As Filed With the Securities and Exchange Commission on October 16, 2001
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COGENT COMMUNICATIONS GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 4813 | 52-2337274 | ||
(State or Other Jurisdiction of
Incorporation or Organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification Number) |
David Schaeffer
Chief Executive Officer
Cogent Communications Group, Inc.
1015 31
st
Street NW
Washington, D.C. 20007
Tel: (202) 295-4200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies To:
William P. O'Neill, Esq.
Latham & Watkins 555 Eleventh Street, N.W., Suite 1000 Washington, D.C. 20004 (202) 637-2200 |
Michael R. Carper, Esq.
Allied Riser Communications Corporation 1700 Pacific Avenue, Suite 400 Dallas, TX 75201 (214) 210-3017 |
Kathleen R. McLaurin, Esq.
Jones, Day, Reavis & Pogue 2727 N. Harwood Street Dallas, TX 75201 (214) 220-3939 |
Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after the effectiveness of this Registration Statement and the satisfaction or waiver of all other conditions to the merger of a wholly-owned subsidiary of the Registrant with and into Allied Riser Communications Corporation pursuant to the Agreement and Plan of Merger described in the enclosed proxy statement/prospectus.
If the securities being registered on this form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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(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. / /
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered |
Amount to be
Registered(1) |
Proposed Maximum
Offering Price Per Share |
Proposed Maximum
Aggregate Offering Price(2) |
Amount of
Registration Fee |
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Common Stock, $0.001 par value | 2,192,219 | N/A | $5,350,464 | $1,338 | ||||
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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 that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this proxy statement/prospectus is not complete and may be changed. We may not offer or sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/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.
, 2001
Dear Stockholder:
The boards of directors of Allied Riser Communications Corporation and Cogent Communications Group, Inc. have each approved the merger of Cogent and Allied Riser and have entered into a merger agreement and an amendment to the merger agreement. Under the merger agreement, as amended, a wholly owned subsidiary of Cogent will be merged with and into Allied Riser, and Allied Riser will be the surviving corporation in the merger. As a result of the merger, Allied Riser will become a wholly owned subsidiary of Cogent. In the merger, stockholders of Allied Riser will receive approximately 0.0321780 shares of common stock of Cogent for each share of common stock of Allied Riser they own. We anticipate that, immediately after we complete the merger, Allied Riser stockholders will own approximately 13.4% of the outstanding common stock of Cogent on a fully diluted basis, subject to certain adjustments. Your board of directors is giving this proxy statement/prospectus to you to solicit your proxy to vote for adoption of the merger agreement, as amended, and approval of the merger.
Under the terms of the merger agreement, as amended, Allied Riser stockholders will receive a number of shares of Cogent common stock for each share of Allied Riser common stock they own based on the exchange ratio set forth in the merger agreement, as amended. Holders of warrants to purchase Allied Riser common stock will receive warrants to purchase a number of shares of Cogent common stock and holders of options to purchase Allied Riser common stock will receive options to purchase a number of shares of Cogent common stock, each based on the exchange ratio set forth in the merger agreement, as amended.
Stockholders of Allied Riser will be asked at the special meeting to adopt the merger agreement, as amended, and approve the merger. Information regarding the time, date, place, and matters to be considered at the Allied Riser special stockholder meeting is set forth in the accompanying "Notice of Special Meeting of Stockholders" and described in further detail in this document. In order to complete the merger, we must obtain the approval of the stockholders of Allied Riser. The merger agreement, as amended, is described in detail in this document.
Allied Riser common stock is listed on the Nasdaq National Market under the symbol "ARCC," and Cogent is a private company. It is a condition to closing the merger that the shares of Cogent common stock to be received by stockholders of Allied Riser in connection with the merger be quoted or listed on the Nasdaq National Market or a national securities exchange.
The board of directors of Allied Riser unanimously recommends that Allied Riser stockholders vote "FOR" adoption of the merger agreement, as amended, and approval of the merger.
Your vote is important, regardless of the number of shares you own. If you fail to vote or if you abstain, it will have the same effect as a vote against the merger. Please vote as soon as possible to make sure that your shares are represented at the special meeting. To vote your shares, please complete and return the enclosed proxy card or transmit your voting instructions over the Internet or by telephone in accordance with the procedures set forth in the section entitled "Allied Riser Special MeetingProxies." You may also cast your vote in person at the special meeting. Please do not send stock certificates at this time.
This is Cogent's prospectus relating to its offer of shares of Cogent common stock to Allied Riser stockholders in the proposed merger, and Allied Riser's proxy statement. This document provides you with detailed information about the proposed merger. We encourage you to read this entire document carefully. In particular, see the section entitled "Risk Factors" beginning on page 13 of this document for a discussion of risks associated with the merger .
Very truly yours,
Allied Riser Communications Corporation
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Gerald K. Dinsmore Chairman of the Board of Directors Chief Executive Officer and President |
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Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the Cogent Communications Group, Inc. common stock to be issued under this proxy statement/prospectus or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated , 2001, and is first being mailed to Allied Riser stockholders on or about , 2001.
ALLIED RISER COMMUNICATIONS CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2001
To the Stockholders of Allied Riser Communications Corporation:
We will hold a special meeting of stockholders of Allied Riser Communications Corporation at the offices of Allied Riser located at 1700 Pacific Avenue, Suite 400, Dallas, Texas 75201, on , , 2001, at a.m., local time, for the purposes of considering and voting on the following matters, as described in the accompanying proxy statement/prospectus.
1. The adoption of the merger agreement dated as of August 28, 2001, as amended on October 13, 2001, by and among Allied Riser, Cogent Communications Group, Inc., and a wholly owned subsidiary of Cogent, and approval of the merger, pursuant to which the wholly owned subsidiary of Cogent will be merged with and into Allied Riser and all of the outstanding shares of common stock, options, and warrants of Allied Riser will be converted into the right to receive a number of shares of Cogent common stock or options or warrants to purchase Cogent common stock, as applicable, based on the exchange ratio defined in the merger agreement, as amended.
2. Any such other business as may properly come before the special meeting or any adjournment thereof.
Holders of record of Allied Riser common stock at the close of business on , 2001 will be entitled to notice of and to vote at the special meeting and any adjournments or postponements thereof.
Your vote is important. The merger cannot be completed unless the holders of a majority of the outstanding shares of Allied Riser common stock entitled to vote adopt the merger agreement, as amended, and approve the merger. Even if you plan to attend the special meeting in person, we request that you sign and return the enclosed proxy card and thus ensure that your shares will be represented at the special meeting if you are unable to attend. If you do attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person.
You should not send stock certificates with your proxies. A transmittal letter for your stock will be sent to you by the exchange agent after the merger.
By Order of the Board of Directors, | |||
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Secretary
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Dallas, Texas
, 2001
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Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER | 1 | ||
SUMMARY | 3 | ||
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF COGENT | 8 | ||
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF ALLIED RISER | 9 | ||
SUMMARY UNAUDITED PRO FORMA INFORMATION | 11 | ||
COMPARATIVE PER SHARE DATA | 12 | ||
RISK FACTORS | 13 | ||
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS | 25 | ||
ALLIED RISER SPECIAL MEETING | 26 | ||
General | 26 | ||
Matters to be Considered | 26 | ||
Proxies | 26 | ||
Solicitation of Proxies | 27 | ||
Record Date and Voting Rights | 27 | ||
Recommendation of Allied Riser Board of Directors | 28 | ||
THE MERGER | 29 | ||
General | 29 | ||
Background of the Merger | 29 | ||
Recommendation of the Allied Riser Board of Directors; Allied Riser's Reasons for the Merger | 33 | ||
Opinion of Allied Riser's Financial Advisor | 35 | ||
Recommendation of the Cogent Board of Directors; Cogent's Reasons for the Merger | 39 | ||
Regulatory Approvals Required for the Merger | 40 | ||
Material U.S. Federal Income Tax Consequences | 41 | ||
Accounting Treatment | 42 | ||
Interests of Certain Persons in the Merger | 43 | ||
No Appraisal or Dissenters' Rights | 44 | ||
MATERIAL TERMS OF THE MERGER AGREEMENT | 45 | ||
General | 45 | ||
Closing; Effective Time | 45 | ||
Consideration to be Received in the Merger | 45 | ||
Procedures for Exchange of Certificates | 46 | ||
Stock Options; Restricted Stock; and Warrants | 47 | ||
Representations and Warranties | 48 | ||
Conduct of the Business Prior to the Merger | 49 | ||
No Solicitation | 51 | ||
Additional Agreements | 52 | ||
Conditions to Completion of the Merger | 54 | ||
Termination of the Merger Agreement | 55 | ||
Termination Fee | 56 | ||
Amendments, Extensions and Waivers | 57 | ||
OTHER AGREEMENTS | 58 | ||
MANAGEMENT OF COGENT FOLLOWING THE MERGER AND OTHER INFORMATION | 59 | ||
Board Composition | 61 | ||
Board Committees | 61 | ||
Compensation Committee Interlocks and Insider Participation | 62 | ||
Director Compensation | 62 | ||
Executive Compensation | 62 | ||
Employment Agreements | 63 | ||
2000 Equity Plan |
64 | |||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 65 | ||
CERTAIN TRANSACTIONS | 67 | ||
PRICE RANGE OF COMMON STOCK AND DIVIDENDS | 68 | ||
Allied Riser | 68 | ||
Cogent | 69 | ||
INFORMATION ABOUT COGENT | 70 | ||
Description of Business | 70 | ||
Material Contracts | 74 | ||
Regulation | 76 | ||
Employees | 76 | ||
Description of Properties | 76 | ||
Legal Proceedings | 76 | ||
Management's Discussion and Analysis of Financial Condition and Results of Operations | 76 | ||
Quantitative and Qualitative Disclosures of Market Risk | 83 | ||
INFORMATION ABOUT ALLIED RISER | 84 | ||
Description of Business | 84 | ||
Description of Properties | 87 | ||
Legal Proceedings | 87 | ||
Supplementary Financial Information | 88 | ||
Management's Discussion and Analysis of Financial Condition and Results of Operations | 89 | ||
Quantitative and Qualitative Disclosures About Market Risk | 97 | ||
Security Ownership of Directors and Executive Officers | 98 | ||
DESCRIPTION OF COGENT CAPITAL STOCK | 100 | ||
General | 100 | ||
Cogent Common Stock | 100 | ||
Cogent Preferred Stock | 100 | ||
Cisco Warrant | 103 | ||
COMPARISON OF STOCKHOLDER RIGHTS | 104 | ||
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS | 111 | ||
LEGAL MATTERS | 119 | ||
EXPERTS | 119 | ||
STOCKHOLDER PROPOSALS | 119 | ||
WHERE YOU CAN FIND MORE INFORMATION | 119 | ||
COGENT COMMUNICATIONS GROUP, INC. FINANCIAL STATEMENTS | F-2 | ||
ALLIED RISER COMMUNICATIONS CORPORATION FINANCIAL STATEMENTS | F-27 | ||
APPENDIX AAGREEMENT AND PLAN OF MERGER | |||
APPENDIX BAMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER | |||
APPENDIX COPINION OF HOULIHAN LOKEY HOWARD & ZUKIN |
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are Cogent and Allied Riser proposing the merger?
A: Cogent and Allied Riser are proposing the merger because it presents an opportunity for us to combine the unique networks we have constructed to create a leading provider of broadband data and video services to small- and medium-sized businesses. Following the merger, we will be a company with greater operational efficiencies, earning power, and financial resources. We expect to become a stronger competitor in the telecommunications services business and expect that our financial performance will benefit from the combination of our businesses.
Q: What is the proposed transaction?
A: Cogent will acquire Allied Riser under a merger agreement providing that a wholly owned subsidiary of Cogent, which we call the merger subsidiary, will merge with and into Allied Riser. As a result of the merger, Allied Riser will become a wholly owned subsidiary of Cogent.
Q: What will I receive in the merger?
A: If the merger is completed and Cogent does not issue any of its common stock in other transactions between now and the date the merger is completed, you will receive 0.0321780 shares of Cogent common stock for each share of Allied Riser common stock that you own. If the merger is completed and, between now and the date the merger is completed, Cogent issues additional shares of its common stock in other transactions, you will receive a lesser number of shares, but no fewer than 0.031756 shares, of Cogent common stock for each share of Allied Riser common stock. Cogent will not issue fractional shares of its common stock. Instead, any otherwise fractional share will be rounded up to a whole share. The number of shares you will receive reflects a one for ten reverse stock split of Cogent that we expect to occur immediately prior to the consummation of the merger. For a description of the rights of Cogent common stockholders, see "Description of Cogent Capital Stock."
Q: What are the U.S. Federal Income Tax consequences of the merger?
A: The merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code. Accordingly, no gain or loss will be recognized by Cogent, Allied Riser, or the merger subsidiary. Additionally, no gain or loss will be recognized by Allied Riser stockholders to the extent they receive shares of Cogent common stock in the merger. However, Allied Riser stockholders should consult their tax advisors for a full understanding of the tax consequences of the merger.
Q: Does the Allied Riser board of directors recommend approval of the merger?
A: Yes. After careful consideration, the board of directors of Allied Riser unanimously recommends that Allied Riser stockholders vote "FOR" adoption of the merger agreement, as amended, and approval of the merger. For a more complete description of the recommendation of the Allied Riser board of directors, see the section entitled "The MergerRecommendation of the Allied Riser Board of Directors; Allied Riser's Reasons for the Merger" on page 33.
Q: What should I do now?
A: Please carefully read and consider the information contained in this document. If you are currently an Allied Riser stockholder, please complete, sign, and mail your proxy card in the enclosed postage-prepaid return envelope as soon as possible so that your shares of Allied Riser common stock may be represented at the special meeting. Alternatively, you can simplify your voting by voting your shares via telephone or the Internet. The telephone and Internet voting procedures, which are set forth in this proxy statement/prospectus, are designed to authenticate your identity, allow you to vote your shares, and confirm that your instructions have been properly recorded. If you elect to vote over the Internet, you may incur costs such as telecommunication and Internet access charges. The Internet and
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telephone voting facilities for stockholders of record will close at 4:00 p.m. Eastern Time on the evening before the special meeting. In order to ensure that your shares are voted, please give your proxy in accordance with the instructions on your proxy card even if you currently plan to attend the special meeting and vote in person. For a more complete description of the voting procedures, see the section entitled "Allied Riser Special MeetingProxies" on page 26.
Q: What if I don't vote?
A: If you do not submit a proxy or instruct your broker to vote your shares, and you do not vote in person at the special meeting, the effect will be the same as if you voted "AGAINST" the adoption of the merger agreement, as amended, and approval of the merger.
Q: If my shares are held in "street name" by my broker, will my broker vote my shares for me?
A: Your broker will not be able to vote your shares without instructions from you on how to vote. Therefore, it is important that you follow the directions provided by your broker regarding how to instruct your broker to vote your shares. If you fail to provide your broker with instructions, it will have the same effect as a vote "AGAINST" the adoption of the merger agreement, as amended, and approval of the merger. If your shares are held in the name of a bank or broker, the availability of telephone and Internet voting will depend on the voting processes of the bank or broker; therefore, you should follow the voting instructions on the form you receive from your bank or broker.
Q: Can I change my vote or election after I have delivered my proxy or election?
A: Yes. You can change your vote at any time before your proxy is voted at the special meeting. You can do this in one of three ways. First, you can revoke your proxy. Second, you can submit a new proxy. If you choose either of these two methods and you are a holder of record, you must submit your notice of revocation or your new proxy to the Secretary of Allied Riser before the special meeting. However, if your shares are held in a street name account at a brokerage firm or bank, you should contact your brokerage firm or bank to change your vote. Third, if you are a holder of record, or if your shares are held in street name and you receive a valid proxy from your broker, you can attend the special meeting and vote in person.
Q: Should I send in my Allied Riser stock certificates now?
A: No. After we complete the merger, an exchange agent on behalf of Cogent will send instructions to Allied Riser stockholders whose shares were converted in the merger. These instructions will explain how to exchange your Allied Riser stock certificates for the appropriate Cogent stock certificates. Cogent stockholders will continue to own their shares of Cogent common stock after the merger and should continue to hold their stock certificates.
Q: Who can help answer my questions?
A: If you have any questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement/prospectus or the enclosed proxy cards or voting instructions, you should contact Allied Riser's proxy solicitation agent.
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This brief summary does not contain all of the information that is important to you. To fully understand the merger, you should carefully read this entire document and the other documents to which this document refers. See "Where You Can Find More Information." The pro forma information regarding shares of Cogent common stock throughout this proxy statement/prospectus reflects a one for ten reverse stock split that we expect to occur immediately prior to the consummation of the merger. Historical amounts have not been split-adjusted. Except for references to the merger agreement in "The MergerOpinion of Allied Riser's Financial Advisor" that refer to the merger agreement prior to amendment no. 1, all references throughout this proxy statement/prospectus to the merger agreement include amendment no. 1 to the merger agreement, dated as of October 13, 2001.
The Companies (Pages 70 and 84)
Cogent Communications Group, Inc.
1015 31
st
Street, N.W.
Washington, D.C. 20007
Telephone: (202) 295-4200
Cogent is a facilities-based Internet service provider providing high-speed Internet access to businesses. Cogent currently serves selected buildings in 12 major metropolitan markets across the nation and focuses primarily on providing its services to businesses in large office buildings.
For additional information about Cogent and its business, see "Information About Cogent" on page 70.
Allied Riser Communications Corporation
1700 Pacific Avenue, Suite 400
Dallas, Texas 75201-4679
Telephone: (214) 210-3000
Allied Riser is a facilities-based provider of broadband communications services with facilities operating or constructed in 54 major metropolitan areas in North America, including Canada. Allied Riser typically delivers its services over networks that it designed, constructed, owns, and operates inside large- and medium-sized office buildings. Effective September 21, 2001, Allied Riser suspended its retail services in most of its markets in the United States. Allied Riser is pursuing the provision of in-building wholesale services of its broadband data network.
For additional information about Allied Riser and its business, see "Information About Allied Riser" on page 84 and "Where You Can Find More Information" on page 119.
The Merger (Page 29)
In the merger, the merger subsidiary will merge into Allied Riser. As a consequence of the merger, the separate corporate existence of the merger subsidiary will cease and Allied Riser will continue as the surviving corporation and will become a wholly owned subsidiary of Cogent.
If you are an Allied Riser stockholder, upon completion of the merger, each of your shares of Allied Riser common stock will be converted into the right to receive shares of common stock of Cogent.
We have attached the merger agreement and amendment no. 1 to the merger agreement as Appendix A and Appendix B to this document and the merger agreement, as amended, is incorporated by reference into this proxy statement/prospectus. We urge you to read the merger agreement and amendment no. 1 to the merger agreement. They are the legal documents that govern the merger.
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Reasons for the Merger (Pages 33 and 39)
See "Why are Cogent and Allied Riser proposing the merger?" above. In addition, each of the Cogent board of directors and the Allied Riser board of directors considered a number of other factors. See "The MergerRecommendation of the Cogent Board of Directors; Cogent's Reasons for the Merger," and "The MergerRecommendation of the Allied Riser Board of Directors; Allied Riser's Reasons for the Merger."
Recommendation to Allied Riser Stockholders (Page 33)
See "Does the Allied Riser board of directors recommend approval of the merger?" above.
The Allied Riser board of directors believes that the merger agreement is in the best interests of Allied Riser's stockholders and unanimously recommends that Allied Riser stockholders vote "FOR" adoption of the merger agreement and approval of the merger.
Allied Riser Special Meeting (Page 26)
Allied Riser will hold a special meeting on , 2001 at a.m., local time, at its offices located at 1700 Pacific Avenue, Suite 400, Dallas, Texas 75201. At the special meeting, Allied Riser will ask its stockholders to consider and vote upon a proposal to adopt the merger agreement and approve the merger and to consider any other matters that may properly come before the special meeting.
You may vote at the Allied Riser special meeting if you owned Allied Riser common stock at the close of business on , 2001. On that date, there were shares of Allied Riser common stock outstanding and entitled to vote. You may cast one vote for each share of Allied Riser common stock that you owned on that date. In order to adopt the merger agreement and approve the merger, the holders of a majority of the outstanding shares of Allied Riser common stock entitled to vote as of , 2001 must vote in favor of adopting the merger agreement and approving the merger.
Approximately % of the outstanding shares of Allied Riser common stock entitled to vote to adopt the merger agreement and approve the merger are held by Allied Riser directors and executive officers and their affiliates.
Per Share Market Price Information (Page 68)
On August 28, 2001, the last trading day before we announced the merger, the closing price for Allied Riser common stock on the Nasdaq National Market was $0.12. On October 15, 2001, Allied Riser common stock closed at $0.14 per share.
The market value of the Cogent common stock that will be issued to Allied Riser stockholders at the completion of the merger will not be known when the Allied Riser stockholders meet to vote on the merger because there is no established trading market for shares of Cogent stock.
Cogent will apply to have the Cogent common stock to be issued in the merger approved for quotation on the Nasdaq National Market or listing on a national securities exchange.
Conditions to Completion of the Merger (Page 54)
To complete the merger, a number of conditions must be satisfied. These include:
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Where the law permits, a party to the merger agreement, as amended, can elect to waive a condition to its obligation to complete the merger although that condition has not been satisfied. We cannot be certain when (or if) the conditions to the merger will be satisfied or waived or that the merger will be completed.
Termination of the Merger Agreement; Termination Fees (Pages 55 and 56)
The merger agreement may be terminated and abandoned in certain circumstances. These include:
Each of Cogent and Allied Riser has agreed to pay a termination fee of $5 million to the other party in the event that the merger agreement is terminated under specified circumstances. A $5 million termination fee is also payable by a party under specified circumstances relating to a breach by it of certain of its obligations under the merger agreement or the failure to obtain its stockholders' approval of the merger.
No Appraisal Or Dissenters' Rights (Page 44)
Under Delaware law, holders of Allied Riser common stock are not entitled to dissenters' or appraisal rights in connection with the merger, which means you do not have any right to an appraisal of the value of your Allied Riser shares. Accordingly, if you vote against the adoption of the merger agreement, and the merger agreement is adopted by the holders of a majority of the Allied Riser common stock, you will become a stockholder of Cogent.
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Allied Riser Stock Options; Restricted Stock (Page 47)
Upon completion of the merger, each outstanding Allied Riser stock option will be converted into a stock option to purchase a number of shares of Cogent common stock that is equal to the product of the exchange ratio, multiplied by the number of shares of Allied Riser common stock that would have been obtained upon the exercise of the Allied Riser stock option before the merger, rounded to the nearest whole share. The exercise price per share will be equal to the exercise price per share of Allied Riser common stock subject to an Allied Riser stock option before the conversion divided by the exchange ratio, rounded to the nearest whole cent. At the effective time of the merger each share of Allied Riser common stock subject to a repurchase option, risk of forfeiture, or other condition or restriction will be converted into the same number of shares of Cogent common stock into which shares of unrestricted Allied Riser common stock convert. All shares of Cogent common stock issued in exchange for shares of restricted Allied Riser common stock will retain any such condition or restriction, except to the extent provided otherwise in any agreement between Allied Riser and any holder of shares of restricted Allied Riser common stock. All deferred stock units held by employees of Allied Riser will vest in connection with the merger and will be converted into the same number of shares of Cogent common stock into which shares of Allied Riser common stock convert.
Waiver and Amendment (Page 57)
Allied Riser and Cogent may jointly amend the merger agreement, and each of us may waive our right to require the other party to adhere to the terms and conditions of the merger agreement, to the extent legally permissible.
Accounting Treatment (Page 42)
The acquisition will be accounted for as a purchase for financial reporting and accounting purposes, under the newly issued Statement of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. The purchase price will be allocated to Allied Riser's assets and liabilities based upon the fair values of the assets acquired and liabilities assumed by Cogent. Goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to SFAS No. 142, which changes the accounting for goodwill and intangible assets with indefinite lives from an amortization method to an impairment approach. A portion of the purchase price may be allocated to identifiable intangible assets. Any excess of the cost over the fair values of the net tangible and identifiable intangible assets acquired from Allied Riser will be recorded as goodwill. Goodwill and intangible assets with indefinite lives will not be amortized. Amortization will be required for identifiable intangible assets with finite lives. Any excess of the fair value of net assets acquired over cost, or negative goodwill, is allocated as a pro-rata reduction to all of the acquired assets except financial assets and current assets. Any remaining negative goodwill is recorded as an extraordinary gain. We have included unaudited pro forma financial information in this proxy statement under the caption "Unaudited Condensed Combined Pro Forma Financial Statements." The pro forma adjustments and the resulting unaudited condensed combined pro forma financial statements were prepared based on available information and assumptions and estimates described in notes to the unaudited condensed combined pro forma financial statements. Cogent has not made a final determination of required purchase accounting adjustments, including the allocation of the purchase price to the assets acquired and liabilities assumed, and you should consider the allocation reflected in the unaudited condensed combined pro forma financial statements preliminary.
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Material United States Federal Income Tax Considerations (Page 41)
The merger is intended to qualify as a reorganization under section 368(a) of the Internal Revenue Code. Allied Riser and Cogent have structured the merger so that their legal counsel expect to be able to deliver opinions that the merger will constitute a reorganization within the meaning of section 368(a) of the Internal Revenue Code. If the merger constitutes a reorganization, holders of Allied Riser common stock will generally not recognize gain or loss on the exchange of Allied Riser common stock for Cogent common stock pursuant to the merger. However, Allied Riser stockholders should consult their tax advisors for a full understanding of the tax consequences of the merger.
Regulatory Approvals (Page 40)
Certain subsidiaries of Allied Riser have been granted authorizations to provide telecommunications services by federal and state regulatory agencies, but Allied Riser does not believe these authorizations are required to conduct its business. Allied Riser will seek the approval of the relevant regulatory agencies prior to consummating the merger to the extent required by the merger agreement, and may otherwise seek approval of the relevant regulatory agencies prior to consummating the merger to the extent necessary to maintain these authorizations.
Interests of Certain Persons in the Merger That Are Different From Your Interests (Page 43)
In considering the recommendation of the Allied Riser board of directors, you should be aware that certain officers and directors of Allied Riser have interests in the merger that are different from, or in addition to, the interests of Allied Riser stockholders generally.
In particular:
The members of our respective boards of directors knew about these additional interests, and considered them, among other matters, when they approved the merger agreement and amendment no. 1 to the merger agreement.
Risks of the Merger (Page 13)
In considering whether to adopt the merger agreement and approve the merger, you should consider certain risks of the merger. We urge you to read carefully all of the factors described in "Risk Factors" before voting.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF COGENT
The annual financial information set forth below has been derived from the audited financial statements of Cogent. The data for the six-month periods ended June 30, 2001 and 2000 have been derived from the unaudited consolidated financial statements of Cogent. The information should be read in connection with, and is qualified in its entirety by reference to Cogent's financial statements and notes included elsewhere in this proxy statement/prospectus. The interim data reflect all adjustments that, in the opinion of management of Cogent, are necessary to present fairly such information for the interim periods. The results of operations for the six-month periods are not necessarily indicative of the results expected for a full year or any interim period. Cogent was incorporated on August 9, 1999. Accordingly, no financial information prior to August 9, 1999 is available.
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Years Ended
December 31, |
(Unaudited)
Six Months Ended June 30, |
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1999
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2000
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2000
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2001
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(in thousands, except per share data)
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CONSOLIDATED STATEMENT OF OPERATIONS DATA: | |||||||||||||
Service revenue | $ | | $ | | $ | | $ | 90 | |||||
Expenses: |
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Cost of network operations | | 3,040 | 49 | 10,440 | |||||||||
Selling, general, and administrative | 82 | 10,845 | 1,727 | 14,167 | |||||||||
Depreciation and amortization | | 338 | 15 | 2,985 | |||||||||
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Total operating expenses | 82 | 14,223 | 1,791 | 27,592 | |||||||||
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Loss from operations | (82 | ) | (14,223 | ) | (1,791 | ) | (27,502 | ) | |||||
Interest income (expense), net | | 2,328 | 255 | (542 | ) | ||||||||
Other income | | 134 | | 62 | |||||||||
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Net income (loss) | (82 | ) | (11,761 | ) | (1,536 | ) | (27,982 | ) | |||||
Net (loss) per common share basic and diluted | $ | (0.01 | ) | $ | (0.85 | ) | $ | (0.11 | ) | $ | (1.99 | ) | |
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EBITDA | $ | (82 | ) | $ | (13,885 | ) | $ | (1,776 | ) | $ | (24,517 | ) | |
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CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END): |
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Cash and cash equivalents | $ | | $ | 65,593 | $ | 83,163 | $ | 45,136 | |||||
Working capital | 18 | 52,621 | 73,909 | 35,856 | |||||||||
Total assets | 25 | 204,594 | 115,560 | 248,033 | |||||||||
Preferred stock | | 115,901 | 101,032 | 115,901 | |||||||||
Stockholders' equity | 18 | 104,249 | 99,530 | 76,855 |
As used in the table above, EBITDA consists of net loss excluding net interest, income taxes, depreciation, and amortization. We believe that, because EBITDA is a measure of financial performance, it is useful to investors as an indicator of a company's ability to fund its operations and to service or incur debt. EBITDA is not a measure calculated under accounting principles generally accepted in the United States. Other companies may calculate EBITDA differently. It is not an alternative to operating income as an indicator of our operating performance or an alternative to cash flows from operating activities as a measure of liquidity and investors should consider these measures as well. We do not expect to generate positive EBITDA in the near term. We anticipate that our discretionary use of EBITDA, if any, generated from our operations in the foreseeable future will be restricted by our need to build our infrastructure and expand our business. To the extent that EBITDA is available for these purposes, our requirements for outside financing will be reduced.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF ALLIED RISER
The annual financial information set forth below has been derived from the audited consolidated financial statements of Allied Riser. The data for the six-month periods ended June 30, 2001 and 2000 have been derived from the unaudited consolidated financial statements of Allied Riser. The information should be read in connection with, and is qualified in its entirety by reference to, Allied Riser's financial statements and the notes included elsewhere in this proxy statement/prospectus and contained in the annual and quarterly reports and other information that Allied Riser has filed with the SEC. The interim data reflect all adjustments that, in the opinion of management of Allied Riser, are necessary to present fairly such information for the interim periods. The results of operations of the six-month periods are not necessarily indicative of the results expected for a full year or any interim period.
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Year Ended December 31,
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Six Months Ended
June 30, |
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1997
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1998
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1999
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2000
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2000
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2001
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CONSOLIDATED STATEMENT OF INCOME (LOSS) DATA: | |||||||||||||||||||||
Network services revenue | $ | | $ | 212 | $ | 1,422 | $ | 10,969 | $ | 2,809 | $ | 12,437 | |||||||||
Value added services revenue | | | 448 | 3,363 | 521 | 4,065 | |||||||||||||||
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Total revenue | | 212 | 1,870 | 14,332 | 3,330 | 16,502 | |||||||||||||||
Operating expenses: |
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Network operations | 80 | 2,358 | 8,625 | 43,965 | 16,006 | 38,069 | |||||||||||||||
Cost of value added services | | | 128 | 2,356 | 385 | 2,615 | |||||||||||||||
Selling expense | | 1,623 | 10,317 | 46,967 | 24,808 | 15,806 | |||||||||||||||
General and administrative expenses | 1,348 | 9,736 | 38,570 | 67,173 | 35,702 | 21,563 | |||||||||||||||
Depreciation and amortization | 10 | 499 | 5,007 | 36,155 | 14,556 | 25,904 | |||||||||||||||
Asset write-down | | | | | | 262,336 | |||||||||||||||
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Total operating expenses | 1,438 | 14,216 | 62,647 | 196,616 | 91,457 | 366,293 | |||||||||||||||
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Operating income (loss) | (1,438 | ) | (14,004 | ) | (60,777 | ) | (182,284 | ) | (88,127 | ) | (349,791 | ) | |||||||||
Other income (expense) | (59 | ) | (606 | ) | 3,289 | 8,876 | 7,034 | (2,428 | ) | ||||||||||||
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Income (loss) before extraordinary items | (1,497 | ) | (14,610 | ) | (57,488 | ) | (173,408 | ) | (81,093 | ) | (352,219 | ) | |||||||||
Accrued dividends on preferred stock | | (452 | ) | (6,452 | ) | | | | |||||||||||||
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Income (loss) applicable to common stock before extraordinary items | $ | (1,497 | ) | $ | (15,062 | ) | $ | (63,940 | ) | $ | (173,408 | ) | $ | (81,093 | ) | $ | (352,219 | ) | |||
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Income (loss) per common share before extraordinary items | $ | (7.45 | ) | $ | (8.09 | ) | $ | (2.15 | ) | $ | (3.18 | ) | $ | (1.51 | ) | $ | (5.95 | ) | |||
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Weighted average number of shares outstanding | 201,000 | 1,862,000 | 29,736,000 | 54,472,000 | 53,795,000 | 59,245,000 | |||||||||||||||
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CONSOLIDATED BALANCE SHEET DATA: |
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Cash and cash equivalents | $ | 188 | $ | 41,371 | $ | 152,564 | $ | 29,455 | $ | 196,874 | $ | 27,748 | |||||||||
Short-term investments | | | 162,013 | 212,107 | 166,334 | 111,796 | |||||||||||||||
Property and equipment, net | 1,250 | 13,005 | 46,577 | 182,442 | 129,775 | 39,601 | |||||||||||||||
Total assets | 1,487 | 55,572 | 475,054 | 589,703 | 660,702 | 206,765 | |||||||||||||||
Total capital lease obligations and other debt | 2,568 | 2,142 | 7,728 | 74,232 | 32,773 | 61,819 | |||||||||||||||
Convertible notes | | | | 150,000 | 150,000 | 123,600 | |||||||||||||||
Total liabilities | 3,228 | 5,257 | 22,640 | 263,173 | 231,017 | 210,796 | |||||||||||||||
Convertible redeemable preferred stock | | 66,452 | | | | | |||||||||||||||
Additional paid-in capital | 163 | 375 | 434,930 | 460,137 | 453,339 | 511,947 | |||||||||||||||
Warrants | | | 109,135 | 127,846 | 146,054 | 71,127 | |||||||||||||||
Stockholders' equity (deficit) | (1,741 | ) | (16,137 | ) | 452,414 | 326,530 | 429,685 | (4,031 | ) |
As used in the table below, EBITDA consists of net loss excluding the effect of extraordinary items, net interest, income taxes, depreciation, amortization, and write down of long lived assets.
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EBITDA does not reflect our non-cash expenses. Allied Riser believes that, because EBITDA is a measure of financial performance, it is useful to investors as an indicator of a company's ability to fund its operations and to service or incur debt. EBITDA is not a measure calculated under accounting principles generally accepted in the United States. Other companies may calculate EBITDA differently. It is not an alternative to operating income as an indicator of Allied Riser's operating performance or an alternative to cash flows from operating activities as a measure of liquidity and investors should consider these measures as well. Allied Riser does not expect to generate positive EBITDA in the near term.
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Year Ended December 31,
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Six Months Ended
June 30, |
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1997
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1998
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1999
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2001
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OTHER OPERATING DATA | |||||||||||||||||||
Net cash used in operating activities | $ | (1,228 | ) | $ | (14,420 | ) | $ | (39,152 | ) | $ | (118,535 | ) | $ | (50,522 | ) | $ | (71,614 | ) | |
Net cash provided by (used in) investing activities | (1,088 | ) | (8,115 | ) | (181,908 | ) | (144,654 | ) | (47,952 | ) | 93,161 | ||||||||
Net cash provided by (used in) financing activities | 2,504 | 63,718 | 332,253 | 140,317 | 142,784 | (23,251 | ) | ||||||||||||
EBITDA | (1,401 | ) | (13,504 | ) | (41,095 | ) | (136,710 | ) | (66,858 | ) | (58,651 | ) | |||||||
Capital expenditures | 1,220 | 12,032 | 36,543 | 146,172 | 88,336 | 9,112 |
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SUMMARY UNAUDITED PRO FORMA INFORMATION
The following summary unaudited pro forma combined financial data has been derived from and should be read together with the unaudited pro forma combined financial statements and related notes. This information is based on the historical consolidated balance sheets and related historical consolidated statements of income of Cogent and Allied Riser, giving effect to the merger using the purchase method of accounting for business combinations. The summary unaudited pro forma combined financial data also reflects the issuance of $62.0 million of Cogent's Series C Preferred Stock, the impact of Cogent's October 2001 credit facility, and settlement and termination of certain of Allied Riser's capital leases and maintenance obligations. See "Cogent Communications Group, Inc. Financial Statements," and "Allied Riser Communications Corporation Financial Statements."
The companies may have performed differently had they always been combined. You should not rely on the summary unaudited pro forma combined financial data as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience after the merger. This information is for illustrative purposes only.
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Six Months
Ended June 30, 2001 |
Year Ended
December 31, 2000 |
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Operating revenues | $ | 16,592 | $ | 14,332 | |||
Operating income (loss) | $ | (353,408 | ) | $ | (163,422 | ) | |
Net income (loss) | $ | (361,196 | ) | $ | (162,281 | ) | |
Basic and diluted net loss per common share | $ | (100.45 | ) | $ | (45.40 | ) | |
Cash dividends per common share | $ | | $ | |
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At June 30, 2001
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Total assets | $ | 467,572 | |
Long-term debt | $ | 187,064 | |
Stockholders' equity | $ | 193,551 |
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Set forth below are the loss, cash dividends, and book value per common share amounts for Cogent and Allied Riser on a historical basis and for Cogent on a pro forma combined basis per Cogent-equivalent common share, and on a pro forma combined basis per Allied Riser-equivalent common share. The exchange ratio used in this table is 0.0321780 shares of Cogent common stock for each share of Allied Riser common stock.
The Cogent pro forma combined data per Cogent-equivalent common share was derived by combining the adjusted consolidated financial information of Cogent and the historical consolidated financial information of Allied Riser using the purchase method of accounting for business combinations as described under "Unaudited Condensed Combined Pro Forma Financial Statements."
The Cogent pro forma combined data, per Allied Riser-equivalent common share information, shows the effect of the merger from the perspective of an owner of Allied Riser common stock. The information was computed by multiplying the Cogent pro forma information by an assumed exchange ratio of 0.0321780.
You should read the information below together with our historical financial statements and related notes included in this document. See "Cogent Communications Group, Inc. Financial Statements" and "Allied Riser Communications Corporation Financial Statements." The unaudited pro forma combined data below is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on this information to be indicative of the historical results that would have been achieved had the companies always been combined or the future results that Cogent will experience after the merger.
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Six Months Ended
June 30, 2001 |
Year Ended
December 31, 2000 |
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Cogent historical data, per common share: | |||||||
Loss per common share | $ | (1.99 | ) | $ | (0.85 | ) | |
Loss per common share assuming dilution | $ | (1.99 | ) | $ | (0.85 | ) | |
Cash dividends | $ | | $ | | |||
Book value at end of period | $ | 5.47 | $ | 7.44 | |||
Cogent pro forma combined data, per Cogent-equivalent common share: |
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Loss per common share | $ | (100.45 | ) | $ | (45.40 | ) | |
Loss per common share assuming dilution | $ | (100.45 | ) | $ | (45.40 | ) | |
Cash dividends | | | |||||
Book value at end of period | $ | 53.80 | * | ||||
Allied Riser historical data, per common share: |
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Loss per common share | $ | (5.95 | ) | $ | (3.18 | ) | |
Loss per common share assuming dilution | $ | (5.95 | ) | $ | (3.18 | ) | |
Cash dividends | $ | | $ | | |||
Book value at end of period | $ | (0.07 | ) | $ | 5.58 | ||
Cogent pro forma combined data, per Allied Riser-equivalent common share: |
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Loss per common share | $ | (3.23 | ) | $ | (1.46 | ) | |
Loss per common share assuming dilution | $ | (3.23 | ) | $ | (1.46 | ) | |
Cash dividends | $ | | $ | | |||
Book value at end of period | $ | 1.73 | * |
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When you decide whether to vote for adoption of the merger agreement and approval of the merger, you should consider the following factors in conjunction with the other information included or incorporated by reference in this proxy statement/prospectus.
Cogent will face challenges in integrating Cogent and Allied Riser and, as a result, may not realize the expected benefits of the merger.
Integrating the operations of Cogent and Allied Riser will be a costly and complex process. We are uncertain that the integration will be completed rapidly or that it will achieve the anticipated benefits of the merger. Allied Riser's in-building networks will have to be integrated with Cogent's network of metropolitan fiber optic networks and long-haul fiber optic networks. This process will, at a minimum, require us to obtain or construct connections from our metropolitan fiber network to buildings in which Allied Riser has completed in-building networks and to purchase and install equipment in addition to that currently installed in Allied Riser's networks. We expect that integration costs will be significant and will include the relocation of certain Allied Riser operations from Dallas, Texas to Washington, D.C.
The diversion of the attention of management and any difficulties encountered in the process of combining the companies and integrating operations could cause the disruption of the activities of the combined company's business. Further, the process of combining Cogent and Allied Riser and related uncertainties associated with the merger could negatively affect employee performance, satisfaction, and retention.
Allied Riser also has liabilities including capital leases, office leases, and carrier contracts for transmission capacity, that it is currently attempting to discharge or otherwise resolve. Allied Riser's efforts in this regard may not be successful or favorable. After the closing of the merger, any existing liabilities of Allied Riser that are not resolved prior to the closing of the merger will become liabilities of Cogent.
Both Cogent and Allied Riser may not be able to take certain actions because of restrictions in the merger agreement.
While the merger agreement is in effect and prior to closing the merger, Cogent and its subsidiaries are prohibited from taking any actions that, individually or in the aggregate, materially delay the filing of or require any material amendment or supplement to Cogent's registration statement or necessitate a recirculation of the Allied Riser proxy statement. In addition, Cogent is generally prohibited from acquiring or agreeing to acquire any businesses or substantial assets of a company prior to the completion of the merger. As a result of these prohibitions, Cogent may be unable to take certain actions that might otherwise be favorable to it.
While the merger agreement is in effect and prior to closing the merger, Allied Riser and its subsidiaries are prohibited from incurring any expenses or making any payments that, in the aggregate, exceed the amounts contemplated by, or taking any action that is materially inconsistent with, the authorized cash expenditures agreed to by Cogent and Allied Riser in the merger agreement. As a result of this prohibition, Allied Riser may be unable to take certain actions that might otherwise be favorable to it.
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Our officers and directors have conflicts of interest that may influence them to support or approve the merger agreement and the merger.
Some of the executive officers and directors of both Cogent and Allied Riser have interests in the merger that are different from, or are in addition to, your interests as a stockholder. In particular, certain of the Allied Riser executive officers' and directors' restricted stock, deferred stock units, and stock options will fully vest and be convertible into Cogent common stock in connection with the merger. Additionally, certain executive officers of Allied Riser will receive as severance, in lieu of any unpaid lump sum or performance incentive bonus payments, either (1) six months' salary, in each case as contemplated by his or her employment agreement, or (2) an amount to be determined by Mr. Gerald K. Dinsmore, chief executive officer of Allied Riser, or with respect to Mr. Dinsmore, the board of directors of Allied Riser, to be paid from an approximately $5.2 million retention, severance, and bonus pool established for all employees of Allied Riser, in the case of severance payments from the pool, subject to forfeiture of any stock options outstanding as of the date of the merger. As a result, these officers and directors could be more likely to support the merger, and these directors could be more likely to vote to approve the merger, than if they did not hold these interests. You should consider whether these interests may have influenced these officers and directors to support the merger.
As a result of the merger, the combined company will incur transaction and integration costs that may exceed our estimates, either of which may negatively affect our financial condition and operating results.
Cogent will incur significant transaction costs as a result of the merger, including legal and accounting fees, all of which may exceed our current estimates. Cogent also expects that the combined company will charge consolidation and integration expenses to operations in fiscal 2001 and 2002, but we cannot estimate these expenses accurately at this time. Actual transaction costs and consolidation and integration expenses may substantially exceed Cogent's estimates and may have an adverse effect on Cogent's financial condition and operating results.
Risks Relating to Cogent After the Merger
We are an early-stage company in an unproven industry, and if we do not grow rapidly and obtain additional capital we will not succeed.
Cogent and Allied Riser have short operating histories and therefore the information available to evaluate the prospects of the combined company is limited. Cogent initiated its operations in 2000 and Allied Riser initiated its operations in 1998. Moreover, the market for high-speed Internet service itself has only existed for a short period of time and is unproven. Accordingly, you must consider our prospects in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of development, particularly in a new, unproven market.
Because the communications industry is capital intensive, rapidly evolving, and subject to significant economies of scale, as a relatively small organization we are at a competitive disadvantage. The growth we must achieve to reduce that disadvantage will put a significant strain on all of our resources. If we fail to grow rapidly, we may not be able to compete with larger, well-established companies.
Our future capital requirements to sustain our current operations and to obtain the necessary growth will depend on a number of factors, including our success in increasing the number of customers and the number of buildings we serve, the expenses associated with the build-out and maintenance of our network, regulatory changes, competition, technological developments, potential merger and acquisition activity, and the economy's ability to recover from the recent downturn. Additionally, our future capital requirements likely will increase if we acquire or invest in additional businesses, assets, products, and technologies. Until we can generate sufficient levels of cash from our
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operations, which we do not expect to achieve for the foreseeable future, we will continue to rely on equity financing and long-term debt to meet our cash needs. Given the current condition of the financial markets, it has become very difficult to raise capital, especially for telecommunications companies like Cogent. There is no assurance that access to additional capital will become any easier in the future, nor can we assure you that any such financing will be available on terms favorable to us or our stockholders. Additionally, our amended and restated charter contains provisions that require our preferred stockholders to approve most equity issuances by us and that give our preferred stockholders adjusted conversion ratios if we issue equity at a lower price per share than those holders paid. Insufficient funds may require us to delay or scale back the build-out of our network. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result. In addition, if our operations do not produce positive cash flow in sufficient amounts to pay our financing obligations, our future financial results and our ability to implement our business plan will be materially and adversely affected.
We have historically incurred operating losses and we expect our losses to continue for the foreseeable future.
Since our formation, we have generated increasing losses and we anticipate that Cogent will continue to incur increasing losses for the foreseeable future. In 2000, we had a net loss of $11.8 million on no revenues, and in the first six months of 2001, we had a net loss of $28.0 million on revenues of $0.09 million. As of June 30, 2001, we had an accumulated deficit of $39.8 million and a pro forma accumulated deficit of $42.8 million. Allied Riser incurred net losses of $173.4, $57.5, and $14.6 million in 2000, 1999, and 1998 respectively, and in the first six months of 2001, Allied Riser had a net loss of $346.2 million.
Additionally, we expect our operating losses to increase significantly as we integrate Allied Riser. Continued losses significantly greater than we anticipate may prevent us from pursuing our strategies for growth or require us to seek unplanned additional capital, and could cause us to be unable to meet our debt service obligations, capital expenditure requirements, or working capital needs.
We are leveraged and a significant portion of our debt may become due if the merger is deemed to be a "change in control" of Allied Riser.
As of June 30, 2001, on a pro forma basis after giving effect to the issuance of $62 million of our Series C Preferred Stock, the impact of the amendment to our credit facility and the settlement and termination of certain Allied Riser's capital leases and maintenance obligations, we had $187.1 of outstanding long-term indebtedness, and additional borrowing capacity of $281.2 million under the October 2001 Cogent credit facility. Our high level of indebtedness will have consequences on our operations. Among other things, our indebtedness will:
Our credit facility requires us to meet certain operational performance measures. These are measured and reported on a monthly basis until June 2002. If we are unable to meet these we may not be permitted to borrow additional amounts under that facility until we meet the monthly covenants under that facility. Our credit facility also has financial covenants that we must meet. These are measured quarterly beginning in the third quarter of 2002. If we do not meet them, we will be in default of the credit facility agreement.
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Additionally, Allied Riser's 7.50% Convertible Subordinated Notes Due 2007 may become immediately due if the merger is deemed to be a "change in control," as defined by the related indenture. We do not believe that the merger would qualify as a change in control, but in the event that the merger is deemed to be a change in control, we could be required to repurchase $123.6 million in aggregate principal amount of the notes. We cannot assure you that we will have the ability to repay the 7.50% Convertible Subordinated Notes Due 2007 if the holders elect to require the repurchase. If we are unable to repurchase the notes, we will be in default of the indenture and our obligations under the credit facility and the credit facility could become due and payable.
Anti-dilution and conversion-price adjustment provisions could make it more difficult to raise new equity capital in the future.
Provisions of our amended and restated certificate of incorporation could make it more difficult for us to attract new investment in the future, even if doing so would be beneficial to our stockholders. Under the terms of our certificate of incorporation with respect to our Series C preferred stock, for example, if we issue additional shares of capital stock at a price per share that is less than the price of the Series C preferred stock, the holders of the Series C preferred stock will have the right to convert their stock to common stock at the same, reduced price per share. In addition, the holders of the preferred stock have liquidation preferences in the event of the sale or liquidation of Cogent. Such provisions may have the effect of inhibiting our ability to raise needed capital.
We may not be able to efficiently manage our growth, which could harm our business.
Our future largely depends on our ability to implement our business strategy and proposed expansion in order to create new business and revenue opportunities. Our results of operations will be adversely affected if we cannot fully implement our business strategy. Future expansion will place significant strains on our personnel, financial, and other resources. The failure to efficiently manage our growth could adversely affect the quality of our services, our business, and our financial condition. Our ability to manage our growth will be particularly dependent on our ability to develop and retain an effective sales force and qualified technical and managerial personnel. We may not be able to hire and retain sufficient qualified personnel. We may not be able to maintain the quality of our operations, to control our costs, to maintain compliance with all applicable regulations, and to expand our internal management, technical, information, and accounting systems in order to support our desired growth.
In addition, we must perform these tasks in a timely manner, at reasonable costs, and on satisfactory terms and conditions. Failure to effectively manage our planned expansion could have a material adverse effect on our business, growth, financial condition, results of operations, and ability to make payments on our obligations. Our expansion may involve acquiring other companies or assets. These acquisitions could divert resources and management attention and require integration with our existing operations. We cannot assure you that these acquisitions will be successful. In addition, we cannot assure you that we will be successful or timely in developing and marketing service enhancements or new services that respond to technological change, changes in customer requirements, and emerging industry standards.
Any acquisitions or investments we make could disrupt our business and be dilutive to our existing stockholders.
We intend to continue to consider acquisitions of, or investments in, complementary businesses, technologies, services, or products. Acquisitions and investments involve numerous risks, including:
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These acquisitions or investments may result in dilutive issuances of equity securities; the incurrence of debt and assumption of liabilities; large integration and acquisition expenses; and the creation of intangible assets that result in significant amortization expense. Any of these factors could materially harm our business or our operating results.
We will face challenges in integrating the assets of NetRail and, as a result, may not realize the expected benefits of the NetRail asset acquisition.
On September 6, 2001, we acquired major assets and assumed certain liabilities of NetRail, Inc., a Tier-1 Internet service provider, for approximately $12 million through a sale conducted under Chapter 11 of the United States Bankruptcy Code. Tier-1 service providers traditionally operate nationwide Internet networks and exchange traffic with other Internet service providers at multiple locations. The assets include certain customers, circuits, equipment, and settlement-free peering arrangements with other Tier-1 Internet service providers. We are in the process of integrating NetRail's facilities and traffic with our network. However, integrating the NetRail assets into the Cogent network will be a complex process. We are uncertain that the integration will be completed rapidly or that it will achieve anticipated benefits. In order for the integration to be successful, we must maintain NetRail's currently existing circuits and equipment and purchase new circuits and equipment necessary to provide service using the NetRail assets. We may not be able to successfully integrate any or all of NetRail's assets, and even if we are successful, the integration may be costly and time consuming.
We cannot assure you that we will successfully complete or expand our network.
The construction, operation, and any upgrading of our network are significant undertakings. Administrative, technical, operational, and other problems that could arise may be more difficult to address and solve due to the significant size and complexity of the planned network. In order for our business plan to succeed, it will be necessary to build out our network and related facilities in a manner that is timely and cost efficient. The timely completion of our network in a cost efficient manner, however, will be affected by a variety of factors, many of which are difficult or impossible to control, including:
The construction of our network also requires that both we and our fiber providers obtain many local rights-of-way and other permits. In some cases, we and our fiber providers must also obtain rights to use underground conduit and other rights-of-way and fiber capacity. The process of obtaining these permits and rights is time consuming and burdensome. If we or our fiber providers are unable to obtain and maintain the permits and rights-of-way needed to build out our network and related facilities on acceptable terms and on a timely basis, or if permits or rights-of-way we or our fiber providers do obtain are cancelled or not renewed, the buildout of our network could be delayed.
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For these reasons, we cannot assure you that the budgeted costs of our current and future projects will not be exceeded or that these projects will commence operations within the contemplated schedules, if at all. Any significant variance from the contemplated schedules or increases in the budgeted cost of our network will materially adversely affect our business and results of operations.
Our business could suffer from a reduction or interruption of deliveries from our equipment suppliers or the termination of relationships with them.
Our business could suffer from a reduction or interruption of deliveries from our equipment suppliers or the termination of relationships with them. We obtain most of our optical-electronic equipment from Cisco Systems. We depend on Williams Communications for our long-haul fiber network. Metromedia Fiber Networks, Level 3, and others provide us with metropolitan dark fiber linking our national network to individual buildings. Dark fiber is the term for optical fiber that has been installed, but does not include the optical-electronic terminal equipment needed to transmit or receive data, which we install, and which is provided to us by third-party suppliers. Such third-party suppliers are responsible for additional amounts of conduit, computers, software, switches/routers, and related components that we assemble and integrate into our network. Any reduction in or interruption of deliveries from our equipment suppliers, especially Cisco Systems, Metromedia Fiber Networks, Level 3, or Williams Communications could delay our plans to complete our network and install in-building networks, impair our ability to acquire or retain customers, and harm our business generally. In addition, the price of the equipment and other supplies we purchase may substantially increase over time, increasing the costs we pay in the future. It could take a significant period of time to establish relationships with alternative suppliers for each of our technologies and substitute their technologies into our networks. If any of these relationships are terminated or a supplier fails to provide reliable services or equipment and we are unable to reach suitable alternative arrangements quickly, we may experience significant delays and additional costs. If that happens, our business could be materially adversely affected.
Our rights to the use of the dark fiber that make up our network may be affected by the financial health of our fiber providers.
We do not have title to the dark fiber that makes up the foundation of our network. Our interests in the dark fiber that makes up our network take the form of long-term leases or indefeasible right of use agreements, known as IRUs. There has been increasing financial pressure on some of our fiber providers as part of the overall weakening of the telecommunications market over the past twelve to eighteen months. Although the largest supplier of our metropolitan fiber networks, Metromedia Fiber Networks, recently announced that it has secured additional financing and that it believes this funding will enable it to complete its business plan, we do not know the terms and conditions of the funding or if it will in fact be sufficient for Metromedia Fiber Networks' current and future needs. Another supplier of metropolitan fiber, ACSI Network Technologies, Inc., already has filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. In the case of a bankruptcy or financial collapse by one of our fiber providers, our rights under our dark fiber agreements remain unclear, although to date there has been no interruption of service with the ACSI fiber. In particular, to our knowledge, the rights of the holder of an IRU in strands of dark fiber have never been addressed by the judiciary at the state or federal level in bankruptcy. A bankruptcy or financial collapse of one of our fiber providers could result in a loss of our rights under our long-term lease agreements or IRUs with such provider, which in turn could have a negative impact on the integrity of our network and ultimately on our results of operations.
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We often are limited in choices for metropolitan fiber suppliers.
In some of our target markets there is only one established carrier available to provide the necessary connection. This increases our costs and makes it difficult to obtain sufficient dark fiber. Sufficient dark fiber may not be readily available from third parties at commercially reasonable rates, if at all. Our failure to obtain sufficient dark fiber could result in an inability to provide service in certain buildings and service interruptions, which could in time lead to loss of customers and damage to our reputation.
Our business plan cannot succeed unless we continue to obtain license agreements with building owners and managers.
Our business depends upon our ability to install in-building networks. This requires us to enter into access agreements with building owners or managers allowing us to install our in-building networks and provide our services in the buildings. These agreements typically have terms of five to ten years. We expect to need to enter into additional access agreements for the foreseeable future, and may need to amend some of the current agreements to allow us to offer all of the services contemplated by our current business plan. The failure of building owners or managers to grant, amend, or renew access rights on acceptable terms, or any deterioration in our existing relationships with building owners or managers, could harm our marketing efforts and could substantially reduce our potential customer base. Current federal and state regulations do not require building owners to make space available to us, or to do so on terms that are reasonable or nondiscriminatory. While the FCC has adopted regulations that prohibit carriers under its jurisdiction from entering into exclusive arrangements with owners of multi-tenant commercial office buildings, these regulations do not require building owners to offer us access to their buildings. Building owners or managers may decide not to permit us to install our networks in their buildings or may elect not to renew or amend our access agreements. The failure to obtain or maintain these agreements would reduce our revenues and we might not recover our infrastructure costs.
We will need to obtain or construct additional building laterals to connect buildings to our network.
In order to connect a building to our network, we must obtain or construct lateral fiber extensions from our metropolitan ring to the building to which we intend to provide our Internet service. To date, we have relied exclusively on third parties for lateral connections. While we intend to continue using third parties for lateral connections in the future, we also plan to construct or fund most laterals on our own or in ventures with third parties. The availability of such lateral connections from third parties is dependent on many factors, including but not limited to the:
Our ability to construct or fund some laterals on our own is also dependent on these factors. If any of these factors are not fulfilled, we may not be able to obtain some of the desired lateral connections to buildings, which could substantially reduce our customer base and our ability to fulfill our business plan.
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We must make capital expenditures before generating revenues, which may prove insufficient to justify those expenditures.
Prior to generating revenues, we must incur significant initial capital expenditures. Our expenditures will vary depending on whether we encounter any construction-related difficulties or difficulties in acquiring rights-of-way or other permits. After initial installation of our network, our capital expenditures continue to grow based on the extent to which we add customers within a building. We may not be able to recoup all of our expenditures.
Our success depends on growth in the use of the Internet, and on the willingness of customers to buy our Internet service.
Our future success depends in large part on growth in the number of people who use the Internet as well as growth in the number of ways people use the Internet. Specifically, we are dependent on the growth of the demand for high-speed Internet service, which is unproven and may grow less than the demand for communications services generally, or not at all. Furthermore, our own growth rate may not match the growth rate of the high-speed Internet service market as a whole.
Our success also depends on rapid growth in sales of our particular Internet services offerings. This growth depends, in part, on customers trusting us to deliver the services in a timely and efficient manner, and that we will continue to operate for at least as long as the life of any contract between the two of us. This trust may be difficult to establish because there has been a substantial downturn in the telecommunications industry, leading to many bankruptcies and closures of competing Internet service providers. Some of these closures required the customers of the closing Internet service provider to find alternative providers on very short notice. In light of these developments, there may be an increasing desire on the part of Internet service customers to only do business with telecommunications providers who have a long operating history and are amongst the biggest providers in the industry. Cogent's short operating history and small size could put it at a disadvantage in competing with such established providers.
Impairment of our intellectual property rights and our alleged infringement on other companies' intellectual property rights could harm our business.
We regard certain aspects of our products, services, and technology as proprietary and attempt to protect them with patents, copyrights, trademarks, trade secret laws, restrictions on disclosure, and other methods. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our products, services, or technology without authorization, or to develop similar technology independently.
We are aware of several other companies in our and other industries that use the word "Cogent" in their corporate names. One company has informed us that it believes our use of the name "Cogent" infringes on their intellectual property rights in that name. If such a challenge is successful, we could be required to change our name and lose the goodwill associated with the Cogent name in our markets.
The sector in which we operate is highly competitive, and we may not be able to compete effectively.
We face competition from many communications providers with significantly greater financial resources, well-established brand names, larger customer bases, and diverse strategic plans and technologies. Many of these competitors have longer operating histories and more established relationships in the industry than we do. Intense competition has led to declining prices and margins for many communications services. We expect this trend to continue as competition intensifies in the future. We expect significant competition from traditional and new communications companies, including local, long distance, cable modem, Internet, digital subscriber line, fixed and mobile wireless, and satellite data service providers, some of which are described in more detail below.
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If these potential competitors successfully focus on our market, we may face intense competition harmful to our business. In addition, we may also face severe price competition for building access rights, which could result in higher sales and marketing expenses and lower profit margins.
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subscriber line companies and/or their Internet service provider customers, such as AT&T and Covad, typically provide broadband Internet access using digital subscriber line technology, which enables data traffic to be transmitted over standard copper telephone lines at much higher speeds than these lines would normally allow. Cable-based service providers, such as Excite@Home, RCN Telecom Services, and Time Warner AOL and its Road Runner subsidiary, also provide broadband Internet access. These various providers may also offer traditional or Internet-based voice services to compete with us.
Our failure to acquire, integrate, and operate new technologies could harm our competitive position.
The telecommunications industry is characterized by rapid and significant technological advancements and the introduction of new products and services. We do not possess significant intellectual property rights with respect to the technologies we use, and we are dependent on third parties for the development of and access to new technology. In addition, we own the equipment we use to provide our services and we will have long-term leases or indefeasible rights of use attached to the fiber optic networks that will constitute our network. Therefore, technological changes that render our equipment out of date, less efficient, or more expensive to operate than newer equipment could cause us to incur substantial increases in capital expenditures to upgrade or replace such equipment.
Additionally, there currently are other technologies that provide more capacity and speed than dial-up connections and can be used instead of our broadband data services, including digital subscriber line technology, cable modems, wireless technology, and integrated services digital networks. Furthermore, these technologies may be improved and other new technologies may develop that provide more capacity and speed than the broadband data technology we typically employ.
Our connection to the Internet requires us to obtain and maintain relationships with other providers.
The Internet is composed of various public and private network providers who operate their own networks and interconnect them at public and private interconnection points. Our network is one such network. In order to obtain Internet connectivity for our network, we must obtain and maintain relationships with other such providers and incur the necessary capital costs to locate our equipment and connect our network at these various interconnection points. Some of these connections are made through the purchasing of transit capacity at negotiated rates, which gives us access to a provider and other networks to which that provider is connected. In addition, in some instances we have minimum and maximum volume commitments to receive the negotiated rates. If we fail to meet the minimum, or exceed the maximum, volume commitments, our rates and costs may rise.
Another source of connection to the Internet is peering arrangements. By entering into what are known as settlement-free peering arrangements, providers agree to exchange traffic between their respective networks without charging each other. Our establishment and maintenance of peering relationships is necessary to avoid the higher costs of transit capacity and in order to maintain high network performance capacity. Our business plan depends on our ability to avoid transit costs in the future as our network expands. In that regard, we are attempting a number of initiatives to lower our transit costs. We are seeking more settlement-free peering arrangements such as those that were acquired in the NetRail asset acquisition. We expect that these initiatives will enable us to reduce our transit costs but there is no guarantee that such efforts will be successful. Peering relationships are not subject to regulation, and may change in terms and conditions. If we are not able to maintain and
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increase our peering relationships, we may not be able to provide our customers with high performance and affordable services.
Network failure or delays and errors in transmissions expose us to potential liability.
Our network uses a collection of communications equipment, software, operating protocols, and proprietary applications for the high-speed transportation of large quantities of data among multiple locations. Given the complexity of our proposed network, it may be possible that data will be lost or distorted. Delays in data delivery may cause significant losses to a customer using our network. Our network may also contain undetected design faults and software bugs that, despite our testing, may not be discovered in time to prevent harm to our network. The failure of any equipment or facility on the network could result in the interruption of customer service until we effect necessary repairs or install replacement equipment. Network failures, delays, and errors could also result from natural disasters, power losses, security breaches, and computer viruses. In addition, some of our customers are, at least initially, only served by partial fiber rings, increasing the risk of service interruption. These failures, faults, or errors could cause delays or service interruptions, expose us to customer liability, or require expensive modifications that could have a material adverse effect on our business.
As an Internet access provider, we may be vulnerable to unauthorized access or we may incur liability for information disseminated through our network.
Our networks may be vulnerable to unauthorized access, computer viruses, and other disruptive problems. Addressing the effects of computer viruses and alleviating other security problems may require interruptions, incurrence of costs and delays, or cessation of service to our customers. Unauthorized access could jeopardize the security of confidential information stored in our computer systems or those of our customers, for which we could possibly be held liable.
The law relating to the liability of Internet access providers and on-line services companies for information carried on or disseminated through their networks is unsettled. As the law in this area develops, the potential imposition of liability upon us for information carried on and disseminated through our network could require us to implement measures to reduce our exposure to such liability, which may require the expenditure of substantial resources or the discontinuation of certain products or service offerings. Any costs that are incurred as a result of such measures or the imposition of liability could harm our business.
Legislation and government regulation could adversely affect us.
We believe the enhanced services we provide today are not subject to substantial regulation by the FCC or the state public utilities commissions. Federal and state commissions exercise jurisdiction over providers of basic telecommunications services. However, enhanced service providers are currently exempt from federal and state regulations governing providers of basic telecommunications services, including the obligation to pay access charges and contribute to the universal service fund. Changes in regulation or new legislation may increase the regulation of our current enhanced services. Such changes in the regulatory environment are difficult for us to predict and could affect our operating results by increasing competition, decreasing revenue, increasing costs, or impairing our ability to offer services.
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If our interpretation of regulations applicable to our operations is incorrect, we may incur additional expenses or become subject to more stringent regulation.
Some of the jurisdictions where we provide services have little, if any, written regulations regarding our operations. In addition, the written regulations and guidelines that do exist in a jurisdiction may not specifically address our operations. If our interpretation of these regulations and guidelines is incorrect, we may incur additional expenses to comply with additional regulations applicable to our operations.
Our affiliates own more than 80% of the outstanding voting stock, and thus will control all matters requiring a stockholder vote and, as a result, could prevent or delay any strategic transaction.
Our existing directors, executive officers, and greater-than-five-percent stockholders and their affiliates, in the aggregate, beneficially own more than 80% of the outstanding shares of voting stock and will continue to own more than 80% of the outstanding shares of voting stock after the merger. If all of these stockholders were to vote together as a group, they would have the ability to exert significant influence over our board of directors and its policies. For instance, these stockholders would be able to control the outcome of all stockholders' votes, including votes concerning director elections, charter and bylaw amendments, and possible mergers, corporate control contests, and other significant corporate transactions. This concentration of stock ownership could have the effect of preventing or delaying a change of control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could harm the market price of our common stock or prevent our stockholders from realizing a takeover premium over the market price for their shares of common stock.
Anti-takeover provisions could prevent or delay a change of control.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include the "staggered" nature of our board of directors which results in directors being elected for terms of three years and the ability of the preferred stockholders to designate four of our seven directors. These provisions may have the effect of delaying, deferring, or preventing a change in our control, impeding a merger, consolidation, takeover, or other business combination, which in turn could preclude our stockholders from recognizing a premium over the prevailing market price of the common stock.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance, and business of each of Cogent and Allied Riser, as well as certain information relating to the merger, including, without limitation:
These statements are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The following factors, among those discussed in the "Risk Factor" section and others, could cause actual results to differ materially from those described in the forward-looking statements:
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General
This document is first being mailed by Allied Riser to the holders of Allied Riser common stock on or about , and is accompanied by the notice of the Allied Riser special meeting to be held at the offices of Allied Riser located at 1700 Pacific Avenue, Suite 400, Dallas, Texas 75201, on , 2001, at a.m., local time, and at any adjournments or postponements of the Allied Riser special meeting.
Matters to be Considered
The purpose of the Allied Riser special meeting is:
Allied Riser stockholders also may be asked to vote upon a proposal to adjourn or postpone the Allied Riser special meeting. Allied Riser could use any adjournment or postponement of the Allied Riser special meeting for the purpose, among others, of allowing additional time for soliciting additional votes to adopt the merger agreement and approve the merger.
Proxies
The Allied Riser board of directors is soliciting your proxy to give you the opportunity to vote at the Allied Riser special meeting. When you deliver a valid proxy, the shares represented by that proxy will be voted in accordance with your instructions.
You may grant a proxy by:
If you are a holder of record, or if your shares are held in street name and you have a valid proxy from your broker, you also may cast your vote in person at the meeting.
To grant your proxy by mail, please complete your proxy card, and sign, date and return it in the enclosed, postage-paid envelope. To be valid, a returned proxy card must be signed and dated. If you vote by telephone or the Internet, do not mail back your proxy card.
Telephone
You may use a toll-free telephone number listed on your proxy card to grant your proxy. You must have your proxy card ready and:
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Internet
You may transmit your voting instructions over the Internet by going to the web-site address: . You will be asked to enter the control number you will find on your proxy card. Then follow the instructions. You may also indicate if you would like to receive future proxy materials through the Internet. As with all Internet usage, the user must pay all access fees and telephone charges.
In Person
If you attend the Allied Riser special meeting in person, you may vote your shares by ballot at the Allied Riser special meeting if you are a holder of record, or if your shares are held in street name and you have a valid proxy from your broker.
You may revoke your proxy at any time prior to the closing of the polls at the Allied Riser special meeting by delivering to the Secretary of Allied Riser a signed notice of revocation or a later-dated signed proxy or by attending the Allied Riser special meeting and voting in person. Attendance at the Allied Riser special meeting will not in itself constitute the revocation of a proxy.
Written notices of revocation and other communications with respect to the revocation of Allied Riser proxies should be addressed to Corporate Secretary, Allied Riser Communications Corporation, 1700 Pacific Avenue, Suite 400, Dallas, TX 75201. All shares represented by valid proxies received pursuant to this solicitation, and not revoked before they are exercised, will be voted in the manner specified in the proxies.
If you make no specification on your proxy, your proxy will be voted in favor of the adoption of the merger agreement.
The Allied Riser board of directors currently is unaware of any matters, other than the matters described in this document, that may be presented for action at the Allied Riser special meeting. If other matters do properly come before the Allied Riser special meeting, however, it is intended that shares represented by proxies will be voted, or not voted, by the individuals named in the proxies in their discretion. No proxy that is voted against adoption of the merger agreement and approval of the merger will be voted in favor of any adjournment or postponement of the Allied Riser special meeting for the purpose of soliciting additional proxies for such adoption.
Solicitation of Proxies
Allied Riser will bear the entire cost of soliciting proxies from Allied Riser stockholders, except that each of Allied Riser and Cogent has agreed to pay one-half of the costs of filing, printing, and mailing this proxy statement/prospectus and related proxy materials. In addition to the solicitation of proxies by mail, Allied Riser will request that banks, brokers, and other record holders send proxies and proxy materials to the beneficial owners of Allied Riser common stock held by them and secure their voting instructions if necessary. Allied Riser will reimburse those record holders for their reasonable expenses in so doing. Allied Riser has also made arrangements with to assist it in soliciting proxies, and has agreed to pay customary fees plus expenses for those services. Allied Riser also may use several of its regular employees, who will not be specially compensated, to solicit proxies from Allied Riser stockholders, either personally or by telephone, telegram, facsimile, or special delivery letter.
Record Date and Voting Rights
In accordance with the provisions of Delaware law, Allied Riser's bylaws, and the rules of the Nasdaq National Market, Allied Riser has fixed , 2001, as the record date for determining those Allied Riser stockholders entitled to notice of and to vote at the Allied Riser special meeting.
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Accordingly, only Allied Riser stockholders of record at the close of business on the record date will be entitled to notice of and to vote at the Allied Riser special meeting. At the close of business on the record date, there were shares of Allied Riser common stock outstanding held by holders of record. The presence, in person or by proxy, of a majority of shares of Allied Riser common stock outstanding and entitled to vote on the record date is necessary to constitute a quorum at the Allied Riser special meeting. Each share of Allied Riser common stock outstanding on the record date entitles its holder to one vote.
Shares of Allied Riser common stock held by persons attending the Allied Riser special meeting but not voting, and shares of Allied Riser common stock for which Allied Riser has received proxies but with respect to which holders of those shares have abstained from voting, will be counted as present at the Allied Riser special meeting for purposes of determining the presence or absence of a quorum for the transaction of business at the Allied Riser special meeting, but will have the same effect as votes cast at the Allied Riser special meeting against adoption of the merger agreement and approval of the merger. Brokers that hold shares of Allied Riser common stock in nominee or street name for customers who are the beneficial owners of those shares are prohibited from giving a proxy to vote shares held for those customers on the matters to be considered and voted upon at the Allied Riser special meeting without specific instructions from those customers. These "broker non-votes" will be counted for purposes of determining whether a quorum exists.
Under applicable Delaware law, Allied Riser's certificate of incorporation and Allied Riser's bylaws, adoption of the merger agreement and approval of the merger requires the affirmative vote of the holders of a majority of the shares of Allied Riser common stock outstanding and entitled to vote. Because adoption of the proposal requires the affirmative vote of a majority of the shares of Allied Riser common stock outstanding and entitled to vote thereon, abstentions and broker non-votes have the same effect as a vote against adoption of the merger agreement and approval of the merger.
The Allied Riser board of directors urges Allied Riser stockholders to complete, date, and sign the accompanying proxy card and return it promptly in the enclosed, postage-paid envelope, or transmit your voting instructions over the Internet or by telephone.
As of the Allied Riser record date, directors and executive officers of Allied Riser beneficially owned shares of Allied Riser common stock (including shares held in Allied Riser stock purchase and equity incentive plans and shares subject to Allied Riser stock options exercisable within 60 days). As of the Allied Riser record date, shares held by directors and executive officers of Allied Riser entitle them to exercise approximately percent of the voting power of the Allied Riser common stock entitled to vote at the Allied Riser special meeting. As of the Allied Riser record date, directors and executive officers of Cogent owned no shares of Allied Riser common stock.
Additional information with respect to beneficial ownership of Allied Riser common stock by directors and executive officers of Allied Riser is included herein. See "Information about Allied RiserSecurity Ownership of Directors and Executive Officers."
Recommendation of the Allied Riser Board of Directors
The Allied Riser board of directors has unanimously declared the merger agreement, as amended, to be advisable and approved the merger agreement and the merger. The Allied Riser board of directors believes that the merger is in the best interests of Allied Riser's stockholders and unanimously recommends that Allied Riser stockholders vote "FOR" adoption of the merger agreement and approval of the merger. See, "The MergerRecommendation of the Allied Riser Board of Directors; Allied Riser's Reasons for the Merger."
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General
Each of the Allied Riser board of directors and the Cogent board of directors has approved the merger agreement and the merger. Cogent will acquire Allied Riser under a merger agreement providing that a wholly owned subsidiary of Cogent that we call the merger subsidiary will be merged with and into Allied Riser. As a result of the merger, Allied Riser will become a wholly owned subsidiary of Cogent.
Background of the Merger
In July 1997, prior to founding Cogent, Dave Schaeffer, the chief executive officer and founder of Cogent, had a meeting with Todd Doshier, a founder of Allied Riser. At this meeting, Mr. Doshier presented the initial Allied Riser plan to Mr. Schaeffer. This plan entailed the construction of in-building fiber-optic distribution systems for sale or lease to other carriers. Over the next several months, Mr. Doshier and Mr. Schaeffer had several informal phone conversations to discuss the development of Allied Riser's business.
Mr. Schaeffer founded Cogent in August 1999. Over the next two years, Mr. Schaeffer continued to monitor the development of Allied Riser's business, including its initial public offering in October 1999.
In April 2000, Mr. Schaeffer met David Crawford, the then chief executive officer of Allied Riser, in an investor panel discussion. Mr. Schaeffer and Mr. Crawford had two telephone conversations exploring possible opportunities between the two companies. At that time, they concluded that there was no immediate opportunity for the two companies to work together because of the competitive environment. Over the next 15 months, Cogent continued to monitor the progress of Allied Riser and was aware of the change from the primary provision of retail telecommunication services to the primary provision of wholesale in-building facilities to other telecommunication providers that Allied Riser was undertaking in light of the difficult market conditions for competitive broadband communications service providers.
During the third quarter of 2000, Allied Riser implemented certain cost-cutting initiatives, including a reduction in force and the investigation of possible strategic alternatives for the company. Allied Riser consulted its financial advisors and other strategic advisors regarding a variety of possible options for the company. During the fourth quarter of 2000 and into the first quarter of 2001, Allied Riser had intermittent discussions with a third party regarding a possible combination of the third party and Allied Riser. The discussions were terminated when the parties could not agree on terms of a transaction. Following termination of these discussions, Allied Riser continued its efforts to reduce costs and began to investigate the possibility of a financial restructuring, including the purchase of its 7.50% convertible subordinated notes due 2007. On June 12, 2001, Allied Riser announced the completion of a tender offer, accepting for purchase $26,400,000 in aggregate principal amount of the notes, representing approximately 17.6% of the $150,000,000 aggregate principal amount of the notes outstanding prior to the tender offer.
In July 2001, Allied Riser retained Houlihan Lokey Howard & Zukin to assist Allied Riser in further evaluating possible strategic alternatives. On July 12, 2001 Houlihan Lokey representatives made a presentation to the Board of Directors of Allied Riser regarding Houlihan Lokey's analysis of possible strategic alternatives, including the purchase of additional outstanding notes, divestitures of Allied Riser's unprofitable operations, and realization of tax efficiencies. At approximately the same time Allied Riser began discussions with its vendors to restructure Allied Riser's obligations and reduce its liabilities. On July 24, 2001, Allied Riser announced that it was suspending its retail business and refocusing its resources on providing wholesale in-building facilities and announced that it would
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terminate the employment of approximately 75% of its remaining workforce over the following 60 to 75 days.
In contemplating additional alliances and partnerships, Cogent's management team decided to explore a potential strategic relationship with Allied Riser. On August 4, 2001, following a preliminary call to Mr. Dinsmore by Mr. Schaeffer suggesting that they meet, Cogent and Allied Riser entered into a confidentiality agreement relating to the discussions of a potential merger. On August 7, 2001, Mr. Schaeffer and Mr. Dinsmore again spoke by telephone and discussed a possible strategic alliance and potential structural scenarios.
On August 8, 2001, Mr. Schaeffer met with Mr. Dinsmore in Dallas and continued their discussions regarding the business strategies and objectives of Cogent and Allied Riser, the condition of each company and the possibility of a combination of Cogent and Allied Riser. A stock-for-stock merger proposal was discussed in a meeting between Mr. Schaeffer and Mr. Dinsmore on August 10, 2001 in Dallas. During the discussion on August 10, Mr. Dinsmore advised Mr. Schaeffer of the importance of receipt by Allied Riser's stockholders of Cogent common stock with a value in excess of the recent market capitalization of Allied Riser and they discussed the previously anticipated issuance by Cogent of preferred stock in a separate private placement. Messrs. Dinsmore and Schaeffer discussed an equity valuation of Allied Riser of approximately $20 million. Mr. Schaeffer and Mr. Dinsmore agreed that the merger proposal and equity valuation had merit and that each party would discuss the opportunity with his respective board.
On August 10, 2001, the directors of Allied Riser met by telephone conference call and Mr. Dinsmore advised them of the contact by Mr. Schaeffer and the possible acquisition of Allied Riser by Cogent. Mr. Dinsmore described the discussions with Mr. Schaeffer and outlined for the Allied Riser board the general parameters of the proposed transaction. After a discussion by the directors of Cogent's proposal, the board authorized senior management of Allied Riser to conduct a due diligence review of Cogent and to negotiate a business combination with Cogent with the conditions that no decision to pursue such a transaction could be made without the approval of the directors and that Mr. Dinsmore report to the board any developments that resulted from such negotiations.
Upon initial consultation with Cogent's board members, Cogent management believed additional due diligence was warranted. On August 11, 2001, management of both companies agreed to conduct due diligence reviews of each other.
On August 12, 2001, a meeting between Allied Riser and Cogent was held at Cogent's offices in Washington, D.C. This meeting included Michael Carper, general counsel of Allied Riser, and Quen Bredeweg, chief financial officer of Allied Riser; Amit Patel and Andrew Morrow from Houlihan Lokey Howard & Zukin; Helen Lee, chief financial officer of Cogent, and Mr. Schaeffer. During this meeting, certain due diligence items were exchanged and discussed and the participants explored how the businesses might complement each other and how to structure the transaction. Over the next several days, Mr. Schaeffer and Mr. Dinsmore had a series of telephonic discussions that concluded with the determination that both companies should move forward with the proposed combination. Cogent engaged Latham & Watkins to assist in these matters, Allied Riser retained Jones, Day, Reavis & Pogue to assist Allied Riser in this transaction.
On August 13, 2001, the Allied Riser board met again by telephone conference call to discuss events since the previous meeting of directors. Mr. Dinsmore described the principal issues that had been raised in the discussions with Cogent, including the proposed financial terms of the combination and the receipt by Allied Riser stockholders of Cogent common stock, the current financial condition of each of Allied Riser and Cogent, the effects on Allied Riser of a business combination with Cogent, and the valuation of Cogent, including the anticipated issuance by Cogent of its Series C preferred stock. The Board also discussed other possible strategic alternatives that might be available to Allied
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Riser. At the conclusion of the meeting, the directors approved further discussions by Allied Riser's senior management with representatives of Cogent.
On August 14 and 15, 2001, representatives of Cogent met with Allied Riser representatives in Allied Riser's offices in Dallas, Texas and conducted additional due diligence review regarding Allied Riser.
During the period between August 16, 2001 and August 19, 2001, Allied Riser and its financial and legal advisors completed a due diligence review of Cogent and its operations and financial condition. On August 18 and 19, 2001, senior executives of both Cogent and Allied Riser and their respective legal advisors met at Latham & Watkins in Washington, D.C. and continued to negotiate the terms of a definitive agreement.
On August 20, 2001, the Allied Riser board met again by telephone conference call and Mr. Dinsmore discussed with the directors the retention of Houlihan Lokey as Allied Riser's financial advisor in connection with the merger. The directors authorized management to finalize the agreement with Houlihan Lokey. Mr. Dinsmore advised the directors with respect to the terms of the merger agreement being negotiated with Cogent. Representatives of Jones, Day, Reavis & Pogue also advised the directors regarding certain legal matters. The board discussed the proposed transaction, including the structure of the transaction and potential impediments to consummation of the merger.
On August 20, 2001, a special meeting of the board of directors of Cogent was held to discuss this opportunity. Mr. Schaeffer and Ms. Lee discussed the progress of the negotiations with Allied Riser and presented an analysis of the proposed combination from a financial point of view. Following extensive discussions and after five teleconferences over the next several days, the Cogent board of directors unanimously approved the merger agreement and the merger on August 27, 2001.
On August 27, 2001 the Allied Riser board met by telephone conference call to discuss the status of the proposed merger agreement and to be advised by Houlihan Lokey as to its financial analysis of the proposed merger. After a presentation by representatives of Houlihan Lokey, the directors discussed issues raised by the Houlihan Lokey presentation and requested additional information from Houlihan Lokey to permit due consideration of the merger. The board adjourned the meeting with agreement to reconvene the following day. On August 28, 2001, the Allied Riser directors met by telephone conference call and representatives of Houlihan Lokey made a presentation regarding the financial analysis they had performed with respect to the possible business combination with Cogent. Legal counsel advised the directors with respect to changes in the proposed terms of the merger agreement since the board's meeting of August 20 and other legal matters. The directors then discussed the proposed transaction and asked questions of the legal and financial advisors. At the conclusion of the discussions, a representative of Houlihan Lokey orally informed the Allied Riser board, which oral advice was subsequently confirmed in writing, that in Houlihan Lokey's opinion, the merger and exchange of Allied Riser shares as provided in the merger agreement were fair to the Allied Riser stockholders from a financial point of view, and fair to the Allied Riser creditors (on an aggregate basis) from a financial point of view. At that point, the representatives of Houlihan Lokey and legal counsel were excused from the meeting and the directors further discussed the possible transaction. At the conclusion of these discussions, the Allied Riser board unanimously approved the merger agreement and the related transactions.
Cogent and Allied Riser then executed the merger agreement and issued a joint press release the following morning.
On September 24, 2001, the Allied Riser board met by telephone conference call to discuss, among other things, the status of the proposed merger with Cogent, including the status of Cogent's issuance of its Series C preferred stock. On October 1 and 2, Mr. Schaeffer and Mr. Dinsmore met in Dallas to discuss the progress of the merger. Since the execution of the merger agreement, Cogent had acquired
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certain assets and liabilities of NetRail, Inc., and Allied Riser had made substantial progress in negotiating with various creditors and vendors regarding the settlement and termination of certain agreements. In addition, the financial markets had materially deteriorated, particularly for the stocks of communications companies. Given the occurrence of these events and Cogent's and Allied Riser's desire to file this proxy statement/prospectus promptly, Mr. Schaeffer and Mr. Dinsmore agreed to consider an amendment to the merger agreement to provide, among other things that (1) this proxy statement/prospectus would be filed by a specific date, (2) Cogent would complete the issuance of its Series C preferred stock by a specific date, and (3) Allied Riser would have additional flexibility to restructure or terminate certain agreements.
On October 4, 2001, the Allied Riser board met by telephone conference call to discuss the proposed amendment to the merger agreement. Mr. Dinsmore described certain changes in circumstances that had occurred since the signing of the merger agreement, including the decrease in the anticipated issuance of Cogent's Series C preferred stock from approximately $130 million to approximately $65 million and Allied Riser's success in negotiating a reduction of its capital lease obligations. Mr. Dinsmore further described the status of Allied Riser's initiatives regarding reduction of its costs and of discussions regarding the terms of the proposed amendment to the merger agreement, including an increase in the amount of Cogent stock to be received by the Allied Riser stockholders in the merger, the obligations of Cogent to complete the issuance of its Series C preferred stock, and of Cogent and Allied Riser to file the proxy statement/prospectus by specific dates, and the increase in the amount of cash expenditures that Allied Riser would be permitted to make during the fourth quarter 2001, the designation by Allied Riser of an additional director to Cogent's board, and various other minor provisions. The directors then discussed the proposed amendment. At the conclusion of the discussion, the directors present authorized management to complete negotiation of the proposed amendment.
Management of both companies continued to discuss certain provisions of the proposed amendment.
On October 10, 2001, the Allied Riser board met by telephone conference call. Mr. Dinsmore detailed the terms of the proposed amendment to the merger agreement, including, without limitation:
Following discussions of the terms of the proposed amendment, the board authorized Mr. Dinsmore and the other members of senior management to continue the negotiations and to finalize an amendment to the merger agreement.
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On October 11, 2001 Cogent's board of directors met by telephone to consider, among other matters, the status of the merger with Allied Riser. The board reviewed with management the current terms of the amendment under discussion and confirmed management's authorization to negotiate and enter into an amendment to the merger agreement.
Management of both companies continued to negotiate final provisions in the proposed amendment to the merger agreement. On October 13, 2001, Cogent and Allied Riser executed the amendment to the merger agreement.
Recommendation of the Allied Riser Board of Directors; Allied Riser's Reasons for the Merger
The Allied Riser board of directors believes that the merger is in the best interests of Allied Riser's stockholders and has unanimously approved the merger agreement and declared it to be advisable, and unanimously recommends that Allied Riser stockholders vote "FOR" adoption of the merger agreement, as amended, and approval of the merger.
In reaching its decision, the Allied Riser board of directors consulted with Allied Riser's management and its financial and legal advisors, and considered a variety of factors, including the following:
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the fairness of the merger from a financial point of view and the opinion delivered by Houlihan Lokey on August 28, 2001. See "Opinion of Allied Riser's Financial Advisor;"
Allied Riser's board of directors also identified and considered a variety of potentially negative factors in its deliberations concerning the merger, including the following:
The foregoing discussion of the information and factors considered by the Allied Riser board of directors is not exhaustive, but includes the material factors considered by the Allied Riser board of directors. The Allied Riser board of directors did not quantify or assign any relative or specific weights to the various factors that it considered. Rather, the Allied Riser board of directors based its recommendation on the totality of the information presented to and considered by it. In addition,
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individual members of the Allied Riser board of directors may have given differing weights to different factors.
The Allied Riser board of directors unanimously recommends that Allied Riser stockholders vote "FOR" the adoption of the merger agreement and approval of the merger.
Opinion of Allied Riser's Financial Advisor
Allied Riser initially retained Houlihan Lokey in July 2001, to advise the board regarding Allied Riser's business and possible strategic alternatives. Houlihan Lokey subsequently was retained by the Allied Riser board of directors to analyze the fairness of the merger from a financial point of view to stockholders and creditors (on an aggregate basis) of Allied Riser. It was Houlihan Lokey's understanding that the opinion with respect to the creditors was being delivered solely as a condition to the merger agreement as it existed on August 28, 2001 without regard to subsequent amendments. Houlihan Lokey is a nationally recognized investment banking firm that provides financial advisory services in connection with mergers and acquisitions, leveraged buyouts, business valuations for a variety of regulatory and planning purposes, recapitalizations, financial restructurings, and private placements of debt and equity securities.
At the meeting of the Allied Riser board of directors on August 28, 2001, Houlihan Lokey rendered its oral opinion, subsequently confirmed in writing, that as of August 28, 2001, and subject to and based upon the various qualifications and assumptions set forth in its written opinion, the consideration to be received by the stockholders of Allied Riser in connection with the merger as described in the merger agreement as it existed on August 28, 2001 without regard to subsequent amendments was fair, from a financial point of view, to Allied Riser's stockholders, as well as to Allied Riser's creditors on an aggregate basis. The full text of Houlihan Lokey's written opinion, dated August 28, 2001, to the board of directors, which sets forth the assumptions made, general procedures followed, factors considered and limitations on the review undertaken, is attached as Appendix C, and is incorporated herein by reference. This summary is qualified in its entirety by reference to the full text of such opinion. Stockholders and creditors of Allied Riser are urged to, and should, read the opinion in its entirety. The engagement of Houlihan Lokey and its opinion are for the benefit of Allied Riser's board of directors. Houlihan Lokey undertook no obligation to update its opinion following its delivery on August 28, 2001 and no such update was requested or received by the board of directors in connection with the approval of the directors of the amendment to the merger agreement or the material events or changes in circumstances that occurred after August 28, 2001, which would have affected the analysis of Houlihan Lokey as to the fairness of the merger from a financial point of view and the opinion delivered by Houlihan Lokey on August 28, 2001.
Houlihan Lokey did not, and was not requested by Allied Riser to, make any recommendations as to the form or amount of consideration to be received by the Allied Riser stockholders, the market value or realizable value of Cogent common stock given as consideration in the merger, the prices at which Cogent common stock may sell in the future following the merger, or the tax or legal consequences of the merger, and Houlihan Lokey does not express any opinion as to the fairness of any aspect of the merger not expressly addressed in its fairness opinion. Allied Riser agreed to indemnify Houlihan Lokey and its affiliates against certain liabilities, including liabilities under federal securities laws that arise out of the engagement of Houlihan Lokey.
Houlihan Lokey's opinion did not address Allied Riser's underlying business decision to effect the merger. Houlihan Lokey was not been requested to, and did not, solicit third party indications of interest in acquiring all or any part of Allied Riser. Furthermore, Houlihan Lokey has not negotiated the merger.
The opinion did not constitute a recommendation to the board of directors as to whether or not to support the merger and recommend it to Allied Riser's stockholders and did not and does not
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constitute a recommendation to Allied Riser stockholders as to whether or not to vote in favor of the merger.
Matters Reviewed
In arriving at its opinion, among other things, Houlihan Lokey:
Assumptions and Limitations
Houlihan Lokey's opinion was based on the business, economic, market, and other conditions that existed as of August 28, 2001. Houlihan Lokey relied upon and assumed, without independent verification, that the financial forecasts and projections provided to it by Allied Riser and Cogent had been reasonably prepared and reflected the best currently available estimates of the future financial results and condition of Cogent and Allied Riser, and that there had been no material change that had not been disclosed to it by Allied Riser and Cogent in the assets, financial condition, business or prospects of Cogent or Allied Riser since the date of the most recent financial statements made available to it.
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Houlihan Lokey did not independently verify the accuracy and completeness of the information supplied to it with respect to Cogent or Allied Riser and did not assume any responsibility with respect to it. Houlihan Lokey did not make any physical inspection or independent appraisal of any of the properties or assets of Cogent or Allied Riser. Houlihan Lokey's opinion is necessarily based on business, economic, market and other conditions as they existed and could be evaluated by it at the date of the opinion.
The conclusion resulting from the analyses indicated that as of the date such opinion was rendered, the merger as described in the merger agreement as it existed on August 28, 2001, was fair to the stockholders of Allied Riser from a financial point of view and fair to Allied Riser's creditors (on an aggregate basis) from a financial point of view. Houlihan Lokey undertook no obligation to update its opinion following its delivery on August 28, 2001 and no such update was requested or received by the board of directors in connection with the approval by the directors of the amendment to the merger agreement or the material events or changes in circumstances that occurred after August 28, 2001, which would have affected the analysis of Houlihan Lokey as to the fairness of the merger from a financial point of view and the opinion delivered by Houlihan Lokey on August 28, 2001.
Valuation of Cogent Communications Group, Inc.
The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with rendering its fairness opinion on August 28, 2001 to the Allied Riser board of directors. Houlihan Lokey used several methodologies to assess the fairness, from a financial point of view, of the consideration to be received by the Allied Riser stockholders in the merger as described in the merger agreement as it existed on August 28, 2001, without regard to subsequent amendments. Each methodology provided an estimate as to the aggregate value of the equity Allied Riser stockholders will receive in the merger. The summary of the financial analyses was not a complete description of the analyses performed by Houlihan Lokey. The Houlihan Lokey opinion is based upon the totality of the various analyses performed by Houlihan Lokey and reliance on any particular portion of the analyses without considering all analyses and factors could create a misleading or incomplete view of the process underlying the opinion.
Comparable Company Analysis.
Using publicly available information, Houlihan Lokey compared selected financial data of Cogent with similar data of selected companies engaged in businesses considered by Houlihan Lokey to be comparable to that of Cogent. Houlihan Lokey included in its selected comparable companies Broadwing Inc., Focal Communications Corp., Genuity Inc., Level 3 Communications, Inc., Metromedia Fiber Network, Inc., SAVVIS Communications Corp., Time Warner Telecom Inc., Williams Communications Group, and XO Communications, Inc. The purpose of the comparable company analysis was to establish a range for the potential equity value of Cogent, by selecting certain operating results commonly used in the public equity markets to value the comparable companies and applying a range of multiples to similar projected operating results of Cogent.
Inherent differences exist between the businesses, operations and prospects of Cogent and the comparable companies. Accordingly, Houlihan Lokey believed that it was inappropriate to, and therefore did not, rely solely on the above-described quantitative results of the comparable company analysis and accordingly also made qualitative judgments concerning differences between the financial and operating characteristics and prospects of Cogent and the comparable companies that would, in Houlihan Lokey's opinion, affect the public market valuation of such companies.
Discounted Cash Flow Analysis
Based upon projections furnished by Cogent management, Houlihan Lokey performed a discounted cash flow analysis, calculating the debt-free cash flows ( i.e. , cash flows before payments
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made to equity investors and holders of interest-bearing debt) that Cogent expected to generate for the fiscal years ending December 31, 2001 through 2006. Houlihan Lokey also calculated a range of terminal values for Cogent at the conclusion of a five-year period ending in 2006. In calculating this range in terminal value, Houlihan Lokey used terminal multiples ranging from 4.5 to 5.5 times projected fiscal 2006 EBITDA. Houlihan Lokey then discounted these debt-free cash flows and the range of these terminal values to the present using a range of discount rates from 45% to 55%. Houlihan Lokey selected these discount rates based on assumed rates of return necessary to justify an investment in comparable, late-stage venture capital companies.
New Money Valuation Analysis
Houlihan Lokey reviewed the summary of terms for the proposed issuance by Cogent of its Series C Preferred Stock to a group of third-party investors. As of August 28, 2001, Houlihan Lokey was advised that Cogent was in the process of negotiating a private placement of $130 million in Series C Preferred Stock. Such shares were being valued based on arms length negotiations between Cogent and a group of investors.
Houlihan Lokey drew no specific conclusion from its comparable company, discounted cash flow and new money valuation analyses, but subjectively factored its observations from these analyses into its qualitative assessment of the facts and circumstances relevant to its opinion.
Debt Assumption Analysis
Houlihan Lokey analyzed assumed trading values and potential recoveries for creditors under the combined entity to assess the fairness of the merger as it existed on August 28, 2001 without regard to subsequent amendments with respect to creditors on an aggregate basis. Houlihan Lokey assessed the risk profile and leverage of the combined entity to determine appropriate rates of return for creditors of the merged entity. Such required rates of return were applied to the current contractual obligations of Allied Riser. Houlihan Lokey used such analysis to determine the value of debt obligations under the combined entity.
Review of Strategic Alternatives to the Merger
In evaluating the fairness for Allied Riser's stockholders, as well as Allied Riser's creditors on an aggregate basis, Houlihan Lokey considered the expected value to Allied Riser's stockholders and creditors of completing the merger and certain alternatives to the merger, in each case, as described in the merger agreement as it existed on August 28, 2001 without regard to subsequent amendments and material events that occured after August 28, 2001. With regard to each alternative, Houlihan Lokey's analysis qualitatively considered the valuation implications to the stockholders, the probability of successfully completing the alternatives, and the cost and time to implement the alternatives. For purposes of this analysis, Houlihan Lokey considered the following strategic alternatives: (1) pursuit of a wholesale model providing in-building access to other carriers and subsequent bankruptcy at year end 2002; (2) negotiated out-of-court debt restructuring and liquidation; and (3) immediate filing for Chapter 11 bankruptcy protection. Houlihan Lokey noted that of the strategic alternatives considered, the merger as described in the merger agreement as it existed on August 28, 2001 without regard to subsequent amendments and material events that occured after August 28, 2001 appeared to provide the greatest value to Allied Riser's stockholders and creditors (on an aggregate basis) on a risk-adjusted basis.
Conclusion
The summary set forth above describes the material points of more detailed analyses performed by Houlihan Lokey in arriving at its fairness opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of
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financial analysis and application of those methods to the particular circumstances and is therefore not readily susceptible to summary description. In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Houlihan Lokey believes that its analyses and summary set forth herein must be considered as a whole. In its analysis, Houlihan Lokey made numerous assumptions with respect to Cogent, Allied Riser, industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of management of either company. The estimates contained in such analyses are not necessarily indicative of actual values or predictive of future results or values, which may be more or less favorable than suggested by such analyses. Additionally, analyses relating to the value of businesses or securities are not appraisals. Accordingly, such analyses and estimates are inherently subject to substantial uncertainty. You should carefully read this summary in conjunction with the opinion letter dated August 28, 2001 which is included as Appendix C to this proxy statement/prospectus.
In accordance with the terms of its engagement letter and in addition to the fees payable by Allied Riser to Houlihan Lokey pursuant to its initial engagement, Allied Riser agreed to pay Houlihan Lokey a fee of $700,000, plus reasonable out-of-pocket expenses, for its preparation and delivery of the fairness opinion. No portion of Houlihan Lokey's fee is contingent upon the opinion of the merger being favorable or upon the successful completion of the merger. Allied Riser has also agreed to indemnify Houlihan Lokey against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of the engagement of Houlihan Lokey. In addition, Allied Riser has entered into an amendment to the merger agreement based on certain changes in circumstances that have occurred since the Houlihan Lokey opinion was delivered. Such changed circumstances were not considered in the opinion and would have affected the analysis and/or conclusions reached by Houlihan Lokey, if Houlihan Lokey had been requested to update its opinion.
Recommendation of the Cogent Board of Directors; Cogent's Reasons for the Merger
The Cogent board of directors has unanimously adopted and approved the merger agreement and has recommended approval of the merger to its stockholders. In the course of reaching its decision to adopt and approve the merger agreement and the merger and to recommend approval to its stockholders, the Cogent board of directors consulted with legal advisors and considered a number of factors, including, among others, the following principal factors that were material to the decision:
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In the course of deliberations, Cogent also considered a number of additional factors relevant to the merger, including:
Cogent also identified and considered a number of potentially negative factors in its deliberations concerning the merger, including:
Cogent believes that these and other risks can be avoided or mitigated, and that, overall, they are outweighed by the potential benefit of the merger.
The foregoing discussion of the information and factors considered by the Cogent board of directors is not exhaustive but does include material factors considered by the Cogent board of directors. The Cogent board of directors did not quantify or assign any relative or specific weights to the various factors that it considered. Rather, the Cogent board of directors based its recommendation on the totality of the information presented to and considered by it. In addition, individual members of the Cogent board of directors may have given differing weights to different factors.
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Regulatory Approvals Required for the Merger
Cogent and Allied Riser have agreed to use their reasonable best efforts to obtain all regulatory approvals required in order to consummate the merger. Cogent and Allied Riser have either filed, or intend to file promptly after the date of this document, applications and notifications to obtain the required regulatory approvals, including approval from the Federal Communications Commission and various state regulatory authorities. Cogent and Allied Riser cannot provide any assurances that the required regulatory approvals will be obtained and, if obtained, as to the date of any of these approvals or the absence of any litigation challenging them or the merger. We can also not assure you that regulatory authorities will not, as a condition to granting their approval, require us to take actions that could adversely affect the expected value of the combined company following the merger.
Allied Riser has been granted authorizations to provide telecommunications services by federal and state regulatory agencies, but does not believe these authorizations are required to conduct its business. Allied Riser will seek the approval of the relevant regulatory agencies prior to consummating the merger to the extent required by the merger agreement and may otherwise seek approval of the relevant regulatory agencies prior to consummating the merger to the extent necessary to maintain these authorizations.
Material U.S. Federal Income Tax Consequences
The following discussion summarizes the material U.S. federal income tax consequences of the merger. This discussion does not address all of the federal income tax consequences that may be important to holders of Allied Riser common stock in light of their particular circumstances; nor does this discussion address the federal income tax consequences that may be applicable to taxpayers subject to special treatment under the Internal Revenue Code, such as:
This discussion also assumes that you hold your Allied Riser common stock as a capital asset.
No information is provided in this document or the tax opinions referred to below with respect to the tax consequences, if any, of the merger under applicable foreign, state, local, and other tax laws. This discussion is based, and the tax opinions referred to below will be based, upon the provisions of the Internal Revenue Code, applicable Treasury Regulations, IRS rulings, and judicial decisions, as in effect as of the date of this document or the date of the tax opinions, as the case may be. There can be no assurance that future legislative, administrative, or judicial changes or interpretations, which changes could apply retroactively, will not affect the accuracy of this discussion or the statements or conclusions set forth in the tax opinions referred to below. No rulings have been or will be sought from the IRS concerning the tax consequences of the merger, and none of the tax opinions of counsel to be received in connection with the merger will be binding on the IRS.
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Completion of the merger is conditioned upon, among other things, the receipt by Allied Riser and Cogent of a tax opinion of Jones, Day, Reavis & Pogue and Latham & Watkins, respectively, dated as of the closing date, each to the effect that (1) the merger will qualify for federal income tax purposes as a reorganization within the meaning of section 368(a) of the Internal Revenue Code and (2) Allied Riser, Cogent and merger subsidiary will each be a "party to the reorganization" within the meaning of section 368(b) of the Internal Revenue Code. The opinions will rely on facts, assumptions and representations, including representations contained in officer's certificates of Allied Riser, Cogent and merger subsidiary. The remainder of this discussion assumes that the merger constitutes a reorganization within the meaning of section 368(a) of the Internal Revenue Code.
We encourage each holder of Allied Riser common stock to consult its own tax advisor as to the particular tax consequences to it of the merger, including the applicability and effect of any state, local, foreign or other tax laws, and of changes in applicable tax laws.
Tax Treatment of Allied Riser Stockholders
Based on the above assumptions and qualifications, the merger will result in the following U.S. federal income tax consequences to holders of Allied Riser common stock:
Each holder of Allied Riser common stock receiving Cogent common stock as a result of the merger will be required to retain certain records and file with its federal income tax return a statement setting forth certain facts relating to the merger.
Tax Treatment of Allied Riser
Based on the above assumptions and qualifications, Allied Riser will not recognize any gain or loss as a result of the merger.
Tax Treatment of Cogent and merger subsidiary
Based on the above assumptions and qualifications, neither Cogent nor merger subsidiary will recognize any gain or loss as a result of the merger.
Accounting Treatment
The acquisition will be accounted for as a purchase for financial reporting and accounting purposes, under the newly issued Statement of Financial Accounting Standard (SFAS) No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting for all business combinations initiated after June 30, 2001. The purchase price will be allocated to Allied Riser's assets and liabilities based upon the fair values of the assets acquired and liabilities assumed by Cogent. Goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to SFAS No. 142, which changes the accounting for goodwill and intangible assets with indefinite lives from an amortization method to an impairment-only approach. A portion of the purchase price may be allocated to identifiable intangible
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assets. Any excess of the cost over the fair values of the net tangible and identifiable intangible assets acquired from Allied Riser will be recorded as goodwill. Goodwill and intangible assets with indefinite lives will not be amortized. Amortization will be required for identifiable intangible assets with finite lives. Any excess of fair value of net assets acquired over cost, or negative goodwill, is allocated as a pro rata reduction to all of the acquired assets except financial assets and current assets. Any remaining negative goodwill is recorded as an extraordinary gain. We have included unaudited pro forma financial information in this proxy statement under the caption "Unaudited Condensed Combined Pro Forma Financial Statements" beginning on page 111. The pro forma adjustments and the resulting unaudited condensed combined pro forma financial statements were prepared based on available information and assumptions and estimates described in notes to the unaudited condensed combined pro forma financial statements. Cogent has not made a final determination of required purchase accounting adjustments, including the allocation of the purchase price to the assets acquired and liabilities assumed, and you should consider the allocation reflected in the unaudited condensed combined pro forma financial statements preliminary.
Interests of Certain Persons in the Merger
In considering the recommendation of the Allied Riser board of directors with respect to the merger, you should be aware that certain officers and directors of Allied Riser have interests in the merger that are different from, or in addition to, the interests of Allied Riser Stockholders generally.
Allied Riser Directors
We expect that Messrs. Dinsmore, Lynch, Spreng, and Whitaker, the directors of Allied Riser, will resign in connection with the merger.
Allied Riser Change in Control/Termination Arrangements
Officer and Executive Severance. In July 2001, the board of directors of Allied Riser retained Houlihan Lokey Howard & Zukin to advise the directors regarding possible strategic alternatives. In connection with this engagement, Houlihan Lokey advised the directors regarding employee retention plans adopted by comparable companies. After consultation with Houlihan Lokey, the board of directors established a retention plan, and as part of such plan, directed that a pool of up to approximately $5.2 million be set aside for payment to remaining employees of bonus payments, severance, and for other related purposes, including any tax-related payments. Messrs. Dinsmore, Bredeweg, and Carper and Ms. Compton, each an executive officer of Allied Riser, have employment agreements that provide for severance payments equal to six months salary upon termination of the employee's employment without cause, however, each of them has entered into an amendment to his or her employment agreement as part of the retention plan adopted by the board in July. In addition, on September 24, 2001, the board of directors approved certain revisions to the allocations and objectives associated with the retention plan. Pursuant to the retention plan, each of the above-named employees had received, and will continue to receive so long as employed, incremental compensation up to 310% of such employee's annual base salary, payable in installments through December 31, 2001. Additionally, upon the achievement of individual milestone objectives established by the board of directors, they may receive certain performance incentive bonus payments. The determination of whether the milestone objectives have been completed is at the discretion of Mr. Dinsmore (or, in the case of Mr. Dinsmore, at the discretion of the board of directors). Upon a change in control of Allied Riser, including the merger, each of Messrs. Dinsmore, Bredeweg, and Carper and Ms. Compton will receive in lieu of any unpaid lump sum or performance incentive bonus payments, either six months salary, as contemplated by the employee's employment agreement (which amount would be credited against any such amount received as severance under the employment agreement), or an amount to be determined by Mr. Dinsmore (or, in the case of Mr. Dinsmore, at the discretion of the board of
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directors) to be paid from the retention pool, in the latter case subject to forfeiture of any stock options outstanding as of the date of the change of control.
Under the employment agreements, as amended, the amount estimated to be payable to each of Messrs. Dinsmore, Bredeweg, and Carper and Ms. Compton as severance in connection with the merger is $150,000, $105,000, $110,000, and $112,500, however, they may elect to receive payments from the retention pool, which amounts may, at the discretion of Mr. Dinsmore (or, in the case of Mr. Dinsmore, at the discretion of the board of directors) be greater.
Accelerated Vesting of Stock Options, Restricted Stock, and Deferred Stock Units. Each of the employment agreements of Messrs. Dinsmore, Bredeweg, and Carper and Ms. Compton also provide for full (or partial in the case of Mr. Bredeweg) accelerated vesting of stock options and restricted stock awarded to such executive in the event of a qualifying business combination transaction. Each of the stock option agreements, restricted stock agreements, and deferred stock unit agreements between Allied Riser and its directors and executive officers provide for full accelerated vesting of stock options, restricted stock, and deferred stock units awarded to such person in the event of a qualifying business combination transaction. The merger is expected to constitute a qualifying business combination and it is expected that each of the Allied Riser employees will be terminated in connection with the merger. The estimated value of the accelerated stock options, restricted stock, and deferred stock units to each of Mr. Dinsmore, Mr. Lynch, Mr. Spreng, Mr. Whitaker, Mr. Bredeweg, Mr. Carper, and Ms. Compton based on the difference between the $0.12 closing price of Allied Riser common stock on October 12, 2001 and the respective exercise prices of the options is approximately $120,000, $0, $0, $0, $0, $11,522, and $24,000, respectively.
Allied Riser Directors and Officer Indemnification and Insurance
The merger agreement provides for the indemnification of Allied Riser directors and officers after closing as to matters arising before completion of the merger, as well as the provision of directors' and officers' insurance after closing. See "Material Terms of the Merger AgreementAdditional AgreementsInsurance and Indemnification."
No Appraisal Or Dissenters' Rights
Allied Riser is organized under Delaware law. Under Delaware law, Allied Riser stockholders do not have a right to dissent and receive the appraised value of their shares in connection with the merger.
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MATERIAL TERMS OF THE MERGER AGREEMENT
General
The following summary of the merger agreement is qualified by reference to the complete text of the merger agreement and amendment no. 1, each of which is incorporated by reference and attached to this document as Appendix A and Appendix B, respectively, to this document. We encourage you to read the merger agreement because it is the legal document that governs the merger. The parties to the merger agreement are Cogent, Allied Riser, and the merger subsidiary.
Under the merger agreement, the merger subsidiary will merge into Allied Riser. As a consequence of the merger, the separate corporate existence of the merger subsidiary will cease and Allied Riser will continue as the surviving corporation and a wholly owned subsidiary of Cogent.
Closing; Effective Time
We will close the merger at 10:00 a.m., Eastern Time, no later than the second business day after the conditions set forth in the merger agreement have been satisfied or waived, unless we agree to another date and time.
On the date of closing, we will file a certificate of merger and other appropriate documents with the Secretary of State of Delaware in accordance with the relevant provisions of Delaware law. The merger will become effective when the certificate of merger is filed with the Secretary of State of Delaware, or at such later time as we specify in the certificate of merger.
Consideration to be Received in the Merger
At the effective time of the merger, without any further action, each outstanding share of Allied Riser common stock, other than those shares held in the treasury of Allied Riser, or held by Cogent or its subsidiaries, will be converted into the right to receive a number of newly and validly issued, fully paid, and non-assessable shares of Cogent common stock.
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Any share of Allied Riser common stock held by Allied Riser as treasury stock, or by Cogent, will be automatically canceled and retired in the merger and will cease to exist. We will not exchange those shares for any securities of Cogent or other consideration.
At the effective time of the merger, each outstanding share of the merger subsidiary will be automatically converted into and become one newly and validly issued, fully paid, and non-assessable share of common stock of Allied Riser, and these shares will, collectively, represent all of the issued and outstanding capital stock of Allied Riser.
No fractional shares will be issued in the merger. In lieu of the issuance of any fractional share of Cogent common stock, each holder who would otherwise be entitled to receive a fractional share will receive an additional fraction of a share of Cogent common stock to create a whole share of Cogent common stock.
Procedures for Exchange of Certificates
Exchange of Certificates
Promptly after the effective time of the merger, the exchange agent for the merger will send you a letter of transmittal. The letter of transmittal will contain instructions with respect to the surrender of your Allied Riser stock certificates. You should not return stock certificates with the proxy card enclosed with this proxy statement/prospectus.
Commencing immediately after the effective time of the merger, if you surrender your stock certificates representing Allied Riser shares in accordance with the instructions in the letter of transmittal, you will be entitled to receive stock certificates representing the shares of Cogent common stock into which those Allied Riser shares are converted in the merger.
After the merger, each certificate that previously represented shares of Allied Riser stock will represent only the right to receive the shares of Cogent common stock into which the shares of Allied Riser stock were converted in the merger.
We will close Allied Riser's transfer books at the effective time of the merger and no further transfers of shares will be recorded on the transfer books. If a transfer of ownership of Allied Riser stock that is not registered in the records of Allied Riser's transfer agent has occurred, then, so long as the Allied Riser stock certificates are accompanied by all documents required to evidence and effect the transfer, as set forth in the transmittal letter and accompanying instructions, and by evidence of payment of any applicable stock transfer taxes, a certificate representing the proper number of shares of Cogent common stock will be issued to a person other than the person in whose name the certificate so surrendered is registered, together with payment of dividends or distributions, if any.
Dividends and Distributions
You will not be paid any dividends or distributions on Cogent common stock into which your Allied Riser shares have been converted with a record date after the merger until you surrender your Allied Riser certificates to the exchange agent. When you surrender those certificates, any unpaid dividends payable as described below will be paid without interest. We do not anticipate paying any dividends in the immediate future.
Lost Certificates
If any Allied Riser common stock certificate is lost, stolen, or destroyed, the holder must make an affidavit of that fact to the exchange agent in order to receive Cogent common stock in respect of the lost, stolen, or destroyed certificates, and any unpaid dividends and distributions in respect thereof. In
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addition, we may require the holder to post a bond as indemnity against any claim that may be made against it with respect to the lost, stolen, or destroyed certificates.
Withholding
Either Cogent or the exchange agent, on behalf of the surviving corporation, is entitled to deduct and withhold from the consideration otherwise payable to any holder of shares of Allied Riser common stock any amounts it is required to deduct and withhold under applicable law with respect to the making of such payment. Any amounts withheld will be treated for all purposes of the merger agreement as having been paid to the former holder of Allied Riser common stock.
Termination of Exchange Fund; No Liability
On the first anniversary of the effective time of the merger, the exchange agent will, upon Cogent's request, deliver to Cogent any portion of the shares of Cogent common stock (or dividends or distributions thereon) that remain undistributed to the former holders of Allied Riser common stock. After that date, any former holders of Allied Riser common stock who have not already exchanged their certificates for shares of Cogent common stock will have no recourse against the exchange agent and will look only to Cogent for the shares of Cogent common stock, and dividends and distributions thereon, to which they are entitled. In addition, neither Cogent nor the surviving corporation will be liable to any former holders of shares of Allied Riser common stock for shares of Cogent common stock delivered to a public official pursuant to any applicable abandoned property, escheat, or similar law. Immediately prior to the third anniversary of the effective time of the mergeror any earlier date that shares of Cogent common stock exchangeable for former shares of Allied Riser common stock (or any dividends or distributions thereon) would otherwise escheat to or become the property of a governmental entityany such shares of Cogent common stock (and all dividends and distributions thereon) will, to the extent permitted by applicable law, become the property of the surviving corporation.
Stock Options; Restricted Stock; and Warrants
Stock Options
At the effective time of the merger, each outstanding option to purchase Allied Riser common stock will remain outstanding and be assumed by Cogent. Each option to purchase Allied Riser common stock will be converted into an option to purchase, on the same terms and conditions as were applicable under such option immediately prior to the merger, the number of shares of Cogent common stock (rounded to the nearest whole number) equal to the product of:
at an exercise price per share of Cogent common stock (rounded to the nearest whole cent) equal to:
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Restricted Stock
At the effective time of the merger each share of Allied Riser common stock subject to a repurchase option, risk of forfeiture, or other condition or restriction will be converted into the same number of shares of Cogent common stock into which shares of unrestricted Allied Riser common stock convert. All shares of Cogent common stock issued in exchange for shares of restricted Allied Riser common stock will retain any such condition or restriction, except to the extent provided otherwise in any agreement between Allied Riser and any holder of shares of restricted Allied Riser common stock.
Warrants
At the effective time of the merger, each warrant to purchase Allied Riser common stock will automatically be converted into a warrant to purchase, on the same terms and conditions as were applicable under such warrant immediately prior to the merger, the number of shares of Cogent common stock (rounded to the nearest whole number) equal to the product of:
at an exercise price per share of Cogent common stock (rounded to the nearest whole number) equal to:
Representations and Warranties
In the merger agreement, Allied Riser represents and warrants to Cogent, and each of Cogent and the merger subsidiary represent and warrant to Allied Riser, that:
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In addition, Allied Riser represents and warrants to Cogent that:
In addition, Cogent and the merger subsidiary represent and warrant to Allied Riser that:
The representations and warranties are of no further force or effect after the effective time of the merger.
Conduct of the Business Prior to the Merger
Each of Cogent and Allied Riser has agreed to operate its business in the ordinary course of business prior to the merger, except as disclosed, and except as consented to in writing by the other
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party. Neither party can unreasonably withhold or delay a requested consent to an exception to this covenant.
Cogent has also agreed that:
Allied Riser has also agreed that it and each of its subsidiaries will not do any of the following:
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Corporation and terminate certain agreements, contracts and leases in accordance with the terms of the merger agreement;
No Solicitation
The merger agreement provides that, except as described below, Allied Riser may not, directly or indirectly:
Allied Riser must immediately notify Cogent orally and in writing of any takeover proposal or any related inquiry. Allied Riser's notice must identify the person making the proposal or inquiry and describe the material terms and conditions of the proposal or inquiry. Allied Riser must keep Cogent informed of the status and material details ofincluding amendments and proposed amendments toany proposal or inquiry.
If Allied Riser receives an unsolicited superior proposal and the Allied Riser board of directors determines, upon consultation with outside legal counsel, that the failure to negotiate in response to the superior proposal would result in a breach of their fiduciary duties, Allied Riser may, after giving Cogent the required notice:
A "takeover proposal" is broadly defined to include any inquiry, proposal, or offer from any third person relating to:
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A "superior proposal" is defined as any offer to acquire, directly or indirectly, more than 50% of the combined voting power of the then-outstanding shares of Allied Riser's common stock, or all or substantially all of its assets:
Except as set forth below, the Allied Riser board may not:
Regardless of these restrictions, the Allied Riser board may terminate the merger agreement in response to a superior proposal:
In addition, regardless of these restrictions, Allied Riser may participate in discussions and negotiations with its noteholders, but it may not enter any agreement with, or make any payment to, its noteholders without Cogent's prior written consent.
Additional Agreements
Employee Benefits
After the merger, Cogent will provide for the continuation of healthcare benefits for those employees and former employees identified in a schedule to the merger agreement. These healthcare benefits will continue from each identified employee's termination date for the number of weeks specified in the relevant schedule. These healthcare benefits will be substantially similar to the benefits of each such employee prior to the effective time of the merger.
Prior to the effective time of the merger, Allied Riser will fully vest all remaining active participants in its 401(k) plan, and terminate this plan.
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Insurance and Indemnification
After the merger, the surviving corporation will indemnify each person who is, or has been, a director or officer of Allied Riser with respect to all acts or omissions taken by them before the merger to the extent each such person, prior to the merger, was entitled to the benefit of indemnification agreements or the provisions of Allied Riser's certificate of incorporation and bylaws relating to indemnification.
For six years after the merger, the surviving corporation will maintain in effect (1) Allied Riser's and its subsidiaries' current directors' and officers' liability insurance covering acts or omissions occurring before the merger, and covering each person currently covered by this insurance, and (2) Allied Riser's and its subsidiaries' current fiduciary liability insurance covering acts or omissions occurring before the merger for employees who served as fiduciaries with respect to any of Allied Riser's employee benefits plans, in each case on terms with respect to coverage and amounts no less favorable than those in effect on August 28, 2001. The surviving corporation will not be required to pay, in total, an annual premium for the insurance described in this paragraph in excess of 200% of the current total annual premium Allied Riser pays for its existing coverage prior to the merger. If the annual premiums exceed that amount, the surviving corporation will be obligated to obtain a policy with coverage that may be obtained for that amount.
Fees and Expenses
Whether or not the merger is completed, we will share the expense of this proxy statement/prospectus and the SEC registration statement of which it is a part, and we will each pay all of our own other costs and expenses incurred in connection with the merger and the merger agreement, subject to the expense reimbursement and termination fee provisions described under "Termination Fee."
Listing or Nasdaq Quotation
Cogent and Allied Riser will use their reasonable best efforts to cause the shares of Cogent common stock issuable in the merger to be approved for quotation on the Nasdaq National Market or listing on a national securities exchange.
Affiliates
Allied Riser has agreed to deliver to Cogent a letter identifying all persons who may be, at the time of the special meeting, "affiliates" for purposes of Rule 145 under the Securities Act of 1933, as amended, or the Securities Act, and to use its reasonable best efforts to cause each of those affiliates to enter into a written agreement not to offer, sell, or otherwise dispose of any of the shares of Cogent common stock issued to them in the merger in violation of the Securities Act or the rules promulgated thereunder.
Director Designation
Cogent will appoint to its board of directors a person designated by Allied Riser, who must be acceptable to three of the larger stockholders of Allied Riser, immediately prior to the effective time of the merger.
Going Private Transaction
Cogent will not, for six months after the consummation of the merger, consummate a Rule 13e-3 transaction or acquire, directly or indirectly, more than 80% of the shares of Cogent common stock issued in the merger.
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Reasonable Best Efforts
The merger agreement also contains additional covenants, including a covenant to use reasonable best efforts to take all actions, and to do all things, necessary, proper, or advisable to complete the merger, and the other transactions contemplated by the merger agreement, as promptly as practicable, including, among other things:
Conditions to Completion of the Merger
Each party's obligation to complete the merger is subject to satisfaction or waiver of the following conditions:
Cogent's obligation to complete the merger is subject to the further conditions that:
Allied Riser's obligation to complete the merger is subject to the further conditions that:
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Cogent and Allied Riser currently believe that it is likely that all of the conditions to the merger will be fulfilled. In the unlikely event that a condition is not fulfilled, the parties may, but would not be required to, waive the condition and complete the merger. If the waiver were to result in a material change in the terms of the merger, then Allied Riser would resolicit the votes of its stockholders to approve the merger.
Termination of the Merger Agreement
The merger agreement may be terminated, whether before or after receiving any stockholder approval:
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Termination Fee
Allied Riser must pay Cogent a $5,000,000 termination fee if:
Cogent must pay Allied Riser a $5,000,000 termination fee if:
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Amendments, Extensions and Waivers
Amendments
The merger agreement may be amended by the parties at any time prior to the effective time of the merger. However, after Allied Riser stockholders approve the merger agreement and the merger or Cogent stockholders approve the merger agreement and the merger, no amendment may be made that requires further approval by stockholders under applicable law or the rules of any relevant stock exchange, without obtaining the required approval. All amendments to the merger agreement must be in writing and signed by each party.
Extensions and Waivers
At any time prior to the effective time of the merger, any party to the merger agreement may:
All extensions and waivers must be in writing and signed by the party against whom the waiver is to be effective.
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Voting Agreements
Prior to the consummation date of the merger, certain holders of Allied Riser common stock who own, in the aggregate, approximately 26.3% of Allied Riser's common stock, specifically Norwest Venture Partners VII, LP, Telecom Partners II, LP, and Crescendo World Fund, LLC, executed and delivered agreements that each holder agrees to:
In addition, until the termination of the merger agreement, its subsequent amendment in a material manner, or the consummation of the merger, each such holder of Allied Riser shares has agreed not to sell or pledge any such shares or voting interests therein.
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MANAGEMENT OF COGENT FOLLOWING THE MERGER AND OTHER INFORMATION
Following the merger, the directors, executive officers, and other key employees of Cogent and their ages as of October 10, 2001 will be as follows:
Name
|
Age
|
Titles
|
||
---|---|---|---|---|
David Schaeffer | 45 | Chairman and Chief Executive Officer | ||
William Currer | 53 | President and Chief Operating Officer | ||
H. Helen Lee | 29 | Chief Financial Officer and Director | ||
Robert Beury | 48 | General Counsel | ||
Barry Morris | 42 | Vice President of Sales | ||
Scott Stewart | 38 | Vice President of Real Estate | ||
Bradley Kummer | 53 | Chief Technology Officer and Vice President of Optical Transport | ||
Neale D'Rozario | 40 | Chief Information Officer | ||
Timothy O'Neill | 45 | Vice President of Engineering Construction | ||
Mark Schleifer | 32 | Vice President of IP Engineering | ||
Thaddeus Weed | 40 | Vice President, Controller | ||
Edward Glassmeyer | 60 | Director | ||
Erel Margalit | 40 | Director | ||
James Wei | 34 | Director |
We have listed below biographical information for each person who is expected to be a director, executive officer, or key employee following the merger.
David Schaeffer founded Cogent in August 1999 and is the Chairman and Chief Executive Officer. Prior to founding Cogent, Mr. Schaeffer was the founder of Pathnet, Inc., a broadband telecommunications provider, where he served as Chief Executive Officer from 1995 until 1997 and as Chairman from 1997 until 1999. On April 2, 2001, Pathnet, Inc. filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code.
William Currer joined Cogent in June 2000 as President and Chief Operating Officer. From 1991 to 1999, Mr. Currer served as Group President, Communication Systems for Andrew Corp., a wireless communications infrastructure technology company.
H. Helen Lee , the Company's Chief Financial Officer and a director, joined Cogent in November 2000. Prior to joining Cogent, Ms. Lee worked in the LBO group of the Audax Group, a private equity firm in Boston, MA in 2000. From 1997 to 1998 Ms. Lee worked at Pathnet Inc., directing financing and corporate development activities. From 1995 to 1997, Ms. Lee worked in the Telecom M&A/Advisory Group at J.P. Morgan, where she participated in merger and acquisition transactions and advised on equity and high-yield offerings.
Robert Beury joined Cogent in September 2000 as General Counsel. Prior to joining Cogent, Mr. Beury served as Deputy General Counsel of Iridium LLC from 1994 to 2000. From 1987 to 1994 Mr. Beury was General Counsel of Virginia's Center for Innovative Technology, a non-profit corporation set up to develop the high tech industry in Virginia.
Barry Morris joined Cogent in April 2000 as Vice President of Sales. Mr. Morris has over 19 years of experience in the sale and complex integration of large data communication networks. From 1997 to 2000, Mr. Morris served as Senior Director of Sales for Nortel Networks where he managed a staff of pre- and post-sales engineers, account executives, and regional managers, and performed marketing and sales consulting duties. Preceding its acquisition by Nortel, Mr. Morris served as the Vice President of Sales for Bay Networks from 1994 to 1997 and as District Sales Manager for Synoptics prior to its acquisition by Bay Networks.
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Scott Stewart joined Cogent in May 2000 as the Vice President of Real Estate. He is responsible for leading a team of professionals to build Cogent's nationwide network of multi-tenant office buildings. From 1999 to 2000, Mr. Stewart was a Vice President at Carlyle Realty, a division of The Carlyle Group, a multi-national private equity group based in Washington, D.C. From 1995 to 1999, Mr. Stewart directed the east-coast development program for Homestead Village, an extended stay hotel company and subsidiary of Security Capital Group. While there, Mr. Stewart was responsible for leading a team of 25 development professionals in the construction of 72 hotels in 18 cities. From 1993 to 1995, Mr. Stewart was the President and Founder of Potomac Land and Development Company, a Washington, D.C. metropolitan area real estate investment and consulting firm. From 1991 to 1993, Mr. Stewart was a Vice President and managed the Real Estate Owned properties of a Virginia based bank. Prior to then, Mr. Stewart served as a residential community developer in suburban Washington, D.C.
Bradley Kummer joined Cogent in February 2000 as Vice President and Chief Technology Officer. Mr. Kummer spent the 25 years prior to joining Cogent at Lucent Technologies (formerly Bell Laboratories), where he served in a variety of research and development and business development roles relating to optical fibers and systems. In his most recent work at Lucent, he was responsible for optical fiber systems engineering for long haul and metropolitan dense wavelength division multiplexing systems.
Neale D'Rozario joined Cogent in July 2000 and currently serves as Chief Information Officer. He is responsible for the Network Operations Center and Corporate Technology. From 1996 to 2000, Mr. D'Rozario was the Chief Information Officer for SunTrust Bank's investment banking division. While at SunTrust, Mr. D'Rozario was responsible for technology supporting equity and debt capital raising and trading activities. From 1991 to 1996, D'Rozario was the Global Managing Director of Technology for Barclays Bank, BZW Debt Capital Markets. There he was responsible software development, third party package integration network infrastructure. From 1986 to 1991 Mr. D'Rozario served as the Information Systems Manager at Salomon Brothers, Inc.
Timothy O'Neill joined Cogent in January 2001 as the Vice President of Engineering Construction. He is responsible for the network build-out and provisioning. From 1999 to 2001, Mr. O'Neill was employed at @Link Networks where he served as Chief Network Officer. While at @Link, Mr. O'Neill was responsible for engineering, implementing, and operating an integrated communications network. From 1998 to 1999, Mr. O'Neill was the Vice President of National Operations for NEXTLINK. His responsibilities included the NOC, network assurance, central office construction, provisioning, and engineering. Mr. O'Neill has also held senior management positions with Time Warner Communications and Internet Communications from 1994 to 1998.
Mark Schleifer joined Cogent in October, 2000 and currently serves as Vice President of IP Engineering. From 1994 to 2000, Mr. Schleifer served as Senior Director, Network Engineering at DIGEX/Intermedia, a provider of high-end managed Web and application hosting services. At DIGEX/Intermedia, Mr. Schleifer managed the Network Engineering group, Capacity Planning group, and Research and Development group. He was responsible for all technical aspects of customer turn up, network troubleshooting, field installations, and new equipment testing for the leased line business. Mr. Schleifer also coordinated peering and backbone circuit deployment to maintain network throughput and availability.
Thaddeus Weed joined Cogent in February 2000 as Controller. From 1997 to 1999, Mr. Weed served as Senior Vice President of Finance and Treasurer at Transaction Network Services where Mr. Weed undertook a broad range of financial management responsibilities. These responsibilities included financial planning, forecasting, budgeting, financial modeling, acquisition, and international expansion strategies and pro-forma analyses. In 1999 he negotiated and completed the sale of Transaction Network Services to PSINet. From 1987 to 1997, Mr. Weed was employed at Arthur Andersen where
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he served as Senior Audit Manager, consulting on due diligence and operational improvement issues and performing audits of public and private entities.
Edward Glassmeyer has served on Cogent's board of directors since 2000. Mr. Glassmeyer was with Citicorp Venture Capital from 1968 to 1970, and The Sprout Capital Group where he was Managing Partner from 1971 to 1974. In 1973, he became a founding director of the National Venture Capital Association (NVCA). In 1978, he co-founded Oak Investment Partners, a venture capital firm. Since July 1996, he has been an Overseer of The Tuck School at Dartmouth College. Mr. Glassmeyer serves on the board of directors of a number of Oak portfolio companies supplying network equipment and services, including Apogee Networks, Movaz, Telica, and Tellium.
Erel Margalit has served on Cogent's board of directors since 2000. Mr. Margalit has been Managing General Partner of Jerusalem Venture Partners since August 1997. He was a general partner of Jerusalem Pacific Ventures from December 1993 to August 1997. From 1990 to 1993, Mr. Margalit was Director of Business Development of the City of Jerusalem. Mr. Margalit is a director of Paradigm Geophysical Ltd., Bridgewave Communications, Inc., CyOptics, Inc. First Access, Ltd., InLight Communications, Inc., KereniX, Inc., SANGate Systems, Inc., and Teleknowledge Group, Inc.
James Wei has served on Cogent's board of directors since 2000. He has been a general partner at Worldview Technology Partners, a venture capital firm, since April 1996. Prior to that, Mr. Wei was a Fund Manager at JAFCO Co., Ltd., a venture capital firm, from October 1991 through April 1996. Mr. Wei currently also serves on the boards of directors for Caly Networks, CommVerge Solutions, Edge2Net, iWorld Networking, Movaz Networks, Tensilica, 3ParData, Triton Network Systems, and Wellspring Solutions. He is also a General Partner of Meritech Capital Partners, a late stage venture capital fund with $1.8 billion under management.
Board Composition
Our board of directors currently consists of six directors. Upon consummation of the merger, we will increase the board of directors by one member and we will divide the board of directors into three classes: Class I, whose term will expire at the annual meeting of stockholders to be held in 2002; Class II, whose term will expire at the annual meeting of stockholders to be held in 2003; and Class III, whose term will expire at the annual meeting of stockholders to be held in 2004. The initial Class I directors will be Helen Lee, the individual designated by the Series C Preferred Stockholders and the individual designated by Allied Riser prior to the effective time of the merger, the initial Class II directors will be James Wei and Edward Glassmeyer, and the initial Class III directors will be Erel Margalit and David Schaeffer. At each annual meeting of the stockholders beginning in 2002, the successors to the class of directors whose terms expired will be elected to serve three-year terms. If the number of directors on our board increases, the newly created directorships will be distributed among the three classes so that each class will, as nearly as possible, consist of one-third of the directors. The classification of our board of directors may delay or prevent changes in our control or management. Our directors may be removed either with or without cause at any meeting of Cogent's stockholders by a majority vote of those stockholders represented and entitled to vote at such meeting.
Board Committees
Our board of directors has established an audit committee and a compensation committee. The audit committee consists of Messrs. Glassmeyer, Margalit, and Wei. The audit committee meets periodically with management and our independent accountants to review their work and confirm that they are properly discharging their respective responsibilities. The audit committee also:
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The compensation committee consists of Messrs. Glassmeyer, Margalit, and Wei. The compensation committee determines the salary and incentive compensation of our officers and provides recommendations for the salaries and incentive compensation of our other employees. The compensation committee also administers our stock option plan and our employee stock purchase plan, including reviewing management recommendations with respect to option grants and taking other actions as may be required in connection with our compensation and incentive plans.
Compensation Committee Interlocks and Insider Participation
The compensation committee currently consists of Messrs. Glassmeyer, Margalit, and Wei. No current member of the compensation committee has been an officer or employee of ours at any time. None of our executive officers serve as a member of the board of directors or compensation committee of any other company that has one or more executive officers serving as a member of our board of directors, nor has such a relationship existed in the past.
Director Compensation
We generally do not compensate our board members for their participation on our board of directors. However, Ms. Lee received options to purchase 24,000 shares of Cogent common stock on February 8, 2000, as compensation for her service as a director prior to becoming chief financial officer.
Executive Compensation
Summary Compensation Table. The following table sets forth summary information concerning the compensation we paid during the fiscal year ended December 31, 2000 to our chief executive officer and each of our other four most highly compensated executive officers who were serving as executive officers at the end of fiscal year 2000 and whose compensation exceeded $100,000 for fiscal year 2000. We refer to these individuals as our named executive officers.
|
Annual Compensation
for Fiscal Year 2000 |
Long-Term Compensation
for Fiscal Year 2000 |
||||||
---|---|---|---|---|---|---|---|---|
|
|
|
Awards
|
|||||
Name and Principal Position
|
Salary ($)
|
Bonus ($)
|
Securities Underlying
Options/SARs (#) |
|||||
David Schaeffer
Chairman and CEO |
$ | 218,827 | $ | | | |||
William Currer
President & COO |
$ | 227,500 | $ | | 600,000 | |||
Barry Morris
VP Sales |
$ | 131,250 | $ | 45,000 | 300,000 | |||
Scott Stewart
VP Real Estate |
$ | 115,318 | $ | 29,970 | 187,890 |
Option grants during Fiscal Year 2000. The following table sets forth information regarding options granted to our named executive officers during the fiscal year ended December 31, 2000. We recommend caution in interpreting the financial significance of the figures in the following table representing the potential realizable value of stock options. They are calculated by multiplying the
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number of options granted by the difference between a future hypothetical stock price and the option exercise price and are shown pursuant to the rules of the SEC. They are not intended to forecast possible future appreciation, if any, of the stock price or establish a present value of options. Actual gains, if any, on stock option exercises will depend on the future performance of our common stock.
|
|
|
|
|
Potential Realizable
Value At Assumed Annual Rates of Stock Appreciation for Option Term |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Percent of
Total Options Granted to Employees In 2000 |
|
|
|||||||||||
Name
|
Options
Granted(1) |
Exercise
Price Per Share |
Expiration
Date |
||||||||||||
5%
|
10%
|
||||||||||||||
William Currer | 600,000 | 9.5% | $ | 1.00 | 06/19/2010 | $ | 377,337 | $ | 956,245 | ||||||
Barry Morris | 300,000 | 4.7% | $ | 0.25 | 04/03/2010 | $ | 47,167 | $ | 119,531 | ||||||
Scott Stewart | 185,000 | 2.9% | $ | 0.25 | 05/23/2010 | $ | 29,086 | $ | 73,711 | ||||||
2,890 | | $ | 1.50 | 11/30/2010 | $ | 2,726 | $ | 6,909 |
Aggregate Option Exercises in Fiscal Year 2000 and Year-end Option Values. The following table provides information about options held by named executive officers as of December 31, 2000. The value realized and the value of unexercised in-the-money options at year-end is based on the assumed price of $1.2467, less the exercise price per share, multiplied by the number of shares underlying the options.
|
|
|
Number of
Securities Underlying Unexercised Options At Fiscal Year End |
Value of
Unexercised In the Money Options At Year End |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Shares
Acquired On Exercise |
Value
Realized |
|||||||||||||
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
||||||||||||
William Currer | | | 112,500 | 487,500 | $ | 27,754 | $ | 120,266 | |||||||
Barry Morris | 50,000 | $ | 37,500 | 31,250 | 218,750 | $ | 31,147 | $ | 218,028 | ||||||
Scott Stewart | 34,687 | $ | 43,359 | 14,452 | 138,751 | $ | 11,524 | $ | 138,293 |
Employment Agreements
David Schaeffer Employment Agreement. Dave Schaeffer has an employment agreement that provides for a minimum annual salary of $250,000 for his services as Chief Executive Officer. He also receives all of the company's standard employee benefits and a life insurance policy with a death benefit of $2 million. The initial term of his employment is through December 31, 2003. If he is discharged without cause or resigns for good reason, he is entitled to a lump sum amount equal to his annual salary at the time and continuation of his benefits for one year. If he is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, he is entitled to additional payment to reimburse him for all taxes, up to a maximum additional payment of 20% of the amount subject to tax. The agreement also provides that failure to elect Mr. Schaeffer's designees to the board of directors, his right in the stockholder agreement, constitutes a material breach of his employment agreement.
William Currer Employment Agreement. William Currer's employment agreement provides for an annual salary of $300,000 for his services as Chief Operating Officer. The agreement entitles him to $300,000 and continuation of benefits for six months in the event that his employment with Cogent is terminated without cause or is constructively terminated. In the event of his termination as a result of a change of control, 50% of his then unvested stock options will vest immediately.
63
Barry Morris Employment Agreement. Barry Morris's employment agreement provides for an annual salary of $175,000 plus a bonus of $60,000 payable based on performance targets that are mutually agreeable to him and Cogent. In the event of his termination, other than by resignation, he is entitled to receive $87,500 and continuation of benefits for six months. In the event of his termination as a result of a change of control, 75% of his then unvested stock options will vest immediately.
Scott Stewart Employment Agreement. Scott Stewart's employment agreement provides for an annual salary of $145,000 plus a bonus of $45,000 payable based upon performance targets that are mutually agreeable to him and Cogent. In the event of his termination, other than by resignation, he is entitled to receive $108,750 and continuation of benefits for nine months. In the event of his termination as a result of a change of control, 50% of his then unvested stock options will vest immediately.
2000 Equity Plan
Our board of directors has adopted The Amended and Restated Cogent Communications Group, Inc. 2000 Equity Incentive Plan. The principal purpose of the equity plan is to attract, retain, and motivate selected officers, employees, consultants, and directors through the granting of stock-based compensation awards. The equity plan provides for a variety of compensation awards, including non-qualified stock options, incentive stock options that are within the meaning of Section 422 of the Internal Revenue Code, and stock purchase rights. A total of 14,900,000 shares of common stock are reserved for issuance under the equity plan, of which 5,364,981 shares have been granted, as of September 30, 2001. We plan to increase the number of shares of stock reserved under the 2000 Equity Incentive Plan by 5 million shares before we consummate the merger.
Our board of directors, through the Compensation Committee, administers the equity plan with respect to all awards. The directors serving on our Compensation committee are all non-employee directors for purposes of Rule 16b-3 under the Exchange Act and are outside directors under Section 162(m) of the Internal Revenue Code. The full board administers the equity plan with respect to options granted to independent directors, if any.
The equity plan provides that the committee has the authority to select the employees and consultants to whom awards are to be made, to determine the number of shares to be subject to those awards and their terms and conditions, and to make all other determinations and to take all other actions necessary or advisable for the administration of the equity plan with respect to employees or consultants.
The committee and the board are authorized to adopt, amend, and rescind rules relating to the administration of the equity plan, and to amend, suspend, and terminate the equity plan. We have attempted to structure the equity plan in a manner such that remuneration attributable to stock options and other awards will not be subject to the deduction limitation contained in Section 162(m) of the Internal Revenue Code.
64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of shares of Cogent's capital stock as of September 30, 2001 by:
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares subject to options, warrants and securities convertible into common stock held by that person that are exercisable as of September 30, 2001 or exercisable within 60 days thereof are deemed outstanding. Except as indicated in the footnotes to this table, we believe that each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name, except to the extent shared by a spouse under applicable law. This table is based on information supplied by officers, directors and principal stockholders. As of September 30, 2001, there were 59,895,925 shares of capital stock outstanding, of which 14,086,142 shares of common stock were outstanding, 26,000,000 shares of Class A preferred stock were outstanding, and 19,809,783 shares of Class B preferred stock were outstanding. Unless otherwise indicated, all share numbers presented reflect a ten for one reverse stock split that will occur immediately before we consummate the merger.
Unless otherwise noted, the address for each stockholder below is: c/o Cogent Communications Group, Inc., 1015 31st Street, N.W., Washington D.C. 20007.
|
Common
|
Preferred A
|
Preferred B
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name and Address
|
Number of
Shares |
Percent of
Class After the Offering |
Number of
Shares |
Percent of
Class After the Offering |
Number of
Shares |
Percent of
Class After the Offering |
|||||||
Entities affiliated with Jerusalem Ventures Partners Building One
Mahla, Jerusulum 91487 |
| | 9,250,000 | 35.6 | % | 3,296,704 | 16.6 | % | |||||
Entities affiliated with Worldview Technology Partners 435 Tasso Street, #120 Palo Alto, CA 94301 |
|
|
|
|
|
9,250,000 |
|
35.6 |
% |
3,296,704 |
|
16.6 |
% |
Entities affiliated with Oak Investment Partners IX, LP One Gorham Island Westport, CT 06880 |
|
|
|
|
|
5,000,000 |
|
19.2 |
% |
4,395,604 |
|
22.2 |
% |
Entities affiliated with Boulder Ventures III, LP 4750 Ownings Mills Blvd. Ownings Mill, MD 21117 |
|
|
|
|
|
2,000,000 |
|
7.7 |
% |
659,340 |
|
3.3 |
% |
Entities affiliated with Broadview Capital Partners 435 Tasso Street, #120 Palo Alto, CA 94301 |
|
|
|
|
|
|
|
|
|
3,274,726 |
|
16.5 |
% |
Entities affiliated with Nassau Capital Partners |
|
|
|
|
|
|
|
|
|
1,538,461 |
|
7.8 |
% |
ACON Venture Partners, LP 345 California Street Suite 3300 San Francisco, CA 94104 |
|
|
|
|
|
|
|
|
|
1,098,901 |
|
5.5 |
% |
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SMALLCAP World Fund, Inc. 3000 K Street, NW Suite 230 Washington, D.C. 20007 |
|
|
|
|
|
|
|
|
|
1,098,901 |
|
5.5 |
% |
David Schaeffer (1) |
|
13,600,000 |
|
95.4% |
|
|
|
|
|
|
|
|
|
H. Helen Lee |
|
210,875 |
|
1.5% |
|
|
|
|
|
|
|
|
|
Erel Margalit (2) |
|
|
|
|
|
9,250,000 |
|
35.6 |
% |
3,296,704 |
|
16.6 |
% |
James Wei (3) |
|
|
|
|
|
9,250,000 |
|
35.6 |
% |
3,296,704 |
|
16.6 |
% |
Edward Glassmeyer (4) |
|
|
|
|
|
5,000,000 |
|
19.2 |
% |
4,395,604 |
|
22.2 |
% |
William Currer |
|
225,000 |
|
1.6% |
|
|
|
|
|
21,978 |
|
* |
|
Barry Morris |
|
128,125 |
|
* |
|
|
|
|
|
2,637 |
|
* |
|
Scott Stewart |
|
83,825 |
|
* |
|
|
|
|
|
4,396 |
|
* |
|
Directors and named executive officers as a group (8 persons) (5) |
|
14,247,825 |
|
100% |
|
23,500,000 |
|
90.4 |
% |
11,018,023 |
|
55.6 |
% |
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Cogent Headquarters Lease
We lease office space in Washington, D.C. from a partnership of which our Chairman and Chief Executive Officer, Dave Schaeffer, is the general partner. The annual rent for this space is approximately $470,000 and the lease expires August 31, 2002. We believe that this lease agreement is on terms at least as favorable to us as could have been obtained from an unaffiliated third party.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Allied Riser
Allied Riser common stock is listed on the Nasdaq National Market and traded under the symbol "ARCC." The following table sets forth, for the calendar quarters indicated, the high and low reported prices per share of Allied Riser common stock on the Nasdaq National Market reporting system. Allied Riser completed the initial public offering of its common stock in October 1999. Prior to October 29, 1999, no established public trading market for the common stock existed.
|
Stock Price
|
|||
---|---|---|---|---|
Calendar Year
|
||||
High
|
Low
|
|||
2001 | ||||
Third Quarter | 0.65 | 0.06 | ||
Second Quarter | 1.59 | 0.40 | ||
First Quarter | 4.50 | 1.25 | ||
2000 |
|
|
|
|
Fourth Quarter | 6.94 | 1.06 | ||
Third Quarter | 16.00 | 4.56 | ||
Second Quarter | 34.50 | 9.03 | ||
First Quarter | 48.75 | 18.75 | ||
1999 |
|
|
|
|
Fourth Quarter | 26.13 | 15.12 | ||
Third Quarter | | | ||
Second Quarter | | | ||
First Quarter | | |
There were approximately 566 owners of record of Allied Riser common stock as of October 10, 2001.
On August 28, 2001, the last full trading day before the public announcement of the proposed merger, the high and low sale prices per share for Allied Riser common stock as reported on the Nasdaq National Market were $0.13 and $0.10, respectively. On October 15, 2001, the last full trading day before the date of this proxy statement/prospectus, the high and low sale prices per share for Allied Riser common stock as reported on the Nasdaq National Market were $0.15 and $0.12, respectively.
Allied Riser's common stock is traded on the Nasdaq National Market. In order for its common stock to continue to be listed on the Nasdaq National Market, Allied Riser must satisfy various listing requirements established by Nasdaq. On July 23, 2001, Allied Riser received a letter from Nasdaq advising Allied Riser that the minimum bid price of its stock had failed to comply with the continued listing standards of Nasdaq. On August 21, 2001, Allied Riser received a letter from Nasdaq advising Allied Riser that it had failed to comply with the minimum net tangible asset and the minimum shareholder's equity requirements for continued listing on Nasdaq. On September 5, 2001, Allied Riser transmitted a letter to Nasdaq addressing the issues raised in the July 23 and August 21 letters. On September 27, 2001, Nasdaq announced a moratorium on the minimum bid price and minimum market value of public float listing requirements until January 2, 2002, in response to the September 11, 2001, terrorist attacks. This announcement did not suspend Nasdaq's minimum net tangible asset and shareholder's equity listing requirements. On October 9, 2001, Allied Riser received a letter from Nasdaq citing the moratorium and declaring the matter initiated by the July 23 letter closed. With regard to the remaining issues, Allied Riser has provided Nasdaq with its specific plan to achieve and sustain compliance with the various listing requirements. This plan includes the consummation of the
68
proposed merger wth Cogent. Allied Riser has had further discussions with Nasdaq, but no formal communication has been received by Allied Riser in response to its plan, and there is no assurance that Allied Riser's stock will remain listed.
Allied Riser has not paid any dividends on its common stock since inception and does not anticipate paying any dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of the Allied Riser board of directors and will be dependent upon then existing conditions, including Allied Riser's financial condition, results of operations, contractual restrictions, capital requirements, business prospects, and other factors its board of directors deems relevant. See "Information About Allied RiserManagement's Discussion and Analysis of Financial Condition and Results of Operations" for further discussions of the factors or restrictions that may affect Allied Riser's ability to pay dividends on its common stock.
Cogent
The capital stock of Cogent is not publicly traded, and no market information relating to its capital stock is available. Cogent will apply to have the Cogent common stock issued in the merger approved for quotation on the Nasdaq National Market or listing on a national securities exchange.
Cogent has not paid any dividends on its common stock since inception and does not anticipate paying any dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of the Cogent board of directors and will be dependent upon then existing conditions, including Cogent's financial condition, results of operations, contractual restrictions, capital requirements, business prospects, and other factors its board of directors deems relevant and is subject to the prior payment of 8% dividend to Series C preferred stock. See "Information About CogentManagement's Discussion and Analysis of Financial Condition and Results of Operations" for further discussions of the factors or restrictions that may limit Cogent's ability to pay dividends on its common stock.
69
Description of Business
Overview
We provide high speed Internet access and data communications to businesses, other telecommunications providers, application service providers, and Internet service providers located in large commercial office buildings in central business districts of major metropolitan markets. We offer Internet access at speeds of 100 megabits per second (Mbps) and 1 gigabit (or 1,000 megabits) per second (Gbps). We also offer other similar data communications products for point-to-point communication along our network. We are currently providing services in the following cities: Washington D.C., Philadelphia, New York, Boston, Chicago, Dallas, Denver, Los Angeles, San Francisco, Houston, Miami, and Santa Clara and we expect to expand our network and service offerings to Atlanta, Orlando, Tampa, San Diego, Sacramento, Jacksonville, Kansas City and Seattle.
We provide our services using a state of the art nationwide network that connects our customer's local area networks, or LANs, to our network and the Internet at speeds of 100 Mbps and 1Gbps. We have created our own nationwide inter-city facilities based network by acquiring rights to unlit fiber optic strands, or "dark fiber," connecting large metropolitan areas in the United States and metropolitan dark fiber rings within the cities we intend to serve. We have primarily used equipment from Cisco to "light," or activate, these dark fibers so that they are capable of carrying data at very high speeds. We physically connect our network to our customers by acquiring or constructing a connection between our metro rings and our customers' premises. As of October 8, 2001, Cogent had its broadband data network operating or constructed inside approximately 83 office buildings with more than 32 million rentable square feet and had agreements with real estate owners to install and operate its network in more than 855 office buildings totaling approximately 265 million rentable square feet.
Our network has been designed and created solely for the purpose of transmitting data packets using Internet protocol. This means that our network does not require elaborate and expensive equipment to route and manage voice traffic and data traffic using other transmission protocols, such as ATM and Frame Relay. In addition, we charge our customers a flat monthly rate without regard to the origination or destination of their data traffic. As a result, we are not required to purchase, install and operate the complex and expensive billing equipment and systems that are used in voice grade networks. Finally, our network interfaces with our customers using Ethernet technology, which is widely used within corporate LANs.
Our Solution
We believe that our network solutions effectively address many of the unmet communications needs of small- and medium-sized business customers by offering quality, performance, attractive pricing and service. Cogent allows customers to connect their corporate LANs to the public Internet at the same speeds and with the same Ethernet interface that they use within their LANs. Our solution is differentiated by:
Attractive price/performance alternative: Our network architecture allows us to offer Internet access to our customers in Cogent-served buildings at attractive prices. Our service provides customers with substantially more bandwidth at a lower cost than traditional high speed internet access.
Reliable service: We believe our network provides reliability at all levels through use of highly reliable optical technology. We use a ring structure in the majority of our network, which enables us to route customer traffic simultaneously in both directions around the network rings both at the metro and national level. The availability of two data transmission paths around each ring acts as a backup, thereby minimizing loss of service in the event of equipment failure or damage.
70
Direct Customer Interface: Our solution does not require us to use existing local infrastructure controlled by the local incumbent telephone companies. We generally do not rely upon the local telephone company to provide connections to our customers and thereby have more control over our services and pricing. We expect that this effort reduces both our costs and the amount of time that it takes to connect customers to our network.
Deployment of cost effective and flexible technology: The 100 Mbps and 1 Gbps services can be deployed at comparatively lower incremental cost than other available technologies. We believe that our network infrastructure provides us with a competitive advantage over operators of existing networks that need to be upgraded to provide similar interactive bandwidth-intensive services. Ethernet represents the lowest cost interface available for data connectivity.
Our Network
Cogent's inter-city backbone network consists of two strands of optical fiber that Cogent has acquired from Williams Communications under a pre-paid indefeasible right of use (IRU). Cogent has the right to use the fiber for 20 years and may extend the term for two five-year periods without additional payment. Cogent pays Williams to maintain the fiber during the period of the IRU. The fiber route is 12,484 miles in length and runs through the metropolitan areas served by Cogent. As of August 31, 2001, 11,810 miles of the route had been delivered by Williams to Cogent. Certain potions of Cogent's backbone network are currently provided by means of transmission capacity provided by Williams Communications. Cogent intends to replace this transmission capacity with fiber obtained under the IRU arrangement.
In each metropolitan area in which Cogent provides service the backbone network is connected to a router (purchased from Cisco Systems) that provides a connection to one or more metropolitan networks. The metropolitan networks also consist of dark fiber that runs from the backbone router into buildings served by Cogent. The metropolitan fiber in most cases runs in a ring through the buildings served. The ring provides redundancy so that if the fiber is cut data can still be transmitted to the backbone router by directing traffic in the opposite direction around the ring. Each building served by Cogent has a Cisco router connected to the metropolitan fiber. The router in the building provides the connection to each customer of Cogent in the building. In addition to connecting customers to Cogent's network the metropolitan networks are used to connect Cogent's network to the networks of other Internet service providers.
Inside its networked buildings, Cogent installs and manages a broadband data infrastructure that typically runs from the basement of the building to the top floor inside the building's vertical utility shaft. Service for customers is initiated by connecting a broadband data cable from a customer's local area network to the infrastructure in the vertical utility shaft. The customer then has dedicated and secure access to our network using Ethernet connections.
Market Opportunity
Increasing Internet usage is radically changing the way we obtain information, communicate, and conduct business. The demand for data and Internet services is projected to grow at a substantially greater pace than the voice market.
According to Dun & Bradstreet, there are approximately 1.8 million small and medium-sized businesses in the United States, which typically employ between 10 and 500 employees. While most large enterprises build or lease dedicated high speed networks and complex communications equipment, most small and medium-sized businesses, due to cost and network infrastructure constraints, are not able to enjoy the levels of service and functionality that such facilities and equipment can provide. For example, the majority of small and medium-sized businesses access the Internet through relatively slow dial-up connections, often at speeds of 56,000 bits per second or less, or they may access
71
this Internet through a dedicated private line typically transmitting data at 1.5 megabits per second. We believe that dedicated high speed connections to the Internet for small and medium-sized businesses will grow significantly over the next two years.
We are targeting this growing market segment by constructing our fiber- optic broadband networks in the office buildings in which many small and medium-sized businesses are located. We estimate that there are more than 2,800 office buildings sized larger than 100,000 square feet which host at minimum 20 unique tenants with an average of more than 40 tenants in the building, and within servable distance (a quarter of a mile) from a planned Cogent intra-city fiber ring.
Our Strategy
We intend to become a leading provider of high-capacity broadband access to our customers in large multi-tenanted buildings in commercial business districts of the 20 largest MSAs. To achieve this objective, we intend to:
Focus on most attractive markets and customers: We intend to build our customer base rapidly in our target markets. We target buildings that have high tenant count and limited broadband network access alternatives in dense commercial areas, which we believe will shorten the payback period on our investments. The value of Cogent's network and its ability to function both as a LAN-to-Internet and as a LAN-to-LAN network is enhanced by the number of cities which are connected to Cogent's network. However, Cogent must select markets in which network construction cost and customer acquisition costs provide for an attractive return based upon Cogent's product offering and pricing. The Cogent solution will not be available to all customers throughout the U.S. but rather will be offered on a selected basis.
Maintain a Simple pricing model: We offer our services at prices that are competitive with traditional Internet service providers. Pricing for T1 Internet access today is comprised of two components: (1) the local loop, which is purchased generally from the incumbent local exchange carrier (ILEC), or a competitive local exchange carrier (CLEC) and (2) the Internet port connection, which is typically provided by the Internet service provider. Our 100 megabits per second network access speed is substantially faster than typical connections offered by existing cable and telecommunications operators. We offer our 100 Mbps service at prices that can be lower than current prices for 1.5 Mbps service from traditional Internet service providers.
Target small- and medium-sized businesses with direct sales channel: The direct sales force is comprised of individuals who are geographically dispersed throughout each of Cogent's targeted markets. The retail sales effort is supported by an active program of direct mail and telesales, which is used to qualify potential leads for the field sales force. We directly market our services to our potential customers.
Pursue Aggressive peering strategy: In order to connect to the public Internet, Cogent today utilizes a combination of settlement free peering and purchased transit capacity. Cogent expects to reduce its transit purchase requirements as it accelerates its settlement free peering strategy. Cogent's network connects to other networks at 15 geographically dispersed points.
Our Competitors
We face competition from many established competitors with significantly greater financial resources, well-established brand names and large, existing installed customer bases. We also face competition from more recent entrants to the communications services market. Many of these companies offer products and services that are similar to our products and services, and we expect the level of competition to intensify in the future. We believe that competition will be based on many
72
factors, including price, transmission speed, ease of access and use, breadth of service availability, reliability of service, customer support and brand recognition.
In each market we serve, we face, and expect to continue to face, significant competition from the incumbent carriers, which currently dominate the local telecommunications markets. We compete with the incumbent carriers in our markets for local exchange services on the basis of product offerings, quality, capacity and reliability of network facilities, state-of-the-art technology, price, route diversity, ease of ordering and customer service. However, the incumbent carriers have long-standing relationships with their customers and provide those customers with various transmission and switching services that we, in many cases, do not currently offer. Because our fiber optic networks have been recently installed compared to those of the incumbent carriers, our state-of-the-art technology may provide us with cost, capacity, and service quality advantages over some existing incumbent carrier networks.
In-building Competitors
Some competitors, such as Cypress Communications, XO Communications, Intellispace, Eureka, Everest Broadband and eLink, are attempting to gain access to office buildings in our target markets. Some of these competitors are seeking to develop exclusive relationships with building owners. To the extent these competitors are successful, we may face difficulties in building our networks and marketing our services within some of our target buildings. Our agreements to use utility shaft space within buildings are generally not exclusive. An owner of any of the buildings in which we have rights to install a network could also give similar rights to one of our competitors. Certain competitors already have rights to install networks in some of the buildings in which we have rights to install our networks. It will take a substantial amount of time to build networks in all the buildings in which we intend to exercise our rights under our license agreements and master license agreements. Each building in which we do not build a network is particularly vulnerable to competitors. It is not clear whether it will be profitable for two or more different companies to operate networks within the same building. Therefore, it is critical that we build our networks in additional buildings quickly. Once we have done so, if a competitor installs a network in the same building, there will likely be substantial price competition.
Local telephone companies
Incumbent local telephone companies, including regional Bell operating companies such as Verizon and BellSouth, have several competitive strengths which may place us at a competitive disadvantage. These competitive strengths include an established brand name and reputation and significant capital to rapidly deploy or leverage existing communications equipment and broadband networks. Competitive local telephone companies often market their services to tenants of buildings within our target markets and selectively construct in-building facilities.
Long distance companies
Many of the leading long distance companies, such as AT&T, MCI WorldCom and Sprint, could begin to build their own in-building voice and data networks. The newer national long distance carriers, such as Level 3, Qwest and Williams Communications, are building and managing high speed fiber-based national voice and data networks, partnering with Internet service providers, and may extend their networks by installing in-building facilities and equipment.
Competitive local telephone companies .
Competitive local telephone companies often have broadband inter-building connections, market their services to tenants of large and medium-sized buildings, and selectively build in-building facilities.
73
Fixed wireless service providers
Fixed wireless service providers, such as MCI WorldCom, XO Communications, Sprint, Terabeam, Teligent and Winstar, provide high speed communications services to customers using microwave or other facilities or satellite earth stations on building rooftops.
Internet service providers
Internet service providers, such as Concentric Networks, EarthLink, Genuity, Prodigy, PSINet, the UUNET subsidiary of MCI WorldCom, and Verio, provide traditional and high speed Internet access to residential and business customers, generally using the existing communications infrastructure. Digital subscriber line companies and/or their Internet service provider customers, such as AT&T and Covad, typically provide broadband Internet access using digital subscriber line technology, which enables data traffic to be transmitted over standard copper telephone lines at much higher speeds than these lines would normally allow. Providers, such as America Online, Microsoft Network, Prodigy and WebTV, generally target the residential market and provide Internet connectivity, ease-of-use and a stable environment for modem connections.
Cable-based service providers
Cable-based service providers, such as Excite@Home and its @Work subsidiary, High Speed Access, RCN Telecom Services and Road Runner, use cable television distribution systems to provide high capacity Internet access.
Other high-speed Internet service providers
We may also lose potential customers to other high-speed Internet service providers who offer similar high-speed Internet service. These include Yipes and Teleson, and are often characterized as Ethernet metropolitan access networks. These providers have targeted a similar customer base and have a strategy similar to ours.
Material Contracts
Agreements with Metromedia Fiber Networks
Cogent's largest supplier of intra-city fiber is Metromedia Fiber Networks, or MFN. Through an agreement with MFN, Cogent is required to purchase a minimum number of metropolitan fiber networks, located in many of Cogent's markets, and lateral fiber connections, which connect the metropolitan fiber networks to the buildings Cogent services. These metropolitan fiber networks connect to Cogent's metropolitan hub sites, providing the connection to Cogent's long-haul fiber backbone. Cogent's agreement with MFN has a term from 20 to 25 years, depending upon when certain minimum commitments are fulfilled, and can be extended for an additional term to be negotiated in good faith by MFN and Cogent. Through a recent amendment to their lease agreement, Cogent and MFN established a program whereby the parties expect to jointly fund the construction of new laterals into buildings and share in the proceeds from the sale of fiber strands in such laterals. This amendment also provides certain rights for Cogent to connect laterals constructed by Cogent to the MFN fiber rings. Under the agreement MFN also provides fiber maintenance and support of the metropolitan fiber networks. Through MFN's AboveNet facilities, Cogent has purchased a limited amount of transit capacity to gain connectivity to Internet service providers with whom Cogent does not currently have settlement-free peering.
74
Agreements with Williams Communications
Cogent's long-haul fiber backbone consists of two strands of optical fiber that Cogent has acquired from Williams Communications under a pre-paid indefeasible right of use ("IRU"). The IRU gives Cogent the right to use the fiber strands for 20 years and the right to extend the term for two five-year periods. Cogent will pay Williams to maintain the fiber during the period of the IRU. The fiber route is 12,484 miles in length and runs through all of the metropolitan areas served by Cogent. As of August 31, 2001 Williams had delivered approximately 11,810 miles of the route to Cogent. Cogent has also contracted with Williams Communications for:
Credit Agreement with Cisco Systems Capital Corporation
In October 2001, Cogent entered into an agreement with Cisco Systems Capital Corporation (Cisco Capital) under which Cisco Capital agreed to enter into a $409 million credit facility with Cogent. This credit facility supercedes and replaces the existing $310 million credit facility between Cisco Capital and Cogent. Borrowings under the credit facility will become available in increments subject to Cogent's satisfaction of certain operational and financial covenants over time. In connection with this agreement, Cogent granted to Cisco Capital rights which, together with the warrant issued to Cisco Capital under the previous credit agreement, will permit Cisco Capital to acquire up to 5% of the fully diluted common stock of Cogent. The $409 million credit facility will mature on December 31, 2008.
The credit facility is secured by the pledge of all of Cogent's assets and requires Cogent to comply with certain conditions, restrictions, and covenants, including revenue and other financial and operational targets. The credit facility also includes a closing fee, facility fee and a quarterly commitment fee on the underlying commitment. Borrowings are permitted to be prepaid at any time without penalty and are subject to mandatory prepayment based upon excess cash flow or, in certain circumstances, upon the receipt of proceeds from the sale of debt or equity securities of Cogent and other events, such as asset sales. Principal payments on the credit facility begin in March 2005 and will be completed by December 2008.
Product and Service Agreement with Cisco Systems
Cogent has entered into an agreement with Cisco Systems, Inc. for the purchase of a total of $270 million of networking equipment for Cogent's network. As of September 30, 2001, Cogent had purchased $107.6 million against this commitment. Under this Cisco supply agreement, Cogent is obligated to purchase all of its networking equipment from Cisco until September 2003 and specified amounts through December 2004 unless Cisco cannot offer a competitive product at a reasonable price and on reasonable terms. If another supplier offers such products with material functionality or features that are not available from Cisco at a comparable price, Cogent may purchase those products from the other supplier, and such purchases will not be included in determining Cogent's compliance with Cisco minimum purchase obligations. The majority of Cogent's equipment has been obtained from Cisco.
The Cisco supply agreement provides for certain discounts against the list prices for Cisco equipment. The agreement also requires that Cogent meet certain minimum purchase requirements each year during the four-year initial term of the agreement, provided that Cisco is not in default under the credit facility between Cisco and Cogent. In addition, Cogent purchases from Cisco technical support and assistance with respect to the Cisco hardware and software purchased under the supply agreement.
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Regulation
Cogent is subject to numerous local regulations such as building and electrical codes, licensing requirements, and construction requirements. These regulations vary on a city-by-city and county-by-county basis.
The FCC regulates common carriers' interstate services and state public utilities commissions exercise jurisdiction over intrastate basic telecommunications services. The FCC and most state public utility commissions do not regulate Internet service providers. The offerings of many of our competitors and vendors, especially incumbent local telephone companies, are subject to direct federal and state regulations. These regulations change from time to time in ways that are difficult for us to predict.
There is no current legal requirement that owners or managers of commercial office buildings give access to competitive providers of telecommunications services, although the FCC does prohibit carriers from entering contracts that restrict the right of commercial multiunit property owners to permit any other common carrier to access and serve the property's commercial tenants.
There have been various statutes, regulations, and court cases relating to liability of Internet service providers and other on-line service providers for information carried on or through their services or equipment, including in the areas of copyright, indecency/obscenity, defamation, and fraud. The laws in this area are unsettled and there may be new legislation and court decisions that may affect our services and expose us to liability. See "Risk FactorsLegislation and government regulation could adversely affect us."
Employees
As of October 10, 2001, we had 147 employees.
Description of Properties
We own no material real property. Cogent is headquartered in facilities consisting of approximately 19,600 square feet in Washington, D.C., which it occupies under a lease that expires on August 31, 2002. Cogent also leases approximately 70,000 square feet of space in the metropolitan areas served to house the equipment that provides the connection between Cogent's backbone network and its metropolitan networks. These metropolitan hub sites average 3,000 square feet in size. The terms of their leases generally are for 10 years with two 5 year renewal options, at annual rents ranging from $13.50 to $75.00 per square foot. We believe that our facilities are generally in good condition and suitable for our operations.
Legal Proceedings
Cogent is not a party to any material legal proceedings.
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with the financial statements and related notes included elsewhere in the proxy statement/prospectus. The results below are not necessarily indicative of the results to be expected in any future period. Certain matters discussed below are forward-looking statements. See "Cautionary Statement Concerning Forward-Looking Statements."
General Overview
Cogent was formed on August 9, 1999 as a Delaware corporation. Our primary activities to date have included recruiting employees, obtaining financing, branding and marketing our products, obtaining customer orders, obtaining office building access rights, designing and constructing our fiber-optic network and facilities, and providing our services to customers.
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We began invoicing our customers for our services in April 2001. We provide our high-speed Internet access service to our customers for a fixed monthly fee. We recognize service revenue in the month in which the service is provided. Cash received in advance of revenue earned is recorded as deferred revenue and recognized over the service period or, in the case of installation charges, over the estimated customer life.
As Cogent began to serve customers, we began to incur additional elements of network operations costs, including building access agreement fees, network maintenance costs and transit costs. Transit costs include the costs of transporting our customers' Internet traffic to and from the other networks that compose the Internet.
Recent Developments
Proposed Merger with Allied Riser Communications Corporation. On August 28, 2001, Cogent entered into an agreement to merge with Allied Riser Communications Corporation. Allied Riser is a facilities-based provider of broadband communication services, typically delivering its services over networks that it designed, constructed, owns and operates inside large- and medium-sized office buildings. Under the terms of the merger agreement, Cogent is expected to issue approximately 13.4% of its common stock, on a fully diluted basis, to the existing Allied Riser stockholders. The merger, if consummated, would require Cogent to assume the outstanding obligations of Allied Riser as of the closing date. As of June 30, 2001, these obligations include, among other things, $123.6 million of Allied Riser's convertible notes and approximately $114.3 million in commitments for operating and capital lease obligations. We expect this merger to close in the first quarter of 2002.
Acquisition of NetRail Inc. Assets. On September 6, 2001, Cogent acquired for approximately $12.0 million the major assets of NetRail, Inc. through a sale conducted under Chapter 11 of the United States Bankruptcy Code. The assets include certain customers, circuits, equipment, and settlement-free peering arrangements with Tier-1 Internet service providers. We are in the process of integrating NetRail's facilities and traffic with our network. Cogent anticipates reduced costs of network operations from the availability of the Tier-1 peering arrangements of NetRail.
Reduction in employment. On October 9, 2001, Cogent reduced its staff by approximately 50 employees and re-aligned portions of its organizational structure to streamline its operations and better focus its activities.
Sale of Series C preferred stock. On October 15, 2001, Cogent sold $62.0 million of its Series C preferred stock in a private transaction. Cogent will issue approximately 49.7 million (pre-split) shares of its Series C preferred stock in connection with this sale. In connection with the Series C preferred stock issuance, the conversion price of our Series B preferred stock will be adjusted pursuant to the anti-dilution provisions of our amended and restated certificate of incorporation. The result will be that Series B preferred stock will be converted into approximately 5.8 million (pre-split) additional shares of common stock of Cogent.
Results of Operations
Six Months ended June 30, 2001 Compared to the Six Months Ended June 30, 2000
Revenue. Revenue for the six-month period ending June 30, 2001 was $0.09 million compared to no revenue for the six-month period ending June 30, 2000. We began invoicing our customers in April 2001.
Network Operations. Network operations costs for the six-month period ended June 30, 2001 were primarily comprised of five elements:
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Cost of network operations was $10.4 million for the six-month period ended June 30, 2001 compared to $0.05 million for the six-month period ended June 30, 2000. Cogent believes that cost of network operations will increase as Cogent continues to construct its network, acquire additional office building access agreements, and service its customers. The cost of temporary leased transmission capacity was $3.3 million for the six-month period ended June 30, 2001 compared to $0 in the six-month period ended June 30, 2000. Certain of these costs will continue until the remaining segments of Cogent's nationwide fiber-optic intercity network are placed in service. Cogent anticipates that it will cancel all of these leased-line segments by November 2001. As these leased-line segments of the network are replaced with Cogent's dark fiber IRUs under capital leases, the related cost of network operations will be replaced by an increase in depreciation and amortization expense. As of June 30, 2001 approximately 9,340 route miles of the 12,484 route miles had been delivered to Cogent.
Selling, General, and Administrative Expenses. Selling, general and administrative expenses, or SG&A, primarily include salaries and the related administrative costs associated with an increase in the number of employees. SG&A increased to $14.2 million for the six-month period ended June 30, 2001 from $1.7 million for the six-month period ending June 30, 2000. SG&A expenses increased primarily from an increase in employees and related expenses required to support Cogent's growth. We had 217 employees at June 30, 2001 versus 47 employees at June 30, 2000. Cogent capitalizes the salaries and related benefits of employees directly involved with its construction activities. Cogent began capitalizing these costs in July 2000 and will continue to capitalize these costs while its network is under construction. Cogent believes that SG&A expenses will increase primarily due to the expected growth in the number of employees and related costs required to support its operations and customers.
Depreciation and Amortization. Depreciation and amortization expense increased to $3.0 million for the six-month period ended June 30, 2001 from $0.02 million for the six-month period ended June 30, 2000. These expenses represent the depreciation of the capital equipment required to support Cogent's network and increased because Cogent had more capital equipment in the six-month period of 2001 than in the same period in 2000. Cogent begins the depreciation and amortization of its capital assets once the related assets are placed in service. Cogent believes that future depreciation and amortization expense will continue to increase due to the acquisition of additional network equipment and the amortization of Cogent's capital lease IRUs.
Interest Income and Expense. Interest income increased to $1.3 million for the six-month period ended June 30, 2001 from $0.5 million for the six-month period ended June 30, 2000. The increase is primarily related to interest income earned on the proceeds from Cogent's issuance of an aggregate of $90.0 million in Series B preferred stock in June 2000 and July 2000. Interest income relates to interest earned on Cogent's marketable securities. Cogent's marketable securities consisted of money market accounts and commercial paper all with original maturities of three months or less.
Interest expense increased to $1.8 million for the six-month period ended June 30, 2001 from $0.3 million for the six-month period ended June 30, 2000. For the six-month period ended June 30, 2001, interest expense relates to interest charged on Cogent's borrowing on its vendor financing facility and its capital lease agreements. For the six-month period ended June 30, 2000 interest expense relates to interest on its capital lease agreements. Cogent began borrowing under its credit facility with Cisco Capital in August 2000 and had borrowed $127.7 million at June 30, 2001. Borrowings accrue interest at the three-month LIBOR rate, established at the beginning of each calendar quarter, plus a stated margin. Cogent incurred $26.1 million of capital lease obligations during the six-month period ended June 30, 2001 and $11.2 million for the six-month period ended June 30, 2000 related to IRUs for its
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intercity and intra-city nationwide network. Cogent capitalized $3.5 million of interest for the six-month period ended June 30, 2001. There was no capitalized interest for the six-month period ended June 30, 2000. Cogent will continue to capitalize interest expense while its network is under construction.
Income Taxes. Cogent recorded no income tax expense or benefit for the six-month period ended June 30, 2001 or the six-month period ended June 30, 2000. The federal and state net operating loss carryforwards of approximately $37.5 million at June 30, 2001 expire between 2019 and 2021. Due to the uncertainty surrounding the realization of this and its other deferred tax assets, Cogent has recorded a valuation allowance for the full amount of its net deferred tax asset. For federal and state tax purposes, Cogent's net operating loss carryforwards could be subject to certain limitations on annual utilization if certain changes in ownership were to occur as defined by federal and state tax laws. Should Cogent achieve profitability, its net deferred tax asset may be available to offset future income tax liabilities.
Earnings Per Share. Basic and diluted net loss per common share increased to ($1.99) for the six-month period ended June 30, 2001 from ($0.11) for the six-month period ended June 30, 2000. The weighted average shares of common stock outstanding increased to 14.0 million shares at June 30, 2001 from 13.7 million shares at June 30, 2000, due to exercises of options of Cogent's common stock. For the six-months ended June 30, 2001 and 2000 options to purchase 5,884,481 and 3,730,250 shares of common stock at weighted average exercise prices of $1.04 and $0.55 per share, respectively, are not included in the computation of diluted earnings per share as they are anti-dilutive. As of June 30, 2001, 45.8 million shares of preferred stock, which are convertible into 45.8 million shares of common stock, and warrants exercisable for 866,250 shares of common stock were not included in the computation of diluted earnings per share as a result of their anti-dilutive effect. As of June 30, 2000, 26.0 million shares of preferred stock, which are convertible into 26.0 million shares of common stock, were not included in the computation of diluted earnings per share as a result of their anti-dilutive effect.
Year Ended December 31, 2000 Compared to the Period from Inception (August 9, 1999)
to December 31, 1999
Revenue. We began recognizing revenue and invoicing our customers in April 2001. Therefore, there was no reported revenue for the year ended December 31, 2000 and the period from inception (August 9, 1999) to December 31, 1999.
Network Operations. Network operations costs for 2000 primarily included five elements:
The cost of network operations was $3.0 million in 2000 and there were no such costs in 1999. Cogent believes that cost of network operations will increase as Cogent continues to construct its network, acquire additional office building access agreements, and service its customers. The cost of temporary leased private-line transmission capacity was $0.9 million for 2000 and there were no such costs in 1999. Cogent anticipates canceling all of these leased-line segments by November 2001. As these leased-line segments of the network are replaced with Cogent's dark fiber IRUs under capital leases, the related cost of network operations is replaced by an increase in depreciation and amortization expense. As of December 31, 2000 approximately 5,100 route miles of the 12,484 route miles had been delivered to Cogent.
Selling, General, and Administrative Expenses. SG&A expenses increased from $0.08 million for the period from inception on August 9, 1999 to December 31, 1999 to $10.8 million in 2000. SG&A
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expenses increased primarily due to an increase in employees and related expenses required to support Cogent's growth. Cogent had 186 employees at December 31, 2000 versus three employees at December 31, 1999.
Depreciation and Amortization. Depreciation and amortization expense was $0.3 million in 2000 and there was no depreciation and amortization expense in 1999. These expenses represent the depreciation of the capital equipment required to support Cogent's network and there was no capital equipment in 1999. Cogent begins the depreciation and amortization of its capital assets once the related assets are placed in service and it believes that future depreciation and amortization expense will continue to increase due to the acquisition of additional network equipment and the amortization of Cogent's capital lease IRUs.
Interest Income and Expense. Interest income was $3.4 million in 2000 and there was no interest income in 1999. Interest income relates to interest earned on Cogent's marketable securities. Marketable securities at December 31, 2000 consisted of money market accounts and commercial paper all with original maturities of three months or less.
Interest expense was $1.1 million in 2000 and there was no interest expense in 1999. Interest expense relates to interest charged on Cogent's borrowing on a financing facility provided by Cisco Capital and capital lease agreements. Cogent began borrowing under its vendor credit facility in August 2000 and had borrowed $67.2 million at December 31, 2000. Borrowings accrue interest at the three-month LIBOR rate, established at the beginning of each calendar quarter, plus a stated margin. Cogent incurred $47.9 million of capital lease obligations in 2000 related to its 30-year IRUs to a nationwide fiber optic intercity network. Cogent capitalized $3.0 million of interest expense in 2000. Cogent will continue to capitalize interest expense while its network is under construction.
Income Taxes. Cogent recorded no income tax expense or benefit for 2000 or 1999. Cogent's federal and state net operating loss carryforwards of $9.6 million at December 31, 2000 expire between 2019 and 2020. Due to the uncertainty surrounding the realization of this and its other deferred tax assets, Cogent has recorded a valuation allowance for the full amount of its net deferred tax asset. Should Cogent achieve profitability, its net deferred tax asset may be available to offset future income tax liabilities. For federal and state tax purposes, Cogent's net operating loss carryforwards could be subject to certain limitations on annual utilization if certain changes in ownership were to occur as defined by federal and state tax laws.
Earnings Per Share. Basic and diluted net loss per common share increased to ($0.85) for 2000 from ($0.01) in 1999. The weighted average shares of common stock outstanding increased to 13.8 million shares at December 31, 2000 from 13.6 million shares at December 31, 1999, due to exercises of options for Cogent's common stock. For the years ended December 31, 2000 and 1999, options to purchase 6.9 million and 469,500 shares of common stock at weighted average exercise prices of $0.97 and $0.01 per share, respectively, are not included in the computation of diluted earnings per share as they are anti-dilutive. For the year ended December 31, 2000, 45.8 million shares of preferred stock, which are convertible into 45.8 million shares of common stock, were not included in the computation of diluted earnings per share as a result of their anti-dilutive effect. There was no preferred stock outstanding in 1999.
Liquidity and Capital Resources
Since inception, we have primarily funded our operations and capital expenditures through private equity financing, long-term debt, and equipment financing arrangements. As of October 15, 2001, we have raised $178 million of private equity funding, arranged for outstanding indebtedness under our credit facility of $409 million and have capital lease obligations of approximately $20 million. Our current cash and cash equivalents position is an additional source of our liquidity.
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Net Cash Provided by (Used in) Operating Activities. Net cash used in operating activities increased to $17.1 million for the six-month period ending June 30, 2001 as compared to a use of $1.4 million for the six-month period ending June 30, 2000. This increase is primarily due to an increase in the net loss to $27.9 million for the six-month period ended June 30, 2001 from a net loss of $1.5 million for the six-month period ended June 30, 2000. These net losses are offset by depreciation and amortization and changes in assets and liabilities of $10.8 million and $0.1 million for the six-month periods ended June 30, 2001 and June 30, 2000, respectively.
Net Cash Provided by (Used in) Investing Activities. Investing activities includes the purchases of property and equipment. Purchases of property and equipment increased to $54.4 million for the six-month period ending June 30, 2001 as compared to $0.4 million for the six-month period ending June 30, 2000. The increase is primarily due to purchases of network equipment under the Cisco credit facility of $31.5 million and network construction costs of $18.9 million for the six-month period ended June 30, 2001.
In March 2000, Cogent entered into a five-year commitment to purchase from Cisco minimum annual amounts of equipment, professional services and software. In June 2000, the agreement was amended to increase Cogent's previous commitment to purchase $150.1 million over four years to a commitment to purchase $212.2 million over five years. In October 2001, the commitment was amended to increase Cogent's previous commitment to purchase $270 million until December 31, 2004. As of September 30, 2001, Cogent has purchased approximately $107.6 million, towards this commitment.
Net Cash Provided by (Used in) Financing Activities. Financing activities provided $51.1 million for the six-month period ending June 30, 2001 compared to $84.9 million for the six-month period ending June 30, 2000. Cogent received proceeds from borrowing $31.5 million in equipment loans and $29.0 million in a working capital loan under the credit facility for the six-month period ended June 30, 2001. This working capital loan resulted in granting Cisco Capital warrants for 866,250 shares of common stock. The warrants have an exercise price of $4.55, adjusted as defined, and are exercisable for eight years. There were no borrowings under the credit facility for the six-month period ended June 30, 2000. For the six-month period ending June 30, 2000, Cogent received net proceeds of $95.9 million from the issuance of preferred stock. This included net proceeds of $25.9 million for the issuance of Series A preferred stock in February 2000 and $70.0 million from the proceeds of Series B preferred stock in June 2000. An additional net proceeds of $20.0 million was received in July 2000 from the issuance of additional shares of Series B preferred. There were no issuances of preferred stock during the six-month period ending June 30, 2001. The liquidation preferences at June 30, 2001 of the Series A and Series B preferred stock were $28.7 million and $96.2 million, respectively. Principal repayments of capital lease obligations was $9.4 million for the six-month period ending June 30, 2001 as compared to $11.0 million for the six-month period ended June 30, 2000.
On October 15, 2001, Cogent sold $62.0 million of its Series C preferred stock in a private transaction. In connection with the Series C preferred stock issuance, the conversion price of our of Series B preferred stock will be adjusted pursuant to the anti-dilution provisions of our amended and restated certificate of incorporation. The result will be that Series B preferred stock will be converted into approximately 5.8 million (pre-split) additional shares of common stock of Cogent.
Credit Facility. In October 2001, Cogent entered into an agreement with Cisco Systems Capital Corporation (Cisco Capital) under which Cisco Capital agreed to enter into a $409 million credit facility with Cogent. This credit facility supercedes and replaces the existing $310 million credit facility between Cisco Capital and Cogent. Borrowings under the credit facility will become available in increments subject to Cogent's satisfaction of certain operational and financial covenants over time. In connection with this agreement, Cogent granted to Cisco Capital rights which, together with the warrant issued to Cisco Capital under the previous credit agreement, will permit Cisco Capital to
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acquire up to 5% of the fully diluted common stock of Cogent. The $409 million credit facility will mature on December 31, 2008.
The credit facility is secured by the pledge of all of Cogent's assets and requires Cogent to comply with certain conditions, restrictions, and covenants, including revenue and other financial and operational targets. The credit facility also includes a closing fee, facility fee and a quarterly commitment fee on the underlying commitment. Borrowings are permitted to be prepaid at any time without penalty and are subject to mandatory prepayment based upon excess cash flow or, in certain circumstances, upon the receipt of proceeds from the sale of debt or equity securities of Cogent, and other events, such as asset sales. Principal payments on the credit facility begin in March 2005 and will be completed by December 2008.
Product and Service Agreement with Cisco Systems Cogent has entered into an agreement with Cisco Systems, Inc. for the purchase of a total of $270 million of networking equipment for Cogent's network. As of September 30, 2001, Cogent had purchased $107.6 million against this commitment. Under this Cisco supply agreement, Cogent is obligated to purchase all of its networking equipment from Cisco until September 2003 and specified amounts through December 2004 unless Cisco cannot offer a competitive product at a reasonable price and on reasonable terms. If another supplier offers such products with material functionality or features that are not available from Cisco at a comparable price, Cogent may purchase those products from the other supplier, and such purchases will not be included in determining Cogent's compliance with Cisco minimum purchase obligations. The majority of Cogent's equipment has been obtained from Cisco.
The Cisco supply agreement provides for certain discounts against the list prices for Cisco equipment. The agreement also requires that Cogent meet certain minimum purchase requirements each year during the four-year initial term of the agreement, provided that Cisco is not in default under the credit facility between Cisco and Cogent. In addition, Cogent purchases from Cisco technical support and assistance with respect to the Cisco hardware and software purchased under the supply agreement.
Future Capital Requirements Our future capital requirements will depend on a number of factors, including our success in increasing the number of customers and the number of buildings we serve, the expenses associated with the build-out of our network regulatory changes, competition, technological developments, potential merger and acquisition activity and the economy's ability to recover from the recent downturn. We believe our available liquidity resources, assuming the availability of our Cisco credit facility, will be sufficient to fund our operating needs at least through the end of our next fiscal year. We have based this estimate on assumptions that may prove wrong. For example, future capital requirements will change from current estimates to the extent to which we acquire or invest in businesses, assets, products and technologies. Our forecast of the period of time through which our financial resources will be adequate to support our operations and capital expenditures is a forward-looking statement that involves risks and uncertainties, and actual results could vary as a result of a number of factors, including those discussed in "Cautionary Statement Concerning Forward-Looking Statements." Until we can generate sufficient levels of cash from our operations, which we do not expect to achieve for several years, we will continue to rely on equity financing and our credit facility to provide us with our cash needs. We cannot assure you that this financing will be available on terms favorable to us or our stockholders. Insufficient funds may require us to delay or scale back the build-out of our network. If additional funds are raised by issuing equity securities, substantial dilution to existing stockholders may result.
Recent Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations. All business combinations in
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the scope of this Statement will be accounted for using the purchase method of accounting. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001, and business combinations accounted for by the purchase method for which the date of acquisition is July 1, 2001, or later. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under this Statement, goodwill will no longer be amortized but will be tested for impairment at least annually at the reporting unit level. Goodwill will be tested for impairment on an interim basis if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. Intangible assets which remain subject to amortization will be reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The provisions of SFAS No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001. The proposed merger transaction with Allied, if consummated, will be accounted for in accordance with SFAS No. 141 and No. 142.
Quantitative and Qualitative Disclosures About Market Risk
Cogent has no financial instruments entered into for trading purposes. Cogent's primary market risk exposure is related to its marketable securities and credit facility. Cogent places its marketable securities investments in instruments that meet high credit quality standards as specified in Cogent's investment policy guidelines. Marketable securities were approximately $45.1 million at June 30, 2001, all of which are considered cash equivalents and mature in 90 days or less.
Cogent's credit facility provides for secured borrowings at the 90-day LIBOR rate plus a specified margin based upon Cogent's leverage ratio, as defined in the agreement. The interest rate resets on a quarterly basis and was 9.4% for the three-month period ended June 30, 2001. Interest payments are deferred and begin in 2005. Borrowings are secured by a pledge of all of Cogent's assets. The weighted average interest rate on all borrowings for the six-month period ending June 30, 2001, was approximately 10.2%. The credit facility matures on December 31, 2008. Borrowings may be repaid at any time without penalty subject to minimum payment amounts.
If market rates were to increase immediately and uniformly by 10% from the level at June 30, 2001, the change to Cogent's interest sensitive assets and liabilities would have an immaterial effect on Cogent's financial position, results of operations and cash flows over the next fiscal year. A 10% increase in the weighted average interest rate for the six-month period ended June 30, 2001 (from 10.2% to 11.2%) would increase interest for the period by approximately $400,000.
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INFORMATION ABOUT ALLIED RISER
Description of Business
Allied Riser is a facilities-based provider of broadband communications services with facilities operating or constructed in 54 major metropolitan areas in North America (including Canada), typically delivering its services over networks that it designed, constructed, owns, and operates inside large- and medium-sized office buildings. Allied Riser suspended its retail services in most of its markets in the United States on September 21, 2001. Allied Riser is pursuing the provision of in-building wholesale services of its broadband data network. Allied Riser has the capability to provide services using wireless, optical, and copper-based technologies.
The predecessor of Allied Riser, RCH Holdings, Inc., was formed in 1996. Allied Riser was formed on November 2, 1998, as a Delaware corporation. Immediately following the incorporation of Allied Riser, a reorganization of RCH Holdings, Inc. occurred. The wholly owned subsidiaries of RCH Holdings, Allied Riser Communications, Inc., and Carrier Direct, Inc., both Texas corporations, distributed their assets and liabilities to RCH Holdings in a complete liquidation and dissolution. Thereafter, RCH Holdings transferred all of its assets and liabilities to Allied Riser in exchange for shares of common stock. Allied Riser then contributed these assets and liabilities to its wholly owned subsidiary, Allied Riser Operations Corporation. In June 1997, Allied Riser began installing its network, and began operating its first in-building network in January 1998. In 1998 Allied Riser sold equity to several sponsors and, in 1999, completed another round of private equity financing and signed agreements with owners and managers of significant real estate portfolios. In October 1999, Allied Riser completed an initial public offering of its common stock. During the third quarter of 2000, Allied Riser, through its wholly owned subsidiary, Allied Riser Canada, acquired 68% of the common stock of Shared Technologies of Canada, Inc.
The principal executive office of Allied Riser is currently located at 1700 Pacific Avenue, Suite 400, Dallas, Texas 75201 and its telephone number is (214) 210-3000.
Facilities and Operations
Inside its constructed buildings, Allied Riser has installed a broadband data infrastructure that typically runs from the basement of the building to the top floor inside the building's vertical utility shaft. This broadband data infrastructure is designed to carry data and voice traffic for all the building's tenants. Service for customers is initiated by connecting a broadband data to the infrastructure in the vertical utility shaft.
Inside the building, usually in the basement, Allied Riser also establishes a building point-of-presence. In each building point-of-presence, it connects the broadband data cables to Cisco routers or other electronic equipment that enable transmission of data and video traffic to and from those cables. Allied Riser has obtained the right to use a small amount of space in the basement of buildings to establish the building point-of-presence.
Allied Riser's typical lease or license agreement with a real estate owner is for a term of ten or more years. The agreement provides for the development of the network installation design and the approval of the construction plans and arrangements by the real estate owner as well as ongoing reporting to the real estate owner of network expansion as Allied Riser adds customers and revenue sharing or fixed monthly rent.
Allied Riser, through its 68% owned subsidiary, Shared Technologies of Canada, Inc., continues to provide voice as well as retail high speed Internet access in Canada through its in-building network.
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Competition
Allied Riser's market is extremely competitive and it faces competition from many entities with significantly greater financial resources, well-established brand names, and larger customer bases. Allied Riser expects significant competition from a variety of telecommunications companies including local, long distance, cable modem, Internet, digital subscriber line, microwave, mobile, and satellite data service providers. Because of their resources, some of Allied Riser's competitors may be able to offer services to customers at prices that are below the prices it can offer for comparable services, which impedes its ability to become profitable. Allied Riser will continue to face competition from other in- building service providers such as Cypress Communications, Intermedia Communications, RCN Communications, XO Communications, Teligent, Eureka/GGN, Everest, Winstar and Advanced Radio Telecom. These entities are all attempting to gain access to office buildings in its target markets. Allied Riser also faces competition from incumbent local and interexchange telephone companies that have competitive strengths, including an established brand name and reputation, significantly more capital, existing inter-building connections, and service offerings that include data and voice services. These competitive strengths may place Allied Riser at a competitive disadvantage.
Allied Riser faces competition for access to buildings, pricing for services, technological change, and demand for its services, all of which could adversely affect its operations. See "Risk FactorsThe sector in which we operate is highly competitive, and we may not be able to compete effectively."
Regulation
Allied Riser is subject to numerous local regulations such as building and electrical codes, licensing requirements, and construction requirements. These regulations vary on a city-by-city and county-by-county basis. There is no current legal requirement in a large majority of states that owners or managers of commercial office buildings give access to competitive providers of telecommunications services, but such laws and regulations have been proposed in the past and may be adopted in the future. The FCC issued its first order in a multi-phase regulatory proceeding on a number of issues related to utility shaft access in multiple tenant environments. Among other things, this order, which is the subject of a pending appeal:
The order also introduced the second phase of this proceeding, which seeks to determine a number of additional issues that could have an effect on our business. These issues include:
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The FCC has not released a decision on its proposed rulemaking. In addition, legislation has been introduced in the U.S. Congress that addresses issues relating to telecommunications access to buildings owned or used by the federal government and other building access issues. We cannot predict the outcome of the appeal of the FCC's first order, or the content of any future orders in the FCC proceedings, or any other federal or state proceeding, or of any federal or state legislation that may be applicable to us, or to our competitors, suppliers, or customers, nor what effect, if any, it may have on our business.
The FCC regulates common carriers' interstate services. State public utilities commissions exercise jurisdiction over intrastate basic telecommunications services, but we believe do not regulate most enhanced services, which involve more than the pure transmission of customer-provided information. The FCC has preempted certain inconsistent state regulation of, and does not itself regulate, enhanced services. We believe that all of the communications services that we currently provide are enhanced services and therefore not subject to direct regulation. The offerings of many of our competitors and vendors, especially incumbent local telephone companies, are subject to direct federal and state regulations. These regulations change from time to time in ways that are difficult for us to predict.
Through subsidiaries, we are in the process of applying for, and have received in some states, authority from various state regulatory commissions and the FCC to provide basic telecommunications services, such as voice telephony service. These subsidiaries are or will be subject to direct state and federal regulation upon approval of their applications. We do not expect to encounter substantial legal barriers to entry into regulated telecommunications services. We also do not expect to face significant regulatory restrictions on the pricing or terms of any regulated telecommunications service offerings we might choose to offer that would have a material adverse effect on our business. Changes in the regulatory environment, however, could have a material adverse effect on our business.
The Telecommunications Act of 1996 substantially altered the federal and state regulatory environment for telecommunications services, including by removing legal barriers to entry, requiring incumbent local telephone companies to provide their competitors with interconnection, unbundled network elements, access to rights-of-way, conduit and ducts, and opportunities for resale of their services, all pursuant to detailed requirements that have been specified, and continue to be specified, by the FCC. Many of the FCC proceedings implementing the Telecommunications Act of 1996 remain pending or are the subject of appeals. The FCC has ruled on and is continuing to consider a number of proceedings related to the provision of advanced telecommunications services. In many cases, the FCC rules that have been enacted or are being considered in these proceedings are intended to spur the deployment of broadband transmission capabilities and advanced services, including digital subscriber line service. We believe the net result of these proceedings is and will be to enhance our competitors' ability to provide broadband services. The rules adopted by the FCC in this area, and the outcome of pending appeals, could have a material effect on our competitive position with regard to incumbent local telephone and other telecommunications companies.
The Telecommunications Act of 1996 also specified a procedure by which Bell companies could be allowed to provide in-region long distance services, something they were prohibited from doing prior to its passage. The FCC has granted Verizon's applications to provide long distance service in Connecticut, Massachusetts, New York, and Pennsylvania and SBC's applications to provide long distance services in Texas, Oklahoma, and Kansas. Similar applications are currently pending. In addition, legislation has been introduced to allow the Bell companies to provide long distance Internet and high-speed data services. We anticipate that eventually the Bell companies will be able to provide long distance services throughout all of their service areas.
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There have been various statutes, regulations, and court cases relating to liability of Internet service providers and other on-line service providers for information carried on or through their services or equipment, including in the areas of copyright, indecency/obscenity, defamation, and fraud. The laws in this area are unsettled and there may be new legislation and court decisions that may affect our services and expose us to liability. See "Risk FactorsLegislation and government regulation could adversely affect us."
We may in the future decide to provide voice services over the Internet. We believe that, under United States law, based on specific regulatory classifications and recent regulatory decisions, voice communications over the Internet currently constitute enhanced services (as opposed to regulated basic telecommunications services). As such, any such services we may provide are not currently regulated by the FCC or state agencies charged with regulating telecommunications carriers. Several efforts have been made in the United States to enact federal legislation that would either regulate or exempt from regulation communications services provided over the Internet. Several state regulatory authorities have initiated proceedings to examine the regulation of such services and Colorado's Public Utilities Commission has ruled that the use of the Internet to provide certain intrastate services does not exempt a carrier from paying intrastate access charges. Others could initiate proceedings to regulate or require access charges or other charges on the provision of voice services over the Internet. We cannot predict the outcome of any such proceedings or the effect it would have on our business should we decide to provide voice services over the Internet.
Employees
As of October 10, 2001, Allied Riser had 71 employees, including 32 employees of Shared Technologies of Canada, Inc., a 68% owned subsidiary of Allied Riser.
Description of Properties
Allied Riser is headquartered in facilities consisting of approximately 68,000 square feet in Dallas, Texas, which it occupies under a lease that expires in December 2003. In addition, Allied Riser is currently negotiating to terminate leases for space in which its engineering department, customer care center, and network operations center were located.
Legal Proceedings
On July 26, 2001, in a case titled Hewlett-Packard Company v. Allied Riser Operations Corporation a/k/a Allied Riser Communications, Inc., Hewlett-Packard Company filed a complaint against a subsidiary of Allied Riser, Allied Riser Operations Corporation, in the 95th Judicial District Court, Dallas County, Texas, seeking damages of $18,775,000, attorneys' fees, interest, and punitive damages relating to various types of equipment allegedly ordered from Hewlett-Packard Company by Allied Riser Operations Corporation. Allied Riser filed its answer generally denying Hewlett-Packard's claims. Allied Riser intends to vigorously contest this lawsuit.
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Supplementary Financial Information (Unaudited)
The quarterly financial information for the calendar quarters in 1999, 2000, and 2001 set forth below has been derived from the unaudited consolidated financial statements of Allied Riser. The information should be read in connection with, and is qualified in its entirety by reference to Allied Riser's financial statements and the notes included elsewhere in this proxy statement/prospectus. The interim data reflect all adjustments that, in the opinion of management of Allied Riser, are necessary to present fairly such information for the interim periods. The results of operations of the quarterly periods are not necessarily indicative of the results expected for a full year or any interim period.
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Total revenue | $ | 146 | $ | 401 | $ | 442 | $ | 881 | $ | 1,358 | $ | 1,972 | $ | 4,403 | $ | 6,599 | $ | 7,929 | $ | 8,573 | |||||||||||
Operating income (loss) | (5,742 | ) | (14,589 | ) | (16,162 | ) | (24,284 | ) | (41,194 | ) | (46,933 | ) | (49,347 | ) | (44,809 | ) | (42,689 | ) | (307,104 | ) | |||||||||||
Net income (loss) | (5,327 | ) | (14,635 | ) | (16,030 | ) | (21,496 | ) | (37,025 | ) | (44,068 | ) | (47,217 | ) | (45,098 | ) | (43,310 | ) | (291,154 | ) | |||||||||||
Net income (loss) applicable to common stock | $ | (6,977 | ) | $ | (16,285 | ) | $ | (18,270 | ) | $ | (22,408 | ) | $ | (37,025 | ) | $ | (44,068 | ) | $ | (47,217 | ) | $ | (45,098 | ) | $ | (43,310 | ) | $ | (291,154 | ) | |
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Net income (loss) per common share | $(.31 | ) | $(.71 | ) | $(.68 | ) | $(.48 | ) | $(.69 | ) | $(.81 | ) | $(.87 | ) | $(.81 | ) | $(.75 | ) | $(4.82 | ) | |||||||||||
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Weighted average number of shares outstanding | 22,396 | 22,886 | 26,809 | 46,534 | 53,318 | 54,272 | 54,565 | 55,644 | 58,121 | 60,372 | |||||||||||||||||||||
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Management's Discussion and Analysis of Financial Condition and Results of Operations
Allied Riser is a facilities-based provider of broadband communications services with facilities operating or constructed in 54 major metropolitan areas in North America (including Canada), typically delivering its services over networks that it designed, constructed, owns, and operates inside large- and medium-sized office buildings. As of June 30, 2001, Allied Riser had its broadband data network operating or constructed inside approximately 830 and 70 office buildings, respectively, with more than 310 million and 10 million rentable square feet, respectively. Effective September 21, 2001, Allied Riser suspended its retail services in most of its markets in the United States and it is pursuing the provision of in-building wholesale services of its broadband data network.
Recent Developments
During the third quarter of 2000, Allied Riser revised its business plan to provide for a more measured deployment and utilization of its network, direct sales force, application products, and services and customer support infrastructure. In response to significant declines in valuation of competitive telecommunications providers, continued weakness in the demand for information technology and telecommunications services, and business failures of several prominent companies in markets similar to Allied Riser, on July 24, 2001, Allied Riser announced a number of additional initiatives to further reduce its operating costs and refocus its business plan. These initiatives include the suspension of retail sales of broadband data applications and services in most markets in the United States as of September 21, 2001, the transition of its current retail customers to other service providers, the closure of its sales offices, and a further reduction in the number of employees by approximately 290 persons, or approximately 75% of its total workforce. Additionally, Allied Riser is pursuing the provision of in-building wholesale services of its broadband data network. As a result of the initiatives discussed above, Allied Riser expects revenue and related network costs and expenses to decline throughout 2001. However, certain contractual obligations without future benefit may be recorded in periods prior to contractual due dates, which may accelerate the recognition of these expenses.
During the third and fourth quarters of 2001, Allied Riser sold four of the five data and communication service providers acquired by it in 2000. On August 7, 2001, Allied Riser sold its subsidiary, Winterlink, Inc. On September 14, 2001, Allied Riser sold substantially all of the assets and liabilities of its subsidiary, DirectCorporateLink.net, Inc. On October 3, 2001, Allied Riser sold its subsidiary, Rockynet.Com, Inc. and on October 4, 2001, Allied Riser sold all of the membership interests of its subsidiary, Netrox, L.L.C. Allied Riser does not expect these transactions to have a material impact on its ongoing operations.
On August 28, 2001, Allied Riser entered into a merger agreement with Cogent, which was subsequently amended on October 13, 2001, under which each share of Allied Riser stock would be exchanged for shares of Cogent common stock. The merger is conditioned upon, among other things, approval by the stockholders of Allied Riser, the approval for listing or quotation of the shares of Cogent common stock to be issued in the merger on a national securities exchange or the Nasdaq National Market, and the receipt of material consents.
Allied Riser's common stock is traded on the Nasdaq National Market. In order for its common stock to continue to be listed on the Nasdaq National Market, Allied Riser must satisfy various listing requirements established by Nasdaq. On July 23, 2001, Allied Riser received a letter from Nasdaq advising Allied Riser that the minimum bid price of its stock had failed to comply with the continued listing standards of Nasdaq. On August 21, 2001, Allied Riser received a letter from Nasdaq advising Allied Riser that it had failed to comply with the minimum net tangible asset and the minimum shareholder's equity requirements for continued listing on Nasdaq. On September 5, 2001, Allied Riser transmitted a letter to Nasdaq addressing the issues raised in the July 23 and August 21 letters. On
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September 27, 2001, Nasdaq announced a moratorium on the minimum bid price and minimum market value of public float listing requirements until January 2, 2002, in response to the September 11, 2001, terrorist attacks. This announcement did not suspend Nasdaq's minimum net tangible asset and shareholder's equity listing requirements. On October 9, 2001, Allied Riser received a letter from Nasdaq citing the moratorium and declaring the matter initiated by July 23 letter closed. With regard to the remaining issues, Allied Riser has provided Nasdaq with its specific plan to achieve and sustain compliance with the various listing requirements. This plan includes the consummation of the proposed merger wth Cogent. Allied Riser has had further verbal discussions with Nasdaq, but no formal communication has been received by Allied Riser in response to its plan, and there is no assurance that Allied Riser's stock will remain listed.
On October 9, 2001, Allied Riser and its wholly owned subsidiary, Allied Riser Operations Corporation, entered into a settlement and mutual release agreement in connection with certain of its capital lease agreements. Pursuant to the terms of the settlement and mutual release agreement, in exchange for the payment of $12.5 million by Allied Riser to the lessor, the lessor released Allied Riser and its subsidiaries from any and all obligations to the lessor and its affiliates under the capital lease agreement and under various maintenance agreements with respect to equipment leased by Allied Riser or its subsidiaries from the lessor. As of June 30, 2001, such obligations were reflected in Allied Riser's financial statements as approximately $62,900,000. The title to the equipment subject to the capital lease agreements was transferred to Allied Riser pursuant to the settlement, and the lessor has agreed to release all liens on and security interests in such equipment.
Results of Operations
Three Months and Six Months Ended June 30, 2001 Compared to Three Months and Six Months Ended June 30, 2000.
Network Services Revenue. Network services revenue for the three months ended June 30, 2001, increased to $6,699,000 as compared to $1,857,000 for the three months ended June 30, 2000. Network services revenue for the six months ended June 30, 2001, increased to $12,437,000 as compared to $2,809,000 for the six months ended June 30, 2000. The increase in revenues is attributable to growth in the number of customers resulting from contributions of the businesses acquired in the second and third quarters of 2000, an increase in the number of buildings served, increased sales efforts concentrated in Allied Riser's networked properties, and increased penetration of its broadband data network into new buildings.
Value Added Services Revenue. Value added services revenue for the three months ended June 30, 2001, increased to $1,874,000 as compared to $115,000 for the three months ended June 30, 2000. Value added services revenue for the six months ended June 30, 2001, increased to $4,065,000 as compared to $521,000 for the six months ended June 30, 2000. This increase is attributable to the contributions of the businesses acquired in the second and third quarters of 2000 and the continued expansion of its network and product offerings.
Network Operations. Network operations expense was $19,497,000 for the three months ended June 30, 2001, and $10,347,000 for the three months ended June 30, 2000. Network operations expense was $38,069,000 for the six months ended June 30, 2001, and $16,006,000 for the six months ended June 30, 2000. This increase is consistent with the expansion of its network and the resulting increase in transport, licensing, and customer costs.
Network operations expense includes deferred compensation expense of $604,000 for the three months ended June 30, 2001, and $232,000 for the three months ended June 30, 2000. Network operations expense includes deferred compensation of $633,000 for the six months ended June 30,
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2001, and $513,000 for the six months ended June 30, 2000. This increase is attributable to the acquisition of businesses in the second and third quarters of 2000.
Cost of Value Added Services. Cost of value added services was $1,204,000 for the three months ended June 30, 2001, and $82,000 for the three months ended June 30, 2000. Cost of value added services was $2,615,000 for the six months ended June 30, 2001, and $385,000 for the six months ended June 30, 2000. This increase is consistent with the increased growth in the number of customers utilizing these services and the acquisitions of businesses in the second and third quarters of 2000.
Selling Expense. Selling expense was $7,806,000 for the three months ended June 30, 2001, and $11,657,000 for the three months ended June 30, 2000. Selling expense was $15,806,000 for the six months ended June 30, 2001, and $24,808,000 for the six months ended June 30, 2000. This decrease is attributable to the more targeted approach Allied Riser is using for its marketing and selling efforts focusing primarily at the specific buildings it serves. In addition, Allied Riser has adopted a more selective approach in its spending for development of brand awareness and promotional materials and for the establishment of sales demonstration centers.
Selling expense includes deferred compensation expense of $1,167,000 for the three months ended June 30, 2001, and $354,000 for the three months ended June 30, 2000. Selling expense includes deferred compensation of $2,112,000 for the six months ended June 30, 2001, and $784,000 for the six months ended June 30, 2000. This increase is attributable to the acquisition of businesses in the second and third quarters of 2000.
General and Administrative Expenses. General and administrative expenses were $10,512,000 for the three months ended June 30, 2001, and $18,442,000 for the three months ended June 30, 2000. General and administrative expenses were $21,563,000 for the six months ended June 30, 2001, and $35,702,000 for the six months ended June 30, 2000. This decrease reflects the reductions in force that occurred in October 2000 and February and May 2001. The number of general and administrative employees of Allied Riser decreased to 134 at June 30, 2001, as compared to 359 at June 30, 2000.
General and administrative expense includes deferred compensation expense of $451,000 for the three months ended June 30, 2001, and $2,549,000 for the three months ended June 30, 2000. General and administrative expense includes deferred compensation of $155,000 for the six months ended June 30, 2001, and $5,416,000 for the six months ended June 30, 2000. This decrease is attributable to the expense reduction previously recognized related to forfeited options and shares as a result of the reductions in force that occurred in October 2000 and February and May 2001.
Depreciation and Amortization. Depreciation and amortization for the three months ended June 30, 2001, increased to $14,322,000 as compared to $8,377,000 for the three months ended June 30, 2000. Depreciation and amortization for the six months ended June 30, 2001, increased to $25,904,000 as compared to $14,556,000 for the six months ended June 30, 2000. This increase was primarily due to the increase in system infrastructure and system equipment placed in service.
Other Income (Expense). Other income (expense) was $(1,805,000) for the three months ended June 30, 2001, and $2,865,000 for the three months ended June 30, 2000. Other income (expense) was $(2,428,000) for the six months ended June 30, 2001, and $7,034,000 for the six months ended June 30, 2000. This change in other income (expense) is primarily due to the interest expense resulting from the issuance of the convertible notes in the second quarter of 2000.
Income Tax Benefit. A tax benefit of $6,037,000 was recognized as of June 30, 2001, and no benefit was recognized as of June 30, 2000. The recognized benefit resulted from reversing a portion of our tax valuation allowance in connection with the realization of deferred net operating loss carryforwards as a result of the early extinguishment of our 7.50% convertible subordinated notes due 2007 (see note 8).
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Allied Riser expects to generate significant net losses for the foreseeable future which should generate net operating loss carry forwards.
Extraordinary Item. An extraordinary gain of $11,718,000, net of $6,037,000 in income taxes, was recognized as a result of the early extinguishment of the 7.50% convertible subordinated notes due 2007.
Asset write-down. An asset write-down of $262,336,000 was recognized as of June 30, 2001. This write down is further explained in Liquidity and Capital Resources.
Year Ended December 31, 2000, Compared to Year Ended December 31, 1999
Network Services Revenue. Network services revenue for the year ended December 31, 2000, increased to $10,969,000 as compared to $1,422,000 for the year ended December 31, 1999. The increase in revenues is attributable to growth in the number of customers resulting from increased sales and marketing efforts concentrated in Allied Riser's networked properties, the increased penetration of its broadband date network into new buildings, and the acquisition of two high-speed data communication companies. Additionally, the operations of Allied Riser Communications Corporation of Canada, Inc. ("ARC Canada"), a wholly owned subsidiary, resulted in increased network services revenue of $1,903,000 for the year ended December 31, 2000.
Value Added Services Revenue. Value added services revenue for the year ended December 31, 2000, increased to $3,363,000 as compared to $448,000 for the year ended December 31, 1999. This increase in revenue is attributable to growth in the number of customers resulting from increased sales and marketing efforts concentrated in Allied Riser's networked properties and the increased penetration of its broadband data network into new buildings, with the majority of the increase in revenue being the result of the acquisition of two professional services and data communication companies.
Network Operation Expense. Network operations expense was $43,389,000 for the year ended December 31, 2000, and $7,554,000 for the year ended December 31, 1999. This increase is consistent with the expansion of Allied Riser's network and the resulting increase in transport, licensing, and customer costs and the network operation expenses resulting from ARC Canada and the acquisition of two high-speed data communication companies.
Cost of Value Added Services. Cost of value added services was $2,356,000 for the year ended December 31, 2000, and $128,000 for the year ended December 31, 1999. The majority of this increase is the result of the acquisition of two professional services and data communication companies.
Selling Expense. Selling expense was $44,535,000 for the year ended December 31, 2000, and $9,296,000 for the year ended December 31, 1999. This increase is attributable to the expansion of sales and marketing efforts including commissions, development of corporate identification, promotional and advertising materials, the establishment of sales demonstration centers, market launch events and hiring sales personnel.
General and Administrative Expenses. General and administrative expenses were $60,763,000 for the year ended December 31, 2000, and $25,981,000 for the year ended December 31, 1999. This increase is consistent with the growth of Allied Riser's development activities and operating infrastructure construction. The number of general and administrative employees increased to 401 as of December 31, 2000, as compared to 283 at December 31, 1999.
Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2000, increased to $36,155,000 as compared to $5,007,000 for the year ended December 31, 1999. This
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increase was primarily due to the increase in system infrastructure and system equipment placed in service.
Amortization of Deferred Compensation. Amortization of deferred compensation was $9,418,000 for the year ended December 31, 2000, and $14,681,000 for the year ended December 31, 1999. This decrease is attributable to the accelerated amortization that occurred in 1999 as a result of employee equity awards vesting upon Allied Riser's initial public offering and the reduction in force that occurred in October 2000.
Other Income. Other income was $8,876,00 for the year ended December 31, 2000, and $3,289,000 for the year ended December 31, 1999. This change in other income is primarily due to an increase in interest income generated by the proceeds Allied Riser received from its initial pubic offering and its convertible debt offering.
Provision for Income Taxes. For the years ended December 31, 2000, and December 31, 1999, no provision for taxes was recognized as Allied Riser operated at a loss throughout both periods. Allied Riser expects to generate significant net losses for the foreseeable future which should generate net operating loss carry forwards. No benefit for net operating carry forwards is being recognized.
Year Ended December 31, 1999, Compared to Year Ended December 31, 1998
Network Services Revenue. Network services revenue for the year ended December 31, 1999, increased to $1,422,000 as compared to $212,000 for the year ended December 31, 1998. The increase in revenues is attributable to growth in the number of customers resulting from increased sales and marketing efforts concentrated in Allied Riser's networked properties and the increased penetration of its broadband data network into new buildings.
Value Added Services Revenue. Value added services revenue was $448,000 for the year ended December 31, 1999, and $0 for the year ended December 31, 1998. This increase is attributable to the expansion of Allied Riser's broadband data network and product offerings.
Network Operations Expense. Network operations expense was $7,554,000 for the year ended December 31, 1999, and $2,358,000 for the year ended December 31, 1998. This increase is consistent with the expansion of Allied Riser's broadband date network and resulting increase in related costs.
Cost of Value Added Services. Cost of value added services was $128,000 for the year ended December 31, 1999, and $0 for the year ended December 31, 1998. This increase is attributable to the expansion of Allied Riser's broadband data network and product offerings.
Selling Expense. Selling expense was $9,296,000 for the year ended December 31, 1999, and $1,623,000 for the year ended December 31, 1998. This increase was attributable to the continued identification, establishment of sales demonstration centers, promotional and advertising materials and hiring sales personnel.
General and Administrative Expenses. General and administrative expenses were $25,981,000 for the year ended December 31, 1999, and $9,736,000 for the year ended to December 31, 1998. This increase is consistent with Allied Riser's development activities and is attributable to growth it experienced in the number of employees as a result of building its operating infrastructure. The number of general and administrative employees increased to 283 as of December 31, 1999, as compared to 85 at December 31, 1998.
Depreciation and Amortization. Deprecation and amortization for the year ended December 31, 1999, increased to $5,007,000 as compared to $499,000 for the year ended December 31, 1998. This
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increase was primarily due to the increase in system infrastructure and system equipment placed in service.
Amortization of Deferred Compensation. Amortization of deferred compensation was $14,681,000 for the year ended December 31, 1999, and $0 at December 31, 1998. This increase is attributable to amortization that occurred in 1999 as a result of Allied Riser's initial public offering.
Other Income (Expense). Other income (expense) was $3,289,000 for the year ended December 31, 1999, and $(606,000) for the year ended December 31, 1998. This change in other income (expense) is primarily attributable to an increase in interest income generated by the proceeds of Allied Riser's initial public offering.
Provision for Income Taxes. For the years ended December 31, 1999 and 1998, no provision for taxes was recognized as Allied Riser operated at a loss throughout both years. Allied Riser expects to generate significant net losses for the foreseeable future which should generate net operating loss carry forwards. No benefit for the net operating carry forwards is being recognized.
Year Ended December 31, 1998, Compared to Period From Inception (December 19, 1996)
to December 31, 1997
Network Services Revenue. Network services revenue for the year ended December 31, 1998, was $212,000. Allied Riser's fiber-optic network began operation in January 1998. Accordingly, no revenue was recognized for the period from inception to December 31, 1997.
Network Operations Expense. Network operations expense was $2,358,000 for the year ended December 31, 1998, and $80,000 for the period from inception to December 31, 1997. This increase is consistent with the expansion of Allied Riser's fiber-optic network and resulting increase in related costs.
Selling Expense. Selling expense was $1,623,000 for the year ended December 31,1998. This expense was attributable to the initial deployment of Allied Riser's network and the related sales and marketing efforts, including development of its logo, establishment of sales demonstration centers, promotional and advertising materials and hiring sales personnel. Consistent with the initial deployment of its network in January 1998, Allied Riser had no selling expense in the period from inception to December 31, 1997.
General and Administrative Expenses. General and administrative expenses were $9,736,000 for the year ended December 31, 1998, and $1,348,00 for the period from inception to December 31, 1997. This increase is consistent with Allied Riser's development activities and is attributable to growth it experienced in the number of employees as a result of building its operating infrastructure. Allied Riser's number of general administrative employees increased to 85 as of December 31, 1998, as compared to 13 at December 31, 1997.
Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 1998, was $499,000 as compared to $10,000 for the corresponding period of the prior year. This increase was attributable to the deployment of Allied Riser's system infrastructure and system equipment which commenced in January 1998.
Other Income (Expense). Other income (expense) was $(606,000) for the year ended December 31, 1998, and $(59,000) for the period from inception to December 31, 1997. The change in other income (expense) is primarily due to an increase in interest expense as a result of increased borrowing throughout 1998.
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Provision for Income Taxes. For the year ended December 31, 1998, and the period from inception to December 31, 1997, no provision for taxes was recognized as Allied Riser operated at a loss throughout both periods. Allied Riser expects to generate significant net losses for the foreseeable future which should generate net operating loss carry forwards. No benefit for net operating carry forwards is being recognized.
Liquidity and Capital Resources
As of June 30, 2001, Allied Riser had cash and cash equivalents of $27,748,000 and short-term investments of $111,796,000.
Cash flow from operations totaled $(50,522,000) and $(71,614,000) for the six months ended June 30, 2000 and 2001, respectively. The expansion of Allied Riser's personnel, the growth of its leased network, office space costs, and other growth-driven operating expenses were the principal contributors to the increase in the net cash outflow between the periods. Allied Riser expects this outflow to decrease as it implements its revised business plan and reduces the scope of its operations.
Cash (used in) provided by investing activities was $(47,952,000) and $93,161,000 for the six months ended June 30, 2000 and 2001, respectively. During the six months ended June 30, 2001, cash provided by investing activities was due to the sale of $100,310,000 in short-term investments. These sales were offset by capital expenditures of $6,985,000 and $164,000 in business acquisition costs. During the six months ended June 30, 2001, cash provided by investing activities was the result of capital expenditures of $41,729,000, the purchase of $4,320,000 in short-term investments, and $1,903,000 in business acquisition costs.
Historically, Allied Riser has required significant capital to fund the construction and installation of its network within buildings and to purchase electronic equipment for installation in building and metropolitan points of presence. During the second quarter of 2001, Allied Riser made capital expenditures of $2,731,000 as compared to capital expenditures of $61,159,000 in the second quarter of 2000. During the six months ended June 30, 2001, Allied Riser made capital expenditures of $9,112,000 as compared to capital expenditures of $88,336,000 for the six months ended June 30, 2000. Allied Riser's capital expenditures have totaled $204,219,000 since inception.
Cash provided by (used in) financing activities was $142,784,000 and $(23,251,000) for the six months ending June 30, 2000 and 2001, respectively. Cash used by financing activities during the six months ended June 30, 2001 was primarily for the payment of capital lease obligations and for the repurchase of certain of its 7.50% convertible subordinated notes due 2007. During the six months ended June 30, 2000, cash provided by financing activities was primarily from Allied Riser's issuance and sale in a private placement of $150,000,000 aggregate principal amount of its 7.50% convertible subordinated notes due 2007, for net offering proceeds of approximately $145,003,000.
As of June 30, 2001, Allied Riser had capital lease obligations of $59,851,000, of which $29,958,000 is current and due during the next twelve months. On October 9, 2001, Allied Riser and its wholly owned subsidiary, Allied Riser Operations Corporation, entered into a settlement and mutual release agreement in connection with certain of its capital lease agreements. Pursuant to the terms of the settlement and mutual release agreement, in exchange for the payment of $12.5 million by Allied Riser to the lessor, the lessor released Allied Riser and its subsidiaries from any and all obligations to the lessor and its affiliates under the capital lease agreement and under various maintenance agreements with respect to equipment leased by Allied Riser or its subsidiaries from the lessor. As of June 30, 2001, such obligations were reflected in Allied Riser's financial statements as approximately $62,900,000. The title to the equipment subject to the capital lease agreements was transferred to Allied Riser pursuant to the settlement, and the lessor has agreed to release all liens on and security interests in such equipment. Allied Riser has no written commitments for additional lease financing.
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As of June 30, 2001, Allied Riser had committed to pay over the next five years to carriers under its existing connectivity contracts approximately $16,140,000, of which $11,090,000 is due during the next twelve months. As of June 30, 2001, Allied Riser had operating lease obligations of $54,449,000, of which $11,981,000 is current and due during the next twelve months.
On May 11, 2001, Allied Riser commenced a tender offer to purchase any and all of its 7.50% convertible subordinated notes due 2007 (the "notes") for a purchase price of $280 in cash per $1,000 of principal amount of notes, plus accrued but unpaid interest on the notes up to but excluding the date on which it deposited the funds with the depositary to purchase the accepted notes. On June 12, 2001, Allied Riser announced the completion of its tender offer, accepting for purchase $26,400,000 of the aggregate principal amount of the notes, representing approximately 17.6% of the $150,000,000 aggregate principal amount of notes outstanding prior to the tender offer. Allied Riser paid $8,360,000 in cash, including $968,000 for accrued but unpaid interest, to complete the tender offer. An extraordinary gain of $11,718,000, net of $6,037,000 in income taxes, was recognized as a result of the early extinguishment of the notes. The extraordinary gain also includes $486,000 of expenses incurred with the offer and a $767,000 write-off of associated debt issuance costs. Allied Riser's remaining interest expense in 2001, payable in shares of common stock or cash, will be approximately $4,635,000 (including the approximately $990,000 reduction in interest expense related to the notes purchased in the tender offer completed in June 2001). Beyond 2001, Allied Riser's annual commitment for interest expense, payable in shares of common stock or cash, will be approximately $9,270,000.
During the second quarter of 2001, numerous adverse changes in Allied Riser's industry and the economic environment as a whole, including significant declines in valuation of competitive telecommunications providers, continued weakness in the demand for information technology and telecommunications services, and business failures of several prominent companies in markets similar to Allied Riser's caused Allied Riser to conclude that its prospects for future cash flows had weakened and its operating risks had increased. Additionally, during the second quarter of 2001, Allied Riser made certain changes in its operations. Both these external and internal changes triggered a review of long-lived assets, including building and network-related assets, real estate access rights, property and equipment, and goodwill. This review indicated that undiscounted cash flows expected to be generated by such assets were not sufficient to recover the historical book value of long-lived assets and that such assets should be reduced to fair value. As a result of its review, in the second quarter of 2001, Allied Riser recorded a write-down in the values of its building and network-related assets, real estate access rights, property and equipment, and goodwill.
Liquidity Assessment
As of June 30, 2001, cash and marketable securities totaled $139,544,000. As a result of the implementation of Allied Riser's revised business plan and additional cost savings initiatives announced on July 24, 2001, Allied Riser expects its use of cash for capital expenditures in the future to be significantly lower than historical capital expenditures. The additional initiatives include the suspension, as of September 21, 2001, of retail sales of broadband data applications and services in most markets in the United States and the pursuit by Allied Riser of the provision of in-building wholesale services of its broadband data network. As a result of the suspension of retail operations and the current lack of significant sales of its wholesale services, operating revenues and related network costs and expenses will decline after the third quarter. Allied Riser anticipates operating at a loss for the foreseeable future. The remaining cash, marketable securities and funds generated in its operations will be available to fund its operating expenses, debt service, and reduced capital requirements. Allied Riser believes that with the implementation of the additional cost savings initiatives, its cash and marketable securities on hand and funds generated from operations will be sufficient to fund its revised business plan through 2002, although there can be no assurance in this regard. The current business plan does not contemplate the use of cash for the repurchase of debt securities prior to due dates or for acquisitions
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of businesses. If the Company's current business plan changes to include the early extinguishment of debt or acquisitions additional funding may be required to fund the Company's operations through 2002. Allied Riser periodically evaluates various equity and debt financing options, although Allied Riser has no commitments for additional financing and is unsure of its ability to obtain such additional financing at the times required and on terms and conditions acceptable to it. Allied Riser's future capital requirements are dependent on numerous factors, many of which it cannot control. These factors include (but are not limited to):
Quantitative and Qualitative Disclosures About Market Risk
Allied Riser had $111,796,000 in short-term investments at June 30, 2001. The majority of its short-term investments are highly liquid, fixed-rate securities consisting primarily of U.S. Government and corporate securities with original maturities at date of purchase beyond three months and less than twelve months and are subject to interest rate risk. The value of these securities would decline in the event of increases in market interest rates. Allied Riser intends to hold these securities until maturity and may thus avoid the losses resulting from sudden changes in interest rates. Allied Riser does not have any derivative instruments nor does it attempt to hedge its market exposure because a majority of its investments are fixed-rate, short-term securities. Declines in interest rates or other adverse market factors would reduce its interest income over time and could lead to loss of its principle investment.
The convertible subordinated notes of Allied Riser provide a fixed 7.50% rate of interest. The fair value of the notes is sensitive to changes in interest rates.
Allied Riser conducts business in Canada through its Canadian subsidiary, for which the Canadian dollar is the functional currency. Accordingly, it is subject to exchange rate exposures arising from the translation and consolidation of the financial results of its Canadian subsidiary. Revenue from the Canadian subsidiary represented approximately 17% of its total revenues for the six months ended June 30, 2001. Exchange rate movements upon the consolidation of its Canadian subsidiary could affect its revenues, expenses, equity, and overall profitability (loss). There can be no assurance that future changes in currency exchange rates will not have an affect on its future cash collections or operating
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results. Allied Riser does not currently use derivative financial instruments to manage or hedge foreign currency exchange rate fluctuations.
Security Ownership Of Directors And Executive Officers
The following table sets forth information as of September 1, 2001, regarding the beneficial ownership of common stock by each director and executive officer of Allied Riser, and all directors and executive officers of Allied Riser as a group. The persons named in the table have sole voting and investment power with respect to all shares of common stock owned by them, unless otherwise noted. The percentage of beneficial ownership is based on 61,392,111 shares of common stock outstanding as of September 1, 2001.
Name of Beneficial Owner or Number of Persons in Group
|
Amount and
Nature of Beneficial Ownership(1) |
Percent
of Class |
||
---|---|---|---|---|
Michael R. Carper (2)(3) | 409,351 | * | ||
R. David Spreng (4) | 14,340 | * | ||
Blair P. Whitaker (5) | 4,340 | * | ||
Gerald K. Dinsmore (6) | 250,000 | * | ||
Terri L. Compton (2)(7) | 101,102 | * | ||
Don Lynch(8) | 58,333 | * | ||
Quentin E. Bredeweg | | * | ||
All executive officers and directors as a Group (7 persons) | 837,466 | 1.4% |
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Ventures III has shared voting and investment power with respect to 81,123 of such shares. The foregoing information has been included in reliance upon, and without independent verification of, the disclosures contained in the above-referenced report on Schedule 13G. Mr. Spreng has disclaimed beneficial ownership of these shares.
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DESCRIPTION OF COGENT CAPITAL STOCK
As a result of the merger, Allied Riser stockholders will become Cogent stockholders. Your rights as a Cogent stockholder will be governed by Delaware law, Cogent's Second Amended and Restated Certificate of Incorporation, and Cogent's bylaws. The following description of Cogent's capital stock, including the Cogent common stock to be issued in the merger, reflects the anticipated state of affairs at the completion of the merger.
The description summarizes the material terms of Cogent's capital stock but does not purport to be complete, and is qualified in its entirety by reference to the applicable provisions of Delaware law, Cogent's certificate of incorporation, and bylaws.
General
Cogent's authorized capital stock after the merger will consist of 211,000,000 shares of common stock, par value $.001 per share, 98,137,643 shares of preferred stock, par value $.001 per share, 26,000,000 of which shall be designated as Series A participating convertible preferred stock, 20,000,000 of which shall be designated as Series B participating convertible preferred stock, and 52,137,643 of which shall be designated as Series C participating convertible preferred stock.
Cogent Common Stock
Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors subject to any preferential dividend rights of outstanding preferred stock. Upon the liquidation, dissolution, or winding up of Cogent, the holders of common stock are entitled to receive ratably the net assets of Cogent available after the payment of all debts and liabilities and subject to the prior rights of any outstanding preferred stock including the Series A, B, and C preferred stock. Holders of the common stock have no preemptive, subscription, redemption, or conversion rights. The shares of Cogent common stock that will be issued in the merger will be duly authorized, validly issued, fully paid, and nonassessable.
Cogent Preferred Stock
Voting
Holders of preferred stock are entitled to vote together with holders of common stock at annual or special meetings of stockholders and may act by written consent in the same manner as holders of common stock upon the following basis: each holder of a share of preferred stock will be entitled to one vote for each share of common stock such holder would receive upon conversion of such share of preferred stock into common stock. Notwithstanding the foregoing, holders of Series A preferred stock shall have the authority to elect two of the members of Cogent's board of directors, holders of Series B preferred stock shall have the authority to elect one of the members of Cogent's board of directors, and holders of Series C preferred stock shall have the authority to elect one of the members of Cogent's board of directors.
So long as 29,441,293 shares of preferred stock are outstanding, the affirmative vote or consent of the holders of two-thirds of the issued and outstanding shares of preferred stock, voting together as a single class, is required for certain corporate actions including the declaration of any dividends, the merger, consolidation, dissolution, liquidation, or sale of the company, and the increase or decrease in the aggregate number of authorized shares of common or preferred stock.
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Liquidation and Dividend Preferences
Upon any liquidation of Cogent, holders of Cogent's Series A, B, and C preferred stock are entitled to receive certain preferences to holders of Cogent common stock. In the event of a liquidation, before holders of common stock receive any distribution, holders of Series A, B, and C preferred stock will receive payments particular to each series as set forth in the certificate of incorporation.
Holders of Series C preferred stock shall be entitled to receive, when and as declared by the board of directors, cash dividends at a rate of 8% of the original Series C preferred stock purchase price per annum on each outstanding share of Series C preferred stock. Any partial payment will be made ratably among the holders of Series C preferred stock. Except for acquisitions of common stock by Cogent pursuant to agreements which permit the company to repurchase such shares at cost upon termination of services to the company or acquisitions of common stock in exercise of Cogent's right of first refusal to repurchase such shares, Cogent may not declare any dividends or make any other distribution on any other Cogent stock, called junior stock, until all dividends on the Series C preferred stock have been paid. If dividends are paid on any junior stock, Cogent shall pay an additional dividend on all outstanding shares of Series C preferred stock in an amount equal per share (on an as-if-converted to common stock basis) to the amount paid or set aside for each share of junior stock.
Conversion and Anti-Dilution Rights
Shares of preferred stock may be converted to common stock at any time. In order to determine the number of shares of common stock received in the conversion, the number of shares of preferred stock held by the converting holder is multiplied by the conversion rate applicable to those shares as calculated pursuant to the certificate of incorporation. All shares of preferred stock will automatically be converted into common stock upon the election of 66.66% of the outstanding shares of preferred stock or immediately upon the closing of a firmly underwritten public offering in which the aggregate pre-money valuation of Cogent is at least $500,000,000 and in which the gross cash proceeds are at least $50,000,000.
If Cogent engages in a stock split or reverse stock split, the applicable conversion prices will be proportionately decreased or increased, as the case may be. If Cogent declares a common stock dividend or distribution, the conversion prices shall be adjusted by multiplying them by the quotient equal to the total number of shares of common stock issued and outstanding immediately prior to the issuance divided by the total number of shares of common stock issued and outstanding immediately prior to the issuance plus the number of shares of common stock issuable in payment of the dividend or distribution. If Cogent declares a dividend payable in securities of the corporation other than common stock, the common stock is changed to a different type of stock, or if there is a capital reorganization, holders of preferred stock shall be entitled, upon conversion of their preferred stock, to receive an amount of securities or property equivalent to what they would have received if they had converted their preferred stock to common stock on the date of the dividend, reclassification, recapitalization, or capital reorganization.
If Cogent issues or sells additional shares of common stock for a price which is less than the then-effective Series A applicable conversion price in the case of Series A preferred stock, the Series B applicable conversion price in the case of Series B preferred stock, or the Series C applicable conversion price in the case of Series C preferred stock, then the conversion prices shall be reduced to prices calculated as prescribed by the certificate of incorporation.
Preemptive, Co-Sale and Voting Rights
Cogent, David Schaeffer and the holders of Cogent's preferred stock entered into an Amended and Restated Stockholders Agreement that governs the sale and transfer of the company's capital stock
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and which sets forth agreements relating to the nomination and election of Cogent's directors. The Stockholders Agreement will terminate upon (1) the completion of an offering of Cogent common stock in which (a) the pre-money valuation of the company is at least $500,000,000 and (b) the gross proceeds are at least $50,000,000, or (2) the sale of the company, whether by merger, sale, or transfer of more the ninety percent of its capital stock, or sale of substantially all of its assets.
Pursuant to the Stockholders Agreement, Cogent has agreed that, with certain exceptions, it shall not issue, sell, or exchange any common stock, preferred stock, debt securities with equity features, or options or warrants unless it has first offered to sell such securities to Cogent's preferred stockholders who hold, individually or together with their affiliates at least 2,500,000 shares of the preferred stock. Mr. Schaeffer shall also be entitled to this participation right so long as he holds at least fifty percent of the common stock held by him on the date of the Stockholders Agreement.
Mr. Schaeffer may not, while employed by Cogent, sell, assign, or otherwise transfer any shares of common stock held by him until February 7, 2003. The foregoing restriction is subject to certain exceptions, including transfers by gift or bequest. If Mr. Schaeffer is no longer an employee of Cogent, the foregoing transfer restrictions shall be lifted as to a portion of his common stock. Mr. Schaeffer's transfer restrictions terminate upon the completion of (1) an offering described above, (2) the sale of the company, whether by merger, sale, or transfer of more than ninety percent of its capital stock, or sale of substantially all of its assets, or (3) conversion into common stock of all the then outstanding shares of preferred stock.
If Mr. Schaeffer wishes to sell, assign, transfer, or otherwise dispose of any or all of his common stock to a third party who makes a purchase offer to Mr. Schaeffer, he must first offer to sell the shares to Cogent's preferred stockholders on terms at least as favorable as those of the proposed sale to the third party. If Mr. Schaeffer's sale or disposition of common stock, together with prior sales, transfers, or dispositions by Mr. Schaeffer, result in the transfer of more than twenty-five percent of the total number of shares of Mr. Schaeffer's common stock, each Cogent preferred stockholder will have the right to require, as a condition of the sale, that the third party purchase at the same price per share the same percentage of shares of common stock beneficially owned by them as is being purchased from the Mr. Schaeffer.
Finally, the parties to the Stockholders Agreement have agreed to vote to elect as directors two people designated by the holders of a majority of the shares of the common stock, two people designated by the holders of a majority in interest of the then outstanding Series A preferred stock, one person designated by the holders of a majority in interest of the then outstanding Series B preferred stock, one person designated by the holders of a majority in interest of the then outstanding Series C preferred stock, and one person who shall be a person highly knowledgeable about the industry in which Cogent operates and who is unaffiliated with the management of the company. The parties to the Stockholders Agreement agree that the initial designees for election to the board of directors are David Schaeffer and Helen Lee, designees of the holders of common stock; Erel Margalit and James Wei, designees of the holders of Series A preferred stock; Edward Glassmeyer, and designee of the holders of Series B preferred stock.
Registration Rights
According to the terms of the Amended and Restated Registration Rights Agreement, the holders of Restricted Stock have rights to require registration of such stock. Restricted Stock means the common stock acquired by the conversion of preferred stock and the common stock which would be issuable to a holder of preferred stock upon the conversion of all the shares of preferred stock then held by such holder. At any time after the third anniversary of the date of the Amended and Restated Registration Rights Agreement, the holders of more than one-third of the total number of shares of restricted stock, or a lesser percent if the anticipated offering price less underwriting discounts and
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commissions would be at least $5,000,000, may request that Cogent register all or any portion of their shares of restricted stock under the Securities Act.
When Cogent receives a registration request, it will notify all holders of restricted stock of the registration request and allow them thirty days to request that their stock be included in the registration. Cogent shall then use its best efforts to register the shares for public sale under the Securities Act. Cogent may include in the registration shares of common stock to be sold for its own account so long as that inclusion does not adversely affect the marketing of the restricted stock. In addition, if the managing underwriter believes that including all of the restricted stock requested to be registered would adversely affect the marketing of such shares, Cogent may reduce the number of shares to be registered, giving holders of Series C preferred stock preference as to registration followed by holders of Series A and B preferred stock together. If Cogent proposes to register any of its securities under the Securities Act for sale to the public, it will give written notice to all holders of restricted stock and shall, upon receiving the written request of any such holder, use its best efforts to include that holder's restricted stock in the registration. If the managing underwriter believes that including all of the restricted stock requested to be registered would adversely affect the marketing of such shares, Cogent may reduce the number of shares to be registered, giving holders of Series C preferred stock preference as to registration followed by holders of Series A and B preferred stock together.
Cisco Warrant
In connection with our credit facility, Cisco Systems Capital Corporation currently is entitled to purchase up to 5% of the shares of Cogent common stock. In addition, we have granted to Cisco Systems Capital registration rights with respect to the common stock it obtains through the exercise of the warrant.
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COMPARISON OF STOCKHOLDER RIGHTS
The rights of Allied Riser and Cogent stockholders are currently governed by Delaware General Corporation Law, and the respective certificates of incorporation and bylaws of Allied Riser and Cogent. Upon completion of the merger, the rights of Allied Riser stockholders who become stockholders of Cogent in the merger will be governed by the Delaware General Corporation Law, Cogent's certificate of incorporation, and Cogent's bylaws.
The following description summarizes the material differences that may affect the rights of stockholders of Allied Riser and Cogent but does not purport to be a complete statement of all those differences, or a complete description of the specific provisions referred to in this summary. The identification of specific differences is not intended to indicate that other equally or more significant differences do not exist. Stockholders should read carefully the relevant provisions of the Delaware General Corporation Law, Cogent's certificate of incorporation and bylaws, and Allied Riser's amended and restated certificate of incorporation and amended and restated bylaws.
Allied Riser
|
Cogent
|
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| 1,000,000,000 shares of Allied Riser common stock | | 211,000,000 shares of Cogent common stock | |||
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100,000 shares of Allied Riser preferred stock |
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26,000,000 shares of Cogent Series A Preferred Stock |
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20,000,000 shares of Cogent Series B Preferred Stock |
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52,137,643 shares of Cogent Series C Preferred Stock |
Allied Riser
|
Cogent
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Allied Riser's bylaws provide for a board of directors consisting of not fewer than three nor more than fifteen persons. The number of directors of Allied Riser currently is fixed at four. | Cogent's bylaws provide for a board of directors consisting of six directors. The size of the board of directors may be increased or decreased in conformity with Cogent's certificate of incorporation or any stockholders agreement, the execution of which is approved by the board of directors, (an "approved stockholders agreement"). Upon consummation of the merger, Cogent will increase the size of the board of directors to seven. |
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Allied Riser
|
Cogent
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|
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Allied Riser's certificate of incorporation provides for its board of directors to be divided into three classes, of equal size as practicable, with three-year terms. | Cogent's bylaws provide for its board of directors to be divided into three classes, with each class consisting, as nearly as may be possible, of one-third of the total number of directors. Except for the initial term of service, each class shall serve a three year term. The initial term of Class I directors shall terminate on the earlier of the first anniversary of the effective date of the merger and the date of the next meeting of Cogent's stockholders. The initial term of Class II directors shall terminate on the earlier of the second anniversary of the effective date of the merger and the date of the next meeting of Cogent's stockholders. The initial term of Class III directors shall terminate on the earlier of the third anniversary of the effective date of the merger and the date of the next meeting of Cogent's stockholders. The preferred stockholders have the right to designate four of these directors. |
Filling Vacancies on the Board
Allied Riser
|
Cogent
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|
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Allied Riser's certificate of incorporation and bylaws provide that vacancies due to increase in the number of directors may be filled by a majority of the directors then in office, provided that there is a quorum, and that vacancies for any other reason may be filled by a majority of the directors then in office, even though less than a quorum. | Cogent's bylaws provide that any vacancies on Cogent's board of directors may be filled by majority vote of the remaining directors, even though less than a quorum, or by a sole director, in each case only after any stockholders entitled to designate nominees to the board of directors under an approved stockholders agreement have been given adequate opportunity to do so. |
Allied Riser
|
Cogent
|
|
---|---|---|
Allied Riser's certificate of incorporation and bylaws provide that directors may be removed only for cause and only by the affirmative vote of a majority of the outstanding shares of voting stock. | Cogent's bylaws provide that unless otherwise restricted by Cogent's certificate of incorporation, an approved stockholders agreement, or bylaw, any director, or the entire board of directors, may be removed from office, either with or without cause, at any meeting of Cogent's stockholders by a majority vote of those stockholders represented and entitled to vote at such meeting. In addition, Cogent's bylaws provide that the term of any director who is also an officer of Cogent shall automatically end if such director ceases to be an officer. |
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Nomination of Directors for Election
Allied Riser
|
Cogent
|
|||
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Under Allied Riser's bylaws, nominations for the Allied Riser board of directors may be made by the Allied Riser board of directors or by any stockholder of record on the date of the giving of the notice described in the section of the bylaws entitled Nomination of Directors, who is entitled to vote at the meeting where election of directors will be held. Stockholder nominations must comply with the notice procedures described in Allied Riser's bylaws. These procedures require the stockholder's written notice to be received by Allied Riser: | Neither Cogent's certificate of incorporation nor its bylaws contain provisions with respect to procedures for the nomination of individuals for election to the board of directors. | |||
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for an annual meeting, not less than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; |
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if the date of the annual meeting is more than 30 days before or after that anniversary date, then notice must be received not later than the close of business on the fifteenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever is first; and |
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for a special meeting called for the purpose of electing directors, not later than the close of business on the fifteenth day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever is first. |
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The notice must include information on the nominee required by the proxy rules of the SEC. |
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Transactions with Interested Stockholders
Delaware law provides that, subject to certain exceptions, a corporation may not engage in any business combination with any "interested stockholder" (generally defined to mean any beneficial owner of more that 15 percent of the corporation's voting stock) for a three-year period following the date that stockholder becomes an interested stockholder unless the corporation's certificate of incorporation expressly provides, or its bylaws or certificate of incorporation are amended by the stockholders to provide, that the corporation is not governed by this provision of Delaware law, which is set forth at section 203 of the Delaware General Corporation Law.
Allied Riser
|
Cogent
|
|
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Allied Riser is governed by section 203 of the Delaware General Corporation Law. | Cogent has not elected not to be governed by section 203 of the Delaware General Corporation Law. Neither Cogent's certificate of incorporation nor its bylaws restrict transactions with interested stockholders. |
Stockholder Action Without a Meeting
Allied Riser
|
Cogent
|
|
---|---|---|
Allied Riser's certificate of incorporation prohibits stockholder action by written consent and mandates that any action required or permitted to be taken by Allied Riser stockholders must be effected at a duly called annual or special meeting. | Cogent's certificate of incorporation and bylaws allow stockholder action by written consent, without prior notice and without a vote, if such consent is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a stockholder meeting at which all shares entitled to vote thereon were present and voted. |
Calling Special Meetings of Stockholders
Allied Riser
|
Cogent
|
|
---|---|---|
Allied Riser's certificate of incorporation provides that a special meeting of stockholders may be called only by the Chairman of the Board of Directors, the President, or the board of directors. Allied Riser stockholders do not have the ability to call a special meeting of stockholders. | Cogent's bylaws provide that a special meeting of stockholders may be called by Cogent's President, and must be called by either the President or the Secretary of Cogent at the written request of (1) a majority of the board of directors or (2) stockholders owning at least 10% of the issued and outstanding capital stock of Cogent entitled to vote thereon. |
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Submission of Stockholder Proposals
Allied Riser
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Cogent
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Allied Riser's bylaws specify advance notice requirements that conform to the requirements of Delaware law. Notice of a proposal to be considered at an annual meeting must be received by Allied Riser not less than 90 days prior to the anniversary of the previous year's annual meeting. | Neither Cogent's certificate of incorporation nor its bylaws contain provisions addressing submission of stockholder proposals. | |
If the date of the annual meeting is not within 30 days before or after such anniversary date, then such notice must be received by Allied Riser not later than 15 days after the day on which notice of the date for such meeting was mailed or public announcement of such date, whichever is earlier. |
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The notice must include a description of the stockholder proposal, the reasons for conducting the business desired to be brought before the meeting and other information. |
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Notice of Stockholder Meetings
Allied Riser
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Cogent
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---|---|---|
Allied Riser's bylaws provide for written notice to stockholders of record not less than 10 nor more than 60 days prior to an annual or special meeting. | Cogent's bylaws provide for written notice to those stockholders entitled to vote not less than 10 nor more than 60 days prior to an annual or special meeting. |
Stockholder Vote Required for Mergers
Under Delaware law, a merger, consolidation, or sale of all or substantially all of a Delaware corporation's assets must be approved by the board of directors of the corporation and by a majority of the outstanding stock of the corporation entitled to vote thereon. However, no vote of stockholders of a constituent corporation surviving a merger is required, unless the corporation provides otherwise in its certificate of incorporation of the corporation, if: (1) the merger agreement does not amend the certificate of incorporation of the surviving corporation; (2) each share of stock of the surviving corporation outstanding before the merger is an identical outstanding or treasury share after the merger; and (3) either no shares of common stock of the surviving corporation are to be issued or delivered pursuant to the merger, or, if common stock will be issued or delivered, it will not increase
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the number of shares of common stock outstanding immediately prior to the merger by more than 20%.
Allied Riser
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Cogent
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Allied Riser's certificate of incorporation does not deviate from Delaware law. | Cogent's certificate of incorporation provides that so long as 29,441,293 shares of preferred stock are outstanding, the affirmative vote or consent of the holders of two-thirds of the issued and outstanding shares of preferred stock, voting together as a single class, is required for any merger or consolidation. In the event that there are fewer than 29,441,293 shares of preferred stock outstanding, Cogent's certificate of incorporation does not deviate from Delaware law. |
Under Delaware law, a Delaware corporation may pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which declared and for the preceding fiscal year. Delaware law also provides that dividends may not be paid out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding stock of all classes having a preference upon the distribution of assets.
Allied Riser
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Cogent
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|
---|---|---|
Allied Riser's bylaws provide that the board of directors has full discretion to declare dividends. | Cogent's certificate of incorporation provides that the board of directors has full discretion to declare dividends on the Series C Preferred Stock at the annual rate of 8%. Except in certain specified events, no dividends on the other capital stock of Cogent can be paid or declared until all dividends on the Series C Preferred Stock have been paid or declared and set apart, in which case Cogent's certificate of incorporation further provides that so long as 29,441,293 shares of preferred stock are outstanding, the affirmative vote or consent of the holders of two-thirds of the issued and outstanding shares of preferred stock, voting together as a single class, is required for the declaration of dividends. In the event that less than 29,441,293 shares of preferred stock are outstanding, Cogent's certificate of incorporation provides that, subject to any preferential dividend rights of any outstanding common stock, the board of directors has full discretion to declare dividends. See "Description of Cogent Capital Stock" for a discussion of dividend preferences among the different classes of Cogent's capital stock. |
109
Delaware law provides that no stockholder shall have any preemptive rights to purchase additional securities of the corporation unless the certificate of incorporation expressly grants these rights.
Allied Riser
|
Cogent
|
|
---|---|---|
Allied Riser's certificate of incorporation does not provide for preemptive rights for Allied Riser common stockholders. | Cogent's certificate of incorporation does not provide for preemptive rights for Cogent stockholders. Pursuant to the Stockholders Agreement, however, Cogent has agreed that, with certain exceptions, it shall not issue, sell, or exchange any common stock, preferred stock, debt securities with equity features, or options or warrants unless it has first offered to sell such securities to certain holders of Cogent preferred stock. This right shall exist for so long as David Schaeffer holds at least fifty percent of the common stock held by him on the date of the Stockholders Agreement. |
Stockholder Class Voting Rights
Delaware law requires voting by separate classes of shares only with respect to amendments to a Delaware corporation's certificate of incorporation that adversely affect the holders of those classes or that increase or decrease the aggregate number of authorized shares or the par value of the shares of any of those classes.
Allied Riser
|
Cogent
|
|
---|---|---|
Allied Riser has only one class of shares outstanding. | Except with respect to certain events set forth in the certificate of incorporation or by statute, holders of Cogent's capital stock vote together as a single class, with each share of common stock entitled to one vote, and each share of preferred stock entitled to one vote per share of common stock to be received upon conversion of such preferred stock. See "Description of Cogent Capital Stock" for a discussion of instances where holders of Cogent capital stock vote by separate classes. |
110
UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
The following unaudited condensed combined pro forma financial statements ("the pro forma financial statements") and explanatory notes have been prepared to give effect to the merger, using the purchase method of accounting for business combinations. The unaudited condensed combined pro forma financial statements also reflect the issuance by Cogent of $62.0 million of its Series C preferred stock and the impact of Cogent's October 2001 credit facility as the merger is contingent upon these events. The merger is being accounted for as a purchase business combination as defined by SFAS No. 141. Cogent is the acquiring enterprise for purposes of accounting for the merger. The pro forma financial statements also reflect the modification of certain of Allied Riser's capital leases and maintenance obligations.
In accordance with Article 11 of Regulation S-X under the Securities Act, an unaudited condensed combined pro forma balance sheet ("the pro forma balance sheet") as of June 30, 2001, and unaudited condensed combined pro forma statements of income ("the pro forma statements of income") for the six months ended June 30, 2001, and the year ended December 31, 2000, have been prepared to reflect, for accounting purposes, the merger of Allied Riser and Cogent. For both the pro forma balance sheet and all periods included in the pro forma statements of income, the average number of common and common equivalent shares gives effect to the exchange ratio of one share of Allied Riser for 0.0321780 shares of Cogent.
The following pro forma financial statements have been prepared based upon the historical financial statements of Cogent and the historical financial statements of Allied Riser, after excluding the effect of extraordinary items. The pro forma financial statements should be read in conjunction with (a) the historical consolidated financial statements of Cogent as of December 31, 2000 and 1999, for the year ended December 31, 2000, and for the period from inception (August 9, 1999) to December 31, 1999, and the unaudited condensed consolidated financial statements as of June 30, 2001, and for the six month periods ended June 30, 2001, and 2000, included in this registration statement; and (b) the historical consolidated financial statements and related notes thereto of Allied Riser included in this proxy statement/prospectus. See "Index to Financial Statements."
The pro forma balance sheet assumes that the merger was completed on June 30, 2001. The pro forma balance sheet includes historical unaudited consolidated balance sheet data of Cogent and Allied Riser as of June 30, 2001, with Cogent's balance sheet adjusted to reflect the issuance of $62.0 million of Series C preferred stock ("the Series C financing") and the impact of Cogent's October 2001 credit facility and Allied Risers' settlement of its capital lease and maintenance obligations to a vendor. The Series C financing is expected to close on October 17, 2001. Cogent's credit facility with Cisco Capital was obtained on October 9, 2001. Cogent and Allied Riser have no intercompany activity that would require elimination in preparing the pro forma financial statements.
The pro forma statements of income assume the merger occurred on January 1, 2000 and January 1, 2001, in the case of pro forma statements of operations for the year ended December 31, 2000 and the six-month period ended June 30, 2001, respectively. The pro forma statements of income for the year ended December 31, 2000, include the historical consolidated statement of income data of Cogent and Allied Riser for the year ended December 31, 2000. The pro forma statements of income for the six-month period ended June 30, 2001, include the historical consolidated unaudited statement of income data of Cogent and Allied Riser for the six-month period ended June 30, 2001. These pro forma statements assume that the merger, the Series C financing, and the closing of both Cogent's credit facility with Cisco Capital and the settlement and termination of Allied Riser's capital lease and maintenance committments to a vendor occurred on January 1, 2000.
The pro forma financial statements are provided for illustrative purposes only, and are not necessarily indicative of the operating results or financial position that would have occurred if the merger had been consummated at the beginning of the periods or on the dates indicated, nor are they necessarily indicative of any future operating results or financial position. The pro forma financial statements do not include any adjustments related to any restructuring charges, profit improvements, potential costs savings, or one-time charges which may result from the merger or the final result of valuations of inventories, property, plant and equipment, intangible assets, debt, and other obligations. Cogent and Allied Riser are currently developing plans to integrate the operations of the companies, which will involve costs including, among others, severance and settlement of operating and capital commitments, which are material. The merger has not been consummated as of the date of the preparation of these pro forma financial statements and there can be no assurances that the merger will be consummated in the future.
111
COGENT COMMUNICATIONS GROUP, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 2001
(DOLLARS IN THOUSANDS)
See Notes to Unaudited Condensed Combined Pro Forma Balance Sheet
112
NOTES TO THE UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 2001
113
Merger Consideration
The determination of the purchase price for Allied Riser Corporation by Cogent in accordance with EITF 99-12 is not necessarily indicative of and could differ significantly from the value of the merger consideration to be issued to the Allied Riser stockholders.
Allied Riser
|
Amounts
in Thousands |
||||
---|---|---|---|---|---|
Fair value of equity securities issued as merger consideration: | |||||
Common stock | $ | 10,170 | |||
Stock options, warrants and deferred stock units | 1,146 | ||||
Transaction expenses | 1,325 | ||||
|
|||||
Total purchase price | $ | 12,641 | |||
Estimated fair value of net assets acquired | $ | 97,314 | |||
|
|||||
Estimated fair value in excess of purchase pricenegative goodwill | $ | (84,673 | ) | ||
|
|||||
Negative goodwill allocated to: | |||||
Property and equipment | $ | 29,001 | |||
Real estate access rights | 11,000 | ||||
Other assets | 4,983 | ||||
Extraordinary gain | 39,689 | ||||
|
|||||
$ | 84,673 | ||||
|
114
COGENT COMMUNICATIONS GROUP, INC.
UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
Historical
Cogent |
Cogent
Pro Forma Financing Adjustments |
Adjusted
Cogent |
Historical
Allied Riser |
Allied Riser
Pro Forma Acquisition Adjustments |
Cogent
& Allied Riser Pro Forma Combined |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
REVENUE: | |||||||||||||||||||||
Network services | $ | | $ | $ | | $ | 10,969 | $ | $ | 10,969 | |||||||||||
Value added services | | | 3,363 | 3,363 | |||||||||||||||||
|
|
|
|
||||||||||||||||||
Total revenue | | | 14,332 | 14,332 | |||||||||||||||||
OPERATING EXPENSES: | |||||||||||||||||||||
Network operations | 3,040 | 3,040 | 43,389 | 46,429 | |||||||||||||||||
Cost of value added services | | | 2,356 | 2,356 | |||||||||||||||||
Selling, general and administrative expenses | 10,844 | 10,844 | 105,298 | 116,142 | |||||||||||||||||
Depreciation and amortization | 338 | 283 | (a) | 621 | 36,155 | (36,155) | (d) | 621 | |||||||||||||
Amortization of deferred compensation | | 2,788 | (b) | 2,788 | 9,418 | 12,206 | |||||||||||||||
|
|
|
|
||||||||||||||||||
Total operating expenses | 14,222 | 17,293 | 196,616 | 177,754 | |||||||||||||||||
|
|
|
|
||||||||||||||||||
OPERATING LOSS | (14,222 | ) | (17,293 | ) | (182,284 | ) | (163,422 | ) | |||||||||||||
|
|
|
|
||||||||||||||||||
OTHER INCOME (EXPENSE): | |||||||||||||||||||||
Interest expense | (1,105 | ) | (563 | )(c) | (1,668 | ) | (9,348 | ) | (9,633) | (e) | (20,649 | ) | |||||||||
Interest and other income | 3,566 | 3,566 | 18,224 | 21,790 | |||||||||||||||||
|
|
|
|
||||||||||||||||||
Total other income (expense) | 2,461 | 1,898 | 8,876 | 1,141 | |||||||||||||||||
|
|
|
|
||||||||||||||||||
LOSS BEFORE INCOME TAXES | (11,761 | ) | (15,395 | ) | (173,408 | ) | (162,281 | ) | |||||||||||||
PROVISION FOR INCOME TAXES | | | | | |||||||||||||||||
|
|
|
|
||||||||||||||||||
NET LOSS | $ | (11,761 | ) | $ | (15,395 | ) | $ | (173,408 | ) | $ | (162,281 | ) | |||||||||
|
|
|
|
||||||||||||||||||
BASIC & DILUTED NET LOSS PER COMMON SHARE (g) | $(0.85 | ) | $(3.18 | ) | $(45.40 | ) | |||||||||||||||
|
|
|
|||||||||||||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 13,824,000 | 54,472,000 | 2,192,219 | (f) | 3,574,619 | (h) | |||||||||||||||
|
|
|
115
COGENT COMMUNICATIONS GROUP, INC.
UNAUDITED CONDENSED COMBINED PROFORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
|
Historical
Cogent |
Cogent
Pro Forma Financing Adjustments |
Adjusted
Cogent |
Historical
Allied Riser |
Allied Riser
Pro Forma Acquisition Adjustments |
Cogent & Allied Riser
Pro Forma Combined |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
REVENUE: | |||||||||||||||||||||
Network services | $ | 90 | $ | $ | 90 | $ | 12,437 | $ | $ | 12,527 | |||||||||||
Value added services | | | 4,065 | 4,065 | |||||||||||||||||
|
|
|
|
||||||||||||||||||
Total revenue | 90 | 90 | 16,502 | 16,592 | |||||||||||||||||
OPERATING EXPENSES: | |||||||||||||||||||||
Network operations | 10,440 | 10,440 | 38,069 | 48,509 | |||||||||||||||||
Cost of value added services | | | 2,615 | 2,615 | |||||||||||||||||
Selling, general and administrative expenses | 14,167 | 14,167 | 37,369 | 51,536 | |||||||||||||||||
Depreciation and amortization | 2,985 | 141 | (a) | 3,126 | 25,904 | (25,904 | )(d) | 3,126 | |||||||||||||
Amortization of deferred compensation | | 1,877 | (b) | 1,877 | | 1,877 | |||||||||||||||
Asset write-down | | | 262,336 | 262,336 | |||||||||||||||||
|
|
|
|
||||||||||||||||||
Total operating expenses | 27,592 | 29,611 | 366,293 | 370,000 | |||||||||||||||||
|
|
|
|
||||||||||||||||||
OPERATING LOSS | (27,502 | ) | (29,521 | ) | (349,791 | ) | (353,408 | ) | |||||||||||||
|
|
|
|
||||||||||||||||||
OTHER INCOME (EXPENSE): | |||||||||||||||||||||
Interest expense | (1,808 | ) | (281 | )(c) | (2,089 | ) | (7,696 | ) | (4,598 | )(e) | (14,384 | ) | |||||||||
Interest and other income | 1,328 | 1,328 | 5,268 | 6,596 | |||||||||||||||||
|
|
|
|
||||||||||||||||||
Total other income (expense) | (480 | ) | (761 | ) | (2,428 | ) | (7,788 | ) | |||||||||||||
|
|
|
|
||||||||||||||||||
LOSS BEFORE INCOME TAXES | (27,982 | ) | (30,282 | ) | (352,219 | ) | (361,196 | ) | |||||||||||||
PROVISION FOR INCOME TAXES | | | | | |||||||||||||||||
|
|
|
|
||||||||||||||||||
NET LOSS | $ | (27,982 | ) | $ | (30,282 | ) | $ | (352,219 | ) | $ | (361,196 | ) | |||||||||
|
|
|
|
||||||||||||||||||
BASIC & DILUTED NET LOSS PER COMMON SHARE (g) | $(1.99 | ) | $(5.95 | ) | $(100.45 | ) | |||||||||||||||
|
|
|
|||||||||||||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 14,036,977 | 59,245,000 | 2,192,219 | (f) | 3,595,917 | (h) | |||||||||||||||
|
|
|
116
SUPPLEMENTARY UNAUDITED INFORMATION TO THE CONDENSED COMBINED PRO FORMA
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following supplementary unaudited information to the condensed combined pro forma financial statement(s) (the supplementary information) and explanatory notes are presented to provide a measure of operating performance with certain additional adjustments related to (1) events directly attributable to the merger that are not recurring, and (2) events that, although not directly attributable to the merger, will have a significant effect on the continuing operations of the Company. This supplementary information should not be considered in isolation or as a substitute for pro forma consolidated statement(s) of operations presented in accordance with accounting principles generally accepted in the United States. The supplementary information is provided for illustrative purposes only, and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been consummated at the beginning of the periods or on the dates indicated, nor are they necessarily indicative of any future operating results or financial position.
COGENT COMMUNICATIONS GROUP, INC.
SUPPLEMENTAL INFORMATION TO THE UNAUDITED CONDENSED COMBINED
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
|
Historical
Cogent |
Historical
Allied Riser |
Cogent & Allied Riser
Combined |
Supplemental
Adjustments |
Cogent & Allied Riser
Supplemental Combined |
Pro Forma
Allied Riser Acquisition Adjustments |
Cogent & Allied Riser
Combined Supplemental and Pro Forma |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
REVENUE: | ||||||||||||||||||||||||
Total revenue | $ | 90 | $ | 16,502 | $ | 16,592 | $ | (13,748 | )(a) | $ | 2,844 | $ | $ | 2,844 | ||||||||||
OPERATING EXPENSES: | ||||||||||||||||||||||||
Network operations | 10,440 | 38,069 | 48,509 | (35,288 | )(b) | 13,221 | 13,221 | |||||||||||||||||
Cost of value added services | | 2,615 | 2,615 | (2,400 | )(a) | 215 | 215 | |||||||||||||||||
Selling, general and administrative expenses | 14,167 | 37,369 | 51,536 | (30,294 | )(c) | 21,242 | 21,242 | |||||||||||||||||
Depreciation and amortization | 2,985 | 25,904 | 28,889 | 28,889 | (25,904 | )(e) | 2,985 | |||||||||||||||||
Asset write-down | | 262,336 | 262,336 | (262,336 | )(d) | | | |||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
Total operating expenses | 27,592 | 366,293 | 393,885 | 63,567 | 37,663 | |||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
OPERATING LOSS | (27,502 | ) | (349,791 | ) | (377,293 | ) | (60,723 | ) | (34,819 | ) | ||||||||||||||
|
|
|
|
|
||||||||||||||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||||||||||
Interest expense | (1,808 | ) | (7,696 | ) | (9,504 | ) | (9,504 | ) | (4,598 | )(f) | (14,102 | ) | ||||||||||||
Interest and other income | 1,328 | 5,268 | 6,596 | 6,596 | 6,596 | |||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
Total other income (expense) | (480 | ) | (2,428 | ) | (2,908 | ) | (2,908 | ) | (7,506 | ) | ||||||||||||||
|
|
|
|
|
||||||||||||||||||||
LOSS BEFORE INCOME TAXES | (27,982 | ) | (352,219 | ) | (380,201 | ) | (63,631 | ) | (42,325 | ) | ||||||||||||||
PROVISION FOR INCOME TAXES | | | | | | |||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||
NET LOSS | $ | (27,982 | ) | $ | (352,219 | ) | $ | (380,201 | ) | $ | (63,631 | ) | $ | (42,325 | ) | |||||||||
|
|
|
|
|
||||||||||||||||||||
BASIC & DILUTED NET LOSS PER COMMON SHARE (h) | $(1.99 | ) | $(5.95 | ) | $(11.77 | ) | ||||||||||||||||||
|
|
|
||||||||||||||||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 14,036,977 | 59,245,000 | 2,192,219 | (g) | 3,595,917 | (i) | ||||||||||||||||||
|
|
|
117
NOTES TO THE SUPPLEMENTAL INFORMATION TO THE UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF OPERATIONS
118
Legal matters relating to the validity of the shares of Cogent's common stock offered by this proxy statement/prospectus and federal income tax matters relating to the merger will be passed upon for Cogent by Latham & Watkins, Washington, D.C. Federal income tax matters relating to the merger will be passed upon for Allied Riser by Jones, Day, Reavis & Pogue, Atlanta, Georgia.
The audited financial statements of Cogent Communications Group, Inc. and Subsidiaries and Allied Riser Communications Corporation and Subsidiaries included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports.
Allied Riser plans to hold an annual meeting in 2002 only if the merger is not completed. If an annual meeting of Allied Riser stockholders is held in 2002, proposals of Allied Riser stockholders intended to be presented at the 2002 annual meeting must be received by the Secretary of Allied Riser at 1700 Pacific Avenue, Suite 400, Dallas, Texas 75201 no later than December 31, 2001, in order to be considered for inclusion in Allied Riser's 2002 proxy materials, and stockholder proposals submitted outside the process of Rule 14a-8 under the Securities Exchange Act must be received by Allied Riser as provided in Allied Riser's bylaws no later than March 16, 2002, to be eligible for consideration at the 2002 annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
Cogent has filed a registration statement on Form S-4 to register with the SEC the Cogent common stock to be issued to Allied Riser stockholders in the merger. This proxy statement/prospectus is a part of that registration statement and constitutes a prospectus of Cogent, in addition to being a proxy statement of Allied Riser for the Allied Riser special meeting. The registration statement, including the attached exhibits and schedules, contains additional relevant information about Allied Riser and Cogent common stock. As allowed by SEC rules, this proxy statement/prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement. Summaries contained in this proxy statement/prospectus of the contents of any agreement or other document referred to in this proxy statement/prospectus are not necessarily complete and we refer you to the complete copy of that agreement or other document for its precise legal terms and other information that may be important to you.
In addition, Allied Riser files annual, quarterly, and current reports, proxy statements, and other information with the SEC. You may read and copy any such reports, statements, or other information filed by Allied Riser at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The SEC filings of Allied Riser are also available to the public from commercial document retrieval services and at the Web site maintained by the SEC at http://www.sec.gov. You can also inspect reports, proxy statements, and other information about Allied Riser at the office of the National Association of Securities Dealers, 1735 K Street, N.W., Washington, D.C. 20036.
Cogent has supplied all information contained in this proxy statement/prospectus relating to Cogent, and Allied Riser has supplied all the information relating to Allied Riser.
We have not authorized anyone to give any information or make any representation about the merger or our companies that is different from, or in addition to, that contained in this proxy
119
statement/prospectus or in any of the materials that we have incorporated by reference into this proxy statement/prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this proxy statement/prospectus or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement/prospectus does not extend to you. The information contained in this proxy statement/prospectus speaks only as of the date of this document unless the information specifically indicates that another date applies.
120
COGENT COMMUNICATIONS GROUP, INC. FINANCIAL STATEMENTS | ||
Report to Independent Public Accountants |
|
F-2 |
Consolidated Balance Sheets as of December 31, 1999 and 2000 | F-3 | |
Consolidated Statements of Operations for the period from inception (August 9, 1999) to December 31, 1999, and for the year ended December 31, 2000 | F-4 | |
Consolidated Statements of Changes in Stockholders' Equity for the period from inception (August 9, 1999) to December 31, 1999, and for the year ended December 31, 2000 | F-5 | |
Consolidated Statements of Cash Flows for the period from inception (August 9, 1999) to December 31, 1999, and for the year ended December 31, 2000 | F-6 | |
Notes to Consolidated Financial Statements | F-7 | |
Consolidated Balance Sheet as of June 30, 2001 (Unaudited) |
|
F-17 |
Consolidated Statements of Operations for the six months ended June 30, 2000 and June 30, 2001 (Unaudited) | F-18 | |
Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 2001 (Unaudited) | F-19 | |
Notes to Consolidated Financial Statements (Unaudited) | F-20 | |
ALLIED RISER COMMUNICATIONS CORPORATION FINANCIAL STATEMENTS |
|
|
Report of Independent Public Accountants |
|
F-27 |
Consolidated Balance Sheets as of December 31, 1999 and 2000 | F-28 | |
Consolidated Statements of Income (Loss) for the years ended December 31, 1998, 1999 and 2000 | F-29 | |
Consolidated Statements of Stockholder's Equity for the years ended December 31, 1998, 1999 and 2000 | F-30 | |
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1999 and 2000 | F-31 | |
Notes to Consolidated Financial Statements | F-32 | |
Consolidated Balance Sheets at December 31, 2000 and June 30, 2001 (Unaudited) |
|
F-47 |
Consolidated Statements of Income (Loss) for the three months ended June 30, 2000 and June 30, 2001 (Unaudited) | F-48 | |
Consolidated Statements of Income (Loss) for the six months ended June 30, 2000 and June 30, 2001 (Unaudited) | F-49 | |
Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 2001 (Unaudited) | F-50 | |
Notes to Consolidated Financial Statements (Unaudited) | F-51 |
F1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cogent Communications Group, Inc., and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Cogent Communications Group, Inc. (a Delaware corporation), and Subsidiaries (together the Company) as of December 31, 1999 and 2000, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the period from inception (August 9, 1999) to December 31, 1999, and for the year ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cogent Communications Group, Inc., and Subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for the period from inception (August 9, 1999) to December 31, 1999, and for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Vienna,
Virginia
March 15, 2001
F2
COGENT COMMUNICATIONS GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000
|
1999
|
2000
|
||||||
---|---|---|---|---|---|---|---|---|
Assets | ||||||||
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 343 | $ | 65,593,324 | ||||
Prepaid expenses and other current assets | 25,000 | 3,281,060 | ||||||
|
|
|||||||
Total current assets | 25,343 | 68,874,384 | ||||||
Property and equipment: | ||||||||
Property and equipment | | 128,843,820 | ||||||
Accumulated depreciation and amortization | | (338,008 | ) | |||||
|
|
|||||||
Total property and equipment | | 128,505,812 | ||||||
Other assets | | 7,213,457 | ||||||
|
|
|||||||
Total assets | $ | 25,343 | $ | 204,593,653 | ||||
|
|
|||||||
Liabilities and stockholders' equity | ||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable | $ | | $ | 2,600,528 | ||||
Accrued liabilities | 7,633 | 2,954,665 | ||||||
Capital lease obligations | | 10,697,395 | ||||||
|
|
|||||||
Total current liabilities | 7,633 | 16,252,588 | ||||||
Cisco credit facility | | 67,239,085 | ||||||
Deferred equipment discount | | 16,853,400 | ||||||
|
|
|||||||
Total liabilities | 7,633 | 100,345,073 | ||||||
|
|
|||||||
Commitments and contingencies: | ||||||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
Convertible preferred stock, Series A, $0.001 par value; 26,000,000 shares authorized, issued, and outstanding in 2000; none in 1999; liquidation preference of $27,882,357 | | 25,891,957 | ||||||
Convertible preferred stock, Series B, $0.001 par value; 20,000,000 shares authorized; 19,809,783 shares issued and outstanding in 2000; none in 1999; liquidation preference of $93,693,925 | | 90,009,445 | ||||||
Common stock, $0.001 par value; 49,500,000 and 70,000,000 shares authorized; 13,600,000 and 14,006,977 shares issued and outstanding | 13,600 | 14,007 | ||||||
Additional paid-in capital | 86,400 | 176,179 | ||||||
Accumulated deficit | (82,290 | ) | (11,843,008 | ) | ||||
|
|
|||||||
Total stockholders' equity | 17,710 | 104,248,580 | ||||||
|
|
|||||||
Total liabilities and stockholders' equity | $ | 25,343 | $ | 204,593,653 | ||||
|
|
The accompanying notes are an integral part of these consolidated balance sheets.
F3
COGENT COMMUNICATIONS GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (AUGUST 9, 1999) TO
DECEMBER 31, 1999, AND FOR THE YEAR ENDED DECEMBER 31, 2000
|
1999
|
2000
|
||||||
---|---|---|---|---|---|---|---|---|
Operating expenses: | ||||||||
Network operations | $ | | $ | 3,040,100 | ||||
Selling, general, and administrative | 82,290 | 10,844,425 | ||||||
Depreciation and amortization | | 338,008 | ||||||
|
|
|||||||
Total operating expenses | 82,290 | 14,222,533 | ||||||
Operating loss | (82,290 | ) | (14,222,533 | ) | ||||
Interest income | | 3,432,532 | ||||||
Interest expense | | (1,104,696 | ) | |||||
Other income | | 133,979 | ||||||
|
|
|||||||
Net loss | $ | (82,290 | ) | $ | (11,760,718 | ) | ||
|
|
|||||||
Basic and diluted net loss per common share | $(0.01 | ) | $(0.85 | ) | ||||
|
|
|||||||
Weighted-average common shares (basic and diluted) | 13,600,000 | 13,823,598 | ||||||
|
|
The accompanying notes are an integral part of these consolidated statements.
F4
COGENT COMMUNICATIONS GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 9, 1999) TO
DECEMBER 31, 1999 AND FOR THE YEAR ENDED
TO DECEMBER 31, 2000
|
|
|
|
Convertible preferred stockSeries A
|
Convertible preferred stockSeries B
|
|
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Common stock
|
|
|
|
|||||||||||||||||||||
|
Additional
paid-in capital |
Accumulated
deficit |
Total
stockholders' equity |
||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||
Balance, August 9, 1999 (date of inception) | | $ | | $ | | | $ | | | $ | | $ | | $ | | ||||||||||
Issuance of common stock | 13,600,000 | 13,600 | 86,400 | | | | | | 100,000 | ||||||||||||||||
Net loss | | | | | | | | (82,290 | ) | (82,290 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, December 31, 1999 | 13,600,000 | 13,600 | 86,400 | | | | | (82,290 | ) | 17,710 | |||||||||||||||
Issuances of common stock pursuant to exercises of stock options | 406,977 | 407 | 89,779 | | | | | | 90,186 | ||||||||||||||||
Issuance of Series A convertible preferred stock, net | | | | 26,000,000 | 25,891,957 | | | | 25,891,957 | ||||||||||||||||
Issuance of Series B convertible preferred stock, net | | | | | | 19,809,783 | 90,009,445 | | 90,009,445 | ||||||||||||||||
Net loss | | | | | | | | (11,760,718 | ) | (11,760,718 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, December 31, 2000 | 14,006,977 | $ | 14,007 | $ | 176,179 | 26,000,000 | $ | 25,891,957 | 19,809,783 | $ | 90,009,445 | $ | (11,843,008 | ) | $ | 104,248,580 | |||||||||
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated statements.
F5
COGENT COMMUNICATIONS GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (AUGUST 9, 1999) TO DECEMBER 31, 1999,
AND FOR THE YEAR ENDED DECEMBER 31, 2000
|
1999
|
2000
|
|||||||
---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | |||||||||
Net loss | $ | (82,290 | ) | $ | (11,760,718 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities | |||||||||
Depreciation and amortization | | 338,008 | |||||||
Changes in assets and liabilities: | |||||||||
Prepaid expenses and other current assets | | (3,281,060 | ) | ||||||
Other assets | | (7,213,457 | ) | ||||||
Accounts payable and accrued liabilities | 7,633 | 5,547,560 | |||||||
|
|
||||||||
Net cash used in operating activities | (74,657 | ) | (16,369,667 | ) | |||||
|
|
||||||||
Cash flows from investing activities: | |||||||||
Purchases of property and equipment | | (80,988,863 | ) | ||||||
Cash flows from financing activities: | |||||||||
Borrowings under Cisco credit facility | | 67,239,085 | |||||||
Collection of note from stockholder | | 25,000 | |||||||
Proceeds from issuance of common stock | 75,000 | | |||||||
Proceeds from option exercises | | 90,186 | |||||||
Repayment of capital lease obligations | | (37,157,562 | ) | ||||||
Deferred equipment discount | | 16,853,400 | |||||||
Issuances of preferred stock, net of issuance costs | | 115,901,402 | |||||||
|
|
||||||||
Net cash provided by financing activities | 75,000 | 162,951,511 | |||||||
|
|
||||||||
Net increase in cash and cash equivalents | 343 | 65,592,981 | |||||||
Cash and cash equivalents, beginning of period | | 343 | |||||||
|
|
||||||||
Cash and cash equivalents, end of period | $ | 343 | $ | 65,593,324 | |||||
|
|
||||||||
Supplemental disclosures of cash flow information: | |||||||||
Cash paid for interest | $ | | $ | 1,736,341 | |||||
Cash paid for income taxes | | | |||||||
Noncash financing activities | |||||||||
Capital lease obligations incurred | | 47,854,957 |
The accompanying notes are an integral part of these consolidated statements.
F6
COGENT COMMUNICATIONS GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 2000
1. Description of the business and summary of significant accounting policies:
Description of business
Cogent Communications, Inc. (Cogent), was formed on August 9, 1999 (inception) as a Delaware corporation and is located in Washington, D.C. Cogent is a facilities-based Internet Services Provider (ISP), providing Internet access to multi-tenant office buildings in 11 major metropolitan areas in the United States. In 2001, Cogent formed Cogent Communications Group, Inc., (the Company), a Delaware corporation. Effective on March 14, 2001, Cogent's stockholders exchanged their outstanding common and preferred shares for an equal number of shares of the Company, and Cogent became a wholly owned subsidiary of the Company. All of Cogent's options for shares of common stock were also converted to options of the Company. The common and preferred shares of the Company include rights and privileges identical to the common and preferred shares of Cogent. This was a tax-free exchange that will be accounted for by the Company at Cogent's historical cost. Accordingly, the accompanying financial statements as of and for the periods ended December 31, 2000 and 1999, reflect the historical operating results and assets and liabilities of Cogent.
The Company's high-speed Internet access service is delivered to the Company's customers over a nationwide fiber-optic network. The Company's network is dedicated solely to Internet Protocol data traffic. The Company's network includes 30-year indefeasible rights of use (IRUs) to a nationwide fiber-optic intercity network of 12,484 route miles (24,968 fiber miles) of dark fiber from Williams Communications, Inc. (Williams). These IRUs are configured in two rings that connect certain major metropolitan markets in the United States. In order to extend the Company's national backbone into local markets, the Company has entered into a leased fiber agreement with Metromedia Fiber Network Services, Inc. (MFN), to obtain intracity fiber under 25-year IRUs.
The Company's primary activities to date have included recruiting employees, obtaining financing, branding and marketing its products, obtaining customer orders and building access rights, and designing and constructing its fiber-optic network and facilities.
Segments
The Company's chief operating decision maker evaluates performance based upon underlying information of the Company as a whole. There are no additional reporting segments.
2. Development stage status, business risk, and liquidity
Until February 2001, when the Company began providing service to customers, the Company was in the development stage.
The Company operates in the rapidly evolving Internet services industry, which is subject to intense competition and rapid technological change, among other factors. The successful execution of the Company's business plan is dependent upon the availability of and access to network capacity, the availability and performance of the Company's network equipment, the availability of additional capital, the Company's ability to successfully market its products and services, and the Company's ability to manage its growth. Although management believes that the Company will successfully mitigate these risks, management cannot give assurances that it will be able to do so or that the Company will ever operate profitably.
In February 2000, the Company obtained $26 million in venture-backed funding through the issuance of Series A preferred stock. In March 2000, the Company secured a $280 million credit facility
F7
from Cisco Systems Capital Corporation (Cisco Capital). In June 2000, the Company raised an additional $90 million in venture-backed funding through the issuance of Series B preferred stock. In January 2001, the credit facility with Cisco Capital was amended and increased to $310 million. Substantial time may pass before significant revenues are realized, and additional funds will be required to implement the Company's business plan. Management expects that the proceeds from the issuance of preferred stock and the availability under the Cisco credit facility will be sufficient to fund the Company's operations for 2001.
Principles of consolidation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Revenue recognition
The Company recognizes service revenue in the month in which the service is provided. All expenses related to services provided are expensed as incurred. Cash received in advance of revenue earned is recorded as deferred revenue and is recognized over the service period or, in the case of installation fees, the estimated customer life.
Network operations
Network operations include costs associated with service delivery, network management, and customer support. This includes the costs of personnel and related operating expenses associated with these activities, network facilities costs, fiber maintenance fees, leased circuit costs, and access fees paid to office building owners.
Financial instruments
The Company considers all highly liquid investments with an original maturity of three months or less at purchase to be cash equivalents. The Company determines the appropriate classification of its investments at the time of purchase and reevaluates such designation at each balance sheet date. At December 31, 2000, the Company's marketable securities consisted of money market accounts and commercial paper, all with original maturities of three months or less.
In the ordinary course of business with its vendors, the Company is party to letters of credit totaling $900,000 as of December 31, 2000. No claims have been made against these financial instruments. Management does not expect any losses from the resolution of these financial instruments and is of the opinion that the fair value is zero since performance is not likely to be required.
At December 31, 1999 and 2000, the carrying amount of cash and cash equivalents approximated fair value because of the short maturity of these instruments. The interest rate on the Company's Cisco credit facility resets on a quarterly basis; accordingly, as of December 31, 2000, the fair value of the Company's long-term debt approximated the carrying amount.
Credit risk
The Company's assets that are exposed to credit risk consist of its cash equivalents. The Company places its cash equivalents in instruments that meet high-quality credit standards as specified in the Company's investment policy guidelines.
F8
Property and equipment
Property and equipment are recorded at cost and depreciated once deployed using the straight-line method over the estimated useful lives of the assets. The direct costs incurred prior to an asset being ready for service are reflected as construction in progress. Interest is capitalized during the construction period based upon the rates applicable to borrowings outstanding during the period. Construction in progress includes costs incurred under the construction contract, interest, and the salaries and benefits of employees directly involved with the construction activities. Expenditures for maintenance and repairs are expensed as incurred. The assets and liabilities under capital leases are recorded at the lesser of the present value of the aggregate future minimum lease payments or the fair value of the assets under lease. Leasehold improvements include costs associated with building improvements.
Long-lived assets, include property and equipment, goodwill and identifiable intangible assets to be held and used, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount should be addressed. Impairment is determined by comparing the carrying value to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual dispositions. The Company considers expected cash flows and estimated future operating results, trends and other available information in assessing whether the carrying value of the assets is impaired. In the event an impairment exists, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the asset, which is generally determined using quoted market prices or valuation techniques such as the discounted present value of expected future cash flows, appraisals, or other pricing models as appropriate. The Company believes that no such impairment existed as of December 31, 1999 and 2000.
The Company's estimates of anticipated net revenues, the remaining estimated lives of tangible and intangible assets, or both, could be reduced significantly in the future due to changes in technology, regulation, available financing, or competition. As a result, the carrying amount of long-lived assets could be reduced materially in the future.
Depreciation and amortization periods are as follows:
Type of asset
|
Depreciation or amortization period
|
|
---|---|---|
Indefeasible rights of use (IRUs) | Shorter of useful life or IRU lease agreement; generally 20 years, beginning when the IRU is ready for use | |
Network equipment |
|
Five to seven years |
Leasehold improvements |
|
Shorter of lease term or useful life; generally 10 to 15 years |
Software |
|
Five years |
Office and other equipment |
|
Three to five years |
System infrastructure |
|
Ten years |
|
|
|
Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
F9
Comprehensive Income
During the periods presented, the Company has not had any transactions that are required to be reported in comprehensive income.
Income taxes
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets or liabilities are computed based upon the differences between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expense or benefits are based upon the changes in the assets or liability from period to period.
Stock-based compensation
The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense related to fixed employee stock options is recorded only if on the date of grant the fair value of the underlying stock exceeds the exercise price. The Company has adopted the disclosure only requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and to provide pro forma net income disclosures as if the fair value based method of accounting, or minimum value method for private companies, described in SFAS No. 123 had been applied to employee stock option grants.
Basic and Diluted Net Loss Per Common Share
Basic net loss per common share is based on the weighted-average number of shares of common stock outstanding during each period. Diluted net loss per common share is based on the weighted-average number of shares of common stock outstanding during each period, adjusted for the effect of common stock equivalents arising from the assumed exercise of stock options, warrants and the conversion of preferred stock, if dilutive. Common stock equivalents have been excluded from the net loss per share calculation because their effect would be anti-dilutive.
The following is a calculation of the numerators and the denominators of the basic and diluted loss per common share computations.
|
1999
|
2000
|
|||||
---|---|---|---|---|---|---|---|
Net loss | $ | (82,290 | ) | $ | (11,760,718 | ) | |
Weighted-average shares of common stock outstanding | 13,600,000 | 13,823,598 | |||||
Basic and diluted net loss per common share | $(0.01 | ) | $(0.85 | ) |
For the year ended December 31, 2000 and the period from inception to December 31, 1999, options to purchase 6,892,950 and 469,500 shares of common stock at weighted average exercise prices of $0.97 and $0.01 per share, respectively, are not included in the computation of diluted earnings per share as they are anti-dilutive. For the year ended December 31, 2000, 45,809,783 shares of preferred stock, which were convertible into 45,809,783 shares of common stock, were not included in the computation of diluted earnings per share as a result of their anti-dilutive effect.
F10
2. Property and equipment:
Property and equipment consisted of the following:
|
December 31,
|
|||||||
---|---|---|---|---|---|---|---|---|
|
1999
|
2000
|
||||||
Owned assets: | ||||||||
Network equipment | $ | | $ | 67,389,954 | ||||
Software | | 1,971,431 | ||||||
Office and other equipment | | 1,554,593 | ||||||
Leasehold improvements | | 64,047 | ||||||
Construction in progress | | 10,008,838 | ||||||
|
|
|||||||
| 80,988,863 | |||||||
Less Accumulated depreciation and amortization | | (324,428 | ) | |||||
|
|
|||||||
| 80,664,435 | |||||||
Assets under capital leases: | ||||||||
IRUs | 47,854,957 | |||||||
Less Accumulated depreciation and amortization | | (13,580 | ) | |||||
|
|
|||||||
| 47,841,377 | |||||||
|
|
|||||||
Property and equipment, net | $ | | $ | 128,505,812 | ||||
|
|
Capitalized interest
In 2000, the Company capitalized $2,963,303 of interest that is included in construction in progress.
Indefeasible rights of use agreement
In April 2000, the Company entered into a dark fiber IRU contract with Williams for 12,484 fiber miles of fiber-optic cable at a cost of approximately $27.5 million. The Company paid approximately $20.6 million in 2000 and will pay approximately $6.9 million toward this IRU in 2001. In June 2000, the Company exercised its option to lease an additional 12,484 route miles for approximately $22.5 million. In 2000, the Company paid approximately $18.0 million toward this IRU (the Second IRU) and will pay an additional $4.5 million in 2001. These IRUs are for an initial 20-year period with, under certain conditions, two renewal terms of five years each. Under this agreement, Williams also provides co-location services and maintenance on both fibers for monthly fees.
3. Long-term debt:
In March 2000, the Company entered into a $280 million credit facility (the Facility) with Cisco Capital. In March 2001, the Facility was increased to $310 million. The Facility is divided into two categories of borrowings. Under the first category, up to $238 million is available to finance purchases of Cisco network equipment, software, and related services from either Cisco or a reseller or distributor of Cisco products (Equipment Loans). The second category provides up to $72 million of funding available for working capital and general corporate purposes (Working Capital Loans). Working Capital Loans are limited to 35 percent of outstanding Equipment Loans. Borrowings under the Facility are available for up to five years.
The Facility requires compliance with certain subjective (i.e., material adverse change clauses) and financial covenants, among other conditions and restrictions, and required the payment of a 2 percent commitment fee ($6.2 million) that the Company has paid. The commitment fee is recorded in other assets in the accompanying consolidated balance sheet and is being amortized to interest expense over
F11
a period of eight years. The Facility also includes a 1.0 percent per annum unused facility fee, payable quarterly. Borrowings may be prepaid at any time without penalty and are subject to mandatory prepayment based upon excess cash flow or upon the receipt of a specified amount from the sale of the Company's securities, each as defined. Repayments are made quarterly with repayment periods ranging from four to six years. Borrowings accrue interest at the three-month LIBOR rate, established at the beginning of each calendar quarter, plus a margin of 4.5 percent per annum. The margin is dependent upon the Company's leverage ratio, as defined, and may be reduced down to as low as 1.5 percent. Interest is payable quarterly. Borrowings are secured by a pledge of all of the Company's assets. The Facility provides for the issuance of warrants to Cisco Capital to purchase the Company's common stock in connection with Working Capital Loans. The warrants enable Cisco Capital to acquire 30,937.5 shares of the Company's common stock for each $1.0 million of Working Capital Loans made. The exercise price of the warrants is based upon the most recent significant equity transaction, as defined in the Facility. The Company has not utilized the Working Capital Loan availability under the Facility.
As of December 31, 2000, the Company had violated certain debt covenants related to minimum customers and revenues. In March 2001, the Company obtained an amendment to the credit facility and the Company was in compliance with the amended agreement. The Company is subject to similar covenants in the future.
The Company began entering into Equipment Loans in August 2000. At December 31, 2000, there was $67.2 million of Equipment Loans outstanding accruing interest at 11.16 percent. The weighted-average interest rate for the period from August 2000 to December 31, 2000, was approximately 11.20 percent. Borrowings under these Equipment Loans are to be repaid beginning in March 2002 and ending in March 2008. Subsequent to year-end, and through March 15, 2001, the Company borrowed an additional $4.9 million of Equipment Loans to finance additional equipment purchases.
Maturities of borrowings under the Facility are as follows:
For the year ending December 31 | |||
2002 | $ | 5,031,973 | |
2003 | 6,711,954 | ||
2004 | 6,732,874 | ||
2005 | 11,772,817 | ||
Thereafter | 36,989,467 | ||
|
|||
$ | 67,239,085 | ||
|
4. Deferred equipment discount:
In June 2000, the Company amended its product purchase agreement with Cisco (see Note 6). In connection with the amendment, Cisco agreed to pay the Company a total of $22.5 million, with $16.9 million paid in 2000 and $5.6 million to be paid in 2001. These payments are recorded as a deferred equipment discount and will be amortized as a reduction to depreciation expense over a seven-year period as the related equipment is placed in service.
F12
5. Income taxes:
The net deferred tax asset comprised the following:
|
December 31
|
||||||
---|---|---|---|---|---|---|---|
|
1999
|
2000
|
|||||
Net operating loss carryforwards | $ | | $ | 3,888,649 | |||
Depreciation | | (190,544 | ) | ||||
Start-up expenditures | 33,393 | 760,070 | |||||
Accrued liabilities | | 344,236 | |||||
Valuation allowance | (33,393 | ) | (4,802,411 | ) | |||
|
|
||||||
Net deferred tax asset | $ | $ | | ||||
|
|
Due to the uncertainty surrounding the realization of its net deferred tax asset, the Company has recorded a valuation allowance for the full amount of its net deferred tax asset. Should the Company achieve profitability, its deferred tax assets may be available to offset future income tax liabilities. The federal and state net operating loss carryforwards of $9.6 million expire in 2019 and 2020. For federal and state tax purposes, the Company's net operating loss carryforwards could be subject to certain limitations on annual utilization if certain changes in ownership were to occur as defined by federal and state tax laws.
The following is a reconciliation of the Federal statutory income tax rate to the effective rate reported in the financial statements.
|
1999
|
2000
|
|||
---|---|---|---|---|---|
Federal income tax (benefit) at statutory rates | (34.0 | )% | (34.0 | )% | |
State income tax (benefit) at statutory rates, net of Federal benefit | (6.6 | ) | (6.6 | ) | |
Increase in valuation allowance | 40.6 | 40.6 | |||
Effective income tax rate | | % | | % |
6. Commitments and contingencies:
Fiber lease agreements
In February 2000, the Company entered into an agreement with MFN to lease fiber-optic cable for its intracity fiber-optic rings and to provide the Company access for providing its service to certain multi-tenant office buildings. Each product order includes a lease of an intracity fiber-optic ring for a period of up to 25 years and access to certain specified buildings for monthly payments. The agreement provides for a minimum commitment of 2,500 leased fiber miles and 500 connected buildings within five years from the effective date. In the event of early termination of the lease agreement, a termination charge would be assessed. The termination charge declines from $23 million in Year 1 to $7.7 million if the agreement is terminated in Years 6-20. Under the agreements, MFN also provides installation, maintenance, restoration, and network monitoring services at no additional cost. Through March 15, 2001, the Company has submitted orders to MFN for approximately 2,425 fiber miles and 256 buildings. Each lease of an intracity fiber-optic ring will be treated as a capital lease and recorded
F13
once the Company has accepted the related fiber route. The future minimum commitment, including building access fees, under this agreement is as follows:
For the year ending December 31
|
|
||
---|---|---|---|
2001 | $ | 588,000 | |
2002 | 588,000 | ||
2003 | 588,000 | ||
2004 | 588,000 | ||
2005 | 3,588,000 | ||
Thereafter | 73,950,000 | ||
|
|||
Total | $ | 79,890,000 | |
|
Equipment purchase commitment
In March 2000, the Company entered into a five-year commitment to purchase from Cisco, minimum annual amounts of equipment, professional services, and software. In June 2000, the agreement was amended to increase the Company's previous commitment to purchase $150.1 million over four years to a commitment to purchase $212.2 million over five years. As of December 31, 2000, the Company had purchased approximately $67.2 million toward this commitment, and approximately $44 million of purchase orders are outstanding. The annual commitment, as amended, is as follows:
Year
|
Amount
|
||
---|---|---|---|
Year 1 | $ | 71,100,000 | |
Year 2 | 44,000,000 | ||
Year 3 | 48,400,000 | ||
Year 4 | 34,900,000 | ||
Year 5 | 13,800,000 | ||
|
|||
Total | $ | 212,200,000 | |
|
Operating leases and license agreements
The Company leases office space, network equipment sites, and facilities under operating leases. The Company also enters into building access agreements with the landlords of its targeted multi-tenant office buildings. Future minimum annual commitments under these arrangements are as follows:
Year ending December 31
|
|
||
---|---|---|---|
2001 | $ | 4,671,844 | |
2002 | 4,725,913 | ||
2003 | 4,625,166 | ||
2004 | 4,622,581 | ||
2005 | 4,488,872 | ||
Thereafter | 24,065,304 | ||
|
|||
$ | 47,199,680 | ||
|
Rent expense was $722,602 in 2000. There was no rent expense in 1999.
Connectivity and transit agreements
In order to provide its service, the Company connects its customers and the buildings it serves to its national fiber-optic backbone and for its transit service to the Internet. The Company has secured
F14
contracts that range from monthly charges to 36-month terms to provide this connectivity and to provide its service while certain segments of its fiber-optic backbone are under construction. The Company also pays Williams a monthly fee per route mile over a minimum of 20 years for the maintenance of its two national backbone fibers.
Future minimum obligations as of December 31, 2000, related to these arrangements are as follows:
Year ending December 31
|
|
||
---|---|---|---|
2001 | $ | 7,021,358 | |
2002 | 5,306,098 | ||
2003 | 4,848,525 | ||
2004 | 3,576,993 | ||
2005 | 3,648,532 | ||
Thereafter | 64,357,504 | ||
|
|||
$ | 88,759,010 | ||
|
Trademark
In October 2000, the Company was notified that the use of the trade name Cogent Communications may conflict with pre-existing trademark rights. Management believes that this issue will be resolved without a material effect on the Company's financial position or results of operations.
Commercial paper investment
The Company has a $600,000 investment in a commercial paper issue of Pacific Gas and Electric Company (PG&E). When purchased in November 2000, this investment met the Company's investment guidelines. Subsequent to December 31, 2000, the borrowings of PG&E have been downgraded by rating agencies, and the investment no longer meets the Company's investment criteria. The current market price of this commercial paper investment was approximately $480,000 at March 15, 2001.
7. Stockholders' equity:
The Company has authorized 70,000,000 shares of $0.001 par value common stock, 26,000,000 shares of Series A Participating Convertible Preferred Stock (Series A), and 20,000,000 shares of Series B Participating Convertible Preferred Stock (Series B). The Company has reserved 46,000,000 shares of its common stock for the conversion of the Series A and Series B preferred stock, 9,900,000 shares of its common stock for issuance under its Equity Incentive Plan, and 2,227,500 shares of its common stock for the issuance of warrants under the Facility.
In February 2000, the Company authorized and issued 26,000,000 shares of Series A preferred stock for $26 million. The Series A contains voting rights at one vote per share equal to the number of shares of common stock into which the Series A shares can be converted. The Series A is senior to the common stock and includes a stated liquidation preference of the original purchase price of $1.00 per share plus interest at the three-month LIBOR rate plus a stated percentage. Each share of Series A is convertible, at any time, at the option of the holder into shares of common stock at the rate of one share of common stock for each share of Series A, subject to adjustment, and automatically converts under certain conditions, as defined in the Series A stock purchase agreement.
In July 2000, the Company issued 19,809,783 shares of Series B preferred stock for approximately $90 million. The Series B contains voting rights at one vote per share equal to the number of shares of common stock into which the Series B shares can be converted. The Series B is senior to the common stock and includes a stated liquidation preference of the original purchase price of $4.55 per share plus
F15
interest at the three-month LIBOR rate plus a stated percentage. Each share of Series B is convertible, at any time, at the option of the holder into shares of common stock at the rate of one share of common stock for each share of Series B, subject to adjustment, and automatically converts under certain conditions, as defined in the Series B stock purchase agreement.
Under a liquidation, after the liquidation preferences of the Series A and Series B noted above have been satisfied, all remaining assets of the Company are distributed ratably to all holders of preferred stock, as if converted to common stock, and to all holders of common stock. These distributions are made until the aggregate distribution to the Series A is $3.00 per share and the Series B is $9.10 per share, at which time all preferred shares are considered redeemed and are canceled.
8. Stock option plan:
In 1999, the Company adopted its Equity Incentive Plan (the Plan) for granting of options to employees, directors, and consultants. Options granted under the Plan may be designated as incentive or nonqualified at the discretion of the Plan administrator. Stock options granted under the Plan generally vest over a four-year period and have a term of ten years. Stock options exercised, granted, and canceled during the period from inception (August 9, 1999) to December 31, 2000, were as follows:
|
Number of options
|
Weighted-average
exercise price |
|||
---|---|---|---|---|---|
Outstanding at inception (August 9, 1999) | | $ | | ||
Granted | 469,500 | 0.01 | |||
Exercised | | | |||
Cancellations | | | |||
|
|
||||
Outstanding at December 31, 1999 | 469,500 | 0.01 | |||
Granted | 6,323,550 | 1.00 | |||
Exercised | (406,977 | ) | 0.22 | ||
Cancellations | 506,877 | 0.83 | |||
|
|
||||
Outstanding at December 31, 2000 | 6,892,950 | $ | 0.97 | ||
|
|
Options exercisable as of December 31, 1999, were 234,750 with a weighted-average exercise price of $0.01. The weighted-average remaining contractual life of the outstanding options at December 31, 1999, was approximately 9.7 years. Options exercisable as of December 31, 2000, were 369,458 with a weighted-average exercise price of $0.75. The weighted-average remaining contractual life of the outstanding options at December 31, 2000, was approximately 9.5 years.
Pro forma information regarding net loss required by SFAS No.123 has been determined as if the Company had accounted for its stock options under the minimum value method and results in a pro forma net loss of $11,953,354 for 2000 and $83,387 for 1999. The weighted-average per share grant date fair value of options granted was $0.40 in 2000 and $0.005 in 1999. The fair value of these options was estimated at the date of grant using the minimum value method with the following weighted-average assumptions for the year ended December 31, 2000an average risk-free rate of 5.25 percent, a dividend yield of 0 percent, and an expected life of 10 years, and for the year ended December 31, 1999an average risk-free rate of 6.5 percent, a dividend yield of 0 percent, and an expected life of 10 years.
9. Related party:
The Company's headquarters is located in an office building owned by a partnership in which the Company's chief executive officer is the general partner. The Company was not charged for the use of this office space in 1999. The Company paid $333,366 in rent to this entity in 2000. In January 2000, the Company collected a $25,000 note receivable from its stockholder related to the stockholders' 1999 purchase of common shares.
F16
COGENT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes are an integral part of this condensed consolidated balance sheet.
F17
COGENT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
|
Six Months
Ended June 30, 2000 (unaudited) |
Six Months
Ended June 30, 2001 (unaudited) |
||||||
---|---|---|---|---|---|---|---|---|
Revenues | ||||||||
Service revenue | $ | | $ | 90 | ||||
Operating expenses: | ||||||||
Network operations | 49 | 10,440 | ||||||
Selling, general, and administrative | 1,727 | 14,167 | ||||||
Depreciation and amortization | 15 | 2,985 | ||||||
|
|
|||||||
Total operating expenses | 1,791 | 27,592 | ||||||
Operating income (loss) |
|
|
(1,791 |
) |
|
(27,502 |
) |
|
Interest income | 528 | 1,266 | ||||||
Interest expense | (273 | ) | (1,808 | ) | ||||
Other income | | 62 | ||||||
|
|
|||||||
Net income (loss) | $ | (1,536 | ) | $ | (27,982 | ) | ||
|
|
|||||||
Basic and diluted net loss per common share | $(0.11 | ) | $(1.99 | ) | ||||
|
|
|||||||
Weighted-average common shares (basic and diluted) | 13,707,362 | 14,036,977 | ||||||
|
|
The accompanying notes are an integral part of these condensed consolidated statements.
F18
COGENT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
Six Months
Ended June 30, 2000 (unaudited) |
Six Months
Ended June 30, 2001 (unaudited) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
Cash flows from operating activities: | ||||||||||
Net loss | $ | (1,536 | ) | $ | (27,982 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||
Depreciation and amortization | 15 | 2,985 | ||||||||
Changes in assets and liabilities | 109 | 7,835 | ||||||||
|
|
|||||||||
Net cash used in operating activities | (1,412 | ) | (17,162 | ) | ||||||
|
|
|||||||||
Cash flows from investing activities: | ||||||||||
Purchases of property and equipment | (373 | ) | (54,363 | ) | ||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|||
Repayment of capital lease obligations | (10,985 | ) | (9,423 | ) | ||||||
Collection of note from stockholder | 25 | | ||||||||
Proceeds from credit facility equipment loans | | 31,495 | ||||||||
Proceeds from credit facility working capital loan | | 28,990 | ||||||||
Proceeds from option exercises | 15 | 6 | ||||||||
Issuance of preferred stock, net of issuance costs | 95,893 | | ||||||||
|
|
|||||||||
Net cash provided by financing activities | 84,948 | 51,068 | ||||||||
|
|
|||||||||
Net increase (decrease) in cash and cash equivalents | 83,163 | (20,457 | ) | |||||||
Cash and cash equivalents beginning of period | | 65,593 | ||||||||
|
|
|||||||||
Cash and cash equivalents end of period | $ | 83,163 | $ | 45,136 | ||||||
|
|
|||||||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||
Cash paid for interest | $ | | $ | 4,415 | ||||||
Cash paid for income taxes | | | ||||||||
Non-Cash Financing Activities |
|
|
|
|
|
|
|
|||
Capital lease obligations incurred | $ | 26,199 | $ | 11,213 | ||||||
Issuance of warrants in connection with borrowings on working capital credit facility | | 583 |
The accompanying notes are an integral part of these condensed consolidated statements.
F19
COGENT COMMUNICATIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
1. Description of the Business and Summary of Significant Accounting Policies:
Description of Business
Cogent Communications, Inc. ("Cogent") was formed on August 9, 1999, as a Delaware corporation and is located in Washington, D.C. Cogent is a facilities-based Internet Services Provider ("ISP"), providing Internet access to multi-tenanted office buildings in approximately 20 major metropolitan areas in the United States. In 2001, Cogent formed Cogent Communications Group, Inc., (the "Company"), a Delaware corporation. Effective on March 14, 2001, Cogent's stockholders exchanged all of their outstanding common and preferred shares for an equal number of shares of the Company, and Cogent became a wholly owned subsidiary of the Company. The common and preferred shares of the Company include rights and privileges identical to the common and preferred shares of Cogent. This was a tax-free exchange that was accounted for by the Company at Cogent's historical cost. All of Cogent's options for shares of common stock were also converted to options of the Company.
The Company's high-speed Internet access service is delivered to the Company's customers over a nationwide fiber-optic network. The Company's network is dedicated solely to Internet Protocol data traffic. The Company's network includes 30-year indefeasible rights of use ("IRU's") to a nationwide fiber-optic intercity network of approximately 12,500 route miles (25,000 fiber miles) of dark fiber from Williams Communications, Inc. ("Williams"). These IRU's are configured in two rings that connect many of the major metropolitan markets in the United States. In order to extend the Company's national backbone into local markets, the Company has entered into leased fiber agreements for intra-city dark fiber with Metromedia Fiber Network Services, Inc. ("MFN") and other providers. These agreements are primarily under 25 year IRU's.
The Company's primary activities to date have included recruiting employees, obtaining financing, branding and marketing its products, obtaining customer orders and building access rights, and designing and constructing its fiber-optic network and facilities.
Acquisitions
Allied Riser Communications Corporation
In August 2001, the Company entered into an agreement to merge with Allied Riser Communications Corporation ("ARCC"). Under the terms of the merger agreement, the Company is expected to issue approximately 13.4% of its common stock, on a fully diluted basis, to the existing ARCC stockholders. The merger is subject to the approval of the stockholders of both companies, the registration of the Company's common stock to be issued in the merger, the approval for trading of the Company's shares on the NASDAQ or a national securities exchange, the Company raising an additional $62 million of equity, and other conditions.
NetRail Inc.
In September 2001, the Company paid approximately $12 million for major assets of NetRail, Inc, (NetRail) a Tier-1 Internet service provider, in a sale conducted under Chapter 11 of the United States Bankruptcy Code. Tier-1 service providers purchase Internet capacity from the major communications carriers and resell it to smaller service providers and other entities. The assets included certain
F20
customers, circuits, equipment, and settlement-free peering arrangements with other Tier-1 Internet service providers.
Business Risk and Liquidity
The Company operates in the rapidly evolving Internet services industry, which is subject to intense competition and rapid technological change, among other factors. The successful execution of the Company's business plan is dependent upon the availability of and access to network capacity, the availability and performance of the Company's network equipment, the availability of additional capital, the Company's ability to successfully market its products and services, and the Company's ability to manage its growth. Although management believes that the Company will successfully mitigate these risks, management cannot give assurances that it will be able to do so or that the Company will ever operate profitably.
The Company has obtained $116 million in venture-backed funding through the issuance of preferred stock. As a condition of the merger with ARCC the Company is required to close its $62 million Series C financing. The Company has secured a $409 million credit facility (the "Facility") from Cisco Systems Capital Corporation ("Cisco Capital"). Substantial time may pass before significant revenues are realized, and additional funds may be required to implement the Company's business plan. However, management expects that the proceeds from the issuance of preferred stock and the availability under the Facility will be sufficient to fund the Company's current business plan through fiscal 2002.
Basis of Presentation
The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of the results of operations for the interim periods covered, and of the financial position of the Company at the date of the interim consolidated balance sheet. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. While, the Company believes that the disclosures made are adequate to not make the information misleading, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes of Cogent as of December 31, 2000, included in this registration statement.
Segments
The Company's chief operating decision maker evaluates performance based upon underlying information of the Company as a whole. There are no additional reporting segments.
Comprehensive Income
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting of Comprehensive Income" requires "comprehensive income" and the components of "other comprehensive income" to be reported in the financial statements and/or notes thereto. Since the Company does not have any components of "other comprehensive income", reported net loss is the same as "comprehensive loss" for the periods presented.
F21
Stock-Based Compensation
The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense related to fixed employee stock options is recorded only if, on the date of grant, the fair value of the underlying stock exceeded the exercise price. The Company has adopted the disclosure only requirements of SFAS No. 123, "Accounting for Stock-Based Compensation", which allows entities to continue to apply the provisions of APB Opinion No. 25 for transactions with employees and provide pro-forma net income disclosures as if the fair-value based method of accounting, or minimum value method for private companies, described in SFAS No. 123 had been applied to employee stock option grants.
Basic and Diluted Net Loss Per Share
Net income (loss) per share is presented in accordance with the provisions of SFAS No.128 "Earnings per Share". SFAS No. 128 requires a presentation of basic EPS and diluted EPS. Basic EPS excludes dilution for common stock equivalents and is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.
The following is a calculation of the numerators and the denominators of the basic and diluted loss per common share computations (in thousands except share and per share data). All of the Company's common stock equivalents have been excluded from the net loss per share calculation because their effect would be anti-dilutive.
|
Six Months Ended
June 30, 2000 |
Six Months Ended
June 30, 2001 |
|||||
---|---|---|---|---|---|---|---|
Net loss | $ | (1,536 | ) | $ | (27,982 | ) | |
Weighted-average shares of common shares outstanding | 13,707,362 | 14,036,977 | |||||
Basic and diluted net loss per common share | $(0.11 | ) | $(1.99 | ) |
For the six-months ended June 30, 2000 and 2001 options to purchase 3,730,250 and 5,884,481 shares of common stock at weighted-average exercise prices of $0.55 and $1.04 per share, respectively, are not included in the computation of diluted earnings per share as they are anti-dilutive. As of June 30, 2001, 45,809,783 shares of preferred stock, which were convertible into 45,809,783 shares of common stock, and warrants exercisable for 866,250 were not included in the computation of diluted earnings per share as a result of their anti-dilutive effect. As of June 30, 2000, 26,000,000 shares of preferred stock, which were convertible into 26,000,000 shares of common stock, were not included in the computation of diluted earnings per share as a result of their anti-dilutive effect.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations. All business combinations in the scope of this Statement will be accounted for using the purchase method of accounting. The provisions of SFAS No. 141 apply to all business combinations initiated after June 30, 2001, and business combinations accounted for by the purchase method for which the date of acquisition is July 1, 2001, or later. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under this Statement, goodwill will no longer be amortized but will be tested for impairment at least annually at the reporting unit level. Goodwill will be tested for impairment on an interim basis if an event occurs or circumstances change that would more-likely-than-not reduce the
F22
fair value of a reporting unit below its carrying value. Intangible assets which remain subject to amortization will be reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The provisions of SFAS No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001. The proposed merger transaction with ARCC, if consummated, will be accounted for in accordance with SFAS No. 141 and No. 142. The completed transaction with NetRail will be accounted for in accordance with SFAS No. 141 and No. 142.
2. Indefeasible Right of Use Agreement
In April 2000, the Company entered into a dark fiber IRU contract with Williams for approximately 12,500 route miles (25,000 fiber miles) of dark fiber at a cost of approximately $27.5 million. Under this agreement, the Company paid $11.0 million in April 2000, $9.6 million in October 2000, and $5.5 million in April 2001 and will pay an additional $1.4 million in October 2001. In June 2000, the Company exercised its right to lease an additional 12,500 route miles (the "Second IRU") for approximately $22.5 million. Under the Second IRU agreement the Company paid $9.0 million in June 2000, $9.0 million in December 2000, and $4.5 million in June 2001. These IRU's are for initial 20-year periods, with, under certain conditions, two renewal terms of five years each. Under this agreement, Williams also provides co-location services and maintenance on both fibers for additional monthly fees. The Company's $22.5 million cost of the Second IRU is offset by $22.5 million of payments from Cisco Systems, Inc. (See Note 4). Under this arrangement, Cisco paid the Company $21.4 million through June 2001 and will pay an additional $1.1 million to the Company in December 2001.
3. Long Term Debt
In March 2000, Cogent entered into a $280 million credit facility (the "Facility") with Cisco Systems Capital Corporation. In March 2001, the Facility was increased to $310 million. In October 2001, Cogent entered into a new agreement for $409 million. In connection with the October 2001 agreement, the Company issued Cisco Capital warrants for an additional 4.9 million shares of its common stock and incurred a $2.0 million closing fee. The warrants are exercisable for eight years from the grant date at an exercise price of $1.25 per share. The October 2001 agreement matures on December 31, 2008.
This credit facility supercedes and replaces the existing $310 million credit facility between Cisco Capital and Cogent. Borrowings under the credit facility will become available in increments subject to Cogent's satisfaction of certain operational and financial covenants over time. Borrowings under the credit facility for the purchase of products and working capital will be available until December 31, 2004.
The Facility requires compliance with certain financial, subjective, and operational covenants, among other conditions and restrictions. During the six-months ended June 30, 2001, Cogent violated certain debt covenants. However, Cogent is in compliance with the October 2001 agreement. Borrowings may be prepaid at any time without penalty and are subject to mandatory prepayment based upon excess cash flow or upon the receipt of a specified amount from the sale of the Company's securities, each as defined. Principal payments begin in March 2005. The Facility is classified on the accompanying June 30, 2001 balance sheet in accordance with the October 2001 agreement. Borrowings accrue interest at the three-month LIBOR rate, established at the beginning of each calendar quarter, plus a stated margin. The margin is dependent upon the Company's leverage ratio, as defined, and may be reduced. Interest payments are deferred and begin in March 2006. Borrowings are secured by a pledge of all of Cogent's assets and common stock. The Facility includes restrictions on Cogent's ability to transfer assets to the Company, except for certain operating liabilities. The Company has guaranteed Cogent's obligations under the Facility.
F23
Warrants to purchase the Company's common stock are issued in connection with Working Capital Loans. The warrant exercise price is based upon the most recent significant equity transaction, as defined in the Facility. In June 2001, the Company borrowed $29.0 million of Working Capital Loans. This borrowing resulted in granting Cisco Capital warrants for 866,250 shares of common stock. The warrants have an exercise price of $4.55, adjusted as defined, and are exercisable for eight years. These warrants have been valued at $583,000 using the Black-Scholes method of valuation and are recorded as deferred financing costs and stock purchase warrants in the accompanying June 30, 2001 balance sheet. The debt discount will be amortized to interest expense over the term of the Facility.
The weighted average interest rate on all borrowings for the six-month period ending June 30, 2001, was approximately 10.2%. There were no borrowings during the six-month period ended June 30, 2000.
4. Deferred Equipment Discount
In June 2000, the Company amended its product purchase agreement with Cisco (See Note 6). In connection with the amendment, Cisco agreed to pay the Company a total of $22.5 million, with $16.9 million paid in 2000 and $5.6 million to be paid in 2001. The final payment of $1.1 million is due in December 2001. These payments are recorded as a deferred equipment discount and will be amortized as a reduction to depreciation expense over a seven-year period as the related equipment is placed in service.
5. Income taxes
The Company has approximately $37.5 million of net operating loss carryforwards available to offset future taxable income, if any, through 2021. Due to the uncertainty surrounding the realization of this deferred tax asset, the Company has recorded a valuation allowance for the full amount of its net deferred tax asset. Should the Company achieve profitability, the net operating loss carryforward and the Company's other deferred tax assets may be available to offset future income tax liabilities. For federal and state tax purposes, the Company's net operating loss carryforwards could be subject to certain limitations on annual utilization if certain changes in ownership were to occur, as defined by federal and state tax laws.
The following is a reconciliation of the normal expected statutory Federal income tax rate to the effective rate reported in the financial statements.
|
June 30, 2000
|
June 30, 2001
|
|||
---|---|---|---|---|---|
Federal income tax (benefit) at statutory rates | (34.0 | )% | (34.0 | )% | |
State income tax (benefit) at statutory rates, net of Federal benefit | (6.6 | ) | (6.6 | ) | |
Increase in valuation allowance | 40.6 | 40.6 | |||
Effective income tax rate | | % | | % |
6. Commitments and Contingencies:
Fiber Lease Agreements
In February 2000, the Company entered into an agreement with MFN to lease fiber-optic cable for its intra-city fiber-optic rings and to provide the Company access to provide its service to certain multi-tenant office buildings. Each product order includes a lease of an intra-city fiber-optic ring for a period of up to 25 years and access to certain specified buildings in exchange for monthly payments. The agreement provides for a minimum commitment of 2,500 leased fiber miles and 500 connected buildings within five years from the effective date and penalties for early termination. Under the agreement, MFN also provides installation, maintenance, restoration, and network monitoring services
F24
for no additional cost. Each lease of an intra-city fiber-optic ring is treated as a capital lease and recorded once the Company has accepted the related fiber route.
Equipment Purchase Commitment
In March 2000, the Company entered into a five-year commitment to purchase from Cisco, minimum annual amounts of equipment, professional services, and software. In June 2000, the agreement was amended to increase the Company's previous commitment to purchase $150.1 million over four years to a commitment to purchase $212.2 million over five years. In October 2001, the commitment was amended to increase the Company's previous commitment to purchase $270 million until December 2004. As of June 30, 2001, the Company has purchased approximately $98.7 million towards this commitment.
Commercial Paper Investment
The Company has a $600,000 investment in a commercial paper issue of Pacific Gas and Electric Company ("PG&E"). When purchased in November 2000, this investment met the Company's investment guidelines. The borrowings of PG&E have been downgraded by rating agencies and the investment no longer meets the Company's investment criteria. The market price of this commercial paper investment was approximately $420,000 at June 30, 2001.
Trademark
In October 2000, the Company was notified that the use of the trade name Cogent Communications may conflict with pre-existing trademark rights. Management believes that this issue will be resolved without a material effect on the Company's financial position or results of operations.
7. Stockholders' Equity.
The Company has authorized 70,000,000 shares of $0.001 par value common stock, 26,000,000 shares of Series A Participating Convertible Preferred Stock (Series A), and 20,000,000 shares of Series B Participating Convertible Preferred Stock (Series B). The Company has reserved 46,000,000 shares of its common stock for the conversion of the Series A and Series B preferred stock, 9,900,000 shares of its common stock for issuance under its Equity Incentive Plan, and 2,227,500 shares of its common stock for the issuance of warrants under the Facility.
In February 2000, the Company authorized and issued 26,000,000 shares of Series A preferred stock for $26 million. The Series A contains voting rights at one vote per share equal to the number of shares of common stock into which the Series A shares can be converted. The Series A is senior to the common stock and includes a stated liquidation preference of the original purchase price of $1.00 per share plus interest at the three-month LIBOR rate plus a stated percentage. Each share of Series A is convertible, at any time, at the option of the holder into shares of common stock at the rate of one share of common stock for each share of Series A, subject to adjustment, and automatically converts under certain conditions, as defined in the Series A stock purchase agreement.
In July 2000, the Company issued 19,809,783 shares of Series B preferred stock for approximately $90 million. The Series B contains voting rights at one vote per share equal to the number of shares of common stock into which the Series B shares can be converted. The Series B is senior to the common stock and includes a stated liquidation preference of the original purchase price of $4.55 per share plus interest at the three-month LIBOR rate plus a stated percentage. Each share of Series B is convertible, at any time, at the option of the holder into shares of common stock at the rate of one share of common stock for each share of Series B, subject to adjustment, and automatically converts under certain conditions, as defined in the Series B stock purchase agreement.
F25
Under a liquidation, after the liquidation preferences of the Series A and Series B noted above have been satisfied, all remaining assets of the Company are distributed ratably to all holders of preferred stock, as if converted to common stock, and to all holders of common stock. These distributions are made until the aggregate distribution to the Series A is $3.00 per share and the Series B is $9.10 per share, at which time all preferred shares are considered redeemed and are canceled.
8. Related Party
The Company's headquarters is located in an office building owned by an entity controlled by the Company's Chief Executive Officer. The Company paid $89,000 and $235,000 in rent to this entity for the six months ended June 30, 2000 and June 30, 2001, respectively. In January 2000, the Company collected a $25,000 note receivable from its stockholder related to the stockholder's 1999 purchase of common shares.
F26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To
the Board of Directors and Stockholders of
Allied Riser Communications Corporation:
We have audited the accompanying consolidated balance sheets of Allied Riser Communications Corporation (a Delaware corporation) and subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allied Riser Communications Corporation and subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 24,
2001 (except with respect to the matter discussed in Note 14,
as to which the date is February 23, 2001)
F27
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
|
1999
|
2000
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||||||||
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ASSETS | ||||||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents | $ | 152,564 | $ | 29,455 | ||||||
Short-term investments | 162,013 | 212,107 | ||||||||
Accounts receivable, net of reserve of $19 and $196 in 1999 and 2000, respectively | 259 | 3,912 | ||||||||
Prepaid expenses and other current assets | 5,454 | 5,606 | ||||||||
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|
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Total current assets | 320,290 | 251,080 | ||||||||
PROPERTY AND EQUIPMENT, net | 46,577 | 182,442 | ||||||||
REAL ESTATE ACCESS RIGHTS, net of accumulated amortization of $2,036 and $16,003 in 1999 and 2000, respectively | 107,099 | 133,003 | ||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS, net of accumulated amortization of $0 and $2,592 in 1999 and 2000, respectively | | 12,118 | ||||||||
OTHER ASSETS, net | 1,088 | 11,060 | ||||||||
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Total assets | $ | 475,054 | $ | 589,703 | ||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
CURRENT LIABILITIES: |
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Accounts payable | $ | 10,693 | $ | 17,904 | ||||||
Accrued liabilities | 4,219 | 21,037 | ||||||||
Current maturities of capital lease obligations | 3,049 | 32,229 | ||||||||
Current maturities of debt | | 713 | ||||||||
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Total current liabilities | 17,961 | 71,883 | ||||||||
CAPITAL LEASE OBLIGATIONS, net of current maturities | 4,679 | 41,290 | ||||||||
CONVERTIBLE NOTES (7.50% interest payable in stock or cash) | | 150,000 | ||||||||
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Total liabilities | 22,640 | 263,173 | ||||||||
COMMITMENTS AND CONTINGENCIES (see Note 7) |
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STOCKHOLDERS' EQUITY: |
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Common stock, $.0001 par value, 1,000,000,000 shares authorized, 56,569,000 and 58,561,000 outstanding as of December 31, 1999 and 2000, respectively (net of 96,000 and 675,000 treasury shares, respectively) | 6 | 6 | ||||||||
Additional paid-in capital | 434,930 | 460,137 | ||||||||
Warrants, authorizing the issuance of 6,336,000 and 7,377,000 shares as of December 31, 1999 and 2000, respectively | 109,135 | 127,846 | ||||||||
Deferred compensation | (17,654 | ) | (13,501 | ) | ||||||
Accumulated other comprehensive income (loss) | | (547 | ) | |||||||
Accumulated deficit | (74,003 | ) | (247,411 | ) | ||||||
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Total stockholders' equity | 452,414 | 326,530 | ||||||||
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Total liabilities and stockholders' equity | $ | 475,054 | $ | 589,703 | ||||||
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The accompanying notes are an integral part of these consolidated financial statements.
F28
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
|
1998
|
1999
|
2000
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
REVENUE: | ||||||||||||
Network services | $ | 212 | $ | 1,422 | $ | 10,969 | ||||||
Value added services | | 448 | 3,363 | |||||||||
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Total revenue | 212 | 1,870 | 14,332 | |||||||||
OPERATING EXPENSES: | ||||||||||||
Network operations | 2,358 | 7,554 | 43,389 | |||||||||
Cost of value added services | | 128 | 2,356 | |||||||||
Selling expense | 1,623 | 9,296 | 44,535 | |||||||||
General and administrative expenses | 9,736 | 25,981 | 60,763 | |||||||||
Depreciation and amortization | 499 | 5,007 | 36,155 | |||||||||
Amortization of deferred compensation | | 14,681 | 9,418 | |||||||||
Total operating expenses | 14,216 | 62,647 | 196,616 | |||||||||
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OPERATING INCOME (LOSS) | (14,004 | ) | (60,777 | ) | (182,284 | ) | ||||||
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OTHER INCOME (EXPENSE): | ||||||||||||
Interest expense | (724 | ) | (1,275 | ) | (9,348 | ) | ||||||
Interest and other income | 118 | 4,564 | 18,224 | |||||||||
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Total other income (expense) | (606 | ) | 3,289 | 8,876 | ||||||||
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INCOME (LOSS) BEFORE INCOME TAXES | (14,610 | ) | (57,488 | ) | (173,408 | ) | ||||||
PROVISION FOR INCOME TAXES | | | | |||||||||
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NET INCOME (LOSS) | (14,610 | ) | (57,488 | ) | (173,408 | ) | ||||||
ACCRUED DIVIDENDS ON PREFERRED STOCK | (452 | ) | (6,452 | ) | | |||||||
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NET INCOME (LOSS) APPLICABLE TO COMMON STOCK | $ | (15,062 | ) | $ | (63,940 | ) | $ | (173,408 | ) | |||
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NET INCOME (LOSS) PER COMMON SHARE | $(8.09 | ) | $(2.15 | ) | $(3.18 | ) | ||||||
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 1,862,000 | 29,736,000 | 54,472,000 | |||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
F29
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS EXCEPT SHARE AND PER SHARE
AMOUNTS)
|
Common Stock
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Warrants
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Accumulated
Other Comprehensive Income (Loss) |
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||||||||||||||||||||||||
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Number of
Shares |
Amount
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Additional
Paid-In Capital |
Number of
Shares |
Amount
|
Deferred
Compensation |
Accumulated
Deficit |
Equity Total
|
Comprehensive Income
|
|||||||||||||||||||||
BALANCE, December 31, 1997 | 241,000 | $ | | $ | 163 | | $ | | $ | | $ | (1,905 | ) | $ | | $ | (1,742 | ) | $ | |||||||||||
Net income (loss) | | | | | | | (14,610 | ) | | (14,610 | ) | (14,610 | ) | |||||||||||||||||
Other comprehensive income foreign currency translation adjustment | | | | | | | | | | | ||||||||||||||||||||
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Comprehensive income | (14,610 | ) | ||||||||||||||||||||||||||||
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Issuance of common stock, net of issuance costs | 25,475,000 | 3 | (316 | ) | | | | | | (313 | ) | |||||||||||||||||||
Capital contribution | | | 980 | | | | | | 980 | |||||||||||||||||||||
Accrued cumulative dividends on preferred stock | | | (452 | ) | | | | | | (452 | ) | |||||||||||||||||||
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BALANCE, December 31, 1998 | 25,716,000 | 3 | 375 | | | | (16,515 | ) | | (16,137 | ) | |||||||||||||||||||
Net income (loss) | | | | | | | (57,488 | ) | | (57,488 | ) | (57,488 | ) | |||||||||||||||||
Other comprehensive income foreign currency translation adjustment | | | | | | | | | | | ||||||||||||||||||||
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Comprehensive income | (57,488 | ) | ||||||||||||||||||||||||||||
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Issuance of common stock, net of stock repurchases and issuance costs | 24,353,000 | 2 | 284,768 | | | | | | 284,770 | |||||||||||||||||||||
Conversion of preferred stock | 6,500,000 | 1 | 123,904 | | | | | | 123,905 | |||||||||||||||||||||
Issuance of warrants | | | | 6,336,000 | 109,135 | | | | 109,135 | |||||||||||||||||||||
Accrued cumulative dividends on preferred stock | | | (6,452 | ) | | | | | | (6,452 | ) | |||||||||||||||||||
Deferred compensation | | | 32,335 | | | (32,335 | ) | | | | ||||||||||||||||||||
Amortization of deferred compensation | | | | | | 14,681 | | 14,681 | ||||||||||||||||||||||
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BALANCE, December 31, 1999 | 56,569,000 | 6 | 434,930 | 6,336,000 | 109,135 | (17,654 | ) | (74,003 | ) | | 452,414 | |||||||||||||||||||
Net income (loss) | | | | | | | (173,408 | ) | | (173,408 | ) | (173,408 | ) | |||||||||||||||||
Other comprehensive income foreign currency translation adjustment | | | | | | | | (547 | ) | (547 | ) | (547 | ) | |||||||||||||||||
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Comprehensive income | $ | (173,955 | ) | |||||||||||||||||||||||||||
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Issuance of common stock, net of stock repurchases and issuance costs | 1,280,000 | | 5,278 | | | | | | 5,278 | |||||||||||||||||||||
Issuance of warrants | | | | 1,753,000 | 33,375 | | | | 33,375 | |||||||||||||||||||||
Exercise of warrants | 712,000 | | 14,664 | (712,000 | ) | (14,664 | ) | | | | | |||||||||||||||||||
Deferred compensation | | | 5,265 | | | (5,265 | ) | | | | ||||||||||||||||||||
Amortization of deferred compensation | | | | | | 9,418 | | | 9,418 | |||||||||||||||||||||
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BALANCE, December 31, 2000 | 58,561,000 | $ | 6 | $ | 460,137 | 7,377,000 | $ | 127,846 | $ | (13,501 | ) | $ | (247,411 | ) | $ | (547 | ) | $ | 326,530 | |||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
F30
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
|
1998
|
1999
|
2000
|
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CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
Net income (loss) | $ | (14,610 | ) | $ | (57,488 | ) | $ | (173,408 | ) | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||||||||
Depreciation and amortization | 499 | 19,688 | 45,573 | |||||||||||
Changes in assets and liabilities, net of the effect of acquisitions | ||||||||||||||
Increase in accounts receivable, net | (20 | ) | (239 | ) | (2,260 | ) | ||||||||
(Increase) decrease in prepaid expenses | (128 | ) | (5,316 | ) | 515 | |||||||||
(Increase) decrease in other assets | (992 | ) | 1,299 | (4,673 | ) | |||||||||
Increase in accounts payable and accrued liabilities | 2,454 | 11,799 | 15,718 | |||||||||||
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Net cash used in operating activities | (12,797 | ) | (30,257 | ) | (118,535 | ) | ||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||
Purchases of property and equipment | (9,738 | ) | (28,790 | ) | (79,815 | ) | ||||||||
Purchases of short-term investments, net | | (162,013 | ) | (50,094 | ) | |||||||||
Acquisition of businesses, net of cash acquired | | | (14,745 | ) | ||||||||||
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Net cash used in investing activities | (9,738 | ) | (190,803 | ) | (144,654 | ) | ||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||
Proceeds from convertible notes, net of offering cost | 15,100 | | 145,003 | |||||||||||
Payments on capital lease obligations | (373 | ) | (2,167 | ) | (6,023 | ) | ||||||||
Payments of debt | (17,668 | ) | | (391 | ) | |||||||||
Proceeds from issuance of common stock and sale of subsidiary stock, net of issuance costs | (321 | ) | 284,770 | 1,728 | ||||||||||
Proceeds from issuance of preferred stock | 66,000 | 51,000 | | |||||||||||
Credit facility origination fee | | (1,350 | ) | | ||||||||||
Capital contribution | 980 | | | |||||||||||
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Net cash provided by financing activities | 63,718 | 332,253 | 140,317 | |||||||||||
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EFFECT OF EXCHANGE RATE CHANGES ON CASH | | | (237 | ) | ||||||||||
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 41,183 | 111,193 | (123,109 | ) | ||||||||||
CASH AND CASH EQUIVALENTS, beginning of period | 188 | 41,371 | 152,564 | |||||||||||
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CASH AND CASH EQUIVALENTS, end of period | $ | 41,371 | $ | 152,564 | $ | 29,455 | ||||||||
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SUPPLEMENTARY CASH FLOW DISCLOSURES: | ||||||||||||||
Payments for interest | $ | 113 | $ | 569 | $ | 6,836 | ||||||||
Noncash investing and financing activities Equipment acquired under capital leases | $ | 2,515 | $ | 7,754 | $ | 67,501 | ||||||||
Accrued dividends and interest on preferred stock and convertible notes | $ | 452 | $ | 6,452 | $ | 500 | ||||||||
Warrants issued | $ | | $ | 109,135 | $ | 33,375 | ||||||||
Deferred compensation | $ | | $ | 32,335 | $ | 5,265 | ||||||||
Conversion of preferred stock | $ | | $ | 123,904 | $ | | ||||||||
Common stock issued for business acquisitions (129,000 shares) | $ | | $ | | $ | 4,011 |
The accompanying notes are an integral part of these consolidated financial statements.
F31
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Allied Riser Communications Corporation ("ARC Corporation") (collectively including all predecessors, the "Company") is a facilities-based provider of broadband data, video and voice communications services to small- and medium-sized businesses in 54 major metropolitan statistical areas in North America. The Company's services, which today include high-speed Internet access and other broadband data services, are typically delivered to the Company's customers over its broadband data network built inside multi-tenant commercial office buildings. In addition to selling services to the commercial tenants of buildings in which the Company owns and operates this broadband data network, the Company leverages its existing customer relationships by offering end-to-end connectivity on a resold basis to businesses located outside these buildings.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The accompanying financial statements include all wholly owned subsidiaries and a 68% owned subsidiary, Shared Technologies of Canada ("STOC"). STOC is owned by the Company's wholly owned subsidiary, ARC Canada. All inter-company accounts and activity have been eliminated. Minority interest in STOC, is not presented in the accompanying financial statements because the minority interest is in a deficit position and the Company continues to record 100 percent of the losses of STOC.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and marketable securities with original maturities of three months or less.
The cash balance at December 31, 2000, includes $1,716,000 in escrow which relates to acquisitions made during 2000 (see Note 10). This escrowed amount is restricted as to use by the Company.
Short-term Investments
Short-term investments consist primarily of U.S. government and corporate fixed income securities with original maturities at date of purchase beyond three months and less than 12 months. Such short-term investments are carried at their accreted value as the Company intends to hold these securities to maturity. Also included in short-term investments are corporate fixed income securities with original maturities beyond 12 months for which management will exercise its redemption provision within the next 12 months. These securities comprise less than 2% of total short-term investments. Unrealized gains and losses on these securities are not significant. As of December 31, 2000, investments are carried at their original cost, which approximates fair market value.
LONG-LIVED ASSETS
Property and Equipment
Property and equipment are stated at cost and depreciated when placed in service using the straight-line method. Interest is capitalized during the construction period of system infrastructure based on the rates applicable to borrowings outstanding during the period. Equipment held under capital lease obligations is amortized over the shorter of the lease term or estimated useful life of the asset. Equipment held under capital lease obligations amounted to approximately $9,169,000 and
F32
$73,769,000, net of accumulated amortization of approximately $1,100,000 and $8,404,000, for the years ended December 31, 1999 and 2000, respectively. Repair and maintenance costs are expensed as incurred.
REAL ESTATE ACCESS RIGHTS
The Company has entered into agreements to issue warrants to its real estate partners in conjunction with acquiring real estate access rights. The warrants and the rights associated with the warrants may be adjusted if certain telecommunication license agreements are not executed in accordance with the parameters outlined in the warrant acquisition agreements. Accordingly, the final measurement date for the warrants is the date on which the telecommunication license agreements are signed and the real estate partners effectively complete their performance element of the agreement. At the measurement date, the Company measures the fair market value of the warrants based on an acceptable pricing model. This asset is amortized over the term of the related telecommunication license agreement which is generally ten years.
Goodwill and Other Intangible Assets
The excess of the purchase price of the acquired businesses over the fair market value of the identifiable net assets of acquired businesses has been recorded as identifiable intangible assets, including customer lists and assembled workforce, with the remainder recorded as goodwill. The Company is amortizing goodwill and intangible assets over a three-year period.
Realization of Long-Lived Assets
The Company periodically evaluates its long-lived assets, including property and equipment and real estate access rights, to determine whether events or changes in circumstances have occurred that indicate the remaining asset balances may not be recoverable and an impairment loss should be recorded. Recoverability of assets is measured by comparing the carrying amount of an asset to the undiscounted future cash flows estimated to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair market value of the assets. No such impairments have been recorded as of December 31, 2000.
Self-insurance Reserves
The Company has accrued for costs related to medical claims. At the time of an incident, the Company records a reserve for the incident's estimated outcome, which may be adjusted, as additional information becomes available. Total accrued claims liabilities represent all such reserves and the Company's estimate for incidents which may have been incurred but not reported as of the balance sheet date. Management believes that any additional cost incurred over amounts accrued will not have a material adverse effect on the Company's financial position or results of operations.
Treasury Stock
Pursuant to a stockholders' agreement, the Company periodically repurchases shares of the Company's common stock. Shares repurchased are accounted for under the cost method.
REVENUE RECOGNITION
Network services revenue includes broadband data, video, voice communication and installation services. Broadband data and video are subscription-based services generally provided to customers under month-to-month contracts. Voice communications and installation services are usage-based services. Installation service fees are non-recurring fees for access to the Company's network. Service
F33
revenues are recognized in the month in which the services are provided, except for installation service fees which are deferred and recognized over the estimated customer life. Deferred service fees were approximately $0 and $1,166,000 at December 31, 1999 and 2000, respectively, and are included in accrued liabilities in the accompanying financial statements.
Value added service revenue includes web design and consulting, professional services and web hosting. Such services are recognized upon completion of services.
During 2000, the Company adopted Staff Accounting Bulletin (SAB) No. 101. "Revenue Recognition in Financial Statements." SAB No. 101 provides additional guidance on revenue recognition as well as criteria for when revenue is generally realized and earned. The adoption of SAB No. 101 did not have a material effect on the Company's results of operation for the year ended December 31, 2000.
NETWORK OPERATIONS
Network operations include payments to providers of transmission capacity, costs associated with customer care, customer installations, equipment maintenance, payments to real estate owners, property taxes and content licensing costs. All expenses related to network services are recognized as incurred.
Cost of Value Added Services
Cost of value added services includes direct costs and internal labor associated with web design and consulting, professional services and web hosting. All expenses related to value added services are recognized as incurred.
SELLING EXPENSE
Selling expense includes employee salaries, commissions, taxes, benefits, advertising, marketing and promotional expenses and costs associated with leasing and operating sales demonstration centers.
INCOME TAXES
Deferred income tax assets and liabilities are recorded for the differences between the tax and financial reporting basis of the assets and liabilities and are based on the enacted income tax rates which are expected to be in effect in the period in which the difference is expected to be settled or realized. A change in tax laws would result in adjustments to the deferred tax assets and liabilities. Management periodically evaluates whether it is more likely than not that some or all of the deferred tax assets will be realized. Adjustments are made to the related assets carrying values based on this periodic evaluation of realizability (see Note 11).
COMPREHENSIVE INCOME (LOSS)
Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period as a result of transactions from other events and circumstances from non-owner sources. It consists of net income and other gains and losses affecting stockholders' equity that, under accounting principles generally accepted in the United States, are excluded from net income, such as unrealized gains and losses on investments available for sale, foreign currency translation gains and losses and minimum pension liability. Currency translation is the only item of other comprehensive income impacting the Company.
Net Income (Loss) Per Share
Net income (loss) per share is presented in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS 128). SFAS 128 requires a
F34
presentation of basic EPS and diluted EPS. Basic EPS excludes dilution for common stock equivalents and is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.
Restricted stock issued to employees is subject to repurchase by the Company until vested, and such unvested shares are not included in the weighted average number of common shares outstanding for the period. Shares of restricted stock outstanding were 2,447,000, 2,315,000 and 859,000 as of December 31, 1998, 1999 and 2000, respectively.
Options to purchase approximately 0, 1,504,000 and 8,738,000 shares of common stock, were outstanding as of December 31, 1998, 1999 and 2000, respectively. Warrants to purchase 0, 6,336,000 and 7,377,000 shares of common stock, were outstanding as of December 31, 1998, 1999 and 2000, respectively. In addition, certain equity instruments are contingently issuable and would be potentially dilutive securities upon issuance (see Note 8).
Diluted EPS are not presented as all potentially dilutive securities would be antidilutive due to the net loss incurred for the years ended December 31, 1998, 1999 and 2000.
Segments
The Company's chief operating decision maker evaluates performance based upon underlying information of the Company as a whole. There are no additional reporting segments.
International Operations
The Company recognized a total of $1,992,000 of revenue from operations in Canada through its wholly owned subsidiary, ARC Canada, for the year ended December 31, 2000. Long-lived assets of ARC Canada were $18,676,000 as of December 31, 2000.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in accordance with accounting principles generally accepted in the United States 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 expenses during the reporting period. Actual results may differ from those estimates.
Reclassifications
Certain 1998 and 1999 balances have been reclassified to conform to the current year presentation.
Foreign Currency Translation
For the Company's Canadian subsidiary, the local currency is the functional currency. All assets and liabilities are translated at exchange rates in effect at the end of the period, and income and expense items are translated at the average exchange rates for the period. Translation adjustments are reported as a separate component of stockholders' equity.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 requires that all derivatives be recognized at fair value as either assets or liabilities. SFAS No. 133 also requires an entity that elects to apply hedge accounting to
F35
establish the method to be used in accessing the effectiveness of the hedging derivatives and the measurement approach for determining the ineffectiveness of the hedge at the inception of the hedge. The methods chosen must be consistent with the entity's approach to managing risk. SFAS No. 133 is effective for the Company as of January 1, 2001. SFAS No. 133 is not expected to have an effect on the Company, as the Company has historically not invested in derivatives or participated in hedging activities.
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment as of December 31 consist of the following:
|
Average Estimated
Useful Lives (Years) |
1999
|
2000
|
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Office equipment and information systems | 4 | $ | 13,789,000 | $ | 38,526,000 | ||||
Furniture and fixtures | 7 | 2,207,000 | 4,292,000 | ||||||
Leasehold improvements | 5 | 1,768,000 | 3,419,000 | ||||||
System infrastructure | 10 | 9,028,000 | 30,573,000 | ||||||
System equipment | 5 | 7,180,000 | 43,468,000 | ||||||
Construction-in-progress | 16,062,000 | 82,783,000 | |||||||
|
|
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50,034,000 | 203,061,000 | ||||||||
Less Accumulated depreciation and amortization | (3,457,000 | ) | (20,619,000 | ) | |||||
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Property and equipment, net | $ | 46,577,000 | $ | 182,442,000 | |||||
|
|
Capitalized interest for the years ended December 31, 1998, 1999 and 2000, was approximately $221,000, $0 and $1,150,000, respectively.
4. OTHER ASSETS, NET:
Other assets primarily include deferred debt issuance costs and long term deposits as required by lease agreements. Deferred debt issuance was recorded upon issuance of $150,000,000 convertible notes and is being amortized over the life of the related agreement. The balance as of December 31, 2000, was approximately $4,639,000, net of accumulated amortization of $358,000. Deposits required by lease agreements were approximately $5,202,000 and are refundable upon expiration of the related agreements.
5. ACCRUED LIABILITIES:
Accrued liabilities as of December 31 consist of the following:
|
1999
|
2000
|
||||
---|---|---|---|---|---|---|
Property and equipment additions | $ | 2,863,000 | $ | 334,000 | ||
General operating expenses | 1,129,000 | 15,707,000 | ||||
Due to former stockholders of an acquired company | 0 | 1,168,000 | ||||
Deferred revenue | 0 | 1,166,000 | ||||
Interest | 227,000 | 2,662,000 | ||||
|
|
|||||
Accrued Liabilities | $ | 4,219,000 | $ | 21,037,000 | ||
|
|
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6. DEBT:
In March 1999, the Company entered into a credit facility under which the Company could borrow up to $45,000,000 subject to certain conditions. The Company paid an origination fee of $1,350,000, which was fully amortized to interest expense during 1999 and 2000. During June 2000, the Company terminated this facility. No amounts had been drawn under this facility at the date of termination.
On June 28, 2000, the Company completed the issuance and sale in a private placement of an aggregate of $150,000,000 in principal amount of its 7.50% convertible subordinated notes due June 15, 2007 (the "Notes"). The Company incurred expenses of approximately $4,997,000, of which approximately $4,500,000 represented underwriting fees and approximately $497,000 represented other expenses related to the offering. The net offering proceeds to the Company after total expenses were approximately $145,003,000. The Notes may be converted at the option of the holders into shares of the Company's common stock at an initial conversion price of $15.37 per share, which may be adjusted upon the occurrence of certain events. Interest is payable semiannually on June 15 and December 15, and is payable, at the election of the Company, in either cash or registered shares of the Company's common stock. The Notes are redeemable at the Company's option at any time on or after the third business day after June 15, 2004, at specified redemption prices plus accrued interest. During 2000, a shelf registration statement on Form S-3 (Commission File No. 333-50026) was filed with the Securities and Exchange Commission registering the Notes and the shares of common stock issuable upon conversion of the Notes and as payment-in kind interest on the Notes. Total interest expense incurred during 2000 related to the Notes was approximately $5,719,000, of which $5,219,000 was paid in cash and $500,000 is included in accrued liabilities in the accompanying balance sheet.
In connection with the Company's acquisition of businesses, the Company recognized notes of approximately $713,000 which are currently payable.
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company has entered into various operating lease agreements, with expirations through 2010, for leased space and equipment. Future minimum lease obligations as of December 31, 2000, related to the Company's operating leases are as follows:
2001 | $ | 11,107,000 | ||
2002 | 12,037,000 | |||
2003 | 12,409,000 | |||
2004 | 10,012,000 | |||
2005 | 6,143,000 | |||
Thereafter | 5,591,000 | |||
|
||||
Total minimum lease obligations | $ | 57,299,000 | ||
|
Total operating lease expenses for the years ended December 31, 1998, 1999 and 2000, was approximately $586,000, $1,946,000 and $9,321,000, respectively.
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CAPITAL LEASES
The Company has entered into various capital leases for equipment. Future minimum lease obligations as of December 31, 2000, related to the Company's capital leases are as follows:
2001 | $ | 39,484,000 | |||
2002 | 28,832,000 | ||||
2003 | 15,263,000 | ||||
2004 | 754,000 | ||||
2005 | 33,000 | ||||
Total minimum lease obligations | 84,366,000 | ||||
Less Amounts representing interest | (10,847,000 | ) | |||
|
|||||
Present value of minimum lease obligations | 73,519,000 | ||||
Current maturities | (32,229,000 | ) | |||
|
|||||
Capital lease obligations, net of current maturities | $ | 41,290,000 | |||
|
CONNECTIVITY CONTRACTS
In order to provide its services, the Company must connect each in-building network to a central facility in each metropolitan area, usually over broadband lines that are leased from other carriers. At this metropolitan hub, the Company aggregates and disseminates network traffic for Internet connectivity. The Company has secured contracts that range from monthly to five years for local transport and up to three years for national intercity transport. The Company incurs fixed monthly charges for local connectivity. For national connectivity, the Company incurs fixed monthly charges plus incremental charges for customer usage above a certain volume. In addition, in the event the Company fails to meet its minimum volume commitments for national connectivity, it may be obligated to pay underutilization charges.
Future minimum obligations as of December 31, 2000, related to the Company's connectivity contracts are as follows:
2001 | $ | 14,956,000 | |
2002 | 2,509,000 | ||
2003 | 1,062,000 | ||
2004 | 215,000 | ||
2005 | 181,000 | ||
|
|||
Total minimum lease obligations | $ | 18,923,000 | |
|
Total connectivity expense for the years ended December 31, 1998, 1999 and 2000, was approximately $463,000, $2,144,000 and $19,557,000, respectively.
LITIGATION
The Company is involved in certain litigation arising in the ordinary course of business. Management believes that such litigation will be resolved without material effect on the Company's financial position or results of operations.
ACQUISITION COMMITMENTS
During 2000, the Company completed five acquisitions as described in Note 10. Additional amounts are potentially payable to the former owners of the acquired companies and are contingent upon the achievement of certain performance levels. The performance levels relate to various
F38
employment and financial targets that extend into 2003 and that may or may not be achieved. Payment of all these contingent amounts would result in additional goodwill and/or compensation expense. If all performance targets are achieved the Company would be obligated to pay up to $540,000 in cash, issue up to 861,000 shares of common stock of the Company, release from restriction warrants underlying 250,000 shares of common stock of the Company, release from restriction 759,000 shares of restricted stock and issue shares of common stock (in addition to the 861,000 shares previously discussed) equivalent to $1,100,000 as of the date of issuance. Additional goodwill and/or compensation expense will be recorded as it becomes probable that such amounts will be paid to the former owners of the acquired companies.
8. EQUITY:
COMMON STOCK
Pursuant to an investment agreement dated November 23, 1998, and in connection with a preferred investment (see below), the Company issued to a group of investors approximately 13,270,000 shares of common stock for $.0015 per share and approximately 7,291,000 shares of common stock for $.0015 per share to a second group of investors in December 1998.
During 1998, accrued interest totaling $980,000 was contributed by an investor and a real estate owner. As both are related parties of the Company, the contribution was accounted for as a capital transaction and included in the accompanying consolidated statements of stockholders' equity.
In April 1999, the Company issued 125,000 shares of common stock for consulting services previously received.
In August 1999, the Company issued 6,059,000 shares of common stock to a group of financial sponsors and to real estate partners in connections with a preferred investment. (See Preferred Stock, August 1999 transaction below)
On October 29, 1999, the Company raised gross proceeds of approximately $305,470,000 in its initial public offering. The Company sold 16,970,550 shares of common stock at a price of $18 per share.
During the years ended December 31, 1999 and 2000, the Company repurchased 96,000 and 579,000 shares of unvested restricted common stock. During the year ended December 31, 2000, warrants underlying 712,000 shares of stock were exercised (see Warrants). During the year ended December 31, 2000, 1,791,000 shares of common stock were issued in connection with acquisitions, of which 759,000 shares are restricted and subject to forfeiture if certain performance targets are not achieved over the next three years. Of these 1,791,000 shares of common stock, 129,000 shares were purchase consideration while 1,662,000 shares were compensation to employees of the acquired companies. During the year ended December 31, 2000, 52,000 shares of common stock were issued in connection with the Company's employee stock purchase plan. Stock options underlying 347,000 and 16,000 shares of common stock of the Company were exercised by employees during the year ended December 31, 1999 and 2000, respectively.
PREFERRED STOCK
In November and December 1998, the Company issued to groups of investors, 41 and 25 shares of Series A convertible redeemable preferred stock, for $41,000,000 and $25,000,000 in cash, respectively.
In August 1999, the Company issued 17 shares of Series B preferred stock to a group of financial sponsors and 34 shares of Series B preferred stock to real estate partners and their affiliates for approximately $51,000,000 in cash.
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The holders of the preferred stock were entitled to certain rights including: redemption, conversion, dividends and liquidation preference, as defined in the investment agreement. As a result of the redemption provision, the preferred stock was classified outside of stockholders' equity (deficit).
Simultaneous with the Company's initial public offering and pursuant to contractual agreements with the preferred stockholders, all of the outstanding shares of preferred stock were converted into 6,500,000 shares of common stock. Upon the conversion, accrued dividends of $6,904,000 on the preferred stock were waived and recorded as a contribution to capital.
WARRANTS
The Company has issued and plans to continue to issue to real estate partners and their affiliates warrants to acquire shares of common stock in exchange for the right, pursuant to telecommunications license agreements, to install its broadband data network in these real estate entities' buildings. The warrants are exercisable upon the occurrence of certain events, as defined in the warrant acquisition agreements.
The number of warrants the Company is obligated to issue may be adjusted if certain telecommunication license agreements are not executed and delivered in accordance with the parameters outlined in the warrant acquisition agreements. Accordingly, the date for determining the final value of the warrants is the date on which the telecommunication license agreements are signed and delivered, as defined, and the real estate partners effectively complete their performance element of the warrant acquisition agreement. At the measurement date, the Company will measure the fair market value of the warrants based on an acceptable pricing model. The warrants also are subject to forfeiture as a result of subsequent events of default by the real estate partners as outlined in the warrant acquisition agreement.
During the year ended December 31, 1999, the Company entered into warrant acquisition agreements for the issuance of 7,004,000 shares of common stock. The performance obligations underlying 6,336,000 shares of common stock had been completed as of December 31, 1999. The value of the telecommunication license agreements (TLA's) related to these 6,336,000 warrants at December 31, 1999, was $109,135,000.
During the year ended December 31, 2000, the Company entered into warrant agreements for the issuance of 1,085,000 shares of common stock, net of clawbacks. The performance obligations related to 1,353,000 warrants were completed during 2000. The value of the TLA's related to these 1,353,000 warrants at December 31, 2000, was $30,979,000. Warrants underlying 712,000 shares of common stock, valued at $14,664,000, were exercised during the year ended December 31, 2000.
During the year ended December 31, 2000, the Company issued warrants underlying 150,000 shares of common stock in exchange for services which resulted in an expense of $2,396,000.
During the year ended December 31, 2000, the Company issued warrants underlying up to 250,000 shares of common stock in connection with acquisitions. The exercise of these warrants are contingent upon future events (see Note 7).
9. STOCK COMPENSATION:
RESTRICTED STOCK AWARDS
During 1998 and early 1999, the Company issued approximately 5,753,000 shares of common stock to management, current and former employees and non-employee stockholders for $.0015 per share. With respect to the stockholders who are employees of the Company, subscription agreements provide that the shares shall be restricted, non-transferable, and subject to repurchase by the Company until vested. Upon issuance of the shares to the employees in 1998, certain shares were vested based on
F40
employees' prior service with the Company. Unvested shares vest over four years in equal monthly installments commencing upon their issuance. Pursuant to contractual arrangements, vesting of shares may accelerate upon the occurrence of a qualifying business combination or a combination of a qualifying business combination and termination of employment without cause. The accelerated vesting provisions differ based upon the employee's position with the Company. There are no accelerated vesting provisions related to performance criteria. Upon the resignation or termination of an employee subscriber for any reason, all unvested shares will be subject to repurchase by the Company at the price paid by the employee.
The following table presents the activity related to restricted stock for the years presented.
|
Granted
|
Vested
|
Repurchased
|
Outstanding
|
||||
---|---|---|---|---|---|---|---|---|
1998 | 4,610,000 | 2,163,000 | | 2,447,000 | ||||
1999 | 1,143,000 | 1,122,000 | 153,000 | 2,315,000 | ||||
2000 | | 953,000 | 503,000 | 859,000 |
The vesting schedule for the outstanding shares that have been issued or subscribed through December 31, 2000, for the years ending is:
2001 | 409,000 | |
2002 | 387,000 | |
2003 | 63,000 |
During the year ended December 31, 2000, the Company issued 759,000 shares of restricted stock (see Compensation Charge discussion below). These shares are subject to certain contingencies based on future events and are not included in the schedules above (see Note 7).
EQUITY BASED COMPENSATION PLANS
Effective June 1, 1999, the Company adopted the 1999 Amended and Restated Stock Option and Equity Incentive Plan (the "1999 Plan") under which 5,000,000 shares of common stock are authorized for issuance. Effective June 15, 2000, the Company adopted the Allied Riser Communications Corporation 2000 Stock Option and Equity Incentive Plan (the "2000 Plan") under which 8,500,000 shares of common stock are authorized for issuance (the 1999 Plan and the 2000 Plan, together the "Plans"). The shares authorized under the Plans, subject to adjustments, are available for award to employees, officers, directors, or consultants. Pursuant to the Plans, the Company's board of directors may grant stock options, stock appreciation rights, restricted shares, deferred shares and certain tax offset payments. The terms of any particular grant, including any performance-based requirements, vesting terms and other restrictions are determined by the Board or by the Compensation Committee of the Board. The exercise price of nonstatutory options may be above, at or below fair market value of the common stock on the grant date. The exercise price of incentive stock options must not be less than the fair market value on the grant date. The right to purchase shares under the stock options agreements typically vests over a four-year period. The exercise period of options may be set by the Board or the Committee but may not exceed ten years for incentive stock options. As of December 31, 2000, there were 4,694,000 share available for future grants. No options were granted outside of the Plans.
During June 1999, the Company granted 347,000 stock options to employees under the 1999 Plan. Each of the options granted included a provision for exercise through July 26, 1999. All options were exercised prior to that date. Shares issued upon the exercise of the stock options were restricted and shall vest on a monthly basis over a four-year period.
The Company accounts for stock options and other employee awards under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Had
F41
compensation costs for the Plans been determined based on the fair market value of the options as of the grant dates, consistent with the method prescribed in SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income (loss) applicable to common stock and net income (loss) per common share would have resulted in the pro forma amounts indicated below (dollars in thousands, exception per share data):
|
1999
|
2000
|
||||||
---|---|---|---|---|---|---|---|---|
Net income (loss): | ||||||||
As reported | $ | (63,940 | ) | $ | (173,408 | ) | ||
Pro forma | (66,167 | ) | (195,244 | ) | ||||
Net income (loss) per common share: | ||||||||
As reported | $(2.15 | ) | $(3.18 | ) | ||||
Pro forma | (2.23 | ) | (3.58 | ) |
No diluted earnings per share are presented as the Company has generated net losses and all potentially dilutive securities would be antidilutive.
The weighted average fair market value of options granted during each of the years ended December 31, 1999 and 2000, were $13.25 and $6.81, respectively. The fair market value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
1999
|
2000
|
|||
---|---|---|---|---|---|
Expected dividend yield | | | |||
Expected stock price volatility | 107 | % | 106 | % | |
Average risk-free interest rate | 5.30 | % | 6.02 | % | |
Expected life of options (years) | 6 | 6 |
The following table summarizes stock option activity for the year ended December 31, 1999 and 2000:
|
Options Outstanding
|
Range of Price
Per Share |
Weighted Average
Price Exercise |
|||||
---|---|---|---|---|---|---|---|---|
Balance at 1/1/99 | | | $ | | ||||
Granted | ||||||||
Option Price Equal to Fair Market Value | 1,566,095 | $0.0015 - $22.500 | $ | 8.8581 | ||||
Total Granted | 1,566,095 | $0.0015 - $22.500 | $ | 8.8581 | ||||
Exercised | (22,656 | ) | $0.0015 - $0.3336 | $ | 0.1169 | |||
Canceled | (39,022 | ) | $0.0015 - $18.000 | $ | 6.8522 | |||
|
|
|
||||||
Balance at 12/31/99 | 1,504,417 | $0.0015 - $22.500 | $ | 9.0532 | ||||
|
|
|
||||||
Granted | ||||||||
Option Price Equal to Fair Market Value | 6,146,769 | $1.3750 - $41.250 | $ | 9.3198 | ||||
Option Price Greater Than Fair Market Value | 1,151,414 | $4.9063 - $26.875 | $ | 5.4631 | ||||
Option Price Less Than Fair Market Value | 1,388,000 | $0.0000 - $26.625 | $ | 1.6520 | ||||
Total Granted: | 8,686,183 | $0.0000 - $41.250 | $ | 7.5745 | ||||
Exercised | (45,805 | ) | $0.3336 - $0.3336 | $ | 0.3336 | |||
Canceled | (1,407,258 | ) | $0.0015 - $41.250 | $ | 13.1782 | |||
|
|
|
||||||
Balance at 12/31/00 | 8,737,537 | $0.0000 - $41.250 | $ | 6.9645 | ||||
|
|
|
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As of December 31, 2000, 735,601 of options outstanding were exercisable. No options outstanding were exercisable at December 31, 1999. The remaining options will become exercisable over the next three to four years based on vesting percentages.
The following table summarizes information about the Company's outstanding and exercisable stock options at December 31, 2000:
|
Options Outstanding
|
Options Exercisable
|
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of
Exercise Prices |
Outstanding
as of 12/31/00 |
Weighted-Average
Remaining Contractual Life (Years) |
Weighted-
Average Exercise Price |
Exercisable as of
12/31/00 |
Weighted-
Average Exercise Price |
|||||||||
$ | 0.0000 4.1250 | 4,740,990 | 9.6 | $ | 1.9706 | 87,948 | $ | 0.7828 | ||||||
4.1251 8.2500 | 1,738,572 | 8.8 | 5.3747 | 230,553 | 5.1224 | |||||||||
8.250112.3750 | 158,907 | 9.6 | 10.3827 | 50,000 | 10.2500 | |||||||||
12.375116.5000 | 298,052 | 9.4 | 14.2789 | 0 | 0.0000 | |||||||||
16.500120.6250 | 1,411,343 | 7.6 | 18.0243 | 362,244 | 17.9964 | |||||||||
20.625124.7500 | 37,678 | 8.6 | 22.8407 | 4,856 | 22.5000 | |||||||||
24.750128.8750 | 250,041 | 8.2 | 25.3271 | 0 | 0.0000 | |||||||||
28.875133.0000 | 52,036 | 9.2 | 31.1039 | 0 | 0.0000 | |||||||||
33.000137.1250 | 2,300 | 9.2 | 34.7500 | 0 | 0.0000 | |||||||||
37.125141.2500 | 47,618 | 9.2 | 40.7246 | 0 | 0.0000 | |||||||||
|
|
|
|
|
||||||||||
Total | 8,737,537 | 9.1 | $ | 6.9656 | 735,601 | $ | 11.4065 | |||||||
|
|
|
|
|
2000 EMPLOYEE STOCK PURCHASE PLAN
Beginning July 1, 2000, the Company has established an employee stock purchase plan, the Allied Riser Communications Corporation 2000 Employee Stock Purchase Plan (the "ESPP"), the terms of which allow qualified employees (as defined) to participate in the purchase of designated shares of the Company's common stock at a price equal to the lower of 85% of the closing price on the first or last day of the offering period. Offering periods begin on the first day of each fiscal quarter and end on the last day of each fiscal quarter. Under the ESPP, the Company issued 52,700 and 183,400 shares of common stock for the third and fourth fiscal quarters of 2000 at an average price per share of $5.64 and $1.73, respectively.
COMPENSATION CHARGE
The Company completed an initial public offering ("IPO") of its securities on October 29, 1999. The estimated fair market value of the Company's common stock (as implied by the IPO price) exceeded management's determination of fair market value of each stock option grant and restricted stock grant made prior to the IPO. Therefore, the Company has recorded compensation of $32,335,000 for the excess of the IPO price over the pre-IPO stock option grant and restricted stock grant price. During the year ended December 31, 1999, $14,681,000 was recorded as compensation expense and as of December 31, 1999, $17,654,000 was being deferred and amortized over the remaining estimated employee service period. The total compensation charge is reduced when employees terminate prior to vesting.
During 2000, certain employees were terminated which resulted in a reduction of $7,982,000 to the deferred compensation recorded upon the IPO. Amortization related to this deferred compensation was $6,022,000, net of adjustments for terminated employees, for the year ended December 31, 2000. As of December 31, 2000, the balance of unamortized deferred compensation recorded upon the IPO was $3,650,000 and is being amortized over the remaining estimated employee service period.
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In connection with acquisitions of businesses during 2000, the Company has entered into various employment agreements with former owners and employees of the acquired companies. The Company recorded deferred compensation of $9,266,000 related to restricted stock granted to employees of the acquired companies. Amortization related to this deferred compensation was $3,184,000 for the year ended December 31, 2000. As of December 31, 2000, $6,082,000 is being deferred and amortized over the remaining estimated employee service period.
During 2000, the Company issued approximately 1,388,000 nonstatutory stock options with an exercise price less than fair market value on the date of grant in connection with the employment of senior management. As of December 31, 2000, the Company has recognized approximately $3,981,000 of deferred compensation and has recorded approximately $212,000 of amortization of deferred compensation related to these issuances. As of December 31, 2000, $3,769,000 is being deferred and amortized over the remaining vesting period.
10. ACQUISITIONS:
During the second and third quarters of 2000, the Company acquired all of the outstanding stock of four high-speed data communication and professional services companies and 68% of the outstanding stock of Shared Technologies of Canada (the "acquired companies"). The purchase of each acquired company was accounted for under the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of operations do not include the results of operations related to the acquired companies prior to each of their respective acquisition dates.
The Company purchased the acquired companies for an initial aggregate purchase price of $16,021,000 in cash of which $1,168,000 was payable at December 31, 2000, and 129,000 shares of common stock of the Company valued at approximately $4,011,000. The purchase price may be adjusted if certain performance targets are achieved (see Note 6). The aggregate fair market value of tangible assets acquired was $8,337,000 and liabilities assumed were $12,651,000. The total excess of the purchase price over the fair market value of the net tangible assets for the acquired companies has been allocated to real estate access rights (approximately $8,892,000) with the remainder allocated to goodwill and other intangible assets. The Company is amortizing goodwill and other intangible assets over a three-year period. Real estate access rights are being amortized over the life of the related telecommunication license agreements. The Company's purchase price allocation of the acquisitions is preliminary and may be adjusted as additional information is obtained and as contingencies discussed above are resolved. The five acquisitions accounted for $6,733,000 of the total revenues generated by the Company in 2000.
The following table presents the unaudited pro forma results of operations of the Company for the years ending December 31, 1999 and 2000, as if these acquisitions had been consummated at the beginning of each period presented. The unaudited pro forma results are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisitions occurred at the beginning of the periods presented or the results which may occur in the future:
|
Year Ended
|
||||||
---|---|---|---|---|---|---|---|
|
December 31, 1999
|
December 31, 2000
|
|||||
|
(Unaudited)
|
||||||
Revenues | $ | 13,018,000 | $ | 23,034,000 | |||
Net income (loss) before extraordinary items | (64,840,000 | ) | (178,207,000 | ) | |||
Net income (loss) applicable to common stock | (71,292,000 | ) | (178,207,000 | ) | |||
Net income (loss) per share, basic and diluted | (2.40 | ) | (3.27 | ) |
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11. INCOME TAXES:
The differences between the statutory federal income tax rates and the Company's effective income tax rate for the years ended December 31, are as follows:
|
1998
|
1999
|
2000
|
||||
---|---|---|---|---|---|---|---|
Computed statutory tax expense | (34.0 | )% | (34.0 | )% | (34.0 | )% | |
Deferred compensation | | 8.7 | % | 1.9 | % | ||
Other nondeductible expenses | 0.1 | % | 0.1 | % | 0.4 | % | |
Non-book income | 2.3 | % | | | |||
|
|
|
|||||
Valuation allowance | 31.6 | % | 25.2 | % | 31.7 | % |
Deferred taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as incurred by tax laws and regulations.
The following table discloses the components of the deferred tax amounts at December 31:
|
1998
|
1999
|
2000
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Deferred tax assets | ||||||||||||
Temporary difference for basis in and depreciation of property and equipment | $ | 158,000 | $ | 674,000 | $ | 1,682,000 | ||||||
Start-up costs | 3,896,000 | 3,104,000 | 2,329,000 | |||||||||
Real estate access rights | | 692,000 | 5,832,000 | |||||||||
Net operating loss | 812,000 | 14,846,000 | 63,240,000 | |||||||||
Other | 76,000 | 98,000 | 1,270,000 | |||||||||
|
|
|
||||||||||
Total deferred tax assets | 4,942,000 | 19,414,000 | 74,353,000 | |||||||||
Deferred tax liability | | | | |||||||||
|
|
|
||||||||||
Net deferred tax asset | 4,942,000 | 19,414,000 | 74,353,000 | |||||||||
Less Valuation allowance | (4,942,000 | ) | (19,414,000 | ) | (74,353,000 | ) | ||||||
|
|
|
||||||||||
Net deferred tax amount | $ | | $ | | $ | | ||||||
|
|
|
The Company had approximately $186,000,000 of net operating loss carry forward for federal income tax purposes at December 31, 2000. The net operating loss carry forward will begin to expire in 2018, if not previously utilized. Under existing income tax law, all operating expenses incurred prior to a company commencing its principal operations are capitalized and amortized over a five-year period for tax purposes. On November 23, 1998, the Company commenced its principal operations for tax purposes and no longer capitalizes operating expenses as start-up costs.
A valuation allowance must be provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Management has decided to record this allowance due to the uncertainty of future operating results. In subsequent periods, the Company may reduce the valuation allowance, provided that utilization of the deferred tax asset is more likely than not, as defined by SFAS No. 109, "Accounting for Income Taxes."
12. RELATED PARTIES:
The Company has entered into telecommunication license agreements with numerous real estate owners and managers to acquire access to and the right to install and operate its broadband data network in their buildings. Most of these real estate owners and managers received warrants in connection with this access and nine of these entities purchased equity in the Company (see Note 8). In accordance with the telecommunication license agreements, the Company pays fees which vary proportionally (above a fixed minimum) with gross revenues generated in the respective buildings to
F45
these owners. In addition, the Company leases office space from numerous real estate owners. Pursuant to these obligations, the Company paid $156,000, $1,047,000, and $4,216,000 for rent and fees during the years ended December 31, 1998, 1999 and 2000, respectively.
One of the Company's initial investors has interests in entities from which the Company periodically purchases fiber-optic cable and other materials and has historically, prior to 2000, purchased insurance and legal services. For the years ended December 31, 1998, 1999 and 2000, the Company had purchases of approximately $2,319,000, $2,451,000 and $8,809,000, respectively, for fiber-optic cable and $387,000, $192,000 and $0 for insurance and legal services, respectively.
One of the underwriters for the initial public offering described in Note 9 provides financial advisory and consulting services to the Company. Affiliates of this entity own common stock and warrants of the Company.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
|
Three Months Ended
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar. 31, 2000
|
June 30, 2000
|
Sept. 30, 2000
|
Dec. 31, 2000
|
|||||||||
|
(In thousands, except per share data)
|
||||||||||||
Total revenue | $ | 1,358 | $ | 1,972 | $ | 4,403 | $ | 6,599 | |||||
Operating income (loss) | (41,194 | ) | (46,933 | ) | (49,347 | ) | (44,809 | ) | |||||
Net income (loss) | (37,025 | ) | (44,068 | ) | (47,217 | ) | (45,098 | ) | |||||
Net income (loss) applicable to common stock | $ | (37,025 | ) | $ | (44,068 | ) | $ | (47,217 | ) | $ | (45,098 | ) | |
|
|
|
|
||||||||||
Net income (loss) per common share | $(.69 | ) | $(.81 | ) | $(.87 | ) | $(.81 | ) | |||||
|
|
|
|
||||||||||
Weighted average number of shares outstanding | 53,318 | 54,272 | 54,565 | 55,644 | |||||||||
|
|
|
|
|
Three Months Ended
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar. 31, 1999
|
June 30, 1999
|
Sept. 30, 1999
|
Dec. 31, 1999
|
|||||||||
|
(In thousands, except per share data)
|
||||||||||||
Total revenue | $ | 146 | $ | 401 | $ | 442 | $ | 881 | |||||
Operating income (loss) | (5,742 | ) | (14,589 | ) | (16,162 | ) | (24,284 | ) | |||||
Net income (loss) | (5,327 | ) | (14,635 | ) | (16,030 | ) | (21,496 | ) | |||||
Net income (loss) applicable to common stock | $ | (6,977 | ) | $ | (16,285 | ) | $ | (18,270 | ) | $ | (22,408 | ) | |
|
|
|
|
||||||||||
Net income (loss) per common share | $(.31 | ) | $(.71 | ) | $(.68 | ) | $(.48 | ) | |||||
|
|
|
|
||||||||||
Weighted average number of shares outstanding | 22,396 | 22,886 | 26,809 | 46,534 | |||||||||
|
|
|
|
14. SUBSEQUENT EVENT:
In connection with employee changes initiated during the first quarter of 2001, the Company has made preliminary estimates that the related severance benefits will cost approximately $970,000. As a result of these changes, the Company anticipates a net reduction in deferred compensation charges previously recognized of approximately $3,062,000, of which approximately $2,236,000 has already been expensed and approximately $826,000 remained to be expensed.
F46
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
|
December 31,
2000 |
June 30,
2001 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
|
(Unaudited)
|
||||||||
ASSETS | ||||||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents | $ | 29,455 | $ | 27,748 | ||||||
Short-term investments | 212,107 | 111,796 | ||||||||
Accounts receivable, net of reserve of $196 and $1,192, respectively | 3,912 | 4,343 | ||||||||
Prepaid expenses and other current assets | 5,606 | 4,683 | ||||||||
|
|
|||||||||
Total current assets | 251,080 | 148,570 | ||||||||
PROPERTY AND EQUIPMENT, net | 182,442 | 39,601 | ||||||||
REAL ESTATE ACCESS RIGHTS, net of accumulated amortization of $16,003 and $0, respectively | 133,003 | 8,928 | ||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS, net of accumulated amortization of $2,592 and $0, respectively | 12,118 | | ||||||||
OTHER ASSETS, net | 11,060 | 9,666 | ||||||||
|
|
|||||||||
Total assets | $ | 589,703 | $ | 206,765 | ||||||
|
|
|||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
CURRENT LIABILITIES: | ||||||||||
Accounts payable | $ | 17,904 | $ | 8,561 | ||||||
Accrued liabilities | 21,037 | 16,816 | ||||||||
Current maturities of capital lease obligations | 32,229 | 29,958 | ||||||||
Current maturities of debt | 713 | 1,055 | ||||||||
|
|
|||||||||
Total current liabilities | 71,883 | 56,390 | ||||||||
CAPITAL LEASE OBLIGATIONS, net of current maturities | 41,290 | 29,893 | ||||||||
LONG TERM LIABILITIES: | ||||||||||
Long term debt, net of current maturities | | 913 | ||||||||
Convertible notes (7.50% interest payable in stock or cash) | 150,000 | 123,600 | ||||||||
|
|
|||||||||
Total liabilities | 263,173 | 210,796 | ||||||||
COMMITMENTS AND CONTINGENCIES (see note 9) |
|
|
|
|
|
|
|
|||
STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
|
|||
Common stock, $.0001 par value, 1,000,000,000 shares authorized, 58,561,000 and 61,989,000 outstanding as of December 31, 2000 and June 30, 2001, respectively (net of 675,000 and 606,000 treasury shares, respectively) | 6 | 6 | ||||||||
Additional paid-in capital | 460,137 | 511,947 | ||||||||
Warrants, authorizing the issuance of 7,377,000 and 4,496,000 shares as of December 31, 2000 and June 30, 2001, respectively | 127,846 | 71,127 | ||||||||
Deferred compensation | (13,501 | ) | (4,483 | ) | ||||||
Accumulated other comprehensive income (loss) | (547 | ) | (753 | ) | ||||||
Accumulated deficit | (247,411 | ) | (581,875 | ) | ||||||
|
|
|||||||||
Total stockholders' equity | 326,530 | (4,031 | ) | |||||||
|
|
|||||||||
Total liabilities and stockholders' equity | $ | 589,703 | $ | 206,765 | ||||||
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F47
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 2000
AND JUNE 30, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
|
June 30,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2000
|
2001
|
||||||||
|
(Unaudited)
|
|||||||||
REVENUE: | ||||||||||
Network services | $ | 1,857 | $ | 6,699 | ||||||
Value added services | 115 | 1,874 | ||||||||
|
|
|||||||||
Total revenue | 1,972 | 8,573 | ||||||||
OPERATING EXPENSES: | ||||||||||
Network operations (including $232 and $604 amortization of deferred compensation, respectively) | 10,347 | 19,497 | ||||||||
Cost of value added services | 82 | 1,204 | ||||||||
Selling expense (including $354 and $1,167 amortization of deferred compensation, respectively) | 11,657 | 7,806 | ||||||||
General and administrative expenses (including $2,549 and $451 amortization of deferred compensation, respectively) | 18,442 | 10,512 | ||||||||
Depreciation and amortization | 8,377 | 14,322 | ||||||||
Asset write-down | | 262,336 | ||||||||
|
|
|||||||||
Total operating expenses | $ | 48,905 | $ | 315,677 | ||||||
|
|
|||||||||
OPERATING LOSS | (46,933 | ) | (307,104 | ) | ||||||
OTHER INCOME (EXPENSE): | ||||||||||
Interest expense | (848 | ) | (3,996 | ) | ||||||
Interest and other income | 3,713 | 2,191 | ||||||||
|
|
|||||||||
Total other income (expense) | 2,865 | (1,805 | ) | |||||||
|
|
|||||||||
INCOME (LOSS) BEFORE INCOME TAXES | (44,068 | ) | (308,909 | ) | ||||||
|
|
|||||||||
INCOME TAX BENEFIT | | 6,037 | ||||||||
|
|
|||||||||
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM | (44,068 | ) | (302,872 | ) | ||||||
|
|
|||||||||
EXTRAORDINARY GAIN FROM EXTINGUISHMENT OF DEBT, net | | 11,718 | ||||||||
|
|
|||||||||
NET INCOME (LOSS) | $ | (44,068 | ) | $ | (291,154 | ) | ||||
|
|
|||||||||
NET INCOME (LOSS) PER COMMON SHARE: | ||||||||||
Loss before extraordinary item | (.81 | ) | (5.02 | ) | ||||||
Extraordinary gain, net | | .20 | ||||||||
|
|
|||||||||
NET INCOME (LOSS) PER COMMON SHARE | $ | (.81 | ) | $ | (4.82 | ) | ||||
|
|
|||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 54,272,000 | 60,372,000 | ||||||||
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F48
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
|
June 30,
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2000
|
2001
|
||||||||
|
(Unaudited)
|
|||||||||
REVENUE: | ||||||||||
Network services | $ | 2,809 | $ | 12,437 | ||||||
Value added services | 521 | 4,065 | ||||||||
|
|
|||||||||
Total revenue | 3,330 | 16,502 | ||||||||
OPERATING EXPENSES: | ||||||||||
Network operations (including $513 and $633 amortization of deferred compensation, respectively) | 16,006 | 38,069 | ||||||||
Cost of value added services | 385 | 2,615 | ||||||||
Selling expense (including $784 and $2,112 amortization of deferred compensation, respectively) | 24,808 | 15,806 | ||||||||
General and administrative expenses (including $5,416 and $155 amortization of deferred compensation, respectively) | 35,702 | 21,563 | ||||||||
Depreciation and amortization | 14,556 | 25,904 | ||||||||
Asset write-down | | 262,336 | ||||||||
|
|
|||||||||
Total operating expenses | $ | 91,457 | $ | 366,293 | ||||||
|
|
|||||||||
OPERATING LOSS | (88,127 | ) | (349,791 | ) | ||||||
OTHER INCOME (EXPENSE): | ||||||||||
Interest expense | (1,310 | ) | (7,696 | ) | ||||||
Interest and other income | 8,344 | 5,268 | ||||||||
|
|
|||||||||
Total other income (expense) | 7,034 | (2,428 | ) | |||||||
|
|
|||||||||
INCOME (LOSS) BEFORE INCOME TAXES | (81,093 | ) | (352,219 | ) | ||||||
|
|
|||||||||
INCOME TAX BENEFIT | | 6,037 | ||||||||
|
|
|||||||||
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM | (81,093 | ) | (346,182 | ) | ||||||
|
|
|||||||||
EXTRAORDINARY GAIN FROM EXTINGUISHMENT OF DEBT, net | | 11,718 | ||||||||
|
|
|||||||||
NET INCOME (LOSS) | $ | (81,093 | ) | $ | (334,464 | ) | ||||
|
|
|||||||||
NET INCOME (LOSS) PER COMMON SHARE: | ||||||||||
Loss before extraordinary item | (1.51 | ) | (5.84 | ) | ||||||
Extraordinary gain, net | | .20 | ||||||||
|
|
|||||||||
NET INCOME (LOSS) PER COMMON SHARE | $ | (1.51 | ) | $ | (5.64 | ) | ||||
|
|
|||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 53,795,000 | 59,245,000 | ||||||||
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F49
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001
(IN THOUSANDS)
|
June 30,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2000
|
2001
|
|||||||||
|
(Unaudited)
|
||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net income (loss) | $ | (81,093 | ) | $ | (334,464 | ) | |||||
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization |
21,653 | 28,804 | |||||||||
Extraordinary gain from extinguishment of debt, net | | (11,718 | ) | ||||||||
Deferred income taxes | | (6,037 | ) | ||||||||
Write-down of assets | | 262,336 | |||||||||
Other non-cash expenses | | 1,799 | |||||||||
Changes in assets and liabilities, net of the effect of acquisitions | |||||||||||
Increase in accounts receivable, net | (791 | ) | (440 | ) | |||||||
Decrease (increase) in prepaid expenses | (1,784 | ) | 927 | ||||||||
Decrease (increase) in other assets | (1,061 | ) | 630 | ||||||||
Increase (decrease) in accounts payable, accrued liabilities and deferred revenue | 12,554 | (13,451 | ) | ||||||||
|
|
||||||||||
Net cash used in operating activities | (50,522 | ) | (71,614 | ) | |||||||
|
|
||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Purchase of property and equipment | (41,729 | ) | (6,985 | ) | |||||||
Purchase of short-term investments, net | (4,320 | ) | | ||||||||
Proceeds from sale of short-term investments, net | | 100,310 | |||||||||
Acquisition of businesses, net of cash acquired | (1,903 | ) | (164 | ) | |||||||
|
|
||||||||||
Net cash (used in) provided by investing activities | (47,952 | ) | 93,161 | ||||||||
|
|
||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Proceeds from convertible notes, net of offering cost | 145,000 | | |||||||||
Payments on capital lease obligations | (1,740 | ) | (15,813 | ) | |||||||
Payments on debt | | (545 | ) | ||||||||
Payments on convertible notes | | (7,392 | ) | ||||||||
Proceeds from insurance of common stock and sale of subsidiary stock, net of issuance costs | (476 | ) | 499 | ||||||||
|
|
||||||||||
Net cash provided by (used in) financing activities | 142,784 | (23,251 | ) | ||||||||
|
|
||||||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | | (3 | ) | ||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 44,310 | (1,707 | ) | ||||||||
CASH AND CASH EQUIVALENTS, beginning of period | 152,564 | 29,455 | |||||||||
|
|
||||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | 196,874 | $ | 27,748 | |||||||
|
|
||||||||||
SUPPLEMENTARY CASH FLOW DISCLOSURES: | |||||||||||
Cash paid for interest | $ | 360 | $ | 9,254 | |||||||
Noncash investing and financing activities | |||||||||||
Equipment acquired under capital leases | $ | 26,784 | $ | 2,198 | |||||||
Accrued interest on convertible notes | $ | 31 | $ | 412 | |||||||
Warrants issued | $ | 48,117 | $ | 95 | |||||||
Deferred compensation | $ | 5,649 | $ | (2,863 | ) | ||||||
Treasury shares issued for bonus payments (425,000 shares) | $ | | $ | 1,138 |
The accompanying notes are an integral part of these consolidated financial statements.
F50
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 2001
(UNAUDITED)
1. Organization:
Allied Riser Communications Corporation ("ARC Corporation") (collectively including all predecessors, the "Company") is a facilities-based provider of broadband data, video and voice communications services to small- and medium-sized businesses.
2. Presentation:
In the opinion of the Company's management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's consolidated financial position as of June 30, 2001. The results of operations for the three and six months ended June 30, 2000 and 2001, and cash flows for the six months ended June 30, 2000 and 2001, are not necessarily indicative of the results of operations or cash flows to be expected for the full year. The accompanying unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in notes to consolidated financial statements have been condensed or omitted pursuant to such rules and regulations, but resultant disclosures are in accordance with generally accepted accounting principles as they apply to interim reporting. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2000, and the notes thereto included in the Company's Annual Report on Form 10-K. The accompanying unaudited consolidated financial statements include all wholly owned subsidiaries and a 68% owned subsidiary, Shared Technologies of Canada ("STOC"). STOC is owned by the Company's wholly owned subsidiary, ARC Canada. All inter-company accounts and activity have been eliminated. The minority interest in STOC is not presented in the accompanying financial statements because the minority interest is in a deficit position and the Company continues to record 100% of the losses of STOC.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States 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 expenses during the reporting period. Management may be required to make significant estimates of, among other things, the fair value of long-lived assets, allowance for doubtful accounts, and amounts recorded for acquisition contingencies. Actual results may differ from those estimates.
3. Comprehensive Income (Loss):
Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period as a result of transactions from other events and circumstances from non-owner sources. It consists of net loss and other gains and losses affecting stockholders' equity that, under accounting principles generally accepted in the United States, are excluded from net loss, such as unrealized gains and losses on investments available for sale, foreign currency translation gains and losses and minimum pension liability. Currency translation is the only item of comprehensive income
F51
impacting the Company. Set forth below is the effect on the Company of currency translation for the indicated periods:
|
Three months ended
June 30, 2001 |
Six months ended
June 30, 2001 |
||||||
---|---|---|---|---|---|---|---|---|
Net income (loss) | $ | (291,154,000 | ) | $ | (334,464,000 | ) | ||
Comprehensive income adjustments: | ||||||||
Foreign currency translation adjustment | 525,000 | (206,000 | ) | |||||
|
|
|||||||
Comprehensive income (loss) | $ | (290,629,000 | ) | $ | (334,670,000 | ) | ||
|
|
There were no transactions that required adjustment to net loss for comprehensive income presentation for the three and six months ended June 30, 2000.
4. International Operations:
The Company recognized a total of $1,349,000 and $2,754,000 of revenue from operations in Canada through its wholly owned subsidiary, ARC Canada, for the three and six months ended June 30, 2001, respectively. Long-lived assets of ARC Canada were $5,627,000 as of June 30, 2001.
5. Net Loss Per Share:
Net loss per share is presented in accordance with the provisions of Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share" ("EPS"). SFAS No. 128 requires a presentation of basic EPS and diluted EPS. Basic EPS excludes dilution for common stock equivalents and is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock and resulted in the issuance of common stock.
Shares issued to employees subject to repurchase by the Company are not included in the weighted average number of common shares outstanding for the period. Options and warrants to purchase 6,629,000 and 4,496,000 shares of common stock, respectively, were outstanding at June 30, 2001.
Diluted EPS are not presented as all potentially dilutive securities would be antidilutive due to the net loss incurred for the three and six months ended June 30, 2000 and 2001.
6. Asset Write-down
During the second quarter of 2001, numerous adverse changes in the Company's industry and the economic environment as a whole, including significant declines in valuation of competitive telecommunications providers, continued weakness in the demand for information technology and telecommunications services, and business failures of several prominent companies in markets similar to the Company's caused the Company to conclude that its prospects for future cash flows had weakened and operating risks had increased. Additionally, during the second quarter of 2001, the Company made certain changes in its operations. Both these external and internal changes triggered a review of long-lived assets, including building and network-related assets, real estate access rights, property and equipment, and goodwill. This review indicated that undiscounted cash flows expected to be generated by such assets were not sufficient to recover the historical book value of long-lived assets and that such assets should be reduced to fair value. The Company calculated the present value of estimated cash flows to determine management's estimate of fair market value for the building and system infrastructure and real estate access rights. To determine the value of other assets, including system equipment, furniture, fixtures, software and equipment, the Company used the lower of the historical
F52
cost or management's estimate of fair market value. Based on the Company's current evaluation of the present value of expected cash flows of its subsidiaries acquired in 2000, the Company concluded that related long-lived assets and goodwill should be written down.
The total amount of write down by category is as follows:
|
Amount of Asset
Write-down |
|||
---|---|---|---|---|
Property and equipment: | ||||
System infrastructure | $ | 58,108,000 | ||
Other assets | 78,051,000 | |||
|
||||
Total property and equipment | 136,159,000 | |||
Real estate access rights | 116,449,000 | |||
Goodwill | 9,728,000 | |||
|
||||
Total | $ | 262,336,000 | ||
|
In addition, on July 24, 2001, the Company announced a number of initiatives to further reduce its operating costs and refocus its business plan. These initiatives include the suspension of retail sales of broadband data applications and services, the transition of its current retail customers to other service providers, the closure of the Company's sales offices, and a further reduction in the number of employees by approximately 75% of the Company's workforce. The Company also announced its intention to pursue a business plan that contemplates the provision of in-building wholesale services of its broadband data network.
In connection with the implementation of announced cost-cutting measures, the Company may in the future recognize accelerated depreciation for discontinued use of software. The Company will continue to evaluate its long-lived assets, including property and equipment and real estate access rights, to determine whether changes in circumstances have occurred that indicate the remaining asset balances may not be recoverable and an impairment loss should be recognized.
7. Property and Equipment:
Property and equipment as of June 30, 2001, consist of the following:
|
Average
Estimated Useful Lives (Years) |
|
||||
---|---|---|---|---|---|---|
Office equipment and information systems | 4 | $ | 29,592,000 | |||
Furniture and fixtures | 7 | 2,460,000 | ||||
Leasehold improvements | 5 | 3,977,000 | ||||
System infrastructure | 10 | 7,686,000 | ||||
System equipment | 5 | 6,957,000 | ||||
Construction-in-progress | | |||||
|
||||||
Property and equipment, gross | 50,672,000 | |||||
|
||||||
Less accumulated depreciation and amortization | (11,071,000 | ) | ||||
|
||||||
Property and equipment, net | $ | 39,601,000 | ||||
|
Capitalized interest for the six months ended June 30, 2000 and 2001, was approximately $0 and $1,143,000, respectively.
F53
8. Debt:
On June 28, 2000, the Company completed the issuance and sale in a private placement of an aggregate of $150,000,000 in principal amount of its 7.50% convertible subordinated notes due June 15, 2007 (the "Notes"). The Company incurred expenses of approximately $4,997,000, of which approximately $4,500,000 represented underwriting fees and approximately $497,000 represented other expenses related to the offering. The net offering proceeds to the Company after total expenses were approximately $145,003,000. The Notes may be converted at the option of the holders into shares of the Company's common stock at an initial conversion price of $15.37 per share, which may be adjusted upon the occurrence of certain events. Interest is payable semiannually on June 15 and December 15, and is payable, at the election of the Company, in either cash or registered shares of the Company's common stock. The Notes are redeemable at the Company's option at any time on or after the third business day after June 15, 2004, at specified redemption prices plus accrued interest. During 2000, a shelf registration statement on Form S-3 (Commission File No. 333-50026) was filed with the Securities and Exchange Commission registering some of the Notes for resale, the shares of common stock issuable upon conversion of the Notes and as payment-in kind interest on the Notes.
On May 11, 2001, the Company commenced a tender offer to purchase any and all of the Notes for a purchase price of $280 in cash per $1,000 of principal amount of Notes, plus accrued but unpaid interest on the Notes up to but excluding the date on which the Company deposited the funds with the depositary to purchase the accepted Notes. On June 12, 2001, the Company announced the completion of the tender offer, accepting for purchase $26,400,000 of the aggregate principal amount of the Notes, representing approximately 17.6% of the $150,000,000 aggregate principal amount of the Notes outstanding prior to the tender offer. The Company paid $8,360,000 in cash, including $968,000 for accrued but unpaid interest, to complete the tender offer. An extraordinary gain of $11,718,000, net of $6,037,000 in income taxes, was recognized as a result of the early extinguishment of the Notes. The extraordinary gain also includes $486,000 of expenses incurred with the offer and a $767,000 write-off of associated debt issuance costs.
9. Commitments and Contingencies:
Outlined below are commitments and contingencies for the Company's operating leases, capital leases, connectivity contracts, and acquisition commitments. From time to time, the Company may decide to use cash for the early retirement of such commitments and contingencies. As a result of the Company's decision to suspend retail operations, certain contractual obligations without future benefit may be recorded in periods prior to those outlined below, which may accelerate the recognition of these expenses.
Operating Leases
The Company has entered into various operating lease agreements, with expirations through 2010, for leased space and equipment. Future minimum lease obligations related to the Company's operating leases are as follows for the twelve months ended June 30:
2002 | $ | 11,981,000 | |
2003 | 13,173,000 | ||
2004 | 11,871,000 | ||
2005 | 9,134,000 | ||
2006 | 4,044,000 | ||
Thereafter | 4,246,000 | ||
|
|||
Total minimum lease obligations | $ | 54,449,000 | |
|
F54
Total operating lease expenses for the six months ended June 30, 2000 and 2001, were approximately $3,495,000 and $3,986,000, respectively.
Capital Leases
The Company has entered into various capital leases for equipment. Future minimum lease obligations related to the Company's capital leases are as follows for the twelve months ended June 30:
2002 | $ | 35,536,000 | |||
2003 | 26,381,000 | ||||
2004 | 5,128,000 | ||||
2005 | 288,000 | ||||
2006 | 6,000 | ||||
|
|||||
Total minimum lease obligations | 67,339,000 | ||||
Less amounts representing interest | (7,488,000 | ) | |||
|
|||||
Present value of minimum lease obligations | 59,851,000 | ||||
Current maturities | (29,958,000 | ) | |||
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Capital lease obligations, net of current maturities | $ | 29,893,000 | |||
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Connectivity Contracts
In order to provide its services, the Company must connect each in-building network to a central facility in each metropolitan area, usually over broadband lines that are leased from other carriers. At this metropolitan hub, the Company aggregates and disseminates network traffic for Internet connectivity. The Company has secured contracts that range from monthly to five years for local transport and up to three years for national intercity transport. The Company incurs fixed monthly charges for local connectivity. For national connectivity, the Company incurs fixed monthly charges plus incremental charges for customer usage above a certain volume. In addition, in the event the Company fails to meet its minimum volume commitments for national connectivity, it may be obligated to pay underutilization charges.
Future minimum obligations related to the Company's connectivity contracts are as follows for the twelve months ended June 30:
2002 | $ | 11,090,000 | |
2003 | 3,418,000 | ||
2004 | 824,000 | ||
2005 | 566,000 | ||
Thereafter | 242,000 | ||
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Total minimum obligations | $ | 16,140,000 | |
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Acquisition Commitments
During 2000, the Company completed five acquisitions as described in note 11. In connection with these acquisitions, additional amounts, contingent upon the achievement of certain performance levels, are potentially payable to the former owners and employees of the acquired companies. The Company has recorded $787,000 as of June 30, 2001 in anticipation of performance targets estimated to be achieved during 2001. Of the amount recorded, the Company expects to pay $524,000 in cash and shares of common stock valued at $263,000. During the six months ended June 30, 2001, warrants underlying 250,000 shares of stock, with a fair value of zero, and 101,000 shares of restricted stock,
F55
were released from restriction. Subsequent to June 30, 2001, 632,000 shares of restricted stock were repurchased. Additional purchase consideration will be recorded as it becomes probable that such amounts will be paid to the former owners of the acquired companies and such amounts can be estimated. Additional compensation expense will be recorded as the amounts payable to employees of the acquired companies can be estimated.
10. Equity:
Common Stock
During the three and six months ended June 30, 2001, the Company repurchased 178,000 and 356,000 shares of unvested restricted common stock, respectively. During the three and six months ended June 30, 2001, the Company issued 0 and 425,000 shares of common stock from treasury, respectively, in lieu of cash bonus payments for services rendered in 2000.
Warrants underlying 335,000 and 3,009,000 shares of stock were exercised during the three and six months ended June 30, 2001, respectively (see Warrants). During the three and six months ended June 30, 2001, the Company issued 0 and 32,000 shares of common stock, respectively, in connection with obligations related to prior acquisitions. During the three and six months ended June 30, 2001, 127,000 and 311,000 shares of common stock, respectively, were issued in connection with the Company's employee stock purchase plan. Also, during the three and six months ended June 30, 2001, stock options underlying 0 and 7,000 shares of common stock, respectively, were exercised by employees.
Warrants
The Company has issued to real estate partners and their affiliates warrants to acquire shares of common stock in exchange for the right, pursuant to telecommunications license agreements, to install its broadband data network in these real estate entities' buildings. The warrants are exercisable upon the occurrence of certain events set forth in the warrant acquisition agreements.
The number of warrants the Company is obligated to issue may be adjusted if certain telecommunications license agreements are not executed and delivered in accordance with the parameters outlined in the warrant acquisition agreements. Accordingly, the date for determining the final value of the warrants is the date on which the telecommunications license agreements are signed and delivered (the "measurement date"), and the real estate partners effectively complete their performance element of the warrant acquisition agreement. At the measurement date, the Company will measure the fair market value of the warrants based on an acceptable pricing model. The warrants also are subject to forfeiture as a result of subsequent events of default by the real estate partners as set forth in the warrant acquisition agreement.
As of June 30, 2001, the Company has entered into warrant acquisition agreements for the issuance of 8,217,000 shares of common stock. Performance obligations relating to all of these shares of common stock had been completed as of June 30, 2001. At June 30, 2001, warrants underlying 3,721,000 shares of common stock had been exercised.
Compensation Charge
The Company completed an initial public offering ("IPO") of its common stock on October 29, 1999. The estimated fair market value of the Company's common stock (as implied by the IPO price) exceeded management's determination of fair market value of each stock option grant and restricted stock grant made prior to the IPO. As of December 31, 2000, $7,418,000 of stock compensation recorded upon completion of the IPO was being deferred and amortized over the remaining estimated
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employee service period. The total compensation charge is reduced if and when employees terminate prior to vesting.
During the three and six months ended June 30, 2001, certain employees were terminated, resulting in a reduction of $428,000 and $1,254,000, respectively, of the deferred compensation recorded upon completion of the IPO. During the three and six months ended June 30, 2001, deferred compensation expense was reduced by $1,018,000 and $3,254,000, respectively, for previously recognized expense related to forfeited options and shares. Deferred compensation expense related to continuing employee service was $779,000 and 1,696,000 for the three and six months ended June 30, 2001, respectively. As of June 30, 2001, the balance of unamortized deferred compensation recorded upon completion of the IPO was $4,470,000 and is being deferred and amortized over the remaining estimated employee service period.
In connection with acquisitions of businesses during 2000, the Company entered into various employment agreements with former owners and employees of the acquired companies pursuant to which the Company issued restricted shares of common stock to such persons. As of December 31, 2000, $6,082,000 was being deferred and amortized over the remaining estimated employee service period. During the three and six months ended June 30, 2001, the deferred compensation recorded upon consummation of the acquisitions was reduced by $2,061,000 and $2,395,000, respectively, to reflect the probability of achievement of performance targets and the stock price as of June 30, 2001. During the three and six months ended June 30, 2001, amortization related to this deferred compensation was $1,675,000 and $3,674,000, respectively. As of June 30, 2001, $13,000 is being deferred and amortized over the remaining estimated employee service period.
11. Acquisitions:
During the second and third quarters of 2000, we acquired all of the outstanding stock of four high-speed data communication and professional services companies and 68% of the outstanding stock of Shared Technologies of Canada. The following table presents the unaudited pro forma results of operations of the Company for the three and six months ended June 30, 2000 and 2001, respectively, as if the acquisitions made during 2000 had been consummated as of January 1, 2000. The unaudited pro forma results are prepared for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisitions occurred at the beginning of the period presented or the results which may occur in the future.
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Three months ended
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Six months ended
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June 30, 2000
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June 30, 2001
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June 30, 2000
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June 30, 2001
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Revenues | $ | 5,365,000 | $ | 8,573,000 | $ | 10,810,000 | $ | 16,502,000 | |||||
Net income (loss) before extraordinary items | (45,423,000 | ) | (302,872,000 | ) | (84,148,000 | ) | (346,182,000 | ) | |||||
Net income (loss) applicable to common stock | (45,423,000 | ) | (291,154,000 | ) | (84,148,000 | ) | (334,464,000 | ) | |||||
Net income (loss) per share, basic and diluted | (.84 | ) | (4.82 | ) | (1.56 | ) | (5.64 | ) |
12. Recent Accounting Pronouncements:
On July 20, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" ("SFAS No. 141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment
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approach. The Company believes the adoption of SFAS Nos. 141 and 142 will not have a material effect on the Company's financial position or results of operations.
13. Subsequent Events:
In response to numerous adverse changes in the Company's industry and the economic environment as a whole, including significant declines in valuation of competitive telecommunications providers, continued weakness in the demand for information technology and telecommunications services, and business failures of several prominent companies in markets similar to the Company's, on July 24, 2001, the Company announced a number of additional initiatives to further reduce operating costs and refocus the Company's business plan. These initiatives include the suspension of retail sales of broadband data applications and services, the transition of the Company's current retail customers to other service providers, the closure of the Company's sales offices and a further reduction in the number of employees by approximately 290 persons, or approximately 75% of the Company's total workforce.
The Company's stock is traded on The Nasdaq Stock Market's National Market System (the "Nasdaq NMS"). In order for the Company's common stock to continue to be listed on the Nasdaq NMS, the Company must satisfy various listing requirements established by Nasdaq. On July 23, 2001, the Company received a letter from Nasdaq advising the Company that the minimum bid price of its stock had failed to comply with the continued listing standards of Nasdaq. On August 21, 2001, the Company received a letter from Nasdaq advising the Company that it had failed to comply with the minimum net tangible asset and the minimum shareholder's equity requirements for continued listing on the Nasdaq. On September 5, 2001 the Company transmitted a letter to the Nasdaq addressing issues raised in the July 23 and August 21 letters. On September 27, 2001, the Nasdaq announced a moratorium on the minimum bid price and minimum market value of public float listing requirements until January 2, 2002, in response to the September 11, 2001, terrorist attacks. This announcement did not suspend the Nasdaq's minimum net tangible asset and shareholder's equity listing requirements. On October 9, 2001, the Company received a letter from the Nasdaq citing the moratorium and declaring the matter initiated by the letter dated July 23, 2001 closed. With regard to the remaining issues, the Company has provided the Nasdaq information regarding its specific plan to achieve and sustain compliance with the various listing requirements. This plan includes the consummation of the proposed merger with Cogent Communications Group, Inc. The Company has had further verbal discussions with the Nasdaq but no formal communication has been received by Company in response to this plan, and there is no assurance that the Company will remain listed. The Company believes that it is now in compliance with Nasdaq's minimum net tangible asset and shareholder's equity listing requirements as a result of its settlement of certain obligations described below.
On July 26, 2001, in a case titled Hewlett-Packard Company v. Allied Riser Operations Corporation a/k/a Allied Riser Communications, Inc. , Hewlett-Packard Company filed a complaint against the Company's subsidiary, Allied Riser Operations Corporation, in the 95th Judicial District Court, Dallas County, Texas, seeking damages of $18,775,000, attorneys' fees, interest and punitive damages relating to various types of equipment allegedly ordered from Hewlett-Packard Company by Allied Riser Operations Corporation. The Company filed its answer, generally denying Hewlett-Packard's claims. The Company intends to vigorously contest this lawsuit.
On August 28, 2001, the Company entered into a definitive agreement to merge with Cogent Communications Group, Inc. ("Cogent"). On October 13, 2001, the Company and Cogent executed Amendment No. 1 to the merger agreement. Cogent is a privately held high speed Internet service provider providing end-to-end Optical Ethernet connectivity to the Internet for businesses. Under the terms of the agreement, the Company will become a wholly owned subsidiary of Cogent and its in-building networks will be added to Cogent's national backbone and facilities. Holders of common stock of the Company will receive shares of Cogent common stock in the merger. The Company's convertible
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subordinated notes will become convertible into Cogent common stock following completion of the merger. The merger is conditioned upon, among other things, approval by the stockholders of Allied Riser, the qualification for listing of the shares of Cogent common stock to be issued in the merger on a national securities exchange or approved for inclusion in Nasdaq, and the receipt of material consents.
On October 9, 2001, the Company and its wholly owned subsidiary, Allied Riser Operations Corporation, entered into a settlement and mutual release agreement in connection with certain of its capital lease agreements. Pursuant to the terms of the settlement and mutual release agreement, in exchange for the payment of $12.5 million by the Company to the lessor, the lessor released the Company and its subsidiaries from any and all obligations to the lessor under the capital lease agreement and under various maintenance agreements with respect to equipment leased by the Company or its subsidiaries from the lessor. As of June 30, 2001, such obligations were reflected in the Company's financial statements as approximately $62,900,000. The title to the equipment subject to the capital lease agreements was transferred to the Company pursuant to the settlement, and the lessor has agreed to release all liens on and security interests in such equipment.
During the third and fourth quarters of 2001, the Company sold four of the five data and communication service providers which were acquired by the Company in 2000. Revenues generated by these four subsidiaries were approximately $5,365,000 for the six months ended June 30, 2001. The Company does not expect these transactions to have a material impact on its financial position or the results of its ongoing operations.
F59
AGREEMENT AND PLAN OF MERGER
Dated as of August 28, 2001
By and Among
ALLIED RISER COMMUNICATIONS CORPORATION,
COGENT COMMUNICATIONS GROUP, INC.
And
AUGUSTUS CAESAR MERGER SUB, INC.
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ARTICLE 1. The Merger |
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1 |
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SECTION 1.01 |
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The Merger |
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2 |
SECTION 1.02 | Reverse Stock Split | 2 | |||
SECTION 1.03 | Closing | 2 | |||
SECTION 1.04 | Effective Time | 2 | |||
SECTION 1.05 | Effects of the Merger | 2 | |||
SECTION 1.06 | Certificates of Incorporation and Bylaws | 2 | |||
SECTION 1.07 | Board of Directors and Officers of the Surviving Corporation | 3 | |||
ARTICLE 2. Effect of the Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates |
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3 |
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SECTION 2.01 |
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Effect on Capital Stock |
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3 |
SECTION 2.02 | Exchange of Certificates | 4 | |||
SECTION 2.03 | Stock Options | 6 | |||
SECTION 2.04 | Restricted Stock; ESPP | 7 | |||
SECTION 2.05 | Warrants | 7 | |||
SECTION 2.06 | Appraisal Rights | 7 | |||
ARTICLE 3. Representations and Warranties |
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8 |
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SECTION 3.01 |
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Representations and Warranties of Parent and Merger Sub |
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8 |
SECTION 3.02 | Representations and Warranties of the Company | 18 | |||
ARTICLE 4. Covenants Relating to Conduct of Business |
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23 |
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SECTION 4.01 |
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Conduct of Business |
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23 |
SECTION 4.02 | No Solicitation | 26 | |||
ARTICLE 5. Additional Agreements |
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28 |
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SECTION 5.01 |
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Preparation of the Form S-4 and the Company Proxy Statement; Company Stockholders' Meeting |
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28 |
SECTION 5.02 | Letters of the Company's Accountants | 29 | |||
SECTION 5.03 | Letters of Parent's Accountants | 29 | |||
SECTION 5.04 | Access to Information; Confidentiality | 30 | |||
SECTION 5.05 | Reasonable Best Efforts | 30 | |||
SECTION 5.06 | Employee Benefits | 31 | |||
SECTION 5.07 | Indemnification, Exculpation and Insurance | 31 | |||
SECTION 5.08 | Fees and Expenses | 32 | |||
SECTION 5.09 | Public Announcements | 32 | |||
SECTION 5.10 | Affiliates | 33 | |||
SECTION 5.11 | Listing or Nasdaq Quotation | 33 | |||
SECTION 5.12 | Tax Treatment | 33 | |||
SECTION 5.13 | Further Assurances | 33 | |||
SECTION 5.14 | Transfer Taxes | 33 | |||
SECTION 5.15 | Series C Preferred Stock | 33 | |||
SECTION 5.16 | Certain Insurance | 33 |
1
ARTICLE 6. Conditions Precedent |
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33 |
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SECTION 6.01 |
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Conditions to Each Party's Obligation To Effect the Merger |
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34 |
SECTION 6.02 | Conditions to Obligations of the Company | 34 | |||
SECTION 6.03 | Conditions to Obligations of Parent | 35 | |||
SECTION 6.04 | Frustration of Closing Conditions | 36 | |||
ARTICLE 7. Termination, Amendment and Waiver |
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36 |
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SECTION 7.01 |
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Termination |
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36 |
SECTION 7.02 | Effect of Termination | 37 | |||
SECTION 7.03 | Amendment | 38 | |||
SECTION 7.04 | Extension; Waiver | 38 | |||
SECTION 7.05 | Procedure for Termination, Amendment, Extension or Waiver | 39 | |||
ARTICLE 8. General Provisions |
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39 |
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SECTION 8.01 |
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Nonsurvival of Representations and Warranties |
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39 |
SECTION 8.02 | Notices | 39 | |||
SECTION 8.03 | Definitions | 40 | |||
SECTION 8.04 | Interpretation | 41 | |||
SECTION 8.05 | Counterparts | 41 | |||
SECTION 8.06 | Entire Agreement; No Third-Party Beneficiaries | 41 | |||
SECTION 8.07 | Governing Law | 41 | |||
SECTION 8.08 | Assignment | 41 | |||
SECTION 8.09 | Enforcement | 42 | |||
SECTION 8.10 | Severability | 42 | |||
ANNEX I Index of Defined Terms |
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AI-1 |
2
Exhibit A | Form of Restated Certificate of Incorporation of Parent | |
Exhibit B | Form of Restated Bylaws of Parent | |
Exhibit C | Conversion Ratio | |
Exhibit D | Form of Rule 145 Letter | |
Exhibit E | Form of Lock-Up Agreement |
3
This Agreement and Plan of Merger (this "Agreement") is dated as of August 28, 2001, by and among Allied Riser Communications Corporation, a Delaware corporation (the "Company"), Cogent Communications Group, Inc., a Delaware corporation ("Parent"), and Augustus Caesar Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub").
A. The respective Boards of Directors of the Company, Parent and Merger Sub have approved this Agreement and declared advisable the merger of Merger Sub with and into the Company (the "Merger"), upon the terms and subject to the conditions set forth in this Agreement, and have determined that the Merger is in the best interests of each corporation and its respective stockholders;
B. Upon any necessary approval by the stockholders of Parent and effective immediately prior to the Effective Time (as defined herein), Parent will effect a reverse stock split with respect to its then-outstanding shares of common stock, par value $.001 per share (the "Parent Common Stock"), such that each share of Parent Common Stock shall be converted into 0.1 of a share of Parent Common Stock (the "Reverse Stock Split"). Any fractional share which results from the Reverse Stock Split will be rounded up to the next whole share;
C. Parent intends to issue shares of Series C Preferred Stock, substantially on the terms set forth in the Parent Restated Certificate (as defined herein) and Section 3.01(b) of Parent Disclosure Schedule (as defined herein) (such stock, "Series C Preferred Stock"), in a private placement to occur prior to the Effective Time;
D. Each of the respective Boards of Directors of the Company, Parent and Merger Sub has determined that the Merger and the other transactions contemplated hereby are consistent with, and in furtherance of, its respective business strategies and goals;
E. The Company, Parent and Merger Sub desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger; and
F. For federal income tax purposes, it is intended that the Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and regulations promulgated thereunder and that this Agreement constitute a plan of reorganization.
Now , Therefore , in consideration of the representations, warranties, covenants and agreements contained in this Agreement, the parties hereto agree as follows:
Section 1.01 The Merger. pon the terms and subject to the conditions set forth in this Agreement, and in accordance with Section 251 of the Delaware General Corporation Law (the "DGCL"), Merger Sub shall be merged with and into the Company at the Effective Time. Following the Effective Time, the Company shall continue as the surviving corporation of the Merger (the "Surviving Corporation").
Section 1.02 Reverse Stock Split. Immediately prior to the Effective Time, subject to Parent Stockholder Approval (as defined herein), Parent shall effect the Reverse Stock Split.
A1
Section 1.03 Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date to be specified by the parties (the "Closing Date"), which shall be no later than the second Business Day (as defined herein) after satisfaction or waiver of the conditions set forth in Article 6 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), unless another time or date is agreed to by the parties hereto. The Closing will be held at the offices of Parent's counsel, Latham & Watkins, 555 Eleventh Street, N.W., Washington, D.C. 20004.
Section 1.04 Effective Time. Subject to the provisions of this Agreement, as soon as practicable on or after the Closing Date, Merger Sub shall file a certificate of merger pursuant to Section 251(c) of the DGCL (in any such case, the "Certificate of Merger") executed in accordance with Section 103 of the DGCL and shall make all other filings or recordings as may be required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Delaware Secretary of State, or at such other time as the Company and Parent shall agree and specify in the Certificate of Merger (the time the Merger becomes effective being hereinafter referred to as the "Effective Time").
Section 1.05 Effects of the Merger. At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.
Section 1.06 Certificates of Incorporation and Bylaws.
(a) The Certificate of Incorporation of Merger Sub shall be the Certificate of Incorporation of the Surviving Corporation at the Effective Time and thereafter until changed or amended as provided therein or by applicable law.
(b) The Bylaws of Merger Sub shall be the Bylaws of the Surviving Corporation at the Effective Time and thereafter until changed or amended as provided therein or by applicable law.
(c) The Amended and Restated Certificate of Incorporation of Parent, substantially in the form attached hereto as Exhibit A, shall be the Certificate of Incorporation of Parent (the "Parent Restated Certificate") at the Effective Time and thereafter until changed or amended as provided therein or by applicable law.
(d) The Amended and Restated Bylaws of Parent, substantially in the form attached hereto as Exhibit B, shall be the Bylaws of Parent (the "Parent Bylaws") at the Effective Time and thereafter until changed or amended as provided therein or by applicable law.
Section 1.07 Board of Directors and Officers of the Surviving Corporation. The directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, until the earlier of their respective resignation or removal or until their respective successors are duly elected and qualified, as the case may be. The directors and officers of the Company shall cease to have any powers in respect of the Surviving Corporation at the Effective Time.
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ARTICLE 2.
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
Section 2.01 Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of capital stock of Merger Sub, Parent or the Company:
(a) Conversion Generally. Each share of common stock, par value $.0001 per share, of the Company ("Company Common Stock" or "Shares") issued and outstanding immediately prior to the Effective Time (other than any Shares to be canceled pursuant to Section 2.01(b)), subject to Section 2.02(e), shall be converted into the right to receive the number of validly issued, fully paid and nonassessable shares of Parent Common Stock (that have been registered in the Merger with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act")), equal to the Conversion Ratio (as defined in Exhibit C) (such shares of Parent Common Stock, together with any fractional share issued pursuant to Section 2.02(e), the "Merger Consideration"). As of the Effective Time, all such Shares shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate previously representing any such Shares shall thereafter represent the right to receive a certificate representing the Merger Consideration. Certificates previously representing Shares shall be exchanged for certificates representing whole shares of Parent Common Stock issued in consideration therefor upon the surrender of such certificates in accordance with the provisions of Section 2.02.
(b) Treasury Shares; Shares Held by Parent or Merger Sub. At the Effective Time, each Share held by Parent or its Subsidiaries (as defined herein) or in the treasury of the Company immediately prior to the Effective Time shall be automatically canceled and extinguished and shall cease to exist without any conversion thereof, and no payment shall be made with respect thereto.
(c) Merger Sub. Each share of common stock, par value $.0001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and be exchanged for one newly and validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation.
(d) Adjustment to Conversion Ratio. If, between the date of this Agreement and the Effective Time, the outstanding shares of Parent Common Stock, other than as a result of the Reverse Stock Split, or Company Common Stock shall have been changed into a different number of shares or a different class, by reason of any stock dividend thereon or any subdivision, reclassification, recapitalization, split, combination or exchange thereof, the Conversion Ratio shall be correspondingly adjusted to reflect such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange.
Section 2.02 Exchange of Certificates.
(a) Exchange Agent. At or prior to the Effective Time, Parent shall deposit, or shall cause to be deposited, with a bank or trust company designated by Parent and reasonably satisfactory to the Company (the "Exchange Agent"), for the benefit of the holders of Shares, for exchange in accordance with this Article 2, through the Exchange Agent, (i) certificates representing the Merger Consideration and (ii) any dividends or distributions with respect thereto (collectively, the "Exchange Fund") issuable and pursuant to this Section 2.02 in exchange for outstanding Shares. The Exchange Agent shall, pursuant to irrevocable instructions, deliver the Merger Consideration and any such dividends or distributions in accordance with this Section 2.02.
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(b) Exchange Procedures. Parent shall instruct the Exchange Agent to, as soon as reasonably practicable after the Effective Time, mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding Shares (the "Certificates") (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and shall be in customary form) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing the Merger Consideration. Upon surrender to the Exchange Agent of a Certificate for cancellation together with such letter of transmittal, properly completed and duly executed, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor (i) a certificate representing the Merger Consideration in respect of the Shares formerly represented by such Certificate (after taking into account all Shares then held by such holder), including any fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 2.02(e), and (ii) any dividends or other distributions to which such holder is entitled pursuant to Section 2.02(c), and the Certificate so surrendered shall forthwith be canceled. No interest will be paid or accrued on any unpaid dividends and distributions payable to holders of Certificates. In the event of a transfer of ownership of Shares which is not registered in the transfer records of the Company, a certificate representing the proper number of shares of Parent Common Stock may be issued to a transferee if the Certificate representing such Shares is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.02, each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender (i) the certificate representing the Merger Consideration, including any fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 2.02(e), and (ii) any dividends or other distributions to which such holder is entitled pursuant to Section 2.02(c).
(c) Distributions with Respect to Unsurrendered Certificates. No dividends or other distributions with respect to Parent Common Stock with a record date on or after the date of the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Company Common Stock, represented thereby until such holder shall surrender such Certificate in accordance with this Article 2. Subject to the effect of applicable laws, following surrender of any such Certificate there shall be paid to the holder of the certificate representing shares of Parent Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such shares of Parent Common Stock to which such holder is entitled pursuant to this Article 2 and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date on or after the date of the Effective Time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of Parent Common Stock issued upon the surrender for exchange of Certificates in accordance with the terms of this Article 2 shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to the shares of Company Common Stock previously represented by such Certificates, subject, however, to the Surviving Corporation's obligation to pay any dividends or make any other distributions with a record date prior to the Effective Time which may have been declared or made by the Company on such shares of Company Common Stock which remain unpaid at the Effective Time, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the shares of Company Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to
A4
the Surviving Corporation or the Exchange Agent for any reason, they shall be canceled and exchanged as provided in this Article 2 except as otherwise provided by law.
(e) No Fractional Shares. Notwithstanding any other provision of this Agreement, each holder of shares of Company Common Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Parent Common Stock (after taking into account all Certificates delivered by such holder) shall be entitled to receive an additional fraction of a share of Parent Common Stock to create a whole share such that no such holder will receive any fractional share of Parent Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed to the holders of Shares on the date that is one year after the Effective Time shall be delivered to Parent, upon demand, and any holders of Shares who have not theretofore complied with this Section 2.02 shall thereafter look only to Parent for (i) the shares of Parent Common Stock representing Merger Consideration, including any fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 2.02(e), and (ii) any dividends or other distributions with respect to Parent Common Stock to which they are entitled pursuant to Section 2.02(c), in each case, without any interest thereon.
(g) Withholding. Parent or the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as Parent or the Exchange Agent are required to deduct and withhold under applicable law with respect to the making of such payment. To the extent that amounts are so withheld by Parent or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Shares in respect of whom such deduction and withholding was made by Parent or the Exchange Agent.
(h) No Liability. None of Parent, the Surviving Corporation or the Exchange Agent shall be liable to any person in respect of any Merger Consideration or any dividends or distributions with respect thereto, in each case delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificate shall not have been surrendered prior to the date that is three years after the Effective Time (or immediately prior to such earlier date on which any Merger Consideration, including any fractional share of Parent Company Stock issuable pursuant to Section 2.02(e), or any dividends or distributions payable to the holder of such Certificate pursuant to this Article 2, would otherwise escheat to or become the property of any Governmental Entity), any such Merger Consideration or dividends or distributions in respect thereof shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interests of any person previously entitled thereto.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration, including any fractional share of Parent Common Stock issuable pursuant to Section 2.02(e), and any unpaid dividends and distributions in respect thereof, in each case pursuant to this Agreement.
Section 2.03 Stock Options. At the Effective Time, all unexercised and unexpired options to purchase Company Common Stock ("Company Stock Options") then outstanding, under any stock option plan of the Company, including the Company's 1999 Amended and Restated Stock Option and Equity Incentive Plan, 2000 Stock Option and Equity Incentive Plan, and any other plan, agreement or arrangement (the "Company Stock Option Plans"), whether or not then exercisable, will be assumed by Parent. Each Company Stock Option so assumed by Parent under this Agreement will continue to have,
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and be subject to, the same terms and conditions applicable to such holder's Company Stock Option set forth in the applicable Company Stock Option Plan and any agreements thereunder immediately prior to the Effective Time, except that (i) each Company Stock Option will be exercisable (or will become exercisable in accordance with its terms) for that number of whole shares of Parent Common Stock equal to the product of the number of Shares that were issuable upon exercise of such Company Stock Option immediately prior to the Effective Time multiplied by the Conversion Ratio, rounded to the nearest whole number of shares of Parent Common Stock and (ii) the per-share exercise price for the shares of Parent Common Stock issuable upon exercise of such Company Stock Option assumed will be equal to the quotient determined by dividing the exercise price per share of Company Common Stock at which such Company Stock Option was exercisable immediately prior to the Effective Time by the Conversion Ratio, rounded to the nearest whole cent. The conversion of any Company Stock Options to which Section 421(a) of the Code applies into options to purchase Parent Common Stock shall be made in a manner consistent with Section 424(a) ofthe Code so as not to constitute a "modification" of such Company Stock Options within the meaning of Section 424 of the Code.
Section 2.04 Restricted Stock; ESPP. If any Shares that are outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other condition ("Company Restricted Stock") providing that such Shares may be forfeited or repurchased by the Company upon any termination of the stockholders' employment, directorship or other relationship with the Company (and/or any affiliate of the Company) under the terms of any agreement with the Company that does not by its terms provide that such repurchase option, risk of forfeiture or other condition lapses upon consummation of the Merger, then the shares of Parent Common Stock issued upon the conversion of such Shares in the Merger will continue to be unvested and subject to the same repurchase options, risks of forfeiture or other conditions following the Effective Time, and the certificates representing such shares of Parent Common Stock may accordingly be marked with appropriate legends noting such repurchase options, risks of forfeiture or other conditions. The Company shall take all actions that may be necessary to ensure that, from and after the Effective Time, Parent is entitled to exercise any such repurchase option or other right set forth in any such restricted stock purchase agreement or other agreement. The Company shall take all action necessary to cause any current offer period under the Company 2000 Employee Stock Purchase Plan (the "Company ESPP") to end no later than the earlier of September 30, 2001 or the date immediately preceding the Effective Time (the "ESPP Termination Date") and any outstanding options to purchase Company Common Stock under the Company ESPP shall be exercised as of the ESPP Termination Date pursuant to Section 7(h) of the Company ESPP. The Company shall take all actions necessary to provide that the Company ESPP shall terminate as of the ESPP Termination Date as permitted under Section 10 of the Company ESPP, and that as of the Effective Time there are no options or other rights to purchase Company Common Stock outstanding under the Company ESPP or any other plan, program or arrangement intended to qualify as an "employee stock purchase plan" within the meaning of Code Section 423(b).
Section 2.05 Warrants. At the Effective Time, by virtue of the Merger and without the need for any further corporate action, each warrant to acquire Shares ("Company Warrant") outstanding immediately prior to the Effective Time shall be automatically converted into a warrant to acquire, on the same terms and conditions as were applicable under such Company Warrant, the number of shares of Parent Common Stock (rounded to the nearest whole share) determined by multiplying the number of shares of Company Common Stock subject to such Company Warrant by the Conversion Ratio, at a price per share of Parent Common Stock equal to (A) the aggregate exercise price for the shares of Company Common Stock otherwise purchasable pursuant to such Company Warrant divided by (B) the aggregate number of shares of Parent Common Stock deemed purchasable pursuant to such Warrant; provided , however , that such exercise price shall be rounded to the nearest whole cent. The Company shall use its reasonable best efforts to cause each Company Warrant to be amended prior to the Effective Time so as to comply with this Section 2.05.
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Section 2.06 Appraisal Rights. Notwithstanding Section 2.01, if for any reason appraisal rights under Section 262 of the DGCL become available to holders of Shares in connection with the Merger, Shares outstanding immediately prior to the Effective Time and held by a holder who properly exercises and perfects appraisal rights for such Shares in accordance with the DGCL shall not be converted into a right to receive the Merger Consideration, unless such holder fails to perfect or effectively withdraws or otherwise loses his or her right to appraisal. If after the Effective Time such holder fails to perfect or effectively withdraws or loses his or her right to appraisal, such Shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Shares, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. Any amounts paid to a holder pursuant to a right of appraisal will be paid by the Company.
ARTICLE 3.
Representations and Warranties
Section 3.01 Representations and Warranties of Parent and Merger Sub. Except as expressly set forth on the Disclosure Schedule delivered by Parent and Merger Sub to the Company in connection with the execution of this Agreement (the "Parent Disclosure Schedule"), Parent and Merger Sub hereby jointly and severally represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Parent and its Subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power, as the case may be, and authority to carry on its business as now being conducted, except for those jurisdictions where the failure to be so organized, existing or in good standing is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Parent. Each of Parent and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions in which the failure to be so qualified or licensed or to be in good standing individually or in the aggregate is not reasonably likely to have a Material Adverse Effect on Parent. Parent has made available to the Company prior to the execution of this Agreement complete and correct copies of the certificate of incorporation and bylaws of Parent and its Subsidiaries, in each case as amended to date.
(b) Capital Structure. As of the date hereof, the authorized capital stock of Parent consists of 70,000,000 shares of Parent Common Stock, and 46,000,000 shares of Preferred Stock, of which 26,000,000 shares are designated Series A Preferred Stock ("Series A Preferred Stock") and 20,000,000 shares are designated Series B Preferred Stock ("Series B Preferred Stock"). As of August 20, 2001, (i) 14,086,142 shares of Parent Common Stock were issued and outstanding, (ii) no shares of Parent Common Stock were held by Parent in its treasury, (iii) 26,000,000 shares of Series A Preferred Stock were issued and outstanding, (iv) 19,809,783 shares of Series B Preferred Stock were issued and outstanding, (v) no shares of Series C Preferred Stock were outstanding; (vi) 2,227,500 shares of Parent Common Stock were reserved for issuance pursuant to warrants to purchase Parent Common Stock (the "Parent Warrants"), and (vii) 5,848,481 shares of Parent Common Stock were reserved for issuance pursuant to options outstanding under Parent's stock option plans (such plans, collectively, the "Parent Stock Plans"). Prior to the Closing Date, shares of Series C Preferred Stock with an aggregate purchase price of at least $30,000,000 will be issued, together with the additional Parent Warrants described in Section 3.01(b) of the Parent
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Disclosure Schedule. There are no rights (other than outstanding stock options or other rights to purchase or receive Parent Common Stock granted under the Parent Stock Plans (collectively, the "Parent Stock Options")) to receive shares of Parent Common Stock on a deferred basis granted under the Parent Stock Plans or otherwise. No notes, bonds, debentures, or other indebtedness of Parent having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of Parent may vote are issued or outstanding. All outstanding shares of capital stock of Parent are, and all shares which may be issued in connection with Parent Warrants, Parent Stock Options, and Series C Preferred Stock will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Except as set forth in this Section 3.01(b) (including pursuant to the conversion or exercise of the securities referred to above), (x) there are not issued, reserved for issuance, or outstanding (A) any shares of capital stock or other voting securities of Parent, (B) any securities of Parent or any of its Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of, or other ownership interests in, Parent or any of its Subsidiaries, (C) any warrants, calls, options or other rights to acquire from Parent or any Subsidiary of Parent, and no obligation of Parent or any Subsidiary of Parent to issue, any capital stock or other voting securities of, or other ownership interests in any securities convertible into or exchangeable or exercisable for capital stock or other voting securities of Parent or any of its Subsidiaries and (y) as of the date hereof, there are not any outstanding obligations of Parent or any Subsidiary of Parent to repurchase, redeem or otherwise acquire any such securities or to issue, deliver or sell, or cause to be issued, delivered or sold, any such securities. Parent is not a party to any voting agreement with respect to the voting of any such securities.
(c) Authority; Noncontravention. Each of Parent and Merger Sub has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement, subject to the Parent Stockholder Approval (as defined herein), if required. The execution and delivery of this Agreement by each of Parent and Merger Sub and, subject to Parent Stockholder Approval, if required, the consummation by each of Parent and Merger Sub of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub, as applicable. This Agreement has been duly executed and delivered by each of Parent and Merger Sub and, assuming the due authorization, execution and delivery by the Company, constitutes a valid and binding obligation of each of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a benefit under, or result in the creation of any pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens") upon any of the properties or assets of Parent or any of Parent's Subsidiaries under, (i) the certificate of incorporation or bylaws of Parent or the comparable organizational documents of any of Parent's Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, license or similar authorization applicable to Parent or any of its Subsidiaries or their respective properties or assets, or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or any of its Subsidiaries or their respective properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, violations, defaults, rights, losses or Liens that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Parent or Merger Sub. No consent, approval, order or authorization of, action by, or in respect of, or registration, declaration or filing with, any federal, state, local or foreign government, any court, administrative, regulatory
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or other governmental agency, commission or authority or any non-governmental self-regulatory agency, commission or authority (each, a "Governmental Entity") is required by or with respect to Parent or any of Parent's Subsidiaries in connection with the execution and delivery of this Agreement by Parent and Merger Sub or the consummation by Parent and Merger Sub of the transactions contemplated by this Agreement, except for (1) if necessary, the filing of a premerger notification and report form by Parent under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (2) the filing with the SEC of (A) the registration statement on Form S-4 to be filed with the SEC by Parent in connection with the issuance of Parent Common Stock in the Merger (such registration statement, as amended or supplemented from time to time, the "Form S-4"), (B) a proxy statement in conformance with Rule 14a-101 relating to the Company Stockholder Meeting (as defined herein) (such proxy statement, as amended or supplemented from time to time, the "Company Proxy Statement") and (C) such reports under Section 13(a), 13(d), 15(d) or 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in connection with this Agreement and the transactions contemplated by this Agreement; (3) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which Parent is qualified to do business; (4) such filings with and approvals of the Nasdaq National Market System, the American Stock Exchange or, in Parent's reasonable discretion after consultation with the Company, another national stock exchange, to permit the shares of Parent Common Stock that are to be issued in the Merger to be traded on the Nasdaq National Market System or any such exchange; and (5) such other consents, approvals, orders or authorizations the failure of which to be made or obtained is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on the Surviving Corporation. All consents, approvals, orders, authorizations and filings (collectively, the "Consents") that are (i) referred to in the immediately preceding sentence or (ii) disclosed or required to be disclosed on Section 3.01(c) of the Parent Disclosure Schedule, are referred to herein as the "Parent Material Consents".
(d) Information Supplied. None of the information supplied or to be supplied by Parent and Merger Sub specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) the Company Proxy Statement will, at the date it is first mailed to the Company's stockholders or at the time of the Company Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein, in light of the circumstances under which they are made, not misleading. The Form S-4 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations thereunder. The information provided by Parent and Merger Sub specifically for inclusion in the Company Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder. No representation or warranty is made by Parent or Merger Sub with respect to statements made or incorporated by reference in the Form S-4 or the Company Proxy Statement based on information supplied by any other party specifically for inclusion or incorporation by reference in the Form S-4 or the Company Proxy Statement.
(e) Subsidiaries. Section 3.01(e) of the Parent Disclosure Schedule lists each Subsidiary of Parent and its jurisdiction of organization. All outstanding shares of capital stock of each such Subsidiary have been validly issued and are fully paid and nonassessable and are owned, directly or indirectly by Parent, free and clear of all Liens. The authorized capital stock of Merger Sub consists of 1,000 shares of common stock, par value $.0001 per share, 100 shares of which are validly issued and outstanding, fully paid and nonassessable and are owned by Parent free and clear of all Liens. Merger Sub does not have any issued or outstanding options, warrants,
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subscriptions, calls, rights, convertible securities or other agreements or commitments obligating Merger Sub to issue, transfer or sell any shares of its capital stock. Merger Sub does not have any notes, bonds, debentures or other indebtedness outstanding.
(f) Financial Statements. Section 3.01(f) of the Parent Disclosure Schedule includes the unaudited consolidated balance sheet of Parent and its Subsidiaries (the "Balance Sheet") as of June 30, 2001 (the "Balance Sheet Date") and the related statements of operations, cash flows and changes in stockholders' equity for the six months ended June 30, 2001. Prior to the execution of this Agreement, Parent has provided complete and correct copies of (i) the audited consolidated balance sheet of Parent and its Subsidiaries as of the fiscal years ended December 31, 2000 and December 31, 1999, (ii) the audited related statements of operations, cash flows and changes in stockholders' equity for the years then ended, (iii) the related notes to such financial statements as and for the years ended December 31, 1999 and 2000, and (iv) the reports of Arthur Andersen LLP, Parent's independent public accountants ("Parent's Accountants"), related to such financial statements (all of the balance sheets and statements of operations, cash flows and changes in stockholders' equity, notes and reports referred to in Section 3.01(f) being hereinafter referred to as the "Financial Statements"). The Financial Statements: (a) are complete and correct in all material respects and were prepared in accordance with the books and records of Parent and its Subsidiaries; (b) present fairly in all material respects the financial condition of Parent and its Subsidiaries and the results of their operations and cash flows at the dates and for the respective periods indicated; and (c) have been prepared in accordance with generally accepted accounting principles ("GAAP"), applied on a consistent basis throughout the periods covered by such statements, except as set forth in the notes or reports of Parent's Accountants accompanying such financial statements and except with respect to the Financial Statements at, and for the six months ended, June 30, 2001, which interim Financial Statements are subject to normal year end adjustments and do not include notes as required by GAAP.
(g) Absence of Undisclosed or Contingent Liabilities. Except as and to the extent fully reflected or reserved against in the Balance Sheet, as of the Balance Sheet Date, neither Parent nor any of its Subsidiaries had any liability or obligation, secured or unsecured (whether accrued, absolute or contingent, known or unknown or otherwise), of a type required by GAAP to be reflected in a balance sheet. Since the Balance Sheet Date, neither Parent nor any of its Subsidiaries has incurred any liability or obligation, of a type required by GAAP to be reflected in the Balance Sheet had such liability or obligation existed as of the Balance Sheet Date that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect.
(h) Absence of Certain Changes or Events. As of the date of this Agreement, except for liabilities incurred in connection with or expressly permitted by this Agreement, since the Balance Sheet Date the business of Parent has been conducted in the ordinary course consistent with past practice and there has not been (i) any Material Adverse Change in Parent, (ii) except insofar as may have been required by a change in GAAP, any change in accounting methods, principles or practices by Parent or any of its Subsidiaries materially affecting the consolidated financial position or results of operations of Parent or (iii) any tax election that individually or in the aggregate is reasonably likely to have a Material Adverse Effect on the tax liability or tax attributes of Parent or any of its Subsidiaries or any settlement or compromise of any material income tax liability.
(i) Title to Properties; Absence of Liens; Entire Assets. Parent has good and valid title to, or valid and subsisting leasehold interests in, all of its properties and assets, real or personal, reflected on the Balance Sheet (except for property and assets disposed of in the ordinary course of business since the Balance Sheet Date), free and clear of any Liens, except for (i) Liens reflected on the Balance Sheet, (ii) Liens that do not materially interfere with the present use by Parent or any of its Subsidiaries of the property subject thereto or affected thereby, and (iii) Liens for taxes,
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assessments or governmental charges, or landlords', mechanics', workmen's, materialmen's or similar liens, in each case that are not delinquent or which are being contested in good faith.
(j) Litigation. There is no suit, action, proceeding or investigation pending or, to the Knowledge of Parent, threatened against or affecting Parent or any of its Subsidiaries that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on Parent nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Parent or any of its Subsidiaries having, or which is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on Parent.
(k) Compliance with Applicable Laws. Parent and its Subsidiaries hold all permits, licenses, variances, exemptions, orders, registrations and approvals of all Governmental Entities which are required for the operation of the business of Parent and its Subsidiaries taken as a whole (the "Parent Permits"), except where the failure to have any such Parent Permits is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Parent. Parent and its Subsidiaries are in compliance with the terms of the Parent Permits and all applicable statutes, laws, ordinances, rules and regulations, except where the failure so to comply is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Parent.
(l) Contracts.
(i) Neither Parent nor any of its Subsidiaries are in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice or both would cause such a violation of or default under) any loan or credit agreement, bond, note, mortgage, indenture, lease or other contract, agreement, obligation, commitment, arrangement, understanding, instrument, permit or license to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Parent. Neither Parent nor any of its Subsidiaries are a party to or bound by any non-competition agreement or any other similar agreement or obligation which, individually or in the aggregate, are reasonably likely to have a Material Adverse Effect on the Surviving Corporation.
(ii) Each of Parent and its Subsidiaries (A) has performed in all respects the obligations required to be performed by it under each of the contracts to which it is a party and (B) is not (with or without the lapse of time or the giving of notice, or both) in breach or default thereunder, except in any case where the failure to do so is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Parent. To the Knowledge of Parent, there is no default by any of the other parties under any commitment, contract or agreement to which Parent or any of its Subsidiaries is a party that is reasonably likely to have a Material Adverse Effect on Parent.
(m) Brokers and Intermediaries. No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission, or the reimbursement of expenses, in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Merger Sub.
(n) Tax Matters.
(i) Each of Parent and its Subsidiaries has filed all material tax returns and reports required to be filed by it and all such returns and reports are complete and correct in all material respects, or requests for extensions to file such returns or reports have been timely filed, granted and have not expired, except to the extent that such failures to file, to be complete or correct, or to have extensions granted that remain in effect are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Parent. Parent and
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each of its Subsidiaries has paid or caused to be paid (or Parent has paid on its behalf) all taxes shown as due on such returns.
(ii) No deficiencies for any taxes have been proposed, asserted or assessed in writing against Parent or any of its Subsidiaries that are not adequately reserved for, except for deficiencies that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Parent.
(iii) Neither Parent nor any of its Subsidiaries has taken or agreed to take any action or knows of any fact, agreement, plan or other circumstance that is reasonably likely to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(iv) Neither Parent nor any of its Subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (x) in the two years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.
(o) Employee Benefits. Parent has made available to the Company prior to the execution of this Agreement complete and correct copies of all of its "employee benefit plans", as defined in Section 3(3) of ERISA, and any other material employee benefit arrangements, severance, termination pay, consulting, change in control, compensation and death benefit agreements, material compensation agreements, retirement, deferred compensation, bonus, stock option, stock purchase, hospitalization, medical insurance, retiree post-employment health insurance, life insurance, programs or contracts covering employees or former employees of Parent or any of its Subsidiaries and maintained by or contributed to by Parent or any of its Subsidiaries and all "employee pension plans", as defined in Section 3(2) of ERISA (the "Pension Plans") that are: maintained by (A) Parent or any of its Subsidiaries or (B) any Affiliate of Parent or any of its Subsidiaries that is a member of a controlled group of organizations (within the meaning of Section 414(b), (c), (m) or (o) of the Code) of which Parent or any of its Subsidiaries are members (the "Controlled Group Member"), (collectively, all the plans set forth in Section 3.01(o) of the Parent Disclosure Schedule are the "Employee Benefit Plans"). The Employee Benefit Plans do not include any "multiemployer plans" as defined in Section 4001(a)(3) of ERISA ("Multiemployer Plans").
(i) Neither Parent nor any of its Subsidiaries has any obligation to make any contribution to any Multiemployer Plans.
(ii) The Pension Plans intended to qualify under Section 401 of the Code and the trusts maintained pursuant thereto do so qualify and are exempt from federal income taxation under Section 501 of the Code. To Parent's Knowledge, no fact or set of circumstances has occurred that materially adversely affects the qualification of the Pension Plans. The Pension Plans are in compliance in all material respects with the applicable provisions, if any, of ERISA and the Code, except where such noncompliance has not materially adversely affected the qualification of the Pension Plans.
(iii) Parent has not sponsored, contributed to, maintained or established a defined benefit Pension Plan for the benefit of its employees.
(iv) To Parent's Knowledge, there are no pending actions, claims or lawsuits that have been asserted or instituted against any of the Employee Benefit Plans, the assets of any of the trusts under such plans or the plan sponsor or the plan administrator, or against any fiduciary of any of the Employee Benefit Plans with respect to the operation of such plans (other than
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routine benefit claims), that is, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on Parent.
(v) All amendments and actions required to bring the Employee Benefit Plans into conformity with the applicable provisions of ERISA and other applicable laws have been made or taken except to the extent that such amendments or actions are not required by law (or the Internal Revenue Service in connection with the remedial amendment periods) to be made or taken until a date after the Closing Date.
(vi) To Parent's Knowledge, the Employee Benefit Plans have been maintained in all material respects in accordance with the provisions of applicable state and federal law.
(vii) None of Parent or any of its Subsidiaries or any Controlled Group Member maintains a retiree life and retiree health insurance plan that is a "welfare benefit plan" within the meaning of Section 3(1) of ERISA and that provides for continuing benefits or coverage for any participant or any beneficiary of any participant, except as may be required under the Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA") and at the expense of the participant or the participant's beneficiary.
(p) Intellectual Property. Except as is not reasonably likely to have a Material Adverse Effect on Parent, each of Parent and its Subsidiaries owns or possesses, or will own or possess as of the Closing Date, adequate licenses or other rights to use all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, inventions, drawings, designs, proprietary know-how or information or other rights (each, a "Proprietary Right" and collectively, "Proprietary Rights") necessary for the operation of its business as presently conducted (other than the interests, if any, of the grantors of the licenses). Except as is not reasonably likely to have a Material Adverse Effect on Parent, all Proprietary Rights under which any of Parent or any of its Subsidiaries is a licensee are valid and enforceable against it and the other parties thereto in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights in general and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Except for licenses and similar rights granted in the ordinary course of business consistent with past practice, neither Parent nor any of its Subsidiaries has granted any material license or other material right to any third party with respect to the Proprietary Rights. Except as is not reasonably likely to have a Material Adverse Effect on Parent, the consummation of the transactions contemplated hereby will not result in the impairment or termination of any Proprietary Right. To the Knowledge of Parent, there has been no misappropriation of any material trade secrets or other material confidential Proprietary Right of any of Parent or any of its Subsidiaries by any person, and no employee, independent contractor, franchisee, dealer or agent of any of Parent or any of its Subsidiaries has misappropriated any material trade secrets of any other person in the course of such performance as an employee, independent contractor, franchisee, dealer or agent. Except as is not reasonably likely to have a Material Adverse Effect on Parent, no legal proceedings have been asserted, are pending, or to the Knowledge of Parent, are threatened against any of Parent or any of its Subsidiaries (i) based upon or challenging or seeking to deny or restrict the use by such person of any Proprietary Right, (ii) alleging that any services provided by, processes used by, or products manufactured or sold by Parent or any of its Subsidiaries infringe upon or misappropriate intellectual property rights of any third party, or (iii) alleging that any licensed Proprietary Right infringes on the intellectual property right of any third person or is being licensed or sublicensed in conflict with the terms of any license or other agreement.
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(q) Environmental Matters.
(i) Parent has obtained or applied for all material permits, licenses and other such authorizations required to be obtained by it for the operation of its business under federal, state, local and foreign statutes, laws, regulations, ordinance, rules, or other requirement of any Governmental Entity relating to the protection, investigation or restoration of the environment or human health and safety (the "Environmental Laws").
(ii) Parent and each of its Subsidiaries, is or has been (A) in compliance with all material terms and conditions of the permits, licenses and authorizations required by Environmental Laws, and (B) is in compliance with all other material limitations, restrictions, conditions, standards, prohibitions, requirements and obligations, contained in the Environmental Laws presently in effect or contained in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder and issued by a governmental entity.
(iii) There are no civil, criminal or administrative actions, suits, hearings, proceedings, written notices of violation, claims or demands pending or, to the Knowledge of Parent, threatened against any of Parent or its Subsidiaries under the Environmental Laws that are reasonably likely to have a Material Adverse Effect on Parent.
(iv) There have been no spills, discharges or releases of any hazardous substance by Parent or any of its Affiliates or, to the Knowledge of Parent, by third parties, in, on or under the real property currently or formerly owned, leased, or used by Parent that could result in any investigation or remedial action by any Governmental Entity pursuant to any Environmental Law that are reasonably likely to have a Material Adverse Effect on Parent.
(v) To Parent's Knowledge, no facility or property of Parent to which Parent transported or arranged for the transportation of any hazardous substance that is listed or proposed for listing on the National Priorities List promulgated pursuant to the Comprehensive Environmental Response Cleanup and Liability Act ("CERCLA"), on CERCLIS (as defined in CERCLA) or on any similar federal or state list of sites requiring investigation or remediation.
(r) Insurance. Parent maintains such policies of general, liability, workers' compensation, life, directors' and officers' liability and other forms of insurance applicable to the business of Parent as are customary for businesses of such type. Such policies are valid and enforceable in accordance with their terms and are in full force and effect. Such policies of insurance are of the type and in amounts reasonably deemed by management of Parent to be sufficient for their purpose. No notice of cancellation with respect to any such policy has been received prior to the date hereof.
(s) Books and Records. The books and records of Parent and each of its Subsidiaries have been and are being maintained in all material respects in accordance with applicable legal and accounting requirements. The books of account and other financial records of Parent and each of its Subsidiaries are each true, correct and complete in all material respects, and accurately reflect the operations of the business and financial condition of Parent and each of its Subsidiaries and the net worth and book value of its properties. All other corporate records of Parent and each of its Subsidiaries, including those relating to employees of Parent and each of its Subsidiaries, furnished to the Company pursuant to this Agreement, are each true, correct and complete in all material respects.
(t) Affiliate Transactions. Neither Parent nor any of its Subsidiaries has engaged in any transaction that would be required to be disclosed pursuant to Item 404 (a), (b) or (c) of
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Regulation S-K under the Exchange Act had Parent been subject to the reporting requirements of the Exchange Act.
(u) Condition and Sufficiency of Assets. Parent owns or has valid rights to use all of the assets necessary for the operation of the business of Parent as conducted as of the date hereof, except where the failure thereof, individually or in the aggregate, is not reasonably likely to cause a Material Adverse Effect on Parent.
(v) Real Property. To the Knowledge of Parent, (i) each of Parent and its Subsidiaries owns or has leases or rights of access to the real property reasonably necessary to conduct Parent's and such Subsidiaries' businesses as presently conducted; (ii) Parent's and each of its Subsidiaries' use of the same are in material compliance with all applicable laws, ordinances and regulations, including building, zoning, environmental and other laws and ordinances; (iii) all material leases pursuant to which Parent or any of its Subsidiaries leases real property are in writing and a copy of each such lease is in the possession of Parent and (vi) with respect to each parcel of real property leased by Parent or one or more of its Subsidiaries, no person other than Parent or such Subsidiary, as the case may be, as lessee, and the lessor has any real property interest, including any leasehold interest, in such parcel, except where such interests are not, individually or in the aggregate, reasonably expected to have a Material Adverse Effect on Parent.
(w) Ownership of the Company Stock. Neither Parent nor any Subsidiary of Parent owns as of the date hereof or, except as a result of the Merger, will acquire any stock of the Company.
(x) Voting Requirements. The affirmative vote of the holders of (i) a majority of the voting power as a single class of Parent Common Stock, the Series A Preferred Stock, the Series B Preferred Stock, and, upon issuance, the Series C Preferred Stock, on an as converted basis, and (ii) two-thirds of the voting power as a single class of the Series A Preferred Stock, the Series B Preferred Stock, and upon issuance, the Series C Preferred Stock, on an as converted basis, to adopt this Agreement and approve the transactions contemplated by this Agreement ("Parent Stockholder Approval") are the only votes of the holders of any class or series of Parent's capital stock necessary, if any, to approve and adopt this Agreement and the transactions contemplated hereby.
Section 3.02 Representations and Warranties of the Company. Except as expressly disclosed in the Company SEC Documents (as defined in Section 3.02(e)) filed and made publicly available prior to the date of this Agreement (as amended to the date of this Agreement, the "Company Filed SEC Documents") or as set forth on the Disclosure Schedule delivered by the Company to Parent in connection with the execution of this Agreement (the "Company Disclosure Schedule"), the Company represents and warrants to Parent as follows:
(a) Organization, Standing and Corporate Power. Each of the Company and its Subsidiaries is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate or other power, as the case may be, and authority to carry on its business as now being conducted, except for those jurisdictions where the failure to be so organized, existing or in good standing is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on the Company. Each of the Company and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions in which the failure to be so qualified or licensed or to be in good standing is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on the Company. The Company has made available to Parent prior to the execution of this Agreement complete and correct copies of its certificate of incorporation and bylaws, in each case as amended to date.
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(b) Subsidiaries. Section 3.02(b) of the Company Disclosure Schedule sets forth a list of all of the Subsidiaries of the Company. All of the outstanding shares of capital stock of, or other equity interests in each Subsidiary have been validly issued and are fully paid and nonassessable and are owned, directly or indirectly, by the Company, free and clear of all Liens.
(c) Capital Structure. As of the date hereof, the authorized capital stock of the Company consists of 1,000,000,000 shares of the Company Common Stock, and 100,000 shares of preferred stock, par value $.0001 per share ("Company Preferred Stock"). As of August 19, 2001 (i) 62,027,045 shares of Company Common Stock were issued and outstanding, (ii) 1,846,019 shares of Company Common Stock were held by Company in its treasury, (iii) no shares of Company Preferred Stock were issued and outstanding, (iv) 4,499,051 shares of Company Common Stock were reserved for issuance pursuant to warrants to purchase Company Common Stock (the "Company Warrants") (v) 6,862,508 shares of Company Common Stock were reserved for issuance pursuant to options outstanding under the Company's stock option plans (such plans, collectively, the "Company Stock Plans"), (vi) 9,759,270 shares of Company Common Stock were reserved for issuance upon conversion of the 7.5% Convertible Subordinated Notes due 2007 (the "Notes"), and (vii) 11,892,000 shares of Company Common Stock were reserved as payment for interest on the Notes. There are no rights (other than outstanding Company Stock Options) to receive shares of the Company Common Stock on a deferred basis granted under the Company Stock Plans or otherwise. As of the date of this Agreement, approximately $123,600,000 in principal amount of the Notes is issued and outstanding and no other bonds, debentures, or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote are issued or outstanding. All outstanding shares of capital stock of the Company are, and all shares which may be issued in connection with the Company Warrants and Company Stock Options will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Except as set forth in this Section 3.02(c) (including pursuant to the conversion or exercise of the securities referred to above), (x) there are not issued, reserved for issuance or outstanding (A) any shares of capital stock or other voting securities of the Company, (B) any securities of the Company or any of its Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock or other voting securities of, or other ownership interests in, the Company or any of its Subsidiaries, (C) any warrants, calls, options or other rights to acquire from the Company or any Subsidiary of the Company, and no obligation of the Company or any Subsidiary of the Company to issue, any capital stock or other voting securities of, or other ownership interests in any securities convertible into or exchangeable or exercisable for capital stock or other voting securities of the Company or any of its Subsidiaries and (y) as of the date hereof, there are not any outstanding obligations of the Company or any Subsidiary of the Company to repurchase, redeem or otherwise acquire any such securities or to issue, deliver or sell, or cause to be issued, delivered or sold, any such securities. The Company is not a party to any voting agreement with respect to the voting of any such securities.
(d) Authority; Noncontravention. The Company has the requisite corporate power and authority to enter into this Agreement and, subject to the Company Stockholder Approval, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and, subject to the Company Stockholder Approval, the consummation by the Company of the transactions contemplated by this Agreement, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company, and assuming the due authorization, execution and delivery by Parent and Merger Sub, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation
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of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of the Company's Subsidiaries under, (i) the certificate of incorporation or bylaws of the Company or the comparable organizational documents of any of the Company's Subsidiaries, (ii) any loan, credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, license or similar authorization applicable to the Company or any of the Company's Subsidiaries or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries or their respective properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, violations, defaults, rights, losses or Liens that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on the Company. No consent, approval, order or authorization of, action by, or in respect of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to the Company or any of the Company's Subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except for (1) the filing of a premerger notification and report form by the Company under the HSR Act; (2) the filing with the SEC of (A) the Form S-4, (B) the Company Proxy Statement under 14a-101 and (C) such reports under Section 13(a), 13(d), 15(d) or 16(a) of the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement; (3) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business; (4) such other consents, approvals, orders or authorizations the failure of which to be made or obtained is not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on the Surviving Corporation. The Consents referred to in the immediately preceding sentence, together with any Consents disclosed or required to be disclosed in Section 3.02(d) of the Company Disclosure Schedule, are referred to herein as the "Company Material Consents".
(e) SEC Documents; Undisclosed Liabilities. The Company has timely filed all required reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) with the SEC since and including October 28, 1999 (collectively, "Company SEC Documents"). As of their respective dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Company SEC Documents, and none of the Company SEC Documents when filed contained any untrue statement of a material fact or omitted to state a 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. Except to the extent that information contained in any Company SEC Document has been revised or superseded by a later-filed Company SEC Document, none of the Company SEC Documents contains any untrue statement of a material fact or omits 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. The financial statements of the Company included in Company SEC Documents comply as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting rules and regulations of the SEC ("Accounting Rules"), with respect thereto, are complete and correct in all material respects in accordance with the books and records of the Company and its Subsidiaries, have been prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by the Accounting Rules), applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto), and fairly present in
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all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments). Except (i) as reflected in such financial statements, in the notes thereto or elsewhere in the Company Filed SEC Documents or (ii) for liabilities incurred in connection with this Agreement or the transactions contemplated hereby or thereby, neither the Company nor any of its Subsidiaries has any liabilities or obligations of any nature which, individually or in the aggregate, are reasonably likely to have a Material Adverse Effect on the Company.
(f) Information Supplied. None of the information supplied or to be supplied by the Company specifically for inclusion or incorporation by reference in (i) the Form S-4 will, at the time the Form S-4 becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) the Company Proxy Statement will, at the date it is first mailed to the Company's stockholders or at the time of the Company Stockholder Meeting (as hereinafter defined), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein, in light of the circumstances under which they are made, not misleading. The Company Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder. The information provided by the Company specifically for inclusion in the Form S-4 will comply as to form in all material respects with the requirements of the Securities Act and the rules and regulations thereunder. No representation or warranty is made by the Company with respect to statements made or incorporated by reference in the Form S-4 or the Company Proxy Statement based on information supplied by any other party specifically for inclusion or incorporation by reference in the Form S-4 or the Company Proxy Statement.
(g) Absence of Certain Changes or Events. As of the date of this Agreement, except for liabilities incurred in connection with or expressly permitted by this Agreement, since June 30, 2001 the business of the Company and its Subsidiaries has been conducted in the ordinary course consistent with past practice and there has not been (i) any Material Adverse Change in the Company, (ii) except insofar as may have been required by a change in GAAP, any change in accounting methods, principles or practices by the Company or any of its Subsidiaries materially affecting the consolidated financial position or results of operations of the Company or (iii) any tax election that individually or in the aggregate is reasonably likely to have a Material Adverse Effect on the tax liability or tax attributes of the Company or any of its Subsidiaries or any settlement or compromise of any material income tax liability.
(h) Litigation. There is no suit, action, proceeding or investigation pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on the Company nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its Subsidiaries having, or which is reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on the Company.
(i) Compliance with Applicable Laws. The Company and its Subsidiaries hold all permits, licenses, variances, exemptions, orders, registrations and approvals of all Governmental Entities which are required for the operation of the business of the Company and its Subsidiaries taken as a whole (the "Company Permits"), except where the failure to have any such Company Permits is not individually or in the aggregate reasonably likely to have a Material Adverse Effect on the Company. The Company and its Subsidiaries are in compliance with the terms of the Company Permit and all applicable statutes, laws, ordinances, rules and regulations, except where the failure
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so to comply is not individually or in the aggregate reasonably likely to have a Material Adverse Effect on the Company.
(j) Taxes.
(i) Each of the Company and its Subsidiaries has filed all material tax returns and reports required to be filed by it and all such returns and reports are complete and correct in all material respects, or requests for extensions to file such returns or reports have been timely filed, granted and have not expired, except to the extent that such failures to file, to be complete or correct or to have extensions granted that remain in effect are not individually or in the aggregate reasonably likely to have a Material Adverse Effect on the Company. The Company and each of its Subsidiaries has paid or caused to be paid (or the Company has paid on its behalf) all taxes shown as due on such returns.
(ii) No deficiencies for any taxes have been proposed, asserted or assessed in writing against the Company or any of its Subsidiaries that are not adequately reserved for, except for deficiencies that are not individually or in the aggregate reasonably likely to have a Material Adverse Effect on the Company.
(iii) Neither the Company nor any of its Subsidiaries has taken or agreed to take any action or knows of any fact, agreement, plan or other circumstance that is reasonably likely to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(iv) Neither the Company nor any of its Subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (x) in the two years prior to the date of this Agreement or (y) in a distribution which could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger.
(k) Brokers. No broker, investment banker, financial advisor or other person, other than Houlihan Lokey Howard & Zukin ("Houlihan Lokey"), is entitled to any broker's, finder's, financial advisor's or other similar fee or commission, or the reimbursement of expenses, in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company.
(l) Ownership of Parent Stock. Neither the Company nor any Subsidiary of the Company owns as of the date hereof or will acquire, any capital stock of Parent or Merger Sub.
(m) Voting Requirements. The affirmative vote of the holders of a majority of the voting power of all outstanding shares of Company Common Stock at the meeting of stockholders of the Company (the "Company Stockholder Meeting") to adopt this Agreement and to approve the transactions contemplated by this Agreement ("Company Stockholder Approval") is the only vote of the holders of any class or series of the Company's capital stock necessary to approve and adopt this Agreement and the transactions contemplated hereby.
(n) Opinion of Financial Advisor. The Company has received the opinion of Houlihan Lokey, dated the date of this Agreement, to the effect that, as of such date, the Conversion Ratio is fair from a financial point of view to the stockholders and creditors of the Company and its Subsidiaries, a signed copy of which has been or promptly will be delivered to Parent.
(o) WARN Compliance. The Company and its Subsidiaries are, and at all times in the last twelve months have been, in compliance in all material respects with the Work Adjustment and Retraining Notification Act, 29 U.S.C. section 2109 ET SEQ. and the regulations promulgated thereunder in connection with any applicable events.
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ARTICLE 4.
Covenants Relating to Conduct of Business
Section 4.01 Conduct of Business.
(a) Conduct of Business. Except as set forth in Section 4.01(a) of the Parent Disclosure Schedule, the Company Filed SEC Documents or Section 4.01(a) of the Company Disclosure Schedule, as applicable, or as otherwise expressly permitted by this Agreement (including as expressly permitted pursuant to clauses (i) through (xii) of this Section 4.01(a)) or as consented to in writing by the other party hereto, such consent not unreasonably to be withheld or delayed, during the period from the date of this Agreement to the Effective Time, each of the parties hereto shall, and shall cause its Subsidiaries to, carry on their respective businesses in the ordinary course consistent with past practice and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact its current business organizations, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that its goodwill and ongoing businesses shall be unimpaired at the Effective Time. In addition, Parent and its Subsidiaries shall not take any actions that, individually or in the aggregate, delay the filing or require any amendment or supplement, in any material respect, to the Form S-4 or a recirculation of the Company Proxy Statement. In addition, the Company and its Subsidiaries shall not incur any expenses or make any payments that, in the aggregate, exceed the amounts contemplated by, or take any action that is materially inconsistent with, the statement of authorized Company cash expenditures attached to Section 4.01 of the Company Disclosure Schedule (the "Authorized Company Cash Expenditures"). Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, except as set forth in the Company Filed SEC Documents or Section 4.01(a) of the Company Disclosure Schedule, as applicable, as otherwise contemplated by this Agreement (including Section 4.02(d)), as required by applicable law or a Governmental Entity or as consented to in writing by the Parent, which consent shall not unreasonably be withheld, the Company shall not, and shall not permit any of its Subsidiaries to:
(i) other than dividends and distributions by a direct or indirect wholly owned Subsidiary of the Company to the Company, and dividends and distributions by the Company's other Subsidiaries, of which the Company receives its proportionate share, (x) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock in any form, (y) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (z) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its Subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than the purchase, redemption or other acquisition of the Company Stock Options, by such entity, as required by and in accordance with the respective terms of the Company Stock Plans, as applicable, as in effect on the date hereof);
(ii) issue, deliver, sell, grant, pledge or otherwise encumber or subject to any Lien any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than (A) the issuance of shares of the Company Common Stock upon the exercise of the Company Stock Options as of the date of this Agreement in accordance with their terms on the date of this Agreement, (B) the issuance of shares of the Company Common Stock upon the exercise of the Company Warrants outstanding as of the date of this Agreement in accordance with their terms on the date of this Agreement or (C) the issuance
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of shares of the Company Common Stock upon the conversion of the Notes outstanding as of the date of this Agreement in accordance with their Terms on the date of this Agreement;
(iii) amend its certificate of incorporation, bylaws or other comparable organizational documents;
(iv) acquire or agree to acquire, other than for cash, by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any person, other than purchases of supplies in the ordinary course of business consistent with past practice; PROVIDED, HOWEVER, that this paragraph (iv) shall not prohibit (x) any merger or consolidation of a direct or indirect wholly owned Subsidiary of the Company with and into the Company or another direct or indirect wholly owned Subsidiary of the Company, (y) the sale of a substantial portion of the stock or assets of a direct or indirect wholly owned Subsidiary of the Company to the Company, or another direct or indirect wholly owned Subsidiary of the Company, or (z) the creation of new, wholly owned Subsidiaries of the Company organized to conduct or continue activities expressly permitted under this Agreement;
(v) (A) incur any material indebtedness for borrowed money or guarantee any such material indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company, or any of its Subsidiaries, guarantee any debt securities of another person, enter into any "keep well" or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of any of the foregoing, except for short-term borrowings incurred in the ordinary course of business (or to refund existing or maturing indebtedness) consistent with past practice and intercompany indebtedness between the Company and any of its wholly owned Subsidiaries, or between such wholly owned Subsidiaries, or (B) make any material loans, advances or capital contributions to, or investments in, any other person;
(vi) pay, discharge, settle or satisfy, other than for cash, any claims, liabilities, obligations or litigation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge, settlement or satisfaction, in the ordinary course of business consistent with past practice or in accordance with its terms, of any liability recognized or disclosed in the most recent consolidated financial statements (or the notes thereto) included in the Company Filed SEC Documents or the Authorized Company Cash Expenditures, or incurred since the date of such financial statements for an amount not to exceed the amount of the specific reserve in respect of such claim, liability, obligation or litigation included in such financial statements in the aggregate for all such claims, liabilities, obligations or litigation, or waive the benefits of, or agree to modify in any manner, any standstill or similar agreement to the Company, or any of its Subsidiaries is a party;
(vii) except as required by law or contemplated hereby enter into, adopt or amend in any material respect or terminate any benefit plan, collective bargaining agreement, employment agreement, deferred compensation agreement, consulting agreement, severance agreement, termination agreement or any other agreement, plan or policy involving the Company or its Subsidiaries, and one or more of its directors, officers or employees, or materially change any actuarial or other assumption used to calculate funding obligations with respect to any pension plan, or change the manner in which contributions to any pension plan are made or the basis on which such contributions are determined;
(viii) enter into or terminate any contract or commitment, or violate, amend or otherwise modify or waive any of the terms of any of its contracts;
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(ix) materially reduce the amount of any material insurance coverage provided by existing insurance policies;
(x) amend or modify in any way its accounting methods, principles, policies, procedures or practices, except as may be required by GAAP, Regulation S-X promulgated by the SEC or applicable statutory accounting principles;
(xi) authorize, commit or agree to take, any of the foregoing actions; or
(xii) make any tax election that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect on the tax liability or tax attributes of a party to this Agreement or any of its Subsidiaries or settle or compromise any material income tax liability;
(b) Other Actions. Except as required by applicable law or as expressly permitted by this Agreement, no party to this Agreement shall, nor shall it permit any of its respective Subsidiaries to, voluntarily take any action that would, or that could reasonably be expected to, result in (i) any of the representations and warranties of such party set forth in this Agreement that are qualified as to materiality becoming untrue at the Effective Time, (ii) any of such representations and warranties that are not so qualified becoming untrue in any material respect at the Effective Time, or (iii) any of the conditions to the Merger set forth in Article 6 not being satisfied.
(c) Advice of Changes. Each party to this Agreement shall promptly advise the other party orally and in writing to the extent it has Knowledge of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect or (ii) any event or proposed action that is reasonably likely to cause the failure of it to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement and (iii) any change or event having, or which is reasonably likely to have, a Material Adverse Effect on such party or on the truth of their respective representations and warranties or the ability of the conditions set forth in Article 6 to be satisfied; Provided, However, that no such notification shall affect the representations, warranties, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement.
Section 4.02 No Solicitation.
(a) The Company shall not, and shall not permit any of its Subsidiaries to, nor shall it authorize or permit any of its directors, officers or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by it or any of its Subsidiaries to, directly or indirectly through another person, (i) solicit, initiate or encourage (including by way of furnishing information), or take any other action designed to facilitate, any inquiries or the making of any proposal that constitutes a Takeover Proposal (as defined below) or (ii) participate in any discussions or negotiations regarding any Takeover Proposal; provided, however, that if, at any time prior to the date of the Company Stockholder Meeting (the "Applicable Period"), the Board of Directors of the Company determines in good faith, after consultation with outside counsel, that it is necessary to do so in order to comply with its fiduciary duties to the Company's stockholders or the Company's securities holders under applicable law, the Company may, in response to a Superior Proposal (as defined below) which was not solicited by it or which did not otherwise result from a breach of this Section 4.02(a), and subject to providing prior written notice of its decision to take such action to Parent and compliance with Section 4.02(c), (x) furnish information with respect to the Company and its Subsidiaries to any person making such Superior Proposal pursuant to a customary confidentiality agreement (as determined by the Company after consultation with its outside counsel) and (y) participate in discussions or negotiations regarding such Superior Proposal. For purposes of this Agreement, "Takeover Proposal" means any inquiry,
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proposal or offer from any person relating to any direct or indirect acquisition or purchase of a business that constitutes 15% or more of the net revenues, net income or the assets of the Company and its Subsidiaries, taken as a whole, or 15% or more of any class of equity securities of the Company or any of its Subsidiaries, any tender offer or exchange offer that if consummated would result in any person beneficially owning 15% or more of any class of equity securities of the Company or any of its Subsidiaries, or any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company or any of its Subsidiaries, other than the transactions contemplated by this Agreement.
(b) Except as expressly permitted by Section 4.02(c) or Section 4.02(f), neither the Board of Directors of the Company nor any committee thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Parent, the approval or recommendation by such Board of Directors or such committee of the Merger or this Agreement, (ii) approve, recommend, or (in accordance with Rule 14e-2(a)(2) under the Exchange Act) remain neutral to, or propose publicly to approve, recommend, or remain so neutral to, any Takeover Proposal, or (iii) cause the Company to enter into any letter of intent, agreement in principle, acquisition agreement or other similar agreement (each, an "Acquisition Agreement") related to any Takeover Proposal. Neither the Board of Directors of Parent nor any committee thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to the Company, the approval or recommendation by such Board of Directors or such committee of the Merger or this Agreement, or (ii) announce, commence or otherwise consummate any action referred to in Section 4.02(d) prior to the receipt of the prior written consent of the Company as set forth in Section 4.02(d).
(c) Notwithstanding the foregoing, during the Applicable Period, in response to a Superior Proposal which was not solicited by the Company and which did not otherwise result from a breach of Section 4.02(a), the Board of Directors of the Company may (subject to this Section 4.02(c)) terminate this Agreement (and concurrently with or after such termination, if it so chooses, cause the Company to enter into any Acquisition Agreement with respect to any Superior Proposal), but only at a time that is during the Applicable Period and is after the second Business Day following Parent's receipt of written notice (a "Notice of Superior Proposal") advising Parent that the Board of Directors of the Company is prepared to accept a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal. For purposes of this Agreement, a "Superior Proposal" means any proposal made by a third party to acquire, directly or indirectly, including pursuant to a tender offer, exchange offer, merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction, for consideration consisting of cash and/or securities, more than 50% of the combined voting power of the shares of common stock of the Company then outstanding or all or substantially all the assets of the Company and otherwise on terms which the Board of Directors of the Company determines in its good faith judgment (after consultation with its independent financial advisors and legal counsel) would, if consummated taking into account all the terms and conditions of such proposal, be more favorable to the Company's stockholders than the transactions contemplated by this Agreement and for which financing, to the extent required, is then committed or which, in the good faith judgment of the Board of Directors of the Company, is reasonably capable of being obtained by such third party.
(d) Parent shall not, nor shall it permit any of its Subsidiaries to, directly or indirectly through another person, consummate any acquisition of capital stock or assets of another person, business combination, recapitalization, merger, consolidation, liquidation, dissolution, similar transaction, or any other action which would delay the filing of or require an amendment or supplement in any material respect to the Form S-4 or a recirculation of the Company Proxy
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Statement without the prior written consent of the Company as evidenced by a majority vote of the Board of Directors of the Company.
(e) In addition to the obligations of the Company and Parent set forth in paragraphs (a), (b), (c) and (d) of this Section 4.02, the Company shall immediately advise Parent orally and in writing of any request for information or of any Takeover Proposal, the material terms and conditions of such request or Takeover Proposal and the identity of the person making such request or Takeover Proposal. The Company will keep Parent informed of the status and material details (including amendments or proposed amendments) of any such request or Takeover Proposal.
(f) Nothing contained in this Section 4.02 shall prohibit the Company from taking and disclosing to its stockholders a position contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure to the Company's stockholders (including with respect to the delivery by the Company to Parent of a Notice of Superior Proposal) if, in the good faith judgment of the Board of Directors of the Company, after consultation with outside counsel, failure so to disclose would be inconsistent with its obligations under applicable law.
ARTICLE 5.
Additional Agreements
Section 5.01 Preparation of the Form S-4 and the Company Proxy Statement; Company Stockholders' Meeting.
(a) As soon as practicable following the date of this Agreement, Parent and the Company shall jointly prepare and file with the SEC a document or documents that will constitute the Company Proxy Statement and the Form S-4. Each of Parent and the Company shall use all reasonable efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing, including, in the case of the Company, providing all information with respect to the Company to be included in the Form S-4. The Company will use all reasonable efforts to cause the Form S-4 and Company Proxy Statement to be mailed to Company's stockholders, and the Company and Parent will use all reasonable efforts to obtain Company Stockholder Approval and Parent Stockholder Approval, respectively, in each case as promptly as practicable after the Form S-4 is declared effective under the Securities Act. Parent shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified or to file a general consent to service of process) required to be taken under any applicable state securities laws in connection with the issuance of Parent Common Stock in the Merger and the Company shall furnish all information concerning the Company and the holders of capital stock of the Company as may be reasonably requested in connection with any such action. No filing of, or amendment or supplement to, or correspondence to the SEC or its staff with respect to, the Form S-4 or the Company Proxy Statement will be made by either Parent or the Company, without providing the other a reasonable opportunity to review and comment thereon. Parent will advise the Company, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction. Each of Parent and the Company shall promptly inform the other of any request by the SEC for amendments or supplements to the Form S-4 or the Company Proxy Statement or comments thereon and responses thereto or requests by the SEC for additional information and will, as promptly as practicable, provide to the Company or Parent, as the case may be, copies of all correspondence and filings with the SEC with respect to the Form S-4 or the Company Proxy Statement, as applicable. If at any time prior to the Effective Time any information relating to Parent or the Company, or any of their respective Affiliates, officers or directors, should be discovered by Parent
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or the Company which should be set forth in an amendment or supplement to any of the Form S-4 or the Company Proxy Statement, so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary make the statements therein, in light of the circumstances under which they were made, not misleading, the party which discovers such information shall promptly notify the other parties hereto and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the stockholders of the Company. No amendment or supplement to the information supplied by the Company for inclusion in the Form S-4 shall be made without the approval of the Company, which approval shall not be unreasonably withheld or delayed. For purposes of Sections 5.01, 3.01(d) and 3.02(f), information concerning or related to the Company, its Subsidiaries or their respective Affiliates will be deemed to have been provided by the Company and information concerning or related to Parent, its Subsidiaries or their respective Affiliates will be deemed to have been provided by Parent.
(b) The Company shall, as soon as practicable following the date of this Agreement, establish a record date (which shall be as soon as practicable following the date of this Agreement) for, duly call, give notice of, convene and hold the Company Stockholder Meeting for the purpose of obtaining the Company Stockholder Approval and shall, through its Board of Directors, recommend to its stockholders the approval and adoption of this Agreement, the Merger and the other transactions contemplated hereby. Without limiting the generality of the foregoing but subject to its rights to terminate this Agreement pursuant to Sections 4.02(b) and 7.01, the Company agrees that its obligations pursuant to the first sentence of this Section 5.01(b) shall not be affected by the commencement, public proposal, public disclosure or communication to the Company of any Takeover Proposal.
(c) Parent shall, as soon as practicable following the date of this Agreement, take all action necessary in accordance with the DGCL and its Certificate of Incorporation and Bylaws and take all other action necessary to obtain any necessary Parent Stockholder Approval and shall, through its Board of Directors, recommend to its stockholders the approval and adoption of this Agreement and the transactions contemplated hereby. Without limiting the generality of the foregoing but subject to its rights to terminate this Agreement pursuant to Section 7.01, Parent agrees that its obligations pursuant to the first sentence of this Section 5.01(c) shall not be affected by the commencement, public proposal, public disclosure or communication to the Company of any Takeover Proposal.
Section 5.02 Letters of the Company's Accountants. If requested, the Company shall use reasonable efforts to cause to be delivered to Parent two letters from the Company's independent accountants, one dated a date within two Business Days before the date on which the Form S-4 shall become effective and one dated a date within two Business Days before the Closing Date, each addressed to Parent, in form and substance reasonably satisfactory to Parent and customary in scope and substance for comfort letters delivered by independent public accountants in connection with registration statements similar to the Form S-4.
Section 5.03 Letters of Parent's Accountants. If requested, Parent shall use reasonable efforts to cause to be delivered to the Company two letters from Parent's independent accountants, one dated a date within two Business Days before the date on which the Form S-4 shall become effective and one dated a date within two Business Days before the Closing Date, each addressed to the Company, in form and substance reasonably satisfactory to the Company and customary in scope and substance for comfort letters delivered by independent public accountants in connection with registration statements similar to the Form S-4.
Section 5.04 Access to Information; Confidentiality. Subject to the existing confidentiality agreement between the Company and Parent (the "Confidentiality Agreement"), upon reasonable
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notice, each of the Company and Parent shall, and shall cause each of its respective Subsidiaries to, afford to the other party and to the officers, employees, accountants, counsel, financial advisors and other representatives of such other party, reasonable access during normal business hours during the period prior to the Effective Time to all their respective properties, books, contracts, commitments, personnel and records and, during such period, each of Parent and the Company shall, and shall cause each of its respective Subsidiaries to, furnish promptly to the other party (a) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal or state securities laws and (b) all other information concerning its business, operations, properties and personnel as such other party may reasonably request. Neither the Company nor Parent shall be required to provide access to or disclose information where such access or disclosure would contravene any applicable law, rule, regulation, order or decree or would, with respect to any pending matter, result in a waiver of the attorney-client privilege or the protection afforded attorney work-product. The Company and Parent shall use reasonable best efforts to obtain from third parties any consents or waivers of confidentiality restrictions with respect to any such information being provided by it. Each of Parent and the Company will hold, and will cause its respective officers, employees, accountants, counsel, financial advisors and other representatives and Affiliates to hold, any nonpublic information in accordance with the terms of the Confidentiality Agreement.
Section 5.05 Reasonable Best Efforts. Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated by this Agreement, including using reasonable best efforts to accomplish the following: (i) the taking of all reasonable acts necessary to cause the conditions to Closing to be satisfied as promptly as practicable, (ii) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities, if any) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by any Governmental Entity, (iii) the obtaining of all necessary consents, approvals or waivers from third parties, (iv) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the Merger or the other transactions contemplated hereby or thereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (v) the execution and delivery of any additional instruments necessary to consummate the Merger and the other transactions contemplated by, and to fully carry out the purposes of, this Agreement. In connection with and without limiting the foregoing, each party hereto and its Board of Directors shall (1) take all action reasonably necessary to ensure that no state takeover statute or similar statute or regulation is or becomes applicable to this Agreement, the Merger or any of the other transactions contemplated by this Agreement and (2) if any state takeover statute or similar statute becomes applicable to this Agreement, the Merger or any other transactions contemplated by this Agreement, take all action reasonably necessary to ensure that the Merger and the other transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on this Agreement, the Merger and the other transactions contemplated by this Agreement. Nothing in this Agreement shall be deemed to require a party hereto to agree to, or proffer to, divest or hold separate any assets or any portion of any business of such entity, any other party hereto, such party or any of their respective Subsidiaries if the Board of Directors of a party hereto determines that so doing would materially impair the benefit intended to be obtained by such party in the Merger. Without limiting the generality of the foregoing, each party hereto shall give the other party hereto the opportunity to participate in the defense of any litigation against it and/or its
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directors relating to the transactions contemplated by this Agreement. This Section 5.05 shall be deemed not to have been breached by the Company as a result of any action taken by the Company with respect to a Superior Proposal that is expressly permitted under Section 4.02.
Section 5.06 Employee Benefits.
(a) Parent shall cause the Surviving Corporation to take all actions and pay any amounts reasonably necessary to provide for the continuation of health care benefits (the "Post-Merger Benefits") to those employees or former employees of the Company set forth on Section 5.06 of the Company Disclosure Schedule (the "Company Employees"). With respect to each terminated Company Employee, the health care benefits to be provided to such employee shall continue from such employee's termination date for the number of weeks equal to the number of weeks of severance such employee receives or is entitled to receive, as set forth in Section 5.06 of the Company Disclosure Schedule, regardless of whether the Company Employee's severance is paid in lump sum. With respect to each Company Employee, the Post-Merger Benefits shall be substantially similar to the benefits that such Company Employee received or was receiving on the date of this Merger Agreement, and the cost of such Post-Merger Benefits and the manner of billing of such costs shall be substantially similar to the cost of health care benefits and manner of billing of such costs to such Company Employee as of the date of this Merger Agreement.
(b) Prior to the Closing Date, the Company shall take the actions set forth in Section 4.01(a) of the Company Disclosure Schedule with respect to the Company's 401(k) Plan.
Section 5.07 Indemnification, Exculpation and Insurance.
(a) The Company and Parent agree that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time (and rights for advancement of expenses) now existing in favor of the current or former directors or officers of the Company and its Subsidiaries as provided in their respective certificates of incorporation or bylaws (or comparable organizational documents) and any indemnification or other agreements of the Company or its Subsidiaries as in effect on the date of this Agreement shall be assumed by the Surviving Corporation in the Merger, without further action, as of the Effective Time and shall survive the Merger and shall continue in full force and effect in accordance with their terms.
(b) In the event that the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and is not the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, it shall cause proper provision to be made so that the successors and assigns of the Surviving Corporation assume the obligations set forth in this Section 5.07.
(c) For six years after the Effective Time, the Surviving Corporation shall maintain in effect (i) the Company's and its Subsidiaries' current directors' and officers' liability insurance covering acts or omissions occurring prior to the Effective Time covering each person currently covered by the Company's and its Subsidiaries' directors' and officers' liability insurance policy and (ii) the Company's and its Subsidiaries' current fiduciary liability insurance policies covering acts or omissions occurring prior to the Effective Time for employees who serve or have served as fiduciaries under or with respect to any Company Benefit Plan, in each case on terms with respect to such coverage and amounts no less favorable than those of each such policy in effect on the date hereof; provided that the Surviving Corporation may substitute therefor policies of the Company with respect to coverage and amount no less favorable to such directors, officers or fiduciaries; provided however, that in no event shall the Surviving Corporation be required to pay aggregate premiums for insurance under this Section 5.07(c) in excess of 150% of the amount of the aggregate premiums paid by a party to this Agreement in 2001 on an annualized basis for such
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purpose, provided that the Surviving Corporation shall nevertheless be obligated to provide such coverage as may be obtained for such 150% amount.
(d) Notwithstanding anything in this Agreement to the contrary, the provisions of this Section 5.07 are intended to be for the benefit of, and will be enforceable by, each indemnified party, his or her heirs, and his or her representatives and (ii) are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise.
Section 5.08 Fees and Expenses. Except as provided in this Section 5.08 and in Section 7.02, all fees and expenses incurred in connection with the Merger, this Agreement, and the transactions contemplated hereby and thereby shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated, except that each of the Company and Parent shall bear and pay one-half of (a) the costs and expenses incurred in connection with the filing, printing and mailing of the Form S-4 or the Company Proxy Statement, as applicable, (including SEC filing fees) and (b) the filing fees, if any, for the premerger notification and report forms under the HSR Act.
Section 5.09 Public Announcements. The Company and Parent will consult with each other before issuing, and provide each other the opportunity to review, comment upon and concur with, any press release or other public statements with respect to the transactions contemplated by this Agreement, including the Merger, and shall not issue any such press release or make any such public statement prior to such consultation, except as either party may determine is required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange or national trading system. The parties agree that the initial press release to be issued with respect to the transactions contemplated by this Agreement shall be in the form heretofore agreed to by the parties.
Section 5.10 Affiliates. As soon as practicable after the date hereof, the Company shall deliver to Parent a letter identifying all persons who are, at the time this Agreement is submitted for adoption by the stockholders of the Company, "affiliates" of the Company for purposes of Rule 145 under the Securities Act. The Company shall use reasonable efforts to cause each such person to deliver to Parent as of the Closing Date, a written agreement substantially in the form attached as Exhibit D hereto.
Section 5.11 Listing or Nasdaq Quotation. The Company and Parent shall use their reasonable best efforts to cause Parent Common Stock issuable in the Merger to be approved for quotation on Nasdaq National Market System or listing on the American Stock Exchange or, in Parent's reasonable discretion after consultation with the Company, another national securities exchange, subject to official notice of issuance, as promptly as practicable after the date hereof, and in any event prior to the Effective Time.
Section 5.12 Tax Treatment. Each of the Company and Parent shall use reasonable efforts to cause the Merger to qualify as a reorganization under the provisions of Section 368(a) of the Code.
Section 5.13 Further Assurances. Each of Parent and the Company shall deliver, or shall cause to be delivered, if required by the terms of any note, indenture, credit agreement, warrant or other financing instrument or preferred stock, as promptly as possible after the date hereof, but in no event less than 15 days prior to the Effective Time, any notice of the Merger or the transactions contemplated by this Agreement.
Section 5.14 Transfer Taxes. All stock transfer, real estate transfer, documentary, stamp, recording and other similar taxes (including interest, penalties and additions to any such taxes) incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Surviving Corporation.
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Section 5.15 Series C Preferred Stock. Parent shall use reasonable best efforts to cause the consummation of the issuance, as promptly as practicable and in any event at least five Business Days prior to the Effective Time, of at least $65,000,000 of shares of the Series C Preferred Stock on substantially the terms set forth in the Parent Restated Certificate and Section 3.01(b) of the Parent Disclosure Schedule.
Section 5.16 Certain Insurance. The Company shall use its reasonable best efforts to maintain in effect at all times from the date of this Agreement until the Closing Date, directors' and officers' liability insurance comparable as to amount and other material terms of coverage with such insurance as in effect on the date of this Agreement.
ARTICLE 6.
Conditions Precedent
Section 6.01 Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions:
(a) HSR Act. The waiting period (and any extension thereof), if any, applicable to the Merger under the HSR Act shall have been terminated or shall have expired.
(b) Governmental Approvals. All consents, approvals or orders of authorization of, or actions by any required Governmental Entity shall have been obtained.
(c) No Restraints. No judgment, order, decree, statute, law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued by any Governmental Entity of competent jurisdiction or other legal restraint or prohibition (collectively, "Restraints") shall be in effect, and there shall not be pending any suit, action or proceeding by any Governmental Entity specifically preventing the consummation of the Merger; provided, however, that each of the parties shall have used its reasonable efforts to prevent the entry of any such Restraints and to appeal as promptly as possible any such Restraints that may be entered.
(d) Form S-4. The Form S-4 shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order.
(e) Listing or Nasdaq Quotation. The shares of Parent Common Stock issuable pursuant to the Merger as contemplated by this Agreement shall have been approved for quotation on Nasdaq National Market System or listing on the American Stock Exchange or, in Parent's reasonable discretion after consultation with the Company, another national securities exchange, subject to official notice of issuance.
Section 6.02 Conditions to Obligations of the Company. The obligation of the Company to effect the Merger is further subject to satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties of Parent and Merger Sub set forth herein qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, as of the date hereof and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date).
(b) Performance of Obligations of Parent. Parent and Merger Sub shall have performed in all material respects all covenants and obligations required to be performed by them under this Agreement at or prior to the Closing Date.
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(c) Tax Opinions. The Company shall have received from Jones, Day, Reavis & Pogue, counsel to the Company, an opinion, dated as of the Closing Date, stating that: (i) the Merger will qualify for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and (ii) Parent, Merger Sub and the Company will each be a "party to a reorganization" within the meaning of Section 368(b) of the Code. The issuance of such opinion shall be conditioned upon the receipt by such tax counsel of customary representation letters from each of the Company, Parent, and Merger Sub in form and substance reasonably satisfactory to such tax counsel.
(d) Company Stockholder Approval. Company Stockholder Approval shall have been obtained.
(e) Third Party Consents. Parent shall have obtained the Parent Material Consents.
(f) Issuance of Series C Preferred StockTermination Fee. The issuance of the Series C Preferred Stock shall have been consummated substantially on the terms set forth in the Parent Restated Stock Certificate and Section 3.01(b) of the Parent Disclosure Schedule attached hereto and Parent shall have received at least $30,000,000 in gross proceeds in connection therewith.
(g) Issuance of Series C Preferred StockGenerally. The issuance of the Series C Preferred Stock shall have been consummated substantially on the terms set forth in the Parent Restated Certificate and Section 3.01(b) of the Parent Disclosure Schedule and Parent shall have received at least $65,000,000 in gross proceeds in connection therewith.
Section 6.03 Conditions to Obligations of Parent. The obligation of Parent to effect the Merger is further subject to satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties of the Company set forth herein qualified as to materiality shall be true and correct, and those not so qualified shall be true and correct in all material respects, as of the date hereof and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such date).
(b) Performance of Obligations of the Company. The Company shall have performed in all material respects all covenants and obligations required to be performed by them under this Agreement at or prior to the Closing Date.
(c) Tax Opinions. Parent and Merger Sub shall have received from Latham & Watkins, counsel to Parent and Merger Sub, an opinion, dated as of the Closing Date, stating that: (i) the Merger will qualify for Federal income tax purposes as a "reorganization" within the meaning of Section 368(a) of the Code and (ii) Parent, Merger Sub and the Company will each be a "party to a reorganization" within the meaning of Section 368(b) of the Code. The issuance of such opinion shall be conditioned upon the receipt by such tax counsel of customary representation letters from each of Parent, Merger Sub and the Company in form and substance reasonably satisfactory to such tax counsel.
(d) Parent Stockholder Approval. Parent Stockholder Approval shall have been obtained, if required.
(e) Third Party Consents. The Company shall have obtained the Company Material Consents.
(f) Lock-Up. Each of the persons set forth in Section 6.03(f) of the Company Disclosure Schedule shall have executed and delivered to Parent an agreement substantially in the form of Exhibit E to this Agreement.
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(g) Litigation. Except as contemplated in Section 6.03(g) of the Company's Disclosure Schedule, no litigation by or on behalf of any securityholders shall be pending or threatened against the Company, its Subsidiaries, or their respective directors or officers that is reasonably likely to have a Material Adverse Effect on the Surviving Corporation, after taking into account all relevant factors, including the potential availability or lack thereof any insurance coverage in respect of all known claims asserted in such litigation or threatened litigation.
Section 6.04 Frustration of Closing Conditions. Neither the Company nor Parent may rely on the failure of any condition set forth in Section 6.01, 6.02 or 6.03, as the case may be, to be satisfied if such failure was caused by such party's failure to use its reasonable best efforts to consummate the Merger and the other transactions contemplated by this Agreement, as required by and subject to Section 5.05.
ARTICLE 7.
Termination, Amendment and Waiver
Section 7.01 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after the Company Stockholder Approval or, if required, the Parent Stockholder Approval:
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent:
(i) if the Merger shall not have been consummated by December 31, 2001; PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this Section 7.01(b)(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Merger to be consummated by such time;
(ii) if Company Stockholder Approval shall not have been obtained at the Company Stockholders Meeting duly convened therefor or at any adjournment or postponement thereof;
(iii) if Parent Stockholder Approval shall have been required for approval of the Merger and shall not have been obtained;
(iv) if any Restraint shall be in effect and shall have become final and nonappealable; PROVIDED that the party seeking to terminate this Agreement pursuant to this Section 7.01(b)(iv) shall have used reasonable best efforts to prevent such Restraint from becoming final and nonappealable;
(c) by the Company, if Parent shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in clause (a) or (b) of Section 6.02, and (ii) has not been or is incapable of being cured by Parent within 30 calendar days after its receipt of written notice from the Company;
(d) by Parent, if the Company shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in clause (a) or (b) of Section 6.03, and (ii) has not been or is incapable of being cured by the Company within 30 calendar days after its receipt of written notice from Parent;
(e) by Parent, if the Company or any of its Subsidiaries or any of their respective directors or officers shall participate in discussions or negotiations in breach of Section 4.02 or shall take any action described in Section 4.02(b), whether or not in breach of this Agreement; or
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(f) by the Company, in accordance with Section 4.02(c); PROVIDED that, in order for the termination of this Agreement pursuant to this paragraph (f) to be deemed effective, the Company shall have complied with all provisions of Section 4.02, and with applicable requirements of Section 7.02(c).
Section 7.02 Effect of Termination.
(a) In the event of termination of this Agreement by either Parent or the Company as provided in Section 7.01, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of the Company or Parent, other than the provisions of the Confidentiality Agreement, Section 5.04 (last sentence only), Section 5.08, this Section 7.02, and Article 8, which provisions survive such termination, and except to the extent that such termination results from the willful and material breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement.
(b) Parent shall pay to the Company $5,000,000 in the event that the Merger does not close by virtue of any of the following:
(i) the Company terminates this Agreement prior to Closing pursuant to a breach of covenant as set forth in Section 7.01(c);
(ii) the Merger has not closed due to Parent's failure to obtain Parent Stockholder Approval and the Company terminates this Agreement prior to Closing pursuant to Section 7.01(b)(iii);
(iii) the Merger has not closed due to Parent's failure to obtain a Parent Material Consent and the Company terminates this Agreement prior to Closing pursuant to Section 7.01(b)(i); and
(iv) the Merger has not closed due to Parent's failure to raise at least $30,000,000 in a private placement of Series C Preferred Stock and the Company terminates this Agreement prior to Closing due to failure to satisfy the condition set forth in Section 6.02(f).
(c) The Company shall pay to Parent $5,000,000 in the event that the Merger does not close by virtue of any of the following:
(i) Parent terminates this Agreement prior to Closing pursuant to a breach of covenant as set forth in Section 7.01(d) or pursuant to Section 7.01(e);
(ii) the Merger has not closed due to the Company's failure to obtain a Company Material Consent and Parent terminates this Agreement prior to Closing pursuant to Section 7.01(b)(i); and
(iii) the Merger has not closed due to the Company's failure to obtain the Company Stockholder Approval and Parent terminates this Agreement prior to Closing pursuant to Section 7.01(b)(ii);
(iv) the Company terminates this Agreement pursuant to Section 7.01(f).
(d) Any payment to be made pursuant to this Section 7.02 shall be by wire transfer of immediately available funds to an account designated by the party receiving such payment promptly after the notice of termination or valid demand has been delivered by such party to the other party.
(e) The parties to this Agreement acknowledge that the agreements contained in this Section 7.02 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, the other party would not enter into this Agreement; accordingly, if either party hereto fails promptly to pay the amount due pursuant to this Section 7.02 (such party, a
A32
"Breaching Party"), and, in order to obtain such payment, the non-Breaching Party commences a suit which results in a judgment against the Breaching Party for the fee set forth in this Section 7.02, such Breaching Party shall pay to the non-Breaching Party its costs and expenses (including attorneys' fees and expenses) in connection with such suit, together with interest on the amount of the fee at the prime rate of Citibank, N.A. in effect on the date such payment was required to be made.
Section 7.03 Amendment. This Agreement may be amended by the parties at any time prior to the Effective Time; PROVIDED, HOWEVER, that after any Company Stockholder Approval or Parent Stockholder Approval, there shall not be made any amendment that by law requires further approval by the stockholders of the Company or further approval by the stockholders of Parent, as the case may be, without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.
Section 7.04 Extension; Waiver. At any time prior to the Effective Time, a party may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties of the other parties contained in this Agreement or in any document delivered pursuant to this Agreement or
(c) subject to the proviso of Section 7.03, waive compliance by the other party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights.
Section 7.05 Procedure for Termination, Amendment, Extension or Waiver. A termination of this Agreement pursuant to Section 7.01, an amendment of this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section 7.04 shall require action by the Board of Directors of the Company, Parent and Merger Sub, as applicable, or, with respect to any amendment to this Agreement, the duly authorized committee of its Board of Directors to the extent permitted by law.
Section 8.01 Nonsurvival of Representations and Warranties. None of the representations, warranties, covenants or agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 8.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time.
Section 8.02 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
(a) if to the Company, to
Allied
Riser Communications Corporation
1700 Pacific Avenue, Suite 400
Dallas, Texas 75201
Telecopy No.: (214) 210-3009
Attention: Michael R. Carper, Esq.
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with a copy to:
Jones,
Day, Reavis & Pogue
2727 N. Harwood Street
Dallas, Texas 75201
Telecopy No.: (214) 969-5100
Attention: Kathleen R. McLaurin, Esq.
(b) if to Parent or Merger Sub, to
Cogent
Communications Group, Inc.
1015 31st Street, N.W.
Washington, D.C. 20007
Telecopy No.: (202) 342-8269
Attention: Robert N. Beury, Jr., Esq.
with a copy to:
Latham
& Watkins
555 11th Street, N.W.
Suite 1000
Washington, D.C. 20004-1304
Telecopy No.: 202-637-2201
Attention: William P. O'Neill, Esq.
Section 8.03 Definitions. An index of defined terms is attached hereto as Annex I. For purposes of this Agreement:
(a) an "Affiliate" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise;
(b) "Business Day" means any day other than Saturday, Sunday or any other day on which banks in the State of New York generally are closed for regular banking business;
(c) "Knowledge" of any person that is not an individual means, with respect to any specific matter, the knowledge of such person's executive officers and other officers having primary responsibility for such matter, in each case obtained in the conduct of their duties in the ordinary course without special inquiry;
(d) "Material Adverse Change" or "Material Adverse Effect" means, when used in connection with Parent, the Company or the Surviving Corporation, any change, effect, event, occurrence or state of facts (i) that is materially adverse to the business, financial condition or results of operations of such entity and its Subsidiaries, taken as a whole, or (ii) preventing or materially delaying the consummation of the Merger, other than any change, effect, event, occurrence or state of facts (x) relating to the economy in general (y) relating to the industries in which such party operates in general and not specifically relating to such party or, (z) relating to the Merger or any announcement thereof;
(e) "person" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity;
(f) a "Subsidiary" of any person means a corporation, limited liability company, partnership or other person, more than 50% of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or
A34
other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person.
Section 8.04 Interpretation. When a reference is made in this Agreement to an Article, Section, Annex or Exhibit, such reference shall be to an Article or Section of, or an Annex or Exhibit to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement (including Annex I) shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement (including Annex I) are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Terms used herein that are defined under GAAP are used herein as so defined.
Section 8.05 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 of the parties and delivered to the other parties.
Section 8.06 Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the Exhibits, Schedules and Annexes attached hereto), and the Confidentiality Agreement (a) constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter of this Agreement and (b) except for the provisions of Article 2, are not intended to confer upon any person other than the parties any rights or remedies.
Section 8.07 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflict of laws thereof.
Section 8.08 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by either of the parties hereto without the prior written consent of the other party. Any assignment in violation of the preceding sentence shall be void. Subject to the preceding two sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.
Section 8.09 Enforcement. The parties agree that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any Federal court located in the State of Delaware or in Delaware state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any Federal court located in the State of Delaware or any Delaware state court in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that
A35
it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a Federal court sitting in the State of Delaware or a Delaware state court.
Section 8.10 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, the Company, Parent and Merger Sub have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.
ALLIED RISER COMMUNICATIONS CORPORATION | |||
|
|
By: |
/s/ GERALD DINSMORE Name: Gerald Dinsmore Title: Chief Executive Officer |
|
|
COGENT COMMUNICATIONS GROUP, INC. |
|
|
|
By: |
/s/ DAVE SCHAEFFER Name: Dave Schaeffer Title: Chief Executive Officer |
|
|
AUGUSTUS CAESAR MERGER SUB, INC. |
|
|
|
By: |
/s/ DAVE SCHAEFFER Name: Dave Schaeffer Title: President |
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Annex I
To the Merger Agreement
Index of Defined Terms
A | ||
Accounting Rules |
|
20 |
Acquisition Agreement | 27 | |
Affiliate | 40 | |
Agreement | 1 | |
Applicable Period | 26 | |
Authorized Company Cash Expenditures | 23 | |
B |
|
|
Balance Sheet |
|
11 |
Balance Sheet Date | 11 | |
Breaching Party | 38 | |
Business Day | 40 | |
C |
|
|
CERCLA |
|
16 |
Certificate of Merger | 2 | |
Certificates | 4 | |
Closing | 2 | |
Closing Date | 2 | |
Code | 1 | |
Company | 1 | |
Company Common Stock | 3 | |
Company Disclosure Schedule | 18 | |
Company Employees | 31 | |
Company Filed SEC Documents | 18 | |
Company Material Consents | 20 | |
Company Permits | 21 | |
Company Preferred Stock | 18 | |
Company Proxy Statement | 10 | |
Company Restricted Stock | 7 | |
Company SEC Documents | 20 | |
Company Stock Option Plans | 6 | |
Company Stock Options | 6 | |
Company Stock Plans | 18 | |
Company Stockholder Approval | 22 | |
Company Stockholder Meeting | 22 | |
Company Warrant | 7 | |
Company Warrants | 18 | |
Confidentiality Agreement | 30 | |
Consents | 10 | |
Controlled Group Member | 14 | |
D |
|
|
DGCL |
|
2 |
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E |
|
|
Effective Time |
|
2 |
Employee Benefit Plans | 14 | |
Environmental Laws | 16 | |
Exchange Act | 10 | |
Exchange Agent | 4 | |
Exchange Fund | 4 | |
F |
|
|
Financial Statements |
|
11 |
Form S-4 | 10 | |
G |
|
|
GAAP |
|
11 |
Governmental Entity | 10 | |
H |
|
|
Houlihan Lokey |
|
22 |
HSR Act | 10 | |
K |
|
|
Knowledge |
|
40 |
L |
|
|
Liens |
|
9 |
M |
|
|
Material Adverse Change |
|
40 |
Material Adverse Effect | 40 | |
Merger | 1 | |
Merger Consideration | 3 | |
Merger Sub | 1 | |
Multiemployer Plans | 14 | |
N |
|
|
Notes |
|
18 |
Notice of Superior Proposal | 27 | |
P |
|
|
Parent |
|
1 |
Parent Bylaws | 3 | |
Parent Common Stock | 1 | |
Parent Disclosure Schedule | 8 | |
Parent Material Consents | 10 | |
Parent Permits | 12 | |
Parent Restated Certificate | 2 | |
Parent Stock Options | 9 | |
Parent Stock Plans | 9 | |
Parent Stockholder Approval | 17 | |
Parent Warrants | 8 |
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Parent's Accountants | 11 | |
Pension Plans | 14 | |
person | 40 | |
Post-Merger Benefits | 31 | |
Proprietary Right | 15 | |
Proprietary Rights | 15 | |
R |
|
|
Restraints |
|
34 |
Reverse Stock Split | 1 | |
S |
|
|
SEC |
|
3 |
Securities Act | 3 | |
Shares | 3 | |
Subsidiary | 41 | |
Superior Proposal | 27 | |
Surviving Corporation | 2 | |
T |
|
|
Takeover Proposal |
|
26 |
AAI3
AMENDMENT NO. 1
DATED AS OF OCTOBER 13, 2001
TO THE
AGREEMENT AND PLAN OF MERGER
Dated as of August 28, 2001
By and Among
ALLIED RISER COMMUNICATIONS CORPORATION,
COGENT COMMUNICATIONS GROUP, INC.
And
AUGUSTUS CAESAR MERGER SUB, INC.
October 13, 2001
AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 1 (this "Amendment"), dated as of October 13, 2001, to the Agreement and Plan of Merger (the "Agreement"), dated as of August 28, 2001, is entered into by and among Allied Riser Communications Corporation, a Delaware corporation (the "Company"), Cogent Communications Group, Inc., a Delaware corporation ("Parent"), and Augustus Caesar Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub"). Capitalized terms used in this Amendment, and not defined herein, have the meanings set forth in the Agreement.
The respective Boards of Directors of the Company, Parent and Merger Sub have approved this Amendment;
NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in the Agreement and this Amendment, the parties hereto agree as follows:
1. Exhibit A to the Agreement is hereby amended and restated in its entirety to read as set forth in Annex A to this Amendment.
2. Exhibit C to the Agreement is hereby amended and restated in its entirety to read as set forth in Annex B to this Amendment.
3. Section 3.01(b) of the Parent Disclosure Schedule is amended and restated in its entirety to read as set forth in Schedule X to this Amendment.
4. Section 3.01 is hereby amended by adding the following subsection (y) immediately following subsection (x) thereof:
"(y) No Going Private. Parent does not intend, prior to six months after the Effective Time, to consummate a "Rule 13e-3 transaction" as defined in Rule 13e-3 promulgated under the Exchange Act or to otherwise acquire, directly or indirectly, more than 80% of the shares of the Parent Common Stock in the Merger."
5. Section 4.01 of the Company Disclosure Schedule is hereby amended to increase by $5,000,000 the Authorized Company Cash Expenditures for the fourth quarter of 2001. The Company shall allocate this additional amount of Authorized Company Cash Expenditures in its sole discretion among the categories of expenses and obligations included in Section 4.01 of the Company Disclosure Schedule.
6. Section 4.01 of the Agreement is hereby amended by adding the following subsection (d) and (e) immediately following subsection (c) thereof:
"(d) Exceptions . Notwithstanding anything to the contrary contained in this Section 4.01 or elsewhere in this Agreement, the Company and its Subsidiaries may (i) enter into a settlement agreement on the terms set forth in Section 4.01(d) to the Company Disclosure Schedule; and (ii) terminate their connectivity contracts, telecommunications license agreements, office leases and contracts for access to real estate or circuits to the extent such terminations are consistent with the Authorized Company Cash Expenditures.
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"(e) No Acquisition by Parent . Except as contemplated by this Agreement, neither Parent nor any of its Subsidiaries shall acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any material business or any person, other than purchases of supplies in the ordinary course of business; provided , however , that this Section 4.01(e) shall not prohibit (x) any merger or consolidation of a direct or indirect wholly owned Subsidiary of Parent with and into Parent or another direct or indirect wholly owned Subsidiary of Parent, (y) the sale of a substantial portion of the stock or assets of a direct or indirect wholly owned Subsidiary of Parent to Parent, or another direct or indirect wholly owned Subsidiary of Parent, or (z) the creation of new, wholly owned Subsidiaries of Parent organized to conduct or continue activities expressly permitted under this Agreement."
7. Section 4.01 of the Company Disclosure Schedule is hereby amended by adding, immediately following subsection (a) thereof, the subsection (d) set forth in Schedule Y to this Amendment.
8. Section 4.02 of the Agreement is hereby amended by adding the following subsection (g) immediately following subsection (f) thereof:
"(g) Notwithstanding anything to the contrary in this Section 4.02 or elsewhere in this Agreement, the Company, and its directors, officers, employees, investment bankers, financial advisors, attorneys, accountants and other representatives may participate in discussions and negotiations with the Company's noteholders to the extent such discussions relate to the Company's notes or the terms of the related indenture or any restructuring of the Company's obligations under such notes or indenture; provided , however , that the Company may not enter into any agreement with, or make any payment to, such noteholders or their representatives without the prior written consent of Parent."
9. The penultimate and last provisos of Section 5.07(c) of the Agreement, which follow the phrase "no less favorable to such directors, officers or fiduciaries;" are hereby amended and restated in their entirety to read as follows:
" provided , however , that in no event shall the Surviving Corporation be required to pay aggregate premiums for insurance under this Section 5.07(c) in excess of 200% of the amount of the aggregate premiums paid by a party to this Agreement in 2001 on an annualized basis for such purpose, provided , further, that the Surviving Corporation shall nevertheless be obligated to provide such coverage as may be obtained for such 200% amount."
10. Each of Sections 5.15 and 6.02(g) of the Agreement is hereby amended by replacing "$65,000,000" with "$62,000,000."
11. Article 5 of the Agreement is hereby amended by adding the following Sections 5.17, 5.18 and 5.19 immediately following Section 5.16:
"Section 5.17 Voting Agreements. The Company shall use reasonable best efforts to cause each of the persons set forth in Section 6.03(f) of the Company Disclosure Schedule to execute and deliver, on or as soon as reasonably practicable after October 12, 2001, to Parent and the Company an agreement substantially in the form of Exhibit E to this Agreement.
Section 5.18 Director Designation. Immediately prior to the Effective Time, Parent shall appoint to Parent's Board of Directors an individual designated by the Company provided that such designee must be satisfactory to each of the persons set forth in Section 6.03(f) of the Company Disclosure Schedule."
Section 5.19 No Going Private Transaction. Prior to six months after the Effective Time, Parent shall not (a) consummate a "Rule 13e-3 transaction" as defined in Rule 13e-3 promulgated under the Exchange Act or (b) acquire directly or indirectly, more than 80% of the shares of Parent Common Stock issued in the Merger.
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12. Annex E of the Agreement is hereby amended and restated in its entirety to read as set forth in Annex C to this Amendment.
13. Section 6.03(f) of the Agreement is hereby amended and restated in its entirety to read as follows:
"(f) [Intentionally omitted.]"
14. Clause (i) of Section 7.01(b) is hereby amended and restated in its entirety to read as follows:
"(i) if the Merger shall not have been consummated by December 7, 2001 (the " Agreement Termination Date "); provided , however , that (x) if Parent or the Company is informed by the SEC that it will review, and does review, the Form S-4 or the Company Proxy Statement, then the Agreement Termination Date shall be deemed to be the earlier of January 31, 2002 and the 25 th day after the effective date of the Form S-4, and (y) the right to terminate this Agreement pursuant to this Section 7.01(b)(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Merger to be consummated by such time;".
15. Section 7.01(b) is hereby amended by adding the following clauses (v) and (vi) immediately following clause (iv) thereof:
"(v) if a document or documents constituting the Company Proxy Statement and Form S-4 shall not have been preliminarily filed with the SEC on or prior to October 16, 2001; or
(vi) Parent shall not have issued at least $62,000,000 of shares of the Series C Preferred Stock for cash on substantially the terms set forth in the Parent Restated Certificate and Section 3.01(b) of the Parent Disclosure Schedule on or prior to October 17, 2001."
16. Section 7.02(a) is hereby amended by adding the following sentence as the last sentence thereof:
"Notwithstanding anything to the contrary in this Agreement, in the event of a termination of this Agreement pursuant to clause (i), (v) or (vi) of Section 7.01(b), this Agreement shall forthwith become void and have no effect, without any liability or obligation under this Agreement on the part of the Company, Parent, or Merger Sub, other than the provisions of the Confidentiality Agreement, Section 5.04 (last sentence only), Section 5.08, this subsection (a) of Section 7.02, and Article 8."
17. Clause (b) of Section 8.06 is hereby amended and restated in its entirety to read as follows:
"(b) are not intended to confer upon any person other than the parties any rights or remedies, except for the provisions of Article 2 and of Sections 5.06, 5.07 and 5.19, which are intended to confer a benefit on and be enforceable by the individuals specified therein and their respective legal representatives."
All other terms and conditions of Article 8 of the Agreement are incorporated into this Amendment by reference.
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IN WITNESS WHEREOF, the Company, Parent and Merger Sub have caused this Amendment to be signed by their respective officers thereunto duly authorized, all as of the date first written above.
ALLIED RISER COMMUNICATIONS CORPORATION | |||
|
By: |
|
/s/ GERALD DINSMORE Name: Gerald Dinsmore Title: Chief Executive Officer |
|
COGENT COMMUNICATIONS GROUP, INC. |
||
|
By: |
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/s/ DAVE SCHAEFFER Name: Dave Schaeffer Title: Chief Executive Officer |
|
AUGUSTUS CAESAR MERGER SUB, INC. |
||
|
By: |
|
/s/ DAVE SCHAEFFER Name: Dave Schaeffer Title: President |
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August 28, 2001
The
Board of Directors of Allied Riser Communications Corporation
1700 Pacific Avenue, Suite 400
Dallas, TX 75201
Dear Members of the Board of Directors:
We understand the following regarding Allied Riser Communications Corporation and its subsidiaries (collectively referred to as the "Company") and Cogent Communications Group Inc. ("Cogent"). Cogent is a privately held entity that is engaged in providing Internet access to multi-tenant office buildings. Cogent is currently raising its third round of equity financing, in an amount equal to approximately $130 million, for an implied post-financing valuation of Cogent of approximately $230 million. The Company has negotiated a merger agreement with Cogent pursuant to which the Company shall be merged with a newly created subsidiary of Cogent. The Company shall be the surviving entity in the merger. In connection with such merger, the Company's shareholders shall exchange their Company shares for newly issued shares in Cogent, such that following the merger the Company's shareholders shall collectively hold approximately 8% of Cogent's common stock on a fully diluted basis. We further understand that the final exchange ratio of Company shares for Cogent shares, and resulting ownership of Cogent (post merger) will be subject to a fixed sliding scale, as set forth in the merger agreement (defined below), depending on the gross proceeds of the equity financing that Cogent is currently in the process of closing. The merger of the Company with a subsidiary of Cogent, and exchange of Company shares for Cogent shares in accordance with the fixed sliding scale set forth in the merger agreement, and other related transactions disclosed to Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey") are referred to collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth below. This Opinion does not address the Company's underlying business decision to effect the Transaction. Houlihan Lokey was not asked to opine on and did not express any opinion as to (i) tax or legal consequences of the Transaction, or any part thereof, including but not limited to tax or legal consequences to the Company or the stockholders of the Company; (ii) the fairness, advisability or desirability of alternatives to the Transaction, or any part thereof; (iii) the fair market value of the Company or any of its assets; (iv) the fairness of the Transaction to any one class of the Company's security holders vis-a-vis any other class of the Company's security holders, or (v) any of the Company's security holders' underlying business decision to participate in the Transaction or (vi) the fairness of any aspect of the Transaction not expressly addressed in this Opinion. Moreover, this Opinion does not constitute a recommendation to participate in the Transaction. Accordingly, the Transaction participants should each conduct their own due diligence, independent of the Opinion, in connection with the Transaction. We have not been requested to, and did not, solicit third party indications of interest in acquiring all or any part of the Company or its assets. Furthermore, we have not negotiated the Transaction.
In connection with this Opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have:
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We have relied upon and assumed, without independent verification, that the financial forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates of the future financial results and condition of the Company, and that there has been no material change that has not been disclosed to us in the assets, financial condition, business or prospects of the Company since the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the information supplied to us with respect to the Company and do not assume any responsibility with respect to it. We have not made any physical inspection or independent appraisal of any of the properties or assets of the Company. Our opinion is necessarily based on business, economic, market and other conditions as they exist and can be evaluated by us at the date of this letter.
You have requested us to provide an opinion with respect to fairness for the Company's stockholders, as well as to the Company's creditors on an aggregate basis. It is our understanding that the opinion with respect to the creditors is being delivered solely as a condition to the Merger Agreement at the request of Cogent.
Based upon the foregoing, and in reliance thereon, it is our opinion that the Transaction is fair to the Company's stockholders and the Transaction is fair to the Company's creditors (on an aggregate basis) from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware (the "DGCL") provides for, among other things:
a. permissive indemnification for expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by designated persons, including directors and officers of a corporation, in the event such persons are parties to litigation other than stockholder derivative actions if certain conditions are met;
b. permissive indemnification for expenses actually and reasonably incurred by designated persons, including directors and officers of a corporation, in the event such persons are parties to stockholder derivative actions if certain conditions are met;
c. mandatory indemnification for expenses actually and reasonably incurred by designated persons, including directors and officers of a corporation, in the event such persons are successful on the merits or otherwise in litigation covered by a. and b. above; and
d. that the indemnification provided for by Section 145 shall not be deemed exclusive of any other rights which may be provided under any bylaw, agreement, stockholder or disinterested director vote, or otherwise.
Cogent's Second Amended and Restated Certificate of Incorporation provides that the corporation shall, to the fullest extent permitted by Section 145 of the DGCL, indemnify and advance expenses to its directors and officers. In addition, Cogent shall indemnify any person who is or was serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any and all of the expenses, liabilities, or other matters covered by Section 145, for actions taken in such person's capacity as a director, officer, employee or agent, and then only to the extend such person is not indemnified for such actions by such other corporation, partnership, joint venture, trust or other enterprise. Cogent's bylaws may provide that, except with respect to proceedings to enforce indemnification rights, it shall indemnify any director, officer or person serving at Cogent's request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in connection with a proceeding (or part thereof) initiated by such director, officer or person, only if such proceeding (or part thereof) was authorized by Cogent's board of directors.
Cogent's board of directors may provide indemnification or advance expenses to its employees and agents or other persons only on such terms to only to the extend determined by the board of directors in its sole and absolute discretion.
Item 21. Exhibits and Financial Statement Schedules.
Exhibit
|
Description
|
|
---|---|---|
2.1 | Agreement and Plan of Merger, dated as of August 28, 2001, by and among Cogent, Allied Riser and the merger subsidiary (attached as Appendix A to the Proxy Statement/Prospectus included in this registration statement) | |
2.2 |
|
Amendment No. 1 to the Agreement and Plan of Merger, dated as of October 13, 2001, by and among Cogent, Allied Riser and the merger subsidiary (attached as Appendix B to the Proxy Statement/Prospectus included in this registration statement) |
II1
3.1 |
|
Second Amended and Restated Certificate of Incorporation of Cogent Communications Group, Inc.* |
3.2 |
|
Amended Bylaws of Cogent Communications Group, Inc.* |
4.1 |
|
Amended and Restated Stockholders Agreement, dated October, 2001, by and among Cogent, David Schaeffer and each of the holders of Series A, B and C Preferred Stock* |
4.2 |
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Amended and Restated Registration Rights Agreement, dated October, 2001, by and among Cogent, David Schaeffer and each major stockholder* |
4.3 |
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Form of Voting Agreement, dated as of October 12, 2001, signed by three major stockholders of Allied Riser Communication Corporation |
5.1 |
|
Opinion of Latham & Watkins as to the legality of the securities* |
8.1 |
|
Tax Opinion of Jones, Day, Reavis & Pogue* |
8.2 |
|
Tax Opinion of Latham & Watkins* |
10.1 |
|
Fiber Optic Network Leased Fiber Agreement, dated February 7, 2000, by and between Cogent Communications, Inc. and Metromedia Fiber Network Services, Inc., as amended July 19, 2001 |
10.2 |
|
Dark Fiber IRU Agreement, dated April 14, 2000, between Williams Communications, Inc. and Cogent Communications, Inc., as amended June 27, 2000, December 11, 2000, January 26, 2001, and February 21, 2001 |
10.3 |
|
Credit Agreement dated October, 2001, by and between Cisco Systems and Cogent* |
10.4 |
|
Cisco Systems, Inc. Service Provider Agreement, dated March 15, 2000, between Cisco Systems, Inc. and Cogent Communications, Inc., as amended June 1, 2000, and March 1, 2001 |
10.5 |
|
Amendment No. 4 to Service Provider Agreement dated October, 2001, by and between Cisco Systems and Cogent* |
10.6 |
|
David Schaeffer Employment Agreement with Cogent Communications Group, Inc., dated February 7, 2000 |
10.7 |
|
William Currer Employment Agreement with Cogent Communications Group, Inc., dated May 23, 2000 |
10.8 |
|
Barry Morris Employment Agreement with Cogent Communications Group, Inc., dated March 13, 2000 |
10.9 |
|
Scott Stewart Employment Agreement with Cogent Communications Group, Inc., dated April 3, 2000 |
10.10 |
|
Cogent Communications Group, Inc. Lease for Headquarters Space by and between 6715 Kenilworth Avenue Partnership and Cogent Communications Group, Inc., dated September 1, 2000 |
10.11 |
|
Cogent Communications Group, Inc. Renewal of Lease for Headquarters Space, by and between 6715 Kenilworth Avenue Partnership and Cogent Communications Group, Inc., dated August 1, 2001 |
10.12 |
|
The Amended and Restated Cogent Communications Group, Inc. 2000 Equity Plan |
21.1 |
|
Subsidiaries |
II2
23.1 |
|
Consent of Arthur Andersen LLP, Vienna, Virginia |
23.2 |
|
Consent of Arthur Andersen LLP, Dallas, Texas |
23.3 |
|
Consent of Latham & Watkins (included in opinion filed as Exhibit 5.1)* |
23.4 |
|
Consent of Jones, Day, Reavis & Pogue (included in opinion filed as Exhibit 8.1)* |
23.5 |
|
Consent of Latham & Watkins (included in opinion filed as Exhibit 8.2)* |
24.1 |
|
Powers of Attorney (included on signature page hereto) |
99.1 |
|
Form of Proxy for Holders of Allied Riser Common Stock |
99.2 |
|
Opinion of Houlihan Lokey Howard & Zukin (attached as Appendix B to the Proxy Statement/Prospectus included in this registration statement) |
99.3 |
|
Consent of Houlihan Lokey Howard & Zukin* |
The undersigned registrant hereby undertakes:
Provided, however, That paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
II3
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant to the immediately preceding paragraph, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment 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 undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
II4
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the District of Columbia, on the 14 th day of October, 2001.
COGENT COMMUNICATIONS GROUP, INC.
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By: |
/s/ DAVID SCHAEFFER Name: David Schaeffer Title: Chairman and Chief Executive Officer |
Each person whose signature appears below hereby appoints David Schaeffer and Robert Beury and each of them severally, acting alone and without the other, his or her true and lawful attorney-in-fact with authority to execute the name of each such person, and to file with the Securities and Exchange Commission, together with any exhibits thereto and other documents therewith, any and all amendments (including without limitation post-effective amendments) to this Registration Statement necessary or advisable to enable the registrant to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in this Registration Statement as the aforesaid attorney-in-fact deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
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Title
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Date
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---|---|---|---|---|
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/s/
DAVID SCHAEFFER
David Schaeffer |
Chairman and CEO | October 14, 2001 | ||
/s/ WILLIAM CURRER William Currer |
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President and COO |
|
October 14, 2001 |
/s/ H. HELEN LEE H. Helen Lee |
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CFO and Director |
|
October 14, 2001 |
/s/ THADDEUS G. WEED Thaddeus G. Weed |
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Vice President, Controller |
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October 14, 2001 |
II5
/s/ EDWARD GLASSMEYER Edward Glassmeyer |
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Director |
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October 14, 2001 |
/s/ EREL MARGALIT Erel Margalit |
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Director |
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October 14, 2001 |
/s/ JAMES WEI James Wei |
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Director |
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October 14, 2001 |
II6
Exhibit 4.3
VOTING AGREEMENT
Cogent Communications Group, Inc.
1015 31st Street, N.W.
Washington, D.C. 20007
Allied Riser Communications Corporation
1700 Pacific Avenue, Suite 400
Dallas, TX 75201
Ladies and Gentlemen:
The undersigned, _________________________________, is a
beneficial owner of, or has the right to vote, the number of shares set forth on
Schedule I hereto (the "Shares") of Allied Riser Communications Corporation, a
Delaware corporation (the "Company"), and wishes to facilitate the merger of
August Caesar Merger Sub, Inc., a Delaware corporation ("Merger Sub"), which is
a wholly-owned subsidiary of Cogent Communications Group, Inc., a Delaware
corporation ("Cogent"), with and into the Company, pursuant to that certain
Agreement and Plan of Merger by and among the Company, Cogent and Merger Sub,
dated as of August 28, 2001 and amended as of October ____, 2001 (the
"Agreement" and such merger, the "Merger"). The undersigned recognizes that the
Merger will be of benefit to the undersigned, and that adoption of the Merger
Agreement by stockholders of the Company at a meeting of Company stockholders
(the "Company Stockholders Meeting") is a condition to the consummation of the
Merger and hereby executes and delivers this Voting Agreement pursuant to
Section 5.17 of the Agreement. All capitalized terms used and not defined herein
shall have the meanings assigned to them in the Agreement.
In consideration of the foregoing and in order to induce Cogent to act in connection with the Merger, the undersigned hereby agrees, for the benefit of the Company and of Cogent, to (i) attend the Company Stockholders Meeting, in person or by proxy, or by written consent in lieu of a stockholders meeting, as applicable, and (ii) vote (or cause to be voted) all Shares -- and any additional voting securities of the Company beneficial ownership of which may be acquired by the undersigned (whether by purchase or otherwise) after the date of this Voting Agreement -- in favor of adoption of the Agreement and approval of the Merger and any other matters necessary to consummate the transactions contemplated in the Agreement in order to effectuate the Merger. The above agreement to vote shall apply also to any adjournment or adjournments of the Company Stockholders Meeting.
From and after the date hereof through the earlier of the Effective Time of the Merger or the termination of the Agreement, the undersigned hereby agrees not to sell, transfer, pledge, encumber or otherwise dispose of any Shares or any voting interest in such Shares (collectively, "Transfer"). Any such Transfer shall be null and void, and such transferee shall have no rights as a stockholder of the Company. To the extent inconsistent with the foregoing provisions of this Voting Agreement, the undersigned hereby revokes any and all proxies granted by him with respect to the Shares, and further agrees to execute and deliver such additional instruments and other documents and to take such further actions as may be necessary or appropriate to effectuate, carry out, and comply with all of its obligations hereunder.
Without limiting the generality of the foregoing, the undersigned shall not enter into any agreement or arrangement (or alter, amend or terminate any existing agreement or arrangement) if such action would impair its ability to effectuate, carry out, or comply with all the terms of this Voting Agreement.
The undersigned represents and warrants that: (i) the undersigned has full power and authority to enter into the agreements set forth herein; (ii) this Voting Agreement has been duly executed and delivered and constitutes a valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms; and (iii) the Shares set forth on Schedule I hereto are the only voting securities, or voting rights in capital stock of the Company, owned (beneficially or of record) by the undersigned as of the date hereof.
This Voting Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the undersigned and its respective successors and assigns. The undersigned agrees that irreparable damage would occur if any provision of this Voting Agreement were not performed in accordance with the terms hereof and that Cogent and/or the Company shall be entitled to an injunction or injunctions to prevent breaches of this Voting Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal court located in the State of Delaware or any Delaware state court, in addition to any other remedy to which it is entitled at law or in equity. In the event that the Agreement is terminated in accordance with its terms or is amended in a manner that is material, this Voting Agreement shall automatically terminate and be of no further force or effect. Upon such termination, except for any rights Cogent or the Company may have in respect of any breach by the undersigned of its obligations hereunder, there shall be no further obligation or liability hereunder.
Very truly yours,
SCHEDULE I COMPANY SHARES TYPE: NUMBER: ---- ------ |
SCHEDULE PURSUANT TO
INSTRUCTION 2 TO ITEM 601 OF
REGULATION S-K.
Date Undersigned ---- ----------- 10/15/2001 Norwest Venture Partners VII, LP 10/15/2001 Telecom Partners II, LP 10/15/2001 Crescendo World Fund, LLC |
Exhibit 10.1
FIBER OPTIC NETWORK LEASED FIBER AGREEMENT
PRODUCT ORDER
This Product Order ("Product Order") together with the General Terms and
Conditions constitute the Fiber Optic Private Network Agreement ("Agreement")
which is effective as of February 7, 2000 (the "Effective Date") by and between
METROMEDIA FIBER NETWORK SERVICES, INC. ("MFN"), One North Lexington Ave.,
Fourth Floor, White Plains, New York 10601, and COGENT COMMUNICATIONS, INC.
("Carrier"), 1015 31st Street NW, Suite 330, Washington, DC 20007. Definitions
of terms used in this Agreement appear in this Product Order and in the General
Terms and Conditions.
Carrier hereby orders and MFN hereby agrees to provide Leased Fiber as follows:
1. Lease Term: The Lease Term for each Supplement shall commence on the
respective Service Date and shall terminate two hundred forty months
after the earlier of (i) sixty (60) months after the Effective Date or
(ii) the date on which Carrier satisfies its Commitment set forth
below.
2. Number of Leased Fibers and requests for Building Access into Carrier Locations: To be specified in each Supplement ("Supplements" and each a "Supplement") to this Product Order to be executed by the parties.
3. Commitment:
3.1. Number of Leased Fiber Miles: A minimum aggregate of [*]
[*] fiber miles [*] to be leased within sixty (60)
months after the Effective Date.
3.2. Number of Carrier Locations into which Carrier will order Building Access: A minimum aggregate of [*] buildings within sixty (60) months after the Effective Date.
4. Specifications pertinent to testing the Leased Fiber is attached herewith: as Exhibit A.
5. Installation Charge and Monthly Lease Payments:
5.1 One Time Installation Charge: To be specified in each Supplement, if any. There shall be no one time installation charge for Leased Fiber or Lateral Extensions into any Carrier Location which is already part of the MFN Network or any Proposed Carrier Location, provided that the Leased Fiber is to be brought to the MFN point of demarcation in such Carrier Location.
5.2 Monthly Lease Payments:
5.2.1. Monthly Fiber Charge:
INCREMENTAL PRICE PER FIBER MILE FIBER MILE PER MONTH ------------------------------------------------ [********************************************] ------------------------------------------------ [********************************************] ------------------------------------------------ [********************************************] ------------------------------------------------ [********************************************] ------------------------------------------------ [********************************************] ------------------------------------------------ [*] Indicates confidential treatment requested. |
[*******************************************************]
[*******************************************************]
[*******************************************************]
[*******************************************************]
[*******************************************************]
5.2.2. Notwithstanding the table set forth in Section 5.2.1,
above, in the event Carrier orders Leased Fiber in a
network route ring configuration, such Leased Fiber shall
be provided for a minimum Monthly Fiber Charge of [*]
[*] regardless of the
number of the fiber miles and fiber strands ordered.
Subject to availability, MFN will lease to Carrier a
minimum of one (1) fiber strand and a maximum of eight (8)
fiber strands in any single MFN network ring. MFN shall
promptly notify Carrier when MFN has available eight (8)
or fewer fibers on a single ring.
5.2.3. Monthly Building Access Charge: [*] per Carrier Location except as otherwise provided in Section 8.2.3.2 to this Product Order.
5.2.4. Applicable Taxes (as defined in the Agreement) on any Installation Charge incurred pursuant to a Supplement and all Monthly Lease Payments are to be paid by Carrier as and when due.
6. Estimated Installation Completion Dates: To be specified in Supplements
7. Early Termination Charge:
In the event of termination of this Agreement or any Supplement to this Product Order pursuant to Section 11.2 of the General Terms and Conditions of this Agreement, Carrier will pay to MFN an Early Termination Charge (plus Applicable Taxes) for the affected Leased Fiber and Building Access determined as follows:
1st year termination - [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber for the first year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the second year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber for the third year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the fourth year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the fifth year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the sixth through the last day of the then scheduled Lease Term.
2nd year termination - [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the second year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the third year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the fourth year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the fifth year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the sixth through the last day of the then scheduled Lease Term.
3rd year termination - [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the third year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the fourth year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the fifth year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the sixth through the last day of the then scheduled Lease Term.
[*] Indicates confidential treatment requested.
4th year termination - [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the fourth year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the fifth year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the sixth through the last day of the then scheduled Lease Term.
5th year termination - [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the fifth year, plus [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the sixth through the last day of the then scheduled Lease Term.
6th through 20th year termination - [*]% of all unpaid Monthly Lease Payments for the affected Leased Fiber and Building Access for the balance of the then scheduled Lease Term.
In the event that this Agreement is terminated, and if Carrier has not yet leased [*] fiber miles from MFN hereunder as of the date of any termination, then such termination shall be calculated as if Carrier has actually leased [*] fiber miles as of the date of termination. For purposes of this Section 7 only, except in cases of Carrier's gross negligence or willful misconduct, Carrier's payment to MFN of (i) the Early Termination Charge, (ii) MFN's costs of construction and installation plus fifteen percent (15%) plus applicable sales or other taxes, and (iii) the Applicable Taxes (set forth in Section 2 of the General Terms and Conditions of this Agreement) shall be MFN's sole and exclusive remedy under this Agreement.
8. Fiber, Locations and Requirements
8.1 Leased Fiber Commitment. Carrier acknowledges and agrees that within
[*] days of the effective date of this Agreement,
Carrier will lease Leased Fiber subject to the terms and conditions of
this Agreement totaling at least [*] fiber miles in
metropolitan areas where MFN has or reasonably expects to have within
such [*] day period an installed Network as set
forth in Exhibit B. Carrier acknowledges and agrees that within sixty
(60) months after the Effective Date of this Agreement, Carrier will
lease Leased Fiber subject to the terms and conditions of this
Agreement totaling at least [*] fiber
miles in the United States and/or Canada in metropolitan markets in
which MFN itself or through one or more of its affiliated companies
has constructed or plans to construct a Network within the next twelve
(12) months. Any fiber mile leased in a Canadian metropolitan market
shall be pursuant to a Supplement entered into by either MFN or one of
its affiliates directly.
8.1.1. For the purposes of this Agreement, fiber miles will be calculated by multiplying the physical mileage of Carrier's Leased Fiber route(s) by the quantity of Leased Fiber along the same route(s).
8.1.2. The Monthly Fiber Charge for the initial [*]
[*] Leased Fiber miles that MFN leases to Carrier
within sixty (60) months after the Effective Date of this
Agreement shall be [*] per
fiber mile per month.
8.1.3. Carrier further acknowledges and agrees that for the period
beginning at the end of sixty (60) months after the Effective
Date until such time as Carrier has leased [*]
[*] fiber miles pursuant to Supplements, Carrier
shall be liable to MFN for any difference that may exist
between the Monthly Fiber Charge for [*]
[*] fiber miles and Carrier's actual total Monthly Lease
Payments for Leased Fiber miles pursuant to Supplements (the
"Contract Balance"). In the event that MFN has reason to
believe that such difference may exist, MFN will provide
Carrier written notice of the deficiency fifty-nine (59) months
[*] Indicates confidential treatment requested.
after the Effective Date of this Agreement and Carrier will
then have thirty (30) days to order additional fiber subject
to the terms and conditions of this Agreement necessary to
achieve Supplements for [*]
Leased Fiber miles. If after sixty (60) months after the
Effective Date of this Agreement, Carrier does not lease
from MFN Leased Fiber totaling [*]
[*] fiber miles pursuant to Supplements, then in advance
of the sixty-first (61st) month after the Effective Date,
MFN will invoice and Carrier will pay the Monthly Fiber
Charge each month equal to the aggregate Monthly Fiber
Charge pursuant to Supplements plus the Contract Balance (as
the Contract Balance may be reduced in accordance with the
final sentence of this paragraph) multiplied by [*]
dollars [*] per fiber mile per month until such
time as Carrier has leased an aggregate of [*]
[*] fiber miles pursuant to Supplements. Any
such amount will be subject to an Early Termination Charge
as set forth in Section 7. As and when Carrier has leased
additional Leased Fiber miles pursuant to Supplements, the
Contract Balance shall be reduced by the amount of the fiber
miles subject to such Supplements. Notwithstanding anything
to the contrary contained in this Agreement, Carrier will
have no liability under this provision or Section 7 of this
Product Order in the event that any failure of Carrier to
lease [*] fiber miles is due
to MFN's inability to deliver fiber in accordance with any
Supplements, including, without limitation, any failure of
MFN to timely deliver Leased Fiber, any failure of any
Leased Fiber to meet the Specifications, MFN's failure to
build to announced build plans, and/or any other failure or
inability of MFN to timely deliver Leased Fiber in
accordance with the terms of the Agreement.
8.1.4. In no event shall Carrier be obligated to lease Leased Fiber from MFN in excess of [*] fiber miles.
8.2 Building Access Commitment. Carrier acknowledges and agrees that within sixty (60) months after the Effective Date, Carrier will order from MFN Building Access into at least [*] Carrier Locations. Such Carrier Locations will consist of buildings and/or central offices connected to the Network selected from the target building list (the "Target Building List"), annexed herewith as Exhibit C and updated from time to time by MFN, but not more frequently than once every three (3) months.. Notwithstanding anything herein to the contrary, MFN shall not be obligated to provide Building Access into [*] Carrier Locations. Within sixty (60) months after the Effective Date, in the event that MFN fails to provide Building Access into a minimum of [*] buildings designated on the Target Building List, exclusive of Proposed Carrier Locations (defined in Section 8.2.3, below), then Carrier's Building Access Commitment shall be reduced accordingly by such number of buildings into which MFN fails to provide Building Access.
8.2.1. Subject to Section 8.2.3.2, the Monthly Building Access Charge shall be [*] per month.
8.2.2. Carrier further acknowledges and agrees that for the period beginning at the end of sixty (60) months after the Effective Date until such time as Carrier has requested Building Access into [*] Carrier Locations, selected from the Target Building List, pursuant to Supplements, Carrier shall be liable to MFN for any difference that may exist between the Monthly Building Access Charge for [*] Carrier Locations and Carrier's actual total Monthly Building Access Charge pursuant to Supplements (the "BA Contract Balance"). In the event that MFN has reason to believe that such difference may exist, MFN will provide Carrier written notice of the deficiency fifty-nine (59) months after the Effective Date of this Agreement and Carrier will then have thirty (30) days to order additional Building Access into Carrier Locations subject to the terms and conditions of this Agreement necessary to achieve Supplements for [*] Carrier Locations. If after
[*] Indicates confidential treatment requested.
sixty (60) months after the Effective Date of this Agreement,
Carrier does not order Building Access into Carrier Locations
totaling [*] pursuant to Supplements, then in
advance of the sixty-first (61st) month after the Effective
Date, MFN will invoice and Carrier will pay the Monthly
Building Access Charge each month equal to the aggregate
Monthly Access Charge pursuant to Supplements plus the BA
Contract Balance (as the BA Contract Balance may be reduced in
accordance with the final sentence of this paragraph)
multiplied by [*] per
Carrier Location per month until such time as Carrier has
ordered Building Access into an aggregate of [*]
Carrier Locations pursuant to Supplements or such lesser number
as provided in Section 8.2 of the Product Order Any such amount
will be subject to an Early Termination Charge as set forth in
Section 7. As and when Carrier has ordered Building Access in
Carrier Locations pursuant to Supplements, the BA Contract
Balance shall be reduced by the amount of the Carrier Locations
subject to such Supplements. Notwithstanding anything to the
contrary contained in this provision, Carrier will have no
liability under this provision in the event that any failure of
Carrier to order Building Access into [*]
Carrier Locations is due to (i) MFN's inability to deliver
Building Access into [*] Carrier Locations or (ii) MFN's
failure to timely deliver Building Access pursuant to any
Supplements in accordance with the terms of the Agreement.
8.2.3. Notwithstanding anything contained in this Section 8.2. to the contrary, Carrier shall have the right to request Building Access into a proposed Carrier Location not designated on the Target Building List. Such requests shall be provided to MFN in a written notice pursuant to Section 9.2, specifying the proposed Carrier Location(s) (the "Proposed Carrier Location") and any necessary documentation (including, without limitation, a copy of the telecommunications license agreement between Carrier and the building owner or manager), in a form acceptable to MFN, certifying that a Proposed Carrier Location meets MFN's commercial building criteria (the "Commercial Building Criteria") set forth in Exhibit D, annexed herewith. MFN will determine, in its sole discretion, whether or not the proposed Carrier Location(s) meets the Commercial Building Criteria, and to provide Building Access and construct a Lateral Extension to and into such Proposed Carrier Location(s). All right, title and interest to the Lateral Extensions constructed by MFN shall vest in MFN.
8.2.3.1. Carrier shall use its best efforts to assist MFN in entering into a Telecommunications License Agreement with the owner or manager of a Proposed Carrier Location in the form attached hereto as Exhibit E. Carrier agrees to promptly forward or deliver to MFN's Real Estate Group any and all communications by the owner or manager of a Proposed Carrier Location regarding the Telecommunications License Agreement. Subject to Section 8.2.3, MFN may enter into a Telecommunications License Agreement with a building owner or manager of proposed Carrier Location, pursuant to this Section 8.2.3.1 wherein the terms of such agreement differ from the terms of the form Telecommunications License Agreement attached hereto as Exhibit E, provide that such terms are not in variance with the Building Access Criteria. All such communications should be sent or forwarded to:
Metromedia Fiber Networks, Inc.
685 Third Avenue, 3rd floor
New York, NY 10017
Attn: Mark Pearlman
Vice President - Real Estate Group
(212) 687-9177 x518
mpearlman@mmfn.com
[*] Indicates confidential treatment requested.
8.2.3.2. In the event that MFN provides Carrier with Building Access into a Proposed Carrier Location and in consideration of Carrier assisting MFN to enter into a Telecommunications License Agreement with an owner or manager of a Proposed Carrier Location as set forth in Section 8.2.3.1, such Building Access with respect to the Carrier Location shall be provided to Carrier at no charge during the Lease Term.
8.2.3.3. In no event shall Carrier be obligated to order Building Access into an excess of [*] Carrier Locations.
8.3. Carrier will, from time to time, request Leased Fiber and Building
Access pursuant to the terms and provisions hereof, by providing MFN
with one or more written notices (each a "Carrier Request Notice").
Each such notice shall indicate the number of fibers, the MFN
metropolitan market and Carrier's proposed Locations. Within thirty
(30) days after receipt of such notice, MFN will respond to Carrier
with a Supplement confirming the availability, the Monthly Lease
Payment for the Leased Fiber and Building Access subject to the
Supplement, the one time installation charge, if any, and the
estimated installation completion date for the requested fiber.
Carrier may order fiber in any metropolitan market in which MFN has
constructed a Network, except for the first [*] fiber
miles which must be requested in the metropolitan markets set forth in
Exhibit B. Carrier will execute and return to MFN each such Supplement
within ten (10) days of receipt thereof. Carrier shall do so by
following the procedure set forth in this Section 8.3. Carrier
acknowledges and agrees that any Leased Fiber in international
metropolitan markets may be provided directly by one or more
affiliates of MFN and that Carrier will enter into an agreement with
such affiliate for such provision of Leased Fiber.
8.4. Provided Carrier is not in default of this Agreement, Carrier may request additional Carrier Locations be added to any then existing Supplement by providing MFN one or more written requests. Such requests shall indicate the number of fibers, requested term, and any relevant information necessary to identify the requested Locations including, but not limited to, the address, floor, suite, and room number of the requested Location. Within thirty (30) days after receipt of such orders, MFN will respond to Carrier with a revised Supplement confirming the availability, the Monthly Lease Payment for the additional fiber miles, the one time installation charge, if any, and the estimated installation completion date for the requested additional Locations. Carrier will execute and return to MFN each such Supplement within ten (10) days of receipt thereof, failing which such Supplement shall be deemed rejected.
9. MFN address (and contact person) is as follows:
Metromedia Fiber Network Services, Inc.
One North Lexington Ave., Fourth Floor
White Plains, NY 10601
Attn.: Vice President - Marketing
For purposes of declaring a default or termination, a copy of the notice must be sent to:
Vice President - Legal Affairs
Metromedia Fiber Network Services, Inc.
One North Lexington Ave., Fourth Floor
White Plains, NY 10601
Carrier address (and contact person) is as follows:
Cogent Communications, Inc.
[*] Indicates confidential treatment requested.
1015 31st Street NW
Suite 330
Washington, DC 20007
Attn: David Schaeffer
For purposes of declaring a default or termination, a copy of the notice must be sent to:
Cogent Communications, Inc.
1015 31st Street NW
Suite 330
Washington, DC 20007
Attn: David Schaeffer
METROMEDIA FIBER NETWORK SERVICES, INC. COGENT COMMUNICATIONS, INC. By: /s/ Nicholas M. Tanzi By: /s/ David Schaeffer ---------------------- --------------------------- Nicholas M. Tanzi Name: David Schaeffer President Title: President |
FIBER OPTIC PRIVATE NETWORK AGREEMENT
GENERAL TERMS AND CONDITIONS
1. TERM AND LEASE
1.1 MFN hereby leases to Carrier, pursuant to Supplements to be executed by the parties, optical fiber ("Leased Fiber") on MFN's fiber optic cable network ("Network") and/or constructed and installed specifically for Carrier and the equipment and interfaces described in the Supplements to the Product Order ("Equipment"), as provided in the Product Order and the Supplements thereto. The Leased Fiber, Building Access and Equipment leased by Carrier will be referred to as the "Product". The lease term ("Lease Term") and other specific terms pertaining to the Product are set forth in the Supplements. The term "Party" will refer, individually, to either MFN or Carrier and the term "Parties" will refer to both of them. The term "Agreement" will mean and include the Product Order, Supplements and all Exhibits thereto and these General Terms and Conditions.
1.2 MFN will use commercially reasonable efforts to complete installation of and provide Carrier with access to the Product on or about the Estimated Installation Completion Date specified in the Supplements at the Carrier Locations specified in the Supplement ("Turnover Date"). For a period of time not to exceed ten (10) business days after the Turnover Date (the "Acceptance Test Period"), Carrier will conduct such testing as it reasonably deems necessary to ensure that the Product conforms in all material respects to the technical specifications set forth in Exhibit A to the Product Order ("Specifications"). Carrier will use commercially reasonable efforts to complete such acceptance testing and notify MFN in writing within five (5) business days after the Turnover Date, but in any event within the Acceptance Test Period, of acceptance or of any "Deficiencies" (as defined herein) in the Product. Deficiencies exist if the Product does not conform in all respects to the relevant Specifications. Upon receipt of such notification from Carrier, MFN will promptly undertake correction of such Deficiencies and restore access to and use of the Product to Carrier. The "Service Date," whereupon the Lease Term commences, will be the earlier of (i) completion of testing and acceptance of Product by Carrier, (ii) expiration of the AcceptanceTest Period or, (iii) if Carrier has identified Deficiencies, then the first date upon which Product conforms in all material respects with the relevant Specifications. If the Service Date for any Leased Fiber does not occur within one hundred and eighty (180) days of the Estimated Installation Completion Date set forth in the applicable Supplement, or such other date as may be mutually extended by the Parties, Carrier may terminate the Supplement with respect to such Leased fiber.
1.3 Carrier will obtain all necessary approvals for collocation in a building and for the use of any required building riser conduit or other required building facilities at all Carrier Locations. Unless otherwise provided for in the Product Order, if there is no existing and available riser conduit or other required facilities within such buildings then MFN will perform all construction and installation of such riser conduit and Carrier will reimburse MFN for the entire out of pocket cost to construct and install such riser conduit plus fifteen percent (15%) plus Applicable Taxes.
1.4. Upon the expiration of the Lease Term, or any earlier termination of this Agreement or a Supplement, Carrier will promptly remove from any property owned, leased or licensed by MFN all Carrier property, equipment and other materials used in connection with the Product within forty five (45) days from such expiration or termination. Carrier will complete such removal in a manner that does not interfere with or damage the Product or the Network. Subject to the preceding sentence, in all events, carrier may remove its optronic and electronic equipment. If Carrier fails to remove its property within such period, such property will be deemed abandoned, and MFN will make such disposition of the property as it deems necessary or advisable at Carrier's sole expense.
2. 2. TERMS OF PAYMENT
2.1 Unless otherwise provided for in the Product Order, Carrier agrees to pay
the One Time Installation Charge, if any, as provided in each Supplement,
upon the execution of the Supplement. Carrier will also pay to MFN all
applicable sales or other similar taxes assessed on the transactions
contemplated by this Agreement other than taxes on or measured by MFN's
income or capital, or any franchise or permit fees payable by MFN (except
those fees directly attributable to Carrier) ("Applicable Taxes"), unless
Carrier is eligible for an exemption and Carrier provides to MFN an
exemption certificate or other documentation. Commencing on the earlier of
(i) the Service Date for the first Location of each Ring or (ii) 180 days
after the Effective Date of the Supplement (unless all such delays are
caused by or result from the act or omission of MFN) and continuing each
month thereafter for the duration of the Lease Term, Carrier will pay the
Monthly Lease Payment and for such Supplement (and the Monthly Maintenance
Payment for the Equipment, if applicable) plus Applicable Taxes in advance
for each month. If service commences after the first day of any month or
terminates before the last day of a month, then the payment for such
partial month will be pro rated based on the number of days of the Lease
Term during that month to the number of days in that month. Carrier will
include such pro rata payment for the initial partial month in the first
monthly payment at the commencement of the Lease Term for such Supplement.
The Prepaid Lease Payment, not to exceed four (4) months if any, will be
paid as provided in the Supplement.
2.2 If Carrier fails to pay any sum when due pursuant to this Agreement, then, in addition to such sum, Carrier will pay interest on such unpaid sum at the lower of the highest legal rate of interest permitted in the State of New York or one and one-half percent (1.5%) per month.
3. MAINTENANCE, RESTORATION AND REPAIR OF THE NETWORK AND PRODUCT MONITORING
3.1 MFN will provide remote monitoring of the Network and the Product to the extent that the Product is incorporated into the Network. MFN will use commercially reasonable efforts to maintain the Product in accordance with the Specifications (subject to reasonable wear and tear) and the Network in good operating condition at all times during the Lease Term. The foregoing maintenance will be at no additional charge to Carrier, except as set forth in Section 3.4 hereof.
3.2 An "Outage" will mean the complete interruption of communications on one or more of Carrier's Leased Fibers resulting from physical damage to, or severance of, or a break in, or other failure of any Product. If an Outage or any other material degradation of service on any Leased Fibers occurs Carrier will immediately notify MFN by telephone at (888) 636-2778 or through such other notification procedure as Parties may establish. Provided that MFN personnel or contractors have access to affected Carrier facilities immediately upon notification, MFN will respond and commence work within two (2) hours after the time of notification by Carrier and restore effective use of the Product as expeditiously as practicable, but in no event more than four (4) hours after receipt by MFN of Carrier's notification, subject to "Force Majeure" as provided in Section 11 hereof.
3.3 Except for any Outage caused by or resulting from (i) Force Majeure as set forth in Section 11 hereof; (ii) the act or omission of Carrier, its employees, agents or contractors; (iii) any of Carrier's equipment or facilities used in connection with the Product; or (iv) planned Outages by reason of Services which have been scheduled and approved in advance by Carrier ("Excepted Outages") in the event of an Outage, Carrier will receive from MFN a credit ("Outage Credit") calculated at 5% of the Monthly Lease Payment for the affected Leased Fiber strands for each four (4) hours of Outage, up to a maximum of the Monthly Lease Payment for one (1) full month. Except in the case of a Prepaid Lease Payment or termination as provided in this Section 3.3, the Outage Credit will be applied against future payments which may become due and payable by Carrier to MFN. The Outage Credit will be determined by dividing the total Monthly Lease Payment by the number of Carrier Locations and dividing this result by the number of Leased Fiber strands to determine the Monthly Lease Payment per Leased Fiber Strand. This result is then multiplied by five percent (5%) and by the number of four (4) hour Outage periods. For example, if the Monthly Lease Payment for six (6) Carrier Locations is $60,000.00, the Monthly Lease Payment for each Location would be $10,000.00, and if there were four (4) Leased Fiber strands for each Location, the result would be
$2,500.00 per Fiber Strand. If the Outage affected two (2) strands at one
Location for eight (8) hours, the Outage Credit would be $2,500 x 5% x 2 =
$250.00. For the purposes of determining the Outage Credit pursuant to this
Section 3.3, if the Product Order provides for a Prepaid Lease Payment,
then the Monthly Lease Payment will be determined by dividing the Prepaid
Lease Payment by the total number of months of the Lease Term. The Outage
Credit will be in the form of a cash payment to Carrier by MFN if the
Carrier has paid the Prepaid Lease Payment in full or if this Agreement is
terminated by either Party as provided in Section 3.4 hereof. Outage
Credits will not be credited or payable for any period of time during which
MFN personnel or contractors are denied access to Carrier Locations or
other facilities to remedy an Outage.
3.4 If an Outage occurs and continues for a period longer than fifteen (15) days for any reason other than "Force Majeure" as defined in this Agreement, then at any time thereafter, unless and until such Outage is corrected, either Party can terminate this Agreement and the Supplement with respect to the Product subject to the Outage by written notice of such termination delivered to the other Party. Notwithstanding the foregoing, if such Outage occurs and continues by reason of a breach by a Party of its obligations under this Agreement, such breaching Party will not have any right to terminate this Agreement. The Outage Credit and right to terminate will be the sole and exclusive remedy of Carrier and liability of MFN for any Outage regardless of the cause of such Outage.
3.5 If all or part of the Product requires restoration, replacement or repair by reason of an act or omission of Carrier, its employees, agents, or contractors or any of Carrier's equipment or facilities used in connection with the Product, such repair, replacement and/or restoration will be made by MFN, at Carrier's sole expense, in accordance with MFN's then current time and materials rates plus Applicable Taxes. In addition, Carrier will not receive any Outage Credit by reason of the foregoing.
3.6 MFN may assign or subcontract to any third party any or all of its performance obligations (including without limitation maintenance) under this Agreement and Product Order at any time, without the consent of Carrier, provided that MFN will remain obligated for such performance in accordance with the terms of this Agreement.
3.7 MFN will have the right to inspect Carrier's use of the Product at any time and from time to time during normal business hours upon at least `twenty-four (24) hours" prior notice by MFN provided that such inspection does not interfere with or hinder Carrier's use of its Product as permitted hereunder.
4. USE AND OWNERSHIP OF THE PRODUCT
4.1 Carrier will not, by itself or through any agent or contractor, make any repair to or replacement of the Product or the Network or any other equipment or facilities provided by MFN in connection with the Product or otherwise. Carrier will not install any equipment to be used with the Product or use the Product in any manner which damages or interferes with the Product or the Network.
4.2 Carrier will use the Product in material compliance with all applicable federal, state and local laws, rules and regulations and all applicable franchises, rights of way, leases, licenses, contracts and other obligations to third parties with respect to the Network or Product. Carrier will obtain and maintain in effect during the Lease term all rights, leases, licenses, permits and governmental or non-governmental approvals necessary for use of the Product by Carrier and its customers.
4.3 Carrier acknowledges and agrees that the Product is provided for use (1) exclusively by Carrier and/or affiliated entities which control or are controlled by or commonly controlled with Carrier ("Affiliates") which are named in the Product Order (if so named, then the term "Carrier" as used in this Agreement will include any such Affiliates of Carrier), (2) customers of Carrier and (3) in either case only in the ordinary course of business of Carrier. For purposes of this Agreement, the ordinary course of Carrier's business shall not include the sale, leasing or granting of any rights of
use in "dark fiber", as such term is commonly understood in the telecommunications industry. Carrier will not under any circumstances (a) permit or provide access to or use of the Product, in whole or part, to any third party (other than a customer of Carrier in the ordinary course of business of Carrier), pursuant to (by way of example and not in limitation) sublease, license, sublicense or resale, or any other right to use, or (b) share or otherwise utilize in conjunction with a third party (including without limitation in any joint venture or as part of any outsourcing activity) any of the Product. Any breach of this Section 4.3 will be deemed to be a material breach of this Agreement and in the event of such material breach MFN will have the right to immediately terminate this Agreement, any applicable Product Orders and Carrier's access to the Network, in addition to any and all rights and remedies. ,
4.4 MFN retains all right, title and interest in and to the Product and the Network to the points within the Carrier Locations specified in the Product Order at which MFN's facilities end and Carrier's facilities begin, subject only to the grant of access and use provided to Carrier pursuant to this Agreement.
4.5 MFN reserves the right to utilize unused external building access and space within the building conduit(s) occupied by the Product at the Carrier Locations and otherwise, provided that such use does not interfere with or hinder Carrier's use of its Product as permitted hereunder.
5. AUTHORIZATIONS; RELOCATION; CONDEMNATION
"Authorization(s)" will mean all material and applicable governmental or non-governmental licenses, easements, rights of way, conduit, pole attachment and any other facilities or property rights, licenses, contracts, franchises, approvals, permits, orders, consents, and all other rights required for MFN to operate and maintain the Network or provide the Product to Carrier pursuant to this Agreement.
5.1 MFN will use commercially reasonable efforts to have or obtain by the Service Date, all Authorizations and to maintain or renew all such Authorizations through the Initial Term and to replace such Authorizations with reasonably suitable replacement Authorizations if any expire or are terminated or discontinued during the Initial Term. If any Authorizations are modified, terminated or discontinued and not replaced, and the loss of such Authorizations threatens to cause or does cause material financial harm to MFN, or prevents or materially interferes with MFN's control, possession and/or use of the Network or ability to lease the Product or materially and adversely affects the use by Carrier of the Product, then MFN will at its option either (i) provide Carrier with comparable Product or fiber optic capacity on portions of MFN's then existing Network (and/or other MFN Networks, including networks belonging to or controlled by MFN Affiliates) or on networks of third parties, or (ii) terminate this Agreement with respect to the affected Product and rebate to Carrier the pro rata portion of all Prepaid Lease Payments allocable to the terminated Product and amortized over the remainder of the Lease Term. The foregoing will be MFN's sole and exclusive liability and Carrier's sole and exclusive remedy with respect to the foregoing.
5.2 If MFN receives notice of any request, intent or plan by any governmental
or non-governmental third party, to relocate any material part of the
Product or any material segment of MFN's Network used in the provision of
the Product, MFN will notify Carrier of such request, intent, or plan. If
MFN is required by any such third party to relocate any segment of MFN's
network used in providing the Product, MFN will give Carrier at least sixty
(60) days (or such lesser period of notice that MFN may have received)
prior written notice of any such relocation ("Relocation Notice"). Together
with the Relocation Notice, MFN will provide an estimate of the cost of
such relocation. MFN will relocate the Leased Fibers, and, to the extent
MFN is not reimbursed for the cost of such relocation by a third party,
governmental entity or otherwise, Carrier will pay its pro rata share
(based on the ratio of leased fiber to total fiber in the affected
portion)of the costs associated with the relocation of the Product; except,
however, to the extent that such relocation is the direct result of any
negligent or willful act or omission of MFN. MFN will use its commercially
reasonable efforts to secure an agreement for reimbursement from any third
party, governmental entity or otherwise, requiring any relocation of the
Network and the Product.
5.3 If any portion of the Network or the Product and/or the Authorizations in
or upon which the Product has been installed, become the subject of a
condemnation proceeding which is not dismissed within one hundred eighty
(180) days after the date of filing of such proceeding and which could
reasonably be expected to result in a taking by any governmental agency or
other party having the power of eminent domain for public purpose or use,
both Parties will be entitled, to the extent permitted under applicable
law, to participate in any condemnation proceedings for compensation by
either joint or separate awards for the economic value of their respective
interests in the Leased Fibers that are subject to such condemnation
proceeding.
6. WARRANTIES
6.1 MFN warrants to Carrier that upon the Service Date and/or over the Lease Term the Product will operate in all material respects in accordance with the Specifications related thereto.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, MFN DISCLAIMS ALL WARRANTIES WHETHER EXPRESS OR IMPLIED INCLUDING ANY AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE (i) NETWORK OR PRODUCT, (ii) THE LEASE GRANTED PURSUANT HERETO, (iii) MAINTENANCE SERVICES (iv) CONSTRUCTION AND INSTALLATION SERVICES, IF ANY, AND (v) ANY OTHER SERVICE(S) (HEREINAFTER (iii) THROUGH (v) WILL COLLECTIVELY BE REFERRED TO AS "SERVICES") PROVIDED BY OR ON BEHALF OF MFN HEREUNDER.
7. LIABILITY/INDEMNIFICATION
7.1 Except for the gross negligence or willful misconduct of a Party hereto and except where a specific remedy is provided in this Agreement, the liability of each Party to the other Party for damages will be limited to the total Installation Charges and the Monthly Lease Payments paid or payable by Carrier for the Lease Term during which the damages were incurred. In no event will either Party be liable to the other Party for any incidental, indirect, special, consequential, exemplary, or punitive damages arising out of or relating to this Agreement, the lease granted hereunder, the Network, Product or Services provided hereunder, including damages based on loss of revenues, profits or lost business opportunities, regardless of whether the respective Party had been advised of or could have foreseen the possibility of such damages.
7.2 Each Party agrees to indemnify, defend and hold the other, its officers,
directors, employees, agents and contractors harmless from and against all
loss, damage, liability, cost and expense (including reasonable attorney's
fees and expenses) by reason of any claims or actions by third parties for
(i) bodily injury, including death, (ii) damage, loss or destruction of any
real or tangible personal property (including without limitation the
Network and Product) which third party claims arise out of or relate to (a)
any Product or Services provided by or on behalf of MFN hereunder, (b) a
Party's performance of or failure to perform any term, condition or
obligation under this Agreement, (c) any act or omission of a Party's
directors, agents, employees, contractors, representatives or invitees, or
(d) Carrier's or its customer's use of the Product and conduct of their
respective businesses including without limitation the content of any
video, voice or data carried by Carrier or its customers on the Product or
Network.
7.3 Except as otherwise set forth in this Agreement, nothing contained herein will operate as a limitation on the right of either Party to bring an action for damages against any third party based on any act or omission of such third party as such act or omission may affect the construction, operation, or use of the Product. Each Party agrees to execute such documents and provide such commercially reasonable assistance, at the claiming Party's sole expense, as may be reasonably necessary to enable the claiming Party to pursue any such action against such third party.
8. CONFIDENTIALITY
8.1 The Parties acknowledge and agree that this Agreement and the information each Party has provided or will provide in connection with this Agreement or that the other Party learns or obtains from a source other than public domain or from a source (including a Party) not in violation of any obligation of confidentiality, are and will be confidential and proprietary to the Party providing such information (the "Providing Party"). The Party in receipt of or learning or obtaining the confidential information (the "Receiving Party") agrees not to distribute, use or disclose to any third party the confidential information of the Providing Party.
8.2 Except as may be required by applicable legal requirements in the course of defending or prosecuting a legal, insurance or other claim or as required by applicable law, rule or regulation, Receiving Party will restrict dissemination of confidential information to only those persons who must have access to such confidential information in order to perform their respective rights or obligations hereunder (a) or otherwise to know such confidential information in connection with such Party's business and (b) the Party's legal tax and accounting personnel and advisors and investors. The Receiving Party will promptly notify the Disclosing Party of any such required disclosure to enable the Disclosing Party to seek protective relief therefrom and shall cooperate as the Disclosing Party may request in connection therewith.
8.3 Carrier may disclose the identity of MFN as a supplier of Carrier, and MFN may disclose the identity of Carrier as customer of MFN, each with the prior written consent from the other; which consent will not be unreasonably withheld or delayed; provided, that no such disclosure shall imply any endorsement of the disclosed Party or contain any misleading reference to the nature of the relationship between the Parties. Each Party may, in connection with a financing transaction, disclose confidential information to an equity investor or a lending financial institution which has executed an agreement with such Party to maintain the confidentiality of this Agreement in a manner consistent with the terms of this Section 8. Furthermore and notwithstanding anything contained herein to the contrary, each Party may disclose the general nature of this Agreement to such third parties PROVIDED THAT no such disclosure will indicate the pricing or pricing terms under this Agreement without the prior written consent of the other Party.
8.4 Each Party acknowledges and agrees that the information of the Disclosing Party described in this Section 8 constitutes valuable property of the Disclosing Party and that Disclosing Party will suffer irreparable injury not compensable by money damages for which the Disclosing Party will not have an adequate remedy at law in the event of a breach by the Receiving Party of the provisions of this Section 8 and therefore the Disclosing Party shall be entitled to injunctive relief to prevent or curtail any such breach, threatened or actual. The foregoing shall be without prejudice to or limitation on any other rights a Party may have under this Agreement, at law or in equity.
9. NOTICES
Unless otherwise provided herein, all notices and communications concerning this Agreement will be in writing and sent to the address (and contact person) specified in the Product Order, or at such other address as may be designated in writing by a Party. Unless otherwise provided herein, notices will be sent by certified US Postal Service, return receipt requested, or by commercial overnight delivery service, or by facsimile, and will be deemed delivered, if sent by US Postal Service, five (5) days after deposit, if sent by facsimile, upon verification or receipt or, if sent by commercial overnight delivery service, one (1) business day after deposit therewith.
10. RENEWAL TERM
Provided that Carrier is not in breach of any of its material obligations under this Agreement and subject to the conditions of this Agreement, Carrier may renew the term of this Agreement for the Product for one (1) additional renewal term upon the terms and conditions of this Agreement, except for the length of such renewal term and the Installation and Lease Fee payments, which the Parties will negotiate in good faith
following Carrier's written request for renewal delivered to MFN no earlier than one year before the scheduled expiration date of the initial term and no later that ninety (90) days before such expiration date.
11. TERMINATION/FORCE MAJEURE
11.1 If any of the following events of default occur, the non-breaching Party (if MFN) will have the right to deny access by Carrier to the Product or Network and (if either Party) to terminate this Agreement or, if applicable, the affected Supplement, by written notice following the expiration of any periods of time included in the following, such termination to be effective in the on the date set forth in the written notice of termination:
11.1 (a) If Carrier terminates any Supplement at any time before the expiration of the Lease Term (whether before or after the Turnover Date) or fails to make any payment hereunder within five (5) days or receipt of written notice of late payment from MFN, MFN will have the right to terminate such Supplement and/or deny access by Carrier to the Product or Network immediately without further notice to Carrier.
11.1 (b) If a Party breaches any material term or condition of this Agreement and such breach remains uncured thirty (30) days after delivery to the breaching Party of written notice of such breach, unless the breach is of a nature or involves circumstances requiring more than thirty (30) days to cure, the time period may be extended for such time as will be reasonably required, up to a maximum of one hundred and twenty (120) days provided the defaulting party proceeds diligently to cure the breach.
11.1 (c) A Party applies for or consents to the appointment of a receiver, trustee or similar officer for it or any substantial part of its property or assets, or any such appointment is made without such application or consent by such Party and remains undischarged for a period of sixty (60) days; or
11.1 (d) A Party consents to the institution of a petition, application, answer, consent, default of otherwise of any bankruptcy, insolvency or reorganization and any such proceeding as instituted against such Party remains undischarged for a period of sixty (60) days.
11.2 In the event of termination of a Supplement by MFN pursuant to Section 11.1 hereof or by Carrier after execution of the Supplement or before the end of the Lease Term (other than by Carrier for cause as provided in this Section 11), MFN will be entitled to receive, and Carrier will immediately pay, the early termination charge ("Early Termination Charge") set forth in the Product Order, and to offset any remaining portion of the Prepaid Lease Payment against any sums otherwise due and payable by Carrier to MFN pursuant to this Agreement.
11.3 If any Authorization is modified, terminated or discontinued and not
replaced as provided in Section 5.2 of these General Terms and Conditions,
and MFN has not notified Carrier in writing within sixty (60) days after
the occurrence of such modification, termination or discontinuance that MFN
will provide additional or substitute Product or capacity as provided in
Section 5.2, then and thereafter either party has the right, exercisable in
its sole discretion, to terminate the applicable Supplement with respect to
the affected Product upon thirty (30) days prior written notice (or such
other notice as is practicable under the circumstances) without liability
whatsoever by either Party to the other Party or any party claiming by,
through or under such other Party other than the return to Carrier, of the
unamortized portion of any Prepaid Lease Payment as of the date of such
termination as provided in Section 5.2.
11.4 Neither Party will be in breach of this Agreement resulting from delay or prevention of performance of such Party which is caused by any act attributable to an occurrence or an event of "Force Majeure" as defined herein. Neither party will, however, be relieved of liability for failure of performance due to a claimed Force Majeure hereunder if such failure is due to causes arising out
of its own negligence or to removable or remedial causes that it fails to remove or remedy using commercially reasonable efforts and within a reasonable period of time.
11.5 The term "Force Majeure" will mean any cause beyond the control of Carrier (or MFN, as applicable) which, by the exercise of due foresight, Carrier (or MFN) could not reasonably have been expected to avoid, and which by the exercise of reasonable diligence, Carrier (or MFN) will be unable to overcome, including but not limited to action by governmental authority including without limitation moratorium on any activities related to the Agreement, third party labor dispute, flood, earthquake, fire, lightning, epidemic war, riot, civil disturbance, sabotage and the like. The party affected by an event of Force Majeure (the "Affected Party") will notify the other party (the "Other Party") promptly of any occurrence or condition which, in the Affected Party's reasonable opinion, warrants an extension of time. Such notice will specify in detail the anticipated length of delay, the cause of the delay and a timetable by which any remedial measures will be implemented.
12. ASSIGNMENT; SUCCESSION
12.1 Carrier will not assign any right nor delegate any duty under this Agreement, in whole or in part, whether by operation of law or otherwise, without the prior written consent of MFN, which shall not be unreasonably withheld. Notwithstanding the foregoing, this Agreement may be assigned to any entity controlling, controlled by or under common control with Carrier, or who acquires all or substantially all of the assets or stock of Carrier, or any entity surviving merger or consolidation of such party or entity without the consent of MFN, provided that MFN is given prompt notice of such assignment. Upon any permitted assignment (or delegation) hereunder, Carrier will remain jointly and severally responsible for the performance under this Agreement, unless released in writing by MFN. Any permitted assignee will expressly assume all liabilities hereunder prior to the effectiveness of such assignment. Any attempted assignment or delegation without such consent will be null and void and may be deemed by MFN, in its sole discretion, to constitute a material breach of this Agreement.
12.2 The Agreement and Product Order will be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.
13. GOVERNING LAW
13.1 THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE 0F NEW YORK WITHOUT GIVING EFFECT TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
14. SURVIVAL
The Parties' respective representation, warranties, and covenants, together with obligations of indemnification, confidentiality and limitations on liability will survive the expiration, termination or rescission of this Agreement and continue in full force and effect.
15. ENTIRE AGREEMENT
This Agreement, Product Order, Supplements, Exhibits and all addenda attached hereto constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede any and all prior negotiations, understandings, and agreement with respect hereto, whether oral or written.
16. REMEDIES CUMULATIVE
Except as otherwise expressly provided, the rights and remedies set forth in this Agreement will be in addition to, and cumulative of, all other rights and remedies at law or in equity.
17. REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Party represents, warrants and covenants to the other that (a) it is a corporation, limited liability company, partnership, or other legal entity, duly organized, validly existing and in good standing under the laws of the state of its organization, (b) it has all requisite power and authority to enter into and perform its obligations under this Agreement and Product Order and (c) this Agreement, when executed, will become the legal, valid and binding obligation of such Party.
18. NO AGENCY
Nothing in this Agreement shall be deemed to place the parties in the relationship of employer-employee, principal-agent, or partners or joint venturers.
19. MISCELLANEOUS
19.1 The covenants, undertakings, and agreements set forth in this Agreement will be solely for the benefit of and will be enforceable only by the Parties hereto or their respective successors or permitted assigns.
19.2 The headings of the Sections in this Agreement are strictly for convenience and will not in any way be construed as amplifying or limiting any of the terms, provisions or conditions thereof.
19.3 In the event any term of this Agreement will be held valid, illegal or unenforceable, in whole or in part, neither the validity of the remaining part of such term nor the validity of the remaining terms of this Agreement will be in any way affected thereby.
19.4 This Agreement may be amended only by a written instrument executed by the Parties.
19.5 No failure to exercise and no delay in exercising, on the part of either Party hereunder, any right, power or privilege hereunder will operate as a waiver hereof, except as expressly provided herein.
19.6 This Agreement may be executed in multiple counterparts, each of which will constitute one and the same instrument.
METROMEDIA FIBER NETWORK SERVICES, INC. COGENT COMMUNICATIONS, INC. By: /s/ Nicholas M. Tanzi By: /s/ David Schaeffer -------------------- --------------------------- Nicholas M. Tanzi Name: David Schaeffer President Title: President |
EXHIBITS
Exhibit A: Leased Fiber Specifications Exhibit B: Initial Metropolitan Markets Exhibit C: Target Building List Exhibit D: Commercial Building Criteria Exhibit E: Telecommunications License Agreement |
EXHIBIT A
LEASED FIBER SPECIFICATIONS
AND
FIBER OPTIC CABLE SPLICING, TESTING AND ACCEPTANCE STANDARDS
MFN will perform fiber testing as described below on each Leased Fiber and will provide the documentation (hard copy and/or diskette) of results to the Customer. Each "span" will be defined in documentation included in the Customer's package. Acceptance of a span by Customer will be an acknowledgement by the Customer that all Leased Fiber complies with all performance criteria contained herein.
1) POWER TESTING: this end-to-end loss measurement will be conducted for each Leased Fiber in the span and from both directions using an industry-accepted laser source and power meter. The b-directional average will be used to determine the end-to-end loss of the span at each appropriate wavelength. This test will be conducted at both 1310 nm and 150 nm for Standard Single Mode Fiber; Dispersion Shifted Fiber (True Wave (TM), LEAF(TM), etc.) will be tested at 1550 nm only. In the event that a span consists of both Standard Single Mode and Dispersion Shifted fiber types, only 15450 nm testing will be conducted. This power testing will ensure fiber continuity and the absence of crossed fibers in the span. Power testing will only be conducted where the Leased Fiber is terminated by MFN in fiber distribution panels at both ends of the span.
2) OTDR TESTING: All traces will be provided in hard copy and diskette form using GR 196 format. This testing will be conducted at both 1310 nm and 1550 nm only if the Leased Fiber consists of either Dispersion Shifted Fiber (True-Wave(TM), LEAF(TM), etc.) or a combination of Single Mode and Dispersion Shifted fiber types.
OTDR testing will be conducted on a bi-directional basis for each Leased Fiber in each span at the appropriate wavelengths for the Leased Fiber described above. However, if due to length or attenuation reasons that the Leased Fiber span exceeds the dynamic range of an OTDR, a portion or the entire span may be tested on a unidirectional basis only. Alternatively, the Leased Fiber span may be divided into shorter testing spans, to the extent reasonably possible, in order to obtain bi-directional analysis. Also, in instances where a Customer intends to accept Leased Fiber that is not terminated at one end by MFN in a fiber distribution panel (such as in a manhole or handhole) only unidirectional testing will be performed.
The turnover documentation package delivered to Customer will contain the actual traces that detail the testing parameters (including pulse width, averaging and range). The average bi-directional splice loss for all splices within each span will be 0.15 dB or less while each connector pair (such as at a FDP) will have an average bi-directional connector loss for all splices within each span of 0.5 dB or less for all connectors within each span. (Note that the front and end connector of the span can only be measured uni-directionally and will also have a loss equal to or less than 0.5 dB). In the event that OTDR acceptance testing must be done on a unidirectional basis (for reasons described above), an average per span splice loss will be 0.30 dB.
All traces will be provided in hard copy and/or diskette form using GR 196 format. If the average bi-directional splice loss of each span exceeds 0.15 dB (or 0.30 dB uni-directionally), MFN will provide upon the Customer's request documentation of at least three attempts to reduce this value to below 0.15 dB dB (0.30 dB uni-directionally). The only exception to this will be in the instance of splice between two different fiber types (Standard Single-mode to Dispersion Shifted, Depressed-Clad, fibers with different mode-field diameters).
Customer should also note that the loss and/or reflectance of the front-end connector (as measured using a launch cord) is only an indicator of a problem such as a defective port, bulkhead, or the like. Since a different patch cord will be used by Customer (that connects to their equipment), for example) to make to this connector, a different loss and/or the reflectance may occur.
EXHIBIT B
o New York City
o Northern New Jersey
o Philadelphia
o Chicago
o Dallas
o Washington, DC
EXHIBIT C
[*]
[*] Indicates confidential treatment requested.
EXHIBIT D
MFN'S COMMERCIAL BUILDING ACCESS CRITERIA
1. The building qualifies as a Class A commercial building.
2. The building is located within [*] mile of the Network.
3. The building has at least [*] square feet.
4. The building has a lest [*] tenants.
5. MFN obtains the following access rights for a minimum term of [*] years after either (1) directly from the building owner or manager via a Telecommunications License Agreement or (ii) through an existing Carrier's arrangement with the building owner or manager (without MFN being subject to any additional rent or exclusive dealing provisions):
a. May bring up to four hundred thirty two (432) fiber strands through two (2) diverse locations and into MFN-installed distribution panels or racks,
b. cross-connect and provide dark fiber services to MFN carrier clients and tenants, with right, subject to availability, to fiber home run to MFN private network customers,
c. install three-inch (3") conduits from up to two (2) diverse points-of-entry to Carrier or MFN's space, and from Carrier or MFN's space to riser access points.
d. Except for its pre-existing private network clients (for which there shall be no by-pass fees), MFN will use Carrier's managed or other building central distribution system (including, without limitation, all internal conduit, risers, space and other building facilities) ("CDS") under "most favored nation" terms and conditions and without a requirement for by-pass fees,
e. MFN retains all right, title and interest in and to the optical fiber strands, equipment and interfaces (including, without limitation, riser conduits) which MFN installs,
f. MFN's rights set forth above will survive the expiration or termination of any agreement between MFN and Carrier or any agreement between Carrier and the Building owner or manager, at no cost or additional rent to MFN, and
g. if the Carrier's arrangement is terminated, then the Building owner or manager will provide such rights to MFN for a total term of ten (10) years with two (2) five (5) year renewal options for a charge determined by the Building owner or manager but in accordance with the applicable fair market value and agreed upon by MFN, provided MFN is not in default.
6. MFN reserves the right to revise the foregoing criteria from time to time in its sole discretion.
[*] Indicates confidential treatment requested.
EXHIBIT E
METROMEDIA FIBER NETWORK SERVICES, INC.
TELECOMMUNICATIONS LICENSE AGREEMENT
THIS TELECOMMUNICATIONS LICENSE AGREEMENT ("Agreement) is made as of this __ day
of __________ 2000 between("Licensor"), having an address of
____________________ and METROMEDIA FIBER NETWORK SERVICES, INC., its permitted
successors and/or assigns, having an address of One North Lexington Avenue,
White Plains, New York 10601 ("Licensee").
RECITAL
A. Licensor is the owner of certain lands as more particularly described on
Exhibit (the "Land") and a building on the Land (the "Building") commonly known
as
B. Licensor desires to give the Building access to telecommunications services
without restricting Licensor's or its tenants' choice of service providers,
C. Licensee desires to connect the Building to its fiber optic network (the
"Network") and to install certain telecommunications facilities on or in the
land and inside the Building so that the Licensor's tenants may obtain
telecommunications services over Licensee's network.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Grant of License Licensor hereby grants to Licensee the non-exclusive
right and license to do the following:
a. to install, maintain, operate, replace and remove cable and
optical fibers , junction boxes, hangers, pull boxes, splicing
boxes, ground wiring, racks, cabinets, vents, ducts, conduits,
pipes, equipment, supplemental HVAC and other facilities
(collectively. the "Telecommunications Facilities") as generally
described on Exhibit B;
b. to use any building entrance links, communications wiring and
other facilities, as presently exist or which may exist during
the License Term to the extent reasonably necessary in connection
with the Telecommunications Facilities and to connect Licensee's
present and future private customers and Service Providers to the
Network;
c. to install or construct additional Telecommunications Facilities
as may be reasonably necessary to connect Licensee's private
customers and/or Service Providers in the Building to the
Network, subject to Section 6 hereof.
2. EQUIPMENT ROOM. Licensee shall have, on an exclusive basis, the right to
occupy the space shown on Exhibit (the "Equipment Room") for any of the
foregoing purposes, and to install In the Equipment Room, in addition to
Telecommunications Facilities, equipment belonging to Licensee's private
customers and/or Service Providers.
3. TERM. The rights and obligations of Licensee hereunder shall be for a
term of ten (10) years. Provided Licensee is not then in default, Licensee shall
be entitled to an automatic renewal of the term for an additional ten (10) years
commencing on the expiration of the initial ten (10) year period. Thereafter,
provided Licensee is not then in default, Licensee shall be entitled to
successive one (1) year renewals on the same terms as are contained herein.
4. LICENSE FEE. Commencing on the date Licensee completes its installation,
Licensee shall pay Licensor the sum of Dollars ($) per month ("License Fee").
The License Fee shall be payable to Licensor, in advance, on the first day of
each calendar month. If the term commences on other than the first day of a
month, the License Fee shall be prorated for that first month for the number of
days from the Commencement Date to the end of the month.
5. INSTALLATION AND CONSTRUCTION. All work permitted pursuant to this
Agreement to be performed on the Land or in the Building shall be performed by
Licensee or its Approved Contractors (defined below), at Licensee's sole cost
and expense and in accordance with plans approved by Licensor in accordance with
this Agreement. The term "Approved Contractors" shall mean any contractor listed
on Exhibit Q annexed hereto or any other contractor approved by Licensor, such
approval not to be unreasonably withheld or delayed. All installations by
Licensee shall be made in compliance with applicable law. Prior to installing
any Telecommunications Facilities, Licensee shall submit detailed plans and
specifications of the planned installation to Licensor, for Licensor's approval,
which approval shall not be unreasonably withheld or delayed. Licensor shall
respond to Licensee's proposed plans within ton (10) business days after receipt
with either approval or the changes required for Licensor's approval. Licensor
shall cooperate with Licensee, at no cost to Licensor, in obtaining third party
permits, easements or agreements necessary for Licensee to exercise its rights
hereunder. During construction, Licensor shall permit Licensee to place a
40-yard rubbish container on the Land near the freight elevator or loading dock.
6. ACCESS. Licensee shall have 24 hour/day 365 days/year access to its
Telecommunications Facilities and Equipment Room.
7. UTILITIES. Licensee shall be responsible for procuring such utility
services as are necessary for the operation of the Telecommunications
Facilities, on a sub-metered basis. To the extent that Licensor offers
electrical service to tenants in the Building, Licensee shall purchase its
electricity from Licensor on a sub-metered basis, provided Licensor's charges
are no greater than those that Licensee would experience on the open market.
Licensee shall be responsible for the cost of any utilities consumed by it at
the Building together with any costs incurred to sub-meter the connections to
the Telecommunications Facilities.
8. ACCESS BY SERVICE PROVIDERS. Licensee shall have the right to enter into
agreements with third party Service Providers granting such providers the right,
on a non-exclusive basis, to provide services to tenants of the Building over
Licensee's Network and Telecommunications Facilities ("Service Providers"), and
where necessary
(in connection with the provision of such services) to install and maintain
equipment in Licensee's Equipment Room. The foregoing shall not prevent the
Licensor from requiring Service Providers to enter into separate license
agreements on mutually acceptable terms.
9. INSURANCE. Licensee shall, at its sole cost and expense, maintain
property insurance covering its Telecommunications Facilities and any other
personal property of Licensee located on the Land or in the Building and hereby
releases Licensor from any liability for damage to such personal property except
to the extent caused by Licensor's negligence or willful misconduct. Licensee
shall also maintain comprehensive general liability insurance in an amount not
less than $2,000,000 combined single limit and shall, upon request, furnish
Licensor with a certificate of insurance naming Licensor as an additional
insured, as its interest may appear. Licensee agrees to carry such other
insurance as it may be required to carry by law, such as worker's compensation
insurance coverage. Licensor and Licensee both hereby waive any property damage
claim which either party may in the future have against the other to the extent
such party's damages are covered by the waiving party's own-insurance. Each
party agrees to obtain, for the benefit of the other, a policy or endorsement
waiving such party's insurance carrier's right of subrogation
10. LIENS. Licensee shall not suffer or permit any mechanic's, laborer's or
materialman's lien to be filed against the Land or Building or any part thereof
by reason of work, labor, services or materials furnished to Licensee, and if
such lien shall be so filed, Licensee shall, following notice thereof, cause
such lien to be discharged of record or bonded during the continuance of any
dispute. The Telecommunications Facilities shall at all times remain the
property of Licensee and Licensee shall have the right to finance the
Telecommunications Facilities and to grant liens to its lenders against the
Telecommunications Facilities. Licensee shall have the right to record uniform
commercial code notice filings to give public notice of Licensee's ownership of
the Telecommunications Facilities.
11. CASUALTY AND CONDEMNATION. In the event that the Building, or any part
thereof is damaged by fire or other casualty, Licensor shall, at its expense,
cause the damage to be repaired to a condition as nearly as practicable to that
existing prior to the damage, with reasonable speed and diligence, subject to
delays in adjustment of loss under insurance policies, compliance with
applicable governmental requirements and other delays beyond the control of
Licensor. Notwithstanding the foregoing, in the event that the damage to the
Building is so severe that it results in the termination of leases such that
Licensee or any Service Provider no longer has any customers in the Building,
then Licensee shall have the right to terminate this Agreement. In the event
that the Building or Land is taken by eminent domain or deed in lieu thereof
such that Licensee is denied access to the Building, the Telecommunications
Facilities or the ability to remain connected to the end users in the Building,
then Licensee shall have the right to terminate this Agreement
12. SUBORDINATION AND NONDISTURBANCE. (a) Subject to compliance with
Section 12 (b), this Agreement Is and shall be subject and subordinate to all
ground or underlying leases of the entire Building and to all mortgages, deeds
of trust and similar security documents which may now or hereafter be secured
upon the Building, and to all renewals, modifications, consolidations,
replacements and extensions thereof.
(b) Licensor shall cause: (I) any party holding a mortgage or deed of trust on
any portion of the Building and (ii) the fee owner (if Licensor is a ground
lessee) and any other party having an interest that Is superior to Licensee's
interest in the Premises to execute and deliver to Licensee a non-disturbance,
subordination and attornment agreement on such mortgagee's trustee's or other
party's standard form within thirty (30) days of the date of this License (or
within thirty (30) day's after the execution of a mortgage or dead of trust or
conveyance that is entered Into after the date of this License).
13. TAXES. Licensee shall be responsible for any personal property taxes
levied or assessed against the Telecommunications Facilities owned by Licensee
and installed on the Land or in the Building. Licensee shall furnish Licensor
with evidence of payment of such taxes promptly following Licensors request
therefor.
14. REMOVAL OF TELECOMMUNICATIONS FACILITIES. At the termination of this
Agreement Licensee shall have the right to remove the Telecommunications
Facilities, provided Licensee restores any damage caused by such removal.
15. ATTORNEY'S FEES. The prevailing party shall be entitled to reasonable
attorneys' fees and disbursements incurred in connection with the institution of
any action or proceeding in court to enforce any provision hereof or for damages
by reason of any alleged breach or default of any provision of this Agreement or
for a declaration of either party's rights or obligations hereunder or for any
other judicial remedy, at law or in equity.
16. BIND AND INURE; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, their successors and/or assigns.
This Agreement Is irrevocable, except in accordance with Its terms. This
Agreement and the rights of Licensee hereunder may be assigned without the prior
written consent of the Licensor in connection with a sale of all or
substantially all of the assets of Licensee, or to an entity controlling
Licensee, under common control with Licensee or controlled by Licensee. All
other assignments shall be subject to the prior written consent of the Licensor,
which consent shall not be unreasonably withheld, conditioned or delayed.
17. NO IMPLIED WAIVER. No delay or omission by a party in the exercise of
any right or remedy upon any breach by the other party shall impair such right
or remedy or be construed as a waiver.
18. NOTICES. Except in the case of emergencies, all notices and other
communications hereunder shall be in writing either personally delivered or
mailed, via certified mail, return receipt requested, or sent by overnight
courier to the parties at the address first set forth above or such other
address as is subsequently given by written notice in accordance with this
Section. Notices will be deemed to have been given upon receipt or rejection.
19. AUTHORITY; QUIET ENJOYMENT. Licensor represents and warrants to
Licenses that Licensor is the sole owner in fee of the Land and Building and has
full legal capacity, power and authority to grant the license created hereby.
Licensor covenants that Licensee shall and may peaceably and quietly have, hold
and enjoy the license hereby granted without interference by Licensor or anyone
claiming under Licensor.
20. SEVERABILITY; INTEGRATION. A determination by a court of competent
jurisdiction that any provision of this Agreement or any part thereof is illegal
or unenforceable shall not invalidate the remainder of this Agreement or such
provision, which shall continue to be in effect This Agreement represents the
entire agreement of
the parties with respect to the subject matter hereof and supersedes any prior
written or oral understandings. This Agreement cannot be modified except in a
writing signed by the party to be bound.
21. GOVERNING LAW. This Agreement and the rights and obligations of the
parties shall be governed and construed in accordance with the laws of the State
where the Building is located.
22. CONFIDENTIALITY. Licensor shall (1) treat as proprietary and
confidential to Licensee any plan, study, report or other data or material which
is designated as confidential or which from all circumstances, in good faith,
ought to be treated as confidential or which is not publicly available other
then through breach of this covenant, and (ii) not disclose or release the same
to any third party except with the prior written consent of Licensee. Licensor
agrees not to disclose any of the business terms of this Agreement to any third
parties without the prior consent of Licensee, except that Licensor shall have
the right without Licensee's consent, to disclose such information to
prospective purchasers, investors or mortgagees of the Building.
23. MASTER AGREEMENT. The parties intend this Agreement to be one of
several between them concerning the subject matter hereof. In the event that
Licensee identifies other properties owned or managed by Licensor, and to the
extent that (a) there are suitable premises available in such other properties,
and (b) Licensee desires to license such additional premises, then the parties
shall enter into a separate written license agreement substantially in the form
and content of this. Agreement.
24. NO PRICE DISCRIMINATION. Licensor agrees not to discriminate against
Licenses by offering more favorable licensing terms to third parties than are
offered to Licensee pursuant to this Agreement or offering more favorable
licensing terms to third parties than are offered to Licensee's customers
pursuant Section 9 of this Agreement, without, in each instance, offering the
same terms to Licensee or its customers, as the case may be.
[remainder of this page left blank]
26. LIMITATION ON LICENSOR'S LIABILITY. Licensor's liability hereunder shall be limited to Licensor's interest in the Building or any proceeds thereof IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.
[LICENSOR] WITNESS: _____________________________ ____________________ By:_______________________________ Name:_____________________________ Title:____________________________ WITNESS: METROMEDIA FIBER NETWORK SERVICES, INC. ____________________ By:_______________________________ Howard Finkelstein, President |
FIRST AMENDMENT TO FIBER OPTIC PRIVATE NETWORK AGREEMENT
This First Amendment to Fiber Optic Private Network Agreement ("AMENDMENT"), dated July 19, 2001 ("EFFECTIVE Date"), is entered into by and between Metromedia Fiber Network Services, Inc., 360 Hamilton Avenue, White Plains, New York 10601 ("MFN"), and Cogent Communications, Inc., 1015 31st Street NW, Washington, DC 20007 ("CARRIER"), and amends the Fiber Optic Private Network Agreement ("AGREEMENT"), dated February 7, 2000, entered into by and between MFN and Carrier. Unless otherwise provided, definitions of terms used in this Amendment appear in the Agreement.
Notwithstanding any contrary provision contained in the Agreement, the following shall apply:
1. CARRIER TARGET BUILDING LIST AND MFN TARGET BUILDING LIST.
1.1. Within fifteen (15) days following the execution of this Amendment by both parties, Carrier shall supply to MFN a draft list of targeted buildings (in both paper and electronic format) ("BUILDINGS" and "CARRIER TARGET BUILDING LIST") to which Carrier seeks fiber optic access. The Carrier Target Building List shall be subject to periodic adjustment by Carrier not to exceed more than once per quarter. The initial Carrier Target Building List shall be attached as EXHIBIT A to this Amendment.
1.2. Carrier shall still have the obligation pursuant to Section 8.2 of the
Product Order of the Agreement to take at least [*]
Carrier Locations as per the Agreement Target Building List, provided,
however, that the charges for such Building Access will be set forth
in Sections 3, 4 and 5 of this Amendment. All Buildings connected to
MFN Network rings pursuant to the Agreement or this Amendment shall
count toward Carrier's [*] Carrier Locations
obligation, except for any Buildings contained in a Cancelled Product
Order which were already counted toward the obligation pursuant
Section 1.4 below.
1.3. Within fifteen (15) days following the execution of this Amendment by both parties, MFN will supply to Carrier a draft list of targeted buildings (in both paper and electronic format) ("MFN BUILDINGS" and "MFN TARGET BUILDING LIST") to which MFN seeks fiber optic access. The MFN Target Building List shall be subject to periodic adjustment by MFN not to exceed more than once per quarter. The initial MFN Target Building List shall be attached as EXHIBIT B to this Amendment.
1.4. The Parties acknowledge and agree that any and all product order Supplements previously submitted which were accepted by MFN but implementation and/or construction has not begun (collectively referred to as "Cancelled Product Orders"), and are listed on EXHIBIT C, are hereby considered (i) Carrier Building Access requests rejected by MFN but will count toward Carrier's [*] Carrier Location obligation, and (ii) null and void by both Parties. MFN shall supply Carrier with a list of all such Cancelled Product Orders within fifteen (15) days following the execution of this Amendment by both parties, which list shall be attached as EXHIBIT C to this Amendment.
2. TELECOMMUNICATIONS LICENSE AGREEMENTS.
2.1. Carrier has no obligation to enter into telecommunications license agreements ("TELECOMMUNICATIONS LICENSE AGREEMENTS") for any of the Buildings on the Carrier Target Building List.
[*] Indicates confidential treatment requested.
2.2. Carrier will endeavor to include, within the Telecommunications License Agreements into which it enters for any of the Buildings on the Carrier Target Building List, the right for a fiber provider ("FIBER PROVIDER") (inclusive of MFN but not necessarily limited to MFN) to (a) access the Building, including bringing fiber to a minimum point of entry and terminating at a distribution panel/OCEF in building; and (b) distribute dark fiber. Such access rights shall be at no additional charge from the Building's owner to the Fiber Provider.
3. BUILDINGS WHICH ARE ON-NET.
3.1. If Carrier submits a new product order Supplement or re-submits a
product order Supplement previously submitted which was either (i) a
Cancelled Product Order, or, (ii) not accepted by MFN, as of the date
of this Amendment, and the Supplement concerns a Building which is
On-Net, as defined below, Carrier shall obtain its fiber lateral
access into the Building through a lease commencing upon the
respective Service Date for the product order Supplement (and
co-terminating with such product order Supplement) for the same
Monthly Building Access Charge of [*] per
Building, as provided in Section 8.2.1 of the Product Order of the
Agreement. For purposes of this Amendment, a Building is considered
(i) "On-Net" if MFN has a conduit to the Building containing fibers
that are connected to a MFN fiber Network ring outside the Building
("MFN Lateral Extension"), MFN has general distribution rights within
the Building, the Building has physical fiber distribution capability
(E.G., a fiber distribution panel/OCEF) within the Building ("PHYSICAL
FIBER DISTRIBUTION CAPABILITY"), and fiber is available within the MFN
Lateral Extension, and (ii) "Off-Net" if it is not an On-Net Building.
3.2. MFN shall retain all right, title and interest to, and responsibility for and cost of maintenance of the MFN Lateral Extensions, subject to the grant of access and use provided to Carrier pursuant to the Agreement and/or this Amendment.
4. BUILDINGS WHICH ARE OFF-NET AND ON BOTH THE CARRIER TARGET BUILDING LIST AND MFN TARGET BUILDING LIST.
The following Section 4 will only apply if the Building is Off-Net and is listed in both the Carrier Target Building List and the MFN Target Building List.
4.1. MFN LATERAL EXTENSION EXISTS
4.1.1. If Carrier submits a new product order Supplement or re-submits a product order Supplement previously submitted which was either (i) a Cancelled Product Order, or (ii) not accepted by MFN, as of the date of this Amendment, and the Supplement concerns a Building which is Off-Net, however an MFN Lateral Extension exists but MFN does not have general distribution rights within the Building, then the following shall apply:
a) If the Building has Physical Fiber Distribution Capability, fiber is available within the MFN Lateral Extension, and Carrier has obtained landlord consent to utilize such Physical Fiber Distribution Capability, the Monthly Building Access Charge will be [*] per Building;
b) If the Building has Physical Fiber Distribution Capability, fiber is available within the MFN Lateral Extension, and Carrier's telecommunications license agreement for the Building provides for the Fiber Provider access rights as outlined in Section 2
[*] Indicates confidential treatment requested.
above, the [*] Monthly Building Access Charge shall be waived;
c) If the Building has Physical Fiber Distribution Capability,
however, there is no fiber available within the MFN Lateral
Extension, the Parties will follow the process set forth in
Section 4.1.3 of this Amendment; or
d) If the Building does not have Physical Fiber Distribution
Capability, the Parties will follow the process set forth in
Section 4.1.3 of this Amendment.
4.1.2. If Carrier submits a new product order Supplement or re-submits a product order Supplement previously submitted which was either (i) a Cancelled Product Order, or (ii) not accepted by MFN, as of the date of this Amendment, and the Supplement concerns a Building which is Off-Net, however an MFN Lateral Extension exists, MFN does have general distribution rights within the Building, but there is no fiber available within the MFN Lateral Extension, the Parties will follow the process set forth in Section 4.1.3 of this Amendment.
4.1.3. For the Carrier product order Supplements which fall within
the scope of Sections 4.1.1.c, 4.1.1.d, and 4.1.2, MFN shall
provide to Carrier a fixed One Time Installation Charge not in
excess of MFN's cost for constructing, permitting, engineering
and installing the facilities necessary to accommodate
Carrier's order and a Monthly Building Access Charge calculated
as follows: If the One Time Installation Charge is less than or
equal to [*] the Monthly Building Access Charge shall be
[*] per month (as above). If the One Time Installation Charge
is greater than [*] and less than or equal to [*], the
Monthly Building Access Charge shall be [*] per month. If the
One Time Installation Charge is greater than [*] and less
than or equal to [*], the Monthly Building Access Charge
shall be [*] per month. If the One Time Installation Charge is
greater than [*], the Monthly Building Access Charge shall
be [*] per month. If Carrier accepts MFN's offer, Carrier
shall pay seventy-five percent (75%) of the One Time
Installation Charge within fifteen (15) days of execution of
the product order Supplement by MFN and Carrier. The balance of
the One Time Installation Charge shall be payable upon
completion of the installation (including connection to
Carrier's Network rings) and acceptance by Carrier.
4.2 MFN LATERAL EXTENSION DOES NOT EXIST.
4.2.1 If Carrier submits a new product order Supplement or re-submits a product order Supplement previously submitted which was either (i) a Cancelled Product Order, or (ii) not accepted by MFN, as of the date of this Amendment, and the Supplement concerns a Building which is Off-Net and to which MFN has not constructed a MFN Lateral Extension, MFN will supply Carrier with a construction estimate of actual construction cost for a fiber lateral extension into each Building covered by the product order Supplement ("CARRIER-MFN LATERAL EXTENSION"). MFN and Carrier will use reasonable efforts to reach an agreed-to estimated construction cost for each Carrier-MFN Lateral Extension. 4.2.2 MFN and Carrier will have regular planning sessions, the intervals to be mutually agreed upon, concerning the construction of any buildings.. |
[*] Indicates confidential treatment requested.
4.2.3 Once MFN and Carrier have settled on an agreed-to estimated construction cost for a Carrier-MFN Lateral Extension, either Party may elect not to proceed with the Carrier-MFN Lateral Extension. If neither Party makes such an election not to proceed with the build, then the Parties will mutually agree to either (a) use MFN to construct the Carrier-MFN Lateral Extension at the agreed-to estimated construction cost; or (b) use a third party to construct the Carrier-MFN Lateral Extension if the estimated construction cost using such third party (including splice fees) is lower than the Carrier-MFN agreed-to construction estimate for the Carrier-MFN Lateral Extension. Carrier and MFN shall share the construction estimation costs on a fifty (50)/fifty (50) basis. If both Parties elect to have a third party construct the Carrier-MFN Lateral Extension, Carrier and MFN shall share the construction costs on a fifty (50)/fifty (50) basis. 4.2.4 If MFN elects not to proceed with the Carrier-MFN Lateral Extension, and Carrier still seeks the construction of a lateral extension, Carrier can proceed with the construction of its own lateral extension into the Building ("CARRIER LATERAL EXTENSION") and shall be entitled to MFN's splicing of fiber strands from the Carrier Lateral Extension into the MFN fiber Network ring that will service the Carrier Lateral Extension at a splice fee charge of MFN's actual cost to splice plus [*] [*] ("MFN SPLICE COST"), with MFN to provide reasonable cost assumptions upfront. a) Carrier shall be the owner of the Carrier Lateral Extension and is responsible for the maintenance of the Carrier Lateral Extension at Carrier's sole cost and expense. b) Notwithstanding anything contrary in the General Terms and Conditions, a service interruption experienced by Carrier as a result of damage to Carrier Lateral Extension is not an Outage as that term is defined, and Carrier is not entitled to any Outage Credits or other remedies for such interruptions. 4.2.5 If MFN elects to proceed with the Carrier-MFN Lateral Extension, and the Carrier-MFN Lateral Extension requires payment of any recurring charge or fee (I.E., utility monthly conduit fee, etc.), Carrier and MFN shall share such recurring charge or fee on a fifty (50)/fifty (50) basis. 4.2.6 Approvals for cost overruns, exceptions to the plan of work and progress payments to cover the construction of the Carrier-MFN Lateral Extension shall be made pursuant to MFN's standard forms and rules where applicable, and/or MFN's contractors standard forms. 4.2.7 Carrier will pay to MFN, [*] [*] for each engineering study on each Building prior to the performance of such engineering study, which will not commence until Carrier and MFN mutually agree in writing on undertaking any such study. Upon completion of such engineering study, MFN will invoice Carrier for fifty percent (50%) of the actual cost of the engineering study less the initial payment of [*]. |
4.3 OWNERSHIP, OPERATION AND SALE OF CARRIER-MFN LATERAL EXTENSIONS.
4.3.1 MFN shall own title to the Carrier-MFN Lateral Extension, and the fiber contained therein, and will provide Carrier with a lease of a portion of the fiber strands contained therein. |
[*] Indicates confidential treatment requested.
4.3.2 The Carrier-MFN Lateral Extension shall have single entry penetration into the Building, contain no less than twenty four (24) fiber strands and no more than one hundred forty four (144) fiber strands, unless the Parties mutually agree to a dual penetration and/or a different number of fiber strands. 4.3.3 Carrier and MFN shall share the responsibility for all taxes and related surcharges or permit fees on the Carrier-MFN Lateral Extension on a fifty (50)/fifty (50) basis. 4.3.4 Notwithstanding anything contained in the Agreement to the contrary, Carrier may, without the consent of MFN, collaterally assign this Agreement in whole but not in part to any or all parties providing financing to Carrier or any other entity controlled by or under common control with Carrier under a collateral trust for the benefit of the entities providing such financing or similar arrangement for the benefit of such financing entities. Carrier will advise MFN in writing of the assignment at the time of such assignment. If requested by Carrier, MFN will within seven (7) days of such request provide a written consent to any such permitted assignment; provided that such consent will permit reassignment in accordance with the terms of this Agreement if the financing parties exercise their remedies under the documents for such financing upon notice by the financing parties. 4.3.5 MFN will be responsible for providing all routine and emergency maintenance, and obtaining necessary authorizations and right of way on the Carrier-MFN Lateral Extension. Carrier will not pay any charges for such maintenance. Such maintenance will be provided in accordance with the terms and conditions of the Agreement. 4.3.6 Carrier can lease from MFN, without additional Leased Fiber charge, the number of dark fibers in the Carrier-MFN Lateral Extension equal to (i) twice the number of Leased Fibers Carrier has leased in the Network rings, provided such Carrier-MFN Lateral Extension is the only Carrier-MFN Lateral Extension existing into the same Building; or (ii) the same number of Leased Fibers Carrier has leased in the Network rings if more than one Carrier-MFN Lateral Extension exists into the same Building. 4.3.7 Carrier-MFN Lateral Extensions can only be spliced into Network rings. Carrier is permitted to request splicing of a number of fibers from the Carrier-MFN Lateral Extension equal to (i) twice the number of fibers in the Network rings, provided such Carrier-MFN Lateral Extension is the only Carrier-MFN Lateral Extension existing into the same Building, or (ii) the same number of Leased Fibers Carrier has leased in the Network rings if more than one Carrier-MFN Lateral Extension exists into the same Building, in both cases, up to one hundred forty four (144) fibers ("CARRIER FIBERS"). Whether splicing is for Carrier or other party acquiring fiber strands in the Carrier-MFN Lateral Extension, MFN shall be obligated to splice fibers leased in the Carrier-MFN Lateral Extension at MFN's Splice Cost, with MFN to provide reasonable cost assumptions upfront. 4.3.8 If Carrier wants additional fibers in the Carrier-MFN Lateral Extension, over and above (i) twice the number of fibers Carrier has leased from MFN in the corresponding Network rings, if such Carrier-MFN Lateral Extension is the only Carrier-MFN Lateral Extension existing into the same Building, or (ii) the same number of fibers Carrier has leased from MFN in the corresponding Network rings if more than one Carrier-MFN Lateral Extension exists into the same Building, in both cases, to connect to such Network rings, such fibers are subject to availability and shall be at the terms and conditions (including 5 |
splice fees) as is provided below for third party acquisitions of excess fibers in the Carrier-MFN Lateral Extension. 4.3.9 MFN may not construct additional Lateral Extensions into the Building, or splice additional fiber from the Building into any MFN Network rings until all fibers, over and above the Leased Fiber leased by Carrier, in the Carrier-MFN Lateral Extension ("EXCESS CARRIER-MFN LATERAL FIBERS") are leased either to Carrier or third parties ("DISPOSITION"). |
4.3.10 In the event Carrier has located a potential fiber customer who desires to lease Excess Carrier-MFN Lateral Fibers in Carrier-MFN Lateral Extensions, Carrier shall only promptly notify MFN regarding the identity of such potential customer ("FIBER CUSTOMER") and will not, in any matter whatsoever, attempt to negotiate terms of the Disposition with the Fiber Customer. In such event, or in the event MFN has located a potential Fiber Customer, MFN shall negotiate in good faith to enter into the applicable Disposition documents with such potential Fiber Customer. MFN's negotiations of the terms and conditions of the Disposition documents with any potential Fiber Customer shall be subject to the conditions contained in this Amendment, including but not limited to:
a) MFN shall use its commercially reasonable efforts to maximize the lease price payable thereunder, which in any event shall be no less than the amount determined in accordance with this Amendment.
b) The number of fiber strands which any Fiber Customer shall
be entitled to acquire hereunder shall be no greater than
(i) twice the number of fiber strands on the Network rings
that such Fiber Customer has acquired if such Carrier-MFN
Lateral Extension is the only Carrier-MFN Lateral
Extension existing into the same Building, or (ii) the
same number of fiber strands on the Network rings that
such Fiber Customer has acquired if more than one
Carrier-MFN Lateral Extension exists into the same
Building.
c) The Disposition documents shall prohibit the Fiber Customer from selling, assigning, leasing, licensing, granting an indefeasible right to use, or otherwise transferring, the fiber strands at any time (but may borrow against it or pledge its interest therein).
4.3.11 Dispositions of Excess Carrier-MFN Lateral Fibers can be made
at MFN's discretion for a lateral/building access fee
determined by MFN in its sole discretion. If Excess Carrier-MFN
Lateral Fibers are Disposed of at a lateral/building access
price less than the price set forth in the matrix attached as
EXHIBIT D to this Amendment ("MINIMUM BASE LATERAL/BUILDING
ACCESS PRICE"), then the Minimum Base Lateral/Building Access
Price will be used to calculate the Fiber Proceeds (as defined
in Section 4.3.13 below). If Excess Carrier-MFN Lateral Fibers
are Disposed of at a lateral/building access price more than
the price set forth in the matrix attached as EXHIBIT D to
this Amendment ("MAXIMUM BASE LATERAL/BUILDING ACCESS PRICE"),
then the Maximum Base Lateral/Building Access Price will be
used to calculate the Fiber Proceeds (as defined in
Section 4.3.13 below).
4.3.12 Any future Dispositions of Excess Carrier-MFN Lateral Fibers for which an initial lease has terminated shall be done in accordance with the terms and conditions of this Amendment, up through and until such Excess Carrier-MFN Lateral Fibers are no longer commercially viable.
4.3.13 Revenues received for lateral/building access fees in
connection with the Disposition of Excess Carrier-MFN Lateral
Fibers shall be split fifty (50)/fifty (50) between Carrier and
MFN ("FIBER PROCEEDS"). Only one-time/non-recurring fees (i.e.,
for installation, upfront costs, etc.) received in connection
with the Disposition of Excess Carrier-MFN Lateral Fibers,
which are over and above MFN's out-of pocket costs (for
splicing, etc. performed as part of the Disposition) plus
[*], shall be amortized over a period of
sixty (60) months for purposes of making the Exhibit D
calculations of the revenue received by MFN pursuant to this
Amendment; (but, they shall be paid out as received). MFN shall
remit to Carrier all Fiber Proceeds received during any
calendar quarter within forty-five (45) days from the end of
such quarter.
4.3.14 Carrier shall have the right, upon prior reasonable written notice to MFN, to audit, MFN's accounting records and to inspect fiber terminations at fiber distribution panels/OCEFs in Buildings subject to this Amendment, to determine if MFN has adhered to the terms of this Amendment with respect to the sharing of the Fiber Proceeds. Such audit shall be conducted by a mutually acceptable independent accounting firm, provided that such accountant shall hold MFN's accounting records in strictest confidence except as necessary to report to Carrier on MFN's compliance with Section 4.3.13 of this Amendment. Such audit and inspection shall be conducted during MFN's normal business hours, with minimal interruption to MFN's business, with reasonable prior notice to MFN, and may require MFN personnel to be present at all times. Any sum owed by MFN to the Carrier as a result of such audit shall be due and payable, with annual interest thereon of twelve percent (12%) from the date such sum should have been remitted to Carrier. Carrier shall bear all expenses for the audit unless MFN is determined to have underpaid Carrier by more than ten percent (10%) of the sum due hereunder from Fiber Proceeds, in which case MFN shall reimburse Carrier for the expenses of such audit.
5. BUILDINGS WHICH ARE OFF-NET AND ON THE CARRIER TARGET BUILDING LIST AND BUT NOT ON THE MFN TARGET BUILDING LIST.
5.1 If the Building is Off-Net and is listed in the Carrier Target
Building List but not in the MFN Target Building List, MFN will
construct, upon Carrier's written request, a MFN Lateral Extension
for a charge of MFN's actual cost to construct plus [*]
[*] ("MFN CONSTRUCTION COST"). Carrier will pay seventy five
percent (75%) of the MFN Construction Cost upon execution of the
applicable product order Supplement and twenty five percent (25%)
upon MFN's completion of construction of the Carrier Lateral
Extension. Carrier will receive a credit equal to (i) twenty-five
(25%) of the MFN Construction Cost for the first new MFN customer
using such MFN Lateral Extension; (ii) twenty-five (25%) of the MFN
Construction Cost for the second new MFN customer using such MFN
Lateral Extension; and (iii) twenty-five (25%) of the MFN
Construction Cost for the third new MFN customer using such MFN
Lateral Extension. For the fourth and for each subsequent new MFN
customer using such MFN Lateral Extension, Carrier will receive
fifty (50%) of all amounts received by MFN from such customer for
use of such MFN Lateral Extension. Any such credit due hereunder
will be applied towards any monthly charges due pursuant to the
Agreement unless otherwise agreed by the Parties.
5.2 Carrier may also elect to construct its own lateral to the Building by itself or through a third party. Any such lateral extensions constructed under this Section 5.1 shall be Carrier's property, shall be considered a Carrier Lateral Extension, and shall be subject to the provisions of Section 4.2.4 of this Amendment, including MFN's splice obligation.
[*] Indicates confidential treatment requested.
IN WITNESS WHEREOF, the parties hereto have each caused this Amendment to be signed and delivered as of the Effective Date.
Metromedia Fiber Network Services, Inc. Cogent Communications, Inc. Name Thomas D. Byrnes Name David Schaeffer --------------------------------- ------------------------- Title President Carrier Services Title Chief Executive Officer -------------------------------- ------------------------- Signature /s/ Thomas D. Byrnes Signature /s/ Donald Schaeffer ---------------------------- --------------------- Date July 19, 2001 Date July 19, 2001 --------------------------------- -------------------------- |
EXHIBIT A
INITIAL CARRIER TARGET BUILDING LIST
[To be supplied by Carrier]
EXHIBIT B
INITIAL MFN TARGET BUILDING LIST
[To be supplied by MFN]
EXHIBIT C
REJECTED AND CANCELLED PRODUCT ORDER SUPPLEMENTS
[To be supplied by MFN]
EXHIBIT D
FIBER STRAND PRICING MATRIX
Minimum and Maximum Base Lateral/Building Access Price for Excess Carrier-MFN Lateral Fibers Disposed of pursuant to this Amendment are as follows:
NUMBER OF FIBERS: MIN. BASE LATERAL/BUILDING MAXIMUM BASE LATERAL/BUILDING ----------------- -------------------------- ----------------------------- ACCESS PRICE ACCESS PRICE ------------ ------------ MONTHLY RECURRING ($) MONTHLY RECURRING ($) --------------------- --------------------- 2 [***] [***] 4 [***] [***] 6 [***] [***] 8 [***] [***] 10 [***] [***] 12 [***] [***] 14 [***] [***] 16 [***] [***] |
[*] Indicates confidential treatment requested.
Exhibit 10.2
DARK FIBER IRU AGREEMENT
BETWEEN
WILLIAMS COMMUNICATIONS, INC. ("WILLIAMS")
AND
COGENT COMMUNICATIONS, INC. ("COGENT")
DATED: APRIL 14, 2000
TABLE OF CONTENTS
ARTICLE PAGE ------- ---- ARTICLE I DEFINITIONS ...........................................................................1 ARTICLE II GRANT OF IRU...........................................................................5 ARTICLE III CONSIDERATION..........................................................................8 ARTICLE IV CONSTRUCTION..........................................................................10 ARTICLE V CONNECTION AND ACCESS TO THE SYSTEM...................................................13 ARTICLE VI COLLOCATION; FUTURE AGREEMENTS .......................................................13 ARTICLE VII TERM..................................................................................14 ARTICLE VIII MAINTENANCE AND RELOCATION............................................................15 ARTICLE IX USE OF THE SYSTEM.....................................................................17 ARTICLE X AUDIT RIGHTS..........................................................................18 ARTICLE XI WARRANTIES............................................................................18 ARTICLE XII DEFAULT...............................................................................19 ARTICLE XIII INDEMNIFICATION.......................................................................20 ARTICLE XIV LIMITATION OF LIABILITY...............................................................21 ARTICLE XV INSURANCE.............................................................................22 ARTICLE XVI TAXES AND GOVERNMENTAL FEES...........................................................23 ARTICLE XVII NOTICE................................................................................24 ARTICLE XVIII CONFIDENTIALITY.......................................................................25 ARTICLE XIX PROHIBITION ON IMPROPER PAYMENTS......................................................27 ARTICLE XX FORCE MAJEURE; EMINENT DOMAIN.........................................................27 ARTICLE XXI ARBITRATION AND DISPUTE RESOLUTION....................................................28 ARTICLE XXII RULES OF CONSTRUCTION.................................................................29 ARTICLE XXIII ASSIGNMENT............................................................................31 ARTICLE XXIV ENTIRE AGREEMENT; AMENDMENT; EXECUTION................................................33 |
EXHIBITS
Exhibit A System Description A-1 Map of Major Segments A-2 Major Segment Listing Exhibit B Collocation B-1 Collocation Provisions (Transmission Sites) B-2 Description of Transmission Sites and POP Collocation Sites; Cogent Racks B-3 Collocation Provisions (POPs) Exhibit C Fiber Splicing, Testing, and Acceptance Standards and Procedures Exhibit D Fiber Specifications Exhibit E Cable Installation Specifications Exhibit F As-Built Drawing Specifications Exhibit G Operations Specifications Exhibit H Interconnections |
DARK FIBER IRU AGREEMENT
THIS DARK FIBER IRU AGREEMENT (this "Agreement") is made on this 14th day of April, 2000 (the "Effective Date"), by and between WILLIAMS COMMUNICATIONS, INC., a Delaware corporation ("Williams"), and COGENT COMMUNICATIONS, INC., a Delaware corporation ("Cogent").
W I T N E S S E T H:
WHEREAS, Williams has constructed or acquired, or will construct or acquire, a fiber optic communication system along the route segments described and/or depicted in EXHIBITS A-1 AND A-2 attached hereto;
WHEREAS, Cogent desires to acquire from Williams, and Williams desires to provide to Cogent, rights to use certain optical fibers in the System (hereinafter defined) upon the terms and conditions set forth below; and
WHEREAS, the parties desire to establish additional ongoing obligations and rights that will be in effect during the term of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises set forth below, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
In addition to other terms defined elsewhere in this Agreement, where capitalized, the following words and phrases shall be defined as follows:
"ACCEPTANCE" and all capitalized derivations of the word shall have the definition set forth in EXHIBIT C.
"ACCEPTANCE DATE" shall have the definition set forth in EXHIBIT C.
"ACCEPTANCE STANDARDS" means the standards set forth in EXHIBIT C with respect to the testing and condition of the Cogent Fibers.
"ADDITIONAL FIBERS" shall have the definition set forth in Section 2.4(c).
"AFFILIATE" means, with respect to any entity, any other entity controlling, controlled by or under common control with such entity, whether directly or indirectly through one or more intermediaries. "Control" and its derivatives mean legal, beneficial or equitable ownership, directly or indirectly, of more than fifty percent (50%) of the outstanding voting capital stock (or other
ownership interest, if not a corporation) of an entity, or management or operational control over such entity.
"AS-BUILTS" shall have the definition set forth in Section 4.6.
"CABLE" means the fiber optic cable and fibers contained therein, including the Cogent Fibers, and associated splicing connections, splice boxes and vaults, and conduit.
"CLAIM" means any claim, action, dispute, or proceeding of any kind between Cogent (or any of its Affiliates, successors or assigns) and Williams (or any of its Affiliates, successors, or assigns) and any other claim, transaction, occurrence, loss, liability, expense or other matter arising out of, in connection with, or in any way related to, the Cogent Lease/IRU Rights, the Cable, the System, this Agreement or any other instrument, arrangement or understanding related to the Cogent Lease/IRU Rights.
"COGENT" means Cogent Communications, Inc., a Delaware corporation.
"COGENT EQUIPMENT" shall mean optronics (opto-electrical), electronics, or optical equipment, or materials, facilities, or other equipment owned, possessed, or utilized (other than the System) by Cogent.
"COGENT FIBERS" means the Initial Cogent Fiber and the Additional Fibers.
"COGENT IRU" shall have the definition set forth in Section 2.2.
"COGENT LEASE/IRU RIGHTS" shall have the definition set forth in
Section 2.3.
"COLLOCATION PROVISIONS" means the collocation provisions for Transmission Sites or POP Collocation Sites as set forth in EXHIBITS B-1 AND B-3, as applicable.
"CONNECTING POINT" means a point where the network or facilities of Cogent will connect to the System (subject to the provisions of Section 5.1 and as more particularly defined in EXHIBIT H.
"CONTRACT PRICE" shall have the definition set forth in Section 3.1.
"COSTS" means actual, direct costs incurred and computed in accordance with the established accounting procedures used by Williams to bill third parties for reimbursable projects and U.S. generally accepted accounting principles. Such costs include the following:
(a) labor costs, including wages, salaries, and benefits plus overhead allocable to such labor costs (the overhead allocation shall not exceed thirty percent (30%) of the labor costs computed without such overhead); and
(b) other costs and out-of-pocket expenses on a pass-through basis (such as equipment, materials, supplies, contract services, costs of capital, Required Rights, sales, use or
similar taxes, etc.) plus ten percent (10%) of such expenses.
"DARK FIBERS" means optical fiber provided without electronics or optronics, and which is not "lit" or activated.
"EFFECTIVE DATE" means the date defined in the introductory paragraph to this Agreement above.
"ESTIMATED COMPLETION DATES" means the dates defined in Section 4.3 below.
"FACILITY OWNERS/LENDERS" means any entity (other than Williams): (a)
owning any portion of the System or any property or security interest therein,
(b) leasing to Williams, or providing an IRU to Williams in, any portion of
the System, or (c) that is a Lender with respect to Williams or any Affiliates
of Williams.
"FIBER ACCEPTANCE TESTING" means the fiber acceptance testing described in EXHIBIT C.
"FIBER MILES" means the number of Route Miles in a Major Segment multiplied by the relevant number of Cogent Fibers in such Major Segment. For example, if there are four Cogent Fibers in a Major Segment with 100 Route Miles, there would be 400 Fibers Miles of Cogent Fibers in such Major Segment.
"FIBERS" means any optical fibers contained in the System including the Cogent Fibers, the fibers of Williams and the fibers of any third party in the System excluding, however, any fibers granted (whether through ownership, IRU, lease or otherwise) to governmental entities in exchange for allowing use of streets, rights-of-way or other property under the jurisdiction of such entity.
"FORCE MAJEURE EVENT" shall have the definition set forth in
Section 20.1.
"INDEFEASIBLE RIGHT OF USE" or "IRU" means an exclusive, indefeasible right to use the optical fibers or other specified property; provided that the granting of the same does not convey legal title to such fibers or other property. Notwithstanding the above, "Cogent Lease/IRU Rights" refers to both Cogent's lease rights set forth in Section 2.1 and the Cogent IRU granted pursuant to Section 2.2 or Subsection 2.4(c).
"INDEMNIFIED PARTIES" shall have the definition set forth in
Section 13.1.
"INDEMNITOR" shall have the definition set forth in Section 13.1.
"INITIAL COGENT FIBER" means that certain one (1) strand of Dark
Fiber designated by Williams in the Cable on each Major Segment of the type
set forth in Exhibit A-2 and further described in Exhibit D in which Cogent
shall be granted the Cogent Lease/IRU Rights hereunder as set forth in
Section 2.1.
"INITIAL TERM" shall have the definition set forth in Section 7.1.
"MAJOR SEGMENTS" means the individual identified portions of the Route between each of the city pairs listed on EXHIBIT A-2.
"NON-ROUTINE MAINTENANCE" shall have the definition set forth in the
Section 8.1.
"PER MILE RATE" shall have the definition set forth in Section 3.1.
"POPS" shall mean Williams' designated points of presence at the locations along the Route listed in EXHIBIT A-2.
"POP COLLOCATION SITES" shall mean those specific Williams POPs in which Cogent is granted collocation rights hereunder as listed in EXHIBIT B-2.
"PRO RATA SHARE" means a proportion equal to a fraction, the
numerator of which is the number of Cogent Fibers and the denominator of which
is: (a) during the Initial Term of a Major Segment all Fibers in the Cable and
(b) during any renewal term of a Major Segment all Fibers in the Cable that
are in service for Williams, Cogent and/or any third party as of the date such
share is being computed. If this fraction varies over a particular Segment,
then the Pro Rata Share shall be equal to the weighted average (weighted by
length as set forth in Williams' As-Built Drawings) of the relevant portions.
For example, if the fraction for 100 feet of the affected Segment is 0.1 and
the fraction for the remaining 50 feet of the affected Segment is 0.07, the
weighted average for the entire Segment would be 0.09.
"RACK SPACE" means space for a standard non-enclosed equipment rack with outside dimensions measuring twenty-six inches (26") in width, twenty-four inches (24") in depth and either seventy-eight inches (78") or eighty-four inches (84") in height, in Transmission Sites and POP Collocation Sites which are of type, size and quality standard in the telecommunications industry.
"RELEASED PARTY" means each of the following:
(a) any Affiliates or Lenders of the other party and any Facility Owners/Lenders;
(b) any employee, officer, director, stockholder, partner, member, or trustee of the other party or of its Affiliates, Lenders, or Facility Owners/Lenders; or
(c) assignees of the entities included in the above subparagraphs (a) or (b) and any employee, officer, director, stockholder, partner, member, or trustee of such assignees.
"RENEWAL TERMS" shall have the definition set forth in Section 7.2 below.
"REPRESENTATIVES" shall have the definition set forth in Section 18.1 below.
"REQUIRED RIGHTS" shall have the definition set forth in Section 4.2 below.
"RIGHT-OF-WAY AGREEMENTS" means agreements with right of way owners, property owners, utilities, railroads, government entities or other parties that Williams has entered into, or will enter into, to obtain some or all of the Required Rights.
"ROUTE" shall mean the route, including spurs, upon which the System will be constructed and installed consisting of the Major Segments.
"ROUTE MILES" means the actual miles traversed by the Cable along the Route (including spurs) based on the As-builts.
"ROUTINE MAINTENANCE" shall have the definition set forth in
Section 8.1.
"SEGMENT" means a discrete portion of the System and may refer to a Span, a portion between two POPs or a POP and a System end point, or a portion of the System affected by a relocation or other circumstance.
"SPAN" means a portion of the System between (a) a Transmission Site, a Williams-designated POP, or a System end point and (b) the next closest Transmission Site, Williams-designated POP, or a System end point along the Route from such site.
"SYSTEM" means Williams' fiber optic communications system constructed or to be constructed along the Route which will contain the Cogent Fibers including, but not limited to, the Cable, fibers, conduits, handholes, manholes and all other appurtenances and components of said communications system.
"TAKING" shall have the definition set forth in Section 20.2.
"TERM" means the Initial Term and any Renewal Term(s) of this Agreement as defined in Sections 7.1 and 7.2.
"TRANSMISSION SITES" shall mean Williams' designated optical amplifier, regenerator or junction sites along the Route as specified in Exhibit B-1.
"WILLIAMS" means Williams Communications, Inc., a Delaware corporation, formerly known as Vyvx, Inc..
ARTICLE II
GRANT OF LEASE/IRU RIGHTS
2.1 LEASE/IRU. Effective as of the Acceptance Date for each Major Segment (or with respect to Additional Fibers, the Acceptance Date of such Additional Fibers), provided that Cogent has made all payments previously due pursuant to Sections 3.2 and 3.3, Williams grants to Cogent (a) an exclusive, but defeasible, lease of the Cogent Fibers on such Major Segment and (b) an associated non-exclusive, but defeasible, lease, for the purposes of and subject to the terms and
conditions set forth herein, of the tangible and intangible property needed for the operation of the Cogent Fibers, including, but not limited to, the System and Required Rights, subject to underlying real property and contractual limitations and restrictions and excluding any electronic or optronic equipment, all on the terms and subject to the conditions set forth herein. The parties agree that the lease shall constitute a true lease and not a disguised sale for all purposes. Such lease shall terminate upon the first to occur of (x) an event of default and resulting termination of such lease under the terms of Article XII below, or (y) with respect to the affected Cogent Fibers, when Cogent obtains an IRU in such fibers pursuant to Section 2.2 or Subsection 2.4(c).
2.2 GRANT OF IRU IN INITIAL COGENT FIBER. After Williams' receipt of
all payments required under Subsections 3.2(a) through 3.2(d) (including any
interest and as adjusted pursuant to Section 3.7), or with respect to
Additional Fibers after Williams' receipt of all payments required under
Section 3.3, Williams shall grant Cogent (a) an IRU in the Initial Cogent
Fiber and Additional Fibers, if applicable, without further action required,
for the purposes described herein and (b) an associated non-exclusive but
Indefeasible Right of Use, for the purposes of and subject to the terms and
conditions set forth herein, in the tangible and intangible property needed
for the operation of the Initial Cogent Fiber and Additional Fibers, if
applicable, including, but not limited to, the System and Required Rights,
subject to underlying real property and contractual limitations and
restrictions and excluding any electronic or optronic equipment; all on the
terms and subject to the conditions set forth herein (the "Cogent IRU")
effective as of (x) the Acceptance Date for each such Major Segment
subsequently Accepted by Cogent hereunder, or (y) the date on which final
payment, as described above, is received by Williams with respect to each
Major Segment previously Accepted by Cogent.
2.3 COGENT LEASE/IRU RIGHTS. Cogent's lease rights and the Cogent IRU granted under this Article II shall collectively be referred to as the "Cogent Lease/IRU Rights." Upon the effective date of the Cogent IRU under Section 2.2, Cogent's IRU shall replace Cogent's lease of such Fibers. The Cogent Lease/IRU Rights:
(a) shall be subject to the terms and conditions set forth herein;
(b) do not convey any legal title to any real or personal property, including the Fibers, the Cable, or the System; and
(c) do not include any optronic or electronic equipment used in connection with transmitting capacity over or "lighting" the Fibers except for facilities and services provided by Williams pursuant to the terms of the Collocation Provisions.
2.4 RIGHT TO REQUEST LEASE/IRU RIGHTS IN ADDITIONAL DARK FIBERS. Cogent may order rights in additional Fibers as follows:
(a) Cogent shall have the right to request Cogent Lease/IRU rights in one additional Dark Fiber in all of the Major Segments, subject to availability at the time of exercise, at a price of [*] per Fiber Mile. Availability of such Dark Fibers will be determined by Williams in its sole and absolute discretion. Cogent shall make such request by
[*] Indicates confidential treatment requested.
giving written notice to Williams within three (3) years after
the Effective Date. If notice is not given within such 3-year
period, any and all of Cogent's rights under this Subsection
2.4(a) shall expire and be of no further force or effect. Within
sixty (60) days after receipt of Cogent's notice requesting
Cogent Lease/IRU Rights in additional Dark Fibers under this
Subsection 2.4(a), Williams shall either (i) inform Cogent in
writing that Dark Fiber is available in all Major Segments, or
(ii) provide Cogent with a written list of all Major Segments in
which there are no Dark Fibers available. In the event Williams
notifies Cogent under clause (ii) that Dark Fibers are not
available in all Major Segments but that the Major Segments in
which Dark Fiber is available total [*] Route Miles or more,
Cogent shall give further written notice to Williams indicating
its intent to obtain Cogent Lease/IRU rights in additional Dark
Fibers with respect to the Major Segments identified as available
by Williams. Alternatively, Cogent may elect to withdraw its
prior notice requesting Cogent Lease/IRU Rights in additional
Dark Fibers under this Subsection 2.4(a) after which Cogent's
rights hereunder shall expire and be of no further force or
effect. In the event Cogent fails to provide such further notice
to Williams within thirty (30) days after Williams' notice under
clause (ii) above, Cogent's rights under this Subsection 2.4(a)
shall expire and be of no further force or effect. If Williams
notifies Cogent under clause (ii) above that there are no Dark
Fibers available in any Major Segment or that the Major Segments
in which Dark Fiber is available total less than [*] Route
Miles within the above-described 60-day period, then Cogent's
rights to obtain Additional Fibers under this Subsection 2.4(a)
shall expire and be of no further force or effect.
(b) In addition to the rights granted under Subsection 2.4(a), Cogent may request additional Dark Fibers on individual Major Segments at any time during the Initial Term. Within a reasonable time after receipt of a written request for such additional Dark Fibers from Cogent, Williams shall inform Cogent as to whether such requested additional Dark Fibers are available. Availability of any requested additional Dark Fibers will be determined by Williams in its sole and absolute discretion. If such Dark Fibers are available, as determined by Williams, Williams will use commercially reasonable efforts to price such fibers in a manner consistent with the pricing applicable to the Initial Cogent Fiber under this Agreement so long as Williams is able to maintain similar economic benefits under such terms. The pricing for any such additional Dark Fibers requested and provided under this Subsection 2.4(b) shall be as mutually agreed upon by the parties.
(c) Dark Fibers in which Cogent obtains Cogent Lease/IRU Rights under the terms of Subsection 2.4(a) or Subsection 2.4(b) are referred to herein as "Additional Fibers". Subject to satisfaction of all payment obligations set forth in Section 3.3, Cogent shall have the same rights in the Additional Fibers as it has pursuant to Sections 2.1 through 2.3 with respect to the Initial Cogent Fiber subject to all applicable terms and conditions of this Agreement. Upon Cogent's purchase of Cogent Lease/IRU Rights in Additional Fibers under the terms of Subsection 2.4(a) or Subsection 2.4(b), the parties shall execute an addendum to this Agreement incorporating this Agreement
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by reference, specifically identifying the Dark Fibers and Major Segments affected and the price to be paid for the Cogent Lease/IRU Rights to be granted in and to the Additional Fibers, and containing such other terms as mutually agreed upon by the parties. For purposes of this Section 2.4, Williams may consider intended or planned uses of Fibers which are not consistent with granting Cogent an IRU and not only whether such Fibers are then currently in use in determining "availability" of fibers in any Major Segment under this Section 2.4.
ARTICLE III
CONSIDERATION
3.1 CONSIDERATION FOR COGENT IRU. Subject to performance by Williams
of its obligations hereunder and in addition to any other consideration
provided for in this Agreement, Cogent agrees to pay to Williams for the
Cogent IRU in the Cogent Fibers, a non-recurring payment in the amount of
[*] (the "CONTRACT PRICE") which equals [*] per Fiber Mile
for the Initial Cogent Fiber constructed, installed, tested and Accepted
hereunder (the "Per Mile Rate").
3.2 PAYMENT TERMS. The Contract Price for all Major Segments shall be paid by Cogent to Williams as follows:
(a) The sum of [*] is due and payable within three (3) banking days after the Effective Date;
(b) The sum of [*] is due and payable on October 16, 2000;
(c) The sum of [*] is due and payable on April 16, 2001;
(d) The sum of [*], is due and payable on October 15, 2001.
Cogent may, at its option, prepay any or all of the payments under (a) through
(d) above at any time prior to the applicable due date(s) without penalty.
3.3 CHARGES FOR RIGHTS IN ADDITIONAL FIBERS. The price for Cogent Lease/IRU Rights in Additional Fibers provided under Subsection 2.4(b) shall be negotiated between Williams and Cogent at the time Williams agrees to grant a request for Additional Fibers submitted by Cogent. The total price for Cogent Lease/IRU Rights in Additional Fibers obtained by Cogent under Subsection 2.4(a) shall be computed based upon a [*] per Fiber Mile rate. The charge for Routine Maintenance under Section 3.4 shall not be separately charged or changed for Major Segments in which Cogent obtains Additional Fibers. The total price determined for the Cogent Lease/IRU Rights in any Additional Fibers provided hereunder shall be paid by Cogent to Williams as follows:
(a) twenty-five percent (25%) of the estimated price of the Additional Fibers (based on the estimated Fiber Miles of the Major Segments set forth in EXHIBIT A-2 except for Major Segments for which As-builts have been provided to Cogent hereunder in
[*] Indicates confidential treatment requested.
which case the price shall be determined using actual Route Miles) within three (3) banking days after the date the addendum referred to in Subsection 2.4(c) is executed by the parties; and
(b) the remaining seventy-five percent (75%) of the estimated price within three (3) banking days after the Acceptance Date of the Additional Fibers.
3.4 CHARGES FOR ROUTINE MAINTENANCE. Cogent shall pay Williams [*] per Route Mile per month throughout the Term (beginning on the Acceptance Date for each Major Segment) for Routine Maintenance, subject to the adjustments set forth below. Until Williams determines the actual Route Miles, Cogent shall pay estimated Routine Maintenance charges based on the estimated Route Miles set forth in EXHIBIT A-2. The [*] amount shall be increased annually on a date selected by Williams by two percent (2%) of the charges for Routine Maintenance applicable to the immediately preceding annual period. Cogent shall pay such amounts for each Major Segment on or before the first day of each calendar month following the Acceptance Date (with the first payment including amounts accrued during the month in which the Acceptance Date occurs as well as the payment for the first full month after Acceptance). Payments shall be prorated, as necessary, for partial months in which the Acceptance Date occurs or the Term expires.
3.5 CHARGES FOR NON-ROUTINE MAINTENANCE AND RELOCATIONS. Cogent shall
pay its Pro Rata Share of Williams' Costs of performing Non-Routine
Maintenance and relocations (except voluntary relocations, as described in
Section 8.2), if the gross cost of such work relating to any single event or
multiple, closely related events is greater than [*]. Notwithstanding
the foregoing: (a) Williams shall repair any damage caused by the negligence
or willful misconduct of Cogent or its employees, contractors or agents, at
Cogent's sole expense and at Williams' then-prevailing rates, and (b) to the
extent Cogent is obligated to reimburse Williams for all or a portion of the
Costs incurred pursuant to other Articles of this Agreement (including the
Collocation Provisions), such alternative reimbursement obligations shall
apply instead of the obligations set forth in this Section.
To the extent a third party not having an interest in the System or fibers in the System reimburses some or all of Williams' gross Costs of performing Non-Routine Maintenance or relocations, Williams shall reduce the gross Costs by the amount of such reimbursement for purposes of computing Cogent's Pro Rata Share of Costs; provided that Williams: (a) shall be entitled to reduce such amount by legal and collection costs incurred; and (b) shall have the right to prorate such reimbursement among itself, Cogent and other owners of an IRU or other ownership interest in Fibers within the System. Williams shall either reflect such reduction in its invoice or shall promptly refund such reduction when it receives such reimbursement.
3.6 CHARGES FOR COLLOCATION. The charges for collocation space provided to Cogent in Transmission Sites and POP Collocation Sites hereunder shall be as set forth in the Collocation Provisions.
3.7 METHOD OF PAYMENT. Except for monthly collocation and Routine Maintenance charges, all payments to Williams set forth in this Article III shall be made by wire transfer of
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immediately available funds to the account or accounts designated by Williams. In addition to any other remedies set forth in this Agreement, all late payments shall bear interest accruing from the date due until paid at a rate equal to eighteen percent (18%) per annum or, if lower, the highest rate allowed by applicable law. All payments required under this Agreement shall be made in United States Dollars.
3.8 TRUE-UP OF CONTRACT PRICE. In the event the actual Route Miles for any Major Segment, as shown by the As-builts, differ from the estimated Route Miles set forth on EXHIBIT A-2, the Contract Price for such Major Segment shall be recomputed using the actual Fiber Miles based upon the Per Mile Rate. With respect to each Major Segment, any excess of such recomputed Contract Price for such Major Segment over the portion of the Contract Price allocable to such Major Segment previously paid by Cogent shall be paid by Cogent to Williams within thirty (30) days after receipt of the As-builts from Williams. Likewise, any excess of the portion of the Contract Price allocable to such Major Segment previously paid by Cogent over such recomputed Contract Price for such Major Segment shall be refunded by Williams to Cogent within thirty (30) days after delivery of the As-builts to Cogent. Neither Williams nor Cogent shall be liable for interest on such difference prior to the end of such thirty-day period. Notwithstanding the foregoing, the parties agree that for purposes of recomputing the Contract Price under this Section 3.8, the aggregate actual Route Miles of all of the Major Segments shall not be more than 105% or less than 95% of the aggregate estimated Route Miles as set forth in Exhibit A-2. If, after delivery of the As-builts for the last Major Segment to be delivered to and Accepted by Cogent hereunder, either party notifies the other that the aggregate actual Route Miles for all Major Segments is greater than 105%, or less than 95%, of the aggregate estimated Route Miles set forth in Exhibit A-2, then Williams shall refund, or Cogent shall pay, as appropriate, the difference between the Contract Price actually paid by Cogent and 105% or 95%, as applicable, of the estimated Contract Price set forth in Exhibit A-2.
3.9 ADJUSTMENT OF MAINTENANCE CHARGES. When Williams provides the As-builts pursuant to Section 4.6, it shall also provide Cogent a statement of the actual Route Miles of the Major Segment and beginning with the next monthly payment of Routine Maintenance charges due hereunder, Cogent shall pay the adjusted amount for such Major Segment for the remainder of the Term. Cogent shall not be required to pay, and Williams shall not be required to refund, amounts underpaid or overpaid by Cogent for periods prior to the adjustment under this Section.
3.10 TIME OF PAYMENT. Where no due date is specified for any payment
obligation under this Agreement, each party shall pay such amounts within
thirty (30) calendar days after the invoice delivery date, as determined by
Section 17.2.
ARTICLE IV
CONSTRUCTION
4.1 FIBER ACCEPTANCE TESTING. EXHIBIT C sets forth Fiber Acceptance Testing procedures and test deliverables Williams shall provide to Cogent, and procedures for determining the Acceptance Date of a Major Segment.
4.2 ACCEPTANCE DATE OBLIGATIONS. As of the Acceptance Date of any Major Segment:
(a) Williams or the underlying facility owner shall have obtained all rights, licenses, authorizations, easements, leases, fee interests, or agreements that provide for the occupancy by such Major Segment of real property or fixtures (such as conduit, bridges, river crossings, or transmission towers) associated with such Major Segment;
(b) Williams shall have obtained by IRU agreement, lease, or otherwise the right to use Major Segments it does not own; and
(c) such Major Segment shall be designed, engineered, installed, and constructed in accordance with the specifications set forth in Exhibits C, D and E in a workmanlike manner and in accordance with industry standards and applicable laws; provided that any portions of the System Williams elects to acquire from third parties, (whether under a lease, sublease, indefeasible right of use or otherwise) in lieu of constructing and installing such portion of the System shall be or have been constructed substantially in accordance with the specifications and procedures required by this Agreement except for such deviations which do not, in the reasonable discretion of Williams, materially diminish the utility, reliability or expected useful life of the System.
The rights Williams is required to obtain pursuant to Subsections (a) and (b) above as are necessary for Williams to grant to Cogent the Cogent Lease/IRU Rights are referred to as "Required Rights." Williams shall obtain and maintain in full force and effect all Required Rights through at least the Initial Term of each Major Segment subject to Cogent's obligations specified below in this paragraph and except as provided in and subject to the provisions of Section 8.2 (Relocation Procedures) and Section 20.1 (Excused Performance). In the event title to the System or Required Rights is contested during the Initial Term, or if any third party or government authority contests the property rights or the rights of the parties to use the System for any reason, Williams shall proceed to take all necessary steps to perfect title including, but not limited to, contesting the claims of any such third party or government authority; provided that, if such contest does not result from the negligent acts of Williams, Cogent shall reimburse Williams for its Pro Rata Share of all Costs incurred by Williams in perfecting title as described above.
Notwithstanding any other provision herein to the contrary, Cogent shall be solely responsible for obtaining, at its sole cost and expense, any and all necessary franchises, authorizations or permits specifically required in addition to the Required Rights as a result of Cogent's, as opposed to Williams', use, operation, access or connection of or with the Cogent Fibers and its operation, maintenance, repair, and replacement of all Cogent Equipment associated therewith.
4.3 PRIOR CONSTRUCTION. Cogent acknowledges that some or all of said design, engineering, installation, construction, splicing and testing described above has previously been completed.
4.4 ESTIMATED COMPLETION DATES.
(a) Subject to extension for delays described in Section 20.1 and to extension or delay as otherwise permitted or provided in this Agreement, the "Estimated Completion Dates" for completion of all construction, installation, Williams' Fiber Acceptance Testing and hand-over of Williams' test results and the Cogent Fibers to Cogent for the Major Segments are the dates set forth in EXHIBIT A-2. Williams shall use commercially reasonable efforts to meet the applicable Estimated Completion Date for each Major Segment. Williams shall give notice to Cogent as early as reasonably possible of any known events that could reasonably be expected to delay completion of any Major Segment hereunder.
(b) If for any reason (except for a Force Majeure Event) Williams
fails to complete any Major Segment within [*]
[*] after the Estimated Completion Date (the "Grace Period") for such Major
Segment, then Williams shall pay Cogent monthly payments equal to [*]
of the Contract Price allocable to such Segment as liquidated
damages for up to [*] until such Major Segment(s) are completed and
Accepted or until Cogent terminates this Agreement with respect to such Major
Segment under Section 4.4(c) below, whichever is earlier. In no event shall
Williams be obligated to pay the payments described in the preceding sentence
beyond the date which is [*] after expiration of the Grace Period.
The payment of the sums set forth above in this Subsection 4.4(b) are agreed
upon as liquidated damages and not as a penalty. The parties hereto have
computed, estimated and agreed upon the sum as an attempt to make a reasonable
forecast of probable actual loss because of the difficulty of estimating the
damages which will result.
(c) If Williams has not completed any Major Segment(s) on or before the date which is [*] after expiration of the Grace Period, Williams will no longer be required to pay the liquidated damages described in 4.4(b) above, and Cogent will have the right to terminate this Agreement with respect to the affected Major Segment(s) only. In the event of such termination by Cogent, Williams shall refund to Cogent the portion of the initial deposit of the Contract Price described in Section 3.1(a) previously paid by Cogent allocable to such Major Segment(s) based on the number of Fiber Miles contained therein. In addition, Williams shall pay Cogent interest on such refund at the prime rate plus three percentage points accruing from the date payment is made by Cogent under Section 3.1(a). The remedies described in this Section 4.4 shall be Cogent's sole and exclusive remedies for Williams' failure to deliver any Major Segment(s) prior to expiration of the Grace Period. For purposes of the preceding sentence, "prime rate" shall mean the rate published in the Money Rates Section of THE WALL STREET JOURNAL as the prime rate on corporate loans at large United States money center commercial banks.
4.5 ALTERATION OF CONSTRUCTION SPECIFICATIONS. Notwithstanding any other provision of this Agreement, Williams may, in its sole discretion, alter the construction specifications as construction progresses to facilitate actual construction needs. Any such alteration shall be consistent with standard telecommunications practices, shall not alter the location of the endpoints of or intermediate POPs within any Major Segment, shall not cause a substantial deviation from the Transmission Site spacing requirements hereunder, and shall not result in a modification of Cogent's
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rights under this Agreement that could reasonably be expected to interfere with Cogent's use of the Cogent Fibers hereunder.
4.6 PROVISION OF AS-BUILT DRAWINGS. Within one hundred eighty (180) days after Cogent's Acceptance of each Major Segment, Williams shall provide Cogent with as-built drawings for the portion of the System in such Major Segment complying with the specifications for as-built drawings set forth in EXHIBIT F (the "As-builts"). If there is a material change in the As-builts as a result of maintenance or relocation, Williams shall deliver updated As-builts to Cogent with respect to the relevant Segment within one-hundred eighty (180) calendar days following the completion of such change.
ARTICLE V
CONNECTION AND ACCESS TO THE SYSTEM
5.1 CONNECTIONS. Cogent shall have the right to access Transmission Sites and POP Collocation Sites in accordance with the terms and conditions specified in the Collocation Provisions. Subject to the provisions herein, Cogent shall pay for and arrange all connections of its facilities with the Cogent Fibers which connections shall be made by Williams only at Connecting Points in accordance with the terms and procedures set forth in EXHIBIT H. Cogent shall reimburse Williams for any and all Costs incurred as a result of making such connections including, but not limited to, the Costs of obtaining any rights to access, connect, install, or maintain such connections or the spur connecting to the System and shall pay all any other applicable charges or fees as specified in EXHIBIT H.
5.2 NO UNAUTHORIZED ACCESS TO SYSTEM. Cogent shall not access any physical part of the System (other than pursuant to the Collocation Provisions) without the prior written consent of Williams, and then only upon the terms and conditions specified by Williams.
ARTICLE VI
COLLOCATION; FUTURE AGREEMENTS
6.1 TRANSMISSION SITES. Williams agrees to provide to Cogent and Cogent agrees to accept and utilize collocation space in each of Williams' Transmission Sites along the Route as listed and described in EXHIBIT B-2 at the rates and in accordance with the terms and conditions set forth in EXHIBIT B-1. Transmissions Sites have been or shall be constructed by Williams at approximately forty (40) mile intervals along the Route except where geographic or other factors require or allow different spacing in accordance with generally accepted practices in the telecommunications industry.
6.2 POP COLLOCATION SITES. Williams agrees to provide and Cogent agrees to accept and utilize collocation space in each of POP Collocation Sites as described in EXHIBIT B-2 at the rates and subject to the terms and conditions set forth in EXHIBIT B-3.
6.3 PREFERRED PROVIDER. During the Term of this Agreement, Cogent will first seek to obtain its interLATA transport requirements (including dark fiber, data, voice and video circuits)
from Williams; provided, however, that this Section 6.3 shall not apply to collocation space requirements at points of presence. When Cogent has a need for such transport services, Cogent will request a quote from Williams, which request will identify the desired services and indicate whether quality, availability, provisioning date or price are most important to Cogent for the particular request. Williams will respond to Cogent's request for such products within five (5) business days after Williams' receipt of such request and will provide to Cogent information regarding quality, pricing, availability, whether or not the product is "on-net" (i.e. available on Williams operated fiber optic network between Williams' POPs), and what date Williams expects the product to be provisioned. Cogent may order such products from Williams based on the terms of the quote provided by Williams or Cogent may obtain a competitive, bona fide quote for comparable transport products in the marketplace. In the event Cogent receives a similar, bona fide offering of equivalent or better quality, provisioning date, or price, Cogent will provide Williams with an opportunity to match such third party offer by notifying Williams, in writing, which notice shall include a summary of the material terms of such third party offer, including, without limitation, the term, quality, provisioning date, and price of the services to be provided. In the event Williams notifies Cogent, in writing, that it has the ability and agrees to match such offer within a reasonable time after receiving the notice described in the preceding sentence from Cogent, Cogent will be obligated to order such products from Williams. Notwithstanding the foregoing, Cogent may order such products from a third party if Williams is unable to provide such services or products on a physically diverse route if such diversity was part of Cogent's request described above. In the event Williams does not agree to match such offer, Cogent may order such products from the third party that provided the quote.
6.4 CARRIER SERVICES AGREEMENT. The Parties agree that within thirty
(30) days after the Effective Date, they will negotiate and enter into a
carrier services agreement upon mutually agreeable terms and conditions (the
"Carrier Services Agreement"). Such Carrier Services Agreement will govern the
Parties respective rights and obligations with respect to any capacity
services ordered by Cogent under Section 6.3 or otherwise and/or other
services described in the Carrier Services Agreement.
ARTICLE VII
TERM
7.1 INITIAL TERM. This Agreement shall be in force and effect between the parties on and after the Effective Date. The term of the Cogent Lease/IRU Rights for each Major Segment shall commence on each such Major Segment's Acceptance Date and shall end on the twentieth (20th) anniversary of such date unless earlier terminated pursuant to the terms hereof (the "Initial Term").
7.2 RENEWAL TERMS. This Agreement and the Cogent IRU may be renewed by Cogent for two (2) additional terms of five (5) years each (the "Renewal Term(s)") (the Initial Term and Renewal Term(s) collectively, the "Term"); provided, however, that such rights to renew shall be subject to Section 7.3 below and to the right of Williams to require Cogent to pay its Pro Rata Share of Williams' Costs of extending or replacing Required Rights for such Renewal Term as a condition to Cogent's rights to renew. If Cogent elects to renew the Cogent IRU pursuant to this Section 7.2, such payments shall be payable by Cogent both before and during the Renewal Term(s) as Williams
incurs such Costs and within thirty (30) days after receipt of Williams' invoice therefor. Except as provided in the preceding sentences and except for maintenance, collocation or other recurring and non-recurring charges specified in this Agreement, Cogent shall not be charged additional consideration for the renewal of this Agreement under this Section 7.2. Cogent may renew this Agreement by giving written notice to Williams at least one (1) year prior to the expiration of the Initial Term or then effective Renewal Term. All terms and conditions of this Agreement shall be applicable during any Renewal Terms.
7.3 CONDITIONS ON RENEWAL. Notwithstanding any other provision herein to the contrary, Cogent may not exercise its right to renew this Agreement with respect to any Major Segment(s) if Williams (a) determines, in its sole and absolute discretion, not to continue operation of such Major Segment(s) and/or to abandon the same and (b) gives notice of such determination to Cogent at least six (6) months prior to expiration of the Initial Term or then current Renewal Term.
7.4 EFFECT OF TERMINATION. No termination of this Agreement shall affect the rights or obligations of any party hereto:
(a) with respect to any payment hereunder for services rendered prior to the date of termination;
(b) pursuant to Articles X (Audit Rights), XIII (Indemnification), XIV (Limitation of Liability), XV (Insurance), XVI (Taxes and Governmental Fees), XVIII (Confidentiality), XIX (Prohibition on Improper Payments), XXI (Arbitration and Dispute Resolution), or XXII (Rules of Construction) or Sections 11.2 (Exclusion of Warranties) or 11.3 (No Third-Party Warranties); or
(c) pursuant to other provisions of this Agreement that, by their sense and context, are intended to survive termination of this Agreement.
ARTICLE VIII
MAINTENANCE AND RELOCATION
8.1 MAINTENANCE. During the Term, Williams shall perform all required Routine Maintenance and Non-Routine Maintenance. "Non-Routine Maintenance" means maintenance and repair work that Williams is obligated to provide under this Agreement and described in EXHIBIT G other than:
(a) the work specifically identified as Routine Maintenance in EXHIBIT G;
(b) work in which the aggregate amount of Costs incurred as a result of any single event or multiple, closely related events is less than or equal to [*]; or
(c) work for which Cogent is obligated to reimburse Williams for all or a portion of the Costs incurred pursuant to other Articles of this Agreement.
[*] Indicates confidential treatment requested.
"Routine Maintenance" means maintenance and repair work that is described in Subsections 8.1(a) or 8.1(b).
8.2 RELOCATION PROCEDURES.
(a) Williams may relocate all or any portion of the System or any of the facilities used or required in providing Cogent with the Cogent Lease/IRU Rights:
(i) if a third party with legal authority to do so orders or threatens to order such relocation (e.g., through filing or threatening to file a condemnation suit),
(ii) in order to comply with applicable laws,
(iii) for bona fide operational reasons,
(iv) to reduce governmental fees or taxes assessed against it or Cogent, or
(v) if it determines to do so in its reasonable business judgment.
(b) For purposes of Section 8.2(a)(iii), a Williams relocation shall be for bona fide operational reasons only if undertaken in good faith (i) to settle or avoid a bona fide threatened or filed condemnation action or order by a governmental authority to relocate, (ii) to reduce the likelihood of physical damage to the System, (iii) as the result of a Force Majeure Event, or (iv) for other operational reasons to which Cogent has consented, provided that Cogent shall not unreasonably withhold such consent.
(c) A relocation made solely pursuant to Section 8.2(a)(v) shall be considered a voluntary relocation for purposes of Section 3.5. Williams shall provide Cogent sixty (60) calendar days' prior notice of any such relocation, if reasonably feasible. Williams shall have the right to direct such relocation, including the right to determine the extent of, the timing of, and methods to be used for such relocation, provided that any such relocation:
(i) shall be constructed and tested in accordance with the specifications and requirements set forth in this Agreement and applicable Exhibits;
(ii) shall not result in a materially adverse change to the operations, performance, Connecting Points with the network of Cogent, spacing of Transmission Sites or end points of the Major Segment; and
(iii) shall not unreasonably interrupt service on the System.
8.3 MAINTENANCE OF COGENT EQUIPMENT EXCLUDED. Williams shall have no obligation under this Agreement to maintain, repair, or replace Cogent Equipment. The parties may, but shall not be obligated to, enter into a separate agreement under which Williams will agree to maintain the
Cogent Equipment and perform other managed services for Cogent for the consideration and upon terms and conditions mutually agreed upon between the parties.
ARTICLE IX
USE OF THE SYSTEM
9.1 COMPLIANCE WITH LAW. Cogent warrants that its use of the Cogent Fibers and the System shall comply in all material respects with applicable government codes, ordinances, laws, rules, regulations and restrictions and shall not have an adverse effect on the System or its use by Williams or third parties.
9.2 COGENT'S RIGHTS EXCLUSIVE. Cogent may use the Cogent Fibers for any lawful purpose. Williams shall have no right to use the Cogent Fibers during the Term of any Major Segment except in the event of a Cogent default pursuant to the terms hereof.
9.3 NOTICE OF DAMAGE. Cogent shall promptly notify Williams of any matters pertaining to any damage or impending damage to or loss of the use of the System that are known to it and that could reasonably be expected to adversely affect the System. Williams shall promptly notify Cogent of any matters pertaining to any damage or impending damage to or loss of the Cogent Fibers that are known to it and that could reasonably be expected to adversely affect the Cogent Fibers.
9.4 PREVENTING INTERFERENCE WITH OTHER FIBERS. Neither Cogent nor Williams shall use equipment, technologies, or methods of operation that interfere in any way with or adversely affect the System or the use of the System by the other party or third parties or their respective Fibers, equipment, or facilities associated therewith. Each party shall take all reasonable precautions to prevent damage to the System or to fibers used or owned by the other party or third parties. Notwithstanding the above, the provisions of this Section shall not prevent a party from using commercially reasonable equipment, technologies, or methods of operation if the interference or adverse effect on the other party or a third party results primarily from such other party or third party's use of equipment, technologies, or methods of operation that are not commercially reasonable or that are not standard in the telecommunications industry.
9.5 LIENS. Cogent shall not cause or permit any part of the System to become subject to any mechanic's, materialmen's, or vendor's lien, or any similar lien. Williams shall not cause or permit any of Cogent's rights under this Agreement or any Cogent Equipment to become subject to any mechanic's, materialmen's, or vendor's lien, or any similar lien. If a party breaches its obligations under this Section, it shall immediately notify the other party in writing, shall promptly cause such lien to be discharged and released of record without cost to the other party, and shall indemnify the other party against all costs and expenses (including reasonable attorneys' fees and court costs at trial and on appeal) incurred in discharging and releasing such lien.
9.6 PRECAUTIONARY FINANCING STATEMENT. Prior to payment in full of all Contract Price payments under Section 3.2 and Section 3.3, if applicable, Williams shall have the right, at its own expense, to file precautionary financing statements (including renewals or extensions thereof) to secure Williams' rights set forth in Section 12.2, including the right thereunder to terminate Cogent's
rights in any Cogent Fibers in which Cogent does not have an IRU. Such financing statements shall be in a form reasonably limited to such purpose and shall not apply to any assets other than Cogent's rights under this Agreement. Cogent shall promptly execute such documents and take such additional actions as are necessary to allow Williams to perfect and maintain perfection of the precautionary security interest to be created by such financing statements. It is the parties' intent that the Cogent Lease/IRU Rights with respect to the Cogent Fibers shall not be considered to be fixtures and the parties further agree that no fixture filings are necessary to perfect Williams' security interest therein. Upon payment in full of the Contract Price by Cogent in accordance with the terms of Section 3.2 and 3.3, if applicable, Williams shall file termination statements with respect to any and all filed financing statements under this Section.
ARTICLE X
AUDIT RIGHTS
10.1 RIGHT TO AUDIT. Each party shall keep such books and records (which shall be maintained on a consistent basis and substantially in accordance with U.S. generally accepted accounting principles) as shall readily disclose the basis for any charges (except charges fixed in advance by this Agreement or by separate agreement of the parties) or credits, ordinary or extraordinary, billed or due to the other party under this Agreement and shall make them available for examination, audit, and reproduction by the other party and its agents for a period of one (1) year after such charge or credit is billed or due.
ARTICLE XI
WARRANTIES
11.1 WARRANTIES RELATING TO AGREEMENT VALIDITY. In addition to any other representations and warranties contained in this Agreement, each party hereto represents and warrants to the other that:
(a) it has the full right and authority to enter into, execute, deliver, and perform its obligations under this Agreement;
(b) it has taken all requisite corporate action to approve the execution, delivery, and performance of this Agreement;
(c) this Agreement constitutes a legal, valid and binding obligation enforceable against such party in accordance with its terms; and
(d) 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.
11.2 EXCLUSION OF WARRANTIES. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, WILLIAMS MAKES NO WARRANTY TO COGENT OR ANY OTHER ENTITY, WHETHER EXPRESS, IMPLIED OR STATUTORY, AS TO THE INSTALLATION,
DESCRIPTION, QUALITY, MERCHANTABILITY, COMPLETENESS, USEFUL LIFE, FUTURE ECONOMIC VIABILITY, OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY FIBERS, THE SYSTEM, OR ANY SERVICE PROVIDED HEREUNDER OR DESCRIBED HEREIN, OR AS TO ANY OTHER MATTER, ALL OF WHICH WARRANTIES ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED.
11.3 NO THIRD-PARTY WARRANTIES. NO FACILITY OWNERS/LENDERS HAVE MADE ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, TO COGENT CONCERNING WILLIAMS, THE COGENT FIBERS, THE CABLE, OR THE SYSTEM OR AS TO ANY OF THE MATTERS SET FORTH IN SECTIONS 11.1 OR 11.2. NO COGENT LENDERS HAVE MADE ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, TO WILLIAMS CONCERNING COGENT, THE COGENT FIBERS, THE CABLE, OR THE SYSTEM OR AS TO ANY OF THE MATTERS SET FORTH IN SECTIONS 11.1 OR 11.2 OR AS TO ANY OTHER MATTER.
ARTICLE XII
DEFAULT
12.1 DEFAULT AND CURE. Cogent's sole remedies for any failure of Williams to complete all Major Segments by the applicable Estimated Completion Dates shall be as specified in Section 4.4 above. Otherwise, except as set forth in Section 12.2, a party shall not be in default under this Agreement unless and until the other party provides it written notice of such default and the first party shall have failed to cure the same within thirty (30) calendar days after receipt of such notice; provided, however, that where such default cannot reasonably be cured within such thirty (30) day period, if the first party shall proceed promptly to cure the same and prosecute such curing with due diligence, the time for curing such default shall be extended for such period of time as may be necessary to complete such curing, but in any event such period of time shall not exceed ninety (90) days. Any event of default may be waived at the non-defaulting party's option. Upon the failure of a party to timely cure any such default after notice thereof from the other party and expiration of the above cure periods or upon a payment default in the amount of [*] or more under the terms of the Carrier Services Agreement which shall be considered a default under this Agreement, then the non-defaulting party may, subject to the terms of Articles XIV (Limitation of Liability) and XXI (Arbitration), pursue any legal remedies it may have under applicable law or principles of equity relating to such breach.
12.2 FAILURE TO PAY CONTRACT PRICE. If Cogent fails to fully pay any of the Contract Price payments described in Section 3.2(a) through (d) within ten (10) days after the due date or fails to pay any other amount(s) payable hereunder totaling more than [*] for a period in excess of thirty (30) days beyond the applicable due date(s) specified herein (excluding in either case amounts paid into escrow pursuant to Section 21.4), or if a court of competent jurisdiction in bankruptcy or receivership proceedings brought by or against Cogent determines that Cogent's lease rights under this Agreement are in the nature of a disguised sale rather than a true lease, Williams may, in addition to any other remedies that it may have under this Agreement or by law, in its sole discretion, take some or all of the following actions upon ten (10)
[*] Indicates confidential treatment requested.
business days' notice to Cogent if such payment (together with applicable interest) is not made within such ten-day period:
(a) disconnect the Cogent Fibers from any POP, Cogent Equipment, or Connecting Point;
(b) terminate Cogent's collocation rights in Transmission Sites and/or POPs provided under this Agreement and/or require Cogent to remove any Cogent Equipment from Williams' premises upon commercially reasonable notice;
(c) if such failure occurs prior to payment in full by Cogent of all Contract Price Payments under Subsections 3.2(a) through 3.2(d) above, terminate the Cogent Lease/IRU Rights with respect to the Cogent Fibers, if Cogent fails to pay all amounts in arrears, together with applicable interest, within thirty (30) days of receipt of further notice from Williams; and
(d) if such failure occurs prior to payment in full by Cogent of all Contract Price Payments under Subsections 3.2(a) through 3.2(d) above, exercise an option to purchase all of the Cogent Lease/IRU Rights in exchange for Williams' forgiveness of the Cogent arrears and applicable interest. In the event that Williams exercises its option to acquire the Cogent Lease/IRU Rights hereunder, then to the extent Cogent remains obligated to Williams for any additional amounts under this Agreement which have not yet accrued, Williams shall retain a claim for such amounts without regard to the debt forgiven in the exercise of the option.
12.3 INTEREST. If either Williams or Cogent fails 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 the rate specified in Section 3.6 or, if lower, the highest percentage allowed by law.
ARTICLE XIII
INDEMNIFICATION
13.1 INDEMNIFICATION. Each party ("Indemnitor") hereby releases and shall indemnify, defend, protect, and hold harmless the other party, its employees, members, managers, officers, directors, shareholders, agents, contractors, Facility Owners/Lenders, and Affiliates and the employees, members, managers, officers, directors, shareholders, agents and contractors of such Affiliates (collectively and individually, "Indemnified Parties"), from and against, and assumes liability for:
(a) any injury, death, loss, or damage to any person, tangible property, or facilities of any entity (including reasonable attorneys' fees and costs at trial and appeal), to the extent arising out of or resulting from the acts or omissions, negligent or otherwise, of Indemnitor, its officers, employees, servants, Affiliates, agents, contractors, or underlying facility owners or from any entity for whom it is in law responsible, or
otherwise resulting from, arising in connection with or relating to its performance (including breach or failure thereto) under this Agreement;
(b) any claims, liabilities or damages arising out of any violation by Indemnitor of regulations, rules, statutes, or court orders of any local, state, or federal governmental agency, court, or body in connection with its performance under this Agreement or otherwise; or
(c) any liability to a third party arising directly or through one or more intermediate parties, from an action or claim brought by the Indemnitor, to the extent such third party has a right of indemnification, impleader, cross-claim, contribution, or other right of recovery against any Indemnified Party for any indirect, special, or consequential damages of the Indemnitor.
13.2 CLAIMS OF CUSTOMERS. In addition to the foregoing indemnities, with respect to third parties that use services provided over the Cogent Fibers, Cogent shall defend, indemnify and hold harmless Williams and its Indemnified Parties against any claims by such third parties for damages arising or resulting from any defect in or failure of the Cogent Fibers or the System.
13.3 MATERIAL AND CONTINUING OBLIGATION. Each party's obligation to indemnify, defend, protect, and save the Indemnified Parties harmless is a material obligation to the continuing performance of the other party's obligations hereunder.
ARTICLE XIV
LIMITATION OF LIABILITY
14.1 EXCLUSION OF CONSEQUENTIAL DAMAGES. EXCEPT AS PROVIDED IN
SECTION 4.4(b) ABOVE, NEITHER PARTY NOR ANY INDEMNIFIED PARTIES (AS DEFINED
ABOVE) OF A PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR SPECIAL, PUNITIVE,
EXEMPLARY, CONSEQUENTIAL, INCIDENTAL OR INDIRECT LOSSES OR DAMAGES AS A RESULT
OF THE PERFORMANCE OR NONPERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT,
OR ITS ACTS OR OMISSIONS RELATED TO THIS AGREEMENT OR ITS USE OF THE SYSTEM,
WHETHER OR NOT ARISING FROM SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT
LIABILITY, OR VIOLATION OF LAW.
14.2 INDEMNITY PROVISOS. Notwithstanding the provisions of Section 14.1 or any other provision of this Agreement:
(a) except as set forth in Subsection 14.2(b), the limitations on liability set forth in Section 14.1 shall apply to claims of a party or third party arising from any defect, error, interruption, delay, or attenuation of any telecommunications service, capacity, data, or transmission; and
(b) liability arising from Cogent's failure to comply with the provisions of Section 14.5 shall not be subject to the limits on liability set forth in Section 14.1.
14.3 NO RECOURSE AGAINST RELEASED PARTIES. Neither party shall have any recourse of any kind against any Released Party or any assets of a Released Party in respect of any Claim, it being expressly agreed and understood that no liability whatsoever shall attach to or be incurred by any Released Party in respect of any Claim under or by reason of this Agreement or any other instrument, arrangement or understanding related to the Cogent Lease/IRU Rights. Each party waives all such recourse to the extent set forth in this Section on behalf of its successors, assigns, and any entity claiming by, through, or under such party.
14.4 PURSUIT OF ACTIONS AGAINST THIRD PARTIES. Except as provided in Subsection 13.1(c) and Section 13.2 nothing contained in this Agreement shall operate as a limitation on the right of either Williams or Cogent to bring an action or claim for damages against any third party (other than Indemnified Parties of the other party or any third party who has a right of indemnification or contribution resulting from such action or claim by Williams or Cogent, as applicable, against such other party hereto to the extent of such indemnification or right of contribution). Each of Williams and Cogent shall assign such rights of claims, execute such documents, and do whatever else may be reasonably necessary to enable the other (at such other party's sole expense) to pursue any such action or claim against such third party.
14.5 CUSTOMER CONTRACTS. Cogent, in any contract or tariff offering of service, capacity, or rights of use that in any of the preceding instances involves use of the System, shall include in such contract or tariff a written limitation of liability that is binding on Cogent's customers and in all material respects at least as restrictive as the limitations set forth in Sections 14.1 and 14.3.
ARTICLE XV
INSURANCE
15.1 OBLIGATION TO OBTAIN. During the Term, the parties shall each obtain and maintain not less than the following insurance:
(a) Commercial General Liability Insurance, including coverage for sudden and accidental pollution legal liability, with a combined single limit of $5,000,000 for bodily injury and property damage per occurrence and in the aggregate.
(b) Worker's Compensation Insurance in amounts required by applicable law and Employers Liability Insurance with limits not less than $1,000,000 each accident. If work is to be performed in Nevada, North Dakota, Ohio, Washington, Wyoming or West Virginia, the party shall participate in the appropriate state fund(s) to cover all eligible employees and provide a stop gap endorsement.
(c) Automobile Liability Insurance with a combined single limit of $1,000,000 for bodily injury and property damage per occurrence, to include coverage for all owned, non-owned, and hired vehicles.
The limits set forth above are minimum limits and shall not be construed to limit the liability of either party.
15.2 POLICY REQUIREMENTS. Each party shall obtain and maintain the insurance policies required above with companies rated A- or better by Best's Key Rating Guide or with a similar rating by another generally recognized rating agency. The other party, its Affiliates, officers, directors, and employees, and any other party entitled to indemnification hereunder shall be named as additional insureds to the extent of such indemnification. Each party shall provide the other party with an insurance certificate confirming compliance with the insurance requirements of this Article. The insurance certificate shall indicate that the other party shall be notified not less than thirty (30) calendar days prior to any cancellation or material change in coverage. If either party provides any of the foregoing coverages through a claims-made policy basis, that party shall cause such policy or policies to be maintained for at least three (3) years beyond the expiration of this Agreement.
15.3 WAIVER OF SUBROGATION. The parties shall each obtain from the insurance companies providing the coverages required by this Agreement a waiver of all rights of subrogation or recovery in favor of the other party and, as applicable, its members, managers, shareholders, Affiliates, assignees, officers, directors, and employees or any other party entitled to indemnity under this Agreement to the extent of such indemnity.
15.4 BLANKET POLICIES. Nothing in this Agreement shall be construed to prevent either party from satisfying its insurance obligations pursuant to this Agreement under a blanket policy or policies of insurance that meet or exceed the requirements of this Article. Williams retains the right to self-insure the above requirements.
ARTICLE XVI
TAXES AND GOVERNMENTAL FEES
16.1 COGENT OBLIGATIONS. Cogent shall timely report, make filings for, and pay any and all sales, use, income, gross receipts, excise, transfer, ad valorem, or other taxes, and any and all franchise fees or similar fees assessed against it due to its ownership of the Cogent Lease/IRU Rights, its use of the Cogent Fibers, including the provision of services over the Cogent Fibers, its use of any other part of the System, or its ownership or use of facilities connected to the Cogent Fibers. The above obligation applies to sales and excise taxes applicable to the grant of the Cogent Lease/IRU Rights or to charges for maintenance, collocation, or other Williams services provided pursuant to this Agreement.
16.2 WILLIAMS OBLIGATIONS. The parties acknowledge that a material premise of this Agreement is that during the Initial Term, Williams shall obtain and maintain all Required Rights at its own cost. Williams shall timely pay all (i) taxes, franchise, license and permit fees based on the physical location of the System and/or the construction thereof in or on public roads, highways or other public right-of-way and (ii) all payments with respect to Required Rights. Williams shall timely report, make filings for and pay any and all sales, use, income, gross receipts, excise, transfer, ad valorem or other taxes, and any and all franchise fees or similar fees assessed against it due to its
construction, ownership, physical location or use of the System, provided that Cogent shall reimburse Williams for its Pro Rata Share of property taxes (including ad valorem, use, property, or similar taxes, franchise fees, or assessments that are based on the value of property or of a property right) attributable to the System, including taxes based on the value, operation, or existence of the System.
16.3 REIMBURSEMENT OF TAXES PAID ON COGENT'S BEHALF. If Williams is assessed for any taxes or fees related to Cogent's ownership of the Cogent Lease/IRU Rights or Cogent's use of the Cogent Fibers or that Cogent is obligated to pay pursuant to Sections 16.1 or 16.2, Cogent shall reimburse Williams for any payment of such taxes or fees.
16.4 COOPERATION. The parties shall cooperate in any contest of any taxes or fees and in making tax-related reports and filings, so as to avoid, to the extent reasonably possible, prejudicing the interests of the other party.
16.5 UNEXPECTED FEE INCREASES. If the charges for Required Rights payable to governmental or quasi-governmental agencies or for use of governmental or quasi-governmental rights of way during a calendar year for any Major Segment exceed twice the amount payable during the first full calendar year after the Acceptance Date, then Cogent shall pay its Pro Rata Share of such excess.
16.6 RESELLER CERTIFICATE. Within sixty (60) days of the Acceptance Date for any Major Segment, Cogent shall provide Williams a reseller certificate for any United States jurisdiction where the Cogent Fibers on the Major Segment are located. Cogent shall, upon Williams' written request, provide Williams additional reseller certificates or similar documentation for any U.S. jurisdiction to assist Williams in avoiding charging Cogent sales, use, excise, or other taxes on any Cogent Fibers or any other product or service Williams provides under this Agreement.
ARTICLE XVII
NOTICE
17.1 NOTICE ADDRESSES. Unless otherwise provided in this Agreement, all notices and communications concerning this Agreement shall be in writing and addressed to the other party as follows:
If to Cogent: Cogent Communications, Inc. Attn: Chief Executive Officer 1015 31st Street, N.W. Washington, D.C. 20007 Facsimile: (202) 338-8798 With a copy to: Cogent Communications, Inc. Attn: Corporate Counsel 1015 31st Street, N.W. Washington, D.C. 20007 |
Facsimile: (202) 338-8798 If to Williams: Williams Communications, Inc. Attn: Contract Administration One Williams Center, Suite 26-5 Tulsa, Oklahoma 74172 Facsimile No.: (918) 573-6578 With a copy to: Williams Communications, Inc. Attn: General Counsel One Williams Center, Suite 4100 Tulsa, Oklahoma 74172 Facsimile No.: (918) 573-3005 |
With copies of all notices pertaining to fiber testing to:
Williams Communications, Inc.
Attn: IRU Administration
One West Third Street, Suite 200, MDTI-2
Tulsa, OK 74103
or
P.O. Box 22067, MDTI-2
Tulsa, OK 74121
Soft copies to: iru.administration@wilcom.com
or at such other address as may be designated in writing to the other party.
17.2 NOTICE AND INVOICE DELIVERY. Unless otherwise provided herein, notices and invoices shall be hand delivered, sent by registered or certified U.S. Mail, postage prepaid, or by commercial overnight delivery service, or transmitted by facsimile, and shall be deemed served or delivered to the addressee or its office when received at the address for notice specified above when hand delivered, upon confirmation of sending when sent by facsimile, on the day after being sent when sent by overnight delivery service, or three (3) United States Postal Service business days after deposit in the mail when sent by U.S. mail.
ARTICLE XVIII
CONFIDENTIALITY
18.1 CONFIDENTIALITY OBLIGATION. If either party provides confidential information to the other or, if in the course of performing under this Agreement or negotiating this Agreement a party learns confidential information regarding the facilities or plans of the other, the receiving party shall (a) protect the confidential information from disclosure to third parties with the same degree of care accorded its own confidential and proprietary information, but in any case with at least reasonable care and (b) refrain from using such confidential information except in negotiating or performing under this Agreement. Notwithstanding the above, a party may provide such confidential
information to its directors, officers, directors, members, managers, employees,
agents, contractors, consultants, advisors, attorneys and accountants
("Representatives"), and Affiliates, financial institutions, underlying facility
owners, potential assignees of this Agreement (provided and on condition that
such potential assignees are bound by a written agreement restricting use and
disclosure of confidential information), and Representatives of Affiliates, in
each case whose access is reasonably necessary. Each such recipient of
confidential information shall be informed by the party disclosing confidential
information of its confidential nature, and shall be directed to treat such
information confidentially and shall agree to abide by these provisions. In any
event, each party shall be liable (with respect to the other party) for any
breach of this provision by any entity to whom that party discloses confidential
information. The terms of this Agreement (but not its execution or existence)
shall be considered confidential information for purposes of this Article,
except as set forth in Section 18.3. The obligations set forth in this Section
shall survive expiration or termination of this Agreement for a period of two
(2) years, except that, with respect to any confidential information designated
by the disclosing party as a trade secret, and entitled to protection as such,
the obligations set forth in this Section shall survive such expiration or
termination indefinitely.
18.2 PERMITTED DISCLOSURES. Notwithstanding any other provision herein, neither Williams nor Cogent shall be required to hold confidential any information that:
(a) becomes publicly available other than through the recipient;
(b) is required to be disclosed by a governmental, regulatory authority, or judicial order, rule, or regulation or proceedings with respect to this Agreement or a party's obligations as a publicly held company, provided that a party subject to such requirement shall promptly notify the other party of such requirement;
(c) is independently developed by the receiving party;
(d) becomes available to the receiving party without restriction from a third party;
(e) is required by its lenders or investors and is given to such lenders or investors on a confidential basis; or
(f) to the extent disclosure by the receiving party as required by applicable law or regulation.
18.3 GOODWILL AND PUBLICITY. Neither party shall use the name, trade name, service mark, or trademark of the other in any promotional or advertising material without the prior written consent of the other. The parties shall coordinate and cooperate with each other when making public announcements related to the terms of this Agreement and each party shall have the right to promptly review, comment upon, and approve any publicity materials, press releases, or other public statements by the other party that refer to, or that describe any aspect of, this Agreement. Notwithstanding the above, either party may, without the other party's approval but after allowing the other party a reasonable opportunity to comment on a proposed press release, issue a press release announcing execution of this Agreement. Such release may disclose the route of the Cogent
Fibers, the estimated revenues/payments under this Agreement, and the identity of the other party as long as such release does not disclose any per-Fiber Mile or other per-unit price under this Agreement.
18.4 ENFORCEMENT OF CONFIDENTIALITY OBLIGATION. Each party agrees that the disclosing party would be irreparably injured by a breach of this Article XVIII by the receiving party or its Representatives or other parties to whom the receiving party discloses confidential information of the disclosing party and that the disclosing party may be entitled to equitable relief, including injunctive relief and specific performance, in the event of any breach of the provisions of this Article XVIII. Such remedies shall not be deemed to be the exclusive remedies for a breach of this Article XVIII, but shall be in addition to all other remedies available at law or in equity.
ARTICLE XIX
PROHIBITION ON IMPROPER PAYMENTS
Neither party shall use any funds received under this Agreement for illegal or otherwise "improper" purposes. Neither party shall pay any commission, fees or rebates to any employee of the other party. If either party has reasonable cause to believe that one of the provisions in this Article has been violated, it, or its representative, may audit the books and records of the other party for the sole purpose of establishing compliance with such provisions.
ARTICLE XX
FORCE MAJEURE; EMINENT DOMAIN
20.1 EXCUSED PERFORMANCE. Neither Williams nor Cogent shall be in
default under this Agreement with respect to any delay in its performance
(other than a failure to make payments when due) caused by any of the
following conditions (each a "Force Majeure Event"): (a) act of God; (b) fire;
(c) flood; (d) material shortage or unavailability not resulting from the
responsible party's failure to timely place orders or take other necessary
actions therefor; (e) government codes, ordinances, laws, rules, regulations,
or restrictions; (f) war or civil disorder; or (g) any other cause beyond the
reasonable control of such party. The party claiming relief under this Article
shall promptly notify the other in writing of the existence of the Force
Majeure Event relied on, the expected duration of the Force Majeure Event, and
the cessation or termination of the Force Majeure Event. The party claiming
relief under this Article shall exercise commercially reasonable efforts to
minimize the time for any such delay.
20.2 EMINENT DOMAIN. Should any portion of the System or any other interest belonging to Williams be acquired by eminent domain, nationalization, or expropriation (each of which, a "Taking") by any authority or entity possessing such power, then each party shall be excused from performance of its obligations to the extent provided in Section 20.1. In the proceeding for any such Taking or an involuntary discontinuance of the use of a portion of the System in anticipation of a Taking, the interests of Cogent and Williams in the affected portion shall be severed. Any awards resulting from the proceeding or otherwise provided shall be allocated between Cogent and Williams in accordance with such interests. In addition, Cogent and Williams shall each be entitled to claim and receive the portion of the total award attributable to its interest in the System and may claim
damages payable on account of relocation or re-routing expenses relating to the System. Except to the extent set forth in this Section, the provisions of Sections 3.4 and 8.2 shall apply to any relocation resulting from a Taking.
ARTICLE XXI
ARBITRATION AND DISPUTE RESOLUTION
21.1 BINDING ARBITRATION. Any dispute arising between Williams and Cogent in connection with this Agreement that is not settled to their mutual satisfaction within the applicable notice or cure periods provided in this Agreement, shall be settled by arbitration in Houston, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association in effect on the date that a party gives notice of its demand for arbitration under this Article. The submitting party shall submit such dispute to arbitration by providing a written demand for arbitration to the other party. If the parties cannot agree on a single arbitrator within fifteen (15) calendar days after the applicable notice or cure period has expired, Williams and Cogent shall each select an arbitrator within such fifteen (15) day period and the two (2) arbitrators shall select a third arbitrator within ten (10) calendar days. If the parties fail to appoint arbitrators or the arbitrators cannot agree on a third arbitrator, then either party may request that the American Arbitration Association select and appoint a neutral arbitrator who shall act as the sole arbitrator. The parties shall be entitled to submit expert testimony and/or written documentation in such arbitration proceeding. The decision of the arbitrator or arbitrators shall be final and binding upon Williams and Cogent and shall include written findings of law and fact, and judgment may be obtained thereon by either Williams or Cogent in a court of competent jurisdiction. Williams and Cogent shall each bear the cost of preparing and presenting its own case. The cost of the arbitration, including the fees and expenses of the arbitrator or arbitrators, shall be shared equally by Williams and Cogent unless the award otherwise provides. The arbitrator or arbitrators shall be instructed to establish procedures such that a decision can be rendered within sixty (60) calendar days of the appointment of the arbitrator or arbitrators. In no event shall the arbitrator or arbitrators have the power to award any damages described in and limited by Article XIV (Limitation of Liability) which Article shall be binding on the arbitrator(s).
21.2 EXCEPTIONS TO ARBITRATION OBLIGATION. The obligation to arbitrate shall not be binding upon any party with respect to (a) requests for preliminary injunctions, temporary restraining orders, specific performance, or other procedures in a court of competent jurisdiction to obtain interim relief when deemed necessary by such court to preserve the status quo or prevent irreparable injury pending resolution by arbitration of the actual dispute or (b) actions to collect payments not subject to a bona fide dispute.
21.3 ARBITRATOR CONFIDENTIALITY OBLIGATION. Any arbitrator appointed to act under this Article must agree to be bound to the provisions of Article XVIII (Confidentiality) with respect to the terms of this Agreement and any information obtained during the course of the arbitration proceedings.
21.4 PAYMENT DISPUTES. Cogent and Williams shall attempt in good faith to resolve any bona fide dispute arising out of or relating to any monetary obligation under this Agreement as
expeditiously as possible by negotiations between a Vice President of Cogent or
his or her designated representative with sufficient authority to negotiate a
resolution of the dispute and an executive of Williams with similar authority.
Either Cogent or Williams may give the other party written notice of any such
payment dispute which notice shall include documentation substantiating the
dispute. In the event the amount in dispute is in excess of [*] and is
not resolved on or before its actual or purported due date hereunder, then the
amount in dispute shall be deposited with an escrow agent mutually acceptable to
the parties who shall hold said sum along with all interest earned thereon, in
escrow, pending resolution of the dispute hereunder and shall distribute said
sums in accordance with the resolution of the parties under this Section or the
decision of the arbitrator under Section 21.1. All other payments shall be paid
in accordance with the due date set forth herein regardless of any dispute
hereunder. Within twenty (20) days after delivery of notice of a payment dispute
as described above, the designated executives shall meet at a mutually
acceptable time and place, and thereafter as often as they reasonably deem
necessary to exchange information and to attempt to resolve the dispute. If the
matter has not been resolved within thirty (30) days after the first meeting,
either Cogent or Williams may demand arbitration in accordance with the
provisions of Section 21.1. To the extent any payment dispute described
hereunder is resolved in favor of a party, whether pursuant to the provisions of
this Section or pursuant to arbitration, the escrow agent shall pay all or a
portion, if appropriate, of the sums previously placed in escrow under this
Section plus a proportionate amount of the interest earned (net of any account
charges) thereon while in escrow (with any amount remaining in escrow, if any,
returned to the party who deposited same). All negotiations conducted pursuant
to this Section shall be confidential.
ARTICLE XXII
RULES OF CONSTRUCTION
22.1 INTERPRETATION. The captions or headings in this Agreement are strictly for convenience and shall not be considered in interpreting this Agreement or as amplifying or limiting any of its content. Words in this Agreement that import the singular connotation shall be interpreted as plural, and words that import the plural connotation shall be interpreted as singular, as the identity of the parties or objects referred to may require. References to "person" or "entity" each include natural persons and legal entities, including corporations, limited liability companies, partnerships, sole proprietorships, business divisions, unincorporated associations, governmental entities, and any entities entitled to bring an action in, or that are subject to suit in an action before, any state or federal court of the United States. The word "including" means "including, but not limited to." "Days" refers to calendar days, except that references to "banking days" exclude Saturdays, Sundays and holidays during which nationally chartered banks in Tulsa, Oklahoma are authorized or required to close. Unless expressly defined herein, words having well-known technical or trade meanings shall be so construed.
22.2 CUMULATIVE REMEDIES; INSURANCE. Except as set forth to the contrary herein, any right or remedy of Williams or Cogent shall be cumulative and without prejudice to any other right or remedy, whether contained herein or not. The provisions of Article XV (Insurance) shall not be construed as limiting the Indemnitor's obligations pursuant to Article XIII (Indemnification) or other provisions of this Agreement.
[*] Indicates confidential treatment requested.
22.3 NO THIRD-PARTY RIGHTS. Nothing in this Agreement is intended to provide any legal rights to anyone not an executing party of this Agreement except under the indemnification and insurance provisions and except that (a) the Released Parties shall have the benefit of Sections 14.3, 23.1, and 24.2 and (b) the Facility Owners/Lenders shall be entitled to rely on and have the benefit of Sections 11.2 and 24.2.
22.4 AGREEMENT FULLY NEGOTIATED. This Agreement has been fully negotiated between and jointly drafted by Williams and Cogent.
22.5 DOCUMENT PRECEDENCE. In the event of a conflict between the provisions of this Agreement and those of any Exhibit, the provisions of this Agreement shall prevail and such Exhibits shall be corrected accordingly.
22.6 INDUSTRY STANDARDS. Except as otherwise set forth herein, for the purpose of this Agreement the normal standards of performance within the telecommunications industry in the relevant market shall be the measure of whether a party's performance is reasonable and timely.
22.7 CROSS REFERENCES. Except as the context otherwise indicates, all references to Exhibits, Articles, Sections, Subsections, Clauses, and Paragraphs refer to provisions of this Agreement.
22.8 LIMITED EFFECT OF WAIVER. The failure of either Williams or Cogent to enforce any of the provisions of this Agreement, or the waiver thereof in any instance, shall not be construed as a general waiver or relinquishment on its part of any such provision, but the same shall nevertheless be and remain in full force and effect.
22.9 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without reference to its choice of law principles. The laws of such state shall govern all disputes referred to arbitration and the statute of limitations and the remedies for any wrongs that may be found.
22.10 SEVERABILITY. If any term, covenant or condition in this Agreement shall, to any extent, be invalid or unenforceable in any respect under the laws governing this Agreement, the remainder of this Agreement shall not be affected thereby, and each term, covenant or condition of this Agreement shall be valid and enforceable to the fullest extent permitted by law and, if appropriate, such invalid or unenforceable provision shall be modified or replaced to give effect to the underlying intent of the parties hereto and to the intended economic benefits of the parties.
22.11 NO PARTNERSHIP CREATED. The relationship between Williams and Cogent 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 federal income tax purposes. Williams and Cogent, in performing any of their obligations hereunder, shall be independent contractors or independent parties and shall discharge their contractual obligations at their own risk.
22.12 PAYMENT PLAN NOT A LOAN. The parties agree that neither the
payment plan set forth in Section 3.1, the payment schedule set forth in
Section 3.2 for Additional Fibers, nor any other provision of this Agreement
constitutes a loan by Williams or the incurrance of debt by Cogent but that
the obligations of both parties represent ongoing obligations under this
Agreement.
ARTICLE XXIII
ASSIGNMENT
23.1 CONDITIONS TO EFFECTIVE ASSIGNMENT. An assignment (or other transfer) of this Agreement or a party's rights or obligations hereunder to any other party shall not be effective without (a) either the prior written consent of the non-assigning party, or, if such consent is not required pursuant to specific terms in this Article XXIII, written notice to the non-assigning party, (b) the written agreement of the assignee to be bound by all terms and conditions of this Agreement including, without limitation, the indemnification provisions and limitations on liability and recourse set forth in this Agreement (including those benefiting the Released Parties), and (c) such assignee's agreement to cure all prior defaults of the assigning party under this Agreement.
23.2 IMPERMISSIBLE ASSIGNMENTS. Except as set forth in Section 23.4 or 23.9, the non-assigning party may withhold consent to an assignment in its sole discretion, if the assignment:
(a) is made by a party within one (1) year of the Effective Date, other than as part of a sale of substantially all of a party's assets; or
(b) is an assignment of less than all of a party's rights or obligations hereunder.
23.3 CONSENT NOT TO BE UNREASONABLY WITHHELD. Except to the extent
Section 23.2 provides the non-assigning party the right to withhold its
consent in its sole discretion and except as set forth in Section 23.5, the
non-assigning party shall not unreasonably withhold its consent to an
assignment if neither the assigning party nor the proposed assignee is in
material default under this Agreement or any other agreement with the
non-assigning party. For purposes of this Section, Williams' consent to a
requested assignment or transfer shall not be considered unreasonably withheld
if such requested assignment or transfer is to a party which does not have the
technical ability or financial capability to perform Cogent's obligations
under this Agreement.
23.4 ASSIGNMENTS TO PARTICULAR CLASSES OF ENTITIES. The provisions of
Section 23.2 notwithstanding:
(a) Williams may assign some or all of its rights and obligations hereunder to State Street Bank and Trust Company of Connecticut, National Association, in connection with a financing by Williams of construction of its fiber optic network; in addition, State Street Bank and Trust Company of Connecticut, National Association, may further assign this Agreement as collateral for such financing. If Williams makes an assignment pursuant to this Subsection 23.4(a), Williams (or its assignee pursuant to an assignment made under the other provisions of this Article) shall guarantee performance of the assignee's obligations.
(b) Neither the provisions of this Article nor any other provisions of this Agreement shall limit the ability of any Facility Owners/Lenders or of any Released Parties to assign their rights under this Agreement and such Facility Owners/Lenders and Released Parties may assign their rights hereunder at any time and from time to time without the consent of, notice to, or any other action by any other entity. The provisions of this Agreement benefiting the Facility Owners/Lenders and Released Parties shall inure to the benefit of such entities and their respective Affiliates, successors, and assigns.
(c) Williams may assign all of its rights and obligations to the underlying facilities owner or operator with respect to portion(s) of the System with the prior written consent of Cogent, which consent shall not be unreasonably withheld if neither Williams nor the proposed assignee is in material default under this Agreement or any other agreement with the Cogent.
(d) Either party may assign its interest in this Agreement without the prior consent of the other party (i) to any corporation or other entity which is a successor to such party either by merger or consolidation, or (ii) to a purchaser of all or substantially all of such party's assets, or (iii) to a corporation or other entity which is an Affiliate of such party; provided that the assigning party shall remain fully liable, jointly and severally with any assignee(s) under this Subsection 23.4(d) for all obligations under this Agreement.
23.5 RESTRICTION ON TRANSFER OF DARK FIBER RIGHTS. Cogent shall not convey any interest in the rights granted herein with respect to any Cogent Fibers except by means of the provision of capacity or a permitted assignment of this Agreement. Without limiting the generality of the foregoing, Cogent is expressly prohibited from providing IRU grants, sales, leases, assignments, or other grants of rights in the Cogent Fibers. Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall be construed to prohibit or restrict Cogent's ability to provide capacity services to its customers including, without limitation, selling optical waves or "lambdas".
23.6 AGREEMENT BINDS SUCCESSORS. This Agreement and the rights and obligations under this Agreement (including the limitations on liability and recourse set forth in this Agreement benefiting the other party and the Released Parties) shall be binding upon and shall inure to the benefit of Williams and Cogent and their respective permitted successors and assigns.
23.7 CHANGE IN CONTROL NOT AN ASSIGNMENT. Notwithstanding any presumptions under applicable state law that a change in control of a party constitutes an assignment of an agreement, a change in control of a party, not made for purposes of circumventing restrictions on assignment or of depriving the other party of rights under this Agreement, shall not be deemed an assignment for purposes of this Agreement.
23.8 RIGHT TO SUBCONTRACT. Williams may subcontract for testing, maintenance, repair, restoration, relocation, or other operational and technical services it is obligated to provide hereunder or may have the underlying facility owner or its contractor perform such obligations, provided that Williams shall remain liable for all of its obligations hereunder.
23.9 FINANCING ARRANGEMENTS. Either party shall have the right, directly or through an Affiliate, to enter into financing arrangements (including secured loans, leases, sales with lease-back, or leases with lease-back arrangements, purchase-money or vendor financing, conditional sales transactions, or other arrangements) with or to collaterally assign its rights hereunder to one or more financial institutions, vendors, suppliers or other financing sources (individually and collectively, "Lenders"), that, with respect to Williams, relate to the System and, with respect to Cogent, relate to the Cogent Lease/IRU Rights (and not to any property right in the System).
23.10 RIGHT OF FIRST REFUSAL. In the event that at any time prior to Cogent's payment in full of the Contract Price, Cogent attempts to assign its interests in this Agreement and fails to obtain Williams' consent (if such consent is required), or if Cogent seeks to assign this Agreement in a manner which requires Williams' consent under the terms of this Article 23 (whether such assignment is voluntary or involuntary), then Williams shall have a right of first refusal to acquire all of the Cogent Lease/IRU Rights with respect to the Cogent Fibers. Upon Williams' request, Cogent will provide detailed information regarding the proposed assignment including, without limitation, the amount of consideration to be paid by the proposed assignee. Williams may exercise its right of first refusal by matching the highest bona fide assignment offer received and accepted by Cogent, but, if Cogent is in default under the terms of this Agreement, then Williams may exercise its option to purchase the Cogent Lease/IRU Rights in accordance with the terms of Section 12.2(d) above.
ARTICLE XXIV
ENTIRE AGREEMENT; AMENDMENT; EXECUTION
24.1 INTEGRATION; EXHIBITS. This Agreement constitutes the entire and final agreement and understanding between Williams and Cogent 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 made a part of this Agreement by reference.
24.2 NO PAROLE AMENDMENT. This Agreement may only be amended, modified, or supplemented by an instrument in writing executed by duly authorized representatives of Williams and Cogent. No such amendment, modification, or supplement shall result in any modification of (a) any indemnity benefiting any Facility Owners/Lenders or their respective Affiliates or (b) any limitation of liability or recourse benefiting any Released Parties that is adverse to such Released Parties.
24.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument.
24.4 FACSIMILE DELIVERY. This Agreement may be duly executed and delivered by a party by execution and facsimile delivery of the signature page of a counterpart to the other party, provided that, if delivery is made by facsimile, the executing party shall promptly deliver, via overnight delivery, a complete original counterpart that it has executed to the other party.
IN WITNESS WHEREOF and in confirmation of their consent to the terms and conditions contained in this Agreement and intending to be legally bound hereby, Williams and Cogent have executed this Agreement as of the Effective Date.
"WILLIAMS":
WILLIAMS COMMUNICATIONS, INC.
By: /s/ S. Miller Williams ------------------------------------ Print Name: S. Miller Williams ---------------------------- Title: Senior Vice President --------------------------------- |
"COGENT":
COGENT COMMUNICATIONS, INC.
By: /s/ David Schaeffer ------------------------------------ Print Name: David Schaeffer ---------------------------- Title: President --------------------------------- |
EXHIBIT A-1
MAP OF MAJOR SEGMENTS
[OBJECT OMITTED]
EXHIBIT A-2
MAJOR SEGMENT LISTING
----------------------------------------------------------------------------------------------------------------------------------- ROUTE SEGMENT ESTIMATED ESTIMATED FIBER FIBERS DISCOUNTED PRICE TOTAL FIBER ORIGIN DESTINATION COMPLETION MILEAGE TYPE OFFERED PER FIBER MILE PAYMENT ----------------------------------------------------------------------------------------------------------------------------------- ATLANTA Macon Macon JACKSONVILLE Complete 355 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- DENVER Topeka Topeka KANSAS CITY Complete 635 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- HERNDON WASHINGTON D.C. Complete 26 SMF-LS 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- TAMPA Orlando Orlando DAYTONA BEACH Complete 153 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SALT LAKE CITY DENVER Complete 551 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- JACKSONVILLE Daytona Beach Daytona Beach Melbourne Melbourne West Palm Beach West Palm Beach FT. LAUDERDALE Complete 310 SMF-28 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- TALLAHASSEE Tampa Tampa FT. MYERS Complete 344 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- NEW ORLEANS Mobile Mobile Pensacola Pensacola TALLAHASSEE Complete 469 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- WASHINGTON D.C. Baltimore Baltimore Philadelphia Philadelphia Newark Newark NEW YORK CITY Apr-00 336 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- HERNDON MANASSAS JUNCTION Apr-00 28 SMF-LS 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- ALBANY Springfield Springfield Worcester Worcester BOSTON Jul-00 183 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- CLEVELAND Buffalo Buffalo Rochester Rochester Syracuse Syracuse ALBANY Jul-00 562 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- LOS ANGELES RIVERSIDE Aug-00 65 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- HOUSTON DALLAS Sep-00 250 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- DALLAS Tulsa Tulsa KANSAS CITY Sep-00 484 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SAN FRANCISCO SANTA CLARA Sep-00 48 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SAN FRANCISCO Oakland Oakland SACRAMENTO Sep-00 114 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- RIVERSIDE Phoenix Phoenix Tucson Tucson El Paso El Paso San Antonio San Antonio Austin Austin HOUSTON Oct-00 1709 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- |
[*] Indicates confidential treatment requested.
Exhibit A-2, Page 1
EXHIBIT A-2 (CONTINUED)
----------------------------------------------------------------------------------------------------------------------------------- ROUTE SEGMENT ESTIMATED ESTIMATED FIBER FIBERS DISCOUNTED PRICE TOTAL FIBER ORIGIN DESTINATION COMPLETION MILEAGE TYPE OFFERED PER FIBER MILE PAYMENT ----------------------------------------------------------------------------------------------------------------------------------- RIVERSIDE San Diego San Diego RIVERSIDE Oct-00 220 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- KANSAS CITY Columbia Columbia ST. LOUIS Nov-00 270 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FT. MYERS MIAMI Dec-00 196 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FT. LAUDERDALE MIAMI Dec-00 20 SMF-28 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- ATLANTA Spartanburg Spartanburg Charlotte Charlotte Greensboro Greensboro Raleigh Raleigh Richmond Richmond WASHINGTON D.C. Dec-00 818 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FREMONT JUNCTION OAKLAND Dec-00 27 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FREMONT JUNCTION SANTA CLARA Dec-00 24 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FREMONT JUNCTION MODESTO Dec-00 93 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SACRAMENTO Reno Reno SALT LAKE CITY Dec-00 661 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SACRAMENTO Modesto Modesto Fresno Fresno Bakersfield Bakersfield LOS ANGELES Dec-00 671 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- ST. LOUIS Springfield Springfield Peoria Peoria CHICAGO Dec-00 339 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- NEW YORK CITY Stamford Stamford New Haven New Haven Hartford Hartford Providence Providence BOSTON Jan-01 265 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- HOUSTON Baton Rouge Baton Rouge New Orleans New Orleans Jackson Jackson Birmingham Birmingham ATLANTA Mar-01 1000 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- PORTLAND SEATTLE Mar-01 220 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- PORTLAND Eugene Eugene SACRAMENTO Mar-01 688 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- CHICAGO South Bend South Bend Toledo Toledo CLEVELAND Apr-01 350 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- TOTALS 12,484 $ [***] ----------------------------------------------------------------------------------------------------------------------------------- |
[*] Indicates confidential treatment requested.
Exhibit A-2, Page 2
EXHIBIT B-1
COLLOCATION PROVISIONS
(Transmission Sites)
1. GENERAL.
A. TYPES OF TRANSMISSION SITES AND COLLOCATION ARRANGEMENTS. Williams shall designate each Transmission Site as an optical amplifier site, a regenerator site, or a junction. Williams may provide, either as Basic Services or Additional Services as defined below, collocation services at Transmission Sites through:
(i) Joint Use Collocation Arrangements ("JUCA"); or
(ii) separately accessed space ("Non-JUCA") in increments of seventy-five (75) square feet.
Subject to the terms of these Collocation Provisions, Cogent shall have the right to locate, install, maintain, and operate Cogent Equipment at the Transmission Sites during the Term. The nature of Cogent's rights and the applicable charges shall depend on the type of Transmission Site and the type of arrangement (JUCA or non-JUCA) at such sites.
B. NO PROPERTY RIGHTS CONVEYED. No use of Transmission Sites required or permitted under these Collocation Provisions shall create or vest in Cogent any easements, leasehold interests, or other ownership or property rights of any nature in Williams' real or personal property.
C. COMPLIANCE WITH INDUSTRY STANDARDS. Williams shall construct and operate such space, and Cogent shall cause the Cogent Equipment to be installed and operated, in accordance with telecommunications industry standards for similar collocation arrangements.
D. NO RESTRICTIONS. Williams' right to maintain and operate its facilities in such a manner as will best enable it to fulfill its own service requirements is in no manner limited by these Collocation Provisions, except as specifically set forth in these Collocation Provisions or the Agreement.
E. SERVICES SUBJECT TO AVAILABILITY. Until Williams accepts a firm Cogent order for collocation services, and except for the Basic Services set forth in Section 3 of this Exhibit, such services are subject to availability of appropriate space, power, and other infrastructure requirements. Except for Basic Services, Williams may decline to accept an order that would impose operational difficulties or result in inefficient use of space or power.
F. SPACING. Williams generally designs Spans with an approximate length of 40 miles.
Exhibit B-1, Page 1
2. TYPES OF ARRANGEMENTS.
A. JUCA SPACE. When Williams provides collocation services by means of JUCA space, Cogent shall not access such space without a Williams-designated escort. Williams shall provide such escort pursuant to Subsection 8.A of these Collocation Provisions.
B. NON-JUCA SPACE. If Williams provides collocation services by means of Non-JUCA space, Williams shall provide Cogent secure, separate, unescorted twenty-four hour access to the Cogent Equipment. Such Non-JUCA space shall be outside of (or separated by caging/barriers from) Williams backbone or JUCA area.
3. BASIC SERVICES.
A. SPACE AND POWER. The services provided pursuant to this Subsection shall be referred to as the "Basic Services." At each Transmission Site, Williams shall provide, and Cogent shall pay for, the number of Rack Spaces designated in Exhibit B-2 in JUCA space, HVAC, and 20 amps of -48v DC power per Rack Space for the Cogent Equipment.
Each "Rack Space" shall be adequate to contain a standard equipment rack (with outside dimensions of twenty-six inches (26") (width) x twenty-four inches (24") (depth) x seventy-eight (78") or eighty-four inches (84") (height)). The total linear inches for Cogent Rack Space within each Transmission Site shall not exceed the sum of the number of Rack Spaces for the specified Transmission Site multiplied by twenty-six (26") inches.
Notwithstanding the above provisions of this Subsection3(A), with respect to Transmission Sites for which no address or location description is specified in EXHIBIT B-2, Cogent shall have the right to cancel Basic Services for any such Transmission Site if the location thereof is not compatible with Cogent's network plan by giving written notice to Williams within the fifteen (15) day period after receipt of Williams' test results for the Major Segments on which such Transmission Sites are located as described in Section 7(A) of EXHIBIT C to the Agreement. In addition, Cogent may change the number of Rack Spaces to be provided as part of the Basic Services from one (1) Rack Space to two (2) Rack Spaces, or from two (2) Rack Spaces to one (1) Rack Space, in any Transmission Site along the applicable Major Segment by giving written notice to Williams within the above-described 15-day period.
B. CHARGES FOR BASIC SERVICES. Cogent shall pay Williams [*]
[*] per Rack Space per month per
Transmission Site for JUCA space throughout the Term (beginning on the earlier
of the Transmission Site Ready Date or Access Date for each Transmission Site)
for the Basic Services. The above-described monthly fees shall be increased
annually throughout the Term by two percent (2%) of the charges payable during
the immediately preceding annual period on a date selected by Williams. Cogent
shall pay such amounts on or before the first day of each calendar month
during the Term. Payments shall be prorated, as necessary, for the first and
last months such charges apply. Charges for Basic Services shall begin to
apply when the Transmission Site Ready Date occurs.
[*] Indicates confidential treatment requested.
Exhibit B-1, Page 2
4. ADDITIONAL SERVICES.
A. PROCEDURES FOR REQUESTING ADDITIONAL SERVICES. Cogent may request in writing installation services, AC power or additional DC power, technical assistance or additional space or racks (collectively referred to as the "Additional Services") at any Transmission Site. Within fifteen (15) business days after receiving such written request, Williams shall notify Cogent whether the Additional Services are available and, if they are, Williams' then current standard rates for the Additional Services and Williams' estimate of any upgrade or expansion Costs. Cogent shall provide written notice to Williams confirming its request for such Additional Services at the quoted rates (and estimates, if applicable) prior to Williams providing such Additional Services. If upgrades or expansions to Transmission Sites or its facilities are necessary to accommodate Cogent's request, Williams may include the entire Cost of such upgrades or expansions in the Cost to Cogent.
B. CHARGES FOR ADDITIONAL SERVICES. If Cogent chooses to receive the Additional Services, Cogent shall pay any and all (initial and continuing) Costs reasonably incurred by Williams in providing and/or mutually agreed upon charges for such Additional Services or, if Williams has standard rates for such service, then at such standard rates. Upon at least thirty (30) days' notice to Cogent, Williams may adjust recurring charges for the Additional Services once each calendar year to equal its then-current standard charges.
5. ESTABLISHING COLLOCATIONS.
A. PHYSICAL ACCESS TO TRANSMISSION SITES. Williams shall allow Cogent
reasonable access to each Transmission Site for purposes of installing Cogent
Equipment beginning on or before the Acceptance Date for the relevant Major
Segment, provided that, if a Transmission Site is not ready for installation
of equipment other than security, alarm, HVAC, power, back-up power or other
common systems on such date, Williams shall allow such access within five (5)
days of the first date such Transmission Site is ready for such installation.
The date on which Cogent is granted access to a Transmission Site under this
Section shall be the "Access Date" for such Transmission Site.
B. NOTICE TO COLLOCATE. No later than sixty (60) days prior to
Cogent's planned installation of its Cogent Equipment at any Transmission
Site, Cogent shall provide to Williams the "Collocation Notice." The
Collocation Notice shall include notice of Cogent's desire to collocate in a
particular Transmission Site, a copy of Cogent's construction design drawings
and installation schedule. The Collocation Notice shall also include: (i)
Cogent's requested installation date(s); (ii) any excess cable storage
requirements; (iii) identification of all Cogent Equipment to be installed;
(iv) a diagram of the desired location of the Cogent Equipment and power
feeds; (v) the space, power, environmental, and other requirements for the
Cogent Equipment; (vi) all other information reasonably required by Williams.
Within twenty-one (21) days of receiving the Collocation Notice, Williams
shall respond to Cogent's Collocation Notice with its acceptance or objections
to Cogent's proposal in the Collocation Notice.
6. TRANSMISSION SITE READY DATE. The "Transmission Site Ready Date" shall be the Acceptance Date for the Cogent Fibers connected to such Transmission Site provided that the Transmission Site Ready Date shall be deferred beyond the Acceptance Date as set forth below:
Exhibit B-1, Page 3
A. FAILURE TO PROVIDE ACCESS. If Williams fails to provide physical access to the Transmission Site pursuant to the Subsection entitled Physical Access to Transmission Sites, the Transmission Site Ready Date shall be delayed until the earlier of the date Williams provides such physical access or the date Cogent's Equipment is installed.
B. FAILURE TO PROVIDE POWER. If Williams fails to provide power as
required for the Basic Services, the Transmission Site Ready Date shall be
delayed until it provides such power, unless such failure is due to Cogent's
failure to properly and timely provide information pursuant to the Subsection
5.B of this Exhibit.
C. Cogent may elect by written notice to delay the Transmission Site Ready Date for any Transmission Site until the Transmission Site Ready Date has occurred for all Transmission Sites on a Major Segment.
7. COGENT EQUIPMENT
A. INTERFACE. Interface points between the Cogent Fibers and facilities wholly within Transmission Sites shall be at fiber distribution panels or digital cross-connect (DSX-N) panels located in the Transmission Sites and designated by Williams. Such panels shall be the demarcation to establish each party's operational and maintenance responsibilities. All cables placed to interface such panels shall conform to all applicable Williams standards.
B. POWER USE. Cogent shall not install any electrical or other equipment that overloads any electrical paneling, circuitry, or wiring.
C. RACKS. Cogent shall supply its own racks or may request that Williams provide such racks as an Additional Service at its standard rates.
D. STANDARDS. Cogent shall ensure that the Cogent Equipment (including racks) is delivered, installed, operated, and maintained to meet or exceed any reasonable requirements of Williams, any requirements of Williams' building management or insurance underwriters, and any applicable local, state and federal codes and public health and safety laws and regulations (including fire regulations and the National Electric Code).
E. INTERVENTION. If any part of Cogent's fiber or Cogent Equipment is
not placed and maintained in accordance with the terms and conditions of these
Collocation Provisions and Cogent fails to correct the violation within thirty
(30) days from receipt of written notice thereof from Williams, then Williams
may, at its option, without further notice to Cogent, correct the deficiency
at Cogent's expense without liability for damages to the fiber, Interconnect
Facilities or Cogent Equipment or for any interruption of Cogent's services.
As soon as practicable thereafter, Williams shall advise Cogent in writing of
the work performed or the action taken. Cogent shall reimburse Williams for
all Costs reasonably incurred by Williams associated with any work or action
performed by Williams pursuant hereto.
Exhibit B-1, Page 4
F. REMOVAL OF COGENT EQUIPMENT. Within thirty (30) days after the end of the Term (or other termination of the Lease/IRU Rights in the Cogent Fibers), Cogent shall remove all Cogent Equipment from the System or any other Williams facilities at Cogent's sole cost under Williams' supervision. Cogent shall provide Williams with at least thirty (30) days' notice prior to such removal. If Cogent fails to remove the same within said thirty-day period, Williams shall either:
(i) remove Cogent's Equipment and issue an invoice to Cogent for the Cost of removal and storage and or delivery to Cogent; or
(ii) notify Cogent that Williams elects to take ownership of such abandoned Cogent Equipment, in which case Cogent shall execute a bill of sale or other document evidencing Williams' title to such Cogent Equipment.
8. ACCESS TO TRANSMISSION SITE.
A. COMMON AND JUCA SPACE. If Cogent requires access to Williams' common space or JUCA space, Williams shall make commercially reasonable efforts to provide escorted access within seventy-two (72) hours of Cogent's request (or at its option shall waive the escort requirement on a case-by-case basis). In the event of a service-affecting fault, Williams shall use commercially reasonable efforts to provide access as soon as practicable. Cogent shall pay Williams' reasonable charges for such access, which may include minimum call-out times, and night, weekend, and holiday differentials or multipliers. In no case shall Cogent enter Williams' common space or JUCA space without a Williams escort, except that a Cogent employee or Cogent contractor certified by Williams pursuant to Subsection 8(b) may enter JUCA space unescorted.
B. CERTIFICATION OF COGENT EMPLOYEES AND CONTRACTORS. Only Cogent employees and Cogent contractors certified by Williams shall enter JUCA space unescorted. Williams shall grant certification to a Cogent employee or contractor if Cogent demonstrates that such employee or contractor has sufficient knowledge and experience in the installation and maintenance of telecommunications equipment. Each certified employee or contractor shall abide by Williams' Maintenance and Safety Manual, as updated from time-to-time. The manual contains Williams' access policy, safety, engineering, and equipment installation standards. Cogent, in turn, shall supply each employee or contractor that seeks certification with a copy of the manual and, subsequent to certification, with any updates thereto which are provided to Cogent by Williams. Until such time as Williams provides the manual to Cogent, certified Cogent employees and Cogent contractors shall conduct activities in JUCA space in accordance with telecommunications industry practices. The procedures for certification are as follows:
(i) Cogent's single point of contact, discussed below in Subsection C, shall be Williams' Network Control Center at (800) 348-6925 (alternate number (800) 582-9069) to seek certification for a Cogent employee. Employee applicants shall be deemed certified seventy-two (72) hours after Williams receives all requested qualification information, unless Williams notifies Cogent's single point of contact that more information is reasonably required or that the applicant is denied certification in
Exhibit B-1, Page 5
Williams' reasonable discretion.
(ii) For each Cogent contractor that seeks certification, Cogent shall provide Williams' Network Control Center with a letter of authorization signed by Cogent and the contractor. At a minimum, the letter of authorization shall state that the contractor is an agent of Cogent for the purpose of installing, maintaining or repairing Cogent Equipment or for other purposes specified by Cogent in the letter, set forth the names of contractor's employees for which Cogent seeks certification, and contain a statement that the contractor has received a copy of Williams' Maintenance and Safety Manual and the contractor agrees to abide by the reasonable policies contained therein and to those contained in any updated manuals provided to Cogent by Williams. If Cogent has not received a copy of Williams' Maintenance and Safety Manual by the time it submits a letter of authorization, the contractor shall state in the letter that it will abide by the policies and rules contained in the manual when it is provided. Cogent contractors shall be deemed certified seventy-two (72) hours after the latter of Williams' receipt of the letter of authorization or Williams' receipt of all additional requested qualification information, unless Williams notifies the applicant that more information is reasonably required or that the applicant is denied certification in Williams reasonable discretion.
Once certified, Cogent's employees or contractors must call Williams' Network Control Center at (800)348-6925 (alternate number (800) 582-9069) prior to entering or exiting the space. Cogent shall provide Williams' Network Control Center with a list of "certified" employees or contractors that have passed Williams' certification process. It shall be Cogent's duty to notify Williams of any changes in Cogent's list of certified employees and contractors or if a certified Cogent employee or contractor leaves Cogent's or the contractor's employ.
C. SINGLE POINT OF CONTACT. Within thirty (30) days after the Effective Date of the Agreement, Cogent shall designate a single point of contact for all future communications regarding common and JUCA space which shall be available twenty-four (24) hours a day, seven (7) days a week. Cogent's single point of contact shall be responsible for distributing information to Cogent's certified employees and contractors. Williams shall have no obligation to provide information regarding JUCA space to any technician other than the aforementioned single point of contact.
D. SECURITY. Cogent shall abide by Williams' reasonable security requirements. When Williams' reasonable security requirements have been met, Cogent employees, customers, contractors, or representatives shall be issued passes or visitor identification cards which must be presented upon request before entry to Transmission Sites. Such passes or other identification shall be issued only to persons meeting any reasonable security criteria applicable at the relevant Transmission Site for such purpose. Williams shall provide Cogent's single point of contact, discussed in Subsection 8(c), with the access devices (e.g., access codes, card keys, keys, visitor identification cards) necessary for Cogent's certified employees and contractors to gain access to Cogent Equipment in JUCA space. Cogent's single point of contact shall be responsible for distributing access devices to Cogent's employees and contractors certified pursuant to Subsection 8(b) and shall distribute access devices only to such persons. Access devices will be provided by
Exhibit B-1, Page 6
Williams to Cogent with Williams' Costs thereof to be reimbursed by Cogent within thirty (30) days after receipt of an invoice therefor. Cogent's certified employees and contractors shall not disseminate access codes or devices to any other person. Cogent shall be liable for any losses caused by use or misuse of such access devices and shall surrender access devices upon demand for cause or upon termination of the Agreement. Nothing in this Subsection shall be construed as preventing Cogent from having twenty-four hour, seven days per week unescorted access to any of its Non-JUCA space. Cogent acknowledges that third parties will have access to the JUCA or common space in which Cogent's Rack Spaces are located and agrees that Williams shall in no event be liable for the acts or omissions of such third parties.
E. RIGHT TO TERMINATE INDIVIDUAL'S ACCESS. Notwithstanding any other provision of these Collocation Provisions, Williams shall, without threat of liability, have the right to immediately terminate the right of access of any Cogent personnel or representative should it determine in its reasonable discretion for any lawful reason that termination of such access is necessary or reasonably advisable in order to assure the security of its facilities and/or to prevent damage to the System or to the Equipment of Williams or third parties. Williams shall promptly notify Cogent of any such termination, and Cogent shall have a reasonable opportunity to demonstrate that the terminated rights of access should be reinstated. Any termination of a specific individual's access shall remain in effect pending Williams' final determination as to the advisability of such reinstatement.
F. SUBCONTRACTORS. For purposes of Section 8 of this Exhibit, the word "contractor" shall also include subcontractors of Cogent.
9. RELOCATION. In the event relocation of Cogent's Interconnect Facilities or any Cogent Equipment is reasonably requested by Williams for bona fide operational reasons, then Cogent shall, at Williams' expense, relocate its fiber, Interconnect Facilities and Cogent Equipment within Transmission Site upon Williams' written request and in the reasonable (under the circumstances) time frame required by Williams. Williams' shall make commercially reasonable efforts to allow and coordinate such relocation so that it may be conducted at a time and in a manner which minimizes interruption to Cogent's service. If the entire Transmission Site is relocated, Article VIII (Maintenance and Relocation) of the Agreement shall govern such relocation.
10. TRANSMISSION SITE SPECIFICATIONS AND MONITORING.
A. REDUNDANT HVAC. All Transmission Sites shall have redundant HVAC (heating, ventilation, and air conditioning) units each capable of handling the site's full HVAC load.
B. BACKUP POWER. All unattended (unmanned) Transmission Sites shall have a minimum of eight (8) hours' battery reserve. All attended Transmission Sites without an on-site generator shall have a minimum of eight (8) hours' battery reserve. All attended Transmission Sites with an on-site generator shall have a minimum of four (4) hours' battery reserve. All on-site generators shall be capable of powering the total site for a minimum of twenty-four (24) hours.
C. ALARMS. Williams shall continuously monitor Transmission Site security,
Exhibit B-1, Page 7
environmental, and power alarms at one or more manned monitoring centers. At Cogent's request, Williams shall, as an Additional Service, establish procedures to allow Cogent, at Cogent's expense, to share or (at Williams' option) indirectly receive security and environmental alarm information.
11. INTERCONNECTIONS. Exhibit H governs interconnections at Transmission Sites with facilities outside or extending outside such sites.
12. INSPECTIONS.
A. WILLIAMS' RIGHT TO INSPECT. Williams reserves the right to make periodic inspections of any part of the Fiber, Interconnect Facilities, or Cogent Equipment located within or physically attached to the Transmission Sites. Williams shall give Cogent advance notice of such inspections and Cogent shall have the right to have one or more of its employees or representatives present during the time of any such inspection, except in those instances where Williams determines that safety considerations justify the need for such an inspection without the delay of providing notice. The making of periodic inspections or the failure to do so shall not operate to impose upon Williams any liability of any kind whatsoever nor relieve Cogent of any responsibility, obligation, or liability allocated to it in these Collocation Provisions.
B. WILLIAMS ACCESS. Cogent shall not directly or indirectly prevent Williams from having twenty-four hour access to Cogent's assigned Non-JUCA space.
13. THREAT TO PERSONS OR PROPERTY. If Williams determines that Cogent's actions or failure to fulfill an obligation of these Collocation Provisions, or its Interconnect Facilities or Cogent Equipment poses an immediate threat to the safety of Williams' employees or the public, interferes with the performance of Williams' service obligations, or poses an immediate threat to the physical integrity of Williams' facilities, Williams may perform such work and/or take such action that it deems necessary without notice to Cogent and without subjecting itself to any liability (except to the extent the Agreement permits recovery for Williams' gross negligence) for damage to the fiber, Interconnect Facilities or the Cogent Equipment or for any interruption of Cogent's services. As soon as practicable thereafter, Williams shall advise Cogent in writing of the work performed or the action taken. Cogent shall reimburse Williams for all Costs reasonably incurred by Williams associated with any work or action performed by Williams pursuant hereto.
14. LIENS AND ENCUMBRANCES. Cogent shall not have the power, authority or right to create and shall not permit any lien or encumbrance, including, without limitation, tax liens, mechanics' liens, or other liens or encumbrances with respect to work performed, in connection with the delivery, installation, repair, maintenance, or operation of its Cogent Equipment, Interconnect Facilities or other property installed within the Transmission Site.
15. SUBORDINATION. Cogent's rights under these Collocation Provisions shall be totally subordinate to any bona fide mortgages, loans, deeds of trust, or any other borrowing upon the real or personal property which may be incurred by Williams. Cogent shall sign any such reasonable documents as are necessary to satisfy any lender, private or institutional, to reflect said
Exhibit B-1, Page 8
subordination; provided such lender agrees not to disturb Cogent's rights hereunder so long as Cogent is not in default of the Agreement under the terms hereof.
16. INDEPENDENT PARTIES. The presence of a Williams or Cogent employee or representative (as an inspector or otherwise) while an employee or representative of the other party is at the Transmission Site or performing work pursuant to these Collocation Provisions shall not make either party liable for the actions of the other party and shall not be deemed to waive the responsibility of either party to perform its obligations in a safe and workmanlike manner.
17. COMPLIANCE WITH AGREEMENT. Each party shall comply with the provisions of the Agreement relating to Transmission Sites, including:
A. Williams' obligations to provide as-built drawings of Transmission
Sites showing Cogent rack placement and assignment within one hundred eighty
(180) days after Acceptance of the applicable Major Segment;
B. the Operations Specifications set forth in EXHIBIT G; and
C. the Interconnection provisions set forth in EXHIBIT H.
Exhibit B-1, Page 9
EXHIBIT B-2
DESCRIPTION OF TRANSMISSION SITES AND POP COLLOCATIONS SITES; COGENT RACKS
See attached.
Exhibit B-2, Page 1
EXHIBIT B-2
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- ATLANTA-JACKSONVILLE 355 LEAF ----------------------------------------------------------------------------------------------------------------------------------- ATLANTA, GA POP 874 Dekalb Avenue, Atlanta, GA 30307 0 ----------------------------------------------------------------------------------- Covington, Covington, GA 30307 1 ----------------------------------------------------------------------------------- 8036 Highway 11 South, Monticello, GA 31064 1 ----------------------------------------------------------------------------------- MACON, GA POP Charter Medical Bldg., 577 Mulberry St., Suite 175, Macon, GA 31201 1 ----------------------------------------------------------------------------------- 4060 Highway 80 W, Montrose, GA 31065 1 ----------------------------------------------------------------------------------- Route 1 Box 304, Alamo, GA 30411 2 ----------------------------------------------------------------------------------- 544 Buckhorn Road NE, Baxley, GA 31513 1 ----------------------------------------------------------------------------------- 5860 North Campus Road, Patterson, GA 31557 1 ----------------------------------------------------------------------------------- Route 1 Box 845, Folkston, GA 31537 1 ----------------------------------------------------------------------------------- JACKSONVILLE, FL POP 608 W. Adams St., Jacksonville, FL 32204 1 ----------------------------------------------------------------------------------------------------------------------------------- ATLANTA-WASHINGTON DC (2) 818 LEAF ATLANTA, GA POP 874 Dekalb Avenue, Atlanta, GA 30307 0 ----------------------------------------------------------------------------------------------------------------------------------- 790 Mcart Rd., Lawrenceville, GA 30245 1 ----------------------------------------------------------------------------------- 920 Smith Road, Athens, GA 30646 1 ----------------------------------------------------------------------------------- 4260 Liberty Mill Rd., Hartwell, GA 0 ----------------------------------------------------------------------------------- 9744 Augusta Rd., Greenville, SC 29669 1 ----------------------------------------------------------------------------------- SPARTANBURG, SC POP BTC Building, 145 N. Church St., Suite 3, Spartanburg, SC 29306 1 ----------------------------------------------------------------------------------- 2154 Templeton Rd., York, SC 2 ----------------------------------------------------------------------------------- CHARLOTTE, NC POP 112 N. Meyers St., Charlotte, NC 28202 1 ----------------------------------------------------------------------------------- 295 Upright Rd., Salisbury, NC 28125 1 ----------------------------------------------------------------------------------- Kernersville JCT 1 ----------------------------------------------------------------------------------- XX SPUR TO GREENSBORO, NC AND RALEIGH, NC South Elm Center, 201-E Creek Ridge Road, Greensboro, NC 27406 0 ----------------------------------------------------------------------------------- 6102 Old Greensboro Rd., Chapel Hill, NC 27516 0 ----------------------------------------------------------------------------------- XX RALEIGH, NC POP 3440 Tarheel Drive, Bldg. #3, Suite 105, Raleigh, NC 27609 0 ----------------------------------------------------------------------------------- 1301 Ashley Loop, Reidsville, NC 1 ----------------------------------------------------------------------------------- 945 Transco Rd., Chatham, VA 24531 2 ----------------------------------------------------------------------------------- Hwy. 691 SW, Appomattox, VA 24522 1 ----------------------------------------------------------------------------------- Scottsville JCT 1 ----------------------------------------------------------------------------------------------------------------------------------- |
Exhibit B-2, Page 2
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- XX SPUR TO RICHMOND, VA 3901 River Rd. West, Goochland, VA 23063 0 ----------------------------------------------------------------------------------- RICHMOND, VA POP 3600 W. Broad St., Suite 472, Richmond, VA 23230 0 ----------------------------------------------------------------------------------- 74444 Everona Rd., Unionville, VA 22587 1 ----------------------------------------------------------------------------------- 10699 Piperlane, Manassas, VA 1 ----------------------------------------------------------------------------------- WASHINGTON, DC POP 1220 L St. NW, Suite 200, Washington, DC 20005 0 ----------------------------------------------------------------------------------------------------------------------------------- KANSAS CITY-DENVER 635 LEAF ----------------------------------------------------------------------------------------------------------------------------------- KANSAS CITY, MO POP The Bryant Bldg., 1102 Grand Ave. #300, Kansas City, MO 64106 0 ----------------------------------------------------------------------------------- 13804 246th St., Lawrence, KS 66044 1 ----------------------------------------------------------------------------------- TOPEKA, KS POP 101 SE Monroe, Topeka, KS 66603 1 ----------------------------------------------------------------------------------- 1836 County Rd. 330, Osage City, KS 66868 1 ----------------------------------------------------------------------------------- RR 1, Elmdale, Cottonwood Falls, KS 66850 1 ----------------------------------------------------------------------------------- 937 Falcon Road, Newton, KS 67503 2 ----------------------------------------------------------------------------------- 380 Plum Ave., Inman, KS 67546 1 ----------------------------------------------------------------------------------- 1150 E BARTON CO. ROAD, Ellinwood, KS 67526 1 ----------------------------------------------------------------------------------- Bison, Ks, Bison, KS 67520 1 ----------------------------------------------------------------------------------- RR1, Ellis, KS 67672 2 ----------------------------------------------------------------------------------- U02 COUNTY ROAD 50, Grainfield, KS 67839 1 ----------------------------------------------------------------------------------- 2317 Daydream Road, Oakley, KS 67764 1 ----------------------------------------------------------------------------------- 5655 Road #16, Goodland, KS 67735 1 ----------------------------------------------------------------------------------- 32353 County Rd. 40, Burlington, CO 80805 2 ----------------------------------------------------------------------------------- 7250 County Rd. HH, Flagler, CO 80815 1 ----------------------------------------------------------------------------------- 1018 HIGHWAY 71, Woodrow, CO 80801 1 ----------------------------------------------------------------------------------- 2598 S County Rd., 157, Strasburg, CO 80103 1 ----------------------------------------------------------------------------------- DENVER, CO POP 910 15th St., Suite 716, Denver, CO 80202 0 ----------------------------------------------------------------------------------------------------------------------------------- HERNDON-WASHINGTON DC 26 MF-LS ----------------------------------------------------------------------------------------------------------------------------------- HERNDON, VA POP 520 and 524 Van Buren, Herndon, VA, 22070 1 ----------------------------------------------------------------------------------- WASHINGTON, DC POP 1220 L Street NW, Suite 200, Washington, DC, 2005 0 ----------------------------------------------------------------------------------------------------------------------------------- DAYTONA BEACH-TAMPA 153 LEAF ----------------------------------------------------------------------------------------------------------------------------------- DAYTONA BEACH, FL POP 111 N. Seagrave, Daytona Beach, FL 32114 * ----------------------------------------------------------------------------------- 110 Collins Street, Sanford, FL 32754 1 ----------------------------------------------------------------------------------- ORLANDO, FL POP 510 Columbia Street, Orlando, FL 32805 0 ----------------------------------------------------------------------------------------------------------------------------------- |
Exhibit B-2, Page 3
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- 400 B Highway 17-92 South, Haines City, FL 33837 1 ----------------------------------------------------------------------------------- 1075 Pine Chase Avenue, Lakeland, FL 33815 1 ----------------------------------------------------------------------------------- TAMPA, FL POP 1700 N. 25th, Tampa, FL 33605 0 ----------------------------------------------------------------------------------------------------------------------------------- DENVER-SALT LAKE CITY 551 LEAF ----------------------------------------------------------------------------------------------------------------------------------- DENVER, CO POP 910 15th St., Suite 716, Denver, CO 80202 0 ----------------------------------------------------------------------------------- Platteville Op amp 1 ----------------------------------------------------------------------------------- Nunn Op amp 1 ----------------------------------------------------------------------------------- Remount Op amp 1 ----------------------------------------------------------------------------------- W. Laramie Op amp 1 ----------------------------------------------------------------------------------- Wagonhound Regen 2 ----------------------------------------------------------------------------------- Sinclair Op amp 1 ----------------------------------------------------------------------------------- Echo Springs Op amp 1 ----------------------------------------------------------------------------------- Table Rock Op amp 1 ----------------------------------------------------------------------------------- S. Baxter Op amp 1 ----------------------------------------------------------------------------------- Little America Regen 2 ----------------------------------------------------------------------------------- Fort Bridger Op amp 1 ----------------------------------------------------------------------------------- Hilliard Flat Op amp 1 ----------------------------------------------------------------------------------- Wanship Op amp 1 ----------------------------------------------------------------------------------- SALT LAKE CITY, UT POP 5035 Harold Gatty Drive, Salt Lake City, UT 84116 1 ----------------------------------------------------------------------------------------------------------------------------------- JACKSONVILLE-MIAMI 330 SMF-28 ----------------------------------------------------------------------------------------------------------------------------------- JACKSONVILLE, FL POP 608 W. Adams St., * Jacksonville, FL 32204 ----------------------------------------------------------------------------------- Dupont Center, Fl, St Augustine, FL 2 ----------------------------------------------------------------------------------- DAYTONA BEACH, FL POP 111 N. Seagrave, Daytona Beach, FL 32114 1 ----------------------------------------------------------------------------------- Titusville, Fl, Titusville, FL 33142 1 ----------------------------------------------------------------------------------- MELBOURNE, FL POP 1110 Line Street, Melbourne, FL 32901 1 ----------------------------------------------------------------------------------- Viking, Fl, Vero Beach, FL 2 ----------------------------------------------------------------------------------- Port Salerno, Fl, Stuart, FL 1 ----------------------------------------------------------------------------------- WEST PALM BEACH, FL POP 410 Hampton Rd., West Palm Beach, FL 33405 1 ----------------------------------------------------------------------------------- FT. LAUDERDALE, FL POP 220 NW 2nd St., Ft. Lauderdale, FL 33316 1 ----------------------------------------------------------------------------------- MIAMI, FL POP 2115 NW 22nd Street, Miami, FL 33142 0 ----------------------------------------------------------------------------------------------------------------------------------- TALLAHASSEE-MIAMI 540 LEAF ----------------------------------------------------------------------------------------------------------------------------------- TALLAHASSEE, FL POP 1416 S. Adams, Tallahassee, FL 32301 1 ----------------------------------------------------------------------------------- Perry Op amp 2 ----------------------------------------------------------------------------------- Cross City Op amp 1 ----------------------------------------------------------------------------------- Chiefland Regen 1 ----------------------------------------------------------------------------------- Crystal River Op amp 1 ----------------------------------------------------------------------------------- Brooksville Co Op amp 1 ----------------------------------------------------------------------------------- TAMPA, FL POP 1700 N. 25th, Tampa, FL 33605 0 ----------------------------------------------------------------------------------- Wimauma Co Op amp 1 ----------------------------------------------------------------------------------- Zolfo Springs Op amp 1 ----------------------------------------------------------------------------------- Arcadia Op amp 2 ----------------------------------------------------------------------------------- FT. MYERS, FL POP 1523 Seaboard, Ft. Myers, FL 33916 1 ----------------------------------------------------------------------------------- Labell Op amp 1 ----------------------------------------------------------------------------------- Belle Glade Op amp 1 ----------------------------------------------------------------------------------- Weston Op amp 1 ----------------------------------------------------------------------------------------------------------------------------------- |
Exhibit B-2, Page 4
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- MIAMI, FL POP 2115 NW 22nd Street, Miami, FL 33142 0 ----------------------------------------------------------------------------------------------------------------------------------- WASHINGTON DC-NEW YORK CITY 336 LEAF ----------------------------------------------------------------------------------------------------------------------------------- WASHINGTON, DC POP 1220 L Street NW, Suite 200, Washington, DC 20005 0 ----------------------------------------------------------------------------------- Ellicot City Sta 190 Op amp 1 ----------------------------------------------------------------------------------- BALTIMORE, MD POP One Market Square, 300 W. Lexington, Baltimore, MD 21201 1 ----------------------------------------------------------------------------------- Woodbin Sta 195 Op amp 2 ----------------------------------------------------------------------------------- Bacton Sta 200 Op amp 1 ----------------------------------------------------------------------------------- PHILADELPHIA, PA POP 2401 Locust St., 4th Fl., 0 ----------------------------------------------------------------------------------- Suite 400, Philadelphia, PA 19103 ----------------------------------------------------------------------------------- Willingboro Op amp 1 ----------------------------------------------------------------------------------- Jamesburg Op amp 1 ----------------------------------------------------------------------------------- NEWARK, NJ POP 165 Halsey St., 1 Suite 625, Newark, NJ 07102 ----------------------------------------------------------------------------------- NEW YORK CITY, NY POP 601 W 26th Street, 6th floor, New York, NY 10011 0 ----------------------------------------------------------------------------------------------------------------------------------- HERNDON-MANASSAS 28 MF-LS ----------------------------------------------------------------------------------------------------------------------------------- HERNDON POP 520 and 524 Van Buren, Herndon, VA, 22070 * ----------------------------------------------------------------------------------- MANNASSAS JUNCTION 10699 Piperlane, Manassas, VA * ----------------------------------------------------------------------------------------------------------------------------------- NEW ORLEANS-TALLAHASSEE 469 LEAF ----------------------------------------------------------------------------------------------------------------------------------- NEW ORLEANS, LA POP Poydrous Plaza, 639 Loyola Ave, Suite 2020, New Orleans, LA 70113 1 ----------------------------------------------------------------------------------- White Kitchen 46532 Hwy 90, Slidell, LA 70461 1 ----------------------------------------------------------------------------------- Harrison Co 13343 Cable Bridge Rd., Pass Christian, MS 39571 1 ----------------------------------------------------------------------------------- Jackson Co., 11151 Oneal Rd., Van Cleave, MS 39565 1 ----------------------------------------------------------------------------------- Miller Creek, 3735 Newman Rd., Mobile, AL 36695 2 ----------------------------------------------------------------------------------- MOBILE, AL POP 50 N. Lawrence Street, Mobile, AL 36602 1 ----------------------------------------------------------------------------------- Robertsdale, 2 2154 US Hwy 90, Robertsdale, AL 36567 1 ----------------------------------------------------------------------------------- PENSACOLA, FL POP 221 N. Baylen Street, Pensacola, FL 32501 1 ----------------------------------------------------------------------------------- Santa Rosa, 10955 Hwy 90, Harold, FL32583 1 ----------------------------------------------------------------------------------- Alpine Heights 35 Wells Street, DeFuniak Springs, FL 32433 2 ----------------------------------------------------------------------------------- Dismal Creek, 9926 State Hwy 20 E, Ponce DeLeon, FL 32455 1 ----------------------------------------------------------------------------------- Juniper Creek, 12440 E Hwy 20, Youngstown, FL 32466 1 ----------------------------------------------------------------------------------- Hosford, Hosford, FL 32334 1 ----------------------------------------------------------------------------------------------------------------------------------- |
Exhibit B-2, Page 5
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- TALLAHASSEE, FL POP 1416 S. Adams, Tallahassee, FL 32301 * ----------------------------------------------------------------------------------------------------------------------------------- BOSTON-ALBANY 183 LEAF ----------------------------------------------------------------------------------------------------------------------------------- BOSTON, MA POP One Summer Street, Boston, MA 02110 0 ----------------------------------------------------------------------------------- WORCESTER, MA POP Worcester, MA - Pending 1 ----------------------------------------------------------------------------------- SPRINGFIELD, MA POP One Federal Street, Bldg 104B, Springfield, MA 01105 1 ----------------------------------------------------------------------------------- Lee Op amp 1 ----------------------------------------------------------------------------------- ALBANY, NY POP 194 Washington Ave., 5th Fl., Suite 502, Albany, NY 12210 2 ----------------------------------------------------------------------------------------------------------------------------------- CLEVELAND-NEW YORK CITY 562 LEAF ----------------------------------------------------------------------------------------------------------------------------------- CLEVELAND, OH POP RF Keith Bldg, 1621 Euclid Ave., Suite 522, Cleveland, OH 44115 1 ----------------------------------------------------------------------------------- Montville Op amp 2 ----------------------------------------------------------------------------------- Monroe Op amp 1 ----------------------------------------------------------------------------------- Waterford Regen 1 ----------------------------------------------------------------------------------- Dunkirk Op amp 1 ----------------------------------------------------------------------------------- Angola Op amp 2 ----------------------------------------------------------------------------------- Buffalo Junction 1 ----------------------------------------------------------------------------------- X BUFFALO, NY POP 325 Deleware Ave., 2nd Fl., Buffalo, NY 14202 0 ----------------------------------------------------------------------------------- Batavia Op amp 1 ----------------------------------------------------------------------------------- Rochester Junction 1 ----------------------------------------------------------------------------------- X ROCHESTER, NY POP One West Main St., Suite 610, Rochester, NY 14614 0 ----------------------------------------------------------------------------------- Waterloo Op amp 1 ----------------------------------------------------------------------------------- Salina Junction 2 ----------------------------------------------------------------------------------- X SYRACUSE, NY POP 2 Clinton Square, Suite L-40, Syracuse, NY 13202 0 ----------------------------------------------------------------------------------- Westmoreland Op amp 1 ----------------------------------------------------------------------------------- Danube Op amp 1 ----------------------------------------------------------------------------------- Florida Op amp 1 ----------------------------------------------------------------------------------- Albany Junction 1 ----------------------------------------------------------------------------------- X ALBANY, NY POP 194 Washington Ave., 5th Fl, Suite 502, Albany, NY 12210 * ----------------------------------------------------------------------------------------------------------------------------------- LOS ANGELES-RIVERSIDE 65 LEAF ----------------------------------------------------------------------------------------------------------------------------------- LOS ANGELES, CA POP One Wilshire Bldg., 624 South Grand, Suite 1706, Los Angeles, CA 90017 0 ----------------------------------------------------------------------------------- Pamona Op amp 1 ----------------------------------------------------------------------------------- RIVERSIDE, CA POP 1550 Malborough Avenue, Riverside, CA 92507 1 ----------------------------------------------------------------------------------------------------------------------------------- RIVERSIDE-HOUSTON 1709 LEAF ----------------------------------------------------------------------------------------------------------------------------------- RIVERSIDE, CA POP 1550 Malborough Avenue, Riverside, CA 92507 * ----------------------------------------------------------------------------------- Banning Op amp 1 ----------------------------------------------------------------------------------- Indio Op amp 2 ----------------------------------------------------------------------------------- Mortmar Op amp 1 ----------------------------------------------------------------------------------- Flowing Well Op amp 1 ----------------------------------------------------------------------------------- Sidewinder regen 1 ----------------------------------------------------------------------------------- Ligurta Op amp 1 ----------------------------------------------------------------------------------- Growler Op amp 2 ----------------------------------------------------------------------------------- Hyder Op amp 1 ----------------------------------------------------------------------------------- Palo Verde Op amp 1 ----------------------------------------------------------------------------------------------------------------------------------- |
Exhibit B-2, Page 6
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- PHOENIX, AZ POP 17 E. Virginia, Phoenix, AZ 85004 1 ----------------------------------------------------------------------------------- Queen Creek Op amp 1 ----------------------------------------------------------------------------------- Red Rock Op amp 2 ----------------------------------------------------------------------------------- TUCSON, AZ POP 135 North 6th Ave., 1 ----------------------------------------------------------------------------------- Tucson, AZ 85701 ----------------------------------------------------------------------------------- Mescal Op amp 1 ----------------------------------------------------------------------------------- Dragoon Op amp 1 ----------------------------------------------------------------------------------- Luzena Op amp 1 ----------------------------------------------------------------------------------- Road Forks Op amp 2 ----------------------------------------------------------------------------------- Separ Regen 1 ----------------------------------------------------------------------------------- Carne Op amp 1 ----------------------------------------------------------------------------------- Afton Op amp 1 ----------------------------------------------------------------------------------- EL PASO, TX POP 501 W. Overland Ave., El Paso, TX 79901 1 ----------------------------------------------------------------------------------- Op Amp 18 @ Tornillo 2 ----------------------------------------------------------------------------------- 1291 Lasca Rd., Fort Hancock, TX 79839 1 ----------------------------------------------------------------------------------- 428 Guest Ranch, Hot Wells, TX 79851 1 ----------------------------------------------------------------------------------- 14338 US Hwy 90, Valentine, TX 79854 1 ----------------------------------------------------------------------------------- 1500 W San Antonio, Marfa, TX 79843 1 ----------------------------------------------------------------------------------- 22313 US Hwy 90, Alpine, TX 79830 2 ----------------------------------------------------------------------------------- 38372 US Hwy 90, Marathon, TX 79842 1 ----------------------------------------------------------------------------------- 538 E Hwy 90, Sanderson, TX 79848 1 ----------------------------------------------------------------------------------- 4297 E US Hwy 90, Langtry, TX 78871 1 ----------------------------------------------------------------------------------- 33838 US Hwy 90W, Cornstock, TX 78837 1 ----------------------------------------------------------------------------------- 4256 US Hwy 90E, Del Rio, TX 78841 2 ----------------------------------------------------------------------------------- 15402 US Hwy 90E, Brackettville, TX 98883 1 ----------------------------------------------------------------------------------- 61 C.R. 305, Knippa, TX 78870 1 ----------------------------------------------------------------------------------- 3280 C.R. 4514 Devine, TX 780116 1 ----------------------------------------------------------------------------------- SAN ANTONIO, TX POP 1203 N. Frio, San Antonio, TX 78207 1 ----------------------------------------------------------------------------------- 3004 FM 1104, Kingsbury, TX 78838 2 ----------------------------------------------------------------------------------- AUSTIN, TX POP 500 Chicon Street, Austin, TX 78702 1 ----------------------------------------------------------------------------------- 2528 Hwy 290E, McDade, TX 78850 1 ----------------------------------------------------------------------------------- 55 Wildflower Rd, Brenham, TX 77833 1 ----------------------------------------------------------------------------------- 20805 FM 362, Waller, TX 77484 1 ----------------------------------------------------------------------------------- HOUSTON, TX POP 1124 Hardy Street, Houston, TX 77020 0 ----------------------------------------------------------------------------------------------------------------------------------- RIVERSIDE-SAN DIEGO LOOP 220 LEAF ----------------------------------------------------------------------------------------------------------------------------------- RIVERSIDE, CA POP 1550 Malborough Avenue, Riverside, CA 92507 * ----------------------------------------------------------------------------------- Hemet Op amp 1 ----------------------------------------------------------------------------------- Mesa Rock Op amp 1 ----------------------------------------------------------------------------------- SAN DIEGO, CA POP Kearney Mesa Complex, 0 ----------------------------------------------------------------------------------- 8923 Complex Drive, San Diego, CA 92123 ------------------------------------------------------------------------------------------------------------------------------------ |
Exhibit B-2, Page 7
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- HOUSTON-DALLAS 250 LEAF ----------------------------------------------------------------------------------------------------------------------------------- HOUSTON, TX POP 1124 Hardy Street, Houston, TX 77020 0 ----------------------------------------------------------------------------------- Waller Op amp 1 ----------------------------------------------------------------------------------- Millican Op amp 1 ----------------------------------------------------------------------------------- Hearne Regen 1 ----------------------------------------------------------------------------------- Reagan Op amp 1 ----------------------------------------------------------------------------------- Waco Junction 2 ----------------------------------------------------------------------------------- Hillsboro Op amp 1 ----------------------------------------------------------------------------------- Venus Op amp 1 ----------------------------------------------------------------------------------- DALLAS, TX POP 400 South Akard, Dallas, TX 0 ----------------------------------------------------------------------------------------------------------------------------------- DALLAS-KANSAS CITY 484 LEAF ----------------------------------------------------------------------------------------------------------------------------------- DALLAS, TX POP 400 South Akard, Dallas, TX 0 ----------------------------------------------------------------------------------- Denton Op amp 1 ----------------------------------------------------------------------------------- Thackerville Op amp 1 ----------------------------------------------------------------------------------- Springer Regen 1 ----------------------------------------------------------------------------------- Byars Op amp 1 ----------------------------------------------------------------------------------- Swawnee Op amp 2 ----------------------------------------------------------------------------------- Drumright Op amp 1 ----------------------------------------------------------------------------------- TULSA, OK POP Tulsa, OK - Pending 1 ----------------------------------------------------------------------------------- Barnsdall Op amp 1 ----------------------------------------------------------------------------------- Tyro Op amp 1 ----------------------------------------------------------------------------------- Chanute Op amp 2 ----------------------------------------------------------------------------------- Selma Station Op amp 1 ----------------------------------------------------------------------------------- Spring Hill Op amp 1 ----------------------------------------------------------------------------------- KANSAS CITY, MO POP The Bryant Bldg., 1102 Grand Ave. #300, Kansas City, MO 64106 0 ----------------------------------------------------------------------------------------------------------------------------------- KANSAS CITY-ST. LOUIS 270 LEAF ----------------------------------------------------------------------------------------------------------------------------------- KANSAS CITY, MO POP The Bryant Bldg., 1102 Grand Ave. #300, Kansas City, MO 64106 0 ----------------------------------------------------------------------------------- Elm Op amp 1 ----------------------------------------------------------------------------------- Valley City Op amp 1 ----------------------------------------------------------------------------------- Pilot Grove Op amp 2 ----------------------------------------------------------------------------------- COLUMBIA, MO POP 3320 Falling Leaf Lane, Columbia, MO 65201 1 ----------------------------------------------------------------------------------- Centralia Station Op amp 1 ----------------------------------------------------------------------------------- Buell Op amp 1 ----------------------------------------------------------------------------------- Maryknoll Regen 2 ----------------------------------------------------------------------------------- ST. LOUIS, MO POP 900 Walnut Street, Suite 124, St. Louis, MO 63102 1 ----------------------------------------------------------------------------------------------------------------------------------- HOUSTON-ATLANTA (2) 1000 LEAF ----------------------------------------------------------------------------------------------------------------------------------- HOUSTON, TX POP 1124 Hardy Street, Houston, TX 77020 0 ----------------------------------------------------------------------------------- 33902 Huffman-Cleveland R, 1 ----------------------------------------------------------------------------------- Porter, TX 77336 Hwy 105 West, 1 ----------------------------------------------------------------------------------- Sour Lake, TX 77659 Hwy 62 South, Buna, TX 77612 1 ----------------------------------------------------------------------------------- 17329 Hwy 171 North, Ragley, LA 70657 1 ----------------------------------------------------------------------------------- 1919 Hunter Rd., 2 Basile, LA 70515 ----------------------------------------------------------------------------------- 2343 Hwy 359, Port Barre, LA 70589 1 ----------------------------------------------------------------------------------- Zachary JCT 1 ----------------------------------------------------------------------------------- |
Exhibit B-2, Page 8
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- XX SPUR TO BATON ROUGE, LA AND NEW ORLEANS 445 N. Blvd., 1 Suite 600, Baton Rouge, LA 70802 1 ----------------------------------------------------------------------------------- Reserve, LA 2 ----------------------------------------------------------------------------------- XX NEW ORLEANS, LA POP 639 Loyola Ave., Suite 2020, New Orleans, LA 70113 * ----------------------------------------------------------------------------------- Hwy 43 North, Greensburg, LA 70441 0 ----------------------------------------------------------------------------------- 967 Hwy 583, Tylertown, MS 39667 0 ----------------------------------------------------------------------------------- Siminary JCT XX SPUR TO JACKSON, MS 3498 Simpson Hwt 49, Mendenhall, MS 39114 0 ----------------------------------------------------------------------------------- XX JACKSON, MS POP Capitol Bldg, 111 E. Capitol St. Suite 248, Jackson, MS 39201 0 ----------------------------------------------------------------------------------- 1666 Bonner Road, Laurel, MS 39477 0 ----------------------------------------------------------------------------------- 240 Vyvx Lane, Quitman, MS 0 ----------------------------------------------------------------------------------- Hwy 69 South, Linden, AL 36763 0 ----------------------------------------------------------------------------------- 1713 County Road 179, Selma, AL 36724 0 ----------------------------------------------------------------------------------- Clanton JCT XX SPUR TO BIRMINGHAM, AL 157 County Road 95, Calera, AL 35041 0 ----------------------------------------------------------------------------------- XX BIRMINGHAM, AL POP 2001 Park Place Towers North, 0 ----------------------------------------------------------------------------------- Suite 102, Birmingham, AL 35203 ----------------------------------------------------------------------------------- 25 Highway 9, Alexander City, AL 35089 0 ----------------------------------------------------------------------------------- 1140 County Rd 41, Wadley, AL 36276 0 ----------------------------------------------------------------------------------- Newnan, GA 0 ----------------------------------------------------------------------------------- ATLANTA, GA POP 874 Dekalb Avenue, Atlanta, GA 30307 0 ----------------------------------------------------------------------------------------------------------------------------------- SAN FRANCISCO-SANTA CLARA 48 LEAF ----------------------------------------------------------------------------------------------------------------------------------- SAN FRANCISCO, CA POP 200 Paul St., 4th Fl., San Francisco, CA 94107 0 ----------------------------------------------------------------------------------- SANTA CLARA, CA POP 3045 Raymond Street, Santa Clara, CA, 95054 0 ----------------------------------------------------------------------------------------------------------------------------------- SACRAMENTO-SAN FRANCISCO 114 LEAF ----------------------------------------------------------------------------------------------------------------------------------- SACRAMENTO, CA POP 1005 North B Strret, Sacramento, CA 0 ----------------------------------------------------------------------------------- Creed Op amp 1 ----------------------------------------------------------------------------------- Baypoint Op amp 1 ----------------------------------------------------------------------------------- OAKLAND, CA POP 1331 Harrison St., Oakland, CA 94612 0 ----------------------------------------------------------------------------------- SAN FRANCISCO, CA POP 200 Paul St., 4th Floor, San Francisco, CA 94107 0 ----------------------------------------------------------------------------------------------------------------------------------- CHICAGO-CLEVELAND 350 LEAF ----------------------------------------------------------------------------------------------------------------------------------- CHICAGO, IL POP 2101 Roberts Drive, Chicago (Broadview), IL 60153 0 ----------------------------------------------------------------------------------- Op Amp 1 1 ----------------------------------------------------------------------------------- Op Amp 2 1 ----------------------------------------------------------------------------------- SOUTH BEND, IN POP South Bend, IN - Pending 1 ----------------------------------------------------------------------------------- Op Amp 3 2 ----------------------------------------------------------------------------------- Op Amp 4 1 ----------------------------------------------------------------------------------- Regen 1 1 ----------------------------------------------------------------------------------- Op Amp 5 1 ----------------------------------------------------------------------------------- Op Amp 6 2 ----------------------------------------------------------------------------------- TOLEDO, OH POP 639 Oliver St., Toledo, OH 43609 1 ----------------------------------------------------------------------------------- Op Amp 7 1 ----------------------------------------------------------------------------------- Op Amp 8 1 ----------------------------------------------------------------------------------- CLEVELAND, OH POP 2215 East 14th Street, Cleveland, OH 44115 0 ----------------------------------------------------------------------------------------------------------------------------------- |
Exhibit B-2, Page 9
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- FREMONT-OAKLAND 27 LEAF ----------------------------------------------------------------------------------------------------------------------------------- FREMONT JUNCTION Junction 1 1 ----------------------------------------------------------------------------------- OAKLAND POP 1330 Broadway, Oakland, CA * ----------------------------------------------------------------------------------------------------------------------------------- FREMONT-SANTA CLARA 24 LEAF ----------------------------------------------------------------------------------------------------------------------------------- FREMONT JUNCTION Junction 1 * ----------------------------------------------------------------------------------- SANTA CLARA POP 3045 Raymond Street, Santa Clara, CA 95054 0 ----------------------------------------------------------------------------------------------------------------------------------- FREMONT-MODESTO 93 LEAF ----------------------------------------------------------------------------------------------------------------------------------- FREMONT JUNCTION Junction 1 * ----------------------------------------------------------------------------------- Opamp 1 1 ----------------------------------------------------------------------------------- MODESTO POP 13th & M Street, Modesto, CA 95354 1 ----------------------------------------------------------------------------------------------------------------------------------- NYC-BOSTON 265 LEAF 6 0 1 ----------------------------------------------------------------------------------------------------------------------------------- NYC POP 601 W. 26th Street, 6th floor, New York, NY 10011 0 ----------------------------------------------------------------------------------- STAMFORD POP 86 Viaduct Road, Stamford, CT, 06907 1 ----------------------------------------------------------------------------------- NEW HAVEN POP 54 Meadow Street, New Haven, CT 06519 1 ----------------------------------------------------------------------------------- HARTFORD POP 300 Windsor Street, Hartford, CT 06120 2 ----------------------------------------------------------------------------------- Op Amp 1 1 ----------------------------------------------------------------------------------- PROVIDENCE POP 546 Atwells Ave., Providence, RI 02904 1 ----------------------------------------------------------------------------------- BOSTON POP One Summer Street, Boston, MA 02110 0 ----------------------------------------------------------------------------------------------------------------------------------- SEATTLE-PORTLAND 220 LEAF ----------------------------------------------------------------------------------------------------------------------------------- SEATTLE, WA POP 1501 5th Avenue, Seattle, WA 98101 0 ----------------------------------------------------------------------------------- Puyallup Op amp 1 ----------------------------------------------------------------------------------- Centralia Op amp 1 ----------------------------------------------------------------------------------- Kalama Op amp 1 ----------------------------------------------------------------------------------- Op amp 1 ----------------------------------------------------------------------------------- PORLAND, OR POP 707 SW Washington St., 4th ., Suite 410, Portland, OR 97205 0 ----------------------------------------------------------------------------------------------------------------------------------- PORTLAND-SACRAMENTO 688 LEAF ----------------------------------------------------------------------------------------------------------------------------------- PORTLAND, OR POP 707 SW Washington St., 4th Fl., Suite 410, Portland, OR 97205 * ----------------------------------------------------------------------------------- Salem Op amp 1 ----------------------------------------------------------------------------------- Shedd Op amp 1 ----------------------------------------------------------------------------------- Jasper Junction 1 ----------------------------------------------------------------------------------- Oakridge Op amp 1 ----------------------------------------------------------------------------------- Chlmult Op amp 2 ----------------------------------------------------------------------------------- Chiloquin Regen 1 ----------------------------------------------------------------------------------- Klamath Falls Op amp 1 ----------------------------------------------------------------------------------- Tionesta Op amp 1 ----------------------------------------------------------------------------------- Fall River Regen 1 ----------------------------------------------------------------------------------- Oak Run Op amp 2 ----------------------------------------------------------------------------------- Red Bluff Op amp 1 ----------------------------------------------------------------------------------- West Chico Regen 1 ----------------------------------------------------------------------------------- Biggs Op amp 1 ----------------------------------------------------------------------------------- Robbins Op amp 1 ----------------------------------------------------------------------------------- SACRAMENTO, CA POP 1005 North B Strret, Sacramento, CA 0 ----------------------------------------------------------------------------------------------------------------------------------- |
Exhibit B-2, Page 10
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- SACRAMNTO-SALT LAKE CITY 661 LEAF ----------------------------------------------------------------------------------------------------------------------------------- SACRAMENTO, CA POP 1005 North B Strret, Sacramento, CA 0 ----------------------------------------------------------------------------------- Auburn alt Op amp 1 ----------------------------------------------------------------------------------- Blue Canyon Op amp 1 ----------------------------------------------------------------------------------- Truckee Op amp 2 ----------------------------------------------------------------------------------- 7RENO, NV POP 200 Gardener Street, Reno, NV 89503 1 ----------------------------------------------------------------------------------- Hot Springs Flat Op amp 1 ----------------------------------------------------------------------------------- Lovelock Op amp 1 ----------------------------------------------------------------------------------- Mill City Regen 1 ----------------------------------------------------------------------------------- Golconda Butte Op amp 2 ----------------------------------------------------------------------------------- Snow Gulch Op amp 1 ----------------------------------------------------------------------------------- Dunphy T-S Op amp 1 ----------------------------------------------------------------------------------- Hunter / Elko Regen 1 ----------------------------------------------------------------------------------- Deeth Op amp 1 ----------------------------------------------------------------------------------- Oasis Op amp 2 ----------------------------------------------------------------------------------- Wndover Regen 1 ----------------------------------------------------------------------------------- Barro Op amp 1 ----------------------------------------------------------------------------------- Timpie Op amp 2 ----------------------------------------------------------------------------------- SALT LAKE CITY, UT POP 5035 Harold Gatty Drive, Salt Lake City, UT 84116 * ----------------------------------------------------------------------------------------------------------------------------------- SACRAMENTO-LOS ANGELES 671 LEAF ----------------------------------------------------------------------------------------------------------------------------------- SACRAMENTO, CA POP 1005 North B Strret, Sacramento, CA 0 ----------------------------------------------------------------------------------- Op Amp 1 0 ----------------------------------------------------------------------------------- Op Amp 2 0 ----------------------------------------------------------------------------------- MODESTO, CA POP 1224 13th Street, * ----------------------------------------------------------------------------------- Modesto, CA 95354 ----------------------------------------------------------------------------------- Op Amp 3 2 ----------------------------------------------------------------------------------- Op Amp 4 1 ----------------------------------------------------------------------------------- FRESNO, CA POP 364 W. Fallbrook Avenue, Fresno, CA 93711 1 ----------------------------------------------------------------------------------- Op Amp 5 1 ----------------------------------------------------------------------------------- Regen 1 2 ----------------------------------------------------------------------------------- Op Amp 6 1 ----------------------------------------------------------------------------------- BAKERSFIELD, CA POP 2020 P Street Bakersfield, CA 93301 1 ----------------------------------------------------------------------------------- Op Amp 7 1 ----------------------------------------------------------------------------------- Op Amp 8 2 ----------------------------------------------------------------------------------- Regen 2 1 ----------------------------------------------------------------------------------- Op Amp 9 1 ----------------------------------------------------------------------------------- Op Amp 10 1 ----------------------------------------------------------------------------------- LOS ANGELES, CA POP One Wilshire Bldg., 624 South Grand, Suite 1706, Los Angeles, CA 90017 0 ----------------------------------------------------------------------------------------------------------------------------------- |
Exhibit B-2, Page 11
----------------------------------------------------------------------------------------------------------------------------------- ESTIMATED TYPE POP REGEN AND ROUTE SEGMENT MILES OF FIBERS LOCATIONS JUNCTION LOCATION OP AMP LOCATIONS # OF RACKS ----------------------------------------------------------------------------------------------------------------------------------- ST. LOUIS-CHICAGO 339 LEAF ----------------------------------------------------------------------------------------------------------------------------------- ST. LOUIS, MO POP The Valley Bldg., 900 Walnut Street, Suite 124, St. Louis, MO 63102 * ----------------------------------------------------------------------------------- Worden Op amp 1 ----------------------------------------------------------------------------------- Farmersville Op amp 1 ----------------------------------------------------------------------------------- SPRINGFIELD, IL POP Springfield, IL - Pending 1 ----------------------------------------------------------------------------------- Hartsburg Op amp 2 ----------------------------------------------------------------------------------- PEORIA, IL POP Peoria, IL - Pending 1 ----------------------------------------------------------------------------------- Gridley Op amp 1 ----------------------------------------------------------------------------------- Dwight Op amp 1 ----------------------------------------------------------------------------------- Plainfield Op amp 1 ----------------------------------------------------------------------------------- CHICAGO, IL POP 2101 Roberts Drive, Chicago (Broadview), IL 60153 0 ----------------------------------------------------------------------------------- TOTAL 12,484 320 ----------------------------------------------------------------------------------- X = TWO DIVERSE PATHS TO JUNCTION SITE XX = SINGLE FIBER SPUR TO JUNCTION SITE * = POP RACK(S) COUNTED IN PREVIOUS ROUTE SEGMENT. |
Exhibit B-2, Page 12
EXHIBIT B-3
COLLOCATION PROVISIONS (POP SITES)
1. POP COLLOCATION SERVICES:
1.1 POP COLLOCATION SERVICES DESCRIPTION.
"POP Collocation Services" are defined as the granting by Williams, subject to the terms and conditions below, of a license to Cogent to occupy, access and locate certain Cogent Equipment for the purpose of interconnecting the same with the Cogent Fibers or with Williams' telecommunications transmission network in Rack Spaces (hereafter defined) within Williams POPs which are located in premises ("Premises") currently owned or leased by Williams.
1.2 BASIC POP COLLOCATION SERVICES.
Williams agrees to provide and Cogent agrees to accept and utilize for the Term of the Agreement, at the rates set forth below, POP Collocation Services as described in this Subsection 1.2 in each of the Williams POPs and for the number of Rack Spaces in each such site as listed and described in EXHIBIT B-2 of the Agreement (the "Basic POP Collocation Services"). Williams shall use commercially reasonable efforts to make Basic POP Collocation Service available no later than the dates set forth in EXHIBIT B-2.
A "Rack Space" consists of floor space within the Premises adequate in size
to contain a rack (outside dimensions measuring twenty-six inches (26")
(width) x twenty-four inches (24") (depth) x seventy-eight inches (78") or
eighty-four inches (84") (height)). Cogent shall supply its own cabinets
and racks. All Rack Spaces provided hereunder shall include HVAC and 60
amps of -48v DC power.
The total linear inches for Cogent Rack Space within each Williams' POP shall not exceed the sum of the number of Rack Spaces for the specified POP multiplied by twenty-six inches (26"). Williams agrees to use commercially reasonable efforts to make all Rack Spaces provided to Cogent within the same POP hereunder contiguous; provided, that Williams shall not be liable to Cogent if, despite making such commercially reasonable efforts, it is unable to so provide. In the event Rack Spaces provided in the same POP hereunder are non-contiguous, then Williams shall provide and install, at no cost or expense to Cogent, a dark fiber cross connect or "jumper" connecting such non-contiguous Rack Spaces.
As a condition to Williams' obligation to provide the Basic POP Collocation Services described above, Cogent shall submit Williams' standard Collocation Service Request forms for each of the Williams' POPs listed in EXHIBIT B-2 within sixty (60) days after the Effective Date of the Agreement. In addition, within ten (10) days after receipt of signed and approved Collocation Service Orders from Williams, Cogent shall sign and return the same to Williams. Williams agrees to fully cooperate with Cogent in complying with the terms of this Section.
Exhibit B-3, Page 1
1.3 ADDITIONAL POP COLLOCATION SERVICES.
A. PROCEDURES FOR REQUESTING ADDITIONAL POP COLLOCATION SERVICES.
Cogent may request installation services, AC power or additional DC power,
technical assistance or additional space or racks (collectively referred to
as the "Additional POP Collocation Services") at any Williams POP.
Additional POP Collocation Services shall be requested by completion and
submission of the form included as Attachment II to this Exhibit (the
"Collocation Service Request"). Williams shall notify Cogent within fifteen
(15) business days (or thirty (30) days if additional Rack Space is
requested) after receiving such Collocation Service Request, whether the
requested services are available and, if they are, Williams' then current
standard rates for the services requested. Cogent shall provide written
notice to Williams confirming its request for such Additional POP
Collocation Services at the quoted rates (and estimates, if applicable)
prior to Williams providing such Additional POP Collocation Services. If
upgrades or expansions to POPs or other Williams' facilities are necessary
to accommodate Cogent's request, Williams may include the entire Cost of
such upgrades or expansions in the Cost quoted to Cogent.
B. CHARGES FOR ADDITIONAL POP COLLOCATION SERVICES. If Cogent chooses to receive Additional POP Collocation Services, Cogent shall pay any and all (initial and continuing) Costs reasonably incurred by Williams in providing such Additional POP Collocation Services or, if Williams has standard rates for such service, then at such standard rates. Recurring charges for Additional POP Collocation Services shall be specified in the Collocation Service Order. Upon at least thirty (30) days' notice to Cogent, Williams may adjust applicable charges related to Additional POP Collocation Services not specifically addressed in the Collocation Service Order once each calendar year to equal its then-current standard charges.
C. Cogent's right to obtain Additional POP Collocation Services requested on a Collocation Service Request shall be subject to availability, as determined in Williams' sole discretion, and shall be provided at Williams' standard rates in effect at the time Cogent requests such services. Such rights to receive Additional POP Collocation Services hereunder shall be granted only by mutual execution of a collocation service order, an example of which is attached to this Exhibit as Attachment III (the "Collocation Service Order"). The Basic POP Collocation Services and Additional POP Collocation Services subsequently agreed to be provided by Williams hereunder shall be collectively referred to herein as the "POP Collocation Services".
D. All Rack Space provided hereunder including, without limitation, the Rack Space provided as part of the Basic POP Collocation Services, shall be accepted by Cogent "as-is" and, except for the specifications set forth in this Exhibit or in the Agreement, Williams makes no representation as to the fitness of the space for Cogent's intended purpose. Cogent shall abide by the standard specifications as set forth in the Technical Specifications as attached hereto. No work related to POP Collocation Service shall commence until the Agreement, and if applicable, the Collocation Service Request and the relevant Collocation Service Order(s) are mutually executed.
Exhibit B-3, Page 2
1.4 INTERCONNECTION; CROSS-CONNECTS.
EXHIBIT H governs interconnections and cross-connects within Williams' POPs.
2. COLLOCATION EFFECTIVE DATE:
The "Collocation Effective Date" for Basic POP Collocation Services and Additional POP Collocation Services is defined as the date identified on the relevant Collocation Service Order as the date of POP Collocation Service delivery or, if later, the date upon which Williams delivers POP Collocation Service.
3. COLLOCATION SERVICE TERM:
The "Collocation Service Term" shall commence upon the Collocation Effective Date with respect to each POP and shall continue thereafter (i) for the Term of the Agreement (unless earlier terminated pursuant to the terms hereof), or (ii) for the duration specified within the relevant Collocation Service Order with respect to any Additional POP Collocation Services. Once the Collocation Effective Date has passed, Cogent must pay for the applicable POP Collocation Services through the end of the Collocation Service Term for the affected services, regardless of whether Cogent is actually using such services.
4. RATES & CHARGES:
Cogent shall pay Williams for POP Collocation Services rendered pursuant to this Exhibit charges consisting of the following:
4.1 SERVICE FEES.
Cogent shall pay Williams Service Fees for the Basic POP Collocation Services in the amount of [*] per Rack Space per month throughout the Term (unless the Basic POP Collocation Services are earlier terminated pursuant to the terms hereof) commencing with respect to each POP listed on EXHIBIT B-2 on the Collocation Effective Date which rate includes thirty (30) amps of dual feed -48v DC power. Such rate shall apply to all Rack Space utilized in any Williams designated POP hereunder even where such POP is utilized by Cogent only as an optical amplifier, regenerator or junction site. The amount payable for Basic POP Collocation Services and any Additional POP Collocation Services shall be increased each year by two percent (2%) of the service fees payable for the immediately preceding annual period on a date selected by Williams. Cogent shall pay such amounts on or before the first day of each calendar month during the Term. Payments shall be prorated, as necessary, for the first and last months such charges apply.
Service fees for Additional POP Collocation Service shall be payable on a monthly basis at the rates and in accordance with the terms of the applicable Collocation Service Order(s). Such service fees shall be payable in advance commencing on the Collocation Effective Date and on the first day of each calendar month thereafter during the applicable
[*] Indicates confidential treatment requested.
Exhibit B-3, Page 3
Collocation Service Term. Such Service fees shall be increased annually in the same manner as provided in the preceding paragraph. Service fees for partial months shall be prorated.
4.2 INSTALLATION FEE.
The installation fee is an amount to be invoiced Cogent as a one-time fee for POP Collocation Service installation consisting of charges associated with the initial installation of the POP Collocation Service. Installation fees shall be identified on the relevant Collocation Service Order if applicable. Notwithstanding the foregoing, such installation fees shall not be applicable to the Basic POP Collocation Services.
4.3 BUILD-OUT FEES.
Build-out fees are one-time charges applicable to Additional POP Collocation Services rendered that are outside the standard collocation offering. Build-out fees are individually quoted and set forth on the applicable Collocation Service Order. Build-out fees are payable in full to Williams upon execution of a Collocation Service Order and no work will be performed by Williams or Cogent to build out space prior to Williams' receipt of said payment.
4.4 ANCILLARY CHARGES.
Ancillary charges related to changes of Additional POP Collocation Service delivery are set forth below. Ancillary charges are for Ancillary Services as more fully described in Section 8 of this Exhibit.
------------------------------------------------------------------------------------- Charge Per Occurrence ------------------------------------------------------------------------------------- Change of Collocation Effective Date (pre-install) $[***] ------------------------------------------------------------------------------------- Change of Collocation Service Order (pre-Collocation Effective Date) $[***] ------------------------------------------------------------------------------------- Change of Collocation Service (post-Collocation Effective Date) $[***] ------------------------------------------------------------------------------------- Order Cancellation (-greater than-/=30 days from Collocation Effective Date) $[***] ------------------------------------------------------------------------------------- Order Cancellation (-less than- 30 days from Collocation Effective Date) $[***] ------------------------------------------------------------------------------------- AC power addition (post Collocation Effective Date) $[***] ------------------------------------------------------------------------------------- |
4.5 DISPATCH LABOR CHARGES.
Dispatch labor charges are assessed for Cogent requested site labor. Dispatch requires a minimum of ten (10) days advance written notice to Williams.
-------------------------------------------------- Charge Per Hour -------------------------------------------------- M-F Business Hours $[***] -------------------------------------------------- M-F Off Business Hours $[***] -------------------------------------------------- Saturday & Sunday $[***] -------------------------------------------------- Holidays $[***] -------------------------------------------------- |
[*] Indicates confidential treatment requested.
Exhibit B-3, Page 4
For purposes of the above table "Business Hours" shall be Monday through Friday, 8:00 a.m. - 5:00 p.m. local time. All charges specified in this Subsection and Subsection 4.4 are Williams' current standard rates which may be changed from time to time hereafter in Williams' sole discretion.
5. POP COLLOCATION SERVICE DELIVERY.
Upon mutual acceptance of a Collocation Service Order, Williams shall confirm Collocation Effective Date, or inform Cogent of the estimated date for the delivery of such POP Collocation Service. Williams shall use reasonable efforts to deliver POP Collocation Service on or before the Collocation Effective Date specified in the Collocation Service Order, but the inability of Williams to deliver POP Collocation Services by such date shall not be a default under this Exhibit.
In the event Williams fails to tender possession of the Rack Space to Cogent by the Collocation Effective Date, Cogent shall not be obligated to pay applicable service fees or installation fees until such time as Williams tenders possession of the Rack Space to Cogent.
If Williams fails to make POP Collocation Services available within ninety
(90) days after the Collocation Effective Date set forth in the Collocation
Service Order (due to any reason other than the acts or omissions of Cogent),
Cogent's sole remedies shall be to (i) cancel the Collocation Service Order
covering the affected POP Collocation Services, and (ii) to pursue the remedies
specified in Section 4.4 of the Agreement. Otherwise, Williams shall not be
liable to Cogent in any way as a result of such delay or failure to tender
possession.
6. CONTRACT EXPIRATION.
Following the expiration of the Collocation Service Term or failure of the parties to enter into any renewal periods, Cogent's license to occupy the space shall continue in effect on a month-to month basis upon the same terms and conditions specified within this Exhibit and relevant Collocation Service Order, unless terminated by either Cogent or Williams upon thirty (30) days' prior written notice.
Cogent's option to continue its license on a month-to-month basis as described above and to occupy the Rack Space shall be contingent on the election by Williams to continue to own or lease the premises in which the Rack Space is located, such election to be exercised at the sole discretion of Williams.
7. INTENTIONALLY OMITTED.
8. CHANGE OF COLLOCATION SERVICES:
8.1 CHANGE OF COLLOCATION EFFECTIVE DATE (PRE-INSTALL). Cogent will be assessed a change of Collocation Effective Date charge by Williams for any changes of Collocation
Exhibit B-3, Page 5
Effective Date requested within thirty (30) days prior to original Collocation Effective Date for Additional POP Collocation Services. Cogent will also be charged for any charges incurred by Williams from third party providers as a result of a request by Cogent for a Change of Collocation Effective Date, regardless of date of Cogent notification. Cogent shall have no right to change or request changes in the Collocation Effective Date of the Basic POP Collocation Services.
8.2 CHANGE OF COLLOCATION SERVICE ORDER (PRE-COLLOCATION EFFECTIVE DATE). All modifications to the information contained in an executed Collocation Service Order will be reviewed on an individual case basis and the Collocation Service Order shall be amended accordingly upon Williams' acceptance of the POP Collocation Service modifications. Any modifications will permit Williams to likewise amend applicable rates, charges and Collocation Effective Dates from the original Collocation Service Order. Cogent will be assessed a one time fee for changes to a Collocation Service Order. Cogent will also be charged for any charges incurred by Williams from third party providers as a result of a request by Cogent for a Change of Collocation Service Order, regardless of date of Cogent notification.
8.3 CHANGE OF POP COLLOCATION SERVICE (POST-COLLOCATION EFFECTIVE DATE). If Cogent requests a change to POP Collocation Services after such POP Collocation Services have been installed, the request will be reviewed by Williams on an individual case basis with no guarantees granted by Williams as to the ability to provide such changed POP Collocation Service. All change of POP Collocation Service requests shall be authorized by Williams via a change Collocation Service Order. Williams may impose additional service and/or installation fee(s) for the changed POP Collocation Service. Cogent will be assessed a one time fee for POP Collocation Service changes. Cogent will also be charged for any charges incurred by Williams from third party providers as a result of a request by Cogent for a change of POP Collocation Service, regardless of date of Cogent notification.
8.4 ORDER CANCELLATION. Cogent may cancel a Collocation Service Order for Additional POP Collocation Services by written notice to Williams prior to the Collocation Effective Date. Cogent will incur a one-time cancellation fee for Additional POP Collocation Services canceled in the amounts specified in Section 4.4 of this Exhibit.
9. IMPROVEMENTS TO RACK SPACE:
In the event Cogent desires to make improvements to the Rack Space which improvements are deemed material and substantial as reasonably determined by Williams ("Material Improvements"), Cogent shall submit all plans and specifications for such work to be performed in the Rack Space to Williams for Williams' prior written approval, which approval shall not be unreasonably withheld or delayed. No construction may commence until Williams has given its written approval. Cogent agrees that its use or construction of the Rack Space shall not interfere with Williams' use of its Premises or other tenants' use of their premises in the building in which the Premises are located.
Cogent shall not employ any contractor to perform Material Improvements unless previously approved in writing by Williams which approval shall not be unreasonably withheld (and approved in
Exhibit B-3, Page 6
writing by the Landlord if required by the lease). Cogent and each contractor and subcontractor participating in performing Material Improvements shall warrant that such work shall be free from all mechanic's and/or materialman's liens and free from any and all defects in workmanship and materials for the period of time which customarily applies in good contracting practice, but in no event for less than one (1) year after the acceptance of the work by Cogent and Williams. The aforesaid warranties of each such contractor and subcontractor and Cogent shall include the obligation to repair or replace in a thoroughly first-class and workmanlike manner all defects in workmanship and materials without any additional charge. All the Material Improvements shall be contained in the contracts and subcontracts for performance of Cogent's work and shall be written so that they shall inure to the benefit of Williams and Cogent as their respective interests may appear. Such warranties shall be so written that they can be directly enforced by either Cogent or Williams, and Cogent shall give to Williams any assignment or other assurance to effectuate the same.
It shall be Cogent's responsibility to cause each of Cogent's contractors and subcontractors to maintain continuous protection of the premises adjacent to the Rack Space in such manner as to prevent any damage to such adjacent property by reason of the performance of Cogent's work.
All of Cogent's work shall be coordinated with all work being performed or to be performed by Williams and other tenants of the building in which the Premises are located. The contractor or subcontractor shall not at any time damage, injure, interfere with or delay the completion of any other construction within the building; and they and each of them shall comply with all procedures and regulations prescribed by Williams and the Landlord of the Premises for integration of Cogent's work with the work to be performed in connection with the construction of the building, and all other construction within the building which comprises or contains the Premises.
All fixtures, alterations, additions, repairs, improvements and/or
appurtenances attached to or built into, on or about the Rack Space prior to or
during the applicable Collocation Service Term, whether by Williams at its
expense or at the expense of Cogent, or by Cogent at its expense or by previous
occupants of the Rack Space, shall be and remain part of the Rack Space and
shall not be removed by Cogent at the end of the Collocation Service Term. Upon
termination or expiration of the Collocation Service Term, Williams shall allow
Cogent thirty (30) days from the date of such termination or expiration, at
Cogent's sole cost and expense, to remove all trade fixtures (including, but not
limited to, rectifiers/chargers, batteries, AC power conditioning equipment,
telecommunication switching equipment, channel banks, etc.) installed by Cogent
provided that the Rack Space is restored by Cogent to its condition before the
installation of such items and that all such work (including restoration) is
performed in accordance with the other provisions of this Exhibit. If Cogent
shall fail to complete such removal and restoration within the aforesaid thirty
(30) day time period, all such trade fixtures remaining within the Rack Space or
at the Premises may, at Williams' option, become the sole property of Williams,
and Williams may dispose of such trade fixtures as it deems appropriate. Cogent
shall continue to pay the service fees specified herein or in the relevant
Collocation Service Order, as applicable, until the earlier of: (i) Cogent's
removal of such trade fixtures and completion of such restoral or (ii) Williams'
taking possession of such trade fixtures as set forth above.
All work affecting the Rack Space shall be in compliance with all laws, ordinances, rules, regulations, orders and directives of governmental and quasi-governmental bodies and authorities having jurisdiction over the Premises and the Rack Space from time to time and Cogent shall obtain
Exhibit B-3, Page 7
and keep in effect all licenses, permits and other authorizations required with respect to the business conducted by Cogent within the Rack Space.
10. SOLE USE OF RACK SPACE BY COGENT.
Cogent acknowledges that it has been granted only a license to occupy the Rack Space and that it has not been granted any real property interests in the Rack Space. Except as part of a permitted assignment of the Agreement under the terms of Article XXIII of the Agreement, Cogent further agrees that neither this Exhibit nor any interest created herein shall be assigned, mortgaged, subleased, encumbered or otherwise transferred, and that neither the Rack Space nor any part thereof shall be encumbered in any manner by reason of any act or omission on the part of Cogent. Cogent further agrees that the Rack Space or any part thereof shall not be used or occupied, nor permitted to be used or occupied, by anyone other than Cogent. Any attempt to allow the use or occupation of the Rack Space by anyone other than Cogent, or to assign, mortgage, sublease or encumber any rights under this Exhibit by Cogent except as part of an assignment of the Agreement as aforesaid, shall, unless otherwise agreed to in writing by Williams, be void. In such event and in addition to any other remedies set forth in the Agreement, Williams shall have the right to terminate this Exhibit as to any or all Rack Space occupied by Cogent. Williams' agreement to any of these arrangements shall be in the sole discretion of Williams. Cogent's right to access the POPs in which POP Collocation Services are provided shall be subject to Williams' standard rules and regulations, as now or hereafter adopted or amended, applicable to Williams' collocation customers in such POPs.
11. EMINENT DOMAIN.
In the event of a taking by eminent domain (or a conveyance by any Landlord of all or any portion of the Premises to an entity having the power of eminent domain after receipt of actual notice of the threat of such taking) of all or any portion of the Premises so as to prevent, in Williams' sole discretion, the utilization by Cogent of the Rack Space in the Premises, the POP Collocation Services and license granted hereunder or the relevant Collocation Service Order(s) shall terminate as of the date of such taking or conveyance with respect to the Rack Space which is affected by such taking or conveyance and the service fees paid or to be paid by Cogent shall be reduced accordingly. Except as set forth below, Cogent shall have no claim against Williams for the value of the unexpired Collocation Service Term of the Rack Space affected thereby (or any portion thereof) or any claim or right to any portion of the amount that might be awarded to the Landlord of the Premises or Williams as a result of any such payment for condemnation or damages. Nothing contained in this Exhibit shall prohibit Cogent from seeking an award for its moving expenses under applicable law in the event of an eminent domain proceeding or condemnation which affects the Rack Space.
12. DAMAGE TO PREMISES.
If the building in which the Premises are located is damaged by fire or other casualty, Williams shall give notice to Cogent of such damage as quickly as practicable under the circumstances. If a Landlord or Williams exercises an option to terminate a particular Lease due to damage or destruction of the Premises subject to such Lease, or if Williams decides not to rebuild such building or portion thereof in which the Rack Space is located, the POP Collocation Service and license granted hereunder or under the relevant Collocation Service Order(s) shall terminate as of the date of such exercise or decision as to the affected Rack Space and the service fees paid by Cogent shall be modified
Exhibit B-3, Page 8
accordingly. If neither the Landlord of the affected Premises nor Williams exercises the right to terminate, Williams shall repair the particular Rack Space to substantially the same condition it was in prior to the damage, completing the same with reasonable speed. In the event that Williams shall fail to complete the repair within a reasonable time period, Cogent shall thereupon have the option to terminate relevant POP Collocation Services with respect to the affected Rack Space, which option shall be the sole remedy available to Cogent against Williams under this Exhibit relating to such failure. If the Rack Space or any portion thereof shall be rendered unusable by reason of such damage, the service fees for such Rack Space shall proportionately abate, based on the amount of square footage which is rendered unusable, for the period from the date of such damage to the date when such damage shall have been repaired for the portion of the Rack Space rendered unusable.
13. CONDUCT IN RACK SPACE & PREMISES.
Cogent shall abide by Williams' and applicable Landlord's rules with regard to conduct in the Premises. Such rules include, but are not limited to, a prohibition against smoking in the POP or the Premises by Cogent's employees, agents, representatives, contractors, subcontractors, invitees or licensees. Further, Cogent shall maintain the Rack Space in a safe condition, including but not limited to the preclusion of storing combustible materials in the Rack Space.
Exhibit B-3, Page 9
ATTACHMENT I TO EXHIBIT B-3
TECHNICAL SPECIFICATION FOR POP COLLOCATION SERVICE
1. WILLIAMS NETWORK STANDARDS, DESCRIPTIONS & TASKS
1.1 DC POWER
1.1.1 Backup electrical power, including batteries and shared use of an emergency generator to the extent such generator exists and is maintained to support the Premises. 1.1.2 DC power adequate for Cogent's consumption equated to power specified in applicable Collocation Service Order. A low-voltage and high-voltage battery alarm will be monitored by Williams. 1.1.3 Nominal 50 +/- 6V DC battery and charger supply with a minimum four (4) hour reserve will be provided by Williams. 1.1.4 Redundant chargers of adequate size will be provided by Williams, so that in the event of a charger failure the full load will be supplied to Cogent's equipment. A charger failure alarm will be monitored by Williams. 1.2 AC POWER 1.2.1 A 20-amp four-plex AC receptacle will be available within reach of Cogent's Equipment. AC power and outlets for use with test equipment only and is not provided to operate the Equipment. This AC power is not provided over an Uninterruptable Power Source (UPS). 1.2.2 AC power supply to Cogent equipment is backed by generator where available, but is not UPS. This excludes utility outlets described in the immediately preceding subsection 1.2.1. |
1.3 ENVIRONMENTALS
1.3.1 Pre-reaction sprinkler protection, where available. Smoke and fire alarms monitored by Williams. 1.3.2 Lighting. 1.3.3 Ground Bus and cable interconnect. 1.3.4 Grounding conductor will be supplied by Williams between the bus bar and Cogent's Equipment. 1.3.5 Overhead cable ladder 1.3.6 Interconnect signal and power cabling between Williams and Cogent. |
Exhibit B-3, Page 10
1.3.7 Concrete floors will be covered with vinyl tile. 1.3.8 Ambient temperature will be maintained by Williams between 60-90(Degree)F with an objective of 20-65% humidity. 1.3.9 General and administrative services directly relating to the provision of the above listed Collocation Services. |
2. COGENT STANDARDS, DESCRIPTIONS & TASKS
2.1 EQUIPMENT SPECIFICATIONS
2.1.1 The Equipment should be designed to operate satisfactorily between 60-90(Degree)F with 20-65% (non-condensing) humidity. Low 60(Degree) and high 90(Degree) temperature alarms will be monitored by Williams. 2.1.2 Cogent will ensure that the Equipment and surrounding area do not pose safety hazards to personnel. This includes exposed AC electrical hazards, trip and slip hazards, hazardous material storage deficiencies, improperly secured or overloaded equipment racks or ladders, inadequate ingress and egress space. OSHA and local codes will apply. 2.1.3 Cogent will notify Williams of any significant Equipment additions or deletions (i.e. shelf or rack). Installation and removals will be coordinated with local Williams management. |
2.2 RACK SPACE SPECIFICATIONS
2.2.1 Cogent will not jeopardize Collocation Service or damage property of other collocated customers, Williams, or Landlord in any manner. 2.2.2 Cogent will take precautions to protect Williams' and Landlord's common facility and nearby equipment belonging to other customers. This includes floor, wall, and telecommunication equipment protection while moving Equipment and notifying Williams of any major rearrangements of Equipment, drilling, power work, and similar potentially disruptive work. 2.2.3 Cogent will follow good cleanliness practices. All trash must be disposed of daily at Cogent's expense. Any trash or empty boxes not disposed of by Cogent is subject to removal by Williams with any associated charges borne by Cogent. 2.2.4 Nothing may be stored outside of the assigned rack space. A minimum of 2.5' of aisle space must be maintained at front and rear of Equipment. 2.2.5 No metal ladders, stools, or chairs may be used. 2.2.6 Combustible or hazardous material may not be stored in the area. |
Exhibit B-3, Page 11
2.2.7 All Equipment must be installed within the assigned rack footprint (i.e. UPS units, spare equipment). 2.2.8 All cabling will be terminated on DSX panels in the Williams common area. Fiber will be terminated on an appropriate Fiber Distribution Panel ("FDP"). Any panels for Cogent end will be supplied at Cogent's expense. 2.2.9 Cogent is responsible for the termination of the A & B DC power and signal cabling in its Equipment. 2.2.10 Maximum DC power provided to Cogent as A & B power shall be rated for the rating of a single feed. Cogent is liable for an outage caused by the DC power exceeding the single feed rating. Cogent will be responsible for payment of consumed power exceeding the single feed rating specified in the Collocation Service Order. 2.2.11 Cogent will follow normal telecommunications industry standards with regards to equipment installation and removal in a central office environment. Williams standards are to be followed for connection of cables that interface with Williams. All installations are subject to approval by Williams. 2.2.12 Permanent use of extension cords is not allowed. 2.2.13 Cogent will not jeopardize Williams' ability to conduct business in any manner. 2.2.14 All local, state, and federal laws will be obeyed. Local requirements for union labor, especially for AC electrical work, will be observed. Building management guidelines will be followed. 2.2.15 If Williams notifies Cogent in writing of a violation of the above rules, or any other unsafe or unacceptable situation or practice, Cogent must correct the problem within seven days or provide a written plan for correction to Williams' satisfaction and proposed completion date. If the problem is not resolved in seven days or within a longer time frame agreed upon by Williams, Williams will have the option of either (i) correcting the problem at Cogent's expense, or (ii) terminating the Collocation Service Order and disconnecting power and signal connections from Cogent's Equipment. Extreme safety violations are subject to immediate correction by Williams without prior notice to Cogent. Corrections made by Williams are at Cogent's expense and will be billed to Cogent on a time and material basis. |
2.3 ACCESS TO POPS.
2.3.1 TWENTY-FOUR HOUR ACCESS. Subject to the terms, conditions and requirements of this EXHIBIT B-2, Cogent shall have access to its POP Equipment 24 hours a day, 7 days per week. 2.3.2 COMPLIANCE WITH SIGN-IN PROCEDURES. Cogent shall follow Williams' sign-in procedures at all times. Cogent must coordinate its first visit to a particular Williams |
Exhibit B-3, Page 12
site with Williams' Network Control Center at (800) 582-9069 giving at least five (5) business days notice of such visit. For all subsequent entries, Cogent shall follow the procedure set forth in this Section 2.3. 2.3.3 CERTIFICATION OF COGENT EMPLOYEES AND CONTRACTORS. Only Cogent employees and Cogent contractors certified by Williams shall enter POP Collocation Sites unescorted. Williams shall grant certification to a Cogent employee or contractor if Cogent demonstrates that such employee or contractor has sufficient knowledge and experience in the installation and maintenance of telecommunications equipment. In addition to the provisions of Section 2.3.5, each certified employee or contractor shall abide by Williams' POP Maintenance and Safety Manual, as updated from time-to-time. The manual contains Williams' POP access policy, safety, engineering, and equipment installation standards. Cogent shall supply each employee or contractor that seeks certification with a copy of the manual provided by Williams and, subsequent to certification, with any updates thereto provided to Cogent by Williams. Until such time as Williams provides the manual to Cogent, certified Cogent employees and Cogent contractors shall conduct activities on Premises in accordance with telecommunications industry practices. The procedures for certification are as follows: (i) Cogent's single point of contact, discussed below in Section 2.3.4, shall contact Williams' Network Control Center at (800) 348-6925 (alternate number (800) 582-9069) to seek certification for a Cogent employee. Employee applicants shall be deemed certified seventy-two (72) hours after Williams receives all requested qualification information, unless Williams notifies Cogent's single point of contact that more information is reasonably required or that the applicant is denied certification in Williams' reasonable discretion. (ii) For each Cogent contractor that seeks certification, Cogent shall provide Williams' Network Control Center with a letter of authorization signed by Cogent and the contractor. At a minimum, the letter of authorization shall state that the contractor is an agent of Cogent for the purpose of installing, maintaining or repairing Cogent Equipment or for other purposes specified by Cogent in the letter, set forth the names of contractor's employees for which Cogent seeks certification, and contain a statement that the contractor has received a copy of Williams' POP Maintenance and Safety Manual and the contractor agrees to abide by the reasonable policies contained therein and to those contained in any updated manuals provided to Cogent by Williams. If Cogent has not received a copy of Williams' POP Maintenance and Safety Manual by the time it submits a letter of authorization, the contractor shall state in the letter that it will abide by the policies and rules contained in the manual when it is provided. Cogent contractors shall be deemed certified seventy-two (72) hours after the latter of Williams' receipt of the letter of authorization or Williams' receipt of all additional requested qualification information, unless Williams notifies the applicant that more information is |
Exhibit B-3, Page 13
reasonably required or that the applicant is denied certification in Williams' reasonable discretion. Once certified, Cogent's employees or contractors must call Williams' Network Control Center at (800) 348-6925 (alternate number (800) 582-9069) prior to entering or exiting the Space. Cogent shall provide Williams' Network Control Center with a list of "certified" employees or contractors that have passed Williams' certification process. It shall be Cogent's duty to notify Williams of any changes in Cogent's list of certified employees and contractors or if a certified Cogent employee or contractor leaves Cogent's or the contractor's employ. 2.3.4 SINGLE POINT OF CONTACT. Within thirty (30) days after the Effective Date of the Agreement, Cogent shall designate a single point of contact for all future communications regarding common and JUCA space which shall be available twenty-four (24) hours a day, seven (7) days a week. Cogent's single point of contact shall be responsible for distributing information to Cogent's certified employees and contractors. Williams shall have no obligation to provide information regarding JUCA space to any technician other than the aforementioned single point of contact. 2.3.5 SECURITY. Cogent shall abide by Williams' reasonable security requirements to the extent Cogent has been made aware of the same. When Williams' reasonable security requirements have been met, Cogent employees, customers, contractors, or representatives shall be issued passes or visitor identification cards which must be presented upon request before entry to any Williams' POP. Such passes or other identification shall be issued only to persons meeting any reasonable security criteria applicable at the relevant POP for such purpose. Williams shall provide Cogent's single point of contact, discussed in Section 2.3.4, with the access devices (e.g., access codes, card keys, keys, visitor identification cards) necessary for Cogent's certified employees and contractors to gain access to Cogent Equipment in JUCA space within each POP. Cogent's single point of contact shall be responsible for distributing access devices to Cogent's employees and contractors certified pursuant to Section 2.3.3 and shall distribute access devices only to such persons. Access devices will be provided by Williams to Cogent with Williams' Costs thereof to be reimbursed by Cogent within thirty (30) days after receipt of an invoice therefor. Cogent's certified employees and contractors shall not disseminate access codes or devices to any other person. Subject to Section 15.1 of the Agreement, Cogent shall be liable for any losses caused by use or misuse of such access devices and shall surrender access devices upon demand for cause or upon termination of the Agreement. Cogent acknowledges that third parties will have access to the JUCA or common space in which Cogent's Rack Spaces are located and agrees that Williams shall in no event be liable for the acts or omissions of such third parties. 2.3.6 RIGHT TO TERMINATE INDIVIDUAL'S ACCESS. Notwithstanding any other provision of these Collocation Provisions, Williams shall, without threat of liability, have the right to immediately terminate the right of access of any Cogent personnel or representative should it determine in its sole and reasonable discretion for any lawful |
Exhibit B-3, Page 14
reason that termination of such access is in its best interest. Williams shall promptly notify Cogent of any such termination, and Cogent shall have a reasonable opportunity to demonstrate that the terminated rights of access should be reinstated. Any termination of a specific individual's access shall remain in effect pending Williams' final determination as to the advisability of such reinstatement. 2.3.7 ESCORT REQUIREMENT. Cogent shall not enter any part of the Premises, other than JUCA Space pursuant to Section 2.3.3, without a Williams' escort. Cogent shall request and pay for such escort pursuant to Williams' procedures. Williams shall use commercially reasonable efforts to provide such escort within seventy-two (72) hours of Cogent's request (or at its option shall waive the escort requirement on a case-by-case basis). In the event of a service-affecting fault for which such entry is required, Williams shall use commercially reasonable efforts to provide such escort as soon as reasonably practicable. 2.3.8 EMERGENCY SITUATIONS. Williams may temporarily prohibit or restrict Cogent's access to its JUCA Space in the event of a bona fide emergency situation. After the emergency situation has passed, Williams will again allow Cogent access to its JUCA Space pursuant to the terms and conditions herein. 2.3.9 SUBCONTRACTORS. For purposes of this Section 2.3 of this Exhibit, the word "contractor" shall also include subcontractors of Cogent. |
Exhibit B-3, Page 15
ATTACHMENT II TO EXHIBIT B-3
Reference Number____________________ new / / disc / / sup / / cancel / / change / / |
WILLIAMS COLLOCATION SERVICE REQUEST
Customer Name ______________________________________________ Customer Address _______________________________________ street _____________city ________state ________zip Customer Technical Contact ______________________________________________ Phone: ______________________________________________ -------------------------------------------------------------------------------- PREMISES INFORMATION -------------------------------------------------------------------------------- Premises requested ____________________________ Requested Collocation Effective Date ____________________________ |
Term / / 1 Yr / / 3 Yr / /5 Yr
Cabinets or Racks _______________ Rack Size _________ Wx _____ Dx _____ H
Williams provided Racks / / Y / / N
Special Rack Spacing (std @ 5") ______________________________________________
Caged Space / / Y / / N
DC Amp Total __________________ (per Rack / / Y / / N) AC Amp Total __________________ (per Rack / / Y / / N) # feeds (A&B=1) __________________ |
Coax qty pr. (# DS3 connects from collocate into network) _____________________
Preferred Local Access Vendor ___________________ Bandwidth ___________
COMMENTS ______________________________________________________________________
___________________________________ ________________________________ Sales Authorizing Signature Customer Authorizing Signature ___________________________________ ________________________________ Print Name Print Name Title _____________________________ Title ____________________________ Company ___________________________ Company __________________________ Date ______________________________ Date _____________________________ |
Network Services comments __________________________________________________
Exhibit B-3, Page 16
ATTACHMENT III TO EXHIBIT B-3
WILLIAMS COLLOCATION SERVICE ORDER
order number __________ new / / add / / change / / cancel / / ================================================================================ Customer __________________________________________ Collocation _______________________________________ Premises __________________________________________ |
Collocation Effective Date ________________________
Term / / 1 Yr / / 3 Yr / / 5 Yr
DC Amp Total ________ (per Rack Y__ N__) AC Amp Total ____ (per Rack Y__ N__)
# feeds (A&B=1)______
Coax qty pr. (# DS3 connects from collocate into network) ________________
Coax/Fiber Termination Location(s) (DSX or similar port assignments) __________
Preferred Local Access Vendor _______________________ Bandwidth _______________
Sales Representative _____________________________________ 24 Hour Technical Assistance 1-800-582-9069 _____________________________________ POP Technician (name) _____________________________________ POP Technician (phone) _____________________________________ Customer Contact (name) _____________________________________ Customer Contact (phone) _____________________________________ _______________________________________________________________________________ PRICING Service Fee (MRC) $ _____________________ Installation (NRC) $ _____________________ Build Out (NRC) $ _____________________ Ancillary $ _____________________ |
TERMS AND CONDITIONS OF THIS ORDER
PRICING IS VALID FOR 30 DAYS FROM ISSUE DATE.
THIS ORDER WILL NOT BE FULLY EXECUTED UNTIL THE CUSTOMER'S CREDIT HAS BEEN
APPROVED.
ALL SERVICE IS PROVIDED IN ACCORDANCE WITH CUSTOMER' CARRIER SERVICES
AGREEMENT, OR IF NO AGREEMENT EXISTS BETWEEN WILLIAMS AND CUSTOMER, THEN
WILLIAMS' STANDARD TERMS AND CONDITIONS, AND ANY APPLICABLE WILLIAMS TARIFF.
SERVICES PROVIDED CONTINGENT UPON NETWORK MINIMUMS STATED IN CUSTOMER'
CARRIER SERVICES AGREEMENT.
_______________________ _____________________ _______________________ Engineering Authorizing Marketing Authorizing Customer Authorizing Signature Signature Signature _______________________ _____________________ _______________________ Print Name Print Name Print Name _______________________ _____________________ _______________________ Title Title Title _______________________ _____________________ _______________________ Date Date Date |
Exhibit B-3, Page 17
EXHIBIT C
FIBER SPLICING, TESTING, AND ACCEPTANCE STANDARDS AND PROCEDURES
1. Initial Construction Testing
A. During initial construction, Williams shall use an optical time domain reflectometer ("OTDR") to test splices and an OTDR and a 1-km launch reel to test pigtail connectors. Such initial construction tests shall be uni-directional and performed at 1550 nm.
B. If the loss value of two connectors and the associated pigtail splice exceeds 1 dB, Williams shall break the splice and re-splice until the loss value is 1.0 dB or less. If Williams is unable to achieve a loss value of 1.0 dB or less after five total splicing attempts, the splice shall be marked as Out-of-Spec (OOS).
C. If the loss value for a splice, when measured in one direction with an OTDR, exceeds 0.15 dB, Williams shall break the splice and re-splice until the loss value is 0.15 dB or less, provided that, if Williams is not able to achieve a loss value of 0.15 dB after three total splicing attempts, then the maximum loss value shall be 0.3 dB. If, after two additional resplicing attempts, Williams is not able to achieve a loss value of 0.3 dB or less, then Williams shall mark the splice as Out-of-Spec (OOS).
2. End-to-End Testing
A. After Williams has established end-to-end connectivity on the fibers during initial construction, it shall:
o perform bi-directional end-to-end tests,
o test continuity to confirm that no fibers have been "frogged" or crossed
at any splice points,
o record loss measurements using a light source and a power meter, and
o take OTDR traces and record splice loss measurements.
B. Williams shall perform the bi-directional end-to-end tests and OTDR traces at both 1310 nm and 1550 nm, provided that 1310nm OTDR tests are not required for Spans longer than 64 kilometers. The results of such tests for any given Span of the System shall not be deemed within specification unless showing loss measurements between fiber distribution panels at each end of such Span to be in accordance with the loss specifications set forth in EXHIBIT D for the applicable fiber type and not to exceed a loss value of 0.3 dB per kilometer. Williams shall make commercially reasonable efforts to achieve a loss value on each Span of the System of 0.25 dB per kilometer. Williams shall measure and verify losses for each splice point in both directions and average the loss values. Williams shall mark any splice points as Out-of-Spec (OOS) that have an average loss value, based on bi-directional OTDR testing, in excess of 0.3 dB.
3. Post-Construction Testing
Exhibit C, Page 1
After performing permanent resplicing (in conjunction with repair of a
cable cut, replacement of a segment of cable, or other work after initial
installation and splicing of the cable), the test procedures set forth in
Section 2 (End-to-End Testing) of this Exhibit, shall apply to the relevant
fibers and cable segments. The provisions in Sections 4 (OTDR Equipment and
Settings) and 5 (Acceptance Test Deliverables) of this Exhibit, that are
relevant to such testing shall also apply. Williams may, after the Acceptance
Date, adopt any alternative methods of testing that are generally accepted in
the industry and that provide sufficient data to fulfill the objectives of
the tests set forth in this Exhibit.
4. Out-of-Spec Splices
Out-of-Spec splices shall be noted, but shall not preclude Acceptance of a fiber if the Out-of-Spec condition does not affect transmission capability (based on use of then-prevailing telecommunications industry standards applicable to equipment generally used with the relevant type of fiber) or create a significant possibility of an outage.
5. OTDR Equipment and Settings
Williams shall use OTDR equipment and settings that are, in its reasonable opinion, suitable for performing accurate measurements of the fiber installed. Such equipment and settings shall include, without limitation, the Laser Precision TD3000 and CMA4000 models and compatible models for OTDR testing, and the following settings:
A. Index of refraction settings:
---------------------------------------------------------------------- 1310 nm 1550 nm -------------------------------------- Lucent Truwave 1.4738 1.4732 Corning SMF-28 1.4675 1.4681 Corning SMF-LS 1.471 1.470 Corning LEAF 1.470 1.469 Sumitomo fiber 1.467 1.467 ---------------------------------------------------------------------- |
B. Tests of a pigtail connector and its associated splice:
------------------------------------------ TD3000 CMA4000 ------------------------------------------ 4 km Range 4 km Range ------------------------------------------ 10ns Pulse 10ns Pulse 0.25 m Resolution 0.25 m Resolution Medium Averaging Medium Averaging ------------------------------------------ |
Exhibit C, Page 2
C. End-to-End Segment OTDR Testing:
--------------------------------------------- TD3000 CMA4000 --------------------------------------------- 64 km Range 64 km Range 500 ns Pulse 1001 ns Pulse 4 m Resolution 4 m Resolution Medium Averaging Medium Averaging --------------------------------------------- |
Note: If the end points are more than 64 kilometers apart, Williams currently uses a TD3000 set at 128 km range setting and performs bi-directional testing only at 1550 nm.
6. Acceptance Test Deliverables
Williams shall provide computer media containing the following information for the relevant fibers and cable segments:
A. Verification of end-to-end fiber continuity with power level readings for each fiber taken with a light source and power meter.
B. Verification that the loss at each splice point is either (i) below 0.3 dB or (ii) in accordance with the requirements of Section 4 of this Exhibit.
C. The final bi-directional OTDR test data, with distances.
D. Cable manufacturer, cable type (buffer/ribbon), fiber type, number of fibers, number of fibers per tube, and distance of each section of cable between splice points.
E. Identification of any portions utilizing optical groundwire.
7. General Testing Procedures and Acceptance
A. As soon as Williams determines that the Cogent Fibers in a given Major Segment meet the Acceptance Standards and all Transmission Sites and intermediate POP Collocation Sites which are not terminal endpoints of Major Segments along such Major Segment are completed and
Exhibit C, Page 3
ready for occupancy by Cogent under the terms of EXHIBIT B-1 or EXHIBIT B-3 of the Agreement, as applicable, it shall provide the deliverables set forth in Section 6 of this Exhibit. As used in the preceding sentence, "terminal endpoints" of Major Segments are those certain POP Collocation Sites shown in bold print in Exhibit A-2 of the Agreement. Cogent shall have fourteen (14) calendar days after receipt of test deliverables for any Segment to provide Williams written notice of any bona fide determination that the Cogent Fibers on such Segment do not meet the Acceptance Standards. Such notice shall identify the specific data that indicate a failure to meet the Acceptance Standards.
B. Upon receiving written notice pursuant to Subsection 7.A of this Exhibit, Williams shall either:
(i) expeditiously take such action as shall be reasonably necessary to cause such portion of the Cogent Fibers to meet the Acceptance Standards and then re-test the Cogent Fibers in accordance with the provisions of this Exhibit; or
(ii) provide Cogent written notice that Williams disputes Cogent's determination that the Cogent Fibers do not meet the Acceptance Standards.
After taking corrective actions and re-testing the Cogent Fibers, Williams shall provide Cogent with a copy of the new test deliverables and Cogent shall again have all rights provided in this Article with respect to such new test deliverables. The cycle described above of testing, taking corrective action and re-testing shall take place until the Cogent Fibers meet the Acceptance Standards.
C. If Williams provides notice to Cogent pursuant to Clause B(ii), Cogent shall within five (5) calendar days of such notice designate by written notice to Williams the names and addresses of three reputable and independent fiber optic testing companies. Williams shall designate one of such companies to conduct an independent re-test of the Cogent Fibers for the relevant Segment. If, after such re-testing, the testing company determines that the Cogent Fibers
(i) meet the Acceptance Standards, then Cogent shall pay the testing company's charges for performing the testing and the acceptance date for the relevant Segment shall be fourteen days after Williams provided its test deliverables.
(ii) do not meet the Acceptance Standards, then Williams shall pay the testing company's charges for performing the testing and shall perform the corrective action and re-testing set forth in Subsection B(i).
D. Unless Cogent provides a written objection pursuant to Subsection A, the acceptance date of a Segment shall occur on the fourteenth (14th) day after Williams provides the test deliverables for that Segment, or, if earlier, the date Cogent provides written acceptance of such Segment. Cogent's acceptance (pursuant to this subsection or of Subsection C) of the last Segment to be accepted within a Major Segment shall constitute Cogent's "Acceptance" of the Cogent Fibers for such Major Segment. The date of Cogent's Acceptance for each Major Segment shall be referred to as the "Acceptance Date".
Exhibit C, Page 4
8. Time for Delivery of Test Results; Test Schedule
A. If Williams' Fiber Acceptance Testing begins prior to the twentieth
(20th) day after the Effective Date, then Williams shall provide Cogent with
a copy of the test deliverables on a Segment-by-Segment basis within twenty
(20) calendar days after the later of (i) the conclusion of such Fiber
Acceptance Testing of a Segment or (ii) the Effective Date.
B. If Williams' Fiber Acceptance Testing begins on or after the twentieth (20th) day after the Effective Date, the provisions of this subsection shall apply. Williams' Fiber Acceptance Testing shall progress Segment by Segment along the System as cable splicing progresses, so that test deliverables may be reviewed in a timely manner. Cogent shall have the right, but not the obligation, to have an individual present to observe the Fiber Acceptance Testing and Williams shall provide Cogent at least seven days' prior notice of Williams' testing schedule. Within twenty (20) calendar days after the conclusion of any Fiber Acceptance Testing of the Cogent Fibers conducted by Williams in any given Segment, Williams shall provide Cogent with a copy of the test deliverables.
C. Williams shall, upon written request, provide Cogent with its testing schedule for any Segment promptly after developing such schedule.
9. Cogent Testing
A. Cogent shall have the right, but not the obligation, at its sole expense, to conduct its own Fiber Acceptance Testing of the Cogent Fibers in accordance with Section 2 of this Exhibit, regardless of whether Williams has previously completed Fiber Acceptance Testing.
B. The following procedures shall apply to Cogent testing:
(i) If Williams' Fiber Acceptance Testing begins on or after the twentieth (20th) day after the Effective Date, Cogent may perform its own concurrent Fiber Acceptance Testing of the Cogent Fibers at the same time Williams performs testing at each location. If Cogent elects to perform such testing, it shall notify Williams of its intent to do so no later than ten days after the Effective Date. The parties shall cooperate to facilitate such separate, but concurrent, Fiber Acceptance Testing, provided that the Cogent shall conform to Williams' testing schedule.
(ii) If Williams' Fiber Acceptance Testing begins prior to the twentieth
(20th) day after the Effective Date, or if Cogent does not elect to
perform concurrent testing pursuant to Subsection 9.A of this
Exhibit, Cogent may perform its own Fiber Acceptance Testing of the
Cogent Fibers after Williams' Fiber Acceptance Testing begins.
Cogent shall provide Williams at least seven days' prior notice of
Cogent's testing schedule. Williams shall have the right, but not
the obligation, to have an individual present to observe Cogent's
Fiber Acceptance Testing.
(iii) Within twenty (20) calendar days after the conclusion of any Fiber Acceptance Testing of the Cogent Fibers conducted by Cogent in any given Segment, Cogent
Exhibit C, Page 5
shall notify Williams of any detected failures to meet the specifications set forth in Section 2 of this Exhibit. Cogent's exercise or non-exercise of its right to conduct Fiber Acceptance Testing shall not extend or shorten the time periods for Cogent to determine, pursuant to the Agreement, if the Fibers meet the Acceptance Standards.
(iv) Cogent must notify Williams of its intent to perform acceptance testing within ten (10) calendar days following the receipt of either the notification of route completion or the final acceptance test results, whichever occurs later.
Exhibit C, Page 6
EXHIBIT D
FIBER SPECIFICATIONS
[Engineering specifications including description, optical specifications, environmental specifications, dimensional specifications, mechanical specifications, and performance characterizations for Corning(R) Leaf(TM) CPC6 Single-Mode Non-Zero dispersion-shifted optical fiber and Corning(R) SMF-28(TM) CPC6 single-mode optical fiber.]
EXHIBIT E
CABLE INSTALLATION SPECIFICATIONS
1. Material
o Steel or PVC conduit shall be minimum schedule 40 wall thickness.
o Any exposed steel conduit, brackets or hardware (e.g., bridge
attachments) shall be hot-dipped galvanized after fabrication.
o All split steel shall be flanged.
o Handholes shall have a minimum H-15 loading rating.
o Manholes shall have a minimum H-20 loading rating.
o Warning signs shall display universal do not dig symbol,
"Warning-Buried Fiber-Optic Cable," company name and logo, local
and emergency One Call toll-free numbers.
2. Minimum Depths
Minimum cover required in the placement of the conduit/cable shall be forty-two inches (42"), except in the following instances:
o The minimum cover in ditches adjacent to roads, highways, railroads
and interstates is forty-eight inches (48") below the clean out
line or existing grade, whichever is greater.
o The minimum cover across streams, river washes, and other waterways
shall be sixty inches (60") below the clean out line or existing
grade, whichever is greater.
o At locations where the cable crosses other subsurface utilities or
other structures, the cable/conduit shall be installed to provide a
minimum of twelve inches (12") of vertical clearance from the
utility/obstacle. The cable/conduit can be placed above the
utility/obstacle, provided the minimum clearance and applicable
minimum depth can be maintained; otherwise the cable/conduit shall
be installed under the existing utility or other structure.
o In rock, the cable/conduit shall be placed to provide a minimum of
eighteen inches (18") below the surface of the solid rock, or
provide a minimum of forty-two inches (42") of total cover,
whichever requires the least rock excavation.
o Where existing pipe is used, current depth is sufficient.
3. Buried Cable Warning Tape
All cable/conduit shall be installed with buried cable warning tape. The warning tape shall be:
o laid a minimum of twelve inches (12") above the cable/conduit
o generally placed at a depth of twenty-four inches (24") below grade
and directly above the cable/conduit
Exhibit E, Page 1
o a minimum of three inches (3") wide and display "Warning-Buried Fiber-Optic Cable," a company name, logo and emergency one-call toll-free number repeated every twenty-four inches (24").
4. Conduit Construction
o Conduits may be placed by means of trenching, plowing, jack and
bore, multi-directional bore or directional bore.
o Conduits shall generally be placed on a level grade parallel to the
surface, with only gradual changes in grade elevation.
o Steel conduit shall be joined with threaded collars, Zap-Lok or
welding. (Welding is the preferred method.)
o All jack and bores shall use HDPE or steel conduit.
o All directional or mini-directional bores shall use HDPE or steel
conduit.
o Any cable placed in swamp or wetland areas shall be placed in HDPE,
PVC, or steel conduit.
Where required by the permitting agency:
o all crossings of paved city, county, state, federal, and interstate
highways, or railroad crossings shall be encased in steel conduit,
o all longitudinal cable runs under paved streets shall be placed in
steel or concrete encased PVC conduit,
o all cable placed in metropolitan areas shall be placed in steel or
concrete covered PVC conduit, and
o at all foreign utility/underground obstacle crossings, steel conduit
shall be placed and shall extend at least five feet (5') beyond the
outer limits of the obstacle in both directions.
5. Innerduct Installation
o No cable shall be placed directly in any split/solid steel conduit
without innerduct.
o Innerduct(s) shall extend beyond the end of all conduits a minimum of
eighteen inches (18").
6. Cable Installation in Conduit
o The cable shall be installed using either a sealed pneumatic cable
blowing system or a powered pulling winch and hydraulic powered
assist pulling wheels.
o The maximum pulling force to be applied to the cable shall be six
hundred pounds (600 lbs.).
o Sufficient pulling assists shall be available and used to insure
the maximum pulling force is not exceeded at any point along the
pull.
Exhibit E, Page 2
o The cable shall be lubricated at the reel and all pulling assist
locations.
o A pulling swivel breakaway rated at six hundred pounds (600 lbs.)
shall be used at all times.
o Splices shall be allowed only at planned junctions and reel ends.
o All splices shall be contained in a handhole or manhole.
o A minimum of twenty meters (20m) of slack cable shall be left in
all intermediate handholes and manholes.
o A minimum of thirty meters (30m) of slack cable shall be left in
all splice locations.
o A minimum of fifty meters (50m) of slack cable shall be left in
Transmission Sites and points of presence.
o PVC conduit/innerduct may be split, with the cable installed inside
the split duct and plowed in.
7. Manholes and Handholes
o Manholes shall be placed in traveled surface streets and shall have
locking lids.
o Handholes shall be placed in all other areas, and be installed with
a minimum of eighteen inches (18") of soil covering lid.
8. EMS Markers
EMS Markers shall be placed directly above the lid of all buried handholes or shall be fabricated into the lids of the handholes.
9. Cable Markers (Warning Signs)
o Cable markers shall be installed at all changes in cable running
line direction, splices, pull boxes, assist-pulling locations, and
at both sides of street, highway or railroad crossings.
o Markers shall be spaced at intervals of no more than five hundred
feet (500') apart in metropolitan areas (areas where there is
either extensive development and improvement or rapid growth (new
building construction) and within line of sight (not to exceed one
thousand feet (1,000') in non-metropolitan areas.
o Markers shall be positioned so that they can be seen from the
location of the cable and generally set facing perpendicular to the
cable running line.
o Splices and pull boxes shall be marked on the cable marker post.
10. Fiber Optic Groundwire
The Williams Communications, Inc. Optical Groundwire Specifications (Issue 1; October 15, 1996) shall apply to optical groundwire (aerial fibers installed within power transmission groundwire cable). Sections 2 through 9 of this Exhibit shall be inapplicable to optical groundwire. Upon written request, Williams shall promptly provide a copy of its Optical Groundwire
Exhibit E, Page 3
Specifications.
11. Updating of Specifications
Williams may revise these Cable Installation Specifications to include new procedures, materials, or processes so long as the changes achieve the objectives of the specifications set forth above and are in accordance with, or superior to, then-current telecommunications industry standards.
Exhibit E, Page 4
EXHIBIT F
AS-BUILT DRAWING SPECIFICATIONS
1. Alignment Sheets
A. As-Built Alignment Sheets shall include:
o survey information (either from existing data or new information)
o cable and conduit information
o splice locations
o assist point locations with permanent structures
o survey stations
o Transmission Site locations
o optical distances to the nearest Transmission Sites from each
splice location.
B. As-Built Alignment Sheets shall be updated with actual construction field data.
C. The scale of As-Built Alignment Sheets shall not exceed 1" = 200' in metropolitan areas (areas where there is either extensive development and improvement or rapid growth (new building construction)) or 1" = 500' in non-metropolitan areas.
2. Format
Drawings shall be "blue lines", as such term is understood in the industry or in CAD format revision 13 or a later revision. Williams may, after the Acceptance Date, adopt any replacement method of creating or providing drawings that is generally accepted in the industry and that provides equivalent information.
3. Transmission Site Floor Plans
Floor plans for Transmission Sites shall show rack placement and assignment for Cogent's floor space.
Exhibit F, Page 1
EXHIBIT G
OPERATIONS SPECIFICATIONS
1. Routine Maintenance
Williams shall perform the work and provide the services set forth in the following paragraphs A through E as Routine Maintenance:
A. NCC FUNCTIONS. Williams shall operate a manned Network Control Center ("NCC") twenty-four (24) hours a day, seven (7) days a week that monitors the System by means of remote surveillance equipment and dispatches maintenance and repair personnel to handle and repair problems detected by the NCC or reported by Cogent or other parties. Williams shall provide Cogent a toll-free telephone number to report problems to the NCC.
B. CABLE MAINTENANCE. Williams shall perform appropriate routine maintenance on the Cable in accordance with Williams' then-current preventative maintenance procedures as specified in Williams' Operations Manual (the "Operations Manual"). Williams may revise the Operations Manual to include new procedures, materials or processes from time to time. Williams' preventative maintenance procedures shall not substantially deviate from industry practice.
C. TRANSMISSION SITE MAINTENANCE. Williams shall perform appropriate routine maintenance on regenerator, optical amplifier, and junction buildings, including the DC power plant, HVAC equipment, and basic building safety equipment including alarms and emergency generators in accordance with Williams' then current preventative maintenance procedures. Williams' preventative maintenance procedures shall not substantially deviate from industry practice.
D. ROUTE PATROL. Williams shall patrol the System route on a reasonable, routine basis and shall perform all required Cable locates. Williams shall belong to a state or regional one-call (call-before you dig) center when available.
E. SPARE CABLE. Williams shall maintain an inventory of spare cable at strategic locations to facilitate timely restoration.
2. Planned Network Maintenance Activity
A. TIMING. Williams shall avoid performing maintenance between 0600-2200 local Tulsa time, Monday through Friday, inclusive, that will have a disruptive impact on the continuity or performance level of the Cogent Fibers. However, the preceding sentence does not apply to restoration of continuity to a severed or partially severed fiber optic cable, restoration of dysfunctional power and ancillary support equipment, or correction of any potential jeopardy conditions.
B. NOTICE. Williams shall provide Cogent with telephone, facsimile, or written notice of all non-emergency planned network maintenance (a) no later than three (3) banking days prior to
Exhibit G, Page 1
performing maintenance that, in its reasonable opinion, has a substantial likelihood of affecting Cogent's traffic for up to 50 milliseconds, and (b) no later than ten (10) banking days prior to performing maintenance that, in its reasonable opinion, has a substantial likelihood of affecting Cogent's traffic for more than 50 milliseconds. If Williams' planned activity is canceled or delayed, Williams shall promptly notify Cogent and shall comply with the provisions of the previous sentence to reschedule any delayed activity.
3. Fiber and Cable
A. EMERGENCY REPAIR. Williams shall correct or repair Cable
discontinuity or damage in accordance with the procedures set forth in the
Operations Manual. Williams shall use commercially reasonable efforts to
repair Cable traffic discontinuity within the following times:
o Dispatch of personnel to problem area - immediately upon learning of
discontinuity
o Arrival of first maintenance employee on site - within four (4) hours of
learning of discontinuity
o Restoration of Cable continuity - continuity of at least one fiber shall
be established within six (6) hours of learning of discontinuity;
restoration shall continue until all in-service fibers are restored in
accordance with the alternating fiber restoral procedure described in
the Operations Manual.
B. PERMANENT REPAIR. Within twenty-four (24) hours after completion of an emergency repair, Williams shall commence its planning for permanent repair, shall notify Cogent of such plans, and shall implement such permanent repair within an appropriate time thereafter.
C. SPLICING SPECIFICATIONS. Williams shall comply with the Cable splicing specifications as provided in Exhibit C. Williams shall provide to Cogent any modifications to these specifications for Cogent's approval, which shall not be unreasonably withheld or delayed, so long as the modifications do not substantially deviate from industry standards.
4. Miscellaneous
A. FULL-TIME DISPATCH CAPABILITY. Williams' maintenance employees shall be available for dispatch twenty-four (24) hours a day, seven (7) days a week. Williams shall use commercially reasonable efforts to have its first maintenance employee at the site requiring an emergency maintenance activity within four (4) hours from the time of alarm identification by Williams' NCC or notification by Cogent, whichever occurs first. Emergency maintenance is defined as any service-affecting situations requiring an immediate response.
B. STANDARD OF CARE; COOPERATION. In performing its services hereunder, Williams shall take workmanlike care to prevent impairment to the signal continuity and performance of the System. In addition, Williams shall reasonably cooperate with Cogent in sharing information and analyzing the disturbances regarding the cable and/or fiber facilities.
C. COGENT EQUIPMENT. Nothing contained herein shall make Williams responsible for Cogent Equipment. If, however, Williams agrees to maintain Cogent Equipment, Cogent shall
Exhibit G, Page 2
provide equipment spares, vendor training and documentation for each technician along the System route when Cogent uses equipment different from that used by Williams.
D. ESCALATION LIST. Williams shall, at Cogent's request, provide Cogent an operations escalation list for use in reporting and seeking redress of exceptions noted in Williams' performance of Routine Maintenance and Non-Routine Maintenance.
Exhibit G, Page 3
EXHIBIT H
INTERCONNECTIONS
1. Interconnection Points
A. PERMITTED CONNECTING POINTS. Cogent may request that Williams establish Connecting Points with other telecommunications facilities ("Interconnect Facilities") at Williams' standard rates, at (i) fiber distribution panels at the Cable end points, (ii) fiber distribution panels at Transmission Sites, or (iii) at particular agreed to splice points in meet me vaults subject to the terms and conditions of Attachment 1 to this Exhibit H ((i), (ii) and (iii) collectively, "Connecting Points"). Cogent shall have no right to establish any connection to the System other than at such locations. Any splice described in clause (iii) above established hereunder shall be referred to herein as a "Cogent Splice".
B. NO COGENT ACCESS TO CABLE. Cogent shall have no right to access any Fibers within the Cable or to enter any splice or Williams vault.
2. Requests for Interconnections
A. CONNECTION REQUESTS. Cogent shall provide Williams at least thirty
(30) days' notice (the "Interconnect Notice") of the date it requests that a
connection be completed or sixty (60) days' notice if the connection requires
installation of Cogent Equipment at a Transmission Site or POP. The
Interconnect Notice shall set forth a description of the work required to be
performed including:
(i) the connection location (which shall be at a permitted Connecting Point as set forth in Subsection 1.A of this Exhibit);
(ii) a copy of Cogent's construction design drawings including a diagram of the desired location of the Interconnect Facilities and Cogent Equipment;
(iii) identification of all Interconnect Facilities and Cogent Equipment to be installed;
(iv) Cogent's requested installation schedule;
(v) any excess cable storage requirements;
(vi) the space, power, environmental and other requirements for the Interconnect Facilities and Cogent Equipment;
(vii) the estimated in-service and termination dates for the interconnection; and
(vii) all other information reasonably required by Williams.
B. RESPONSE TO REQUESTS. Within twenty-one (21) days of receiving the Interconnect Notice, Williams shall respond with its acceptance or objections to the proposed interconnection.
Exhibit H, Page 1
Williams shall use commercially reasonable efforts to accommodate the request, but may restrict such work to the planned system work periods set forth in EXHIBIT G. Williams may decline to make a requested connection if Williams determines, in its reasonable discretion, that there is a significant likelihood that (i) Cogent's use of a proposed connection would cause a material and adverse effect on the System or the use thereof; (ii) use of a particular location will cause a significant technical impediment; or (iii) the making or existence of the connection presents an unreasonable risk of creating an interruption of transmission.
3. Demarcation and Ownership
A. DEMARCATION POINTS. Williams shall designate an installation demarcation point and a maintenance demarcation point (which may be a different point) for each interconnection in order to safeguard and maintain sole control over the System. Williams shall perform all installation work on facilities on its side of the installation demarcation point and shall perform all post-installation work on facilities on its side of the maintenance demarcation point. Cogent shall pay the Costs of such installation and post-installation work as set forth in this Exhibit. Installation by Williams of the Interconnect Facility shall extend no further than the boundary of Williams' right-of-way or other property unless otherwise mutually agreed to by the parties.
B. OWNERSHIP. Cogent shall retain ownership of Interconnect Facilities during the Term. At the end of the Term, title to any portion of an Interconnect Facility located on Transmission Sites or other Williams premises or right-of-way shall pass to Williams.
4. Installation of Interconnect Facilities
A. SPUR CABLE. Cogent shall, prior to the requested connection date, provide a spur cable adequate to reach the Connecting Point with an additional length (minimum 25 meters) sufficient for Williams to perform splicing.
B. RIGHTS OF WAY AND EQUIPMENT. Cogent shall provide, at its sole cost and expense, any and all necessary rights of way, permits, access rights, and any required consents or authorizations, and Williams-approved materials and equipment (including cables and conduit) necessary for the construction, use, operation, maintenance and repair of each Interconnect Facility. If necessary, and where applicable, Williams shall assist Cogent, at Cogent's expense, in obtaining from any third-party building owner or Williams' lessor access to existing building entrance facilities, if available, to access and exit Transmission Sites. Otherwise, Cogent shall be solely responsible for obtaining all necessary rights for the Interconnect Facility, as described in the first sentence of this Subsection, and Williams does not make and hereby disclaims any warranties or representations that such rights are available at any particular location or regarding the cost or availability of such rights.
5. Maintenance of Interconnect Facilities
A. MAINTENANCE AND CHANGES. Cogent shall provide all maintenance and repair of the Interconnect Facility on Cogent's side of the maintenance demarcation point. Any improvement,
Exhibit H, Page 2
modification, addition to, relocation, or removal of, the Interconnect Facility by Cogent at Transmission Sites or other Williams premises shall be subject to Williams' prior review and written approval and shall be performed by Williams to the extent required work is on Williams' side of the applicable demarcation point. Cogent shall pay the Cost of such improvement, modification, addition to, relocation, or removal of, the Interconnect Facility and of the Cost of repairing any damage due to Cogent's actions. Williams' maintenance responsibility shall be limited to the Interconnect Facilities on its side of the maintenance demarcation point and the associated cross connect or other connection at that point.
B. UNUSUAL COSTS. Williams may require Cogent to pay additional Costs incurred in maintaining any connection that presents unusual problems of access for Williams.
C. STANDARDS. Cogent shall (except to the extent Williams has installation or maintenance responsibility) ensure that any Interconnect Facilities are installed, operated, and maintained to meet or exceed any reasonable requirements of Williams, any requirements of Williams' building management or insurance underwriters, and any applicable local, state and federal codes and public health and safety laws and regulations (including fire regulations and the National Electric Code).
6. Additional Provisions Applicable to Transmission Sites and POPs
A. LIMITATIONS ON TRANSMISSION SITE INTERCONNECTIONS. Transmission Sites are established and designed to support network transmission equipment and, therefore, no interconnections may be made at such sites for other purposes, such as directly or indirectly connecting to local exchange carrier facilities or other local access facilities or for purposes of providing local exchange carrier or local access services.
B. PROHIBITION ON DARK FIBER CROSS-CONNECTS WITH OTHER COLLOCATION CUSTOMERS. Cogent shall not establish Dark Fiber cross-connects between Cogent's collocated facilities or the Cogent Equipment and the collocated facilities of other parties who are using a Transmission Site or POP. Cogent shall not use any Interconnect Facility to allow third parties collocated in any Transmission Site or POP to interconnect with each other at that Transmission Site or POP.
C. ADDITIONAL COLLOCATION REQUIREMENTS. If any Interconnect Facility requires installation or storage of Cogent Equipment (other than the spur cable) at Williams premises, Cogent must arrange for collocation of such Cogent Equipment through the Collocation Provisions (as an Additional Service) or pursuant to a separate written agreement.
Exhibit H, Page 3
ATTACHMENT 1 TO EXHIBIT H
REQUIREMENTS APPLICABLE TO COGENT SPLICES
A. At any time there is cable activity (including without limitation, initial installation of the Cogent Splice, repair of cable cuts or other cable damage, and relocation of cable) on the span (the "Spliced Span") where the Cogent Splice is located, Cogent shall (a) provide Williams access to Cogent's fiber distribution panels ("FDPs") to conduct bi-directional testing of the Spliced Span and (b) at Williams' request (written, oral, or electronic) promptly provide a trained and qualified technician with an optical time-domain reflectometer (OTDR) at its FDP to aid in the cable activity. If Cogent cannot provide the technician and OTDR then Cogent shall provide Williams access to Cogent's FDP for the duration of the cable activity.
B. Williams shall perform all splicing activity at the Cogent Splice point.
C. Williams' Network Control Center (NCC) shall remain the central point of contact, and shall control all cable activity.
D. Williams shall be relieved from any obligations in the Agreement or otherwise to restore or maintain the Cogent Fibers to the extent the existence of the Cogent Splice interferes with or increases the time for performing such obligations.
E. During a cable emergency situation in which Williams requires access to Cogent's FDP or other facilities because of the Cogent Splice, Williams shall make reasonable efforts to coordinate with Cogent's technician. If Cogent's technician is not on site and available to work with the Williams technicians, then Williams shall proceed with "blind" fiber splicing of the Cogent's Fibers (i.e., splicing without the ability to test the Spliced Span). Williams may defer blind splicing until all other fibers in the damaged cable are spliced.
F. The Agreement does not provide for fiber rolls to dark fiber to restore Cogent's service. However, if Williams does elect to provide fiber rolls, it may elect not to allow fiber rolls on the Spliced Span.
G. If Cogent reports a damaged fiber on the Spliced Span and Williams is not aware of any continuity problems on its System, Cogent shall have the burden of demonstrating that the problem is a result of damage to a Cogent Fiber. Cogent must use an OTDR to demonstrate that the problem is not a result of conditions off the System and beyond the Cogent Splice point.
H. The provisions of Paragraphs D, F, and G and the provisions of Paragraph E relating to blind splices shall apply (i) only to the Cogent Fibers having a mid-span interconnection Cogent Splice and (ii) only to the extent such Cogent fibers are on a Spliced Span.
I. Cogent may only have Williams perform a mid-span interconnection Cogent Splice at existing Williams splice points and then only with Williams' prior written consent.
J. Williams is not obligated to perform any maintenance, repair, or restoration on the Cogent interconnection beyond the Cogent Splice.
Exhibit H, Page 4
FIRST AMENDMENT TO DARK FIBER IRU AGREEMENT
THIS FIRST AMENDMENT TO DARK FIBER IRU AGREEMENT (this "Amendment") is made as of June 27, 2000 by and between WILLIAMS COMMUNICATIONS, INC., a Delaware corporation ("Williams") and COGENT COMMUNICATIONS, INC., a Delaware corporation ("Cogent").
WITNESSETH:
WHEREAS, Williams and Cogent entered into that certain Dark Fiber IRU Agreement (the "Agreement") on April 14, 2000 under which Williams granted to Cogent and Cogent acquired form Williams the Cogent Lease/IRU Rights in and to the Initial Cogent Fibers as defined and described therein;
Whereas, pursuant to the terms of Subsection 2.4(a) of the Agreement, Cogent has the option to acquire Additional Fibers from Williams as hereafter described; and
NOW, THEREFORE, in consideration of the mutual promises set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned parties hereto agree as follows:
1. EXERCISE OF OPTION TO OBTAIN LEASE/IRU RIGHTS IN ADDITIONAL FIBERS.
Pursuant to Subsection 2.4(a) of the Agreement, Cogent hereby exercises, and
Williams hereby confirms availability and accepts Cogent's exercise of, its
right to obtain Cogent IRU/Lease Rights in one (1) additional Dark Fiber in
all Major Segments at a price of [*] per Fiber Mile. As provided in
Section 2.4 of the Agreement, the Cogent Lease/IRU Rights in the Additional
Dark Fibers acquired pursuant to this Amendment shall be subject to all terms
an conditions set forth in the Agreement except as modified by this Amendment
and except that the Estimated Completion Date with respect to the Additional
Fibers obtained hereunder in the Atlanta to Washington, D.C. Segment shall be
March 1, 2001. Cogent acknowledges and agrees that the option described in
Subsection 2.4(a) is a one-time option and as result of its exercise thereof
under this Amendment, Cogent shall have no further rights or options under
said Subsection 2.4(a).
2. PAYMENT FOR ADDITIONAL FIBERS ACQUIRED UNDER THIS AMENDMENT. The total estimated Contract Price for the Cogent Lease/IRU Rights in the Additional Fibers acquired by Cogent under this Amendment for all Major Segments is set forth in EXHIBIT A. Williams and Cogent hereby agree that for purposes of this Amendment and Cogent's exercise of the option under Section 2.4(a) hereunder only, Section 3.3 of the Agreement is hereby amended by deleting clauses (a) and (b) therein and replacing the same with the following:
(a) The sum of [*] is due and payable within three (3) banking days after the date this Amendment has been executed by both parties;
(b) The sum of [*] is due and payable on December 27, 2000; and
(c) The sum of [*] is due and payable on June 27, 2001.
Cogent may, at its option, prepay any or all of the payments under (a) through (c) above at any time prior to the applicable due date(s) without penalty. Notwithstanding any provision of this Amendment or the Agreement to the contrary, the amounts payable under this Section for the Cogent Lease/IRU Rights in
[*] Indicates confidential treatment requested.
the Additional Fibers acquired by Cogent under this Amendment shall not be considered or included in the computation of liquidated damages payable by Williams under Section 4.4(b) of the Agreement.
3. COUNTERPARTS; CAPITALIZED TERMS. This Amendment may be executed in several counterparts, each of which shall be deemed an original and each of which alone and all of which together, shall constitute one and the same instrument. The definition of "Agreement" in the Agreement is hereby amended to include this Amendment and the terms of any other amendment thereto executed by the parties. All capitalized terms used herein but not defined shall have the meanings given to such terms in the Agreement.
4. EFFECT OF AMENDMENT. Except as expressly amended or modified herein, all other terms, covenants, conditions and Exhibits of the Agreement shall be unaffected by this Amendment and shall remain in full force and effect.
5. DATE OF AMENDMENT. This Amendment shall be effective as of the date on which both parties have executed the same.
IN WITNESS WHEREOF and in confirmation of their consent to the terms and conditions contained in this Amendment and intending to be legally bound hereby, Williams and Cogent have executed this Amendment on the dates set forth below.
WILLIAMS COMMUNICATIONS, INC. COGENT COMMUNICATIONS, INC. By: /s/ Gordon Martin By: /s/ David Schaeffer ------------------------- --------------------------- Print Name Gordon Martin Print Name: David Schaeffer ------------------ ------------------- |
Title: President Carrier Services Title: President -------------------------- ------------------------ |
EXHIBIT A
ESTIMATED CONTRACT PRICE FOR ADDITIONAL FIBERS ADDED BY AMENDMENT
----------------------------------------------------------------------------------------------------------------------------------- ROUTE SEGMENT ADDT'L ESTIMATED FIBER FIBERS DISCOUNTED PRICE TOTAL FIBER ORIGIN DESTINATION MILEAGE TYPE OFFERED PER FIBER MILE PAYMENT* ----------------------------------------------------------------------------------------------------------------------------------- ATLANTA Macon Macon JACKSONVILLE 355 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- DENVER Topeka Topeka KANSAS CITY 635 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- HERNDON WASHINGTON D.C. 26 SMF-LS 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- TAMPA Orlando Orlando DAYTONA BEACH 153 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SALT LAKE CITY DENVER 551 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- JACKSONVILLE Daytona Beach Daytona Beach Melbourne Melbourne West Palm Beach West Palm Beach FT. LAUDERDALE 310 SMF-28 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- TALLAHASSEE Tampa Tampa FT. MYERS 344 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- NEW ORLEANS Mobile Mobile Pensacola Pensacola TALLAHASSEE 469 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- WASHINGTON D.C. Baltimore Baltimore Philadelphia Philadelphia Newark Newark NEW YORK CITY 336 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- HERNDON MANASSAS JUNCTION 28 SMF-LS 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- ALBANY Springfield Springfield Worcester Worcester BOSTON 183 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- CLEVELAND Buffalo Buffalo Rochester Rochester Syracuse Syracuse ALBANY 562 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- LOS ANGELES RIVERSIDE 65 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- HOUSTON DALLAS 250 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- DALLAS Tulsa Tulsa KANSAS CITY 484 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SAN FRANCISCO SANTA CLARA 48 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SAN FRANCISCO Oakland Oakland SACRAMENTO 114 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- RIVERSIDE Phoenix Phoenix Tucson Tucson El Paso El Paso San Antonio San Antonio Austin Austin HOUSTON 1709 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- RIVERSIDE San Diego San Diego RIVERSIDE 220 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- |
[*] Indicates confidential treatment requested.
Exhibit A, Page 1
----------------------------------------------------------------------------------------------------------------------------------- ROUTE SEGMENT ADDT'L ESTIMATED FIBER FIBERS DISCOUNTED PRICE TOTAL FIBER ORIGIN DESTINATION MILEAGE TYPE OFFERED PER FIBER MILE PAYMENT* ----------------------------------------------------------------------------------------------------------------------------------- KANSAS CITY Columbia Columbia ST. LOUIS 270 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FT. MYERS MIAMI 196 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FT. LAUDERDALE MIAMI 20 SMF-28 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- ATLANTA Spartanburg Spartanburg Charlotte Charlotte Greensboro Greensboro Raleigh Raleigh Richmond Richmond WASHINGTON D.C. 818 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FREMONT JUNCTION OAKLAND 27 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FREMONT JUNCTION SANTA CLARA 24 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- FREMONT JUNCTION MODESTO 93 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SACRAMENTO Reno Reno SALT LAKE CITY 661 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- SACRAMENTO Modesto Modesto Fresno Fresno Bakersfield Bakersfield LOS ANGELES 671 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- ST. LOUIS Springfield Springfield Peoria Peoria CHICAGO 339 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- NEW YORK CITY Stamford Stamford New Haven New Haven Hartford Hartford Providence Providence BOSTON 265 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- HOUSTON Baton Rouge Baton Rouge New Orleans New Orleans Jackson Jackson Birmingham Birmingham ATLANTA 1000 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- PORTLAND SEATTLE 220 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- PORTLAND Eugene Eugene SACRAMENTO 688 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- CHICAGO South Bend South Bend Toledo Toledo CLEVELAND 350 LEAF 1 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- TOTALS 12,484 $ [***] ----------------------------------------------------------------------------------------------------------------------------------- |
* Total estimated Contract Price for Additional Fibers provided under this Amendment
[*] Indicates confidential treatment requested.
Exhibit A, Page 2
SECOND AMENDMENT TO DARK FIBER IRU AGREEMENT
THIS SECOND AMENDMENT TO DARK FIBER IRU AGREEMENT (this "Amendment") is made as of November __, 2000 by and between WILLIAMS COMMUNICATIONS, INC., a Delaware corporation ("Williams") and COGENT COMMUNICATIONS, INC., a Delaware corporation ("Cogent").
W I T N E S S E T H:
WHEREAS, Williams and Cogent entered into that certain Dark Fiber IRU Agreement on April 14, 2000 (the "Agreement") under which Williams granted to Cogent and Cogent acquired from Williams the Cogent Lease/IRU Rights in and to the Initial Cogent Fibers as defined and described therein;
WHEREAS, Williams and Cogent entered into that certain First Amendment of Dark Fiber IRU Agreement dated June 27, 2000;
WHEREAS, Cogent desires to acquire from Williams, and Williams desires to provide to Cogent, rights to use certain optical fibers in Williams' telecommunications system along certain routes between Williams' POPs in certain metropolitan areas (as hereafter described) which is not currently subject to the Agreement upon the terms and conditions set forth below; and
NOW, THEREFORE, in consideration of the mutual promises set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned parties hereto agree as follows:
1. GRANT OF COGENT IRU/LEASE RIGHTS. The parties hereby agree that
the Dark Fibers in the route segments described in EXHIBIT A to this
Amendment (the "Interconnects") shall be considered Cogent Fibers and each of
the Interconnects shall be considered a Major Segment under the Agreement
subject to the terms and conditions set forth in this Amendment; provided,
however, that Sections 2.4, 3.1, 3.2 and 3.3 of the Agreement shall not apply
to the Interconnects. In the event that, subsequent to the date of this
Amendment, Williams constructs an alternate fiber route between the origin
and destination of any of the Interconnects, as specifically described in
Exhibit A to this Amendment, and intends to sell Dark Fibers within such
alternate route, Williams may offer Cogent the right to exchange its IRU in
up to two (2) of the Cogent Fibers in the affected Interconnect for up to two
(2) fiber strands on the new alternate route in order to provide Cogent with
diverse routing. If, in any such exchange, the Fiber Miles of the fibers in
the new alternate route exceed the Fiber Miles of the Cogent Fibers to be
exchanged, then Cogent shall pay, as additional Contract Price, the amount
determined by multiplying the per Fiber Mile price for the affected
Interconnect set forth in EXHIBIT A by such excess Fiber Miles.
Notwithstanding any of the provisions above, the decision to allow Cogent to
exchange Cogent Fibers in any Interconnect with fiber strands in new
alternate routes as described above will be at Williams' sole and absolute
discretion. If an exchange is agreed upon pursuant to the foregoing
provisions, the parties will enter into an amendment to the Agreement
identifying the Interconnect(s) affected thereby, establishing new
Interconnects under the Agreement, increasing the Contract Price (if
applicable) and setting forth Scheduled Delivery Dates and other necessary
information applicable to any new Interconnect.
2. PAYMENT FOR COGENT FIBERS IN THE INTERCONNECTS. The total estimated Contract Price for the Cogent Lease/IRU Rights in the Cogent Fibers in all of the Interconnects is set forth in EXHIBIT A. Williams and Cogent hereby agree that for purposes of this Amendment and with respect to the Cogent Fibers in the Interconnects only, the estimated Contract Price applicable to the Cogent Fibers in the Interconnects set forth in EXHIBIT A shall be paid by Cogent to Williams as follows:
(a) twenty-five percent (25%) of such estimated Contract Price within three (3) banking days after the parties' execution of this Amendment; and
(b) the remaining seventy-five percent (75%) of the estimated Contract Price attributable to each Interconnect as set forth in EXHIBIT A shall be due for each such Interconnect within three (3) banking days after the Acceptance Date of the Cogent Fibers in each such Interconnect.
3. CHARGES FOR ROUTINE MAINTENANCE. With respect to the Cogent Fibers in the Interconnects only, Section 3.4 of the Agreement is hereby amended by deleting [*] in each place it appears and replacing such figure with [*] in each such place.
4. COUNTERPARTS; CAPITALIZED TERMS. This Amendment may be executed in several counterparts, each of which shall be deemed an original and each of which alone and all of which together, shall constitute one and the same instrument. The definition of "Agreement" in the Agreement is hereby amended to include this Amendment and the terms of any other amendment thereto executed by the parties. All capitalized terms used herein but not defined shall have the meanings given to such terms in the Agreement.
5. EFFECT OF AMENDMENT. Except as expressly amended or modified herein, all other terms, covenants, conditions and Exhibits of the Agreement shall be unaffected by this Amendment and shall remain in full force and effect.
6. DATE OF AMENDMENT. This Amendment shall be effective as of the date on which both parties have executed the same.
IN WITNESS WHEREOF and in confirmation of their consent to the terms and conditions contained in this Amendment and intending to be legally bound hereby, Williams and Cogent have executed this Amendment on the dates set forth below.
WILLIAMS COMMUNICATIONS, INC. COGENT COMMUNICATIONS, INC. By: /s/ Greg S. Floerke By: /s/ David Schaeffer -------------------------------- ------------------------------- Print Name: Greg S. Floerke Print Name: David Schaeffer ------------------------ ----------------------- Title: Senior Vice President Title: Chief Executive Officer ----------------------------- ---------------------------- |
[*] Indicates confidential treatment requested.
EXHIBIT A
INTERCONNECTS
----------------------------------------------------------------------------------------------------------------------------------- ROUTE SEGMENT ADDT'L ESTIMATED ESTIMATED FIBER FIBERS PRICE PER TOTAL FIBER ORIGIN DESTINATION COMPLETION MILEAGE TYPE OFFERED FIBER MILE PAYMENT ----------------------------------------------------------------------------------------------------------------------------------- 600 South Federal 2101 Roberts Road 6th Floor, Suite 600 Broadview, IL 60153 Chicago, IL 60605 Dec-00 20 SMF-28 4 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- 1201 Main Street, Ste C-112, Dallas, TX, 75202 400 S. Akard, Dallas II, TX Dec-00 0.5 LEAF 4 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- 1005 North "B" Street, 770 L Street, Suite 120, Sacramento II, Sacramento, CA 95814 CA 938140303 Feb-01 1.5 SMF-28 2 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- 1005 North "B" Street, Sacramento II, 770 L Street, Suite 120, CA 93814-0303 Sacramento, CA 95814 Feb-01 2.8 SMF-28 2 $ [***] $ [***] ----------------------------------------------------------------------------------------------------------------------------------- TOTALS 24.8 $ [***] |
[*] Indicates confidential treatment requested.
THIRD AMENDMENT TO DARK FIBER IRU AGREEMENT
THIS THIRD AMENDMENT TO DARK FIBER IRU AGREEMENT (this "Amendment") is made as of the Effective Date (hereafter defined) by and between WILLIAMS COMMUNICATIONS, INC., a Delaware corporation ("Williams") and COGENT COMMUNICATIONS, INC., a Delaware corporation ("Cogent").
WITNESSETH:
WHEREAS, Williams and Cogent entered into that certain Dark Fiber IRU Agreement (the "Agreement") on April 14, 2000 under which Williams granted to Cogent and Cogent acquired form Williams the Cogent Lease/IRU Rights in and to the Initial Cogent Fibers as defined and described therein;
Whereas, pursuant to the terms of Subsection 2.4(a) of the Agreement, Cogent has the option to acquire Additional Fibers from Williams as hereafter described; and
NOW, THEREFORE, in consideration of the mutual promises set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned parties hereto agree as follows:
1. AMENDMENT OF EXHIBIT A TO SECOND AMENDMENT. In order to add the additional Cogent Fibers to the Interconnects in Sacramento, California as described in the above recitals, the parties hereby agree that EXHIBIT A of the Second Amendment is hereby deleted in its entirety and replaced with EXHIBIT A to this Amendment, which is attached hereto and made part hereof.
2. ADDITIONAL PAYMENT. Due to the increase in the number of Cogent Fibers in the Sacramento Interconnects as described above, Cogent acknowledges the increased Contract Price asset forth in Exhibit A to this Amendment. Further, Cogent agrees to pay, within three (3) banking days after the Effective Date of this Amendment, the sum of [*], which sum represents the additional amount due under Section 2(a) of the Second Amendment as a result of the additional Cogent Fibers in the Sacramento Interconnects as described herein.
3. EFFECTIVE DATE OF SECOND AMENDMENT. The parties acknowledge that each has previously executed the Second Amendment but that the same was inadvertently left undated. The parties hereby further acknowledge and agree that the effective date of the Second Amendment is December 11, 2000.
4. COUNTERPARTS; CAPITALIZED TERMS. This Amendment may be executed in several counterparts, each of which shall be deemed an original and each of which alone and all of which together, shall constitute one and the same instrument. All capitalized terms used herein but not defined shall have the meanings given to such terms in the agreement or any prior amendment thereto.
5. EFFECT OF AMENDMENT. Except as expressly amended or modified herein, all other terms, covenants, conditions and Exhibits of the Agreement, as amended, shall be unaffected by this Amendment and shall remain in full force and effect.
6. DATE OF AMENDMENT. This Amendment shall be effective as of the latest date shown below on which both parties have executed the same (the "Effective Date").
[*] Indicates confidential treatment requested.
IN WITNESS WHEREOF and in confirmation of their consent to the terms and conditions contained in this Amendment and intending to be legally bound hereby, Williams and Cogent have executed this Amendment on the dates set forth below.
WILLIAMS COMMUNICATIONS, INC.
Date: , 2001 By: /s/ William L. Cornog ------------- ------------------------------------- Print Name: William L. Cornog ----------------------------- Title: Senior Vice President, Network Services ------------------------------------------ COGENT COMMUNICATIONS, INC. Date: January 26, 2001 By: /s/ William R. Currer ------------------------------------- Print Name: William R. Currer ----------------------------- Title: President ---------------------------------- |
EXHIBIT A
INTERCONNECTS
------------------------------------------------------------------------------------------------------------------------------------ ROUTE SEGMENT ADDT'L ESTIMATED EST. FIBER FIBERS PRICE PER TOTAL CONTRACT ORIGIN DESTINATION COMPLETION MILEAGE TYPE OFFERED FIBER MILE PRICE* ------------------------------------------------------------------------------------------------------------------------------------ 600 South Federal 2101 Roberts Road 6th Floor, Suite 600 Broadview, IL 60153 Chicago, IL 60605 Dec-00 20 SMF-28 4 $ [***] $ [***] ------------------------------------------------------------------------------------------------------------------------------------ 1201 Main Street, Ste. C-112 400 S. Akard, Dallas Dallas, TX 75202 II, TX Dec-00 0.5 LEAF 4 $ [***] $ [***] ------------------------------------------------------------------------------------------------------------------------------------ 770 L Street Suite 120 1005 North "B" Sacramento, CA 95814 Street, Sacramento II, CA 938140303 Feb-01 1.5 SMF-28 3 $ [***] $ [***] ------------------------------------------------------------------------------------------------------------------------------------ 1005 North "B" 770 L Street Suite 120 Street, Sacramento Sacramento, CA 95814 II, CA 938140303 Feb-01 2.8 SMF-28 3 $ [***] $ [***] ------------------------------------------------------------------------------------------------------------------------------------ TOTALS 24.8 $ [***] ------------------------------------------------------------------------------------------------------------------------------------ |
[*] Indicates confidential treatment requested.
FOURTH AMENDMENT TO DARK FIBER IRU AGREEMENT
THIS FOURTH AMENDMENT TO DARK FIBER IRU AGREEMENT (this "Amendment") is made as of the Effective Date (hereinafter defined) by and between WILLIAMS COMMUNICATIONS, LLC, a Delaware limited liability company formerly known as Williams Communications, Inc. ("Williams") and COGENT COMMUNICATIONS, INC., a Delaware corporation ("Cogent").
W I T N E S S E T H:
WHEREAS, Williams and Cogent entered into that certain Dark Fiber IRU Agreement on April 14, 2000 (as amended, the "Agreement") under which Williams granted to Cogent and Cogent acquired from Williams the Cogent Lease/IRU Rights in and to the Initial Cogent Fibers as defined and described therein;
WHEREAS, Williams and Cogent entered into that certain First Amendment of Dark Fiber IRU Agreement dated June 27, 2000 (the "First Amendment"), that certain Second Amendment to Dark Fiber IRU Agreement dated December 11, 2000, and that certain Third Amendment to Dark Fiber IRU Agreement dated January 27, 2001 (the "Third Amendment"); and
WHEREAS, the parties mutually desire to further amend the Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises set forth below, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned parties hereto agree as follows:
1. RECONFIGURATION OF CERTAIN CALIFORNIA MAJOR SEGMENTS.
(a) REMOVAL AND REPLACEMENT OF RIVERSIDE-SAN DIEGO-RIVERSIDE MAJOR SEGMENT. Cogent acknowledges that it has been informed by Williams of alterations to Williams' previously planned network topology which affect the Riverside-San Diego-Riverside Major Segment described on page 2 of Exhibit A-2 to the Agreement and page 2 of Exhibit A to the First Amendment (the "Original Riverside Major Segment"). Instead of the Original Riverside Major Segment, Williams has constructed and/or will construct one segment between Riverside, California and San Diego, California and a separate segment from San Diego, California to Los Angeles, California. As a result of the foregoing and in consideration of the mutual covenants and agreements set forth below, the parties agree that the row describing the Original Riverside Major Segment is hereby deleted from Exhibit A-2 of the Agreement, and thereby removed as a Major Segment under the Agreement, and is replaced with the following:
--------------------------------------------------------------------------------------------------------------------- Los Angeles San Diego 31-May-01 150 LEAF 1 $ [***] $ [****] --------------------------------------------------------------------------------------------------------------------- San Diego Riverside 30-Apr-01 107 LEAF 1 $ [***] $ [****] --------------------------------------------------------------------------------------------------------------------- |
[*] Indicates confidential treatment requested.
The parties further agree that the row describing the Original Riverside Major Segment is hereby deleted from Exhibit A to the First Amendment and replaced with the following:
--------------------------------------------------------------------------------------------------------------------- Los Angeles San Diego 31-May-01 150 LEAF 1 $ [****] $ [****] --------------------------------------------------------------------------------------------------------------------- San Diego Riverside 30-Apr-01 107 LEAF 1 $ [****] $ [****] --------------------------------------------------------------------------------------------------------------------- |
From and after the Effective Date of this Amendment, the above-described Los Angeles-San Diego and San Diego-Riverside segments shall be "Major Segments" and the fibers therein shall be "Cogent Fibers" under the Agreement.
(b) REMOVAL OF LOS ANGELES-RIVERSIDE MAJOR SEGMENT. As a result of the above changes, Cogent hereby agrees, and Williams acknowledges, that Cogent will have no long-term need for the Los Angeles-Riverside Major Segment described on page 1 of Exhibit A-2 of the Agreement and on page 1 of Exhibit A to the First Amendment (the "LA-Riverside Major Segment"). However, Cogent desires to use the LA-Riverside Major Segment until it has had an opportunity to install Cogent Equipment along the Los Angeles-San Diego Major Segment described in Subsection 1(a) above. The parties agree that effective as of the date which is sixty (60) days after the later of the Acceptance Date of the Cogent Fibers in the Riverside-San Diego Major Segment described in Subsection 1(a) or the Acceptance Date of the Cogent Fibers in the Los Angeles-San Diego Major Segment is hereby deleted from Exhibit A-2 of the Agreement and Exhibit A of the First Amendment; (ii) all rights and obligations of Cogent and all obligations of Williams with respect to the LA-Riverside Major Segment shall cease, terminate and be of no further force and effect; and (iii) all of Cogent's rights and interests in and to the Cogent Fibers in, and other rights under the Agreement pertaining to, the LA-Riverside Major Segment shall revert fully to Williams.
(c) REMOVAL OF COGENT EQUIPMENT FROM LA-RIVERSIDE MAJOR SEGMENT. Cogent shall remove the Cogent Equipment from all Transmission Sites along the LA-Riverside Major Segment before the Transition Date in accordance with all terms and conditions of the preceding sentence, Williams shall have the rights specified in the Agreement upon such a failure by Cogent.
(d) EFFECTIVE OF RECONFIGURATION ON ROUTE MILEAGE. The Parties acknowledge that the reconfiguration of Major Segments described in Subsections 1(a) and 1(b) above will, after the Transition Date, result in a net decrease of twenty-eight (28) Route Mile to the Route under the Agreement.
2. ATLANTA-WASHINGTON, D.C. MAJOR SEGMENT.
(a) CHANGE FROM LEAF TO SMF-LS FIBER. Cogent acknowledges that due to a change in Williams' plans, LEAF fibers are not currently available in the Atlanta-Washington, D.C. Major Segment described in Exhibit A-2 of the Agreement and Exhibit A of the First Amendment (the "Atlanta-DC Major Segment"). Subject to the terms hereinafter set forth in this Section 2, Cogent agrees to accept, subject to satisfaction of all testing and Acceptance obligations under the Agreement, SMF-LS fibers as the Cogent Fibers in the Atlanta-DC Major Segment. As a result, the parties hereby agree to amend the description of the Atlanta-DC Major Segment on page 2 of Exhibit A-2 of the Agreement and on page 2 of Exhibit A of the First
[*] Indicates confidential treatment requested.
Amendment by deleting "LEAF" and replacing the same with "SMF-LS." In consideration of Cogent's agreement to accept SMF-LS fibers under this Subsection, Williams hereby agrees to reduce the Contract Price for the Atlanta-DC Major Segment to [*] per Fiber Mile. The parties acknowledge Cogent's prior payment of the Contract Price under the Agreement and agree that a credit shall be granted under Section 3 of this Amendment to account for the reduction described in the preceding sentence.
(b) UPGRADE TO LEAF. If, at any time during the Term of the Agreement (provided, however, that Cogent has not exercised its option to terminate the Atlanta-DC Major Segment under Subsection 2(c) below), Williams decides to install an additional Cable among the Atlanta-DC Major Segment, Cogent shall have the option to exchange its then existing Cogent Fibers for Dark Fibers in the new Cable. Williams will notify Cogent of its decision to install a new Cable as aforesaid, identify the type of Cable to be installed and provide estimated availability dates. Within thirty (30) days after its receipt of Williams' notice, Cogent may elect to exchange the Cogent Fibers for Dark Fibers in the new Cable by giving written notice to Williams. If Cogent fails to notify Williams within such 30-day period, Cogent's right to exchange the initial Cogent Fibers under this paragraph shall expire. If Cogent elects to obtain Dark Fibers in the new Cable, such Dark Fibers shall be tested and Accepted in accordance with the terms of the Agreement and, within ten (10) days after the Acceptance Date thereof, Cogent shall pay Williams the amount equal to [*] per Fiber Mile of the Dark Fibers in the new Cable. Ninety (90) days after such payment by Cogent, all of Cogent's rights and interests in the initial Cogent Fibers shall expire and be of no further force and effect, with all such rights reverting fully to Williams, and the new Dark Fibers shall become Cogent Fibers under the Agreement. All work associated with migrating Cogent's network to the new fibers including, without limitation, disconnection and reconnections, rerouting of interconnections, or equipment upgrades or replacements, shall be the sole responsibility of Cogent (except to the extent the Agreement requires Williams to perform such work) and in all events shall be at Cogent's sole cost and expense. Cogent's migration of its network to the new fibers and all work associated therewith shall be subject to the terms and conditions of the Agreement.
(c) COGENT'S RIGHT TO TERMINATE ATLANTA-DC MAJOR SEGMENT. Upon
expiration of the three (3) year period beginning on the Effective Date of
this Amendment (provided, however, that Cogent has not previously elected to
exchange for new Dark Fibers under Subsection 2(b)), Cogent may terminate the
Agreement with respect to the Atlanta-DC Major Segment only by giving written
notice of such termination on or before the date which is thirty (30) days
after the expiration date of such 3-year period. Cogent's rights under this
Subsection (c) shall expire if Cogent's termination notice is not received by
Williams within such 30-day period. Upon a termination of the Agreement with
respect to the Atlanta-DC Major Segment pursuant to this Subsection 2(c): (i)
Cogent shall not be entitled to a refund of any portion of the Contract
Price, Routine Maintenance charges, collocation charges or any other fees or
charges payable under the Agreement prior to the date of such termination;
(ii) the Atlanta-DC Major Segment shall be deleted from Exhibit A-2 of the
Agreement and Exhibit A of the First Amendment; (iii) all rights and
obligations of Cogent and all obligations of Williams with respect to the
Atlanta-DC Major Segment shall cease, terminate and be of no further force
and effect; and (iv) all of Cogent's rights and interests in and to the
Cogent Fibers in, and other rights under the Agreement pertaining to, the
Atlanta-DC Major Segment shall revert fully to Williams.
[*] Indicates confidential treatment requested.
(d) RESTRICTION ON TRANSFER OF DARK FIBER RIGHTS. After expiration
of the 3-year period described in the first sentence of Subsection 2(c) above
and until the earlier of (i) termination or expiration of the Agreement, or
(ii) Cogent's exercise of its right to exchange the initial Cogent Fibers in
the Atlanta-DC Major Segment for Dark Fibers in a new Cable under Subsection
2(b) above; Sections 23.2(b) and 23.5 of the Agreement shall not apply to the
Cogent Fibers in the Atlanta-DC Major Segment.
3. CREDITS.
(a) CREDIT FOR REDUCTION IN ATLANTA-DC MAJOR SEGMENT CONTRACT PRICE. Due to the reduction in the Contract Price previously paid by Cogent under Subsection 2(a) above, Williams agrees that Cogent is currently entitled to a credit equal to [*].
(b) CREDIT FOR RECONFIGURATION OF CERTAIN CALIFORNIA MAJOR SEGMENTS.
In addition to the credit described in Subsection 3(a) and due to the
decrease in the number of Route Miles of the System resulting from the
reconfiguration described in Section 1 above, Williams agrees that after the
Transition Date and Cogent's removal of the Cogent Equipment under Subsection
1(c), Cogent shall be entitled to a credit equal to [*].
(c) APPLICATION OF CREDITS. As soon as available under the terms of Subsections 3(a) or 3(b), as applicable, the credits described therein shall be applied against payments due for the Contract Price under Section 3.2 of the Agreement or for collocation services under Exhibit B-1 o the Agreement. At any time Cogent desires for a credit, or any portion thereof, to be applied to such payments, it shall provide a written statement to Williams setting forth the amount of the credit(s) applied and specifically identifying the invoice(s) affected by such application.
4. COUNTERPARTS; CAPITALIZED TERMS. This Amendment may be executed in several counterparts, each of which shall be deemed an original and each of which alone and all of which together, shall constitute one and the same instrument. All capitalized terms used herein but not defined shall have the meanings given to such terms in the Agreement or any prior amendment thereto.
5. EFFECTIVE OF AMENDMENT. Except as expressly amended or modified herein, all other terms, covenants, conditions and Exhibits of the Agreement, as amended, shall be unaffected by this Amendment and shall remain in full force and effect.
6. DATE OF AMENDMENT. This Amendment shall be effective as of the date on which both parties have executed the same (the "Effective Date").
7. WILLIAMS' CONVERSION. The parties acknowledge the conversion pursuant to Delaware law of Williams Communications, Inc. to Williams Communications, LLC, a Delaware limited liability company, effective January 1, 2001. Williams hereby ratifies and confirms in all respects the Third Amendment which inadvertently failed to describe such conversion.
[*] Indicates confidential treatment requested.
IN WITNESS WHEREOF and in confirmation of their consent to the terms and conditions contained in this Amendment and intending to be legally bound hereby, Williams and Cogent have executed this Amendment on the dates set forth below.
WILLIAMS COMMUNICATIONS, LLC
Date: February 22, 2001 By: /s/ Paul Savill ---------------------------------- Print Name: Paul Savill --------------------------- Title: Vice President, Data Services -------------------------------- |
COGENT COMMUNICATIONS, INC.
Date: February 21, 2001 By: /s/ David Schaeffer ----------------------------------- Print Name: David Schaeffer --------------------------- Title: Chief Executive Officer -------------------------------- |
[*] Indicates confidential treatment requested.
Exhibit 10.4
CISCO SYSTEMS, INC.
SERVICE PROVIDER AGREEMENT
This Service Provider Agreement (the "Agreement") by and between Cisco Systems, Inc. ("Cisco"), a California corporation having its principal place of business at 170 West Tasman Drive, San Jose, California, 95134, and Cogent Communications, Inc. ("Service Provider"), a Delaware corporation having its principal place of business at 1015 31st Street NW, Washington, DC 20007, is entered into as of the date last written below ("the Effective Date").
This Agreement consists of this signature page and the following attachments, which are incorporated in this Agreement by this reference:
1. Service Provider Agreement Terms and Conditions
2. EXHIBIT A: Service Provider Territory
3. EXHIBIT B: Discount Schedule
4. EXHIBIT C: Support
5. EXHIBIT S: Software License Agreement
6. EXHIBIT T: Initial Order
7. EXHIBIT U: Terms and Conditions for the Cerent 454 Product
This Agreement is the complete agreement between the parties hereto concerning the subject matter of this Agreement and replaces any prior oral or written communications between the parties. There are no conditions, understandings, agreements, representations, or warranties, expressed or implied, which are not specified herein. This Agreement may only be modified by a written document executed by the parties hereto. Any orders accepted or Products delivered by Cisco after the date this Agreement is signed by Service Provider but before the Effective Date, shall upon the Effective Date be deemed covered by the provisions of this Agreement, except for any deviations in price.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed. Each party warrants and represents that its respective signatories whose signatures appear below have been and are on the date of signature duly authorized to execute this Agreement.
COGENT COMMUNICATIONS, INC. CISCO SYSTEMS, INC. ("CISCO") ("SERVICE PROVIDER") /s/ David Schaeffer /s/ Rick Timmins -------------------------------------- ------------------------------------ Authorized Signature Authorized Signature David Schaeffer Rick Timmins -------------------------------------- ------------------------------------ Name Name March 2, 2000 March 15, 2000 -------------------------------------- ------------------------------------ Date Date |
SERVICE PROVIDER AGREEMENT
TERMS AND CONDITIONS
1. DEFINITIONS.
CISCO CONNECTION ONLINE ("CCO") is Cisco's suite of on-line services and information.
DOCUMENTATION is the Cisco documentation, including information, data, designs and drawings, in written or electronic form or otherwise, including all documentation published by Cisco which sets forth Specifications or operations and maintenance procedures for the Products, made available to Service Provider under this Agreement.
END USER is the entity to which Service Provider sells or leases Hardware and/or distributes Software for such entity's own internal use in conjunction with Service Provider's Network Services or to which Service Provider provides telecommunications services through use of the Products.
HARDWARE is the tangible product and components supplied by Cisco hereunder and such other telecommunications equipment as Cisco may hereafter manufacture, or have manufactured, and make available to its customers.
INITIAL ORDER is the first purchase order for Products to be delivered hereunder (including prices and delivery schedule) which Initial Order is set forth in Exhibit T hereto.
NETWORK SERVICES are the services offered by Service Provider which may include the following: access to the Internet, data transmission services using Internet Protocol and other telecommunications services.
PRICE LIST is Cisco's published global price list.
PRODUCT is Hardware, Software and/or Documentation.
PURCHASE ORDER is a written or electronic order from Service Provider to Cisco for Hardware, Software or services to be purchased, licensed or otherwise made available under this Agreement.
SOFTWARE is the machine readable (object code) version of the computer programs listed from time to time on the Price List and made available by Cisco for license by Service Provider, and any copies, updates to, or upgrades thereof.
SPECIFICATIONS are the published specifications and performance standards of the Products.
TERRITORY is comprised of those regions or countries listed on Exhibit
A.
Unless the context otherwise requires, the terms defined in this Article 1 shall have the meanings herein specified for all purposes of this Agreement, applicable to both the singular and plural forms of any of the terms defined herein. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the construction, meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The use of any gender herein shall be deemed to include the neuter, masculine and feminine genders wherever necessary or appropriate.
2. SCOPE, PREFERRED SUPPLIER; VOLUME PURCHASE COMMITMENT AND CONDITIONS PRECEDENT.
2.1 SCOPE.
2.1.1 Service Provider shall have the right to purchase or license, and Cisco shall be obligated, as ordered by Service Provider, during the term, to sell Hardware and/or license Software subject to the terms and conditions of this Agreement and to sell services subject to the Provisioned Network Services Agreement to be negotiated between the parties pursuant to Section 15.1. |
2.2 SERVICE PROVIDER'S INTERNAL BUSINESS USE.
2.2.1 Service Provider may purchase the Products listed in Cisco's then-current Price List, less the applicable discounts specified in Exhibit B of this Agreement, or if applicable, at the price specified in Exhibit B of this Agreement, for its internal business use in the Territory. |
2.3 NETWORK SERVICES PROVISIONING AND COMMERCIAL RESALE.
2.3.1 Cisco grants Service Provider a non-exclusive, nontransferable right to purchase the Hardware and license the Software for use in the Territory in creating and providing Network Services to End Users. Service Provider may resell or lease Hardware and distribute Software subject to Exhibit S to End Users who purchase Network Services, provided that the Products are used primarily in connection with access to Network Services, provided further that Service Provider shall indicate on its Purchase Order any Product units which are to be resold or licensed as applicable to third parties and shall report such sales or licenses as required in this Agreement. Notwithstanding the above, the Service Provider may resell used Hardware to a third party in the event that the Cisco sponsored product trade-in and/or technology migration programs do not provide an acceptable alternative for the Service Provider in Service Provider's sole discretion. In addition, Service Provider may transfer Software associated with such Hardware subject to Service Provider's notice to Cisco of such transfer; the agreement by the transferee that it agrees to comply with the applicable license provisions; and compliance with Cisco's then-current software license transfer requirements. 2.3.2 Service Provider certifies that it is acquiring the Products for the purpose of providing Network Services and incidental commercial resale, as set forth in this Agreement, and that Service Provider intends, generally, to use the Products to provide Network Services to End Users. 2.3.3 Service Provider will not distribute the Products to third parties, including resellers, other than for use in conjunction with Network Services. 2.3.4 Cisco does not accept any flowdown provisions, including United States Government Federal Acquisition Regulations ("FARs"), Defense FARs, or NASA FARs, notwithstanding existence of such provisions on Service Provider's Purchase Orders or supplementary documentation or Cisco's acceptance of such Purchase Orders or documentation. 2.3.5 United States Government General Services Administration ("GSA"), California Multiple Award Schedule ("CMAS"), and other schedule contracts: This Agreement shall not be construed by Service Provider as a representation that Cisco will furnish supplies needed by Service Provider to fulfill any of Service Provider's GSA, CMAS, or similar contract obligations under any schedule contract. |
2.4 PREFERRED SUPPLIER; VOLUME COMMITMENTS
2.4.1 For the Term of this Agreement, Service Provider agrees that, so long as Cisco is not in default under this Agreement, at least 80% of Service Provider's long haul WDMA equipment, long haul routers and in-building routers and at least 50% of its metro WDMA equipment shall be Cisco Hardware; provided, however, that notwithstanding such preferred supplier arrangement, Service Provider may purchase from persons other than Cisco any product (whether hardware or software) having a material functionality or feature which is not available from Cisco, unless Cisco can provide such functionality or feature at a comparable price through another reasonable solution and such purchases shall not be counted in the calculation of the percentages set forth in this Section 2.4.1. 2.4.2 Except as provided in Section 2.4.3, contemporaneously with the execution of this Agreement, a binding Purchase Order similar in form and substance to Exhibit T, Initial Order shall be issued by the Service Provider. Service Provider is committed to acquiring the Products set out in the Initial Order. Including the Initial Order, Service Provider shall issue Purchase Orders for at least the following amounts of Products: Year 1 following the Effective Date [*]; Year 2 following the Effective Date [*]; Year 3 following the Effective Date [*]; and, Year 4 following the Effective Date [*]. In the event Service Provider does not issue Purchase Orders in sufficient amounts to equal the commitments set forth above, Service Provider shall, within ninety (90) days following the date at which the commitment has not been met, issue a Purchase Order equal to the shortfall. In the event Service Provider does not issue Purchase Orders in sufficient amounts within that ninety (90) day time period, Cisco shall issue an invoice to Service Provider equal to the difference between the commitment amount and the net dollar value of the Products purchased in the applicable year plus ninety (90) days. If Service Provider exceeds its minimum commitment in any year, Service Provider's commitment in the subsequent year(s) shall be reduced by an amount equivalent to the excess. 2.4.3 If Cisco Systems Capital Corporation is in breach of its obligations under the loan agreement, as contemplated in Section 2.5.1, Service Provider shall not be obligated to purchase the amounts of Products set forth in Section 2.4.2. |
2.5 CONDITIONS PRECEDENT.
2.5.1 The parties hereto acknowledge that this Agreement and Service Provider's obligations hereunder are conditional upon Service Provider entering into an agreement for financing of the purchase price for Products, training and services purchased hereunder in accordance with a loan agreement with Cisco Systems Capital Corporation. Notwithstanding anything to the contrary contained in this Agreement, if for any reason whatsoever, a loan agreement is not entered into on or before March 15, 2000, Service Provider shall have the option to terminate this Agreement in whole, in which event this Agreement shall be null and void and neither party shall have any rights or obligations under the terms hereof. |
3. MULTINATIONAL DEPLOYMENT POLICY.
3.1 Unless mutually agreed in writing by the parties, Service Provider shall procure equipment for deployment outside of the United States only in accordance with Cisco's then-current multinational deployment policies and procedures.
4. PRICES.
4.1 The prices for Products being purchased as part of the Initial Order are set forth in Exhibit T. Prices for Products purchase other than as a part of the Initial Order shall be those specified in Cisco's then-current Price List less the applicable discounts specified in Exhibit B of this Agreement. All prices are F.O.B. (for international shipments, FCA per INCOTERMS 2000) Cisco's San Jose site. Except for the prices
[*] Indicates confidential treatment requested.
specifically set forth in Exhibit B and Exhibit T, which prices shall be effective for the term of the Agreement, Cisco may change prices for the Products at any time by issuance of a revised Price List (including via electronic posting) or other announcement of price change. Purchase Orders received before the date of the announcement of price changes, and those received within thirty (30) days thereafter which specify a delivery date within ninety (90) days of the date of announcement, will be invoiced to Service Provider without regard to the price change, provided however, price decreases will be effective for all Purchase Orders accepted by Cisco after the date of issuance or announcement of revised prices.
4.2 Service Provider is free to determine its resale prices unilaterally. Service Provider understands that neither Cisco nor any employee or representative of Cisco may give any special treatment (favorable or unfavorable) to Service Provider as a result of Service Provider's selection of resale prices. No employee or representative of Cisco or anyone else has any authority to determine what Service Provider's resale prices for the Products must be or to inhibit in any way Service Provider's pricing discretion with respect to the Products.
4.3 All stated prices are exclusive of any taxes, fees and duties or other amounts, however designated, and including value added and withholding taxes which are levied or based upon such charges, or upon this Agreement. Any taxes related to Products purchased or licensed pursuant to this Agreement shall be paid by Service Provider or Service Provider shall present an exemption certificate acceptable to the taxing authorities. Applicable taxes shall be billed as a separate item on the invoice, to the extent possible.
5. ORDERS.
5.1 Service Provider shall purchase Products by issuing a written or electronic Purchase Order signed (or sent in the case of an electronic Purchase Order) by an authorized representative, indicating specific Products, quantity, price, total purchase price, shipping instructions, requested delivery dates, bill-to and ship-to addresses, tax exempt certifications, if applicable, and any other special instructions. Any contingencies contained on such Purchase Order are not binding upon Cisco. The terms and conditions of this Agreement prevail regardless of any conflicting terms on the Purchase Order or other correspondence. All Purchase Orders are subject to approval and acceptance by the Cisco customer service order administration office of the Cisco entity which shall supply the Products and no other office is authorized to accept Purchase Orders on behalf of Cisco. Cisco shall use commercially reasonable efforts to provide information regarding acceptance or rejection of such Purchase Orders within ten (10) days from receipt thereof or within three (3) business days where orders are placed under CCO. Cisco shall not withhold acceptance of any order which meets Cisco's then-current lead times, is a valid configuration of the Products and which is otherwise consistent with the terms and conditions of this Agreement.
5.2 Service Provider has the right to defer Product shipment for no more
than thirty (30) days from the scheduled shipping date, provided
written notice is received by Cisco at least ten (10) days before the
originally scheduled shipping date. Canceled orders, rescheduled
deliveries or Product configuration changes made by Service Provider
within ten (10) days of the original shipping date will be subject to
(a) acceptance by Cisco, and (b) a charge of eight percent (8%) of the
total invoice amount. Cisco reserves the right to reschedule delivery
in cases of configuration changes made within ten (10) days of
scheduled shipment. For any Purchase Orders, excluding the Initial
Order, Service Provider may cancel such Purchase Order, without payment
of a cancellation charge, in the event Cisco has not shipped the
Products listed on such Purchase Order within ninety (90) days
following the original scheduled shipping date.
5.3 During the term of this Agreement, Cisco may make the Products that are to be supplied outside the United States available for order in and delivery from an alternate central location and/or a Cisco affiliate, if it chooses. In the event that Cisco does so, Service Provider will order the Products according to the procedures set forth at the time such delivery becomes available, which procedures shall be substantially similar to the procedures set forth herein to the extent reasonably possible. At such time, orders in
conformance with Cisco's policies will be shipped according to the availability and expedited leadtimes described in the procedures. Cisco shall have the right to change delivery terms and include additional charges, if any, at the time such alternate order and delivery process is implemented by Cisco.
6. SHIPPING AND DELIVERY.
6.1 Shipping dates will be established by Cisco upon acceptance of Purchase Orders from Service Provider. Shipping dates will be assigned as close as practicable to the Service Provider's requested date, but shall be no later than Cisco's then current lead times for the Products. Cisco shall use commercially reasonable efforts to notify Service Provider, including by electronic posting on CCO, of the actual scheduled shipping date within ten (10) working days after receipt of the applicable Purchase Order. Unless given written instruction by Service Provider, Cisco shall select the carrier. Service Provider shall have the right to discuss with Cisco shipping costs, methods and arrangements with respect to the transportation costs if Service Provider in good faith believes there is a more economical method to transport the Products (which method shall not have any impact upon delivery schedules) and the effect of which will be to reduce the costs to Service Provider. In the event that such more cost efficient means of shipping to the final destination are available with no negative impact on the delivery schedules, Cisco shall abide by Service Provider's suggestions as to such alternative means, and the cost to Service Provider shall be reduced accordingly.
6.2 Shipping terms are FOB Origin (FCA per INCOTERMS 2000 for international shipments) at Cisco's site, San Jose, California. Title and risk of loss shall pass from Cisco to Service Provider upon delivery to the common carrier or Service Provider's representative at the FOB point. Delivery shall be deemed made upon transfer of possession to the carrier. Service Provider shall be responsible for all freight, handling and insurance charges. In no event shall Cisco have any liability in connection with shipment, nor shall the carrier be deemed to be an agent of Cisco. Cisco shall not be liable for damage or penalty for delay in delivery or for failure to give notice of any such delay.
6.3 For the Initial Order, all Products shall be shipped prior to August 1, 2000. If Cisco fails to ship substantially all of the Products comprising the Initial Order within thirty (30) days after the scheduled shipment date of such Products, and such lateness was not caused by failure of Service Provider to provide required information or other actions or omissions of Service Provider, Cisco shall be liable, in lieu of any and all other damages or remedies owed to Service Provider, for liquidated damages in the form of a credit against future orders in the amount of [*] per week for each full week by which shipment is delayed up to a maximum of six (6) weeks. Such credit shall be Service Provider's sole remedy in case of delayed delivery. In the event of any delay in shipment of Products, Cisco agrees to include Service Provider in any prioritization program for deliveries as established in Cisco's discretion and shall treat Service Provider no less favorably than any other customer pursuant to such prioritization program guidelines.
7. PAYMENT.
7.1 Payment terms shall be net thirty (30) days from shipping date. For the Initial Order only, if Service Provider pays such portion of the invoice as relates to Pirelli Hardware, as described in Exhibit B, within ten (10) days from shipping date, notwithstanding anything else in this Agreement, Cisco shall credit Service Provider's account by one half of one percent (1/2%) of the net invoice price for such Pirelli Hardware. If such payment is not received within ten (10) days solely because of a delinquency of Cisco Systems Capital Corporation, notwithstanding such lateness, Service Provider shall be entitled to receive the credit set forth in this Section. Such credits may be used against future purchases of Hardware All payments shall be made in U.S. currency. If at any time Service Provider is delinquent in the payment of any invoice, provided such delinquency is not caused by Cisco Systems Capital Corporation or is otherwise in breach of this Agreement, Cisco may, in its discretion, and without prejudice to its other rights, withhold shipment (including partial shipments) of any order or may, at its option, require Service Provider to prepay for further shipments. Any sum not paid by Service Provider when due shall bear interest until paid
[*] Indicates confidential treatment requested.
at a rate of 1.5% per month (18% per annum) or the maximum rate permitted by law, whichever is less. Service Provider grants Cisco a security interest in Products purchased under this Agreement to secure payment for those Products purchased. If requested by Cisco, Service Provider agrees to execute financing statements to perfect this security interest. Such security interest shall be immediately removed upon receipt of payment in full from Service Provider or any entity providing financing to Service Provider for Products shipped to Service Provider.
8. SERVICE PROVIDER PRODUCT OBLIGATIONS.
8.1 At Service Provider's sole expense, Service Provider shall: 8.1.1 have the appropriate Service Provider technical support personnel participate in and successfully complete Cisco's "Introduction To Cisco" training course per an initial training plan which shall be mutually agreed to by the parties; 8.1.2 maintain trained support personnel as mutually agreed from time to time based on Cisco's standard Service Provider policy; 8.1.3 keep Cisco informed as to any problems which involve Cisco Products and technologies and require Cisco's support or impact Service Provider's ability to deliver service or solutions to the End Users, and to communicate such problems promptly to Cisco; 8.1.4 participate in quarterly business meetings with Cisco to review the progress of the relationship and Service Provider's achievement as related to commitments such as, but not limited to, volume purchases, training and certification, support, and reporting; 8.1.5 appoint an account/relationship manager whose primary responsibility will be to work with the designated Cisco account/relationship manager to manage the implementation of the Agreement, act as the focal point for day-to-day account issues and problem escalations, and participate in Cisco partner-related activities. |
9. PROPRIETARY RIGHTS AND SOFTWARE LICENSING.
9.1 Subject to the terms and conditions of this Agreement, Cisco grants to Service Provider a non-exclusive, perpetual (subject to the terms of this Section 9.1) license (a) to use the Software for Service Provider's internal business use, and to create and provide Network Services to End Users in the Territory under the terms of Part (i) of Exhibit S, (b) during the term of this Agreement, to market and distribute the Software, solely as permitted in Section 2 of this Agreement, in the Territory. The license granted herein shall be for use of the Software in object code format only and, except to the extent required to provide Network Services to End User, solely as provided in Part (i) of Exhibit S. Service Provider may not sublicense to any person or entity (including its affiliates) its rights to distribute the Software. This license is royalty-free for the Software received as part of the Initial Order. To the extent any subsequent Software shall be subject to a royalty, Cisco shall notify Service Provider of such (including the amount of such royalties) prior to accepting any Order from the Service Provider for such Software. This license is effective until terminated. Service Provider may terminate this license at any time by destroying all copies of Software, including any Documentation. This license will terminate (a) immediately, without notice from Cisco, if Service Provider fails to take steps to cure a material breach of any provision of this license within twenty (20) days of Service Provider having actual knowledge of such breach, or (b) immediately, following written notice thereof from Cisco of a material breach of this license, if Service Provider fails to take steps to remedy such breach within twenty (20) days of such notice, or (c) if such breach is not remedied within thirty (30) days of either Service Provider becoming aware of such breach or of notice from Cisco of such breach, whichever is earlier. Upon termination, Service Provider must destroy all copies of the Software.
9.2 Service Provider shall provide a copy of the Software License Agreement (inclusive of Parts (i) and (ii)) (a copy of which is attached hereto as Exhibit S) to each End User of the Software prior to installation of the Software. Service Provider agrees to notify Cisco promptly of any known breach of the Software License Agreement by a third party, including a customer or End-User of Service Provider, and further agrees that it will, at Cisco's expense, assist Cisco to diligently pursue, an action against any third parties in breach of the license.
10. LIMITED WARRANTY.
10.1 Hardware. Unless otherwise provided for elsewhere in this Agreement, Cisco warrants that for a period of ninety (90) days from the date of shipment from Cisco that the Hardware (and for a period of five (5) years from the date of shipment from Cisco that the Hardware identified as Pirelli Hardware in Exhibit B) will be free from defects in material and workmanship under normal use. This limited warranty extends only to Service Provider as original purchaser. Service Provider's sole and exclusive remedy and the entire liability of Cisco and its suppliers under this limited warranty will be, at Cisco's or its service center's option, shipment of an advance replacement within five (5) working days at Cisco's expense, or a refund of the purchase price if the Hardware is returned to the party supplying it to Service Provider, if different than Cisco, freight and insurance prepaid. Cisco replacement parts used in Hardware repair may be new or equivalent to new. All articles must be returned in accordance with Cisco's then-current Return Material Authorization (RMA) procedure. 10.2 Software. Unless otherwise provided elsewhere in this Agreement, Cisco warrants that for a period of ninety (90) days from the date of shipment from Cisco: (a) the media on which the Software is furnished will be free of defects in materials and workmanship under normal use; and (b) the Software shall substantially conform in all material respects to its published Specifications; provided, however, that no revised Specifications with respect to any Software previously delivered to Service Provider which are published subsequent to such delivery shall reduce, diminish or otherwise adversely impact the original Specifications for such Software. Except for the foregoing, the Software is provided AS IS. This limited warranty extends only to Service Provider as the original licensee. Service Provider's sole and exclusive remedy and the entire liability of Cisco and its suppliers under this limited warranty will be, at Cisco or its service center's option, repair or replacement of the Software, or, after all commercially reasonable steps to repair or replace have been taken, refund of the fees paid for the Software, if reported (or, upon request, returned) to the party supplying the Software to Service Provider, if different than Cisco. In no event does Cisco warrant that the Software is error free or that Service Provider will be able to operate the Software without problems or interruptions. 10.3 SERVICE PROVIDER SHALL NOT MAKE ANY WARRANTY COMMITMENT, WHETHER WRITTEN OR ORAL, ON CISCO'S BEHALF. 10.4 Cisco represents that Products which it has designated as "Year 2000 Compliant" (or Status Description "Green") as set forth in the "Compliance Table," (including accompanying Notes) located in Cisco's "Year 2000 Compliance" web pages beginning at http://www.cisco.com (the "Year 2000 Pages") are "Year 2000 Compliant," meaning that, as delivered to Service Provider: 10.4.1 The Products accurately process data and time calculations before and during the years 1999 and 2000; 10.4.2 All manipulation of time-related data yields the desired results for valid date values within the application domain; 10.4.3 Date elements in those Products use four digit storage and indicate century to eliminate the chance for errors; |
10.4.4 If a date element exists without a century indication, the correct century continues to be unambiguous and produces accurate results; and, 10.4.5 Software accurately processes date and time data when used in conjunction with other Year 2000 compliant software products. Should a Product that is so identified as "Year 2000 Compliant" not be Year 2000 Compliant or should Cisco otherwise breach the foregoing representation, Cisco will, as Service Provider's sole and exclusive remedy, repair or replace the Product so that it becomes Year 2000 Compliant or, if Cisco is unable to repair or replace the Product to make it Year 2000 Compliant, Cisco will refund the purchase price of the Product paid to Cisco by Service Provider as depreciated or amortized by an equal annual amount over the lifetime of the Product, as established by Cisco, provided that Service Provider returns the Product to Cisco as originally delivered by Cisco (except for normal wear and tear) and pursuant to Cisco's then-current RMA policy. The foregoing representation and remedy shall only apply to Products returned prior to January 31, 2001, or to Products returned before the Products are no longer supported pursuant to Cisco's standard support policies, whichever event first occurs. Service Provider acknowledges that: (i) the Internet URL address and the web pages referred to above may be updated by Cisco from time to time and (ii) each Product ordered will be subject to Cisco's then-current "Year 2000 Pages." 10.5 Restrictions. This warranty does not apply if the Product (a) has been altered, except by Cisco, (b) has not been installed, operated, repaired, or maintained in accordance with instructions supplied by Cisco, (c) has been subjected to abnormal physical or electrical stress, misuse, negligence, or accident, or (d) is used in ultrahazardous activities. 10.6 DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFIED IN THIS SECTION, ALL EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS, AND WARRANTIES INCLUDING ANY IMPLIED WARRANTIES OR CONDTIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, SATISFACTORY QUALITY, AGAINST INFRINGEMENT OR ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE, ARE HEREBY EXCLUDED TO THE EXTENT ALLOWED BY APPLICABLE LAW. This disclaimer and exclusion shall apply even if the express warranty set forth above fails of its essential purpose. 11. TRADEMARK USAGE. 11.1 Service Provider is permitted to use the name, logo, trademarks, and other marks of Cisco (collectively, the "Marks") for all proper purposes in the sale of Cisco Products to End Users and the performance of Service Provider's duties hereunder only so long as this Agreement is in effect. Service Provider's use of such Marks shall be in accordance with Cisco's policies including trademark usage and advertising policies, and be subject to Cisco's approval. Service Provider agrees not to attach to any Products any trademarks, trade names, logos, or labels other than a label identifying the Service Provider, its location and its relationship to Cisco. Service Provider further agrees not to affix any Cisco Marks to products other than genuine Products. 11.2 Service Provider shall have no claim or right in the Marks, including trademarks, service marks, or trade names owned, used or claimed now or in the future by Cisco. Service Provider shall not make any claim to the Cisco Marks or lodge any filings with respect to such Marks or marks confusingly similar to the Marks, whether on behalf of Cisco or in its own name or interest, without the prior written consent of Cisco. 12. CONFIDENTIAL INFORMATION. 12.1 "Confidential Information" to be disclosed by Service Provider under this Agreement is information regarding Service Provider's business, financial matters (including costs, profits and plans for future |
development, business plans, methods of operation and marketing concepts), network operations and technical plans and marketing and financial data. "Confidential Information" to be disclosed by Cisco under this Agreement is information regarding Cisco's hardware, software and service products, technical, financial and marketing data, and information posted on CCO. The party receiving the Confidential Information ("Receiving Party") may use the Confidential Information solely for the purpose of furtherance of the business relationship between the parties, as provided in this Agreement, and shall not disclose the Confidential Information to any third party, other than employees of the Receiving Party who have a need to have access to and knowledge of the Confidential Information, solely for the purpose authorized above. Each party shall take appropriate measures by instruction and agreement prior to disclosure to such employees to assure against unauthorized use or disclosure. 12.2 The Receiving Party shall have no obligation with respect to information which (i) was rightfully in possession of or known to the Receiving Party without any obligation of confidentiality prior to receiving it from the party disclosing the Confidential Information ("Disclosing Party"); (ii) is, or subsequently becomes, legally and publicly available without breach of this Agreement; (iii) is rightfully obtained by the Receiving Party from a source other than the Disclosing Party without any obligation of confidentiality; (iv) is developed by or for the Receiving Party without use of the Confidential Information and such independent development can be shown by documentary evidence; (v) is disclosed by the Receiving Party pursuant to a valid order issued by a court or government agency, provided that the Receiving Party provides prompt prior written notice to the Disclosing Party of such obligation and the Disclosing Party has an opportunity to seek a protective order or other appropriate remedy that will permit the Receiving Party to avoid such disclosure and in the event such protective order or other remedy is not obtained, the Receiving Party shall only disclose that portion of the Confidential Information as it is obligated to disclose pursuant to such order, and will use all reasonable efforts to obtain assurances that Confidential treatment will be accorded to Confidential Information so disclosed. 12.3 Upon written demand by the Disclosing Party or upon termination of the Agreement, the Receiving Party shall: (i) cease using the Confidential Information, (ii) return the Confidential Information and all copies, notes or extracts thereof to the Disclosing Party within seven (7) days of receipt of demand or termination, and (iii) upon request of the Disclosing Party, certify in writing that the Receiving Party has complied with the obligations set forth in this paragraph. Notwithstanding the foregoing, the Receiving Party may retain sufficient Confidential Information, material or manuals covering Products to fulfill remaining orders and to service and operate the installed base of customers as mutually agreed upon by Cisco and Service Provider. 12.4 The terms of confidentiality under this Agreement shall not be construed to limit either party's right to independently develop or acquire products without use of the other party's Confidential Information. The Disclosing Party acknowledges that the Receiving Party may currently or in the future be developing information internally, or receiving information from other parties, that is similar to the Confidential Information. Accordingly, nothing in this Agreement will be construed as a representation or agreement that the Receiving Party will not develop or have developed for it products, concepts, systems or techniques that are similar to or compete with the products, concepts, systems or techniques contemplated by or embodied in the Confidential Information provided that the Receiving Party does not violate any of its obligations under this Agreement in connection with such development. Further, either party shall be free to use for any purpose the residuals resulting from access to or work with such Confidential Information, provided that such party shall maintain the confidentiality of the Confidential Information as provided herein. The term "residuals" means information in non-tangible form, which may be retained by persons who have had access to the Confidential Information, including ideas, concepts, know-how or techniques contained therein, provided such Confidential Information is not expressly incorporated in a tangible form provided by the Disclosing Party. Neither party shall have any obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of residuals. |
12.5 Each party shall retain all right, title and interest to such party's Confidential Information. No license under any trademark, patent or copyright, or application for same which are now or thereafter may be obtained by such party is either granted or implied by the conveying of Confidential Information. The Receiving Party shall not reverse-engineer, decompile, or disassemble any software disclosed to it and shall not remove, overprint or deface any notice of copyright, trademark, logo, legend, or other notices of ownership from any originals or copies of Confidential Information it obtains from the Disclosing Party. WITHOUT PREJUDICE TO THE EXPRESS WARRANTIES PROVIDED ELSEWHERE IN THIS AGREEMENT, CONFIDENTIAL INFORMATION IS PROVIDED "AS IS" WITH ALL FAULTS. IN NO EVENT SHALL THE DISCLOSING PARTY BE LIABLE FOR THE ACCURACY OR COMPLETENESS OF THE CONFIDENTIAL INFORMATION. None of the Confidential Information disclosed by the parties constitutes any representation, warranty, assurance, guarantee or inducement by either party to the other with respect to the infringement of trademarks, patents, copyrights; any right of privacy; or any rights of third persons. 12.6 Neither party shall disclose, advertise, or publish the terms and conditions of this Agreement, without the prior written consent of the other party. Any press release or publication regarding this Agreement is subject to prior review and written approval of the parties. 13. PATENT AND COPYRIGHT INFRINGEMENT. 13.1 Cisco will have the obligation and right to defend any claim, suit or proceeding brought against Service Provider and to pay all litigation costs, reasonable attorneys' fees, settlement payments and any damages awarded in any final judgement arising from such claim, suit or proceeding so far as such claim, suit or proceeding is based on a claim that any Product supplied hereunder infringes a United States or Canada copyright or an existing United States or Canada patent or trademark or is manufactured by means of misappropriation of trade secrets. Cisco's obligation specified in this paragraph will be conditioned on Service Provider's notifying Cisco promptly in writing of the claim and giving Cisco full authority, information, and assistance for the defense and settlement of such suit, claim or proceeding and provided Cisco shall have sole control thereof. If such claim has occurred, or in Cisco's opinion is likely to occur, Service Provider agrees to permit Cisco, at its option and expense, either to: (a) procure for Service Provider the right to continue using the Product; (b) replace or modify the same so that it becomes non-infringing; or (c) if neither of the foregoing alternatives is commercially reasonably available, immediately terminate Cisco's obligations (and Service Provider's rights) under this Agreement with regard to such Products, and, if Service Provider returns such Products to Cisco refund to Service Provider (i) if the claim arises during the first two (2) years following shipment, the price originally paid by Service Provider to Cisco for such Product; or (ii) if the claim arises during the subsequent three (3) years following such two (2) year period, the price originally paid by Service Provider as depreciated or amortized by an equal annual amount over such three (3) year period. 13.2 Notwithstanding the foregoing, Cisco has no liability for, and Service Provider will indemnify Cisco against, any claim based upon: (a) the combination, operation, or use of any Product supplied hereunder with equipment, devices, or software not supplied by Cisco, but only to the extent that the claims arise from such combination usage; (b) alteration or modification of any Product supplied hereunder without the consent of Cisco; (c) Cisco's compliance with Service Provider's design, specification or instructions; or (d) services offered by Service Provider or revenue received by Service Provider for its services. 13.3 Notwithstanding any other provisions hereof, Cisco shall not be liable for any claim based on Service Provider's use of the Products as shipped after Cisco has informed Service Provider of modifications or changes in the Products required to avoid such claims and offered to implement those modifications or changes, if such claim would have been avoided by implementation of Cisco's suggestions. 13.4 THE FOREGOING STATES THE ENTIRE OBLIGATION OF CISCO, AND THE EXCLUSIVE REMEDY OF SERVICE PROVIDER, WITH RESPECT TO INFRINGEMENT OF PROPRIETARY |
RIGHTS. THE FOREGOING IS GIVEN TO SERVICE PROVIDER SOLELY FOR ITS BENEFIT AND IN LIEU OF, AND CISCO DISCLAIMS, ALL WARRANTIES OF NON-INFRINGEMENT WITH RESPECT TO THE PRODUCTS.
14. TERM AND TERMINATION.
14.1 This Agreement shall commence on the Effective Date and continue thereafter for a period of four (4) years . Without prejudice to either party's right to terminate this Agreement as set forth below. Cisco may by written notice to Service Provider given at least thirty (30) days prior to the end of the then-current term of the Agreement, extend the term of the Agreement for the period set forth in such notice, up to a maximum of one (1) year beyond the then-current expiration date. Any extension shall be on the same terms and conditions then in force except as may be mutually agreed in writing by the parties. 14.2 Cisco may, upon twenty (20) days written notice, terminate this Agreement in the event Service Provider enters into a binding agreement for acquisition or transfer of a controlling interest in Service Provider to a competitor of Cisco. 14.3 This Agreement may be terminated immediately by either party through written notice under any of the following conditions: 14.3.1 Either party ceases to carry on business as a going concern, either party becomes the object of the institution of voluntary or involuntary proceedings (which involuntary proceedings continue unstayed for a period of 60 days) in bankruptcy or liquidation, or a receiver is appointed with respect to a substantial part of its assets. 14.3.2 Either party breaches any of the material provisions of this Agreement and fails to remedy such breach within thirty (30) days after written notification by the other party of such breach. 14.4 Notwithstanding the foregoing, this Agreement may be terminated immediately by Cisco in the event of Service Provider's breach of Section 9, Proprietary Rights and Software Licensing, or by the Disclosing Party in the event of the Receiving Party's breach of Section 12, Confidential Information. 14.5 Upon termination of this Agreement, (a) Cisco reserves the right to cease all further deliveries due against existing orders unless Service Provider agrees to pay for such deliveries by certified or cashier's check prior to shipment, (b) all outstanding invoices immediately become due and payable by certified or cashier's check, and (c) subject to Section 25.8, all rights and licenses of Service Provider hereunder shall terminate except that Service Provider may continue to distribute, in accordance with normal business practices and the terms of this Agreement, Products shipped to it by Cisco prior to the date of termination. 14.6 Service Provider agrees in the event of termination of this Agreement for any reason, it shall have no rights to damages or indemnification of any nature related to such termination (but not limiting any claim for damages it might have on account of Cisco's breach of this Agreement, even if the breach gave rise to termination, such liability being governed by and subject to the limitations set forth elsewhere in this Agreement), specifically including no rights to damages or indemnification for commercial severance pay, whether by way of loss of future profits, expenditures for promotion of the Cisco Products, or other commitments in connection with the business and good will of Service Provider. Service Provider expressly waives and renounces any claim to compensation or indemnities for any termination of a business relationship 15. SUPPORT. |
15.1 Support shall be provided by Cisco as set forth in Exhibit C. The parties shall use commercially reasonable efforts to negotiate and execute within fifteen (15) days of the Effective Date a mutually acceptable amended Exhibit C. Until such amended Exhibit C is effective, the terms of Exhibit C set forth in this Agreement shall govern any support provided by Cisco. Service Provider shall provide support to End Users. Nothing in this Agreement shall be construed as prohibiting Cisco from providing support directly to any End User. 16. AUDIT. 16.1 Service Provider shall keep full, true, and accurate records and accounts, in accordance with generally-accepted accounting principles, of each Product purchased and deployed or distributed, including information regarding Software usage and export. Service Provider shall make these records available for audit by Cisco upon fifteen (15) days prior written notice, during regular business hours at Service Provider`s principal place of business. 17. REPORTING. 17.1 On a quarterly basis, Service Provider shall prepare and forward reports, including: 17.1.1 a non-binding forecast for the subsequent four (4) month period; 17.1.2 a Point of Installation (POI) report by country/by product/by quantity of Service Provider's monthly sales and deployments including all requested End User and Product information; 17.1.3 an Inventory report including all reasonably requested information regarding Service Provider's ending inventory for the previous month; 17.1.4 in case of resale, the customer name and location for the resale ("POS") 17.2 Additionally, Service Provider agrees to, within six (6) months of notification by Cisco of exact format and transmission medium, initiate enhanced electronic reporting of POI and Forecasting information. Such forecasting reporting will continue to be done on a monthly basis. POI reporting will be done on a quarterly basis. 17.3 Cisco shall have the right to verify the information in such reports and shall be provided with reasonable proof (shippers, invoices, etc.) confirming the information on request. 18. EXPORT, RE-EXPORT, AND TRANSFER CONTROLS. 18.1 Service Provider hereby acknowledges that the Products and technology or direct products thereof (hereafter referred to as "Products and Technology"), supplied by Cisco hereunder are subject to export controls under the laws and regulations of the United States (U.S.). Service Provider shall comply with such laws and regulations and agrees not to export, re-export or transfer Products and technology without first obtaining all required U.S. Government authorizations or licenses. Cisco and Service Provider each agree to provide the other such information and assistance as may reasonably be required by the other in connection with securing such authorizations or licenses, and to take timely action to obtain all required support documents. 18.2 END-USE/USER: Service Provider hereby certifies that none of the Products and Technology supplied by Cisco to Service Provider hereunder will be exported, re-exported, or otherwise transferred by Service |
Provider:
18.2.1 to a U.S. embargoed or highly restricted destination, (15 United States Code of Federal Regulations ("CFR") Part 746) 18.2.2 for use by or for any military end-user, or in any military end-use located in or operating under the authority of any country identified in Country Group D1 under 15 CFR, Supplement No. 1 to Part 740, (15 CFR Part 740) 18.2.3 to, or made available by Service Provider for use by or for, any entity that is engaged in the design, development, production, stockpile or use of nuclear, biological or chemical weapons or missiles, (15 CFR Part 744) 18.2.4 to parties on any of the U.S. Government's lists of denied persons, (15 CFR Part 764) without first obtaining all required U.S. Government authorizations or licenses. 18.3 Service Provider's obligation under this clause shall survive the expiration or termination of this Agreement. 18.4 Service Provider agrees to maintain a record of exports, re-exports, and transfers of the Products and Technology for five years and to forward within that time period any required records to Cisco or, at Cisco's request, the U.S. Government. Service Provider agrees to permit audits by Cisco or the U.S. Government as required under the regulations to ensure compliance with this Agreement. 19. FORCE MAJEURE. 19.1 Except for the obligation to pay monies due and owing, if the performance of this Agreement, or of any obligation hereunder is prevented, restricted or interfered with by reason of fires, breakdown of plant, labor disputes, embargoes, government ordinances or requirements, civil or military authorities, acts of God or of the public enemy, acts or omissions of carriers, inability to obtain necessary materials or services from suppliers if no equipment sources for such supplies or services are readily available, or other causes beyond the reasonable control of the party whose performance is affected, then the party affected, upon giving prompt notice to the other party shall be excused from such performance on a reasonable basis to the extent of such prevention, restriction, or interference (and the other party shall likewise be excused from performance of its obligations on a reasonable basis to the extent such party's obligations relate to the performance so prevented, restricted or interfered with); provided that the party so affected shall use reasonable efforts to avoid or remove such causes of non-performance and both parties shall proceed to perform their obligations with dispatch whenever such causes are removed or cease. Notwithstanding anything to the contrary contained herein, the party not excused from performance under this Section shall have the right to terminate this Agreement if the other party is unable to resume performance of its obligations after a period of ninety (90) days from the date it first gave notice pursuant to this Section. 20. PRODUCT CHANGES. 20.1 Modifications which do not affect the form, fit or function of a Product or which Cisco deems necessary to comply with Specifications, changed safety standards or governmental regulations, to make the Product non-infringing with respect to any patent, copyright or other proprietary interest, or to otherwise improve the Product may be made at any time by Cisco without prior notice to or consent of Service Provider and such altered Product shall be deemed fully conforming so long as such Product meets the applicable Specifications. Cisco shall employ commercially reasonable efforts to announce, including by email, Product discontinuance or changes other than those set forth in the previous sentence at least ninety (90) days prior to the effective date of the changes (the "Announcement Period"). Service Provider may make a last-time purchase of such Products within the Announcement Period. |
21. COMPLIANCE WITH LAWS.
21.1 Cisco shall comply with all standards that Cisco has placarded on the Products and shall comply with all U.S. federal and state laws and regulations applicable to the manufacture and operation of the Products, not including non-mandatory standards body recommendations. Cisco shall not be responsible for noncompliance with laws arising out of combination, operation or use of the Products with Products not supplied by Cisco where use of the Products without such combination, operation or use would be in compliance with such laws. In the event of any third party claim against Service Provider relating to the foregoing, Cisco shall provide reasonable information and assistance in the resolution of the claim. 21.2 Except as set out in Section 21.1, Service Provider shall obtain all licenses, permits and approvals required by any government and shall comply with all applicable laws, rules, policies and procedures including requirements applicable to the use of Products under telecommunications and other laws and regulations, of any government where the Products are to be sold or deployed (collectively, "Applicable Laws"). Service Provider will indemnify and hold harmless Cisco for any violation or alleged violation by Service Provider of any Applicable Laws. Service Provider shall use its reasonable commercial efforts to regularly inform Cisco of any material requirements of laws, statutes, ordinances, governmental authorities directly or indirectly affecting this Agreement, the sale, use and distribution of Products or Cisco's trade name, trademarks or other commercial, industrial or intellectual property interests, including certification of the Products from the proper authorities in the Territory and of which Service Provider has actual knowledge. 22. INDEMNIFICATION; LIMITATION OF LIABILITY. 22.1 Each of Cisco and Service Provider (an "Indemnifying Party") shall defend, indemnify and hold the other (the "Indemnified Party") harmless from and against all claims, demands, causes of action, losses, liabilities, damages or expenses (including reasonable attorneys' fees), including those based on contract or tort, arising out of or in conjunction with a claim, suit or proceeding brought by a third party against the Indemnified Party for injury to persons (including death) or loss or damage to tangible property (not including lost or damaged data) resulting from the intentional or negligent acts or omissions, or strict liability, of the Indemnifying Party, its officers, agents, employees, or subcontractors in the performance of this Agreement. In the event that the Indemnified Party's or a third party's negligent or intentional acts or omissions contributed to cause the injury or damage for which a claim of indemnity is being asserted against the Indemnifying Party hereunder, the damages and expenses (including reasonable attorneys' fees) shall be allocated or reallocated, as the case may be, between the Indemnified Party, the Indemnifying Party and any other party bearing responsibility in such proportion as appropriately reflects the relative fault of such parties, or their subcontractors, or the officers, directors, employees, agents, successors and assigns of any of them, and the liability of the Indemnifying Party shall be proportionately reduced. The foregoing indemnification obligations are conditioned upon the Indemnified Party promptly notifying the Indemnifying Party in writing of the claim, suit or proceeding for which the Indemnifying Party is obligated under this Section, co-operating with, assisting and providing information to, the Indemnifying Party as reasonably required, and granting the Indemnifying Party the exclusive right to defend or settle such claim, suit or proceeding. 22.2 NOTWITHSTANDING ANYTHING ELSE HEREIN, AND EXCEPT FOR LIABILITY ARISING (I) UNDER SECTION 22.1; (II) OUT OF SERVICE PROVIDER'S BREACH OF CISCO'S PROPRIETARY RIGHTS; (III) CISCO'S LIABILITY TO PAY COSTS OF A DEFENSE OF A CLAIM OF INFRINGEMENT PURSUANT TO SECTION 13.1; (IV) COSTS TO BE INCURRED BY CISCO IN PROCURING RIGHTS FOR SERVICE PROVIDER'S CONTINUED USE OF THE PRODUCT, REPLACING OR MODIFYING THE PRODUCT, OR REFUNDING SERVICE PROVIDER, ALL PURSUANT TO SECTION 13.1; OR, (V) REGARDING ANY AND ALL AMOUNTS DUE FOR PRODUCTS AND SERVICES PURCHASED OR SOFTWARE USED OR TRANSFERRED WITH RESPECT TO THE PAYMENT OF WHICH NO BONA FIDE DISPUTE EXISTS, ALL LIABILITY OF |
EACH PARTY AND ITS SUPPLIERS UNDER THIS AGREEMENT OR OTHERWISE SHALL BE LIMITED TO THE GREATER OF (I) THE MONEY PAID TO CISCO UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTH PERIOD PRECEDING THE EVENT OR CIRCUMSTANCES GIVING RISE TO SUCH LIABILITY; OR (II) FIFTY MILLION DOLLARS ($50,000,000). ALL LIABILITY UNDER THIS AGREEMENT IS CUMULATIVE AND NOT PER INCIDENT. 23. CONSEQUENTIAL DAMAGES WAIVER. 23.1 IN NO EVENT SHALL CISCO OR ITS SUPPLIERS BE LIABLE FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS, LOST PROFITS, OR LOST DATA, OR INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, OF ANY KIND REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE) STRICT LIABILITY OR OTHERWISE, EVEN IF CISCO OR ITS SUPPLIERS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 24. NOTICES. 24.1 All notices required or permitted under this Agreement will be in writing and will be deemed given: (a) when delivered personally; (b) when sent by confirmed facsimile (followed by the actual document in air mail/air courier); (c) three (3) days after having been sent by registered or certified mail, return receipt requested, postage prepaid (or six (6) days for international mail); or (d) one (1) day after deposit with a commercial express courier specifying next day delivery (or two (2) days for international courier packages specifying 2-day delivery), with written verification of receipt. All communications will be sent to the addresses set forth on the cover sheet of this Agreement or such other address as may be designated by a party by giving written notice to the other party pursuant to this paragraph. 25. GENERAL. 25.1 CHOICE OF LAW. The validity, interpretation, and performance of this Agreement shall be controlled by and construed under the laws of the State of California, United States of America, as if performed wholly within the state and without giving effect to the principles of conflict of law. The parties specifically disclaim the UN Convention on Contracts for the International Sale of Goods. 25.2 NO WAIVER. No waiver of rights under this Agreement by either party shall constitute a subsequent waiver of this or any other right under this Agreement. 25.3 ASSIGNMENT. Neither party may assign its rights or obligations under this Agreement (other than the right to receive any amount due, which shall be freely assignable) except to a majority-owned parent or subsidiary company without the prior written consent of the other, such consent not to be unreasonably withheld or delayed, provided that either party may withhold consent to assignment to a third party which is a competitor of the non-assigning party, for any reason or no reason, and any such assignment shall not relieve the assigning entity of any obligation to pay monies which were owed prior to the date of the assignment. This Agreement shall bind and inure to the benefit of the successors and permitted assigns of the parties. 25.4 SEVERABILITY. In the event that any of the terms of this Agreement become or are declared to be illegal or otherwise unenforceable by any court of competent jurisdiction, such term(s) shall be null and void and shall be deemed deleted from this Agreement. All remaining terms of this Agreement shall remain in full force and effect. Notwithstanding the foregoing, if this paragraph becomes applicable and, as a result, the value of this Agreement is materially impaired for either party, as determined by such party in its sole discretion, then the affected party may terminate this Agreement by written notice to the other. |
25.5 ATTORNEYS' FEES. In any suit or proceeding relating to this Agreement, the prevailing party will have the right to recover from the other its costs and reasonable fees and expenses of attorneys, accountants, and other professionals incurred in connection with the suit of proceeding, including costs, fees and expenses upon appeal, separately from and in addition to any other amount included in such judgment. This provision is intended to be severable from the other provisions of this Agreement, and shall survive and not be merged into any such judgment. 25.6 NO AGENCY. This Agreement does not create any agency, partnership, joint venture, or franchise relationship. Neither party has the right or authority to, and shall not, assume or create any obligation of any nature whatsoever on behalf of the other party or bind the other party in any respect whatsoever. 25.7 URL. Service Provider hereby confirms that it has the ability to access, has accessed and has read, the information made available by Cisco at all of the world wide web sites/URLs/addresses/pages referred to anywhere throughout this Agreement (including any of the Exhibits hereto). Service Provider acknowledges that Cisco may modify any URL address or terminate the availability of any information at any address without notice to Integrator. 25.8 SURVIVAL. Sections 10, 12, 13, 14, 16, 18, 19, 22, 23and 25, and the license to use the Software set out in Section 9 and Part (i) of Exhibit S (subject to the termination provisions set forth in Part (i) of Exhibit S) shall survive the termination of this Agreement. |
EXHIBIT A
SERVICE PROVIDER TERRITORY
The Service Provider's Territory is:
United States
Canada
EXHIBIT B
DISCOUNT SCHEDULE
CATEGORY A
For the term of the Agreement, the Service Provider shall purchase Category A Products at the prices or subject to the discounts set out in the following tables:
-------------------------------------------------------------------------------------------------------------------- CISCO (CERENT) PRODUCT DESCRIPTION Discount % -------------------------------------------------------------------------------------------------------------------- Core Router; GSR 12xxx family of products [***] -------------------------------------------------------------------------------------------------------------------- Metro Optics Cisco (Cerent) 15454 family of products: [***] -------------------------------------------------------------------------------------------------------------------- except the following products -------------------------------------------------------------------------------------------------------------------- - 15454-E-1000-2 (until 15454-E-1000-4 is generally available) (List price $8,910) [***] -------------------------------------------------------------------------------------------------------------------- - 15454-E-1000-4 (List price $9,100) [***] -------------------------------------------------------------------------------------------------------------------- Cisco 2948GL3 [***] -------------------------------------------------------------------------------------------------------------------- |
==================================================================================================================================== CISCO (PIRELLI) PARTS LIST AND PRICING ==================================================================================================================================== SITE (1 X 1) AND MODULE PRICING ==================================================================================================================================== TERMINAL TERMINAL OPTICAL PIRELLI STATION STATION LINE REGEN SPARE PART/UNIT # PRODUCT DESCRIPTION PRICE BLUE RED SITE SITE KIT ==================================================================================================================================== SBAY001 Terminal/LEM Bay [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ SBAY003 OLA Bay [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ BAT Battery Management Unit [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ SCF Subrack Common Function [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ IOC-W WaveMux(TM)Input-Output Interface [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ LSM-W Line Service Modem [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ CMP.W Control and Monitoring Processor [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ Agent TL1 Agent [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ WaveLook(TM) Local Craft Interface [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ EOI-W Engineering Orderwire Interface [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ R-OW Third-Party Digital Orderwire Telephone [******************************************************************] Set ------------------------------------------------------------------------------------------------------------------------------------ 16WD-R 16 ch Wavelength Demultiplexer - Red [******************************************************************] Band ------------------------------------------------------------------------------------------------------------------------------------ 16WD-B 16 ch Wavelength Demultiplexer - Blue [******************************************************************] Band ------------------------------------------------------------------------------------------------------------------------------------ 16WM-BF 16 Channels passive Multiplexer for [******************************************************************] Blue Band - Flat ------------------------------------------------------------------------------------------------------------------------------------ 16WM-RF 16 Channels passive Multiplexer for Red [******************************************************************] Band - Flat ------------------------------------------------------------------------------------------------------------------------------------ OSR-MUX-BD Optical Sub Rack - Multiplexer - [******************************************************************] Bi-Directional ------------------------------------------------------------------------------------------------------------------------------------ DCU-B Dispersion Compensation Unit - Blue Band [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ DCU-R Dispersion Compensation Unit - Red Band [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ PRE-B Pre-Line Amplifier Blue Band [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ PRE-R Pre-Line Amplifier Red Band [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ RXA-B Amplifier for RX site - Blue Band [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ OLA-B Booster Amplifier for line sites - Blue [******************************************************************] Band ------------------------------------------------------------------------------------------------------------------------------------ RXA-R Amplifier for RX site - Red Band [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ OLA-R Booster Amplifier for line sites - Red [******************************************************************] Band ------------------------------------------------------------------------------------------------------------------------------------ CTX-B Band mux/demux - TX Blue band, RX Red [******************************************************************] band ------------------------------------------------------------------------------------------------------------------------------------ CTX-R Band mux/demux - TX Red band, RX Blue [******************************************************************] band ------------------------------------------------------------------------------------------------------------------------------------ WCM-10G-M Wavelength Converter Module at 10 Gbps [******************************************************************] RXT-10G-M - withB1 Receive Transponder at 10 Gb[s - with B1 [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ LEM-10G-M Line Extender Module at 10 Gbps - withB1 [******************************************************************] ------------------------------------------------------------------------------------------------------------------------------------ C06-W Coverplate [******************************************************************] ==================================================================================================================================== TOTAL PRICE [********************************************************] ==================================================================================================================================== |
* RXT-10G-M WILL BE PROVIDED AT [*] FOR THE REQUESTED ROUTE REQUIREMENTS. FUTURE REQUIREMENTS WILL BE CHARGED [*] PER CARD.
[*] Indicates confidential treatment requested.
CATEGORY B
The discount schedule set forth below shall apply to all Products not specified in Category A purchased from Cisco by Service Provider during the term of this Agreement. Service Provider's discount is based on the following components:
1. Base Discount;
2. Service Provider's total annual volume of Products purchased from Cisco for use in the Territory based on Service Provider's net purchase price ("Volume Incentive"); and,
3. Service Provider's agreed commitment to Cisco as Service Provider's Preferred Vendor Incentive.
Base Discount: [***] Volume Incentive: Volume Achievement/Forecast (see matrix below) [*] Forecast for initial year: [*] Preferred Vendor Incentive: Core Routers (GSRs) [***] Core Optics (Pirelli) [***] Metro Optics (Cerent) [***] Extra Incentive Point for having 3 Preferred Vendor Incentives [***] Total Service Provider's Discount for initial one year of term: [***] ==================================================================================================== Additionally, Service Provider's discount for the following types of purchases shall be: INTERNAL USE NOT RELATED TO CUSTOMER SERVICE [***] NON-VALUE ADDED RESALE [***] CPE DEMONSTRATION/EVALUATION EQUIPMENT [***] |
[*] Indicates confidential treatment requested.
Discounts associated with achievement/forecast for the Territory are added to the [*] base product discount to establish Service Provider's total volume incentive discount.
Volume is the total annual volume of Category B Products purchased from Cisco by Service Provider at Service Provider's volume incentive discount net purchase price. Additionally, depending on Cisco's then-current policies, additional Service Provider Product purchases from Cisco may be included in this aggregation.
Applicable to Cisco's Global List Price:
------------------------------------------------------------------------------------------------- $ 0 - 999,999 [*] 999,999 - 1,999,999 [*] $ 2,000,000 - 3,999,999 [*] $ 4,000,000 - 7,999,999 [*] $ 8,000,000 - 15,999,999 [*] $16,000,000 - 31,999,999 [*] $32,000,000 - 63,999,999 [*] $64,000,000 - 127,999,999 [*] $128,000,000 - [*] ================================================================================================ |
Subject to Section 2.4.1 of the Agreement, Service Provider Preferred Vendor Incentive Categories means:
Core Routers : [*] Core Optics: [*] Metro Optics: [*] |
To assist Service Provider in providing Cisco Product to End Users, Cisco agrees to offer Service Provider a discount of [*] for a maximum of [*] demonstration/evaluation units of CPE Equipment. Service Provider shall use such units solely for demonstration/evaluation (non-production) for End Users and not for resale. Configurations shall be subject to mutual agreement.
[*] Indicates confidential treatment requested.
EXHIBIT C
PROVISIONED NETWORK SUPPORT PROGRAM
1.0 DEFINITIONS
a) "Application Software" means non-resident/stand alone Software
products which include Cisco's network management Software,
security Software and internet appliance Software. Maintenance
for such Product is available on a per Product basis.
b) "CPE" means Products in the 7XX, 1XXX, 2XXX, 3XXX and 4XXX families which are sold, licensed or rented to Service Provider and installed at an End User's premises with Network Services managed by Service Provider.
c) "Depot Time" means Central European Time for parts shipping into Europe, Australia's Eastern Standard Time for parts shipping into Australia, and Pacific Standard Time for parts shipping into all other locations.
d) "Equipment Schedule" means the list of Product covered under this Agreement.
e) "Maintenance Release" means an incremental release of Cisco Software that provides maintenance fixes and may provide additional Software features. Maintenance releases are designated by Cisco as a change in the digit(s) to the right of the tenths digit of the Software version number [x.x.(x)].
f) "Major Release" means a release of Cisco Software that provides additional Software features and/or functions. Major Releases are designated by Cisco as a change in the ones digit of the Software version number [(x).x.x].
g) "Minor Release" means an incremental release of Cisco Software
that provides maintenance fixes and additional Software
features. Minor releases are designated by Cisco as a change
in the tenths digit(s) of the Software version number
[x.(x.).x].
h) "RMA" means Return Material Authorization.
i) "Service" means all services provided by Cisco under this Exhibit.
j) "Standard Business Hours" means 6:00 AM to 6:00 PM Monday through Friday, excluding Cisco-observed holidays, in the U.S. and Canada and outside the U.S. and Canada, means 8:00 AM to 5:00 PM Australia's Eastern Standard Time and Central European Time, Monday through Friday, excluding local Cisco-observed holidays.
k) "Update" means Maintenance Releases, Minor Releases and/or Major Releases that contain the same configuration as originally acquired.
2.0 SERVICE RESPONSIBILITIES OF THE PARTIES According to the support selected and in consideration of the applicable service fees paid by Service Provider, Cisco shall provide the support services as set forth in the base support program ("SP Base") and the support options described under Appendixes A-2 to A-7. Service Provider shall pay applicable fees for SP Base and any support options selected and shall comply with the respective support obligations identified thereunder.
3.0 SERVICES NOT COVERED UNDER THIS AGREEMENT
a) Any customization of, or labor to install, Software.
b) Support or replacement of Product that is altered, modified, mishandled, destroyed or damaged by natural causes or damaged due to a negligent or willful act or omission by Service Provider or use by Service Provider other than as specified in the applicable Cisco-supplied Documentation.
c) Any hardware upgrade required to run new or updated Software.
d) Import and/or customs duties, taxes and fees.
e) Electrical or site work external to the Products.
f) Services to resolve software or hardware problems resulting from third party product or causes beyond Cisco's control, or services for non-Cisco software installed on any Product.
g) Any non-IOS(TM)Software Updates including for Application Software, unless stated otherwise. Services for non Cisco Software installed on any Cisco Product.
h) Furnishing of supplies, accessories or the replacement of expendable parts (e.g., cables, blower assemblies, power cords, rack mounting kits).
i) Hardware repair and replacements.
j) Any expenses incurred to visit Service Provider's location, except as required during escalation of problems by Cisco.
k) Additional Services are provided at the then-current time and materials rates.
l) Major, minor, and maintenance releases of Microsoft(R) software platforms. Customers should contact their Microsoft(R) software vendor directly to obtain information on acquiring releases and/or bug fixes related to Microsoft(R) software platforms.
4.0 SERVICE FEES AND PAYMENT TERMS
a) Service Provider will pay the then-current service fees.
Periodic service fees applicable to renewals or new purchases
will be based on the total purchases calculated at the
commencement of each quarter. The service options for a
particular Product site may be revised upon Service Provider's
request and Cisco's acceptance.
b) Annual services are invoiced quarterly unless specified otherwise. Notwithstanding Section 8, Payment, of the Agreement, payment terms are net thirty (30) days from the date of invoice. Any sum not paid when due shall bear interest at the maximum rate permitted by law until paid. All fees are exclusive of any taxes and duties which, if applicable, shall be paid by Service Provider unless Service Provider has provided an exemption certificate. Cisco may, at its discretion, revise the service fees upon ninety (90) days notice.
c) Where required, Service Provider will provide (i) a purchase
order for the services defined herein no later than fifteen
(15) days from Cisco's request and (ii) a blanket purchase
order for the purpose of billing non-returned Products, if
any.
d) CPE. In the event the Exhibit is terminated, other than for Service Provider breach, prior to completion of the CPE support term, Service Provider shall be entitled to a refund of a portion of the CPE fees previously paid for which services were not performed by Cisco as a result of such termination.
5.0 SOFTWARE LICENSE Service Provider acknowledges that it may receive Software as a result of Services provided under this Exhibit. Service Provider will be licensed to use such Software as set forth under Section 10 of the Agreement.
6.0 ENTITLEMENT Service Provider acknowledges that it is only entitled to receive Services on Product for which it has paid a separate support fee. Cisco reserves the right, upon reasonable advance notice, to perform an audit of Service Provider's Products and records to validate such entitlement and to charge for support if Cisco determines that unauthorized support is being provided , as well as interest penalties at the highest rate permitted by law, and applicable fees including, without limitation, attorneys' fees and audit fees
7.0 LIMITATION OF LIABILITY NOTWITHSTANDING ANYTHING ELSE HEREIN, ALL LIABILITY OF CISCO, AND/OR SUPPLIERS UNDER THIS EXHIBIT SHALL BE LIMITED TO MONEY PAID BY SERVICE PROVIDER TO CISCO FOR THE SERVICES PROVIDED UNDER THIS EXHIBIT DURING THE SIX (6) MONTH PERIOD PRECEDING THE EVENT OR CIRCUMSTANCES GIVING RISE TO SUCH LIABILITY. THIS LIABILITY LIMIT IS CUMULATIVE AND NOT PER INCIDENT.
APPENDIX A
SP BASE SUPPORT
1.0 SERVICE RESPONSIBILITIES OF CISCO In consideration for the service fee, Cisco shall provide the following services:
a) SP BASE SUPPORT. SP base support is available for all
Product, and includes:
i) CCO ACCESS. Cisco will provide registered user access to
CCO.
ii) TECHNICAL SUPPORT.
(1) Assisting the Service Provider by telephone,
facsimile, or electronic mail (for information
related to Product use, configuration and
troubleshooting).
(2) Providing 24 hours per day, 7 days per week access
to Cisco's Service Provider Technical Assistance
Center (TAC). Cisco will respond to the Service
Provider within thirty (30) minutes for Priority 1
and Priority 2 calls and within one (1) hour for
Priority 3 and Priority 4 calls received during
Standard Business Hours. For Priority 1 and 2 calls
received outside Standard Business Hours, Cisco will
respond within one (1) hour and for Priority 3 and
4 calls received outside Standard Business Hours,
Cisco will respond no later than the next business
day.
(3) Generating work-around solutions to reported
Software problems or implement a patch to the
Software using reasonable commercial efforts. For a
Software patch, Cisco will provide a Maintenance
Release to the Service Provider for the Product
experiencing the problem or provide a Software
image, as Service Provider and Cisco agree.
(4) Managing the Problem Prioritization and Escalation
Guideline described in Appendix B.
iii) Software Support.
(1) Providing Updates, if available, via CCO and/or upon
request.
(2) Providing supporting documentation, if available,
via CCO, and upon request, one (1) paper copy of
supporting documentation for each Update provided
hereunder. Additional copies of supporting
documentation may be purchased.
(3) Cisco, in meeting any support obligations, may
require Service Provider to upgrade to a supported
release.
2.0 SERVICE RESPONSIBILITIES OF SERVICE PROVIDER
Service Provider will meet the obligations below and in any applicable
appendices.
a) Service provider will request Product to be covered by
submitting a Equipment Schedule as described in Appendix C.
b) Service Provider will provide a priority level as described in Appendix B for all calls placed with Cisco, and shalll provide reasonable electronic access to Service Provider's network through the Internet or via modem for remote problem diagnosis.
c) Service Provider agrees to use the latest Software Update if required to correct a reported Software problem.
d) Returns Coordination. Service Provider will comply with the following procedure for all failed Hardware returned by Service Provider:
i) Coordinate the return of all failed Product, freight and insurance prepaid by Service Provider, to the Cisco designated repair center.
ii) Service Provider shall comply with Cisco's RMA procedure:
(1) Service Provider will ensure all Products are
properly packaged prior to being shipped, and will
include a description of the failure and written
specification of any changes or alterations made to
the Product. Product returned to Cisco will conform
in quantity and serial number to the RMA request.
(2) Service Provider shall tag each Product returned
with the RMA transaction number and a brief
description of the problem.
(3) Cisco will not accept any Product returned which is
not accompanied by an RMA number.
e) Service Provider shall test all repaired or replacement Product received to determine if any damage occurred in transit. Product failures and/or misshipments must be reported to Cisco within ten (10) business days of receipt.
APPENDIX A-2
SERVICE OPTIONS - HARDWARE REPLACEMENT
1.0 ADDITIONAL DEFINITIONS
a) "Advance Replacement" means a process to ship replacement
Product components in advance of receipt of failed/defective
Product components.
b) "Four-Hour Response" means the four (4) hour time period commencing upon Cisco's determination that replacement part is required and ending when replacement part is delivered on-site.
2.0 ADDITIONAL SERVICE RESPONSIBILITIES OF CISCO UNDER THIS APPENDIX HARDWARE REPLACEMENT SERVICE. In addition to SP Base Support, Cisco shall provide the following Hardware Replacement options. Where available, and as selected by Service Provider, Cisco will provide the following Hardware support services. Replacement Hardware will be either new or equivalent to new at Cisco's discretion.
a) Hardware Return for Replacement. Cisco will provide Return for Replacement service whereby Service Provider returns failed Hardware to Cisco for replacement. Cisco will use commercially reasonable efforts to replace Hardware within ten (10) business days after receipt from Service Provider.
b) Advance Replacement Service. Except for Next Business Day ("NBD") or Same Day Shipment ("SDS") service, availability of these services is restricted to within one hundred (100) miles of a parts depot. These services are available for CPE Product at additional cost. Hardware will be shipped using Cisco's preferred carrier, freight prepaid by Cisco, excluding import duties, taxes and fees.
(i) NBD/SDS ADVANCE REPLACEMENT is shipped the same business day provided the request for shipment is made prior to 3:00 PM, Depot Time, excluding Cisco holidays. For requests after 3:00 PM Depot Time, the Advance Replacement will be shipped the following business day. Where available (within the United States, Canada, European Community, Norway, Switzerland, and Australia), Cisco will ship the Hardware for delivery on the next business day. In all other locations, Hardware arrival times are subject to destination country importation and customs processes.
Hardware will be shipped using Cisco's preferred carrier, freight prepaid by Cisco, excluding import duties, taxes and fees.
(ii) 8X5X4 ADVANCE REPLACEMENT service provides Hardware delivered on-site from 9:00 a.m. to 5:00 p.m., Depot Time, Monday through Friday (excluding Cisco-observed holidays).
Cisco will use commercially reasonable efforts to provide Four-Hour Response the same business day if failed Hardware is reported to the TAC before 1:00 p.m., Depot Time. For calls placed after 1:00 p.m., Cisco will deliver the Hardware part the next business day.
(iii) 24X7X4 ADVANCE REPLACEMENT service provides Hardware
delivered on-site twenty-four (24) hours per day, seven
(7) days per week, including Cisco-observed holidays.
Cisco will use commercially reasonable efforts to provide Four-Hour Response for on-site delivery of the replacement part.
Hardware will be shipped using Cisco's preferred carrier, freight prepaid by Cisco, excluding import duties, taxes and fees.
3.0 ADDITIONAL SERVICE RESPONSIBILITIES OF SERVICE PROVIDER
UNDER THIS APPENDIX
a) Service Provider will provide sixty (60) days Notice to Cisco
of any requested addition(s) to the Equipment Schedule.
b) Service Provider will notify Cisco, of Product on the Equipment Schedule which Service Provider has moved to a new location. Service Provider agrees to make such notification within thirty (30) days of Product relocation.
APPENDIX A-3
SERVICE OPTIONS - ONSITE SUPPORT
1.0 ADDITIONAL DEFINITIONS
a) "Four-Hour Response" means the four (4) hour time period
commencing upon Cisco's determination that replacement part is
required and ending when replacement part is delivered and/or
service personnel arrives on-site.
b) "Remedial Hardware Maintenance" means diagnosis and replacement of Hardware or Product components.
2.0 ADDITIONAL SERVICE RESPONSIBILITIES OF CISCO UNDER THIS APPENDIX ONSITE SUPPORT. In addition to SP Base Support, Cisco shall provide the following Onsite Remedial Hardware Maintenance options. Onsite support is available for all Product and is restricted to fifty (50) miles (in the U.S.) or seventy-five (75) kilometers (outside the U.S.) of an authorized service location.
a) All onsite support services include the following basic
services:
(i) All parts, labor, and material required for Hardware
support,
(ii) Escalation of Customer-defined critical problems, according to the Cisco Problem Prioritization and Escalation Guideline; and
(iii) Installation of all mandatory engineering modifications.
b) Level 1 onsite support provides, in addition to the basic
services:
(i) On-site Hardware support from 9:00 AM to 5:00 PM local
time Monday through Friday excluding Cisco-observed
holidays; and
(ii) Next-business-day service by 10:00 A.M. local time for on-site Hardware support requests, provided the call was placed before 3:00 P.M. Depot Time the prior day (second business day for calls placed after 3:00 P.M. Pacific Time).
c) Level 2 onsite support provides, in addition to the basic
services:
(i) On-site Hardware support 9:00 AM to 5:00 PM local time
Monday through Friday excluding Cisco-observed holidays;
and
(ii) Four-hour Response for on-site Hardware support requests.
d) Level 3 onsite support provides, in addition to the basic
services:
(i) On-site Hardware support twenty-four (24) hours per day,
seven (7) days per week, including Cisco-observed
holidays; and
(ii) Four-hour Response for on-site Hardware support requests.
Hardware will be either new or equivalent to new at Cisco's discretion.
3.0 ADDITIONAL SERVICE RESPONSIBILITIES OF SERVICE PROVIDER
UNDER THIS APPENDIX
a) Service Provider will provide sixty (60) days Notice to
Cisco of any requested addition(s) to the Equipment List.
b) Service Provider agrees to be responsible for any import and/or customs duties, taxes and fees.
c) Service Provider agrees to notify Cisco, using CCO, of Product on the Equipment List, which Service Provider has moved to a new location. Service Provider agrees to make such notification within thirty (30) days of Product relocation.
d) Service Provider agrees to provide an appropriate work environment and reasonable access, working space including heat, light, ventilation, electric current and outlets, and local telephone extension (or toll free domestic and international access to Cisco) for the use of service personnel in the Product's physical location.
e) Service Provider agrees to back up Software images and configurations on a regularly scheduled basis
and to provide such images and configurations to on-site personnel in connection with Remedial Hardware Maintenance activities.
f) Service Provider agrees to provide TFTP capabilities or internet access for the purpose of downloading Software images by on-site personnel as necessary.
APPENDIX A-4
SERVICE OPTIONS - CPE SUPPORT
1.0 ADDITIONAL SERVICE RESPONSIBILITIES OF CISCO UNDER THIS
APPENDIX HARDWARE SUPPORT FOR CPE'S. In addition to SP Base Support,
Cisco shall provide the following Hardware Replacement option for CPE.
Replacement Hardware will be either new or equivalent to new at Cisco's
discretion.
a) Service Provider may return failed hardware to Cisco for
replacement.
b) Cisco will use commercial reasonable efforts to replace the hardware within ten (10) business days after receipt from the Service Provider. This support service is included in the CPE fee for three years. Additional hardware replacement options are available at additional cost.
2.0 ADDITIONAL SERVICE RESPONSIBILITIES OF SERVICE PROVIDER UNDER THIS
APPENDIX
a) Returns Coordination. Service Provider shall return all failed
Product within ten (10) days of the receipt of the replacement
Product; otherwise, the Advance Replacement Product will be
invoiced to Service Provider at the current Product list
price.
b) Service Provider will provide sixty (60) days Notice to Cisco of any requested addition(s) to the Equipment Schedule.
c) Service Provider will notify Cisco, of Product on the Equipment Schedule which Service Provider has moved to a new location. Service Provider agrees to make such notification within thirty (30) days of Product relocation.
APPENDIX A-5
SERVICE OPTIONS - SOFTWARE APPLICATION SERVICE
1.0 ADDITIONAL DEFINITIONS
1.1 "MAJOR RELEASE" means a release of Cisco Software that
provides additional Software features and/or functions. Major
Releases are designated by Cisco as a change in the ones digit
of the Software version number [(x).x.x] and/or [x.(x).x].
1.2 "MINOR RELEASE" means an incremental release of Cisco Software
that provides maintenance fixes and additional Software
features. Minor releases are designated by Cisco as a change
in the tenths digit(s) of the Software version number
[x.(x).x] and/or [x.x.(x)].
1.3 "UPGRADE" means Major Release.
2.0 ADDITIONAL SERVICE RESPONSIBILITIES OF CISCO UNDER THIS APPENDIX SOFTWARE APPLICATION SERVICE. Where available and upon selection, Cisco will provide the following for Applications Software supported under this Appendix as follows:
2.1 Software Application Support includes: 2.1.1 Assist the Service Provider by telephone, facsimile, or electronic mail (for information related to Software use, configuration and troubleshooting). 2.1.2 Provide 24 hours per day, 7 days per week access to Cisco's Technical Assistance Center (TAC). Cisco will respond to the Service Provider within one (1) hour for all calls received during Standard Business Hours and for Priority 1 and 2 calls received outside Standard Business Hours. For Priority 3 and 4 calls received outside Standard Business Hours, Cisco will respond no later than the next business day. 2.1.3 Manage the Problem Prioritization and Escalation Guideline described in Appendix B. 2.1.4 Generate work-around solutions to reported Software problems using reasonable commercial efforts or implement a patch to the Software. For a Software patch, Cisco will provide a Minor Release to the Service Provider for the Software experiencing the problem; Service Provider shall download such Minor Releases from CCO. Upon request, arrange shipment to Service Provider via express transportation (freight and insurance charges included). Requests for alternate carriers will be at Service Provider's expense. 2.1.5 Support any release of Software for a period of thirty-six (36) months from the date of first commercial shipment of that release, meaning that for that time period, errors in that release will be corrected either by means of a patch or correction to that release, or in a subsequent release. 2.1.6 Provide access to CCO. This system provides the Service Provider with technical and general information on Cisco Software and access to Cisco's on-line Software library. 2.1.7 Provide, upon request, supporting documentation as follows: (a) on CD-ROM; or (b) one paper copy for each Minor Release for Software supported hereunder. Additional copies of supporting documentation may be purchased at Cisco's then-current list price. |
2.2 SOFTWARE APPLICATION SUPPORT PLUS UPGRADES: In consideration of an additional fee paid by the Service Provider, the following additional Services shall be provided, and will include the Services as specified in Section 2.1 above.
2.2.1 Provide Major Releases for Software supported under this Appendix, as follows: (a) via download from CCO (as available), and/or (b) shipment of Software media as specified in Section 2.2.2 below. 2.2.2 Arrange all Minor Release and Major Release shipments to Service Provider via express transportation (freight and insurance charges included). Requests for alternate carriers will be at Service Provider's expense. 2.2.3 Provide supporting documentation with each Minor Release and Major Release as follows: (a) on CD-ROM; or (b) one paper copy, which shall be included in each shipment to Service Provider. Additional copies of supporting documentation may be purchased at Cisco's then-current list price. |
3.0 ADDITIONAL SERVICE RESPONSIBILITIES OF SERVICE PROVIDER UNDER THIS
APPENDIX
a) Service Provider will provide current Major Release shipment
contact information (as necessary), as follows; contact name,
title, address, email address, or FAX number.
APPENDIX A-6
SERVICE OPTIONS - NETWORK SUPPORTED ACCOUNT (NSA)
THIS APPENDIX IS INTENDED TO SUPPLEMENT A CURRENT MAINTENANCE AGREEMENT (SP
BASE) FOR CISCO PRODUCTS AND IS ONLY AVAILABLE WHERE ALL PRODUCT(S) IN SERVICE
PROVIDER'S NETWORK IS SUPPORTED UNDER SUCH AGREEMENT WITH CISCO. IN THE EVENT
THERE IS A CONFLICT BETWEEN EXHIBIT C AND THIS APPENDIX, THE TERMS OF THIS
APPENDIX SHALL TAKES PRECEDENCE OVER THE TERMS AND CONDITIONS OF THIS EXHIBIT
WITH REGARDS TO THE SUBJECT MATTER DESCRIBED HEREIN.
1.0 ADDITIONAL DEFINITIONS
a) "Designated Engineer" means, a designated NSA engineer acting
as the primary with Service Provider for its internal network.
b) "Monitoring Tools" means Hardware or Software tools that provide the Designated Engineer proactive troubleshooting capabilities.
c) "Network Audits" means NSA reports based on network node activity collected by Monitoring Tools.
d) "CCIE" means Cisco Certified Internetworking Expert.
e) "Level 1 Support" means having the necessary technical staff with the appropriate skills to perform installations, remedial hardware maintenance and basic hardware and software configurations on Cisco products. Level 1 issues will be escalated internally before requesting additional support from Cisco.
f) "Level 2 Support" means having the necessary technical staff with the appropriate skills to perform isolation, replication and diagnosis of internetworking based problems on Cisco equipment. Service Provider shall not report software bugs to Cisco prior to attempting to identify the source of such bugs and testing in Service Provider's network where appropriate. If the Service Provider cannot duplicate the bug in Service Provider's network, Service Provider and Cisco will cooperate in attempting to replicate and resolve related software bugs in either Service Provider's or Cisco's test facility as mutually agreed. In all cases Service Provider will address software bugs on a best effort basis to replicate same in Service Provider's network and document activity to Cisco before seeking further resolve with Cisco's participation
2.0 ADDITIONAL SERVICE RESPONSIBILITIES OF CISCO UNDER THIS APPENDIX
NETWORK SUPPORTED ACCOUNT. A Network Supported Account ("NSA") engineer
is available for support of multiprotocol networks. Cisco will:
a) Designate an NSA Engineer ("Designated Engineer") to act as
the primary interface with Service Provider for its internal
network.
b) Schedule with Service Provider, as mutually agreed, quarterly visits to Service Provider's site to review Service Provider's network and operations. Cisco will also review with Service Provider all procedures for placing support calls under this Addendum. Additional visits will be upon mutual agreement at Cisco's then-current travel and labor rates.
c) Periodically monitor Cisco's bug list and alert Service Provider to relevant and severe known bugs that may impact Service Provider using commercially reasonable efforts.
d) Review Service Provider's network design and configuration and will provide a written summary of Service Provider's information, change impact analysis and alternative recommendations using commercially reasonable efforts.
e) Schedule regular conference calls to review network status, planning and the support services being provided hereunder.
f) Make available, upon written request, a designated support contact on a 24-hour 7-day a week standby basis to remotely assist Service Provider in major network service changes
(e.g. major Hardware or Software upgrade(s), major site installation(s)). Service Provider agrees to submit a detailed request and schedule to Cisco prior to any such activity. Such requests shall be limited to two (2) events with total standby time not to exceed forty-eight (48) hours in any one month period. In the event Service Provider requires additional services, the parties agree to negotiate in good faith the terms, conditions and prices for such additional Services.
g) Provide certain monitoring tools ("Monitoring Tools" means hardware or software tools that provide the Designated Engineer proactive troubleshooting capabilities) as Cisco deems appropriate for network monitoring under this Appendix during the term of the Services, provided that all payments to Cisco under this Agreement have been paid. Monitoring Tools may or may not include hardware or software. Service Provider acknowledges that Cisco shall retain full right, title and interest to the Monitoring Tools.
h) Provide annually the two (2) Network Audits selected by Service Provider out of the currently available Network Audits under the NSA Program.
3.0 ADDITIONAL SERVICE RESPONSIBILITIES OF SERVICE PROVIDER UNDER THIS APPENDIX
a) Designate at least two (2) but not more than six (6) senior
technical representatives, who must be Service Provider's
employees in a centralized Network Support Center ("NSC"), to
act as the primary technical interface to the Designated
Engineer. Service Provider will designate contacts senior
engineers with the authority to make any necessary changes to
the network configuration. Priority 1 and Priority 2 cases
opened with Cisco must be handled by these representatives.
b) Designate an individual ("Relationship Manager") to manage the implementation of services under this Appendix (e.g., chair the weekly conference calls, assist with prioritization of projects and activities) and serve as focal point to the team.
c) Service Provider's NSC shall maintain centralized network management for all networks supported under this Appendix.
d) Provide Level 1 Support and Level 2 Support.
e) Provide reasonable electronic access to Service Provider's network to assist the team in providing support.
f) Service Provider agrees to maintain not less than two (2) CCIE trained employees within four (4) months from the commencement date of service as designated contacts.
g) Service Provider shall select two (2) of the currently available Network Audits under the NSA program for network analysis and reporting. Service Provider must ensure that Monitoring Tools are permanently in place to obtain Network Audits.
h) Provide Cisco with the information necessary to support Service Provider's network as follows:
i) Provide a network topology map, configuration information, and updates as required.
ii) Notify Designated Engineer of any major network changes (e.g., topology, configuration, new IOS releases.).
i) Service Provider hereby indemnifies Cisco for any damage to or
loss or theft of Monitoring Tools while in Service Provider's
custody. Service Provider must immediately return Monitoring
Tool(s) to Cisco, as instructed by Cisco, upon the earlier of:
(i) expiration or termination of this Appendix; or (ii)
Cisco's request to Service Provider that the Monitoring
Tool(s) be returned to Cisco.
j) LIMITATIONS. SERVICE PROVIDER EXPRESSLY ACKNOWLEDGES AND AGREES THAT IT IS SOLELY RESPONSIBLE FOR DETERMINATION AND IMPLEMENTATION OF ITS NETWORK DESIGN REQUIREMENTS. IN NO EVENT SHALL CISCO BE LIABLE FOR THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED IN ANY DESIGN REPORT, NOR FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM THE FURNISHING, PERFORMANCE, OR USE OF SUCH INFORMATION.
4.0 LICENSE
In the event that Cisco provides Software hereunder (whether on a
Monitoring Tool or otherwise), Cisco grants to Service Provider a
nonexclusive and nontransferable license to use the Software, in object
code form only, on the Monitoring Tool on which such Software is
provided hereunder or, if no Monitoring Tool is provided hereunder, on
a single Hardware chassis, until the earlier of: (i) the expiration or
termination of the Agreement; or (ii) Cisco's request to Service
Provider that the Monitoring Tool(s) be returned to Cisco. Service
Provider shall have no right, and Service Provider specifically agrees
not to: (a) rent, lease, distribute, sell, transfer or sublicense its
license rights to any other person, or use the Software on unauthorized
or secondhand Cisco equipment; (b) make error corrections to or
otherwise modify or adapt the Software nor create derivative works
based upon the Software, or to permit third parties to do the same; or
(c) copy, in whole or in part Software or document (except for one
backup copy), decompile, decrypt, reverse engineer, disassemble or
otherwise reduce all or any portion of the Software to human-readable
form. Cisco will make available any interface information which the
Service Provider's entitled under applicable law, upon written notice
request and payment of Cisco's applicable fee.
5.0 SERVICES NOT COVERED BY THIS APPENDIX
a) Additional onsite visits beyond the four (4) visits provided
hereunder and additional standby Services beyond the two (2)
events provided hereunder, except upon Service Provider's
written request and mutual agreement between Service Provider
and Cisco at
Cisco then-current NSA travel and labor rates on a time and material basis.
b) Except as otherwise provided in this Appendix, Software entitlement, including media, documentation, binary code, source code or access in electronic or other form. In addition, no right, use or license to Cisco's Software is conveyed under this Appendix, and Service Provider acknowledges it will obtain no such rights hereunder.
APPENDIX A-7
SERVICE OPTIONS - PROFESSIONAL SERVICES
This Appendix supplements Exhibit C (Provisioned Network Support Program), and all the terms and conditions of Exhibit C apply to this Appendix; provided, that to the extent that there is a conflict between Exhibit C and this Appendix, the terms of this Appendix shall take precedence over the terms and conditions of Exhibit C with regards to the subject matter described herein.
1.0 ADDITIONAL DEFINITIONS
a) "Deliverables" means all works of authorship, whether in hard
copy or electronic form, including but not limited to
programs, program listings, programming tools, designs,
analyses, reports, manuals, supporting materials, test
results, recommendations and drawings to be provided by Cisco
to Service Provider pursuant to the terms of this Appendix and
any SOW issued hereunder.
b) "Documentation" means, but is not limited to, any and all data other than Deliverables, whether in hard copy or electronic form, including reports, designs, analyses, computer programs, user manuals and other supporting material, summaries, literature, test results, recommendations or drawings generated by Subcontractor in the course of providing Services under this Appendix and any SOW hereunder, including all workpapers and other materials generated in the course of performance of Services and preparation of Deliverables.
c) "Statement of Work" ("SOW") means the document(s) agreed upon by Cisco and Service Provider which defines the Services to be performed under this Appendix, and the Deliverables to be provided, in the form of an attachment(s) to this Agreement.
2.0 SERVICES AND STATEMENT OF WORK
a) Cisco will make available and manage Services as described in
the SOW attached hereto. Services may be provided by Cisco or
individuals or organizations employed by or under contract
with Cisco, at the discretion of Cisco.
b) A separate SOW will be required for each project, assignment or task requested by Service Provider. Each SOW will become part of this Appendix by this reference when signed by Cisco and Service Provider and shall include:
i) A detailed description of Cisco's and Service Provider's respective responsibilities;
ii) An estimated performance schedule including milestones, if applicable;
iii) Specific completion criteria that Cisco is required to meet to fulfill its obligations under the SOW;
iv) Pricing and payment terms; and
v) Identification of Cisco and Service Provider contacts.
A SOW may only be amended or modified by a written document
signed by authorized representatives of Cisco and Service
Provider, in accordance with the change control procedures set
forth therein.
All Installation and IOS Upgrades provided by Cisco under a
service summary description will be provided in accordance
with the terms of the Exhibit.
3.0 PRICES AND FEES. Service Provider will pay for all Professional Services rendered and Deliverables provided pursuant to this Appendix as set forth in the Support Appendix and the applicable SOW.
4.0 OWNERSHIP. Nothing in this Appendix shall alter or amend the
intellectual property licenses provided with the purchase of Cisco
Hardware and license of Cisco Software products. The following
provisions apply only to those further Services, Deliverables and other
intellectual property generated in performance of this Appendix,
whether or not related to Cisco Hardware or Software.
a) SOW Rights Ownership. Service Provider acknowledges that Cisco
or its subcontractors(s) own all intellectual property rights
and other proprietary rights in and to the Services,
Deliverables, and Documentation and any other materials and
information Cisco provides to Service Provider as part of this
Appendix whether developed in performance of a SOW hereunder
or pre-existing. These intellectual property rights and
proprietary rights may include, but are not limited to, all
current and future worldwide patents and other patent rights,
copyrights, trade secrets, trademarks, inventions, mask work
rights,
programs, program listings, procedures, programming tools, documentation, reports and drawings, and the related documentation or tangible expression thereof.
b) License. Cisco grants Service Provider a license regarding the
services and deliverables as necessary in the conduct of
Service Provider's own business. Pursuant to the terms of
Section 5 of the Exhibit, this license is perpetual provided
Service Provider is not otherwise in breach of this license.
This grant of rights does not include the right to sublicense
and is non-transferable.
c) Ownership by Service Provider. Except as otherwise set forth herein, Service Provider shall own all right, title and interest in Service Provider intellectual property that is wholly developed and owned by Service Provider prior to the Effective Date of this Agreement or independently developed by Service Provider without the benefit of any Cisco intellectual property.
d) Ownership by Cisco. As stated herein, Cisco shall own all right, title and interest in all Cisco intellectual property provided to Service Provider under this Appendix or any SOW hereunder. This shall include any derivatives, improvements or modifications of Cisco or Service Provider intellectual property developed, designed or discovered under this Appendix or any SOW issued hereunder. Service Provider agrees to assign and does hereby assign to Cisco all rights Service Provider may have or acquire in all such intellectual property. Cisco shall have the exclusive right to apply for or register any patents, mask work rights, copyrights, and such other proprietary rights protections with respect thereto. Service Provider shall execute such documents, render such assistance, and take such other actions as Cisco may reasonably request, at Cisco's expense, to apply for, register, perfect, confirm and protect Cisco's rights in any intellectual property hereunder. Without limiting the foregoing, Cisco shall have the exclusive right to commercialize, prepare and sell products based upon, sublicense, prepare derivative works from, or otherwise use or exploit the intellectual property rights granted to Cisco hereunder.
e) Ownership of Jointly Developed Technology. Subject to the intellectual property ownership rights specified in the foregoing subsections, any technology developed pursuant to this Appendix or any SOW which is jointly created by the parties pursuant to this Appendix or created by Service Provider as a direct result of Service Provider activities relating to this Appendix or a SOW hereunder, shall be owned by Cisco unless otherwise mutually agreed in the SOW covering the effort which led to the development of the technology.
f) Waiver of Moral Rights. Subject to the applicable law, Service Provider hereby waives any and all moral rights, including without limitation any right to identification of authorship or limitation on subsequent modification that Service Provider (or its employees, agents, subcontractors or consultants) has or may have in the Services, or Deliverables, and in any other intellectual property that is or becomes the property of Cisco under this Section.
5.0 SERVICE PROVIDER SECURITY REGULATIONS/WORK POLICY
a) Service Provider shall provide to Cisco, and Cisco shall
ensure that its personnel or subcontractors make commercially
reasonable efforts to comply with Service Provider's security
regulations in their activities at Service Provider sites or
in connection with Service Provider systems.
b) Unless otherwise agreed to by both parties, Cisco's personnel (including its subcontractors) will observe the working hours, working rules, and holiday schedules of Service Provider while working on Service Provider's premises.
6.0 INJUNCTIVE RELIEF
Unauthorized use of Confidential Information, Deliverables,
Documentation, or any information contained therein will diminish the
value to Cisco of its trade secrets or proprietary information.
Therefore, if Service Provider breaches any of its confidentiality or
other obligations hereunder, Cisco shall be entitled to equitable
relief to protect its interests therein, including but not limited to
injunctive relief, as well as monetary damages.
7.0 TERMINATION
a) Termination of SOW(s). Failure by either party to comply with
any material term or condition under a SOW issued hereunder
shall entitle the other party to give the party in default
written notice requiring it to cure such default. If the party
in default has not cured such default within thirty (30) days
of receipt of notice, the notifying party shall be entitled,
in addition to any other rights it may have, to terminate this
Agreement (and all SOWs issued hereunder) and/or the
individual SOW by giving notice effective immediately.
b) Upon termination of this Exhibit and/or any SOWs, Service Provider shall pay Cisco for all work performed under the affected SOW(s) up to the effective date of termination at the agreed upon prices,
fees and expense reimbursement rates set forth in the relevant SOW(s).
c) In addition Service Provider agrees, within ten (10) days after termination, to deliver to Cisco at Cisco's discretion either: (i) the original and all copies of the Deliverables and related materials received by Service Provider in connection with the terminated work for which Cisco has not been paid in the course of performance or under Section c above; or (ii) a certificate certifying that through its best efforts, Service Provider has destroyed the original and all copies of such Deliverables and related materials.
APPENDIX B
CISCO PROBLEM PRIORITIZATION AND ESCALATION GUIDELINE
To ensure that all problems are reported in a standard format, Cisco has established the following problem priority definitions. These definitions will assist Cisco in allocating the appropriate resources to resolve problems. Service Provider must assign a priority to all problems submitted to Cisco.
PROBLEM PRIORITY DEFINITIONS:
Priority 1: An existing network is down or there is a critical impact to ongoing business operation. All parties involved will commit full-time resources to resolve the situation. Priority 2: Operation of an existing network is severely degraded, or significant aspects of a business operation are being negatively impacted by unacceptable network performance. The parties involved will commit full-time resources during Standard Business Hours to resolve the situation. Priority 3: Operational performance of the network is impaired while most business operations remain functional. The parties are willing to commit resources during Standard Business Hours to restore service to satisfactory levels. Priority 4: Information or assistance is required on Cisco product capabilities, installation, or configuration. There is clearly little or no impact to a business operation. The parties are willing to provide resources during Standard Business Hours to provide information or assistance as requested. |
Cisco encourages Service Provider to reference this guide when Service Provider-initiated escalation is required. If Service Provider does not feel that adequate forward progress, or the quality of Cisco service is not satisfactory, Cisco encourages Service Provider to escalate the problem ownership to the appropriate level of Cisco management by asking for the TAC Duty Manager.
CISCO ESCALATION GUIDELINE:
-------------------------------------------------------------------------------------------- ELAPSED TIME PRIORITY 1 PRIORITY 2 PRIORITY 3 PRIORITY 4 ------------------------------------------------------------------------------------------- 1 HOUR Customer Engineering Manager ------------------------------------------------------------------------------------------- 4 HOURS Technical Customer Support Engineering Director Manager ------------------------------------------------------------------------------------------- 24 HOURS Vice President, Technical Customer Support Director Advocacy ------------------------------------------------------------------------------------------- 48 HOURS President/CEO Vice President, Customer Advocacy ------------------------------------------------------------------------------------------- 72 HOURS Customer Engineering Manager ------------------------------------------------------------------------------------------- 96 HOURS President/CEO Technical Customer Support Engineering Director Manager ------------------------------------------------------------------------------------------- |
Note: Priority 1 problem escalation times are measured in calendar hours 24 hours per day, 7 days per week. Priority 2, 3, and 4 escalation times correspond with Standard Business Hours.
The Cisco Manager to which the problem is escalated will take ownership of the problem and provide the Service Provider with updates. Cisco recommends that Service Provider-initiated escalation begin at the Technical Manager level and proceed upward using the escalation guideline shown above for reference. This will allow those most closely associated with the support resources to correct any service problems quickly. ACCESSING TAC:
North America, South America: +1-800-553-2447 +1-408-526-7209 Europe, Middle East, Africa: +32-2-704-5555 +32-2-778-4317 Asia Pacific: +1-800-805-227 +61-2-935-4107 |
APPENDIX C
EQUIPMENT SCHEUDLE
(Cisco will supply) SERVICE LEVEL CONTRACT # PRODUCT SERIAL NUMBERS SITE ADDRESS --------------------------------------------------------------------------------------------------------------------------- SERVICE LEVEL #1 Contract # ____________ Not Applicable ---------------- Hardware Return for Replace --------------------------------------------------------------------------------------------------------------------------- SERVICE LEVEL #2 Contract # ____________ Not Applicable ---------------- Advance Replacement SDS/NBD --------------------------------------------------------------------------------------------------------------------------- SERVICE LEVEL #3* Contract # ____________ Required ---------------- Advance Replacement 8x5x4 --------------------------------------------------------------------------------------------------------------------------- SERVICE LEVEL #4* Contract # ____________ Required ---------------- Advance Replacement 24x7x4 --------------------------------------------------------------------------------------------------------------------------- SERVICE LEVEL #5* Contract # ____________ Required ---------------- Onsite Level 1 (8x5xNBD) --------------------------------------------------------------------------------------------------------------------------- SERVICE LEVEL #6* Contract # ____________ Required ---------------- Onsite Level 2 (8x5x4) --------------------------------------------------------------------------------------------------------------------------- SERVICE LEVEL #7* Contract # ____________ Required ---------------- Onsite Level 3 (24x7x4) --------------------------------------------------------------------------------------------------------------------------- NSA OPTION Contract # ____________ Not Applicable ---------- NSA Designated Account Team --------------------------------------------------------------------------------------------------------------------------- SOFTWARE APPLICATION SERVICE OPTION Contract # ____________ Not Applicable ----------------------------------- Software Application Service --------------------------------------------------------------------------------------------------------------------------- CPE OPTION Contract # Required ---------- CPE Support --------------------------------------------------------------------------------------------------------------------------- SP TAC OPTION Contract # Required ------------- SP TAC / Named Account --------------------------------------------------------------------------------------------------------------------------- SLA OPTION Contract # Required ---------- Response & Restoration --------------------------------------------------------------------------------------------------------------------------- PS OPTION Contract # Not Applicable --------- Professional Services --------------------------------------------------------------------------------------------------------------------------- |
* MUST NOTIFY WITHIN THIRTY (30) DAYS OF MOVES AND/OR CHANGES.
EXHIBIT S
SOFTWARE LICENSE AGREEMENT
PART (i)
PLEASE READ THIS SOFTWARE LICENSE AGREEMENT CAREFULLY BEFORE DOWNLOADING, INSTALLING OR USING CISCO OR CISCO-SUPPLIED SOFTWARE.
BY DOWNLOADING OR INSTALLING THE SOFTWARE, OR USING THE EQUIPMENT THAT CONTAINS THIS SOFTWARE, YOU ARE CONSENTING TO BE BOUND BY THIS AGREEMENT. IF YOU DO NOT AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, DO NOT DOWNLOAD, INSTALL OR USE THE SOFTWARE. YOU MAY RETURN THE SOFTWARE FOR A FULL REFUND. IF THE SOFTWARE IS SUPPLIED AS PART OF ANOTHER PRODUCT, YOU MAY RETURN THE ENTIRE PRODUCT FOR A FULL REFUND. YOUR RIGHT TO RETURN AND REFUND EXPIRES 30 DAYS AFTER PURCHASE FROM CISCO OR AN AUTHORIZED CISCO RESELLER. THE RIGHT TO RETURN AND REFUND EXTENDS ONLY TO THE ORIGINAL PURCHASER.
THE FOLLOWING TERMS GOVERN YOUR USE OF THE SOFTWARE EXCEPT TO THE EXTENT A PARTICULAR PROGRAM (a) IS THE SUBJECT OF A SEPARATE WRITTEN AGREEMENT WITH CISCO OR (b) INCLUDES A SEPARATE "CLICK-ON" LICENSE AGREEMENT AS PART OF THE INSTALLATION PROCESS.
SINGLE USER LICENSE. Subject to the terms and conditions of this Agreement, Cisco Systems, Inc. ("Cisco") and its suppliers grant to Customer ("Customer") a nonexclusive and nontransferable license to use the specific Cisco program modules, feature set(s) or feature(s) for which Customer has paid the required license fees (the "Software"), in object code form only solely as embedded in Cisco equipment, on a single hardware chassis, or on a single central processing unit, as applicable, owned or leased by Customer.
Customer may make and use in accordance with the foregoing up to the number of copies of the Software specified on the master copy of such Software provided by Cisco, or for which Customer has received a product authorization key ("PAK"), provided Customer has paid Cisco the required license fee for such master copy or PAK.
MULTI-USER LICENSE. If Customer has purchased a multi-user license from Cisco, then, subject to the terms and conditions of this Agreement, Cisco and its suppliers grant to Customer a nonexclusive and nontransferable license to use the Software, in object code form only, in ONLY ONE of the following manners:
installed in a single location on a hard disk or other storage device of up to the number of Customer's computers or simultaneous users authorized under such license and for which Customer has paid Cisco the required license fee ("Permitted Number of Computers" or "Permitted Number of Users", as applicable); or
provided the Software is configured for network use, installed on a single file server for use on a single local area network for either (but not both) of the following purposes: (a) permanent installation onto a hard disk or other storage device of up to the Permitted Number of Computers or Permitted Number of Users, as applicable; or (b) use of the Software over such network, provided the number of computers or users connected to the server does not exceed the Permitted Number of Computers or Permitted Number of Users, as applicable.
NOTE: For evaluation or beta copies for which Cisco does not charge a license fee, the above requirement to pay a license fee does not apply.
LIMITATIONS. Except as otherwise expressly provided under this Agreement, Customer shall have no right, and Customer specifically agrees not to:
(i) transfer or sublicense its license rights to any other person, or use the Software on unauthorized or secondhand Cisco equipment;
(ii) make error corrections to or otherwise modify or adapt the Software nor create derivative works based upon the Software, or to permit third parties to do the same; or
(iii) copy, in whole or in part, decompile, decrypt, reverse engineer, disassemble or otherwise reduce the Software to human-readable form.
To the extent required by law, at Customer's request, Cisco shall provide Customer with the interface information needed to achieve interoperability between the Software and another independently created program, on payment of Cisco's applicable fee. Customer shall observe strict obligations of confidentiality with respect to such information.
UPGRADES AND ADDITIONAL COPIES. For purposes of this Agreement, "Software" shall
include (and the terms and conditions of this Agreement shall apply to) any
upgrades, updates, bug fixes or modified versions (collectively, "Upgrades") or
backup copies of the Software licensed or provided to Customer by Cisco or an
authorized distributor for which Customer has paid the applicable license fees.
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT: (1) CUSTOMER HAS NO
LICENSE OR RIGHT TO USE ANY SUCH ADDITIONAL COPIES OR UPGRADES UNLESS CUSTOMER,
AT THE TIME OF ACQUIRING SUCH COPY OR UPGRADE, ALREADY HOLDS A VALID LICENSE TO
THE ORIGINAL SOFTWARE; (2) USE OF UPGRADES IS LIMITED TO CISCO EQUIPMENT FOR
WHICH CUSTOMER IS THE ORIGINAL END USER PURCHASER OR LESSEE OR WHO OTHERWISE
HOLDS A VALID LICENSE TO USE THE SOFTWARE WHICH IS BEING UPGRADED; AND (3) USE
OF ADDITIONAL COPIES IS LIMITED TO BACKUP PURPOSES ONLY.
PROPRIETARY NOTICES. Customer agrees to maintain and reproduce all copyright and other proprietary notices on all copies, in any form, of the Software in the same form and manner that such copyright and other proprietary notices are included on the Software. Except as expressly authorized in this Agreement, Customer shall not make any copies or duplicates or any Software without the prior written permission of Cisco. Customer may make such backup copies of the Software as may be necessary for Customer's lawful use, provided Customer affixes to such copies all copyright, confidentiality, and proprietary notices that appear on the original.
PROTECTION OF INFORMATION. Customer agrees that aspects of the Software and associated documentation, including the specific design and structure of individual programs, constitute trade secrets and/or copyrighted material of Cisco. Customer shall not disclose, provide, or otherwise make available such trade secrets or copyrighted material in any form to any third party without the prior written consent of Cisco. Customer shall implement reasonable security measures to protect such trade secrets and copyrighted material. Title to Software and documentation shall remain solely with Cisco.
RESTRICTED RIGHTS. Cisco's commercial software and commercial computer software documentation is provided to United States Government agencies in accordance with the terms of this Agreement, and per subparagraph "(c)" of the "Commercial Computer Software - Restricted Rights" clause at FAR 52.227-19 (June 1987). For DOD agencies, the restrictions set forth in the "Technical Data-Commercial Items" clause at DFARS 252.227-7015 (Nov 1995) shall also apply.
TERM AND TERMINATION. This Agreement is effective until terminated. Customer may terminate this Agreement at any time by destroying all copies of Software including any Documentation. Customer's license rights under this Agreement will terminate immediately without notice from Cisco if Customer fails to comply with any provision of this Agreement. Upon termination, Customer must destroy all copies of Software in its possession or control.
PART (ii)
LIMITED WARRANTY. If Customer obtained the Software directly from Cisco, then Cisco warrants that for a period of
ninety (90) days from the date of shipment from Cisco: (i) the media on which the Software is furnished will be free of defects in materials and workmanship under normal use; and (ii) the Software will substantially conform to its published specifications. This limited warranty extends only to Customer as the original licensee. Customer's sole and exclusive remedy and the entire liability of Cisco and its suppliers under this limited warranty will be, at Cisco or its service center's option, repair, replacement, or refund of the Software if reported (or, upon request, returned) to Cisco or its designee. Except as expressly granted in this Agreement, the Software is provided AS IS. Cisco does not warrant that the Software is error free or that Customer will be able to operate the Software without problems or interruptions.
This warranty does not apply if the Software (a) is licensed for beta, evaluation, testing or demonstration purposes for which Cisco does not receive a license fee, (b) has been altered, except by Cisco, (c) has not been installed, operated, repaired, or maintained in accordance with instructions supplied by Cisco, (d) has been subjected to abnormal physical or electrical stress, misuse, negligence, or accident, or (e) is used in ultrahazardous activities.
If Customer obtained the Software from a Cisco distributor, the terms of any warranty shall be as provided by such distributor, and Cisco provides Customer no warranty with respect to such Software. DISCLAIMER. EXCEPT AS SPECIFIED IN THIS WARRANTY, ALL EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS, AND WARRANTIES INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OR CONDITION OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, SATISFACTORY QUALITY OR ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE, ARE HEREBY EXCLUDED TO THE EXTENT ALLOWED BY APPLICABLE LAW.
IN NO EVENT WILL CISCO OR ITS SUPPLIERS BE LIABLE FOR ANY LOST REVENUE, PROFIT, OR DATA, OR FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL, OR PUNITIVE DAMAGES HOWEVER CAUSED AND REGARDLESS OF THE THEORY OF LIABILITY ARISING OUT OF THE USE OF OR INABILITY TO USE THE SOFTWARE EVEN IF CISCO OR ITS SUPPLIERS HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. In no event shall Cisco's or its suppliers' liability to Customer, whether in contract, tort (including negligence), or otherwise, exceed the price paid by Customer. The foregoing limitations shall apply even if the above-stated warranty fails of its essential purpose. BECAUSE SOME STATES OR JURISDICTIONS DO NOT ALLOW LIMITATION OR EXCLUSION OF CONSEQUENTIAL OR INCIDENTAL DAMAGES, THE ABOVE LIMITATION MAY NOT APPLY TO YOU.
CUSTOMER RECORDS. Customer grants to Cisco and its independent accountants the right to examine Customer's books, records and accounts during Customer's normal business hours to verify compliance with this Agreement. In the event such audit discloses non-compliance with this Agreement , Customer shall promptly pay to Cisco the appropriate licensee fees.
EXPORT. Software, including technical data, is subject to U.S. export control laws, including the U.S. Export Administration Act and its associated regulations, and may be subject to export or import regulations in other countries. Customer agrees to comply strictly with all such regulations and acknowledges that it has the responsibility to obtain licenses to export, re-export, or import Software.
GENERAL. This Agreement shall be governed by and construed in accordance with the laws of the State of California, United States of America, as if performed wholly within the state and without giving effect to the principles of conflict of law. If any portion hereof is found to be void or unenforceable, the remaining provisions of this Agreement shall remain in full force and effect. This Agreement constitutes the entire agreement between the parties with respect to the use of the Software.
EXHIBIT T
INITIAL ORDER
[Initial order form for equipment (by individual parts number) for nine initial equipment sites.]
EXHIBIT U
TERMS AND CONDITIONS FOR THE CERENT 454 PRODUCT
1.0 SCOPE This Exhibit sets forth the terms and conditions for the purchase of Hardware and license of Software by Service Provider of the Cerent 454 Product ("Cerent Product") for Service Provider's internal business use only. Service Provider shall have no right to resell the Cerent Product. The terms and conditions of Cisco's Service Provider Agreement ("Agreement") shall apply to Service Provider's purchase of the Cerent Product to the extent such terms do not conflict with the terms and conditions stated herein, in which event the terms of this Exhibit shall take precedence. This Exhibit shall not apply to Service Provider's purchase of any other Cisco Products.
2.0 LIMITED WARRANTY For Service Provider's purchase of the Cerent Product, Section 10 of the Agreement shall be replaced by the following:
2.1 HARDWARE. Cisco warrants that for three years after shipment it shall repair or replace, at Cisco's sole option, any Cerent Product hardware manufactured by Cisco that shall prove, as determined by Cisco after examination, to be defective in materials or manufacture under normal intended usage, operation and maintenance during such period. This warranty shall not cover any consumable components, items not manufactured by Cisco, or the cost of labor by Service Provider's own employees, agents or contractors in identifying, removing or replacing any defective part or any Cerent Product. Returned replaced parts and Cerent Products shall become the property of Cisco. Cisco provides the same warranty as described in the first sentence of this Section for repaired or replacement parts and Cerent Products except that the period of coverage shall be the remaining time of the original warranty period for the part or Cerent Product replaced or repaired. This limited warranty extends only to Service Provider as original purchaser.
2.2 SOFTWARE. Cisco warrants that for one year after shipment, it will take all commercially reasonable steps to modify or replace any software shipped with any Cerent Product ("Software") that fails, when properly installed, to conform substantially and in all material respects to the Specifications set forth in the Cerent 454 User Manual. Except for the foregoing, the Software is provided AS IS. Cisco does not warrant that the Software will meet Service Provider's requirements or that operation of the Software will be uninterrupted or error free. This limited warranty extends only to Service Provider as original licensee.
2.3 Before returning any Cerent Product, Service Provider shall telephone the Cerent Technical Assistance Center (the "TAC") at 1-877-3CERENT for a Return Material Authorization ("RMA") number to trace the Cerent Product. Service Provider must clearly indicate the RMA number on every communication, including the outside of all return packages, with respect to returned Cerent Products. Cisco shall return repaired Cerent Products, or provide replacement Cerent Products, within fifteen (15) business days of receiving defective Cerent Products, unless Service Provider requests expedited service as described in Section 3.1(e) below. Service Provider shall be responsible for shipping Cerent Products back to Cisco, and Cisco shall be responsible for shipping repaired or replacement Cerent Products to Service Provider.
2.4 RESTRICTIONS. The warranties set forth above do not apply if the Cerent Product (a) has been altered, except by authorized Cisco personnel, unless such alteration has been approved or authorized by Cisco, (b) has not been installed, operated, repaired, or maintained in accordance with instructions supplied by Cisco, (c) has been subjected to abnormal physical or electrical stress, misuse, negligence, or accident, or (d) is used in ultrahazardous activities. Cisco reserves the sole right to determine compliance under the terms of this warranty. The foregoing warranty shall not apply to any Cerent Product or Software (a) which Cisco and Service Provider mutually agree will be marked or identified as "sample", (b) loaned or provided to Service Provider at no
cost, or (c) which is sold "as is". Service Provider shall pay Cisco [*] for any Cerent Product that is returned for repair and which is not defective in any manner.
2.5 SERVICE PROVIDER'S SOLE AND EXCLUSIVE REMEDY AND THE ENTIRE LIABILITY OF CISCO AND ITS SUPPLIERS UNDER THIS LIMITED WARRANTY SHALL BE AS SET FORTH IN THIS SECTION 2.
2.6 DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFIED IN THIS SECTION 2, ALL EXPRESS OR IMPLIED CONDITIONS, REPRESENTATIONS, AND WARRANTIES INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OR CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, SATISFACTORY QUALITY, AGAINST INFRINGEMENT OR ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE, ARE HEREBY EXCLUDED TO THE EXTENT ALLOWED BY APPLICABLE LAW. THIS DISCLAIMER AND EXCLUSION SHALL APPLY EVEN IF THE EXPRESS WARRANTY SET FORTH ABOVE IN THIS SECTION FAILS OF ITS ESSENTIAL PURPOSE.
3.0 SERVICES Services for the Cerent Product shall be available to Service Provider subject to the terms set forth below, which, for the Cerent Products, shall replace Exhibit C of the Agreement:
3.1 SERVICES FOR CERENT PRODUCTS UNDER WARRANTY
a. While under warranty, Service Provider shall receive
twenty four (24) hour, seven (7) day a week technical
assistance for the Cerent Product at no charge
through Cerent's Technical Assistance Center ("TAC").
The toll-free phone number is 1-877-3Cerent.
Equipment failures should be reported to the TAC
during normal business hours, 8:00 a.m. to 7:00 p.m.
(Central Standard Time), except for an emergency
equipment failure, which should be reported
immediately to the TAC. All calls to TAC receive
immediate and direct attention. When a call is
received, the attendant shall determine the severity
and type of problem. The Service Provider's call
shall be assigned and managed by a technical support
engineer for attention and resolution.
b. For urgent technical problems, during normal business hours, 8:00 a.m. to 7:00 p.m. (Central Standard Time), a qualified technician shall be available for immediate contact. Outside of normal business hours, an attendant shall ensure a qualified technician responds to Service Provider within one (1) hour.
c. For non-urgent technical problems, a qualified technician shall respond to a Service Provider call within thirty (30) minutes during normal business hours. Outside of normal business hours, a qualified technician shall respond within one (1) hour of the next business day.
d. For severe problems that have not been resolved within eight (8) hours, Cisco shall provide an on-site technician within twenty four (24) hours.
[*] Indicates confidential treatment requested.
e. For Cerent Products under warranty, there is no charge for repair and return in accordance with the standard turn-around time. Cisco will seek to repair failed Cerent Product and ship the repaired Cerent Product to Service Provider within fifteen (15) business days of receipt. The following expedited service options are available:
1. EMERGENCY PRIORITY. Service Provider may request
that a field replacement unit be shipped in
advance of receipt of the failed/defective unit.
A replacement unit will ship the same day to
arrive the next business day provided both the
call and Cisco's diagnosis and determination of
the failed Hardware has been made before 3:00
p.m., local time, Monday through Friday
(excluding Cisco-observed holidays). For
requests after 3:00 p.m., local time, the
Advance Replacement will ship the next business
day. Advance Replacements will be shipped using
Cisco's preferred carrier, freight prepaid by
Cisco, excluding import duties, taxes and fees,
where applicable. This service is subject to a
[*] fee per unit shipped to Service Provider.
2. CUSTOMER REQUESTED PRIORITY. Service Provider
may request that failed equipment be repaired
and returned within three (3) business days from
receipt by Cisco thereof. This additional
service shall be subject to an additional fee of
[*] per unit. Service Provider shall return
failed equipment, if sent a replacement Cerent
Product, within thirty (30) business days.
3.2 ADDITIONAL TECHNICAL SUPPORT SERVICES NOT COVERED UNDER
WARRANTY
a. Service Provider may purchase extended warranty
coverage in accordance with the then-current Extended
Warranty Policy offered for Cerent Product.
b. For calls to TAC not covered under warranty, Services Provider shall be charged a fee of [*] per hour.
c. For repair and return of Cerent Product not covered under warranty, Service Provider shall pay [*] of the purchase price of a new part plus any other applicable fees. Repaired Cerent Product shall have a ninety (90) day warranty. Service Provider may be required to provide written information regarding the Cerent Product. All charges for shipping shall be the responsibility of Service Provider.
d. Service Provider may request on-site field support for a fee of [*] dollars per day per technician plus reasonable, out of pocket travel and living expenses.
3.3 TRAINING
a. Service Provider may purchase training classes that
range from one (1) to two (2) days for a fee of [*]
dollars per day.
b. Classes shall address: (i) operations and maintenance; and (ii) planning and applications.
c. Classes shall be offered at Cisco's Petaluma site or on-site subject to a [*] fee and travel expenses.
d. Classes are provided for groups of four (4) to ten
(10). Additional individuals may attend for a fee of
[*] per person per day.
3.4 INSTALLATION SERVICES
[*] Indicates confidential treatment requested.
a. Service Provider may purchase turn-up and testing services for a fee of [*] per day plus reasonable out of pocket travel expenses and a [*] percent administrative fee.
b. Service Provider may request field engineers to
supervise its own installation crews for a fee of
[*] per day plus reasonable out of pocket travel
expenses.
c. For turn-key installations, Service Provider may request a firm fixed price proposal.
3.5 SOFTWARE UPGRADE SERVICES
a. A software release contains the core software load
and also may include optional feature packages.
b. The nominal charge for an upgrade of the core software load is [*] dollars per network element. For example, five (5) network elements may be upgraded for a total cost of [*] dollars.
c. A core software load may be purchased once and downloaded into all of the Cerent 454 systems owned by Service Provider.
d. When Service Provider purchases a software upgrade, TAC support is available at no charge during Service Provider's upgrade process.
e. Optional feature packages may be introduced that provide for additional features. Service Provider may elect to purchase and deploy these optional features at its discretion. Optional feature packages will be priced individually on a per Cerent 454 network element basis.
f. Service Provider is encouraged to upgrade with each incremental release to stay within one release of the current Cerent 454 core software load. For an upgrade of a Cerent 454 terminal that is not within one release of the current Cerent 454 core software load, Service Provider shall pay for the cost of all upgrades subsequent to the release which is currently on such terminal, as well as the current upgrade. For example, upgrading a network element from Release 1 to Release 4 will cost [*] per network element, while upgrading a network element from Release 3 to Release 4 will cost only [*].
g. Service Provider may order software upgrade service to assist in keeping its network current with system software. Upon acceptance of such order, Cisco will upgrade Service Provider's network with the current Cerent 454 system software during a mutually agreed to schedule. The fee for this service is [*] dollars per Cerent 454 network element, plus reasonable out of pocket travel and living expenses for a qualified technician. This service fee is in addition to the applicable software upgrade charges identified above in subsections 3.5(b), (e), and (f). To purchase this service, Service Provider also contemporaneously must order an upgrade of the core software load. Cisco personnel will verify system operation and hardware and software compatibility as part of this service.
h. Software license. Service Provider acknowledges that it may receive Software as a result of services provided under this Exhibit. Service Provider agrees that it is licensed to use such Software only on Hardware covered under this Exhibit and subject to the terms and conditions of the Software license granted with the original Cerent Product. Customer shall not: (i) copy, in whole or in part, Software or documentation; (ii) modify the
[*] Indicates confidential treatment requested.
Software, reverse compile or reverse assemble all or any portion of the Software; or (iii) rent, lease, distribute, sell, or create derivative works of the Software.
AMENDMENT NO. 1
This Amendment No. 1 (the "Amendment") to the Service Provider Agreement dated the 15th day of March, 2000 (the "Agreement") by and between Cisco Systems, Inc. ("Cisco"), a California corporation having its principal place of business at 170 West Tasman Drive, San Jose, California 95134, and Cogent Communications, Inc. ("Service Provider"), a Delaware corporation having its principal place of business at 1015 31st Street NW, Washington DC 20007, is entered into as of the 1st day of June, 2000 (the "Effective Date").
WHEREAS Cisco and Service Provider entered in the Agreement for the supply of certain products; and,
WHEREAS the parties have negotiated an arrangement related to the supply of alternate products; and
WHEREAS the parties wish to amend the Agreement,
NOW THEREFORE the parties agree as follows:
1. DEFINITIONS
1.1 All capitalized terms shall have the meaning ascribed in the Agreement.
2. AMENDMENTS
2.1 The Agreement is amended as follows:
2.1.1 Page 1 by inserting in numeric sequence
8. EXHIBIT V: OCO192 Uni-Directional Network;
2.1.2 Section 2.4.2 by deleting "Year 1 following the Effective Date
[*]; Year 2 following the Effective Date [*]; Year 3
following the Effective Date [*]; and, Year 4 following the
Effective Date [*]" and replacing with "Year 1 following
the Effective Date [*]; Year 2 following the Effective Date
[*]; Year 3 following the Effective Date [*]; Year 4
following the Effective Date [*]; and Year 5 following the
Effective Date [*]";
2.1.3 Section 14.1 by deleting "four (4)" and replacing with "five (5)"; and,
2.1.4 Attachment 1 to this Amendment is inserted into the Agreement as Exhibit V, Additional Commitments.
3. ALL OTHER TERMS AND CONDITIONS
3.1 All other terms and conditions shall remain of the Agreement shall remain unchanged and in full force and effect.
[*] Indicates confidential treatment requested.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed. Each party warrants and represents that its respective signatories whose signatures appear below have been and are on the date of signature duly authorized to execute this Agreement.
COGENT COMMUNICATIONS, INC. CISCO SYSTEMS, INC. ("CISCO") ("SERVICE PROVIDER") /s/ DAVE SCHAEFFER /s/ RICK TIMMINS --------------------------- ----------------------------- Authorized Signature Authorized Signature DAVE SCHAEFFER RICK TIMMINS --------------------------- ----------------------------- Name Name VP WW Sales Finance 6-29-2000 Jul 05 2000 --------------------------- ----------------------------- Date Date |
ATTACHMENT 1
EXHIBIT V
OCO192 10x10 UNI-DIRECTIONAL NETWORK
1. The Agreement sets out products for a 6x6 channel nationwide OC-192 bi-directional network over 4 years. This Exhibit, in the alternative to the Agreement, sets out products for a nationwide OCO192 10 x 10 uni-directional network over five years. Service Provider accepts the alternative product solution subject to the terms set out in the Amendment and this Exhibit.
2. Based on the data supplied by Customer to Cisco to date, the estimated
cost for 10 channels is [*]. The price for Channel 1 is
[*]. The price for Channels 2-10 is [*] per channel and
will be purchased by Service Provider at a rate of one channel every [*]
[*] commencing November 1, 2000.
3. Cisco shall make the following payments to Service Provider:
One business day following the execution of the Agreement $[***] December 15, 2000 $[***] June 15, 2001 $[***] December 15, 2001 $[***] |
The obligation to make such payments shall be made by Cisco on or prior to the applicable date without deduction or setoff for any reason whatsoever.
4. All payments made by Cisco to Service Provider are for the purpose of Service Provider acquiring a second strand of fiber from Service Provider's fiber provider.
5. The parties acknowledge that the payments set forth in this Exhibit are
in full payment of all the liquidated damages credits anticipated in
Section 6.3 of the Agreement.
6. In the event the Agreement is terminated by Cisco (i) pursuant to Section 14.2 of the Agreement where such competitor was a competitor of Cisco at the date of this Amendment; or (ii) pursuant to Section 14.3 or 14.4 of the Agreement, Service Provider shall be obligated to repay Cisco the amounts paid to Service Provider pursuant to Section 3 of this Exhibit. Notwithstanding the foregoing, in the event the Service Provider has made the aggregate purchases contemplated in Section 2.4.1 of the Agreement, notwithstanding such termination, Service Provider shall have no obligation to make any repayments as set forth herein.
[*] Indicates confidential treatment requested.
AMENDMENT NO. 3
This Amendment No. 3 ("Amendment 3") to the Service Provider Agreement dated the 15th day of March, 2000, and its Amendment No. 1 dated June 1, 2000, (collectively the "Agreement") by and between Cisco Systems, Inc. ("Cisco"), a California corporation having its principal place of business at 170 West Tasman Drive, San Jose, California 95134, and Cogent Communications, Inc. ("Service Provider"), a Delaware corporation having its principal place of business at 1015 31st Street NW Washington, DC 20007, is entered as of the last date written below (the "Effective Date").
WHEREAS Cisco and Service Provider entered into the Agreement and Amendment No. 1 thereto for the supply of certain products; and
WHEREAS Cisco proposed to Service Provider Amendment #2 as of January 19, 2001, but which Amendment #2 did not become effective; and
WHEREAS the parties have negotiated an alternative arrangement related to the supply of such certain products as set forth below; and
WHEREAS, the parties wish to amend the Agreement.
NOW THEREFORE, the parties agree as follows:
1. The Agreement and Amendment No. 1 set out products for a nationwide OC192 10 x 10 uni-directional network over five years wherein Service Provider shall purchase 10 channels for an approximate net purchase price of [*] Million. The price for Channel 1 was [*]. The price for Channels 2-10 is [*] per channel with Service Provider's obligation to purchase one channel every six months commencing upon November 1, 2000. Service Provider has currently purchased only Channel 1.
2. Service Provider agrees to receive shipment of the next seven (7) channels on or about April 1, 2001 and agrees to pay the fee of [*] per channel as follows:
a. Service Provider agrees to pay the net purchase price of [*] for Channels 2 and 3 on or before July 15, 2001.
b. Service Provider agrees to pay the net purchase price of [*] for Channels 4 and 5 on or before October 15, 2001.
c. Service Provider agrees to pay the net purchase price of [*] for each of Channels 6, 7 and 8. Cisco shall not invoice Service Provider for the aforementioned purchase price of each of Channels 6, 7, and 8 until, with respect to each channel, the earlier of the following two events occurs: (i) a router or other network element running at OC-192 is connected to a Cisco 15800 and the 15800 is carrying revenue producing traffic across any cross-section of the respective channel, or (ii) April 30, 2003 (for channel 6), October 31, 2003 (for channel 7), and April 30, 2004 (for channel 8). Service Provider shall be obligated to pay the net purchase price for each channel once either one of the foregoing events occurs with respect to a particular channel. Service Provider shall provide Cisco 30 days written notice prior to connection of such a router or other network element to a channel, and failure to provide such notice shall be considered a material breach of the Agreement. Service Provider shall permit Cisco reasonable access, upon request, to Service Provider's facilities in order to ascertain whether any of channels 6 through 8 is carrying revenue producing traffic. Title to the components of each channel shall not transfer to Service Provider until the net purchase price for that particular channel has been paid in full. Risk of loss shall pass from Cisco to Service
[*] Indicates confidential treatment requested.
Provider upon delivery of each channel to a common carrier at Cisco's designated shipping location.
d. The term "channel" as used herein shall consist of a Cisco ONS 15800 Wavelength Conversion Module (WCM) (or a reasonably equivalent successor thereto), a Line Extension Module (LEM), and a Receiver Module (RXT).
e. All of the aforementioned net purchase prices are exclusive of any taxes, fees and duties or other amounts, however designated, and including without limitation, value added and withholding taxes which are levied or based upon such charges, or upon the Agreement.
3. PRICING FOR CHANNELS 11-32. Cisco agrees to offer to Service Provider channels 11-32 on the OC-192 backbone at a net purchase price of $6,100,000 per channel provided that this offer shall not survive the expiration or earlier termination of the Agreement.
4. All other terms and conditions of the Agreement shall remain unchanged and in full force and effect.
IN WITNESS THEREOF, the parties have caused this Amendment 3 to be duly executed. Each Party warrants and represents that its respective signatories whose signature appear below have been and are on the date of signature duly authorized to execute this Amendment 3.
COGENT COMMUNICATIONS, INC. CISCO SYSTEMS, INC. ("Service Provider") ("Cisco") Signature /s/ David Schaeffer Signature /s/ Cory Ellsworth Name David Schaeffer Name Cory Ellsworth Title/Date Chief Executive Officer Title/Date Group Controller March 1, 2001 March 1, 2001 |
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT, entered into and effective February 7, 2000 (the "Effective Date") is made by and between Cogent Communications, Inc., a Delaware corporation (the "Company") and David Schaeffer (the "Executive").
RECITALS:
A. It is the desire of the Company to assure itself of the services of the Executive by engaging the Executive as its Chairman, Chief Executive Officer and President.
B. The Executive desires to serve the Company on the terms herein provided.
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS.
(a) "Annual Base Salary" shall have the meaning set forth in Section 5(a).
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Bonus" shall have the meaning set forth in
Section 5(b).
(d) The Company shall have "Cause" to terminate the Executive's employment hereunder upon the Executive's:
(i) fraud, embezzlement, or any other illegal act committed intentionally by the Executive in connection with the Executive's duties as an executive of the Company,
(ii) conviction of or plea of NOLO CONTENDRE to, any felony , or
(iii) willful or grossly negligent infliction of material economic injury to the Company.
(iv) willful failure to perform his duties under Section 3 hereof (other than any such failure resulting from a material breach of the obligations of the Company hereunder or the death or Disability of Employee or any such failure occurring after any of the events constituting "Good Reason" hereunder has occurred) if such failure is not corrected within thirty (30) business days after receipt by Employee of a written notice which identifies in reasonable detail the manner in which the Company believes that Employee has not performed his duties hereunder, or
(v) any material breach of Employee's obligations under the Confidentiality and Non-Compete Agreement executed pursuant to Section 9 hereof.
(e) "Change in Control" shall mean any of the following events:
(i) any consolidation, share exchange, merger, issuance or transfer of the Securities of the Company (a "Change of Control Transaction") (A) in which the shareholders of the Company immediately prior to such Change of Control Transaction do not own at least a majority of the voting power of the entity which survives/results from such Change of Control Transaction or (B) in which a shareholder of the Company immediately before such Change of Control Transaction, who does not own a majority of the voting stock of the Company immediately prior to such Change of Control Transaction, owns a majority of the Company's voting stock after such Change of Control Transaction other than any such change resulting from a sale by Employee of his shares of the Company;
(ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, including stock held in subsidiary corporations or interests held in subsidiary ventures, or
(iii) after registration of the Company's securities, the Company shall file a report with the Securities and Exchange Commission on Form 8-K (or any successor thereto), that a change in control (other than any such change resulting from a sale by Employee of his shares of the Company) of or over the Company has occurred.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Compensation Committee of the Board.
(h) "Company" shall have the meaning set forth in the preamble hereto.
(i) "Company Stock" shall mean the $.001 par value common stock of the Company.
(j) "Contract Year" shall mean each twelve month period beginning on the Effective Date or an annual anniversary thereof.
(k) "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death and (ii) if the Executive's
employment is terminated pursuant to Section 6(a)(ii) - (vi) the date specified in the Notice of Termination.
(l) "Disability" shall mean any mental or physical illness, condition, disability or incapacity which:
(i) prevents the Executive from discharging substantially all of the essential job responsibilities and employment duties,
(ii) continues for a period of 180 days (whether or not consecutive) during any 12 month period, and
(iii) results in a written determination that the Executive is "totally disabled" for the purpose of receiving disability income payments pursuant to the disability policy for the benefit of Executive in effect at such time.
A Disability shall be deemed to have occurred on the 180th consecutive day of such Disability and shall be determined in accordance with applicable law relating to disability.
(m) "Executive" shall have the meaning set forth in the preamble hereto.
(n) "Extension Term" shall have the meaning set forth in Section 2.
(o) "Good Reason" shall mean:
(i) any assignment of duties inconsistent with the Executive's position(s) with the Company or any subsidiary of the Company, or a change in the Executive's reporting responsibilities, titles or offices or any removal of the Executive from or any failure to reelect him to his position(s) (other than any such change resulting from the election by the Board of a non-executive Chairman, as approved by 2/3 of the Board then sitting), or any material change by the Company or any subsidiary in the Executive's functions, duties, or responsibilities, which change would cause the Executive's position to become one of lesser responsibility, importance or scope from the position(s) (each "Constructive Termination");
(ii) any violation or breach of this Agreement by the Company in any material respect and the failure of the Company to correct such breach within thirty (30) business days after the receipt by the Company of a written notice from Employee specifying in reasonable detail the nature of such breach);
(iii) any change in the Company's principal place of business to a place outside the Washington, DC metropolitan area, other than for good faith business reasons; or
(iv) the failure by the Company or any subsidiary of the Company to continue any benefit plan, life insurance plan, health and accident plan or disability plan in which the Executive is participating or the taking of any action by the Company or any subsidiary which would materially and adversely affect the Executive's participation in or materially reduce benefits under any of such plans, unless (except in the case of a pension plan) such plan is generally available to all employees of the Company or any such subsidiary, as the case may be, and any such failure or action similarly affects all similarly situated participants in such plan.
(p) "Initial Term" shall have the meaning set forth in
Section 2.
(q) "Notice of Termination" shall have the meaning set forth in Section 6(b).
(r) "Term" shall have the meaning set forth in
Section 2.
2. EMPLOYMENT. The Company shall employ the Executive and the Executive shall enter the employ of the Company, for the period set forth in this Section 2, in the positions set forth in the first sentence of Section 3 and upon the other terms and conditions herein provided. The initial term of employment under this Agreement (the "Initial Term") shall be for the period beginning on the Effective Date and ending on December 31, 2003, unless earlier terminated as provided in Section 6. The Initial Term shall automatically be extended for a single additional period expiring December 31, 2006 (the "Extension Term") unless either party hereto gives written notice of non-extension to the other no later than September 1, 2003. (The Initial Term and any Extension Term shall be collectively referred to as the "Term" hereunder). Failure to elect or reelect to the Board the Executive designees or any other designee whom the Executive is entitled to designate pursuant to agreements with the Company shall constitute a material breach of this Agreement.
3. POSITION AND DUTIES. The Executive shall serve as Chairman, Chief Executive Officer and President of the Company, reporting to the Board, with such responsibilities, duties and authority as are customary for such role. The Executive shall devote substantially his full business time and attention toward the fulfillment and execution of all assigned duties. The Executive may devote such time and attention to (i) community and civic activities, of various organizations of which he may be a director, officer or member; (ii) serving as a fiduciary of an estate or trust for the benefit of a member of his family or a friend; (iii) plan or engage in business activities or ventures related to his personal, real estate and other investments; or (iv) other activities appropriate and not inconsistent with his duties and responsibilities hereunder.
4. PLACE OF PERFORMANCE. In connection with his employment during the Term, the Executive shall be based at the Company's principal place of business in the metropolitan DC area (the "Corporate Headquarters"), except where such principal place of business is changed for good business reasons.
5. COMPENSATION AND RELATED MATTERS.
(a) ANNUAL BASE SALARY. During the Term the Executive shall receive a base salary at a rate of $250,000 per annum (the "Annual Base Salary"), paid in accordance with the Company's general payroll practices for executives, but no less frequently than monthly. No less frequently than annually during the Term, the Board and the Committee shall review the rate of Annual Base Salary payable to the Executive, and may increase, but may not decrease, the rate of Annual Base Salary payable hereunder; PROVIDED, HOWEVER, that any increased rate shall thereafter be the rate of "Annual Base Salary" hereunder.
(b) BONUS. Except as otherwise provided for herein, for each calendar year on which the Executive is employed hereunder on the last day, the Executive shall be eligible to receive a Bonus (the "Bonus") in such amount as may be determined by the Committee.
(c) BENEFITS. The Executive shall be entitled to receive such benefits and to participate in such employee group benefit plans, including health insurance, as provided by the Company to its executives in accordance with the plans, practices and programs of the Company. The Company shall provide the Executive with life insurance with a death benefit equal to $2,000,000, the proceeds of which are payable to the Executive or any Executive designated beneficiary. The Company shall also provide long-term disability insurance to replace two-thirds of the Executive's Annual Base Salary. The Company shall pay the cost of all premiums associated with such life and disability insurance.
(d) EXPENSES. The Company shall reimburse the Executive for all reasonable and necessary expenses incurred by the Executive in connection with the performance of the Executive's duties as an employee and Director of the Company. Such reimbursement is subject to the submission to the Company by the Executive of appropriate documentation and/or vouchers in accordance with the customary procedures of the Company for expense reimbursement, as such procedures may be revised by the Company from time to time hereafter.
(e) VACATIONS. The Executive shall be entitled to paid vacation in accordance with the Company's vacation policy as in effect from time to time. However, in no event shall the Executive be entitled to less than three (3) weeks vacation per Contract Year. The Executive shall also be entitled to paid holidays and personal days in accordance with the Company's practice with respect to same as in effect from time to time. To the extent any paid vacation days are not used by Executive during any calendar year, those unused vacation days shall be carried forward from year to year and used in any succeeding year, but in no event shall executive be entitled to more than six (6) weeks vacation in any single year. To the extent there are any unused vacation days at the termination of Executive's employment, Executive shall receive a lump sum payment for up to six (6) weeks of such unused vacation days (including any vacation days carried
forward from prior years) within thirty (30) days after the effective date of the termination and any additional vacation days shall be forfeited.
(f) ADDITIONAL BENEFITS. Anything to the contrary hereinabove stated notwithstanding, if the Company continues or adopts any plan or plans of any nature including but without limiting the generality of the foregoing pension plan, profit sharing plan, bonus plans, or insurance plans, by the terms of which Executive would be eligible to participate therein, then Executive shall be entitled to receive all emoluments or benefits as may be provided thereby as are provided to similarly situated senior executives of the Company, in addition to all of his other rights and benefits hereunder. Nothing paid to the Executive under any such plan(s) or arrangement(s) will be deemed to be in lieu of other compensation to which the Executive is entitled under this Agreement.
6. TERMINATION. The Executive's employment hereunder may be terminated by the Company, on the one hand, or the Executive, on the other hand, as applicable, without any breach of this Agreement only under the following circumstances:
(a) Terminations.
(i) DEATH. The Executive's employment hereunder shall terminate upon his death.
(ii) DISABILITY. If the Executive has incurred a Disability, the Company may give the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive.
(iii) CAUSE. The Company may terminate the Executive's employment hereunder for Cause. Any such termination for Cause may only be effected by the affirmative vote of a two-thirds majority of the Board of Directors (other than the Executive), after written notice to the Executive and an opportunity to appear before the Board (with counsel) to respond to the allegations which are in such written notice, that the Executive has engaged in the alleged conduct and that in their good faith judgment such conduct warrants termination for Cause.
(iv) GOOD REASON. The Executive may terminate his employment for Good Reason.
(v) WITHOUT CAUSE. The Company may terminate the Executive's employment hereunder without Cause.
(vi) RESIGNATION WITHOUT GOOD REASON. The Executive may resign his employment without Good Reason upon 30 days written notice to the Company.
(b) NOTICE OF TERMINATION. Any termination of the
Executive's employment by the Company or by the Executive under this
Section 6 (other than termination pursuant to paragraph (a)(i)) shall
be communicated by a written notice to the other party hereto
indicating the specific termination provision in this Agreement relied
upon, setting forth in reasonable detail any facts and circumstances
claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and specifying a Date of
Termination which, except in the case of termination for Cause or
Disability, shall be at least thirty days following the date of such
notice (a "Notice of Termination").
7. SEVERANCE PAYMENTS.
(a) TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. If
the Executive's employment shall terminate without Cause (pursuant to
Section 6(a)(v)) (which for this purpose shall include any termination
by reason of the Company's non-extension or non-renewal of this
Agreement beyond the Initial Term), or for Good Reason (pursuant to
Section 6(a)(iv)), the Company shall:
(i) pay to the Executive, in a lump sum cash payment as soon as practicable following the Date of Termination, an amount equal to his then current rate of Annual Base Salary, and
(ii) continue to provide the Executive with all employee benefits and perquisites which he was participating in or receiving at the time of the Termination of Employment for a period of one (1) year. If such benefits cannot be provided under the Company's programs, such benefits and perquisites will be provided on an individual basis to the Executive such that his after-tax costs will be no greater than the costs for such benefits and perquisites under the Company's programs.
(b) SURVIVAL. The expiration or termination of the Term shall not impair the rights or obligations of any party hereto which shall have accrued hereunder prior to such expiration.
(c) MITIGATION OF DAMAGES. In the event of any termination of the Executive's employment by the Company, the Executive shall not be required to seek other employment to mitigate damages, and any income earned by the Executive from other employment or self-employment shall not be offset against any obligations of the Company to the Executive under this Agreement.
8. PARACHUTE PAYMENTS.
(a) If it is determined (as hereafter provided) that
by reason of any payment or Option vesting occurring pursuant to the
terms of this Agreement (or otherwise under any other agreement, plan
or program) upon a change in control (for the purposes of this
Section 8, as defined under applicable law) (collectively a "Payment")
the Executive would be subject to the excise tax imposed by Code
Section 4999 (the "Parachute Tax"), then the Executive shall be
entitled to receive an additional payment or payments (a "Gross-Up
Payment") in an amount such that, after payment by the Executive of
all taxes (including any Parachute Tax) imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal
to the Parachute Tax imposed upon the Payment, provided, however, that
the Gross-Up Payment hereunder shall be capped at 20% of the Payment.
(b) Subject to the provisions of Section 8(a) hereof, all determinations required to be made under this Section 8, including whether a Parachute Tax is payable by the Executive and the amount of such Parachute Tax and whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by the nationally recognized firm of certified public accountants (the "Accounting Firm") used by the Company prior to the change in control (or, if such Accounting Firm declines to serve, the Accounting Firm shall be a nationally recognized firm of certified public accountants selected by the Executive).
9. COMPETITION AND CONFIDENTIALITY. Concurrently herewith, the Executive and the Company shall enter into a Confidentiality and Non-Compete Agreement.
10. INDEMNIFICATION. The Executive shall be entitled to indemnification set forth in the Company's Amended and Restated Certificate of Incorporation to the maximum extent allowed under the laws of the State of Delaware, and he shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director, officer or employee of the Company or any of its subsidiaries or his serving or having served any other enterprise as a director, officer or employee at the request of the Company.
11. NO DELEGATION. The Executive shall not delegate his employment obligations under this Agreement to any other person.
12. ASSIGNMENT. Neither party may assign any of its obligations hereunder without the prior written consent of the other party.
13. NOTICES. Any written notice required by this Agreement will be deemed provided and delivered to the intended recipient when (a) delivered in person by hand; or (b) three days after being sent via U.S. certified mail, return receipt requested; or (c) the day after
being sent via by overnight courier, in each case when such notice is properly addressed to the following address and with all postage and similar fees having been paid in advance:
If to the Company: Cogent Communications, Inc. 1015 31st Street, N.W. Suite 330 Washington, D.C. 20007 Fax: (202) 338-8798 with a copy to: John D. Watson Latham & Watkins 1001 Pennsylvania Ave., N.W. Suite 1300 Washington, D.C. 20004 Fax: (202) 637-2201 |
If to the Executive: to him at the address set forth below under his signature.
Either party may change the address to which notices, requests, demands and other communications to such party shall be delivered personally or mailed by giving written notice to the other party in the manner described above.
14. BINDING EFFECT. This Agreement shall be for the benefit of and binding upon the parties hereto and their respective heirs, personal representatives, legal representatives, successors and, where applicable, assigns.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the listed parties with respect to the subject matter described in this Agreement and supersedes all prior agreements, understandings and arrangements, both oral and written, between the parties with respect to such subject matter. This Agreement may not be modified, amended, altered or rescinded in any manner, except by written instrument signed by both of the parties hereto; provided, however, that the waiver by either party of a breach or compliance with any provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or compliance.
16. SEVERABILITY. In case any one or more of the provisions of this Agreement shall be held by any court of competent jurisdiction or any arbitrator selected in accordance with the terms hereof to be illegal, invalid or unenforceable in any respect, such provision shall have no force and effect, but such holding shall not affect the legality, validity or enforceability of any other provision of this Agreement provided that the provisions held illegal, invalid or unenforceable does not reflect or manifest a fundamental benefit bargained for by a party hereto.
17. CHOICE OF LAW. The Executive and the Company intend and hereby acknowledge that jurisdiction over disputes with regard to this Agreement, and over all aspects
of the relationship between the parties hereto, shall be governed by the laws of the District of Columbia without giving effect to its rules governing conflicts of laws.
18. SECTION HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any manner the meaning or interpretation of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
[signature page follows]
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.
COGENT COMMUNICATIONS, INC.
Exhibit 10.7
1015 31st Street, NW Suite 330
Washington, DC 20007
Tel: 202-295-4201
Fax: 202-338-8798
May 23, 2000
Mr. William R. Currer
*********
*********
Dear Bill:
Cogent Communications is offering William R. Currer the position of President and Chief Operating Officer (COO), reporting to the Chairman and CEO. The current cash compensation for this position will be a base salary of $300,000. Salary will be paid semimonthly.
In addition to the cash compensation you receive, Cogent will issue 600,000 shares of options to purchase common equity in the company at a strike price of $1.00. 100% of these options will vest quarterly over a 4 year period. Based upon the targeted capitalization of the company, there are 49.5 million shares outstanding.
By joining Cogent at this time, you will make a one-time purchase of approximately 21,978 shares of Series B Preferred stock at a price of $4.55, resulting in a total purchase price of approximately $100,000.
Cogent will periodically perform employee evaluations at minimum intervals of 12 months commencing within 18 months of your employment. These reviews will be utilized to evaluate your compensation package relative to the market for similar level professionals at organizations of comparable stage of development and market opportunity to Cogent. The findings of these reviews will be submitted to the company's compensation committee for final decision and appropriate compensation adjustments.
In the event of Constructive Termination or Termination Without Cause, you will receive one year's salary against $300,000, six months of benefits coverage, all vested shares and shares to be vested in the quarter of termination. In the event of a Change of Control and Termination Without Cause or Constructive Termination, in addition to the above mentioned conditions, you will receive 50% of your unvested shares at the $1.00 strike price.
As a member of the Cogent team, you will be entitled to company funded health care insurance, dental coverage, and life insurance. The company will also implement a 401k retirement plan that will be corporately administered, however, it will require individual contributions on a non-matching basis by individual participants. Cogent is prepared to offer 3 weeks of paid vacation. Additionally, the company will implement 6 fixed major holidays and there will be 1 discretionary floating holiday to be chosen from other less recognized holidays.
In order to compensate you for moving and travel expenses associated with this position, Cogent proposes a $65,000 travel and moving budget with a commitment on your part to relocate your principal residence to the company's headquarter location in Washington, DC within 12 months. During the intervening period, you are committed to spending 5 days per week at the company's headquarters and bearing all travel and lodging expenses associated with that commitment from the above mentioned budget.
Upon acceptance of this offer of employment, you will be required to sign a non-compete and non-disclosure agreement with the company. Your proposed start date is June 19th, 2000 or at a date mutually agreed upon by you and the company.
We look forward to having you join our team and build the most advanced next generation network for high speed Internet services. This offer remains in effect through May 29th, 2000 at 10:00 am. If you have any further questions, please give me a call at 202-295-4201.
Sincerely,
Dave Schaeffer
Agreed and Accepted
/s/ 8/24/00 --------------------------- -------------------- William R. Currer Date |
Exhibit 10.8
1015 31st Street, NW Suite 330
Washington, DC 20007
Tel: 202-338-4067
Fax: 202-338-8798
March 13, 2000
Mr. Barry J. Morris
*******
*******
Dear Barry:
Cogent Communications is offering Barry J. Morris the position of Vice President of Sales. This position will be responsible for the sales and marketing efforts for the company's retail and wholesale strategy. This position will also require managing a sales force of approximately 40-50 representatives. The current cash compensation for this position will be a base salary of $175,000 and $60,000 payable as a bonus based upon mutually agreeable performance targets both corporate and individual. Base salary will be paid semi-monthly. Due to the early stage nature of Cogent's business plan, your initial year 2000 performance targets have been deemed met and a bonus of $45,000 (pro-rated for year 2000) will be payable on a quarterly basis for the rest of the year 2000. The next year's bonus payment structure will be determined at a later date. Upon over-achievements of targets and milestones, there will be a loading factor applied to the compensation with a structure as follows: 60% based on personal achievement, 20% based on business region achievement, and 20% based on company achievement.
In addition to the cash compensation you receive, Cogent will issue 300,000 shares of options to purchase common equity in the company at a strike price of $.25. 50,000 shares will vest immediately upon the start of your employment with Cogent. The remaining options will vest quarterly over a 4 year period. Based upon the targeted capitalization of the company, there will be approximately up to 49.5 million shares outstanding.
Cogent will periodically perform employee evaluations at minimum intervals of 12 months commencing within 18 months of your employment. These reviews will be utilized to evaluate your compensation package relative to the market for similar level professionals at organizations of comparable stage of development and market opportunity to Cogent. The findings of these reviews will be submitted to the company's compensation committee for final decision and appropriate compensation adjustments.
In the event of Termination Without Cause, you will receive one month's salary against $175,000; six months of benefits coverage, all vested shares and shares to be vested in the quarter of termination. In the event of a Change of Control and Termination Without Cause, in addition to the above mentioned conditions, you will receive 50% of your unvested shares at the $.25 strike price.
As a member of Cogent's senior management team, you will be entitled to company funded health care insurance, dental coverage, and life insurance. The company will also implement a 401k retirement plan that will be corporately administered, however, it will require individual contributions on a non-matching basis by individual participants. Cogent is prepared to offer 3 weeks paid vacation. Additionally, the company will implement 6 fixed major holidays and there will be 1 discretionary floating holiday to be chosen from other less recognized holidays. Cogent will also pay for your parking expenses.
Funding closed on February 8th, 2000, and your employment date will be April 3, 2000, or at a mutually agreed to date between yourself and the company. Also, upon acceptance of this offer of employment, you will be required to sign a non-compete and non-disclosure agreement with the company.
We look forward to having you join our team and build the most advanced next generation network for high speed Internet services. This offer remains in effect through March 17th, 2000 at 10:00am. If you have any further questions, please give me a call at 202-338-4067.
Sincerely,
Dave Schaeffer
Accepted
/s/ 3/13/00 --------------------------- -------- Barry J. Morris Date |
Exhibit 10.9
[COGENT LETTERHEAD]
1015 31st Street, NW
Suite 330
Washington, DC 20007
Tel: 202-965-4127-
Fax: 202-338-8798
April 3, 2000
Mr. Scott Stewart
******
Dear Scott:
Cogent Communications ("Company") is offering Scott Stewart ("Executive") the position of Vice President of Real Estate. Responsibilities for this position will include building the real estate organization within the company, leading the building access effort and general management of a team of approximately 8 - 10 individuals. The current cash compensation for this position will be a base salary of $145,000 and $45,000 payable as a bonus based upon mutually agreeable performance targets both corporate and individual. Base salary will be paid semi-monthly. Due to the early stage nature of Cogent's business plan, your initial year 2000 performance targets have been deemed met and a bonus of $29,970 (prorated for year 2000) will be payable on a quarterly basis for the rest of the year 2000. The next year's bonus payment structure will be determined at a later date. Upon over achievements of targets and milestones, there will be a loading factor applied to the compensation with a structure as follows: 60% based on personal achievement, 20% based on organization achievement, and 20% based on company achievement.
In addition to the cash compensation you receive, Cogent will issue 185,000 shares of options to purchase common equity in the company at a strike price of $.25. 100% of these options will vest straight line on a quarterly basis over a 4 year period. Vesting will begin on your start date of April 4th, 2000. Based upon the targeted capitalization of the company, there will be approximately up to 49.5 million shares outstanding.
Cogent will periodically perform employee evaluations at minimum intervals of 12 months commencing within 18 months of your employment. These reviews will be utilized to evaluate your compensation package relative to the market for similar level professionals at organizations of comparable stage of development and market opportunity to Cogent. The findings of these reviews will be submitted to the company's compensation committee for final decision and appropriate compensation adjustments.
In the event of Constructive Termination Without Cause, Termination Without Cause, Change in Control, or Potential Change in Control, Executive will receive 9 month's salary against $145,000, nine months of benefits coverage, all vested shares and shares to be vested in the quarter of termination. In the event of a Change of Control or Potential Change in Control and
either Termination Without Cause or Constructive Termination, in addition to the above mentioned conditions, Executive will receive 50% of your unvested shares at the $.25 strike price.
For purposes of this Agreement, the term "Cause" means (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company after written notification by the Company, (ii) the willful engaging by the Executive in conduct which is demonstrably injurious to the Company, monetarily or otherwise, or (iii) the engaging by the Executive in egregious misconduct involving serious moral turpitude. For purposes of this Agreement, no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that such action was in the best interest of the Company.
For the purposes of this Agreement, a "Change in Control" shall be deemed to occur if (i) the stockholders of the Company approve a definitive agreement to merge the Company into or consolidate the Company with another entity, sell or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation, (ii) the "beneficial ownership" (as defined in Rule l3d-3 under the Exchange Act) of securities representing 50% or more of the combined voting power of the Company is acquired, other than from the Company, by any "person" as defined in Sections 13(d) and 14(d) of the Exchange Act, or (iii) at any time during any period of two consecutive years, individuals who at the beginning of such period were members of the Board of Directors of the Company cease for any reason to constitute at least a majority thereof.
For the purposes of this Agreement, a "Potential Change in Control" shall be deemed to occur if (i) a tender offer is made for the stock of the Company representing 50% or more of the total voting power of the Company's stock; (ii) any person makes a solicitation of proxies for the election of directors who have not been recommended by the Company; (iii) the Company enters into negotiations with respect to a transaction which would upon consummation constitute a Change in Control; or (iv) the Board adopts a resolution to the effect that, for the purposes of this Agreement, a Potential Change in Control has occurred.
The relocation by the Company of the Executive's office to a location more than 50 miles from the Company's present office shall constitute an event of Termination without Cause, Constructive Termination without Cause or a Change in Control.
In order to compensate you for moving expenses associated with this position, Cogent proposes a $40,000 moving budget with a commitment on your part to relocate your principal residence to the company's headquarter location in Washington, DC within 9 months. During the intervening period, you are committed to spending 5 days per week at the company's headquarters or on company related travel and bearing all non-company related travel and lodging expenses associated with that commitment from the above mentioned budget.
As a member of the Cogent team, you will be entitled to company funded health care insurance, dental coverage, and life insurance. The company will also implement a 401k retirement plan that will be corporately administered, however, it will require individual contributions on a non-matching basis by individual participants. Cogent is prepared to offer 3 weeks of paid
vacation. Additionally, the company will implement 6 fixed major holidays and there will be 1 discretionary floating holiday to be chosen from other less recognized holidays.
Upon acceptance of this offer of employment, you will be required to sign a non-compete and non-disclosure agreement with the company.
We understand there may be some transition time while you wrap up your current project.
If this offer is accepted by April 3rd, 2000, your effective employment date will be considered April 4th, 2000 and your vesting will begin at that time. During the period of time between April 4th, 2000 and April 28, 2000, your duties and responsibilities will be from your current location. Your availability will be on an as-needed telephonic basis and during this period of employment, your sole compensation will be the accrued vesting of your options. The cash portion of your compensation will commence upon your full time employment in Washington, DC on or about April 28th, 2000.
We look forward to having you join our team and build the most advanced next generation network for high speed Internet services, This offer remains in effect through April 28, 2000 at 2:00 pm. If you have any further questions, please give me a call at 202-338-4067.
Sincerely,
Dave Schaeffer
Agreed and Accepted
/s/ ------------------------- Scott Stewart |
Exhibit 10.10
LEASE AGREEMENT
OFFICE BUILDING
THIS LEASE AGREEMENT (hereinafter referred to as this "LEASE") dated September 1, 2000 is made and entered into by and between 6715 Kenilworth Avenue Partnership, a District of Columbia limited partnership(hereinafter referred to as "Landlord"), having an office for purposes of notices hereunder at 1015 31st Street N.W. Washington, DC, and Cogent Communications, Inc. a Delaware corporation (hereinafter referred to as "Tenant"), having an office for purposes of notices hereunder at 1015 - 31st Street, NW, Washington, D.C.
W I T N E S S E T H:
That for and in consideration of the rentals hereinafter reserved and of the mutual covenants and agreements hereinafter set forth, Landlord and Tenant hereby agree as follows:
CERTAIN DEFINITIONS
1. As used in this Lease, the following terms shall have the following meanings:
(a) BUILDING. The land, office building, and appurtenant improvements, located at 1015 - 31st Street, N.W.,
(b) DEMISED PREMISES. The net rentable area of the Demised Premises shall be approximately nineteen thousand six hundred (19,600) square feet of space (1,450 square feet on the first floor, 2,800 square feet on the third floor, 5,104 square feet on the fourth floor, 5,123 square feet on the fifth floor, and 5,123 square feet on the sixth floor) in the Building (as determined in accordance with the Washington Board of Realtors' standard method of measurement) on the first (1st), third(3rd), fourth (4th), fifth (5th) and sixth (6th) floors.
(c) LEASE TERM. A period of one (1) year (the "Lease Term", commencing on a date which Landlord and Tenant intend to be on or about September 1, 2000 hereinafter defined as the "Commencement Date") and expiring at midnight on August 31, 2001 hereinafter referred to as the "Expiration Date"). At the end of the Lease Term the Tenant shall have the option to renew the Lease for a period of up to one year at the option of the Tenant.
(d) FIXED ANNUAL RENT. During the Lease Term, the aggregate amount of Fixed Annual Rent due Landlord from Tenant shall be Four Hundred Seventy Thousand Four Hundred and No/100 Dollars ($470,400) per Annum computed on the basis of Twenty Four and No/100 Dollars ($24.00) per year per square feet of space. The fixed Annual Rent due during the Lease Term shall be payable in advance, without demand, notice, reduction or setoff, in equal monthly installments of Thirty-nine Thousand Two Hundred and No/100 Dollars ($39,200) (hereinafter referred to as the "Fixed Monthly Rent").
(e) BUILDING RENTABLE AREA. The total rentable area in the Building, as determined in accordance with the Washington Board of Realtors' standard method of measurement, is agreed to be Twenty-Eight Thousand Six Hundred Fifty-nine (28,659) square feet.
(f) Sixty eight percent (68%), being the proportion that the square footage of the Demised Premises which is specified above bears to the Building Rentable Area.
(g) Not used
(h) AGENT. The agent, if any, designated by Landlord from time to time for management of the Building and collection of the sums due hereunder, or any successor thereto appointed by Landlord. Tenant shall receive written notice of the appointment of, or any change in, the Agent.
(i) REAL ESTATE TAXES. The total of all taxes and assessments now or hereafter imposed, levied or assessed by any lawful authority upon or against the land, buildings and all other appurtenant improvements constituting the Building (whether such taxes and assessments are general, special or otherwise, ordinary or extraordinary, foreseen or unforeseen), including (without limitation) assessments for public and quasi-public improvements and any tax or excise hereafter imposed specifically upon the rents or gross receipts from the Building, but excluding any penalties, interest or other charges assessed as a result of delinquent payment or non-payment of all such aforesaid taxes and assessments. It is expressly understood and agreed that "increases" in such Real Estate Taxes shall include any increase resulting from a higher tax rate, from an increase in assessed valuation, from the imposition of special assessments, or from any other cause whatsoever. "Tax Year" shall mean the period (whether 12 months or less) with respect to which assessments of Real Estate Taxes are made by the taxing authorities having jurisdiction. Real Estate Taxes for each Tax Year shall be deemed to be the Real Estate Taxes payable in respect of such Tax Year, even though the levy or assessment thereof may be made during different Tax Years. Reasonable expenses, including attorneys' fees and expert witness fees, incurred by Landlord in attempting to obtain a reduction of real Estate Taxes shall be added to and included in the amount of Real Estate Taxes, however, Landlord shall have no obligation to contest any levy or imposition of any Real Estate Taxes and may settle, compromise or abandon any contest with respect to the amount of any Real Estate Taxes in its sole discretion. Refunds of Real Estate Taxes received by Landlord, if any, shall accrue proportionately to Tenant's benefit in accordance with Tenant's space fraction in the Building.
Tenant is responsible for paying its portion of Real Estate Taxes. The Tenants' portion of Real Estate Taxes will be based upon the Tenants' Space Fraction times the Real Estate Taxes assessed against the Building pro-rated for the Lease Term.
(j) LEASE YEAR. The first Lease year during the Lease Term
shall be the period commencing at midnight on the day immediately preceding the
Commencement Date and terminating at midnight on the last day of the twelfth
(12th) full calendar month thereafter. Each subsequent Lease Year during the
Lease Term shall commence on the day immediately following the last day of the
preceding Lease Year and shall continue for a period of twelve (12) full
calendar months, except that the last Lease Year during the Lease Term shall
terminate on the date that this Lease expires or is terminated.
(k) Not used
(l) Not used
(m) Not used
(n) Not used
DEMISING CLAUSE
2. Landlord does hereby lease and demise the Demised Premises to Tenant, and Tenant does hereby hire, lease and take the Demised Premises from Landlord, for the Lease Term and upon the covenants and conditions herein set forth.
TERM
3. The term of this Lease shall be the Lease Term defined in Section l(c) above. Tenant hereby covenants and agrees to accept the Demised Premises on the Commencement Date and to surrender possession thereof on the Expiration Date or upon any other termination of this Lease.
RENT
4. The Tenant covenants and agrees to pay rent to Landlord for use of the Demised Premises, without notice or demand from Landlord and without deduction, setoff, or counterclaim by Tenant, except as otherwise set forth herein, as follows:
(a) The Tenant shall pay to the Landlord a Fixed Annual Rent in the amount of $470,000.00 payable without deduction or set off in equal monthly installments (hereinafter referred to as Fixed Monthly Rent) of $39,200.00 in advance, the first installment of which is due and payable upon the commencement date of this Lease, with subsequent installments due and payable on the first day of each calendar month thereafter until the total rent provided for herein is fully paid. If the commencement date is a day other than the first day of the month, all rent shall be adjusted to the first day of the month. The Tenant shall pay said rent to Landlord at the office of Agent, or to such other party and/or at such other address as Landlord may designate from time to time by written notice to Tenant. If Landlord shall at any time accept a payment of rent after it shall
become due and payable, such acceptance shall not excuse delay upon subsequent occasions or be construed as a waiver of any of Landlord's rights hereunder with respect to such late payment.
(b) Not used
(c) If any installment of rent accruing hereunder or other sums payable hereunder shall not be paid within ten (10) days of the due date, the rental and such other sums shall be increased, without affecting any of the Landlord's other rights under this Lease, by a late rental charge equal to five percent (5%) of the delinquent installment. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of rent herein stipulated shall be deemed to be other than on account of the earlier stipulated 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 without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided in this Lease.
(d) Not used
(e) Tenant's obligation to pay any rents reserved and other amounts payable hereunder which have not been fully liquidated and established as of the Expiration Date or other termination of this Lease shall survive termination hereof.
USE: ASSIGNMENT AND SUBLETTING
5. (a) Tenant will use and occupy the Demised Premises solely for general office purposes in accordance with applicable zoning regulations. The Demised Premises will not be used for any other purpose whatsoever without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant will not use or occupy the Demised Premises for any unlawful, disorderly, or extra-hazardous purpose and will comply with all present and future laws, ordinances, regulations and orders of governmental entities having jurisdiction over the Demised Premises or the Operation thereof.
(b) Tenant (i) will not assign, transfer, mortgage, or encumber this Lease without the prior written approval of Landlord, in its sole discretion, and (ii) will not sublet or rent (or permit occupancy or use of) the Demised Premises or any part thereof, without the prior written consent of Landlord as to each prospective sublessee, or other transferee, which consent shall not be unreasonably withheld in the case of a sublease or other transfer pursuant to which Tenant remains obligated to Landlord hereunder. It is expressly agreed that Tenant shall have the right to sublet, subrent or permit the use and occupancy of all or any part of the Demised Premises, provided that Tenant furnishes written notice thereof to Landlord, Tenant remains fully obligated to Landlord's consent, not to be unreasonably withheld or delayed. No such
assignment, transfer, or subletting shall be effectuated by operation of law or
otherwise without the prior written consent of Landlord given in accordance with
the provisions of this Section 5 (b). Tenant hereby agrees that Landlord shall
have the absolute right, without compensation to or subsequent consent from
Tenant, to deal directly with and to relet such portion (including all) of the
Demised Premises for Landlord's own account to any prospective assignee,
sublessee, or other transferee of tenant; provided, however, that Landlord shall
release Tenant from its obligations hereunder to the extent that Landlord relets
the Demised Premises to any such party. No consent by Landlord to any
assignment, transfer, or subletting shall be construed as a waiver or release of
Tenant from any of the terms of conditions of this Lease or from the requirement
of again obtaining Landlord's consent to any further assignment, transfer, or
subletting unless such consent of Landlord expressly so states. For the purposes
of this Lease, the following events (whether accomplished in one transaction or
a series of transactions) shall be deemed to be a subletting, transfer or
assignment of the Demised Premises or of this Lease: W any sale, transfer or
other conveyance of stock or voting rights, or creation of new stock or voting
rights, so as to alter or transfer effective control of a corporate tenant; or
(ii) a conveyance or transfer of partnership interests, or the creation of new
partnership interests, so as to alter or transfer effective control of a tenant
which is a general or limited partnership.
6. Not Used
ALTERATIONS
7. (a) Tenant shall not make any structural alterations, improvements or additions to the Premises without first obtaining the written consent of the Landlord, which consent shall not be unreasonably withheld or delayed. All alterations and improvements made by Tenant shall remain upon the Premises at the expiration or earlier termination of this Lease and shall become the property of the Landlord, unless the Landlord shall, prior to termination of this Lease, provide written notice to Tenant to remove the same, in which event Tenant shall remove such alterations, improvements and/or additions and restore the Premises to the same good order and condition in which it was at the commencement of this Lease. If Tenant fails so to do, Landlord may do so, collecting at Landlord's option the costs and expenses thereof from Tenant as additional rent.
(b) If, notwithstanding the foregoing, any mechanic's lien is filed against the Demised Premises, or the real property of which the Demised Premises are a part, for work claimed to have been done for Tenant or materials claimed to have been furnished to Tenant, then such mechanic's lien shall be discharged by Tenant within ten (10) days thereafter, at Tenant's sole cost and expense, by the payment thereof or by filing any bond required by law. If Tenant shall fail to discharge any such mechanic's lien, Landlord may (at its option) discharge the same and treat the cost thereof as additional rent payable with the installment of fixed Monthly Rent next becoming due,
but such discharge by Landlord shall not be deemed to waive or cure the default of Tenant in not discharging the same. Tenant shall indemnify and hold harmless Landlord from and against any and all expenses, liens, claims or damages to person or property which may arise by reason of the making of any such alterations, decorations, additions or improvements.
(c) If any such major alteration, addition or improvement is made without the prior written consent of Landlord, Landlord shall, upon being notified of such work, either consent to, or notify, Tenant in writing to correct or remove the same, and if within ten (10) business days of receipt of said notice, Tenant fails to so correct or remove the same, Tenant shall be liable for any and all expenses incurred by Landlord in so doing. Any permitted alterations, additions for improvements shall conform to all requirements and regulations of applicable codes and regulations of any Board of Fire Underwriters having jurisdiction.
(d) All alterations, additions or improvements in or to the Demised Premises or the Building made by either party shall immediately become the property of Landlord and shall remain upon and be surrendered with the Demised Premises as a part thereof upon the expiration or other termination of this Lease without disturbance, molestation or injury; provided, however, that if Tenant is not in default in the performance of any of its obligations under this Lease, Tenant shall have the right to remove, prior to the expiration or other termination of this Lease, all trade fixtures, movable furniture, furnishings or equipment installed in the Demised Premises at Tenant's expense. If such property of Tenant is not remove by Tenant prior to the expiration or other termination of this Lease, then Landlord shall have the right to remove and store the same at Tenant's expense; and if such property is not removed within five (5) days after delivery of written notice to Tenant that such property has not been removed despite termination of this Lease, then the same shall become the property of Landlord and shall be surrendered with the Demised Premises as a part thereof.
TENANT'S EQUIPMENT AND OPERATIONS
8. (a) Tenant shall not conduct or permit the conduct of any activity, or place any equipment or materials in or about the Demised Premises, which will in any way either (i) increase the rate of fire or other insurance on the Building; (ii) injure, obstruct or interfere with the rights of other tenants or other persons having business at the Building; or (iii) conflict with the applicable local, state, or federal fire or other laws of regulations. If any increase in the rate of fire or other insurance shall be stated by any insurance company or by the applicable Insurance Rating Bureau to be due to Tenant's activity or equipment in or about the Demised Premises, such statement shall be conclusive evidence that the increase in such rate is due to such activity, materials or equipment, and as a result thereof, Tenant
shall be liable for such increase and shall reimburse Landlord therefore.
MAINTENANCE BY TENANT: DAMAGE TO PREMISES
9. Except as otherwise provided in this Lease, Tenant hereby accepts the Premises in its condition existing on the commencement date of the Lease, subject to all applicable zoning, municipal, county and state laws, ordinances, rules and regulations governing and regulating the use of the Premises. Property is leased in "AS-IS" condition.
(a) Tenant shall keep the Demised Premises and the fixtures and equipment therein in clean, safe and sanitary condition; shall take good care of the suffer no waste or injury thereto; and shall, at the expiration or other termination of this Lease, surrender the same broom clean in the same order and condition in which they are on the Commencement Date, ordinary wear and tear and damage by the elements, fire and other casualty not due to Tenant's negligence excepted. Tenant shall immediately notify Landlord of, and Tenant shall repair, at Tenant's sole expense (i) any damage to the Building or the Demised Premises which is caused by moving Tenant's property into, in or out of the Building and/or the Demised Premises; (ii) any breakage caused by Tenant, its agents, servant, employees, and business invitees of Tenant; and (iii) any damage caused by fire or other casualty due to the negligence of Tenant, its agents, servants, employees, and business invitees; provided that all such repairs which are structural in nature, or which affect portions of the Building other than the Demised Premises, shall be performed by Landlord (at the expense of Tenant). If Tenant fails to make such repairs promptly after the receipt of a written request from Landlord, Landlord shall have the right to make necessary repairs, alterations and replacements. Any charge or cost incurred by Landlord in making repairs for which Tenant is liable shall be paid by Tenant as additional rent due and payable with the installment of Fixed Monthly Rent ( or applicable renewal rent payment, if any) next falling due. This provision shall be construed as an additional remedy granted to Landlord and not in limitation of any other rights and remedies which Landlord has or may have in such circumstances.
(b) Not used
FURNISHINGS
10. Landlord shall have the right to prescribe the weight and position of safes and other heavy equipment or fixtures located in the Demised Premises. No furniture, equipment or other bulky matter of any description will be received into the Building or carried in the elevators except as approved by the Landlord. All moving of furniture, equipment and other material shall be under the direct control and supervision of Landlord, who shall, however, not be responsible for any damage to or charges for moving the same. Tenant agrees promptly to remove from the sidewalks, drives, and grounds adjacent to the
Building any of the Tenant's furniture, equipment or other material there delivered or deposited.
TENANT'S INSURANCE; WAIVER OF SUBROGATION
11. If either party is paid any proceeds under any policy of insurance naming such party as an insured, on account of any loss, damage or liability, then such party hereby releases the other party, to the extent of the amount of such proceeds, from any and all liability for such loss, damage or liability, notwithstanding of such loss, damage or liability may arise out of the negligent act or omission of the other party; provided that such release shall be effective only with respect to loss or damage occurring during such time as the appropriate policy of insurance of the releasing party provides that such release shall not impair the effectiveness of such policy of the insured's ability to recover thereunder. Each party hereto shall use reasonable efforts to have a clause to such effect included in its insurance policies, and shall promptly notify the other if such clause cannot be included in any such policy.
INSPECTION
12. Upon reasonable prior written notice from the Landlord or Agent, except in the event of an emergency where no such written notice shall be required, Tenant will allow the Landlord, Agent and their agents and employees to enter the Demised Premises at all reasonable times, without charge therefor or diminution of rent, for any of the following purposes: (i) to examine, inspect or protect the Demised Premises; (ii) to prevent damage or injury to the Demised Premises or to any other portion of the Building; (iii) to make such repairs as the Landlord may deem reasonably necessary; or (iv) during the last six (6) months of the Lease Term or any renewal term provided for hereunder, to enter the Demised Premises during normal business hours to show the Demised Premises to prospective tenants so long as Landlord does not unreasonably interfere with Tenant's business operations.
ESTOPPEL CERTIFICATES
13. At any time upon five (5) days prior request therefor by Landlord and without charge therefore, Tenant shall execute, acknowledge and deliver to Landlord a written estoppel certificate, in recordable form, certifying the following to Landlord and any other persons designated by Landlord, as of the date of such estoppel certificate: (i) that Tenant is in possession of the Demised Premises, has unconditionally accepted the same, and is currently paying the rent and additional rent reserved hereunder (or such state of facts as then exists); (ii) that this Lease is unmodified and in full force and effect (or if there has been a modification, that this Lease is in full force as modified and setting forth such modifications); (iii) whether or not there are then-existing any setoffs, abatements, or defenses against the enforcement of any right or remedy of Landlord, or any duty or obligation of Tenant hereunder (and, if so, specifying the same in detail); (iv) the dates, if any, to which any rent or other charges have been paid in advance; (v) that Tenant has no knowledge of any uncured defaults on the part of Landlord under this Lease (or if Tenant has knowledge of any such uncured defaults, specifying
the same in detail); and (vi) that Tenant has no knowledge of any event having occurred that authorizes the termination of this Lease by Tenant (or if Tenant has such knowledge, specifying the same in detail).
14. Not used.
EVENTS OF DEFAULT
15. The occurrence of any of the following shall constitute an event of default hereunder:
(a) Failure of Tenant to pay, within ten (10) days any installment of the Fixed Monthly Rent hereunder or any other sum herein required to be paid by Tenant;
(b) Vacation or desertion of the Premises or permitting the same to be empty and unoccupied for more than thirty (30) days;
(c) Tenant's failure to perform any other covenant or condition of this Lease within thirty (30) days after written notice and demand, unless the failure is of such a character as to require more than thirty (30) days to cure, in which event Tenant's failure to proceed diligently to cure such failure shall constitute an event of default;
(d) Tenant shall become insolvent, make an assignment for benefit of creditors, make a transfer in fraud or creditors, file a petition of bankruptcy under the National Bankruptcy Act, or if an involuntary petition under said Act is filed against Tenant or if a receiver or trustee is appointed for substantially all of Tenant's assets;
(e) The estate created hereby shall be taken on execution or other process of law;
(f) Tenant shall be in default under any of the terms and provision of the Initial Lease.
REMEDIES UPON DEFAULT: ENFORCEMENT
16. Upon the occurrence of any event of default, Landlord may, at Landlord's sole option, exercise any or all of the following remedies, together with any such other remedies as may be available to Landlord at law or in equity:
(a) Landlord may terminate this Lease by giving Tenant written
notice of its election to do so, as of a specified date not less than fifteen
(15) days after the date of the giving of such
notice and this Lease shall then expire on the date so specified and Landlord shall be then entitled to immediately regain possession of the demised Premises as if the date had been originally fixed as the expiration date of the terms of this Lease. Landlord may then reenter upon the leased Premises either with or without process of law and remove all persons therefrom, the statutory notice to quit or any other notice to quit being hereby expressly waived by Tenant. Tenant expressly agrees that the exercise by Landlord of the right of reentry shall not be a bar to or prejudice in any way other legal remedies available to Landlord. In that event, Landlord shall be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent and additional rent reserved in this Lease for the entire unexpired portion of the term thereof and the fair rental value of the demised Premises for the same period of time. Nothing herein contained, however, shall limit or prejudice the right of Landlord 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, and 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, and Landlord may in its own name but as agent for Tenant re-let the demised Premises for any period equal to or greater or less than the remainder of the original term of this Lease, for any such which it may deem reasonable, to any other lessee which Landlord may select, and for any purpose which Landlord may designate. Landlord will make reasonable efforts to relet the Premises, and will allow Tenant to find a new tenant. Any recovery by the Landlord shall be limited to the difference in rent hereunder (plus any costs incurred in re-letting) and the rent actually paid by the new tenant.
(b) No termination of this Lease nor any taking or recovery of possession of the demised Premises shall deprive Landlord of any of his remedies or actions against Tenant for past or future rent, nor shall the bringing of any action for rent or breach of covenant, or the resort to any other remedy herein provided for the recovery of rent be construed as a waiver of the right to obtain possession of the Premises.
(c) In addition to any damages becoming due under subparagraph
(a) hereof, Landlord shall be entitled to recover from Tenant and Tenant shall
pay to Landlord an amount equal to all expenses, if any, incurred by the
Landlord in recovering possession of the demised Premises, and all reasonable
costs and charges for the care of said Premises while vacant, which damages
shall be due and payable by Tenant to Landlord at such time or times as such
expenses are incurred by the Landlord.
(d) In the event of a default or threatened default by Tenant of any of the terms or conditions of this Lease, Landlord shall have the right of injunction and the right to invoke any remedy allowed by law or in equity as if no specific remedies of Landlord were set forth in this Lease.
(e) It is further provided that if, under the provisions of this Lease, default be made and a compromise and settlement shall be had thereupon, it shall not constitute a waiver of any covenant herein contained, nor of the Lease itself; and it is hereby specifically agreed that this Lease shall not merge in any judgment had upon the same if compromise or settlement be made upon said judgment prior to termination of Tenant's possession, the Lease in such event to continue by the payment of rent herein reserved, and the further performance of the covenants herein contained on the part of Tenant.
LANDLORD'S RIGHT TO CURE; LATE PAYMENT PENALTY
17. (a) If Tenant defaults in the performance of any of its obligations hereunder, other than its obligations to pay rent or other sums due and payable to Landlord under the terms of this Lease, and fails to cure such default(s) after notice thereof, as providing in Section 16 above, Landlord may (but shall not be required to) perform the same on behalf of Tenant, whereupon the cost to Landlord therefor, plus interest from the date paid by Landlord at the rate of eighteen percent (18%) per annum (or the maximum permissible rate under applicable law, if lesser) shall be paid by Tenant to Landlord as additional rent hereunder, due and payable with the installment of Fixed Monthly Rent or other applicable rental payment, if any, next falling due; provided, however, that such performance by Landlord shall not operate to cure such default or to stop Landlord from pursuing of any remedy to which Landlord would otherwise be entitled.
(b) In the event that Tenant fails to pay any installment of rent within ten (10) business days after the same becomes due and payable shall be subject to a late payment charge equal to five percent (5%) of the payment not made when due; such late payment charge shall constitute additional rent hereunder and shall be payable with the installment of delinquent installment of rent.
TENANT HOLDING OVER
18. Tenant shall surrender possession of the Demised Premises, broom
clean, upon expiration or other termination of this Lease. If Tenant shall
continue to remain in possession of the Demised Premises after the expiration or
other termination of this Lease with the knowledge and consent of Landlord, then
the following provisions shall apply: (i) Tenant shall automatically become a
tenant by the month at the Fixed Monthly Rent (as adjusted), or other applicable
rental payment, for the initial thirty (30) days of such holdover period; and
otherwise on all of the terms and provisions hereof; (ii) said monthly tenancy
shall commence with the first day following the end of the Lease Term; (iii)
Tenant shall be required to give Landlord at least thirty (30) days written
notice of any intention to quit; and (iv) Tenant shall be entitled to thirty
(30) days written notice to quit, except that in the event of nonpayment of rent
in advance or of the breach of any other covenant by Tenant, Tenant shall not be
entitled to any notice to quit, the usual thirty (30) days notice to quit being
hereby expressly waived. Notwithstanding the foregoing, however, if Tenant shall hold over after the expiration or termination of this Lease and Landlord desires to regain possession of the Demised Premises promptly at the expiration thereof, than at any time prior to Landlord's acceptance of rent from Tenant as a monthly tenant hereunder, Landlord may elect to re-enter forthwith and take possession of the Demised Premises without process, or by any legal process permitted under applicable law.
UTILITIES AND SERVICES
19. Tenant, during the term of this Lease, shall not pay for its own gas, water, electricity, sewer, refuse disposal, and all other utility services used by it on the Premises. Tenant will, during the term of the lease, pay for its own telephone usage. Landlord shall in no event be liable for any interruption or failure of utility services on the Premises.
LANDLORD'S LIABILITY
20. Landlord and Agent assume no liability or responsibility whatever with respect to the operation of Tenant's business in the Demised Premises or with respect to any loss or damage (or whatever kind and however caused) to the personal property documents, records, monies, or goods of Tenant or to anyone in or about the Demised Premises by consent of Tenant; and the Tenant agrees to hold the Landlord and Agent harmless against all such claims.
CONDEMNATION
21. (a) If the whole of the demised Premises shall be taken by any governmental or quasi-governmental authority under the power of condemnation, eminent domain or expropriation, or in the event of conveyance in lieu thereof, the term of the Lease shall cease as of the day possession shall be taken by the governmental authority, and the entire award shall be the property of the Landlord, except for the value of any fixtures or equipment installed by Tenant.
(b) In the event there in any taking by governmental or quasi-governmental authority of a portion of the Premises which does not seriously and adversely affect the ability of the Tenant to conduct its business on the Premises, the Lease shall remain in full force and effect, and the Tenant's rent shall be equitably adjusted based on the reduction in area of the Premises.
LIABILITY INSURANCE
22. At all times during the term hereof, or any extension thereof, Tenant, at its own expense, shall maintain and keep in force for the mutual benefit of Landlord and Tenant, general public liability insurance against claims for personal injury, death or property damage occurring in or about the Premises or sidewalks or areas adjacent to the Premises to afford protection to the limit of
not less than One Million Dollars and N0/100 ($1,000,000.00) with respect to injury or death of a single person, or any accident, and to the limit of not less than One Million Dollars and N0/100 ($1,000,000.00) with respect to property damage. The policy or policies shall name the Landlord as an additional insured. In order to evidence the coverage in effect, the Tenant shall provide the Landlord with a Certificate of Insurance, and will obtain a written obligation from the insurer to notify Landlord in writing at least ten (10) days prior to cancellation or refusal to renew any such policies.
INDEMNIFICATION
23. Except for such intentional or negligent acts, Tenant shall indemnify and save Landlord harmless from and against any and all liability, claims, damages, penalties or judgments arising from or in any way connected with injury to person or property sustained by action, in and about the Premises, in custody and control of Tenant during the term of this Lease. If Landlord shall, without fault of its own, be made a part of any litigation commenced by or against Tenant, Tenant shall protect and hold Landlord harmless and pay all costs, expenses and reasonable attorneys' fees that may be incurred or paid by Landlord in enforcing the covenants and agreements of this Lease.
BINDING EFFECT
24. It is agreed that this Lease shall be binding upon and inure to the benefits of the Landlord and Tenant and their successors and assigns. Subject to any provisions hereof, restricting assignment or subletting by Tenant, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the District of Columbia.
RIGHTS OF MORTGAGEE
25. Mortgagee shall have the following rights:
(a) Any notice required to be given to the Landlord by the Tenant shall be given as well, in the same manner to the Mortgagee.
(b) In the event that Tenant shall have any excuse from paying rent or right to set off its expenses from the rent as a result of any default by the Landlord or shall have any expense from the performance of any obligation imposed upon Tenant by the terms of this Lease, then and in such event the Tenant shall give notice of its intended exercise of such right in the manner provided for herein to the Mortgagee and thereafter the Mortgagee shall have the right but not the obligation to cure said defaults within the time provided for cure of the same as set forth in this Lease.
(c) Upon the request of the Mortgagee, the Tenant will furnish an Estoppel Certificate certifying to the rent paid and to be paid the remaining term of the Lease, the existence of defaults of the
Landlord, if any, and such other information concerning this tenancy as Mortgagee may from time to time require.
LEGAL FEES
26. If either party named herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party and any such action on trial or appeal, shall be entitled to his reasonable attorneys' fees to be paid by the losing party as fixed by the Court.
TENANT IMPROVEMENTS
27. Landlord hereby grants unto Tenant the right to install improvements, all of which shall be installed at the sole cost and expense of Tenant. All such improvements shall be installed in a good workmanlike manner, and Tenant shall indemnify and save harmless Landlord from any liability of any kind in connection with the installation of said improvements.
28. Not used
FINAL AND ENTIRE AGREEMENT
29. This Lease contains the final and entire agreement between the parties, and they shall not be bound by any terms, conditions or representations not contained herein.
ADDENDUM
30. The provisions of any Addendum hereto attached and signed by the parties shall be considered a part of this Lease.
NOTICES
31. All notices required under this Lease shall be given in writing and shall be deemed to be properly served if sent by certified or registered mail to the following addresses:
TO LANDLORD: 6715 Kenilworth Avenue Partnership 1015 31st Street, N.W. Washington, D.C. TO TENANT: Cogent Communications, Inc 1015 31st Street, N.W. Washington, D.C. 20007 Attn: Thaddeus G. Weed - Controller TERMINATION OF LEASE 32. Not used. |
MISCELLANEOUS
33. This Lease cannot be changed orally, but only by a writing signed by the party or parties to be charged thereby. The invalidity or illegality of any provision of this Lease shall not affect the validity of the other provisions hereof. The captions and headings contained herein are for reference and convenience only. This Lease shall be construed in accordance with the laws of the District of Columbia. Each of the parties hereto hereby warrants and certifies to the other that it has full power and authority to enter into this Lease; each individual executing this Lease certified to the other party hereto that he or she has the right, power, capacity and authority to bind the entity on whose behalf he or she is executing the Lease. If Tenant is more than one person or entity the persons or entities comprising Tenant shall be jointly and severally liable hereunder. This Lease may be executed in multiple original counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. The submission of this Lease to Tenant for examination shall not constitute a reservation of or an option to rent the Demised Premises; this Lease shall become effective and binding on Landlord only upon full execution hereof by Landlord.
ADDITIONAL PROVISIONS
34. Not used
IN WITNESS WHEREOF, the parties have signed this Lease Agreement on the date first herein above written.
LANDLORD:
/s/ ------------------------------------ |
TENANT:
By: /s/ --------------------------------- DATE: AUGUST 30, 2000 ------------------------------------ |
Exhibit 10.11
6715 Kenilworth Avenue Partnership
1015 31st Street, NW
Washington, DC 20007
Re: Lease Agreement Term: Sept 1, 2000 - 8/31/2001
Cogent Communications, Inc-
1015 31st Street, NW, Washington, DC 20007
Dear Mr. Schaeffer, August 1, 2001
In reference to the above subject Lease Agreement between Cogent Communications, Inc. (Tenant) and 6715 Kenilworth Avenue Partnership (Landlord), Cogent Communications, Inc. elects to extend the lease, at the location referenced above, and per the conditions of the existing Lease, for an additional one (1) year term with a new expiration date of August 31, 2002.
All other conditions of the Lease shall remain the same. Please acknowledge receipt of this notice by signing and returning a copy of this letter.
TENANT: COGENT COMMUNICATIONS, INC
/s/ -------------------------------------------- Thaddeus G. Weed Title: VP, Controller |
LANDLORD: 6715 KENILWORTH AVENUE PARTNERSHIP
/s/ -------------------------------------------- Dave Schaeffer Title: General Partner |
Exhibit 10.12
AMENDED AND RESTATED
COGENT COMMUNICATIONS GROUP
2000 EQUITY INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of the Cogent Communications Group 2000 Equity Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Non-Qualified Stock Options, as determined by the Administrator at the time of grant, subject to Applicable Laws. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ACQUISITION" means (i) any consolidation or merger of the Company with or into any other corporation or other entity or person in which the stockholders of the Company prior to such consolidation or merger own less than fifty percent (50%) of the Company's voting power immediately after such consolidation or merger, excluding any consolidation or merger effected exclusively to change the domicile of the Company; or (ii) a sale of all or substantially all of the assets of the Company.
(b) "ADMINISTRATOR" means the Board or the Committee responsible for conducting the general administration of the Plan, as applicable, in accordance with Section 4 hereof.
(c) "APPLICABLE LAWS" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMITTEE" means a committee appointed by the Board in accordance with Section 4 hereof.
(g) "COMMON STOCK" means the Common Stock of the Company, par value $.001 per share.
(h) "COMPANY" means Cogent Communications Group Inc., a Delaware corporation.
(i) "CONSULTANT" means any consultant or adviser if: (i) the consultant or adviser renders bona fide services to the Company; (ii) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities; and (iii) the consultant or adviser is a natural person who has contracted directly with the Company to render such services.
(j) "DIRECTOR" means a member of the Board.
(k) "EMPLOYEE" means any person, including an Officer or Director, who is an employee (as defined in accordance with Section 3401(c) of the Code) of the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient, by itself, to constitute "employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of a share of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a national market system, including, without limitation, the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for a share of such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for a share of the Common Stock on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(n) "HOLDER" means a person who has been granted or awarded an Option or Stock Purchase Right or who holds Shares acquired pursuant to the exercise of an Option or Stock Purchase Right.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and which is designated as an Incentive Stock Option by the Administrator.
(p) "INDEPENDENT DIRECTOR" means a Director who is not an Employee of the Company.
(q) "NON-QUALIFIED STOCK OPTION" means an Option (or portion thereof) that is not designated as an Incentive Stock Option by the Administrator, or which is designated as an Incentive Stock Option by the Administrator but fails to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(r) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and a Holder evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.
(u) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.
(v) "PLAN" means the Cogent Communications Group 2000 Equity Incentive Plan.
(w) "PUBLIC TRADING DATE" means the first date upon which Common Stock of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.
(x) "RESTRICTED STOCK" means Shares acquired pursuant to the exercise of an unvested Option in accordance with Section 10(h) below or pursuant to a Stock Purchase Right granted under Section 12 below.
(y) "RULE 16b-3" means that certain Rule 16b-3 under the Exchange Act, as such Rule may be amended from time to time.
(z) "SECTION 16(b)" means Section 16(b) of the Exchange Act.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(cc) "SHARE" means a share of Common Stock, as adjusted in accordance with Section 13 below.
(dd) "STOCK PURCHASE RIGHT" means a right to purchase Common Stock pursuant to Section 12 below.
(ee) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of the Plan, the shares of stock subject to Options or Stock Purchase Rights shall be Common Stock, initially shares of the Company's Common Stock, par value $.001 per share. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares which may be issued upon exercise of such Options or Stock Purchase Rights is 9,900,000 Shares. Shares issued upon exercise of Options or Stock Purchase Rights may be authorized but unissued, or reacquired Shares. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares which are delivered by the Holder or withheld by the Company upon the exercise of an Option or Stock Purchase Right under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of this Section 3. If Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. Notwithstanding the provisions of this Section 3, no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an Incentive Stock Option under Code Section 422.
4. ADMINISTRATION OF THE PLAN.
(a) ADMINISTRATOR. Unless and until the Board delegates administration to a Committee as set forth below, the Plan shall be administered by the Board. The Board may delegate administration of the Plan to a Committee or Committees of one or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Notwithstanding the foregoing, however, from and after the Public Trading Date, a Committee of the Board shall
administer the Plan and the Committee shall consist solely of two or more Independent Directors each of whom is both an "outside director," within the meaning of Section 162(m) of the Code, and a "non-employee director" within the meaning of Rule 16b-3. Within the scope of such authority, the Board or the Committee may (i) delegate to a committee of one or more members of the Board who are not Independent Directors the authority to grant awards under the Plan to eligible persons who are either (A) not then "covered employees," within the meaning of Section 162(m) of the Code and are not expected to be "covered employees" at the time of recognition of income resulting from such award or (B) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (ii) delegate to a committee of one or more members of the Board who are not "non-employee directors," within the meaning of Rule 16b-3, the authority to grant awards under the Plan to eligible persons who are not then subject to Section 16 of the Exchange Act. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may only be filled by the Board.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan and the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority in its discretion to:
(i) Determine the Fair Market Value;
(ii) Select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) Determine the number of Shares to be covered by each such award granted hereunder;
(iv) Approve forms of agreement for use under the Plan;
(v) Determine the terms and conditions of any Option or Stock Purchase Right granted hereunder (such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may vest or be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine);
(vi) Determine whether to offer to buyout a previously granted Option as provided in subsection 10(i) and to determine the terms and conditions of such offer and buyout (including whether payment is to be made in cash or Shares);
(vii) Prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws;
(viii) Allow Holders to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld based on the statutory withholding rates for federal and state tax purposes that apply to supplemental taxable income. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Holders to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable;
(ix) Amend the Plan or any Option or Stock Purchase Right granted under the Plan as provided in Section 15; and
(x) Construe and interpret the terms of the Plan and awards granted pursuant to the Plan and to exercise such powers and perform such acts as the Administrator deems necessary or desirable to promote the best interests of the Company which are not in conflict with the provisions of the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Holders.
5. ELIGIBILITY. Non-Qualified Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. If otherwise eligible, an Employee or Consultant who has been granted an Option or Stock Purchase Right may be granted additional Options or Stock Purchase Rights. Each Independent Director shall be eligible to be granted Options in the discretion of the Administrator.
6. LIMITATIONS.
(a) Each Option shall be designated by the Administrator in the Option Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of Shares subject to a Holder's Incentive Stock Options and other incentive stock options granted by the Company, any Parent or Subsidiary, which become exercisable for the first time during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options or other options shall be treated as Non-Qualified Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time of grant.
(b) Neither the Plan, any Option nor any Stock Purchase Right shall confer upon a Holder any right with respect to continuing the Holder's employment or consulting relationship with the Company, nor shall they interfere in any way with the Holder's right or the Company's right to terminate such employment or consulting relationship at any time, with or without cause.
(c) No Service Provider shall be granted, in any calendar year, Options or Stock Purchase Rights to purchase more than 9,900,000 Shares; PROVIDED, HOWEVER, that the foregoing limitation shall not apply prior to the Public Trading Date and, following the Public Trading Date, the foregoing limitation shall not apply until the earliest of: (i) the first material modification of the Plan (including any increase in the number of shares reserved for issuance under the Plan in accordance with Section 3); (ii) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (iii) the expiration of the Plan; (iv) the first meeting of stockholders at which Directors of the Company are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security of the Company under Section 12 of the Exchange Act; or (v) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. For purposes of this Section 6(c), if an Option is canceled in the same calendar year it was granted (other than in connection with a transaction described in Section 13), the canceled Option will be counted against the limit set forth in this Section 6(c). For this purpose, if the exercise price of an Option is reduced, the transaction shall be treated as a cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. The Plan shall become effective upon its initial adoption by the Board and shall continue in effect until it is terminated under Section 15 of the Plan. No Options or Stock Purchase Rights may be issued under the Plan after the tenth (10th) anniversary of the earlier of (a) the date upon which the Plan is adopted by the Board or (b) the date the Plan is approved by the stockholders.
8. TERM OF OPTION. The term of each Option shall be stated in the Option Agreement; PROVIDED, HOWEVER, that the term shall be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to a Holder who, at the time the Option is granted, owns (or is treated as owning under Code Section 424) stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as is determined by the Administrator, PROVIDED, that in the case of an Incentive Stock Option (i) granted to an Employee who, at the time of grant of such Option, owns (or is treated as owning under Code Section 424) stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of grant, and
(ii) granted to any other Employee, the per Share exercise price shall be no
less than one hundred percent (100%) of the Fair Market Value per Share on the
date of grant. Notwithstanding the foregoing subsections (i) and (ii), Options
may be granted with a per Share exercise price other than as required above
pursuant to a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (i) cash,
(ii) check, (iii) with the consent of the Administrator, a full recourse
promissory note bearing interest (at no less than such rate as shall then
preclude the imputation of interest under the Code) and payable upon such terms
as may be prescribed by the Administrator, (iv) with the consent of the
Administrator, other Shares which (A) in the case of Shares acquired from the
Company, have been owned by the Holder for more than six (6) months on the date
of surrender, and (B) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which such Option shall be
exercised, (v) with the consent of the Administrator, surrendered Shares then
issuable upon exercise of the Option having a Fair Market Value on the date of
exercise equal to the aggregate exercise price of the Option or exercised
portion thereof, (vi) property of any kind which constitutes good and valuable
consideration, (vii) with the consent of the Administrator, delivery of a notice
that the Holder has placed a market sell order with a broker with respect to
Shares then issuable upon exercise of the Options and that the broker has been
directed to pay a sufficient portion of the net proceeds of the sale to the
Company in satisfaction of the Option exercise price, PROVIDED, that payment of
such proceeds is then made to the Company upon settlement of such sale, or
(viii) with the consent of the Administrator, any combination of the foregoing
methods of payment.
10. EXERCISE OF OPTION.
(a) VESTING; FRACTIONAL EXERCISES. Options granted hereunder shall be vested and exercisable according to the terms hereof at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be exercised for a fraction of a Share.
(b) DELIVERIES UPON EXERCISE. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his or her office:
(i) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion of the Option;
(ii) Such representations and documents as the Administrator, in its absolute discretion, deems necessary or advisable to effect compliance with Applicable Laws. The Administrator may, in its absolute discretion, also take whatever additional actions it deems appropriate to effect such compliance, including, without limitation, placing legends on share certificates and issuing stop transfer notices to agents and registrars;
(iii) Upon the exercise of all or a portion of an unvested Option pursuant to Section 10(h), a Restricted Stock purchase agreement in a form determined by the Administrator and signed by the Holder or other person then entitled to exercise the Option or such portion of the Option; and
(iv) In the event that the Option shall be exercised pursuant to
Section 10(f) by any person or persons other than the Holder, appropriate proof
of the right of such person or persons to exercise the Option.
(c) CONDITIONS TO DELIVERY OF SHARE CERTIFICATES. The Company shall not be required to issue or deliver any certificate or certificates for Shares purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions:
(i) The admission of such Shares to listing on all stock exchanges on which such class of stock is then listed;
(ii) The completion of any registration or other qualification of such Shares under any state or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Administrator shall, in its absolute discretion, deem necessary or advisable;
(iii) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its absolute discretion, determine to be necessary or advisable;
(iv) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience; and
(v) The receipt by the Company of full payment for such Shares, including payment of any applicable withholding tax, which in the discretion of the Administrator may be in the form of consideration used by the Holder to pay for such Shares under Section 9(b).
(d) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If a Holder ceases to be a Service Provider other than by reason of the Holder's disability or death, such Holder may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Holder's termination. If, on the date of termination, the Holder is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option immediately cease to be issuable under the Option and shall again become available for issuance under the Plan. If, after termination, the Holder does not exercise his or her Option within the time period specified herein, the Option shall terminate, and the Shares covered by such Option shall again become available for issuance under the Plan.
(e) DISABILITY OF HOLDER. If a Holder ceases to be a Service Provider as a result of the Holder's disability, the Holder may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Holder's termination. If such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Qualified Stock Option from and after the day which is three (3) months and one (1) day following such termination. If, on the date of termination, the Holder is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately cease to be issuable under the Option and shall again become available for issuance under the Plan. If, after termination, the Holder does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall again become available for issuance under the Plan.
(f) DEATH OF HOLDER. If a Holder dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Holder's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Holder's termination. If, at the time of death, the Holder is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately cease to be issuable under the Option and shall again become available for issuance under the Plan. The Option may be exercised by the executor or administrator of the Holder's estate or, if none, by the person(s) entitled to exercise the Option under the Holder's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall again become available for issuance under the Plan.
(g) REGULATORY EXTENSION. A Holder's Option Agreement may provide that if the exercise of the Option following the termination of the Holder's status as a Service Provider (other than upon the Holder's death or Disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then
the Option shall terminate on the earlier of (i) the expiration of the term of
the Option set forth in Section 8 or (ii) the expiration of a period of three
(3) months after the termination of the Holder's status as a Service Provider
during which the exercise of the Option would not be in violation of such
registration requirements.
(h) EARLY EXERCISABILITY. The Administrator may provide in the terms of
a Holder's Option Agreement that the Holder may, at any time before the Holder's
status as a Service Provider terminates, exercise the Option in whole or in part
prior to the full vesting of the Option; PROVIDED, HOWEVER, that subject to
Section 20, Shares acquired upon exercise of an Option which has not fully
vested may be subject to any forfeiture, transfer or other restrictions as the
Administrator may determine in its sole discretion.
(i) BUYOUT PROVISIONS. The Administrator may at any time offer to buyout for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Holder at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Holder, only by the Holder.
12. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with Options granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer. The offer shall be accepted by execution of a Restricted Stock purchase agreement in the form determined by the Administrator.
(b) REPURCHASE RIGHT. Unless the Administrator determines otherwise, the Restricted Stock purchase agreement shall grant the Company the right to repurchase Shares acquired upon exercise of a Stock Purchase Right upon the termination of the purchaser's status as a Service Provider for any reason. Subject to Section 20, the purchase price for Shares repurchased by the Company pursuant to such repurchase right and the rate at with such repurchase right shall lapse shall be determined by the Administrator in its sole discretion, and shall be set forth in the Restricted Stock purchase agreement.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those of a shareholder and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) In the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Administrator's sole discretion, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Option, Stock Purchase Right or Restricted Stock, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of:
(i) The number and kind of shares of Common Stock (or other securities or property) with respect to which Options or Stock Purchase Rights may be granted or awarded (including, but not limited to, adjustments of the limitations in Section 3 on the maximum number and kind of shares which may be issued and adjustments of the maximum number of Shares that may be purchased by any Holder in any calendar year pursuant to Section 6(c));
(ii) The number and kind of shares of Common Stock (or other securities or property) subject to outstanding Options, Stock Purchase Rights or Restricted Stock; and
(iii) The grant or exercise price with respect to any Option or Stock Purchase Right.
(b) In the event of any transaction or event described in Section 13(a), the Administrator, in its sole and absolute discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Option, Stock Purchase Right or Restricted Stock or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder's request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under
the Plan or with respect to any Option, Stock Purchase Right or Restricted Stock granted or issued under the Plan or to facilitate such transaction or event:
(i) To provide for either the purchase of any such Option, Stock Purchase Right or Restricted Stock for an amount of cash equal to the amount that could have been obtained upon the exercise of such Option or Stock Purchase Right or realization of the Holder's rights had such Option, Stock Purchase Right or Restricted Stock been currently exercisable or payable or fully vested or the replacement of such Option, Stock Purchase Right or Restricted Stock with other rights or property selected by the Administrator in its sole discretion;
(ii) To provide that such Option or Stock Purchase Right shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in the Plan or the provisions of such Option or Stock Purchase Right;
(iii) To provide that such Option, Stock Purchase Right or Restricted Stock be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
(iv) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Options and Stock Purchase Rights, and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Options, Stock Purchase Rights or Restricted Stock or Options, Stock Purchase Rights or Restricted Stock which may be granted in the future; and
(v) To provide that immediately upon the consummation of such event, such Option or Stock Purchase Right shall not be exercisable and shall terminate; PROVIDED, that for a specified period of time prior to such event, such Option or Stock Purchase Right shall be exercisable as to all Shares covered thereby, and the restrictions imposed under an Option Agreement or Restricted Stock purchase agreement upon some or all Shares may be terminated and, in the case of Restricted Stock, some or all shares of such Restricted Stock may cease to be subject to repurchase, notwithstanding anything to the contrary in the Plan or the provisions of such Option, Stock Purchase Right or Restricted Stock purchase agreement.
(c) Subject to Section 3, the Administrator may, in its discretion, include such further provisions and limitations in any Option, Stock Purchase Right, Restricted Stock agreement or certificate, as it may deem equitable and in the best interests of the Company.
(d) If the Company undergoes an Acquisition, then any surviving corporation or entity or acquiring corporation or entity, or affiliate of such corporation or entity, may assume any Options, Stock Purchase Rights or Restricted Stock outstanding under the Plan or may substitute similar stock awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 13(d)) for those
outstanding under the Plan. In the event any surviving corporation or entity or
acquiring corporation or entity in an Acquisition does not assume such Options,
Stock Purchase Rights or Restricted Stock or does not substitute similar stock
awards for those outstanding under the Plan, then with respect to (i) Options,
Stock Purchase Rights or Restricted Stock held by participants in the Plan whose
status as a Service Provider has not terminated prior to such event, the vesting
of such Options, Stock Purchase Rights or Restricted Stock (and, if applicable,
the time during which such awards may be exercised) shall be accelerated and
made fully exercisable and all restrictions thereon shall lapse at least ten
(10) days prior to the closing of the Acquisition (and the Options or Stock
Purchase Rights terminated if not exercised prior to the closing of such
Acquisition), and (ii) any other Options or Stock Purchase Rights outstanding
under the Plan, such Options or Stock Purchase rights shall be terminated if not
exercised prior to the closing of the Acquisition.
(e) Notwithstanding the foregoing, in the event that the Company becomes a party to a transaction that is intended to qualify for "pooling of interests" accounting treatment and, but for one or more of the provisions of this Plan or any Option Agreement or any Restricted Stock purchase agreement would so qualify, then this Plan and any such agreement shall be interpreted so as to preserve such accounting treatment, and to the extent that any provision of the Plan or any such agreement would disqualify the transaction from pooling of interests accounting treatment (including, if applicable, an entire Option Agreement or Restricted Stock purchase agreement), then such provision shall be null and void. All determinations to be made in connection with the preceding sentence shall be made by the independent accounting firm whose opinion with respect to "pooling of interests" treatment is required as a condition to the Company's consummation of such transaction.
(f) The existence of the Plan, any Option Agreement or Restricted Stock purchase agreement and the Options or Stock Purchase Rights granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
14. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other date as is determined by the Administrator. Notice of the determination shall be given to each Employee or Consultant to whom an Option or Stock Purchase Right is so granted within a reasonable time after the date of such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time wholly or
partially amend, alter, suspend or terminate the Plan. However, without approval
of the Company's stockholders given within twelve (12) months before or after
the action by the Board, no action of the Board may, except as provided in
Section 13, increase the limits imposed in Section 3 on the maximum number of
Shares which may be issued under the Plan or extend the term of the Plan under
Section 7.
(b) STOCKHOLDER APPROVAL. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Holder, unless mutually agreed otherwise between the Holder and the Administrator, which agreement must be in writing and signed by the Holder and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options, Stock Purchase Rights or Restricted Stock granted or awarded under the Plan prior to the date of such termination.
16. STOCKHOLDER APPROVAL. The Plan will be submitted for the approval of the Company's stockholders within twelve (12) months after the date of the Board's initial adoption of the Plan. Options, Stock Purchase Rights or Restricted Stock may be granted or awarded prior to such stockholder approval, provided that such Options, Stock Purchase Rights and Restricted Stock shall not be exercisable, shall not vest and the restrictions thereon shall not lapse prior to the time when the Plan is approved by the stockholders, and provided further that if such approval has not been obtained at the end of said twelve-month period, all Options, Stock Purchase Rights and Restricted Stock previously granted or awarded under the Plan shall thereupon be canceled and become null and void.
17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
18. RESERVATION OF SHARES. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
19. INFORMATION TO HOLDERS AND PURCHASERS. To the extent required by any Applicable Laws, the Company shall provide to each Holder and to each individual who acquires Shares pursuant to the Plan, not less frequently than annually during the period such Holder or purchaser has one or more Options or Stock Purchase Rights outstanding, and, in the case of an individual who acquires Shares pursuant to the Plan, during the period such individual owns such Shares, copies of annual financial statements. Notwithstanding the preceding sentence, the Company
shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information.
20. REPURCHASE PROVISIONS. The Administrator in its discretion may provide that the Company may repurchase Shares acquired upon exercise of an Option or Stock Purchase Right upon a Holder's termination as a Service Provider; PROVIDED, that any such repurchase right shall be set forth in the applicable Option Agreement or Restricted Stock purchase agreement or in another agreement referred to in such agreement.
21. INVESTMENT INTENT. The Company may require a Plan participant, as a condition of exercising or acquiring stock under any Option or Stock Purchase Right, (i) to give written assurances satisfactory to the Company as to the participant's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option or Stock Purchase Right; and (ii) to give written assurances satisfactory to the Company stating that the participant is acquiring the stock subject to the Option or Stock Purchase Right for the participant's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (A) the issuance of the shares upon the exercise or acquisition of stock under the applicable Option or Stock Purchase Right has been registered under a then currently effective registration statement under the Securities Act or (B) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock.
22. GOVERNING LAW. The validity and enforceability of this Plan shall be governed by and construed in accordance with the laws of the State of Delaware without regard to otherwise governing principles of conflicts of law.
23. APPLICABILITY OF STOCKHOLDERS AGREEMENT. Upon receipt of any Option or Stock Purchase Right, each participant under this Plan shall, automatically and without further action on his or her part, (i) be deemed to be a party to, a signatory of and bound by the Stockholders Agreement, dated March 14, 2001, between the Company and the equity holders listed therein (the "Stockholders Agreement").
* * * * * * *
I hereby certify that the Plan was duly adopted by the Stockholders of Cogent Communications Group, Inc. on March 14, 2001.
Executed in Washington, DC as of the 14th day of March 2001.
/s/ DAVE SCHAEFFER ------------------------------------ Dave Schaeffer President |
* * * * * * *
I hereby certify that the Plan was duly adopted by the Board of Directors of Cogent Communications Group, Inc. on March 7, 2001.
Executed in Washington, DC as of the 14th day of March 2001.
/s/ DAVE SCHAEFFER ------------------------------------ Dave Schaeffer President |
Exhibit 21.1
COGENT COMMUNICATION GROUP, INC.
LIST OF SUBSIDIARIES
Cogent Communications, Inc. (DE)
Cogent Internet, Inc. (DE)
Augustus Caesar Merger Sub., Inc. (DE)
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report on the December 31, 2000 and 1999 financial statements of Cogent Communications Group, Inc., and Subsidiaries dated March 15, 2001 and to all references to our firm included in this registration statement.
/s/ Arthur Andersen LLP Vienna, Virginia October 11, 2001 |
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report dated January 24, 2001 (except with respect to the matter discussed in Note 14, as to which the date is February 23, 2001) on the Allied Riser Communications Corporation financial statements as of December 31, 2000 and 1999 and for the three years in the period ended December 31, 2000, and to all references of our Firm included in this registration statement.
/s/ Arthur Andersen LLP Dallas, Texas October 11, 2001 |
EXHIBIT 99.1
[Form of Proxy for Holders of Allied Riser Common Stock]
ALLIED RISER COMMUNICATIONS CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________ __, 2001
The undersigned hereby appoints Quentin E. Bredeweg and Michael R. Carper, each with power to act without the other and with full power of substitution and resubstitution, as proxies to vote, as designated herein, all stock of Allied Riser Communications Corporation owned by the undersigned at the Special Meeting of Stockholders to be held at the __________, [address] on __________, __________ __, 2001, at _______ a.m. local time, or any adjournment thereof, upon the matter set forth on the reverse side of this Proxy, as described in the accompanying proxy statement/prospectus, and any such other business as may properly come before the special meeting or any adjournment thereof.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX. SEE REVERSE SIDE. YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATION. THE PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD OR FOLLOW THE PROCEDURES FOR TELEPHONE OR INTERNET VOTING.
(Continued and to be signed and dated on reverse side)
Allied Riser Communications Corporation
PLEASE MARK VOTE IN THE BOX IN THE FOLLOWING MANNER USING DARK INK
ONLY.
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE FOLLOWING PROPOSAL:
For Against Abstain 1. To adopt the Agreement and Plan of Merger dated as of August 28, |_| |_| |_| 2001, by and among Allied Riser Communications Corporation ("Allied Riser"), Cogent Communications Group, Inc. ("Cogent") and Augustus Caesar Merger Sub, Inc. (the "Merger Agreement"), and approve the transaction contemplated thereby in which Augustus Caesar Merger Sub, Inc. will be merged with and into Allied Riser and all of the outstanding shares of common stock, options and warrants of Allied Riser will be converted into the right to receive a number of shares of Cogent common stock or options or warrants to purchase Cogent common stock, as applicable, based on the exchange ratio as defined in the Merger Agreement. |
UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND, IN THE DISCRETION OF THE PROXY HOLDERS, ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENT THEREOF.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND RETURN THIS PROXY CARD PROMPTLY.
If you plan to attend the Special Meeting, please mark this box: |_|
Date: _________________________________, 2001
Please sign exactly as your name appears hereon and mail this proxy in the enclosed envelope. Joint owners should each sign. When signing as attorney, administrator, executor, guardian or trustee, please give your full title as such. If executed by a corporation, the proxy should be signed by a duly authorized officer. If executed by a partnership, please sign in the partnership name by an authorized person.
NAME & ADDRESS ------------------------------ PRINT HERE [CONTROL NUMBER] ------------------------------ |
Allied Riser Communications Corporation encourages you to take advantage of convenient ways by which you can vote your shares on matters to be covered at the Special Meeting. Please take the opportunity to use one of the three voting methods outlined below to cast your ballot.
TO VOTE OVER THE INTERNET:
- Have your proxy card in hand when you access the web site.
Log on to the Internet and go to the web site HTTP://WWW.EPROXY.COM/ARCC, 24 hours a day, 7 days a week.
- You will be prompted to enter your control number printed in the box above.
- Follow the instructions provided.
TO VOTE OVER THE TELEPHONE:
- Have your proxy card in hand when you call.
- On a touch-tone telephone call 1-800-840-1208, 24 hours a day, 7 days a week.
- You will be prompted to enter your control number printed in the box above.
- Follow the recorded instructions.
TO VOTE BY MAIL:
- Mark, sign and date your proxy card.
- Return your proxy card in the postage-paid envelope provided.
Your electronic vote authorizes the named proxies in the same manner as if you signed, dated and returned the proxy card. IF YOU CHOOSE TO VOTE YOUR SHARES ELECTRONICALLY OR BY TELEPHONE, THERE IS NO NEED FOR YOU TO MAIL YOUR PROXY CARD TO THE COMPANY.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.