner as to cause in the reasonable opinion of the Lessor any
nuisance damage or annoyance to the Common Areas or those parts of the
Building not let or intended to be let or any part thereof
3.12 REGULATIONS
At all times perform observe and comply with the regulations contained
in the Fourth Schedule hereto and with all reasonable regulations made
by the Lessor or the Company and notified to the Lessee in writing or by
any public local or other authority from time to time for the management
of the Building the Development Area or any land water area or premises
used or to be used in common or jointly with any other person
3.13 COMPLIANCE WITH STATUTORY ENACTMENTS
3.13.1 At all times at the Lessee's own expense observe and comply in all
respects with the provisions and requirements of any and every enactment
(which expression in this covenant includes as well any and every Act of
Parliament already or hereafter to be passed as any and every notice
direction order regulation bye-law rule and condition already or
hereafter to be made under or in pursuance of or deriving effect from
any such Act) or prescribed or required by any public local or other
authority so far as they relate to or affect the Premises or the lessor
or the lessee thereof or any additions or improvements thereto or the
user
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thereof for any purposes or the employment therein of any person or
persons or any fixtures machinery plant or chattels for the time being
affixed thereto or being thereupon or used for the purposes thereof and
in particular not to permit the aggregate permanent occupancy level of
the Premises to exceed one person per seven square metres of Net
Internal Area of the Premises
3.13.2 Execute all works and provide and maintain all arrangements which by or
under any enactment or by any Government Department Local Authority or
other Public Authority or duly authorised officer or Court of competent
jurisdiction acting under or in pursuance of any enactment are or may be
directed or required to be executed provided or maintained at any time
upon or in respect of the Premises or any additions or improvements
thereto or in respect of any user thereof or employment therein of any
person or persons or fixtures machinery plant or chattels and whether by
the landlord or tenant thereof
3.13.3 Indemnify the Lessor at all times against all costs charges and expenses
of or incidental to the execution of any works or the provision or
maintenance of any arrangements so directed or required as aforesaid and
not at any time to do or omit or suffer to be done or omitted in or
about the Premises any act or thing by reason of which the Lessor may
under any enactment incur or have imposed upon it or become liable to
pay any penalty damages compensation costs charges or expenses
3.13.4 Within ten days of the receipt of notice of the same give full
particulars to the Lessor of any direction permission notice or order or
proposal for any such relevant to the Premises or to the use or
condition thereof or otherwise concerning the Lessee made given or
issued to the Lessee or the occupier of the premises by any Government
Department Local or Public Authority or other competent authority
3.14 ALIENATION
3.14.1 Not assign underlet or charge part only of the Premises
3.14.2 Not assign charge or underlet the whole of the Premises without the
Lessor's prior written consent
3.14.3 Not (otherwise than by assignment or underletting permitted by this
Lease) part with or share possession or occupation of or grant any other
person rights over or in the Premises nor hold or occupy the Premises as
nominee trustee or agent or otherwise for the benefit of any other
person
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3.14.4 On any assignment procure that the assignee shall enter into direct
covenants with the Lessor to pay the rents reserved by and to observe
and perform the terms and conditions and the covenants on the part of
the Lessee contained in this Lease
3.14.5 On any assignment or underlease procure (if reasonably so required by
the Lessor) that a guarantor or guarantors acceptable to the Lessor
shall enter into surety covenants direct with the Lessor in the terms
set out in the Sixth Schedule with such variations as the Lessor shall
reasonably require to suit the circumstances of each case
3.14.6 Prior to the grant of any underlease procure that the underlessee
covenants direct with the Lessor to observe and perform all the terms
and conditions and the covenants on the part of the Lessee contained in
this Lease (other than as to payment of rent) throughout the term
demised by such underlease (and any continuation or extension of it
whether by statute or common law)
3.14.7 Prior to the grant of any underlease produce to the Lessor a certified
copy of an Order of the Court under Section 38(4) of the Landlord and
Tenant Act 1954 (as amended) authorising the exclusion of Sections 24 to
28 (inclusive) of that Act in relation to such proposed underlease
3.14.8 Procure that any underlease shall contain covenants by the underlessee
with the Lessee that the underlessee will not:-
3.14.8.1 assign underlet charge or part with or share possession or
occupation of part only of the premises demised by the
underlease
3.14.8.2 charge underlet or (save by way of an assignment of the
whole) part with or share possession or occupation of the
whole of the premises demised by the underlease
3.14.8.3 assign the whole of the premises demised by the underlease
without the prior written consent of the Lessee and the
Lessor
3.14.9 On the grant of any underlease:-
3.14.9.1 not reserve or charge any fine or premium
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3.14.9.2 charge a yearly rent (payable not less frequently than
quarterly in advance) which shall be the higher of the Rent
payable under this Lease and the Open Market Rent (as
assessed under this Lease) at the date of such underlease
3.14.9.3 include provisions for upwards only review of the yearly rent
corresponding both as to terms and dates with the provisions
for review of Rent contained in this Lease
3.14.9.4 duly and punctually exercise all rights to review the yearly
rent reserved by any underlease but not to agree any reviewed
yearly rent with the underlessee without the Lessor's prior
written consent (such consent not to be unreasonably
withheld) and to procure that if the yearly rent under any
underlease is to be determined by an independent person not
to determine whether that person shall act as an expert or as
an arbitrator without the Lessor's prior written consent and
to procure that the Lessor's representations as to the
reviewed yearly rent to be payable thereunder are made to
that independent person to the Lessor's reasonable
satisfaction
3.14.9.5 include a proviso for re-entry on breach of any covenant on
the part of the underlessee
3.14.9.6 include such covenants on the part of the underlessee as
shall secure the due performance and observance of the terms
and conditions and the covenants on the Lessee's part
contained in this Lease (save for payment of rent)
3.14.10 Not vary the terms of or accept a surrender of any underlease (or agree
to do so) without the Lessor's prior written consent (such consent not
to be unreasonably withheld)
3.14.11 Enforce the covenants on the part of the underlessee and the terms and
conditions contained therein
3.14.12 Notwithstanding the earlier provisions of this sub-clause the Lessee may
share the Premises with any company which is a member of a group of
companies (as defined in Section 42 of the Landlord and Tenant Act 1954)
of which the Lessee is itself a member PROVIDED THAT
3.14.12.1 no exclusive possession is given and only a licence-at-will
is created and
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3.14.12.2 such sharing of occupation shall immediately cease if the
Lessee and the company sharing occupation shall cease for any
reason to be members of the same group of companies
3.15 REGISTRATION
Within one month after the execution of any assignment charge transfer
or underlease or the assignment of an underlease or any transmission by
reason of a death or otherwise affecting the Premises or any part
thereof produce to and leave with the Superior Lessor and the Lessor the
deed instrument or other document evidencing or effecting such dealing
or transmission together with a certified true copy thereof and on each
occasion to pay to the Superior Lessor and the Lessor a reasonable
registration fee and procure that every sub-tenancy or sub-lease of the
Premises or any part thereof shall contain a similar covenant by the
sub-tenants or sub-lessee and expressed to be for the benefit of the
Lessee the Lessor and Superior Lessor
3.16 INFORMATION
Within one month of being requested so to do notify the Lessor of
the name address and Relationship to the Lessee of any occupier of
the Premises
3.17 COSTS AND FEES
Pay to the Lessor all costs charges and expenses (including
solicitors' counsels' and surveyors' and other professional
costs and fees) incurred by the Lessor:
3.17.1 in or in contemplation of any proceedings relating to the Premises under
Section 146 or 147 of the Law of Property Act 1925 or the preparation
and service of notice thereunder (whether or not any right of re-entry
or forfeiture has been waived by the Lessor or a notice served under the
said Section 146 is complied with by the Lessee or the Lessee has been
relieved under the provisions of the said Act and notwithstanding
forfeiture is avoided otherwise than by relief granted by the Court) and
keep the Lessor fully and effectively indemnified against all costs
expenses claims and demands whatsoever in respect of the said
proceedings
3.17.2 in the preparation and service of a schedule of dilapidations at any
time during or after the Term
3.17.3 in respect of any application for consent required by this Lease whether
or not such consent be granted
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3.17.4 in respect of the recovery of any arrears of rent or any other breach of
covenant (including but not by way of limitation any costs of levying
distress or execution)
3.18 PLANNING ACTS
In relation to the Planning Acts:-
3.18.1 At all times comply in all respects with the provisions and
requirements of the Planning Acts and all licences consents permissions
and conditions (if any) already or hereafter to be granted or imposed
thereunder or under any enactment repealed thereby so far as the same
respectively relate to or affect the Premises or any part thereof or any
operations works acts or things already or hereafter to be carried out
executed done or omitted thereon or the use thereof for any purpose
3.18.2 So often as occasion shall require at the expense in all respects of the
Lessee obtain from the Local Authority the Local Planning Authority
and/or the Secretary of State for the Environment (or other appropriate
Minister) all such licences consents and permissions (if any) as may be
required for the carrying out by the Lessee or anyone deriving title
under the Lessee (in this sub-clause 3.18 referred to as "a sub-tenant")
of any operations on the Premises or the institution or continuance by
the Lessee or a sub-tenant thereon of any use thereof which may
constitute development within the meaning of the Planning Acts
3.18.3 Pay and satisfy any charge that may hereafter be imposed under the
Planning Acts in respect of the carrying out or maintenance by the
Lessee or a sub-tenant of any such operation or the institution or
continuance by the Lessee or a sub-tenant of any such use as aforesaid
3.18.4 No application for planning permission shall be made without the
previous written consent of the Lessor (such consent not to be
unreasonably withheld)
3.18.5 Not carry out or make any alteration or addition to the Premises or any
change in their use before all necessary planning permissions have been
produced to the Lessor
3.18.6 Not implement any planning permission which is granted subject to
conditions until the Lessor has approved it nor before the Lessee has
provided such security for the compliance with such conditions as the
Lessor shall require
3.18.7 At the request and under the direction of the Lessor but at the cost of
the Lessee appeal against any refusal of or condition contained in any
planning permission
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3.18.8 Unless the Lessor shall otherwise direct carry out and complete in a
good and workmanlike manner before the expiry or sooner determination of
the Term:-
3.18.8.1 any works stipulated to be carried out to the Premises by a
date subsequent to the expiry or sooner determination of the
Term as a condition of any planning permission granted before
such expiry or determination and
3.18.8.2 any development begun upon the Premises in respect of which
the Lessor shall or may be or become liable for any charge or
levy under the Planning Acts
3.18.9 If and when called upon so to do produce to the Lessor and its surveyors
and as it may direct all such plans documents and other evidence as
the Lessor may reasonably require to satisfy itself that the provisions
of this covenant have been complied with in all respects
3.18.10 If the Lessee shall receive any compensation in respect of the Lessee's
interest under this Lease because of any restriction placed upon the
user of the Premises under or by virtue of the Planning Acts then on the
expiry or sooner determination of the Term howsoever determined
forthwith to make such provision as is just and equitable for the Lessor
to receive the Lessor's due benefit from such compensation
3.19 FIRE FIGHTING EQUIPMENT
Install and keep the Premises sufficiently supplied and equipped with
such fire fighting and extinguishing appliances as shall from time to
time be required by law or by the local or other competent authority and
not obstruct or permit or suffer to be obstructed the access to or means
of working such appliances or the means of escape from the Premises or
the Building in the case of fire
3.20 NOTICE OF RE-LETTING OR SALE
During the six months immediately preceding the Termination Date permit
the Lessor or its agents to affix upon any part of the Premises a notice
as to the proposed re-letting or other disposal thereof and not to
remove interfere with or obscure the notice board and permit intending
tenants or purchasers at reasonable times of the day to view the
Premises
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3.21 NOT TO PERMIT ACQUISITION OF EASEMENTS
Not stop up or obstruct any windows or light belonging to the Premises
or to any other buildings belonging to the Lessor and not permit any new
window light opening doorway path drain or encroachment or easement to
be made into against or upon the Premises and give notice to the Lessor
of any such which shall be made or attempted and come to the Lessee's
notice and at the request and cost of the Lessor adopt such means and
take such steps as may be reasonably required by the Lessor to prevent
the same
3.22 TO NOTIFY LESSOR
Forthwith upon becoming aware of the same give notice in writing to the
Lessor of any defect in the state of the Premises which would or might
give rise to an obligation on the Lessor to do or refrain from doing any
act or thing in order to comply with its duty of care imposed on the
Lessor pursuant to the Defective Premises Act 1972 and indemnify and
keep indemnified the Lessor from and against any loss claims actions
costs or demands arising from a failure to give such notice and at all
times to display and maintain all notices (including the wording
thereof) which the Lessor may from time to time display or require to be
displayed on the Premises
3.23 INDEMNITY
At all times keep the Lessor indemnified against all actions proceedings
losses liabilities costs damages expenses claims and demands arising out
of or resulting from:-
3.23.1 any breach or non-observance of the Lessee's covenants contained in this
Lease
3.23.2 the existence state of repair condition or use of the Premises
3.23.3 works of repair construction or alteration to the Premises
3.23.4 any act omission or default of the Lessee or the Lessee's underlessees
or their respective agents employees invitees or licensees
3.24 NEW SURETY OR GUARANTOR
Within fourteen days of the death during the Term of the Surety (if any)
or any guarantor or of such person becoming bankrupt or having a
receiving order made against him or being a company having an
application made to have a Receiver or Administrator or Administrative
Receiver appointed or going into liquidation whether compulsory or
voluntary to give notice in writing to the Lessor immediately with full
details and within fourteen days of being so requested by the Lessor to
procure at the expense of the Lessee in all respects that some other
person acceptable to the Lessor shall enter into surety
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covenants with the Lessor in the terms set out in the Sixth Schedule
with such variations as the Lessor shall reasonably require to suit the
circumstances of each case
3.25 PLEDGING CHATTELS AS SECURITY
Not give any bill of sale or offer preferential security on the Lessee's
stock in trade or personal chattels from time to time in or upon the
Premises
3.26 PERFORM AND OBSERVE COVENANTS
By way of indemnity only at all times observe and perform all and
singular the covenants and stipulations affecting the freehold title to
the Premises so far as they relate to the Premises and observe and
comply with the covenants and obligations (other than as to payment of
rent and to insure) on the part of the Lessor as lessee under the
Superior Lease under which it holds the Building from the Superior
Lessor so far as they relate to the Premises and at all times indemnify
the Lessor from and against all actions proceedings costs claims and
demands arising or which may arise out of any breach or non-observance
of any of the said covenants and stipulations in so far as they relate
to and affect the Premises
3.27 AIR-CONDITIONING
If conditioned air is supplied to any part of the Building which
includes the Premises not to prevent the free passage of such air
through the Premises by any means and in particular (but without
prejudice to the generality of the foregoing) by the obstruction of
extract grilles or by the construction of internal walls partitions
doors finishings or fittings unless the same shall have adequate
apertures grilles or voids nor by the storage of goods materials or
equipment
3.28 YIELD UP
On the Termination Date:-
3.28.1 remove all signs and Lessee's fixtures and fittings furniture and
effects making good to the satisfaction of the Lessor all damage so
caused and
3.28.2 yield up the Premises to the Lessor together with all additions and
improvements and all fixtures and fittings consistent with the full and
due compliance by the Lessee with the covenants contained in this Lease
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4. LESSOR'S COVENANTS
THE Lessor HEREBY COVENANTS with the Lessee that throughout the Term the
Lessor will:
4.1 QUIET ENJOYMENT
Afford the Lessee quiet enjoyment of the Premises as against the Lessor
and all persons entitled through the Lessor
4.2 THE SUPERIOR LEASE
Pay the rent reserved by the Superior Lease under which it holds (inter
alia) the Premises and to perform the covenants on the part of the
tenant therein contained insofar as the same shall not be the obligation
of the Lessee to perform under the covenants on its part herein
contained and if reasonably required and at the expense of the Lessee to
enforce the covenants on the part of the Superior Lessor contained in
the Superior Lease
4.3 LESSOR'S INSURANCE COVENANT
Subject to the Lessee paying the whole or the appropriate proportion of
the premium as provided in this Lease insure the Building against loss
or damage by the Insured Risks in an insurance office or with
underwriters of repute in their full reinstatement cost (subject to such
exclusions excesses limitations conditions and qualifications as the
insurers may require) and for four years (or such longer period as the
Lessor may from time to time reasonably require) loss of Rent and
Service Charge together in each case with Value Added Tax if the Lessor
so determines in its absolute discretion and in case of destruction or
damage by any Insured Risk (save where any insurance money shall be
wholly or partly irrecoverable by reason solely or in part of any breach
by the Lessee any underlessee or any person under their respective
control of any of its obligations under this Lease) to apply all policy
money received under or by virtue of any such insurance (other than for
loss of Rent Service Charge and professional and other fees) in
rebuilding or reinstating the Building to provide accommodation
reasonably comparable to that afforded by the Premises prior to such
destruction or damage (but the Lessor shall not be obliged to rebuild or
reinstate the Premises in accordance with the previous sections
elevations and specifications) and all the terms of this Lease shall
apply to such accommodation (the parties making such variations to the
terms of this Lease as the Lessor shall reasonably require to give
effect to this provision) PROVIDED THAT
4.3.1 if any national or local or public or other authority shall refuse
permission or otherwise prevent such rebuilding or reinstatement all
insurance money shall be the absolute property of the Lessor
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4.3.2 if the Premises are destroyed or so seriously damaged by any Insured
Risk as to require the opinion of the Lessor's surveyor whose decision
shall be final and binding upon the parties) substantial reconstruction
then the Lessor may at any time within six months after such damage or
destruction give to the Lessee six months notice in writing to determine
this Lease and immediately upon the expiry of that notice this demise
shall determine but without prejudice to the rights and remedies of any
party against any other in respect of any antecedent claim or breach of
covenant and all insurance money shall be the absolute property of the
Lessor
4.4 PROVISION OF SERVICES
Unless prevented by break down or circumstances beyond his reasonable
control provide the services to the Building as follows:
4.4.1 The repair renewal maintenance cleansing decoration furnishing
supervision and management as and when the Lessor shall consider
necessary of the foundations roofs outside walls and structural parts of
the Building and the glass in the outside walls of the Building (but not
including those items specified in the First Schedule as being included
with the Premises or the like items of any other premises in the
Building let or intended to be let by the Lessor) and of any parts of
the Building not let or intended to be let
4.4.2 The lighting of such parts of the Building not let or intended to be let
as require lighting
4.4.3 The provision of an adequate supply of hot and cold water in the toilets
in the Building
4.4.4 The provision in the period commencing on the 1st October in each year
and ending on the 30th April in the following year and at such other
times as the Lessor may decide of reasonable heating for the interior of
the Building by means of the central heating system installed
4.4.5 The provision of reasonable air conditioning to the interior of the
Building by means of the air conditioning systems installed
4.4.6 The provision of a passenger and goods lift in the Building
4.4.7 Such other services as the Lessor may from time to time in his absolute
discretion decide to provide for the general benefit of all or
substantially all of the occupiers of the Building PROVIDED THAT:
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4.4.7.1 The Lessor shall be entitled to make such alterations as the
Lessor thinks fit to any of the parts of the Building not let
or intended to be let including if the Lessor thinks fit the
installation of lifts heating air-conditioning plant or
equipment of a different type and to suspend the service of a
lift or heating or air-conditioning while the work of
alteration or installation is being carried out;
4.4.7.2 Without prejudice to the rights of the Lessor to provide
other services or to make alterations to parts of the
Building as stated above the Lessor may at any time during
the Term add to vary or discontinue any of the services
specified in or provided pursuant to this Clause 4 if in the
opinion of the Lessor's Surveyor (acting as an expert) the
intended addition variation or discontinuance is in
compliance with the principles of good estate management as
understood and applied and is otherwise reasonable having
regard to the circumstances relevant to the Building at such
date The provisions of this present proviso shall also
include any adjustment in the services which may previously
have been made pursuant to the same
5. RENT REVIEW
5.1 DEFINITIONS
IN this Clause the following expressions shall have the following
meanings respectively:-
"New Rent" shall mean the higher of the Rent payable immediately prior
to the relevant Review Date (disregarding any suspension of payment of
the whole or any part of the Rent as provided in this Lease) and the
Open Market Rent of the Premises on the relevant Review Date
"the President" shall mean the President for the time being of The Royal
Institution of Chartered Surveyors or if none the Vice-President
"Review Date" shall mean the date or dates specified in the Particulars
"the Surveyor" shall mean an independent surveyor agreed upon or
appointed in accordance with Clause 5.3.2
"Excess" shall mean the amount by which the New Rent exceeds the yearly
Rent previously payable
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"Open Market Rent" shall mean the yearly rent without any deduction
whatever at which the Premises could reasonably be expected to be let in
the open market at the relevant Review Date without a fine or premium by
a willing landlord to a willing tenant under a lease for a term equal in
length to the whole of the Term but as though the date of commencement
of the Term were on each occasion the relevant Review Date and on the
same terms and conditions in all other respects as this present Lease
(other than the amount of Rent but including these provisions for
review)
5.1.1 and upon the assumption (if not a fact) that:-
5.1.1.1 the Building is in good and substantial repair and is fit for
immediate beneficial occupation and use and that the Lessor
and the Lessee have complied with all their respective
obligations under this Lease
5.1.1.2 if the Building or any access or amenity have been damaged or
destroyed it has or they have been fully reinstated
5.1.1.3 the Premises are available to be let with vacant possession
5.1.1.4 the willing tenant would commence paying rent immediately on
and from the relevant Review Date and that such rent would
not be discounted in any way to reflect the absence of any
rent concession or other benefit then being offered by
landlords to tenants on the grant of leases in the open
market of premises comparable with the Premises
5.1.1.5 no work has been carried out either on the Premises by the
Lessee or any sub-lessee or their respective predecessors in
title or on any adjoining or neighbouring property during the
Term which has diminished the rental value of the Premises
5.1.1.6 all requisite consents and permissions have been given
unconditionally to permit the Premises to be used as high
class offices (and that no capital expenditure is required to
be made on the Premises to enable them to be so used)
5.1.2 there being disregarded any effect on Rent of:-
5.1.2.1 the fact that the Lessee or any sub-lessee or their
respective predecessors in title have been in occupation of
the Premises
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5.1.2.2 any goodwill attaching to the Premises by reason of the
Lessee or any sub-lessee or their respective predecessors in
title carrying on any business or businesses at the Premises
5.1.2.3 any improvements carried out at any time with the Lessor's
consent by the Lessee or any sub-lessee or their respective
predecessors in title at the expense of the Lessee or any
sub-lessee or their respective predecessors in title
otherwise than in pursuance of an obligation to the Lessor or
its predecessors in title
5.1.2.4 any law for the time being in force which imposes a restraint
upon receiving an increase in the Rent
5.1.2.5 the fact that the Lessor may have insured against loss of
Rent in any particular sum whether equal to or in excess of
the Rent payable prior to the relevant Review Date
5.2 PAYMENT OF NEW RENT
The New Rent shall be payable from and including each Review Date
5.3 DETERMINATION OF THE NEW RENT
5.3.1 The New Rent from the relevant Review Date may be agreed at any time
between the Lessor and the Lessee but if no agreement as to the amount
of the New Rent from the relevant Review Date shall have been reached
between the Lessor and the Lessee three months prior to the relevant
Review Date then either the Lessor or the Lessee may by notice to the
other require the determination of the amount of the New Rent at the
relevant Review Date by the Surveyor
5.3.2 The Surveyor shall be agreed upon by the Lessor and the Lessee or (in
default of agreement) appointed on the application of either of them by
or on behalf of the President and shall act as an arbitrator pursuant to
the provisions of the Arbitration Acts 1950 and 1979 (unless the Lessor
shall by notice to both the Lessee and the Surveyor within 21 days of
receipt of notice of appointment of the Surveyor elect that the Surveyor
shall act as an expert valuer)
5.3.3 The Surveyor shall give notice to the Lessor and to the Lessee of his
appointment and shall (if acting as an expert valuer) invite each of
them to submit within four weeks a valuation accompanied by a statement
of reasons
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5.3.4 If the Surveyor shall fail to determine the New Rent at the relevant
Review Date and give notice to the parties of his determination within
two months of his appointment or if he shall die or become unwilling to
act or incapable of acting for any other reason the Lessor may apply to
the President for a substitute to be appointed in his place which
procedure may be repeated as often as necessary
5.3.5 The fees of the Surveyor shall be in his award but otherwise shall be
shared equally between the Lessor and the Lessee (and if the Lessee
shall fail to pay on demand any part of those fees which the Lessee is
due to pay they may be paid by the Lessor and shall be recoverable by
the Lessor as rent in arrear)
5.4 ARREARS AND INTEREST
If upon any review of Rent the amount of the New Rent shall not be
agreed or determined prior to the relevant Review Date the Lessee shall
continue to pay Rent at the rate payable immediately prior to that
Review Date until the quarter day next following the agreement or
determination of the New Rent whereupon any Excess shall be due as a
debt payable by the Lessee to the Lessor apportioned on a daily basis
from the relevant Review Date together with Interest on the Excess from
the relevant Review Date until the date of payment of the Excess
5.5 RENT REVIEW MEMORANDUM
If upon any such review it shall be agreed or determined that the Rent
previously payable under this Lease shall be increased the Lessor and
the Lessee shall immediately complete and sign a written memorandum at
the expense of the Lessee recording the New Rent payable from the
relevant Review Date
5.6 BINDING NATURE OF SURVEYOR'S DETERMINATION
If the Surveyor is acting as an expert valuer his determination of the
New Rent shall be final and binding on the parties
5.7 STATUTORY OBLIGATIONS
If on any Review Date there shall be in force any statute which shall
restrict interfere with or affect the Lessor's right to review the Rent
in accordance with the terms of this Lease or receive any increase in
Rent following such review the Lessor shall be entitled following the
repeal or modification of that statute to require a review of the Rent
in accordance with the terms of this Lease as though the date of the
repeal or modification of that statute had been specified in this Lease
as an additional Review Date
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5.8 TIME
Time shall not be of the essence in relation to the review of the Rent
or the service of notices in connection with such review
5.9 RIGHTS OF OTHERS
No Surety guarantor or any predecessor in title of the Lessee shall have
any right to take part in the agreement or determination of the New Rent
upon review
6. SERVICE CHARGE PAYMENT
6.1 AMOUNT PAYABLE
THE Lessee covenants (in addition to its covenant with the Lessor
contained in clause 3.1 hereof) with the Lessor to pay to the Lessor the
Service Charge which shall be such proportion of the total yearly cost
of the Services attributable to the Premises calculated according to the
ratio which the Net Internal Area of the Premises from time to time
bears:-
6.1.1 (in the case of the Services detailed in Part I of the Fifth Schedule)
to the aggregate Net Internal Area of the Building (such calculation
having been agreed between the Lessor and the Lessee as being 1.11% at
the date of this Lease) and
6.1.2 (in the case of the Services detailed in Part II of the Fifth Schedule)
to the aggregate Net Internal Area of the Floor (such calculation having
been agreed between the Lessor and the Lessee as being 18.51% at the
date of this Lease) including the management and administrative costs
(including professional fees properly and reasonably incurred by the
Lessor) in carrying out and supervising down to the Thirty-first day of
December in each year of the Term
6.2 PAYMENT ON ACCOUNT
The Lessee shall pay on account of the Service Charge from the date
hereof down to the First Anniversary the Initial Service Charge
specified in paragraph 8 of the Particulars and thereafter the
Lessee shall pay such sums on account of the Service Charge as
hereinafter provided
6.3 ESTIMATES AND CALCULATIONS
6.3.1 As soon as reasonably possible after the beginning of each calendar year
of the Term following the First Anniversary the Lessor shall supply the
Lessee with a copy of the Lessor's Surveyor's written reasonable
estimate of the amount of the Service Charge for that calendar year and
the Lessee shall pay that amount to the Lessor on account of the Service
Charge by four equal instalments payable in advance on the usual quarter
days
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6.3.2 About the First Anniversary and about the end of each subsequent
calendar year of the Term the Lessor shall promptly calculate and inform
the Lessee of the Service Charge payable for that year and any
underpayment on account of the Service Charge shall thereupon be paid by
the Lessee and any overpayment shall be deducted from the amount next
payable by the Lessee on account of the Service Charge PROVIDED THAT any
overpayment to which the Lessee may be entitled at the termination of
the Term shall be repaid to the Lessee forthwith but subject to any lien
therein vested in the Lessor
6.3.3 If the Lessor fails to supply the Lessee with the written estimate in
accordance with sub-clause 6.3.1 of this clause then until it is so
supplied the Lessee shall make quarterly payments equal to that most
recently payable thereunder on account of the Service Charge any overall
difference being adjusted in accordance with the preceding sub-clause or
whenever the Lessor requires
6.3.4 For the avoidance of doubt it is agreed and declared that the Service
Charge may include such reasonable provision as the Lessor's Surveyor
may fix on account of the future cost of the Services
6.3.5 The Lessor shall use all reasonable endeavours to keep a proper account
(with vouchers so far as reasonably possible) of its income and
expenditure in each calendar year in respect of the Services and shall
if reasonably required make the same available for inspection by the
Lessee and such account shall (save in case of manifest error) be prima
facie evidence of all matters recorded therein
7. MISCELLANEOUS
The following conditions shall apply:-
7.1 RE-ENTRY
7.1.1 If the rents reserved or any other sums made payable by this Lease or
any part of such rents or other sums shall respectively be in arrear for
fourteen days after the same shall become due (whether legally demanded
or not) or
7.1.2 If there is any breach or non-observance of any of the covenants on the
part of the Lessee herein contained or
7.1.3 If any execution or distress is levied upon any asset of the Lessee and
is not discharged within fourteen days or
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7.1.4 If the Lessee or any Surety or guarantor for the Lessee (being a
corporation) shall enter into liquidation whether compulsory or
voluntary (not being merely a voluntary liquidation whilst solvent for
the purpose of reconstruction) or if an application is made for the
appointment of a Receiver or Administrator or Administrative Receiver of
all or any part of the property of the Lessee or the Surety or
7.1.5 If the Lessee or any Surety or guarantor for the Lessee (being an
individual or individuals) shall enter into any composition with their
respective creditors or commit any act of bankruptcy or be adjudicated
bankrupt
THEN and in any such case it shall be lawful for the Lessor and any
persons authorised by the Lessor to re-enter into and upon the Premises
whereupon this demise shall immediately determine but without prejudice
to any rights or remedies which may then have accrued to the Lessor in
respect of the non-payment of the rents reserved or other sums made
payable by this Lease or any breach or non-observance or non-performance
of any of the covenants conditions and agreements contained in this
Lease
7.2 RENT ABATEMENT
If the Premises at any time during the Term shall be damaged or
destroyed by any Insured Risk so as to be unfit for occupation and use
then so long as the policy or policies of insurance for the time being
in force shall not have been vitiated or payment of the policy money
withheld or refused in whole or in part by reason of any act or omission
of the Lessee or any underlessee or any person under their respective
control the Rent and the Service Charge or a fair proportion of them
according to the nature and extent of the damage sustained shall be
suspended until the Premises shall again be rendered fit for occupation
and use or until the money received by the Lessor in respect of loss of
rent and service charge insurance shall have been exhausted whichever
period shall be the shorter and any dispute between the parties
concerning this provision shall be referred to an independent arbitrator
agreed between the parties or (in default of agreement) appointed on the
application of either party by the President for the time being of The
Royal Institution of Chartered Surveyors (or if none the Vice-President)
such arbitrator to act as an arbitrator pursuant to the provisions of
the Arbitration Acts 1950 and 1979 and the fees of such arbitrator to be
in his award but otherwise shall be shared equally between the Lessor
and the Lessee
7.3 EXCLUSION OF LIABILITY
7.3.1 Notwithstanding anything contained in this Lease the Lessor shall not be
liable to the Lessee or the Lessee's underlessees agents servants
invitees licensees or others for any injury accident loss damage or
inconvenience which may at any time during the Term be done
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occasioned or suffered to or by any such person or to the Premises or
any property on the Premises by reason of any act or omission of the
Lessor or anyone claiming through under or in trust for the Lessor or
any of the Lessor's servants agents or workmen or by reason of or in
consequence of any interruption in the provision of Utilities or any
defect in or the defective working stoppage or breakage of any apparatus
or Conduits in the Premises the Building or in the Development Area or
the defective state and condition of the Premises the Building or the
Lessor's adjoining property and neither shall the Lessor be liable for
any injury suffered or damage to or loss of any chattel or property
sustained on the Premises the Building or the Development Area
(including any car-parking areas) and the Lessee will indemnify the
Lessor in respect of any claim made against the Lessor by any such
person or the owner of any such chattels or property
7.3.2 The Lessor shall not be liable to the Lessee in respect of any failure
by the Lessor to perform any of the Lessor's obligations to the Lessee
in this Lease (with the exception only of the Lessor's covenant to
insure) unless and until the Lessee has notified the Lessor in writing
of the facts giving rise to such failure and the Lessor has failed
within a reasonable period to remedy the same nor shall the Lessor be
liable to compensate the Lessee for any loss or damage sustained by the
Lessee before such reasonable period has elapsed
7.3.3 The Lessor shall not be liable to the Lessee in respect of any act or
omission of whatsoever nature save as expressly provided in this Lease
7.4 NOTICES
Any notice served under or in connection with this Lease shall be served
by registered or recorded delivery post to the Registered Office or Head
Office for the time being of the Lessor or the Lessee or the Surety (if
any) addressed to the Secretary thereof or if the Lessor or the Lessee
or the Surety (if any) be an individual to that individual's last
address in Great Britain notified to the Lessor in writing and if the
expression "the Lessee" or "the Lessor" or "the Surety" includes more
than one person a notice served on any one of such persons shall be
deemed to have been properly served on all persons or legal entities
constituting the Lessee or the Lessor or the Surety (if any)
7.5 SECTION 37 LTA
Subject to the provisions of Sub-section (2) of Section 38 of the
Landlord and Tenant Act 1954 neither the Lessee nor any assignee or
underlessee of the Term or of the Premises shall be entitled on quitting
the Premises to any compensation under Section 37 of that Act to the
intent that any existing and future statutory right of the Lessee to
claim compensation from the Lessor on vacating the Premises is excluded
to the extent permitted by law
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7.6 EASEMENTS AND RIGHTS ENJOYED IN COMMON
Unless otherwise specified the easements and rights mentioned in the
Second and Third Schedules are respectively to be enjoyed by the Lessee
(and all persons authorised by the Lessee) and the Lessor (and all
persons authorised by the Lessor) in common with all others entitled or
to become entitled to like easements and rights whether expressly or by
operation of law including (but not by way of limitation) any adjoining
tenant or lessee of the Lessor PROVIDED ALWAYS that the easements and
rights set out in the Second Schedule hereto may be varied from time to
time by the Lessor as and for as long as the Lessor may deem necessary
provided that the use and enjoyment of the Premises by the Lessee or any
underlessee shall not thereby be materially adversely affected AND
PROVIDED FURTHER THAT nothing contained or referred to in this Lease
shall operate either expressly or impliedly to grant or confer upon the
Lessee the benefit of any easement right or privilege save only as
expressly granted to or conferred upon the Lessee in the Second Schedule
7.7 INTEREST ON OVERDUE MONIES
If any monies due hereunder are unpaid for fourteen days after the date
on which they are payable or if any other sums payable by the Lessee to
the Lessor under this Lease shall not be paid within fourteen days of
written demand then (but without prejudice to any other right or remedy
of the Lessor) the same shall be payable with Interest thereon (as well
after as before any judgment) calculated on a day-to-day basis from the
date upon which the same became payable down to the date of actual
receipt
7.8 LESSOR'S POWERS OF DEALING
Notwithstanding anything herein contained the Lessor and the Superior
Lessor and all persons duly authorised by them shall have power without
obtaining any consent from or making any compensation to the Lessee to
deal as it or they may think fit with the Building or any of the lands
buildings or parts of buildings and hereditaments adjacent adjoining or
near to the Premises or any part thereof whether or not forming part of
the Development Area and to erect or suffer to be erected thereon or on
any part thereof any buildings whatsoever and to make any alterations
erections or additions and carry out any demolition building or
rebuilding whatsoever which it or they may think fit or desire to do to
such land or buildings or any part or parts thereof in such manner as
the Superior Lessor or the Lessor thinks fit whether such buildings
alterations or additions shall or shall not affect or diminish the light
or air which may now or at any time during the Term be enjoyed by the
Lessee or the tenants or occupiers of the Premises and so that any light
or air or other easements rights or amenities (other than those
expressly granted hereby) at any time enjoyed in respect of the Premises
or any part thereof which might otherwise interfere with the rights of
the Superior Lessor or the Lessor or of any neighbouring owner or
occupier under this provision shall be deemed to have been and to be
enjoyed by consent and the Lessee shall not at any
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time during the Term or thereafter raise or make any complaint or
institute or take any proceedings whatsoever whether by way of
injunction or for damage or otherwise against the Lessor or any
neighbouring owner or occupier by reason or in consequence of any noise
disturbance annoyance or inconvenience occasioned by any such erection
rebuilding alteration or user as aforesaid
7.9 REGULATIONS
Without prejudice to the Lessee's rights under this Lease the Lessor may
at any time during the Term in the interests of good estate management
impose such reasonable regulations of general application regarding the
Building the Development Area or the Premises as it may in its absolute
discretion think fit in addition to or in place of the regulations set
out in the Fourth Schedule hereto and shall supply the Lessee with a
copy thereof
7.10 PERMITTING AND SUFFERING
Every covenant by the Lessee herein and every other provision hereof
that the Lessee will not do or omit to be done or allow any act matter
or thing is deemed to be a covenant or (as the case may require) a
provision that the Lessee will not permit or suffer the doing or (as the
case may require) the omission or allowance thereof and every reference
herein (whether expressed or implied) to a consequence of the Lessee
having done or having omitted to do or having allowed any act matter or
thing is deemed to be a reference extending the consequence to any act
omission or allowance of or by the Lessee's employees servants agents
licensees and invitees and any person claiming under the Lessee and that
person's employees servants agents licensees and invitees or any of them
7.11 SUPERIOR LEASES
7.11.1 The powers rights matters and discretions granted and reserved to the
Lessor under this Lease shall also be granted and reserved to or
exercisable by any Superior Lessor its servants agents and workmen to
the extent required by any superior lease
7.11.2 The Lessor shall be entitled to withhold its approval or consent in any
instance where any Superior Lessor's consent is required and where such
approval or consent is applied for and is not given
7.12 LESSOR AS LESSEE'S AGENT
The Lessee irrevocably appoints the Lessor to be the Lessee's agent to
store and/or dispose of any effects left by the Lessee on the Premises
for more than 7 days after the expiry or sooner determination of the
Term on any terms which the Lessor thinks fit without the Lessor being
liable to the Lessee save to account for the net proceeds of sale less
the cost of storage (if any) and any other expenses reasonably incurred
by the Lessor
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7.13 DISTRESS
All sums due and payable hereunder shall be recoverable if the Lessor so
wishes by distress as if the same formed part of the rents reserved
under this Lease
7.14 SET-OFFS
The Lessee waives any and all existing and future counterclaims and
set-offs against any payments due to the Lessor under this Lease and
agrees to make all such payments in full irrespective of any equity or
set-off or counterclaim of the Lessee of any nature
8. SURETY
THE Surety (if any) covenants and agrees with the Lessor in the terms
set out in the Sixth Schedule
9. OPTION TO DETERMINE
IF the Lessee wishes to determine this Lease on 1st November 1999 then
providing always that it has paid the rent and observed the covenants on
its parts contained herein then it shall give to the Lessor not less
than 6 months' notice in writing then upon the expiry of such notice the
Term shall immediately cease and determine but without prejudice to the
respective rights of either party in respect of any antecedent claim or
breach of covenant
IN WITNESS whereof this Deed and a Counterpart of it have been executed by the
parties and were delivered on the date appearing as one date of this Deed
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THE FIRST SCHEDULE
THE PREMISES
That part of the Building on the ninth floor shown (for the purposes of
identification only) edged red on Plan C comprising at the date of this Lease
2648 square feet net including:-
1. The inner surfaces and interior decorative finishes of walls stanchions
and columns which are exterior structural or load-bearing walls of the
Building and their stanchions or load-bearing columns (but not other
parts of such walls stanchions or columns)
2. The floor finishes applied to any floor slab below or within the
Premises and the ceilings and other finishes applied to the underside of
any floor slab above or within the Premises but not the remainder of
such floor slabs
3. The inner half severed medially of internal non-structural or non-load
bearing walls dividing the Premises from other parts of the Building and
the whole of all non-structural non-load bearing walls or partitions
wholly within the Premises
4. Internal windows and window frames doors and door frames and the glass
therein in each case but not any translucent or transparent material
forming part of the exterior of the Building
5. All additions alterations and improvements to the Premises
6. All Landlord's fixtures and fittings in or upon the Premises whether or
not installed at the date hereof
7. Any Conduits exclusively serving the Premises
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THE SECOND SCHEDULE
EASEMENTS AND RIGHTS IN FAVOUR OF THE LESSEE INCLUDED IN THIS LEASE
1. SUBJECT always to the right of the Company without being liable to the
Lessee in any way to prevent use of any such roadways entrances or
accessways or parking spaces for so long as and as may be reasonably
necessary to enable the Company to comply with its covenants pursuant to
the HEMCO Deed or to exercise its rights or so as to prevent any rights
arising by prescription or dedication:-
1.1 The right in common with the Lessor the Superior Lessor and all others
entitled to like right to use
1.1.1 with or without vehicles the roadway shown coloured blue and hatched
blue on Plan A for the purpose of gaining access to and egress from the
Building
1.1.2 on foot only the footpath shown coloured purple and hatched purple and
the podium area shown coloured green and hatched green and coloured
yellow and hatched yellow and the area shown coloured pink and hatched
pink on Plan A for the purpose only of gaining access to and egress from
the Building
1.2 The right to use with or without vehicles the roadways and accessways in
the Common Areas for the purpose only of gaining access to and egress
from the Building
1.3 The right to pass and repass on foot only over and along the courtyards
footpaths stairways and emergency escapes forming part of the Common
Areas
1.4 The right for the Lessee its servants agents and visitors in common with
the Lessor and those authorised by it and all others having the same
right to pass and repass at all times and for all purposes with or
without vehicles over the road connecting the Development Area with the
nearest public highway until the said road shall be adopted by the
highway authority and shall become maintainable at the public expense
for the purpose of access to or egress from the Building provided that
the Superior Lessor shall be entitled from time to time to stop up or to
re-locate the situation of such road on condition that there shall
remain or the Superior Lessor shall provide alternative means of access
to the Building not materially less convenient than the existing road
2. The right in common with the Lessor and their tenants and occupiers of
the Building to pass and repass on foot only over and along the entrance
halls staircases landings and corridors
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of the Building and a right to use (when working) the passenger and
goods lifts in the Building
3. The right to use the toilets on the same floor of the Building as the
Premises
4. The right to place only refuse waste or rubbish originating from the
Premises in the refuse bins (if any) in the Building
5. The right to the free and uninterrupted passage of the Utilities to and
from the Premise through the Conduits which now are or may at any time
during the Term (or during the period of 80 years from the date hereof
if shorter which period shall be the perpetuity period applicable to
this right) be serving the Premises together with the right to maintain
repair and renew the same and the right at any time but (except in
emergency) after giving prior notice in writing to enter (or in
emergency or after the giving of reasonable notice (being not less than
21 days) in the absence of the Lessor or the relevant tenant or occupier
(as the case may be) to break and enter) any other part of the Building
the person exercising such rights causing as little damage as is
reasonable and making good as soon as reasonably possible any damage
caused to the Building and Provided further that the exercise of such
rights shall in no way overload the Conduits
6. The right of support protection and shelter from the Building as now
enjoyed
7.1 The exclusive right (subject to paragraph 1 above) to park not more than
three private motor cars on the parking spaces in the Car Park shown
numbered 222, 228 and 344 on Plans E and F or such other parking spaces
as the Lessor may from time to time substitute and nominate to the
Lessee in writing for the purpose
7.2 The right of way in common with the Lessor the Superior Lessor the
Company and all others entitled to like right to pass with or without
vehicles over the roads and access ways leading to the parking spaces
referred to in paragraph 7.1 and on hot only along the pedestrian access
ways and passenger lifts to and within the Car Park giving access to the
said parking spaces
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THE THIRD SCHEDULE
PART I
EASEMENTS AND RIGHTS THAT ARE EXCEPTED FROM THIS LEASE
1. The following rights and easements are excepted and reserved out of the
Premises unto the Lessor and the Superior Lessor and their tenants and
the occupiers of any adjoining or neighbouring land and/or premises and
all other persons authorised by the Lessor or by such tenants and
occupiers or having the like rights and easements:
1.1 The right of free and uninterrupted passage of foul and surface water
drainage electricity electronic impulses gas water telephone heating
ventilations air-conditioning the passage of smoke and fumes and all
utilities services and facilities through the Conduits which are now or
may at any time during the Term (or during the period of eighty years
from the date hereof if shorter) be in on under or passing through or
over the Premises with the right to construct and maintain new services
and alter divert and connect with existing services for the benefit of
any adjacent or nearby premises the right to repair maintain and renew
such existing and new services and the right at any time but (except in
emergency) after giving reasonable prior notice to enter (or in an
emergency or after the giving of reasonable notice in the Lessee's
absence to break and enter) the Premises in the exercise of such rights
the person exercising such right causing as little damage as is
reasonable and making good as soon as reasonably possible any damage
caused to the Premises and (in the case of the Lessor and persons
authorised by it) acting with all reasonable expedition throughout
1.2 The right at any time but (except in an emergency) after giving
reasonable prior notice to enter (or in an emergency or after the giving
of reasonable prior notice (being not less than 21 days) during the
Lessee's absence to break and enter) and remain upon the Premises with
any plant equipment and materials in order to;
1.2.1 inspect or view the condition of the Premises
1.2.2 carry out work upon any adjacent premises
1.2.3 carry out any repairs or other work which the Lessor or Superior Lessor
must or may carry out under the provisions of this Lease or to do any
other thing which under the said provisions the Lessor may do subject
(in the case of the Lessor or the Superior Lessor) to the person
entering forthwith making good all damage occasioned to the Premises by
the exercise of such right
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1.3 The right to deal in any manner whatsoever with any of the land
belonging to the Lessor or the Superior Lessor adjoining opposite or
near to the Premises including other parts of the Building and to erect
maintain rebuild or alter or suffer to be erected maintained rebuilt or
altered on such adjoining opposite or neighbouring lands or other parts
of the Building any buildings or structures whatsoever whether such
buildings shall or shall not affect or diminish the light or air which
may now or at any time hereafter be enjoyed for or in respect of the
Premises or any building for the time being thereon
2. The right of support shelter and protection from the Premises for the
rest of the Building
PART II
1. The rights and privileges reserved over in or under the Premises
pursuant to the provisions of an Agreement dated 4th November 1982 and
made between the Superior Lessor (1) and the Port of London Authority
(2)
2. The provisions of a Transfer Deed dated 4th November 1982 made between
the Port of London Authority (1) and the Superior Lessor (2)
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THE FOURTH SCHEDULE
REGULATIONS
1. All refuse shall be kept in a suitable container and shall be taken not
less than once a day in sacks to the area designated from time to time
by the Lessor for the storage of refuse
2. No rubbish or waste materials paper wood and other combustible matter
shall be burnt in or about the Premises or the Building
3. No smoke or fumes or noxious smells shall be emitted from the Premises
so as to cause in the reasonable opinion of the Lessor or the Superior
Lessor or their respective surveyors annoyance or interference with the
proper enjoyment of the Building adjoining premises of the Lessor and
the Superior Lessor or their tenants or of the premises adjoining or
near the Development Area
4. No use of industrial machinery engines and equipment so as to cause
excessive noise vibration or dust and any such use which in the
reasonable opinion of the Lessor's or the Superior Lessor's surveyor is
causing annoyance to adjoining tenants of the Lessor or the Superior
Lessor or to the occupiers of the Building or in the vicinity shall be
abated immediately upon notice
5. No mechanically operated vehicles cycles hand trucks or trailers shall
be parked or left unattended outside areas properly reserved for such
parking or in such manner as to obstruct roadways on the Development
Area or so as to prevent ingress and egress of fire fighting equipment
round the curtilage of the Building
6. No off-loading of vehicles except within the curtilage of the areas
designated for that purpose
7. No storage of inflammable materials explosives substances or liquids
except in proper containers or receptacles in accordance with
regulations enforced by a competent authority and in any event not
abutting any boundary or other adjoining property of the Lessor or the
Superior Lessor
8. Traffic Regulations as shown by road signs or as advised to the Lessee
from time to time by the Lessor or the Company must be observed
including parking and speed limits No vehicle belonging to the Lessee or
any visitor of the Lessee shall be driven on the Development Area except
by a person holding a valid driving licence permitting him to drive that
vehicle
-39-
<PAGE>
9. All vehicles on the Development Area and the Car Park are at the owner's
risk and neither the Lessor nor the Superior Lessor will be liable for
damage or theft or any other hazard
10. No repairing testing or washing of vehicles on the Development Area or
in the Car Park save that vehicles may be washed in the area (if any)
designated for that purpose by the Lessor
11. No obstruction shall be caused in any part of the Building and in
particular all delivery or despatch and all loading or unloading of
goods shall be from the area hatched blue on Plan A to the goods
entrance of the Building
12. No loud speakers television sets radios or other devices shall be used
in a manner so as to be heard outside the Premises or so as to cause
interference with any equipment outside the Premises
13. Conduits and all plumbing facilities shall not be used for any other
purpose than that for which they are intended and no foreign substance
of any kind shall be placed therein
14. The Lessee will keep clean and free from obstruction all conduits in the
Premises including but without prejudice to the generality thereof the
air conditioning and heating ducts and flues
15. The passenger lifts shall not be used for the conveyance of goods nor by
building operatives
16. The Lessee will not install any curtains blinds or screens at or over
any transparent or translucent parts of exterior walls bounding the
Premises
17. The Lessee will not store or place any items against any transparent or
translucent parts of exterior walls bounding the Premises so as to
present (in the opinion of the Lessor) an unsightly appearance when
viewed from the exterior
-40-
<PAGE>
THE FIFTH SCHEDULE
EXPENDITURE TO BE TAKEN INTO ACCOUNT IN COMPUTING THE SERVICE CHARGE
PART I
1. All costs and expenses whatsoever incurred by the Lessor in and about
the provision from time to time of services in to or for the benefit of
the Building which without prejudice to such generality shall include
those under the following heads:
1.1 The cost of and incidental to compliance by the Lessor with every notice
regulation requirement or order of any competent local or other
authority or any Act of Parliament in respect of the Building
1.2 The cost of periodically inspecting making renewing repairing
maintaining decorating or otherwise treating rebuilding replacing and
keeping free from and remedying all defects whatsoever and cleaning the
main structure and exterior of the Building (including the roof and
foundations) and of all parts of the Building not let or intended to be
let and other conveniences which may belong to or be used for the
Building along or in common with other premises near or adjoining
including any amounts which the Lessor may be called upon to pay as a
contribution towards such costs
1.3 The cost of providing operating periodically inspecting maintaining in
proper working order overhauling repairing renewing and replacing in
whole or in part the heating and/or ventilating and/or air conditioning
and hot and cold water systems and generators and other plant serving
the Building and the lifts lift shafts and machinery and other plant in
or serving the Building
1.4 The cost of all fuel of any kind required for the boiler or boilers
supplying the heating lighting ventilation and/or air conditioning and
hot water systems and generating and other plant serving the Building
and the electricity for operating the lifts and providing all other
services to or for the Building
1.5 The cost of insuring the Building (excluding the Premises and other
parts of the Building let or intended to be let) against loss or damage
by the Insured Risks in accordance with clause 4.3 of this Lease
1.6 The cost of taking out and maintaining in force an effective insurance
policy against any and every liability of the Lessor for injury to or
death of any person (including every agent servant and workman of the
Lessor) and damage to or destruction of the property of any such person
arising out of the management and/or maintenance and/or occupation of
the
-41-
<PAGE>
Building or any part of it and in particular but without limiting the
generality of the foregoing:
(a) employer's liability; and
(b) insurance against such injury death damage or destruction as
above stated due to the act neglect default or misconduct of the
agents servants or workmen of the Lessor employed in connection
with the management and/or maintenance of the Building or to a
total or partial failure or breakdown of the lifts or central
heating or air conditioning plant or hot water systems or to
flooding in the boiler room or elsewhere; and also such further
or other insurances as the Lessor shall from time to time in its
absolute discretion deem necessary
1.7 The cost of carpeting re-carpeting restoring cleaning decorating
lighting and furnishing as appropriate all parts of the Building not let
or intended to be let and keeping the same in good repair and condition
and providing towels and toilet and other requisites in the toilets
1.8 The charges assessments and other outgoings (if any) payable by the
Lessor in respect of all parts of the Building
1.9 All proper fees charges expenses and commissions of any person or
persons the Lessor may from time to time employ in connection with the
management and supervision of the Building (including but not by way of
limitation rent collection and maintenance of the Building)
1.10 The cost of preparing submitting and settling any insurance claims
relating to the Building
1.11 The cost of providing maintaining and when necessary replacing renewing
or amending a security patrol and security observation system for the
Building (including but not by way of limitation the provision of alarms
close circuit television and apparatus and fittings designed to prevent
or limit vandalism)
1.12 The cost of the upkeep of and tending and stocking of:
(a) any landscaping in the Building and of the forecourts
roadways/pathways and open areas within the Building;
(b) floral and/or plant displays or areas
-42-
<PAGE>
1.13 The cost of cleaning the interior and exterior of the glass surfaces of
the parts of the Building not let or intended to be let and the
transparent or translucent parts of the exterior of the Building
1.14 The cost of providing and maintaining and where necessary replacing
furniture for the use:
(a) in the parts of the Building not let or intended to be let
(b) by persons employed by the Lessor in or about the provision of
the services
1.15 The cost of providing maintaining and where necessary replacing such
flags decorative lights and other decorations or like amenities as the
Lessor shall think fit to provide
1.16 The cost of operating for the tenants or occupiers of the Building and
their visitors on such basis as the Lessor may determine the Car Park
and of repairing maintaining rebuilding renewing and cleaning the same
and keeping it clear of all rubbish and obstructions
1.17 The cost of providing and replacing paladins or other refuse containers
for the tenants or occupiers of the Building and arranging for the
collection of refuse
1.18 The cost of providing maintaining and renewing all directional and other
notices posters boards or signs in the Building
1.19 The cost of taking all steps deemed desirable or expedient by the Lessor
for complying with making representations against or otherwise
contesting the incidence of the provisions of any Acts of Parliament
concerning any matter relating or alleged to relate to the Building
1.20 The cost of providing fire fighting equipment appliances (including fire
alarm sprinkler systems and smoke detectors) and any other signs or
notices required by the local Fire Officer (other than such as is
supplied in the Premises by the Lessee) and the cost of repair
maintenance and renewal of the same
1.21 The cost of employing staff for the Building either directly or
indirectly for the performance of duties in connection with the
maintenance and/or security of the Building and the provision of
services to the Building and to the tenants occupiers and users and all
other incidental expenditure in relation to such employment including
(but without limiting the generality of such provision) contributions to
an occupational pension scheme the payment of such insurance health
pension welfare and other contributions and premiums industrial training
levies redundancy and similar or ancillary payments that the Lessor may
be required
-43-
<PAGE>
by Act of Parliament or otherwise to pay or may at his absolute
discretion deem and desirable and necessary in respect of such
staff and uniforms working clothes tools machinery two way radios
appliances office equipment motor vehicles (whether or not as an
emolument of employment) cleaning and other material bins
receptacles and other equipment for the purpose performance of
their duties
1.22 The rent rates telephone charges gas electricity and other incidental
expenses of:
(a) any accommodation provided in the Building or elsewhere for
occupation or use by the persons employed in connection with the
provision of the services to and the management and/or the
security of the Building; and
(b) any accommodation provided for vehicles parts equipment and
other things employed in connection with the provision of the
said services and the management and/or security of the
Building
1.23 The cost of leasing any item required for the purpose of carrying out
any of the matters referred to in this Schedule
1.24 The cost of staging mounting arranging or otherwise providing in any
parts of the Building not let or intended to be let any exhibition
function display or event which the Lessor may from time to time
consider desirable for the purpose of maintaining or improving the
reputation of the Building
1.25 The cost of carrying out any other works or providing services or
facilities of any kind whatsoever which the Lessor may from time
to time consider desirable for the purpose of maintaining or
improving the services or facilities in or for the Building
PROVIDED ALWAYS that the Lessor may at any time add to the heads
of expenditure any depreciation or other allowance provision for
future anticipated expenditure on or replacement of any
installation equipment plant or apparatus or rental value of any
part of the Building connection with the provision of the Services
not previously included and from and after the relevant date of
the exercise of this right such additional items of depreciation
allowance provision expenditure or value shall be included in the
calculation of the Service Charge.
2. The service charge payable under Clause 3 of the HEMCO Deed
3. The cost of calculating the service charges and the
payments on account payable by the tenants of premises in the
Building the preparation of accounts and audits made for the and
of recovering service charges and payments from such tenants
-44-
<PAGE>
4. All professional charges fees and expenses payable by the Lessor in
respect of the matters mentioned in paragraphs 1, 2 and 3 above insofar
as not already charged under sub-paragraph 1.9
5. During any period in which the Lessor does not employ managing agents to
manage the Building a reasonable sum but in any event not exceeding
fifteen per centum of the costs fees charges and expenses referred to in
paragraphs 1, 2, 3 and 4 above incurred during such period
6. All Value Added Tax or other similar tax payable by the Lessor in
respect of the matters referred to in paragraphs 1, 2, 3, 4 and 5 above
7. The gross cost to the Lessor by way of interest commission banking
charges commitment or otherwise of borrowing any necessary sums to
provide the costs under the foregoing paragraphs
PART II
1. The cost of decorating or otherwise treating those parts of the Floor
not let or intended to be let
2. The cost of carpeting re-carpeting restoring cleaning decorating
lighting and furnishing as appropriate all parts of the Floor not let or
intended to be let and keeping the same in good repair and condition
3. The cost of all fuel of any kind required for the boiler or boilers
supplying the heating lighting ventilation and/or air conditioning and
hot water systems and generating and other plant and the electricity and
all other services serving those parts of the Floor not let or intended
to be let
4. The cost of providing repairing renewing replacing and maintaining
facilities plant and equipment on the Floor for the preparation of hot
and cold drinks and light refreshments solely for consumption by the
Tenant its employees or visitors and all electricity gas water or other
services
5. The cost of providing fire-fighting equipment appliances (including fire
alarms sprinkler systems and smoke detectors) and any other signs or
notices required by the local Fire Officer for those parts of the Floor
not let or intended to be let and the cost of repair maintenance and
renewal of the same
-45-
<PAGE>
6. The cost of calculating the service charges and the payments on account
payable by the tenants of premises on the Floor the preparation of
accounts and audits made for the purpose and of recovering service
charges and payments from such tenants
7. All professional charges fees and expenses payable by the Lessor in
respect of the matters mentioned in paragraphs 1, 2, 3, 4, 5 and 6 above
8. During any period in which the Lessor does not employ managing agents to
manage the Building a reasonable sum but in any event not exceeding
fifteen per centum of the costs fees charges and expenses referred to in
paragraphs l, 2, 3, 4, 5, 6 and 7 above incurred during such period
9. All Value Added Tax or other similar tax payable by the Lessor in
respect of the matters referred to in paragraphs 1, 2, 3, 4, 5, 6, 7 and
8 above
10. The gross cost to the Lessor by way of interest commission banking
charges commitment or otherwise of borrowing any necessary sums to
provide the costs under the foregoing paragraphs
-46-
<PAGE>
SIXTH SCHEDULE
COVENANTS AND AGREEMENTS BY THE SURETY
1. The Surety covenants with the Lessor as a primary obligation:-
1.1 that the Lessee or the Surety shall at all times during the Term duly
perform and observe all the covenants conditions and other provisions on
the part of the Lessee to be observed and performed in this Lease
(including the payment of the Rent and all other sums from time to time
payable under this Lease) in the manner and at the times specified and
shall indemnify the Lessor against all actions proceedings losses
liabilities costs damages expenses claims and demands sustained by the
Lessor in any way directly or indirectly arising out of or resulting
from any default by the Lessee in the performance and observance of any
such covenants conditions and other provisions
1.2 not to claim in any liquidation bankruptcy administration receivership
composition or arrangement of the Lessee in competition with the Lessor
and to remit to the Lessor the proceeds of all judgments and all
distributions it may receive from any liquidator trustee in bankruptcy
administrator administrative receiver receiver or supervisor of the
Lessee and to hold for the benefit of the Lessor all security and rights
the Surety may have over assets of the Lessee while any liabilities of
the Lessee or the Surety to the Lessor remain outstanding
1.3 that if a liquidator or trustee in bankruptcy shall disclaim or
surrender this Lease or this Lease shall be forfeited or the Lessee
shall die or cease to exist (any such date in this Schedule being
referred to as "the Relevant Date") then the Surety shall (if the Lessor
by notice in writing given to the Surety within six months after the
Relevant Date so requires) accept from and execute and deliver to the
Lessor a counterpart of a new lease of the Premises for a term
commencing on the Relevant Date and continuing for the residue then
remaining unexpired of the Term such new lease to be at the cost of the
Surety and to be at the same rents and subject to the same covenants
conditions and provisions as are contained in this Lease
1.4 that if the Lessor shall not require the Surety to take a new lease the
Surety shall nevertheless upon demand pay to the Lessor a sum equal to
the Rent and all other sums that would have been payable under this
Lease in respect of the period from and including the Relevant Date
until the expiry of twelve months after that date or until the Lessor
shall have granted a lease of the Premises to a third party (whichever
shall first occur)
-47-
<PAGE>
2. The Surety is jointly and severally liable with the Lessee (whether
before or after any disclaimer by a liquidator or trustee in bankruptcy)
for the fulfilment of all the Lessee's covenants conditions and other
provisions contained in this Lease and the Lessor in the enforcement of
its rights may proceed against the Surety as if the Surety was named as
the Lessee in this Lease
3. The Surety waives any right to require the Lessor to proceed against the
Lessee or to pursue any other remedy of any kind which may be available
to the Lessor before proceeding against the Surety
4. None of the following (or any combination thereof) shall release
determine discharge or in any way lessen or affect the liability of the
Surety as principal debtor under this Lease or otherwise prejudice or
affect the liability of the Surety to accept a new Lease in accordance
with the provisions of this Schedule:-
4.1 any neglect delay or indulgence or extension of time given by the Lessor
in enforcing payment of the Rent or any other sums due under this Lease
in enforcing the performance or observance of any of the Lessee's
covenants conditions or other provisions contained in this lease
4.2 any refusal by the Lessor to accept Rent tendered by or on behalf of the
Lessee following a breach of covenant by the Lessee
4.3 the expiry or sooner determination of the Term
4.4 any variation of the terms of this Lease (including any reviews of the
Rent payable under this Lease) or the transfer of the Lessor's reversion
or the assignment of this Lease
4.5 any change in the constitution structure or powers of either the Lessee
the Surety or the Lessor or the liquidation administration receivership
or bankruptcy (as the case may be) of either the Lessee or the Surety or
the death or dissolution of the Lessee
4.6 any legal limitation or any immunity disability or incapacity of the
Lessee (whether or not known to the Lessor) or the fact that any
dealings with the Lessor by the Lessee may be outside or in excess of
the powers of the Lessee
4.7 any other act omission matter or thing of any kind by virtue of which
(but for this provision) the Surety would be exonerated either wholly or
in part (other than a release under seal given by the Lessor)
-48-
<PAGE>
5. This guarantee shall enure for the benefit of the successors and assigns
of the Lessor under this Lease without the necessity for any assignment
of it
-49-
<PAGE>
( THE COMMON SEAL of GLOBE
[SEAL] ( TRUST LIMITED was affixed to this
( deed in the presence of:-
Director /s/ [ILLEGIBLE]
--------------------------
Secretary /s/ [ILLEGIBLE]
-------------------------
-50-
<PAGE>
LIST OF OMITTED ANNEXES
The following Annexes to the Underlease have been omitted from this
Exhibit and shall be furnished supplementally to the Commission upon request:
Architectural Drawing of Plan A
Architectural Drawing of Plan B
Architectural Drawing of Plan C
Architectural Drawing of Plan D
Architectural Drawing of Plan E
Architectural Drawing of Plan F
Architectural Drawing of Plan G
<PAGE>
DATED 23rd June 1997
- ---------------------
(1) DOCKWAYS LIMITED
(2) WORLD XCHANGE COMMUNICATIONS LIMITED
- ------------------------------------------------------------------------------
DEED OF VARIATION
relating to
Suite 9.02 Exchange Tower
One Harbour Exchange Square
London E14 9GB
- ------------------------------------------------------------------------------
<PAGE>
This DEED is made the 23rd day of June 1997 between:-
(1) DOCKWAYS LIMITED whose registered office is at 1 Le Couteur Court
Mulcaster Street St Helier Jersey ("the Landlord") and
(2) WORLD XCHANGE COMMUNICATIONS LIMITED whose registered office is at Suite
9.02 Exchange Tower 1 Harbour Exchange Square, London E14 9GB ("the Tenant")
WHEREAS:
1. This Deed is supplemental to an Underlease (hereinafter called "the
Lease") dated the 2nd day of December 1994 between (1) Globe Trust Limited
and (2) the Tenant for a term of 25 years from the 25th day of March 1990
2. The Landlord is entitled to the reversion immediately expectant on
the determination of the term by the Lease by virtue of two Underleases of
Exchange Tower One Harbour Exchange Square between Globe Trust Limited and
the Landlord dated 10 August 1995
3. The Landlord and the Tenant have agreed to vary the terms of the
Lease in the manner hereinafter appearing
NOW THIS DEED WITNESSES as follows:-
INTERPRETATION
1. In this deed the headings shall be ignored in its construction and
unless the context otherwise requires:-
1.1 The expressions "the Landlord" and "the Tenant" include their
respective successors in title
1.2 The expression "the Lease" includes any document entered into
pursuant thereto which is expressed to be supplemental thereto
1
<PAGE>
VARIATION
2.1 The Landlord and Tenant agree that with effect from the date
hereof the Lease shall be varied as hereinafter set out and shall henceforth
take effect and be construed accordingly:-
2.1.1 The following new paragraph 7 (ii) shall be substituted for
paragraph 7(ii) of the particulars of the Lease:
"7 RENT : (ii) L26,480 per annum subject to upwards only rent
review as provided in this Lease"
2.1.2 The following new paragraph 11 shall be substituted for paragraph
11 of the particulars of the Lease:
"11 RENT REVIEW DATES : the twenty fifth day of December 2001 the first
day of November 2004 and every fifth anniversary
of that date"
2.1.3 The words "1st November 1999" in clause 9 of the Lease shall be
replaced by "25 December 2001"
2.2 The rent referred to in clause 2.1.1 hereof shall commence to be
payable at the rate therein provided for on and from the date hereof or the
date the Tenant first occupies suite 9.03 Exchange Tower as aforesaid
whichever occurs first
2.3 Save as varied by this Deed the covenants and conditions in the
Lease shall continue in full force and effect
2
<PAGE>
IN WITNESS whereof the parties have executed this instrument as a Deed and
delivered it on the day and year first before written
EXECUTED AS A DEED by )
DOCKWAYS LIMITED acting )
by its attorney T.J. [ILLEGIBLE]) Dockways Limited
and T.E.F. Sutherland under a )
Power of Attorney dated 18 )
September 1995 )
by its attorney
/s/ [ILLEGIBLE]
----------------------------------------
in the presence of the
undersigned witness:
/s/ [ILLEGIBLE]
----------------------------------------
21 St George St
Hanover Square, London W1
by its attorney
/s/ [ILLEGIBLE]
----------------------------------------
in the presence of the
undersigned witness:
/s/ [ILLEGIBLE]
61 Brook Street
London W1
Assistant
3
<PAGE>
PARTICULARS
DATE OF LEASE: 23rd day of June, 1997
1. (1) LESSOR: DOCKWAYS LIMITED whose registered office is at 1 Le
Couteur Court Mulcaster Street St. Helier Jersey
(2) LESSEE: WORLD XCHANGE COMMUNICATIONS LIMITED whose registered
office is at Suite 9-02 Exchange Tower 1 Harbor Exchange
Square London
2. THE PREMISES: The premises more particularly described in the First
Schedule
3. THE BUILDING: The premises shown edged red on Plan A together with the
building or buildings thereon at Harbour Exchange
Millwall Inner Dock in the London Borough of Tower
Hamlets including:
(1) in respect of the podium area shown hatched green
on Plan A only the structures and soil down to the roof
of the structure erected beneath such podium and known
as Harbour Island Car Park (but for the avoidance of
doubt specifically excluding the said Harbour Island Car
Park) and
(2) the Car Park but excluding any land structure or air
space demised to London Regional Transport by the Lease
dated 17 July 1987 and made between London Docklands
Development Corporation (1) and London Regional
Transport (2)
4. RENT: The yearly rent of L38,160 subject to upwards only rent
review as provided in this Lease
5. INITIAL L23,850 per annum payable in accordance with Clause 6.2
SERVICE hereof
CHARGE:
6. TERM: Commencing on 29 September 1996 and expiring on 24 March
2015
7. USE: Offices
8. RENT REVIEW The 25th day of December 2001 and every fifth
DATES: anniversary of that date
<PAGE>
INDEX
<TABLE>
<S> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEMISE PARCELS AND RENT . . . . . . . . . . . . . . . . . . . . . . . 8
LESSEE'S COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Pay Rents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Pay Outgoings. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Pay Value Added Tax. . . . . . . . . . . . . . . . . . . . . . . 12
Lessee's Insurance Covenant. . . . . . . . . . . . . . . . . . . 12
Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Internal Redecoration. . . . . . . . . . . . . . . . . . . . . . 14
Maintain Lessor's Fixtures . . . . . . . . . . . . . . . . . . . 15
Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
User . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Obstructions . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Compliance with Statutory Enactments . . . . . . . . . . . . . . 20
Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Registration . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Costs and Fees . . . . . . . . . . . . . . . . . . . . . . . . . 23
Planning Acts. . . . . . . . . . . . . . . . . . . . . . . . . . 24
Fire Fighting Equipment. . . . . . . . . . . . . . . . . . . . . 26
Notice of Re-Letting or sale . . . . . . . . . . . . . . . . . . 26
Not to Permit Acquisition of Easements . . . . . . . . . . . . . 27
To Notify Lessor . . . . . . . . . . . . . . . . . . . . . . . . 27
Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
New Surety or Guarantor. . . . . . . . . . . . . . . . . . . . . 28
Pledging Chattels as Security. . . . . . . . . . . . . . . . . . 28
Perform and Observe Covenants. . . . . . . . . . . . . . . . . . 29
Air-Conditioning . . . . . . . . . . . . . . . . . . . . . . . . 29
Yield Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
LESSOR'S COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 30
Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . 30
The Superior Lease . . . . . . . . . . . . . . . . . . . . . . . 30
Lessor's Insurance Covenant. . . . . . . . . . . . . . . . . . . 30
Provision of Services. . . . . . . . . . . . . . . . . . . . . . 32
RENT REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Payment of New Rent. . . . . . . . . . . . . . . . . . . . . . . 36
Determination of the New Rent. . . . . . . . . . . . . . . . . . 37
Arrears and Interest . . . . . . . . . . . . . . . . . . . . . . 38
Rent Review Memorandum . . . . . . . . . . . . . . . . . . . . . 38
Binding nature of Surveyor's determination . . . . . . . . . . . 38
Statutory obligations. . . . . . . . . . . . . . . . . . . . . . 39
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Rights of others . . . . . . . . . . . . . . . . . . . . . . . . 39
SERVICE CHARGE PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . 39
Amount payable . . . . . . . . . . . . . . . . . . . . . . . . . 39
Payment on account . . . . . . . . . . . . . . . . . . . . . . . 40
Estimates and calculations . . . . . . . . . . . . . . . . . . . 40
No dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
<PAGE>
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Re-entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Rent Abatement . . . . . . . . . . . . . . . . . . . . . . . . . 43
Exclusion of liability . . . . . . . . . . . . . . . . . . . . . 44
Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 37 LTA . . . . . . . . . . . . . . . . . . . . . . . . . 46
Easements and rights enjoyed in common . . . . . . . . . . . . . 46
Interests on overdue monies. . . . . . . . . . . . . . . . . . . 47
Lessor's power of dealing. . . . . . . . . . . . . . . . . . . . 47
Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Permitting and suffering . . . . . . . . . . . . . . . . . . . . 48
Superior Leases. . . . . . . . . . . . . . . . . . . . . . . . . 49
Lessor as Lessee's Agent . . . . . . . . . . . . . . . . . . . . 49
Distress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Set-Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Release of Lessor. . . . . . . . . . . . . . . . . . . . . . . . 50
Lessee's option to determine . . . . . . . . . . . . . . . . . . 51
Governing law and jurisdiction . . . . . . . . . . . . . . . . . 51
SURETY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
THE FIRST SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . . . . 52
The Premises . . . . . . . . . . . . . . . . . . . . . . . . . . 52
THE SECOND SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . 53
Easements and rights in favour of the Lessee included
in this lease. . . . . . . . . . . . . . . . . . . . . . . . . 53
THE THIRD SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . . . . 56
Easements and rights that are expected from this
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
THE FOURTH SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . 58
Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
THE FIFTH SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . . . . 61
Expenditure to be taken into account in computing the
Service Charge . . . . . . . . . . . . . . . . . . . . . . . . 61
SIXTH SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Covenants and Agreements by the Surety . . . . . . . . . . . . . 69
SEVENTH SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Requirements for an assignment . . . . . . . . . . . . . . . . . 73
General Requirements . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
<PAGE>
THIS SUB-UNDERLEASE is made on the date stated in paragraph 1 of the
Particulars BETWEEN:
(1) The LESSOR specified in paragraph 1(1) of the Particulars and
(2) The LESSEE specified in paragraph 1(2) of the Particulars
THIS DEED WITNESSETH as follows:
DEFINITIONS
1.1 IN this Deed the following expressions shall where the context so
- ----------
admits or requires be construed as follows:
"the Building" means Exchange Tower 1 Harbour Exchange Square London
E14 9GB as described in paragraph 3 of the Particulars
"the Car Park" means the car park on basement levels 1 2 and 3 of the
Building shown edged blue on Plans D E and F
"the Company" means Harbour Exchange Management Company Limited
"Common Areas" means those parts of the Development Area designated by the
Lessor from time to time for the common use and benefit of
the tenants and occupiers of the Development Area and others
using or visiting the Development Area and (excluding those
parts of the Development Area demised or intended to be
demised to tenants other than the Company) and being those
areas shown coloured yellow on
1
<PAGE>
Plan B as varied from time to time by the Lessor with the
agreement of the Superior Lessor
"Conduits" shall mean pipes wires cables channels chutes ducts gutters
sewers drains tanks and cisterns belonging to the Lessor or
the Company in whole or in part and all related receptacles
valves switches and safety devices which serve the Building
from time to time
"Development Area" shall mean the Lessor's development at Harbour Exchange
Millwall Inner Dock London as the same as for identification
purposes edged red on Plan B or some part thereof or
extension thereof
"First shall mean the 31 December following the date hereof
Anniversary"
"Floor" means the ninth floor of the Building shown edged blue on
Plan C
"Harbour Island shall mean the structure erected by the Lessor under that
Car Park part of the Building and the adjoining premises shown
coloured green and hatched green on Plan A
"the HEMCO Deed" shall mean the Deed dated the 21 October 1991 made between
Charter Group Limited (now known as Globe Trust Limited)
and the Company relating to the provision of certain
services to the Development Area
2
<PAGE>
"Insured Risks" shall mean loss or damage by fire explosion lightning
aircraft articles dropped from aircraft storm tempest flood
impact riot malicious damage civil commotion earthquake
(fire and shock) and bursting and overflowing of water tanks
apparatus and pipes and such other risks as the Lessor or
the Superior Lessor may from time to time reasonably require
to be insured against and (where the context so admits)
"Insured Risks" shall include any one or all of such Insured
Risks
"Interest" shall mean interest at the rate of four per centum per annum
above the Base Lending Rate from time to time of Barclays
Bank plc or (if such rate shall cease to be published) such
other reasonable or comparable rate as the Lessor shall from
time to time designate compounded with monthly rests on the
first day of each month
"Lessee" shall include any successors in title assignees and any
person deriving title under the Lessee
"Lessor" shall include the person for the time being entitled to the
reversion immediately expectant upon the determination of
the Term and all persons
3
<PAGE>
deriving title through the Lessor and shall (where
appropriate) include the Superior Lessor
"Lessor's shall mean any person employed by the Lessor for any
Surveyor" purpose under this Lease (including an employee of the
Lessor or a company which is a member of the same group
of companies (as defined in Section 42 Landlord and
Tenant Act 1954) of which the Lessor is itself a member)
"Net Internal shall mean net internal area calculated in accordance
Area" with the Code of Measuring Practice published by The
Royal Institution of Chartered Surveyors and the
Incorporated Society of Valuers and Auctioneers in
January 1990
"Particulars" means the Particulars appearing at the front of this
Lease
"Plan A" shall mean the annexed plan so entitled
"Plan B" shall mean the annexed plan so entitled
"Plan C" shall mean the annexed plan so entitled
"Plan D" shall mean the annexed plan so entitled
"Plan E" shall mean the annexed plan so entitled
"Plan F" shall mean the annexed plan so entitled
"Planning Acts" shall mean the Town and Country Planning Act 1990 the
Planning (Listed Buildings and Conservation Areas) Act
1990 the Planning (Hazardous Substances) Act 1990
4
<PAGE>
the Planning (Consequential Provisions) Act 1990 and any
other legislation relating to the use development or
[ILLEGIBLE] occupation of land or buildings and any statutory
modification or re-enactment thereof for the time being
in force and any other instrument plan regulation
permission and directive made or issued or to be made or
issued thereunder or deriving validity therefrom
shall mean Suite 9.03 on the ninth floor of the
[ILLEGIBLE] Building more particularly described in the First
Schedule hereto
[ILLEGIBLE] shall mean the rent first reserved by this Lease as
specified in paragraph 4 of the Particulars and as
increased from time to time in accordance with Clause 5
shall mean the services which may be provided to the
[ILLEGIBLE] Building and the Premises detailed in Parts I and II of
the Fifth Schedule hereto
shall mean the service charge to be paid to the Lessor
[ILLEGIBLE] by the Lessee pursuant to the Lessee's covenants
contained in Clause 6 hereof
shall mean a lease dated 21 October 1991 and a lease
[ILLEGIBLE] dated 16 May 1995 both made between the London Docklands
Development
5
<PAGE>
Corporation (1) and Globe Trust Limited (2) and two
underleases dated 10 August 1995 made between Globe
Trust Limited (1) the Company (2) and the Lessor as
varied from time to time
"Superior Lessor" shall mean the London Docklands Development Corporation
and its successors in title and any person entitled to
the freehold or any intermediate reversion superior to
the reversion immediately expectant hereon created
within eighty years of the date hereof
"Term" shall mean the term of years hereby granted and
specified in paragraph 6 of the Particulars which were
applicable shall include the period of any holding over
or any extension or continuance thereof by statute or at
common law
"Termination shall mean the date of expiration or sooner
Date" determination of the Term whether by effluxion of time
or by any other means or cause whatsoever
"Utilities" shall mean foul and surface water drainage electricity
electronic impulses gas water telephone heating
ventilation air conditioning the passage of smoke and
fumes and all other utilities services
6
<PAGE>
and facilities now or at any time during the Term
supplied or capable of being provided to the Premises
1.2 Words importing only the masculine gender include the feminine
gender and also the neuter and words importing the singular include the
plural (and vice versa)
1.3 Throughout these presents where there are two or more persons
included in the expression "the Lessee" "the Lessor" or "the Surety" the
covenants expressed to be made by the Lessee or the Lessor or "the Surety" as
the case may be shall be deemed to be made by such persons jointly and
severally and where two or more persons constitute the Lessee they shall be
deemed to hold the Premises as joint tenants legally and beneficially
1.4 References to any legislative provision shall be deemed to include
references to any further legislation for the time being in force replacing
amending or supplementing it together with all orders regulations directions
or consents made or given under it or deriving validity from it and any
relevant decisions of courts of competent jurisdiction
1.5 Where anything is prohibited on the part of the Lessee the Lessee
shall not permit or suffer it to be done
1.6 Where any rights of entry or rights to do anything are excepted and
reserved in this Lease to the Lessor and/or any other person then (except
where the context of this Lease shall otherwise expressly provide) the person
exercising such rights shall make good any damage caused to the Premises but
no other claim shall be made or compensation claimed by the Lessee or any
other person claiming through under or in trust for the Lessee
7
<PAGE>
1.7 References to "the Premises" shall (unless otherwise stated) include
each and every part of the Premises
1.8 References in this Lease to Value Added Tax include [XXX] other like
taxes levies charges and duties whether payable [XXX] or at any time in the
future
1.9 The expression "excluded assignment" "authorised guarantee
agreement" and "collateral agreement" have in relation to this Lease the
meanings specified in Sections 11(1) 16 and 28(1) of the Landlord and Tenant
(Covenants) Act 1995
1.10 References to obligations of the Lessee in this Lease include
obligations of the Lessee in any document entered into pursuant to this Lease
and in any collateral agreement
1.11 The details expressions and descriptions appearing in the
Particulars shall be included in and form part of this Lease
1.12 References to Schedules are to Schedules in this Lease
1.13 The headings in this Lease are for information only and shall
neither be deemed to form part of this Lease nor affect the construction of it
DEMISE PARCELS AND RENT
2. THE Lessor in consideration of the Rent and of the covenants and
conditions herein reserved and contained HEREBY DEMISES unto the Lessee ALL
THAT the Premises TOGETHER WITH but EXCEPT AND RESERVED the easements and
rights set out respectively in the Second Schedule and Part I of the Third
Schedule hereto SUBJECT to the matters referred to in Part II of the Third
Schedule hereto TO HOLD unto the Lessee for the Term YIELDING AND PAYING
during the Term:
8
<PAGE>
2.1 FIRST the Rent (varied as provided in this Lease) (and in proportion
for any less time than a year) such Rent to be paid in advance without any
set off or deduction whatsoever by quarterly payments on the usual quarter
days in each year the first proportionate payment to be made on the execution
of this Lease for the period from the 19 October 1996 to the 25 December 1996
2.2 SECONDLY by way of further rent the Service Charge such further rent
to be paid without any set-off or deduction as provided in Clause 6 hereto and
2.3 THIRDLY on demand by way of further or additional rent a sum or sums
of money equal to the gross amount which the Lessor from time to time incurs
or expends:
2.3.1 in or in respect of effecting or maintaining insurance of:
2.3.1.1 the Premises in the Lessor's estimate of their full reinstatement
cost for the time being against the Insured Risks and of the cost of
demolition and site clearance and of all architect's surveyor's and other
professional fees and incidental expenses in connection with demolition site
clearance and reinstatement (inclusive of Value Added Tax to the extent
applicable)
2.3.1.2 the Lessor's third party liability in relation to the Premises and
their use and occupation including but not limited to liability under the
Defective Premises Act 1972 and where the Premises are insured with other
property the Lessor shall attribute a fair proportion of the premiums to the
Premises and the Lessor's decision shall be final and binding on the parties
9
<PAGE>
2.3.2 in or in respect of effecting or maintaining insurance against loss
of Rent and Service Charge (including a reasonable estimate on account of
Service Charge) in respect of the Premises for a period of four years or such
longer period as the Lessor may from time to time reasonably determine
including anticipated loss of Rent following a Rent review (and if such
insurance is effected prior to the agreement or determination of the rent
upon review the amount of such Rent for the purpose of insurance only shall
be estimated by the Lessor's surveyor whose decision shall be final and
binding on the parties)
2.3.3 in respect of valuations of the Premises for insurance purposes if
required by the Lessor but not more frequently than once in every three
years and
2.4 On demand by way of further or additional rent Interest where
payable under the terms of this Lease
LESSEE'S COVENANTS
3. THE Lessee covenants with the Lessor that throughout the Term the
Lessee will:
PAY RENTS
3.1 Pay the reserved rents at the times and in the manner specified in
this Lease (and if and for so long as required by the Lessor to pay the Rent
by Banker's standing order or direct debit to such bank account of the Lessor
as the Lessor shall from time to time direct)
PAY OUTGOINGS
3.2.1 Pay and indemnify the Lessor on demand against all existing and
future rates taxes duties charges burdens assessments impositions and
outgoings whatsoever (in this sub-
10
<PAGE>
clause 3.2 collectively called "outgoings") and whether or not of a
non-recurring nature which now are or may be charged levied assessed or
imposed in respect of the Premises on either the owner or occupier (other
than taxes or duties payable in respect of any dealing with the Lessor's or
any superior interest or the receipt by the Lessor of any moneys payable
under the provisions hereof (save for Value Added Tax payable on rents)) and
also against all charges and (if required by the Landlord) a sum reasonably
estimated by the Landlord to cover the future liability of the Lessee for all
such charges incurred and payable in relation to the Premises in respect of
Utilities provided to the Premises
3.2.2 Not to claim any relief against payment of any of the outgoings and
in particular if prior to the Termination Date the Lessee has claimed or been
granted any relief from such outgoings (or any of them) in connection with
any non-occupation or use of the Premises by the Lessee to repay to the
Lessor a sum equal to the amount of the relief up to the Termination Date
3.2.3 Pay to the Lessor on demand a fair proportion (to be determined by
the Lessor's Surveyor whose decision shall be final and binding on the
parties) of:
3.2.3.1 any outgoings which may at any time be assessed upon the Premises
together with other land and property or
3.2.3.2 the cost of the supply of Utilities to the Premises together with
other land and property (save only as previously specified)
11
<PAGE>
PAY VALUE ADDED TAX
3.3.1 Where by virtue of any of the provisions of this Lease the Lessee is
required to pay repay or reimburse to the Lessee or any person or persons any
rents premium cost fee charge insurance premium expense or other sum or
amount whatsoever in respect of the supply of any goods and/or services by
the Lessor or any other person or persons the Lessee shall also be required
in addition to pay or (as the case may be) keep the Lessor indemnified
against:
3.3.1.1 The amount of any Value Added Tax which may be chargeable in respect
of such supply to the Lessee
3.3.1.2 The amount of Value Added Tax chargeable on any other person (or
chargeable on the Lessor in the case of supplies which the Lessor is deemed
to make to itself) in respect of supplies the cost of which is included in
the calculation of the sums which the Lessee is required to pay repay or
reimburse to the Lessor and in default of payment the same shall be
recoverable as rent in arrear
3.3.2 Not object to (and if required by the Lessor to give any necessary
consents) the charge of Value Added Tax upon any such rents costs fees or
other sums whether such charge arises at the election of the Lessor or
otherwise
LESSEE'S INSURANCE COVENANT
3.4.1 Comply with all recommendations and requirements of the insurers and
fire authorities as to fire precautions and fire fighting equipment relating
to the Premises or the conduct of persons using the Building or the
Development Area and to comply
12
<PAGE>
with all such reasonable regulations in this regard as the Lessor may from
time to time notify to the Lessee
3.4.2 In the event of the Premises or any part thereof being destroyed or
damaged by any of the Insured Risks give notice thereof to the Lessor as soon
as possible
3.4.3 Not leave the Premises vacant or unoccupied without first giving the
Lessor at least 28 days notice of the intention so to do and without first
paying any additional or increased premium required by the insurers and
without first providing such security as the Lessor shall require in respect
of any exclusions excesses limitations conditions or qualifications which the
insurers may impose upon the Insured Risks or the policy
3.4.4 Not do or omit to do anything or bring on to the Premises any
explosive inflammable or toxic or otherwise harmful chemicals or materials or
any other matter or thing of whatsoever nature which shall or may cause the
policy or policies for the insurance of the Premises or any adjoining or
neighbouring property to become void or voidable or any premium payable to be
increased above the ordinary or common rate
3.4.5 If the Premises or any part thereof are destroyed or damaged by any
of the Insured Risks and any insurance money shall be wholly or partly
irrecoverable by reason solely or in part of any breach by the Lessee of any
of its obligations under this Lease or by an underlessee licensee visitor or
by any person under their control the Lessee will forthwith pay to the Lessor
the amount so refused
13
<PAGE>
REPAIR
3.5.1 At its own cost from time to time and at all times during the Term
to keep the whole of the Premises including (without prejudice to the
generality of that expression) the boundary walls and drains exclusively
serving the same and the sanitary and water apparatus therein in good and
substantial repair and condition and yield up the same on the Termination
Date in good and substantial repair and condition in accordance with the
covenants by the Lessee herein contained
3.5.2 Repair cleanse and maintain and keep repaired cleansed and
maintained and free from obstruction all sewers drains and water and
waste-pipes and ducts belonging solely to or forming part of or solely
serving the Premises and keep any plumbed in sanitary or water equipment
whatsoever in or upon the Premises clean and operable and not suffer refuse
to be thrown there and keep all water pipes within the Premises reasonably
protected from frost and promptly replace all broken or cracked window glass
in the internal windows of the Premises
3.5.3 Clean the inside of all windows (including the interior of any
translucent or transparent parts of the exterior of the Building bounding the
Premises) of the Premises as often as may be necessary and at least once in
every month
INTERNAL REDECORATION
3.6 In every fifth year of the Term and in the last three months of the
Term however determined in a proper and workmanlike manner (and in the last
three months of the Term however determined in tints colours patterns and
materials to be approved by the Lessor in writing)
14
<PAGE>
3.6.1 Paint varnish treat or preserve to a high standard in accordance
with any applicable British Standard and any manufacturers instructions or
recommendations and using good quality materials in every case all the inside
wood metal plaster and other parts of the Premises and also the Lessor's
fixtures and fittings previously painted varnished treated or preserved (as
the case may be)
3.6.2 Clean and otherwise treat as appropriate those interior parts of the
Premises and the Lessor's fixtures and fittings which ought to be so treated
MAINTAIN LESSOR'S FIXTURES
3.7.1 Maintain in good and serviceable condition the Lessor's fixtures and
fittings in or upon the Premises and replace such of them as may become worn
out lost or unfit for use by substituting others of a like nature (but of no
lesser quality)
3.7.2 In addition replace all carpets and floor coverings in the Premises
as often as reasonably necessary
INSPECTION
3.8 Permit the Lessor and the Superior Lessor (or either of them) and
their respective agents or surveyors with or without workmen and others and
appliances at all reasonable times upon (save in case of emergency when no
notice shall be required) reasonable prior notice (in the case of the Lessor
the notice to be written) to enter the Premises or any part thereof:
3.8.1 To view the state and condition of the same and to give or leave on
the Premises notice in writing to the Lessee of all defects wants of
reparation and breaches of covenants then and there found for which the
Lessee is liable hereunder and within
15
<PAGE>
sixty days after every such notice or sooner if requisite Lessee shall repair
and make good the same according to notice and the covenants in that behalf
herein contained to reasonable satisfaction of the Lessor's Surveyor and the
Superior Lessor's Surveyor PROVIDED THAT if the Lessee shall fail to comply
with such notice or if the Lessee shall at any time default in the
performance of any of the covenants herein contained for or relating to the
repair decoration or maintenance of the Premises it shall be lawful (but
without prejudice to the right of re-entry and forfeiture hereinafter
contained) for the Lessor and the Superior Lessor (or either of them) their
respective agents servants and workmen to enter upon the Premises and to
carry out or cause to be carried out all or any of the works referred to in
such notice and the cost of so doing and all expenses incurred thereby
together with Interest thereon from the date of expenditure shall be paid by
the Lessee on demand
3.8.2 To take schedules or inventories of the fixtures and fittings plant
and machinery belonging to the Lessor or the Superior Lessor or to be yielded
up on the Termination Date and
3.8.3 To execute any repairs decorations or other work upon or to any
adjoining or neighbouring premises or to carry out any repairs decorations or
other work which must or may be carried out under the provisions of this
Lease upon or to any part of the Development Area or the Building or to
cleanse or empty or renew the sewers drains gutters or Conduits belonging to
the same or to construct any building or erection on the Development Area or
alteration to the Building the Lessor or the Superior Lessor (as the case may
be) doing as little damage nuisance and
16
<PAGE>
inconvenience as reasonably possible and making good all damage occasioned
thereby to the Premises as soon as reasonably possible
3.8.4 To enter upon the Premises for any purpose connected with the
interest of the Lessor or the Superior Lessor in the Premises including
(without prejudice to the generality of the foregoing) for the purpose of
valuing or disposing of any interest of the Lessor or the Superior Lessor or
doing anything which may be necessary to prevent a forfeiture of the Superior
Lease
ALTERATIONS
3.9.1 Not erect any new building or structure of any kind on the Premises
3.9.2 Not cut remove alter or damage the Premises nor make any structural
alteration addition or improvement whatsoever in or to the Premises either
internally or externally
3.9.3 Not make internal non-structural alterations to the Premises or
remove alter or damage any sanitary or water apparatus heating lighting
air-conditioning or electrical or other mechanical plant or apparatus without
the previous approval in writing of the Lessor and in accordance with plans
and specifications previously submitted to and approved in writing by the
Lessor (such approval not to be unreasonably withheld) PROVIDED ALWAYS that
the Lessor may as a condition of giving such consent require the Lessee to
enter into such covenants with the Lessor as the Lessor may require for the
execution and supervision of such works and the reinstatement of the Premises
at the expiry or sooner determination of the Term (however
17
<PAGE>
determined) and such other covenants as the Lessor may reasonably require
USER
3.10.1 Not do or allow to remain upon the Premises or any part thereof
anything which may be or become a nuisance annoyance or disturbance
inconvenience injury or damage to the Lessor or its tenants or the owners or
occupiers of the Building or of any property in the neighborhood
3.10.2 Not use the Premises or any part thereof for any noxious noisy or
offensive trade or business nor for any illegal or immoral act or purpose
3.10.3 Not discharge into any pipe (or drain serving the Premises or the
Building or any other property any oil grease or other deleterious matter or
any substance which might be or become a source of danger or injury to the
drainage system of the Building or any such other property or any part
thereof nor drain discharge or deposit any matter or substance of any nature
into the water area adjoining the Development Area
3.10.4 Not overload the lifts floors roofs or structure of the Building nor
use the Premises in any manner which will cause undue strain or interfere
therewith nor instal any machinery on the Premises which shall be unduly
noisy or cause dangerous vibrations nor use the Premises or any part thereof
in such manner as to subject the same or the Building to any strain beyond
that which it is designed to bear
3.10.5 Not attach or exhibit on the Premises any signboard or advertisement
or placard visible from the outside of the Premises save that the Lessee may
exhibit a plate or sign specifying only
18
<PAGE>
the name of the Lessee or any permitted undertenant or occupier in the form
design and position specified from time to time by the Lessor:
3.10.5.1 by the entrance to the Premises
3.10.5.2 in the areas of the Floor used in common and
3.10.5.3 in the entrance hall to the Building the Lessee removing the same on
the expiry or sooner determination of the Term and making good all resulting
damage
3.10.6 Not use the Premises for any purpose other than that stipulated in
paragraph 7 of the Particulars
OBSTRUCTIONS
3.11.1 Not park any vehicles on or obstruct or cause any obstructions to
any paths or roadways at the Development Area
3.11.2 Not damage or obstruct or cause to be damaged or obstructed or used
in such manner as to cause in the reasonable opinion of the Lessor any
nuisance damage or annoyance to the Common Area or those parts of the
Building not let or intended to be let or any part thereof
REGULATIONS
3.12 At all times perform observe and comply with the regulations
contained in the Fourth Schedule hereto and with all reasonable regulations
made by the Lessor or the Company and notified to the Lessee in writing or by
any public local or other authority from time to time for the management of
the Building the Development Area or any land water area or premises used or
to be used in common or jointly with any other person
19
<PAGE>
COMPLIANCE WITH STATUTORY ENACTMENTS
3.13.1 At all times at the Lessee's own expense observe [XX] comply in all
respects with the provisions and requirements [XX] any and every (enactment
(which expression in this covenant includes as well any and every Act of
Parliament already hereafter to be passed as any and every notice direction
ord [XX]regulation bye-law rule and condition already or hereafter to be made
under or in pursuance of or deriving effect from any such Act) or prescribed
or required by any public local or other authority so far as they relate to
or affect the Premises or the lessor or the lessee thereof or any additions
or improvements thereto or the user thereof for any purposes or the
employment therein of any person or persons or any fixtures machinery plant
or chattels for the time being affixed thereto or being thereupon or used for
the purposes thereof and in particular not to permit the aggregate permanent
occupancy level of the Premises to exceed one person per seven square metres
of Net Internal Area of the Premises
3.13.2 Execute all works and provide and maintain all arrangements which by
or under any enactment or by any Government Department Local Authority or
other Public Authority or duly authorised officer or Court of competent
jurisdiction acting under or in pursuance of any enactment are or may be
directed or required to be executed provided or maintained at any time upon
or in respect of the Premises or any additions or improvements thereto or in
respect of any user thereof or employment therein of any person or persons or
fixtures machinery plant or chattels and whether by the landlord or tenant
thereof
20
<PAGE>
3.13.3 Indemnify the Lessor at all times against all costs charges and
expenses of or incidental to the execution of any works or the provision or
maintenance of any arrangement so directed or required as aforesaid and not
at any time to do or omit or suffer to be done or omitted in or about the
Premises any act or thing by reason of which the Lessor may under any
enactment incur or have imposed upon it or become liable to pay any penalty
damages compensation cost charges or expenses
3.13.4 Within ten days of the receipt of notice of the same give full
particulars to the Lessor of any direction permission notice or order or
proposal for any such works relevant to the Premises or to the use or
condition thereof or otherwise concerning the Lessee made given or issued to
the Lessee or the occupier of the premises by any Government Department Local
or Public Authority or other competent authority
ALIENATION
3.14 Not to assign charge underlet hold or trust for another or otherwise
part with or share possession or occupation of or suffer any other person to
occupy or have an interest in the whole or any part of the Premises nor hold
or occupy the Premises as nominee trustee or agent or otherwise for the
benefit of any other person save by way of an assignment or underletting of
the whole of the Premises satisfying the relevant requirements of the Seventh
Schedule
3.14.1 The Lessee shall not waive or vary the terms of or accept a
surrender of any underlease (or agree to do so) without the Lessor's prior
written consent (such consent not to be unreasonably withheld)
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3.14.2 The Lessee shall enforce the covenants on the [ILLEGIBLE] the
underlessee and the terms and conditions contained [ILLEGIBLE] and procure
that the lessee for the time being thereupon complies with the covenants
given or which it should have [ILLEGIBLE] to the Lessor pursuant to Part II
of the Seventh Schedule and document entered into by the Lessee pursuant to
this Lease
3.14.3 Notwithstanding the earlier provisions of this [ILLEGIBLE] clause
the Lessee may share the Premises with any company which is a member of a
group of companies (as defined in Section 42 of the Landlord and Tenant Act
1954) of which the Lessee is itself a member PROVIDED THAT:
3.14.3.1 no landlord and tenant relationship or other interest in the
Premises at law or in equity is thereby created
3.14.3.2 without prejudice to the generality of Clause 3.1 hereof the Lessee
notifies the Lessor immediately of the identity of such company and the date
of commencement and cessation of their occupation of the Premises
3.14.3.3 such sharing of occupation shall immediately cease if the Lessee and
the company sharing occupation shall cease for any reason to be members of
the same group of companies
REGISTRATION
3.15 Within one month after the execution of any assignment charge
transfer or underlease or the assignment of an underlease or any transmission
by reason of a death or otherwise affecting the Premises or any part thereof
produce to and leave with the Superior Lessor and the Lessor a certified copy
of the deed instrument or other document evidencing or effecting such dealing
or transmission and on each occasion to pay to the Superior
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or and the Lessor a reasonable registration fee and procure every sub-tenancy
or sub-lease of the Premises or any part of shall contain a similar covenant
by the sub-tenants or lessee and expressed to be for the benefit of the
Lessee the Lessor and Superior Lessor
INFORMATION
3.16 Within one month of being requested so to do notify the Lessor of
the name address and relationship to the Lessee of any occupier of the
Premises
COSTS AND FEES
3.17 Pay to the Lessor all costs charges and expenses (including
solicitors' counsels' and surveyors' and other professional costs and fees)
incurred by the Lessor:
3.17.1 in or in contemplation of any proceedings relating to the Premises
under Section 146 or 147 of the Law of Property Act 1925 or the preparation
and service of notice served thereunder (whether or not any right of re-entry
or forfeiture has been waived by the Lessor or a notice served under the said
Section 146 is complied with by the Lessee (or the Lessee has been relieved
under the provisions of the said Act and notwithstanding forfeiture is
avoided otherwise than by relief granted by the Court) and keep the Lessor
fully and effectively indemnified against all costs expenses claims and
demands whatsoever in respect of the said proceedings
3.17.2 in the preparation and service of a schedule of dilapidations at any
time during or after the Term
3.17.3 in respect of any application for consent required by this Lease
whether or not such consent be granted including
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(without limitation) of any advisers instructed by the Law to consider
whether an assignee satisfies the requirements Part I of the Seventh Schedule
and in connection with representations to any independent expert appointed
there and the costs of such expert and his appointment
3.17.4 in respect of the recovery of any arrears of rent any other breach
of covenant (including but not by way limitation any costs of levying
distress or execution)
PLANNING ACTS
3.18 In relation to the Planning Acts:
3.18.1 At all times comply in all respects with the provision and
requirements of the Planning Acts and all licences consent permissions and
conditions (if any) already or hereafter to granted or imposed thereunder or
under any enactment repealed thereby so far as the same respectively relate
to or affect the Premises or any part thereof or any operations works acts or
things already or hereafter to be carried out executed done or omitted
thereon or the use thereof for any purpose
3.18.2 So often as occasion shall require at the expense in all respects of
the Lessee obtain from the Local Authority the Local Planning Authority
and/or the Secretary of State for the Environment (or other appropriate
Minister) all such licences consents and permissions (if any) as may be
required for the carrying out by the Lessee or anyone deriving title under
the Lessee (in this sub-clause 3.18 referred to as "a sub-tenant") of any
operations on the Premises or the institution or continuance by the Lessee or
a sub-tenant thereon of any use
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thereof which may constitute development within the meaning of the Planning
Acts
3.18.3 Pay and satisfy any charge that may hereafter be imposed under the
Planning Acts in respect of the carrying out or maintenance by the Lessee or
a sub-tenant of any such operation or the institution or continuance by the
Lessee or a sub-tenant of any such use as aforesaid
3.18.4 No application for planning permission shall be made without the
previous written consent of the Lessor (such consent not to be unreasonably
withheld)
3.18.5 Not carry out or make any alteration or addition to the Premises or
any change in their use before all necessary planning permissions have been
produced to the Lessor
3.18.6 Not implement any planning permission which is granted subject to
(conditions until the Lessor has approved it nor before the Lessee has
provided such security for the compliance with such conditions as the Lessor
shall require
3.18.7 At the request and under the direction of the Lessor but at the cost
of the Lessee appeal against any refusal of or condition contained in any
planning permission
3.18.8 Unless the Lessor shall otherwise direct carry out and complete in a
good and workmanlike manner before the expiry or sooner determination of the
Term:
3.18.8.1 any works stipulated to be carried out to the Premises by a date
subsequent to the expiry or sooner determination of the Term as a condition
of any planning permission granted before such expiry or determination and
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3.18.8.2 any development begun upon the Premises in respect which the Lessor
shall or may be or become liable for any change or levy under the Planning
Acts
3.18.9 If and when called upon so to do produce to the Less[ILLEGIBLE] and
its surveyors and as it may direct all such plans document and other evidence
as the Lessor may reasonably require satisfy itself that the provisions of
this covenant have been complied with in all respects
3.18.10 If the Lessee shall receive any compensation in respect of the
Lessee's interest under this Lease because of any restriction placed upon the
user of the Premises under or by virtue of the Planning Acts then on the
expiry or sooner determination of the Term howsoever determined forthwith to
make such provision as is just and equitable for the Lessor to receive the
Lessor's due benefit from such compensation
FIRE FIGHTING EQUIPMENT
3.19 Install and keep the Premises sufficiently supplied and equipped
with such fire fighting and extinguishing appliances as shall from time to
time be required by law or by the local or other competent authority and not
obstruct or permit or suffer to be obstructed the access to or means of
working such appliances or the means of escape from the Premises or the
Building in the case of fire
NOTICE OF RE-LETTING OR SALE
3.20 During the six months immediately preceding the Termination Date
permit the Lessor or its agents to affix upon any part of the Premises a
notice as to the proposed re-letting or other disposal thereof and not to
remove interfere with or
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obscure the notice board and permit intending tenants or purchasers at
reasonable times of the day to view the Premises
NOT TO PERMIT ACQUISITION OF EASEMENTS
3.21 Not stop up or obstruct any windows or light belonging to the
Premises or to any other buildings belonging to the Lessor and not permit any
new window light opening doorway path drain or encroachment or easement to be
made into against or upon the Premises and give notice to the Lessor of any
such which shall be made or attempted and come to the Lessee's notice and at
the request and cost of the Lessor adopt such means and take such steps as
may be reasonably required by the Lessor to prevent the same
TO NOTIFY LESSOR
3.22 Forthwith upon becoming aware of the same give notice in writing to
the Lessor of any defect in the state of the Premises which would or might
give rise to an obligation on the Lessor to do or refrain from doing any act
or thing in order to comply with its duty of care imposed on the Lessor
pursuant to the Defective Premises Act 1972 and indemnify and keep
indemnified the Lessor from and against any loss claims actions costs or
demands arising from a failure to give such notice and at all times to
display and maintain all notices (including the wording thereof) which the
Lessor may from time to time display or require to be displayed on the
Premises
INDEMNITY
3.23 At all times keep the Lessor indemnified against all actions
proceedings losses liabilities costs damages expenses claims and demands
arising out of or resulting from:
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3.23.1 any breach or non-observance of the Lessee's covenant contained in
this Lease
3.23.2 the existence state of repair condition or use of [the] Premises
3.23.3 works of repair construction or alteration to [the] Premises
3.23.4 any act omission or default of the Lessee or [the] Lessee's or
their respective agents employees invitees [or] licensees
NEW SURETY OR GUARANTOR
3.24 Within fourteen days of the death during the Term [of] the Surety
(if any) or any guarantor or of such person becoming bankrupt or having a
receiving order made against him or being a company having an application
made to have a Receiver or Administrator or Administrative Receiver appointed
or going into liquidation whether compulsory or voluntary to give notice in
writing to the Lessor immediately with full details and within fourteen days
of being so requested by the Lessor to procure at the expense of the Lessee
in all respects that some other person acceptable to the Lessor shall enter
into surety covenants with the Lessor in the terms set out in the Sixth
Schedule with such variations as the Lessor shall reasonably require to suit
the circumstances of each case
PLEDGING CHATTELS AS SECURITY
3.25 Not give any bill of sale or offer preferential security on the
Lessee's stock in trade or personal chattels from time to time in or upon the
Premises
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PERFORM AND OBSERVE COVENANTS
3.26 By way of indemnity only at all times observe and perform all and
singular the covenants and stipulations affecting the freehold title to the
Premises so far as they relate to the Premises and observe and comply with
the covenants and obligations (other than as to payment of rent and to
insure) on the part of the Lessor as lessee under the Superior Lease under
which it holds the Building so far as they relate to the Premises and at all
times indemnify the Lessor from and against all actions proceedings costs
claims and demands arising or which may arise out of any breach or
non-observance of any of the said covenants and stipulations insofar as they
relate to and affect the Premises
AIR-CONDITIONING
3.27 If conditioned air is supplied to any part of the Building which
includes the Premises not to prevent the free passage of such air through the
Premises by any means and in particular (but without prejudice to the
generality of the foregoing) by the obstruction of extract grilles or by the
construction of internal walls partitions doors finishings or fittings unless
the same shall have adequate apertures grilles or voids nor by the storage of
goods materials or equipment
YIELD UP
3.28 On or by the Termination Date:
3.28.1 (save to the extent that the Lessor otherwise directs in writing)
remove any additions and alterations made to the Premises and any
advertisements or signs erected on or near the
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Premises making good to the satisfaction of the Lessor all damages caused by
any such removal and the removal of lessee's fixtures
3.28.2 yield up the Premises to the Lessor together with (save as directed
by the Lessor pursuant to Clause 3.28.1) all additions and improvements and
all fixtures and fittings consistent with the full and due compliance by the
Lessee with the covenants contained in this Lease
LESSOR'S COVENANTS
4. THE Lessor HEREBY COVENANTS with the Lessee that throughout the
Term the Lessor will:
QUIET ENJOYMENT
4.1 Afford the Lessee quiet enjoyment of the Premises as against the
Lessor and all persons entitled through the Lessor
THE SUPERIOR LEASE
4.2 Pay the rent reserved by the Superior Lease under which it holds
(inter alia) the Premises and to perform the covenants on the part of the
tenant therein contained insofar as the same shall not be the obligation of
the Lessee to perform under the covenants on its part herein contained and if
reasonably required and at the expense of the Lessee to enforce the covenants
on the part of the Superior Lessor contained in the said Superior Lease
LESSOR'S INSURANCE COVENANT
4.3 Subject to the Lessee paying the whole or the appropriate
proportion of the premium as provided in this Lease insure the Building in
the name of the Lessor against loss or damage by the Insured Risks in an
insurance office or with underwriters of repute in their full reinstatement
cost (subject to such exclusions excesses limitations conditions and
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qualifications as the insurers may require) and for four years (or such
longer period as the Lessor may from time to time reasonably require) loss of
Rent and Service Charge together in each case with Value Added Tax if the
Lessor so determines in its absolute discretion and in case of destruction or
damage by any Insured Risk (save where any insurance money shall be wholly or
partly irrecoverable by reason solely or in part of any breach by the Lessee
any underlessee or any person under their respective control of any of its
obligations under this Lease) to apply all policy money received under or by
virtue of any such insurance (other than for loss of Rent Service Charge and
professional and other fees) in rebuilding or reinstating the Building to
provide accommodation reasonably comparable to that afforded by the Premises
prior to such destruction or damage (but the Lessor shall not be obliged to
rebuild or reinstate the Premises in accordance with the previous sections
elevations and specifications) and all the terms of this Lease shall apply to
such accommodation (the parties making such variations to the terms of this
Lease as the Lessor shall reasonably require to give effect to this
provision) PROVIDED THAT:
4.3.1 If any national or local or public or other authority shall refuse
permission or otherwise prevent such rebuilding or reinstatement all
insurance money shall be the absolute property of the Lessor
4.3.2 If the Premises are destroyed or so seriously damaged by any
Insured Risk as to require (in the opinion of the Lessor's surveyor whose
decision shall be final and binding upon the parties) substantial
reconstruction then the Lessor may at any
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time within six months after such damage or destruction give to the Lessee
six months notice in writing to determine this Lease and immediately upon the
expiry of that notice this demise shall determine but without prejudice to
the rights and remedies of any party against any other in respect of any
antecedent claim or breach of covenant and all insurance money shall be the
absolute property of the Lessor
PROVISION OF SERVICES
4.4 Unless prevented by break down or circumstances beyond his
reasonable control provide the services to the Building as follows:
4.4.1 The repair renewal maintenance cleansing decoration furnishing
supervision and management as and when the Lessor shall consider necessary of
the foundations roofs outside walls and structural parts of the Building and
the glass in the outside walls of the Building (but not including those items
specified in the First Schedule as being included with the Premises or the
like items of any other premises in the Building let or intended to be let by
the Lessor) and of any parts of the Building not let or intended to be let
4.4.2 The lighting of such parts of the Building not let or intended to
be let as require lighting
4.4.3 The provision of an adequate supply of hot and cold water in the
toilets in the Building
4.4.4 The provision in the period commencing on the 1 October in each
year and ending on the 30 April in the following year and at such other times
as the Lessor may decide of reasonable
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heating for the interior of the Building by means of the central
heating system installed
4.4.5 The provision of reasonable air conditioning to the interior of the
Building by means of the air conditioning systems installed
4.4.6 The provision of a passenger and goods lift in the Building
4.4.7 Such other services as the Lessor may from time to time in his
absolute discretion decide to provide for the general benefit of all or
substantially all of the occupiers of the Building PROVIDED THAT:
4.4.7.1 The Lessor shall be entitled to make such alterations as the Lessor
thinks fit to any of the parts of the Building not let or intended to be let
including if the Lessor thinks fit the installation of lifts heating
air-conditioning plant or equipment of a different type and to suspend the
service of a lift or heating or air-conditioning while the work of alteration
or installation is being carried out
4.4.7.2 Without prejudice to the rights of the Lessor to provide other
services or to make alterations to parts of the Building as stated above the
Lessor may at any time during the Term add to vary or discontinue any of the
services specified in or provided pursuant to this Clause 4 if in the opinion
of the Lessor's Surveyor (acting as an expert) the intended addition
variation or discontinuance is in compliance with the principles of good
estate management as understood and applied and is otherwise reasonable
having regard to the circumstances relevant to the Building at such date The
provisions of this present
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proviso shall also include any adjustment in the services which may
previously have been made pursuant to the same
RENT REVIEW
DEFINITIONS
5.1 IN this Clause the following expressions shall have the following
meanings respectively:
"New Rent" shall mean the higher of the Rent payable
immediately prior to the relevant Review
Date (disregarding any suspension of
payment of the whole or any part of the
Rent as provided in this Lease) and the
Open Market Rent of the Premises on the relevant
Review Date
"the President" shall mean the President for the time being of
The Royal Institution of Chartered Surveyors or
if none the Vice-President
"Review Date" shall mean the date or dates specified in
paragraph 8 of the Particulars
"the Surveyor" shall mean an independent surveyor agreed
upon or appointed in accordance with clause
5.3.2
"Excess" shall mean the amount by which the New Rent
exceeds the yearly Rent previously payable
"Open Market Rent" shall mean the yearly rent without any deduction
whatever at which the Premises could reasonably
be expected to be let in
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the open market at the relevant Review Date
without a fine or premium by a willing landlord
to a willing tenant under a lease for a term
equal in length to the whole of the Term but as
though the date of commencement of the Term were
on each occasion the relevant Review Date and on
the same terms and conditions in all other
respects as this present Lease (other than the
amount of Rent but including these provisions
for review)
5.1.1 and upon the assumption (if not a fact) that:
5.1.1.1 the Building is in good and substantial repair and is fit for
immediate beneficial occupation and use and that the Lessor and the Lessee
have complied with all their respective obligations under this Lease
5.1.1.2 if the Building or any access or amenity have been damaged or
destroyed it has or they have been fully reinstated
5.1.1.3 The Premises are available To be let with vacant possession
5.1.1.4 the willing tenant would commence paying rent immediately on and
from the relevant Review Date and that such rent would not be discounted in
any way to reflect the absence of any rent concession or other benefit then
being offered by landlords to tenants on the grant of leases in the open
market of premises comparable with the Premises
5.1.1.5 no work has been carried out either on the Premises by the Lessee
or any sub-lessee or their respective predecessors in
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title or on any adjoining or neighbouring property during the Term which has
diminished the rental value of the Premises
5.1.1.6 all requisite consents and permissions have been given
unconditionally to permit the Premises to be used as high class offices (and
that no capital expenditure is required to be made on the Premises to enable
them to be so used)
5.1.2 there being disregarded any effect on Rent of:
5.1.2.1 the fact that the Lessee or any sub-lessee or their respective
predecessors in title have been in occupation of the Premises
5.1.2.2 any goodwill attaching to the Premises by reason of the Lessee or
any sub-lessee or their respective predecessors in title carrying on any
business or businesses at the Premises
5.1.2.3 any improvements carried out at any time with the Lessor's consent
by the Lessee or any sub-lessee or their respective predecessors in title at
the expense of the Lessee or any sub-lessee or their respective predecessors
in title otherwise than in pursuance of any obligation to the Lessor or its
predecessors in title
5.1.2.4 any law for the time being in force which imposes a restraint upon
receiving an increase in the Rent
5.1.2.5 the fact that the Lessor may have insured against loss of Rent in
any particular sum whether equal to or in excess of the Rent payable prior to
the relevant Review Date
PAYMENT OF NEW RENT
5.2 The New Rent shall be payable from and including each Review Date
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DETERMINATION OF THE NEW RENT
5.3.1 The New Rent from the relevant Review Date may be agreed at any time
between the Lessor and the Lessee but if no agreement as to the amount of the
New Rent from the relevant Review Date shall have been reached between the
Lessor and the Lessee three months prior to the relevant Review Date then
either the Lessor or the Lessee may by notice to the other require the
determination of the amount of the New Rent at the relevant Review Date by
the Surveyor
5.3.2 The Surveyor shall be agreed upon by the Lessor and the Lessee or
(in default of agreement) appointed on the application of either of them by
or on behalf of the President and shall act as an arbitrator pursuant to the
provisions of the Arbitration Acts 1950 to 1979 (unless the Lessor shall by
notice to both the Lessee and the Surveyor within 21 days of receipt of
notice of appointment of the Surveyor elect that the Surveyor shall act as an
expert valuer)
5.3.3 The Surveyor shall give notice to the Lessor and to the Lessee of
his appointment and shall (if acting as an expert valuer) invite each of them
to submit within four weeks a valuation accompanied by a statement of reasons
5.3.4 If the Surveyor shall fail to determine the New Rent at the relevant
Review Date and give notice to the parties of his determination within two
months of his appointment or if he shall die or become unwilling to act or
incapable of acting for any other reason the Lessor may apply to the
President for a substitute to be appointed in his place which
procedure may be repeated as often as necessary
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5.3.5 The fees of the Surveyor shall be in his award but otherwise shall
be shared equally between the Lessor and the Lessee (and if the Lessee shall
fail to pay on demand any part of those fees which the Lessee is due to pay
they may be paid by the Lessor and shall be recoverable by the Lessor as rent
in arrear)
ARREARS AND INTEREST
5.4 If upon any review of Rent the amount of the New Rent shall not be
agreed or determined prior to the relevant Review Date the Lessee shall
continue to pay Rent at the rate payable immediately prior to that Review
Date until the quarter day next following the agreement or determination of
the New Rent whereupon any Excess shall be due as a debt payable by the
Lessee to the Lessor apportioned on a daily basis from the relevant Review
Date together with Interest on the Excess from the relevant Review Date until
the date of payment of the Excess
RENT REVIEW MEMORANDUM
5.5 If upon any such review it shall be agreed or determined that the
Rent previously payable under this Lease shall be increased the Lessor and
the Lessee shall immediately complete and sign a written memorandum at the
expense of the Lessee recording the New Rent payable from the relevant Review
Date
BINDING NATURE OF SURVEYOR'S DETERMINATION
5.6 If the Surveyor is acting as an expert valuer his determination of the
New Rent shall be final and binding on the parties
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STATUTORY OBLIGATIONS
5.7 If on any Review Date there shall be in force any statute which shall
restrict interfere with or affect the Lessor's right to review the Rent in
accordance with the terms of this Lease or receive any increase in Rent
following such review the Lessor shall be entitled following the repeal or
modification of that statute to require a review of the Rent in accordance
with the terms of this Lease as though the date of the repeal or modification
of that statute had been specified in this Lease as an additional Review Date
TIME
5.8 Time shall not be of the essence in relation to the review of the
Rent or the service of notices in connection with such review
RIGHTS OF OTHERS
5.9 No Surety guarantor or any predecessor in title of the Lessee shall
have any right to take part in the agreement or determination of the New Rent
upon review
SERVICE CHARGE PAYMENT
AMOUNT PAYABLE
6.1 THE Lessee covenants (in addition to its covenant with the Lessor
contained in Clause 3.1 hereof) with the Lessor to pay to the Lessor the
Service charge which shall be:
6.1.1 (in the case of the Services detailed in Part I of the Fifth
Schedule) such fair and reasonable proportion of the total yearly cost of
the Services attributable to the Premises as shall be determined by the
Lessor (whose determination shall be binding) from time to time and
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6.1.2 (in the case of the Services detailed in Part II of the Fifth
Schedule) such fair and reasonable proportion of the total yearly cost of the
Services attributable to the Floor as shall be determined by the Lessor
(whose determination shall be binding) from time to time including the
management and administrative costs (including professional fees properly and
reasonably incurred by the Lessor) in carrying out and supervising down to
the 31 day of December in each year of the Term
PAYMENT ON ACCOUNT
6.2 On the date hereof the Lessee shall pay on account of the Service
Charge from 19 October 1996 down to the First Anniversary the Initial Service
Charge at the rate specified in paragraph 6 of the Particulars and
thereafter the Lessee shall pay such sums on account of the Service Charge as
hereinafter provided
ESTIMATES AND CALCULATIONS
6.3.1 As soon as reasonably possible after the beginning of each calendar
year of the Term following the First Anniversary the Lessor shall supply the
Lessee with a copy of the Lessor's Surveyor's written reasonable estimate of
the amount of the Service Charge for that calendar year and the Lessee shall
pay that amount to the Lessor on account of the Service Charge by four equal
instalments payable in advance on the usual quarter days
6.3.2 During the course of each calendar year of the Term the Lessor may
from time to time review the said payments on account for that calendar year
so as to take into account any actual or
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anticipated increase in any item of expenditure so as to keep to a minimum
any possible disparity between the said payments on account and the Service
Charge and if such revision shall be made the Lessor shall as soon as
practicable thereafter certify to the Lessee the said revised payment
6.3.3 About the First Anniversary and about the end of each subsequent
calendar year of the Term the Lessor shall promptly calculate and inform the
Lessee of the Service Charge payable for that year and any underpayment on
account of the Service Charge shall thereupon be paid by the Lessee and any
overpayment shall be deducted from the amount next payable by the Lessee on
account of the Service Charge PROVIDED THAT any overpayment to which the
Lessee may be entitled at the termination of the Term shall be repaid to the
Lessee forthwith but subject to any lien therein vested in the Lessor
6.3.4 If the Lessor fails to supply the Lessee with the written estimate
in accordance with sub-clause 6.3.1 of this clause then until it is so
supplied the Lessee shall make quarterly payments equal to that most
recently payable thereunder on account of the Service Charge any overall
difference being adjusted in accordance with the preceding sub-clause or
whenever the Lessor requires
6.3.5 For the avoidance of doubt it is agreed and declared that the
Service Charge may include such reasonable provision as the Lessor's Surveyor
may fix on account of the future cost of the Services
6.3.6 The Lessor shall use all reasonable endeavors to keep a proper
account (with vouchers so far as reasonably possible)
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of its income and expenditure in each calendar year in respect of the
Services and shall if reasonably required make the same available for
inspection by the Lessee and such account shall (save in case of manifest
error) be prima facie evidence of all matters recorded therein
NO DISPUTE
6.4 Without prejudice to the preceding provisions of this Clause 6 the
Lessee shall not question any item of expenditure hereunder on the ground
that it need not have been incurred on the ground that it need not have been
incurred in a particular calendar year or could have been provided more
economically
MISCELLANEOUS
7. THE following conditions shall apply:
RE-ENTRY
7.1.1 If the rents reserved or any other sums made payable by this lease
or any part of such rents or other sums shall respectively be in arrear for
fourteen days after the same shall become due (whether legally demanded or
not) or
7.1.2 If there is any breach or non-observance of any of the covenants
on the part of the Lessee herein contained or
7.1.3 If any execution or distress is levied upon any asset of the Lessee
and is not discharged within fourteen days or
7.1.4 If the Lessee or any surety or guarantor for the Lessee (being a
corporation) shall enter into liquidation whether compulsory or voluntary (not
being merely a voluntary liquidation whilst solvent for the purpose of
reconstruction) or if an application is made for the appointment of a
Receiver or
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Administrator or Administrative Receiver of all or any part of the property
of the Lessee or the Surety or
7.1.5 If the Lessee or any surety or guarantor for the Lessee (being an
individual or individuals) shall enter into any composition with their
respective creditors or commit any act of bankruptcy or be adjudicated
bankrupt
THEN and in any such case it shall be lawful for the Lessor and any
persons authorised by the Lessor to re-enter into and upon the Premises
whereupon this demise shall immediately determine but without prejudice to
any rights or remedies which may then have accrued to the Lessor in respect
of the non-payment of the rents reserved or other sums made payable by this
Lease or any breach or non-observance or non-performance of any of the
covenants conditions and agreements contained in this Lease
RENT ABATEMENT
7.2 If the Premises at any time during the Term shall be damaged or
destroyed by any Insured Risk so as to be unfit for occupation and use then
so long as the policy or policies of insurance for the time being in force
shall not have been vitiated or payment of the policy money withheld or
refused in whole or in part by reason of any act or omission of the Lessee
or any underlessee or any person under their respective control the Rent and
the Service Charge of a fair proportion of them according to the nature and
extent of the damage sustained shall be suspended until the Premises shall
again be rendered fit for occupation and use or until the money received by
the Lessor in respect of loss of rent and service charge insurance shall have
been exhausted whichever period shall be the shorter and any
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dispute between the parties concerning this provision shall be referred to an
independent arbitrator agreed between the parties or (in default of agreement)
appointed on the application of either party by the President for the time being
of The Royal Institution of Chartered Surveyors (or if none the Vice-President)
such arbitrator to act as an arbitrator pursuant to the provisions of the
Arbitration Acts 1950 to 1979 and the fees of such arbitrator to be in his
award but otherwise shall be shared equally between the Lessor and the Lessee
EXCLUSION OF LIABILITY
7.3.1 Notwithstanding anything contained in this Lease this Lessor shall
not be liable to the Lessee or the Lessee's underlessees agents servants
invitees licensees or others for any injury accident loss damage or
inconvenience which may at any time during the Term be done occasioned or
suffered to or by any such person or to be Premises or any property on the
Premises by reason of any act or omission of the Lessor or anyone claiming
through under or in trust for the Lessor or any of the Lessor's servants
agents or workmen or by reason of or in consequence of any interruption in
the provision of Utilities or any defect in or the defective working stoppage
or breakage of any apparatus or Conduits in the Premises the Building or in
the Development Area or the defective state and condition of the Premises the
Building or the Lessor's adjoining property and neither shall the Lessor be
liable for any injury suffered or damage to or loss of any chattel or
property sustained on the Premises the Building or the Development Area
(including any car-parking areas) and the Lessee will indemnify the Lessor in
respect of any claim made
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against the Lessor by any such person or the owner of any such chattels or
property
7.3.2 The Lessor shall not be liable to the Lessee in respect of any
failure by the Lessor to perform any of the Lessor's obligations to the
Lessee in this Lease (with the exception only of the Lessor's covenant to
insure) unless and until the Lessee has notified the Lessor in writing of the
facts giving rise to such failure and the Lessor has failed within a
reasonable period to remedy the same nor shall the Lessor be liable to
compensate the Lessee for any loss or damage sustained by the Lessee before
such reasonable period has elapsed
7.3.3 The Lessor shall not be liable to the Lessee in respect of any act
or omission of whatsoever nature save as expressly provided in this Lease
NOTICES
7.4 Any notice served under or in connection with this Lease shall be
served by registered or recorded delivery post to the Registered Office or
Head Office for the time being of the Lessor or the Lessee or the Surety (if
any) addressed to the Secretary thereof or if the Lessor or the Lessee or the
Surety be an individual to that individual's last address in Great Britain
notified to the Lessor in writing and if the expression "the Lessee" or "the
Lessor" or "the Surety" includes more than one person a notice served on any
one of such persons shall be deemed to have been properly served on all persons
or legal entities constituting the Lessee or the Lessor or the Surety
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SECTION 37 LTA
7.5 Subject to the provisions of sub-section (2) of Section 38 of the
Landlord and Tenant Act 1954 neither the Lessee nor any assignee or
underlessee of the Term or of the Premises shall be entitled on quitting the
Premises to any compensation under Section 37 of that Act to the intent that
any existing and future statutory right of the Lessee to claim compensation
from the Lessor on vacating the Premises is excluded to the extent permitted
by law
EASEMENTS AND RIGHTS ENJOYED IN COMMON
7.6 Unless otherwise specified the easements and rights mentioned in
the Second and Third Schedules are respectively to be enjoyed by the Lessee
(and all persons authorised by the Lessee) and the Lessor (and all persons
authorised by the Lessor) in common with all others entitled or to become
entitled to like easements and rights whether expressly or by operation of
law including (but not by way of limitation) any adjoining tenant or lessee
of the Lessor PROVIDED ALWAYS that the easements and rights set out in the
Second Schedule hereto may be varied from time to time by the Lessor as and
for as long as the Lessor may deem necessary provided that the use and
enjoyment of the Premises by the Lessee or any underlessee shall not thereby
be materially adversely affected AND PROVIDED FURTHER THAT nothing contained
or referred to in this Lease shall operate either expressly or impliedly
to grant or confer upon the Lessee the benefit of any easement right or
privilege save only as expressly granted to or conferred upon the Lessee in
the Second Schedule
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INTEREST ON OVERDUE MONIES
7.7 If any monies due hereunder are unpaid for fourteen days after the
date on which they are payable of if any other sums payable by the Lessee to
the Lessor under this Lease shall not be paid within fourteen days of written
demand then (but without prejudice to any other right or remedy of the
Lessor) the same shall be payable with Interest thereon (as well after as
before any judgement) calculated on a day-to-day basis from the date upon
which the same became payable down to the date of actual receipt
LESSOR'S POWER OF DEALING
7.8 Notwithstanding anything herein contained the Lessor and the
Superior Lessor and all persons duly authorised by them shall have power
without obtaining any consent from or making any compensation to the Lessee
to deal as it or they may think fit with the Building or any of the lands
buildings or parts of buildings and hereditaments adjacent adjoining or near
to the Premises or any part thereof whether or not forming part of the
Development Area and to erect or suffer to be erected thereon or on any part
thereof any buildings whatsoever and to make any alterations erections or
additions and carry out any demolition building or rebuilding whatsoever
which it or they may think fit or desire to do to such land or buildings or
any part or parts thereof in such manner as the Superior Lessor or the Lessor
thinks fit whether such buildings alterations or additions shall or shall not
affect or diminish the light or air which may now or at any time during the
Term be enjoyed by the Lessee or the tenants or occupiers of the Premises and
so that any light or air
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or other easements rights or amenities (other than those expressly granted
hereby) at any time enjoyed in respect of the Premises or any part thereof
which might otherwise interfere with the rights of the Superior Lessor or the
Lessor or of any neighbouring owner or occupier under this provision shall be
deemed to have been and to be enjoyed by consent and the Lessee shall not at
any time during the Term or thereafter raise or make any complaint or
institute or take any proceedings whatsoever whether by way of injunction or
for damage or otherwise against the Lessor or any neighbouring owner or
occupier by reason or in consequence of any noise disturbance annoyance or
inconvenience occasioned by any such erection rebuilding alteration or user
as aforesaid
REGULATIONS
7.9 Without prejudice to the Lessee's right under this Lease the Lessor
may at any time during the Term in the interests of good estate management
impose such reasonable regulations of general application regarding the
Building the Development Area or the Premises as it may in its absolute
discretion think fit in addition to or in place of the regulations set out in
the Fourth Schedule hereto and shall supply the Lessee with a copy thereof
PERMITTING AND SUFFERING
7.10 Every covenant by the Lessee herein and every other provision
hereof that the Lessee will not do or omit to be done or allow any act matter
or thing is deemed to be a covenant or (as the case may require) a provision
that the Lessee will not permit or suffer the doing or (as the case may
require) the
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omission or allowance thereof and every reference herein (whether expressed
or implied) to a consequence of the Lessee having done or having omitted to
do or having allowed any act matter or thing is deemed to be a reference
extending the consequence to any act omission or allowance of or by the
Lessee's employees servants agents licensees and invitees and any person
claiming under the Lessee and that person's employees servants agents
licensees and invitees or any of them
SUPERIOR LEASES
7.11.1 The powers rights matters and discretions granted and reserved to
the Lessor under this Lease shall also be granted and reserved to or
exercisable by any Superior Lessor its servants agents and workmen to the
extent required by any superior lease
7.11.2 The Lessor shall be entitled to withhold its approval or consent in
any instance where any Superior Lessor's consent is required and where such
approval or consent is applied for and is not given
LESSOR AS LESSEE'S AGENT
7.12 The Lessee irrevocably appoints the Lessor to be the Lessee's agent
to store and/or dispose of any effects left by the Lessee on the Premises for
more than 7 days after the expiry or sooner determination of the Term on any
terms which the Lessor thinks fit without the Lessor being liable to the
Lessee save to account for the net proceeds of sale less the cost of storage
(if any) and any other expenses reasonably incurred by the Lessor
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DISTRESS
7.13 All sums due and payable hereunder shall be recoverable if the
Lessor so wishes by distress as if the same formed part of the rents reserved
under this Lease
SET-OFFS
7.14 The Lessee waives any and all existing and future counterclaims and
set-offs against any payments due to the Lessor under this Lease and agrees
to make all such payments in full irrespective of any equity or set-off or
counterclaim of the Lessee of any nature
7.15 The Lessee's option to determine if the Lessee wishes to determine
this Lease on 25 December 2001 it shall give the Lessor not less than twelve
months written notice thereof expiring on 25 December 2001 then providing
always that it has paid the rent and observed the covenants on its part
contained herein and on the said 24 December 2001 vacant possession of the
Premises is given to the Lessor upon expiry of such notice the Term shall
immediately cease and determine but without prejudice to the respective
rights of either party in respect of any antecedent claim or breach of
covenant hereunder
RELEASE OF LESSOR
7.16 Each of the Lessee and its successors in title hereby releases each
person now or hereafter included in or comprising the landlord from liability
for any breach of the Lessor's obligations in this Lease or any collateral
agreement occurring while that person is not the Lessee's immediate Lessor
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LESSEE'S OPTION TO DETERMINE
7.17 If the Lessee wishes to determine this Lease on the 25 December
2001 then providing always that it has paid the rents reserved hereunder for
and on behalf of Dockways Limited up to that date and has given the Lessor
not less than six months prior written notice of its intention to determine
to expire no later than 25 December 2001 and provided that on such date the
Lessee hands back to the Lessor the Premises with vacant possession then the
Term shall immediately cease and determine but without prejudice to the
respective rights of either party in respect of any antecedent claim or
breach of covenant hereunder
GOVERNING LAW AND JURISDICTION
7.18 This Lease shall be governed by and construed in accordance with
the laws of England and Wales
7.18.1 The parties hereto (which expression in this Clause includes their
respective successors in title and in the case of an individual his personal
representatives) hereby confer jurisdiction on the High Court of Justice of
England and Wales (hereinafter called "the High Court") to settle all
disputes which may arise in relation to this Lease or the Premises (other
than any which under the terms hereof are to be submitted for determination
to arbitration or to an independent expert or other person but including
where possible any appeal from the determination of any dispute so submitted)
7.18.2 In accordance with Article 17 thereof Clause 7.18.1 does not apply
to any:
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7.18.2.1 any dispute which is or proceedings which (if instituted) would be
subject to exclusive jurisdiction under Article 16 of the 1968 Convention as
defined in the civil Jurisdiction and Judgments Act 1982 (hereinafter called
"the 1982 Act") or (when Section 3A of the 1982 Act is brought into force)
the Lugano Convention (as defined in the 1982 Act) as (in both cases) from
time to time amended and in force in England and Wales
7.18.2.2 any other dispute or proceedings in relation to which the parties
shall be otherwise prohibited by the laws of England and Wales from
conferring jurisdiction on the High Court
SURETY
8. THE Surety (if any) covenants and agrees with the Lessor in the
terms set out in the Sixth Schedule
IN WITNESS whereof this Deed and a Counterpart of it have been executed by
the parties and were delivered on the date appearing as the date of this Deed
THE FIRST SCHEDULE
(The Premises)
That part of the Building on the ninth floor shown (for the purposes of
identification only) edged red on Plan C comprising at the date of this Lease
3816 square feet net including:
1. The inner surfaces and interior decorative finishes of walls
stanchions and columns which are exterior structural or load-bearing walls of
the Building and their stanchions or load-bearing columns (but not other
parts of such walls stanchions or columns)
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2. The floor finishes applied to any floor slab below or within the
Premises and the ceilings and other finishes applied to the underside of any
floor slab above or within the Premises but not the remainder of such floor
slabs
3. The inner half severed medially of internal nonstructural or
non-load bearing walls dividing the Premises from other parts of the Building
and the whole of all non-structural non-load bearing walls or partitions
wholly within the Premises
4. Internal windows and window frames doors and door frames and the
glass therein in each case but not any translucent or transparent material
forming part of the exterior of the Building
5. All additions alterations and improvements to the Premises
6. All Landlord's fixtures and fittings in or upon the Premises
whether or not installed at the date hereof
7. Any Conduits exclusively serving the Premises
THE SECOND SCHEDULE
(Easements and rights in favour of the Lessee included in this Lease)
1. SUBJECT always to the right of the Company without being liable to
the Lessee in any way to prevent use of any such roadways entrances or
accessways or parking spaces for so long as and as may be reasonably
necessary to enable the Company to comply with its covenants pursuant to the
HEMCO Deed or to exercise its rights or so as to prevent any rights arising
by prescription or dedication:
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1.1 The right in common with the Lessor the Superior Lessor and all
others entitled to like right to use
1.1.1 with or without vehicles the roadway shown coloured blue and
hatched blue on Plan A for the purpose of gaining access to and egress from
the Building
1.1.2 on foot only the footpath shown coloured purple and hatched purple
and the podium area shown coloured green and hatched green and coloured
yellow and hatched yellow and the area shown coloured pink and hatched pink
and hatched pink on Plan A for the purpose only of gaining access to and
egress from the Building
1.2 The right to use with or without vehicles the roadways and
accessways in the Common Areas for the purpose only of gaining access to and
egress from the Building
1.3 The right to pass and repass on foot only over and along the
courtyards footpaths stairways and emergency escapes forming part of the
Common Areas
1.4 The right for the Lessee its servants agents and visitors in common
with the Lessor and those authorised by it and all others having the same
right to pass and repass at all times and for all purposes with or without
vehicles over the road connecting the Development Area with the nearest
public highway until the said road shall be adopted by the highway authority
and shall become maintainable at the public expense for the purpose of access
to or egress from the Building provided that the Superior Lessor shall be
entitled from time to time to stop up or to re-locate the situation of such
road on condition that there shall remain or [ILLEGIBLE] Superior Lessor
shall provide
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alternative means of access to the Building not materially less convenient
than the existing road
2. The right in common with the Lessor and its tenants and occupiers
of the Building to pass and repass on foot only over and along the entrance
halls staircases landings and corridors of the Building and a right to use
(when working) the passenger and goods lifts in the Building
3. The right to use the toilets on the same floor of the Building as
the Premises
4. The right to place only refuse waste or rubbish originating from the
Premises in the refuse bins (if any) in the Building
5. The right to the free and uninterrupted passage of the Utilities to
and from the Premises through the Conduits which now are or may at any time
during the Term (or during the period of 80 years from the date hereof if
shorter which period shall be the perpetuity period applicable to this right)
be serving the Premises together with the right to maintain repair and renew
the same and the right at any time but (except in emergency) after giving
prior notice in writing to enter (or in emergency or after the giving of
reasonable notice (being not less than 21 days) in the absence of the Lessor
or the relevant tenant or occupier (as the case may be) to break and enter)
any other part of the Building the person exercising such rights causing as
little damage as is reasonable and making good as soon as reasonably possible
any damage caused to the Building and Provided further that the exercise of
such rights shall in no way overload the Conduits
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6. The right of support protection and shelter from the Building as
now enjoyed
THE THIRD SCHEDULE
PART I
(Easements and rights that are excepted from this Lease)
1. The following rights and easements are excepted and reserved out of
the Premises unto the Lessor and the Superior Lessor and their tenants and
the occupiers of any adjoining or neighbouring land and/or premises and all
other persons authorised by the Lessor or by such tenants and occupiers or
having the like rights and easements:
1.1 The right of free and uninterrupted passage of foul and surface
water drainage electricity electronic impulses gas water telephone heating
ventilation air-conditioning the passage of smoke and fumes and all utilities
services and facilities through the Conduits which are now or may at any time
during the Term (or during the period of eighty years from the date hereof if
shorter) be in on under or passing through or over the Premises with the
right to construct and maintain new services and alter divert and connect
with existing services for the benefit of any adjacent or nearby premises the
right to repair maintain and renew such existing and new services and the
right at any time but (except in emergency) after giving reasonable prior
notice to enter (or in an emergency or after the giving of reasonable notice
in the Lessee's absence to break and enter) the Premises in the case of such
rights the person exercising such right causing as little damage as is
reasonable and making good as soon
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as reasonably possible any damage caused to the Premises and (in the case of
the Lessor and persons authorised by it) acting with all reasonable
expedition throughout
1.2 The right at any time but (except in an emergency) after giving
reasonable prior notice to enter (or in an emergency or after the giving of
reasonable prior notice (being not less than 21 days) during the Lessee's
absence to break and enter) and remain upon the Premises with any plant
equipment and materials in order to:
1.2.1 inspect or view the condition of the Premises
1.2.2 carry out work upon any adjacent premises
1.2.3 carry out any repairs or other work which the Lessor or Superior
Lessor must or may carry out under the provisions of this Lease or to do any
other thing which under the said provisions the Lessor may do subject (in the
case of the Lessor or the Superior Lessor) to the person entering forthwith
making good all damage occasioned to the Premises by the exercise of such
right
1.3 The right to deal in any manner whatsoever with any of the land
belonging to the Lessor or the Superior Lessor adjoining opposite or near to
the Premises including other parts of the Building and to erect maintain
rebuild or alter or suffer to be erected maintained rebuilt or altered on
such adjoining opposite or neighbouring lands or other parts of the Building
any buildings or structures whatsoever whether such buildings shall or shall
not affect or diminish the light or air which may now or at any time
hereafter be enjoyed for or in respect of the Premises or any building for
the time being thereon
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2. The right of support shelter and protection from the Premises for
the rest of the Building
PART II
1. The rights and privileges reserved over in or under the Premises
pursuant to the provisions of an Agreement dated November 1982 and made
between the Superior Lessor (1) and the Port of London Authority (2)
2. The provisions of a Transfer Deed dated 4 November 1982 made
between the Port of London Authority (1) and the Superior Lessor (2)
THE FOURTH SCHEDULE
(Regulations)
1. All refuse shall be kept in a suitable container and shall be taken
not less than once a day in sacks to the area designated from time to time by
the Lessor for the storage of refuse
2. No rubbish or waste materials paper wood and other combustible
matter shall be burnt in or about the Premises or the Building
3. No smoke or fumes or noxious smells shall be emitted from the
Premises so as to cause in the reasonable opinion of the Lessor or the
Superior Lessor or their respective surveyors annoyance or interference with
the proper equipment or the Building adjoining premises of the Lessor and the
Superior Lessor [ILLEGIBLE] of the premises adjoining or near the Development
Area
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4. No use of industrial machinery engines and equipment so as to cause
excessive noise vibration or dust and any such use which in the reasonable
opinion of the Lessor's or the Superior Lessor's surveyor is causing
annoyance to adjoining tenants of the Lessor or the Superior Lessor or to the
occupiers of the Building or in the vicinity shall be abated immediately upon
notice
5. No mechanically operated vehicles cycles hand trucks or trailers
shall be parked or left unattended outside areas properly reserved for such
parking or in such manner as to obstruct roadways on the Development Area or
so as to prevent ingress and egress of fire fighting equipment round the
curtilage of the Building
6. No off-loading of vehicles except within the curtilage of the areas
designated for that purpose
7. No storage of inflammable materials explosives substances or
liquids except in proper containers or receptacles in accordance with
regulations enforced by a competent authority and in any event not abutting
any boundary or other adjoining property of the Lessor or the Superior Lessor
8. Traffic Regulations as shown by road signs or as advised to the
Lessee from time to time by the Lessor or the Company must be observed
including parking and speed limits No vehicle belonging to the Lessee or any
visitor of the Lessee shall be driven on the Development Area except by a
person holding a valid driving licence permitting him to drive that vehicle
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9. All vehicles on the Development Area and the Car Park are at the
owner's risk and neither the Lessor nor the Superior Lessor will be liable
for damage or theft or any other hazard
10. No repairing testing or washing of vehicles on the Development Area
or in the Car Park save that vehicles may be washed in the area (if
any) designated for that purpose by the Lessor
11. No obstruction shall be caused in any part of the Building and in
particular all delivery or despatch and all loading or unloading of goods
shall be from the area hatched blue on Plan A to the goods entrance of the
Building
12. No loud speaker television sets radios or other devices shall be
used in a manner so as to be heard outside the Premises or so as to cause
interference with any equipment outside the Premises
13. Conduits and all plumbing facilities shall not be used for any
other purpose than that for which they are intended and no foreign substance
of any kind shall be placed therein
14. The Lessee will keep clean and free from obstruction all conduits
in the Premises including but without prejudice to the generality thereof the
air conditioning and heating ducts and flues
15. The passenger lifts shall not be used for the conveyance of goods
nor by building operatives
16. The Lessee will not instal any curtains blinds or screens at or
over any transparent or translucent parts of exterior walls bounding the
Premises
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17. The Lessee will not store or place any items against any
transparent or translucent parts of exterior walls bounding the Premises so
as to present (in the opinion of the Lessor) an unsightly appearance when
viewed from the exterior
THE FIFTH SCHEDULE
(Expenditure to be taken into account in computing the Service Charge)
PART I
1. All costs and expenses whatsoever incurred by the Lessor in and
about the provision from time to time of services in to or for the benefit of
the Building which without prejudice to such generality shall include those
under the following heads:
1.1 The cost of and incidental to compliance by the Lessor with every
notice regulation requirement or order of any competent local or other
authority or any Act of Parliament in respect of the Building
1.2 The cost of periodically inspecting making renewing repairing
maintaining decorating or otherwise treating rebuilding replacing and
keeping free from and remedying all defects whatsoever and cleaning the main
structure and exterior of the Building (including the roof and foundations)
and of all parts of the Building not let or intended to be let and other
conveniences which may belong to or be used for the Building along or in
common with other premises near or adjoining including any amounts which the
Lessor may be called upon to pay as a contribution towards such costs
1.3 The cost of providing operating periodically inspecting maintaining
in proper working order overhauling repairing
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renewing and replacing in whole or in part the heating and/or ventilating
and/or air conditioning and hot and cold water systems and generators and
other plant serving the Building and the lifts lift shafts and machinery and
other plant in or serving the Building
1.4 The cost of all fuel of any kind required for the boiler or boilers
supplying the heating lighting ventilation and/or air conditioning and hot
water systems and generating and other plant serving the Building and the
electricity for operating the lifts and providing all other services to or
for the Building
1.5 The cost of insuring the Building (excluding the Premises and other
parts of the Building let or intended to be let) against loss or damage by
the Insured Risks in accordance with Clause 4.3 of this Lease
1.6 The cost of taking out and maintaining in force an effective
insurance policy against any and every liability of the Lessor for injury to
or death of any person (including every agent servant and workmen of the
Lessor) and damage to or destruction of the property of any such person
arising out of the management and/or maintenance and/or occupation of the
Building or any part of it and in particular but without limiting the
generality of the foregoing:
1.6.1 employer's liability and
1.6.2 insurance against such injury death damage or destruction as above
stated due to the act neglect default or misconduct of the agents servants or
workmen of the Lessor employed in connection with the management and/or
maintenance of
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the Building or to a total or partial failure or breakdown of the lifts or
central heating or air conditioning plant or hot water systems or to flooding
in the boiler room or elsewhere and also such further or other insurances as
the Lessor shall from time to time in its absolute discretion deem necessary
1.7 The cost of carpeting re-carpeting restoring cleaning decorating
lighting and furnishing as appropriate all parts of the Building not let or
intended to be let and keeping the same in good repair and condition and
providing towels and toilet and other requisites in the toilets
1.8 The charges assessments and other outgoings (if any) payable by the
Lessor in respect of all parts of the Building
1.9 All proper fees charges expenses and commissions of any person or
persons the Lessor may from time to time employ in connection with the
management and supervision of the Building (including but not by way of
limitation rent collection and maintenance of the Building)
1.10 The cost of preparing submitting and settling any insurance claims
relating to the Building
1.11 The cost of providing maintaining and when necessary replacing
renewing or amending a security patrol and security observation system for
the Building (including but not by way of limitation the provision of alarms
close circuit television and apparatus and fitting designed to prevent or
limit vandalism)
1.12 The cost of the upkeep of and tending and stocking of:
1.12.1 any landscaping in the Building and of the forecourts
roadways/pathways and open areas within the Building
1.12.2 floral and/or plant displays or areas
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1.13 The cost of cleaning the interior and exterior of the glass
surfaces of the parts of the Building not let or intended to be let and the
transparent or translucent parts of the exterior of the Building
1.14 The cost of providing and maintaining and where necessary replacing
furniture for the use:
1.14.1 in the parts of the Building not let or intended to be let
1.14.2 by persons employed by the Lessor in or about the provision of the
services
1.15 The cost of providing maintaining and when necessary replacing such
flags decorative lights and other decorations or like amenities as the Lessor
shall think fit to provide
1.16 The cost of operating for the tenants or occupiers of the Building
and their visitors on such basis as the Lessor may determine the Car Park and
of repairing maintaining rebuilding renewing and cleaning the same and
keeping it clear of all rubbish and obstructions
1.17 The cost of providing and replacing paladins or other refuse
containers for the tenants or occupiers of the Building and arranging for the
collection of refuse
1.18 The cost of providing maintaining and renewing all directional and
other notices posters boards or signs in the Building
1.19 The cost of taking all steps deemed desirable or expedient by the
Lessor for complying with making representations against or otherwise
contesting the incidence of the provisions
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of any Acts of Parliament concerning any matter relating or alleged to relate
to the Building
1.20 The cost of providing fire fighting equipment appliances (including
fire alarm sprinkler systems and smoke detectors) and any other signs or
notices required by the local Fire Officer (other than such as is supplied in
the Premises by the Lessee) and the cost of repair maintenance and renewal of
the same
1.21 The cost of employing staff for the Building either directly or
indirectly for the performance of duties in connection with the maintenance
and/or security of the Building and the provision of services to the Building
and to the tenants occupiers and users and all other incidental expenditure
in relation to such employment including (but without limiting the generality
of such provision) contributions to an occupational pension scheme the
payment of such insurance health pension welfare and other contributions and
premiums industrial training levies redundancy and similar or ancillary
payments that the Lessor may be required by Act of Parliament or otherwise to
pay or may at his absolute discretion deem desirable and necessary in respect
of such staff and uniforms working clothes tools machinery two-way radios
appliances office equipment motor vehicles (whether or not as an emolument of
employment) cleaning and other material bins receptacles and other equipment
for the proper performance of their duties
1.22 The rent rates telephone charges gas electricity and other
incidental expenses of:
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1.22.1 any accommodation provided in the Building or elsewhere for
occupation or use by the persons employed in connection with the provision of
the services to and the management and/or the security of the Building and
1.22.2 any accommodation provided for vehicles parts equipment and
other things employed in common with the provision of the said services
and the management and/or security of the Building
1.23 The cost of leasing any item required for the purpose of carrying
out any of the matters referred to in this Schedule
1.24 The cost of staging mounting arranging or otherwise providing in
any parts of the Building not let or intended to be let any exhibition
function display or event which the Lessor may from time to time consider
desirable for the purpose of maintaining or improving the reputation of the
Building
1.25 The cost of carrying out any other works or providing services or
facilities of any kind whatsoever which the Lessor may from time to time
consider desirable for the purpose of maintaining or improving the services
or facilities in or for the Building PROVIDED ALWAYS that the Lessor may at
any time add to the heads of expenditure any depreciation or other allowance
provision for future anticipated expenditure on or replacement of any
installation equipment plant or apparatus or rental value of any part of
the Building used in connection with the provision of the Services not
previously included and from and after the relevant date of the exercise of
this right such additional items of depreciation allowance provision
expenditure or value shall be included in the calculation of the Service
Charge
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2. The service charge payable under Clause 3 of the HEMCO Deed or
under Clause 6 of the two underleases dated 10 August 1995 and made between
Globe Trust Limited (1) the Company (2) and the Lessor (3)
3. The cost of calculating the service charges and the payments on
account payable by the tenants of premises in the Building the preparation of
accounts and audits made for the purpose and of recovering service charges
and payments from such tenants
4. All professional charges fees and expenses payable by the Lessor in
respect of the matters mentioned in paragraphs 1 2 and 3 above insofar as not
already charged under sub-paragraph 1.9
5. During any period in which the Lessor does not employ managing
agents to manage the Building a reasonable sum but in any event not exceeding
fifteen per centum of the costs fees charges and expenses referred to in
paragraphs 1 2 3 and 4 above incurred during such period
6. All Value Added Tax or other similar tax payable by the Lessor in
respect of the matters referred to in paragraphs 1 2 3 4 and 5 above
7. The gross cost to the Lessor by way of interest commission banking
charges commitment or otherwise of borrowing any necessary sums to provide
the costs under the foregoing paragraphs
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PART II
1. The cost of decorating or otherwise treating those parts of the
Floor not let or intended to be let
2. The cost of carpeting re-carpeting restoring cleaning decorating
lighting and furnishing as appropriate all parts of the Floor not let or
intended to be let and keeping the same in good repair and condition
3. The cost of all fuel of any kind required for the boiler or boilers
supplying the heating lighting ventilation and/or air conditioning and hot
water systems and generating and other plant and the electricity and all
other services serving those parts of the Floor not let or intended to be let
4. The cost of providing repairing renewing replacing And maintaining
facilities plant and equipment on the Floor for the preparation of hot and
cold drinks and light refreshments solely for consumption by the Lessee its
employees or visitors and all electricity gas water or other services
5. The cost of providing fire fighting equipment appliances (including
fire alarms sprinkler systems and smoke detectors) and any other signs or
notices required by the local Fire Officer for those parts of the Floor not
let or intended to be let and the cost of repair maintenance and renewal of
the same
6. The cost of calculating the service charges and the payments on
account payable by the tenants of premises on the Floor the preparation of
accounts and audits made for the purpose and of recovering service charges
and payments from such tenants
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7. All professional charges fees and expenses payable by the Lessor in
respect of the matters mentioned in paragraphs 1 2 3 4 5 and 6 above
8. During any period in which the Lessor does not employ managing
agents to manage the Building a reasonable sum but in any event not exceeding
fifteen per centum of the costs fees charges and expenses referred to in
paragraphs 1 2 3 4 5 6 and 7 above incurred during such period
9. All Value Added Tax or other similar tax payable by the Lessor in
respect of the matters referred to in paragraphs 1 2 3 4 5 6 7 and 8 above
10. The gross cost to the Lessor by way of interest commission banking
charges commitment or otherwise of borrowing any necessary sums to provide
the costs under the foregoing paragraphs
SIXTH SCHEDULE
(Covenants and Agreements by the Surety)
1. The Surety covenants with the Lessor as a primary obligation:
1.1 that the Lessee and the Surety shall until this Lease is assigned
by an assignment which is not an excluded assignment duly perform and
observe all the covenants conditions and other provisions on the part of the
Lessee to be observed and performed in this Lease (including the payment of
the Rent and all other sums from time to time payable under this Lease) in
the manner and at the times specified and shall indemnify the Lessor against
all actions proceedings losses liabilities costs damages expenses
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claims and demands sustained by the Lessor in any way directly or indirectly
arising out of or resulting from any default by the Lessee in the performance
and observance of any such covenants conditions and other provisions
1.2 that it will enter into the guarantee required under paragraph 2 of
Part I of the Seventh Schedule
1.3 not to claim in any liquidation bankruptcy administration
receivership composition or arrangement of the Lessee in competition with the
Lessor and to remit to the Lessor the proceeds of all judgments and all
distributions it may receive from any liquidator trustee in bankruptcy
administrator administrative receiver or supervisor of the Lessee and to hold
for the benefit of the Lessor all security and rights the Surety may have
over assets of the Lessee while any liabilities of the Lessee or the Surety
to the Lessor remain outstanding
1.4 that if a liquidator or trustee in bankruptcy of the Lessee or the
Treasury Solicitor or any other competent person shall disclaim or surrender
this Lease or this Lease shall be forfeited or the Lessee shall die or cease
to exist (referred to in this Schedule as "the Relevant Event") then the
Surety shall (if the Lessor by notice in writing given to the surety within
six months after becoming aware of the Relevant Event so requires) accept
from and execute and deliver to the Lessor a counterpart of a new lease of
the Premises for a term commencing on the date of the Relevant Event and
continuing for the residue then remaining unexpired of the Term such new
lease to be at the cost of the Surety and to be at the same rents payable
immediately before the date of the Relevant Event (subject to
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review on the Review Dates referred to in the Particulars hereof and subject
to the same covenants conditions and provisions as are contained in this
Lease insofar as applicable immediately before the date of the Relevant Event)
1.5 that if the Lessor shall not require the Surety to take a new lease
the Surety shall nevertheless upon demand pay to the Lessor a sum equal to
the Rent all other sums that would have been payable under this Lease in
respect of the period from and including the date of the Relevant Event until
the expiry of twelve months after that date or until the Lessor shall have
granted a lease of the Premises to a third party (whichever shall first occur)
2. The Surety is jointly and severally liable with the Lessee (whether
before or after any disclaimer by a liquidator or trustee in bankruptcy) for
the fulfilment of all the Lessee's covenants conditions and other provisions
contained in this Lease and the Lessor in the enforcement of its rights may
proceed against the Surety as if the Surety was named as the Lessee in this
Lease
3. The Surety waives any right to require the Lessor to proceed
against the Lessee or to pursue any other remedy of any kind which may be
available to the Lessor before proceeding against the Surety
4. None of the following (or any combination thereof) shall release
determine discharge or in any way lessen or affect the liability of the
Surety as principal debtor under this Lease or otherwise prejudice or affect
the liability of the Surety to
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accept a new Lease in accordance with the provisions of this Schedule:
4.1 any neglect delay or indulgence or extension of time given by the
Lessor in enforcing payment of the Rent or any other sums due under this
Lease in enforcing the performance or observance of any of the Lessee's
covenants conditions or other provisions contained in this Lease
4.2 any refusal by the Lessor to accept Rent tendered by or on behalf
of the Lessee following a breach of covenant by the Lessee
4.3 the expiry or sooner determination of the Term
4.4 any variation of the terms of this Lease (including any reviews of
the Rent payable under this Lease) or the transfer of the Lessor's reversion
or the assignment of this Lease
4.5 any change in the constitution structure or powers of either the
Lessee the Surety or the Lessor or the liquidation administration
receivership or bankruptcy (as the case may be) of either the Lessee or the
Surety or the death or dissolution of the Lessee
4.6 any legal limitation or any immunity disability or incapacity of
the Lessee (whether or not known to the Lessor) or the fact that any dealings
with the Lessor by the Lessee may be outside or in excess of the powers of
the Lessee
4.7 the release of any security or guarantee held by the Lessor in
relation to the Lessee's obligations
4.8 any other act omissions matter or thing of any kind by virtue of
which (but for this provision) the Surety would be
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exonerated either wholly or in part (other than a release under seal given by
the Lessor)
5. This guarantee shall enure for the benefit of the successors and
assigns of the Lessor under this Lease without the necessity for any
assignment of it
SEVENTH SCHEDULE
PART I
(Requirements for an assignment)
APPLICATIONS
1. This Part applies for the purposes of Section 19(1A) of the
Landlord and Tenant Act 1927
AUTHORISED GUARANTEE AGREEMENT
2. Before any assignment of the Premises the Lessee shall enter into
an authorised guarantee agreement with the Lessor with respect to the
performance by the assignee of the Lessee's obligations in this Lease in such
form as the Lessor reasonably requires but in any event containing:
2.1 an obligation to take up a new lease if this Lease is disclaimed
and the Lessor so requires within six months of becoming aware of the
disclaimer and
2.2 provisions preventing the guarantee from being vitiated by:
2.2.1 any neglect or forbearance of the Lessor
2.2.2 any time or indulgence given by the Lessor
2.2.3 any variation of this Lease by the Lessor and the Lessee and
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2.2.4 the release of any security or guarantee held in relation to such
obligations
GUARANTOR OF ASSIGNOR TO JOIN IN GUARANTEE
3. If the Lessor reasonably so requires the Lessee shall procure that
before any assignment of the Premises any person who is then a guarantor of
the Lessee's obligations in this Lease (other than a person who shall have
previously been the Lessee and its guarantor) joins in the guarantee given
under paragraph 2 as co-guarantor jointly and severally with the Tenant
DISREGARD OF AUTHORISED GUARANTEE AGREEMENT
4. In deciding whether to approve a proposed assignment the Lessor may
disregard:
4.1 its rights under paragraphs 2 and 3 above and Section 16 of the
Landlord and Tenant (Covenants) Act 1995 and
4.2 the fact that the assignor and/or a guarantor would or might give a
guarantee of the assignee's obligations to the Lessor
NO INTRA-GROUP ASSIGNMENTS
5. This Lease shall not be assigned to a person who at the date of the
assignment is a member of the same group as the assignor or any guarantor of
the assignor's obligations in this Lease within the meaning of Section 42 of
the 1954 Act
NO ARREARS
6. The Lessee shall not assign the Premises unless it has paid all
rents and other sums which have fallen due under this Lease before the date
of the assignment
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PART II
(General Requirements)
1. The Lessee shall not assign underlet or charge part only of the
Premises
2. The Lessee shall not (otherwise than by assignment or underletting
permitted by this Lease) part with or share possession or occupation of or
grant any other person rights over or in the Premises nor hold or occupy the
Premises as nominee trustee or agent or otherwise for the benefit of any
other person
3. On the grant of any of underlease the Lessee shall procure (if
reasonably so required by the Lessor) that a guarantor or guarantors
acceptable to the Lessor shall enter into surety covenants direct with the
Lessor in the terms set out in the Sixth Schedule with such variations as the
Lessor shall reasonably require to suit the circumstances of each case
4. Prior to the grant or assignment of any underlease the Lessee shall
procure that the underlessee or assignee covenants direct with the Lessor:
4.1 to observe and perform all the terms and conditions and the
covenants on the part of the Lessee contained in this Lease (other than as to
payment of rent) until the underlease is assigned by an assignment which is
not an excluded assignment
4.2 not to assign charge underlet hold on trust for another or
otherwise part with share possession or occupation of or suffer any other
person to occupy the whole or any part of the premises underlet save with the
approval of the Lessor (such approval not to be unreasonably withheld) by way
of an assignment of the whole thereof complying with the provisions of this
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Schedule mutatis mutandis to a person who has entered into the covenants
required by this paragraph 4
4.3 Prior to the grant of any underlease the Lessee shall produce to
the Lessor a certified copy of an order of the Court under Section 38(4) of
the Landlord and Tenant Act 1954 (as amended) authorising the exclusion of
Sections 24 to 28 (inclusive) of that Act in relation to such proposed
underlease
5. The Lessee shall procure that any underlease shall contain
covenants by the underlessee with the Lessee that the underlessee will not:
5.1 assign underlet charge or part with or share possession or
occupation of part only of the premises demised by the underlease
5.2 charge underlet or (save by way of an assignment of the whole in
accordance with paragraph 4.2) part with or share possession or occupation of
the whole of the premises demised by the underlease
5.3 assign the whole of the premises demised by the underlease by way
of an assignment complying with the provisions of this Schedule mutatis
mutandis to a person who has entered into the covenants required by paragraph
4 without the prior written consent of the Lessee and the Lessor
6. On the grant of any underlease the Lessee shall:
6.1 not reserve or charge any fine or premium
6.2 charge a yearly rent (payable not less frequently than quarterly in
advance) which shall be the Open Market Rent (as assessed under this Lease)
at the date of such underlease
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6.3 include provisions for upwards only review of the yearly rent
corresponding both as to terms and dates with the provisions for review of
Rent contained in this Lease
6.4 duly and punctually exercise all rights to review the yearly rent
reserved by any underlease but not to agree any reviewed yearly rent with the
underlessee without the Lessor's prior written consent (such consent not to
be unreasonably withheld) and to procure that if the yearly rent under any
underlease is to be determined by an independent person not to determine
whether that person shall act as an expert or as an arbitrator without the
Lessor's prior written consent and to procure that the Lessor's
representations as to the reviewed yearly rent to be payable thereunder are
made to that independent person to the Lessor's reasonable satisfaction
6.5 include a proviso for re-entry on breach of any covenant on the
part of the underlessee
6.6 include such covenants on the part of the underlessee as shall
secure the due performance and observance of the terms
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and conditions and covenants on the Lessee's part contained in this Lease
(save for payment of rent)
EXECUTED as a Deed by DOCKWAYS )
LIMITED acting by its attorney )
T.J. [ILLEGIBLE] and T.E.F. Sutherland) DOCKWAYS LIMITED
under a Power of Attorney dated 18 )
September 1995 )
by its attorney
/s/ [ILLEGIBLE]
----------------------------------
in the presence of the
undersigned witness:
/s/ [ILLEGIBLE]
21 St George Street
Hanover Square
London W1.
by its attorney
/s/ [ILLEGIBLE]
----------------------------------
in the presence of the
undersigned witness:
/s/ Linda [ILLEGIBLE]
61 Brook Street
London W1
Assistant
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<PAGE>
[FLOOR PLAN]
9th Floor
1 Harbour Exchange
Docklands
<PAGE>
[FLOOR PLAN]
<PAGE>
[ARCHITECTURAL DRAWING]
PLAN A
<PAGE>
[ARCHITECTURAL DRAWING]
PLAN B
<PAGE>
LEASE
(SINGLE-TENANT BUILDING IN MULTI-BUILDING PROJECT)
by and between
BURNHAM PACIFIC PROPERTIES, INC.
a Maryland corporation
"Landlord"
and
Communication TeleSystems International
a California corporation
d.b.a. WORLDxCHANGE Communications
"Tenant"
For the approximately 24,312 SF Premises at
San Diego, California
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<PAGE>
LEASE SUMMARY
<TABLE>
<S> <C>
Lease Date: JUNE 23, 1997
Landlord: BURNHAM PACIFIC PROPERTIES, INC.
Address of
Landlord: 610 West Ash Street, Suite 1600
San Diego, CA 92101
Tenant: Communication TeleSystems International, a
California corporation, d.b.a. WORLDxCHANGE
Communications.
Address of Tenant: 9999 Willow Creek Road
San Diego, CA
Telephone: 800 576-7775
Building Address: 9775 Businesspark Avenue
San Diego, CA
Total Building
Square Footage: 24,312 square feet
Anticipated
Commencement Date: August 1, 1997
Term: Five (5) years
Monthly Rent: $21,151.44/month (based on $0.87/square foot
of Rentable Area/month), increased annually
in accordance with the provisions of
Paragraph 5.B below.
Security Deposit: $84,605.76 (see PARAGRAPH 7)
EXHIBIT A - PROPERTY DESCRIPTION
EXHIBIT B - WORK LETTER
EXHIBIT C - COMMENCEMENT DATE MEMORANDUM
EXHIBIT D-1 - GUARANTEE OF LEASE
EXHIBIT D-2 - GUARANTEE OF LEASE
</TABLE>
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<PAGE>
LEASE
(SINGLE-TENANT BUILDING IN MULTI-BUILDING PROJECT)
(Triple Net)
1. PARTIES.
THIS LEASE (the "Lease"), dated as of June 23, 1997, is entered into
by and between BURNHAM PACIFIC PROPERTIES, INC., a Maryland corporation
("Landlord") whose address is 610 West Ash Street, Suite 1600, San Diego, CA
92101, and Communication TeleSystems International, a California corporation
d.b.a. WORLDxCHANGE Communications, ("Tenant"), whose address is 9999 Willow
Creek Road, San Diego, California
2. PREMISES.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises (the "Premises") consisting of a total area of
approximately 24,312 square feet, which comprises the entire Rentable Area of
that certain building (the "Building") commonly known as 9775 Businesspark
Avenue, San Diego, California, and located on the Project. The Premises also
include the appurtenant right to use in common with other tenants of the Project
the Common Area.
3. DEFINITIONS.
The following terms shall have the following meanings in this Lease:
A. ALTERATIONS. Any alterations, additions or improvements made in,
on or about the Premises after the Commencement Date, including, but not limited
to, lighting, heating, ventilating, air conditioning, electrical, partitioning,
drapery and carpentry installations.
B. WORK LETTER. The Work Letter Agreement attached to this Lease as
EXHIBIT B (the "Work Letter").
C. COMMENCEMENT DATE. The Commencement Date of this Lease shall be
the first day of the Term, determined in accordance with PARAGRAPH 4.A.
D. COMMON AREA. All areas and facilities within the Project,
including without limitation, sidewalks, landscaped areas,
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<PAGE>
pedestrian ways, parking and vehicle access areas, including roads, driveways,
signs, traffic lanes, service areas and delivery facilities, trash disposal
facilities, common storage areas, common utility facilities, and similar areas
and facilities, established by Landlord for non-exclusive use, subject to the
reasonable rules and regulations and changes therein from time to time
promulgated by Landlord governing the use of the such areas.
E. HVAC. Heating, ventilating and air conditioning.
F. IMPOSITIONS. Taxes, assessments, charges, excises and levies,
business taxes, license, permit, inspection and other authorization fees,
transit development fees, assessments or charges for housing funds, service
payments in lieu of taxes and any other fees or charges of any kind at any time
levied, assessed, charged or imposed by any federal, state or local entity, (i)
upon, measured by or reasonably attributable to the cost or value of Tenant's
equipment, furniture, fixtures or other personal property located in the
Premises, or the cost or value of any Alterations; (ii) upon, or measured by,
any Rent payable hereunder, including any gross receipts tax; (iii) upon, with
respect to or by reason of the development, possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Premises, or any portion thereof; or (iv) upon this Lease transaction, or any
document to which Tenant is a party creating or transferring any interest or
estate in the Premises. Impositions do not include franchise, transfer,
inheritance or capital stock taxes, or income taxes measured by the net income
of Landlord from all sources, unless any such taxes are levied or assessed
against Landlord as a substitute for, in whole or in part, any Imposition.
G. IMPROVEMENTS. The Tenant Improvements.
H. INDEX. The Consumer Price Index, All Urban Consumers, All Items,
published by the U.S. Department of Labor, Bureau of Labor Statistics for the
Los Angeles Metropolitan Area (1982-84=100). If the base year of the Index is
changed, then all calculations pursuant to this Lease which require the use of
the Index shall be made by using the appropriate conversion factor published by
the Bureau of Labor Statistics (or successor agency) to correlate to the base
year of the Index herein specified. If no such conversion factor is published,
then Landlord shall, if possible, make the necessary calculation to achieve such
conversion. If such conversion is not in Landlord's judgment possible, or if
publication of the Index is discontinued, or if the basis of calculating the
Index is materially changed, then the term "Index" shall mean comparable
statistics on the cost of living, as computed either (i)
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by an agency of the United States Government performing a function similar to
the Bureau of Labor Statistics, or (ii) if no such agency performs such
function, by a substantial and responsible periodical or publication of
recognized authority most closely approximating the result which would have been
achieved by the Index, as may be determined by Landlord in the exercise of its
reasonable good faith business judgment.
I. INTEREST RATE. Twelve percent (12%) per annum, however, in no
event to exceed the maximum rate of interest permitted by law.
J. LANDLORD'S AGENTS. Landlord's authorized agents, partners,
subsidiaries, directors, officers and employees.
K. MONTHLY RENT. The rent payable pursuant to PARAGRAPH 5.A., as
adjusted from time to time pursuant to the terms of this Lease.
L. OPERATING EXPENSES. The total of all costs and expenses paid or
incurred by Landlord in connection with the management, operation, maintenance,
ownership and repair of the Building, the Common Area and all other portions of
the Project, including, without limitation: (i) salaries, wages and payroll
burden of employees; (ii) property management fees and expenses payable to third
parties in excess of the amount set forth in PARAGRAPH 5.C AND 5.D below; (iii)
rent (or rental value) and expenses for Landlord's and any property manager's
offices in the Project; (iv) electricity, natural gas, water, waste disposal,
sewer, heating, lighting, air conditioning and ventilating and other utilities;
(v) janitorial, maintenance, repair, security, life safety and other services,
such as alarm service, window cleaning, elevator maintenance, resurfacing,
resealing, remarking, painting or restriping the parking facilities,
landscaping, uniforms for personnel providing services, and the cost of
performance of Landlord's obligations under PARAGRAPH 17.A of this Lease; (vi)
materials, supplies, tools and rental equipment; (vii) license, permit and
inspection fees and costs; (viii) insurance premiums and costs for the insurance
required to be carried by Landlord under this Lease and any other insurance
Landlord elects to carry with respect to the Project, and the deductible portion
of any insured loss under Landlord's insurance; (ix) Real Property Taxes, sales,
use and excise taxes; (x) legal, accounting and other professional services for
the Project, including costs, fees and expenses of contesting the validity or
applicability of any law, ordinance, rule, regulation or order relating to the
Building; (xi) rental costs of leased furniture, fixtures, and equipment; (xii)
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<PAGE>
expenditures for capital improvements made at any time to the Project that
are intended in Landlord's reasonable judgment as labor saving devices, or
to reduce or eliminate other Operating Expenses or to effect other economies
in the operation, maintenance, or management of the Project, or that are
necessary or appropriate in Landlord's reasonable judgment for the health and
safety of occupants of the Project, or that are required under any law,
ordinance, rule, regulation or order which was not applicable to the Project
at the time it was constructed, all amortized over such reasonable period as
Landlord shall determine at an interest rate of ten percent (10%) per annum,
or, if applicable, the rate paid by Landlord on funds borrowed for the
purpose of constructing or installing such capital improvements; and (xiii)
any other cost or expense which this Lease expressly characterizes as an
Operating Expense. Operating Expenses do not include: (A) legal fees,
brokers' commissions or other costs incurred in the negotiation, termination,
or extension of leases or in proceedings involving a specific tenant; (B)
depreciation, except as set forth above; (C) interest, except as a component
of amortization as set forth above; (D) capital items, except as set forth
above. Subject to the provisions of this definition, the determination of
Operating Expenses shall be made by Landlord in accordance with generally
accepted accounting principles and practices consistently applied; and (E)
the cost of maintenance or repair of any building in the Project other than
the Building.
M. PROJECT. That certain real property described in EXHIBIT A
attached to this Agreement, upon which are located two (2) buildings
(including the Building) consisting of approximately 49,284 square feet of
total Rentable Area.
N. REAL PROPERTY TAXES. Taxes, assessments and charges now or
hereafter levied or assessed upon, or with respect to, the Project, or any
personal property of Landlord used in the operation thereof or located
therein, or Landlord's interest in the Project or such personal property, by
any federal, state or local entity, including: (i) all real property taxes
and general and special assessments; (ii) charges, fees or assessments for
transit, housing, day care, open space, art, police, fire or other
governmental services or benefits to the Project, including assessments,
taxes, fees, levies and charges imposed by governmental agencies for such
purposes as street, sidewalk, road, utility construction and maintenance,
refuse removal and for other governmental services; (iii) service payments in
lieu of taxes; (iv) any tax, fee or excise on the use or occupancy of any
part of the Project, or on rent for space in the Project; (v) any other tax,
fee or excise, however described, that may be levied or assessed as a
substitute for, or as
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<PAGE>
an addition to, in whole or in part, any other Real Property Taxes; and (vi)
reasonable consultants' and attorneys' fees and expenses incurred in
connection with proceedings to contest, determine or reduce Real Property
Taxes. Real Property Taxes do not include: (A) franchise, transfer,
inheritance or capital stock taxes, or income taxes measured by the net
income of Landlord from all sources, unless any such taxes are levied or
assessed against Landlord as a substitute for, in whole or in part, any Real
Property tax; (B) Impositions and all similar amounts payable by tenants of
the Project under their leases; and (C) penalties, fines, interest or charges
due for late payment of Real Property Taxes by Landlord. If any Real Property
Taxes are payable, or may at the option of the taxpayer be paid, in
installments, such Real Property Taxes shall, together with any interest that
would otherwise be payable with such installment, be deemed to have been paid
in installments, amortized over the maximum time period allowed by applicable
law. If the tax statement from a taxing authority does not allocate Real
Property Taxes to the Building, Landlord shall make the determination of the
proper allocation of such Real Property Taxes based, to the extent possible,
upon records of the taxing authority and, if not so available, then on an
equitable basis.
0. RENT. Monthly Rent plus the Additional Rent defined in PARAGRAPH
5.E.
P. RENTABLE AREA. The aggregate square footage in the Building as
reasonably determined by Landlord from time to time.
Q. SECURITY DEPOSIT. That amount paid by Tenant pursuant to
PARAGRAPH 7.
R. SUBLET. Any transfer, sublet, assignment, license or
concession agreement, change of ownership, mortgage, or hypothecation of this
Lease or the Tenant's interest in the Lease or in and to all or a portion of
the Premises. As used herein, a Sublet includes the following: (i) if Tenant
is a partnership or a limited liability company, a transfer, voluntary or
involuntary, of all or any part of any interest in such partnership or
limited liability company, or the dissolution of the partnership or limited
liability company, whether voluntary or involuntary; (ii) if Tenant is a
corporation, any dissolution, merger, consolidation or other reorganization
of Tenant which results in the transfer of the controlling percentage of the
stock of tenant, or the transfer, either by a single transaction or in a
series of transactions, of a controlling percentage of the stock of Tenant
(except that a Sublet shall not include any such transfer of a controlling
percentage of the stock of Tenant occurring at a time when the stock of
Tenant is
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publicly traded on a nationally recognized stock exchange or over the
counter), or the sale, by a single transaction of or series of transaction,
within any one (1) year period, of corporate assets equaling or exceeding
forty nine and 9/10 percent (49.9%) of the total value of Tenant's assets
(except in connection with an initial public offering of the stock of Tenant
on a nationally recognized stock exchange or over the counter); (iii) if
Tenant is a trust, the transfer, voluntarily or involuntarily, of all or any
part of the controlling interest in such trust; and (iv) if Tenant is any
other form of entity, a transfer, voluntary or involuntary, of all or any
part of the controlling interest in such entity. As used herein, the phrases
"controlling percentage" and "controlling interest" means the ownership of,
and/or the right to vote, stock, partnership interests, membership interests,
or other indicia of ownership possessing at least fifty-one percent (51%)
of either the total combined interests in Tenant, or the voting power of all
classes of Tenant's capital stock, partnership interests, membership
interests, or other indicia of ownership, that have been issued, outstanding,
and (if applicable) are entitled to vote.
S. SUBRENT. Any consideration of any kind received, or to be
received, by Tenant from a subtenant if such sums are related to Tenant's
interest in this Lease or in the Premises, including, but not limited to,
bonus money and payments (in excess of book value) for Tenant's assets,
including, without limitation, its trade fixtures, equipment and other
personal property, goodwill, general intangibles, and any capital stock or
other equity ownership of Tenant.
T. SUBTENANT. The person or entity with whom a Sublet agreement is
proposed to be or is made.
U. TENANT IMPROVEMENTS. Those certain improvements to the Premises
described in the Work Letter.
V. TENANT'S PERCENTAGE SHARE. The percentage of the total
Rentable Area of the Premises to the total Rentable Area of all buildings in
the Project, which as of the date of this Lease is 49.33%. If at any time
during the Term of this Lease any new buildings are constructed on the
Project by Landlord or any Rentable Area is removed from the project,
Tenant's Percentage Share shall be recalculated based upon the percentage of
the Rentable Area of the Premises to the total Rentable Area of all buildings
at the Project at such time.
W. TENANT'S PERSONAL PROPERTY. Tenant's trade fixtures, furniture,
equipment and other personal property in the Premises.
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X. TERM. The Term of this Lease set forth in PARAGRAPH 4.A.
4. LEASE TERM.
A. TERM. The Term shall commence on the date (the "Commencement
Date") that is the earlier of: (i) August 1, 1997, or (ii) the date that Tenant
opens for business in the Premises. The Term shall terminate on the last day of
the calendar month immediately after the date which is five (5) years after the
Commencement Date.
B. DELAYS IN DELIVERY. Tenant agrees that if Landlord, for-any
reason whatsoever, is unable to deliver the Premises to Tenant on or before
August 1, 1997, Landlord shall not be liable to Tenant for any loss or damage
therefrom, nor shall this Lease be void or voidable. Provided however, Tenant
may terminate this lease without penalty or further obligation in the event
landlord does not deliver the premises to tenant on or before October 1,
1997. In such event, the Commencement Date, termination date and all other
dates of this Lease, shall be extended to conform to the time of Landlord's
tender of possession of the Premises to Tenant and Tenant shall not be
obligated to pay Monthly Rent for the Premises or any other sums allocable to
such Premises and due to Landlord hereunder until possession of such Premises
is tendered to Tenant. Upon the establishment of the actual Commencement
Date, Landlord and Tenant shall execute a Commencement Date Memorandum in the
form set forth in EXHIBIT C.
5. RENT.
A. MONTHLY RENT. Commencing on the Commencement Date, and at all
times during the remainder of the Term, Tenant shall pay to Landlord, in
lawful money of the United States, Monthly Rent in the amount set forth in
the Lease Summary (subject to adjustment as provided below). Monthly Rent
shall be paid in advance, on the first day of each calendar month, without
abatement, deduction, claim, offset, prior notice or demand. The sum of the
first month's rent on the Lease Summary shall be paid by Tenant to Landlord
upon the execution of this Lease by Tenant. Additionally, Tenant shall pay,
as and with the Monthly Rent, the management fee described in PARAGRAPH 5.C.,
Impositions pursuant to PARAGRAPH 15, and Tenant's Percentage Share of
Operating Expenses pursuant to PARAGRAPH 5.D.
B. ADJUSTMENTS TO MONTHLY RENT. The Monthly Rent shall be increased
as of the first day of the month which is twelve (12)
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months after the Commencement Date and every twelve (12) months thereafter
(each, an "Adjustment Date") by four percent (4%) of the then existing
Monthly Rent, as follows. On each Adjustment Date, the total aggregate amount
of Monthly Rent then in effect shall be multiplied by one hundred four
percent (104%) and the corresponding product shall be the Monthly Rent in
effect until the next Adjustment Date.
C. MANAGEMENT FEE. Tenant shall pay to Landlord monthly, as
Additional Rent, a management fee equal to three percent (3%) of the Monthly
Rent.
D. OPERATING EXPENSES.
(i) ESTIMATED PAYMENTS. Commencing on the Commencement Date
and continuing throughout the entire Term, Tenant shall pay Tenant's
Percentage Share of all Operating Expenses paid or payable by Landlord in
each year; provided, however, that Tenant shall pay one hundred percent
(100%) of those Operating Expenses arising from Landlord's performance of its
obligations under PARAGRAPHS 17.A and Tenant's obligations under PARAGRAPH
17.D. Before commencement of the Term and during December of each calendar
year or as soon thereafter as practicable, Landlord shall give Tenant notice
of its estimate of amounts payable under this PARAGRAPH 5.D.(i) for the
ensuing calendar year. Such notice shall show in reasonable detail the basis
on which the estimate was determined. On or before the first day of each
month during the ensuing calendar year, Tenant shall pay to Landlord one
twelfth (1/12th) of such estimated amounts, provided that if such notice is
not given in December, Tenant shall continue to pay on the basis of the prior
year's estimate until the month after such notice is given. If at any time or
times it appears to Landlord, in its reasonable judgment, that the amounts
payable under this PARAGRAPH 5.D.(i) for the current calendar year will vary
from its then-current estimate by more than five percent (5%),Landlord may,
in its sole discretion, by notice to Tenant, showing in reasonable detail the
basis for such variance, revise its estimate for such year, in which case
subsequent payments by Tenant for such year shall be based upon such revised
estimate. Landlord's election not to give the notice described in the
foregoing sentence shall not affect Landlord's ability to charge Tenant for,
nor Tenant's liability to pay for, any shortfall in the estimated payments
for such calendar year previously made by Tenant, as set forth in PARAGRAPH
5.D.(ii).
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(ii) ADJUSTMENT. Within ninety (90) days after the close of
each calendar year or as soon after such 90-day period as reasonably
practicable, Landlord shall deliver to Tenant a reasonably detailed statement of
Operating Expenses for such calendar year, certified by Landlord or its property
manager, subject to Tenant's right to audit as hereinafter provided. At that
time, Landlord shall also deliver to Tenant a statement, certified as correct by
Landlord, of the adjustments to be made pursuant to PARAGRAPH 5.D(i) above. If
Landlord's statement shows that Tenant owes an amount that is less than the
estimated payments for such calendar year previously made by Tenant, Tenant may
offset such overpayment against Rent due or remaining due under this Lease, or
if no Rent remains due, Landlord shall refund such excess to Tenant within
thirty (30) days after delivery of the statement. If such statement shows that
Tenant owes an amount that is more than the estimated payments for such calendar
year previously made by Tenant, Tenant shall pay the deficiency to Landlord
within thirty (30) days after delivery of the statement.
(iii) LAST YEAR. If this Lease shall terminate on a day other
than the last day of a calendar year, the adjustment in Rent applicable to the
calendar year in which such termination shall occur shall be prorated on the
basis which the number of days from the commencement of such calendar year to
and including such termination date bears to three hundred sixty-five (365). The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to Paragraph 5.D. (ii) to be performed after such termination.
(iv) AUDIT. Within sixty (60) days after receipt of Landlord's
statement of Operating Expenses as provided in PARAGRAPH 5.D.(ii), Tenant or its
designee, on not less than five (5) days prior written notice to Landlord, shall
have the right to, at Tenant's sole cost and expense, audit, examine and copy
Landlord's books and records with respect to the Operating Expenses for the
calendar year pertaining to the year for which the Landlord's statement
pertains. Landlord shall cooperate with Tenant in any such examination of its
books and records.
E. ADDITIONAL RENT. All monies required to be paid by Tenant under
this Lease, including, without limitation, Tenant's Percentage Share of
Operating Expenses pursuant to PARAGRAPH 5.D, the management fee described in
PARAGRAPH 5.C, Real Property Taxes and Impositions pursuant to PARAGRAPH 15, and
insurance premiums pursuant to PARAGRAPH 21, shall be deemed Additional Rent.
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F. PRORATIONS. If the Commencement Date is not the first (1st) day
of a month, or if the termination date of this Lease is not the last-day of a
month, a prorated installment of Monthly Rent based on a 30-day month shall be
paid for the fractional month during which the Lease commences or terminates.
G. INTEREST. Any amount of Rent or other charges provided for under
this Lease due and payable to Landlord which is not paid when due shall bear
interest at the Interest Rate from the date that is (i) five (5) days after the
date such Rent is due until such Rent is paid, or (ii) ten (10) days after
Tenant receives written notice from Landlord that any other charge provided for
under this Lease (other than Rent) is due and payable, until such other charge
is paid.
6. LATE PAYMENT CHARGES.
Tenant acknowledges that late payment by Tenant to Landlord of Rent
and other charges provided for under this Lease will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult or impracticable to fix. Therefore, if any installment of
Rent or any other charge due from Tenant is not received by Landlord within ten
(10) days after the date such Rent or other charge is due hereunder, Tenant
shall pay to Landlord an additional sum equal to ten percent (10%) of the amount
overdue as a late charge for every month or portion thereof that the Rent or
other charges remain unpaid. The parties agree that this late charge represents
a fair and reasonable estimate of the costs that Landlord will incur by reason
of the late payment by Tenant.
INITIALS:
[ILLEGIBLE] [ILLEGIBLE]
---------- -----------
Landlord Tenant
7. SECURITY DEPOSIT.
Tenant shall deposit with Landlord upon the execution of this Lease by
Tenant the Sum of Eighty Four Thousand Six Hundred Five and 76/100 Dollars
($84,605.76) as the Security Deposit for the full and faithful performance of
every provision of this Lease to be performed by Tenant.
If Tenant defaults with respect to any provision of this Lease, after the
expiration of any applicable cure or grace periods
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expressly provided for in this Lease, Landlord may apply all or any part of
the Security Deposit for the payment of any rent or other sum in default, the
repair of such damage to the Premises or the payment of any other amount
which Landlord may spend or become obligated to spend by reason of Tenant's
default or to compensate Landlord for any other loss or damage which Landlord
may suffer by reason of Tenant's default to the full extent permitted by law.
If any portion of the Security Deposit is so applied, Tenant shall, within
ten (10) days after written demand therefor, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount. The
Security Deposit or any balance thereof shall be returned to Tenant within
thirty (30) days after termination of the Lease, provided however, if Tenant
is in default, Landlord may retain such portion of the deposit required to
remedy such default.
8. HOLDING OVER.
If Tenant remains in possession of all or any part of the Premises
after the expiration of the Term, with the express written consent of Landlord,
such tenancy shall be month-to-month only and shall not constitute a renewal or
extension for any further term. If Tenant remains in possession either with or
without Landlord's consent, Monthly Rent shall be increased to an amount equal
to one hundred fifty percent (150%) of the Monthly Rent payable during the last
month of the Term (which Monthly Rent shall be due and payable at the same time
as Monthly rent is due under this Lease), and any other sums due under this
Lease shall be payable in the amounts and at the times specified in this Lease.
Such month-to-month tenancy shall be subject to every other term, condition, and
covenant contained herein.
9. TENANT IMPROVEMENTS.
Tenant shall construct the Tenant Improvements pursuant to the terms
of the Work Letter, subject to Landlord's payment of the tenant improvement
allowance described in the Work Letter.
10. CONDITION OF PREMISES.
A. AS IS. Landlord shall have no obligation to perform any work on
the Premises, except as set forth in PARAGRAPH 17.A of this Lease. Subject to
the provisions of PARAGRAPH 10.B below, Tenant acknowledges that it shall lease
the Premises in their "as is" condition, and Landlord shall have no obligation
to make any improvements or to perform any other work in the Premises. It is
agreed that by occupying the Premises as a tenant, Tenant formally
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accepts the Premises and acknowledges that the Premises are in the condition
called for hereunder. To the extent any matter that is Landlord's responsibility
under the Lease arises, such matter shall have no effect upon the Commencement
Date. No representation or warranty is made or shall be deemed made by Landlord
concerning the nature, quality or suitability for Tenant's business of the
Premises, and Tenant shall have no rights against Landlord by reason of such
matters or any claimed deficiencies therein, it being expressly understood that
Tenant is accepting the Premises AS IS.
B. LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord represents
and warrants to Tenant (the "Conditions Warranties") that as of the Commencement
Date the following portions of the Building shall be in operational condition
(i.e. in an operable (but not new) state of repair,free of defects that would
materially adversely affect Tenant's operation of its business in the Premises):
(i) the structural system of the Building and exterior windows of the Building,
(ii) the roof of the Building, and (iii) the electrical, HVAC and plumbing
systems of the Building. The Condition Warranties shall terminate on a date
ninety (90) days after the Commencement Date, except to the extent that
Tenant has delivered to Landlord within such 30-day period a written notice
specifying in detail any defaults by Landlord under the Condition Warranties (a
"Violation Notice"), and Landlord shall thereafter have absolutely no liability
to Tenant for the inaccuracy of any Condition Warranty, except to the extent set
forth in a Violation Notice. Landlord's liability for the correction of any
defects described in a Violation Notice shall be subject to Landlord's
reasonable right to dispute the claims set forth in any Violation Notice.
Landlord's sole liability with respect to any breach of any Condition Warranty
that is properly set forth in a timely delivered Violation Notice shall be to
promptly correct such defect; Landlord shall have no liability for any other
loss, cost, damage, expense or lost profit in connection with such breach, and
Tenant shall have no right to any abatement or offset of Rent in connection with
such breach. Provided however, subject to Landlord's right to dispute any such
claim as provided above, if Landlord fails to promptly commence remedy the
breach of a Condition Warranty, Tenant may, after giving a second Violation
Notice to Landlord, remedy such breach at Landlord's expense and Landlord shall
immediately reimburse Tenant for the reasonable cost of remedying such breach.
11. USE OF THE PREMISES.
A. TENANT'S USE. Subject to the provisions of all applicable laws,
rules and regulations, Tenant shall have the right to use the Premises for
general office purposes and, as incidental
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thereto, for the operation of a long distance telephone company and related
uses, including customer service, equipment development and limited
manufacturing and for no other use or purpose. Tenant shall not use the Premises
or suffer or permit anything to be done in or about the Premises which will in
any way conflict with any law, statute, zoning restriction, ordinance or
governmental law, rule, regulation or requirement of public authorities now in
force or which may hereafter be in force, relating to or affecting the
condition, use or occupancy of the Premises. Tenant shall not commit any public
or private nuisance or any other act or thing which might or would disturb the
quiet enjoyment of any other tenant of Landlord or any occupant of nearby
property. Tenant shall place no loads upon the floors, walls or ceilings in
excess of the maximum designed load determined by a licensed structural engineer
or which endangerr the structure nor place any harmful liquids in the drainage
systems; nor dump or store waste materials or refuse or allow waste materials or
refuse to remain outside the Premises proper, except in the enclosed trash areas
provided. Tenant shall not store or permit to be stored or otherwise placed any
other material of any nature whatsoever outside the Premises, except on a
temporary basis with the written consent of Landlord.
B. HAZARDOUS MATERIALS.
(i) HAZARDOUS MATERIALS DEFINED. As used herein, the term
"HAZARDOUS MATERIALS" shall mean any wastes, materials or substances (whether in
the form of liquids, solids or gases, and whether or not air-borne), which are
or are deemed to be (a) pollutants or contaminants, or which are or are deemed
to be hazardous, toxic, ignitable, reactive, corrosive, dangerous, harmful or
injurious, or which present a risk to public health or to the environment, or
which are or may become regulated by or under the authority of any applicable
local, state or federal laws, judgments, ordinances, orders, rules, regulations,
codes or other governmental restrictions, guidelines or requirements, any
amendments or successor(s) thereto, replacements thereof or publications
promulgated pursuant thereto, including, without limitation, any such items or
substances which are or may become regulated by any of the Environmental Laws
(as hereinafter defined); (b) listed as a chemical known to the State of
California to cause cancer or reproductive toxicity pursuant to Section 25249.8
of the California Health and Safety Code, Division 20, Chapter 6.6 (Safe
Drinking Water and Toxic Enforcement Act of 1986); or (c) a pesticide,
petroleum, including crude oil or any fraction thereof, asbestos or any
asbestos-containing material, a polychlorinated biphenyl, radioactive material,
or urea formaldehyde.
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(ii) ENVIRONMENTAL LAWS DEFINED. In addition to the laws
referred to in PARAGRAPH 11.B.(i) above, the term "ENVIRONMENTAL LAWS" shall
be deemed to include, without limitation, 33 U.S.C. Section 1251 ET SEQ., 42
U.S.C. Section 6901 ET SEQ., 42 U.S.C. Section 7401 ET SEQ., 42 U.S.C.
Section 9601 ET SEQ., and California Health and Safety Code Section 25100 ET
SEQ., and 25300 ET SEQ., California Water Code, Section 13020 ET SEQ., or
any successor(s) thereto, all local, state and federal laws, judgments,
ordinances, orders, rules, regulations, codes and other governmental
restrictions, guidelines and requirements, any amendments and successors
thereto, replacements thereof and publications promulgated pursuant thereto,
which deal with or otherwise in any manner relate to, air or water quality,
air emissions, soil or ground conditions or other environmental matters of
any kind.
(iii) USE OF HAZARDOUS MATERIALS. Tenant agrees that during
the Term of this Lease, Tenant shall not use, or permit the use of, nor
store, generate, treat, manufacture or dispose of Hazardous Materials on,
from or under the Premises (individually and collectively, "Hazardous Use")
except to the extent that, and in accordance with such conditions as,
Landlord may have previously approved in writing in its sole and absolute
discretion. Notwithstanding the foregoing, Tenant shall be entitled to use
and store only those Hazardous Materials which are (a) set forth in a list
prepared by Tenant and approved in writing by Landlord, which shall be deemed
given with respect to the Approved Hazardous Materials (hereinafter defined),
(b) necessary for Tenant's business, but then only in the amounts and for the
purposes previously disclosed in writing to and approved in writing by
Landlord, and (c) in full compliance with Environmental Laws, and all
judicial and administrative decisions pertaining thereto. All Hazardous
Materials approved in writing by Landlord as provided in the preceding
sentence shall collectively be referred to as the "APPROVED HAZARDOUS
MATERIALS". Within thirty (30) days after request by Landlord, Tenant shall
deliver to Landlord a list of the Approved Hazardous Materials. Tenant shall
not be entitled to install any tanks under, on or about the Premises for the
storage of Hazardous Materials without the express written consent of
Landlord, which may be given or withheld in Landlord's sole discretion. For
the purposes of this PARAGRAPH 11.B.(iii), the term Hazardous Use shall
include Hazardous Use(s) on, from or under the Premises by Tenant or any of
its directors, officers, employees, shareholders, partners, invitees, agents,
contractors or occupants (collectively, "TENANT'S PARTIES"), whether known or
unknown to Tenant, occurring during the Term of this Lease. The term
"Tenant's Parties" shall not include any tenants of the Project other than
Tenant, except that
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the term "Tenant's Parties" shall include any Subtenant occupying all or any
portion of the Premises during the Term.
(iv) HAZARDOUS MATERIALS REPORT; WHEN REQUIRED. Tenant shall
submit to Landlord a written report with respect to Hazardous Materials
("Report") in the form prescribed in PARAGRAPH 11.B.(v) below on the following
dates:
(a) At any time within ten (10) days after written
request by Landlord, and
(b) At any time when there has been a violation of any
Environmental Law, or in connection with any proposed request for Landlord's
consent to any change in the list of Approved Hazardous Materials or for an
increase in the intensity of usage or storage of such Approved Hazardous
Materials.
(v) HAZARDOUS MATERIALS REPORT; CONTENTS. The Report shall
contain, without limitation, the following information:
(a) Whether on the date of the Report and (if
applicable) during the period since the last Report there has been any Hazardous
Use on, from or under the Premises, other than the use of Approved Hazardous
Materials.
(b) If there was such Hazardous Use, the exact
identity of the Hazardous Materials (other than the Approved Hazardous
Materials), the dates upon which such materials were brought upon the Premises,
the dates upon which such Hazardous Materials were removed therefrom, and the
quantity, location, use and purpose thereof.
(c) If there was such Hazardous Use, any governmental
permits maintained by Tenant with respect to such Hazardous Materials, the
issuing agency, original date of issue, renewal dates (if any) and expiration
date. Copies of any such permits and applications therefor shall be attached.
(d) If there was such Hazardous Use, any governmental
reporting or inspection requirements with respect to such Hazardous Materials,
the governmental agency to which reports are made and/or which conducts
inspections, and the dates of all such reports and/or inspections (if
applicable) since the last Report. Copies of any such Reports shall be attached.
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(e) If there was such Hazardous Use, identification of
any operation or use plan prepared for any government agency with respect to
Hazardous Use.
(f) Any liability insurance carried by Tenant with
respect to Hazardous Materials, if any, the insurer, policy number, date of
issue, coverage amounts, and date of expiration. Copies of any such policies or
certificates of coverage shall be attached.
(g) Any notices of violation of Environmental Laws,
written or oral, received by Tenant from any governmental agency since the last
Report, the date, name of agency, and description of violation. Copies of any
such written notices shall be attached.
(h) Any knowledge, information or communication which
Tenant has acquired or received relating to (x) any enforcement, cleanup,
removal or other governmental or regulatory action threatened or commenced
against Tenant or with respect to the Premises pursuant to any Environmental
Laws; (y) any claim made or threatened by any person or entity against Tenant or
the Premises on account of any alleged loss or injury claimed to result from any
alleged Hazardous Use on or about the Premises; or (z) any report, notice or
complaint made to or filed with any governmental agency concerning any Hazardous
Use on or about the Premises. The Report shall be accompanied by copies of any
such claim, report, complaint, notice, warning or other communication that is in
the possession of or is available to Tenant.
(i) Such other pertinent information or documents as
are reasonably requested by Landlord in writing.
(vi) RELEASE OF HAZARDOUS MATERIALS; NOTIFICATION AND CLEANUP.
(a) At any time during the Term, if Tenant knows or
believes that any release of any Hazardous Materials has come or will come to be
located upon, about or beneath the Premises, - Tenant shall immediately, either
prior to the release or following the discovery thereof by Tenant, give verbal
and follow-up written notice of that condition to Landlord.
(b) At its sole cost and expense, Tenant covenants to
investigate, clean up and otherwise remediate any release of Hazardous Materials
which were caused or created by Tenant or any of Tenant's Parties. Such
investigation, clean-up and
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remediation shall be performed only after Tenant has obtained, if practicable,
Landlord's written consent, which shall not be unreasonably withheld; provided,
however, that Tenant shall be entitled to respond immediately to an emergency
without first obtaining Landlord's written consent. All clean-up and remediation
shall be done in compliance with Environmental Laws and to the reasonable
satisfaction of Landlord.
(c) Notwithstanding the foregoing, Landlord shall have
the right, but not the obligation, in Landlord's sole and absolute discretion,
exercisable by written notice to Tenant, to undertake within or outside the
Premises all or any portion of any reasonable investigation. Extended Term
clean-up or remediation with respect to any Hazardous Use of such Hazardous
Materials by Tenant or any of Tenant's Parties (or, once having undertaken any
of such work, to cease same, in which case Tenant shall perform the work), all
at Tenant's sole cost and expense, which shall be paid by Tenant as Additional
Rent within ten (10) days after receipt of written request therefor by Landlord
(and which Landlord may require to be paid prior to commencement of any work by
Landlord); provided, however, that Tenant's obligation to pay for such work
shall only be applicable if Tenant fails to perform its obligations under this
PARAGRAPH 11 (including without limitation the obligations described in
Paragraph 11.B.(vi)(b)). No such work by Landlord shall create any liability on
the part of Landlord to Tenant or any other party in connection with such
Hazardous Materials by Tenant or any of Tenant's Parties or constitute an
admission by Landlord of any responsibility with respect to such Hazardous
Materials.
(d) It is the express intention of the parties hereto
that Tenant shall be liable under this PARAGRAPH 11.B.(vi) for any and all
conditions covered hereby which were or are caused or created by Tenant or any
of Tenant's Parties, whether occurring prior to, on, or after the Commencement
Date. Tenant shall not enter into any settlement agreement, consent decree or
other compromise with respect to any claims relating to any Hazardous Materials
in any way connected to the Premises without first (x) notifying Landlord of
Tenant's intention to do so and affording Landlord the opportunity to
participate in any such proceedings, and (y) obtaining Landlord's written
consent, which shall not be unreasonably withheld.
(vii) INSPECTION AND TESTING BY LANDLORD. Landlord shall have
the right at all times during the Term of this Lease to (a) inspect the
Premises, as well as such of Tenant's books and records pertaining to the
Premises and the conduct of Tenant's business therein, and to (b) conduct tests
and investigations to determine
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whether Tenant is in compliance with the provisions of this PARAGRAPH 11.B.
Except in case of emergency, Landlord shall give reasonable notice to Tenant
before conducting any inspections, tests, or investigations in accordance with
Paragraph 19, shall provide Tenant with a work plan describing any testing that
shall be performed at the Premises, and shall use reasonable efforts to minimize
interference with the conduct of Tenant's business at the Premises caused by any
such inspections, tests, or investigations. The cost of all such inspections,
tests and investigations shall be borne by Tenant, if Tenant is in violation or
breach of any provision of PARAGRAPH 11.B of this Lease. Neither any action or
inaction on the part of Landlord pursuant to this PARAGRAPH 11.B.(vii) shall be
deemed in any way to release Tenant from, or in any way modify or alter,
Tenant's responsibilities, obligations, and liabilities incurred pursuant to
PARAGRAPH 11.B hereof.
(viii) INDEMNITY. Tenant shall indemnify, defend, protect, hold
harmless, and, at Landlord's option (with such attorneys as Landlord may approve
in advance and in writing), defend Landlord, Landlord's Agents, and Landlord's
officers, directors, shareholders, partners, employees, contractors, property
managers, agents and mortgagees and other lien holders, from and against any and
all "Losses" (hereinafter defined) arising during the Term from or related to:
(a) any violation or alleged violation by Tenant or any of Tenant's Parties of
any of the requirements, ordinances, statutes, regulations or other laws
referred to in this PARAGRAPH 11.B, including, without limitation, the
Environmental Laws, whether such violation or alleged violation occurred prior
to, on, or after the Commencement Date; (b) any breach of the provisions of this
PARAGRAPH 11.B by Tenant or any of Tenant's Parties; or (c) any Hazardous Use
on, about or from the Premises by Tenant or any of Tenant's Parties of any
Hazardous Materials approved by Landlord under this Lease, whether such
Hazardous Use occurred prior to, on, or after the Commencement Date. The term
"Losses" shall mean all claims, demands, expenses, actions, judgments, damages
(whether consequential, direct or indirect, known or unknown, foreseen or
unforeseen), penalties, fines, liabilities, losses of every kind and nature
(including, without limitation, property damage, diminution in value of
Landlord's interest in the Premises, damages for the' loss or restriction ON USE
of any space or amenity within the Premises, damages arising from any adverse
impact on marketing space in the Premises, sums paid in settlement of claims and
any costs and expenses associated with injury, illness or death to or of any
person), suits, administrative proceedings, costs and fees, including, but not
limited to, attorneys' and consultants' fees and expenses, and the costs of
cleanup, remediation, removal and
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restoration, that are in any way related to any matter covered by the foregoing
indemnity.
Landlord shall indemnify, defend, protect, hold harmless Tenant, from and
against any and all "Losses" (hereinafter defined) arising during the Term from
or related to: (a) any violation or alleged violation by Landlord of any of the
requirements, ordinances, statutes, regulations or other laws referred to in
this PARAGRAPH 11.B, including, without limitation, the Environmental Laws,
whether such violation or alleged violation occurred on or after the
Commencement Date; (b) any breach of the provisions of this PARAGRAPH 11.B by
Landlord; or (c) any Hazardous Use on, about or from the Premises by Landlord
whether such Hazardous Use occurred on, or after the Commencement Date. The term
"Losses" shall mean all claims, demands, expenses, actions, judgments, damages,
penalties, fines, liabilities, including, without limitation, property damage,
diminution in value of Tenant's interest in the Premises, damages for the loss
or restriction on use of any space or amenity within the Premises, damages
arising from any adverse impact on marketing space in the Premises, and the
costs of cleanup, remediation, removal and restoration, that are in any way
related to any matter covered by the foregoing indemnity.
(ix) SURVIVAL. The provisions of this PARAGRAPH 11.B shall
survive the expiration or earlier termination of this Lease.
C. SPECIAL PROVISIONS RELATING TO THE AMERICANS WITH DISABILITIES
ACT OF 1990.
(i) ALLOCATION OF RESPONSIBILITY TO LANDLORD. As between
Landlord and Tenant, Landlord shall be responsible that the Common Area complies
with the requirements of Title III of the Americans with Disabilities Act of
1990 (42 U.S.C. 12181, et seq., The Provisions Governing Public Accommodations
and Services Operated by Private Entities), and all regulations promulgated
thereunder, and all amendments, revisions or modifications thereto now or
hereafter adopted or in effect in connection therewith (hereinafter collectively
referred to as the "ADA"), and to take such actions and make such alterations
and improvements as are necessary for such compliance; provided, however, that
to the extent such requirements arise from the construction of any Alterations
to the Premises made by or on behalf of Tenant, then as between Landlord and
Tenant, Tenant shall be responsible that the Common Area complies with the
requirements of the ADA, and to take such actions and make such alterations and
improvements as are necessary for such compliance.
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(ii) ALLOCATION OF RESPONSIBILITY TO TENANT. As between
Landlord and Tenant, Tenant, at its sole cost and expense, shall be responsible
that the Premises (and all modifications made by Tenant of access to the
Premises from the street), and all alterations and improvements in the Premises
(including without limitation the Tenant Improvements), and Tenant's use and
occupancy of the Premises, and Tenant's performance of its obligations under
this Lease, comply with the requirements of the ADA, and to take such actions
and make such alterations and improvements as are necessary for such compliance;
provided, however, that Tenant shall not make any such alterations or
improvements except with Landlord's prior written consent (which shall not be
unreasonably withheld) pursuant to the terms and conditions of this Lease. If
Tenant fails diligently to take such actions or make such alterations or
improvements as are necessary for such compliance, Landlord may, but shall not
be obligated to, take such actions and make such alterations and improvements
and may recover all of the costs and expenses of such actions, alterations and
improvements from Tenant as Additional Rent.
(iii) GENERAL. Notwithstanding anything in this Lease contained
to the contrary, no act or omission of either party, including any approval,
consent or acceptance by it or its agents, employees or other representatives,
shall be deemed an agreement, acknowledgment, warranty, or other representation
by it that the other party has complied with the ADA as provided under
PARAGRAPHS 11.C.(i) or 11.C.(ii) or that any action, alteration or improvement
by it complies or will comply with the ADA as provided under Paragraphs 11.C.(i)
or 11.C.(ii) or constitutes a waiver by it of the other party's obligations to
comply with the ADA under Paragraphs 11.C.(i) or 11.C.(ii) of this Lease or
otherwise. Any failure of either party to comply with its obligations of the ADA
under PARAGRAPHS 11.C.(i) or 11.C.(ii) shall not relieve such party from any
obligations under this Lease or in the case of Landlord's failure to comply
under PARAGRAPH 11.C.(i), constitute or be construed as a constructive or other
eviction of Tenant or disturbance of Tenant's use and possession of the
Premises.
12. QUIET ENJOYMENT.
Landlord covenants that Tenant, upon performing the terms, conditions
and covenants of this Lease, shall have quiet and peaceful possession of the
Premises as against any person claiming the same by, through or under Landlord.
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13. ALTERATIONS.
After the Commencement Date, Tenant shall not make or permit any
Alterations in, on or about the Premises, except for nonstructural Alterations
not exceeding THIRTY THOUSAND DOLLARS ($30,000) in cost during
any period of twelve (12) consecutive months, without the prior written consent
of Landlord, and according to plans and specifications approved in writing by
Landlord, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing Tenant shall not, without the prior written consent of Landlord, make
any:
(i) Alterations to the exterior of the Building;
(ii) Alterations to and penetrations of the roof of the Building; and
(iii) Alterations visible from outside the Building, to which Landlord
may withhold Landlord's consent on wholly aesthetic grounds.
All Alterations shall be installed at Tenant's sole expense, in compliance with
all applicable laws, by a licensed contractor, shall be done in a good and
workmanlike manner conforming in quality and design with the Premises existing
as of the Commencement Date, and shall not diminish the value of either the
Project or the Premises. All Alterations made by Tenant shall be and become the
property of Landlord upon installation and shall not be deemed Tenant's Personal
Property; provided, however, that Landlord shall notify Tenant upon Landlord's
consent to such Alterations by Landlord (or if Landlord's consent is not
required, upon written request by Tenant) whether Tenant will be required to
remove, at Tenant's expense, such Alterations from the Premises at the
expiration or sooner termination of this Lease and to return the Premises to
their condition as of the Commencement Date of this Lease, normal wear and tear
excepted and subject to the provisions of Paragraph 23. With respect to any
Alterations as to which Landlord's consent is not required, Landlord may require
Tenant to remove, at Tenant's expense, such Alterations from the Premises at the
expiration or earlier termination of this Lease; provided, that upon Tenant's
written request prior to making such Alterations, Landlord shall notify Tenant
whether Tenant will be so required to remove such Alterations from the Premises.
Notwithstanding any other provision of this Lease, Tenant shall be solely
responsible for the maintenance and repair of any and all Alterations made by it
to the Premises. Tenant shall give Landlord written notice of Tenant's intention
to perform work on the Premises at least ten (10) days
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prior to the commencement of such work to enable Landlord to post and record a
Notice of Nonresponsibility or other notice deemed proper before the
commencement of any such work and Tenant shall promptly deliver to Landlord
copies of all building permits for all Alterations.
14. SURRENDER OF THE PREMISES.
Upon the expiration or earlier termination of the Term, Tenant shall
surrender the Premises to Landlord in its condition existing as of the
Commencement Date, normal wear and tear and fire or other casualty excepted,
with all interior walls repaired if damaged, all broken, marred or nonconforming
acoustical ceiling tiles replaced, all windows washed, the plumbing and
electrical systems and lighting in good order and repair, including replacement
of any burned out or broken light bulbs or ballasts, the HVAC equipment serviced
and repaired by a reputable and licensed service firm, and all floors cleaned,
all to the reasonable satisfaction of Landlord. Tenant shall remove from the
Premises all of Tenant's Alterations required to be removed pursuant to
Paragraph 13, and all Tenant's Personal Property, and repair any damage and
perform any restoration work caused by such removal. If Tenant fails to remove
such Alterations and Tenant's Personal Property, and such failure continues
after the expiration or earlier termination of this Lease, Landlord may retain
such Alterations and Tenant's Personal Property and all rights of Tenant with
respect to it shall cease, or Landlord may place all or any portion of such
Alterations and Tenant's Personal Property in public storage for Tenant's
account. Tenant shall be liable to Landlord for costs of removal of any such
Alterations and Tenant's Personal Property and storage and transportation costs
of same, and the cost of repairing and restoring the Premises, together with
interest at the Interest Rate from the date of expenditure by Landlord. If the
Premises are not so surrendered at the expiration or earlier termination of this
Lease, Tenant shall indemnify Landlord and its Agents against all loss or
liability, including reasonable attorneys' fees and costs, resulting from delay
by Tenant in so surrendering the Premises.
Normal wear and tear, for the purposes of this Lease, shall be
construed to mean wear and tear caused to the Premises by a natural aging
process which occurs in spite of prudent application of the best standards for
maintenance, repair and janitorial practices. It is not intended, nor shall it
be construed, to include items of neglected or deferred maintenance which would
have or should have been attended to during the Term of the Lease if the best
standards had been applied to properly maintain and keep the Premises at all
times in good condition and repair.
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15. IMPOSITIONS AND REAL PROPERTY TAXES.
A. PAYMENT BY TENANT. Tenant shall pay Tenant's Percentage Share of
Real Property Taxes pursuant to Paragraph 5(D) of this Lease. In addition,
Tenant shall pay all Impositions prior to delinquency. If billed directly,
Tenant shall pay such Impositions and concurrently present to Landlord
satisfactory evidence of such payments. If any Impositions are billed to
Landlord or included in bills to Landlord for Real Property Taxes, then Tenant
shall pay to Landlord all such amounts within fifteen (15) days after receipt of
Landlord's invoice therefor. If applicable law prohibits Tenant from reimbursing
Landlord for an Imposition, but Landlord may lawfully increase the Monthly Rent
to account for Landlord's payment of such Imposition, the Monthly Rent payable
to Landlord shall be increased to net to Landlord the same return without
reimbursement of such Imposition as would have been received by Landlord with
reimbursement of such Imposition.
B. TAXES ON TENANT IMPROVEMENTS AND PERSONAL PROPERTY. Tenant shall
pay any increase in Real Property Taxes resulting from any and all Alterations
and Tenant Improvements of any kind whatsoever placed in, on or about the
Premises for the benefit of, at the request of, or by Tenant. Tenant shall pay
prior to delinquency all taxes assessed or levied against Tenant's Personal
Property in, on or about the Premises or elsewhere. When possible, Tenant shall
cause its Personal Property to be assessed and billed separately from the
Premises and the real property or Personal Property of Landlord.
16. UTILITIES AND SERVICES.
Tenant shall be responsible for and shall pay promptly all charges
(including initial and subsequent deposits) for water, gas, electricity,
telephone, refuse pick-up, sewer, janitorial service and all other utilities,
materials and services furnished directly to or used by Tenant in, on or about
the Premises during the Term, together with any taxes thereon. The parties
acknowledge that a portion of the water and electricity supplied to the Common
Area is measured by meters at the Building and is billed to the Building.
Landlord and Tenant shall mutually and reasonably determine whether the portion
of the Common Area water and electricity billed to the Building is fairly
allocated to Tenant. If such existing billing is fairly allocated to Tenant, the
Tenant shall pay 100% of the water and electricity billed to the Building and
Tenant shall pay no portion of the water and electricity billed to the other
building in the Project. If such existing billing is not fairly allocated to
Tenant, then Landlord shall use reasonable
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efforts to separately meter, or submeter, the water and electricity for the
Project. Landlord shall pay all costs of installing such separate meters or
submeters, and such costs shall not constitute an Operating Expense. If such
existing billing is not fairly allocated to Tenant, then before installation
of the separate meters or submeters Tenant shall only be obligated to pay
Tenant's Percentage Share of Common Area water and electricity, as reasonably
and mutually determined by Landlord and Tenant. Landlord shall not be liable
in damages or otherwise for any failure or interruption of any utility
service or other service furnished to the Premises, except that resulting
from the gross negligence or willful misconduct of Landlord.
17. REPAIR AND MAINTENANCE.
A. LANDLORD'S OBLIGATIONS. As an Operating Expense, Landlord
shall keep in good order, condition and repair the structural parts of the
Building, which structural parts include only the foundation, subflooring,
exterior walls (excluding the interior of all walls and the exterior and
interior of all windows, doors, ceilings, and plate glass), and the roof
structure and membrane of the Buildings except for any damage thereto caused
by the negligence or willful acts or omissions of Tenant or of Tenant's
agents, employees or invitees, or by reason of the failure of Tenant to
perform or comply with any terms of this Lease, or caused by Alterations made
by Tenant or by Tenant's agents, employees or contractors. It is an express
condition precedent to all obligations of Landlord to repair and maintain
that Tenant shall have notified Landlord of the need for such repairs or
maintenance. Tenant waives the provisions of Sections 1941 and 1942 of the
California Civil Code and any similar or successor law regarding Tenant's
right to make repairs and deduct the expenses of such repairs from the Rent
due under this Lease.
B. TENANT'S OBLIGATIONS. Tenant shall at all times and at its sole
cost and expense clean, keep and maintain in good order, condition and repair
(and replace, if necessary) every part of the Premises which is not within
Landlord's obligation pursuant to PARAGRAPH 17.A. Tenant's repair and
maintenance obligations shall include without limitation, all plumbing and
sewage facilities within the Premises, HVAC, fixtures, interior walls and
ceiling, floors, windows, doors, entrances, plate glass, showcases,
skylights, all electrical facilities and equipment, including lighting
fixtures, lamps, fans and any exhaust equipment and systems, electrical
motors and all other appliances and equipment of every kind and nature
located in, upon or about the Premises. Tenant shall also be responsible for
all pest control within the Premises.
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C. COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Tenant shall, at its
sole cost and expense, comply with, including the making by Tenant of any
Alteration to the Premises, all present and future regulations, rules, laws,
ordinances, and requirements of all governmental authorities (including, without
limitation state, municipal, county and federal governments and their
departments, bureaus, boards and officials) arising from Tenant's use or
occupancy of, or applicable to, the Premises or in connection with Tenant's
enjoyment of the Premises. Notwithstanding the foregoing, Landlord, and not
Tenant, shall be obligated to make any Alterations to the structural parts of
the Building maintained by Landlord pursuant to PARAGRAPH 17.A. that are
required to comply with any present and future regulations, rules, laws,
ordinances, and governmental requirements unless such Alterations to the
structural parts of the Building are required solely as a result of any other
Alterations to the Building made by Tenant during the Term of this Lease, in
which case Tenant shall reimburse Landlord for the cost of any such Alterations
to the structural parts of the Building that are required to comply with
regulations, rules, laws, ordinances and governmental requirements.
D. LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's
obligations under PARAGRAPH 17.B, Landlord may in its sole discretion give
Tenant notice of such work as is reasonably required to fulfill such
obligations. If Tenant fails to commence the work within thirty (30) days after
receipt of such notice and diligently prosecute the work to completion, then
Landlord shall have the right (but not the obligation) to do such acts or expend
such funds at the expense of Tenant as are reasonably required to perform such
work. Any amount so expended by Landlord shall be paid by Tenant to Landlord
promptly after demand with interest at the Interest Rate. Landlord shall have no
liability to Tenant for any damage to, or interference with Tenant's use of, the
Premises, or inconvenience to Tenant as a result of performing any such work.
E. CONDITIONS APPLICABLE TO REPAIRS. All repairs, replacements and
reconstruction made by or on behalf of Tenant or any person claiming through or
under Tenant shall be made and performed (i) at Tenant's sole cost and expense,
in a good and workmanlike manner and at such time and in such manner as Landlord
may reasonably designate, (ii) by contractors approved in advance by Landlord,
WHICH APPROVAL SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED (iii) so that the
repairs, replacements or reconstruction shall be at least equal in quality,
value and utility to the original work or installation, (iv) in accordance with
such reasonable requirements as Landlord may impose with respect to insurance
and bonds to be obtained by Tenant in connection with the
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proposed work, and (v) in accordance with any rules and regulations for the
Building as may reasonably be adopted by Landlord from time to time and in
accordance with all applicable laws and regulations of governmental authorities
having jurisdiction over the Premises.
18. LIENS.
Tenant shall keep the Project and the Premises free from any liens
arising out of any work performed, materials furnished or obligations incurred
by or on behalf of Tenant and hereby agrees to indemnify, defend, protect and
hold Landlord and its Agents harmless from and against any and all loss, claim,
damage, liability, cost and expense, including attorneys' fees and costs, in
connection with or arising out of any such lien or claim of lien. Tenant shall
cause any such lien imposed to be released of record by payment or posting of a
proper bond acceptable to Landlord within ten (10) days after written request by
Landlord. Tenant shall give Landlord written notice of Tenant's intention to
perform work on the Premises which might result in any claim of lien at least
ten (10) days prior to the commencement of such work to enable Landlord to post
and record a Notice of Nonresponsibility or any such other notice(s) as Landlord
may deem appropriate. If Tenant fails to so remove any such lien within the
prescribed ten 10-day period, then Landlord may do so at Tenant's expense and
Tenant shall reimburse Landlord for such amounts upon demand. Such reimbursement
shall include all costs incurred by Landlord including Landlord's reasonable
attorneys' fees with interest thereon at the Interest Rate.
19. LANDLORD'S RIGHT TO ENTER THE PREMISES.
Tenant shall permit Landlord and its Agents to enter the Premises at
all reasonable times with reasonable notice, except for emergencies in which
case no notice shall be required, to inspect the same, to post Notices of
Nonresponsibility and similar notices, and real estate "For Sale" signs, to show
the Premises to interested parties such as prospective lenders and purchasers,
to make necessary repairs, to discharge Tenant's obligations hereunder when
Tenant has failed to do so within a reasonable time after written notice from
Landlord, and at any reasonable time within one hundred and eighty (180) days
prior to the expiration of the Term, to place upon the Building ordinary "For
Lease" signs and to show the Premises to prospective tenants.
20. SIGNS.
Subject to Tenant obtaining all necessary approvals from the City of
San Diego and subject to Landlord's review and approval
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of plans and specifications for any proposed signage, which approval shall not
be unreasonably withheld, Tenant shall have the right to install Tenant
identification signage on the exterior of the Building. In addition, subject to
Tenant obtaining all necessary approvals from the City of San Diego and subject
to Landlord's review and approval of plans and specifications for any proposed
signage, which approval shall not be unreasonably withheld, Tenant shall have
the right to install its signage on no more than 50%; of the monument sign
located at Willow Creek Road and Business Park Avenue. Tenant shall have no
right to maintain any Tenant identification sign in any other location in, on or
about the Project or the Premises and shall not display or erect any other
Tenant identification sign, display or other advertising material that is
visible from the exterior of the Building. The cost of Tenant's sign(s) and
their installation, maintenance and removal (including any necessary repairs to
the Building caused by such removal) shall be Tenant's sole cost and expense. If
Tenant fails to maintain its sign(s), or, if Tenant fails to remove its sign(s)
upon termination of this Lease, Landlord may do so at Tenant's expense and the
amounts expended by Landlord in doing so shall be immediately payable by Tenant
to Landlord as Additional Rent.
21. INSURANCE.
A. INDEMNIFICATION.
(i) Tenant shall indemnify, defend, protect and hold
Landlord REASONABLY harmless of and from any and all loss, liens, liability,
claims, causes of action, damage, injury, cost or expense arising out of or
in connection with, or related to (i) the making of Alterations, or (ii)
injury to or death of persons or damage to property occurring or resulting
directly or indirectly from: (A) the use or occupancy of, or the conduct of
business in, the Premises; (B) the use, storage, release or disposal by
Tenant or Tenant's employees, agents, contractors, licensees or invitees, of
any Hazardous Materials in or about the Premises or any other portion of the
Project; (C) any other occurrence or condition in or on the Premises; and (D)
acts, neglect or omissions of Tenant, its officers, directors, agents,
employees, invitees or licensees in or about any portion of the Project.
Tenant's indemnity obligation includes reasonable attorneys' fees and costs,
investigation costs and all other reasonable costs and expenses incurred by
Landlord. If Landlord disapproves the legal counsel proposed by Tenant for
the defense of any claim indemnified against hereunder, Landlord shall have
the right to appoint its own legal counsel, the reasonable fees, costs and
expenses of which shall be included as part of Tenant's indemnity obligation
hereunder. The indemnification
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contained in this SECTION 21.A shall extend to the officers, directors,
shareholders, partners, employees, agents and representatives of Landlord.
The obligations assumed by Tenant herein shall survive this Lease.
Notwithstanding the foregoing, Landlord shall have the right, in its sole
discretion, but without being required to do so, to defend, adjust, settle or
compromise any claim, obligation, debt, demand, suit or judgment against
Landlord arising out of or in connection with the matters covered by the
foregoing indemnity and, in such event, Tenant shall reimburse Landlord for
all reasonable charges and expenses incurred by Landlord in connection
therewith, including reasonable attorneys, fees; provided however, TENANT
SHALL NOT BE LIABLE FOR THE COST OF ANY UNILATERAL ACTION OR SETTLEMENT BY
LANDLORD WITHOUT TENANT'S WRITTEN CONSENT.
(ii) Landlord hereby agrees to defend, indemnify, protect and
hold harmless Tenant from and against any and all damage, loss, cost, claim,
liability or expense, including reasonable attorneys, fees and legal costs,
suffered directly or by reason of any claim, suit or judgment brought by or in
favor of any person or persons for damage, loss or expense due to, but not
limited to, bodily injury and property damage sustained by such person or
persons which arises out of, is occasioned by or is in any way attributable to
the acts or omissions of Landlord, Landlord's Agents, or any contractors brought
onto the Premises by Landlord, except to the extent caused by the negligence or
willful misconduct of Tenant, its agents, employees or contractors. Landlord
agrees that the obligations assumed herein shall survive this Lease. Landlord's
obligations under this Paragraph 21.A.(ii) are subject to the following
conditions: (i) Landlord is promptly notified in writing of any such claim(s);
(ii) Landlord shall have the right to control the defense of such claim(s) and
any settlement negotiations, provided, however, that no action may be taken by
Landlord which may materially and adversely affect Tenant's rights or
obligations without Tenant's consent; and (iii) Tenant shall cooperate with
Landlord in the defense and/or settlement of such claim(s). Notwithstanding the
foregoing, Tenant shall have the right, in its sole discretion, but without
being required to do so, to defend, adjust, settle or compromise any claim,
obligation, debt, demand, suit or judgment against Landlord arising out of or in
connection with the matters covered by the foregoing indemnity and, in such
event, Landlord
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shall reimburse Tenant for all reasonable charges and expenses incurred by
Tenant in connection therewith, including reasonable attorneys' fees; provided,
however, that Tenant shall not undertake any unilateral action or settlement so
long as Landlord or an insurance company, at its or their sole expense, is
contesting in good faith, diligently and with continuity such claim, action,
obligation, demand or suit, and so long as such claim, action, obligation,
demand or suit does not have or threaten-to have a material adverse impact on
Tenant's assets, reputation or business affairs.
B. TENANT'S INSURANCE. Tenant agrees to maintain in full force and
effect at all times during the Term, at its sole cost and expense, for the
protection of Tenant and Landlord, as their interests may appear, policies of
insurance issued by a responsible carrier or carriers REASONABLY acceptable to
Landlord which afford the following coverages:
(i) Commercial general liability insurance in an amount not
less than Three Million and no/100ths Dollars ($3,000,000.00) combined single
limit for both bodily injury and property damage which includes blanket
contractual liability broad form property damage, personal injury, completed
operations, products liability, and fire damage legal (in an amount not less
than Twenty-Five Thousand and no/100ths Dollars ($25,000.00)), which policy
shall name Landlord and its Agents as additional insureds and shall contain a
provision that "the insurance provided Landlord hereunder shall be primary
and non-contributing with any other insurance available to Landlord with
respect to any damage, loss, liability or expense covered by Tenant's
indemnity obligations under PARAGRAPH 21.A.(i) of the Lease."
(ii) Causes of loss-special form property insurance
(including, without limitation, vandalism, malicious mischief, inflation
endorsement, and sprinkler leakage endorsement) on Tenant's Personal Property
located on or in the Premises. Such insurance shall be in the full amount of
the replacement cost, as the same may from time to time increase as a result
of inflation or otherwise. As long as this Lease is in effect, the proceeds
of such policy shall be used for the repair and replacement of such items so
insured. Landlord shall have no interest in the insurance proceeds on
Tenant's Personal Property. Notwithstanding the foregoing, Tenant shall have
the right, at its election, to self-insure with respect to any loss or damage
to Tenant's Personal Property.
(iii) Boiler and machinery insurance, including steam pipes,
pressure pipes, condensation return pipes and other pressure
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vessels and HVAC equipment, including miscellaneous electrical apparatus, in an
amount satisfactory to Landlord.
(iv) Workers compensation insurance in the manner and to the
extent required by applicable law and with limits of liability not less than the
minimum required under applicable law, covering all employees of Tenant having
any duties or responsibilities in or about the Premises.
C. PREMISES INSURANCE. During the Term, as an Operating Expense,
Landlord shall maintain causes of loss-special form property insurance
(including inflation endorsement, sprinkler leakage endorsement, and, at
Landlord's option, earthquake and flood coverage) on the Building, excluding
coverage of all Tenant's Personal Property located on or in the Premises, but
including the Tenant Improvements. Such insurance shall name Landlord and its
Agents as named insureds and include a lender's loss payable endorsement in
favor of Landlord's lender (Form 438 BFU Endorsement). If the insurance
premiums are increased after the Commencement Date due to Tenant's use of the
Premises or any improvements installed by Tenant, Tenant shall pay such
increase within ten (10) days of notice of such increase. Landlord may, in
its sole discretion, maintain the insurance coverage described in this
PARAGRAPH 21.C as part of an umbrella insurance policy covering other
properties owned by Landlord.
D. INCREASED COVERAGE. Upon demand, Tenant shall provide
Landlord, at Tenant's expense, with such increased amount of existing
insurance, and such other insurance as Landlord or Landlord's lender may
reasonably require to afford Landlord and Landlord's lender adequate
protection.
E. FAILURE TO MAINTAIN. If Tenant fails to maintain any insurance
coverage that Tenant is required to maintain under this Paragraph 21, and
Landlord incurs any liability to its insurance carrier arising out of Tenant's
failure to so maintain such insurance coverage, then any and all loss or damage
Landlord shall sustain by reason thereof, including attorneys' fees and costs,
shall be borne by Tenant and shall be immediately paid by Tenant upon its
receipt of a bill therefor and evidence of such loss. Nothing contained in this
PARAGRAPH 21.E shall be deemed to limit or affect any other remedies or rights
available to Landlord under this Lease that arise from Tenant's failure to so
maintain such insurance coverage.
F. INSURANCE REQUIREMENTS. All insurance shall be in a form
satisfactory to Landlord and shall be carried in companies that have
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a general policy holder's rating of not less than "A+" and a financial rating of
not less than Class "X" in the most current edition of BEST'S INSURANCE REPORTS;
and shall provide that such policies shall not be subject to material alteration
or cancellation except after at least thirty (30) days' prior written notice to
Landlord. The policy or policies, or duly executed certificates for them,
together with satisfactory evidence of payment of the premiums thereon shall be
deposited with Landlord prior to the Commencement Date, and upon renewal of such
policies, not less than thirty (30) days prior to the expiration of the term of
such coverage. If Tenant fails to procure and maintain the insurance it is
required to maintain under this Paragraph 21, Landlord may, but shall not be
required to, order such insurance at Tenant's expense and Tenant shall reimburse
Landlord therefor. Such reimbursement shall include all costs incurred by
Landlord in obtaining such insurance including Landlord's reasonable
attorneys' fees, with interest thereon at the Interest Rate.
G. LANDLORD'S DISCLAIMER. Landlord and its Agents shall not be
liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Building or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface, or
from any other cause whatsoever, including loss or reduction in utilities,
except to the extent caused by or due to the sole negligence or willful
misconduct of Landlord. Landlord and its Agents shall not be liable for any
latent defect in the Premises. Tenant shall give prompt written notice to
Landlord in case of a casualty or accident occurring, or any repair needed, in
the Premises.
22. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against
the other on account of loss or damage occasioned by such waiving party to its
property or the property of others under its control, to the extent that such
loss or damage would be covered by any causes of loss-special form policy of
insurance or its equivalent. The foregoing waiver shall apply notwithstanding,
and shall not be affected by, Tenant's election to self-insure with respect to
any loss or damage to Tenant's Personal Property. Tenant and Landlord shall,
upon obtaining policies of insurance required hereunder, give notice to the
insurance carrier that the foregoing mutual waiver of subrogation is contained
in this Lease and Tenant and Landlord shall cause each insurance policy obtained
by such party to provide that the insurance company waives all right of
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recovery by way of subrogation against either Landlord or Tenant in
connection with any damage covered by such policy.
23. DAMAGE OR DESTRUCTION.
A. LANDLORD'S OBLIGATION TO REBUILD. If all or any part of the
Building is damaged or destroyed, Landlord shall promptly and diligently repair
the same unless it has the right to terminate this Lease as provided herein and
it elects to so terminate.
B. RIGHT TO TERMINATE. Landlord shall have the right to terminate
this Lease in the event any of the following events occur:
(i) Insurance proceeds from the insurance Landlord is
required to carry pursuant to PARAGRAPH 21.C are not available to pay one
hundred percent (100%) of the cost of such repair, excluding the deductible for
which Tenant shall be responsible;
(ii) The Building cannot, with reasonable diligence, be fully
repaired by Landlord within one hundred eighty (180) days after the date of the
damage or destruction; or
(iii) The Building cannot be safely repaired because of the
presence of hazardous factors, including, but not limited to, earthquake faults,
radiation, Hazardous Materials and other similar dangers.
If Landlord elects to terminate this Lease, Landlord may give
Tenant written notice of its election to terminate within thirty (30) days after
such damage or destruction, and this Lease shall terminate fifteen (15) days
after the date Tenant receives such notice and both Landlord and Tenant shall be
released of all further liability under this Lease (except to the extent any
provision of this Lease expressly survives termination). If Landlord elects not
to terminate the Lease, subject to Tenant's termination right set forth below,
Landlord shall promptly commence the process of obtaining necessary permits and
approvals and repair of the Building as soon as practicable, and this Lease will
continue in full force and affect. All insurance proceeds from insurance under
Paragraph 21, excluding proceeds for Tenant's Personal Property, shall be
disbursed and paid to Landlord. Tenant shall be required to pay to Landlord the
amount of any deductibles payable in connection with any insured casualties,
unless the casualty was caused by the sole negligence or willful misconduct of
Landlord.
Tenant shall have the right to terminate this Lease if the Building
cannot, with reasonable diligence, be fully repaired
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within three hundred sixty-five (365) days from the date of damage or
destruction. The determination of the estimated repair periods in this
PARAGRAPH 23 shall be made by an independent, licensed contractor or engineer
within thirty (30) days after such damage or destruction. Landlord shall
deliver written notice of the repair period to Tenant after such
determination has been made and Tenant shall exercise its right to terminate
this Lease, if at all, within ten (10) days of receipt of such notice from
Landlord. Upon such termination both Landlord and Tenant shall be released of
all further liability under this Lease (except to the extent any provision of
this Lease expressly survives termination).
C. LIMITED OBLIGATION TO REPAIR. Landlord's obligation, should it
elect or be obligated to repair or rebuild, shall be limited to the basic
Building and the Tenant Improvements and shall not include any Alterations made
by Tenant.
D. ABATEMENT OF RENT. Monthly Rent shall be temporarily abated
proportionately, during any period when, by reason of such damage or destruction
there is substantial interference with Tenant's use of the Building, having
regard to the extent to which Tenant may be required to discontinue Tenant's use
of the Building. Such abatement of Rent shall be proportional to the extent of
such interference with Tenant's use of the Premises reasonably attributable to
such damage or destruction (with the extent of such interference to be
reasonably determined by Landlord), and shall commence upon such damage or
destruction and end upon substantial completion by Landlord of the repair or
reconstruction which Landlord is obligated or undertakes to perform. Tenant
shall not be entitled to any compensation or damages from Landlord for loss of
the use of the Premises, damage to Tenant's Personal Property or any
inconvenience occasioned by such damage, repair or restoration. Tenant hereby
waives the provisions of Section 1932, Subdivision 2, and Section 1933,
Subdivision 4, of the California Civil Code, and the provisions of any similar
law hereinafter enacted.
E. DAMAGE NEAR END OF TERM. Anything herein to the contrary
notwithstanding, if the Building is destroyed or damaged during the last
twelve (12) months of the Term, then either Landlord or Tenant may, at its
option, cancel and terminate this Lease as of the date of the occurrence of
such damage by delivery of written notice to the other party and, in such
event, upon such termination both Landlord and Tenant shall be released of
all further liability under this Lease (except to the extent any provision of
this Lease expressly survives termination). If neither Landlord nor Tenant
elects to terminate this Lease, the repair of such damage shall be governed
by PARAGRAPHS 23.A. and 23.B.
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24. CONDEMNATION.
If title to all of the Premises or Project or so much thereof is
taken for any public or quasi-public use under any statute or by right of
eminent domain so that reconstruction of the Building will not, in Landlord's
and Tenant's mutual opinion, result in the Premises being reasonably suitable
for Tenant's continued occupancy for the uses and purposes permitted by this
Lease, this Lease shall terminate as of the date that possession of the
Premises or building or part thereof is taken, and upon such termination both
Landlord and Tenant shall be released of all further liability under this
Lease (except to the extent any provision of this Lease expressly survives
termination). A sale by Landlord to any authority having the power of eminent
domain, either under threat of condemnation or while condemnation proceedings
are pending, shall be deemed a taking under the power of eminent domain for
all purposes of this paragraph.
If any part of the Premises or Project is taken and the remaining
part is reasonably suitable for Tenant's continued occupancy for the purposes
and uses permitted by this Lease, this Lease shall, as to the part so taken,
terminate as of the date that possession of such part of the Premises or
Project(s) is taken and upon such termination both Landlord and Tenant shall
be released of all further liability under this Lease with respect to that
portion of the Premises or Project that is taken (except to the extent any
provision of this Lease expressly survives termination). The Rent and other
sums payable hereunder shall be reduced in the same proportion that Tenant's
use and occupancy of the Project is reduced. If any portion of the Project is
taken, Tenant's Rent shall be reduced only if such taking materially
interferes with Tenant's use of the Premises and then only to the extent that
the fair market rental value of the Premises is diminished by such partial
taking. If the parties disagree as to the amount of Rent reduction, the
matter shall be resolved by arbitration and such arbitration shall comply
with and be governed by the California Arbitration Act, Sections 1280 through
1294.2 of the California Code of Civil Procedure. Each party hereby waives
the provisions of Section 1265.130 of the California Code of Civil Procedure
allowing either party to petition the Superior Court to terminate this Lease
in the event of a partial taking of the Premises.
All compensation or damages awarded or paid for any taking hereunder
shall belong to and be the property of Landlord, whether such compensation or
damages are awarded or paid as compensation for diminution in value of the
leasehold, the fee or otherwise, except that Tenant shall be entitled to any
award allowed to Tenant for the
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taking of Tenant's Personal Property, for the interruption of Tenant's
business, for its moving costs, or for the loss of its good will. Except for
the foregoing allocation, no award for any partial or entire taking of the
Premises shall be apportioned between Landlord and Tenant, and Tenant assigns
to Landlord its interest in the balance of any award which may be made for
the taking or condemnation of the Premises, together with any and all rights
of Tenant arising in or to the same or any part thereof.
25. ASSIGNMENT AND SUBLETTING.
A. LANDLORD'S CONSENT. Subject to the provisions of Paragraph 25.G
below, Tenant shall not enter into a Sublet without Landlord's prior written
consent, which consent shall not be unreasonably withheld. Any attempted or
purported Sublet without Landlord's prior written consent shall be void and
confer no rights upon any third person and, at Landlord's election, shall
terminate this Lease. Each Subtenant shall agree in writing, for the benefit of
Landlord, to assume, to be bound by, and to perform the terms, conditions and
covenants of this Lease to be performed by Tenant, as such terms, conditions and
covenants apply to the Sublet premises. Notwithstanding anything contained
herein, Tenant shall not be released from liability for the performance of each
term, condition and covenant of this Lease by reason of Landlord's consent to a
Sublet.
B. TENANT'S NOTICE. If Tenant desires at any time to Sublet all or
any portion of the Premises, Tenant shall first notify Landlord in writing of
its desire to do so.
C. INFORMATION TO BE FURNISHED. Tenant shall submit in writing to
Landlord: (i) the name of the proposed Subtenant; (ii) the nature of the
proposed Subtenant's business to be carried on in the Premises; (iii) the terms
and provisions of the proposed Sublet and a copy of the proposed form of Sublet
agreement containing a description of the subject premises; and (iv) such
financial information, including financial statements, as Landlord may
reasonably request concerning the proposed Subtenant.
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D. LANDLORD'S ALTERNATIVES. At any time within ten (10) days after
Landlord's receipt of the information specified in PARAGRAPH 25.C.; Landlord
may, by written notice to Tenant, elect: (i) to consent to the Sublet by Tenant;
or (ii) to refuse its consent to the Sublet. If Landlord consents to the Sublet,
Tenant may thereafter enter into a valid Sublet of the Premises or applicable
portion thereof, upon the terms and conditions and with the proposed Subtenant
set forth in the information furnished by Tenant to Landlord, subject, however,
at Landlord's election, to the condition that one hundred percent (100%) of any
excess of the Subrent over the Rent required to be paid by Tenant under this
Lease (or, if only a portion of the Premises is Sublet, the pro rata share of
the Rent attributable to the portion of the Premises being Sublet) less
reasonable attorneys' fees, leasing commissions, tenant improvements and other
reasonable subletting costs paid by Tenant on the Sublet, shall be paid to
Landlord.
E. EXEMPT SUBLETS. Notwithstanding the above, Landlord's prior
written consent shall not be required for an assignment of this Lease to a
subsidiary, affiliate or parent corporation of Tenant; a corporation into which
Tenant merges or consolidates; or a purchaser of all or substantially all of the
assets of Tenant provided that: (i) Tenant gives Landlord prior written notice
of the name of any such assignee, (ii) the assignee assumes, in writing, for the
benefit of Landlord all of Tenant's obligations under the Lease, and (iii) in
the case of an assignment to a purchaser of Tenant's assets, as of the date of
the transfer, the transferee has a tangible net worth (exclusive of good will)
greater than or equal to the tangible net worth (exclusive of good will), as of
the date of this Lease, of the original Tenant under this Lease.
F. PRORATION. If a portion of the Premises is Sublet, the pro rata
share of the Rent attributable to such partial area of the Premises shall be
determined by Landlord dividing the Rent payable by Tenant hereunder by the
total square footage of the Premises and multiplying the resulting quotient (the
per square foot rent) by the number of square feet of the Premises which are
Sublet.
26. DEFAULT.
A. TENANT'S DEFAULT. A default under this Lease by Tenant shall
exist if any of the following occurs:
(i) If Tenant fails to pay when due any Rent or any other sum
required to be paid hereunder when due AND TENANT FAILS TO CURE SUCH NON-PAYMENT
WITHIN FIVE (5) DAYS AFTER WRITTEN NOTICE FROM LANDLORD; or
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(ii) If Tenant fails to perform any term, covenant or
condition of this Lease except those requiring the payment of money, and Tenant
fails to cure such breach within thirty (30) days after written notice from
Landlord where such breach could reasonably be cured within such 30-day period;
provided, however, that where such failure could not reasonably be cured within
the 30-day period, that Tenant shall not be in default if it commences such
performance within the 30-day period and diligently thereafter prosecutes the
same to completion; or
(iii) If Tenant assigns its assets for the benefit of its
creditors; or
(iv) If the sequestration or attachment of or execution on any
material part of Tenant's Personal Property essential to the conduct of Tenant's
business occurs, and Tenant fails to obtain a return or release of such Personal
Property within thirty (30) days thereafter, or prior to sale pursuant to such
sequestration, attachment or levy, whichever is earlier; or
(v) If Tenant abandons the Premises; or
(vi) If a court makes or enters any decree or order other than
under the bankruptcy laws of the United States adjudging Tenant to be insolvent;
or approving as properly filed a petition seeking reorganization of Tenant; or
directing the winding up or liquidation of Tenant and such decree or order shall
have continued for a period of sixty (60) days.
B. REMEDIES. Upon a default, Landlord shall have the following
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, to which Landlord may resort cumulatively or
in the alternative:
(i) Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent when due. Without limiting the foregoing, Landlord has the remedy
set forth in Section 1951.4 of the California Civil Code.
(ii) Landlord may terminate Tenant's right to possession of
the Premises at any time by giving written notice to that effect, and relet the
Premises or any part thereof. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises or any part thereof,
including, without limitation,
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broker's commissions, expenses of cleaning and redecorating the Premises
required by the reletting and like costs. Reletting may be for a period
shorter or longer than the remaining Term of this Lease. No act by Landlord
other than giving written notice of termination to Tenant shall terminate
this Lease. Neither acts of maintenance, nor efforts to relet the Premises,
nor the appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this Lease shall not constitute a termination of
Tenant's right to possession. On termination, Landlord has the right to
remove all Tenant's Personal Property and store the same at Tenant's sole
cost and expense and to recover from Tenant as damages:
(a) The worth at the time of award of the unpaid Rent
and other sums due and payable which had been earned at the time of
termination; plus
(b) The worth at the time of award of the amount by
which the unpaid Rent and other sums due and payable which would have been
payable after termination until the time of award exceeds the amount of such
Rent loss that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by
which the unpaid rent and other sums due and payable for the balance of the Term
after the time of award exceeds the amount of such Rent loss that Tenant proves
could be reasonably avoided; plus
(d) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease, or which, in the ordinary course of
things, would be likely to result therefrom, including, without limitation,
any costs or expenses incurred by Landlord: (i) in retaking possession of the
Premises; (ii) in maintaining, repairing, preserving, restoring, replacing,
cleaning, altering or rehabilitating the Premises or any portion thereof,
including such acts for reletting to a new tenant or tenants; (iii) for other
costs necessary or Appropriate to relet the Premises; plus
(e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
the laws of the State of California.
The "worth at the time of award" of the amounts referred to in
Paragraphs 26.B.(ii)(a) and 26.B.(ii)(b) is computed by allowing interest at the
Interest Rate on the unpaid rent and other
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sums due and payable from the termination date through the date of award. The
"worth at the time of award" of the amount referred to in PARAGRAPH
26.B.(ii)(c) is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%). Tenant waives redemption or relief from forfeiture under California Code
of Civil Procedure Sections 1174 and 1179, or under any other present or future
law, in the event Tenant is evicted or Landlord takes possession of the Premises
by reason of any default of Tenant hereunder.
(iii) Landlord may, with or without terminating this Lease,
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant. No reentry or taking possession of
the Premises by Landlord pursuant to this paragraph shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant.
C. LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
in the performance of any obligation required to be performed by it hereunder
unless and until it has failed to perform such obligation within thirty (30)
days after receipt of written notice by Tenant to Landlord specifying the nature
of such default; provided, however, that if the nature of Landlord's obligation
is such that more than thirty (30) days are required for its performance, then
Landlord shall not be deemed to be in default if it shall commence such
performance within such 30-day period and thereafter diligently prosecute the
same to completion.
27. SUBORDINATION.
This Lease is subject and subordinate to ground and underlying leases,
mortgages and deeds of trust (collectively "Encumbrances") which may now or
hereafter affect the Premises, and to all renewals, modifications,
consolidations, replacements and extensions thereof; provided, however, if the
holder or holders of any such Encumbrance (collectively, "Holder") shall require
that this Lease be prior and superior thereto, within ten (10) days of written
request of Landlord to Tenant, Tenant shall execute, have acknowledged and
deliver any and all documents or instruments, in the form presented to Tenant,
which Landlord or Holder deems necessary or desirable for such purposes.
Landlord shall have the right to cause this Lease to be and become and remain
subject and subordinate to any and all Encumbrances which are now or may
hereafter be executed covering the Premises or any renewals, modifications,
consolidations, replacements or extensions thereof,
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for the full amount of all advances made or to be made thereunder and without
regard to the time or character of such advances, together with interest thereon
and subject to all the terms and provisions thereof; provided only, that in the
event of termination of any such lease or upon the foreclosure of any such
mortgage or deed of trust, so long as Tenant is not in default, Holder agrees to
recognize Tenant's rights under this Lease as long as Tenant shall pay the Rent
and observe and perform all the provisions of this Lease to be observed and
performed by Tenant. Within ten (10) days after Landlord's written request,
Tenant shall execute any and all documents required by Landlord or the holder to
make this Lease subordinate to any lien of the Encumbrance. If Tenant fails to
do so, it shall be deemed that this Lease is subordinated.
Notwithstanding anything to the contrary set forth in this
paragraph, Tenant hereby attorns and agrees to attorn to any entity purchasing
or otherwise acquiring the Premises at any sale or other proceeding or pursuant
to the exercise of any other rights, powers or remedies under such Encumbrance.
28. NOTICES.
Any notice or demand required or desired to be given under this Lease
shall be in writing and shall be personally served or in lieu of personal
service may be given by certified mail, facsimile, or overnight courier service.
All notices or demands under this Lease shall be deemed given, received, made or
communicated on the date personal delivery is effected; or, if sent by certified
mail, on the delivery date or attempted delivery date shown on the return
receipt; or, if sent by facsimile, on the date sent by the sender; or, if sent
by overnight courier service, on the delivery date or attempted delivery date
shown on such service's records. At the date of execution of this Lease, the
addresses of Landlord and Tenant are as set forth in Paragraph 1. After the
Commencement Date, the address of Tenant shall be the address of the Premises.
Either party may change its address by giving notice of same in accordance with
this paragraph.
29. ATTORNEYS' FEES.
If either party brings any action or legal proceeding for damages for an
alleged breach of any provision of this Lease, to recover Rent, or other sums
due, to terminate the tenancy of the Premises or to enforce, protect or
establish any term, condition or covenant of this Lease or right of either
party, the prevailing party shall be entitled to recover as part of such action
or in a
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separate action brought for that purpose, reasonable attorney fees and costs.
30. ESTOPPEL CERTIFICATE.
Tenant shall within ten (10) days following written request by Landlord:
(i) Execute and deliver to Landlord any documents, including estoppel
certificates, in the form prepared by Landlord (a) certifying that this Lease is
unmodified and in full force and effect or, if modified, stating the nature of
such modification and certifying that this Lease, as so modified, is in full
force and effect and the date to which the Rent and other charges are paid in
advance, if any, (b) acknowledging that there are not, to Tenant's knowledge,
any uncured defaults on the part of Landlord, or, if there are uncured defaults
on the part of the Landlord, stating the nature of such uncured defaults, (c)
evidencing the status of the Lease as may be required either by a lender making
a loan to Landlord to be secured by deed of trust or mortgage covering the
Premises or a purchaser of the Premises from Landlord, and (d) such other
matters as may be reasonably requested by Landlord. Tenant's failure to deliver
an estoppel certificate within ten (10) days after delivery of Landlord's
written request therefor shall be conclusive upon Tenant (a) that this Lease is
in full force and effect, without modification except as may be represented by
Landlord, (b) that there are now no uncured defaults in Landlord's performance,
and (c) that no Rent has been paid in advance.
If Tenant fails to so deliver a requested estoppel certificate within
the prescribed time it shall be conclusively presumed that this Lease is
unmodified and in full force and effect except as represented by Landlord.
(ii) Deliver to Landlord the current financial statements of Tenant,
and financial statements of the two (2) years prior to the current financial
statements year, with an opinion of a certified public accountant, including a
balance sheet and profit and loss statement for the most recent prior year, all
prepared in accordance with generally accepted accounting principles
consistently applied.
31. TRANSFER OF THE PREMISES BY LANDLORD.
In the event of any conveyance of the Premises and assignment by
Landlord of this Lease, Landlord shall be and is
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hereby entirely released from all liability under any and all of its covenants
and obligations contained in or derived from this Lease occurring after the date
of such conveyance and assignment and Tenant agrees to attorn to such transferee
provided such transferee assumes Landlord's obligations under this Lease.
32. LANDLORD'S RIGHT
If Tenant shall at any time fail to make any payment or perform any
other act on its part to be made or performed under this Lease, and such failure
shall continue after the expiration of any applicable grace or cure periods
provided in this Lease, Landlord may, but shall not be obligated to (and without
waiving or releasing Tenant from any obligation of Tenant under this Lease),
make such payment or perform such other act to the extent Landlord may deem
desirable, and in connection therewith, pay expenses and employ counsel. All
sums so paid by Landlord and all penalties, interest, expenses and costs in
connection therewith shall be due and payable by Tenant on the next day after
any such payment by Landlord, together with interest thereon at the Interest
Rate from such date to the date of payment by Tenant to Landlord, plus
collection costs and attorneys' fees. Landlord shall have the same rights and
remedies for the nonpayment thereof as in the case of default in the payment of
Rent.
33. TENANT'S REMEDY.
EXCEPT WITH RESPECT TO LANDLORD'S OBLIGATION REGARDING TENANT'S
SECURITY DEPOSIT SET FORTH IN PARAGRAPH 7, Landlord shall never be personally
liable under this Lease, and Tenant shall look solely to the net cash flow
received by Landlord from its ownership of the Building, for recovery of any
damages for breach of this Lease by Landlord or on any judgment in connection
therewith. None of the persons or entities comprising or representing Landlord
(whether partners, shareholders, officers, directors, trustees, employees,
beneficiaries, agents or otherwise) shall ever be personally liable under this
Lease or for any such damages or judgment, and Tenant shall have no right to
effect any levy of execution against any assets of such persons or entities on
account of any such liability or judgment. Any lien obtained by Tenant to
enforce any such judgment, and any levy of execution thereon, shall be subject
and subordinate to all Encumbrances as specified in PARAGRAPH 27 above.
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34. MORTGAGEE PROTECTION.
If Landlord defaults under this Lease, Tenant shall give written
notice of such default to any beneficiary of a deed of trust or mortgagee of a
mortgage covering the Premises, and offer such beneficiary or mortgagee a
reasonable opportunity to cure the default.
35. BROKERS.
Tenant warrants and represents that it has had no dealings with any
real estate broker or agent in connection with the negotiation of this Lease,
except for CB Commercial, and that it knows of no real estate broker or agent
who is or might be entitled to a commission in connection with this Lease.
Pursuant to a separate agreement, Landlord shall pay the applicable commission
payable to CB Commercial.
36. ACCEPTANCE.
This Lease shall only become effective and binding upon full execution
hereof by Landlord and delivery of a signed copy to Tenant. Neither party shall
record this Lease nor a short form memorandum thereof.
37. PARKING.
Tenant shall have the exclusive right to use Tenant's Percentage Share
of the parking spaces located within the boundaries of the Project, upon terms
and conditions as may from time to time be reasonably established by Landlord.
Should parking charges or surcharges of any kind be imposed on the parking
facilities by a governmental agency, they shall be included in Operating
Expenses. The Tenant has the right to use 100 (tenant's Percentage Share is
49.33%) of the Project's 203 total open parking spaces. Tenant has the exclusive
use of spaces 104-203.
38. General.
A. CAPTIONS. The captions and headings used in this Lease are for
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
B. EXECUTED COPY. Any fully executed copy of this Lease shall be
deemed an original for all purposes.
C. TIME. Time is of the essence for the performance of each term,
condition and covenant of this Lease.
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D. SEPARABILITY. If one or more of the provisions contained
herein, except for the payment of Rent, is for any reason held invalid,
illegal or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Lease, but this
Lease shall be construed as if such invalid, illegal or unenforceable
provision had not been contained herein.
E. CHOICE OF LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of California. The language in all
parts of this Lease shall in all cases be construed as a whole according to
its fair meaning and not strictly for or against either Landlord or Tenant.
F. GENDER; SINGULAR, PLURAL. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, the singular includes the plural.
G. BINDING EFFECT. The covenants and agreement contained in this
Lease shall be binding on the parties hereto and on their respective
successors and assigns to the extent this Lease is assignable.
H. WAIVER. The waiver by Landlord of any breach of any term,
condition or covenant, of this Lease shall not be deemed to be a waiver of
such provision or any subsequent breach of the same or any other term,
condition or covenant of this Lease. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach at the time of acceptance of such payment. No covenant, term or
condition of this Lease shall be deemed to have been waived by Landlord
unless such waiver is in writing signed by Landlord.
I. ENTIRE AGREEMENT. This Lease is the entire agreement between
the parties, and there are no agreements or representations between the
parties, and there are no agreements or representations between the parties
except as expressed herein. Except as otherwise provided herein, no
subsequent change or addition to this Lease shall be binding unless in
writing and signed by the parties hereto.
J. AUTHORITY. If Tenant is a corporation or a partnership, each
individual executing this Lease on behalf of said corporation or partnership,
as the case may be, represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said entity in accordance with
its corporate bylaws, statement of partnership or certificate of limited
partnership, as the case may be, and that this Lease is binding upon said
entity in accordance with its terms. Landlord, at its option, may require a
copy of such written authorization to enter into this Lease.
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<PAGE>
K. EXHIBITS. All exhibits, amendments, riders and addenda
attached hereto are hereby incorporated herein and made a part hereof.
L. LEASE SUMMARY. The Lease Summary attached to this Lease is
intended to provide general information only but is to be considered as in
integral part of the Lease. In the event of any inconsistency between the
Lease Summary and the specific provisions of this Lease, the specific
provisions of this Lease shall prevail.
THIS LEASE is effective as of the date the last signatory necessary to
execute the Lease shall have executed this Lease.
TENANT:
Dated: 6/25/97 Communication TeleSystems
------------------ International, a California
corporation d.b.a. WORLDxCHANGE
Communications
By: /s/ Edward S. Soren
-------------------------------
Its: PRESIDENT
---------------------------
By:
-------------------------------
Its:
---------------------------
LANDLORD:
Dated: 6/26/97 BURNHAM PACIFIC PROPERTIES, INC.,
------------------ a Maryland corporation
By: /s/ Michael L. [ILLEGIBLE]
-------------------------------
Its: Exec. V.P.
---------------------------
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<PAGE>
LIST OF OMITTED EXHIBITS
The following Exhibits to the Lease (Single-Tenant Building in
Multi-Building Project) (9775 Business Park) have been omitted from this Exhibit
and shall be furnished supplementally to the Commission upon request:
Exhibit A - Property Description
Exhibit B - Work Letter Agreement
Exhibit C - Commencement Date and Termination Date Memorandum
Exhibit D-1 - Guarantee of Lease
Exhibit D-2 - Guarantee of Lease
<PAGE>
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes
only, June 1, 1997, is made by and between Currie/Samuelson Development Group
LP, a California limited partnership ("LESSOR") and Communications
TeleSystems International, a California corporation doing business as
WorldxChange Communications ("LESSEE"), (collectively the "PARTIES," or
individually a "PARTY").
1.2 PREMISES: That certain real property, including all
improvements therein or to be provided by Lessor under the terms of this
Lease, and commonly known as 9999 Willow Creek Road located in the County of
San Diego, State of California, and generally described as (describe briefly
the nature of the property and, if applicable, the "PROJECT", if the property
is located within a Project) See Addendum ("PREMISES"). (See also Paragraph 2)
1.3 TERM: Five (5) years and No months ("ORIGINAL TERM")
commencing September 1, 1997 ("COMMENCEMENT DATE") and ending August 31, 2002
("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: See Addendum ("EARLY POSSESSION DATE").
(See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $30,685 per month ("BASE RENT"), payable on the
First day of each month commencing September 1, 1997 (See also Paragraph 4)
/X/ If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $30,685 as Base Rent for the
period first month of the lease term.
1.7 SECURITY DEPOSIT: $108,300 ("SECURITY DEPOSIT"). (See also
Paragraph 5)
1.8 AGREED USE: General office, operation of a long distance
company, including customer service center and equipment development and
other associated uses permitted under the M-IP. (See also Paragraph 6)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY" unless
otherwise stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
/ / _____________________ represents Lessor exclusively ("LESSOR'S BROKER");
/ / _____________________ represents Lessee exclusively ("LESSEE'S BROKER");
or /X/ CB Commercial Real Estate Group, Inc. represents both Lessor and
Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this
Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in
their separate written agreement (or if there is no such agreement, the sum
of ______% of the total Base Rent for the brokerage services rendered by said
Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by Roger Abbott and Edward Soren, and their respective
spouses ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or
Addenda consisting of Paragraphs 50 through 62 and Exhibits
_______________________ ______________________________, all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all
of the terms, covenants and conditions set forth in this Lease. Unless
otherwise provided herein, any statement of size set forth in this Lease, or
that may have been used in calculating rental, is an approximation which the
Parties agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date or the Early Possession
Date, whichever first occurs ("START DATE"), and, so long as the required
service contracts described in Paragraph 7.1(b) below are obtained by Lessee
within thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole
obligation with respect to such matter, except as otherwise provided in this
Lease, promptly after receipt of written notice from the Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify same
at Lessor's expense. If, after the Start Date, Lessee does not give Lessor
written notice of any non-compliance with this warranty within: (i) one year
as to the surface of the roof and the structural portions of the roof,
foundations and bearing walls, (ii) six (6) months as to the HVAC systems,
(iii) thirty (30) days as to the remaining systems and other elements of the
Building, correction of such non-compliance shall be the obligation of Lessee
at Lessee's sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the
Premises comply with all applicable laws, covenants or restrictions of
record, building codes, regulations and ordinances ("APPLICABLE
REQUIREMENTS") in effect on the Start Date. Said warranty does not apply to
the use to which Lessee will put the Premises or to any Alterations or
Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by
Lessee. NOTE: Lessee is responsible for determining whether or not the zoning
is appropriate for Lessee's intended use, and acknowledges that past uses of
the Premises may no longer be allowed. If the Premises do not comply with
said warranty, Lessor shall, except as otherwise provided, promptly after
receipt of written notice from Lessee setting forth with specificity the
nature and extent of such non-compliance, rectify the same at Lessor's
expense. If Lessee does not give Lessor written notice of a non-compliance
with this warranty within six (6) months following the Start Date, correction
of that non-compliance shall be the obligation of Lessee at Lessee's sole
cost and expense. If the Applicable Requirements are hereafter changed (as
opposed to being in existence at the Start Date, which is addressed in
Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the
remediation of any Hazardous Substance, or the reinforcement or other
physical modification of the Building ("CAPITAL EXPENDITURE"), Lessor and
Lessee shall allocate the cost of such work as follows:
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<PAGE>
(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall
be fully responsible for the cost thereof, provided, however that if such
Capital Expenditure is required during the last two (2) years of this Lease
and the cost thereof exceeds six (6) months' Base Rent, Lessee may instead
terminate this Lease unless Lessor notifies Lessee, in writing, within ten
(10) days after receipt of Lessee's termination notice that Lessor has
elected to pay for the difference between the actual cost thereof and the
amount equal to six (6) months' Base Rent. If Lessee elects termination,
Lessee shall immediately cease the use of the Premises which requires such
Capital Expenditure and deliver to Lessor written notice specifying a
termination date at least ninety (90) days thereafter. Such termination date
shall, however, in no event be earlier than the last day that Lessee could
legally utilize the Premises without commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the
specific and unique use of the Premises by Lessee (such as, governmentally
mandated seismic modifications), then Lessor and Lessee shall allocate the
obligation to pay for such costs pursuant to the provisions of Paragraph
7.1(c); provided, however, that if such Capital Expenditure is required
during the last two years of this Lease or if Lessor reasonably determines
that it is not economically feasible to pay its share thereof, Lessor shall
have the option to terminate this Lease upon ninety (90) days prior written
notice to Lessee unless Lessee notifies Lessor, in writing, within ten (10)
days after receipt of Lessor's termination notice that Lessee will pay for
such Capital Expenditure. If Lessor does not elect to terminate, and fails to
tender its share of any such Capital Expenditure, Lessee may advance such
funds and deduct same, with Interest, from Rent until Lessor's share of such
costs have been fully paid. If Lessee is unable to finance Lessor's share, or
if the balance of the Rent due and payable for the remainder of this Lease is
not sufficient to fully reimburse Lessee on an offset basis, Lessee shall
have the right to terminate this Lease upon thirty (30) days written notice
to Lessor.
(c) Notwithstanding the above, the provisions concerning
Capital Expenditures are intended to apply only to non-voluntary, unexpected,
and new Applicable Requirements. If the Capital Expenditures are instead
triggered by Lessee as a result of an actual or proposed change in use,
change in intensity of use, or modification to the Premises then, and in that
event, Lessee shall be fully responsible for the cost thereof, and Lessee
shall not have any right to terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical, HVAC
and fire sprinkler systems, security, environmental aspects, and compliance
with Applicable Requirements), and their suitability for Lessee's intended
use, (b) Lessee has made such investigation as it deems necessary with
reference to such matters and assumes all responsibility therefor as the same
relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's
agents, nor any Broker has made any oral or written representations or
warranties with respect to said matters other than as set forth in this
Lease. In addition, Lessor acknowledges that: (a) Broker has made no
representations, promises or warranties concerning Lessee's ability to honor
the Lease or suitability to occupy the Premises, and (b) it is Lessor's sole
responsibility to investigate the financial capability and/or suitability of
all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this Lease
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall, however, be in effect
during such period. Any such early possession shall not affect the Expiration
Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises to
Lessee by the Commencement Date. If, despite said efforts, Lessor is unable
to deliver possession as agreed, Lessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease. Lessee
shall not, however, be obligated to pay Rent or perform its other obligations
until it receives possession of the Premises. If possession is not delivered
within sixty (60) days after the Commencement Date, Lessee may, at its
option, by notice in writing within ten (10) days after the end of such sixty
(60) day period, cancel this Lease, in which event the Parties shall be
discharged from all obligations hereunder. If such written notice is not
received by Lessor within said ten (10) day period, Lessee's right to cancel
shall terminate. Except as otherwise provided, if possession is not tendered
to Lessee when required and Lessee does not terminate this Lease, as
aforesaid, any period of rent abatement that Lessee would otherwise have
enjoyed shall run from the date of delivery of possession and continue for a
period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts or omissions of
Lessee. If possession of the Premises is not delivered within four (4) months
after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its
obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery
of such evidence, Lessee shall be required to perform all of its obligations
under this Lease from and after the Start Date, including the payment of
Rent, notwithstanding Lessor's election to withhold possession pending
receipt of such evidence of insurance. Further, if Lessee is required to
perform any other conditions prior to or concurrent with the Start Date, the
Start Date shall occur but Lessor may elect to withhold possession until such
conditions are satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due. Rent for any period during the term
hereof which is for less than one (1) full calendar month shall be prorated
based upon the actual number of days of said month. Payment of Rent shall be
made to Lessor at its address stated herein or to such other persons or place
as Lessor may from time to time designate in writing. Acceptance of a payment
which is less than the amount then due shall not be a waiver of Lessor's
rights to the balance of such Rent, regardless of Lessor's endorsement of any
check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit as security for Lessee's faithful performance of
its obligations under this Lease. If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, Lessor may use, apply or retain all or any portion
of said Security Deposit for the payment of any amount due Lessor or to
reimburse or compensate Lessor for any liability, expense, loss or damage
which Lessor may suffer or incur by reason thereof. If Lessor uses or applies
all or any portion of said Security Deposit, Lessee shall within ten (10)
days after written request therefor deposit monies with Lessor sufficient to
restore said Security Deposit to the full amount required by this Lease.
Should the Agreed Use be amended to accommodate a material change in the
business of Lessee or to accommodate a sublessee or assignee, Lessor shall
have the right to increase the Security Deposit to the extent necessary, in
Lessor's reasonable judgment, to account for any increased wear and tear that
the Premises may suffer as a result thereof. If a change in control of Lessee
occurs during this Lease and following such change the financial condition of
Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee
shall deposit such additional monies with Lessor as shall be sufficient to
cause the Security Deposit to be at a commercially reasonable level based on
said change in financial condition. Lessor shall not be required to keep the
Security Deposit separate from its general accounts. Within fourteen (14)
days after the expiration or termination of this Lease, if Lessor elects to
apply the Security Deposit only to unpaid Rent, and otherwise within thirty
(30) days after the Premises have been vacated pursuant to Paragraph 7.4(c)
below, Lessor shall return that portion of the Security Deposit not used or
applied by Lessor. No part of the Security Deposit shall be considered to be
held in trust, to bear interest or to be prepayment for any monies to be paid
by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto,
and for no other purpose. Lessee shall not use or permit the use of the
Premises in a manner that is unlawful, creates damage, waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to neighboring
properties. Lessor shall not unreasonably withhold
PAGE 2 Initials /s/ EDS /s/ RWC
FORM 204N-4-6/96
<PAGE>
or delay its consent to any written request for a modification of the Agreed
Use, so long as the same will not impair the structural integrity of the
improvements on the Premises or the mechanical or electrical systems therein,
is not significantly more burdensome to the Premises. If Lessor elects to
withhold consent, Lessor shall within five (5) business days after such
request give written notification of same, which notice shall include an
explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety
or welfare, the environment or the Premises, (ii) regulated or monitored by
any governmental authority, or (iii) a basis for potential liability of
Lessor to any governmental agency or third party under any applicable statute
or common law theory. Hazardous Substances shall include, but not be limited
to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in
or on the Premises which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall
mean (i) the installation or use of any above or below ground storage tank,
(ii) the generation, possession, storage, use, transportation, or disposal of
a Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements
requires that a notice be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed Use, so long as such use is in compliance with all
Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such additional
assurances as Lessor reasonably deems necessary to protect itself, the
public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and
provide Lessor with a copy of any report, notice, claim or other
documentation which it has concerning the presence of such Hazardous
Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance brought onto the Premises during the term of this Lease,
by or for Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any,
harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, claims, expenses, penalties, and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee, or any third party (provided, however,
that Lessee shall have no liability under this Lease with respect to
underground migration of any Hazardous Substance under the Premises from
adjacent properties). Lessee's obligations shall include, but not be limited
to, the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or termination of this Lease. NO TERMINATION, CANCELLATION OR
RELEASE AGREEMENT ENTERED INTO BY LESSOR AND LESSEE SHALL RELEASE LESSEE FROM
ITS OBLIGATIONS UNDER THIS LEASE WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS
SPECIFICALLY SO AGREED BY LESSOR IN WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and
assigns shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages which
existed as a result of Hazardous Substances on the Premises prior to the
Start Date or which are caused by the gross negligence, or intentional acts
of Lessor, its agents or employees. Lessor's obligations, as and when
required by the Applicable Requirements, shall include, but not be limited
to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures
required by governmental entities having jurisdiction with respect to the
existence of Hazardous Substances on the Premises prior to the Start Date.
Lessee shall cooperate fully in any such activities at the request of Lessor,
including allowing Lessor and Lessor's agents to have reasonable access to
the Premises at reasonable times in order to carry out Lessor's investigative
and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance
Condition occurs during the term of this Lease, unless Lessee is legally
responsible therefor (in which case Lessee shall make the investigation and
remediation thereof required by the Applicable Requirements and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either
(i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to remediate such condition exceeds twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater, give written notice to Lessee,
within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition, of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of
such notice. In the event Lessor elects to give a termination notice, Lessee
may, within ten (10) days thereafter, give written notice to Lessor of
Lessee's commitment to pay the amount by which the cost of the remediation of
such Hazardous Substance Condition exceeds an amount equal to twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater. Lessee
shall provide Lessor with said funds or satisfactory assurance thereof within
thirty (30) days following such commitment. In such event, this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required
funds or assurance thereof within the time provided, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense,
fully, diligently and in a timely manner, materially comply with all
Applicable Requirements, the requirements of any applicable fire insurance
underwriter or rating bureau, and the recommendations of Lessor's engineers
and/or consultants which relate in any manner to the Premises, without regard
to whether said requirements are now in effect or become effective after the
Start Date. Lessee shall, within ten (10) days after receipt of Lessor's
written request, provide Lessor with copies of all permits and other
documents, and other information evidencing Lessee's compliance with any
Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving the failure of Lessee or the Premises to
comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender and
consultants shall have the right to enter into Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by
Lessee with this Lease. The cost of any such inspections shall be paid by
Lessor, unless a violation of Applicable Requirements, or a contamination is
found to exist or be imminent, or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request reimburse
Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Lessee shall, at Lessee's sole expense, keep
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the Premises, Utility Installations, and Alterations in good order, condition
and repair (whether or not the portion of the Premises requiring repairs, or
the means of repairing the same, are reasonably or readily accessible to
Lessee, and whether or not the need for such repairs occurs as a result of
Lessee's use, any prior use, the elements or the age of such portion of the
Premises), including, but not limited to, all equipment or facilities, such
as plumbing, HVAC, electrical, lighting facilities, boilers, pressure
vessels, fire protection system, fixtures, walls (interior and exterior),
foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, or adjacent to the Premises. Lessee,
in keeping the Premises in good order, condition and repair, shall exercise
and perform good maintenance practices, specifically including the
procurement and maintenance of the service contracts required by Paragraph
7.1(b) below. Lessee's obligations shall include restorations, replacements
or renewals when necessary to keep the Premises and all improvements thereon
or a part thereof in good order, condition and state of repair. Lessee
shall, during the term of this Lease, keep the exterior appearance of the
Building in a first-class condition consistent with the exterior appearance
of other similar facilities of comparable age and size in the vicinity,
including, when necessary, the exterior repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole
expense, procure and maintain contracts, with copies to Lessor, in customary
form and substance for, and with contractors specializing and experienced in
the maintenance of the following equipment and improvements ("BASIC
ELEMENTS"), if any, as and when installed on the Premises: (i) HVAC
equipment, (ii) boiler, and pressure vessels, (iii) fire protection systems,
(iv) landscaping and irrigation systems, (v) roof covering and drains, and
(vi) asphalt and parking lots, (vii) clarifiers and (viii) any other
equipment, if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of
Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of
liability resulting from Lessee's failure to exercise and perform good
maintenance practices, if the Basic Elements described in Paragraph 7.1(b)
cannot be repaired other than at a cost which is in excess of 50% of the cost
of replacing such Basic Elements, then such Basic Elements shall be replaced
by Lessor, and the cost thereof shall be prorated between the Parties and
Lessee shall only be obligated to pay, each month during the remainder of the
term of this Lease, on the date on which Base Rent is due, an amount equal to
the product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is the number of
months of the useful life of such replacement as such useful life is
specified pursuant to Federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized balance as is
then commercially reasonable in the judgment of Lessor's accountants), with
Lessee reserving the right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Lessor have no obligation, in any
manner whatsoever, to repair and maintain the Premises, or the equipment
therein, all of which obligations are intended to be that of the Lessee. It
is the intention of the Parties that the terms of this Lease govern the
respective obligations of the Parties as to maintenance and repair of the
Premises, and they expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and
fencing in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's
machinery and equipment that can be removed without doing material damage to
the Premises. The term "ALTERATIONS" shall mean any modification of the
improvements, other than Utility Installations or Trade Fixtures, whether by
addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS"
are defined as Alterations and/or Utility Installations made by Lessee that
are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not
make any Alterations or Utility Installations to the Premises without
Lessor's prior written consent. Lessee may, however, make non-structural
Utility Installations to the interior of the Premises (excluding the roof)
without such consent but upon notice to Lessor, as long as they are not
visible from the outside, do not involve puncturing, relocating or removing
the roof or any existing walls, and the cumulative cost thereof during this
Lease as extended does not exceed $50,000 in the aggregate or $20,000 in any
one year.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with detailed plans. Consent shall be
deemed conditioned upon Lessee's: (i) acquiring all applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and the plans
and specifications prior to commencement of the work, and (iii) compliance
with all conditions of said permits and other Applicable Requirements in a
prompt and expeditious manner. Any Alterations or Utility Installations
shall be performed in a workmanlike manner with good and sufficient
materials. Lessee shall promptly upon completion furnish Lessor with
as-built plans and specifications. For work which costs an amount equal to
the greater of one month's Base Rent, or $20,000, Lessor may condition its
consent upon Lessee providing a lien and completion bond in an amount equal
to one and one-half times the estimated cost of such Alteration or Utility
Installation and/or upon Lessee's posting an additional Security Deposit with
Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility. If Lessee shall
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend and protect itself, Lessor and the Premises against
the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof. If Lessor shall require,
Lessee shall furnish a surety bond in an amount equal to one and one-half
times the amount of such contested lien, claim or demand, indemnifying Lessor
against liability for the same. If Lessor elects to participate in any such
action, Lessee shall pay Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal
or elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered
a part of the Premises. Lessor may, at any time, elect in writing to be the
owner of all or any specified part of the Lessee Owned Alterations and
Utility Installations. Unless otherwise instructed per Paragraph 7.4(b)
hereof, all Lessee Owned Alterations and Utility Installations shall, at the
expiration or termination of this Lease, become the property of Lessor and be
surrendered by Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from
Lessor not earlier than ninety (90) days prior to the end of the term of this
Lease, Lessor may require that any or all Lessee Owned Alterations or Utility
Installations be removed by the expiration or termination of this Lease.
Lessor may require the removal at any time of all or any part of any Lessee
Owned Alterations or Utility Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the Expiration Date or any earlier termination date, with all of
the improvements, parts and surfaces thereof broom clean and free of debris,
and in good operating order, condition and state of repair, ordinary wear and
tear excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Lessee shall repair any damage occasioned by the installation, maintenance or
removal of Trade Fixtures, furnishings, and equipment as well as the removal
of any storage tank installed by or for Lessee, and the removal, replacement,
or remediation of any soil, material or groundwater contaminated by Lessee.
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee. The failure by Lessee to timely vacate the Premises pursuant to this
Paragraph 7.4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$2,000,000 per occurrence. Premiums for policy periods commencing prior to
or extending beyond the Lease term shall be prorated to correspond to the
Lease term. Payment shall be made by Lessee to Lessor within ten (10) days
following receipt of an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
a Commercial General Liability Policy of Insurance protecting Lessee
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and Lessor against claims for bodily injury, personal injury and property
damage based upon or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing single limit coverage in
an amount not less than $2,000,000 per occurrence with an "ADDITIONAL
INSURED-MANAGERS OR LESSORS OF PREMISES ENDORSEMENT" and contain the
"AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT" for damage caused by heat,
smoke or fumes from a hostile fire. The Policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance shall not, however, limit the liability
of Lessee nor relieve Lessee of any obligation hereunder. All insurance
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability
insurance as described in Paragraph 8.2(a), in addition to, and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall
obtain and keep in force a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time,
or the amount required by any Lenders, but in no event more than the
commercially reasonable and available insurable value thereof. If Lessor is
the Insuring Party, however, Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be
insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage
is available and commercially appropriate, such policy or policies shall
insure against all risks of direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender), including coverage
for debris removal and the enforcement of any Applicable Requirements
requiring the upgrading, demolition, reconstruction or replacement of any
portion of the Premises as the result of a covered loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a
factor of not less than the adjusted U.S. Department of Labor Consumer Price
Index for All Urban Consumers for the city nearest to where the Premises are
located. If such insurance coverage has a deductible clause, the deductible
amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for
such deductible amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep
in force a policy or policies in the name of Lessor with loss payable to
Lessor and any Lender, insuring the loss of the full Rent for one (1) year.
Said insurance shall provide that in the event the Lease is terminated by
reason of an insured loss, the period of indemnity for such coverage shall be
extended beyond the date of the completion of repairs or replacement of the
Premises, to provide for one full year's loss of Rent from the date of any
such loss. Said insurance shall contain an agreed valuation provision in
lieu of any coinsurance clause, and the amount of coverage shall be adjusted
annually to reflect the projected Rent otherwise payable by Lessee, for the
next twelve (12) month period. Lessee shall be liable for any deductible
amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to
the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain
insurance coverage on all of Lessee's personal property, Trade Fixtures, and
Lessee Owned Alterations and Utility Installations. Such insurance shall be
full replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor with
written evidence that such insurance is in force.
(b) BUSINESS INTERRUPTION. If reasonably available, and if
Lessor requests Lessee to do so in writing, Lessee shall obtain and maintain
loss of income and extra expense insurance in amounts as will reimburse
Lessee for direct or indirect loss of earnings attributable to all perils
commonly insured against by prudent lessees in the business of Lessee or
attributable to prevention of access to the Premises as a result of such
perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where
the Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current
issue of "Best's Insurance Guide", or such other rating as may be required by
a Lender. Lessee shall not do or permit to be done anything which
invalidates the required insurance policies. Lessee shall, prior to the
Start Date, deliver to Lessor certified copies of policies of such insurance
or certificates evidencing the existence and amounts of the required
insurance. No such policy shall be cancelable or subject to modification
except after thirty (30) days prior written notice to Lessor. Lessee shall,
at least thirty (30) days prior to the expiration of such policies, furnish
Lessor with evidence of renewals or "insurance binders" evidencing renewal
thereof, or Lessor may order such insurance and charge the cost thereof to
Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such
policies shall be for a term of at least one year, or the length of the
remaining term of this Lease, whichever is less. If either Party shall fail
to procure and maintain the insurance required to be carried by it, the other
Party may, but shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages against the other, for loss of or
damage to its property arising out of or incident to the perils required to
be insured against herein. The effect of such releases and waivers is not
limited by the amount of insurance carried or required, or by any deductibles
applicable hereto. The Parties agree to have their respective property
damage insurance carriers waive any right to subrogation that such companies
may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its
agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, liens, judgments,
penalties, attorneys' and consultants' fees, expenses and/or liabilities
arising out of, involving, or in connection with, the use and/or occupancy of
the Premises by Lessee. If any action or proceeding is brought against
Lessor by reason of any of the foregoing matters, Lessee shall upon notice
defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need
not have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or
other property of Lessee, Lessee's employees, contractors, invitees,
customers, or any other person in or about the Premises, whether such damage
or injury is caused by or results from fire, steam, electricity, gas, water
or rain, or from the breakage, leakage, obstruction or other defects of
pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting
fixtures, or from any other cause, whether the said injury or damage results
from conditions arising upon the Premises or upon other portions of the
Building of which the Premises are a part, or from other sources or places.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to
Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the improvements on the Premises, other than Lessee Owned
Alterations and Utility Installations, which can reasonably be repaired in
six (6) months or less from the date of the damage or destruction. Lessor
shall notify Lessee in writing within thirty (30) days from the date of the
damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations, which cannot reasonably be repaired in six (6) months or less
from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as
to whether or not the damage is Partial or Total.
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(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to
their condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of Applicable
Requirements, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence
or discovery of a condition involving the presence of, or a contamination by,
a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense,
repair such damage (but not Lessee's Trade Fixtures or Lessee Owned
Alterations and Utility Installations) as soon as reasonably possible and
this Lease shall continue in full force and effect; provided, however, that
Lessee shall, at Lessor's election, make the repair of any damage or
destruction the total cost to repair of which is $10,000 or less, and, in
such event, Lessor shall make any applicable insurance proceeds available to
Lessee on a reasonable basis for that purpose. Notwithstanding the
foregoing, if the required insurance was not in force or the insurance
proceeds are not sufficient to effect such repair, the Insuring Party shall
promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said
repairs. In the event, however, such shortage was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor
shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides
Lessor with the funds to cover same, or adequate assurance thereof, within
ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance
thereof within said ten (10) day period, the party responsible for making the
repairs shall complete them as soon as reasonably possible and this Lease
shall remain in full force and effect. If such funds or assurance are not
received, Lessor may nevertheless elect by written notice to Lessee within
ten (10) days thereafter to: (i) make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect, or have this Lease
terminate thirty (30) days thereafter. Lessee shall not be entitled to
reimbursement of any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earthquake shall be
subject to Paragraph 9.3, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available
for the repairs if made by either Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial
Damage that is not an Insured Loss occurs, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), Lessor may either: (i) repair such damage as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) terminate this Lease by giving
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage. Such termination shall be
effective sixty (60) days following the date of such notice. In the event
Lessor elects to terminate this Lease, Lessee shall have the right within ten
(10) days after receipt of the termination notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within thirty (30) days after making such
commitment. In such event this Lease shall continue in full force and
effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in
the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision
hereof, if a Premises Total Destruction occurs, this Lease shall terminate
sixty (60) days following such Destruction. If the damage or destruction was
caused by the gross negligence or willful misconduct of Lessee, Lessor shall
have the right to recover Lessor's damages from Lessee except as provided in
Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six
(6) months of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may
terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving a written termination notice to Lessee
within thirty (30) days after the date of occurrence of such damage.
Notwithstanding the foregoing, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, (a) exercising such option and (b) providing Lessor
with any shortage in insurance proceeds (or adequate assurance thereof)
needed to make the repairs on or before the earlier of (i) the date which is
ten days after Lessee's receipt of Lessor's written notice purporting to
terminate this Lease, or (ii) the day prior to the date upon which such
option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate on the date specified in the termination
notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which
Lessee is not responsible under this Lease, the Rent payable by Lessee for
the period required for the repair, remediation or restoration of such damage
shall be abated in proportion to the degree to which Lessee's use of the
Premises is impaired, but not to exceed the proceeds received from the Rental
Value insurance. All other obligations of Lessee hereunder shall be
performed by Lessee, and Lessor shall have no liability for any such damage,
destruction, remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and meaningful
way, such repair or restoration within ninety (90) days after such obligation
shall accrue, Lessee may, at any time prior to the commencement of such
repair or restoration, give written notice to Lessor and to any Lenders of
which Lessee has actual notice, of Lessee's election to terminate this Lease
on a date not less than sixty (60) days following the giving of such notice.
If Lessee gives such notice and such repair or restoration is not commenced
within thirty (30) days thereafter, this Lease shall terminate as of the date
specified in said notice. If the repair or restoration is commenced within
said thirty (30) days, this Lease shall continue in full force and effect.
"COMMENCE" shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment
shall be made concerning advance Base Rent and any other advance payments
made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so
much of Lessee's Security Deposit as has not been, or is not then required to
be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other
than inheritance, personal income or estate taxes); improvement bond; and/or
license fee imposed upon or levied against any legal or equitable interest of
Lessor in the Premises, Lessor's right to other income therefrom, and/or
Lessor's business of leasing, by any authority having the direct or indirect
power to tax and where the funds are generated with reference to the Building
address and where the proceeds so generated are to be applied by the city,
county or other local taxing authority of a jurisdiction within which the
Premises are located. The term "REAL PROPERTY TAXES" shall also include any
tax, fee, levy, assessment or charge, or any increase therein, imposed by
reason of events occurring during the term of this Lease, including but not
limited to, a change in the ownership of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property
Taxes applicable to the Premises during the term of this Lease. Subject to
Paragraph 10.2(b), all such payments shall be made at least ten (10) days
prior to any delinquency date. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes
shall cover any period of time prior to or after the expiration or
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termination of this Lease, Lessee's share of such taxes shall be prorated to
cover only that portion of the tax bill applicable to the period that this
Lease is in effect, and Lessor shall reimburse Lessee for any overpayment.
If Lessee shall fail to pay any required Real Property Taxes, Lessor shall
have the right to pay the same, and Lessee shall reimburse Lessor therefor
upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge
on any Rent payment, Lessor may, at Lessor's option, estimate the current
Real Property Taxes, and require that such taxes be paid in advance to Lessor
by Lessee, either: (i) in a lump sum amount equal to the installment due, at
least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be an amount
equal to the amount of the estimated installment of taxes divided by the
number of months remaining before the month in which said installment becomes
delinquent. When the actual amount of the applicable tax bill is known, the
amount of such equal monthly advance payments shall be adjusted as required
to provide the funds needed to pay the applicable taxes. If the amount
collected by Lessor is insufficient to pay such Real Property Taxes when due,
Lessee shall pay Lessor, upon demand, such additional sums as are necessary
to pay such obligations. All moneys paid to Lessor under this Paragraph may
be intermingled with other moneys of Lessor and shall not bear interest. In
the event of a Breach by Lessee in the performance of its obligations under
this Lease, then any balance of funds paid to Lessor under the provisions of
this Paragraph may at the option of Lessor, be treated as an additional
Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately
assessed, Lessee's liability shall be an equitable proportion of the Real
Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be conclusively determined by Lessor from
the respective valuations assigned in the assessor's work sheets or such
other information as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to
delinquency, all taxes assessed against and levied upon Lessee Owned
Alterations, Utility Installations, Trade Fixtures, furnishings, equipment
and all personal property of Lessee. When possible, Lessee shall cause such
property to be assessed and billed separately from the real property of
Lessor. If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee's property within ten (10) days after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT")
or sublet all or any part of Lessee's interest in this Lease or in the
Premises without Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an
assignment requiring consent. The transfer, on a cumulative basis, of fifty
percent (50%) or more of the voting control of Lessee shall constitute a
change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or
a noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a
noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice, increase the monthly Base Rent to one
hundred ten percent (110%) of the Base Rent then in effect. Further, in the
event of such Breach and rental adjustment, (i) the purchase price of any
option to purchase the Premises held by Lessee shall be subject to similar
adjustment to one hundred ten percent (110%) of the price previously in
effect, and (ii) all fixed and non-fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased to One Hundred Ten Percent
(110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not: (i) be effective without the express written assumption
by such assignee or sublessee of the obligations of Lessee under this Lease,
(ii) release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any
other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of Rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for Lessee's
Default or Breach.
(c) Lessor's consent to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor
may proceed directly against Lessee, any Guarantors or anyone else
responsible for the performance of Lessee's obligations under this Lease,
including any assignee or sublessee, without first exhausting Lessor's
remedies against any other person or entity responsible therefore to Lessor,
or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a fee of $1,000 or ten percent (10%) of the current
monthly Base Rent applicable to the portion of the Premises which is the
subject of the proposed assignment or sublease, whichever is greater, as
consideration for Lessor's considering and processing said request. Lessee
agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed
to have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by
Lessee during the term of said assignment or sublease, other than such
obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented to in
writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach shall occur in the performance of
Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by
reason of the foregoing or any assignment of such sublease, nor by reason of
the collection of Rent, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such
sublessee. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor all Rent due and to become due under the sublease. Sublessee shall
rely upon any such notice from Lessor and shall pay all Rents to Lessor
without any obligation or right to inquire as to whether such Breach exists,
notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.
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(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such notice.
The sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default within
any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
other monetary payment required to be made by Lessee hereunder, whether to
Lessor or to a third party, when due, to provide reasonable evidence of
insurance or surety bond, or to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii) the rescission of an unauthorized assignment or subletting, (iv) a
Tenancy Statement, (v) a requested subordination, (vi) evidence concerning
any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42
(easements), or (viii) any other documentation or information which Lessor may
reasonably require of Lessee under the terms of this Lease, where any such
failure continues for a period of ten (10) days following written notice to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee
or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this
Lease, where such seizure is not discharged within thirty (30) days;
provided, however, in the event that any provision of this subparagraph (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or
of any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee,
equals or exceeds the combined financial resources of Lessee and the
Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case
of an emergency, without notice), Lessor may, at its option, perform such
duty or obligation on Lessee's behalf, including but not limited to the
obtaining of reasonably required bonds, insurance policies, or governmental
licenses, permits or approvals. The costs and expenses of any such
performance by Lessor shall be due and payable by Lessee upon receipt of
invoice therefor. If any check given to Lessor by Lessee shall not be honored
by the bank upon which it is drawn, Lessor, at its option, may require all
future payments to be made by Lessee to be by cashier's check. In the event
of a Breach, Lessor may, with or without further notice or demand, and
without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the time of
award of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that the
Lessee proves could be reasonably avoided; and (iv) any other amount
necessary to compensate Lessor for all the detriment proximately caused by
the Lessee's failure to perform its obligations under this Lease or which in
the ordinary course of things would be likely to result therefrom, including
but not limited to the cost of recovering possession of the Premises,
expenses of reletting, including necessary renovation and alteration of the
Premises, reasonable attorneys' fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of the Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of the District within which the Premises are located at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding any unpaid Rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any
part thereof in a separate suit. If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute shall
also constitute the notice required by Paragraph 13.1. In such case, the
applicable grace period required by Paragraph 13.1 and the unlawful detainer
statute shall run concurrently, and the failure of Lessee to cure the Default
within the greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or
assign, subject only to reasonable limitations. Acts of maintenance, efforts
to relet, and/or the appointment of a receiver to protect the Lessor's
interests, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available under
the laws or judicial decisions of the state where in the Premises are
located. The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent
or other charges, or for the giving or paying by Lessor to or for Lessee of
any cash or other bonus, inducement or consideration for Lessee's entering
into this Lease, all of which concessions are hereinafter referred to as
"INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and
faithful performance of all of the terms, covenants and conditions of this
Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision
shall automatically be deemed deleted from this Lease and of no further force
or effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement
Provision shall be immediately due and payable by Lessee to Lessor,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance
by Lessor of rent or the cure of the Breach which initiated the operation of
this paragraph shall not
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be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment
by Lessee of Rent will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain.
Such costs include, but are not limited to, processing and accounting
charges, and late charges which may be imposed upon Lessor by any Lender.
Accordingly, if any Rent shall not be received by Lessor within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten
percent (10%) of each such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of such late payment. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach
with respect to such overdue amount, nor prevent the exercise of any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding any provision of this Lease
to the contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other
than late charges, not received by Lessor within thirty (30) days following
the date on which it was due, shall bear interest from the thirty-first
(31st) day after it was due. The interest ("INTEREST") charged shall be equal
to the prime rate charged by the largest state chartered bank in the state in
which the Premises are located plus 4%, but shall not exceed the maximum rate
allowed by law. Interest is payable in addition to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach
of this Lease unless Lessor fails within a reasonable time to perform an
obligation required to be performed by Lessor. For purposes of this
Paragraph, a reasonable time shall in no event be less than thirty (30) days
after receipt by Lessor, and any Lender whose name and address shall have
been furnished Lessee in writing for such purpose, of written notice
specifying wherein such obligation of Lessor has not been performed;
provided, however, that if the nature of Lessor's obligation is such that
more than thirty (30) days are reasonably required for its performance, then
Lessor shall not be in breach if performance is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event
that neither Lessor nor Lender cures said breach within thirty (30) days
after receipt of said notice, or if having commenced said cure they do not
diligently pursue it to completion, then Lessee may elect to cure said breach
at Lessee's expense and offset from Rent an amount equal to the greater of
one month's Base Rent or the Security Deposit, and to pay an excess of such
expense under protest, reserving Lessee's right to reimbursement from Lessor.
Lessee shall document the cost of said cure and supply said documentation to
Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the
part taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building, or
more than twenty-five percent (25%) of the land area not occupied by any
building, is taken by Condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to
the portion of the Premises remaining, except that the Base Rent shall be
reduced in proportion to the reduction in utility of the Premises caused by
such Condemnation. Condemnation awards and/or payments shall be the property
of Lessor, whether such award shall be made as compensation for diminution in
value of the leasehold, the value of the part taken, or for severance
damages; provided, however, that Lessee shall be entitled to any compensation
for Lessee's relocation expenses, loss of business goodwill and/or Trade
Fixtures, without regard to whether or not this Lease is terminated pursuant
to the provisions of this Paragraph. All Alterations and Utility
Installations made to the Premises by Lessee, for purposes of Condemnation
only, shall be considered the property of the Lessee and Lessee shall be
entitled to any and all compensation which is payable therefor. In the event
that this Lease is not terminated by reason of the Condemnation, Lessor shall
repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS.
Lessee and Lessor each represent and warrant to the other that it has had no
dealings with any person, firm, broker or finder (other than the Brokers, if
any) in connection with this Lease, and that no one other than said named
Brokers is entitled to any commission or finder's fee in connection herewith.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges
which may be claimed by any such unnamed broker, finder or other similar
party by reason of any dealings or actions of the indemnifying Party,
including any costs, expenses, attorneys' fees reasonably incurred with
respect thereto.
16. TENANCY STATEMENT/ESTOPPEL CERTIFICATE.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10)
days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party an estoppel
certificate in writing, in form similar to the then most current "TENANCY
STATEMENT" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements as
may be reasonably required by such lender or purchaser, including but not
limited to Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the Lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability
with respect to the obligations and/or covenants under this Lease thereafter
to be performed by the Lessor. Subject to the foregoing, the obligations
and/or covenants in this Lease to be performed by the Lessor shall be binding
only upon the Lessor as hereinabove defined. Notwithstanding the above, the
original Lessor under this Lease, and all subsequent holders of the Lessor's
interest in this Lease shall remain liable and responsible with regard to the
potential duties and liabilities of Lessor pertaining to Hazardous Substances
as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
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19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Except with respect to Lessor's fraud, gross
negligence or willful misconduct, and its obligation to return the unused
portion of Lessee's Security Deposit, the obligations of Lessor under this
Lease shall not constitute personal obligations of Lessor, the individual
partners of Lessor or its or their individual partners, directors, officers
or shareholders, and Lessee shall look to the Premises, and to no other
assets of Lessor, for the satisfaction of any liability of Lessor with
respect to this Lease, and shall not seek recourse against the individual
partners of Lessor, or its or their individual partners, directors, officers
or shareholders, or any of their personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that it
has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by
this Lease shall be in writing and may be delivered in person (by hand or by
courier) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing
of notices. Either Party may by written notice to the other specify a
different address for notice, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for notice. A
copy of all notices to a party shall be concurrently transmitted to such
party or parties at such addresses as such party may from time to time hereafter
designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. If sent by regular mail the notice shall be deemed given forty-eight
(48) hours after the same is addressed as required herein and mailed with
postage prepaid. Notices delivered by United States Express Mail or overnight
courier that guarantee next day delivery shall be deemed given twenty-four (24)
hours after delivery of the same to the Postal Service or courier. Notices
transmitted by facsimile transmission or similar means shall be deemed delivered
upon telephone confirmation of receipt, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday, Sunday or legal holiday,
it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. The acceptance of Rent by Lessor shall not be a waiver of any
Default or Breach by Lessee. Any payment by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before
the time of deposit of such payment.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of
the Premises or any part thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base Rent applicable
during the month immediately preceding the expiration or termination.
Nothing contained herein shall be construed as consent by Lessor to any
holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions
of this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the
plural and vice versa. This Lease shall not be construed as if prepared by
one of the parties, but rather according to its fair meaning as a whole, as
if both parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed upon the Premises, to any and all advances made on the
security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Security Devices shall have no
liability or obligation to perform any of the obligations of Lessor under
this Lease. Any Lender may elect to have this Lease and/or any Option
granted hereby superior to the lien of its Security Device by giving written
notice thereof to Lessee, this Lease and such Options shall be deemed prior
to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership; (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or
(iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within sixty (60) days after the execution of this Lease,
Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or
proceeding to enforce the terms hereof or to declare rights hereunder, the
Prevailing Party (as hereafter defined) in any such proceeding, action, or
appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees
may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or
PAGE 10 Initials /S/ EDS /S/ RWC
FORM 204N-R-6/96
<PAGE>
judgment. The term, "PREVAILING PARTY" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as
the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party or Broker of its claim or defense. The
attorneys' fees award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred. In addition, Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in the preparation and service of notices
of Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's
agents shall have the right to enter the Premises at any time, in the case of
an emergency, and otherwise at reasonable times for the purpose of showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the Premises any
ordinary "FOR SALE" signs and Lessor may during the last six (6) months of
the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee
may at any time place on or about the Premises any ordinary "FOR SUBLEASE"
sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within ten (10) business days following such
request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a
guaranty in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements,
(c) a TENANCY STATEMENT, or (d) written confirmation that the guaranty is
still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this lease or to extend or renew any lease that Lessee has
on other property of Lessor; (b) the right of first refusal or first offer to
lease either the Premises or other property of Lessor; (c) the right to
purchase or the right of first refusal to purchase the Premises or other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be assigned
or exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i)
during the period commencing with the giving of any notice of Default and
continuing until said Default is cured, (ii) during the period of time any
Rent is unpaid (without regard to whether notice thereof is given Lessee),
(iii) during the time Lessee is in Breach of this Lease, or (iv) in the event
that Lessee has been given three (3) or more notices of Default, whether or
not the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof), (ii)
Lessor gives to Lessee three (3) or more notices of separate Default during
any twelve (12) month period, whether or not the Defaults are cured, or (iii)
if Lessee commits a Breach of this Lease.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
PAGE 11 Initials /S/ EDS /S/ RWC
FORM 204N-R-6/96
<PAGE>
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease / / IS /X/ IS NOT attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION
OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
- --------------------------------------------------------------------------------
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
Executed at: San Diego, CA Executed at:
------------------------------------- -------------------------------------
on: 6-26-97 on:
--------------------------------------------- -----------------------------------------
By LESSOR: By LESSEE:
Currie/Samuelson Development Group LP Communications Telesystems International doing
- ------------------------------------------------- -------------------------------------------------
Currie Partners, Inc. - General Partner business as WorldxChange Communications
- ------------------------------------------------- -------------------------------------------------
By: /s/ Ronald W. Currie By: /s/ Edward S. Soren
---------------------------------------------- ----------------------------------------------
Name Printed: Ronald W. Currie Name Printed: Edward S. Soren
------------------------------------ ------------------------------------
Title: President Title: President
------------------------------------------- -------------------------------------------
By: By:
---------------------------------------------- ----------------------------------------------
Name Printed: Name Printed:
------------------------------------- -------------------------------------
Title: Title:
------------------------------------------- -------------------------------------------
Address: 9820 Willow Creek Road, Suite 400 Address:
----------------------------------------- -----------------------------------------
San Diego, CA
- ------------------------------------------------- -------------------------------------------------
Telephone: (619) 271-7050 Telephone: ( )
-------------------------------- -------------------------------
Facsimile: (619) 578-4419 Facsimile: ( )
-------------------------------- -------------------------------
Federal ID No. Federal ID No.
--------------------------------- ---------------------------------
BROKER BROKER
- ------------------------------------------------- -------------------------------------------------
Executed at: Executed at:
------------------------------------- -------------------------------------
on: on
---------------------------------------------- ----------------------------------------------
By: By:
---------------------------------------------- ----------------------------------------------
Name Printed: Name Printed:
------------------------------------- -------------------------------------
Title: Title:
------------------------------------------- -------------------------------------------
Address: Address:
----------------------------------------- -----------------------------------------
- ------------------------------------------------- -------------------------------------------------
Telephone: ( ) Telephone: ( )
-------------------------------- -------------------------------
Facsimile: ( ) Facsimile: ( )
-------------------------------- -------------------------------
Federal ID No. Federal ID No.
--------------------------------- ---------------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower
Street, Suite 600, Los Angeles, California 90017. (213) 687-8777.
Fax No. (213) 687-8616.
PAGE 12 FORM 204N-R-6/96
- -C-COPYRIGHT 1996 - BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. ALL
RIGHTS RESERVED. NO PART OF THESE WORKS MAY BE REPRODUCED IN ANY FORM WITHOUT
PERMISSION IN WRITING.
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE-NET
Dated June 1, 1997 between
Currie/Samuelson Development Group L.P.,
a California limited partnership ("Lessor")
and Communications TeleSystems International,
a California corporation doing business as
WorldxChange Communications ("Lessee")
In the event of any inconsistency between any of the provisions of the
printed form of Lease and the provisions of this Addendum, the provisions of
this Addendum shall control.
50. PREMISES LEASED AS IS. Except with respect to Lessor's obligations
under Paragraphs 6.2(e) and 6.2(f), Lessor makes no representation or
warranty of any kind concerning the Premises and LESSEE ACCEPTS THE PREMISES
AS IS IN THEIR EXISTING CONDITION AND SUBJECT TO ALL FAULTS. Lessee
represents and warrants that neither Lessor nor any agent or representative
of Lessor has made any express or implied representation or warranty of any
kind concerning the Premises and that Lessee is relying solely upon its own
independent inspection and investigation of the Premises in entering into
this Lease. The Premises consist of the land described as Lot 1 of Scripps
Ranch Business Park Unit No. 2 in the City and County of San Diego, State of
California, according to Map thereof No. 8887 filed in the Office of the San
Diego County Recorder on June 13, 1978, together with the improvements
thereon consisting of a two story glass and steel frame building containing
approximately 36,100 square feet of floor area and related parking and
landscaping areas.
51. EARLY POSSESSION. At the date of this Lease, IMED Corporation is
the tenant of the Premises under an existing lease that will expire August
31, 1997 ("IMED Lease"). IMED has no right to extend the term or renew the
IMED Lease beyond that date. IMED no longer conducts business at the
Premises and has vacated the Premises, although some personal property of
IMED remains at the Premises. Lessee will be entitled to early possession of
the Premises as follows: (a) non-exclusive early possession starting July 1,
1997 for the purpose of inspecting the Premises and performing Lessee's
tenant improvement work at the Premises, subject to the satisfaction of the
conditions and provisions of Paragraphs 7.3 and 58 of this Lease, and (b)
exclusive early possession starting August 1, 1997. Base Rent shall be
abated for the month of July (the period of non-exclusive early possession).
Base Rent shall be payable on August 1, 1997 for the month of August (the
period of exclusive early possession). If Lessee is prevented from
performing its tenant improvement work at the Premises or from otherwise
preparing the Premises for occupancy because of IMED's failure to remove all
of its personal property on or before July 10, 1997 or because of IMED's
interference with Lessee's activities during the period of non-exclusive
early possession, then Lessee may, at its option, by notice in writing to
Lessor within five (5) days after it first becomes aware of such interference
(but in no event later than July 30, 1997), terminate this Lease, in which
event the Parties shall be discharged from all obligations hereunder, except
that Lessor shall refund to Lessee the Security Deposit pursuant to Paragraph
5.
52. BUSINESS PARK. The Premises are located within Scripps Ranch
Business Park Unit No. 2 ("Park") and are subject to a recorded Declaration
of Restrictions for the Park ("Declaration"). Lessee acknowledges
that it has read and approved a copy of the Declaration. Lessee shall pay,
prior to delinquency, all assessments against the Premises under the
Declaration including, but not limited to, assessments for maintenance of
the "Commons" area (Lot 24 of the Park) as set forth in this Declaration.
53. INSURING PARTY. Lessee is the Insuring Party for all purposes
under this Lease.
- 1 -
<PAGE>
54. PARKING. Lessee shall be entitled to the exclusive use of all
parking spaces within the Premises. Lessee shall use reasonable efforts to
prevent its employees from parking on the street immediately in front of the
Premises. Lessor shall assist Lessee in discouraging other tenants of the
Park from parking on the street immediately in front of the Premises.
55. SIGNAGE. Subject to the provisions of Paragraph 34, Lessee shall
have the exclusive use of the existing monument sign on the corner of Willow
Creek Road and Business Park Avenue. All signs shall be subject to Lessor's
prior written approval as to location, size, design and materials and shall
be approved, constructed and installed at the sole cost and expense of
Lessee.
56. MODIFIED AND ADDITIONAL PROVISIONS.
56.1. Lessor will have no obligation to improve the Premises in
any way or to remove any fixtures or improvements from the Premises. The
representations and warranties of Lessor contained in Paragraphs 2.2 and 2.3
of this Lease are explicitly disclaimed and do not apply to this Lease.
Lessor will have no obligation to repair, maintain, rebuild, restore, correct
or remediate the Premises under Paragraphs 2, 6, 7, 9 or 14 of this Lease or
otherwise. Lessor will have no obligation to pay or contribute toward any
Capital Expenditure under Paragraph 2.3 of this Lease or otherwise. Except
for Lessor's obligations pursuant to Paragraphs 6.2(e) and 6.2(f), Lessee
will not be entitled to any abatement of or reduction in rent or other
charges under Paragraphs 2, 6, 7, 9 or 14 of this Lease. This Lease shall
not terminate or be terminable by Lessee by reason of any damage or
destruction under Paragraph 9 of this Lease.
56.2. This Lease is intended to be what is commonly called a
"triple net" lease, it being agreed that Lessor will receive the Base Rent
free and clear of any and all other taxes, charges or expenses of any kind
whatsoever in connection with the ownership and operation of the Premises,
except for Lessor's obligations pursuant to Paragraphs 6.2(e) and 6.2(f). In
addition to the Base Rent, Lessee shall pay all taxes, insurance,
maintenance, repairs, management fees, operating and other charges, costs and
expenses directly or indirectly relating to the Premises during the term
hereof (including but not limited to the assessments described in Paragraph 52
above). Lessee shall also be responsible for maintaining the landscaping and
parking areas on the Premises and for hiring a landscape maintenance
contractor designated by Lessor so long as such landscape maintenance
contractor shall provide satisfactory service at competitive rates.
57. RENT AND RENT INCREASES. The monthly Base Rent shall be $30,685
per month during the first year of the Original Term. At the end of the
first year of the Original Term and at the end of each subsequent year of the
Original Term, the amount of monthly Base Rent payable by Lessee shall be
increased to 104% of the monthly Base Rent in effect during the year then
ended. Based on the foregoing, the actual rent schedule will be as follows:
<TABLE>
<S> <C>
Year 1 $30,685/mo.
Year 2 $31,912
Year 3 $33,189
Year 4 $34,516
Year 5 $35,897
</TABLE>
58. ALTERATIONS. In connection with any Alterations or Utility
Installations by Lessee under Paragraph 7.3, the following shall be subject
to Lessor's prior written consent: Design drawings; preliminary plans and
specifications; final working plans and specifications substantially
conforming to preliminary plans and specifications previously approved by
Lessor; the interior designer and the contract between Lessee and its
designer; the general contractor and other contractors hired by Lessee and
the contract between Lessee and each such contractor. Lessor shall have
- 2 -
<PAGE>
the right to monitor, inspect and approve all Alterations and Utilities
Installations made by or for Lessee.
59. ASSIGNMENT OR SUBLETTING. The provisions of Paragraph 12 of this
Lease shall apply, subject to the following: As a condition precedent to
Lessor's consent to any proposed assignment or subletting, Lessor shall
receive such information concerning the proposed assignee or sublessee as may
reasonably be required by Lessor in order to form a reasonable judgment as to
the acceptability of the proposed assignee or sublessee, including, without
limitation, a resume of the business background and experience of the
proposed assignee or sublessee, banking references of the proposed assignee
or sublessee and recent financial statements of the proposed assignee or
sublessee. If the Lessor withholds its consent to any proposed assignment or
subletting for any of the following reasons, which are not exclusive, such
withholding of consent shall be deemed to be reasonable: (i) financial
inadequacy of the proposed assignee or sublessee; (ii) lack of managerial or
business experience of the proposed assignee or sublessee; (iii)
unsatisfactory business or credit reputation of the proposed assignee or
transferee; or (iv) possible diminution in the value or reputation of the
Premises as a result of the proposed assignee's or sublessee's business
operations at the Premises.
60. RELIEVE FROM STAY. As additional consideration for Lessor's
execution of this Lease, Lessor and Lessee agree that in the event of any
breach or default by Lessee under this Lease beyond any applicable notice
and cure period specified in this Lease, then Lessor shall be entitled to
exercise its rights and remedies otherwise available to Lessor under this
Lease and by law without being subject to or having to file a motion for
relief from the automatic stay provisions of the United States Bankruptcy
Code, and Lessee agrees to waive and hereby does waive the benefits and
protections of the aforesaid automatic stay with respect to Lessor. The
provisions of this Paragraph and of Lessee's waiver are a material part of
the consideration to Lessor for this Lease and Lessor would not enter into
this Lease but for this Paragraph.
61. NO OPTIONS. This Lease does not contain any "Options" as defined
in Paragraph 39 of this Lease.
62. EQUIPMENT FINANCING. Lessee may enter into secured financing
arrangements for which Lessee's furniture, fixtures and equipment is
security, provided that such arrangements shall not impair or abridge the
rights of Lessor under this Lease and such secured party agrees to pay Lessor
for its use or occupancy of the Premises and for any damage resulting from
its removal of the security and to be bound by the terms and provisions of
this Lease from the time it succeeds to the interest of Lessee under this
Lease. Lessor shall, upon request of Lessee, execute agreements in favor of
Lessee's secured lender and equipment financer, in the exact forms of
Exhibits "A" and "B" attached hereto.
LESSEE'S INITIALS: /s/ EDS LESSOR'S INITIALS: /s/ RWC
---------- ----------
- 3 -
<PAGE>
LIST OF OMITTED EXHIBITS
The following Exhibits to the Lease (Willow Creek Road) have been
omitted from this Exhibit and shall be furnished supplementally to the
Commission upon request:
Exhibit A - Waiver and Consent by Real Property Owner(s)
Exhibit B - Consent and Waiver by Owner, Landlord or Mortgagee of Real
Estate
<PAGE>
Exhibit 10.55
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"),
dated August 24, 1999 is made and entered into by and among Communication
Telesystems International, a California corporation (the "COMPANY"), and The
TVG Asian Communications Fund, a Cayman Islands corporation ("TVG").
RECITALS
WHEREAS, the Company and TVG, together with WorldxChange
B.V.B.A. ("WXBV") and, for the limited purposes specified therein,
WorldxChange Pty. Ltd. ("PTY") and certain other parties named therein, are
parties to that certain Stock Purchase Agreement, dated as of August 24, 1999
(the "PURCHASE AGREEMENT"), pursuant to which WXBV has agreed to acquire from
TVG, in exchange for a total of 1,450,000 shares (the "COMPANY SHARES") of
the common stock, no par value, of the Company (plus the cash payment
specified therein) all ordinary shares of PTY owned by TVG; and
WHEREAS, in order to induce TVG to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement with respect to the "REGISTRABLE SECURITIES" (as such term is
defined in Section 1).
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants and agreements herein contained, the parties, intending to
be legally bound, hereby agree as follows:
1. DEFINITIONS. FOR PURPOSES OF THIS AGREEMENT:
(a) the term "BONA FIDE PUBLIC OFFERING" means an underwritten public
offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "1933 ACT"), covering the offer and
sale of Common Stock of the Company in which aggregate proceeds to the
Company and the selling shareholders exceed $25,000,000;
(b) the term "COMMON STOCK" means the Company's authorized voting
common stock, no par value, and any class of securities issued in exchange
for the Common Stock or into which the Common Stock is converted;
(c) the term "HOLDER" means TVG or any permitted transferee of
Registrable Securities pursuant to the Purchase Agreement in accordance
with Section 10 hereof;
(d) the term "INITIATING HOLDERS" means the Holders of 30% or more of
the Registrable Securities then outstanding;
<PAGE>
(e) the term "REGISTRABLE SECURITIES" means: (i) the Company Shares
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange
for or in replacement of such Company Shares;
(f) the term "REGISTRATION EXPENSES" means all expenses incurred by
the Company in complying with Sections 2 and 3 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, accountants' fees and expenses,
and blue sky fees and expenses;
(g) the terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by
the Securities and Exchange Commission;
(h) the term "SELLING EXPENSES" means all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, the
fees and disbursements of any counsel engaged by the Holders and any other
expenses incurred by the Holders in connection with the registration and
sale of the Registrable Securities;
(i) the number of shares of Registrable Securities "THEN OUTSTANDING"
shall be the number of shares of Common Stock outstanding which are, and
the number of shares of Common Stock which upon issuance of then
exercisable or convertible securities will be, Registrable Securities; and
(j) the term "THIRD PARTY HOLDER" means any person other than a Holder
with registration rights with respect to securities of the Company.
2. DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive, at any time during the one-year
period commencing three years after the date of this Agreement (and in such
additional years as may be required by Section 2(d)), a written request
from the Initiating Holders with respect to the Registrable Securities that
the Company file a registration statement under the 1933 Act covering the
registration of Registrable Securities having an estimated aggregate
initial public offering price of not less than $5,000,000, provided that a
Bona Fide Public Offering has not been commenced by the Company, the
Company shall promptly give written notice of such request to all Holders
and shall use reasonable efforts to effect the registration under the 1933
Act of all such Registrable Securities which the Initiating Holders request
to be registered, together with all of the Registrable Securities of any
other Holder or Holders who so request by notice to the Company which is
given within 10 days after receipt of the notice from the
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<PAGE>
Company described above. Notwithstanding the foregoing, if the Company
shall furnish to the Initiating Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company for
a registration statement to be filed in the near future, then the
Company's obligation to use its reasonable efforts to file a
registration statement shall be deferred for a period not to exceed 90
days (provided, however, that the Company may make only one such
deferral with respect to each demand registration). Securities of the
Company to be sold by the Company or by a Third Party Holder may be
included in such registration statement, subject to the provisions of
Section 2(c) below.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to this
Section 2 and the Company shall include such information in the written
notice referred to in Section 2(a). In such event, the right of any Holder
to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the
Initiating Holders, by the underwriter, by the Company, and by such Holder)
to the extent provided herein.
(c) All Holders and Third Party Holders proposing to distribute their
securities through such underwriting (together with the Company as provided
in Section 4(e)) shall enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected
for such underwriting by the Company, or if no underwriter is selected by
the Company, by a majority in interest of the Initiating Holders and
reasonably acceptable to the Company. Notwithstanding any other provisions
of this Section 2, if the underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares
to be underwritten, the Initiating Holders shall so advise all Holders of
Registrable Securities, and the number of shares of Registrable Securities
that may be included in the registration and underwriting by the Holders
shall be allocated among all Holders thereof, all Third Party Holders, and
the Company, pro rata based on the number of shares for which registration
was requested. No Registrable Securities excluded from the underwriting by
reason of the marketing limitation shall be included in such registration.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the underwriter and, unless otherwise provided, the
Initiating Holders.
(d) The Company is obligated to effect only one demand registration
for the Holders pursuant to this Section 2; provided, however, that if any
Registrable Securities of a Holder requested to be registered (regardless
of whether a Holder withdraws such Registrable Securities pursuant to
Section 2(c) or Section 6) are excluded by the underwriter in a demand
registration pursuant to
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<PAGE>
Section 2(c) or in a "piggyback" registration pursuant to Section 6
(which excluded Registrable Securities are referred to herein as the
"EXCLUDED SECURITIES"), then the Company, upon the demand of the
Initiating Holders three or more years after the date of this Agreement,
shall be obligated to effect one additional demand registration under
this Section 2 each year with respect to the Excluded Securities of such
Holder, until such time as (i) such Holder may freely (except as may be
restricted by Rule 144 under the 1933 Act) sell all of the Excluded
Securities without registration under the 1933 Act within the then
following six months and (ii) the Excluded Securities are listed on a
securities exchange or qualified for trading on an over-the-counter
system selected by the Company.
(e) The demand registration rights provided by the Company to any
Holder pursuant to Section 2 of this Agreement shall immediately terminate
upon the closing of a Bona Fide Public Offering by the Company.
(f) A registration requested pursuant to this Section 2 shall not be
deemed to have been effected (a) unless a registration statement with
respect thereto has become effective or (b) if after it has become
effective, the effectiveness of such registration statement is terminated
or suspended by a stop order, injunction or other order of the SEC or other
governmental agency or court, unless such order, injunction or other order
is lifted or stayed within 30 days of the issuance of such stop order,
injunction or other order. The Company shall use its reasonable best
efforts to keep such registration statement effective for up to 60 days
after such registration statement has become effective.
3. PIGGY-BACK REGISTRATION RIGHTS. If at any time the Company proposes to
register (including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its securities under the 1933 Act in
connection with the public offering of such securities solely for cash (other
than a registration form relating to: (a) a registration of a stock option,
stock purchase or compensation or incentive plan or of stock issued or issuable
pursuant to any such plan, or a dividend investment plan; (b) a registration of
securities proposed to be issued in exchange for securities or assets of, or in
connection with a merger or consolidation with, another corporation; or (c) a
registration of securities proposed to be issued in exchange for other
securities of the Company), the Company shall, each such time, promptly give
each Holder written notice of such registration together with a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under applicable state securities laws. Upon the written request of any Holder
given within 30 days after receipt of such written notice from the Company in
accordance with Section 14, the Company shall (subject to the provisions of
Section 6 in the case of an underwritten offering) cause to be registered under
the 1933 Act all of the Registrable Securities that each such Holder has
requested to be registered; provided, however, in the event and to the extent
such a Holder may freely (except as may be restricted by Rule 144 under the 1933
Act) sell all of its Registrable Securities without registration under the 1933
Act and the person acquiring the securities does not acquire "restricted
securities" within the meaning of Rule 144, the Company may elect not to
register such Registrable Securities.
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<PAGE>
4. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the 1933 Act with respect to the disposition of all securities covered by
such registration statement;
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements
of the 1933 Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned
by them;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be necessary for the distribution of the securities
covered by the registration statement and such jurisdictions as the Holders
participating in the offering shall reasonably request, provided that the
Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service
of process in any such jurisdiction, and further provided that (anything in
this Agreement to the contrary notwithstanding with respect to the bearing
of expenses) if any jurisdiction in which the securities shall be qualified
shall require that expenses incurred in connection with the qualification
of the securities in that jurisdiction be borne by selling shareholders,
such expenses shall be payable by the selling Holders pro rata, to the
extent required by such jurisdiction;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with commercially
reasonable and customary terms generally satisfactory to the managing
underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such
an agreement; and
(f) Use its reasonable best efforts to cause all such Registrable
Securities to be listed on a securities exchange or to qualify such
Registrable Securities for trading on an over-the-counter system selected
by the Company;
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<PAGE>
(g) Provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement
and thereafter maintain such a transfer agent and registrar;
(h) In the event of any underwritten public offering, make available
for inspection, at reasonable times during normal business hours, by any
underwriter participating in such public offering and any attorney,
accountant or other agent retained by such underwriter, such financial and
other records, pertinent corporate documents and properties of the Company
as may be reasonably requested by such underwriter, and cause the Company's
officers, directors, employees and independent accountants to supply such
information as may be reasonably requested by any such underwriter,
attorney, accountant or agent in connection with such public offering
(provided, however, that such inspection and supplying of records and
documents shall be subject to the execution by each requesting party of a
confidentiality and non-disclosure agreement in a form reasonably
acceptable to the Company);
(i) Permit any Holder participating in such registration, which
Holder, in such Holder's reasonable judgment, might be deemed to be an
underwriter or controlling person of the Company, to participate in the
preparation of the registration statement in connection with such
registration and to propose the insertion therein of material which in the
reasonable judgment of such Holder and its counsel should be included;
(j) In connection with underwritten offerings, make available
appropriate management personnel for participation in the preparation and
drafting of such registration or comparable statement, for due diligence
meetings and for "road show" meetings;
(k) In the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, the Company will use its reasonable
best efforts promptly to obtain the withdrawal of such order, provided that
in the Company's opinion, in consultation with its counsel, there is a good
faith argument for the removal of such order;
(l) Obtain a cold comfort letter from the Company's independent public
accountants addressed to the selling Holders of Registrable Securities in
customary form and covering such matters of the type customarily covered by
cold comfort letters as the Holders of a majority of the Registrable
Securities being sold reasonably request; and
(m) Furnish, at the request of Holders of a majority of the
Registrable Securities participating in the registration, to each seller of
Registrable Securities a signed counterpart, addressed to such seller (and
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<PAGE>
underwriters, if any) of an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such Holder covering substantially the same matters with
respect to such registration (and the prospectus included therein) as are
customarily covered in opinions of issuer's counsel to underwriters in
underwritten public offerings.
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.
6. UNDERWRITING REQUIREMENTS. The right of any Holder to "piggyback" in
an underwritten public offering of the Company's securities pursuant to Section
3 shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and any other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision of
Section 3 and this Section 6, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, and (a)
if such registration is the first registered offering of the Company's
securities to the public, the underwriter may exclude some or all of the
Registrable Securities from such registration and underwriting, provided that
the Holders are allowed to participate in the offering in the same proportion
(based on the total number of securities requested to be registered) as any
other shareholder of the Company participating in the offering, and (b) if such
registration is other than the first registered offering of the Company's
securities to the public, the underwriter may exclude some or all Registrable
Securities from such registration and underwriting, provided that all of the
shares requested to be registered by shareholders other than Holders and Third
Party Holders shall first be excluded and thereafter, only to the extent deemed
necessary by the underwriter, shares requested to be registered by Holders and
Third Party Holders shall be reduced pro rata based on the number of securities
respectively requested by them to be registered. Any reduction in the number of
Registrable Securities included in such registration shall be borne equally by
the Holders and any Third Party Holders as a group pro rata based on the number
of shares for which registration was requested. If any Holder disapproves of the
terms of any such underwriting, it may elect to withdraw therefrom by written
notice to the Company and the underwriter. Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration.
Third Party Holders "piggybacking" on a demand registration demanded by the
Initiating Holders under Section 2 above shall be subject to the same
conditions,
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<PAGE>
requirements and limitations that are applicable to a Holder under this
Section 6 in the event of an underwritten public offering.
7. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Holders of the securities so registered pro rata on the basis of the
number of shares so registered.
8. DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
9. INDEMNIFICATION. If any Registrable Securities are included in a
registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers, directors and partners of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended
(the "1934 ACT"), against any losses, claims, damages, or liabilities
(joint or several) to which they or any of them may become subject under
the 1933 Act, the 1934 Act or any other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect
thereof) arise from or are based upon any of the following statements,
omissions or violations (collectively a "VIOLATION"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto; or
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein
not misleading; and the Company will reimburse each such Holder, officer,
director or partner, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 9 shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
the Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises from or is based upon a
violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers
who have signed the registration statement, each person, if any, who
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<PAGE>
controls the Company within the meaning of the 1933 Act, any underwriter
(within the meaning of the 1933 Act) for the Company, any person who
controls such underwriter, any other Holder selling securities in such
registration statement or any of its directors or officers or any person
who controls such Holder against any losses, claims, damages or liabilities
(joint or several) to which the Company or any such director, officer,
controlling person, or underwriter or other such Holder or director,
officer or controlling person may become subject, under the 1933 Act, the
1934 Act or any other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise from or are
based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person, underwriter or controlling person,
other Holder, officer, director or controlling person in connection with
investigation or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 9 shall not apply to amounts paid in settlement of any such loss,
claim damage, liability or action if such settlement is effected without
the consent of the Holder which consent shall not be unreasonably withheld.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 9
is applicable but for any reason is held to be unavailable from the Company
or any Holder, the Company and the Holders participating in the
registration shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claims asserted) to which the Company and the
participating Holders may be subject in such proportion so that the
participating Holders are responsible for that portion of the foregoing
amount represented by the ratio of the proceeds received by the
participating Holders in the offering to the total proceeds received from
the offering by the Company and all selling shareholders (other than
participating Holders) and the Company shall be responsible for the portion
represented by the ratio of proceeds received by the Company to the total
proceeds received by the Company and all selling shareholders (other than
participating Holders); provided, however, that such portions shall be
adjusted as may be just and equitable to take into account the relative
fault of the participating Holders and the Company; provided further,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 9(c), each person, if any, who controls the
Company or any Holder within the meaning of the 1933 Act, each officer of
the Company who shall have signed the registration statement and each
director of the Company shall have the same rights to contribution as the
Company.
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<PAGE>
(d) No settlement shall be effected without the prior written consent
of the Holders participating in a registration unless (i) the obligations
of the Company for indemnification or contribution pursuant to this
Agreement survive and are not extinguished by reason of the settlement and
remain in full force and effect under applicable federal and state laws,
rules, regulations and orders or (ii) all claims and actions against the
participating Holders and each person who controls a participating holder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act are extinguished by the settlement and the indemnifying party obtains a
full release of all claims and actions against the participating Holders
and each such control person, which release shall be to the reasonable
satisfaction of the participating Holders.
(e) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying party under this Section 9, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party
within a reasonable time of the commencement of any such action, to the
extent prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 9, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
(f) The obligations of the Company and the Holders under this
Section 9 shall survive through the completion of any offering of
Registrable Securities in a registration statement made under the terms of
this Agreement.
10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of a Holder under
this Agreement may be assigned by a Holder only to a permitted transferee of
such securities pursuant to Section 5.3 of the Purchase Agreement, provided the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee and the securities with
respect to which such registration rights are being assigned; provided, however,
that no such assignment shall be effective if, immediately following the
transfer, the transferee is free to dispose of all of such securities without
regard to any restrictions imposed under the 1933 Act.
11. SUBSEQUENT REGISTRATION RIGHTS. The Company may grant registration
rights to parties other than the Holders; provided, however, that in the event
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the Company shall grant any person registration rights containing terms more
favorable than the terms granted herein, the more favorable terms shall
automatically be deemed granted to the Holders and incorporated herein by
reference. Prior to the date of this Agreement, the Company has not granted
registration rights to any other person that are still in effect and that are on
terms more favorable than the terms granted herein.
12. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities in a market transaction during a period
deemed by the underwriter to be necessary or appropriate following the effective
date of a registration statement of the Company filed under the 1933 Act,
provided that Roger B. Abbott, Rosalind Abbott, and Edward S. Soren are subject
to such an agreement for the same period. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to the
Registrable Securities of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
13. AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of Holders of at
least a majority of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to departure from the provisions hereof with
respect to a matter which relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
registration statement and which does not directly or indirectly affect the
rights of other holders of Registrable Securities may be given by the holders of
a majority of the Registrable Securities being sold; provided, however, that the
provisions of this sentence may not be amended, modified or supplemented except
in accordance with the provisions of the immediately preceding sentence.
14. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one business day after being sent, when
sent by professional overnight courier service from and to locations within the
continental United States, or (c) five days after posting when sent by
registered or certified mail (return receipt requested), addressed to the
Company or TVG at its address set forth on the signature page hereof. Any party
hereto may from time to time by notice in writing served upon the others as
provided herein, designate a different mailing address or a different person to
which such notices or demands are thereafter to be addressed or delivered.
15. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.
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16. CAPTIONS. Captions are provided herein for convenience only and
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
17. CROSS-REFERENCES. All cross-references in this Agreement, unless
specifically directed to another agreement or document, refer to provisions
within this Agreement.
18. GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of California
applicable to agreements made and to be performed wholly within the State of
California. In the event a judicial or other proceeding is necessary to resolve
any dispute hereunder, the sole forum for resolving disputes arising under or
relating to this Agreement shall be the Municipal and Superior Courts for the
County of San Diego, State of California, or the federal district court for the
district of California associated with such county and all related appellate
courts and the parties hereby consent to the jurisdiction of such courts, and
that venue shall be in such county.
19. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be declared invalid or unenforceable, the remaining
provisions shall remain in full force and effect and shall be construed in the
broadest possible manner to effectuate the purposes hereof. The parties further
agree to replace such void or unenforceable provisions of this Agreement with
valid and enforceable provisions which will achieve, to the extent possible, the
economic, business and other purposes of the void or unenforceable provisions.
20. ENTIRE AGREEMENT. This Agreement contains the entire understanding
among the parties hereto with respect to the subject matter hereof and
supersedes all prior written and oral agreements, understandings, commitments
and practices between the parties, including all prior agreements with respect
to registration rights.
21. CONSIDERATION FOR APPROVALS OR WAIVERS. No consideration shall be
paid to any Holder to obtain such Holder's approval for or waiver of any
amendment of this Agreement or any matter requiring the approval or consent of
the Holders hereunder unless such consideration is also offered to all Holders,
pro rata based upon the number of Registrable Securities held by the Holders.
22. REMEDIES. Subject to Section 8 (Delay of Registration), each Holder
of Registrable Securities, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement with the intent and agreement that the same shall be effective
as of the day and year first above written.
THE COMPANY:
Communication Telesystems International,
a California corporation
By: /s/ Edward S. Soren
-----------------------------------
Title: Executive Vice President
--------------------------------
Address: 9999 Willow Creek Road
San Diego, California 92131
Attn: Legal Department
Fax: (619) 452-3780
TVG:
The TVG Asian Communications Fund,
a Cayman Islands corporation
By: John Troy
----------------------------------
Title:
-------------------------------
Address: c/o Telecom Venture Group Limited
2015 Jardine House
1 Connaught Place Central
Hong Kong
Attention: John Troy
Fax: (852) 2147-3320
13
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STOCK PURCHASE AGREEMENT
BY AND BETWEEN
COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS
AND
GOLD & APPEL TRANSFER S.A.
August 16, 1999
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. PURCHASE AND SALE OF THE SHARES . . . . . . . . . . . . . . . . . . . . . . . .4
2.1 Purchase and Sale of the Shares . . . . . . . . . . . . . . . . . . . . .4
2.2 Conditions Precedent to Sale of the Shares. . . . . . . . . . . . . . . .4
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . .5
3.1 Organization and Corporate Power. . . . . . . . . . . . . . . . . . . . .5
3.2 Capital Stock and Related Matters . . . . . . . . . . . . . . . . . . . .5
3.3 Authorization; No Conflicts . . . . . . . . . . . . . . . . . . . . . . .5
3.4 Governmental Consent. . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.6 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.7 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . .7
3.8 No Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . .7
3.9 Conformity with Law; Litigation . . . . . . . . . . . . . . . . . . . . .7
3.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.11 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.12 Government Authorizations . . . . . . . . . . . . . . . . . . . . . . . .7
3.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.14 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . . .7
4.1 Organization and Corporate Power. . . . . . . . . . . . . . . . . . . . .7
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.3 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.4 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . .8
4.5 Investment Representations. . . . . . . . . . . . . . . . . . . . . . . .8
5. TRANSFER OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5.1 Restrictive Legends . . . . . . . . . . . . . . . . . . . . . . . . . . .9
5.2 Notice of Proposed Transfers. . . . . . . . . . . . . . . . . . . . . . 10
5.3 Permitted Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
6. CERTAIN COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.3 Rule 144 Filing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.4 Changes in Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 11
6.5 HSR Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.1 Obligations of the Company. . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Obligations of the Purchaser. . . . . . . . . . . . . . . . . . . . . . 12
7.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.4 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Amendments;Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.2 Prior Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.3 Survival of Representations and Warranties. . . . . . . . . . . . . . . 13
8.4 Schedules; Exhibits; Integration. . . . . . . . . . . . . . . . . . . . 13
8.5 Best Efforts; Further Assurances. . . . . . . . . . . . . . . . . . . . 13
8.6 Governing Law and Forum Selection . . . . . . . . . . . . . . . . . . . 14
8.7 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.8 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.9 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.10 Publicity and Reports . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.12 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.13 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.14 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.15 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.16 Representation By Counsel; Interpretation . . . . . . . . . . . . . . . 16
8.17 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.18 No Consequential Damages. . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
-ii-
<PAGE>
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule 3.2 Equity Securities
Schedule 3.14 Directors and Officers Liability Insurance
Exhibit A Certificate of Determination
Exhibit B Prospectus
Exhibit C Registration Rights Agreement
Exhibit D Form of Opinion of O'Melveny & Myers LLP
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT") is dated August
16, 1999, by and between COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A.
WORLDXCHANGE COMMUNICATIONS, a California corporation (the "COMPANY"), and GOLD
& APPEL TRANSFER S.A., a British Virgin Islands corporation (the "PURCHASER").
The parties hereby agree as follows:
1. DEFINITIONS.
1.1 Definitions.
1.1.1 For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires,
(a) the terms defined in this SECTION 1
have the meanings assigned to them in this SECTION 1 and include
the plural as well as the singular,
(b) the words "herein," "hereof," "hereto"
and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Section, Subsection
or other subdivision, unless the context otherwise requires, and
(c) all accounting terms not otherwise
defined herein have the meanings assigned under generally accepted
accounting principles.
1.2 As used in this Agreement, the following definitions shall
apply.
"AFFILIATE" means a Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with, a specified Person.
"AGREEMENT" means this Agreement by and between the Company and
the Purchaser as amended or supplemented together with the Exhibits and all
Schedules attached or incorporated by reference.
"APPROVAL" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
"ATOCHA" means Atocha, L.P., a Texas limited partnership.
"AUDITORS" means Ernst & Young LLP, independent public accountants
to the Company.
1
<PAGE>
"CERTIFICATE OF DETERMINATION" means the certificate of
determination in the form attached hereto as EXHIBIT A.
"CLOSING" has the meaning specified in SECTION 2.1.
"CLOSING DATE" has the meaning specified in SECTION 2.2.
"COMPANY" means Communication TeleSystems International d.b.a.
WorldxChange Communications, a California corporation.
"CONTRACT" means any agreement, arrangement, bond, commitment,
franchise, indemnity, indenture, instrument, lease, license or understanding,
whether or not in writing.
"ENCUMBRANCE" means any claim, charge, easement, encumbrance,
lease, covenant, security interest, lien, option, pledge, rights of others or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise, except
for any restrictions on transfer generally arising under any applicable federal
or state securities law.
"EQUITY SECURITIES" means any capital stock of the Company
(including, without limitation, common stock and preferred stock) or other
equity interest in the Company or any securities convertible into or
exchangeable for capital stock of or an equity interest in, the Company or any
other rights (statutory, contractual or otherwise), warrants or options to
acquire any of the foregoing securities.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FIRST ATOCHA AGREEMENT" means that certain Stock Purchase
Agreement, dated September 29, 1998, by and among the Company, Atocha, Roger B.
Abbott, Rosalind Abbott and Edward S. Soren.
"FIRST GOLD & APPEL AGREEMENT" means that certain Stock Purchase
Agreement dated September 29, 1998 by and among the Company, Gold & Appel, Roger
B. Abbott, Rosalind Abbott and Edward S. Soren.
"GAAP" means generally accepted accounting principles in the
United States, as in effect from time to time.
"GOLD & APPEL" means Gold & Appel Transfer S.A., a British Virgin
Islands corporation.
"GOVERNMENTAL ENTITY" means any government or any agency, bureau,
board, commission, court, department, official, political subdivision, tribunal
or other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the related regulations and published interpretations.
"HSR FILINGS" means the filing of a premerger notification and
report form by each of the Company and the Purchaser (with respect to the
transactions contemplated by this
2
<PAGE>
Agreement) with the Federal Trade Commission and the Antitrust Division of
the Department of Justice.
"INDEMNIFIABLE CLAIM" means any Loss for or against which any
party is entitled to indemnification under this Agreement; "INDEMNIFIED PARTY"
means the party entitled to indemnity hereunder; and "INDEMNIFYING PARTY" means
the party obligated to provide indemnification hereunder.
"LAW" means any constitutional provision, statute or other law,
rule, regulation, or interpretation of any Governmental Entity and any Order.
"LOSS" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified Person, but excluding any consequential damages.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition and business operations of the Company and its Subsidiaries
taken as a whole.
"MATERIAL CONTRACT" means any Contract material to the business of
the subject Person as of the date hereof.
"ORDER" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"PERSON" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
any Governmental Entity or arbitrator.
"PROSPECTUS" means the prospectus relating to the Company in the
form attached hereto as EXHIBIT B.
"PURCHASER" means Gold & Appel Transfer S.A., a British Virgin
Islands corporation.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company and Gold &
Appel and in the form attached hereto as EXHIBIT C.
"SEC" means the Securities and Exchange Commission or any
successor entity.
"SECOND ATOCHA AGREEMENT" means that certain Stock Purchase
Agreement dated February 3, 1999, by and between the Company and Atocha.
3
<PAGE>
"SECOND GOLD & APPEL AGREEMENT" means that certain Stock Purchase
Agreement dated May 10, 1999, by and between the Company and Gold & Appel.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means the 30,000 shares of Series A Preferred Stock to be
issued to Gold & Appel pursuant to the terms of this Agreement.
"STOCK" means the common stock of the Company, no par value.
"SUBSIDIARY" means any Person in which the Company has a direct or
indirect equity or ownership interest in excess of 50%.
"TAX" or "TAXES" means all federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, AD VALOREM, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
2. PURCHASE AND SALE OF THE SHARES.
2.1 PURCHASE AND SALE OF THE SHARES. Subject to SECTION 2.2,
on or before the first business day after the date that all of the conditions
set forth in SECTION 2.2 have been satisfied or waived by the parties hereto,
the Purchaser shall deliver by wire transfer of immediately available funds in
the amount of $30,000,000 to the Company against the delivery by the Company to
the Purchaser of a certificate, issued in the name of the Purchaser, evidencing
the Shares (the "CLOSING"). The date on which the Closing occurs shall be the
"CLOSING DATE."
2.2 CONDITIONS PRECEDENT TO SALE OF THE SHARES. The
obligations of the Company and the Purchaser to sell and purchase the Shares,
respectively, are subject to the satisfaction, at or prior to the Closing Date,
of each of the following conditions (which shall be the only conditions to the
Closing and any of which may be waived by the agreement of both parties, in
whole or in part):
2.2.1 NO PROHIBITION. Neither the consummation nor the
performance of any of the transactions contemplated by this
Agreement at the Closing will, directly or indirectly (with or
without notice or lapse of time), materially contravene or
conflict with, or result in a material violation of, any
applicable Law or Order.
2.2.2 BRING-DOWN OF SELECTED REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company set forth in the
following portions of the indicated Sections of this Agreement
shall be true and correct as of the Closing Date: (1) the first
two sentences of Section 3.1; (2) the last sentence of Section
3.2; (3) the first sentence of Section 3.3; and (4) the third
sentence of Section 3.3, except as to clause (ii) thereof.
2.2.3 CERTIFICATE OF DETERMINATION. The Certificate of
Determination shall have been accepted for filing by the
California Secretary of State.
4
<PAGE>
2.2.4 OPINION. The Company shall have delivered to Purchaser an
opinion of O'Melveny & Myers LLP, dated the Closing Date, in the
form attached hereto as EXHIBIT D.
2.2.5 REGISTRATION RIGHTS AGREEMENT. The Company shall have
signed and delivered to Purchaser the Registration Rights
Agreement, in the form attached hereto as EXHIBIT C.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as otherwise disclosed in the Prospectus or as set forth in the
attached Schedules, the Company represents and warrants that as of the date
hereof:
3.1 ORGANIZATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company has all requisite corporate power and
corporate authority necessary to (i) execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby and (ii) own and operate
its properties and to carry on its business as now conducted and as presently
proposed to be conducted. The copies of the Company's charter documents and
bylaws furnished to the Purchaser's counsel reflect all amendments made thereto
at any time prior to the date of this Agreement and are correct and complete.
The Company is duly qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which either
the ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except where the
failure to be so qualified would not have a Material Adverse Effect.
3.2 CAPITAL STOCK AND RELATED MATTERS. The authorized capital
stock of the Company is as set forth in its articles of incorporation and the
outstanding capital stock, options and other rights to acquire capital stock and
shares reserved for issuance as of the date of this Agreement are as set forth
in SCHEDULE 3.2. Except as set forth in SCHEDULE 3.2 and as contemplated by
this Agreement, as of the date of this Agreement: (i) the Company does not have
outstanding any stock or securities convertible or exchangeable for any shares
of capital stock, nor are there outstanding any rights or options to subscribe
for or to purchase any capital stock or any stock or securities convertible into
or exchangeable for any capital stock of the Company, and (ii) the Company is
not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock. All of the
outstanding shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. The Shares, when issued
and sold in accordance with the terms of this Agreement, will be duly authorized
and validly issued, fully paid and nonassessable.
3.3 AUTHORIZATION; NO CONFLICTS. The execution, delivery and
performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement constitutes the
legally valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. The execution, delivery and performance
of this Agreement, and the consummation of the transactions contemplated hereby,
by the Company will not violate or constitute a breach or default whether upon
lapse of time and/or the occurrence of any act or event or otherwise under
(i) the charter documents or bylaws of the Company, (ii) any Material Contract
to which the Company is a party, or (iii) any material Law
5
<PAGE>
or Order to which the Company is subject. Notwithstanding the foregoing, the
Purchaser acknowledges and agrees that pursuant to that certain Amendment
Number 8, dated August 16, 1999, to the Company's Loan and Security Agreement
with Foothill Capital Corporation, the Company will not be permitted to make
any dividend payments on the Shares if either (a) at the time of such
proposed dividend payment, the Company is not in compliance with the
financial covenants of the Loan and Security Agreement and/or there exists an
event of default thereunder, or (b) giving effect to the proposed dividend
payment, the Company would not be in compliance with the financial covenants
of the Loan and Security Agreement. The purpose of the foregoing sentence is
solely to modify the representations and warranties made by the Company under
this Section 3.3 and shall in no way limit the Purchaser's right to receive
dividends on the Shares under the terms of the Certificate of Determination.
3.4 GOVERNMENTAL CONSENT. Except for the HSR Filings, no
further permit, consent, Approval, authorization of, declaration to or filing
with any Governmental Entity is required in connection with the execution,
delivery and performance of this Agreement by the Company or the consummation by
the Company of any transactions contemplated hereby, except as have already been
obtained or accomplished.
3.5 FINANCIAL STATEMENTS.
3.5.1 AUDITED FINANCIAL STATEMENTS. The Company has delivered to
the Purchaser consolidated balance sheets for the Company and its
Subsidiaries at September 30, 1998, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholders'
equity and changes in financial position or cash flow for the
periods then ended. All such financial statements have been
examined by the Auditors whose reports thereon are included with
such financial statements. All such financial statements have
been prepared in conformity with GAAP. Such statements of
operations and cash flow present fairly in all material respects
the results of operations and cash flows of the Company and its
Subsidiaries for the respective periods covered, and the balance
sheets present fairly in all material respects the financial
condition of the Company and its Subsidiaries as of their
respective dates.
3.5.2 UNAUDITED INTERIM FINANCIAL STATEMENTS. The Company has
delivered to the Purchaser an unaudited consolidated balance sheet
for the Company and its Subsidiaries at June 30, 1999, and the
related unaudited consolidated statement of operations and cash
flows and changes in stockholder's equity for the nine (9) months
ending June 30, 1999 (the "INTERIM STATEMENTS"). The Interim
Statements have been prepared in conformity with GAAP applied on a
consistent basis except for (i) changes, if any, disclosed therein
(except for the absence of notes and normal year-end adjustments
consistent with past practices) and (ii) information in the
Interim Statements concerning EBITDA, which is not determined in
accordance with GAAP. The statement of operations presents fairly
the results of operations of the Company and its Subsidiaries for
the period covered, and the balance sheet presents fairly in all
material respects the financial condition of the Company as of the
respective date of such balance sheet.
3.6 NO BROKERS OR FINDERS. No agent, broker, finder or
investment or commercial banker, or other Person or firm engaged by or acting on
behalf of the Company or its
6
<PAGE>
Affiliates in connection with the negotiation, execution or performance of
this Agreement or the transactions contemplated by this Agreement, is or will
be entitled to any broker's or finder's or similar fee or other commission as
a result of this Agreement or such transactions.
3.7 ACCURACY OF INFORMATION. As of the date of this Agreement,
the Prospectus does not contain any untrue statement of a material fact, or fail
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
3.8 NO MATERIAL ADVERSE CHANGE. Since June 30, 1999, there has
not been any Material Adverse Effect.
3.9 CONFORMITY WITH LAW; LITIGATION. To the knowledge of the
Company, the Company has complied with all Laws applicable to it or to the
operation of its business and has not received any written notice of any
violation of, liability or potential responsibility under, any such Law which
has not heretofore been cured and for which there is no remaining liability,
other than, in each case, those not having a Material Adverse Effect.
3.10 ERISA. Each Company employee benefit plan that is subject
to ERISA has been administered in compliance with the applicable requirements of
ERISA, except for such noncompliance, if any, that in the aggregate, would not
have a Material Adverse Effect.
3.11 ENVIRONMENTAL MATTERS. To the knowledge of the Company,
all real property now or previously owned, operated or leased by the Company and
located in the United States has been operated by the Company in compliance with
all applicable Environmental Laws, except for such noncompliance, if any, that
would not have a Material Adverse Effect. As used herein, "ENVIRONMENTAL LAW"
means any federal, state, or local law, statute, rule or regulation governing or
relating to the environment or to occupational health and safety.
3.12 GOVERNMENT AUTHORIZATIONS. The Company has all federal,
state and local governmental licenses, permits and other authorizations,
including without limitation all licenses and authorizations required by the
United States Federal Communications Commission and by state public utilities
commissions necessary to conduct the Company's business as presently conducted,
except where the failure to hold any such licenses, permits and other
authorizations would not result in a Material Adverse Effect.
3.13 TAXES. To the knowledge of the Company, all Taxes owed by
the Company have been paid or accrued on the Company's financial statements,
except where the failure to pay or accrue such Taxes would not result in a
Material Adverse Effect.
3.14 INSURANCE. SCHEDULE 3.14 sets forth a true and correct
description of the directors and officers liability insurance policy currently
maintained by the Company. There have been no claims made against such
insurance policy.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants that:
4.1 ORGANIZATION AND CORPORATE POWER. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the British Virgin Islands.
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The Purchaser has all requisite corporate power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
4.2 AUTHORIZATION. The execution, delivery and performance of
this Agreement by the Purchaser and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Purchaser. This Agreement constitutes the legally valid and
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms.
4.3 NO CONFLICTS. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby, by
the Purchaser will not violate, or constitute a breach or default whether upon
lapse of time and/or the occurrence of any act or event or otherwise under
(i) the charter documents or bylaws of the Purchaser, (ii) any Material Contract
to which the Purchaser is a party, or (iii) any material Law or Order to which
the Purchaser is subject.
4.4 NO BROKERS OR FINDERS. No agent, broker, finder or
investment or commercial banker, or other Person or firm engaged by or acting on
behalf of the Purchaser or its Affiliates in connection with the negotiation,
execution or performance of this Agreement or the transactions contemplated by
this Agreement, is or will be entitled to any broker's or finder's or similar
fee or other commission as a result of this Agreement or such transactions.
4.5 INVESTMENT REPRESENTATIONS.
4.5.1 This Agreement is made with the Purchaser in reliance upon
the Purchaser's representation to the Company, which by the
Purchaser's execution of this Agreement, the Purchaser hereby
confirms, that (i) the Shares are being acquired for investment
for the Purchaser's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same;
and (ii) the Purchaser does not have any Contract, undertaking,
agreement or arrangement with any Person to sell, transfer or
grant participations to any Person with respect to the Shares.
4.5.2 The Purchaser has not been attracted to the purchase of the
Shares by any publication or any advertising, and the transactions
contemplated by this Agreement are not being effected by or
through a broker-dealer.
4.5.3 The Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated by the SEC, as
presently in effect.
4.5.4 The Purchaser understands that (i) neither the Shares nor
the sale thereof to it have or has been registered under the
Securities Act, or under any state securities law, (ii) no
registration statement has been filed with the SEC, nor with any
other regulatory authority and that, as a result, any benefit
which might normally accrue to an investor such as the Purchaser
by an impartial review of such a registration statement by the SEC
or other regulatory commission will not be forthcoming; and (iii)
the Shares are characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from
the
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Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities
may be resold without registration under the Securities Act only
in certain limited circumstances. In this connection, the
Purchaser represents that it is familiar with the Rule 144 under
the Securities Act, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
4.5.5 The Purchaser acknowledges that (i) it is represented by
counsel, (ii) it has received and carefully reviewed a copy of the
Prospectus and this Agreement; (iii) it has received all
information it considers necessary or appropriate for deciding
whether to purchase the Shares; (iv) as a result of its knowledge
of the telecommunications industry, its study of the
aforementioned documents and its prior overall experience in
financial matters, it is properly able to evaluate the capital
structure of the Company, the business of the Company and its
Subsidiaries and the risks inherent therein; and (v) it has been
given the opportunity to obtain any additional information or
documents from, and to ask questions and receive answers of, the
officers and representatives of the Company to the extent
necessary to evaluate the merits and risks related to its
investment in the Company.
5. TRANSFER OF SHARES. Neither the Shares nor the Stock into which the
Shares are convertible are transferable except upon the conditions specified in
this SECTION 5, which conditions are intended to assure compliance with the
provisions of the Securities Act and state securities laws in respect of the
transfer of any of the Shares or the Stock into which the Shares are
convertible.
5.1 RESTRICTIVE LEGENDS. Unless and until otherwise permitted
by this Agreement, the Shares issued to the Purchaser pursuant to this
Agreement, and any Stock issued to Purchaser pursuant to the conversion of the
Shares, shall be stamped or otherwise imprinted with legends in substantially
the following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND THUS MAY NOT BE TRANSFERRED UNLESS
REGISTERED OR QUALIFIED UNDER THAT ACT OR SUCH LAWS OR UNLESS AN
EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE."
"SUCH SECURITIES ARE ALSO SUBJECT TO THE RESTRICTIONS ON
TRANSFER CONTAINED IN A STOCK PURCHASE AGREEMENT, DATED AUGUST 16,
1999, BY AND BETWEEN COMMUNICATION TELESYSTEMS INTERNATIONAL D.B.A.
WORLDXCHANGE COMMUNICATIONS AND GOLD & APPEL TRANSFER S.A., COPIES OF
WHICH MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY."
The Company may order its transfer agents to stop the transfer of any Shares or
shares of Stock bearing a legend required by this SECTION 5.1 until the
conditions herein with respect to transfer of such securities have been
satisfied.
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5.2 NOTICE OF PROPOSED TRANSFERS. Subject to SECTION 5.1,
prior to any transfer or attempted transfer of the Shares or shares of Stock
bearing the legend in SECTION 5.1, the Purchaser or its permitted assignee,
transferee or donee (the "HOLDER") shall give the Company written notice of its
intention to do so, describing briefly the nature of any such proposed transfer.
If, in the written opinion of counsel for Holder, addressed to the Company and
the Holder, in form and substance reasonably acceptable to the Company, the
proposed transfer may be effected without registration of such Shares or shares
of Stock, the Shares or shares of Stock proposed to be transferred may be
transferred in accordance with the terms of said notice and in compliance with
applicable state securities laws and regulations. The Company shall not be
required to effect any such transfer prior to the receipt of such favorable
opinion; provided that if the proposed transfer is governed by Rule 144
promulgated by the SEC, or any successor rule, such opinion shall not be
required, but the Company may prevent such transfer until it receives evidence
satisfactory to it and its counsel that the transfer complies with Rule 144.
Each transfer shall comply with all applicable SEC rules and applicable state
securities laws.
5.3 PERMITTED TRANSFERS. Notwithstanding anything to the
contrary in this Agreement, Purchaser may transfer the Shares and shares of
Stock to any Affiliate of Purchaser in accordance with the provisions of
SECTIONS 5.1 and 5.2; provided that the transferee shall hold such Shares or
shares of Stock subject to the same restrictions applicable to its transferor
and shall agree in writing to be bound by the terms of this Agreement.
6. CERTAIN COVENANTS.
6.1 PREEMPTIVE RIGHTS.
6.1.1 Purchaser shall have the right to subscribe to any
additional (i) issuances of shares of capital stock of the
Company, (ii) issuances of securities convertible into shares of
capital stock of the Company, or (iii) grants of options to
purchase shares of capital stock of the Company, other than grants
to employees, directors or consultants of the Company (and the
issuance of shares upon exercise of such options), for cash, on
the same terms of such offerings to the extent equal to the
proportion which the number of shares of Stock (on a fully diluted
basis assuming the conversion of the Shares) then held by
Purchaser bears to the Company's fully-diluted capitalization (on
an as-converted and as-exercised basis). Such right is
exercisable within ten (10) days after the receipt of written
notice relating to such issuances by the Purchaser. Such right
extends to the same proportion of the new issue of shares,
convertible securities or options as the Purchaser's proportion of
the outstanding shares.
6.1.2 Purchaser's right to purchase new issues of shares or
convertible securities or options does not extend to (i) the
issuance of shares upon the conversion or exercise of options or
other convertible securities either (A) outstanding on the date
hereof or (B) with respect to which options or other convertible
securities Purchaser had preemptive rights under this SECTION 6.1,
or (ii) securities issued solely in exchange for shares,
convertible securities or options issued in connection with any
merger, reorganization or acquisition (including, without
limitation, shares of Stock to be issued in connection with the
contemplated acquisition of the minority interest in WorldxChange
Pty. Ltd.).
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6.1.3 The preemptive rights held by the Purchaser pursuant to
this SECTION 6.1 supersede and replace (i) the preemptive rights
held by the Purchaser pursuant to the First Gold & Appel Agreement
and (ii) the preemptive rights held by the Purchaser pursuant to
the Second Gold & Appel Agreement such that the preemptive rights
held by the Purchaser pursuant to the First Gold & Appel Agreement
and the Second Gold & Appel Agreement shall terminate as of the
Closing.
6.1.4 The preemptive rights held by the Purchaser pursuant to
this SECTION 6.1 shall terminate immediately prior to the closing
of an initial public offering of the Company's securities and
shall not apply to any issuance of securities in such offering.
6.2 REGISTRATION RIGHTS. The Company and Purchaser,
concurrently with the Closing, shall execute and deliver the Registration Rights
Agreement.
6.3 RULE 144 FILING. After the Company's Common Stock is
registered under the Exchange Act, and until the Shares (and shares of Stock
issued upon conversion of the Shares) held by Purchaser have all been publicly
sold or are eligible for sale under Rule 144(k) under the Securities Act, the
Company shall use best efforts to file the reports required under Rule 144(c)(1)
under the Securities Act in order to permit sales of the Shares (and shares of
Stock issued upon conversion of the Shares) by Purchaser pursuant to Rule 144.
6.4 CHANGES IN CAPITAL STOCK.
6.4.1 If, prior to the Closing Date, the Stock is subdivided,
combined or reclassified, or if shares of capital stock of the
Company are issued as a dividend thereon, the number of shares of
Stock which constitute the Shares shall be adjusted so that the
Purchaser shall be entitled to purchase the kind and number of
shares or other securities of the Company which it would have been
entitled to receive after the happening of any of the events
described above, had the Shares been purchased immediately prior
to the happening of such event or any record date with respect
thereto.
6.4.2 If, prior to the Closing Date, there is a reclassification
of the securities of the Company or a consolidation of the Company
with or merger of the Company into another corporation or in case
of a sale or conveyance to another corporation of the property,
assets or business of the Company as an entirety or substantially
as an entirety, the Company shall provide, or shall cause such
successor or purchasing corporation to provide, as the case may
be, that the Purchaser shall have the right thereafter to purchase
for the same consideration provided in this Agreement, the kind
and amount of shares and other securities and property which the
Purchaser would have owned or have been entitled to receive after
the happening of such reclassification, consolidation, merger,
sale or conveyance had the Shares been purchased immediately prior
to the happening of such event.
6.5 HSR FILINGS. The Company and the Purchaser each agree to
use best efforts to cause the HSR Filings to be made promptly after the earliest
date after the date of this Agreement that the HSR Filings may properly be made.
The Company and the Purchaser each
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<PAGE>
agree to furnish each other with such necessary information and reasonable
assistance as the other may request in connection with the HSR Filings.
7. INDEMNIFICATION.
7.1 OBLIGATIONS OF THE COMPANY. The Company agrees to
indemnify and hold harmless the Purchaser from and against any and all Losses of
the Purchaser based upon or arising from any inaccuracy in or breach or
nonperformance of any of the representations, warranties or covenants made or
obligations undertaken by the Company in this Agreement.
7.2 OBLIGATIONS OF THE PURCHASER. The Purchaser agrees to
indemnify and hold harmless the Company from and against any and all Losses of
the Company based upon or arising from, any inaccuracy in or breach or
nonperformance of any of the representations, warranties or covenants made by
the Purchaser in this Agreement.
7.3 PROCEDURE.
7.3.1 NOTICE. Any party seeking indemnification with respect to
any Loss shall give notice to the party required to provide
indemnity hereunder (the "INDEMNIFYING PARTY").
7.3.2 DEFENSE. If any claim, demand or liability is asserted by
any third party against any Indemnified Party, the Indemnifying
Party shall upon the written request of the Indemnified Party,
defend any actions or proceedings brought against the Indemnified
Party in respect of matters embraced by the indemnity. If, after
a request to defend any action or proceeding, the Indemnifying
Party does not defend the Indemnified Party, a recovery against
the latter suffered by it in good faith, is conclusive in its
favor against the Indemnifying Party, provided however that, if
the Indemnifying Party has not received reasonable notice of the
action or proceeding against the Indemnified Party, or is not
allowed to control its defense, judgment against the Indemnified
Party is only presumptive evidence against the Indemnifying Party.
The parties shall cooperate in the defense of all third party
claims which may give rise to Indemnifiable Claims hereunder. In
connection with the defense of any claim, each party shall make
available to the party controlling such defense, any books,
records or other documents within its control that are reasonably
requested in the course of such defense.
7.4 EXCLUSIVE REMEDY. This SECTION 7 shall be the exclusive
remedy of the parties for any Loss of such party based upon or arising from any
inaccuracy in or breach or nonperformance of any of the representations,
warranties, or covenants made by any other party to this Agreement.
Notwithstanding the foregoing, Purchaser shall have the right to the remedy of
specific performance with respect to SECTIONS 2.1, 6.1, 6.3 AND 6.4.
8. GENERAL.
8.1 AMENDMENTS; WAIVERS. This Agreement and any schedule
attached hereto may be amended only by agreement in writing of all parties. No
waiver of any provision nor consent to any exception to the terms of this
Agreement shall be effective unless in writing and
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signed by the party to be bound and then only to the specific purpose, extent
and instance so provided.
8.2 PRIOR AGREEMENTS. Except as provided in SECTION 6.1 or as
otherwise expressly provided in this Agreement, the terms and provisions of the
First Gold & Appel Agreement and Second Gold & Appel Agreement (i) are hereby
ratified and confirmed, (ii) shall continue in full force and effect, and (iii)
shall be unaffected by any provisions of this Agreement.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as set
forth in the following sentence, all representations and warranties of the
Company and the Purchaser set forth in this Agreement or expressly incorporated
herein by reference shall, as of the first anniversary of the date of this
Agreement, expire and terminate and be of no further force or effect.
Notwithstanding the foregoing, (i) the representations and warranties set forth
in SECTION 3.7 (Accuracy of Information) shall survive until the thirtieth day
following delivery by the Company to the Purchaser of audited financial
statements for the fiscal year ended September 30, 1999, and (ii) the
representations and warranties set forth in SECTION 3.2 (Capital Stock and
Related Matters) shall survive indefinitely. As of the termination of the
respective representations, warranties and covenants as provided in this
Agreement, the Company and the Purchaser shall be deemed to have irrevocably
waived and released any and all rights and remedies any of them may have with
respect to any inaccuracy in or breach or nonperformance of any of the
representations, warranties or covenants made by any party to this Agreement.
8.4 SCHEDULES; EXHIBITS; INTEGRATION. Each schedule and
exhibit delivered pursuant to the terms of this Agreement shall be in writing
and shall constitute a part of this Agreement. This Agreement, together with
such schedules and exhibits, constitutes the entire agreement among the parties
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings of the parties in connection therewith.
8.5 BEST EFFORTS; FURTHER ASSURANCES.
8.5.1 STANDARD. Each party will use its best efforts to fulfill
all obligations on its part to be performed and fulfilled under
this Agreement, to the end that the transactions contemplated by
this Agreement shall be effected substantially in accordance with
its terms as soon as reasonably practicable. The parties shall
cooperate with each other in such actions and in securing
requisite Approvals. Each party shall deliver such further
documents and take such other actions as the other party may
reasonably request to consummate or implement the transactions
contemplated hereby or to evidence such events or matters.
8.5.2 LIMITATION. As used in this Agreement, the term "best
efforts" shall not mean efforts which require the performing party
to do any act that is unreasonable under the circumstances, to
make any capital contribution or to expend any funds other than
reasonable out-of-pocket expenses incurred in satisfying its
obligations hereunder, including but not limited to the fees,
expenses and disbursements of its accountants, actuaries, counsel
and other professionals.
8.6 GOVERNING LAW AND FORUM SELECTION. This Agreement is to be
construed and enforced in accordance with the internal laws of the State of
California. The parties consent
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to the jurisdiction of all federal and state courts in California. Any civil
action or other legal proceeding arising out of or relating to this Agreement
shall be brought and heard only in a federal or state court located in
California, and all parties waive any right to have such action or proceeding
transferred to another location.
8.7 NO ASSIGNMENT. Neither this Agreement nor any rights or
obligations under it are assignable, except pursuant to a permitted transfer by
Purchaser in accordance with SECTION 5.3 above.
8.8 HEADINGS. The descriptive headings of the Sections and
Subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
8.9 COUNTERPARTS. This Agreement and any amendment hereto or
any other document delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts shall constitute one and the same agreement (or other document) and
shall become effective (unless otherwise provided therein) when one or more
counterparts have been signed by each party and delivered to the other party.
8.10 PUBLICITY AND REPORTS. The Company and the Purchaser shall
coordinate all publicity relating to the transactions contemplated by this
Agreement and no party shall issue any press release, publicity statement or
other public notice relating to this Agreement, or the transactions contemplated
by this Agreement, without obtaining the prior written consent of each of the
parties to this Agreement except to the extent that a particular action is
required by applicable Law.
8.11 CONFIDENTIALITY. All information disclosed by any party (or
its representatives) whether before or after the date hereof, in connection with
the transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) shall be kept
confidential by such other party and its representatives and shall not be used
by any such Persons other than as contemplated by this Agreement, except to the
extent that such information (i) was known by the recipient when received,
(ii) it is or hereafter becomes lawfully obtainable from other sources, (iii) is
necessary or appropriate to disclose to a Governmental Entity having
jurisdiction over the parties, provided that the disclosing party give
reasonable notice to the other parties and the opportunity to protect any such
confidential information, (iv) as may otherwise be required by Law or (v) to the
extent such duty as to confidentiality is waived in writing by the other party.
8.12 PARTIES IN INTEREST. This Agreement shall be binding upon
and inure to the benefit of each party, and nothing in this Agreement, express
or implied, is intended to confer upon any other Person any rights or remedies
of any nature whatsoever under or by reason of this Agreement. Nothing in this
Agreement is intended to relieve or discharge the obligation of any third person
to any party to this Agreement.
8.13 NOTICES. Any notice or other communication hereunder must
be given in writing and (i) delivered in person, (ii) transmitted by telex,
telefax or telecommunications mechanism or (iii) mailed by certified or
registered mail, postage prepaid), receipt requested as follows:
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IF TO PURCHASER, ADDRESSED TO:
Gold & Appel Transfer S.A.
P.O. Box 985
Wickhams Cay Road Town
Tortula, British Virgin Islands
WITH A COPY TO:
Mr. Walt Anderson
1023 31st Street
Washington, D.C. 20007
Facsimile No:________________
IF TO THE COMPANY, ADDRESSED TO:
WORLDxCHANGE
9999 Willow Creek Road
San Diego, California 92131
Attn: Legal Department
Facsimile No: (619) 452-3780
WITH A COPY TO:
O'Melveny & Myers LLP
610 Newport Center Drive
Newport Beach, California 92660
Attn: David A. Krinsky, Esq.
Facsimile No: (949) 823-6994
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (A) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
SECTION 8.13 and an appropriate answer back is received, (B) if given by mail,
three days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (C) if given by any other means, when
actually received at such address.
8.14 EXPENSES. Each party shall pay its own expenses incident
to the negotiation, preparation and performance of this Agreement and the
transactions contemplated hereby, including but not limited to the fees,
expenses and disbursements of such party's respective investment bankers,
accountants and counsel. Purchaser will pay one-half and the Company will pay
one-half of the HSR Act filing fee with respect to the HSR Filings.
8.15 WAIVER. No failure on the part of any party to exercise or
delay in exercising any right hereunder shall be deemed a waiver thereof, nor
shall any single or partial exercise preclude any further or other exercise of
such or any other right.
8.16 REPRESENTATION BY COUNSEL; INTERPRETATION. The Company and
the Purchaser each acknowledge that each party to this Agreement has been
represented by counsel
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in connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of Law, including but not limited to
Section 1654 of the California Civil Code, or any legal decision that would
require interpretation of any claimed ambiguities in this Agreement against
the party that drafted it has no application and is expressly waived. The
provisions of this Agreement shall be interpreted in a reasonable manner to
effect the intent of the Purchaser and the Company.
8.17 SEVERABILITY. If any provision of this Agreement is
determined to be invalid, illegal or unenforceable by any Governmental Entity,
the remaining provisions of this Agreement to the extent permitted by Law shall
remain in full force and effect provided that the economic and legal substance
of the transactions contemplated is not affected in any manner materially
adverse to any party. In event of any such determination, the parties agree to
negotiate in good faith to modify this Agreement to fulfill as closely as
possible the original intents and purposes hereof.
8.18 NO CONSEQUENTIAL DAMAGES. Notwithstanding anything to the
contrary elsewhere in this Agreement, no party (or its Affiliates) shall, in any
event, be liable to any other party (or its Affiliates) for any consequential
damages, including, but not limited to, loss of revenue or income, or loss of
business reputation or opportunity relating to the breach or alleged breach of
this Agreement. The foregoing shall not be deemed to limit Purchaser's right to
specific performance with respect to SECTIONS 2.1, 6.1, 6.3 AND 6.4.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
COMPANY: PURCHASER:
COMMUNICATION TELESYSTEMS GOLD & APPEL TRANSFER S.A., a British
INTERNATIONAL D.B.A. WORLDXCHANGE Virgin Islands corporation
COMMUNICATIONS, a California
corporation
By: /s/ Edward S. Solen By: /s/ [Illegible]
--------------------------- --------------------------------
Its: /s/ Executive Vice President Its: Power of Attorney in Fact
----------------------------- --------------------------------
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LIST OF OMITTED SCHEDULES AND EXHIBITS
The following Schedules and Exhibits to the Stock Purchase
Agreement have been omitted from this Exhibit and shall be furnished
supplementally to the Commission upon request:
Schedule 3.2 - Equity Securities
Schedule 3.14 - Directors and Officers Liability Insurance
Exhibit A - Certificate of Determination
Exhibit B - Prospectus
Exhibit C - Registration Rights Agreement
Exhibit D - Form of Opinion of O'Melveny & Myers LLP
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated August
16, 1999, is made and entered into by Communication TeleSystems International
d.b.a. WorldxChange Communications, a California corporation (the "COMPANY"),
and Gold & Appel Transfer S.A. ("GOLD").
RECITALS
WHEREAS, the Company and Gold are parties to that certain Stock
Purchase Agreement, dated as of the date hereof (the "PURCHASE AGREEMENT"),
which provides for Gold's purchase from the Company of an aggregate of 30,000
shares of the Series A Preferred Stock of the Company (the "SHARES"); and
WHEREAS, in order to induce Gold to enter into the Purchase Agreement,
the Company has agreed to provide the registration rights set forth in this
Agreement with respect to the "REGISTRABLE SECURITIES" (as such term is defined
in Section 1).
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties, intending to be
legally bound, hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) the term "BONA FIDE PUBLIC OFFERING" means an underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "1933 ACT"), covering the offer and
sale of Common Stock of the Company in which aggregate proceeds to the
Company and the selling shareholders exceed $25,000,000;
(b) the term "COMMON STOCK" means the Company's authorized
voting common stock, no par value, and any class of securities issued in
exchange for the Common Stock or into which the Common Stock is converted;
(c) the term "HOLDER" means Gold or any permitted transferee of
Registrable Securities pursuant to the Purchase Agreement in accordance
with Section 10 hereof;
(d) the term "INITIATING HOLDERS" means the Holders of 30% or
more of the Registrable Securities then outstanding;
(e) the term "PRIOR REGISTRATION RIGHTS AGREEMENTS" means,
collectively, (i) that certain Registration Rights Agreement effective as
of
<PAGE>
September 30, 1998 by and among the Company, Gold and the other
investors named therein and (ii) that certain Registration Rights Agreement
effective as of May 10, 1999 by and between the Company and Gold.
(f) the term "REGISTRABLE SECURITIES" means: (i) the shares of
Common Stock of the Company issued upon the conversion by Gold of the
Shares and (ii) any Common Stock (other than the shares of Common Stock of
the Company issued upon the conversion by Gold of the Shares) of the
Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of the
Shares;
(g) the term "REGISTRATION EXPENSES" means all expenses incurred
by the Company in complying with Sections 2 and 3 hereof, including,
without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel for the Company, accountants' fees and
expenses, and blue sky fees and expenses;
(h) the terms "REGISTER," "REGISTERED" and "REGISTRATION" refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with the 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by
the Securities and Exchange Commission;
(i) the term "SELLING EXPENSES" means all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities,
the fees and disbursements of any counsel engaged by the Holders and any
other expenses incurred by the Holders in connection with the registration
and sale of the Registrable Securities;
(j) the number of shares of Registrable Securities "THEN
OUTSTANDING" shall be the number of shares of Common Stock outstanding
which are, and the number of shares of Common Stock which upon issuance of
then exercisable or convertible securities will be, Registrable Securities;
and
(k) the term "THIRD PARTY HOLDER" means (i) any person other
than a Holder with registration rights with respect to securities of the
Company and (ii) Gold (or any permitted transferee of Gold) with respect to
securities of the Company as to which Gold (or any such transferee of Gold)
has registration rights pursuant to the Prior Registration Rights
Agreements.
2. DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive, at any time during the one-
year period commencing three years after the date of this Agreement (and in
such
2
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additional years as may be required by Section 2(d)), a written
request from the Initiating Holders with respect to the Registrable
Securities that the Company file a registration statement under the 1933
Act covering the registration of Registrable Securities having an estimated
aggregate initial public offering price of not less than $5,000,000,
provided that a Bona Fide Public Offering has not been commenced by the
Company, the Company shall promptly give written notice of such request to
all Holders and shall use reasonable efforts to effect the registration
under the 1933 Act of all such Registrable Securities which the Initiating
Holders request to be registered, together with all of the Registrable
Securities of any other Holder or Holders who so request by notice to the
Company which is given within 10 days after receipt of the notice from the
Company described above. Notwithstanding the foregoing, if the Company
shall furnish to the Initiating Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company for a
registration statement to be filed in the near future, then the Company's
obligation to use its reasonable efforts to file a registration statement
shall be deferred for a period not to exceed 90 days (provided, however,
that the Company may make only one such deferral with respect to each
demand registration). Securities of the Company to be sold by the Company
or by a Third Party Holder may be included in such registration statement,
subject to the provisions of Section 2(c) below.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to this Section 2 and the Company shall include such
information in the written notice referred to in Section 2(a). In such
event, the right of any Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders, by the underwriter, by the Company, and
by such Holder) to the extent provided herein.
(c) All Holders and Third Party Holders proposing to distribute
their securities through such underwriting (together with the Company as
provided in Section 4(e)) shall enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting by the Company, or if no underwriter is
selected by the Company, by a majority in interest of the Initiating
Holders and reasonably acceptable to the Company. Notwithstanding any
other provisions of this Section 2, if the underwriter advises the
Initiating Holders in writing that marketing factors require a limitation
of the number of shares to be underwritten, the Initiating Holders shall so
advise all Holders of Registrable Securities, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting
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by the Holders shall be allocated among all Holders thereof, all Third
Party Holders, and the Company, pro rata based on the number of shares for
which registration was requested. No Registrable Securities excluded from
the underwriting by reason of the marketing limitation shall be included in
such registration. If any Holder of Registrable Securities disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom
by written notice to the Company, the underwriter and, unless otherwise
provided, the Initiating Holders.
(d) The Company is obligated to effect only one demand
registration for the Holders pursuant to this Section 2; provided, however,
that if any Registrable Securities of a Holder requested to be registered
(regardless of whether a Holder withdraws such Registrable Securities
pursuant to Section 2(c) or Section 6) are excluded by the underwriter in a
demand registration pursuant to Section 2(c) or in a "piggyback"
registration pursuant to Section 6 (which excluded Registrable Securities
are referred to herein as the "EXCLUDED SECURITIES"), then the Company,
upon the demand of the Initiating Holders three or more years after the
date of this Agreement, shall be obligated to effect one additional demand
registration under this Section 2 each year with respect to the Excluded
Securities of such Holder, until such time as (i) such Holder may freely
(except as may be restricted by Rule 144 under the 1933 Act) sell all of
the Excluded Securities without registration under the 1933 Act within the
then following six months and (ii) the Excluded Securities are listed on a
securities exchange or qualified for trading on an over-the-counter system
selected by the Company.
(e) The demand registration rights provided by the Company to
any Holder pursuant to Section 2 of this Agreement shall immediately
terminate upon the closing of a Bona Fide Public Offering by the Company.
(f) A registration requested pursuant to this Section 2 shall
not be deemed to have been effected (a) unless a registration statement
with respect thereto has become effective or (b) if after it has become
effective, the effectiveness of such registration statement is terminated
or suspended by a stop order, injunction or other order of the SEC or other
governmental agency or court, unless such order, injunction or other order
is lifted or stayed within 30 days of the issuance of such stop order,
injunction or other order. The Company shall use its reasonable best
efforts to keep such registration statement effective for up to 60 days
after such registration statement has become effective.
3. PIGGY-BACK REGISTRATION RIGHTS. If at any time the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its securities under the
1933 Act in connection with the public offering of such securities solely for
cash (other than a
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registration form relating to: (a) a registration of a stock option, stock
purchase or compensation or incentive plan or of stock issued or issuable
pursuant to any such plan, or a dividend investment plan; (b) a registration
of securities proposed to be issued in exchange for securities or assets of,
or in connection with a merger or consolidation with, another corporation; or
(c) a registration of securities proposed to be issued in exchange for other
securities of the Company), the Company shall, each such time, promptly give
each Holder written notice of such registration together with a list of the
jurisdictions in which the Company intends to attempt to qualify such
securities under applicable state securities laws. Upon the written request
of any Holder given within 30 days after receipt of such written notice from
the Company in accordance with Section 14, the Company shall (subject to the
provisions of Section 6 in the case of an underwritten offering) cause to be
registered under the 1933 Act all of the Registrable Securities that each
such Holder has requested to be registered; provided, however, in the event
and to the extent such a Holder may freely (except as may be restricted by
Rule 144 under the 1933 Act) sell all of its Registrable Securities without
registration under the 1933 Act and the person acquiring the securities does
not acquire "restricted securities" within the meaning of Rule 144, the
Company may elect not to register such Registrable Securities.
4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as shall be necessary for the distribution of the securities
covered by the registration statement and such jurisdictions as the Holders
participating in the offering shall reasonably request, provided that the
Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to
5
<PAGE>
file a general consent to service of process in any such jurisdiction, and
further provided that (anything in this Agreement to the contrary
notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in
that jurisdiction be borne by selling shareholders, such expenses shall be
payable by the selling Holders pro rata, to the extent required by such
jurisdiction;
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement with
commercially reasonable and customary terms generally satisfactory to the
managing underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such
an agreement; and
(f) Use its reasonable best efforts to cause all such
Registrable Securities to be listed on a securities exchange or to qualify
such Registrable Securities for trading on an over-the-counter system
selected by the Company;
(g) Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement and thereafter maintain such a transfer agent and
registrar;
(h) In the event of any underwritten public offering, make
available for inspection, at reasonable times during normal business hours,
by any underwriter participating in such public offering and any attorney,
accountant or other agent retained by such underwriter, such financial and
other records, pertinent corporate documents and properties of the Company
as may be reasonably requested by such underwriter, and cause the Company's
officers, directors, employees and independent accountants to supply such
information as may be reasonably requested by any such underwriter,
attorney, accountant or agent in connection with such public offering
(provided, however, that such inspection and supplying of records and
documents shall be subject to the execution by each requesting party of a
confidentiality and non-disclosure agreement in a form reasonably
acceptable to the Company);
(i) Permit any Holder participating in such registration, which
Holder, in such Holder's reasonable judgment, might be deemed to be an
underwriter or controlling person of the Company, to participate in the
preparation of the registration statement in connection with such
registration and to propose the insertion therein of material which in the
reasonable judgment of such Holder and its counsel should be included;
(j) In connection with underwritten offerings, make available
appropriate management personnel for participation in the preparation and
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<PAGE>
drafting of such registration or comparable statement, for due diligence
meetings and for "road show" meetings;
(k) In the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending
or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, the Company will use its reasonable
best efforts promptly to obtain the withdrawal of such order, provided that
in the Company's opinion, in consultation with its counsel, there is a good
faith argument for the removal of such order;
(l) Obtain a cold comfort letter from the Company's independent
public accountants addressed to the selling Holders of Registrable
Securities in customary form and covering such matters of the type
customarily covered by cold comfort letters as the Holders of a majority of
the Registrable Securities being sold reasonably request; and
(m) Furnish, at the request of Holders of a majority of the
Registrable Securities participating in the registration, to each seller of
Registrable Securities a signed counterpart, addressed to such seller (and
underwriters, if any) of an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such registration
includes an underwritten public offering, dated the date of the closing
under the underwriting agreement), reasonably satisfactory in form and
substance to such Holder covering substantially the same matters with
respect to such registration (and the prospectus included therein) as are
customarily covered in opinions of issuer's counsel to underwriters in
underwritten public offerings.
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.
6. UNDERWRITING REQUIREMENTS. The right of any Holder to
"piggyback" in an underwritten public offering of the Company's securities
pursuant to Section 3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Company.
7
<PAGE>
Notwithstanding any other provision of Section 3 and this Section 6, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, and (a) if such registration is the first
registered offering of the Company's securities to the public, the underwriter
may exclude some or all of the Registrable Securities from such registration and
underwriting, provided that the Holders are allowed to participate in the
offering in the same proportion (based on the total number of securities
requested to be registered) as any other shareholder of the Company
participating in the offering, and (b) if such registration is other than the
first registered offering of the Company's securities to the public, the
underwriter may exclude some or all Registrable Securities from such
registration and underwriting, provided that all of the shares requested to be
registered by shareholders other than Holders and Third Party Holders shall
first be excluded and thereafter, only to the extent deemed necessary by the
underwriter, shares requested to be registered by Holders and Third Party
Holders shall be reduced pro rata based on the number of securities respectively
requested by them to be registered. Any reduction in the number of Registrable
Securities included in such registration shall be borne equally by the Holders
and any Third Party Holders as a group pro rata based on the number of shares
for which registration was requested. If any Holder disapproves of the terms of
any such underwriting, it may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
Third Party Holders "piggybacking" on a demand registration demanded by the
Initiating Holders under Section 2 above shall be subject to the same
conditions, requirements and limitations that are applicable to a Holder under
this Section 6 in the event of an underwritten public offering.
7. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be borne
by the Holders of the securities so registered pro rata on the basis of the
number of shares so registered.
8. DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
9. INDEMNIFICATION. If any Registrable Securities are included in a
registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors and partners of each
Holder, any underwriter (as defined in the 1933 Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended
(the "1934 ACT"), against any losses, claims, damages, or liabilities
(joint or several) to which
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<PAGE>
they or any of them may become subject under the 1933 Act, the 1934 Act or
any other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise from or are based upon
any of the following statements, omissions or violations (collectively a
"VIOLATION"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto; or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading; and the Company
will reimburse each such Holder, officer, director or partner, underwriter
or controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 9 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to the
extent that it arises from or is based upon a violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the 1933 Act, any
underwriter (within the meaning of the 1933 Act) for the Company, any
person who controls such underwriter, any other Holder selling securities
in such registration statement or any of its directors or officers or any
person who controls such Holder against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, or underwriter or other such Holder or
director, officer or controlling person may become subject, under the 1933
Act, the 1934 Act or any other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereto)
arise from or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or controlling
person, other Holder, officer, director or controlling person in connection
with investigation or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 9 shall not apply to amounts paid in settlement of any
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<PAGE>
such loss, claim damage, liability or action if such settlement is effected
without the consent of the Holder which consent shall not be unreasonably
withheld.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 9
is applicable but for any reason is held to be unavailable from the Company
or any Holder, the Company and the Holders participating in the
registration shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claims asserted) to which the Company and the
participating Holders may be subject in such proportion so that the
participating Holders are responsible for that portion of the foregoing
amount represented by the ratio of the proceeds received by the
participating Holders in the offering to the total proceeds received from
the offering by the Company and all selling shareholders (other than
participating Holders) and the Company shall be responsible for the portion
represented by the ratio of proceeds received by the Company to the total
proceeds received by the Company and all selling shareholders (other than
participating Holders); provided, however, that such portions shall be
adjusted as may be just and equitable to take into account the relative
fault of the participating Holders and the Company; provided further,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 9(c), each person, if any, who controls the
Company or any Holder within the meaning of the 1933 Act, each officer of
the Company who shall have signed the registration statement and each
director of the Company shall have the same rights to contribution as the
Company.
(d) No settlement shall be effected without the prior written
consent of the Holders participating in a registration unless (i) the
obligations of the Company for indemnification or contribution pursuant to
this Agreement survive and are not extinguished by reason of the settlement
and remain in full force and effect under applicable federal and state
laws, rules, regulations and orders or (ii) all claims and actions against
the participating Holders and each person who controls a participating
holder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act are extinguished by the settlement and the indemnifying party
obtains a full release of all claims and actions against the participating
Holders and each such control person, which release shall be to the
reasonable satisfaction of the participating Holders.
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is
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to be made against any indemnifying party under this Section 9,
notify the indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party
within a reasonable time of the commencement of any such action, to the
extent prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 9, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
(f) The obligations of the Company and the Holders under this
Section 9 shall survive through the completion of any offering of
Registrable Securities in a registration statement made under the terms of
this Agreement.
10. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of a Holder under
this Agreement may be assigned by a Holder only to a permitted transferee of
such securities pursuant to Section 5.3 of the Purchase Agreement, provided the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee and the securities with
respect to which such registration rights are being assigned; provided, however,
that no such assignment shall be effective if, immediately following the
transfer, the transferee is free to dispose of all of such securities without
regard to any restrictions imposed under the 1933 Act.
11. SUBSEQUENT REGISTRATION RIGHTS. The Company may grant
registration rights to parties other than the Holders; provided, however, that
in the event the Company shall grant any person registration rights containing
terms more favorable than the terms granted herein, the more favorable terms
shall automatically be deemed granted to the Holders and incorporated herein by
reference. Prior to the date of this Agreement, the Company has not granted
registration rights to any other person that are still in effect and that are on
terms more favorable than the terms granted herein.
12. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities in a market transaction during a period
deemed by the underwriter to be necessary or appropriate following the effective
date of a registration statement of the Company filed under the 1933 Act,
provided that Roger B. Abbott, Rosalind Abbott,
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<PAGE>
and Edward S. Soren are subject to such an agreement for the same period. In
order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
13. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a registration statement and which does not directly or indirectly
affect the rights of other holders of Registrable Securities may be given by the
holders of a majority of the Registrable Securities being sold; provided,
however, that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
14. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one business day after being sent, when
sent by professional overnight courier service from and to locations within the
continental United States, or (c) five days after posting when sent by
registered or certified mail (return receipt requested), addressed to the
Company or an Investor at his, her or its address set forth on the signature
pages hereof. Any party hereto may from time to time by notice in writing
served upon the others as provided herein, designate a different mailing address
or a different person to which such notices or demands are thereafter to be
addressed or delivered.
15. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.
16. CAPTIONS. Captions are provided herein for convenience only and
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
17. CROSS-REFERENCES. All cross-references in this Agreement, unless
specifically directed to another agreement or document, refer to provisions
within this Agreement.
18. GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of California
applicable to
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agreements made and to be performed wholly within the State of California.
In the event a judicial or other proceeding is necessary to resolve any
dispute hereunder, the sole forum for resolving disputes arising under or
relating to this Agreement shall be the Municipal and Superior Courts for the
County of San Diego, State of California, or the federal district court for
the district of California associated with such county and all related
appellate courts and the parties hereby consent to the jurisdiction of such
courts, and that venue shall be in such county.
19. SEVERABILITY. The provisions of this Agreement are severable.
The invalidity, in whole or in part, of any provision of this Agreement shall
not affect the validity or enforceability of any other of its provisions. If
one or more provisions hereof shall be declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof.
The parties further agree to replace such void or unenforceable provisions of
this Agreement with valid and enforceable provisions which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
20. ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes all prior written and oral agreements, understandings,
commitments and practices between the parties, including all prior agreements
with respect to registration rights.
21. CONSIDERATION FOR APPROVALS OR WAIVERS. No consideration shall
be paid to any Holder to obtain such Holder's approval for or waiver of any
amendment of this Agreement or any matter requiring the approval or consent of
the Holders hereunder unless such consideration is also offered to all Holders,
pro rata based upon the number of Registerable Securities held by the Holders.
22. REMEDIES. Subject to Section 8 (Delay of Registration), each
Holder of Registrable Securities, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement with the intent and agreement that the same shall be effective
as of the day and year first above written.
THE COMPANY:
Communication Telesystems International
d.b.a. WorldxChange Communications,
a California corporation
By: /s/ Edward S. Soren
----------------------------
Title: Executive Vice President
-------------------------
Address: 9999 Willow Creek Road
San Diego, California 92131
Attn: Legal Department
Fax: (619) 452-3780
GOLD:-
GOLD & APPEL TRANSFER S.A.,
a British Virgin Islands corporation
By: /s/ [Illegible]
-----------------------------
Title: Power of Attorney in Fact
--------------------------
Address: c/o Entree International
1023 31st St, NW
Washington DC 20007
USA.
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VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated as of August 16, 1999,
is between Communication TeleSystems International, a California corporation
(the "Company"), and Gold & Appel Transfer S.A. (the "Investor").
WHEREAS, the Investor proposes to purchase 30,000 shares of Series A
Convertible Preferred Stock (the "Series A Stock") pursuant to that certain
Stock Purchase Agreement, dated as of August 16, 1999 (the "Purchase
Agreement"), upon the terms and subject to the conditions set forth in the
Purchase Agreement; and
WHEREAS, it is a condition to the purchase and sale of the Series A
Stock under the Purchase Agreement that the parties enter into this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. VOTING. Investor hereby agrees that, at all times and for so
long as Investor has the option to convert, but has not converted, any shares of
Series A Stock pursuant to Section 8(A) of the Certificate of Determination of
Preferences relating to the Series A Stock, to vote all of such shares of Series
A Stock owned or held beneficially by Investor in favor of, and to take such
other action as may be reasonably necessary or appropriate to approve, any
recapitalization, consolidation or merger of the Company with or into another
corporation or entity, and/or the sale of all or substantially all of the assets
of the Company to another corporation or entity, so long as such
recapitalization, consolidation, merger or sale has been duly approved or
consented to by the Board of Directors of the Company. Nothing herein shall be
deemed or construed as conferring on Investor any voting or approval rights to
which Investor is not otherwise entitled under applicable law.
2. TRANSFEREES. Investor agrees that it shall not convey, assign or
otherwise transfer any shares of the Series A Stock to any transferee as
permitted under Section 5.3 of the Purchase Agreement unless the transferee or
transferees thereof execute a written agreement, which shall be reasonably
satisfactory to the Company, under which such transferee or transferees agree to
perform the obligations of Investor hereunder with respect to all shares of
Series A Stock so transferred as if such transferee or transferees were a party
or parties to this Agreement.
3. SEVERABILITY. The provisions of this Agreement are severable.
The invalidity, in whole or in part, of any provision of this Agreement shall
not affect the validity or enforceability of any other of its provisions. If
one or more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof.
The parties further agree to replace such void or unenforceable provisions of
this Agreement with valid and enforceable provisions which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
4. AMENDMENT. The provisions of this Agreement may not be amended,
modified or supplemented except in a writing executed by the Company and
Investor.
5. INJUNCTIVE RELIEF. Without intending to limit the remedies
available to any party, the parties hereto acknowledge that a breach of any of
the covenants contained in this Agreement may result in material irreparable
injury to the other parties for which there is no adequate remedy at law, that
it will not be possible to measure damages for such injuries precisely and that,
in the event of such a breach or threat thereof, the other parties, or any of
them, shall be entitled to obtain a temporary
<PAGE>
restraining order and a preliminary or permanent injunction restraining or
requiring actions prohibited or required by this Agreement or such other
relief as may be required to enforce specifically any of the covenants of
this Agreement.
6. ATTORNEYS' FEES. In any action at law or in equity to enforce
any of the provisions or rights under this Agreement, the unsuccessful party to
such litigation, as determined by the court in a final judgment or decree, shall
pay the successful party all costs, expenses and reasonable attorneys' fees, as
set by the court and not by a jury, incurred by the successful party (including,
without limitation, costs, expenses and fees on any appeal).
7. CALIFORNIA LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of California, without regard to
conflicts of law provisions.
8. SUCCESSORS. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective legal representatives,
successors and assigns, except to the extent herein expressly limited.
9. LEGENDS. A legend in substantially the following form (or
containing substantially the same information as set forth in the following
form) shall be inscribed on all the certificates representing shares of stock
subject to this Agreement.
"The shares represented by this certificate are subject to a
Voting Agreement dated as of August 16, 1999 between the
owner of the shares represented by this certificate and the
Corporation. The Corporation will furnish a copy of such
agreement to any person without charge upon written request
to the Corporation at its principal office."
[BALANCE OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
10. COPIES OF VOTING AGREEMENT. The Company agrees to make available
to any shareholder of the Company, upon request, a copy of this Agreement to the
extent then required by California law.
11. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
THE COMPANY:
Communication TeleSystems International,
a California corporation
By: /s/ Edward S. Soren
---------------------------------------
Title: Executive Vice President
------------------------------------
INVESTOR:
GOLD & APPEL TRANSFER S.A.,
a British Virgin Islands Corporation
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: Power of Attorney in Fact
----------------------------------
<PAGE>
Exhibit-21.1
List of Subsidiaries
DIRECT SUBSIDIARIES:
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------ -----------------------------
Communication Telesystems Funding California
WORLDxCHANGE Communications, Inc. Canada
-
WXL International - Australia, Inc. Delaware
WORLDxCHANGE NL Corporation Nevada
WXL International - Denmark, Inc. Delaware
WXL International - Portugal, Inc. Delaware
WXL International - El Salvador, Inc. Delaware
WXL International - Italy, Inc. Delaware
WXL International - Sweden, Inc. Delaware
WXL International - Belgium, Inc. Delaware
WXL International - Chile, Inc. Delaware
WXL International - Guam, Inc. Delaware
WXL International - Guatemala, Inc. Delaware
WXL International - Spain, Inc. Delaware
WXL International - Germany, Inc. Delaware
WXL International - Japan, Inc. Delaware
WXL International - Honduras, Inc. Delaware
WXL International - New Zealand, Inc. Delaware
WXL International - Switzerland, Inc. Delaware
CTS North America, Inc. Nevada
WXL Holdings, LTD. United Kingdom
WXL International - Nicaragua, Inc. Delaware
WXL International - Venezuela, Inc. Delaware
WXL International - Brazil, Inc. Delaware
WXL International - Egypt, Inc. Delaware
WXL International - Dominican Republic, Inc. Delaware
WXL International - Columbia, Inc. Delaware
WXL International - Peru, Inc. Delaware
WXL International - Hong Kong. Delaware
WXL International - France, Inc. Delaware
CTS Telcom Holdings, Inc. Delaware
WXL BV, Inc. Delaware
<PAGE>
INDIRECT SUBSIDIARIES:
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
- ------------------ -----------------------------
WORLDxCHANGE Pty, Ltd. Australia
-
WORLDxCHANGE B.V. Netherlands
-
WORLDxCHANGE Aps Denmark
-
WORLDxCHANGE Telecommunicacoes,
-
LDA Portugal
WORLDxCHANGE Holding Limitada El Salvador
-
WORLDxCHANGE SrL Italy
-
WORLDxCHANGE AB Sweden
-
WORLDxCHANGE B.V.B.A. Belgium
-
WORLDxCHANGE Communications S.A. Chile
-
WORLDxCHANGE Communications S.A. Guatemala
-
WORLDxCHANGE Spain SL Spain
-
WORLDxCHANGE Communications GmbH Germany
-
WORLDxCHANGE Japan, Ltd. Japan
-
WORLDxCHANGE Limited New Zealand
-
WORLDxCHANGE Switzerland GmbH Switzerland
-
WORLDxCHANGE Communications LTD. United Kingdom
-
WORLDxCHANGE Communications Egypt
-
WORLDxCHANGE Hong Kong Ltd Hong Kong
-
WORLDxCHANGE Communications S.A. France
-
CTS Telcom, Inc. Florida
WORLDxCHANGE Communications S.A. de
-
C.V. El Salvador
B.V. WXL Holding, LLC Delaware
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated August 2, 1999 in the Registration Statement on
Form S-1 and related Prospectus to be filed on or about August 25, 1999 of
Communication Telesystems International d/b/a WORLDxCHANGE Communications for
the registration of its common stock.
Our audits also included the financial statement schedule of Communication
Telesystems International d/b/a WORLDxCHANGE Communications for the three years
ended September 30, 1998 listed in Item 16(b). This schedule is the
responsibility of Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ ERNST & YOUNG LLP
San Diego, California
August 20, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM WORLDXCHANGE
COMMUNICATIONS' CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999, AND
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1999.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 38,197
<SECURITIES> 0
<RECEIVABLES> 65,349
<ALLOWANCES> 8,825
<INVENTORY> 0
<CURRENT-ASSETS> 101,645
<PP&E> 136,366
<DEPRECIATION> 44,211
<TOTAL-ASSETS> 199,669
<CURRENT-LIABILITIES> 143,430
<BONDS> 0
0
0
<COMMON> 81,583
<OTHER-SE> (145,780)
<TOTAL-LIABILITY-AND-EQUITY> 199,669
<SALES> 304,324
<TOTAL-REVENUES> 304,324
<CGS> 238,599
<TOTAL-COSTS> 339,424
<OTHER-EXPENSES> 222
<LOSS-PROVISION> 11,005
<INTEREST-EXPENSE> 12,448
<INCOME-PRETAX> (47,770)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,770)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,988)
<EPS-BASIC> (1.41)
<EPS-DILUTED> (1.41)
</TABLE>
