-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TsSSujqvMMjN+0dmsOzBDzbUnVH2sl0jlYCE7lXoYzvNElFnD2hdqeGByYg1VWo+ al4Y4lWToGQbgopmHIpJuw== /in/edgar/work/20000629/0001056114-00-000016/0001056114-00-000016.txt : 20000920 0001056114-00-000016.hdr.sgml : 20000920 ACCESSION NUMBER: 0001056114-00-000016 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CTC COMMUNICATIONS GROUP INC CENTRAL INDEX KEY: 0001092319 STANDARD INDUSTRIAL CLASSIFICATION: [7385 ] IRS NUMBER: 043469590 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27505 FILM NUMBER: 663848 BUSINESS ADDRESS: STREET 1: 220 BEAR HILL RD CITY: WALTHAM STATE: MA ZIP: 02451 BUSINESS PHONE: 7814668080 MAIL ADDRESS: STREET 1: 220 BEAR HILL RD CITY: WALTHAM STATE: MA ZIP: 02154 10-K 1 0001.txt 3/31/00 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 Commission File Number 0-27505. CTC COMMUNICATIONS GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 04-3469590 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 220 Bear Hill Rd., Waltham, Massachusetts 02451 (Address of principal executive offices) (Zip Code) (781) 466-8080 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part IV of this Form 10-K or any amendment to this Form 10-K. [ ] Based on the closing sale price on June 19, 2000, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $683,335,261. At June 19, 2000, 26,186,796 shares of the Registrant's Common Stock were outstanding. PART I ITEM 1. BUSINESS OVERVIEW We are a rapidly growing single-source provider of voice and data telecommunications services, or integrated communications provider, with 16 years of marketing, sales and service experience. We target predominantly medium and larger-sized business customers who seek greater capacity for voice and data traffic, a single provider for their telecommunications requirements and improved levels of service. We have a large, experienced sales force consisting of 214 sales people supported by 144 network coordinators. Our sales force is located close to our customers in 30 sales branches primarily in New England and New York State. We are currently operating our own state-of-the-art network facilities to carry telecommunications traffic. Our IntelliNET(sm) network uses packet- switching, a technology which transmits data in discrete packages. It uses internet protocol, which is a method that allows computers with different architectures and operating systems to communicate over the internet, and asynchronous transfer mode, or ATM, architecture, which allows the network to transmit multiple types of media, such as voice, data and video with various levels of Quality of Service, or QOS. The first phase of our network, which became operational for full production mode in January 2000, included 22 Cisco Systems, or Cisco, advanced data switches and two network operations centers. Presently, we are interconnecting our facilities with leased transmission capacity over fiber optic cable strands from Level 3 Communications and NorthEast Optic Network. Cisco has reviewed and certified our network design and has designated our network as a Cisco Powered Network. In May 1999, we began testing our network with some of our customers and in September 1999, we initiated commercial service on our network. By March 31, 2000, we were servicing 575 customers on our network. We became an integrated communications provider, or ICP, in January 1998. Prior to that, we were the largest independent sales agent for NYNEX Corp. (now Bell Atlantic), based on agency revenues. At the end of 1997, before withdrawing from the Bell Atlantic agency program, we were managing relationships for approximately 7,000 customers, representing over 280,000 local access lines and over $200 million in annual local telecommunications spending. As of March 31, 2000, after only 27 months as an integrated communications provider, we were serving over 13,000 customers and had 314,616 access lines and equivalent circuits, or ALEs. ALEs are the total number of voice circuits and equivalent data circuits we have in service. Voice circuits are the actual number of voice circuits purchased by our customers, while equivalent data circuits represent the data transmission capacity purchased by our customers divided by 64 kilobits per second, which is the capacity necessary to carry one voice circuit. Our Services We offer the following services: Local Telephone Services. We offer connections between customers' telecommunications equipment and the local telephone network, which we currently lease from incumbent local exchange carriers. For large customers or customers with specific requirements, we integrate their private systems with analog or digital connections. We also provide all associated call processing features as well as continuously connected private lines for both voice and data applications. Long Distance Telephone Services. We offer a full range of domestic and international long distance services, including "1+" outbound calling, inbound toll free service, standard and customized calling plans. We also offer related services such as calling cards, operator assistance and conference calling. High Speed Data Services. We offer a wide array of both continuously connected and switched high speed digital data services. Switched or high speed digital data services include Integrated Services Digital Network, or ISDN, frame relay and ATM products. Internet Services. We offer high speed, continuously connected internet access and services through various digital connections. We provide the necessary configuration support and other support services on a 24-hour, 7-day a week basis. Future Service Offerings. As we continue deploying the network, we may offer the following additional services: hosting of web-sites, electronic commerce over the internet, data security and storage services, systems integration, consulting and network monitoring services, customized private networks, virtual private networks and other data, and voice and sophisticated network products. Our Integrated Communications Network, or IntelliNET(sm) We began deploying the first phase of our state-of-the-art, packet- switched network, IntelliNET(sm), in January 1999. Today, our network is fully operational providing customers with integrated broadband services including voice, data, internet access and videoconferencing convergence over a single multi-service connection. We are able to offer a broad array of sophisticated services over our network. We believe that our network will enable us to improve margins, enhance network and service quality and broaden our range of product offerings. We also believe that our network will ultimately enable us to deliver voice and data services across a single multi-service connection. We expect our network to lower customers' overall telecommunications costs and stimulate demand for new services. The advantage of the IntelliNET(sm) network is that it is an open architecture allowing us to integrate new and emerging technology to meet our customers' increasing demand for high capacity and reliable voice, data and video services. The network utilizes Cisco BPX and MGX IP + ATM switches, the most reliable and proven method to handle all types of data, voice, Internet and video traffic. Our switches and hubs are co-located with Level 3 Communications and Northeast Optic Network and Bell Atlantic facilities. We access our customers from our network via PowerPath services, which provide a fully converged ATM connection from the customer to our IntelliNET(sm). Data, Internet, video and long-distance voice are consolidated on a single access facility thus eliminating inefficiency and expense associated with separate dedicated lines for different products and services. We believe the packet switched network is superior to the existing circuit switched network. The basic technology within the existing telephone- switching network has not changed for approximately 100 years. The circuit switch technology dedicates a fixed amount of capacity for the entire duration of a telephone call. In a packet switched environment, there is no single dedicated circuit and information is broken apart and sent into packets that are mixed with other types of data communications and then reassembled at the end. Our ability to transmit via packets provides for superior network utilization and results in the ability to transmit more information through a similar channel, thus more information, i.e. voice and data, will be transported at a lower cost and more efficiently. We are currently offering long-distance and data services over our network, and local exchange will continue to be obtained from other carriers. We believe that long-distance and data services represent over 50% of the telecommunications spending of our target customers. We plan to incorporate local dial tone in the first quarter of 2001, thus simplifying the transition of existing customers onto the network. The customer will not have to disconnect from the ILEC and then reconnect onto our network. The transition of the customer from ILEC to our network requires only the reprogramming of the customer's system to direct long-distance and data service traffic to our network. This strategy enables customers to keep their existing phone numbers as well as having the built-in redundance of the separate physical connection to the ILEC. We access our customer locations from our network through our PowerPath(sm) services. Various access modes include a variety of high capacity technologies, including digital subscriber line, or DSL, service which permits high speed connections over existing telephone lines, leased high capacity wireline circuits, or T-1s, wireless technologies and fiber optic facilities, as available. CTC on-net Internet Services We have built an extensive IP network infrastructure supported by our IntelliNET(sm) network. We became registered as an official Internet Service Provider, or ISP, in early 2000, which enables us to deliver Internet access to our customers as part of our IntelliNET(sm) converged services offering. We plan to launch our web based mail product during the summer of 2000 and plan to further expand this offering to a unified messaging service early next year. Fiber Network With the objective to secure competitive transport capacity and improve time to market of our IntelliNET(sm) and value added services, we launched a major dark fiber program in early 2000 with the acquisition of over 8,300 fiber route miles (the term "dark" describes the absence of components required for optical transmission or optronics). The program consists of two phases. Phase 1 includes our current footprint in the Northeastern United States continuing south through Virginia, northeast to Ohio and east to New York. Our primary network operations center is co-located at our Waltham, Massachusetts technology center, supported by a back-up network operations center in Springfield, Massachusetts. We expect Phase 1 to be completed by January 2001, although the major routes will become operational as early as mid-year 2000. We plan to substitute the transmission capacity over fiber optic cable strands which we presently lease from ILECs, Level 3 Communications and Northeast Optic Network with our own fiber connections. Phase II of the network is expected to commence in December 2000 and coverage will extend from Virginia south to Florida, west to Texas, north to Illinois, and then east to Indiana, and Tennessee to Georgia. We expect Phase II to be completed by January 2002. To implement our fiber network program, we signed a $115 million agreement to purchase more than 8,300 route miles of dark fiber covering the Eastern half of the United States from Williams Communications ("Williams"). The contract includes co-location space and ongoing network maintenance services on our nationwide fiber optic network. The fiber acquired will expand our current network presence along the Boston to Washington, D.C. corridor into 40 major markets extending from the central United States throughout the eastern United States. Williams, which owns and operates the largest next-generation network in the United States, is a recognized leader in providing innovative services and advances in fiber-optic engineering and construction and is the largest independent source of integrated business communications solutions including data, voice or video. We believe that our relationship with Williams will provide us with the ability to quickly acquire a world-class telecommunications infrastructure. The fully integrated architecture of the Williams Multi-Service Broadband Network combines ATM core switching with advanced optical networking technologies and enables us to extend our networking capability outside of our current footprint. We recently announced that we will install and operate our own optronics at points along the fiber routes and have selected Cisco as our optronics provider for the fiber network. We will purchase Internet scale, carrier class optical networking equipment, specifically Cisco's ONS 153454 Synchronous Optical Network, or SONET, switches, and Cisco's ONS 15800 Dense Wave-link Multiplexing, or DWM, switches. We anticipate spending approximately $75 million for the purchase of these optronics over the next two years. Sales and Customer Care We market telecommunications services by developing long-term business relationships with our customers and offering them comprehensive management of their telecommunications requirements. Each of our customers is assigned a local dedicated team consisting of a sales executive and a network consultant. This team provides a single point of contact for our customer's needs. This team works together with the customer to design, implement and maintain an integrated telecommunications solution. This team also reviews customers' services on a regular basis through regular on-site meetings and, based upon changes in the customers' needs or available technologies, updates their network to make the best use of the currently available products and services. We believe that providing localized, proactive high quality customer care promotes continued sales of new services with much more value and reduces customer churn. Sales and Service Infrastructure. Our branches are currently staffed with over 400 individuals, representing approximately 75% of our employees. As of March 31, 2000, there were 214 sales executives, 144 network consultants, 35 branch/regional managers and 22 service managers located in 30 sales branches serving markets in Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont. Customer Sales and Service Model. At the initial meeting with a prospective customer, our sales executives first gain a detailed understanding of the customer's business, including their method of operations, a description of their short and long-term business plans and the communications challenges which they currently face. A thorough, detailed inventory of the customer's current communications services and costs is then analyzed. We then present a communications solution to our customer based on our analysis of their business and goals which outlines both options and recommendations designed to eliminate unnecessary expense, implement new services to improve the functional and financial performance of their network and position them to make changes to their network as their business needs and available technologies change. Sales executives also review with the customer the benefits of the CTC comprehensive, ongoing customer care program which focuses on timely response to daily customer needs and is a proactive approach to an ongoing dialogue to keep the customer informed of industry changes and trends and keep ourselves informed of changes in the plans or needs of the customer. We believe the relationship-intensive approach of assigning sales executives and network consultants to each customer account results in both high customer satisfaction and retention rates. Our sales executives regularly participate in training programs on subjects such as solution-oriented sales, comprehensive customer care, network design and other technical features of our services. We seek to motivate and retain our sales executives through extensive training and a commission structure that supports our relationship oriented sales and service policies and reward account growth and retention. Customer Care. Our network consultants are thoroughly trained in each of the Customer's service offerings and are responsible for customer care. Network consultants are located in each of our sales branches and are responsible for individual customer accounts in direct support of the sales executives. Each sales representative is kept informed of the unique needs and aspects of each individual customer to whom they are assigned. Our localized, multi-step customer care process provides an ongoing and comprehensive service program to our customers. This process ranges from long-term consultative planning to day-to-day handling of service issues. Our customer care program is designed to provide prompt action in response to customer inquiries and complaints. The local sales branches are staffed 11 hours a day, 5 days a week. At other times, incoming calls are automatically connected to a central customer care center which is staffed 24 hours a day, 7 days a week. We believe that our network consultants are motivated to provide the highest level of customer care because a significant portion of their compensation is based on customer retention and satisfaction. Our Information Systems Our information systems include five central applications which fully integrate our sales and account management, customer care, provisioning, billing and financial processes. Automation of each of these processes is designed for high transaction volumes, accuracy, timely installation, accurate billing feeds and quality customer service. Data entered in one application is generally exported into all other applications. Each branch office is connected via frame relay to the central processor. Our employees have online access to our information systems from their branch desktops or docking stations. We also have an electronic interface to most of our major suppliers. When a sales executive wishes to place an order, our information systems electronically direct it to the appropriate supplier and monitor any delays in provisioning the order. Once the order is provisioned, our information systems automatically remove it from the in-process order file, update the customer's service inventory and network configuration, initiate billing, post the sales executive's commission and update our financial reports. Our information systems include the following applications: Account and Sales Management. Our account management application is the hub of our information systems. It stores all of our customer-related information, such as location detail, contact information, transaction history and account profile. Our account management application also automatically exports data to our customized sales application. Our sales application is a fully-integrated database that provides sales personnel with access to information for pricing services, customized sales proposals, customer correspondence, sales performance, referencing methods and procedures, service descriptions, competitive information and historical profiles of our current and prospective customers. These historical profiles include details of installed services, recent transactions and billing history. Our sales system can be used both on- and off-line. All entries made while off-line are automatically updated to the central processor and all relevant data is simultaneously exported to the other central applications each time a salesperson connects to the network. Customer Care. Our network consultants use our account care application to review installed services, make additions, changes and deletions to accounts, initiate and track repair and service work and review past billing for any customer. This closed loop application provides automatic follow up and records all transactions in a customer history file. Service orders and repair requests input in our account care application are automatically exported into our provisioning application. Provisioning. We generally direct customer orders through our provisioning application electronically to our major suppliers. We track these orders through our account care application from initiation through completion. Order information is entered by the account team at each branch and then forwarded for technical design review. Upon design acceptance, an Access Service Request (ASR) is issued to a local service provider to provision the PowerPath access service. This interval is from the local service provider and currently averages 20 days. Upon electronic receipt of the Firm Order Confirmation (FOC), the Installation and Services appointment is scheduled. Branch network coordinators are alerted of the date and they coordinate that date with the customer. Two days before installation, network addresses and services are assigned throughout the network and the Integrated Access Device (IAD) is programmed and shipped to the installation depot. On the FOC date, the access service is tested prior to acceptance. The following day, the IAD is installed and the customer's services are activated. The total interval from receipt of customer order to service activation now averages 24 days. If any delay in the process occurs, our information system alerts the sales and service team who then have the ability to take corrective action and also notify the customer of a possible delay. Once the order has been filled the information is automatically fed to our billing application. Billing and Customer Interface. Our billing application gives us the ability to provide our customers a single bill for all the services we provide. Our billing application also allows the customer to review historic bill detail, perform customized usage analyses and download information directly to their own accounting applications. Using a secure Web-based application called IntelliVIEW(tm), our customers have near real-time online access to our billing application and are able to review and analyze their bills and related information with many useful features including: Call summary Time of day analysis Call detail Day of week analysis Click-a-Bill drill down Location summary and analysis Line usage summary Group summary and analysis Expensive call breakdown e-mail notification of billing Frequent call breakdown Customer billing statements are also available on CD ROM, diskette or paper. Paper statements generated by our billing application offer our customers different management formats. Financial. Data from our billing application is electronically transferred to our financial application. Our financial application tracks and prepares reports on sales activity, commissions, branch operations, branch profitability and cash flows. The financial application also compiles this data for our periodic financial reports. In addition, this application provides internal controls for revenue tracking and costing. The integrated nature of our information systems allows us to operate each branch as a separate profit and loss center. Information Systems. We continue to upgrade our information systems in order to support our network. Our Information Management Platform consists of a three-tier architecture. A relational database and data warehouse from Oracle comprises tier one. Vertical systems at the second tier support our network operations support system, business applications used by our various departments, a business-to-business communications server, and a suite of web based applications. Both tiers one and two run on SUN-Microsystems and UNIX. A web based client at the third tier allows our customers, vendors, partners and employees access to information using Windows, Windows NT or web browsers. Our Information Management Platform is built on open standards, and is highly scalable and flexible to accommodate future growth and new services. It allows us to replace and upgrade business applications without impacting other applications and provides us highly reliable data. All of our systems are fully redundant. The information is mirrored on EMC storage systems located in two distant data centers. Competition We operate in a highly competitive environment. We have no significant market share in any market in which we operate. We now face and will continue to face substantial and growing competition from a variety of data transport, data networking and telephony service providers. We face competition from single-source providers and from providers of each individual telecommunications service. Many of these competitors are larger with greater financial and other resources than we possess. In addition, many of our competitors are incumbent providers, with long standing relationships with their customers and greater name recognition. Bell Atlantic is a competitor for local and data services, and, we expect based on regulatory developments, eventually will be a competitor for long distance services as well. Major competitors in our markets for the provision of single-source solutions include WinStar Communications, Inc. and Teligent, Inc. Network Plus is a competitor in our market for the provision of long distance and, to some extent, local services. Competitors for our data services also include AT&T Local (Teleport) and MCI Worldcom (Brooks Fiber and MFS). Our competitors for long distance services include all the major carriers such as AT&T, MCI Worldcom and Sprint. The continuing trend toward business combinations and alliances in the telecommunications industry may create significant new competitors. Many of these combined entities have or will have resources far greater than ours. These combined entities may provide a single package of telecommunications products that is in direct competition with our products. These combined entities may be capable of offering these products sooner and at more competitive rates than we can. Competition from Single-Source Providers. The number of single-source providers has increased because of the current regulatory trend toward fostering competition and the continued consolidation of telecommunications service providers. Many single-source providers and long distance carriers have committed substantial resources to building their own networks or to purchasing carriers with complementary facilities. Through these strategies, a competitor can offer single-source local, long distance and data services similar to those that we will offer. The alternative strategies available to these competitors may provide them with greater flexibility and a lower cost structure. Once the Regional Bell Operating Companies, or RBOCs, are allowed to offer in-region long distance services under the terms of Section 271 of the Telecommunications Act, they will be in a position to offer local and long distance services similar to the services we offer. The FCC must approve RBOC provision of in-region long distance services and can only do so upon finding that the RBOC has complied with the 14-point checklist outlined in Section 271 of the Telecommunications Act. This 14-point checklist is designed to ensure that RBOC competitors have the ability to provide local telephone services in competition with the RBOC. To date, only New York Telephone d/b/a Bell Atlantic-NY has been granted Section 271 authority; however, it is expected that other applications will be approved in the upcoming year. Although the Telecommunications Act and other federal and state regulatory initiatives will provide us with new business opportunities, as competition increases regulators are likely to provide the ILECs with more pricing flexibility. Our revenues may be adversely affected if the ILECs elect to lower their rates and sustain these lower rates over time. We believe that we may be able to offset the effect of lower rates by offering new services to our target customers, but we cannot assure you that this will occur. In addition, if future regulatory decisions give ILECs increased pricing flexibility or other regulatory relief, such decisions could have a material adverse effect on our business. Competition for Provision of Local Exchange Services. In most local exchange markets, ILECs, including RBOCs, continue to hold near-monopoly positions. We also face competition or prospective competition from one or more integrated communications providers, and from other competitive providers, including providers who do not own their own network. Many of these competitors are larger and better capitalized than we are. Some carriers have entered into interconnection agreements with ILECs and either have begun, or in the near future likely will begin, offering local exchange service in each of our markets. Further, as of February 8, 1999, the largest long distance carriers were permitted to bundle local and long distance services. This removes one of our competitive advantages. Other entities that currently offer or are potentially capable of offering switched services include cable television companies, electric utilities, other long distance carriers, microwave carriers, and large customers who build private networks. Wireless telephone system operators are also competitors in the provision of local services. Cellular, personal communications service, and other commercial mobile radio services providers may offer wireless services to fixed locations, rather than just to mobile customers. This ability to provide fixed as well as mobile services will enable wireless providers to offer wireless local loop service and other services to fixed locations (e.g., office and apartment buildings) in direct competition with us and other providers of wireline telephone service. In addition, the FCC recently auctioned substantial blocks of spectrum for fixed use including local exchange services. We expect exploitation of this spectrum to increase competition in the local market. The World Trade Organization, or WTO, concluded an agreement that could result in additional competitors entering the U.S. local and long-distance markets. Under the WTO agreement, the United States committed to open telecommunications markets to foreign-owned carriers. The FCC has adopted streamlined procedures for processing market entry applications from foreign carriers, making it easier for such carriers to compete in the U.S. We cannot predict whether foreign-owned carriers will enter our markets as a result of the WTO agreement. Competition for Provision of Long Distance Services. The long distance market is significantly more competitive than the local exchange market. In the long distance market numerous entities compete for the same customers. In addition, customers frequently change long distance providers in response to lower rates or promotional incentives by competitors. This results in a high average rate of customer loss, or churn, in the long distance market. The FCC recently adopted the Coalition for Affordable Local and Long Distance Service (CALLS) proposal which will further reduce access charges paid by long distance carriers by $3.2 billion. The FCC's new rules also shift the imposition of the presubscribed interexchange carrier charge, or PICC, currently assessed by the RBOC on the long distance carrier, on to the end user. RBOCs will be permitted to recover its cost for presubscription through an increase in its Subscriber Line Charge (SLC). Accordingly, prices in the long distance market are expected to significantly decline. Data and Internet Services. The market for high speed data services and access to the internet is highly competitive. We expect competition in this market to continue to intensify. Our competitors in this market will include internet service providers and other telecommunications companies, including large interexchange carriers and RBOCs. Many of these competitors have greater financial, technological and marketing resources than those available to us. Pursuant to those obligations set forth under Section 251 of the Act, ILECs are now required to provide advanced services through an unregulated affiliate. We cannot yet predict the effect that this requirement will have on our ability to obtain facilities and services from ILECs and on the competition that we will face from ILECs in the data services market. Government Regulation The local and long distance telephony services and, to a lesser extent, the data services we provide are regulated by federal, state, and, to some extent, local government authorities. The FCC has jurisdiction over all telecommunications common carriers to the extent they provide interstate or international communications services or access thereto. Each state regulatory commission has jurisdiction over the same carriers with respect to the provision of intrastate communications services. Local governments sometimes impose franchise or licensing requirements on telecommunications carriers and regulate construction activities involving public rights-of-way. Changes to the regulations imposed by any of these regulators could have a material adverse effect on our business, operating results and financial condition. In recent years, the regulation of the telecommunications industry has been in a state of flux as the United States Congress and various state legislatures have passed laws seeking to foster greater competition in telecommunications markets. The FCC and state utility commissions have adopted many new rules to implement this legislation and encourage competition. These changes, which are still incomplete, have created new opportunities and challenges for us and our competitors. The following summary of regulatory developments and legislation is not intended to describe all present and proposed federal, state and local regulations and legislation affecting the telecommunications industry. Some of these and other existing federal and state regulations are the subject of judicial proceedings, legislative hearings and administrative proposals which could change, in varying degree, the manner in which this industry operates. We cannot predict the outcome of these proceedings, or their impact on the telecommunications industry at this time. Federal Regulation We are currently not subject to price cap or rate of return regulation at the federal level and are not currently required to obtain FCC authorization for the installation, acquisition or operation of our domestic interexchange network facilities. However, we must comply with the requirements of common carriage under the Communications Act. We are subject to the general requirement that our charges and terms for our telecommunications services be "just and reasonable" and that we not make any "unjust or unreasonable discrimination" in our charges or terms. The FCC has jurisdiction to act upon complaints against any common carrier for failure to comply with its statutory obligations. The US Court of Appeals recently upheld the FCC's 1996 mandatory detariffing rules for domestic interexchange service. Pursuant to the new rules, long distance providers must cancel tariffs for interstate service by January 31, 2001. The Company does not anticipate any material impact as a result of these rules. Comprehensive amendments to the Communications Act were made by the Telecommunications Act, which was signed into law on February 8, 1996. The Telecommunications Act effected changes in regulation at both the federal and state levels that affect virtually every segment of the telecommunications industry. The stated purpose of the Telecommunications Act is to promote competition in all areas of telecommunications. While it may take years for the industry to feel the full impact of the Telecommunications Act, it is already clear that the legislation provides us with new opportunities and challenges. The Telecommunications Act greatly expands the interconnection requirements on the ILECs by requiring the ILECs to: . provide physical co-location, which allows companies such as us and other competitive local exchange carriers to install and maintain their own network termination equipment in ILEC central offices, and virtual collocation only if requested or if physical collocation is demonstrated to be technically infeasible; . unbundle components of their local service networks so that other providers of local service can compete for a wide range of local services customers; and establish "wholesale" rates for their services to promote resale by competitive local exchange carriers. In addition, all local exchange carriers must: . establish number portability, which will allow a customer to retain its existing phone number if it switches from the local exchange carrier to a competitive local service provider; . provide nondiscriminatory access to telephone poles, ducts, conduits and rights-of-way. . compensate other local exchange carriers on a reciprocal basis for traffic originated on one local exchange carrier and terminated on the other local exchange carrier. The FCC is charged with establishing national guidelines to implement certain portions of the Telecommunications Act. The FCC issued its interconnection order on August 8, 1996. On July 18, 1997, however, the United States Court of Appeals for the Eighth Circuit issued a decision vacating the FCC's pricing rules, as well as certain other portions of the FCC's interconnection rules, on the grounds that the FCC had improperly intruded into matters reserved for state jurisdiction. On January 25, 1999, the Supreme Court largely reversed the Eighth Circuit's order, holding that the FCC has general jurisdiction to implement the local competition provisions of the Telecommunications Act. In so doing, the Supreme Court stated that the FCC has authority to set pricing guidelines for unbundled network elements, to prevent ILECs from disaggregating existing combinations of network elements, and to establish "pick and choose" rules regarding interconnection agreements. "Pick and choose" rules would permit a carrier seeking interconnection to "pick and choose" among the terms of service from other interconnection agreements between the ILECs and other competitive local exchange carriers. This action reestablishes the validity of many of the FCC rules vacated by the Eighth Circuit. Although the Supreme Court affirmed the FCC's authority to develop pricing guidelines, the Supreme Court did not evaluate the specific pricing methodology adopted by the FCC and has remanded the case to the Eighth Circuit for further consideration. Thus, while the Supreme Court resolved many issues, including the FCC's jurisdictional authority, other issues remain subject to further consideration by the courts and the FCC. In September 1999, the FCC issued a new order which redefined those unbundled network elements that ILECs must provide to competitive local exchange carriers. Specifically, the FCC modified rules which eliminate the requirement that the incumbent provide unbundled access to Directory Assistance and Operator Services. The FCC's rules requiring incumbents to provide unbundled local switching was modified such that the incumbent is no longer required to offer local switching to larger carriers located in Metropolitan Service Areas (MSAs). In March of this year, the U.S. Court of Appeals vacated portions of the FCC's collocation rules. Specifically, the Court vacated the FCC's definition of what types of equipment must be collocated, its rules allowing collocators to cross connect their equipment with other collocated carriers, and its rule prohibiting ILECs from requiring carriers from using separate or isolated rooms or floors. It is uncertain, what impact the vacation of these rules will have on the Company. In November, 1999, the FCC issued rules that allow competitive local exchange carriers to offer data services over the same line that a consumer uses for voice services without the competitive local exchange carrier having to provide the voice service. Under the Communications Act, ILECs who don't qualify for rural exemption pursuant to Section 251 of the Act have an obligation to negotiate with us in good faith to enter into interconnection agreements. We will need interconnection agreements to provide enhanced connectivity to our network and to provide local dial tone services. If we cannot reach agreement, either side may petition the applicable state commission to arbitrate remaining disagreements. These arbitration proceedings can last up to 9 months. Moreover, state commission approval of any interconnection agreement resulting from negotiation or arbitration is required, and any party may appeal an adverse decision by the state commission to federal district court. The potential cost in resources and delay from this process could harm our ability to compete in certain markets, and there is no guarantee that a state commission would resolve disputes, including pricing disputes in our favor. The Telecommunications Act permits RBOCs to provide long distance services outside their local service regions immediately, and will permit them to provide in-region long distance service upon demonstrating to the FCC and state regulatory agencies that they have adhered to the Telecommunication Act's 14- point competitive checklist. Some RBOCs have filed applications with various state public utility commissions and the FCC seeking approval to offer in-region long distance service. Some states have denied these applications while others have approved them. However, to date, with the exception of Bell Atlantic-New York, the FCC has denied each of the RBOC's applications brought before it because it found that the RBOC had not sufficiently made its local network available to competitors. The approval of additional RBOC applications is expected in the upcoming year. In May 1997, the FCC released an order establishing a significantly expanded universal service regime to subsidize the cost of telecommunications service to high cost areas, as well as to low-income customers and qualifying schools, libraries, and rural health care providers. Providers of interstate telecommunications services, like us, as well as certain other entities, must pay for these programs. We are also eligible to receive funding from these programs if we meet certain requirements. Our share of the payments into these subsidy funds will be based on our share of certain defined telecommunications end-user revenues. Currently, the FCC is assessing such payments on the basis of a provider's revenue for the previous year. Various states are also in the process of implementing their own universal service programs. The FCC and most states permit carriers to recover this charge from its end users. Consequently, the existing surcharge structure does not materially impact the Company's costs. On November 1, 1996, the FCC issued an order that required nondominant interexchange carriers, like us, to cease filing tariffs for our domestic interexchange services. The order required mandatory detariffing and gave carriers nine months to withdraw federal tariffs and move to contractual relationships with their customers. Subsequently stayed and later upheld by US court of Appeals, the FCC detariffing rules went back into effect in April, 2000. Carriers must cancel interstate interexchange services tariffs by January 31, 2001. The Company currently maintains contractual arrangements with all of its customer base and therefore anticipates little or no impact from the reinstatement of these rules. Also reinstated are the FCC rules that carriers make specific public disclosure on the carrier's website of their rates, terms and conditions for domestic interstate service and the requirement that carriers file annual certifications indicating that the carrier is complying with geographic rate averaging and rate integration obligations under Section 254(g) of the Act. The FCC's determination last year that dial-up calls to Internet Service Providers were not subject to reciprocal compensation was remanded by the DC circuit court pending reconsideration. Moreover, several states are considering this issue, and several states have held that local exchange carriers do not need to pay reciprocal compensation for calls terminating at internet service providers. In addition, one RBOC has petitioned the FCC for a ruling that telephone-to-telephone calls made over the internet are subject to regulation as a telecommunications service under the Communications Act. Although the FCC has suggested that such internet-based telephone-to- telephone calls may be considered a telecommunications service, it has not reached a final decision on that issue. We cannot predict the effect that the FCC's resolution of these issues will have on our business. On November 17, 1999, the Federal Communications Commission (FCC) approved the transfer of Lockheed Martin's Communications Industry Services (CIS) group to NeuStar, Inc, who now has responsibility for administering and assigning local telephone numbers in each geographic region in the United States. In July 1996, the FCC released rules requiring all local exchange carriers to have the capability to permit both residential and business consumers to retain their telephone numbers when switching from one local service provider to another, known as "number portability." In May 1999, the FCC initiated a proceeding to address the problem of the declining availability of area codes and phone numbers. On March 31, 2000, the FCC adopted new area code optimization rules. It is uncertain what impact these rules will have on the Company's offerings. A customer's choice of local or long distance telecommunications company is encoded in a customer record, which is used to route the customer's calls so that the customer is served and billed by the desired company. A user may change service providers at any time, but the FCC and some states regulate this process and require that specific procedures be followed. When these procedures are not followed, particularly if the change is unauthorized or fraudulent, the process is known as "slamming." Slamming is such a significant problem that it was addressed in detail by Congress in the Telecommunications Act, by some state legislatures, and by the FCC in recent orders. The FCC has levied substantial fines for slamming. The risk of financial damage and business reputation from slamming is significant. Even one slamming complaint could cause extensive litigation expenses for us. The FCC's slamming rules (which originally covered only long distance) apply to local service as well. In addition, the FCC recently adopted revised slamming rules which virtually eliminates the possibility for Carrier compensation for charges associated with the unauthorized switch of a consumer's service. The new rules also require Commission notification of all unauthorized changes. Last year the FCC adopted technical requirements for wireline, cellular, and broadband Personal Communications Services (PCS) carriers to comply with the assistance capability requirements of the Communications Assistance for Law Enforcement Act of 1994 (CALEA). Specifically, the FCC required that all capabilities of the Telecommunications Industry Association (TIA) interim standard (J-STD-025) and six of nine "punch list" capabilities requested by the Department of Justice (DoJ)/Federal Bureau of Investigation (FBI) be implemented by wireline, cellular, and broadband PCS carriers. With the exception of packet-mode communications, the FCC required that all capabilities of the interim standard be implemented by the CALEA compliance date of June 30, 2000. The FCC required that a packet-mode communications capability and the six punchlist capabilities be implemented by September 30, 2001. The Company does not anticipate incurring any significant additional costs as a result of the FCC's adoption of these rules. State Regulation To the extent that we provide telecommunications services which originate and terminate in the same state, we are subject to the jurisdiction of that state's public service commission. As our local service business and product lines expand, we will offer more intrastate service and become increasingly subject to state regulation. The Telecommunications Act maintains the authority of individual state utility commissions to preside over rate and other proceedings, as discussed above, and impose their own regulation of local exchange and interexchange services so long as such regulation is not inconsistent with the requirements of the Telecommunications Act. For instance, states may impose tariff and filing requirements, consumer protection measures and obligations to contribute to universal service, and other funds. We are subject to requirements in some states to obtain prior approval for, or notify the state commission of, any transfers of control, sales of assets, corporate reorganizations, issuances of stock or debt instruments and related transactions. Although we believe such authorizations could be obtained in due course, there can be no assurance that the FCC or state commissions would grant us authority to complete any of these transactions. We have state regulatory authority to provide competitive local exchange and/or local resold services and interexchange services in twelve states. We also have state regulatory authority to provide intrastate interexchange services throughout the continental U.S. The Telecommunications Act generally preempts state statutes and regulations that restrict the provision of competitive local services. States, however, may still restrict competition in some rural areas. As a result of this preemption, we will be free to provide the full range of local, long distance, and data services in any state. While this action greatly increases our potential for growth, it also increases the amount of competition to which we may be subject. Local Government Regulation We may be required to obtain from municipal authorities, street opening and construction permits to install our facilities in some cities. In some of the areas where we provide service, we are subject to municipal franchise requirements requiring us to pay license or franchise fees either on a percentage of gross revenue, flat fee or other basis. The Telecommunications Act requires municipalities to charge nondiscriminatory fees to all telecommunications providers, but it is uncertain how quickly this requirement will be implemented by particular municipalities in which we operate or plan to operate or whether it will be implemented without a legal challenge. Employees As of June 19, 2000, we employed 640 persons. None of our employees are represented by a collective bargaining agreement. ITEM 2. PROPERTIES Our headquarters and technology center are located in leased space in Waltham, Massachusetts. We have a back-up network operations center in Springfield, Massachusetts. We also lease offices in nine states. Although we believe that our leased facilities are adequate at this time, we expect to lease both additional sales facilities in connection with our planned expansion in existing markets and into new markets. ITEM 3. LEGAL PROCEEDINGS (a) Pending Legal Proceedings. We are party to suits and regulatory proceedings arising in the normal course of business which we believe are not material individually or in the aggregate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is listed on the Nasdaq National Market under the symbol "CPTL." Following is the range of high and low trading prices on the Nasdaq National Market for our common stock for the periods indicated. All prices reflect the March 2000 three-for-two stock split.
Price Range --------------- High Low ------- ------ Calendar Year 1998 ............... Second Quarter ............... $ 6.58 $4.33 Third Quarter ................ $ 5.67 $3.17 Fourth Quarter ............... $ 6.00 $2.67 Calendar Year 1999 ............... First Quarter ................ $11.67 $5.59 Second Quarter ................ $16.00 $8.13 Third Quarter ................ $14.00 $6.67 Fourth Quarter ................ $27.83 $9.83 Calendar Year 2000 First Quarter ............... $56.13 $22.67
The last sale price of the common stock on the Nasdaq National Market on June 19, 2000 was $39.56. Our common stock was held by 440 stockholders of record. We have never paid cash dividends on our common stock and we have no plans to do so in the foreseeable future. We intend to retain earnings, if any, to develop and expand our business. In addition, the terms of our credit facility and the Series B preferred stock restrict our ability to pay cash dividends on our common stock. We also expect the terms of agreements governing any future indebtedness to restrict our ability to pay cash dividends. During the fiscal year ended March 31, 2000, we issued the following securities which were not registered under the Securities Act (does not include issuances previously disclosed in our Quarterly Reports on Form 10- Q): (a) In January and February 2000, we issued a total of 538,023 shares of common stock upon the exercise of outstanding warrants, adjusted for the March 17, 2000 three-for-two stock split. (b) On March 25, 2000, all of the holders of the Series A Convertible Preferred Stock voluntarily converted their preferred stock into 2,376,660 shares of common stock. The 2,376,660 shares represents the value of the initial investment plus the accrued dividends through the conversion date, adjusted for the March 17, 2000 three-for-two stock split All of the above securities were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, as transactions by an issuer not involving a public offering. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for the five years ended March 31, 2000 are derived from our consolidated financial statements. You should read the following financial data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes. All earnings per share and weighted average share information included in the accompanying financial statements have been restated to reflect the three-for-two stock split effected in fiscal year ended March 31, 2000.
Fiscal Year ended March 31, --------------------------------------- - ------------- 1996 1997 1998 1999 2000 ------- ------- ------- ------ - - -------- (dollars in thousands, except per share information) Statement of Operations Data: Agency revenues ...................... $ 25,492 $ 29,195 $ 24,775 $ -- - - $ --- Telecommunications revenues .......... 5,383 11,095 16,172 70,964 153,101 -------- -------- -------- ------- - - --------- Total revenues .................. 30,875 40,290 40,947 70,964 153,101 Cost of telecommunications revenue (excluding depreciation and amortization) ....................... 4,242 8,709 14,039 61,866 119,586 Selling, general and administrative expenses ............................ 19,349 23,077 29,488 52,521 56,676 Depreciation and amortization ........ 660 743 1,418 3,778 18,754 -------- -------- -------- ------- - - --------- Income (loss) from operations ........ 6,624 7,761 (3,998) (47,201) (41,915) Income (loss) before extraordinary item 4,094 4,683 (2,498) (51,238) (57,073) Net income (loss) .................... $4,094 $4,683 $(2,498) $(51,238) $(59,504) ======== ======== ========= ========= ========= Per Share Data: Income (loss) per share before extraordinary item Basic ............................... 0.29 0.33 (.17) (3.45) (2.89) Diluted ............................. 0.25 0.29 (.17) (3.45) (2.89) Net income (loss) per share Basic ............................... 0.29 0.33 (.17) (3.45) (3.01) Diluted ............................. 0.25 0.29 (.17) (3.45) (3.01) Other Financial Data: EBITDA (loss)......................... $ 7,295 $ 8,519 $ (2,405) $(43,346) $(23,153) Capital expenditures .................. 759 1,222 6,109 36,041 71,187 Net cash provided (used) by operating activities .......................... 2,192 3,572 (7,951) (33,254) (36,984) Net cash used in investing activities 759 1,222 4,765 6,282 43,721 Net cash provided by financing activities ......................... 119 114 8,479 39,622 98,544 As of March 31, --------------------------------------- - --------------- 1996 1997 1998 1999 2000 --------- --------- --------- ----- - ---- --------- (dollars in thousands) Balance Sheet Data Cash and cash equivalents ............. $ 3,942 $ 6,406 $ 2,168 $ 2,254 $ 20,093 Total assets .......................... 12,509 20,186 30,768 69,482 162,233 Total long-term debt, including current portion ..................... -- -- 9,673 64,858 129,122 Series A redeemable convertible preferred stock ..................... -- -- -- 12,672 -- Stockholders' equity (deficit) ........ 9,495 14,292 11,966 (37,144) (15,700) EBITDA consists of income (loss) before interest, income taxes, depreciation and amortization. We have provided EBITDA because it is a measure of financial performance commonly used in the telecommunications industry. Other companies may calculate it differently from us. EBITDA is not a measurement of financial performance under accounting principles generally accepted in the United States, or GAAP. We do not believe you should consider EBITDA as an alternative to net income (loss) as a measure of results of operations or to GAAP-based cash flow data as a measure of liquidity. Capital expenditures consists of additions to property and equipment acquired for cash or under notes payable and capital leases. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Historically, we have generated agency revenues and telecommunications revenues. Agency revenues consist of commissions we formerly earned as an agent of Bell Atlantic and other Regional Bell Operating Companies, and long distance providers. Telecommunications revenues are generated by our sale of local, long distance, data communications, internet access and other communications services. For the fiscal year ended March 31, 1998, agency commissions accounted for approximately 60% of our revenues, with telecommunications revenues accounting for the other 40%. As a result of our transition to an integrated communications provider, or ICP, strategy in January 1998, agency commissions earned after December 31, 1997 are not material. Our financial information for the fiscal year ended March 31, 2000 reflects our second full year of operations under our new strategy. Our financial information for fiscal years ended on or before March 31, 1998 primarily reflects our operations as an agent for Bell Atlantic. Because of our transition to our new strategy and our network buildout, most of the financial information for these periods does not reflect our current business and is not comparable to results for subsequent periods. Results of Operations Fiscal Year Ended March 31, 2000 Compared to Fiscal Year Ended March 31, 1999. Total revenues for the fiscal year ended March 31, 2000 were $153,101,000, an increase of 116% from $70,964,000 for the preceding fiscal year. As an integrated communications provider, revenues for fiscal 2000 and 1999 reflect our direct sales of local telecommunications services in addition to our direct sales of other telecommunications services. A common basis for measurement of an integrated communications provider's progress is the growth in access line equivalents, or ALEs. ALEs are the total number of voice circuits and equivalent data circuits we have in service. Voice circuits are the actual number of voice circuits purchased by our customers. We calculate our equivalent data circuits by dividing the data transmission capacity purchased by our customers by 64 kilobits per second, which represents the capacity necessary to carry one voice circuit. During the quarter ended March 31, 2000, voice and data ALEs in service increased by 45,148, or approximately 17% from the quarter ended December 31, 1999. This brought our total ALEs in service to 314,616 at March 31, 2000. Data ALEs increased by approximately 9% from the quarter ended December 31, 1999 to 62,942, or 20% of total ALEs in service as of March 31, 2000. Data ALEs at March 31, 2000 include ALEs purchased by other carriers including internet service providers. Costs of telecommunications revenues, excluding depreciation and amortization, increased to $119,586,000 for fiscal 2000 from $61,866,000 for fiscal year 1999 as a result of our increase in direct sales of local telecommunications services. As a percentage of telecommunications revenue, costs of telecommunications revenues were 78% and 87% for fiscal 2000 and 1999, respectively. The decrease in the percentage of the cost of telecommunications revenues primarily reflects lower rates obtained from our major suppliers, Bell Atlantic and Global Crossing. Selling, general and administrative expenses, excluding depreciation and amortization, increased 8% to $56,677,000 in fiscal 2000 from $52,521,000 for fiscal 1999. This increase was primarily due to the opening of additional branch sales offices and the associated increased number of sales and service employees hired in connection with the transition to the ICP platform. As of March 31, 2000, we had 574 employees including 214 account executives and 144 network coordinators in 30 branch locations throughout New England and New York. Depreciation and amortization expense increased 396% to $18,754,000 in fiscal 2000 from $3,778,000 in fiscal 1999. This increase was a result of additional expense associated with the equipment and software relating to the network deployment and the upgrade of our information systems. Network equipment and software is being depreciated over 3-5 years, reflecting the risk of rapid technological change. Interest and other expense increased to $15,158,000 for the fiscal year ended March 31, 2000, as compared to interest and other expense of $5,563,000 for the fiscal year ended March 31, 1999. The increase is due to increased borrowings to fund our operating losses and the deployment of our network, the fees associated with our credit and vendor facilities, and the amortization of the interest expense associated with warrants issued in connection with the financings. The Company incurred an extraordinary item of $2,430,000 relating to the early extinguishment of the senior secured Goldman Sachs/Fleet credit facility from fiscal year 1999. The cost reflects the unamortized balance of the warrants and closing costs of the credit facility that was repaid in March 2000. Fiscal Year Ended March 31, 1999 Compared to Fiscal Year Ended March 31, 1998. Total revenues for the fiscal year ended March 31, 1999 were $70,964,000, an increase of 73% from $40,947,000 for the preceding fiscal year. As an integrated communications provider, revenues for fiscal 1999 reflect our direct sales of local telecommunications services in addition to our direct sales of other telecommunications services. Revenue for fiscal 1998 reflect agency commissions on local telecommunications services for the period April 1, 1997 through December 31, 1997 as well as our direct sales of other telecommunications services for the entire year. During the quarter ended March 31, 1999, voice and data ALEs in service increased by 38,935, or approximately 38% from the quarter ended December 31, 1998. This brought our total ALEs in service to 142,207 at the end of our first 15 months as an integrated communications provider. Data ALEs increased by approximately 45% from the quarter ended December 31, 1998 to 28,502, or 20% of total ALEs in service as of March 31, 1999. Data ALEs at March 31, 1999 include 6,720 ALEs purchased by other carriers including internet service providers. Costs of telecommunications revenues, excluding depreciation and amortization, increased to $61,866,000 for fiscal 1999 from $14,039,000 for fiscal year 1998 as a result of our decision to provide local services directly instead of providing local services on an agency basis. However, as a percentage of telecommunications revenue, costs of telecommunications revenues remained at 87% for fiscal 1999 and 1998. We expect that, as a result of an agreement entered into with Bell Atlantic in mid-1999, our costs of reselling Bell Atlantic local lines will decrease. Under the terms of this agreement we will receive up to an additional 15% discount on the wholesale rates Bell Atlantic is required to offer. Under this agreement, we have committed to maintain in service over the next five years a number of resold Bell Atlantic local telephone lines at least equal to 100,000 at the end of the first year and 225,000 at the end of each of the remaining four years. Selling, general and administrative expenses increased 78% to $52,521,000 in fiscal 1999 from $29,488,000 for fiscal 1998. This increase was primarily due to the increased number of service and technical employees hired and other expenses incurred in connection with operating under our new strategy. Contributing to the increase were approximately $9,886,000 of expenses and charges relating to the litigation and settlement with Bell Atlantic and our decision to terminate our agency agreement with Bell Atlantic. Selling, general and administrative expenses also increased for fiscal 1999 due to increased expenses associated with the network buildout. Depreciation and amortization expense increased 166% to $3,778,000 in fiscal 1999 from $1,418,000 in fiscal 1998. This increase was a result of the investments we made in equipment and software for our network. Interest and other expense increased to $5,563,000 for the fiscal year ended March 31, 1999, as compared to interest and other income of $213,000 for the fiscal year ended March 31, 1998. The increase is due to increased borrowings to fund our operating losses and the deployment of our network, the fees associated with our credit and vendor facilities, and the amortization of the interest expense associated with warrants issued in connection with the financings. The benefit for income taxes, which is limited to refunds available on a loss carryback basis, has been recognized ratably as a percentage of our estimated pre-tax loss over each of the four quarters of the fiscal year. The effective rate of the benefit varied with changes in management's estimates. Liquidity and Capital Resources Working capital at March 31, 2000 was $4.7 million compared to a working capital deficit of $6.7 million at March 31, 1999, an increase of $11.4 million. Cash balances at March 31, 2000 and March 31, 1999 totaled $20,093,000 and $2,254,000, respectively. The increase in working capital is due primarily to the net proceeds realized as a result of the TD Securities (U.S.) Inc. $225 million senior secured facility, the proceeds of which were used to retire the outstanding $75 million senior credit facility and the $25 million vendor financing facility at March 31, 2000. We will continue to use the balance of the proceeds realized from the senior secured facility and the recently completed $200 million preferred stock financing described below for general corporate purposes including, capital expenditures, working capital and operating losses associated with the continued deployment of our network, further penetration of our existing region and our expansion into new markets throughout the Boston - Washington, D.C. corridor. The Company believes that proceeds available from the preferred stock financing described below, the senior secured facility described below, cash on hand and the amounts expected to be available under its bank and lease financing arrangements will be sufficient to fund its planned capital expenditures, working capital and operating losses for at least the next 12 months. Until utilized, the net proceeds from the credit facility and preferred stock financing are invested in short-term, interest- bearing instruments and other investment-grade securities. In April 1998, we received $12.0 million from a private placement of our Series A redeemable convertible preferred stock and warrants to Spectrum Equity Investors II, L.P. The preferred stock was voluntarily converted by the holder into 2,376,660 shares of common stock in March 2000. In September 1998, we obtained a three-year $75 million senior secured credit facility from Goldman Sachs Credit Partners and Fleet National Bank ("Goldman Sachs/Fleet Credit Facility"). In March 2000, we repaid the outstanding balance of approximately $43 million with proceeds from the TD Securities (U.S.) Inc. $225 senior secured credit facility and terminated the Goldman Sachs/Fleet credit facility. Since September 30, 1998, we have entered into various lease and vendor financing agreements which provide for the acquisition of equipment and software. As of March 31, 2000, the aggregate amount borrowed under these agreements was approximately $35.3 million. In October 1998, we obtained a $25 million vendor financing facility from Cisco Capital which was terminated upon repayment in March 2000 with proceeds from the TD Securities (U.S.) Inc. $225 senior secured credit facility. In March 1999, we entered into a Loan Agreement with Toronto Dominion (Texas), Inc. to provide an unsecured standby credit facility for up to $30 million for capital expenditures and other general corporate purposes which has expired. We issued warrants to purchase 103,824 shares of our stock at $7.875 per share to the lender as part of the transaction. This facility was terminated upon repayment in July 1999. In July 1999, we completed a public offering (including the exercise of the underwriters' overallotment option) of 6,037,500 shares of common stock at $11.50 per share, adjusted for the March 2000 three-for-two stock split with net proceeds of approximately $62.1 million. The proceeds were used for general corporate purposes and continued deployment of the ICN and expansion into new markets throughout New York and Washington D.C. In March 2000, TD Securities (U.S.) Inc. underwrote a $225 million senior secured credit facility ("TD credit facility") to fund our base plan for expansion of our branch sales offices and our Integrated Communications Network. The proceeds were used to retire the $43 million balance of the $75 million Goldman Sachs/Fleet Credit Facility and to repay in full the $25 million Cisco vendor financing facility. The TD credit facility includes a $50 million senior secured 7-1/2 year revolving credit facility, a $100 million senior secured 7-1/2 year delayed draw term loan and a $75 million senior secured 8 year term loan. As of March 31, 2000, $100 million of the TD credit facility was available. The TD credit facility funds our base plan for branch and network expansion and provides us with a solid financial foundation for executing additional growth initiatives. As a starting point, we intend to initiate the expansion of our network coverage southward to include Washington D.C., and implement our branch office expansion to cover the same geography. Subsequent to March 31, 2000, we completed a private placement of $200 million Series B preferred stock financing. The preferred stock is convertible under certain conditions into common stock of the Company at $50 per share. The net proceeds are being used to fund strategic marketing and technology initiatives of our accelerated business plan which include: the purchase of dark fiber and optronics, branch sales office and ICN expansion and new ICN product and application development. These fully funded initiatives are designed to broaden the geographic reach of CTC's Cisco powered ICN, enhance our product portfolio and substantially boost bandwidth availability for both the Company and our customers. We cannot assure you that if we require funds in addition to the funds made available through the TD credit facility and the preferred stock private placement, such financing will be available, or if available, on terms acceptable to us when needed. If we are unable to obtain such financing when needed, we may postpone or abandon our development and expansion plans which could have a material adverse effect on our business, results of operations and financial condition. The actual timing and amount of our capital requirements may be materially affected by various factors, including the timing and actual cost of the network, the timing and cost of our expansion into new markets, the extent of competition and pricing of telecommunications services by others in our markets, the demand by customers for our services, technological change and potential acquisitions. Description of Senior Secured Facility TD Securities (U.S.) Inc. Facility In March 2000, we entered into a $225 million senior secured credit facility with a consortium of banks. This TD Credit Facility is comprised of a $50 million senior secured revolving credit facility (the "Revolver") with a seven and one-half year term, a $100 million senior, delayed draw term facility with a seven and one-half year term ("Term A") and a $75 million senior secured eight year term loan facility ("Term B"). Advances under the Revolver and Term A bear interest at prime rate plus 1.75-2.5% per annum based upon the total leverage ratio in effect at the time. Term B borrowings bear interest at the prime rate plus 3.25% per annum. As required by the TD Credit Facility, Term B borrowings of $75 million were drawn down in full at the closing date along with borrowings of $25 million under the Revolver. Part of the proceeds were used to pay off the $25 million Cisco vendor financing facility and the outstanding balance of the Goldman Sachs/Fleet credit facility Revolving Line of Credit of approximately $43 million. We paid a one-time up front fee and other closing costs, which have been capitalized as deferred financing costs and are being amortized as interest expense over the term of the TD Credit Facility. The unamortized balance of deferred financing costs associated with the Goldman Sachs/Fleet credit facility were recognized as an extraordinary item for the fiscal year ended March 31, 2000. The Company will pay a commitment fee of .75-1.5% per annum, depending on the percentage of the total TD Credit Facility used. Under the terms of the TD Credit Facility, $25 million of the Term A facility must be borrowed as of June 30, 2000 and on certain dates thereafter. At June 30, 2003, the Company will begin to repay the outstanding balances of Term A and Term B on a quarterly basis through the year 2007. The TD Credit Facility provides for certain financial and operational covenants, including but not limited to minimum access lines installed and billable, minimum quarterly revenue and operating cash flow, and maximum capital expenditures. The Company has also agreed, among other things, not to assume any other secured debt other than capital leases, agree to a merger, sell its assets or declare dividends without the consent of the lenders. Year 2000 Compliance Our information technology systems and non-information systems were year 2000 compliant prior to the end of 1999. We did not incur any year 2000 problems in our non-information systems that required any corrective actions and did not experience any interruptions in service as a result of the year 2000 compliance status of any of our vendors. Our systems and applications are effectively processing information in order to support ongoing operations in the year 2000 and beyond. Overall, we incurred approximately $900,000 in total costs related specifically to year 2000 issues. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") was issued, as amended by SFAS No. 137, which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is presently analyzing the impact, if any, that the adoption of SFAS No. 133 will have on its financial condition or results of operations. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25." The Company is required to adopt the Interpretation on July 1, 2000. The Interpretation requires that stock options that have been modified to reduce the exercise price be accounted for as variable. The Company modified one stock option in April 1999, which resulted in a stock compensation charge of approximately $2.2 million. No other option grants have been modified by a reduction of the exercise prices, therefore, the adoption of the Interpretation is not expected to have an impact on the Company's consolidated financial statements, unless modifications are made in the future. Adoption of Staff Accounting Bulletin 101. The Company will revise its revenue recognition policy for certain recurring monthly fees to be consistent with applicable provisions of Staff Accounting Bulletin 101 ("SAB 101"). Previously, monthly recurring fees for the next month's service were recognized at the time all of the Company's significant performance obligations had been fulfilled and the related monthly service fee became nonrefundable based on the terms of the Company's contract with its customers which require 60 days notice for cancellation. Since SAB 101 now indicates that nonrefundability of revenues and fulfillment of all significant performance obligations are not a basis for revenue recognition, the Company has determined that deferral of the monthly recurring service fees to the period in which the service is available to the customer is a preferable method of accounting. The impact of the change in recognizing recurring service fees will be reported as a cumulative effect of a change in accounting principle as of April 1, 2000 in accordance with Accounting Principles Board Opinion No. 20, Accounting Changes. The cumulative effect of this change will increase the Company's loss by approximately $1.8 million as of April 1, 2000. This amount represents the income attributable to the deferral, as of that date, of one month's recurring service fee revenue totaling approximately $9.3 million. SAB 101 as amended, allows the Company to implement this change either as of the quarter ending June 30, 2000 or as of the last quarter of fiscal 2001 which is the quarter ending March 31, 2001. If the Company adopts as of June 30, 2000, the Company's interim unaudited consolidated financial statements for the period ending June 30, 2000 will be prepared on the new basis of accounting. If adoption is deferred until the last quarter, previously reported quarterly financial information for fiscal 2001 will be restated so that annual operating results for fiscal 2001 will be presented on the new basis. The Company is currently evaluating the alternatives and has not yet determined the date as of which SAB 101 will be adopted. There will be no impact to the Company's cash flow from operations as a result of this change. Also, it is believed that the adoption of this change in accounting for fiscal 2000 or prior periods would not have had a material effect on the Company's previously reported results of operations, financial position or cash flows for those periods. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our exposure to financial risk, including changes in interest rates, relates primarily to outstanding debt obligations. We utilize our senior secured credit facility to fund a substantial portion of our capital requirements. This facility bears interest at a variable interest rate, which is subject to market changes. We have not entered into any interest rate swap agreements, or other instruments to minimize our exposure to interest rate increases but will investigate such options should changes in market conditions occur. We have not had any derivative instruments in the past and do not plan to in the future, other than possibly to reduce our interest rate exposure as described above. For purposes of specific risk analysis we use sensitivity analysis to determine the impacts that market risk exposure may have on the fair value of our outstanding debt obligations. To perform sensitivity analysis, we assess the risk of loss in fair values from the impact of hypothetical changes in interest rates on market sensitive instruments. We compare the market values for interest risk based on the present value of future cash flows as impacted by the changes in the rates. We selected discount rates for the present value computations based on market interest rates in effect at March 31, 2000. We compared the market values resulting from these computations with the market values of these financial instruments at March 31, 2000. The differences in the comparison are the hypothetical gains or losses associated with each type of risk. As a result of our analysis we determined at March 31, 2000, with respect to our variable rate debt obligations, a 10% increase in interest rates with all other variables held constant would result in increased interest expense and cash expenditures for interest of approximately $1.1 million in fiscal 2000. A 10% decrease in interest rates would result in reduced interest expense and cash expenditures of approximately $1.1 million in fiscal 2000. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT* Our executive officers and directors are as follows:
Name Current Office Held - ---------------------- -------------------------------------- Robert J. Fabbricatore Chairman and Chief Executive Officer Steven P. Milton President and Chief Operating Officer John D. Pittenger Executive Vice President-Finance and Administration, Chief Financial Officer, Treasurer and Secretary David E. Mahan Executive Vice President--Marketing and Strategic Planning Michael H. Donnellan Vice President--Operations Thomas Fabbricatore Vice President--Marketing Anthony D. Vermette Vice President--Sales Frederick Kunzi Vice President and Chief Technology Officer Jeffrey C. Lavin Vice President--Corporate Development Katherine D. Courage Director Henry Hermann Director Kevin J. Maroni Director J. Richard Murphy Director Mark E. Nunnelly Director Carl Redfield Director Richard J. Santagati Director Ralph C. Sillari Director Scott M. Sperling Director Ralph S. Troupe Director
Robert J. Fabbricatore, a founder of the Company and a director since its inception in 1980, became Chairman of the Board of Directors in March 1983 and served as President from October 1993 to August 1995. Robert J. Fabbricatore is the brother of Thomas Fabbricatore, Vice President--Marketing. Steven P. Milton has been employed by the Company since 1984 and has served as President and Chief Operating Officer since August 1995. Prior to that, he held various positions within the Company including Branch Manager, District Manager, Regional Manager and Vice President--Sales and Marketing. John D. Pittenger has served as Chief Financial Officer since April 14, 1999, as Executive Vice President--Finance and Administration since April 1998 and as Treasurer and Secretary of the Company since August 1989. Mr. Pittenger served as Vice President--Finance from 1991 until April 1998, and as Chief Financial Officer from 1989 to April 1998. David E. Mahan joined the Company in October 1995 as Vice President--Marketing and Strategic Planning and was named Executive Vice President - Marketing and Strategic Planning in November 1999. Prior to joining the Company, Mr.Mahan held a number of senior management level positions with NYNEX, including Vice President--Sales Channel Management from 1993 to 1995. Michael H. Donnellan has been employed by the Company since 1988 in a number of positions. He was named Vice President--Operations in 1995. Thomas Fabbricatore joined the Company in 1982. He was named Vice President--Regulatory and Electronic Media in 1991, and was named Vice President--Marketing in November 1998. Thomas Fabbricatore is the brother of Robert J. Fabbricatore. Anthony D. Vermette has been employed by the Company in a variety of positions since 1987. Mr. Vermette was named Vice President--Sales in 1996. Frederick Kunzi joined the Company as a Vice President and Chief Technology Officer in August 1998. Mr. Kunzi has over 25 years experience in information technology. From 1985 to September 1998, he was employed by Digital Equipment Corporation, most recently as Senior Manager, Global Network Services where he was responsible for Digital's worldwide enterprise network infrastructure. Jeffrey C. Lavin joined the Company in June 1998 as Vice President-- Corporate Development. Mr. Lavin has 20 years of sales and operational management experience in the telecommunications industry. From December 1996 to May 1998, Mr. Lavin was Vice President of Sales, Americas/Asia Pacific for NovaSoft Systems, Inc., a software development corporation. From 1979 to 1996, Mr. Lavin was employed by Comlink Incorporated, a communication network integrator, most recently as Senior Vice President. Following the acquisition of Comlink in 1996 by Williams Communications, Mr. Lavin served as Vice President and General Manager of Network Systems Integration. Katherine D. Courage became a director of the Company in April 1999. Ms. Courage is a managing director in the Global Telecommunications and Media Group in the Investment Banking Department of Credit Suisse First Boston, one of the underwriters of our proposed offering of common stock. Prior to joining Credit Suisse First Boston in September 1996, Ms. Courage worked at Salomon Brothers Inc for ten years where she was a managing director in the Global Telecommunications Group. Ms. Courage currently serves as a director of NorthEast Optic Network, Inc. and Lightpath Technologies, Inc. Credit Suisse First Boston Equity Partners, L.P., as a Series B preferred stockholder, has appointed Ms. Courage as its designee to the Company's Board of Directors. Henry Hermann became a director of the Company in September 1996. Since November 1997, he has operated Hermann Companies, a financial services company. Mr. Hermann is registered as an Investment Advisor with the State of Texas, a Chartered Financial Analyst and, as an independent contractor, offers general securities through SWS Financial. In 1997, he was employed by Kuhns Brothers & Company, Inc., as a principal and Executive Vice President. For the previous nine years, he was employed by WR Lazard, Laidlaw and Luther, Inc., a securities brokerage firm, as Vice President, Securities Analyst and Portfolio Manager. Mr. Hermann has been an NASD Board of Arbitrators Member since 1991. Kevin J. Maroni became a director of the Company in April 1998 as one of the two designees of the Series A preferred stockholders. Mr. Maroni is a managing general partner of Spectrum which he joined at inception in 1994. Spectrum is a leading private equity fund which manages over $2.7 billion of capital for investment in the communications service and infrastructure industries. Prior to joining Spectrum, he worked at Time Warner Telecommunications and Harvard Management Company. Mr. Maroni is a director of Adero, Inc.; PathNet, Inc.; Formus Communications, Inc.; GlobeNet Communications, LTD., Inc.; and X-Media, Inc. Mr. Maroni received an M.B.A. from Harvard Business School and a B.A. from the University of Michigan. J. Richard Murphy became a director of the Company in August 1995. Mr. Murphy is a managing director of Baldwin & Clarke Corporate Finance, Inc., a Bedford, New Hampshire investment banking firm which he joined August 2, 1999. Mr. Murphy was the director of the Corporate Advisory Group of Moody, Cavanaugh and Company, LLP, a North Andover, Massachusetts public accounting firm, from April 1996 to August 1999. Mr. Murphy was an officer, director and principal stockholder from 1990 to 1996 of Arlington Data Corporation, a systems integration company located in Amesbury, Massachusetts; from 1992 to 1996 of Arlington Data Consultants, Inc., a company engaged in the installation and maintenance of computer systems and hardware; and from 1994 to 1996 of Computer Emporium, Inc., a company engaged in processing parking violations for municipalities. In June 1996, Arlington Data Corporation filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Mark E. Nunnelly became director of the Company in June 2000 as a designee of Bain Capital, Inc. He joined Bain Capital as a General Partner in 1990 and has served as Managing Director since April 1993. Mr. Nunnelly also serves on the Board of Directors of Domino's, DoubleClick, Stream International, Modus Media International, Eschelon Telecom, and eCredit.com. Mr. Nunnelly received an M.B.A. from Harvard Business School and a B.A. from Centre College. Carl Redfield became a director of the Company in January 1999. Hehas been Senior Vice President, Manufacturing and Logistics of Cisco since February 1997. From September 1993 to February 1997 he was Vice President of Manufacturing. Mr. Redfield also is a director of VA Linux Systems Inc. and iBasis Inc. Richard J. Santagati became a director of the Company in September 1991. He has been the President of Merrimack College in North Andover, Massachusetts since 1994. From March 1992 to February 1994, Mr. Santagati was the Chairman of the Board, Chief Executive Officer and President of Artel Communications Corp., a publicly held data communications firm located in Hudson, Massachusetts. Mr. Santagati also serves as a director of Celebrity Solutions, Inc., a software company. Ralph C. Sillari became a director of the Company in October 1997. Since 1991, Mr. Sillari has been employed by Fleet National Bank where he is currently an Executive Vice President, Manager of Regional Banking. Scott M. Sperling became a director of the Company in May 2000 as a designee of Thomas H. Lee Company. He has been a Managing Director of Thomas H. Lee Company since July 1994 and is also President of TH Lee, Putnam Capital, Trustee of THL Equity Trust III and Managing Director of THL Equity Advisors IV, LLC. Mr. Sperling is currently a Director of Fisher Scientific International, Inc., GenTek, Inc., Safelite Glass Corp., LiveWire Systems LLC, Wyndham International, GoodHome.com and several private companies. He holds an MBA degree from Harvard University and a B.S. from Purdue University. Ralph S. Troupe became a director of the Company in May 1999. In October 1999, Mr. Troupe co-founded Callisma (formerly known as Rt.1 Solutions), a network services company focusing on all key aspects of complex network planning, design and implementation, and serves as its President and Chief Executive Officer. From January 1993 to October 1999, Mr. Troupe was employed by International Network Services, most recently as Vice President of North American Field Operations, East. Mr. Troupe holds a B.S. degree from Northeastern University and is a 1998 graduate of the Harvard Business School Advanced Management Program for International Senior Managers. ITEM 11. EXECUTIVE COMPENSATION* ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT* ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS* *The balance of the information required by Item 10 of Part III of this Annual Report, and Items 11 through 13 of Part III of this Annual Report are incorporated by reference to the corresponding items in our definitive proxy statement filed with the Securities and Exchange Commission on June 27, 2000. PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Financial Statements: Consolidated Balance Sheets as of March 31, 2000 and 1999 Consolidated Statements of Operations for the years ended March 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended March 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended March 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: Schedule II - Valuation and Qualifying Accounts (3) Exhibits: The following Exhibits are either filed herewith or have heretofore been filed with the Securities and Exchange Commission and are referred to and incorporated herein by reference to such filings. Exhibit No. Title - - ----------- ----- 3.1 Restated Articles of Incorporation (11) 3.2 Certificate of Designation for Series B Convertible Preferred Stock (5) 3.3 Amended and Restated By-Laws (4) 4.1 Form of Common Stock Certificate (3) 10.1 1996 Stock Option Plan, as amended (1) 10.2 1993 Stock Option Plan (3) 10.3 Employee Stock Purchase Plan (2) 10.4 Lease for premises at 360 Second Ave., Waltham, MA (3) 10.5 Sublease for premises at 360 Second Ave., Waltham, MA (3) 10.6 Lease for premises at 110 Hartwell Ave., Lexington, MA (3) 10.7 Lease for premises at 120 Broadway, New York, NY (3) 10.8 Agreement dated February 1, 1996 between NYNEX and CTC Communications Corp. (3) 10.9 Agreement dated May 1, 1997 between Pacific Bell and CTC Communications Corp. (3) 10.10 Agreement dated January 1, 1996 between SNET America, Inc. and CTC Communications Corp. (3) 10.11 Agreement dated June 23, 1995 between IXC Long Distance Inc. and CTC Communications Corp., as amended (3) 10.12 Agreement dated August 19, 1996 between Innovative Telecom Corp. and CTC Communications Corp. (3) 10.13 Agreement dated October 20, 1994 between Frontier Communications 10.14 Agreement dated January 21, 1997 between Intermedia Communications Inc. and CTC Communications Corp. (3) 10.16 Securities Purchase Agreement dated April 10, 1998 among CTC Communications Corp. and the Purchasers named therein (4) 10.17 Registration Rights Agreement dated April 10, 1998 among CTC Communications Corp. and the Holders named therein (4) 10.18 Form of Warrant dated April 10, 1998 (4) 10.19 Loan and Security Agreement dated as of September 1, 1998 by and between CTC Communications Corp., Goldman Sachs Credit Partners L.P. and Fleet National Bank (6) 10.20 Agreement with Cisco Systems Capital Corp. dated as of October 14, 1998 (7) 10.21 Warrant dated July 15, 1998 issued to Spectrum (8) 10.22 Lease for premises at 220 Bear Hill Rd., Waltham, MA (8) 10.23 Warrant dated September 1, 1998 issued to Goldman Sachs & Co. (8) 10.24 Warrant dated September 1, 1998 issued to Fleet National Bank (8) 10.25 1998 Incentive Plan, as amended (1) 10.26 Loan Agreement dated as of March 15, 1999 by and between CTC Communications Corp, TD Dominion (Texas), Inc. and TD Securities (USA), Inc. (9) 10.27 Warrant dated March 24, 1999 issued to Toronto Dominion (Texas), Inc. (9) 10.28 1999 Equity Incentive Plan for Non-Employee Directors (1) 10.29 Series B Preferred Stock Purchase Agreement dated as of March 22, 2000. (5) 10.30 Series B Preferred Stock Registration Rights Agreement dated as of March 22, 2000. (5) 10.31 Amendment No. 1 to Loan and Security Agreement dated as of September 30, 1999 among CTC Communications Corp., Fleet National Bank and Goldman Sachs Credit Partners L.P. (12) 10.32** Dark Fiber IRU Agreement between Williams Communications, Inc. and CTC Communications Corp. dated as of March 31, 2000 (13) 10.33** Carrier Services Agreement between Williams Communications, Inc. and CTC Communications Corp. dated as of March 31, 2000 (13) 10.34 $225 Million Credit Agreement with TD Securities (USA) Inc. and the other parties to the agreement dated as of March 30, 2000 (++) 10.35 Lease for premises at 115-125 Bear Hill Rd., Waltham MA 02451(++) 23 Consent of Ernst & Young LLP (++) 27 Financial Data Schedule (++) 99 Risk Factors (++) - ------------------ ++ Filed herewith. (1) Incorporated by reference to an Exhibit filed as part of the Registrant's Registration Statement on Form S-8 (File No. 333- 93735). (2) Incorporated by reference to an Exhibit filed as part of the Registrant's Registration Statement on Form S-8 (File No. 33- 44337). (3) Incorporated by reference to an Exhibit filed as part of the Registrant's Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1997. (4) Incorporated by reference to an Exhibit filed as part of the Registrant's Current Report on Form 8-K dated May 15, 1998. (5) Incorporated by reference to an Exhibit filed as part of the Registrant's Current Report on Form 8-K dated April 19, 2000. (6) Incorporated by reference to an Exhibit filed as part of the Registrant's Current Report on Form 8-K dated October 2, 1998. (7) Incorporated by reference to an Exhibit filed as part of the Registrant's Current Report on Form 8-K dated November 6, 1998. (8) Incorporated by reference to an Exhibit filed as part of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (9) Incorporated by reference to an Exhibit filed as part of the Registrant's Registration Statement on Form S-1 (File No. 333- 77709). (10) Incorporated by reference to an Appendix filed as part of the Registrant's Schedule 14A (Amendment No. 2) filed on June 4, 1999. (11) Incorporated by reference to an Exhibit filed as part of the Registrant's Current Report on Form 8-K dated October 1, 1999. (12) Incorporated by reference to an Exhibit filed as part of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. ** PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT (4) Reports on Form 8-K The Company filed the following reports on Form 8-K during the quarter ended March 31, 2000:
Date Items Reported ---- -------------- 1. January 26, 2000. Announcement of commitment from Toronto Dominion Bank to underwrite the $225 million senior secured credit facility. 2. February 22, 2000. Announcement of three-for-two stock split.
SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON THIS 26th DAY OF JUNE 2000. CTC Communications Group, Inc. By: /s/ Robert J. Fabbricatore ---------------------------------------- Chairman and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Robert J. Fabbricatore Chairman of the Board June 28, 2000 - ---------------------------- and Chief Executive Robert J. Fabbricatore Officer, Director /s/ John D. Pittenger Chief Financial Officer June 28, 2000 - ---------------------------- and Chief Accounting John D. Pittenger Officer /s/ Katherine D. Courage Director June 23, 2000 - ---------------------------- Katherine D. Courage - ---------------------------- Director Henry Hermann /s/ Kevin J. Maroni Director June 23, 2000 - ---------------------------- Kevin J. Maroni /s/ J. Richard Murphy Director June 26, 2000 - - ---------------------------- J. Richard Murphy /s/ Mark E. Nunnelly Director June 26, 2000 - ---------------------------- Mark E. Nunnelly - ---------------------------- Director Carl Redfield /s/ Richard J. Santagati Director June 26, 2000 - ---------------------------- Richard J. Santagati /s/ Ralph C. Sillari Director June 23, 2000 - - ---------------------------- Ralph C. Sillari /s/ Scott M. Sperling Director June 26, 2000 - ---------------------------- Scott M. Sperling /s/ Ralph S. Troupe Director June 26, 2000 - ---------------------------- Ralph S. Troupe
CTC Communications Corp. Index to Financial Statements Audited Financial Statements Report of Independent Auditors............................................ F-2 Consolidated Balance Sheets as of March 31, 2000 and 1999................. F-3 Consolidated Statements of Operations for the years ended March 31, 2000, 1999 and 1998............................................ F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the years ended March 31, 2000, 1999 and 1998............................ F-5 Consolidated Statements of Cash Flows for the years ended March 31, 2000, 1999 and 1998............................................ F-7 Notes to Consolidated Financial Statements................................ F-8
F-1 Report of Independent Auditors Board of Directors CTC Communications Group, Inc. We have audited the accompanying consolidated balance sheets of CTC Communications Group, Inc.,as of March 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended March 31, 2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 consolidated financial position of CTC Communications Group, Inc. at March 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Boston, Massachusetts May 18, 2000, except for Note 2, as to which the date is June 26, 2000 F-2 CTC Communications Group, Inc. Consolidated Balance Sheets
March 31, ------------------------- 2000 1999 ------------ ------------ ASSETS Current assets: Cash and cash equivalents......................... $ 20,093,156 $ 2,254,258 Accounts receivable, less allowance for doubtful accounts of $2,000,000 and $1,717,000 in 2000 and 1999, respectively........................... 39,965,335 19,200,931 Prepaid commissions............................... 2,040,482 2,500,000 Prepaid expenses and other current assets......... 1,437,051 1,022,198 Amounts due from officers and employees........... 98,500 55,572 Income taxes receivable........................... 0 2,313,070 ------------ ----------- - - Total current assets........................... 63,634,524 27,346,029 Property and equipment: Property and equipment............................ 120,604,893 49,417,689 Accumulated depreciation and amortization ........ (29,369,433) (10,615,766) ------------ ----------- - - 91,235,460 38,801,923 Deferred financing costs, net of amortization....... 3,099,424 3,229,865 Other assets........................................ 4,263,944 104,085 ------------ ------------ - - Total assets................................... $162,233,352 $ 69,481,902 ============ ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued expenses............. $ 46,328,757 $27,439,488 Accrued salaries and related taxes................ 2,482,800 1,656,367 Current portion of obligations under capital leases........................................... 8,413,414 3,230,077 Current portion of notes payable to banks......... 1,749,342 1,705,141 ------------ ------------ Total current liabilities...................... 58,974,313 34,031,073 Obligations under capital leases, net of current portion............................................ 15,031,108 8,004,366 Notes payable to banks, net of current portion...... 103,928,207 51,918,492 Commitments and contingencies Series A redeemable convertible preferred stock, par value $1.00 per share; authorized 1,000,000 shares in 1999, 726,631 shares issued and outstanding at March 31, 1999.................... 0 12,671,797 Stockholders' deficit: Preferred Stock, par value $1.00 per share; authorized 10,000,000 shares in 2000, no shares issued and outstanding at March 31, 2000......... 0 0 Common Stock, par value $.01 per share; authorized 100,000,000 shares, 25,773,578 and 10,352,513 shares (15,528,769 shares after 3-for-2 stock split in March 2000) issued and outstanding at March 31, 2000 and 1999, respectively............ 257,736 103,525 Additional paid in capital........................ 90,652,020 8,386,816 Deferred compensation............................. (106,410) (212,410) Retained deficit.................................. (106,503,622) (45,390,732) ------------ ------------ (15,700,276) (37,112,801) Amounts due from stockholders..................... 0 (31,025) ------------ ------------ Total stockholders' deficit ................. (15,700,276) (37,143,826) ------------ ------------ Total liabilities and stockholders' deficit $162,233,352 $69,481,902 ============ ============
See accompanying notes. F-3 CTC Communications Group, Inc. Consolidated Statements of Operations
Year Ended March 31, -------------------------------------- 2000 1999 1998 ------------ ----------- ----------- Revenues: Telecommunications revenue.......... $153,100,934 $ 70,963,692 $16,171,716 Agency commission revenue........... 0 0 24,775,420 ------------ ----------- ----------- Total revenues........................ 153,100,934 70,963,692 40,947,136 Operating costs and expenses: Cost of telecommunications revenues (excluding depreciation and amortization)..................... 119,585,548 61,865,904 14,038,565 Selling, general and administrative expenses........................... 56,676,773 52,521,397 29,488,097 Depreciation and amortization....... 18,753,667 3,778,083 1,417,866 ------------ ----------- ----------- Total costs and expenses.............. 195,015,988 118,165,384 44,944,528 ------------ ----------- ----------- Loss from operations.................. (41,915,054) (47,201,692) (3,997,392) Other income (expense): Interest income..................... 996,283 184,312 145,012 Interest expense.................... (16,162,835) (5,825,328) (106,465) Other income........................ 8,519 77,724 174,395 ------------- ----------- ----------- Total other income (expense).......... (15,158,033) (5,563,292) 212,942 ------------ ----------- ---------- Loss before income taxes and extraordinary item.................. (57,073,087) (52,764,984) (3,784,450) Income tax benefit.................... 0 (1,527,000) (1,286,760) ------------- ----------- ------------ Loss before extraordinary item........ (57,073,087) $(51,237,984) (2,497,690) Extraordinary item - early extinguishment of debt.............. (2,430,456) 0 0 ------------- ------------- ------------ Net loss............................. $(59,503,543) $(51,237,984) $(2,497,690) ============ ============= ============ Loss per common share before extraordinary item Basic and diluted................... $ (2.89) $ (3.45) $ (0.17) ============= ============ ============ Net loss per common share: Basic and diluted................... $ (3.01) $ (3.45) $ (0.17) ============= ============ ============ Weighted average number of shares used in computing net loss per common share: Basic and diluted................... 20,320,626 15,196,052 14,829,000 ============ ============ ============
See accompanying notes. F-4 CTC Communications Group, Inc. Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional Retained Amount --------------------- Paid-In Deferred Earnings Treasury Due From Shares Par Value Capital Compensation (Deficit) Stock Stockholders Total ---------- --------- ---------- ------------ ------- - ----- -------- ------------ ------------ Balance at March 31, 1997................... 9,629,407 $96,294 $4,758,454 -- $9,572,750 -- $(135,825) $14,291,673 Issuance of stock pursuant to employee stock purchase plan... 9,844 98 71,662 -- - -- -- -- 71,760 Exercise of employee stock options......... 376,387 3,764 347,222 -- - -- -- -- 350,986 Acquisition of treasury stock................. -- -- -- -- - -- (271,072) -- (271,072) Retirement of treasury stock................. (34,977) (350) (270,722) -- - -- 271,072 -- -- Deferred compensation.. -- -- 339,088 (318,410) - -- -- 20,678 Net loss............... -- -- -- -- (2,497,690) -- -- (2,497,690) ---------- -------- ---------- --------- ------- - ----- -------- --------- ------------ Balance at March 31, 1998................... 9,980,661 99,806 5,245,704 (318,410) 7,075,060 -- (135,825) 11,966,335 Issuance of stock pursuant to employee stock purchase plan... 14,700 147 98,252 -- - -- -- -- 98,399 Exercise of employee stock options......... 366,482 3,665 235,806 -- - -- -- (31,025) 208,446 Acquisitions of treasury stock........ -- -- -- -- - -- (107,462) -- (107,462) Retirement of treasury stock................. (9,330) (93) (107,369) -- - -- 107,462 -- -- Deferred compensation.. -- -- -- 106,000 - -- -- -- 106,000 Receipt of amounts due from stockholders..... -- -- -- -- - -- -- 135,825 135,825 Issuance of common stock purchase warrants.............. -- -- 2,914,423 -- - -- -- -- 2,914,423 Preferred stock dividend.............. -- -- -- -- (1,079,364) -- -- (1,079,364) Accretion of offering costs related to redeemable convertible preferred stock....... -- -- -- -- (28,000) -- -- (28,000) Accretion of warrants related to Series A Redeemable Convertible Preferred Stock....... -- -- -- -- (120,444) -- -- (120,444) Net loss............... -- -- -- -- (51,237,984) -- -- (51,237,984) ---------- -------- ---------- --------- ------- - ----- -------- --------- ------------- F-5 Balance at March 31, 1999................... 10,352,513 103,525 8,386,816 (212,410) (45,390,732) -- (31,025) (37,143,826) Issuance of stock pursuant to employee stock purchase plan... 16,875 169 183,465 -- - -- -- -- 183,634 Exercise of employee stock options......... 1,339,979 13,400 7,179,737 -- - -- -- -- 7,193,137 Issuance of common stock................. 4,025,000 40,250 61,758,528 -- - -- -- -- 61,798,778 Issuance of common stock due to stock split................. 7,740,882 77,408 (77,408) -- - -- -- -- -- Noncash stock compensation.......... 10,503 105 2,456,934 -- - -- -- -- 2,457,039 Acquisition of treasury stock................. -- -- -- -- - --(3,494,121) -- (3,494,121) Retirement of treasury stock................. (88,834) (888) (3,493,233) -- - -- 3,494,121 -- -- Deferred compensation.. -- -- -- 106,000 - -- -- 106,000 Receipt of amounts due from stockholders..... -- -- -- -- - -- -- 31,025 31,025 Accretion of offering costs related to Series A convertible preferred stock....... -- -- -- -- (112,000) -- -- (112,000) Accretion of warrants related to Series A convertible preferred stock................. -- -- -- -- (296,888) -- -- (296,888) Preferred stock dividend.............. -- -- -- -- (1,200,459) -- -- (1,200,459) Conversion of Series A convertible preferred stock to common stock 2,376,660 23,767 14,257,181 -- - -- -- -- 14,280,948 Net loss............... -- -- -- -- (59,503,543) -- -- (59,503,543) ---------- -------- ---------- --------- ------- - ----- -------- --------- ------------ Balance at March 31, 2000......... 25,773,578 $257,736 $90,652,020 $(106,410) $(106,503,622) -- -- $(15,700,276) ========== ======== =========== ========= ============== ======== ========= =============
See accompanying notes. F-6 CTC Communications Group, Inc. Consolidated Statements of Cash Flows
Year Ended March 31, ---------------------- - --------------------- 2000 1999 1998 ------------- ------ - ------ ------------- Operating Activities: Net loss $(59,503,543) $(51,237,984) $(2,497,690) Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary item-early extinguishment of debt 2,430,456 0 0 Depreciation and amortization 18,753,667 3,778,083 1,417,866 Interest related to warrants and certain fees 2,754,556 1,103,960 0 Provision for doubtful accounts 1,528,564 4,988,698 1,421,000 Deferred income taxes 0 1,597,000 (1,068,760) Stock-based compensation 2,563,039 106,000 20,678 Gain on sale of property and equipment 0 0 (143,333) Changes in operating assets and liabilities: Accounts receivable (22,292,968) (6,901,446) (7,804,363) Prepaid commissions 459,518 (2,212,700) 0 Prepaid expenses and other current assets (414,853) (517,762) (382,937) Amounts due from officers and employees (42,928) 29,182 0 Income taxes receivable 2,313,070 (122,731) (2,152,579) Deferred financing costs and other assets (5,247,944) (3,831,046) 4,800 Accounts payable and accrued expenses 18,889,269 19,067,013 3,240,446 Accrued salaries and related taxes 826,433 900,208 0 Deferred revenue and other 0 0 (6,588) ------------- ------ - ------- ------------- Net cash used by operating activities (36,983,664) (33,253,525) (7,951,460) Investing Activity Additions to property and equipment (41,667,211) (6,282,234) (4,765,025) Deposits for property and equipment (2,053,900) 0 0 ------------- ------------- ------------- Net cash used in investing activities (43,721,111) (6,282,234) (4,765,025) Financing Activities Proceeds from the issuance of Series A Redeemable Convertible Preferred Stock, net of offering costs 0 11,861,321 0 Proceeds from the issuance of common stock 65,681,228 230,408 151,674 Amounts due from stockholders, net 31,025 104,800 0 Borrowings under notes payable 185,165,892 51,461,924 8,327,071 Repayment of notes payable (147,996,587) (23,177,071) 0 Repayment of capital lease obligations (4,337,885) (859,295) 0 ------------- ------ - ------- ------------- Net cash provided by financing activities 98,543,673 39,622,087 8,478,745 ------------- ------ - ------- ------------- Increase in cash and cash equivalents 17,838,898 86,328 (4,237,740) Cash and cash equivalents at beginning of year 2,254,258 2,167,930 6,405,670 ------------- ------ - ------- ------------- Cash and cash equivalents at end of year $20,093,156 $ 2,254,258 $2,167,930 ============= ============= ============= Supplemental disclosure of cash flow information: Cash paid for interest $13,408,279 $ 2,666,613 $57,886 Cash paid (received) for income taxes $(2,463,571) $(3,001,000) $2,160,527 Noncash investing and financing activities: Receipt of common stock from exercise of stock options and warrants $ 3,494,121 $ 107,462 $ 271,072 Network and related equipment acquired under capital leases $16,547,964 $10,747,665 $1,343,573 Network and related equipment acquired under notes payable $12,972,029 $19,010,820 $ 0 Common stock purchase warrants issued in connection with notes payable and Series A Redeemable Convertible Preferred Stock $0 $ 2,914,423 $ 0 Conversion of Series A Convertible Preferred Stock to common stock $14,280,948 $ 0 $ 0 See accompanying notes. F-7 CTC Communications Group, Inc. Notes to Consolidated Financial Statements March 31, 2000 1. Nature of Business The Company CTC Communications Group, Inc., through its wholly-owned operating subsidiary, CTC Communications Corp. (the "Company") is an integrated communications provider ("ICP"), which offers voice and data services predominantly to medium and larger-sized business customers in New England and New York State. Prior to becoming an ICP in January 1998, the Company had been a sales agent for Bell Atlantic Corp. ("Bell Atlantic") since 1984. The Company has also offered long distance and data services under its own brand name since 1994. In late 1998, the Company began deploying a packet-switched network in its existing markets. The Company operates in a single industry segment providing telecommunication service to medium to larger-sized business customers. As more fully disclosed in Note 14, on May 15, 2000, the Company completed a $200 million privately placed equity financing in the form of 8.25% Series B Convertible Preferred Stock. As the Company continues to deploy its network, further penetrates its existing region and expands into new markets throughout the Boston- Washington, D.C. corridor, the Company may need significant additional capital. The Company believes that proceeds available from the preferred stock financing described above, the senior secured facility described in Note 7, cash on hand and the amounts expected to be available under its bank and lease financing arrangements will be sufficient to fund its planned capital expenditures, working capital and operating losses for at least the next 12 months. During this period the Company may seek to raise additional capital through the issuance of debt or equity securities, the timing of which will depend on market conditions. The Company may also seek to raise additional capital through vendor financing, equipment lease financing or bank loans. There can be no assurance that additional financing will be available on terms acceptable to the Company when needed. The agreements governing its existing indebtedness limit its ability to obtain debt financing. If the Company is unable to obtain financing when needed, it may delay or abandon its development and expansion plans. That could have a material adverse effect on its business, results of operations and financial condition. The actual timing and amount of its capital requirements may be materially affected by various factors, including the timing and actual cost of the network, the timing and cost of its expansion into new markets, the extent of competition and pricing of telecommunications services by others in its markets, the demand by customers for its services, technological change and potential acquisitions. F-8 2. Summary of Significant Accounting Policies Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less as cash equivalents. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. The Company accounts for internal use software under the provisions of AICPA Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). Capitalization of costs commences when the preliminary project stage, as defined under SOP 98-1, is completed. Amortization on a straight-line basis, commences at the point that the software components have been subjected to all significant testing phases and are substantially complete and ready for their intended use. A significant portion of the network and related equipment costs is subject to the risk of rapid technological change. Accordingly, the Company's useful lives reflect this risk. Depreciation and amortization is provided using the straight-line method over the following estimated useful lives: Furniture, fixture, and equipment......................... 3-5 years Network and related equipment............................. 3-5 years Leasehold improvements and assets under capital leases are amortized over the lesser of the lease term or the useful life of the property, usually 3-5 years. Impairment of Long-Lived Assets In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of" ("SFAS No. 121"), the Company reviews its long-lived assets, including property and equipment, and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets. Impairment is measured at fair value. SFAS No. 121 had no effect on the Company's financial statements. Revenue Recognition Telecommunication revenues primarily relate to customer usage of services and recurring monthly fees to customers for certain other services. Revenues related to usage are recognized as usage accrues while recurring monthly fees are recognized at the time all of the Company's significant performance obligations have been fulfilled and the related monthly service fee becomes nonrefundable. As described below under "Recent Accounting Pronouncements; Adoption of SAB 101", the Company will change its method of accounting for recurring service fees to defer this revenue to the period in which the related service is available to the customer. F-9 Agency revenue is recognized when all of the Company's performance obligations related to the placement of a customer's service order with a carrier have been fulfilled. If this revenue is based on usage, revenues are recognized as usage accrues. Deferred Financing Costs In connection with certain financing arrangements consummated during fiscal 2000 and 1999, the Company capitalized $3,099,424 and $3,835,846 of deferred financing costs, respectively. These costs represent professional and debt origination fees. The March 31, 2000 financing arrangement is being amortized over the life of the agreement. Due to the early extinguishment of the fiscal 1999 financing arrangements, the unamortized balance of the deferred financing costs and unamortized value of the warrants relating to these agreements was recognized as an extraordinary expense item in the fiscal year ended March 31, 2000. For the fiscal years ended March 31, 2000 and March 31, 1999, the Company recorded amortization, excluding the extraordinary expense item, of $1,743,958 and $605,981, respectively, related to deferred financing costs associated with the fiscal 1999 financing arrangements. Income Taxes The Company provides for income taxes under the liability method prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax and financial accounting bases of assets and liabilities at each year end. Deferred income taxes are based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income (loss). Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income (Loss) Per Share The Company's income (loss) per share information is prepared in conformity with SFAS No. 128 "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is similar to the previously reported fully diluted earnings per share. All income (loss) per share amounts for all periods have been presented, and where appropriate, restated to conform to the SFAS No. 128 requirements. All income (loss) per share information for all periods presented in the accompanying consolidated financial statements and related notes have been adjusted to reflect a three-for-two stock split effected March 17, 2000. F-10 Risks and Uncertainties Concentration of Credit Risk Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and accounts receivable. Concentration of credit risk with respect to accounts receivable in fiscal 2000 was minimized by the large number of customers across New England and New York State. The Company reduces its risk of loss through periodic review of customer creditworthiness and generally does not require collateral. Fair Value of Financial Instruments Under SFAS No. 107, "Disclosure About the Fair Value of Financial Instruments," the Company is required to disclose the fair value of financial instruments. At March 31, 2000 and 1999, the Company's financial instruments consist of cash, cash equivalents, accounts receivable, accounts payable and accrued expenses, and notes payable. The fair value of these financial instruments, excluding the notes payable, approximates their cost due to the short-term maturity of these financial instruments. Of the $105,677,549 total notes payable, the carrying value of $100,000,000 approximates fair value due to the variable interest rates on the note. The carrying value of the remaining notes payable of $5,677,549 are not materially different than their estimated fair value. Significant Estimates and Assumptions The financial statements have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management affect the Company's allowance for doubtful accounts and certain accrued expenses. Actual results could differ from those estimates. Accounting for Stock Options The Company grants stock options for a fixed number of shares to employees with an exercise price at least equal to the fair value of the shares at the date of the grant. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. F-11 Stock options and other stock-based awards to non-employees are accounted for based on the provisions of SFAS No. 123. Leases Leases, in which the Company is the lessee and which transfer substantially all of the risks and benefits of ownership, are classified as capital leases. Accordingly, assets and liabilities are recorded at amounts equal to the lesser of the present value of the minimum lease payments or the fair value of the leased property or equipment at the beginning of the respective lease terms. Interest expense relating to the lease obligations is recorded to effect constant rates of interest over the terms of the lease. Leases which do not meet capital lease criteria are classified as operating leases and the related rentals are charged to expense as incurred. Segment Information Effective April 1, 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). SFAS 131 superseded FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS 131 did not affect results of operations, financial position, or the footnote disclosure, as the Company operates in a single industry segment. The Company will continue to assess the impact of SFAS No. 131 and modify its reporting and disclosure requirements if necessary. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") was issued, as amended by SFAS No. 137, which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company is presently analyzing the impact, if any, that the adoption of SFAS No. 133 will have on its financial condition or results of operations. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25." The Company is required to adopt the Interpretation on July 1, 2000. The Interpretation requires that stock options that have been modified to reduce the exercise price be accounted for as variable. The Company modified one stock option in April 1999, which resulted in a stock compensation charge of approximately $2.2 million. No other option grants have been modified by a reduction of the exercise prices, therefore, the adoption of the Interpretation is not expected to have an impact on the Company's consolidated financial statements, unless modifications are made in the future. F-12 Adoption of Staff Accounting Bulletin 101. The Company will revise its revenue recognition policy for certain recurring monthly fees to be consistent with applicable provisions of Staff Accounting Bulletin 101 ("SAB 101"). Previously, monthly recurring fees for the next month's service were recognized at the time all of the Company's significant performance obligations had been fulfilled and the related monthly service fee became nonrefundable based on the terms of the Company's contract with its customers which require 60 days notice for cancellation. Since SAB 101 now indicates that nonrefundability of revenues and fulfillment of all significant performance obligations are not a basis for revenue recognition, the Company has determined that deferral of the monthly recurring service fees to the period in which the service is available to the customer is a preferable method of accounting. The impact of the change in recognizing recurring service fees will be reported as a cumulative effect of a change in accounting principle as of April 1, 2000 in accordance with Accounting Principles Board Opinion No. 20, Accounting Changes. The cumulative effect of this change will increase the Company's loss by approximately $1.8 million as of April 1, 2000. This amount represents the income attributable to the deferral, as of that date, of one month's recurring service fee revenue totaling approximately $9.3 million. SAB 101 as amended, allows the Company to implement this change either as of the quarter ending June 30, 2000 or as of the last quarter of fiscal 2001 which is the quarter ending March 31, 2001. If the Company adopts as of June 30, 2000, the Company's interim unaudited consolidated financial statements for the period ending June 30, 2000 will be prepared on the new basis of accounting. If adoption is deferred until the last quarter, previously reported quarterly financial information for fiscal 2001 will be restated so that annual operating results for fiscal 2001 will be presented on the new basis. The Company is currently evaluating the alternatives and has not yet determined the date as of which SAB 101 will be adopted. There will be no impact to the Company's cash flow from operations as a result of this change. Also, it is believed that the adoption of this change in accounting for fiscal 2000 or prior periods would not have had a material effect on the Company's previously reported results of operations, financial position or cash flows for those periods. 3. Property and Equipment Property and equipment, at cost, and related accumulated depreciation and amortization balances are as follows: March 31, ----------------------- 2000 1999 ----------- ----------- Furniture, fixtures and equipment................... $ 7,768,569 $ 4,358,950 Network and related equipment....................... 80,536,390 31,309,749 Leasehold improvements.............................. 3,660,732 1,657,752 Assets under capital lease ......................... 28,639,202 12,091,238 ----------- ----------- 120,604,893 49,417,689 Less accumulated depreciation and amortization...... 29,369,433 10,615,766 ----------- ----------- $91,235,460 $38,801,923 =========== =========== Assets under capital lease principally consist of network and related equipment. Capitalized interest of $415,000 was recorded in the fiscal year ended March 31, 2000. F-13 4. Bell Atlantic Litigation In December 1997, the Company terminated its agency contract and filed suit against Bell Atlantic in Federal District Court for breach of contract, including the failure of Bell Atlantic to pay approximately $11,500,000 of agency commissions owed to the Company. The Company also asserted violations by Bell Atlantic of the antitrust laws and Telecommunications Act. On February 24, 1999 the Company settled the lawsuit. Under terms of the settlement, the Company received cash and other consideration. As a result of the settlement the Company wrote off approximately $1,500,000 of accounts receivable. In connection with the litigation, the Company incurred substantial costs, including legal costs, to recover the Bell Atlantic receivable. During fiscal 2000, 1999 and 1998, the Company incurred $79,000, $8,386,000 and $614,000, respectively, of legal and other costs associated with the litigation. 5. Related-Party Transactions The installation of certain telecommunications equipment is generally subcontracted to a company controlled by the Chairman of the Company. In addition, equipment is purchased from this company. Amounts paid to this company for hardware and services, based on fair market value, aggregated $1,361,430, $499,257 and $232,775 during fiscal 2000, 1999 and 1998, respectively. The Company leases office space from trusts in which the Chairman is a beneficiary. Rent expense for these facilities aggregated $51,584, $125,904 and $132,656 in fiscal 2000, 1999 and 1998, respectively. One of those leases expired during fiscal 1999. The remaining lease expires during fiscal 2002. The Company subleases space to a company controlled by the Chairman of the Company. Terms of the sublease are identical to those included in the Company's lease. Sublease rental income totaled $108,326, $106,293 and $119,416 in fiscal 2000, 1999 and 1998, respectively. In May 2000, the Company entered into a 15 year lease for approximately 71,250 feet from a limited liability company in which two executive officers, including the Chairman, own a majority of membership interests, and in which four executive officers each own a minority membership interest. The annual base rental under the lease is $1,778,100. 6. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following: March 31, ---------------------- 2000 1999 ----------- ---------- Trade accounts payable............................ $36,571,961 $17,788,702 Accrued cost of telecommunications revenue........ 3,129,577 5,475,143 Sales tax payable................................. 6,337,569 3,829,809 Other............................................. 289,650 345,834 ----------- ----------- $46,328,757 $27,439,488 =========== =========== F-14 7. Financing Arrangements In September 1998, the Company entered into a revolving line of credit agreement (the "Revolving Line of Credit") with a consortium of lenders, providing for a three year senior secured credit facility of up to $75,000,000. Advances under the Revolving Line of Credit bear interest at the prime rate plus 1.75% per annum. The outstanding debt is secured by all the Company's assets excluding those acquired through purchase money financing. The Company paid a one-time up front fee of $2,531,250, representing 3.375% of the facility. This one-time up front fee was capitalized as a deferred financing cost and amortized as interest expense over the term of the Revolving Line of Credit. Warrants to purchase an aggregate of 1,461,618 shares of the Company's common stock at an exercise price of $4.50 per share were issued to the lenders in connection with the transaction. The fair value of the warrants of $1,909,848 was amortized and included in interest expense over the term of the Revolving Line of Credit. Borrowings under the Revolving Line of Credit were repaid from the senior secured credit facility consummated in March 2000 described below. In October 1998, the Company entered into a three year vendor financing facility (the "Vendor Financing Facility"). Under the terms of the agreement, the Company agreed to a $25,000,000 volume purchase commitment from this vendor. Outstanding borrowings bear interest at 12.5% per annum. Borrowings under the Vendor Financing Facility were repaid from the senior secured credit facility consummated in March 2000 described below. In March 1999, the Company entered into an unsecured credit facility (as amended on June 30, 1999, the "Credit Facility") with a bank. Under this Credit Facility, the Company may borrow $30,000,000. Warrants to purchase 103,824 shares of the Company's common stock at an exercise price of $7.875 were issued in connection with the Credit Facility. The fair value of the warrants of $329,468 to purchase 103,824 shares of common stock was capitalized and was amortized ratably over the term of the Credit Facility as interest expense. This facility has been repaid. In March 2000, the Company entered into a $225 million senior secured credit facility (the "Senior Facility") with a consortium of banks. This Senior Facility is comprised of a $50 million senior secured revolving credit facility (the "Revolver") with a seven and one-half year term, a $100 million senior, delayed draw facility with a seven and one-half year term ("Term A") and a $75 million senior secured eight year term loan facility ("Term B"). Advances under the Revolver and Term A bear interest at prime rate plus 1.75-2.5% per annum based upon the total leverage ratio in effect at the time. Term B borrowings bear interest at the prime rate plus 3.25% per annum. As required by the Senior Facility, Term B borrowings of $75 million were made at the closing date along with borrowings of $25 million under the Revolver. The proceeds were used to pay off the $25 million Vendor Financing Facility and the outstanding balance of the Revolving Line of Credit approximating $43 million. The Company paid a one-time up front fee and other closing costs at the closing, which have been capitalized as deferred financing costs and are being amortized as interest expense over the term of the Senior Facility. F-15 The unamortized balance of deferred financing costs associated with the Revolving Line of Credit were recognized as an extraordinary item for the fiscal year ended March 31, 2000. The Senior Facility provides for certain financial and operational covenants, including but not limited to minimum access lines installed and billable, minimum quarterly revenue and operating cash flow, and maximum capital expenditures. The Company will pay a commitment fee of .75-1.5% per annum, depending on the percentage of the total Senior Facility used. Under the terms of the Senior Facility, $25 million of Term A must be borrowed as of June 30, 2000 and on certain dates thereafter. At June 30, 2003, the Company will begin to repay the outstanding balances of Term A and Term B on a quarterly basis through the year 2007. Notes payable to banks, net of the unamortized discount of related warrants, consisted of the following: March 31, ------------------------- 2000 1999 ------------ ----------- Revolving Line of Credit....................... $ 0 $34,288,388 Senior Facility................................ 100,000,000 0 Vendor Financing Facility...................... 0 15,425,998 Notes payable for network and related equipment 5,677,549 3,909,247 ----------- ----------- 105,677,549 53,623,633 Less current portion........................... (1,749,342) (1,705,141) ----------- ----------- $103,928,207 $51,918,492 =========== ============ Long-term debt matures as follows: Year ending March 31: 2001................................................... $1,749,342 2002................................................... 1,488,477 2003................................................... 1,534,389 2004................................................... 1,655,341 2005................................................... 750,000 2006................................................... 3,250,000 2007................................................... 15,750,000 2008................................................... 79,500,000 ------------ $105,677,549 ============ F-16 8. Leases The Company leases office facilities under long-term lease agreements classified as operating leases. The following is a schedule of future minimum lease payments, net of sublease income, for operating leases as of March 31, 2000: Sublease Operating Rental Leases Income Net ---------- --------- ----------- Year ending March 31: 2001...................................... $5,481,543 $(153,420) $5,328,123 2002...................................... 5,838,289 (154,420) 5,683,869 2003...................................... 5,439,956 (157,420) 5,282,536 2004...................................... 4,880,242 (160,620) 4,719,622 2005...................................... 3,948,552 (83,725) 3,864,827 Thereafter................................ 24,150,175 0 24,150,175 ----------- --------- ----------- Net future minimum lease payments..........$49,738,757 $(709,605) $49,029,152 =========== ========= =========== Rental expense for operating leases aggregated $2,470,340, $1,779,608 and $1,121,916 in fiscal 2000, 1999 and 1998, respectively. Sublease rental income amounted to $108,326, $106,293 and $119,416 in fiscal 2000, 1999 and 1998, respectively. The Company leases certain assets, principally network and related equipment, under capital leases. At March 31, 2000, the Company has capitalized leased equipment totaling $28,639,202 with related accumulated amortization of $5,362,189. Obligations under capital leases mature as follows: Year ending March 31: 2001...................................................... $9,704,656 2002...................................................... 9,135,853 2003...................................................... 5,753,238 2004...................................................... 876,611 2005...................................................... 362,241 Thereafter................................................ 0 ----------- 25,832,599 Less amount representing interest.......................... (2,388,077) ----------- Present value of minimum lease payments.................... 23,444,522 Less current portion of obligations under capital leases... (8,413,414) ----------- Obligations under capital leases, net of current portion... $15,031,108 =========== F-17 9. Telecommunications Agreements On January 15, 1996, the Company entered into a four-year non-exclusive agreement with a long-distance service provider for the right to provide long distance service to the Company's customers at prices affected by volume attainment levels during the term of the agreement. The Company is not obligated to purchase any minimum levels of usage over the term of the agreement, but rates may be adjusted due to the failure of achieving certain volume commitments. These provisions had no effect on the financial statements for the year ended March 31, 2000. On October 20, 1994, the Company entered into a three-year non-exclusive agreement with a long-distance service provider for the right to provide long distance service to the Company's customers at fixed prices by service during the term of the agreement. On May 6, 1998, the Company entered into an amendment to the agreement which extended the term of the agreement through October 2000. On March 31, 1999, the Company entered into an amendment which provides that the Company shall be liable for a minimum aggregate usage commitment of $50,000,000. Based upon existing and expected usage, these provisions had no effect on the financial statements for the year ended March 31, 2000. Prior to the execution of the agreements described above, and through March 31, 1999, the Company also had provided long distance service to customers under an informal non-exclusive arrangement with another long distance service provider. The Company is not obligated to purchase any minimum level of usage and there are no other performance obligations. On January 8, 1999, the Company entered into agreements with two communications companies for the provision of transmission and co-location facilities for the Company's initial network build-out in New England and New York State. The agreements, which total $11,600,000 of expenditures by the Company over three years, provide for connectivity between the Company's 22 network hub sites and two fully redundant network operations centers. In fiscal years 1999 and 2000, the Company entered into agreements with a supplier of local services which allow for additional discounts and rebates if certain volume and access line requirements are met. The Company met these requirements in fiscal year 2000 and expects to meet these requirements for the remainder of the agreements. On March 31, 2000, the Company entered into a 20 year agreement to purchase an exclusive, indefeasible right of use of optical dark fibers from a fiber optic engineering and construction company. The agreement also includes co-location facilities at points of presence and transmission site locations and ongoing fiber maintenance services provided by the supplier. The Company's total estimated commitment is approximately $115 million. F-18 10. Stockholders' Equity (Deficit) In connection with the reorganization of the Company into a holding company structure in September 1999, each share of Common Stock, $.01 par value, and each share of Series A Convertible Preferred Stock, $1.00 par value, of CTC Communications Corp., was converted into one share of Common Stock, $.01 par value, and one share of Series A Convertible Preferred Stock, $1.00 par value, of CTC Communications Group, Inc. ("CTC Group"). CTC Group is authorized to issue up to 100 million shares of common stock, $.01 par value, and 10 million shares of preferred stock, $1.00 par value. As a result of the reorganization, CTC Communications Corp. became a wholly-owned subsidiary of CTC Group. On March 17, 2000, the Company effected a three-for-two stock split for stockholders of record as of March 6, 2000. All common stock information presented in Note 10 herein has been adjusted to reflect the stock split. At March 31, 2000, 6,789,496 shares of common stock are reserved for future issuance upon exercise of outstanding stock options and common stock purchase warrants and conversion of outstanding preferred stock. Preferred Stock The dividends, liquidation preference, voting rights and other rights of each series of preferred stock, when issued, are to be designated by the Board of Directors prior to issuance. In April 1998, the Company completed a private placement of Series A Redeemable Convertible Preferred Stock ("Series A") through the issuance of 666,666 shares of Series A with an initial liquidation amount per share of $18. Proceeds to the Company aggregated $12,000,000 for the Series A and warrants to purchase 200,000 shares of common stock at an exercise price of $6 per share. Of the $12,000,000 in proceeds, $417,332 had been ascribed to the warrants and $11,582,668 to the Series A. Each share of Series A accrued a cumulative dividend equal to an annual rate of 9% of the $18 per share initial liquidation amount, compounded every six months, which had the effect of increasing the Series A preference amount. On March 25, 2000, the Series A stockholders voluntarily converted their shares of preferred stock into 2,376,660 shares of common stock. The 2,376,660 shares represents the value of the initial investment plus the accrued dividends through the conversion date, adjusted for the 3-for-2 stock dividend effected on March 17, 2000. On July 13, 1998, the Company received a commitment letter from a Series A stockholder to purchase at the Company's option, an additional $5,000,000 of preferred stock on the same terms and conditions as the Series A issued in April 1998. No shares of Series A were issued under this commitment letter which expired on June 30, 1999. At March 31, 2000, no shares of preferred stock were issued and outstanding. F-19 Common Stock Purchase Warrants As of March 31, 2000, the Company had outstanding warrants in connection with the issuance of the Series A and the financing arrangements disclosed in Note 7 to purchase an aggregate of 883,123 shares of common stock at exercise prices ranging from $4.50 to $7.87 with exercise periods extending through March 2009. The values of the warrants range from $1.96 to $4.76 and were determined using a Black-Scholes pricing methodology. Significant assumptions include an interest rate of 5.21%, an expected volatility of 50% and an expected life of the warrants of 2.5 to 3 years. Employee Stock Purchase Plan The Company has an employee stock purchase plan (the "ESPP") which enables participating employees to purchase Company shares at 85% of the lower of the market prices prevailing on two valuation dates as defined in the ESPP. Individuals can contribute up to 5% of their base salary. The Company made no contributions to the ESPP during the fiscal years ended March 31, 2000, 1999 and 1998. Indicated below is a summary of shares of common stock purchased by the ESPP. Date Shares Purchased Purchase Price - ------------- ------------------ --------------- February 2000 10,533 $10.38 July 1999 14,779 $ 5.03 February 1999 11,945 $ 4.46 July 1998 10,105 $ 4.46 February 1998 6,609 $ 5.53 July 1997 8,157 $ 4.32 Stock Option Plans Under the terms of its 1993 Incentive Stock Option Plan, 1996 Stock Option Plan and 1998 Incentive Plan, (collectively, the "Plans"), the Company may grant qualified and non-qualified incentive stock options for the purchase of common stock to all employees and, except for the 1993 Stock Option Plan, to members of the Board of Directors. The Plans generally provide that the option price will be fixed by a committee of the Board of Directors but for qualified incentive stock options will not be less than 100% (110% for 10% stockholders) of the fair market value per share on the date of grant. Non-qualified options are granted at no less than 85% (110% for 10% stockholders) of the fair market value per share on the date of grant. No options have a term of more than ten years and options to 10% stockholders may not have a term of more than five years. In the event of termination of employment, other than by reason of death, disability or with the written consent of the Company, all options granted to employees are terminated. Vesting is determined by the Board of Directors. Under the terms of the 1999 Equity Incentive Plan for Non-Employee Directors, at each annual meeting at which a non-employee director is reelected or is continuing as a director, he or she will be granted a five- year, non-discretionary, option to purchase 15,000 shares of common stock, F-20 at an exercise price equal to 100% of the fair market value of the common stock on the day before the date of the grant. The options are exercisable on the grant date. In addition to the foregoing options, the administrator also has the authority to award options to eligible directors in amounts and on terms as it determines. These options are referred to as discretionary options. The exercise price of discretionary options will be set by the administrator and will become exercisable and expire as the administrator determines, but no options will expire later than 10 years from the date of grant. If a director dies, or otherwise ceases to be a director, all options, including those issued under the 1993, 1996, 1998 and 1999 Plans, not then exercisable will immediately terminate, unless the board of directors otherwise determines. Any exercisable options will remain exercisable for a period of one year following death or three months following other termination of the individual's status as a director, but in no event beyond the fifth anniversary of the date of grant in the case of formula options and beyond the tenth anniversary of the date of the grant in the case of discretionary options. Upon a merger or consolidation, which results in a 50% change in ownership, a transfer of all or substantially all of the Company's assets, or a dissolution or liquidation of the Company, all options, including the 1993, 1996, 1998 and 1999 plans, not then exercisable will become exercisable and all unexercised options will terminate upon the consummation of the transaction. However, in lieu of termination, the board of directors may cause the acquiring or surviving corporation to assume all options outstanding under the plan or provide replacement options for on substantially the same terms, with any necessary adjustments. In addition to the option grants, the plan allows each non- employee director to elect annually in advance to receive his or her fees in the form of deferred grants of common stock rather than cash. Stock Based Compensation Pro forma information regarding net loss and net loss per common share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options granted under the Plans and shares issued pursuant to the ESPP under the fair value method of SFAS No. 123. The fair value for these options and shares issued pursuant to the ESPP was estimated at the dates of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: Options ESPP ------------------- ------------------- 2000 1999 1998 2000 1999 1998 ----- ----- ----- ----- ----- ----- Expected life (years)................. 3.69 3.09 2.96 0.50 0.50 0.50 Interest rate......................... 6.12% 4.82% 5.93% 6.08% 5.05% 5.43% Volatility............................ 84.12% 83.69% 85.14% 82.73% 91.23% 64.67% Dividend yield........................ 0.00 0.00 0.00 0.00 0.00 0.00 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded F-21 options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the expense related to estimated fair value of the options is recognized over the options' vesting period. The Company's pro forma net loss and loss per common share, which has been adjusted to reflect the March 2000 three-for-two stock split, are as follows: 2000 1999 1998 ------------ ------------ ----------- Pro forma net loss................. $(66,276,203) $(56,003,004) $(4,586,368) Pro forma net loss per common share (Basic and Diluted)............... $ (3.26) $ (3.77) $ (0.31) The effects on fiscal 1998, 1999 and 2000 pro forma net loss and loss per common share of expensing the estimated fair value of stock options and shares issued pursuant to the ESPP are not necessarily representative of the effects on reporting the results of operations for future years as the periods presented only include the effects of option grants under the Company's plans. A summary of the Company's stock option activity, and related information for the years ended March 31, which has been adjusted to reflect the March 17, 2000 three-for-two stock split, follows:
2000 1999 1998 ------------------- -------------------- ------------- - ------ Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price --------- -------- ---------- -------- --------- -- - ------ Outstanding at beginning of year................ 5,423,714 $ 4.70 4,447,511 $3.67 2,929,668 $2.91 Options granted....... 2,137,569 15.08 1,945,500 5.77 4,186,500 4.74 Options terminated.... (411,950) 4.67 (419,574) 4.33 (2,104,076) 5.57 Options exercised..... (1,242,960) 3.37 (549,723) 0.44 (564,581) 0.62 --------- ---------- --------- Outstanding at end of year................... 5,906,373 $8.91 5,423,714 $4.70 4,447,511 $3.67 ========= ========== ========= Exercisable at end of year................... 1,630,865 1,442,666 1,047,375 Weighted-average fair value of options granted during the year................... $ 8.87 $ 3.20 $ 2.67
F-22
The following table presents weighted-average price and life information about significant option groups outstanding at March 31, 2000: Options Outstanding Options Exercisable ------------------------------------------------------- --- - ---------------- Weighted Average Remaining Weighted Weighted Range Number Contractual Average Number Average Exercise Prices Outstanding Life--Years Exercise Price Exercisable Exercise Price --------------- ----------- ---------------- -------------- ----------- -- - ----------------- $ 0.00-5.35............. 2,917,905 2.5 $ 4.57 1,028,864 $ 4.60 5.35-10.70............ 1,251,198 3.9 8.27 420,351 7.78 10.70-16.05............ 1,253,522 4.9 11.63 165,150 10.96 16.05-21.40............ 121,500 6.3 17.68 1,500 19.25 21.40-26.75............ 74,999 6.5 23.77 0 0 26.75-32.10............ 77,249 6.4 27.62 0 0 32.10-37.45............ 33,000 5.9 36.52 0 0 37.45-42.80............ 152,000 5.9 38.66 15,000 38.67 42.80-48.15............ 18,500 7.7 46.68 0 0 48.15-53.50............ 6,500 7.2 53.38 0 0 --------- --------- 5,906,373 1,630,865 ========= =========
11. Benefit Plans Defined Contribution Plan (the "401(k) Plan") The Company maintains a defined contribution plan (the "401(k) Plan") which covers all employees who meet certain eligibility requirements and complies with Section 401(k) of the Internal Revenue Code ("IRC"). Participants may make contributions to the 401(k) Plan up to 15% of their compensation, as defined under the terms of the 401(k) Plan, up to the maximum established by the IRC. The Company may make a matching contribution of an amount to be determined by the Board of Directors, but subject to a maximum of 6% of compensation contributed by each participant. Company contributions vest ratably over three years. Company contributions to the 401(k) Plan were $486,434, $358,100 and $310,788 in fiscal 2000, 1999 and 1998, respectively. F-23 12. Loss Per Share Loss per common share has been calculated as follows:
2000 1999 1998 ------------ ----------- ----------- Numerator: Loss before extraordinary item ... $(57,073,087) $(51,237,984) $(2,497,690) Extraordinary item-early extinguishment of debt.............. (2,430,456) 0 0 Net loss (59,503,543) (51,237,984) (2,497,690) Less preferred stock dividends and accretion to redemption value of preferred stock...................... (1,609,351) (1,227,808) -- ------------ ----------- ----------- - - Equals: numerator for Basic and Diluted loss per common share........ (61,112,894) (52,465,792) (2,497,690) Denominator: Denominator for Basic and Diluted loss per common share-weighted average shares............................... 20,320,626 15,196,052 14,829,000 ------------ ----------- ----------- - - Basic and diluted loss per common share. $ (3.01) $ (3.45) $ (0.17) ============ =========== =========== Basic and diluted loss per common share- extraordinary item.................... $ (0.12) $ 0 $ 0 ============ =========== =========== Basic and diluted loss per common share- before extraordinary item............. $ (2.89) $ (3.45) $ (0.17) ============ =========== =========== 13. Income Taxes The provision (benefit) for income taxes consisted of the following: 2000 1999 1998 ----------- ----------- ----------- Current: Federal................................. $ 0 $(3,124,000) $ (218,000) State................................... 0 0 0 ----------- ------------ ---------- - - 0 (3,124,000) (218,000) Deferred tax provision (benefit).......... 1,597,000 (1,068,760) ----------- ------------ ---------- - - $ 0 $(1,527,000) $(1,286,760) =========== ============ =========== F-24 Significant components of the Company's deferred tax liabilities and assets as of March 31, are as follows: 2000 1999 ------------ ---------- Deferred tax assets: Bad debt allowance.................................$ 810,000 $ 695,000 Accruals and allowances, other..................... 585,000 40,000 Compensation ...................................... 242,000 0 Net operating loss carryforward.................... 45,771,000 22,560,000 ------------ ---------- Total deferred tax asset............................. 47,408,000 23,295,000 Deferred tax liability: Other expenses..................................... (44,000) (46,000) Depreciation....................................... (42,000) (784,000) ------------ ---------- Total deferred tax liability......................... (86,000) (830,000) ------------ ---------- Net deferred tax asset before valuation allowance.... 47,322,000 22,465,000 Valuation allowance.................................. (47,322,000) (22,465,000) ------------ ---------- Net deferred tax asset............................... $ 0 $ 0 ============ =========== F-25 Management has provided a valuation allowance against deferred tax assets due to the uncertainty that the Company will realize these assets. The Company believes that, based upon a number of factors, the available objective evidence creates sufficient uncertainty regarding the realization of the deferred tax assets such that a full valuation allowance has been recorded. The Company will continue to assess the realization of the deferred tax assets based on actual and forecasted operating results. At March 31, 2000, the Company had federal and state net operating loss carryforwards of approximately $112,000,000, which may be used to reduce future income tax liabilities, and expire through 2020. Changes in the Company's ownership will subject the net operating loss carryforwards to limitations pursuant to Sections 382 of the IRC. The income tax expense is different from that which would be obtained by applying the enacted statutory federal income tax rate to loss before income taxes. The items causing this difference are as follows:
2000 1999 1998 ------------ ----------- --------- - - Tax (benefit) at U.S. statutory rate.... $(20,231,000)$(17,940,000) $(1,286,760) State income taxes, net of federal benefit (3,867,000) (3,616,000) 0 Valuation allowance and other........... 24,098,000 20,029,000 0 ------------ ------------ ---------- - -- $ 0 $(1,527,000) $(1,286,760) ============ ============ ============
14. Subsequent Events Subsequent to March 31, 2000, the Company completed a $200 million preferred stock financing with Bain Captial Inc., Thomas H. Lee Partners, L.P. and CSFB Private Equity. The investment is in the form of 8.25% Series B convertible preferred stock which converts to common stock at $50 per share. Bain Capital and Thomas H. Lee each invested $75 million and CSFB Private Equity has invested $50 million. The $200 million will be used to fund strategic marketing and technological initiatives of the Company's business plan. F-26 15. Quarterly Information (Unaudited) A summary of operating results and net loss per share for the quarterly periods in the two years ended March 31, 2000 is set forth below:
Quarter Ended ------------------------------------------------------- - ------------ June 30 September 30 December 31 March 31 Total ----------- ------------ ------------ ------------ - ------------ Year ended March 31, 2000 Total revenues.......... $31,046,851 $ 35,109,155 $ 40,369,021 $ 46,575,907 $153,100,934 Loss before extra- ordinary item.......... (15,118,813) (12,293,504) (14,216,531) (15,444,239) (57,073,087) Net loss................ (15,118,813) (12,293,504) (14,216,531) (17,874,695) (59,503,543) Loss per common share before extraordinary item................... (.99) (.61) (.67) (.69) (2.89) Net loss per share - Basic and diluted...... (.99) (.61) (.67) (.80) (3.01) Year ended March 31, 1999 Total revenues.......... $12,835,685 $ 14,516,189 $ 19,024,531 $ 24,587,287 $ 70,963,692 Net loss................ (8,029,000) (10,732,624) (11,480,025) (20,996,335) (51,237,984) Net loss per share - Basic and diluted...... (.54) (.73) (.79) (1.38) (3.45)
F-27 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS CTC COMMUNICATIONS GROUP, INC.
Col. A Col. B Col. C Col. D Col. E ---------- ---------- ---------- ---------- -------- - -- Additions (1) (2) Balance at Charged to Charged to Balance at Beginning Costs and Other End of Description of Period Expenses Accounts Deductions(a) Period ----------- ---------- ---------- ---------- ------------- ----- - ----- Year ended March 31, 2000: Allowance for doubtful accounts............. $1,717,000 $1,528,564 0 $1,245,564 $2,000,000 Year ended March 31, 1999: Allowance for doubtful accounts............. $ 492,000 $4,988,698 0 $3,763,698 $1,717,000 Year ended March 31, 1998: Allowance for doubtful accounts............. $ 377,000 $1,421,000 0 $1,306,000 $ 492,000
(a) Bad debts written off, net of collections. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. EX-10.34 2 0002.txt $225 MILLION TD CREDIT AGREEMENT EXHIBIT 10.34 [EXECUTION COPY] $225,000,000 CREDIT AGREEMENT, dated as of March 30, 2000, among CTC COMMUNICATIONS CORP., as the Borrower, CTC COMMUNICATIONS GROUP, INC., as the Parent, VARIOUS FINANCIAL INSTITUTIONS AND OTHER PERSONS FROM TIME TO TIME PARTIES HERETO, as the Lenders, and TORONTO DOMINION (TEXAS), INC., as the Administrative Agent for the Lenders. TD SECURITIES (USA) INC., as the Lead Arranger and Book Runner. CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of March 30, 2000, is among CTC COMMUNICATIONS CORP., a Massachusetts corporation (the "Borrower") and a wholly-owned Subsidiary of the Parent (as defined below), CTC COMMUNICATIONS GROUP, INC., a Delaware corporation (the "Parent"), the various financial institutions and other Persons from time to time parties hereto (collectively, the "Lenders"), TORONTO DOMINION (TEXAS), INC. ("TD"), as administrative agent (in such capacity, the "Administrative Agent") for the Lenders, and TD SECURITIES (USA) INC. ("TDSI"), as the Lead Arranger and Bookrunner (in such capacity, the "Arranger"). W I T N E S S E T H: WHEREAS, the Borrower intends to refinance (the "Refinancing"), for an aggregate amount of approximately $100,000,000, its existing (i) senior credit facilities, evidenced by that certain Credit Agreement, dated as of September 1, 1998 (as amended, supplemented, amended and restated or otherwise modified prior to the date hereof, the "Existing Credit Agreement"), among the Borrower, Goldman Sachs Credit Partners, L.P. and Fleet National Bank, as a lender and as agent, and (ii) certain vendor financing, evidenced by that certain Loan Agreement, dated as of October 14, 1998 (as amended, supplemented, amended and restated or otherwise modified prior to the date hereof, the "Cisco Agreement", and, together with the Existing Credit Agreement, the "Existing Financing Agreements"), among the Borrower and Cisco Systems Capital Corporation; WHEREAS, in connection with the Refinancing, certain capital expenditures and the ongoing working capital and general corporate needs of the Borrower and the Subsidiary Guarantors, the Borrower desires to obtain, and the Lenders and the Issuers are willing to extend, on the terms and subject to the conditions hereinafter set forth, the Commitments to make Credit Extensions; NOW, THEREFORE, the parties hereto hereby agree as follows. ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION I.1. Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble and includes each other Person appointed as the successor Administrative Agent pursuant to Section 10.4. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person. "Control" of a Person means the power, directly or indirectly, (a) to vote 10% or more of the Capital Securities (on a fully diluted basis) of such Person having ordinary voting power for the election of directors, managing members or general partners (as applicable); or (b) to direct or cause the direction of the management and policies of such Person (whether by contract or otherwise). "Agreement" means, on any date, this Credit Agreement as originally in effect on the Effective Date and as thereafter amended, supplemented, amended and restated or otherwise modified from time to time and in effect on such date. "ALE" means the total number of voice circuits and equivalent data circuits that the Borrower and its Subsidiaries have in service. Voice circuits are the actual number of voice circuits purchased by the Borrower's and its Subsidiaries' customers, while equivalent data circuits represents the data transmission capacity purchased by such customers divided by 64 kilobits per second (the capacity necessary to carry one voice circuit). "Alternate Base Rate" means, on any date and with respect to all Base Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the Base Rate in effect on such day; and (b) the Federal Funds Rate in effect on such day plus 1/2 of 1%. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate; provided, that the failure to give such notice shall not affect the Alternate Base Rate in effect after such change. "Annualized Consolidated EBITDA" means, at any date of determination, Consolidated EBITDA for the most recently completed full Fiscal Quarter multiplied by four. "Applicable Commitment Fee" means the applicable percentage set forth below corresponding to the relevant Average Used Amount: Average Used Amount Applicable Commitment Fee Greater than or equal to 0.67 0.75% Less than 0.67 but greater than or equal to 0.33 1.00% Less than 0.33 1.50% The Average Used Amount used to compute the Applicable Commitment Fee shall be that set forth in the Compliance Certificate most recently delivered by the Borrower to the Administrative Agent. Changes in the Applicable Commitment Fee resulting from a change in the Average Used Amount shall become effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to clause (d) of Section 7.1.1. If the Borrower shall fail to deliver a Compliance Certificate within 45 days after the end of any Fiscal Quarter (or within 90 days, in the case of the last Fiscal Quarter of the Fiscal Year) or if any Event of Default has occurred and is continuing, the Applicable Commitment Fee from and including the 46th (or 91st, as the case may be) day after the end of such Fiscal Quarter to but not including the date the Borrower delivers to the Administrative Agent a Compliance Certificate shall conclusively equal the highest Applicable Commitment Fee set forth above. Notwithstanding any of the foregoing, the Applicable Commitment Fee shall be equal to 0.125% on the applicable Commitment Amounts not available pursuant to Section 11.13. "Applicable Margin" means, at all times during the applicable periods set forth below, (a) from the Effective Date to (but excluding) the date upon which the Compliance Certificate for the Fiscal Quarter ending March 31, 2001 is required to be delivered by the Borrower to the Administrative Agent pursuant to clause (d) of Section 7.1.1, with respect to the unpaid principal amount of each Revolving Loan and Term A Loan maintained as a (i) Base Rate Loan, 3.25% per annum and (ii) LIBO Rate Loan, 4.25% per annum; and (b) at all times from and after the date the Compliance Certificate described in clause (a) above is required to be delivered, with respect to the unpaid principal amount of each Revolving Loan and Term A Loan, the rate determined by reference to the applicable Total Leverage Ratio and at the applicable percentage per annum set forth below under the column entitled "Applicable Margin for Base Rate Loans", in the case of such Loans made or maintained as Base Rate Loans, or by reference to the applicable Total Leverage Ratio and at the applicable percentage per annum set forth below under the column entitled "Applicable Margin for LIBO Rate Loans", in the case of such Loans made or maintained as LIBO Rate Loans:
Total Leverage Ratio Applicable Margin For Base Rate Loans Applicable Margin For LIBO Rate Loans Greater than or equal to 8.00:1 3.25% 4.25% Greater than or equal to 6.00:1 but less than 8.00:1 2.75%* 3.75% Greater than or equal to 5.00:1 but less than 6.00:1 2.50% 3.50% Greater than or equal to 4.00:1 but less than 5.00:1 2.25% 3.25% Less than 4.00:1 2.00% 3.00%
(c) at all times from and after the Effective Date, with respect to the unpaid principal amount of each Term B Loan maintained as a (i) Base Rate Loan, 3.50% per annum and (ii) LIBO Rate Loan, 4.50% per annum. With respect to clause (b) above, the Total Leverage Ratio used to compute the Applicable Margin shall be the Total Leverage Ratio set forth in the Compliance Certificate most recently delivered by the Borrower to the Administrative Agent. Changes in the Applicable Margin resulting from a change in the Total Leverage Ratio shall become effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to clause (d) of Section 7.1.1. If the Borrower shall fail to deliver a Compliance Certificate within 45 days after the end of any Fiscal Quarter (or within 90 days, in the case of the last Fiscal Quarter of the Fiscal Year) or if any Event of Default has occurred and is continuing, the Applicable Margin from and including the 46th (or 91st, as the case may be) day after the end of such Fiscal Quarter to but not including the date the Borrower delivers to the Administrative Agent a Compliance Certificate shall conclusively equal the highest Applicable Margin set forth above. Notwithstanding the foregoing, with respect to clauses (a) through (c), the Applicable Margins for all Loans shall each be reduced by 0.25% upon the receipt by the Borrower of not less than $75,000,000 of cash equity proceeds from the Parent in connection with the Parent's receipt of Net Equity Proceeds not otherwise required to be applied to a mandatory prepayment of the Loans pursuant to clause (h) of Section 3.1.1, such reduction to become effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to clause (d) of Section 7.1.1 in respect of the Fiscal Quarter during which the Borrower received such cash equity proceeds. "Arranger" is defined in the preamble. "Assignee Lender" is defined in Section 11.11.1. "Assignor Lender" is defined in Section 11.11.1. "Authorized Officer" means, relative to any Obligor, those of its officers, general partners or managing members (as applicable) whose signatures and incumbency shall have been certified to the Administrative Agent, the Lenders and the Issuers pursuant to Section 5.1.1. "Average Used Amount" means, as of any date of determination, the percentage (expressed as a decimal) which results from dividing (a) the average daily amount of Revolving Loans and Term A Loans outstanding for the Fiscal Quarter ending on or immediately preceding the date of determination by (b) the sum of the then applicable Revolving Loan Commitment Amount, the then applicable Term A Loan Commitment Amount and the average daily amount of Term A Loans outstanding for such Fiscal Quarter. "Bank Memorandum" means the Confidential Information Memorandum, dated March, 2000, and prepared by the Arranger on the basis of information supplied by the Parent and the Borrower. "Base Rate" means, at any time, the rate of interest then most recently established by the Administrative Agent in New York as its base rate for U.S. dollars loaned in the United States. The Base Rate is not necessarily intended to be the lowest rate of interest determined by the Administrative Agent in connection with extensions of credit. "Base Rate Loan" means a Loan bearing interest at a fluctuating rate determined by reference to the Alternate Base Rate. "Borrower" is defined in the preamble. "Borrower Pledge and Security Agreement" means the Pledge and Security Agreement executed and delivered by an Authorized Officer of the Borrower, substantially in the form of Exhibit G-2 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Borrowing" means the Loans of the same type and, in the case of LIBO Rate Loans, having the same Interest Period made by all Lenders required to make such Loans on the same Business Day and pursuant to the same Borrowing Request in accordance with Section 2.1. "Borrowing Request" means a Loan request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit B-1 hereto. "Business Day" means (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York; and (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in Dollars are carried on in the London interbank eurodollar market. "Capital Expenditures" means, for any period, the aggregate amount of (a) all expenditures of the Borrower and its Subsidiaries for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures and (b) Capitalized Lease Liabilities incurred by the Borrower and its Subsidiaries during such period. "Capital Securities" means, with respect to any Person, any and all interests, including shares of capital stock, membership interests in limited liability companies and general or limited partnership interests in any partnership, participations or other equivalents (however designated, whether voting or non-voting) of such Person's capital, whether now outstanding or issued after the Effective Date. "Capitalized Lease Liabilities" means all monetary obligations of the Borrower or any of its Subsidiaries under any leasing or similar arrangement which have been (or, in accordance with GAAP, should be) classified as capitalized leases, and for purposes of each Loan Document the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a premium or a penalty. "Cash Collateralize" means, with respect to a Letter of Credit, the deposit of immediately available funds into a cash collateral account maintained with (or on behalf of) the Administrative Agent on terms satisfactory to the Administrative Agent in an amount equal to the Stated Amount of such Letter of Credit. "Cash Equivalent Investment" means, at any time: (a) any direct obligation of (or unconditionally guaranteed by) the United States or a State thereof (or any agency or political subdivision thereof, to the extent such obligations are supported by the full faith and credit of the United States or a State thereof) maturing not more than one year after such time; (b) commercial paper maturing not more than 270 days from the date of issue, which is issued by (i) a corporation (other than an Affiliate of any Obligor) organized under the laws of any State of the United States or of the District of Columbia and rated A-1 or higher by S&P or P-1 or higher by Moody's, or (ii) any Lender (or its holding company); (c) any certificate of deposit, time deposit or bankers acceptance, maturing not more than one year after its date of issuance, which is issued by either (i) any bank organized under the laws of the United States (or any State thereof) and which has (x) a credit rating of A2 or higher from Moody's or A or higher from S&P and (y) a combined capital and surplus greater than $500,000,000, or (ii) any Lender; or (d) any repurchase agreement having a term of 30 days or less entered into with any Lender or any commercial banking institution satisfying the criteria set forth in clause (c)(i) which (i) is secured by a fully perfected security interest in any obligation of the type described in clause (a), and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder. "Casualty Event" means the damage, destruction or condemnation, as the case may be, of property of the Borrower or any of its Subsidiaries. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Change in Control" means (a) at any time, (i) any person or group (within the meaning of Sections 13(d) and 14(d) under the Exchange Act), other than the Permitted Holders, shall become the ultimate "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) or holder of voting power, directly or indirectly, with respect to Capital Securities representing either (A) more than 40% of the Capital Securities or voting power with respect to the Parent on a fully diluted basis or (B) more than the percentage of the Capital Securities or voting power with respect to the Parent on a fully diluted basis then held by the Permitted Holders or (ii) the Fabbricatore Related Parties hold less than 51% of the total number of shares of Capital Securities held by the Fabbricatore Related Parties on and as of the Effective Date (as adjusted for stock splits, stock dividends, stock reclassifications and similar transactions); or (b) the failure of the Parent at any time to directly own beneficially and of record on a fully diluted basis 100% of the outstanding Capital Securities of the Borrower, such Capital Securities to be held free and clear of all Liens (other than Liens granted under a Loan Document); or (c) during any period of 24 consecutive months, individuals who at the beginning of such period constituted the Board of Directors of the Borrower (together with any new directors whose election to such Board or whose nomination for election by the stockholders of the Borrower was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Borrower then in office; or (d) the occurrence of any "Change of Control" (or similar term) under (and as defined in) any Subordinated Debt Document. "Cisco Agreement" is defined in the first recital. "Closing Date" means the date of the initial Credit Extension hereunder, but in no event shall such date be later than March 31, 2000. "Closing Date Certificate" means the closing date certificate executed and delivered by an Authorized Officer of each of the Parent and the Borrower, substantially in the form of Exhibit D hereto. "Code" means the Internal Revenue Code of 1986, and the regulations thereunder, in each case as amended, reformed or otherwise modified from time to time. "Collateral" is defined in the Pledge Agreements. "Commitment" means, as the context may require, the Term A Loan Commitment, Term B Loan Commitment, Revolving Loan Commitment or Letter of Credit Commitment. "Commitment Amount" means, as the context may require, the Term A Loan Commitment Amount, the Term B Loan Commitment Amount, the Revolving Loan Commitment Amount or the Letter of Credit Commitment Amount. "Commitment Letter" means the confidential letter, dated January 21, 2000, from TDSI to the Borrower and the Parent, as amended, supplemented, amended and restated or otherwise modified from time to time. "Commitment Termination Date" means, as the context may require, the Term A Loan Commitment Termination Date, the Term B Loan Commitment Termination Date or the Revolving Loan Commitment Termination Date. "Commitment Termination Event" means (a) the occurrence of any Event of Default with respect to the Borrower described in clauses (a) through (d) of Section 8.1.9; or (b) the occurrence and continuance of any other Event of Default and either (i) the declaration of all or any portion of the Loans to be due and payable pursuant to clause (a) of Section 8.3, or (ii) the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. "Communications Law" means the Communications Act of 1934, as amended, and all rules and regulations thereunder, or any successor statute or statutes amended, and all rules and regulation thereunder, or any successor or statutes thereto (including the Telecommunications Act of 1996) and all rules and regulation thereunder, and all rules and regulations of the FCC, any applicable PUC or any other applicable Governmental Authority related to the provision of telecommunication or broadcast services, each as amended or supplemented from time to time. "Compliance Certificate" means a certificate duly completed and executed by an Authorized Officer of the Parent, substantially in the form of Exhibit E hereto, together with such changes thereto as the Administrative Agent may from time to time request for the purpose of monitoring the Consolidated Group's compliance with the financial covenants contained herein. "Consolidated EBITDA" means, for any applicable period, the sum of (a) Net Income for such period, plus (b) to the extent deducted in determining Net Income, the sum of (i) amounts attributable to amortization, (ii) income tax expense, (iii) Interest Expense and (iv) depreciation of assets, in each case annualized for applicable periods of less than a year, for such period. "Consolidated Group" means the Parent, the Borrower and each of their respective Subsidiaries. "Contingent Liability" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the Indebtedness of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the Capital Securities of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount of the debt, obligation or other liability guaranteed thereby. "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit C hereto. "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Parent, the Borrower or any Subsidiary of the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Copyright Security Agreement" means any Copyright Security Agreement executed and delivered by any Obligor in substantially the form of Exhibit C to any Pledge and Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "Credit Extension" means, as the context may require, (a) the making of a Loan by a Lender; or (b) the issuance of any Letter of Credit, or the extension of any Stated Expiry Date of any existing Letter of Credit, by an Issuer. "Debt Service" means, for any period, any principal payments and any cash Interest Expense required to be paid by the Consolidated Group for such period. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Disbursement" is defined in Section 2.6.2. "Disbursement Date" is defined in Section 2.6.2. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I, as it may be amended, supplemented, amended and restated or otherwise modified from time to time by the Borrower with the written consent of the Required Lenders (in their sole discretion). "Disposition" (or similar words such as "Dispose") means any sale, transfer, lease, contribution or other conveyance (including by way of merger) of, or the granting of options, warrants or other rights to, any of the Borrower's or its Subsidiaries' assets (including accounts receivables and Capital Securities of Subsidiaries) to any other Person (other than to another Obligor) in a single transaction or series of transactions. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Office" means the office of a Lender designated as its "Domestic Office" on Schedule II hereto or in a Lender Assignment Agreement, or such other office within the United States as may be designated from time to time by notice from such Lender to the Administrative Agent and the Borrower. "Effective Date" means the date this Agreement becomes effective pursuant to Section 11.8. "Eligible Assignees" means each Lender, any Affiliate of a Lender, any commercial bank or other financial institution, any fund that invests in loans (and any Related Funds) and any other Person approved in writing by the Administrative Agent. "Environmental Laws" means all applicable federal, state or local statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to public health and safety and protection of the environment. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to Sections of ERISA also refer to any successor Sections thereto. "Event of Default" is defined in Section 8.1. "Excess Cash Flow" means, for any Fiscal Year, the excess (if any), of (a) Consolidated EBITDA for such Fiscal Year over (b) the sum (for such Fiscal Year) of (i) Debt Service actually paid in cash by the Consolidated Group, (ii) all income taxes actually paid in cash by the Consolidated Group and (iii) Capital Expenditures actually made by the Consolidated Group during such Fiscal Year. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exemption Certificate" is defined in clause (e) of Section 4.6. "Existing Credit Agreement" is defined in the first recital. "Existing Financing Agreements" is defined in the first recital. "Fabbricatore" means Mr. Robert Fabbricatore. "Fabbricatore Family Trusts" means trusts or other estate planning vehicles established for the benefit of the Family Members of Fabbricatore. "Fabbricatore Related Parties" means Fabbricatore, the Family Members of Fabbricatore, Fabbricatore Family Trusts and any wholly owned Subsidiary of any combination of the foregoing. "Family Member" means, with respect to any individual, any other individual having a relationship by blood (to the second degree of consanguinity), marriage or adoption to such individual. "FCC" means the Federal Communications Commission, or any other similar or successor agency of the federal government administering the Communications Act. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by TD from three federal funds brokers of recognized standing selected by it. "Fee Letter" means the confidential letter, dated January 21, 2000, from TDSI to the Borrower and the Parent, as amended, supplemented, amended and restated or otherwise modified from time to time. "Filing Agent" is defined in Section 5.1.10. "Filing Statements" is defined in Section 5.1.10. "Fiscal Quarter" means a quarter ending on the last day of March, June, September or December. "Fiscal Year" means any period of twelve consecutive calendar months ending on March 31; references to a Fiscal Year with a number corresponding to any calendar year (e.g., the "2000 Fiscal Year") refer to the Fiscal Year ending on March 31 of such calendar year. "Foreign Subsidiary" means any Subsidiary that is not a U.S. Subsidiary. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "GAAP" is defined in Section 1.4. "Governmental Authority" means the government of the United States, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee Obligations" is defined in Section 9.1. "Hazardous Material" means (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; or (c) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance (including any petroleum product) within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended. "Hedging Obligations" means, with respect to any Person, all liabilities of such Person under currency exchange agreements, interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates. "herein", "hereof", "hereto", "hereunder" and similar terms contained in any Loan Document refer to such Loan Document as a whole and not to any particular Section, paragraph or provision of such Loan Document. "ICP Business" means the full-service integrated communications provider business, providing business costumers with local exchange, long distance, internet and high speed services for both voice and data. "Impermissible Qualification" means any qualification or exception to the opinion or certification of any independent public accountant as to any financial statement of any member of the Consolidated Group which (a) is of a "going concern" or similar nature; (b) relates to the limited scope of examination of matters relevant to such financial statement; or (c) relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause such member of the Consolidated Group to be in Default. "including" and "include" means including without limiting the generality of any description preceding such term, and, for purposes of each Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "Indebtedness" of any Person means: (a) all obligations of such Person for borrowed money or advances and all obligations of such Person evidenced by bonds, debentures, notes or similar instruments; (b) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (c) all Capitalized Lease Liabilities of such Person; (d) for purposes of Section 8.1.5 only, all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) net liabilities of such Person under all Hedging Obligations; (f) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable in the ordinary course of business which are not overdue for a period of more than 60 days or, if overdue for more than 60 days, as to which a dispute exists and adequate reserves in conformity with GAAP have been established on the books of such Person), and indebtedness secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on property owned or being acquired by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (g) obligations arising under Synthetic Leases; and (h) all Contingent Liabilities of such Person in respect of any of the foregoing. The Indebtedness of any Person shall include the Indebtedness of any other Person (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such other Person, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Liabilities" is defined in Section 11.4. "Indemnified Parties" is defined in Section 11.4. "Intercompany Subordination Agreement" means the Subordination Agreement, substantially in the form of Exhibit H hereto, executed and delivered by two or more Obligors pursuant to the terms of this Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "Interconnection Agreements" means each of the interconnection agreements between the applicable incumbent local exchange carrier and a member of the Consolidated Group. "Interest Coverage Ratio" means, as of the last day of any Fiscal Quarter, the ratio of (a) Annualized Consolidated EBITDA computed for such Fiscal Quarter to (b) Interest Expense computed for the period consisting of such Fiscal Quarter and each of the three immediately preceding Fiscal Quarters. "Interest Expense" means, for any period, the aggregate interest expense (both accrued and paid) of the Consolidated Group for such period, including the portion of any payments made in respect of Capitalized Lease Liabilities allocable to interest expense (net of interest income paid during such period to the Consolidated Group). "Interest Period" means, relative to any LIBO Rate Loan, the period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Sections 2.3 or 2.4 and shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the Borrower may select in its relevant notice pursuant to Sections 2.3 or 2.4; provided, however, that (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than ten different dates; (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period for any Loan may end later than the Stated Maturity Date for such Loan. "Investment" means, relative to any Person, (a) any loan, advance or extension of credit made by or contingent obligation entered into by, such Person to or for the benefit of any other Person, including the purchase by such Person of any bonds, notes, debentures or other debt securities of any other Person; and (b) any Capital Securities held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such Investment. "ISP Rules" is defined in Section 11.9. "Issuance Request" means a Letter of Credit request and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit B-2 hereto. "Issuer" means TD in its capacity as Issuer of the Letters of Credit. At the request of TD and with the Borrower's consent (not to be unreasonably withheld), another Lender or an Affiliate of TD may issue one or more Letters of Credit hereunder. "Lender Assignment Agreement" means an assignment agreement substantially in the form of Exhibit I hereto. "Lenders" is defined in the preamble. "Lender's Environmental Liability" means any and all losses, liabilities, obligations, penalties, claims, litigation, demands, defenses, costs, judgments, suits, proceedings, damages (including consequential damages), disbursements or expenses of any kind or nature whatsoever (including reasonable attorneys' fees at trial and appellate levels and experts' fees and disbursements and expenses incurred in investigating, defending against or prosecuting any litigation, claim or proceeding) which may at any time be imposed upon, incurred by or asserted or awarded against the Arranger, the Administrative Agent, any Lender or any Issuer or any of such Person's Affiliates, shareholders, directors, officers, employees, and agents in connection with or arising from: (a) any Hazardous Material on, in, under or affecting all or any portion of any property of the Borrower or any of its Subsidiaries, the groundwater thereunder, or any surrounding areas thereof to the extent caused by Releases from the Borrower's or any of its Subsidiaries' or any of their respective predecessors' properties; (b) any misrepresentation, inaccuracy or breach of any warranty, contained or referred to in Section 6.13; (c) any violation or claim of violation by the Borrower or any of its Subsidiaries of any Environmental Laws; or (d) the imposition of any lien for damages caused by or the recovery of any costs for the cleanup, release or threatened release of Hazardous Material by the Borrower or any of its Subsidiaries, or in connection with any property owned or formerly owned by the Borrower or any of its Subsidiaries. "Letter of Credit" is defined in Section 2.1.2. "Letter of Credit Commitment" means, with respect to an Issuer, such Issuer's obligation to issue Letters of Credit pursuant to Section 2.1.2 and, with respect to each Revolving Loan Lender, the obligations of each such Lender to participate in such Letters of Credit pursuant to Section 2.6.1. "Letter of Credit Commitment Amount" means, on any date, a maximum amount of $7,000,000, as such amount may be permanently reduced from time to time pursuant to clause (a) of Section 2.2. "Letter of Credit Outstandings" means, on any date, an amount equal to the sum of (i) the then aggregate amount which is undrawn and available under all issued and outstanding Letters of Credit, and (ii) the then aggregate amount of all unpaid and outstanding Reimbursement Obligations. "LIBO Rate" means, relative to any Interest Period, either (a) the rate of interest per annum determined by the Administrative Agent (rounded upward to the nearest 1/16th of 1%) appearing on the Dow Jones Market Screen 3740 or 3750 (or, if more than one rate appears on such screen, the arithmetic mean for all such rates rounded upward to the nearest 1/16th of 1%) as the London interbank offered rate for deposits in the applicable currency at approximately 11:00 a.m., London time, on the second full Business Day preceding the first day of such Interest Period, and in an amount approximately equal to the amount of the Administrative Agent's LIBO Rate Loan and for a period approximately equal to such Interest Period or (b) if such rate is for any reason not available, the rate per annum equal to the rate at which the Administrative Agent or its designee is offered deposits in such currency at or about 11:00 a.m., London time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its LIBO Rate Loans are then being conducted for settlement in immediately available funds, for delivery on the first day of such Interest Period for the number of days comprised therein, and in an amount comparable to the amount of its LIBO Rate Loan to be outstanding during such Interest Period. "LIBO Rate Loan" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate ---------------------------------- (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by the Administrative Agent on the basis of the LIBOR Reserve Percentage in effect two Business Days before the first day of such Interest Period. "LIBOR Office" means the office of a Lender designated as its "LIBOR Office" on Schedule II hereto or in a Lender Assignment Agreement, or such other office designated from time to time by notice from such Lender to the Borrower and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining the LIBO Rate Loans of such Lender. "LIBOR Reserve Percentage" means, relative to any Interest Period for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of or including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. "Licenses" means any government license, authorization, certificate of compliance, franchise, approval or permit for the provision of competitive local exchange carrier telephony service, data transport, internet access and other related services and any other license, permit, consent, certificate of compliance, franchise, approval, waiver, or authorization granted or issued by the FCC or any other applicable Governmental Authority, including any applicable PUC Authorization and any of the foregoing authorizing or permitting the acquisition, construction or operation of any Network Facility or any other system for the provision of competitive local exchange carrier telephony service, date transfer, internet connectivity and other related services, required to be obtained by any member of the Consolidated Group in order to conduct the ICP Business of the Borrower and its Subsidiaries. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property, or other priority or preferential arrangement of any kind or nature whatsoever, to secure payment of a debt or performance of an obligation. "Loan Documents" means, collectively, this Agreement, the Notes, the Letters of Credit, each Rate Protection Agreement, the Fee Letter, each agreement pursuant to which the Administrative Agent is granted a Lien to secure the Obligations and each other agreement, certificate, document or instrument delivered in connection with any Loan Document, whether or not specifically mentioned herein or therein. "Loans" means, as the context may require, a Revolving Loan or a Term Loan of any type. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, debt service capacity, tax position, environmental liability or financial condition, operations or prospects of the Parent, the Borrower or the Borrower and its Subsidiaries taken as a whole, (b) the rights and remedies of any Secured Party under any Loan Document or (c) the ability of any Obligor to perform its Obligations under any Loan Document. "Moody's" means Moody's Investors Service, Inc. "Mortgage" means each mortgage, deed of trust or agreement executed and delivered by any Obligor in favor of the Administrative Agent for the benefit of the Secured Parties pursuant to the requirements of this Agreement in form and substance reasonably satisfactory to the Administrative Agent, under which a Lien is granted on the real property and fixtures described therein, in each case as amended, supplemented, amended and restated or otherwise modified from time to time. "Necessary Authorizations" means all grants, approvals, and licenses from, and all filings and registrations with, any Governmental Authority, including the Licenses and all grants, approvals, licenses, filings and registrations under any Communications Law, in each case necessary in order to enable the Borrower and its Subsidiaries to own, construct, maintain, and operate its ICP Business. "Net Casualty Proceeds" means, with respect to any Casualty Event, the amount of any insurance proceeds or condemnation awards (including over-funding of any ERISA plan) received by the Borrower or any of its Subsidiaries in connection with such Casualty Event, but excluding any proceeds or awards required to be paid to a creditor (other than the Lenders) which holds a first priority Lien permitted by Section 7.2.3 on the property which is the subject of such Casualty Event. "Net Debt Proceeds" means, with respect to the sale or issuance by any member of the Consolidated Group to any Person of any Indebtedness permitted to be sold or issued by the Required Lenders after the Effective Date, the excess of (a) the gross cash proceeds received by such member of the Consolidated Group from such sale or issuance, over (b) all reasonable and customary underwriting commissions and legal, investment banking, brokerage and accounting and other professional fees, sales commissions and disbursements and all other reasonable fees, expenses and charges, in each case actually incurred in connection with such sale or issuance which have not been paid to Affiliates of such member of the Consolidated Group in connection therewith. "Net Disposition Proceeds" means, with respect to a Permitted Disposition of the assets of the Borrower or any of its Subsidiaries, the excess of (a) the gross cash proceeds received by the Borrower or such Subsidiary from any Permitted Disposition, less (b) the sum of (i) all reasonable and customary fees and expenses with respect to legal, investment banking, brokerage and accounting and other professional fees, sales commissions and disbursements and all other reasonable fees, expenses and charges, in each case actually incurred in connection with such Permitted Disposition which have not been paid to Affiliates of any of the Consolidated Group, and (ii) all Taxes actually paid or estimated by the Borrower (in good faith) to be payable in cash in connection with such Permitted Disposition; provided, however, that if, after the payment of all Taxes with respect to such Permitted Disposition, the amount of estimated Taxes, if any, pursuant to clause (b)(ii) above exceeded the Taxes actually paid in cash in respect of such Permitted Disposition, the aggregate amount of such excess shall be immediately payable, pursuant to clause (f) of Section 3.1.1, as Net Disposition Proceeds. "Net Equity Proceeds" means with respect to the sale or issuance by the Parent or the Borrower of any of its Capital Securities, warrants or options or the exercise of any such warrants or options, the excess of (a) the gross cash proceeds received by such Person from such sale, issuance or exercise over (b) all reasonable and customary underwriting commissions and legal, investment banking, brokerage and accounting and other professional fees, sales commissions and disbursements actually incurred in connection with such sale or issuance which have not been paid to Affiliates of the Parent or the Borrower in connection therewith. "Net Income" means, for any period, the aggregate of all amounts (exclusive of all amounts in respect of (i) any non-cash extraordinary gains and losses and (ii) any Non-Recurring Items in an amount not to exceed $5,000,000 in the aggregate per annum) which would be included as net income on the consolidated financial statements of the Consolidated Group for such period. "Network Agreement" means any document or agreement entered into by the Borrower or any of its Subsidiaries regarding the use, operation or maintenance of, or otherwise concerning, any of the Network Facilities. "Network Facilities" means the switches and network of digital and analog facilities owned or leased by the Borrower or any of its Subsidiaries for use in its ICP Business. "Non-Excluded Taxes" means any Taxes other than net income and franchise taxes imposed with respect to any Secured Party by any Governmental Authority under the laws of which such Secured Party is organized or in which it maintains its applicable lending office. "Non-Recurring Items" means, for any period, any non-cash item which has reduced Net Income for such period but which, by its nature, will represent a one-time charge and will not reduce Net Income in any subsequent period. "Non-U.S. Lender" means any Lender that is not a "United States person", as defined under Section 7701(a)(30) of the Code. "Note" means, as the context may require, a Revolving Note, a Term A Note or a Term B Note. "Obligations" means all obligations (monetary or otherwise, whether absolute or contingent, matured or unmatured) of the Borrower and each other Obligor arising under or in connection with a Loan Document, including Reimbursement Obligations and the principal of and premium, if any, and interest (including interest accruing during the pendency of any proceeding of the type described in Section 8.1.9, whether or not allowed in such proceeding) on the Loans. "Obligor" means, as the context may require, each of the Consolidated Group and each other Person (other than a Secured Party) obligated under any Loan Document. "Organic Document" means, relative to any Obligor, as applicable, its certificate of incorporation, by-laws, certificate of partnership, partnership agreement, certificate of formation, limited liability agreement, operating agreement and all shareholder agreements, voting trusts and similar arrangements applicable to any of such Obligor's partnership interests, limited liability company interests or authorized shares of Capital Securities. "Other Taxes" means any and all stamp, documentary or similar taxes, or any other excise or property taxes or similar levies that arise on account of any payment made or required to be made under any Loan Document or from the execution, delivery, registration, recording or enforcement of any Loan Document. "Parent" is defined in the preamble. "Parent Pledge Agreement" means the Pledge Agreement executed and delivered by an Authorized Officer of the Parent, substantially in the form of Exhibit G-1 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Participant" is defined in Section 11.11.2. "Patent Security Agreement" means any Patent Security Agreement executed and delivered by any Obligor in substantially the form of Exhibit A to any Pledge and Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in Section 4001(a)(3) of ERISA), and to which any of the Consolidated Group or any corporation, trade or business that is, along with such member of the Consolidated Group, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA. "Percentage" means, as the context may require, any Lender's RL Percentage, Term A Percentage or Term B Percentage. "Permitted Acquisition" means an acquisition (whether pursuant to a merger or an acquisition of Capital Securities, assets or otherwise) by the Borrower or any Subsidiary from any Person in which the following conditions are satisfied: (a) immediately before and after giving effect to such acquisition, no Default shall have occurred and be continuing or would result therefrom; (b) in the case of an Acquisition of Capital Securities by the Borrower or such Subsidiary, such acquisition results in the issuer of such Capital Securities becoming a wholly-owned Subsidiary (except for Permitted Acquisitions the total consideration payable by the Borrower and its Subsidiaries for which does not exceed $5,000,000 in the aggregate during the term of this Agreement); (c) the aggregate consideration for all acquisitions made during the term of this Agreement shall not exceed $25,000,000; provided, however, that such amount shall be increased, Dollar for Dollar, by an amount equal to that portion of the consideration for any such acquisition which is comprised of Net Equity Proceeds not otherwise required to be applied to a mandatory prepayment of the Loans pursuant to clause (h) of Section 3.1.1; provided further, however, that the consideration limits set forth in this clause shall not apply to the extent that any portion of the consideration for any such acquisition is comprised of Capital Securities of the Parent; (d) the Borrower shall have delivered to the Administrative Agent (i) a Compliance Certificate for the period of four full Fiscal Quarters most recently ended immediately preceding such acquisition (prepared in good faith and in a manner and using such methodology which is consistent with the most recent financial statements delivered pursuant to Section 7.1.1) giving pro forma effect to the consummation of such acquisition and evidencing compliance with the covenants set forth in Section 7.2.4 (after giving effect to the proviso to clause (a) of such Section, if applicable), (ii) the most recent annual and interim financial statements for the Person being acquired (prepared in good faith and in a manner and using such methodology which is consistent with the most recent financial statements delivered pursuant to Section 7.1.1) and (iii) new detailed projections for the Consolidated Group through the Stated Maturity Date for Term B Loans giving pro forma effect to such acquisition, based on assumptions satisfactory to the Administrative Agent and demonstrating pro forma compliance with all covenants contained in this Agreement, including those contained in Section 7.2.4 (after giving effect to the proviso to clause (a) of such Section, if applicable), and (iv) the acquisition documentation relating thereto at least 10 days prior to the consummation of the acquisition, such documentation to be reasonably satisfactory in form and substance to the Administrative Agent and to be accompanied by lien searches, payoff letters and other customary requirements satisfactory to the Administrative Agent; and (e) concurrently with the consummation of such acquisition, the Borrower will have complied with the requirements of Section 7.1.8 in all respects. "Permitted Disposition" means a sale, disposition or other conveyance of assets by the Borrower or any of its Subsidiaries in accordance with the terms of clause (c) of Section 7.2.10. "Permitted Holders" means the Spectrum Related Parties and/or the Fabbricatore Related Parties. "Person" means any natural person, corporation, limited liability company, partnership, joint venture, association, trust or unincorporated organization, Governmental Authority or any other legal entity, whether acting in an individual, fiduciary or other capacity. "Pledge Agreement" means, as the context may require, the Parent Pledge Agreement, the Borrower Pledge and Security Agreement and/or the Subsidiary Pledge and Security Agreement. "Pledged Subsidiary" means each Subsidiary in respect of which the Administrative Agent has been granted a security interest in or a pledge of (i) any of the Capital Securities of such Subsidiary or (ii) any intercompany notes of such Subsidiary owing to any other member of the Consolidated Group. "Pro Forma Debt Service Coverage Ratio" means, as of the last day of any Fiscal Quarter, the ratio of (a) Annualized Consolidated EBITDA computed for such Fiscal Quarter to (b) the aggregate amount (as determined in good faith by the Parent and the Borrower) of Debt Service for the next four Fiscal Quarters immediately following the Fiscal Quarter most recently ended. "Projections" is defined in clause (a)(iii) of Section 5.1.9. "PUC" means any Governmental Authority that exercises jurisdiction over the rates or services or the ownership, construction or operation of any Network Facilities or competitive local exchange carrier telephony system or over Persons who own, construct or operate Network Facilities or any such system, in each case by reason of the nature or type of the business subject to regulation and not pursuant to laws and regulations of general applicability to Persons conducting business in any such jurisdiction. "PUC Authorizations" means all applications, filings, reports, documents, recordings and registrations with, and all validations, exemptions, franchises, waivers, approvals, orders or authorizations, consents, licenses, certificates and permits from, any PUC. "Quarterly Payment Date" means the last day of March, June, September and December, or, if any such day is not a Business Day, the next succeeding Business Day. "Rate Protection Agreement" means, collectively, any interest rate swap, cap, collar or similar agreement entered into by the Borrower or any of its Subsidiaries under which the counterparty of such agreement is (or at the time such agreement was entered into, was) a Lender or an Affiliate of a Lender. "Refinancing" is defined in the first recital. "Register" is defined in clause (b)(ii) of Section 2.7. "Reimbursement Obligation" is defined in Section 2.6.3. "Related Fund" means, with respect to any Lender which is a fund that invests in loans, any other fund that invests in loans and is controlled by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Release" means a "release", as such term is defined in CERCLA. "Required Lenders" means, at any time, Lenders holding at least 51% of the Total Exposure Amount. "Resource Conservation and Recovery Act" means the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended. "Restricted Payment" means the declaration or payment of any dividend (other than dividends payable solely in Capital Securities of any of the Consolidated Group) on, or the making of any payment or distribution on account of, or setting apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of any class of Capital Securities of any of the Consolidated Group or any warrants or options to purchase any such Capital Securities, whether now or hereafter outstanding, or the making of any other distribution in respect thereof, either directly or indirectly, whether in cash or property, obligations of any of the Consolidated Group or otherwise. "Revolving Loan" is defined in Section 2.1.1. "Revolving Loan Commitment" means, relative to any Lender, such Lender's obligation (if any) to make Revolving Loans pursuant to clause (a) of Section 2.1.1. "Revolving Loan Commitment Amount" means, on any date, $50,000,000, as such amount may be reduced from time to time pursuant to clause (a) of Section 2.2. "Revolving Loan Commitment Termination Date" means the earliest of (a) March 31, 2000 (if the initial Credit Extension has not occurred on or prior to such date); (b) September 30, 2007; (c) the date on which the Revolving Loan Commitment Amount is terminated in full or reduced to zero pursuant to the terms of this Agreement; and (d) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in the preceding clause (c) or (d), the Revolving Loan Commitments shall terminate automatically and without any further action. "Revolving Loan Lender" is defined in clause (a) of Section 2.1.1. "Revolving Note" means a promissory note of the Borrower payable to any Revolving Loan Lender, in the form of Exhibit A-1 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Revolving Loan Lender resulting from outstanding Revolving Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "RL Percentage" means, relative to any Lender, the applicable percentage relating to Revolving Loans set forth opposite its name on Schedule II hereto under the Revolving Loan Commitment column or set forth in a Lender Assignment Agreement under the Revolving Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to Section 11.11.1. A Lender shall not have any Revolving Loan Commitment if its percentage under the Revolving Loan Commitment column is zero. "S&P" means Standard & Poor's Rating Services, a division of McGraw-Hill, Inc. "SEC" means the Securities and Exchange Commission. "Secured Parties" means, collectively, the Lenders, the Issuers, the Administrative Agent, each counterparty to a Rate Protection Agreement that is (or at the time such Rate Protection Agreement was entered into, was) a Lender or an Affiliate thereof and (in each case), each of their respective successors, transferees and assigns. "Spectrum Related Parties" means Spectrum Equity Investors II L.P. and its Subsidiaries. "Stated Amount" means, on any date and with respect to a particular Letter of Credit, the total amount then available to be drawn under such Letter of Credit. "Stated Expiry Date" is defined in Section 2.6. "Stated Maturity Date" means (a) with respect to all Term A Loans, September 30, 2007; (b) with respect to all Term B Loans, March 31, 2008; and (c) with respect to all Revolving Loans, September 30, 2007. "Subordinated Debt Documents" means, collectively, the loan agreements, indentures, note purchase agreements, promissory notes, guarantees, and other instruments and agreements evidencing the terms of Subordinated Debt, as amended, supplemented, amended and restated or otherwise modified in accordance with Section 7.2.12. "Subordinated Debt" means unsecured Indebtedness of the Parent subordinated in right of payment to the Obligations pursuant to documentation containing redemption and other prepayment events, maturities, amortization schedules, covenants, events of default, remedies, acceleration rights, subordination provisions and other material terms satisfactory to the Required Lenders. "Subordination Provisions" is defined in Section 8.1.11. "Subsidiary" means, with respect to any Person, any other Person of which more than 50% of the outstanding Voting Securities of such other Person (irrespective of whether at the time Capital Securities of any other class or classes of such other Person shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person. Unless the context otherwise specifically requires, the term "Subsidiary" shall be a reference to a Subsidiary of the Borrower. "Subsidiary Guarantor" means each Subsidiary of the Borrower that has executed and delivered to the Administrative Agent a Subsidiary Guaranty. "Subsidiary Guaranty" means the subsidiary guaranty executed and delivered by an Authorized Officer of each U.S. Subsidiary of the Borrower, substantially in the form of Exhibit F hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Subsidiary Pledge and Security Agreement" means the Pledge and Security Agreement executed and delivered by an Authorized Officer of each Subsidiary of the Borrower, substantially in the form of Exhibit G-3 hereto, as amended, supplemented, amended and restated or otherwise modified from time to time. "Synthetic Lease" means, as applied to any Person, any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) (a) that is not a capital lease in accordance with GAAP and (b) in respect of which the lessee retains or obtains ownership of the property so leased for federal income tax purposes, other than any such lease under which that Person is the lessor. "Taxes" means any and all income, stamp or other taxes, duties, levies, imposts, charges, assessments, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, and all interest, penalties or similar liabilities with respect thereto. "TD" is defined in the preamble. "TDSI" is defined in the preamble. "Term A Loan" is defined in clause (a) of Section 2.1.3. "Term A Loan Commitment" means, relative to any Lender, such Lender's obligation (if any) to make Term A Loans pursuant to clause (a) of Section 2.1.3. "Term A Loan Commitment Amount" means, on any date, $100,000,000, as such amount may be reduced from time to time pursuant to clause (b) of Section 2.2. "Term A Loan Commitment Termination Date" means the earliest of (a) March 31, 2000 (if the initial Credit Extension has not occurred on or prior to such date); (b) June 30, 2001; (c) the date on which the Term A Loan Commitment Amount is terminated in full or reduced to zero pursuant to the terms of this Agreement; and (d) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (c) or (d), the Term A Loan Commitments shall terminate automatically and without any further action. "Term A Note" means a promissory note of the Borrower payable to any Lender, in the form of Exhibit A-2 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Term A Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Term A Percentage" means, relative to any Lender, the applicable percentage relating to Term A Loans set forth opposite its name on Schedule II hereto under the Term A Loan Commitment column or set forth in a Lender Assignment Agreement under the Term A Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to Section 11.11.1. A Lender shall not have any Term A Loan Commitment if its percentage under the Term A Loan Commitment column is zero. "Term B Loan" is defined in clause (b) of Section 2.1.3. "Term B Loan Commitment" means, relative to any Lender, such Lender's obligation (if any) to make Term B Loans pursuant to clause (b) of Section 2.1.3. "Term B Loan Commitment Amount" means, on any date, $75,000,000. "Term B Loan Commitment Termination Date" means the earliest of (a) March 31, 2000 (if the Term B Loans have not been made on or prior to such date); (b) the Closing Date (immediately after the making of the Term B Loans on such date); and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (b) or (c), the Term B Loan Commitments shall terminate automatically and without any further action. "Term B Note" means a promissory note of the Borrower payable to any Lender, in the form of Exhibit A-3 hereto (as such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Term B Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Term B Percentage" means, relative to any Lender, the applicable percentage relating to Term B Loans set forth opposite its name on Schedule II hereto under the Term B Loan Commitment column or set forth in a Lender Assignment Agreement under the Term B Loan Commitment column, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreements executed by such Lender and its Assignee Lender and delivered pursuant to Section 11.11.1. A Lender shall not have any Term B Loan Commitment if its percentage under the Term B Loan Commitment column is zero. "Term Loans" means, collectively, the Term A Loans and the Term B Loans. "Termination Date" means the date on which all Obligations have been paid in full in cash, all Letters of Credit have been terminated or expired (or been Cash Collateralized), all Rate Protection Agreements have been terminated and all Commitments shall have terminated. "Total Debt" means, on any date, the outstanding principal amount of all Indebtedness of the Consolidated Group of the type referred to in clause (a) (which, in the case of the Loans, shall be deemed to equal the average daily amount of Loans outstanding for the Fiscal Quarter ending on or immediately preceding the date of determination), clause (b) (which, in the case of Letter of Credit Outstandings shall be deemed to equal the average daily amount of Letter of Credit Outstandings for the Fiscal Quarter ending on or immediately preceding the date of determination), clause (c) and clause (g), in each case of the definition of "Indebtedness" (exclusive of intercompany Indebtedness between the Consolidated Group) and any Contingent Liability in respect of any of the foregoing. "Total Debt to ALE Ratio" means, at any time, the ratio of (a) Total Debt outstanding at such time to (b) the aggregate number of ALEs installed and billed at such time. "Total Exposure Amount" means, on any date of determination (and without duplication), the outstanding principal amount of all Loans, the aggregate amount of all Letter of Credit Outstandings and the unfunded amount of the Commitments. "Total Leverage Ratio" means, as of the last day of any Fiscal Quarter, the ratio of (a) Total Debt outstanding on the last day of such Fiscal Quarter to (b) Annualized Consolidated EBITDA computed for such Fiscal Quarter. "Trademark Security Agreement" means any Trademark Security Agreement executed and delivered by any Obligor substantially in the form of Exhibit B to any Pledge and Security Agreement, as amended, supplemented, amended and restated or otherwise modified from time to time. "Tranche" means, as the context may require, the Term A Loans, Term B Loans or the Revolving Loans. "type" means, relative to any Loan, the portion thereof, if any, being maintained as a Base Rate Loan or a LIBO Rate Loan. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York; provided, that if, with respect to any Filing Statement or by reason of any provisions of law, the perfection or the effect of perfection or non-perfection of the security interests granted to the Administrative Agent pursuant to the applicable Loan Document is governed by the Uniform Commercial Code as in effect in a jurisdiction of the United States other than New York, then "UCC" means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions of each Loan Document and any Filing Statement relating to such perfection or effect of perfection or non-perfection. "United States" or "U.S." means the United States of America, its fifty states and the District of Columbia. "U.S. Subsidiary" means any Subsidiary that is incorporated or organized under the laws of the United States or a state thereof. "Voting Securities" means, with respect to any Person, Capital Securities of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Welfare Plan" means a "welfare plan", as such term is defined in Section 3(1) of ERISA. "wholly-owned Subsidiary" means any Subsidiary all of the outstanding Capital Securities of which (other than any director's qualifying shares or investments by foreign nationals mandated by applicable laws) is owned directly or indirectly by the Borrower. SECTION I.2. Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in each other Loan Document, the disclosure Schedule, and each notice or communication delivered from time to time in connection with any Loan Document. SECTION I.3. Cross-References. Unless otherwise specified, references in a Loan Document to any Article or Section are references to such Article or Section of such Loan Document, and references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION I.4. Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used in each Loan Document shall be interpreted, and all accounting determinations and computations thereunder (including under Section 7.2.4 and the definitions used in such calculations) shall be made, in accordance with those generally accepted accounting principles ("GAAP") applied in the preparation of the financial statements referred to in Section 5.1.9; provided, that if, after the Effective Date, there occurs any change in GAAP that affects in any respect the calculation of any covenant contained in Section 7.2.4, the Lenders and the Borrower shall negotiate in good faith amendments to the provisions of this Agreement that relate to the calculation of such covenant with the intent of having the respective positions of the Lenders and the Borrower after such change in GAAP conform as nearly as possible to their respective positions as of the Effective Date and, until any such amendments have been agreed upon, the covenants in Section 7.2.4 shall be calculated as if no such change in GAAP has occurred. Unless otherwise expressly provided, all financial covenants and defined financial terms shall be computed on a consolidated basis for the Borrower and its Subsidiaries, in each case without duplication. ARTICLE II COMMITMENTS, BORROWING AND ISSUANCE PROCEDURES, NOTES AND LETTERS OF CREDIT SECTION II.1. Commitments. On the terms and subject to the conditions of this Agreement, the Lenders and the Issuers severally agree to make Credit Extensions as set forth below. SECTION II.1.1. Revolving Loan Commitment. From time to time on any Business Day occurring from and after the Effective Date, but prior to the Revolving Loan Commitment Termination Date, each Lender that has a Revolving Loan Commitment (referred to as a "Revolving Loan Lender"), agrees that it will make loans (relative to such Revolving Loan Lender, its "Revolving Loans") to the Borrower in an amount equal to such Revolving Loan Lender's RL Percentage of the aggregate amount of each Borrowing of the Revolving Loans requested by the Borrower to be made on such day. On the terms and subject to the conditions hereof, the Borrower may from time to time borrow, prepay and reborrow Revolving Loans. No Revolving Loan Lender shall be permitted or required to make any Revolving Loan if, after giving effect thereto, the aggregate outstanding principal amount of all Revolving Loans of such Revolving Loan Lender, together with such Revolving Loan Lender's RL Percentage of the Letter of Credit Outstandings, would exceed such Revolving Loan Lender's RL Percentage of the then existing Revolving Loan Commitment Amount. SECTION II.1.2. Letter of Credit Commitment. From time to time on any Business Day occurring from and after the Effective Date, but prior to the Revolving Loan Commitment Termination Date, the relevant Issuer agrees that it will (a) issue one or more standby letters of credit (relative to such Issuer, its "Letter of Credit") for the account of the Borrower in the Stated Amount requested by the Borrower on such day; or (b) extend the Stated Expiry Date of an existing standby Letter of Credit previously issued hereunder. No Stated Expiry Date shall extend beyond the earlier of (i) the Revolving Loan Commitment Termination Date and (ii) unless otherwise agreed to by the Issuer in its sole discretion, one year from the date of such extension. No Issuer shall be permitted or required to issue any Letter of Credit if, after giving effect thereto, (i) the aggregate amount of all Letter of Credit Outstandings would exceed the Letter of Credit Commitment Amount or (ii) the sum of the aggregate amount of all Letter of Credit Outstandings plus the aggregate principal amount of all Revolving Loans then outstanding would exceed the Revolving Loan Commitment Amount. SECTION II.1.3. Term Loan Commitments. (a) From time to time on any Business Day occurring from and after the Effective Date, but prior to the Term A Loan Commitment Termination Date, each Lender that has a Term A Loan Commitment agrees that it will make loans (relative to such Lender, its "Term A Loans") to the Borrower in an amount equal to such Lender's Term A Percentage of the aggregate amount of the Borrowing of Term A Loans requested by the Borrower to be made on such day; and (b) In a single Borrowing on a Business Day occurring on or prior to the Term B Loan Commitment Termination Date, each Lender that has a Term B Loan Commitment agrees that it will make loans (relative to such Lender, its "Term B Loans") to the Borrower in an amount equal to such Lender's Term B Percentage of the aggregate amount of the Borrowing of Term B Loans requested by the Borrower to be made on such day. No amounts paid or prepaid with respect to Term Loans may be reborrowed. SECTION II.2. Reduction of the Commitment Amounts. The Commitment Amounts are subject to reduction from time to time as set forth below. SECTION II.2.1. Optional. The Borrower may, from time to time on any Business Day occurring after the Effective Date, voluntarily reduce the amount of the Term A Loan Commitment Amount, Revolving Loan Commitment Amount or the Letter of Credit Commitment Amount on the Business Day so specified by the Borrower; provided, however, that all such reductions shall require at least one Business Day's prior notice to the Administrative Agent and be permanent, and any partial reduction of any Commitment Amount shall be in a minimum amount of $1,000,000 and in an integral multiple of $500,000. Any optional or mandatory reduction of the Revolving Loan Commitment Amount pursuant to the terms of this Agreement which reduces the Revolving Loan Commitment Amount below the Letter of Credit Commitment Amount shall result in an automatic and corresponding reduction of the Letter of Credit Commitment Amount to an aggregate amount not in excess of the Revolving Loan Commitment Amount, as so reduced, without any further action on the part of any Issuer. SECTION II.2.2. Mandatory. (a) The Revolving Loan Commitment Amount shall be reduced as set forth below. (i) Following the prepayment in full of the Term Loans, the Revolving Loan Commitment Amount shall, without any further action, automatically and permanently be reduced on the date the Term Loans would otherwise have been required to be prepaid with any Net Casualty Proceeds, Net Debt Proceeds, Net Disposition Proceeds or Net Equity Proceeds, in any case in an amount equal to the amount by which the Term Loans would otherwise be required to be prepaid if Term Loans had been outstanding. (ii) On the Stated Maturity Date and on each Quarterly Payment Date occurring during any period set forth below, the then Revolving Loan Commitment Amount shall, without any further action, automatically and permanently be reduced by an amount equal to the amount set forth below opposite the Stated Maturity Date or such Quarterly Payment Date, as applicable (unless on or prior to any such date the then Revolving Loan Commitment Amount shall have been reduced to a lesser amount, in which case the Revolving Loan Commitment Amount shall be equal to such lesser amount): Period Amount of Mandatory Commitment Reduction 04/01/03 through (and including) 03/31/04 $1,250,000 04/01/04 through (and including) 03/31/05 $2,500,000 04/01/05 through (and including) 03/31/06 $3,125,000 04/01/07 through (and including) 03/31/07 $3,750,000 04/01/07 through (and including) the Stated Maturity Date for Revolving Loans $1,875,000 provided, however, that, notwithstanding the foregoing, on the Revolving Loan Commitment Termination Date, the Revolving Loan Commitment Amount shall be zero. (b) On each date set forth below, the then Term A Loan Commitment Amount shall, without any further action, automatically and permanently be reduced by the amount set forth opposite such date (unless on or prior to any such date the then Term A Loan Commitment Amount shall have been reduced to a lesser amount, in which case the Term A Loan Commitment Amount shall be equal to such lesser amount): Date of Mandatory Amount of Mandatory Commitment Reduction Commitment Reduction June 30, 2000 $25,000,000 December 31, 2000 $25,000,000 March 31, 2001 $25,000,000 June 30, 2001 $25,000,000 provided, however, that, notwithstanding the foregoing, on the Term A Loan Commitment Termination Date, the Term A Loan Commitment Amount shall be zero; provided further, however, that if the Borrower shall have previously delivered a Borrowing Request in accordance with Section 2.3.1 in respect of Borrowings of Term A Loans to be made on any date set forth above, the mandatory reduction of the Term A Loan Commitment Amount shall not take effect until immediately after the making of such Term A Loans, and then the Term A Loan Commitment Amount shall be reduced to an amount equal to the lesser of (A) the amount set forth above and (B) the amount equal to (x) the then applicable Term A Loan Commitment Amount (immediately prior to any Borrowing or commitment reduction) less (y) the aggregate principal amount of the Borrowing. SECTION II.3. Borrowing Procedure. By delivering a Borrowing Request to the Administrative Agent on or before 12:00 noon on a Business Day, the Borrower may from time to time irrevocably request, on not less than one Business Day's notice in the case of Base Rate Loans or three Business Days' notice in the case of LIBO Rate Loans, and in either case not more than five Business Days' notice, that a Borrowing be made in a minimum amount of $1,000,000 and an integral multiple of $500,000 in the unused amount of the applicable Commitment; provided, however, that all of the initial Loans made on the Closing Date shall be made as Base Rate Loans. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. On or before 1:00 p.m. on such Business Day of the requested Borrowing, each Lender that has a Commitment to make the Loans being requested shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Borrowing Request. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. SECTION II.4. Continuation and Conversion Elections. By delivering a Continuation/Conversion Notice to the Administrative Agent on or before 10:00 a.m. on a Business Day, the Borrower may from time to time irrevocably elect, on not less than one Business Day's notice in the case of Base Rate Loans or three Business Days' notice in the case of LIBO Rate Loans, and in either case not more than five Business Days' notice, that all, or any portion in an aggregate minimum amount of $1,000,000 and an integral multiple of $500,000, of the Loans identified in the Continuation/Conversion Notice be, in the case of Base Rate Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans, converted into Base Rate Loans or continued as LIBO Rate Loans (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days (but not more than five Business Days) before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, however, that (x) each such conversion or continuation shall be pro rated among the applicable outstanding Loans of all Lenders that have made such Loans, and (y) unless the Administrative Agent otherwise agrees in writing in its sole discretion, no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. SECTION II.5. Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Sections 4.1, 4.2, 4.3 or 4.4, it shall be conclusively assumed that each Lender elected to fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. SECTION II.6. Issuance Procedures. By delivering to the Administrative Agent an Issuance Request on or before 12:00 noon on a Business Day, the Borrower may from time to time irrevocably request on not less than three nor more than ten Business Days' notice, in the case of an initial issuance of a Letter of Credit and not less than three Business Days' prior notice, in the case of a request for the extension of the Stated Expiry Date of a standby Letter of Credit (in each case, unless a shorter notice period is agreed to by the Issuer, in its sole discretion), that an Issuer issue, or extend the Stated Expiry Date of, a Letter of Credit in such form as may be requested by the Borrower and approved by such Issuer, solely for the purposes described in Section 7.1.7. Each Letter of Credit shall by its terms be stated to expire on a date (its "Stated Expiry Date") no later than the earlier to occur of (i) the Revolving Loan Commitment Termination Date or (ii) (unless otherwise agreed to by an Issuer, in its sole discretion), one year from the date of its issuance. Each Issuer will make available to the beneficiary thereof the original of the Letter of Credit which it issues. SECTION II.6.1. Other Lenders' Participation. Upon the issuance of each Letter of Credit, and without further action, each Revolving Loan Lender (other than the Issuer of such Letter of Credit) shall be deemed to have irrevocably purchased, to the extent of its Percentage to make Revolving Loans, a participation interest in such Letter of Credit (including the Contingent Liability and any Reimbursement Obligation with respect thereto), and such Revolving Loan Lender shall, to the extent of its Percentage to make Revolving Loans, be responsible for reimbursing, within one Business Day, the Issuer for Reimbursement Obligations which have not been reimbursed by the Borrower in accordance with Section 2.6.3 or which have been so reimbursed but are required to be disgorged or returned by such Issuer or the Administrative Agent. In addition, such Revolving Loan Lender shall, to the extent of its Percentage to make Revolving Loans, be entitled to receive a ratable portion of the Letter of Credit fees payable pursuant to Section 3.3.4 with respect to each Letter of Credit (other than the issuance fees payable to an Issuer of such Letter of Credit pursuant to the last sentence of Section 3.3.4) and of interest payable pursuant to Section 3.2 with respect to any Reimbursement Obligation. To the extent that any Revolving Loan Lender has reimbursed any Issuer for a Disbursement, such Lender shall be entitled to receive its ratable portion of any amounts subsequently received (from the Borrower or otherwise) in respect of such Disbursement. SECTION II.6.2. Disbursements. An Issuer will notify the Borrower and the Administrative Agent promptly of the presentment for payment of any Letter of Credit issued by such Issuer, together with notice of the date (the "Disbursement Date") such payment shall be made (each such payment, a "Disbursement"). Subject to the terms and provisions of such Letter of Credit and this Agreement, the applicable Issuer shall make such payment to the beneficiary (or its designee) of such Letter of Credit. Prior to 1:00 p.m. on the first Business Day following the Disbursement Date, the Borrower will reimburse the Administrative Agent, for the account of the applicable Issuer, for all amounts which such Issuer has disbursed under such Letter of Credit, together with interest thereon at a rate per annum equal to the rate per annum then in effect for Base Rate Loans (with the then Applicable Margin for Revolving Loans accruing on such amount) pursuant to Section 3.2 for the period from the Disbursement Date through the date of such reimbursement. Without limiting in any way the foregoing and notwithstanding anything to the contrary contained herein or in any separate application for any Letter of Credit, the Borrower hereby acknowledges and agrees that it shall be obligated to reimburse the applicable Issuer upon each Disbursement of a Letter of Credit, and it shall be deemed to be the obligor for purposes of each such Letter of Credit issued hereunder (whether the account party on such Letter of Credit is the Borrower or a Subsidiary Guarantor). SECTION II.6.3. Reimbursement. The obligation (a "Reimbursement Obligation") of the Borrower under Section 2.6.2 to reimburse an Issuer with respect to each Disbursement (including interest thereon), and, upon the failure of the Borrower to reimburse an Issuer, each Revolving Loan Lender's obligation under Section 2.6.1 to reimburse an Issuer, shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower or such Revolving Loan Lender, as the case may be, may have or have had against such Issuer or any Lender, including any defense based upon the failure of any Disbursement to conform to the terms of the applicable Letter of Credit (if, in such Issuer's good faith opinion, such Disbursement is determined to be appropriate) or any non-application or misapplication by the beneficiary of the proceeds of such Letter of Credit; provided, however, that after paying in full its Reimbursement Obligation hereunder, nothing herein shall adversely affect the right of the Borrower or such Lender, as the case may be, to commence any proceeding against an Issuer for any wrongful Disbursement made by such Issuer under a Letter of Credit as a result of acts or omissions constituting gross negligence or wilful misconduct on the part of such Issuer. SECTION II.6.4. Deemed Disbursements. Upon the occurrence and during the continuation of any Default under Section 8.1.9 or upon notification by the Administrative Agent (acting at the direction of the Required Lenders) to the Borrower of its obligations under this Section, following the occurrence and during the continuation of any other Event of Default, (a the aggregate Stated Amount of all Letters of Credit shall, without demand upon or notice to the Borrower or any other Person, be deemed to have been paid or disbursed by the Issuers of such Letters of Credit (notwithstanding that such amount may not in fact have been paid or disbursed); and (b the Borrower shall be immediately obligated to reimburse the Issuers for the amount deemed to have been so paid or disbursed by such Issuers. Amounts payable by the Borrower pursuant to this Section shall be deposited in immediately available funds with the Administrative Agent and held as collateral security for the Reimbursement Obligations. When all Defaults giving rise to the deemed disbursements under this Section have been cured or waived the Administrative Agent shall return to the Borrower all amounts then on deposit with the Administrative Agent pursuant to this Section which have not been applied to the satisfaction of the Reimbursement Obligations. SECTION II.6.5. Nature of Reimbursement Obligations. The Borrower, each other Obligor and, to the extent set forth in Section 2.6.1, each Revolving Loan Lender shall assume all risks of the acts, omissions or misuse of any Letter of Credit by the beneficiary thereof. No Issuer (except to the extent of its own gross negligence or wilful misconduct) shall be responsible for: (a the form, validity, sufficiency, accuracy, genuineness or legal effect of any Letter of Credit or any document submitted by any party in connection with the application for and issuance of a Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (b the form, validity, sufficiency, accuracy, genuineness or legal effect of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or the proceeds thereof in whole or in part, which may prove to be invalid or ineffective for any reason; (c failure of the beneficiary to comply fully with conditions required in order to demand payment under a Letter of Credit; (d errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise; or (e any loss or delay in the transmission or otherwise of any document or draft required in order to make a Disbursement under a Letter of Credit. None of the foregoing shall affect, impair or prevent the vesting of any of the rights or powers granted to any Issuer or any Revolving Loan Lender hereunder. In furtherance and not in limitation or derogation of any of the foregoing, any action taken or omitted to be taken by an Issuer in good faith (and not constituting gross negligence or willful misconduct) shall be binding upon each Obligor and each such Secured Party, and shall not put such Issuer under any resulting liability to any Obligor or any Secured Party, as the case may be. SECTION II.7. Register; Notes. (a) Each Lender may maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. In the case of a Lender that does not request, pursuant to clause (b)(ii) below, execution and delivery of a Note evidencing the Loans made by such Lender to the Borrower, such account or accounts shall, to the extent not inconsistent with the notations made by the Administrative Agent in the Register, be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to maintain such account or accounts shall not limit or otherwise affect any Obligations of the Parent, the Borrower or any other Obligor. (b (i The Borrower agrees that, upon the written request to the Administrative Agent by any Lender, the Borrower will execute and deliver to such Lender a Note evidencing the Loans made by, and payable to the order of, such Lender in a maximum principal amount equal to such Lender's Percentage of the original applicable Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Note (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall, to the extent not inconsistent with notations made by the Administrative Agent in the Register, be conclusive and binding on each Obligor absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of any Obligor. (ii The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for the purpose of this clause, to maintain a register (the "Register") on which the Administrative Agent will record each Lender's Commitment, the Loans made by each Lender and each repayment in respect of the principal amount of the Loans, annexed to which the Administrative Agent shall retain a copy of each Lender Assignment Agreement delivered to the Administrative Agent pursuant to Section 11.11.1. Failure to make any recordation, or any error in such recordation, shall not affect any Obligor's Obligations. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person in whose name a Loan is registered (or, if applicable, to which a Note has been issued) as the owner thereof for the purposes of all Loan Documents, notwithstanding notice or any provision herein to the contrary. Any assignment or transfer of a Commitment or the Loans made pursuant hereto shall be registered in the Register only upon delivery to the Administrative Agent of a Lender Assignment Agreement that has been executed by the requisite parties pursuant to Section 11.11.1. No assignment or transfer of a Lender's Commitment or Loans shall be effective unless such assignment or transfer shall have been recorded in the Register by the Administrative Agent as provided in this Section. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION III.1. Repayments and Prepayments; Application. The Borrower agrees that the Loans shall be repaid and prepaid pursuant to the following terms. SECTION III.1.1. Repayments and Prepayments. The Borrower shall repay in full the unpaid principal amount of each Loan on the applicable Stated Maturity Date therefor. Prior thereto, payments and prepayments of Loans shall or may be made as set forth below. (a From time to time on any Business Day, the Borrower may make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Loans; provided, however, that (A) any such prepayment of the Term Loans shall be made pro rata among Term A Loans and Term B Loans, and pro rata among Term A Loans and Term B Loans of the same type and, if applicable, having the same Interest Period of all Lenders that have made such Term A Loans or Term B Loans (to be applied as set forth in clause (a) of Section 3.1.2) and any such prepayment of Revolving Loans shall be made pro rata among the Revolving Loans of the same type and, if applicable, having the same Interest Period of all Lenders that have made such Revolving Loans; (B) all such voluntary prepayments shall require at least one Business Day's prior written notice in the case of Base Rate Loans or three Business Days' prior written in the case of LIBO Rate Loans, and in either case not more than five Business Days' prior written notice to the Administrative Agent; and (C) all such voluntary partial prepayments shall be in an aggregate minimum amount of $1,000,000 or multiples of $500,000 in excess thereof. (b On each date when the sum of (i) the aggregate outstanding principal amount of all Revolving Loans and (ii) the aggregate amount of all Letter of Credit Outstandings exceeds the Revolving Loan Commitment Amount (as it may be reduced from time to time pursuant to this Agreement), the Borrower shall make a mandatory prepayment of Revolving Loans and, if necessary, Cash Collateralize all Letter of Credit Outstandings, in an aggregate amount equal to such excess. (c On the Stated Maturity Date and on each Quarterly Payment Date occurring during any period set forth below, the Borrower shall make a scheduled repayment of the aggregate outstanding principal amount, if any, of all Term A Loans in an amount equal to the product of (i) the percentage set forth below opposite the Stated Maturity Date or such Quarterly Payment Date, as applicable and (ii) the aggregate principal amount of Term A Loans outstanding on the Term A Loan Commitment Termination Date: * Period Percentage 04/01/03 through (and including) 03/31/04 10% 04/01/04 through (and including) 03/31/05 20% 04/01/05 through (and including) 03/31/06 25% 04/01/07 through (and including) 03/31/07 30% 04/01/07 through (and including) the Stated 15% or the then outstanding Maturity Date for Term A Loans principal amount of all Term A Loans, if resulting product is different. (d On the Stated Maturity Date and on each Quarterly Payment Date occurring during any period set forth below, the Borrower shall make a scheduled repayment of the aggregate outstanding principal amount, if any, of all Term B Loans in an amount equal to the amount set forth below opposite the Stated Maturity Date or such Quarterly Payment Date, as applicable: Period Amount of Required Principal Repayment 04/01/03 through (and including) 03/31/04 $187,500 04/01/04 through (and including) 03/31/05 $187,500 04/01/05 through (and including) 03/31/06 $187,500 04/01/07 through (and including) 03/31/07 $187,500 04/01/07 through (and including) the Stated $18,000,000 or the then Maturity Date for Term B Loans* outstanding principal amount of all Term B Loans, if different. (e The Borrower shall, following the receipt by the Borrower or any Subsidiary of any Net Casualty Proceeds from any Casualty Event or series of Casualty Events, the aggregate amount of which is in excess of $500,000, deliver to the Administrative Agent a calculation of the amount of such Net Casualty Proceeds and make a mandatory prepayment of the Loans in an amount equal to 100% of such Net Casualty Proceeds within three Business Days of the receipt thereof to be applied as set forth in Section 3.1.2; provided, however, that no mandatory prepayment from Net Casualty Proceeds shall be required under this clause if the Borrower informs the Administrative Agent in writing no later than 30 days following the occurrence of the Casualty Event resulting in such Net Casualty Proceeds of its or its Subsidiary's good faith intention to apply such Net Casualty Proceeds to the rebuilding or replacement of the damaged, destroyed or condemned assets or property and the Borrower or such Subsidiary in fact uses such Net Casualty Proceeds to rebuild or replace such assets or property within 120 days following the receipt of such Net Casualty Proceeds, with the amount of such Net Casualty Proceeds unused after such 120-day period being applied to the Loans pursuant to Section 3.1.2; provided further, however, that at any time when any Default or Event of Default shall have occurred and be continuing, all Net Casualty Proceeds shall be deposited in an account maintained with the Administrative Agent for, at the Administrative Agent's discretion, (i) application to the Loans pursuant to Section 3.1.2 or (ii) distribution to the Borrower or such Subsidiary for such rebuilding or replacement whenever no Default or Event of Default is then continuing. (f The Borrower shall, following the receipt by the Borrower or any Subsidiary of any Net Disposition Proceeds from any Disposition or series of Dispositions, the aggregate amount of which is in excess of $500,000, deliver to the Administrative Agent a calculation of the amount of such Net Disposition Proceeds and make a mandatory prepayment of the Loans in an amount equal to 100% of such Net Disposition Proceeds within three Business Days of the receipt thereof to be applied as set forth in Section 3.1.2; provided, however, that no mandatory prepayment from Net Disposition Proceeds shall be required under this clause if the Borrower informs the Administrative Agent in writing no later than one Business Day following the receipt of such Net Disposition Proceeds of its or such Subsidiary's good faith intention to apply such Net Disposition Proceeds to the purchase of related assets, and the Borrower or such Subsidiary in fact uses such Net Disposition Proceeds to purchase such assets or property within 120 days following the receipt of such Net Disposition Proceeds, with the amount of such Net Disposition Proceeds unused after such 120-day period being applied to the Loans pursuant to Section 3.1.2. (g The Borrower shall, no later than the July 31 following the close of each Fiscal Year (beginning with the close of the 2002 Fiscal Year), deliver to the Administrative Agent a calculation of the Excess Cash Flow (if any) for the Fiscal Year last ended and make a mandatory prepayment of the Loans in an amount equal to 75% of the Excess Cash Flow (if any) for such Fiscal Year, to be applied as set forth in Section 3.1.2; provided, however, that the amount of such prepayment shall be reduced to an amount equal to 50% of the Excess Cash Flow (if any) for such Fiscal Year if the Total Leverage Ratio on the last day of such Fiscal Year is less than 4.00:1. (h Within three Business Days of the receipt by any applicable member of the Consolidated Group of any Net Debt Proceeds or Net Equity Proceeds, the Borrower shall deliver to the Administrative Agent a calculation of the amount of such Net Debt Proceeds or Net Equity Proceeds, as the case may be, and make a mandatory prepayment of the Loans in an amount equal to 100% of such Net Debt Proceeds or 50% of such Net Equity Proceeds, as the case may be, to be applied as set forth in Section 3.1.2; provided, however, that no mandatory prepayment of up to (i) $200,000,000 in the aggregate of Net Equity Proceeds and (ii) $150,000,000 in the aggregate of Net Debt Proceeds in respect of Subordinated Debt received by the Consolidated Group, in each case on or prior to June 30, 2000, shall be required under this clause. (i Immediately upon any acceleration of the Stated Maturity Date of any Loans pursuant to Section 8.2 or clause (a) of Section 8.3, the Borrower shall repay all the Loans unless, pursuant to clause (a) of Section 8.3, only a portion of all the Loans is so accelerated (in which case the portion so accelerated shall be so repaid). Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.4; provided, however, that with respect to Term B Loans only, the Borrower shall pay to the Lenders holding Term B Loans a prepayment fee equal to 2% of the principal amount of such Term B Loans prepaid on or prior to the date which is the first anniversary of the Closing Date. SECTION III.1.2. Application. Amounts prepaid pursuant to Section 3.1.1 shall be applied as set forth in this Section. (a Subject to clause (b), each prepayment or repayment of the principal of the Loans shall be applied, to the extent of such prepayment or repayment, first, to the principal amount thereof being maintained as Base Rate Loans, and second, subject to the terms of Section 4.4, to the principal amount thereof being maintained as LIBO Rate Loans. (b Each prepayment of Loans made pursuant to clause (a) and clauses (e) through (h) of Section 3.1.1 shall be applied (i) first, pro rata to a mandatory prepayment of the outstanding principal amount of all Term A Loans and Term B Loans (with the amount of such prepayment of the Term A Loans and the Term B Loans being applied to the remaining scheduled amortization payments of the Term A Loans or Term B Loans, as the case may be, pro rata in accordance with the amount of each such remaining Term A Loan or Term B Loan amortization payments), and (ii) second, once all Term Loans have been repaid in full, to the repayment of any outstanding Revolving Loans and a reduction of the Revolving Loan Commitment Amount in accordance with Section 2.2.2; provided, however, that in the case of any prepayment of Term B Loans made pursuant to clause (a) and clauses (e) through (h) of Section 3.1.1, any Lender that has Term B Loans may, so long as there are Term A Loans outstanding, elect not to have such Term B Loans prepaid with the amounts set forth above by delivering a notice of such election to the Administrative Agent at least one Business Day prior to the date that such prepayment is to be made, in which case the amounts that would have been applied to a prepayment of such Lender's Term B Loans shall instead be applied in the manner set forth above to a prepayment of the principal amount of all outstanding Term A Loans until all outstanding Term A Loans have been prepaid in full and thereafter as set forth above. SECTION III.2. Interest Provisions. Interest on the outstanding principal amount of Loans shall accrue and be payable in accordance with the terms set forth below. SECTION III.2.1. Rates. Pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Loans comprising a Borrowing accrue interest at a rate per annum: (a on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Applicable Margin; and (b on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. SECTION III.2.2. Post-Default Rates. Immediately upon the receipt by the Borrower of a written notice from the Administrative Agent of the occurrence of an Event of Default, as a result of such Event of Default (and until cured or waived), the Borrower shall pay interest (after as well as before judgment) from and after the date of such notice at a rate per annum equal to (a) in the case of any principal on any Loan or Reimbursement Obligation (whether or not then due and payable), the rate of interest that otherwise would be applicable thereto plus 2%, and (b) in the case of interest, fees and other monetary Obligations payable hereunder, the Alternate Base Rate plus the highest Applicable Margin for Base Rate Loans plus 2%. SECTION III.2.3. Payment Dates. Interest accrued on each Loan shall be payable, without duplication: (a on the Stated Maturity Date therefor; (b on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan on the principal amount so paid or prepaid; (c with respect to Base Rate Loans, on each Quarterly Payment Date occurring after the Effective Date; (d with respect to LIBO Rate Loans, on the last day of each applicable Interest Period (and, if such Interest Period shall exceed three months, on the date occurring on each three-month interval occurring after the first day of such Interest Period); and (e on that portion of any Loans the Stated Maturity Date of which is accelerated pursuant to Section 8.2 or clause (a) of Section 8.3, immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION III.3. Fees. The Borrower agrees to pay the fees set forth below. All such fees shall be non-refundable. SECTION III.3.1. Commitment Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Borrower's inability to satisfy any condition of Article V) commencing on the Effective Date and continuing through the applicable Commitment Termination Date, a commitment fee in an amount equal to the Applicable Commitment Fee, in each case on such Lender's Percentage of the sum of the average daily unused portion of the applicable Commitment Amount (after subtracting Letter of Credit Outstandings, in the case of the Revolving Loan Commitment Amount). All commitment fees payable pursuant to this Section shall be calculated on a year comprised of 360 days and payable by the Borrower in arrears on the Effective Date and thereafter on each Quarterly Payment Date, commencing with the first Quarterly Payment Date following the Effective Date, and on the Revolving Loan Commitment Termination Date. SECTION III.3.2. Administrative Agent's Fee. The Borrower agrees to pay to the Administrative Agent, for its own account, the fees in the amounts and on the dates set forth in the Fee Letter. SECTION III.3.3. Letter of Credit Fees. The Borrower agrees to pay to the Administrative Agent, for the pro rata account of the applicable Issuer and each Revolving Loan Lender, a Letter of Credit fee in an amount equal to the then effective Applicable Margin for Revolving Loans maintained as LIBO Rate Loans, multiplied by the Stated Amount of each such Letter of Credit, such fees being payable quarterly in arrears on each Quarterly Payment Date following the date of issuance of each Letter of Credit and on the Revolving Loan Commitment Termination Date. The Borrower further agrees to pay to the applicable Issuer, quarterly in arrears on each Quarterly Payment Date following the date of issuance of each Letter of Credit and on the Revolving Loan Commitment Termination Date, an issuance fee in an amount agreed to by the Borrower and such Issuer. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION IV.1. LIBO Rate Lending Unlawful. If any Lender shall determine (which determination shall, upon notice thereof to the Borrower and the Administrative Agent, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any Governmental Authority asserts that it is unlawful, for such Lender to make or continue any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of such Lender to make, continue or convert any such LIBO Rate Loan shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all outstanding LIBO Rate Loans payable to such Lender shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. SECTION IV.2. Deposits Unavailable. If the Administrative Agent shall have determined that (a Dollar deposits in the relevant amount and for the relevant Interest Period are not available to it in its relevant market; or (b by reason of circumstances affecting it's relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans; then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.3 and Section 2.4 to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION IV.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees to reimburse each Secured Party for any increase in the cost to such Secured Party of, or any reduction in the amount of any sum receivable by such Secured Party in respect of, such Secured Party's Commitments and the making of Credit Extensions hereunder (including the making, continuing or maintaining (or of its obligation to make or continue) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans) that arise in connection with any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in after the date hereof of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority, except for such changes with respect to increased capital costs and Taxes which are governed by Sections 4.5 and 4.6, respectively. Each affected Secured Party shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, stating the reasons therefor and the additional amount required fully to compensate such Secured Party for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Secured Party within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION IV.4. Funding Losses. In the event any Lender shall incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make or continue any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loan on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Article III or otherwise; (b any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor; or (c any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/Conversion Notice therefor; then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION IV.5. Increased Capital Costs. If any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in after the Effective Date of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any Governmental Authority affects or would affect the amount of capital required or expected to be maintained by any Secured Party or any Person controlling such Secured Party, and such Secured Party determines (in good faith but in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of the Commitments or the Credit Extensions made, or the Letters of Credit participated in, by such Secured Party is reduced to a level below that which such Secured Party or such controlling Person could have achieved but for the occurrence of any such circumstance, then upon notice from time to time by such Secured Party to the Borrower, the Borrower shall within five days following receipt of such notice pay directly to such Secured Party additional amounts sufficient to compensate such Secured Party or such controlling Person for such reduction in rate of return. A statement of such Secured Party as to any such additional amount or amounts shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Secured Party may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable. SECTION IV.6. Taxes. The Borrower covenants and agrees as follows with respect to Taxes. (a Any and all payments by the Borrower under each Loan Document shall be made without setoff, counterclaim or other defense, and free and clear of, and without deduction or withholding for or on account of, any Taxes. In the event that any Taxes are required to be deducted or withheld from any payment required to be made by any Obligor to or on behalf of any Secured Party under any Loan Document, then: (i) subject to clause (f), if such Taxes are Non-Excluded Taxes, the amount of such payment shall be increased as may be necessary so that such payment is made, after withholding or deduction for or on account of such Taxes, in an amount that is not less than the amount provided for in such Loan Document; and (ii) the Borrower shall withhold the full amount of such Taxes from such payment (as increased pursuant to clause (a)(i)) and shall pay such amount to the Governmental Authority imposing such Taxes in accordance with applicable law. (b In addition, the Borrower shall pay all Other Taxes imposed to the relevant Governmental Authority imposing such Other Taxes in accordance with applicable law. (c As promptly as practicable after the payment of any Taxes or Other Taxes, and in any event within 45 days of any such payment being due, the Borrower shall furnish to the Administrative Agent a copy of an official receipt (or a certified copy thereof) evidencing the payment of such Taxes or Other Taxes. The Administrative Agent shall make copies thereof available to any Lender upon request therefor. (d Subject to clause (f), the Borrower shall indemnify each Secured Party for any Non-Excluded Taxes and Other Taxes levied, imposed or assessed on (and whether or not paid directly by) such Secured Party whether or not such Non-Excluded Taxes or Other Taxes are correctly or legally asserted by the relevant Governmental Authority. Promptly upon having knowledge that any such Non-Excluded Taxes or Other Taxes have been levied, imposed or assessed, and promptly upon notice thereof by any Secured Party, the Borrower shall pay such Non-Excluded Taxes or Other Taxes directly to the relevant Governmental Authority (provided, however, that no Secured Party shall be under any obligation to provide any such notice to the Borrower). In addition, the Borrower shall indemnify each Secured Party for any incremental Taxes that may become payable by such Secured Party as a result of any failure of the Borrower to pay any Taxes when due to the appropriate Governmental Authority or to deliver to the Administrative Agent, pursuant to clause (c), documentation evidencing the payment of Taxes or Other Taxes. With respect to indemnification for Non-Excluded Taxes and Other Taxes actually paid by any Secured Party or the indemnification provided in the immediately preceding sentence, such indemnification shall be made within 30 days after the date such Secured Party makes written demand therefor. The Borrower acknowledges that any payment made to any Secured Party or to any Governmental Authority in respect of the indemnification obligations of the Borrower provided in this clause shall constitute a payment in respect of which the provisions of clause (a) and this clause shall apply. (e Each Non-U.S. Lender, on or prior to the date on which such non-U.S. Lender becomes a Lender hereunder (and from time to time thereafter upon the request of the Borrower or the Administrative Agent, but only for so long as such non-U.S. Lender is legally entitled to do so), shall deliver to the Borrower and the Administrative Agent either (i (x) two duly completed copies of either (A) Internal Revenue Service Form W-8BEN or (B) Internal Revenue Service Form W-8ECI, or in either case an applicable successor form, and (y) a duly completed copy of Internal Revenue Service Form W-8 or W-9, or in either case an applicable successor form; or (ii in the case of a Non-U.S. Lender that is not legally entitled to deliver either form listed in clause (e)(i)(x), (x) a certificate of a duly authorized officer of such Non-U.S. Lender to the effect that such Non-U.S. Lender is not (A) a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (B) a "10 percent shareholder" of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (C) a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code (referred to as an "Exemption Certificate") and (y) two duly completed copies of Internal Revenue Service Form W-8 or applicable successor form. (f The Borrower shall not be obligated to gross up any payments to any Lender pursuant to clause (a)(i), or to indemnify any Lender pursuant to clause (d), in respect of United States federal withholding taxes to the extent imposed as a result of (i) the failure of such Lender to deliver to the Borrower the form or forms and/or an Exemption Certificate, as applicable to such Lender, pursuant to clause (e), (ii) such form or forms and/or Exemption Certificate not establishing a complete exemption from U.S. federal withholding tax or the information or certifications made therein by the Lender being untrue or inaccurate on the date delivered in any material respect, or (iii) the Lender designating a successor lending office at which it maintains its Loans which has the effect of causing such Lender to become obligated for tax payments in excess of those in effect immediately prior to such designation; provided, however, that the Borrower shall be obligated to gross up any payments to any such Lender pursuant to clause (a)(i), and to indemnify any such Lender pursuant to clause (d), in respect of United States federal withholding taxes if (i) any such failure to deliver a form or forms or an Exemption Certificate or the failure of such form or forms or Exemption Certificate to establish a complete exemption from U.S. federal withholding tax or inaccuracy or untruth contained therein resulted from a change in any applicable statute, treaty, regulation or other applicable law or any interpretation of any of the foregoing occurring after the date hereof, which change rendered such Lender no longer legally entitled to deliver such form or forms or Exemption Certificate or otherwise ineligible for a complete exemption from U.S. federal withholding tax, or rendered the information or certifications made in such form or forms or Exemption Certificate untrue or inaccurate in a material respect, (ii) the redesignation of the Lender's lending office was made at the request of the Borrower or was consistent with the Lender's policies generally or (iii) the obligation to gross up payments to any such Lender pursuant to clause (a)(i) or to indemnify any such Lender pursuant to clause (d) is with respect to an Assignee Lender that becomes an Assignee Lender as a result of an assignment made at the request of the Borrower. SECTION IV.7. Payments, Computations, etc. Unless otherwise expressly provided in a Loan Document, all payments by the Borrower pursuant to each Loan Document shall be made by the Borrower to the Administrative Agent for the pro rata account of the Secured Parties entitled to receive such payment. All payments shall be made without setoff, deduction or counterclaim not later than 11:00 a.m. on the date due in same day or immediately available funds to such account as the Administrative Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Secured Party its share, if any, of such payments received by the Administrative Agent for the account of such Secured Party. All interest (including interest on LIBO Rate Loans) and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan (calculated at other than the Federal Funds Rate), 365 days or, if appropriate, 366 days). Payments due on other than a Business Day shall (except as otherwise required by clause (c) of the definition of "Interest Period") be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees in connection with that payment. SECTION IV.8. Sharing of Payments. If any Secured Party shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Credit Extension or Reimbursement Obligation (other than pursuant to the terms of Sections 4.3, 4.4, 4.5 or 4.6) in excess of its pro rata share of payments obtained by all Secured Parties, such Secured Party shall purchase from the other Secured Parties such participations in Credit Extensions made by them as shall be necessary to cause such purchasing Secured Party to share the excess payment or other recovery ratably (to the extent such other Secured Parties were entitled to receive a portion of such payment or recovery) with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Secured Party, the purchase shall be rescinded and each Secured Party which has sold a participation to the purchasing Secured Party shall repay to the purchasing Secured Party the purchase price to the ratable extent of such recovery together with an amount equal to such selling Secured Party's ratable share (according to the proportion of (a) the amount of such selling Secured Party's required repayment to the purchasing Secured Party to (b) total amount so recovered from the purchasing Secured Party) of any interest or other amount paid or payable by the purchasing Secured Party in respect of the total amount so recovered. The Borrower agrees that any Secured Party purchasing a participation from another Secured Party pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to such participation as fully as if such Secured Party were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law any Secured Party receives a secured claim in lieu of a setoff to which this Section applies, such Secured Party shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Secured Parties entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION IV.9. Setoff. Each Secured Party shall, upon the occurrence and during the continuance of any Default described in clauses (a) through (d) of Section 8.1.9 or, with the consent of the Required Lenders, upon the occurrence and during the continuance of any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Secured Party a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with such Secured Party; provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8. Each Secured Party agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Secured Party; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Secured Party under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Secured Party may have. ARTICLE V CONDITIONS TO CREDIT EXTENSIONS SECTION V.1. Initial Credit Extension. The obligations of the Lenders and, if applicable, the Issuer to fund the initial Credit Extension shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Article. SECTION V.1.1. Resolutions, etc. The Administrative Agent shall have received from each Obligor, as applicable, (a) a copy of a good standing certificate, dated a date reasonably close to the Closing Date, for each such Person and (b) a certificate, dated the Closing Date, duly executed and delivered by such Person's Secretary or Assistant Secretary, managing member or general partner, as applicable, as to (i resolutions of each such Person's Board of Directors (or other managing body, in the case of other than a corporation) then in full force and effect authorizing, to the extent relevant, all aspects of the applicable to such Person and the execution, delivery and performance of each Loan Document to be executed by such Person and the transactions contemplated hereby and thereby; (ii the incumbency and signatures of those of its officers, managing member or general partner, as applicable, authorized to act with respect to each Loan Document to be executed by such Person; and (iii the full force and validity of each Organic Document of such Person and copies thereof; upon which certificates each Secured Party may conclusively rely until it shall have received a further certificate of the Secretary, Assistant Secretary, managing member or general partner, as applicable, of any such Person canceling or amending the prior certificate of such Person. SECTION V.1.2. Delivery of Notes. The Administrative Agent shall have received, for the account of each Lender that has requested a Note in writing, such Lender's Notes duly executed and delivered by an Authorized Officer of the Borrower. SECTION V.1.3. Subsidiary Guaranty. The Administrative Agent shall have received, with counterparts for each Lender, the Subsidiary Guaranty, dated the Closing Date and duly executed and delivered by each U.S. Subsidiary. SECTION V.1.4. Pledge Agreements. The Administrative Agent shall have received, with counterparts for each Lender, (a each Pledge Agreement, each dated as of the Closing Date and duly executed and delivered by an Authorized Officer of each applicable Obligor, together with (i the certificates evidencing all of the issued and outstanding shares of Capital Securities pledged pursuant to the applicable Pledge Agreement, which certificates shall in each case be accompanied by undated stock powers or powers of transfer duly executed in blank, or, if any such shares of Capital Securities pledged pursuant to such Pledge Agreement are uncertificated securities, the Administrative Agent shall have obtained "control" (as defined in the UCC) over such shares of Capital Securities and such other instruments and documents as the Administrative Agent shall deem necessary or in the reasonable opinion of the Administrative Agent desirable under applicable law to perfect the first priority security interest of the Administrative Agent in such shares of Capital Securities shall have been delivered to the Administrative Agent; (ii to the extent necessary, executed copies of UCC financing statements (Form UCC-1) naming each Obligor executing a Pledge Agreement as a debtor and the Administrative Agent as the secured party, or other similar instruments or documents to be filed under the UCC of all jurisdictions as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the security interests of the Administrative Agent pursuant to such Pledge Agreement; (iii executed copies of proper UCC termination statements (Form UCC-3), if any, necessary to release all Liens and other rights of any Person (i) in any collateral described in any security or pledge agreement previously executed and delivered by any Person, and (ii) securing any of the Indebtedness identified in Item 7.2.2(b) of the Disclosure Schedule, together with such other UCC termination statements (Form UCC-3) as the Administrative Agent may reasonably request from such Obligors; and (iv certified copies of UCC Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Administrative Agent, dated a date reasonably near to the Closing Date, listing all effective financing statements which name each Obligor executing a Pledge Agreement (under its present name and any previous names) as the debtor, together with copies of such financing statements (none of which shall cover any Collateral); and (b the Administrative Agent and its counsel shall be satisfied that the Liens granted to the Administrative Agent, for the benefit of the Secured Parties, in the Collateral are first priority (or local equivalent thereof) security interests, and that no Liens exists on any of the Collateral other than the Liens created in favor of the Administrative Agent, for the benefit of the Secured Parties, pursuant to the Loan Documents (except for Liens permitted by Section 7.2.3). SECTION V.1.5. Intellectual Property. The Administrative Agent shall have received the Patent Security Agreement, the Copyright Security Agreement and the Trademark Security Agreement, as applicable, each dated as of the Closing Date and duly executed and delivered by an Authorized Officer of each Obligor that has delivered a Pledge and Security Agreement and is, pursuant to the terms of such Pledge and Security Agreement, granting a Lien on any Intellectual Property Collateral (as defined in the applicable Pledge and Security Agreement). SECTION V.1.6. Closing Date Certificate. The Administrative Agent shall have received the Closing Date Certificate, dated the Closing Date and duly executed and delivered by an Authorized Officer of each of the Parent and the Borrower, in which certificate each of the Parent and the Borrower shall agree and acknowledge that the statements made therein shall be deemed to be true and correct representations and warranties of the Parent and the Borrower as of such date, and, at the time each such certificate is delivered, such statements shall in fact be true and correct in all material respects. All documents and agreements required to be appended to the Closing Date Certificate shall be in form and substance satisfactory to the Administrative Agent. SECTION V.1.7. Solvency, etc. The Administrative Agent shall have received, with counterparts for each Lender, a certificate, dated the Closing Date and duly executed and delivered by the chief financial or accounting Authorized Officer of each of the Parent and the Borrower, as to the solvency of the Parent and the Borrower, in form and substance satisfactory to the Administrative Agent. SECTION V.1.8. Opinions of Counsel. The Administrative Agent shall have received opinions, each dated the Closing Date and addressed to the Administrative Agent and all Lenders, from (a) Ropes & Gray, special counsel to the Obligors, in form and substance satisfactory to the Administrative Agent; and (b) Swidler, Berlin, Shereff & Friedman, LLP, FCC regulatory counsel to the Obligors, in form and substance satisfactory to the Administrative Agent. SECTION V.1.9. Financial Information. The Administrative Agent shall have received (a) audited consolidated financial statements of the Consolidated Group for the 1997 through 1999 Fiscal Years; (b) a pro forma consolidated balance sheet of the Consolidated Group, as of the Closing Date, certified by the chief financial or accounting Authorized Officer of the Parent, giving effect to the consummation of the Refinancing and each other transaction contemplated by this Agreement, which shall be satisfactory to the Administrative Agent; and (c) projected consolidated financial statements (including balance sheets and statements of operations, income and cash flows) of the Consolidated Group for the ten-year period following the Closing Date, evidencing the Consolidated Group's compliance with the covenants set forth in Section 7.2.4 at all times during such ten-year period (the "Projections"). SECTION V.1.10. Filing Agent, etc. All UCC financing statements (Form UCC-1) or other similar financing statements and UCC termination statements (Form UCC-3) required pursuant to the Loan Documents (collectively, the "Filing Statements") shall have been delivered to CT Corporation System or another similar filing service company acceptable to the Administrative Agent (the "Filing Agent"). The Filing Agent shall have acknowledged in a writing satisfactory to the Administrative Agent and its counsel (a) the Filing Agent's receipt of all Filing Statements, (b) that the Filing Statements have either been submitted for filing in the appropriate filing offices or will be submitted for filing in the appropriate offices within ten days following the Closing Date and (c) that the Filing Agent will notify the Administrative Agent and its counsel of the results of such submissions within 30 days following the Closing Date. SECTION V.1.11. Insurance. The Administrative Agent shall have received certified copies of the insurance policies (or binders in respect thereof) from one or more insurance companies satisfactory to the Administrative Agent, evidencing coverage required to be maintained pursuant to each Loan Document, together with a satisfactory broker's letter stating that the Borrower's insurance coverage is sufficient and customary in the industry. SECTION V.1.12. Necessary Authorizations. The Administrative Agent shall have received copies of all Necessary Authorizations or other required consents to the Credit Extensions or to the execution, delivery and performance of the Loan Documents, each of which shall be in form and substance reasonably satisfactory to the Administrative Agent. SECTION V.1.13. Payment of Outstanding Indebtedness, etc. All Indebtedness identified in Item 7.2.2(b) of the Disclosure Schedule (including, in connection with the Refinancing, all Indebtedness outstanding under the terms of the Existing Financing Agreements), together with all interest, all prepayment premiums and other amounts due and payable with respect thereto, shall have been paid in full from the proceeds of the initial Credit Extension and the commitments in respect of such Indebtedness shall have been terminated, and all Liens securing payment of any such Indebtedness have been released and the Administrative Agent shall have received all UCC termination statements (Form UCC-3) or other instruments as may be suitable or appropriate in connection therewith. The Administrative Agent shall have received all payoff letters requested by the Administrative Agent in connection with the repayment of such Indebtedness. SECTION V.1.14. Financing Arrangements. The Arranger and the Administrative Agent shall have received, and be satisfied in all respects with the terms and conditions of, all documentation and other materials relating to any preferred stock, vendor and/or other financing arrangements to which any member of the Consolidated Group is a party. SECTION V.1.15. Closing Fees, Expenses, etc. The Administrative Agent shall have received for its own account, or for the account of each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.3 and, if then invoiced, 11.3. SECTION V.2. All Credit Extensions. The obligation of each Lender and each Issuer to make any Credit Extension (including the initial Credit Extension) shall be subject to and the satisfaction of each of the conditions precedent set forth below. SECTION V.2.1. Compliance with Warranties, No Default, etc. Both before and after giving effect to any Credit Extension (but, if any Default of the nature referred to in Section 8.1.5 shall have occurred with respect to any other Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds thereof) the following statements shall be true and correct: (a) the representations and warranties set forth in each Loan Document shall, in each case, be true and correct in all material respects with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); and (b) no Default shall have then occurred and be continuing. SECTION V.2.2. Credit Extension Request, etc. Subject to Section 2.3.2, the Administrative Agent shall have received a Borrowing Request if Loans are being requested, or an Issuance Request if a Letter of Credit is being requested or extended. Each of the delivery of a Borrowing Request or Issuance Request and the acceptance by the Borrower of the proceeds of such Credit Extension shall constitute a representation and warranty by the Borrower that on the date of such Credit Extension (both immediately before and after giving effect to such Credit Extension and the application of the proceeds thereof) the statements made in Section 5.2.1 are true and correct in all material respects. SECTION V.2.3. Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries or any other Obligors shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel; the Administrative Agent and its counsel shall have received all information, approvals, opinions, documents or instruments as the Administrative Agent or its counsel may reasonably request. ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Secured Parties to enter into this Agreement and to make Credit Extensions hereunder, each of the Parent and the Borrower represents and warrants to each Secured Party as set forth in this Article. SECTION VI.1. Organization, etc. Each member of the Consolidated Group is validly organized and existing and in good standing under the laws of the state or jurisdiction of its incorporation or organization, is duly qualified to do business and is in good standing as a foreign entity in each jurisdiction where the nature of its business requires such qualification (except where the failure to be so qualified or in good standing as a foreign entity could not reasonably be expected to have a Material Adverse Effect), and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under each Loan Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION VI.2. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by each Obligor of each Loan Document executed or to be executed by it, each Obligor's participation in the consummation of all aspects of the Refinancing, and the execution, delivery and performance by each applicable Obligor of the agreements executed and delivered in connection with the Refinancing are in each case within each such Person's powers, have been duly authorized by all necessary action, and do not (a) contravene or, as applicable, result in a default under any (i) Obligor's Organic Documents, (ii) contractual restriction, or any License, binding on or affecting any Obligor, (iii) court decree or order binding on or affecting any Obligor or (iv) law or governmental regulation binding on or affecting any Obligor; or (b) result in, or require the creation or imposition of, any Lien on any Obligor's properties (except as permitted by this Agreement). SECTION VI.3. Government Approval, Regulation, etc. Except as disclosed in Item 6.3 of the Disclosure Schedule, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or other Person (other than those that have been, or on the Effective Date will be, duly obtained or made and which are, or on the Effective Date will be, in full force and effect) is required for the consummation of the Refinancing or the due execution, delivery or performance by each Obligor of any Loan Document to which it is a party, or for the due execution, delivery and/or performance of any documents executed, delivered and/or performed in connection with the Refinancing, in each case by the parties thereto or the consummation of the Refinancing. No member of the Consolidated Group is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION VI.4. Validity, etc. This Agreement has been duly executed and delivered, and constitutes, and each other Loan Document executed by the Parent and/or the Borrower will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of such Person, enforceable against such Person in accordance with their respective terms; and each Loan Document executed by each other Obligor will, on the due execution and delivery thereof by such Obligor, constitute the legal, valid and binding obligation of such Obligor enforceable against such Obligor in accordance with its terms (except, in any case, as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and by principles of equity). SECTION VI.5. Financial Information. (a) The financial statements furnished to the Administrative Agent and each Lender pursuant to clause (a) of Section 5.1.9 have been prepared in accordance with GAAP consistently applied, and present fairly the consolidated financial condition of the Persons and/or businesses covered thereby as at the dates thereof and the results of their operations for the periods then ended. (b) The pro forma consolidated balance sheet furnished to the Administrative Agent and each Lender pursuant to clause (b) of Section 5.1.9 fairly presents in all material respects the pro forma estimated financial condition of the Consolidated Group as of such date. (c) The Projections were prepared by each of the Parent and the Borrower in good faith on the basis of information and assumptions that each of the Parent and the Borrower and their respective senior management believed to be reasonable as of the date of the Projections and such assumptions are reasonable as of the Closing Date (it being understood that projections are not to be viewed as facts and that actual results during the period covered by the Projections may differ from projected results). (d) All balance sheets, all statements of operations, shareholders' equity and cash flow and all other financial information of each of the Consolidated Group furnished pursuant to Section 7.1.1 have been and will for periods following the Effective Date be prepared in accordance with GAAP consistently applied, and do or will present fairly the consolidated financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended. SECTION VI.6. No Material Adverse Change. Except as disclosed in Item 6.6 of the Disclosure Schedule, there has been no material adverse change in the business, assets, debt service capacity, tax position, environmental liability or financial condition, operations or prospects of the Parent, the Borrower or the Borrower and its Subsidiaries taken as a whole, since March 31, 1999. SECTION VI.7. Litigation, Labor Controversies, etc. There is no pending or, to the knowledge of any member of the Consolidated Group, threatened litigation, action, proceeding or labor controversy (a) except as disclosed in Item 6.7 of the Disclosure Schedule, affecting any member of the Consolidated Group or any other Obligor, or any of their respective properties, businesses, assets or revenues, which could reasonably be expected to have a Material Adverse Effect, and no adverse development has occurred in any labor controversy, litigation, arbitration or governmental investigation or proceeding (including, in each case, any controversy, litigation, arbitration, investigation or proceeding involving the FCC) disclosed in Item 6.7; or (b) which purports to affect the legality, validity or enforceability of any Loan Document or the Refinancing. SECTION VI.8. Subsidiaries. The Parent has no direct Subsidiaries except the Borrower. The Borrower has no Subsidiaries, except those Subsidiaries (a) which are identified in Item 6.8 of the Disclosure Schedule; or (b) which are permitted to have been organized or acquired in accordance with Section 7.2.5 or 7.2.9. SECTION VI.9. Ownership of Properties. Each member of the Consolidated Group owns (i) in the case of owned real property, good and marketable fee title to, and (ii) in the case of owned personal property, good and valid title to, or, in the case of leased real or personal property, valid and enforceable leasehold interests (as the case may be) in, all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever, free and clear in each case of all Liens or claims, except for Liens permitted pursuant to Section 7.2.3. SECTION VI.10. Taxes. Each member of the Consolidated Group has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be due and owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION VI.11. Pension and Welfare Plans. During the twelve-consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of any Credit Extension hereunder, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty. Except as disclosed in Item 6.11 of the Disclosure Schedule, neither the Borrower nor any member of the Controlled Group has any contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA. SECTION VI.12. Environmental Warranties. Except as set forth in Item 6.12 of the Disclosure Schedule: (a) all facilities and property (including underlying groundwater) owned or leased by any member of the Consolidated Group have been, and continue to be, owned or leased by such member of the Consolidated Group in material compliance with all Environmental Laws; (b) there have been no past, and there are no pending or, to the knowledge of any member of the Consolidated Group, threatened (i) claims, complaints, notices or requests for information received by any member of the Consolidated Group with respect to any alleged violation of any Environmental Law, or (ii) complaints, notices or inquiries to any member of the Consolidated Group regarding potential liability under any Environmental Law; (c) there have been no Releases of Hazardous Materials at, on or under any property now or, to the knowledge of any member of the Consolidated Group, previously owned or leased by any member of the Consolidated Group that have, or could reasonably be expected to have, a Material Adverse Effect; (d) each member of the Consolidated Group has been issued and is in compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters, the non-issuance of or non-compliance with any of which, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (e) no property now or, to the knowledge of any member of the Consolidated Group, previously owned or leased by any member of the Consolidated Group is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up; (f) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or, to the knowledge of any member of the Consolidated Group, previously owned or leased by any member of the Consolidated Group that, singly or in the aggregate, have, or could reasonably be expected to have, a Material Adverse Effect; (g) no member of the Consolidated Group has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or, to the knowledge of any member of the Consolidated Group, proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against such member of the Consolidated Group for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; (h) there are no polychlorinated biphenyls or friable asbestos present at any property now or, to the knowledge of any member of the Consolidated Group, previously owned or leased by any member of the Consolidated Group that, singly or in the aggregate, have, or could reasonably be expected to have, a Material Adverse Effect; and (i) no conditions exist at, on or under any property now or, to the knowledge of any member of the Consolidated Group, previously owned or leased by any member of the Consolidated Group which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law which could reasonably be expected to have a Material Adverse Effect. SECTION VI.13. Accuracy of Information. None of the factual information heretofore or contemporaneously furnished in writing (including the Bank Memorandum) to any Secured Party by or on behalf of any Obligor in connection with any Loan Document, the Refinancing or any other transaction contemplated hereby contains any untrue statement of a material fact, or omits to state any material fact necessary to make any information not misleading, and no other factual information hereafter furnished in connection with any Loan Document by or on behalf of any Obligor to any Secured Party will contain any untrue statement of a material fact or will omit to state any material fact necessary to make any information not misleading on the date as of which such information is dated or certified. SECTION VI.14. Regulations U and X. No Obligor is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Credit Extensions will be used to purchase or carry margin stock or otherwise for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation U or Regulation X. Terms for which meanings are provided in F.R.S. Board Regulation U or Regulation X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION VI.15. Communications Regulatory Matters. (a) Each Network Agreement has been duly executed and delivered by the respective parties thereto, is in full force and effect and no member of the Consolidated Group nor, to the best knowledge of the Parent and the Borrower, any of the other parties thereto, is in default of any of the provisions thereof in any material respect. (b) No member of the Consolidated Group is in violation of any Communications Law applicable thereto. (c) All of the Network Facilities and other material properties, equipment and systems owned, leased or managed by members of the Consolidated Group are, and all such property, equipment and systems to be acquired or added in connection with any contemplated system expansion or construction will be, in good repair, working order and condition (reasonable wear and tear excepted) and are and will be in compliance with all terms and conditions of the Licenses and all standards or rules imposed by applicable Communications Law and any Governmental Authority or as imposed under any agreements with telephone companies and customers. (d) The members of the Consolidated Group have paid all franchise, license or other fees and charges which have become due pursuant to any governmental approval in respect of their business and have made appropriate provision as required by GAAP for any such fees and charges which have accrued. (e) Each Interconnection Agreement, each of which is listed on Item 6.15 of the Disclosure Schedule, has been duly executed and delivered by the respective parties thereto, is in full force and effect and no member of the Consolidated Group is in default of any of the provisions thereof in any material respect. SECTION VI.16. Licenses. Each of the Licenses has been duly authorized by the grantors thereof, is valid and in full force and effect without conditions except for such conditions as are generally applicable to holders of such Licenses. No event has occurred and is continuing which could reasonably be expected to (i) result in the imposition of a material forfeiture or the revocation, termination or adverse modification of any such License or (ii) materially and adversely affect any rights of any member of the Consolidated Group thereunder. Neither the Parent nor the Borrower has reason to believe, and has no knowledge that, any Licenses will not be approved or renewed, as applicable, in the ordinary course. Item 6.16 of the Disclosure Schedule sets forth a true and complete list of each of the Licenses issued, as of the Effective Date, to the Consolidated Group, and, with respect to each such License, the following information: (i) for all Licenses other than PUC Authorizations, the name of the licensee, the type of service and the expiration dates and (ii) for each PUC Authorization only, the geographic area covered by such PUC Authorization, the services that may be provided thereunder and the expiration date, if any. SECTION VI.17. Year 2000. Each Obligor has successfully addressed the "Year 2000 Problem" (that is, the risk that computer applications used by such Obligor may be unable to recognize and properly perform date-sensitive functions involving certain dates prior to and any date after December 31, 1999). ARTICLE VII COVENANTS SECTION VII.1. Affirmative Covenants. Each of the Parent and the Borrower agrees with each Secured Party that, until the Termination Date has occurred, the Parent and the Borrower will, and will cause their respective Subsidiaries to, perform or cause to be performed the obligations set forth below. SECTION VII.1.1. Financial Information, Reports, Notices, etc. The Borrower will furnish or cause to be furnished to the Administrative Agent (with sufficient copies for each Lender) copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 30 days after the end of each fiscal month other than the last such month of any Fiscal Quarter, unaudited consolidated balance sheets of the Consolidated Group as at the end of such fiscal month, together with the related consolidated statements of income for such fiscal month and for the period commencing at the end of the previous Fiscal Year and ending with the end of such fiscal month, and including (in each case), in comparative form the figures for the corresponding fiscal month in, and year to date portion of, the immediately preceding Fiscal Year, certified as complete and correct by the chief financial or accounting Authorized Officer of the Parent; (b) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, unaudited consolidated and consolidating balance sheets of the Consolidated Group as at the end of such Fiscal Quarter, together with the related consolidated and consolidating statements of income and cash flow for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, and including (in each case), in comparative form the figures for the corresponding Fiscal Quarter in, and year to date portion of, the immediately preceding Fiscal Year, certified as complete and correct by the chief financial or accounting Authorized Officer of the Parent; (c) as soon as available and in any event within 90 days after the end of each Fiscal Year, consolidated and consolidating balance sheets of the Consolidated Group as at the end of such Fiscal Year, together with the related consolidated and consolidating statements of income and cash flow for such Fiscal Year, setting forth in comparative form the figures for the immediately preceding Fiscal Year, audited (without any Impermissible Qualification) by independent public accountants acceptable to the Administrative Agent, which shall include a statement by such accountants that, in performing the examination necessary to deliver the audited financial statements of the Consolidated Group, no knowledge was obtained of any Event of Default; (d) concurrently with the delivery of the financial information pursuant to clauses (b) and (c), a Compliance Certificate, executed by the chief financial or accounting Authorized Officer of the Parent, showing compliance with the financial covenants set forth in Section 7.2.4 and stating that no Default has occurred and is continuing (or, if a Default has occurred, specifying the details of such Default and the action that the applicable Obligor has taken or proposes to take with respect thereto); (e) as soon as possible and in any event within three days after any Obligor obtains knowledge of the occurrence of a Default, a statement of an Authorized Officer of the Borrower setting forth details of such Default and the action which such Obligor has taken and proposes to take with respect thereto; (f) as soon as possible and in any event within three days after any Obligor obtains knowledge of (i) the occurrence of any material adverse development with respect to any litigation, action, proceeding or labor controversy described in Item 6.7 of the Disclosure Schedule or (ii) the commencement of any litigation, action, proceeding or labor controversy of the type and materiality described in Section 6.7, notice thereof and, to the extent the Administrative Agent requests, copies of all documentation relating thereto; (g) promptly after the sending or filing thereof, copies of all reports, notices, prospectuses and registration statements which any Obligor files with the SEC or any national securities exchange; (h) immediately upon becoming aware of (i) the institution of any steps by any Person to terminate any Pension Plan, (ii) the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under Section 302(f) of ERISA, (iii) the taking of any action with respect to a Pension Plan which could result in the requirement that any Obligor furnish a bond or other security to the PBGC or such Pension Plan, or (iv) the occurrence of any event with respect to any Pension Plan which could result in the incurrence by any Obligor of any material liability, fine or penalty, notice thereof and copies of all documentation relating thereto; (i) promptly upon receipt thereof, copies of all "management letters" submitted to any Obligor by the independent public accountants referred to in clause (b) in connection with each audit made by such accountants; (j) as soon as possible and in any event within ten days after any annual budgets or business plans prepared by or on behalf of any Obligor are completed for the next succeeding Fiscal Year, copies of such annual budgets or business plans, as applicable; (k) promptly following the mailing or receipt of any notice or report delivered under the terms of any Subordinated Debt, copies of such notice or report; (l) promptly upon receipt thereof, copies of any adverse notice or report regarding any License from the FCC; (m) promptly upon receipt of any new License, information relating to such License similar to that set forth in Item 6.16 of the Disclosure Schedule; and (n) such other financial and other information as any Secured Party through the Administrative Agent may from time to time reasonably request (including information and reports in such detail as the Administrative Agent may request with respect to the terms of and information provided pursuant to the Compliance Certificate). SECTION VII.1.2. Maintenance of Existence; Compliance with Laws, etc. Each of the Parent and the Borrower will, and will cause each of their respective Subsidiaries to, (a) except as otherwise permitted by Section 7.2.9, preserve and maintain its legal existence; and (b) comply with all contractual obligations, applicable laws, rules, regulations and orders, including the payment (before the same become delinquent), of all Taxes imposed upon any member of the Consolidated Group or upon its property, the non-compliance with any of which could reasonably be expected to have a Material Adverse Effect, except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on the books of such member of the Consolidated Group, as applicable. SECTION VII.1.3. Maintenance of Properties. Each of the Parent and the Borrower will, and will cause each of their respective Subsidiaries to, maintain, preserve, protect and keep their respective properties in good repair, working order and condition (ordinary wear and tear excepted), and make necessary repairs, renewals and replacements so that the business carried on by the Consolidated Group may be properly conducted at all times, unless any member of the Consolidated Group determines in good faith that the continued maintenance of such property is no longer economically desirable. SECTION VII.1.4. Insurance. Each of the Parent and the Borrower will, and will cause each of their respective Subsidiaries to, (a) maintain insurance on its property with financially sound and reputable insurance companies against loss and damage in at least the amounts (and with only those deductibles) customarily maintained, and against such risks as are typically insured against in the same general area, by Persons of comparable size engaged in the same or similar business as the Borrower and its Subsidiaries; and (b) all worker's compensation, employer's liability insurance or similar insurance as may be required under the laws of any state or jurisdiction in which it may be engaged in business. Without limiting the foregoing, all insurance policies required pursuant to this Section shall (i) name the Administrative Agent on behalf of Secured Parties as mortgagee (in the case of property insurance) or additional insured (in the case of liability insurance), as applicable, and provide that no cancellation or modification of the policies will be made without thirty days' prior written notice to the Administrative Agent and (ii) be in addition to any requirements to maintain specific types of insurance contained in the other Loan Documents. SECTION VII.1.5. Books and Records. Each of the Parent and the Borrower will, and will cause each of their respective Subsidiaries to, keep books and records in accordance with GAAP which accurately reflect all of its business affairs and transactions and permit each Secured Party or any of their respective representatives, at reasonable times and intervals upon reasonable notice to the Borrower, to visit each Obligor's offices, to discuss such Obligor's financial matters with its officers and employees, and its independent public accountants (and each of the Parent and the Borrower hereby authorizes such independent public accountant to discuss each Obligor's financial matters with each Secured Party or their representatives whether or not any representative of any such Obligor is present) and to examine (and photocopy extracts from) any of its books and records. The Borrower shall pay any fees of such independent public accountant incurred in connection with any Secured Party's exercise of its rights pursuant to this Section. SECTION VII.1.6. Environmental Law Covenant. Each of the Parent and the Borrower will, and will cause each of their respective Subsidiaries to, (a) use and operate all of its and their facilities and properties in compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in compliance therewith, and handle all Hazardous Materials in compliance with all applicable Environmental Laws, the non-compliance with which, in any case, could reasonably be expected to have a Material Adverse Effect; and (b) promptly notify the Administrative Agent and provide copies upon receipt of all written claims, complaints, notices or inquiries relating to the condition of its facilities and properties in respect of, or as to compliance with, Environmental Laws (which, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect), and shall promptly resolve any non-compliance with Environmental Laws and keep its property free of any Lien imposed by any Environmental Law, which, in either case, could reasonably be expected to have a Material Adverse Effect. SECTION VII.1.7. Use of Proceeds. The Borrower will apply the proceeds of the Credit Extensions as follows: (a) to repay the Indebtedness identified in Item 7.2.2(b) of the Disclosure Schedule (including, in connection with the Refinancing, all Indebtedness outstanding under the terms of the Existing Financing Agreements); (b) to fund Capital Expenditures permitted pursuant to Section 7.2.7, including the ongoing construction and maintenance expenses associated with the Borrower's packet switched Internet protocol communications network; (c) for working capital and general corporate purposes of the Borrower and the Subsidiary Guarantors; and (d) to pay reasonable fees and expenses associated with the Refinancing. SECTION VII.1.8. Future Subsidiary Guarantors, Security, etc. The Borrower and, to the extent applicable, the Parent will, and will cause each U.S. Subsidiary of the Borrower to, execute any documents, Filing Statements, agreements and instruments, and take all further action (including filing Mortgages) that may be required under applicable law, or that the Administrative Agent may reasonably request, in order to effectuate the transactions contemplated by the Loan Documents and in order to grant, preserve, protect and perfect the validity and first priority of the security interests created or intended to be created by the Loan Documents. The Borrower will cause any subsequently acquired or organized U.S. Subsidiary to execute a Subsidiary Guaranty (or a supplement thereto) and each applicable Loan Document in favor of the Secured Parties. In addition, from time to time, the Borrower will, at its cost and expense, promptly secure the Obligations by pledging or creating, or causing to be pledged or created, perfected security interests with respect to such of its and its U.S. Subsidiaries' assets and properties as the Administrative Agent or the Required Lenders shall designate, it being understood that it is the intent of the parties that the Obligations shall be secured by, among other things, substantially all the assets of the Borrower and its U.S. Subsidiaries (including real and other properties acquired subsequent to the Effective Date). Such Liens will be created under the Loan Documents in form and substance satisfactory to the Administrative Agent, and the Borrower shall deliver or cause to be delivered to the Administrative Agent all such instruments and documents (including legal opinions, title insurance policies and lien searches) as the Administrative Agent shall reasonably request to evidence compliance with this Section. SECTION VII.1.9. Hedging Obligations. Within 180 days following the Closing Date, the Borrower will enter into, and thereafter maintain or cause to be maintained in effect, interest rate swap, cap, collar or similar arrangements for a minimum period of three years and otherwise on terms and conditions reasonably satisfactory to the Arranger and the Administrative Agent, which arrangements shall at all times effectively limit the amount of Indebtedness bearing interest at a floating rate to no more than 50% of the aggregate principal amount of Total Debt outstanding as of any date of determination. SECTION VII.2. Negative Covenants. Each of the Parent and the Borrower covenants and agrees with each Secured Party that, until the Termination Date has occurred, the Parent and the Borrower will, and will cause their respective Subsidiaries to, perform or cause to be performed the obligations set forth below. SECTION VII.2.1. Business Activities. The Borrower will not, and will not permit any of its Subsidiaries to, engage in any business activity except the ICP Business, servicing customers in business markets for local exchange, long distance, internet and high-speed data services and other business activities reasonably incidental thereto. SECTION VII.2.2. Indebtedness. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, create, incur, assume or permit to exist any Indebtedness, other than: (a) Indebtedness in respect of the Obligations; (b) until the Closing Date, Indebtedness that is to be repaid in full as further identified in Item 7.2.2(b) of the Disclosure Schedule; (c) Indebtedness existing as of the Effective Date which is identified in Item 7.2.2(c) of the Disclosure Schedule, and refinancing of such Indebtedness in a principal amount not in excess of that which is outstanding on the Effective Date (as such amount has been reduced following the Effective Date); (d) unsecured Indebtedness in respect of performance, surety or appeal bonds provided in the ordinary course of business, but excluding (in each case), Indebtedness incurred through the borrowing of money or Contingent Liabilities in respect thereof; (e) Indebtedness in respect of Capitalized Lease Liabilities; provided, that the aggregate amount of all Indebtedness outstanding pursuant to this clause shall not exceed, (x) for that portion of the 2000 Fiscal Year remaining after the Effective Date through (and including) the last day of the 2001 Fiscal Year, $60,000,000, and (y) for each Fiscal Year thereafter, the amount set forth below opposite such Fiscal Year: Fiscal Year Capitalized Lease Amount 2002 $100,000,000 2003 $125,000,000 2004 $165,000,000 2005 $195,000,000 2006 $205,000,000 2007 $205,000,000 2008 $220,000,000; (f) (i) in respect of industrial revenue bonds or other similar governmental or municipal bonds and (ii) evidencing the deferred purchase price of newly acquired property or incurred to finance the acquisition of equipment of the Borrower and its Subsidiaries (pursuant to purchase money mortgages or otherwise, whether owed to the seller or a third party) used in the ordinary course of business of the Borrower and its Subsidiaries (provided, that such Indebtedness is incurred within 60 days of the acquisition of such property), provided that the aggregate amount of Indebtedness at any time outstanding pursuant to the foregoing clauses (i) and (ii) shall not exceed $500,000; (g) unsecured Indebtedness of any Subsidiary owing to the Borrower or any other Subsidiary, which Indebtedness shall, if payable to the Borrower or a U.S. Subsidiary, be evidenced by one or more promissory notes in form and substance satisfactory to the Administrative Agent, duly executed and delivered in pledge to the Administrative Agent pursuant to a Loan Document, and shall not be forgiven or otherwise discharged for any consideration other than payment in full or in part in cash (provided, that only the amount repaid in part shall be discharged); (h) unsecured Indebtedness (not evidenced by a note or other instrument) of the Borrower owing to a Subsidiary that has previously executed and delivered to the Administrative Agent the Intercompany Subordination Agreement; (i) unsecured Contingent Liabilities of the Borrower and the Subsidiary Guarantors in respect of the Subordinated Debt of the Parent, but only if such Contingent Liabilities are subordinated to the Obligations on substantially the same terms as the Subordinated Debt of the Parent is subordinated to the Obligations and refinancings of such Contingent Liabilities which continue to satisfy the terms of the definition of "Subordinated Debt"; (j) Indebtedness of a Person existing at the time such Person became a Subsidiary of the Borrower in an amount not to exceed $1,000,000, but only to the extent that such Indebtedness was not created or incurred in contemplation of such Person becoming a Subsidiary; and (k) other Indebtedness of the Borrower and its Subsidiaries in an aggregate amount at any time outstanding not to exceed $3,000,000; provided, however, that no Indebtedness otherwise permitted by clause (c), (e), (f), (j), or (k) shall be assumed, created or otherwise incurred if a Default has occurred and is then continuing or would result therefrom. SECTION VII.2.3. Liens. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, create, incur, assume or permit to exist any Lien upon any of its property (including Capital Securities of any Person), revenues or assets, whether now owned or hereafter acquired, except: (a) Liens securing payment of the Obligations; (b) until the Closing Date, Liens securing payment of Indebtedness of the type described in clause (b) of Section 7.2.2; (c) Liens existing as of the Effective Date and disclosed in Item 7.2.3(c) of the Disclosure Schedule securing Indebtedness described in clause (c) of Section 7.2.2, and refinancings of such Indebtedness; provided, that no such Lien shall encumber any additional property or assets and the amount of Indebtedness secured by such Lien is not increased from that existing on the Effective Date (as such Indebtedness may have been permanently reduced subsequent to the Effective Date); (d) Liens securing Indebtedness of the type permitted under clauses (e) and (f) of Section 7.2.2; provided, that (i) such Lien is granted within 90 days after such Indebtedness is incurred, (ii) the Indebtedness secured thereby does not exceed 100% of the lesser of the cost or the fair market value of the applicable property, improvements or equipment at the time of such acquisition (or construction) and (iii) such Lien secures only the assets that are the subject of the Indebtedness referred to in such clause; (e) Liens securing Indebtedness permitted by clause (i) of Section 7.2.2; provided, that such Liens existed prior to such Person becoming a Subsidiary, were not created in anticipation thereof and attach only to specific tangible assets of such Person (and not assets of such Person generally); (f) Liens in favor of carriers, warehousemen, mechanics, materialmen and landlords granted in the ordinary course of business for amounts not overdue or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (g) Liens incurred or deposits made in the ordinary course of business in connection with worker's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, bids, leases or other similar obligations (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety and appeal bonds or performance bonds; (h) judgment Liens in existence for less than 45 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies and which do not otherwise result in an Event of Default under Section 8.1.6; (i) easements, rights-of-way, zoning restrictions, minor defects or irregularities in title and other similar encumbrances not interfering in any material respect with the value or use of the property to which such Lien is attached; (j) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; and (k) restrictions on the transfer of any assets of any of the Consolidated Group imposed by any License or by any Communications Law, in either case binding on or affecting any such member of the Consolidated Group. SECTION VII.2.4. Financial Condition and Operations. (a) During the period from the Effective Date through (and including) March 31, 2001, neither the Parent nor the Borrower will permit any of the events set forth below to occur. (i) Maximum Total Debt to ALE Ratio. Neither the Borrower nor the Parent will permit the Total Debt to ALE Ratio as of the last day of any Fiscal Quarter to be greater than $575:1. (ii) Minimum ALEs Installed and Billed. Neither the Borrower nor the Parent will permit the aggregate number of ALEs installed and billed as of the last day of any Fiscal Quarter set forth below to be less than the amount set forth opposite such Fiscal Quarter: Fiscal Quarter ALEs March 31, 2000 260,000 June 30, 2000 300,000 September 30, 2000 350,000 December 31, 2000 390,000 March 31, 2001 430,000 (iii) Minimum Revenue. Neither the Borrower nor the Parent will permit the revenue received by the Consolidated Group as of the last day of any Fiscal Quarter set forth below to be less than the amount set forth opposite such Fiscal Quarter: Fiscal Quarter Revenue March 31, 2000 $40,000,000 June 30, 2000 $47,500,000 September 30, 2000 $55,000,000 December 31, 2000 $62,500,000 March 31, 2001 $70,000,000 (iv) Minimum Consolidated EBITDA. Neither the Borrower nor the Parent will permit the Consolidated EBITDA as of the last day of any Fiscal Quarter set forth below to be less than the amount set forth opposite such Fiscal Quarter: Period Consolidated EBITDA March 31, 2000 ($5,400,000) June 30, 2000 ($3,700,000) September 30, 2000 ($1,600,000) December 31, 2000 $200,000 March 31, 2001 $5,400,000 provided, however, that, upon the consummation of a Permitted Acquisition, the amounts set forth in clauses (a)(ii) and (a)(iii) above (for and after the Fiscal Quarter most recently ended immediately prior to such acquisition) shall be increased by the aggregate number of ALEs installed and billed (if any) and the revenue of the Person acquired for such period, as applicable. (b) During the period from April 1, 2001 through (and including) the Stated Maturity Date for Term B Loans, neither the Parent nor the Borrower will permit any of the events set forth below to occur. (i) Maximum Total Leverage Ratio. Neither the Parent nor the Borrower will permit the Total Leverage Ratio as of the last day of any Fiscal Quarter occurring during any period set forth below to be greater than the ratio set forth opposite such period: Total Period Leverage Ratio 04/01/01 through (and including) 06/30/01 7.75:1 07/01/01 through (and including) 09/30/01 5.75:1 10/01/01 through (and including) 12/31/01 4.75:1 01/01/02 and thereafter 4.00:1 (ii) Minimum Pro Forma Debt Service Coverage Ratio. Neither the Parent nor the Borrower will permit the Pro Forma Debt Service Coverage Ratio as of the last day of any Fiscal Quarter occurring during any period set forth below to be less than the ratio set forth opposite such period: Period Pro Forma Debt Service Coverage Ratio 01/01/02 through (and including) 12/31/02 1.00:1 01/01/03 through (and including) 09/30/03 1.15:1 10/01/03 and thereafter 2.00:1 (iii) Minimum Interest Coverage Ratio. Neither the Parent nor the Borrower will permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter occurring during any period set forth below to be less than the ratio set forth opposite such period: Period Interest Coverage Ratio 04/01/01 through (and including) 06/30/01 1.40:1 07/01/01 through (and including) 09/30/01 1.90:1 10/01/01 through (and including) 03/31/02 2.25:1 04/01/02 and thereafter 3.00:1 SECTION VII.2.5. Investments. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, purchase, make, incur, assume or permit to exist any Investment in any other Person, except: (a) Investments existing on the Effective Date and identified in Item 7.2.5(a) of the Disclosure Schedule; (b) Cash Equivalent Investments; (c) Investments received in connection with the bankruptcy or reorganization of, or settlement of delinquent accounts and disputes with, customers and suppliers, in each case in the ordinary course of business; (d) Investments by way of contributions to capital or purchases of Capital Securities (i) by the Borrower in any Subsidiaries or by any Subsidiary in other Subsidiaries or (ii) by any Subsidiary in the Borrower; (e) Investments of the type permitted pursuant to clauses (g) and (h) of Section 7.2.2; (f) Investments constituting (i) accounts receivable arising, (ii) trade debt granted, or (iii) deposits made in connection with the purchase price of goods or services, in each case in the ordinary course of business; (g) Investments in respect of Permitted Acquisitions; (h) Investments consisting of any deferred portion of the sales price received by the Borrower or any Subsidiary in connection with any Disposition permitted under Section 7.2.10; and (i) other Investments in an amount not to exceed $2,000,000 during the term of this Agreement; provided, however, that (j) any Investment which when made complies with the requirements of clauses (a), (b) or (c) of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (k) no Investment otherwise permitted by clauses (d)(i), (g), (h) or (i) shall be permitted to be made if any Default has occurred and is continuing or would result therefrom. SECTION VII.2.6. Restricted Payments, etc. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make a Restricted Payment, or make any deposit for any Restricted Payment, other than Restricted Payments made by Subsidiaries to the Borrower or wholly-owned Subsidiaries; provided, however, that, notwithstanding the foregoing, the Borrower may declare, pay and make Restricted Payments in any Fiscal Year (commencing with the 2001 Fiscal Year) to the extent the aggregate amount of such Restricted Payments to be made during such Fiscal Year does not exceed the amount of the Excess Cash Flow for the immediately preceding Fiscal Year not otherwise required to be applied to a mandatory prepayment of the Loans pursuant to clause (g) of Section 3.1.1; provided further, however, that the Borrower may make any Restricted Payment permitted pursuant to this Section only so long as (a) both before and after giving effect to any such Restricted Payment, no Default shall have occurred and be continuing; and (b) the Borrower shall have delivered to the Administrative Agent (A) financial statements prepared on a pro forma basis giving effect to such Restricted Payment for the period of four consecutive Fiscal Quarters ending with the Fiscal Quarter most recently ended for which financial statements and the Compliance Certificate relating thereto have been delivered to the Administrative Agent pursuant to Section 7.1.1 and (B) a certificate executed by an Authorized Officer of the Borrower demonstrating that the financial results reflected in such financial statements would comply with the requirements of Section 7.2.4 for the Fiscal Quarter in which such Restricted Payment is to be made. SECTION VII.2.7. Capital Expenditures, etc. Subject (in the case of Capitalized Lease Liabilities) to clause (e) of Section 7.2.2, the Borrower will not, and will not permit any of its Subsidiaries to, make or commit to make Capital Expenditures in any Fiscal Year (beginning with the 2001 Fiscal Year) which in the aggregate do not exceed, (a) for that portion of the 2000 Fiscal Year remaining after the Effective Date through (and including) the last day of the 2001 Fiscal Year, $90,000,000, and (b) for each Fiscal Year thereafter, the amount set forth below opposite such Fiscal Year: Capital Fiscal Year Expenditure Amount 2002 $115,000,000 2003 $150,000,000 2004 $190,000,000 2005 $220,000,000 2006 $220,000,000 2007 $220,000,000 2008 $220,000,000; provided, however, that, to the extent the amount of Capital Expenditures permitted to be made in any Fiscal Year pursuant to this Section exceeds the aggregate amount of Capital Expenditures actually made during such Fiscal Year, such excess amount (up to an aggregate of 50% of the amount of Capital Expenditures permitted for such Fiscal Year, without giving effect to this proviso) may be carried forward to (but only to) the next succeeding Fiscal Year (any such amount to be certified by the Parent to the Administrative Agent in the Compliance Certificate delivered for the last Fiscal Quarter of such Fiscal Year, and any such amount carried forward to a succeeding Fiscal Year shall be deemed to be used prior to the Borrower and its Subsidiaries using the amount of Capital Expenditures permitted by this Section in such succeeding Fiscal Year, without giving effect to such carry-forward); provided further, however, that the amounts set forth in the table above for each of the remaining Fiscal Years shall each be increased (on a pro rata basis) by an amount equal to the Net Equity Proceeds not otherwise required to be applied to a mandatory prepayment of the Loans pursuant to clause (h) of Section 3.1.1 less the amount of any such Net Equity Proceeds used as consideration for any Permitted Acquisition permitted pursuant to clause (g) of Section 7.2.5. SECTION VII.2.8. Issuance of Capital Securities. The Borrower will not, and will not permit any of its Subsidiaries to, (a) issue any Capital Securities (whether for value or otherwise) to any Person other than, (i) in the case of Subsidiaries, to the Borrower or another wholly-owned Subsidiary, (ii) in the case of the Borrower, to the Parent, or (b) become liable in respect of any obligation (contingent or otherwise) to purchase, redeem, retire, acquire or make any other payment in respect of any Capital Securities of any member of the Consolidated Group or any option, warrant or other right to acquire any such Capital Securities. SECTION VII.2.9. Consolidation, Merger, etc. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other Person, or purchase or otherwise acquire all or substantially all of the assets of any Person (or any division thereof), except (a) any Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Borrower or any other Subsidiary (provided, however, that a Subsidiary Guarantor may only liquidate or dissolve into, or merge with and into, the Borrower or another Subsidiary Guarantor), and the assets or Capital Securities of any Subsidiary may be purchased or otherwise acquired by the Borrower or any other Subsidiary (provided, however, that the assets or Capital Securities of any Subsidiary Guarantor may only be purchased or otherwise acquired by the Borrower or another Subsidiary Guarantor); provided further, that in no event shall any Pledged Subsidiary consolidate with or merge with and into any Subsidiary other than another Pledged Subsidiary unless after giving effect thereto, the Administrative Agent shall have a perfected pledge of, and security interest in and to, at least the same percentage of the issued and outstanding interests of Capital Securities (on a fully diluted basis) of the surviving Person as the Administrative Agent had immediately prior to such merger or consolidation in form and substance satisfactory to the Administrative Agent and its counsel, pursuant to such documentation and opinions as shall be necessary in the opinion of the Administrative Agent to create, perfect or maintain the collateral position of the Secured Parties therein; and (b) so long as no Default has occurred and is continuing or would occur after giving effect thereto, the Borrower or any of its Subsidiaries may (to the extent permitted by clause (g) of Section 7.2.5) purchase all or substantially all of the assets or Capital Securities of any Person (or any division thereof), or acquire such Person by merger. SECTION VII.2.10. Permitted Dispositions. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, Dispose of any of the Parent's, the Borrower's or such Subsidiaries' assets (including accounts receivable and Capital Securities of the Borrower and its Subsidiaries) to any Person in one transaction or a series of transactions unless: (a) such Disposition is of inventory or of obsolete or worn-out equipment, in each case Disposed of in the ordinary course of its business; (b) such Disposition is permitted by Section 7.2.9; or (c) (inclusive of any sales made in accordance with Section 7.2.15) (i) such Disposition is for not less than the fair market value of the assets to be Disposed, (ii) the consideration received by the Parent, the Borrower or such Subsidiary consists of at least 80% cash, (iii) the Net Disposition Proceeds received from such Disposition, together with the Net Disposition Proceeds of all other assets Disposed pursuant to this clause since the Closing Date, does not exceed (individually or in the aggregate) $10,000,000 during the term of this Agreement, and (iv) an amount equal to the Net Disposition Proceeds received from such Disposition are applied in accordance with clause (f) of Sections 3.1.1. SECTION VII.2.11. Amendment of Organic Documents. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, amend, supplement or otherwise modify, or permit, consent or suffer to occur any amendment, supplement or modification of any terms or provisions contained in, or applicable to, any Organic Document of any such Person if the effect thereof is to impair, or is in any manner adverse to, the rights, interests or obligations of any Secured Party under any Loan Document. SECTION VII.2.12. Modification of Certain Agreements. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, consent to any amendment, supplement, waiver or other modification of, or enter into any forbearance from exercising any rights with respect to the terms or provisions contained in any Subordinated Debt Documents, other than any amendment, supplement, waiver or modification for which no fee is payable to the holders of the Subordinated Debt and which (i) extends the date or reduces the amount of any required repayment, prepayment or redemption of the principal of such Subordinated Debt, (ii) reduces the rate or extends the date for payment of the interest, premium (if any) or fees payable on such Subordinated Debt or (iii) makes the covenants, events of default or remedies in such Subordinated Debt Documents less restrictive on the Parent. SECTION VII.2.13. Transactions with Affiliates. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, enter into or cause or permit to exist any arrangement, transaction or contract (including for the purchase, lease or exchange of property or the rendering of services) with any of their respective Affiliates, unless such arrangement, transaction or contract (i) is on fair and reasonable terms no less favorable to the Parent, the Borrower or such Subsidiary than it could obtain in an arm's-length transaction with a Person that is not an Affiliate and (ii) is of the kind which would be entered into by a prudent Person in the position of the Parent, the Borrower or such Subsidiary with a Person that is not one of its Affiliates. SECTION VII.2.14. Restrictive Agreements, etc. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, enter into any agreement prohibiting (a) the creation or assumption of any Lien upon its properties, revenues or assets, whether now owned or hereafter acquired; (b) the ability of any Obligor to amend or otherwise modify any Loan Document; or (c) the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower, including by way of dividends, advances, repayments of loans, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments. The foregoing prohibitions shall not apply to restrictions contained (i) in any Loan Document or (ii) in the case of clause (a), any agreement governing any Indebtedness permitted by clauses (e) and (f) of Section 7.2.2 as to the assets financed with the proceeds of such Indebtedness. SECTION VII.2.15. Sale and Leaseback. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, directly or indirectly enter into any agreement or arrangement providing for the sale or transfer by it of any property (now owned or hereafter acquired) to a Person and the subsequent lease or rental of such property or other similar property from such Person, except to extent that (a) the aggregate consideration received by the Parent, the Borrower or any such Subsidiary, as applicable, in connection with all such agreements and arrangements would not exceed $2,000,000 in the aggregate during the term of this Agreement and (b) the provisions of Section 7.2.10 shall have been complied with. SECTION VII.2.16. Foreign Subsidiaries. Notwithstanding any other provisions of this Agreement to the contrary, the Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, organize or acquire any Foreign Subsidiaries. SECTION VII.2.17. No Prepayment of Subordinated Debt. The Parent and the Borrower will not, and will not permit any of their respective Subsidiaries to, (a) make any payment or prepayment of principal of, or premium or interest on, any Subordinated Debt (i) other than the stated, scheduled date for payment of interest set forth in the applicable Subordinated Debt Documents, or (ii) which would violate the terms of this Agreement or the applicable Subordinated Debt Documents; (b) redeem, retire, purchase, defease or otherwise acquire any Subordinated Debt; or (c) make any deposit (including the payment of amounts into a sinking fund or other similar fund) for any of the foregoing purposes. Furthermore, no member of the Consolidated Group will designate any Indebtedness other than the Obligations as "Designated Senior Debt" (or any analogous term) in any Subordinated Debt Document. SECTION VII.2.18. Activities of the Parent. Notwithstanding any other provisions of this Agreement to the contrary, the Parent will not engage in any business activity other than its continuing ownership of the all of the Capital Securities of the Borrower and its compliance with (i) the obligations applicable to it under the Loan Documents and (ii) any applicable laws, rules, regulations and orders imposed upon it by any applicable Governmental Authority (including the SEC). Without limiting the generality of the immediately preceding sentence, the Parent will not (a) create, incur, assume or suffer to exist any Indebtedness (other than Indebtedness in respect of (x) unsecured Subordinated Debt of the Parent to be incurred by the Parent pursuant to the terms of the Subordinated Debt Documents in a principal amount not to exceed $150,000,000 (unless the Required Lenders shall otherwise consent) and refinancings of such Subordinated Debt which continue to satisfy the terms of the definition of "Subordinated Debt", and (y) the guaranty contained in Article IX), (b) create, assume, or suffer to exist any Lien upon, or grant any options or other rights with respect to, any of its revenues, property or other assets, whether now owned or hereafter acquired (other than pursuant to the Loan Documents), (c) wind-up, liquidate or dissolve itself (or suffer to exist any of the foregoing), consolidate or amalgamate with or merge into or with any other Person, issue stock, or convey, sell, transfer, lease or otherwise dispose of all or any part of its assets, in one transaction or a series of transactions, to any Person or Persons, (d) create, incur, assume or suffer to exist any Investment in any Person other than as provided in clause (a) of Section 7.2.5 or (e) permit to be taken any action that would result in a Change in Control. The Parent agrees not to commence or cause the commencement of any of the actions described in clauses (b), (c) or (d) of Section 8.1.9 of this Agreement with respect to any of its Subsidiaries. ARTICLE VIII EVENTS OF DEFAULT SECTION VIII.1. Listing of Events of Default. Each of the following events or occurrences described in this Article shall constitute an "Event of Default". SECTION VIII.1.1. Non-Payment of Obligations. The Borrower shall default in the payment or prepayment when due of (a) any principal of any Loan, or any Reimbursement Obligation or any deposit of cash for collateral purposes pursuant to Section 2.6.4; or (b) any interest on any Loan, any fee described in Article III or any other monetary Obligation, and such default shall continue unremedied for a period of three days after such amount was due. SECTION VIII.1.2. Breach of Warranty. Any representation or warranty of any Obligor made or deemed to be made in any Loan Document (including any certificates delivered pursuant to Article V) is or shall be incorrect when made or deemed to have been made in any material respect. SECTION VIII.1.3. Non-Performance of Certain Covenants and Obligations. The Borrower or the Parent, as applicable, shall default in the due performance or observance of any of its obligations under Section 7.1.1, Section 7.1.7 or Section 7.2 or any Obligor shall default in the due performance or observance of its obligations under (i) Article IV of the Subsidiary Guaranty, (ii) Article IV of a Pledge Agreement. SECTION VIII.1.4. Non-Performance of Other Covenants and Obligations. Any Obligor shall default in the due performance and observance of any agreement contained in any Loan Document (other than those articles and sections of the certain Loan Documents specifically enumerated in Section 8.1.3) executed by it, and such default shall continue unremedied for a period of 30 days after such Obligor has actual knowledge thereof or notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender. SECTION VIII.1.5. Default on Other Indebtedness. A default shall occur in the payment of any amount when due (subject to any applicable grace period), whether by acceleration or otherwise, of any principal or stated amount of, or interest or fees on, any Indebtedness (other than Indebtedness described in Section 8.1.1) of any member of the Consolidated Group or any other Obligor having a principal or stated amount, individually or in the aggregate, in excess of $2,000,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause or declare such Indebtedness to become due and payable or to require such Indebtedness to be prepaid, redeemed, purchased or defeased, or require an offer to purchase or defease such Indebtedness to be made, prior to its expressed maturity. SECTION VIII.1.6. Judgments. Any judgment or order for the payment of money individually or in the aggregate in excess of $2,000,000 (exclusive of any amounts fully covered by insurance (less any applicable deductible) and as to which the insurer has acknowledged its responsibility to cover such judgment or order) shall be rendered against the any member of the Consolidated Group or any other Obligor and such judgment shall not have been vacated or discharged or stayed or bonded pending appeal within 30 days after the entry thereof or enforcement proceedings shall have been commenced by any creditor upon such judgment or order. SECTION VIII.1.7. Pension Plans. Any of the following events shall occur with respect to any Pension Plan (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $1,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. SECTION VIII.1.8. Change in Control. Any Change in Control shall occur. SECTION VIII.1.9. Bankruptcy, Insolvency, etc. Any member of the Consolidated Group or any other Obligor shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness generally to pay, debts as they become due; (b) apply for, consent to, or acquiesce in the appointment of a trustee, receiver, sequestrator or other custodian for any substantial part of the property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence in or permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days; provided, that the Borrower, each Subsidiary and each other Obligor hereby expressly authorizes each Secured Party to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law or any dissolution, winding up or liquidation proceeding, in respect thereof, and, if any such case or proceeding is not commenced by the Borrower, any Subsidiary or any Obligor, such case or proceeding shall be consented to or acquiesced in by the Borrower, such Subsidiary or such Obligor, as the case may be, or shall result in the entry of an order for relief or shall remain for 60 days undismissed; provided, that the Borrower, each Subsidiary and each Obligor hereby expressly authorizes each Secured Party to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; or (e) take any action authorizing, or in furtherance of, any of the foregoing. SECTION VIII.1.10. Impairment of Security, etc. Any Loan Document or any Lien granted thereunder shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; any Obligor or any other party shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or, except as permitted under any Loan Document, any Lien securing any Obligation shall, in whole or in part, cease to be a perfected first priority Lien. SECTION VIII.1.11. Failure of Subordination. Unless otherwise waived or consented to by the Administrative Agent, the Lenders and the Issuers in writing, the subordination provisions relating to any Subordinated Debt (the "Subordination Provisions") shall fail to be enforceable by the Administrative Agent, the Lenders and the Issuers in accordance with the terms thereof, or the monetary Obligations shall fail to constitute "Senior Indebtedness" (or similar term) referring to the Obligations; or any member of the Consolidated Group shall, directly or indirectly, disavow or contest in any manner (i) the effectiveness, validity or enforceability of any of the Subordination Provisions, (ii) that the Subordination Provisions exist for the benefit of the Administrative Agent, the Lenders and the Issuers or (iii) that all payments of principal of or premium and interest on the Subordinated Debt, or realized from the liquidation of any property of any Obligor, shall be subject to any of such Subordination Provisions. SECTION VIII.1.12. Loss of Material License. Any member of the Consolidated Group shall lose or have terminated or expired a material License. SECTION VIII.1.13. Regulations, etc. Any federal, state, provincial or local statute, regulation or ordinance or judicial or administrative decision or order having a material effect or relating to the operation of the Network Facilities and the conduct of their ICP Business by the Borrower and its Subsidiaries (including any statues, decisions or orders affecting long distance telecommunication resellers generally and not directed against the Borrower or any of its Subsidiaries specifically) have been issued or adopted (or have been proposed) and which could reasonably be expected to have a Material Adverse Effect. SECTION VIII.2. Action if Bankruptcy. If any Event of Default described in clauses (a) through (d) of Section 8.1.9 with respect to the Borrower shall occur, the Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations (including Reimbursement Obligations) shall automatically be and become immediately due and payable, without notice or demand to any Person and each Obligor shall automatically and immediately be obligated to Cash Collateralize all Letter of Credit Outstandings. SECTION VIII.3. Action if Other Event of Default. (a) If any Event of Default (other than any Event of Default described in clauses (a) through (d) of Section 8.1.9 with respect to the Borrower) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations (including Reimbursement Obligations) to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate and the Borrower shall automatically and immediately be obligated to Cash Collateralize all Letter of Credit Outstandings. (b) Without limiting the generality of the foregoing or limiting in any way the rights of the Secured Parties under any Loan Document or otherwise under applicable law, at any time after the occurrence, and during the continuance, of any Event of Default arising under clause (a) of Section 8.1.1, or anytime after the acceleration of the Loans, the Administrative Agent, at the direction of the Required Lenders, shall be entitled to apply for and have a receiver or receiver and manager appointed under state or Federal law of the United States by a court of competent jurisdiction in any action taken by any of the Secured Parties to enforce their rights and remedies hereunder and under any Loan Document in order to manage, protect, preserve, sell and otherwise dispose of all or any portion of the Collateral and continue the operation of the businesses of the Borrower and its Subsidiaries, and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership, including the compensation of the receiver, and to the payment of the Obligations as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated. Each of the Parent and the Borrower (for itself and, with all due authority, each of its Subsidiaries) hereby irrevocably consents to and waives any right to object to or otherwise contest the appointment of a receiver as provided above. Each of the Parent and the Borrower (for itself and, with all due authority, each of its Subsidiaries) grants such waiver and consent knowingly after having discussed the implications thereof with counsel, acknowledges that the uncontested right to have a receiver appointed for the foregoing purposes is considered essential by the Secured Parties in connection with the enforcement of their rights and remedies hereunder and under any Loan Document, and the availability of such appointment as a remedy under the foregoing circumstances was a material factor in inducing the Secured Parties to make (and commit to make) the Credit Extensions to the Borrower; and agrees to enter into any and all stipulations in any legal actions, or agreements or other instruments in connection with the foregoing and to cooperate fully with the Secured Parties in connection with the assumption and exercise of control by the receiver over all or any portion of the Collateral. ARTICLE IX GUARANTY SECTION IX.1. Guaranty. The Parent hereby absolutely, unconditionally and irrevocably (a) guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations of each Obligor now or hereafter existing, whether for principal, interest (including interest accruing at the then applicable rate provided in this Agreement after the occurrence of any Default set forth in Section 8.1.9, whether or not a claim for post-filing or post-petition interest is allowed under applicable law following the institution of a proceeding under bankruptcy, insolvency or similar laws), fees, Reimbursement Obligations, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. 362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. 502(b) and 506(b)); and (b) indemnifies and holds harmless each Secured Party for any and all costs and expenses (including reasonable attorneys' fees and expenses) incurred by such Secured Party in enforcing any rights hereunder; This obligations of the Parent pursuant to this Article (the "Guarantee Obligations") constitute a guaranty of payment when due and not of collection, and the Parent specifically agrees that it shall not be necessary or required that any Secured Party exercise any right, assert any claim or demand or enforce any remedy whatsoever against any Obligor or any other Person before or as a condition to the obligations of the Parent hereunder. SECTION IX.2. Reinstatement, etc. The Parent hereby agrees that the Guarantee Obligations shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is invalidated, declared to be fraudulent or preferential, set aside, rescinded or must otherwise be restored by any Secured Party, including upon the occurrence of any Default set forth in Section 8.1.9 or otherwise, all as though such payment had not been made. SECTION IX.3. Acceleration of Guaranty. The Parent agrees that, in the event of the dissolution or insolvency of any Obligor (including the Parent), or the inability or failure of any Obligor (including the Parent) to pay debts as they become due, or an assignment by any Obligor (including the Parent) for the benefit of creditors, or the commencement of any case or proceeding in respect of any Obligor (including the Parent) under any bankruptcy, insolvency or similar laws, and if such event shall occur at a time when any of the Obligations of each Obligor (including the Parent) may not then be due and payable, the Parent agrees that it will pay to the Secured Parties forthwith the full amount which would be payable hereunder by the Parent if all such Obligations were then due and payable. SECTION IX.4. Setoff. The Parent hereby irrevocably authorizes each Secured Party, without the requirement that any notice be given to the Parent (such notice being expressly waived by the Parent), upon the occurrence and during the continuance of any Default described in Section 8.1.9 or, with the consent of the Required Lenders, upon the occurrence and during the continuance of any other Event of Default, to setoff and appropriate and apply to the payment of the Obligations (whether or not then due, and whether or not any Secured Party has made any demand for payment of the Obligations), any and all balances, claims, credits, deposits (general or special, time or demand, provisional or final), accounts or money of the Parent then or thereafter maintained with such Secured Party (but only to the extent of any amounts constituting proceeds of Collateral received by the Parent at any time after the occurrence and during the continuance of any Default described in Section 8.1.9 or upon the occurrence and during the continuance of any other Event of Default); provided, however, that any such appropriation and application shall be subject to the provisions of Section 4.8. Each Secured Party agrees to notify the Parent and the Administrative Agent after any such setoff and application made by such Secured Party; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Secured Party under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Secured Party may have. SECTION IX.5. Waiver, etc. The Parent hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and the Guarantee Obligations and any requirement that any Secured Party exhaust any right or take any action against any Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Obligations, as the case may be. SECTION IX.6. Guaranty Absolute. All rights of the Administrative Agent and the benefits granted to the Administrative Agent hereunder, and all obligations of the Parent hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of any Loan Document; (b) the failure of any Secured Party (i) to assert any claim or demand or to enforce any right or remedy against any Obligor or any other Person (including any other guarantor) under the provisions of any Loan Document or otherwise, or (ii) to exercise any right or remedy against any guarantor of, or collateral securing, any Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Obligations, or any other extension, compromise or renewal of any Obligations; (d) any reduction, limitation, impairment or termination of any Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Parent hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligations or otherwise; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of any Loan Document; (f) any addition, exchange or release or of any collateral (including the Collateral) or any Person that is (or will become) a guarantor of the Obligations, or any surrender or non-perfection of any collateral, or any amendment to or waiver or release of or addition to, or consent to departure from, any guaranty, held by any Secured Party securing any of the Obligations; or (g) any other circumstances which might otherwise constitute a defense available to, or a legal or equitable discharge of any Obligor, any surety or any guarantor. SECTION IX.7. Postponement of Subrogation, etc. The Parent hereby agrees that it will not exercise any rights which it may acquire by reason of any payment made under this Article, whether by way of subrogation, reimbursement or otherwise, until the Termination Date. Any amount paid to the Parent on account of any payment made under this Article prior to the Termination Date shall be held in trust for the benefit of the Secured Parties and shall immediately be paid to the Secured Parties and credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms of this Agreement; provided, however, that if the Parent has made payment to the Secured Parties of all or any part of the Obligations, and the Termination Date has occurred, then at the Parent's request, the Administrative Agent (on behalf of the Secured Parties) will, at the expense of the Parent, execute and deliver to the Parent appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to the Parent of an interest in the Obligations resulting from such payment. In furtherance of the foregoing, at all times prior to the Termination Date, the Parent shall refrain from taking any action or commencing any proceeding against any Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in respect of payments made hereunder to any Secured Party. ARTICLE X AGENCY SECTION X.1. Actions. Each Lender hereby appoints TD as its Administrative Agent under and for purposes of each Loan Document. Each Lender authorizes the Administrative Agent to act on behalf of such Lender under each Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Administrative Agent (with respect to which the Administrative Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel in order to avoid contravention of applicable law), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) the Administrative Agent and the Arranger, pro rata according to such Lender's proportionate Total Exposure Amount (which, for any period after the Stated Maturity Date, shall mean the Total Exposure Amount on the Stated Maturity Date), from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Administrative Agent or the Arranger, as the case may be, in any way relating to or arising out of any Loan Document, including reasonable attorneys' fees, and as to which the Administrative Agent or the Arranger, as the case may be, is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted from the Administrative Agent's or the Arranger's gross negligence or wilful misconduct. The Administrative Agent shall not be required to take any action under any Loan Document, or to prosecute or defend any suit in respect of any Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of the Administrative Agent shall be or become, in the Administrative Agent's determination, inadequate, the Administrative Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION X.2. Funding Reliance, etc. Unless the Administrative Agent shall have been notified in writing by any Lender by 5:00 p.m. on the Business Day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Administrative Agent, such Lender and the Borrower severally agree to repay the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Administrative Agent made such amount available to the Borrower to the date such amount is repaid to the Administrative Agent, at the interest rate applicable at the time to Loans comprising such Borrowing (in the case of the Borrower) and (in the case of a Lender), at the Federal Funds Rate (for the first two Business Days after which such amount has not been repaid, and thereafter at the interest rate applicable to Loans comprising such Borrowing. SECTION X.3. Exculpation. Neither the Administrative Agent, the Arranger nor any of their respective directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under any Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of any Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by any Obligor of its Obligations. Any such inquiry which may be made by the Administrative Agent shall not obligate it to make any further inquiry or to take any action. The Administrative Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which the Administrative Agent believe to be genuine and to have been presented by a proper Person. SECTION X.4. Successor. The Administrative Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower and all Lenders. If the Administrative Agent at any time shall resign, the Required Lenders may appoint another Lender as a successor Administrative Agent which shall thereupon become the Administrative Agent hereunder. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000; provided, however, that if, the retiring Administrative Agent is unable to find a commercial banking institution which is willing to accept such appointment and which meets the qualifications set forth in above, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor as provided for above. Upon the acceptance of any appointment as the Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Administrative Agent such documents of transfer and assignment as such successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. After any retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under the Loan Documents, and Section 11.3 and Section 11.4 shall continue to inure to its benefit. SECTION X.5. Loans by TD. TD shall have the same rights and powers with respect to the (a) Loans made by it or any of its Affiliates, and (b) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not an Agent. TD and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if TD were not an Agent hereunder. SECTION X.6. Credit Decisions. Each Lender acknowledges that it has, independently of the Administrative Agent and each other Lender, and based on such Lender's review of the financial information of the Borrower, the Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of the Administrative Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under the Loan Documents. SECTION X.7. Copies, etc. The Administrative Agent shall give prompt notice to each Lender of each notice or request required to be given to the Administrative Agent by the Borrower or the Parent pursuant to the terms of the Loan Documents (unless concurrently delivered to the Lenders by the Borrower or the Parent). The Administrative Agent will distribute to each Lender each document or instrument received from the Borrower for distribution to the Lenders by the Administrative Agent in accordance with the terms of the Loan Documents. SECTION X.8. Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telecopy, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. As to any matters not expressly provided for by the Loan Documents, the Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Required Lenders or all of the Lenders as is required in such circumstance, and such instructions of such Lenders and any action taken or failure to act pursuant thereto shall be binding on all Secured Parties. For purposes of applying amounts in accordance with this Section, the Administrative Agent shall be entitled to rely upon any Secured Party that has entered into a Rate Protection Agreement with any Obligor for a determination (which such Secured Party agrees to provide or cause to be provided upon request of the Administrative Agent) of the outstanding Obligations owed to such Secured Party under any Rate Protection Agreement. Unless they have actual knowledge evidenced by way of written notice from any such Secured Party and the Borrower to the contrary, the Administrative Agent, in acting in such capacity under the Loan Documents, shall be entitled to assume that no Rate Protection Agreements or Obligations in respect thereof are in existence or outstanding between any Secured Party and any Obligor. SECTION X.9. Defaults. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of a Default unless the Administrative Agent has received a written notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall (subject to Section 11.1) take such action with respect to such Default as shall be directed by the Required Lenders; provided, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Required Lenders or all Lenders. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION XI.1. Waivers, Amendments, etc. The provisions of each Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower, the Parent and the Required Lenders; provided, however, that no such amendment, modification or waiver shall: (a) modify this Section without the consent of all Lenders; (b) increase the aggregate amount of any Credit Extensions required to be made by a Lender pursuant to its Commitments, extend the final Commitment Termination Date of Credit Extensions made (or participated in) by a Lender or extend the final Stated Maturity Date for any Lender's Loan, in each case without the consent of such Lender (it being agreed, however, that any vote to rescind any acceleration made pursuant to Section 8.2 and Section 8.3 of amounts owing with respect to the Loans and other Obligations shall only require the vote of the Required Lenders); (c) reduce the principal amount of or rate of interest on any Lender's Loan, reduce any fees described in Article III payable to any Lender or extend the date on which interest or fees are payable in respect of such Lender's Loans, in each case without the consent of such Lender; (d) amend, modify or waive the provisions of clause (e), (f), (g) or (h) of Section 3.1.1 or clause (b) of Section 3.1.2, in any case in such a manner as to adversely affect the rights of the Lenders participating in any particular Tranche differently from the rights of Lenders participating in any other Tranche without the consent of the Lenders holding more than 50% of the aggregate amount of Loans outstanding under the Tranche or Tranches adversely affected by such amendment, modification or waiver; (e) reduce the amount or extend the date of any mandatory Commitment reductions otherwise required pursuant to Section 2.2.2, in each case without the consent of all Lenders; (f) reduce the percentage set forth in the definition of "Required Lenders", or modify any requirement hereunder that any particular action be taken by all Lenders without the consent of all Lenders; (g) increase the Stated Amount of any Letter of Credit unless consented to by the Issuer of such Letter of Credit; (h) except as otherwise expressly provided in a Loan Document, release (i) the Borrower from its Obligations under the Loan Documents, the Parent from its obligations under this Agreement or the Parent Pledge Agreement, or any Subsidiary Guarantor from its obligations under the Subsidiary Guaranty or (ii) all or substantially all of the collateral under the Loan Documents, in each case without the consent of all Lenders; or (i) affect adversely the interests, rights or obligations of the Administrative Agent (in its capacity as the Administrative Agent) or any Issuer (in its capacity as Issuer), unless consented to by the Administrative Agent or such Issuer, as the case may be. No failure or delay on the part of any Secured Party in exercising any power or right under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on any Obligor in any case shall entitle it to any notice or demand in similar or other circumstances. All rights and remedies provided for in this Agreement are cumulative, and not exclusive of rights and remedies provided by law. No waiver or approval by any Secured Party under any Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION XI.2. Notices; Time. All notices and other communications provided under each Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted, if to the Borrower or the Administrative Agent, at its address or facsimile number set forth on Schedule II hereto, and if to a Lender or Issuer to the applicable Person at its address or facsimile number set forth on Schedule II hereto or set forth in the Lender Assignment Agreement, or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when the confirmation of transmission thereof is received by the transmitter. Unless otherwise indicated, all references to the time of a day in a Loan Document shall refer to New York time. SECTION XI.3. Payment of Costs and Expenses. The Borrower agrees to pay on demand all expenses of the Administrative Agent (including the reasonable fees, out-of-pocket expenses and other charges of Mayer, Brown & Platt, counsel to the Administrative Agent and of local counsel, if any, who may be retained by or on behalf of the Administrative Agent) in connection with (a) the negotiation, preparation, execution and delivery and ongoing administration of each Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to any Loan Document and any legal advice in connection with any of the foregoing as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated; and (b) the filing or recording of any Loan Document (including the Filing Statements) and all amendments, supplements, amendment and restatements and other modifications to any thereof, searches made following the Effective Date in jurisdictions where Filing Statements (or other documents evidencing Liens in favor of the Secured Parties) have been recorded and any and all other documents or instruments of further assurance required to be filed or recorded by the terms of any Loan Document; and (c) the preparation and review of the form of any document or instrument relevant to any Loan Document; and (d) the periodic review (at reasonable times and intervals) of the Collateral (including any audits of the same); and (e) the syndication of the Commitments and Loans. Furthermore, the Borrower agrees to pay, and to save each Secured Party harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of each Loan Document, the Credit Extensions or the issuance of the Notes. The Borrower also agrees to reimburse each Secured Party upon demand for all reasonable out-of-pocket expenses (including reasonable attorneys' fees and legal expenses of counsel to each Secured Party) incurred by such Secured Party in connection with (x) the negotiation of any restructuring or "work-out" with the Borrower, whether or not consummated, of any Obligations and (y) the enforcement of any Obligations (including the Obligations of the Parent under Article IX). The Borrower further agrees to reimburse the Administrative Agent upon demand for all other administrative, audit and monitoring expenses incurred after the occurrence of an Event of Default in connection with the Loan Documents. SECTION XI.4. Indemnification. In consideration of the execution and delivery of this Agreement by each Secured Party, the Borrower hereby indemnifies, exonerates and holds each Secured Party and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements, whether incurred in connection with actions between or among the parties hereto or the parties hereto and third parties (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Credit Extension, including all Indemnified Liabilities arising in connection with the Refinancing; (b) the entering into and performance of any Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund any Credit Extension, provided that any such action is resolved in favor of such Indemnified Party); (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by any Obligor or any Subsidiary thereof of all or any portion of the Capital Securities or assets of any Person, whether or not an Indemnified Party is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by any Obligor or any Subsidiary thereof of any Hazardous Material; (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by any Obligor or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, such Obligor or Subsidiary; or (f) each Lender's Environmental Liability (the indemnification herein shall survive repayment of the Obligations and any transfer of the property of any Obligor or its Subsidiaries by foreclosure or by a deed in lieu of foreclosure for any Lender's Environmental Liability, regardless of whether caused by, or within the control of, such Obligor or such Subsidiary); except for Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. Each Obligor and its successors and assigns hereby waive, release and agree not to make any claim or bring any cost recovery action against, any Indemnified Party under CERCLA or any state equivalent, or any similar law now existing or hereafter enacted. It is expressly understood and agreed that to the extent that any Indemnified Party is strictly liable under any Environmental Laws, each Obligor's obligation to such Indemnified Party under this indemnity shall likewise be without regard to fault on the part of any Obligor with respect to the violation or condition which results in liability of an Indemnified Party. If and to the extent that the foregoing undertaking may be unenforceable for any reason, each Obligor agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION XI.5. Survival. The obligations of the Borrower under Sections 4.3, 4.4, 4.5, 4.6, 11.3 and 11.4, and the obligations of the Lenders under Section 10.1, shall in each case survive any assignment from one Lender to another (in the case of Sections 11.3 and 11.4) and the occurrence of the Termination Date. The representations and warranties made by each Obligor in each Loan Document shall survive the execution and delivery of such Loan Document. SECTION XI.6. Severability. Any provision of any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION XI.7. Headings. The various headings of each Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of such Loan Document or any provisions thereof. SECTION XI.8. Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Parent, the Borrower, the Administrative Agent and each Lender (or notice thereof satisfactory to the Administrative Agent), shall have been received by the Administrative Agent. SECTION XI.9. Governing Law; Entire Agreement. EACH LOAN DOCUMENT (OTHER THAN THE LETTERS OF CREDIT, TO THE EXTENT SPECIFIED BELOW AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN A LOAN DOCUMENT) WILL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK). EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO LAWS OR RULES ARE DESIGNATED, THE INTERNATIONAL STANDBY PRACTICES (ISP98--INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NUMBER 590 (THE "ISP RULES")) AND, AS TO MATTERS NOT GOVERNED BY THE ISP RULES, THE INTERNAL LAWS OF THE STATE OF NEW YORK. The Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter thereof and supersede any prior agreements, written or oral, with respect thereto, except for the second and third paragraphs of the Commitment Letter, which paragraphs shall expressly survive execution and delivery of this Agreement and shall continue to be effective in accordance with the terms thereof. SECTION XI.10. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that the Borrower may not assign or transfer its rights or obligations hereunder without the consent of all Lenders. SECTION XI.11. Sale and Transfer of Credit Extensions; Participations in Credit Extensions; Notes. Each Lender may assign, or sell participations in, its Loans, Letters of Credit and Commitments to one or more other Persons in accordance with this the terms set forth below. SECTION XI.11.1. Assignments. Any Lender, pursuant to a Lender Assignment Agreement, (a) with the consent of the Borrower and the Administrative Agent (which consents shall not be unreasonably delayed or withheld and which consent, in the case of the Borrower, shall not be required during the continuation of an Event of Default) may at any time assign and delegate to one or more Eligible Assignees; and (b) upon notice to the Borrower and the Administrative Agent, upon the Administrative Agent's acknowledgment on a Lender Assignment Agreement, may assign and delegate to any of its Affiliates or to any other Lender; (each Person described in either of the foregoing clauses as being (x) the Person who is making such assignment and delegation, being hereinafter referred to as an "Assignor Lender" and (y) the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any fraction of such Lender's Loans, Letter of Credit Outstandings and Commitments in a minimum aggregate amount of (i) $5,000,000, in the case of such Lender's Revolving Loans (together with Letter of Credit Outstandings), Term A Loans and applicable Commitments, (ii) $1,000,000, in the case of such Lender's Term B Loans and applicable Commitment or (iii) in any case, if less, the entire remaining amount of such Lender's Loans, Letter of Credit Outstandings and Commitments. Each Obligor and the Administrative Agent shall be entitled to continue to deal solely and directly with a Lender in connection with the interests so assigned and delegated to an Assignee Lender until (c) notice of such assignment and delegation, together with (i) payment instructions, (ii) the Internal Revenue Service forms or other statements contemplated or required to be delivered pursuant to Section 4.6, if applicable, and (iii) addresses and related information with respect to such Assignee Lender, shall have been delivered to the Borrower and the Administrative Agent by such Assignor Lender and such Assignee Lender; (d) such Assignee Lender shall have executed and delivered to the Borrower and the Administrative Agent a Lender Assignment Agreement, accepted by the Administrative Agent; and (e) the processing fees described below shall have been paid. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement and such assignment is registered with Register pursuant to clause (b) of Section 2.7, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender under the Loan Documents, and (y) the Assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within five Business Days after its receipt of notice that the Administrative Agent has received and accepted an executed Lender Assignment Agreement (and if requested by the Assignee Lender), but subject to clause (c), the Borrower shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender) a new Note evidencing such Assignee Lender's assigned Loans and Commitments and, if the Assignor Lender has retained Loans and Commitments hereunder (and if requested by such Lender), a replacement Note in the principal amount of the Loans and Commitments retained by the Assignor Lender hereunder (such Note to be in exchange for, but not in payment of, the Note then held by such Assignor Lender). Each such Note shall be dated the date of the predecessor Note. The Assignor Lender shall mark each predecessor Note "exchanged" and deliver each of them to the Borrower. Accrued interest on that part of each predecessor Note evidenced by a new Note, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of each predecessor Note evidenced by a replacement Note shall be paid to the Assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Note and in this Agreement. Such Assignor Lender or such Assignee Lender must also pay a processing fee in the amount of $3,500 to the Administrative Agent upon delivery of any Lender Assignment Agreement; provided, that no such processing fee shall be required in connection with any such assignment and delegation (i) by a Lender to its Affiliate or to a Related Fund, (ii) by a Lender to a Federal Reserve Bank (or, if such Lender is an investment fund, to the trustee under the indenture to which such fund is a party in support of its obligations to such trustee) or (iii) if the non-payment of the processing fee is otherwise consented to by the Administrative Agent. Any attempted assignment and delegation not made in accordance with this Section shall be null and void. Notwithstanding anything to the contrary set forth above, any Lender may (without requesting the consent of the Borrower or the Administrative Agent) pledge its Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank. SECTION XI.11.2. Participations. Any Lender may sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Participant") participating interests in any of the Loans, Commitments or other interests of such Lender hereunder; provided, however, that (a) no participation contemplated in this Section shall relieve such Lender from its Commitments or its other obligations under any Loan Document; (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations; (c) each Obligor and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under each Loan Document; (d) no Participant, unless such Participant is an Affiliate of such Lender or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action under any Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type described in clauses (a), (b), (c), or (f) of Section 11.1 with respect to Obligations participated in by such Participant; (e) the Borrower shall not be required to pay any amount under this Agreement that is greater than the amount which it would have been required to pay had no participating interest been sold; (f) such Lender shall, as agent of the Borrower solely for the purpose of this Section, record in book entries maintained by such Lender the name of its Participants and the amount such Participant's are entitled to receive in respect of any participating interests sold pursuant to this Section; and (g) such participating interests shall be in a minimum aggregate amount of (i) $5,000,000, in the case of such Lender's Revolving Loans (together with Letter of Credit Outstandings), Term A Loans and applicable Commitments, (ii) $1,000,000, in the case of such Lender's Term B Loans and applicable Commitment or (iii) in any case, if less, the entire remaining amount of such Lender's Loans, Letter of Credit Outstandings and Commitments. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 7.1.1, 11.3 and 11.4, shall be considered a Lender. Each Participant shall only be indemnified for increased costs pursuant to Section 4.3, 4.5 or 4.6 if and to the extent that the Lender which sold such participating interest to such Participant concurrently is entitled to make, and does make, a claim on the Borrower for such increased costs. Any Lender that sells a participating interest in any Loan, Commitment or other interest to a Participant under this Section shall indemnify and hold harmless the Borrower and the Administrative Agent from and against any taxes, penalties, interest or other costs or losses (including reasonable attorneys' fees and expenses) incurred or payable by the Borrower or the Administrative Agent as a result of the failure of the Borrower or the Administrative Agent to comply with its obligations to deduct or withhold any Taxes from any payments made pursuant to this Agreement to such Lender or the Administrative Agent, as the case may be, which Taxes would not have been incurred or payable if such Participant had been a Non-U.S. Lender that was entitled to deliver to the Borrower, the Administrative Agent or such Lender, and did in fact so deliver, a duly completed and valid Form W-8BEN or W-8ECI (or applicable successor form) entitling such Participant to receive payments under this Agreement without deduction or withholding of any United States federal taxes. SECTION XI.12. Other Transactions. Nothing contained herein shall preclude the Administrative Agent, any Issuer or any other Lender from engaging in any transaction, in addition to those contemplated by the Loan Documents, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION XI.13. Availability of Loans. Notwithstanding any other provisions of this Agreement to the contrary, (i) on the Closing Date, $100,000,000 in an aggregate principal amount of Loans (consisting of $75,000,000 of Term B Loans and up to $25,000,000 of Revolving Loans) shall be made available to the Borrower, and (ii) following the Closing Date and at such time as the Parent shall have received at least $75,000,000 in the aggregate of Net Equity Proceeds and shall have made a cash equity contribution of such Net Equity Proceeds to the Borrower, $50,000,000 of the Term A Loan Commitment Amount shall be made available to the Borrower. Following the events set forth in clauses (i) and (ii), all or certain portions of the remaining Revolving Loan Commitment Amount and Term A Loan Commitment Amount shall be made available to the Borrower but only up to an amount such that, after giving effect to the syndication of a sufficient amount of the Total Exposure Amount to other Lenders, TDSI and/or certain of its Affiliates has no more than $40,000,000 of the Total Exposure Amount. SECTION XI.14. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, ANY LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, THE LENDERS, ANY ISSUER, THE PARENT OR THE BORROWER IN CONNECTION HEREWITH OR THEREWITH MAY BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH OF THE PARENT AND THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK AT THE ADDRESS FOR NOTICES SPECIFIED IN SECTION 11.2. EACH OF THE PARENT AND THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT EITHER THE PARENT OR THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, SUCH PERSON HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS. SECTION XI.15. Waiver of Jury Trial. THE ADMINISTRATIVE AGENT, EACH LENDER, EACH ISSUER, THE PARENT AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, EACH LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE ADMINISTRATIVE AGENT, SUCH LENDER, SUCH ISSUER, THE PARENT OR THE BORROWER IN CONNECTION THEREWITH. EACH OF THE PARENT AND THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT, EACH LENDER AND EACH ISSUER ENTERING INTO THE LOAN DOCUMENTS. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. CTC COMMUNICATIONS CORP. By:________________________________ _ Title: CTC COMMUNICATIONS GROUP, INC. By:________________________________ _ Title: TORONTO DOMINION (TEXAS), INC., as the Administrative Agent By:________________________________ _ Title: TORONTO DOMINION (TEXAS), INC., as Lender By:________________________________ _ Title: SCHEDULE I DISCLOSURE SCHEDULE TO CREDIT AGREEMENT ITEM 6.6. Material Adverse Change. ITEM 6.7. Litigation. ITEM 6.8. Existing Subsidiaries. ITEM 6.11. Employee Benefit Plans. ITEM 6.12. Environmental Matters. ITEM 6.15. Interconnection Agreements. ITEM 6.16. Licenses. ITEM 7.2.2(b) Indebtedness to be Paid. CREDITOR OUTSTANDING PRINCIPAL AMOUNT ITEM 7.2.3(c) Ongoing Liens. ITEM 7.2.5(a) Ongoing Investments. SCHEDULE II PERCENTAGES AND ADMINISTRATIVE INFORMATION Borrower: CTC Communications Corp. 220 Bear Hill Road Waltham, Massachusetts 02451 Facsimile No.: (781) 890-1613 Attn: Mr. John Pittenger Parent: CTC Communications Group, Inc. 220 Bear Hill Road Waltham, Massachusetts 02451 Facsimile No.: (781) 890-1613 Attn: Mr. John Pittenger Administrative Agent: Toronto Dominion (Texas), Inc. 909 Fannin Street, Suite 1700 Houston, Texas 77010 Facsimile No.: (713) 951-9921 Attn: Mr. Jeffrey Lents Lender Name Revolving Loan Term A Loan Term B Loan Commitment Commitment Commitment Percentages Percentages Percentages Toronto Dominion 100% 100% 100% (Texas), Inc. Domestic Office and LIBOR Office: Toronto Dominion (Texas), Inc. 909 Fannin Street, Suite 1700 Houston, Texas 77010 Facsimile No.: (713) 951-9921 Attn: Mr. Jeffrey Lents TABLE OF CONTENTS Section Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.1. Defined Terms 1 1.2. Use of Defined Terms 32 1.3. Cross-References 32 1.4. Accounting and Financial Determinations 32 ARTICLE II COMMITMENTS, BORROWING AND ISSUANCEPROCEDURES, NOTES AND LETTERS OF CREDIT 2.1. Commitments 33 2.1.1. Revolving Loan Commitment 33 2.1.2. Letter of Credit Commitment 33 2.1.3. Term Loan Commitments 34 2.2. Reduction of the Commitment Amounts 34 2.2.1. Optional 34 2.2.2. Mandatory 34 2.3. Borrowing Procedure 36 2.4. Continuation and Conversion Elections 36 2.5. Funding 37 2.6. Issuance Procedures 37 2.6.1. Other Lenders' Participation 37 2.6.2. Disbursements 38 2.6.3. Reimbursement 38 2.6.4. Deemed Disbursements 38 2.6.5. Nature of Reimbursement Obligations 39 2.7. Register; Notes 40 ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES 3.1. Repayments and Prepayments; Application 41 3.1.1. Repayments and Prepayments 41 3.1.2. Application 44 3.2. Interest Provisions 45 3.2.1. Rates 45 3.2.2. Post-Default Rates 45 3.2.3. Payment Dates 45 3.3. Fees 46 3.3.1. Commitment Fee 46 3.3.2. Administrative Agent's Fee 46 3.3.3. Letter of Credit Fees 46 ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS 4.1. LIBO Rate Lending Unlawful 47 4.2. Deposits Unavailable 47 4.3. Increased LIBO Rate Loan Costs, etc. 47 4.4. Funding Losses 48 4.5. Increased Capital Costs 48 4.6. Taxes 49 4.7. Payments, Computations, etc. 51 4.8. Sharing of Payments 51 4.9. Setoff 52 ARTICLE V CONDITIONS TO CREDIT EXTENSIONS 5.1. Initial Credit Extension 53 5.1.1. Resolutions, etc. 53 5.1.2. Delivery of Notes 53 5.1.3. Subsidiary Guaranty 53 5.1.4. Pledge Agreements 53 5.1.5. Intellectual Property 55 5.1.6. Closing Date Certificate 55 5.1.7. Solvency, etc. 55 5.1.8. Opinions of Counsel 55 5.1.9. Financial Information 55 5.1.10. Filing Agent, etc. 56 5.1.11. Insurance 56 5.1.12. Necessary Authorizations 56 5.1.13. Payment of Outstanding Indebtedness, etc. 56 5.1.14. Financing Arrangements 57 5.1.15. Closing Fees, Expenses, etc. 57 5.2. All Credit Extensions 57 5.2.1. Compliance with Warranties, No Default, etc. 57 5.2.2. Credit Extension Request, etc. 57 5.2.3. Satisfactory Legal Form 57 ARTICLE VI REPRESENTATIONS AND WARRANTIES 6.1. Organization, etc. 58 6.2. Due Authorization, Non-Contravention, etc. 58 6.3. Government Approval, Regulation, etc. 58 6.4. Validity, etc. 59 6.5. Financial Information 59 6.6. No Material Adverse Change 60 6.7. Litigation, Labor Controversies, etc. 60 6.8. Subsidiaries 60 6.9. Ownership of Properties 60 6.10. Taxes 60 6.11. Pension and Welfare Plans 61 6.12. Environmental Warranties 61 6.13. Accuracy of Information 62 6.14. Regulations U and X 62 6.15. Communications Regulatory Matters 63 6.16. Licenses 63 6.17. Year 2000 64 ARTICLE VII COVENANTS 7.1. Affirmative Covenants 64 7.1.1. Financial Information, Reports, Notices, etc. 64 7.1.2. Maintenance of Existence; Compliance with Laws, etc. 66 7.1.3. Maintenance of Properties 66 7.1.4. Insurance 67 7.1.5. Books and Records 67 7.1.6. Environmental Law Covenant 67 7.1.7. Use of Proceeds 68 7.1.8. Future Subsidiary Guarantors, Security, etc. 68 7.1.9. Hedging Obligations 69 7.2. Negative Covenants 69 7.2.1. Business Activities 69 7.2.2. Indebtedness 69 7.2.3. Liens 71 7.2.4. Financial Condition and Operations 72 7.2.5. Investments 75 7.2.6. Restricted Payments, etc. 76 7.2.7. Capital Expenditures, etc. 77 7.2.8. Issuance of Capital Securities 78 7.2.9. Consolidation, Merger, etc. 78 7.2.10. Permitted Dispositions 79 7.2.11. Amendment of Organic Documents 79 7.2.12. Modification of Certain Agreements 79 7.2.13. Transactions with Affiliates 79 7.2.14. Restrictive Agreements, etc. 80 7.2.15. Sale and Leaseback 80 7.2.16. Foreign Subsidiaries 80 7.2.17. No Prepayment of Subordinated Debt 80 7.2.18. Activities of the Parent 81 ARTICLE VIII EVENTS OF DEFAULT 8.1. Listing of Events of Default 81 8.1.1. Non-Payment of Obligations 81 8.1.2. Breach of Warranty 82 8.1.3. Non-Performance of Certain Covenants and Obligations 82 8.1.4. Non-Performance of Other Covenants and Obligations 82 8.1.5. Default on Other Indebtedness 82 8.1.6. Judgments 82 8.1.7. Pension Plans 83 8.1.8. Change in Control 83 8.1.9. Bankruptcy, Insolvency, etc. 83 8.1.10. Impairment of Security, etc. 84 8.1.11. Failure of Subordination. 84 8.1.12. Loss of Material License. 84 8.1.13. Regulations, etc. 84 8.2. Action if Bankruptcy 84 8.3. Action if Other Event of Default 85 ARTICLE IX GUARANTY 9.1. Guaranty 86 9.2. Reinstatement, etc 86 9.3. Acceleration of Guaranty 86 9.4. Setoff 87 9.5. Waiver, etc 87 9.6. Guaranty Absolute 87 9.7. Postponement of Subrogation, etc 88 ARTICLE X AGENCY 10.1. Actions 89 10.2. Funding Reliance, etc. 89 10.3. Exculpation 90 10.4. Successor 90 10.5. Loans by TD 91 10.6. Credit Decisions 91 10.7. Copies, etc. 91 10.8. Reliance by Administrative Agent 91 10.9. Defaults 92 ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Waivers, Amendments, etc. 92 11.2. Notices; Time 93 11.3. Payment of Costs and Expenses 94 11.4. Indemnification 95 11.5. Survival 96 11.6. Severability 96 11.7. Headings 96 11.8. Execution in Counterparts, Effectiveness, etc. 96 11.9. Governing Law; Entire Agreement 97 11.10. Successors and Assigns 97 11.11. Sale and Transfer of Credit Extensions; Participations in Credit Extensions; Notes 97 11.11.1. Assignments 97 11.11.2. Participations 99 11.12. Other Transactions 100 11.13. Availability of Loans 101 11.14. Forum Selection and Consent to Jurisdiction 101 11.15. Waiver of Jury Trial 102 SCHEDULE I - Disclosure Schedule to Credit Agreement SCHEDULE II- Percentages; LIBOR Office; Domestic Office EXHIBIT A-1 - Form of Revolving Note EXHIBIT A-2 - Form of Term A Note EXHIBIT A-3 - Form of Term B Note EXHIBIT B-1 - Form of Borrowing Request EXHIBIT B-2 - Form of Issuance Request EXHIBIT C - Form of Continuation/Conversion Notice EXHIBIT D - Form of Closing Date Certificate EXHIBIT E - Form of Compliance Certificate EXHIBIT F - Form of Subsidiary Guaranty EXHIBIT G-1 - Form of Parent Pledge Agreement EXHIBIT G-2 - Form of Borrower Pledge and Security Agreement EXHIBIT G-3 - Form of Subsidiary Pledge and Security Agreement EXHIBIT H - Form of Intercompany Subordination Agreement EXHIBIT I - Form of Lender Assignment Agreement EX-10.35 3 0003.txt 115-125 BEAR HILL RD. LEASE EXHIBIT 10.35 LEASE dated as of May _____, 2000 between Telecom Realty, LLC (as Landlord) and CTC Communications Corp. (as Tenant) for premises located at 115-125 Second Avenue, Waltham, Massachusetts TABLE OF CONTENTS 1. PARTIES; DEFINED TERMS. 1 2. PREMISES. 3 3. TERM. 3 4. POSSESSION; TENANT'S WORK. 3 5. RENT. 7 6. SECURITY DEPOSIT. 8 7. TENANT'S SHARE OF COSTS. 10 8. USE. 12 9. COMPLIANCE WITH LAW. 13 10. ALTERATIONS. 13 11. REPAIRS. 14 12. LIENS. 14 13. ASSIGNMENT AND SUBLETTING. 15 14. INDEMNIFICATION. 16 15. SUBROGATION. 17 16. INSURANCE. 17 17. SERVICES AND UTILITIES. 18 18. TAXES ON TENANT'S PERSONAL PROPERTY. 19 19. RULES AND REGULATIONS. 19 20. HOLDING OVER. 19 21. ENTRY BY LANDLORD. 20 22. DAMAGE AND DESTRUCTION. 20 23. DEFAULT. 21 24. REMEDIES IN DEFAULT. 21 25. EMINENT DOMAIN. 22 26. ESTOPPEL CERTIFICATE. 23 27. AUTHORITY OF PARTIES. 23 28. BROKERS. 23 29. GENERAL PROVISIONS. 23 Exhibits Exhibit A Plan of Premises Exhibit A-1 Plan of Common Areas Exhibit B Tenant Improvement Workletter Exhibit B-1 Tenant Construction Work Rules and Regulations Exhibit B-1A Insurance Requirements for Contractors Exhibit B-1B Cabling, Welding and Heat Cutting Rules Exhibit C Rules and Regulations Exhibit D Prevailing Market Rate Determination Procedure Exhibit E Form of Sublease to Fleet National Bank Exhibit F Notice of Lease Exhibit G Tenant Improvement Agreement Exhibit H Disposition of Security Deposit Agreement Exhibit I Description of Tenant's Work OFFICE LEASE Basic Lease Information The following Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information set forth below and shall be construed to incorporate all of the terms provided under the particular Lease paragraphs pertaining to such information. In the event of a conflict between any Basic Lease Information and the Lease, the Lease shall control. Section 1 Date: May ___, 2000. Landlord: Telecom Realty, LLC. Building: That certain building located at 115-125 Second Avenue, Waltham, Massachusetts 02154, consisting of approximately Seventy-One Thousand Two Hundred Fifty (71,250) square feet of rentable area. Land: That certain real property consisting of approximately three (3) acres on which the Building is located. Landlord's Address: c/o Mr. Thomas Fabbricatore 220 Bear Hill Road Waltham, Massachusetts 02154. Telephone: (781) 466-1240. Type of Entity: a Massachusetts limited liability company. With Copies of All Notices Sent to: Bingham Dana LLP 150 Federal Street Boston, MA 02110 Attn: Henry S. Healy, Esq. Lawrence I. Silverstein, Esq. Facsimile: (617) 951-8736. Address for Payment of Rent: c/o Mr. Thomas Fabbricatore 220 Bear Hill Road Waltham, Massachusetts 02154. Section 1 Tenant: CTC Communications Corp. Tenant's Address: 360 Second Avenue Waltham, Massachusetts 02154. Telephone: (781) 466-1240. Contact: Mr. Thomas Fabbricatore. Individual or Type of Entity: A Massachusetts corporation. With Copies of All Notices Sent to: Leonard P. Glass, Esq. 45 Central Avenue Tenafly, NJ 07670 Facsimile: (201) 894-1718. Section 2 Premises Rentable Area: Seventy-One Thousand One Hundred Twenty-Four (71,124) square feet. Section 2 Building Address: 115-125 Second Avenue, Waltham, Massachusetts 02154. Section 3 Commencement Date: May ___, 2000. Section 3 Expiration Date: May 31, 2015. Section 3 Extension(s): None. Section 4 Tenant's Work: As described in Section 4(b). First Floor Tenant's Work: As described in Section 4(e)(A). Tenant's Work Completion Date: That date which is one (1) year after the Commencement Date. First Floor Tenant's Work Security Amount: Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) to be held in escrow by Landlord in accordance with the terms of Section 4(e). Liquidated Damages Amount: As defined in Section 4(e)(C). Section 5 Base Rent: (a) For the first (1st) year of the Term the Base Rent shall be Twenty-Five Dollars ($25) per square foot of Premises Rentable Area per annum (equal to a total payment of One Million Seven Hundred Seventy-Eight Thousand One Hundred Dollars ($1,778,100) per annum and One Hundred Forty-Eight Thousand One Hundred Seventy-Five Dollars ($148,175) per month); and (b) On the first (1st) day of the second (2nd) year of the Term, and on the first (1st) day of each succeeding year of the Term, the Base Rent shall increase by the greater of: (i) three percent (3%) of the Base Rent for the immediately prior year; or (ii) an amount equal to the increase in the most recent available twelve (12) month Consumer Price Index published prior to the first anniversary of the Commencement Date and the most recent twelve (12) month Consumer Price Index published prior to the Commencement Date. As used herein "Consumer Price Index" shall mean the consumer price index for urban wage earners and clerical workers for the City of Boston (Boston- Brockton-Nashua, MA, NH, ME, CT; 1982-84 = 100) as determined by the United States Department of Labor's Bureau of Labor Statistics. (c) Upon the earlier to occur of (i) the end of the tenth (10th) year of the Lease Term, or (ii) the acquisition of Tenant (by the acquisition of 50% or more of the stock or voting interests of Tenant, or by an asset sale of all or substantially all of Tenant's assets, or by a merger or consolidation of Tenant into or with another corporation or entity), Landlord shall have the option, at its sole discretion, to adjust the Base Rent to the fair market rental value of the Premises, defined herein as the "Prevailing Market Rate", as determined pursuant to Exhibit D hereto. Section 5 Prepaid Rent: None. Section 6 Security Deposit: Tenant shall provide Landlord with a clean, irrevocable, transferable letter of credit (the "Security Deposit Letter of Credit") in the amount of Eight Hundred Eighty-Nine Thousand Fifty and 00/100 Dollars ($889,050) to be issued by and drawn upon any bank with a banking office in Boston, Massachusetts acceptable to Landlord (the "Issuing Bank"), in accordance with Section 6. Section 7 Tenant's Share: Ninety-Nine and Eighty-Two one-hundredths percent (99.82%). Section 8 Permitted Use: No use other than general office and data center use, and all uses reasonably related thereto. Section 13 Subtenant: Fleet National Bank, a national banking association. Section 16 Tenant's General Liability Insurance Limits: Two Million Dollars ($2,000,000) per occurrence and in the aggregate. Section 28 Brokers: None. Exhibits to Lease Exhibit A Plan of Premises Exhibit A-1 Plan of Common Areas Exhibit B Tenant Improvement Workletter Exhibit B-1 Tenant Construction Work Rules and Regulations Exhibit B-1A Insurance Requirements for Contractors Exhibit B-1B Cabling, Welding and Heat Cutting Rules Exhibit C Rules and Regulations Exhibit D Prevailing Market Rate Determination Procedure Exhibit E Form of Sublease to Fleet National Bank Exhibit F Notice of Lease Exhibit G Tenant Improvement Agreement Exhibit H Disposition of Security Deposit Agreement Exhibit I Description of Tenant's Work IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Basic Lease Information as an instrument under seal as of this ___ day of May, 2000. LANDLORD: TENANT: Telecom Realty, LLC, a CTC Communications Corp., a Massachusetts limited liability company Massachusetts corporation By: TELECOM MANAGEMENT By: CORP., a Massachusetts Name: corporation, its manager Title: By: Thomas Fabbricatore Executive Vice-President and Secretary-Treasurer OFFICE LEASE 1. PARTIES; DEFINED TERMS. This Lease, dated for reference purposes only as of the date set forth in the Basic Lease Information, is made by and between Landlord and Tenant specified in the Basic Lease Information. The "Basic Lease Information" shall mean the document executed by Landlord and Tenant contemporaneously with the execution of this Lease and incorporated in this Lease for all purposes. This "Basic Lease Information" document contains definitions and basic provisions pertinent to this Lease. Capitalized terms used herein and not otherwise defined shall have the meanings set forth below: (a) "Act" shall have the meaning set forth in Section 29(v). (b) "Additional Charges" shall have the meaning set forth in Section 5(b). (c) "Alterations" shall have the meaning set forth in Section 10. (d) "Base Rent" shall have the meaning set forth in Section 5(a). (e) "Basic Lease Information" shall have the meaning set forth in Section 1. (f) "Building" shall have the meaning set forth in the Basic Lease Information. (f) "Commencement Date" shall have the meaning set forth in Section 3. (g) "Common Areas" shall have the meaning set forth in Section 2. (h) "Event of Default" shall have the meaning set forth in Section 23. (i) "Expense Computation Year" shall have the meaning set forth in Section 7(d)(iv). (j) "Expenses" shall have the meaning set forth in Section 7(d)(i). (k) "Expiration Date" shall have the meaning set forth in Section 3. (l) "First Floor Tenant's Work" shall have the meaning set forth in Section (4)(e)(A). (m) "First Floor Tenant's Work Security Amount" shall have the meaning set forth in Section 4(e)(A). (n) "Hazardous Materials" shall have the meaning set forth in Section 8(c). (o) "Land" shall have the meaning set forth in the Basic Lease Information. (p) "Landlord" shall have the meaning set forth in the Basic Lease Information. (q) "Laws" shall have the meaning set forth in Section 9. (r) "Liquidated Damages Amount" shall have the meaning set forth in Section 4(e)(C). (s) "Non-Renewal Notice" shall have the meaning set forth in Section 6(A)(b). (t) "Parties" shall have the meaning set forth in Section 29(w). (u) "Permitted Use" shall have the meaning set forth in the Basic Lease Information. (v) "Premises" shall have the meaning set forth in Section 2. (w) "Premises Rentable Area" shall have the meaning set forth in the Basic Lease Information. (x) "Regulations" shall have the meaning set forth in Section 29(v). (y) "Rent" shall have the meaning set forth in Section 5(b). (z) "Request for Release" shall have the meaning set forth in Section 4(e)(B). (aa) "Security Deposit" shall have the meaning set forth in the Basic Lease Information. (bb) "Security Deposit Letter of Credit" shall have the meaning set forth in the Basic Lease information. (cc) "Security Deposit Agreement" shall have the meaning set forth in Section 6(C). (dd) "Sublease" shall have the meaning set forth in Section 13(d). (ee) "Subtenant" shall have the meaning set forth in Section 13(d). (ff) "Tax Computation Year" shall have the meaning set forth in Section 7(d)(v). (gg) "Taxes" shall have the meaning set forth in Section 7(d)(ii). (hh) "Tenant" shall have the meaning set forth in the Basic Lease information. (ii) "Tenant Improvement Agreement" shall have the meaning set forth in Section 4(e)(D). (jj) "Tenant's Share" shall have the meaning set forth in Section 7(d)(iii). (kk) "Tenant's Work" shall have the meaning set forth in Section 4(b). (ll) "Tenant's Work Completion Criteria" shall have the meaning set forth in Section 4(e)(B). (mm) "Tenant's Work Completion Date" shall have the meaning set forth in Section 4(b). (nn) "Term" shall have the meaning set forth in Section 3. 2. PREMISES. Landlord leases to Tenant and Tenant leases from Landlord that certain space in the Building outlined in the floor plan(s) attached as Exhibit A together with the improvements now or hereafter located in the Premises (the "Premises"), together with the right, in common with others lawfully entitled to use the Common Areas upon and subject to the provisions contained in this Lease. "Common Areas" shall mean the exterior areas serving the Building shown in the site plan attached as Exhibit A-1 intended for the common use of tenants and occupants of the Building, including, without limitation, parking areas, driveways, landscaping, sidewalks, hallways, stairways, elevators, common entrances, lobbies, restrooms and other similar public areas and access ways. Tenant shall have a non-exclusive right to use the parking spaces appurtenant to the Building. Landlord and Tenant agree that, for purposes of this Lease, the Premises shall be deemed to have the Premises Rentable Area equal to the square footage specified in the Basic Lease Information. The Premises are located at the Building Address shown in the Basic Lease Information. 3. TERM. The Premises are leased for a term (the "Term") to commence and end on the dates respectively specified in the Basic Lease Information, unless the Term shall sooner terminate as provided below. The dates upon which the Term shall commence and terminate pursuant to this Section 3 are called the "Commencement Date" and the "Expiration Date," respectively. 4. POSSESSION; TENANT'S WORK. (a) If Landlord, for any reason whatsoever, cannot deliver possession of the Premises to Tenant on the Commencement Date, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting from the Landlord's failure to deliver the Premises on the Commencement Date, but in that event Rent (as defined below) shall be waived for the period between the Commencement Date and the date Landlord delivers possession of the Premises to Tenant. If such delay, however, is due primarily to the fault of Tenant or anyone acting under Tenant, there shall be no waiver of Rent. No delay in delivery of possession shall operate to extend the Expiration Date beyond the date specified in the Basic Lease Information. Landlord and Tenant acknowledge and agree that the Premises shall be delivered to Tenant subject to the Sublease described in Section 13(d) below. (b) The Premises shall be delivered to and accepted by Tenant "as is," in their then state of construction, finish and decoration, without any additional obligation on the part of Landlord to prepare or construct the Premises for Tenant's occupancy. Tenant acknowledges that (i) substantial work must be performed by Tenant before the Premises can be occupied by Tenant for the conduct of its business, and (ii) during the first year of the Term of this Lease, Tenant will make certain capital improvements to the Premises which shall include but not be limited to the following matters, some of which are more fully described on Exhibit I attached hereto: (1) upgrading of the Building's electrical system(s), (2) replacement of the Building's HVAC system, (3) replacement of the roof of the Building, (4) removal of the asbestos in the Building identified in the Phase I Environmental Site Assessment dated March, 2000 prepared by GZA GeoEnvironmental, Inc. ("GZA") (File No. 16225.00) in accordance with an "Operation and Maintenance Program for Asbestos" to be prepared by GZA within ten (10) Business Days of the date hereof, and (5) making of certain "general office improvements" (which shall include, but not be limited to new carpet installation, ceiling upgrades, new or upgraded dry walls and, if necessary, glass and window replacement) (items (i) and (ii) shall be collectively referred to herein as the "Tenant's Work"). All of such Tenant's Work shall be performed by Tenant at its sole risk, cost and expense in accordance with the provisions of the Tenant Improvement Workletter attached hereto as Exhibit B, including Tenant's obligation to obtain a new Certificate of Occupancy for the Building allowing occupancy and use of the Premises in accordance with the Permitted Use. The Tenant's Work and Tenant's Work Completion Criteria (as defined below in Section 4(e)(B)) shall be completed and satisfied, respectively, no later than that date which is one (1) year after the Commencement Date (the "Tenant's Work Completion Date"). Landlord shall cooperate with Tenant in its application for any Certificate of Occupancy including prompt execution of any necessary applications therefor or filings in connection therewith requested reasonably by Tenant. Notwithstanding the foregoing, Section 10 of this Lease and the provisions of this Lease setting forth Tenant's insurance obligations (i.e., Section 16) shall not apply during the performance of Tenant's Work and such matters shall, during such time, be governed by the applicable provisions of Exhibit B and Exhibit B-1A hereto. (c) Landlord shall have the right to change Landlord's Construction Representative at any time by giving written notice thereof to Tenant. (d) Subject to the provisions of Exhibit B, commencing on the date hereof, Landlord shall permit Tenant to enter the Premises for the purpose of performing Tenant's Work. Any such entry shall be at Tenant's sole risk and Landlord shall not be responsible for any damage or loss to property or installations placed in the Premises by Tenant prior to the Commencement Date other than those caused by the willful intent or negligence of Landlord and its agents or advisers. In addition, in no event shall Tenant make use of any labor in the Building or otherwise suffer or permit any action to be taken which would result in labor difficulties or otherwise harm or inconvenience Landlord. Prior to performing any of Tenant's Work, Tenant shall provide Landlord with proof of insurance in accordance with Exhibit B and Exhibit B-1A hereto. (e) The provisions set forth below in this Section 4(e) shall govern the security to be provided by Tenant to Landlord in connection with the performance and Landlord's approval of the Tenant's Work. A. First Floor Tenant's Work Security Amount. As security for the completion of the that portion of the Tenant's Work relating to the first floor of the Premises (which work is described on Exhibit I hereto and hereinafter referred to as the "First Floor Tenant's Work") in accordance with the terms of this Lease, on the Commencement Date Tenant shall pay to Landlord in immediately available United States funds the sum of Two Million Five Hundred Thousand Dollars ($2,500,000) (the "First Floor Tenant's Work Security Amount"). The First Floor Tenant's Work Security Amount shall be held by Landlord in escrow in an interest bearing account in accordance with the terms of this Section 4. No trust relationship shall be created with respect to the First Floor Tenant's Work Security Amount. The First Floor Tenant's Work Security Amount shall secure Tenant's obligations hereunder to fully and faithfully perform all of its obligations hereunder in respect of the First Floor Tenant's Work. In the event that Tenant defaults in the performance of any of its obligations hereunder relating to the First Floor Tenant's Work and said default has not been cured within fifteen (15) business days of Tenant's receipt of written notice of same from Landlord (or if it shall not be reasonably possible to cure said default with fifteen (15) business days, within such reasonable period of time as may be required to cure said default, provided that Tenant diligently and expeditiously takes whatever actions may be necessary to effect said cure), Landlord may, but shall not be required to, draw on the First Floor Tenant's Work Security Amount (or any portion thereof). Landlord may use the monies realized from said draw to cure Tenant's default and to compensate Landlord for any loss or damage which Landlord may suffer as a result thereof. If any portion of the First Floor Tenant's Work Security Amount shall be so drawn or used, Tenant shall within five (5) business days of a written demand therefor from Landlord, pay to Landlord in immediately available United States funds that amount which is necessary to replenish the First Floor Tenant's Work Security Amount to the level of Two Million Five Hundred Thousand Dollars ($2,500,000) and said replenishment payment shall be held by Landlord in the same manner as the original funds constituting the First Floor Tenant's Work Security Amount. Landlord shall have the right to assign or pledge the First Floor Tenant's Work Security Amount to any lender it may have during the term of this Lease. B. Return of First Floor Tenant's Work Security Amount. Landlord and Tenant agree that Tenant shall be entitled to the return of the First Floor Tenant's Work Security Amount on substantial completion of the First Floor Tenant's Work and on satisfaction of the conditions set forth in this Section 4(e)(B). Specifically, Landlord shall within fifteen (15) business days of the satisfaction of the conditions set forth below return to Tenant all of the First Floor Tenant's Work Security Amount then held by Landlord (provided that for purposes of the return of the First Floor Tenant's Work Security Amount said conditions shall be interpreted to apply only to the First Floor Tenant's Work and not to the Tenant's Work on the second floor of the Building): (i) Landlord shall have received a written request from Tenant for the return of the First Floor Tenant's Work Security Amount (a "Request for Release") in the form attached to the Tenant Improvement Agreement as Schedule 1, provided that any Request for Release submitted to Landlord by Tenant shall have attached thereto by Tenant those items listed at Section 6(d) of the Tenant Improvement Agreement attached hereto as Exhibit G (which items shall be prepared or procured by Tenant and addressed to Landlord's lender such that Landlord shall have no obligation for the preparation or procurement thereof other than an obligation to cooperate reasonably with Tenant in its preparation and procurement thereof); (ii) Tenant shall have completely complied with all of its obligations hereunder relating to the good and workmanlike completion of the Tenant's Work; (iii) Tenant shall have provided Landlord with a Certificate of Occupancy for the Tenant's Work and such other approvals, permits, licenses and certifications as may be necessary for the Tenant to occupy the Premises for the Permitted Use (provided that Tenant shall not be required to obtain a Certificate of Occupancy in connection with its Request for Release of the First Floor Tenant's Security Work Amount in the event that the City of Waltham refuses to issue a partial Certificate of Occupancy for the First Floor Tenant's Work prior to completion of all of the Tenant's Work); (iv) Tenant shall have delivered bona fide copies of invoices and receipts for the out of pocket costs paid by Tenant to arm's length third parties to complete the Tenant's Work in accordance with this Lease, which receipts shall total an amount equal to or greater than the First Floor Tenant's Work Security Amount, and Tenant shall have provided Landlord with a certificate signed by Tenant confirming same; and (v) Tenant shall not be in default under this Lease, the Tenant Improvement Agreement or the Security Deposit Agreement nor shall there be any act, event or condition that with the giving of notice or the passage of time, or both, would constitute a breach or default under any of said three agreements (the above items (i) - (v), inclusive, are herein collectively referred to as the "Tenant's Work Completion Criteria"). Any amounts due to Landlord's lender pursuant to Section 6(e)(ii) of the Tenant Improvement Agreement shall be the sole responsibility of Tenant (which amounts shall be deemed to be Additional Charges hereunder, the non-payment of which shall constitute an Event of Default by Tenant hereunder). No partial releases of the First Floor Tenant's Work Security Amount by Landlord to Tenant shall be permitted hereunder. C. Completion of Tenant's Work; Liquidated Damages. Tenant shall complete the Tenant's Work and satisfy all of the Tenant's Work Completion Criteria by no later than the Tenant's Work Completion Date. In the event that the Tenant's Work has not been fully completed and the Tenant's Work Completion Criteria have not been fully satisfied by the Tenant's Work Completion Date Landlord shall have the right, but shall not be obligated, to claim and pay to itself the entire amount of the First Floor Tenant's Work Security Amount then held in escrow by Landlord as liquidated damages (the "Liquidated Damages Amount"), and not as a penalty, for those losses and damages which Landlord has suffered as a result thereof. Landlord and Tenant agree that the completion of the Tenant's Work and satisfaction of the Tenant's Work Completion Criteria by the Tenant's Work Completion Date is of critical importance to Landlord and its business and that a breach of Tenant's obligations to timely complete and satisfy same would cause Landlord significant losses and damages which would be extremely difficult, if not impossible, to ascertain with any accuracy and that the Liquidated Damages Amount represents both parties' best efforts to approximate such potential damages and losses. In the event of a transfer of Landlord's interest in this Lease, Landlord may transfer the First Floor Tenant's Work Security Amount to Landlord's successor in interest and, upon such transfer, Landlord shall be relieved of any and all liability for or obligation with respect to the First Floor Tenant's Work Security Amount. Landlord and Tenant further agree that Landlord's lender has rights to claim the First Floor Tenant's Work Security Amount as liquidated damages pursuant to Section 6(f) of the Tenant Improvement Agreement in the event that a Loan Default and a Lease Default (as each term is defined therein) occur within thirty (30) days of one another. D. Tenant Improvement Agreement. The First Floor Tenant's Work Security Amount shall also be governed by the terms of that certain Tenant Improvement Agreement (the "Tenant Improvement Agreement") attached hereto as Exhibit G. The Tenant Improvement Agreement shall be executed by Landlord and Tenant on or before the Commencement Date. Tenant agrees that in the event of any inconsistency between this Lease and the Tenant Improvement Agreement the terms of this Lease shall prevail. (f) Landlord reserves the right, at any time and from time to time, to make alterations or additions to the Building and/or the Common Areas, and Landlord also reserves the right at any time and from time to time to construct other improvements in the Building (including within the Common Areas) and to reduce or enlarge, make alterations in or make additions to the Building and/or the Common Areas, provided that such alterations or additions shall not unreasonably interfere with Tenant's Permitted Use hereunder. 5. RENT. (a) Beginning on the Commencement Date, Tenant shall pay to Landlord as annual minimum rent for the Premises the sum specified in the Basic Lease Information as "Base Rent". Base Rent shall be payable in equal monthly installments on or before the first day of the Term and on or before the fifteenth day of each and every calendar month thereafter during the Term. In the event the Term commences or ends on a day other than the first or last day, respectively, of a calendar month, then the monthly Base Rent for such fractional month shall be prorated on a daily basis based upon a thirty (30) day calendar month. Base Rent shall be paid to Landlord, without any prior demand and without any deduction or offset whatsoever, in lawful money of the United States of America at the address for payment of rent specified in the Basic Lease Information, or to such other person or at such other place as Landlord may from time to time designate by notice to Tenant. (b) Tenant shall pay to Landlord as additional charges all fees, costs, expenses, charges, and other amounts required to be paid by Tenant under this Lease other than Base Rent ("Additional Charges"). Additional Charges shall be payable to Landlord at the place where the Base Rent is payable. Landlord shall have the same remedies for a default in the payment of Additional Charges as for a default in the payment of Base Rent. The terms 'Base Rent' and 'Additional Charges' are sometimes collectively referred to herein as "Rent". (c) If Tenant shall fail to pay to Landlord any installment of Rent on or before the date such installment is due and payable more than one (1) time in any twelve (12) consecutive month period, then Tenant shall pay to Landlord in each instance a late payment charge equal to five percent (5%) of the unpaid amount of such Rent to cover Landlord's additional administrative costs resulting from Tenant's failure. Additionally, without limiting any of Landlord's other rights and remedies under this Lease, if any payment of Rent or any other payment payable under this Lease by Tenant to Landlord shall not be paid when due, such Rent or other payment shall bear interest from the date when the Rent or other payment, as may be the case, was payable until the date paid at (a) the prime rate as announced by Fleet National Bank at its main branch in Boston, Massachusetts from time to time plus two percent (2%), but not more than (b) the highest lawful rate of interest which Landlord may charge Tenant without violating any applicable law. Such interest shall constitute an Additional Charge hereunder. (d) Tenant agrees that acceptance by Landlord of any partial payment of any item of rental due under this Lease (whether denominated as Base Rent, Additional Charges or otherwise) shall not constitute an accord and satisfaction by Landlord of any of Tenant's obligations under this Lease, and that Landlord shall be entitled to collect from Tenant the balance of any such item of Rent remaining due. (e) Tenant agrees that this Lease is a net lease and the Base Rent, Additional Charges, Taxes, Expenses and all other sums payable under this Lease to Landlord shall be paid without notice or demand, and without setoff, abatement, suspension, deferment, reduction or deduction, except as otherwise expressly provided herein. 6. SECURITY DEPOSIT. The provisions set forth below in this Section 6 shall govern the Security Deposit to be held by Landlord pursuant to the terms of this Lease. (a) Security Deposit Letter of Credit. Simultaneously with its execution and delivery of this Lease, Tenant shall deposit with Landlord the sum specified in the Basic Lease Information as the "Security Deposit" in the form of the Security Deposit Letter of Credit. The Security Deposit Letter of Credit shall (i) name Landlord as beneficiary thereof, (ii) have a term of not less than one (1) year, (iii) be in the original amount equal to the Security Deposit, and (iv) otherwise be in form and content satisfactory to Landlord. The Security Deposit Letter of Credit shall, in any event, provide that: (1) The Issuing Bank shall pay to Landlord an amount up to the face amount of the Security Deposit Letter of Credit upon presentation of only a demand for payment in the amount to be drawn; (2) The Security Deposit Letter of Credit shall be deemed to be automatically renewed, without amendment, for consecutive periods of one year each and shall have a final expiry date of not earlier than thirty (30) days after the Expiration Date, as such may be extended as provided herein, unless the Issuing Bank sends written notice (hereinafter called the "Non-Renewal Notice") to Landlord both by Federal Express or another recognized national or regional courier and by certified or registered mail, return receipt requested, not less than sixty (60) days next preceding the then expiration date of the Security Deposit Letter of Credit, that it elects not to have such Security Deposit Letter of Credit renewed; (3) Landlord, after receipt of the Non-Renewal Notice, or within sixty (60) days prior to the expiration date of any Security Deposit Letter of Credit then held by Landlord, shall have the right, exercisable by a demand for payment draft only to draw upon the Security Deposit Letter of Credit and receive the proceeds thereof (which shall be held by Landlord as a cash deposit pursuant to the terms of this Section 6 pending the replacement of such Security Deposit Letter of Credit or applied as permitted by the terms of this Section 6); and (4) Upon Landlord's sale or other transfer of the Land or the Building, or Landlord's interest therein, or a leasing of the Building, the Security Deposit Letter of Credit shall be transferable by Landlord and Landlord shall thereupon be released by Tenant from all liability for the return of such Security Deposit Letter of Credit. In such event, Tenant agrees to look solely to the new Landlord for the return of said Security Deposit Letter of Credit. Tenant shall execute such documents as may be necessary to accomplish such transfer or assignment of the Security Deposit Letter of Credit and shall pay any transfer fees of the Issuing Bank. Tenant covenants that it will not assign or encumber, or attempt to assign or encumber, the Security Deposit Letter of Credit or proceeds thereof, and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment, or attempted encumbrance. If Landlord determines that the financial condition of the Issuing Bank has so declined as to cause concern that the Issuing Bank may not honor a draw on its Security Deposit Letter of Credit and provides Tenant of notice of the same, Tenant shall promptly obtain a replacement Security Deposit Letter of Credit complying with the terms hereof from another commercial bank acceptable to Landlord. (b) Draws and Transfer of Security Deposit Letter of Credit. The Security Deposit shall be held by Landlord as security for the full and faithful performance by Tenant of all the provisions of this Lease. If Tenant defaults with respect to any provision of this Lease, including, without limitation, provisions relating to the payment of Rent, Landlord may, but shall not be required to, draw on the Security Deposit Letter of Credit and use, apply or retain all or any part of the Security Deposit for the payment of any Rent or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of the Security Deposit is so used, applied or retained, Tenant shall within five (5) days after demand from Landlord, provide Landlord with a replacement letter of credit in the amount and on the terms specified in the Basic Lease Information provisions relating to the Security Deposit Letter of Credit. No trust relationship shall be created with respect to the Security Deposit and Tenant shall not be entitled to interest on the Security Deposit. If Tenant shall fully and faithfully perform every provision of this Lease and this Lease shall expire or be terminated, the Security Deposit Letter of Credit shall be promptly returned to Tenant by Landlord in its then current condition. In the event of termination of Landlord's interest in this Lease, Landlord may transfer the Security Deposit to Landlord's successor in interest and, upon such transfer, Landlord shall be relieved of any and all liability for or obligation with respect to the Security Deposit. Landlord shall also have the right to assign or pledge the Security Deposit Letter of Credit to any lender it may have during the Term of this Lease. (c) Security Deposit Agreement. The Security Deposit shall be governed by the terms of that certain Agreement Concerning Disposition of Security Deposit (the "Security Deposit Agreement") attached hereto as Exhibit H. The Security Deposit Agreement shall be executed and delivered by Landlord and Tenant on or before the Commencement Date. Tenant agrees that in the event of any inconsistency between this Lease and the Security Deposit Agreement the terms of this Lease shall prevail. 7. TENANT'S SHARE OF COSTS. (a) During the Term, Tenant shall pay to Landlord as Additional Charges: (i) Tenant's Share of all Taxes and Expenses (each as defined below). (b) During the last month of each Expense Computation Year and each Tax Computation Year (each as defined below), as the case may be, or as soon thereafter as practicable, Landlord shall give to Tenant notice of Landlord's estimate of the amounts payable by Tenant under Section 7(a) for the following Expense Computation Year or Tax Computation Year, as the case may be. On or before the first day of each month during the following Expense Computation or Tax Computation Year, as the case may be, Tenant shall pay to Landlord one-twelfth (1/12th) of such estimated amounts; provided, however, that if Landlord fails to give such notice in the last month of the prior Expense Computation Year or Tax Computation Year, as the case may be, then Tenant shall continue to pay on the basis of the prior year's estimate until the first day of the calendar month next succeeding the date such notice is given by Landlord. If at any time or times Landlord determines that the amounts payable under Section 7(a) for the current Expense or Tax Computation Year, or both, will vary from its estimate given to Tenant, Landlord, by notice to Tenant, may revise its estimate for such Expense or Tax Computation Year, or both, and subsequent payments by Tenant for such Expense or Tax Computation Year, or both, shall be based upon such revised estimate. (c) Following the end of each Expense Computation Year or Tax Computation Year, Landlord shall deliver to Tenant a statement of amounts payable under Section 7(a) for such Expense Computation Year and Tax Computation Year. If such statement shows an amount owing by Tenant that is less than the payments for such Expense Computation Year or Tax Computation Year, or both, previously made by Tenant, and if no Event of Default (as defined below) is outstanding at the time such statement is delivered, Landlord shall credit such amount to the next payments of Rent falling due under this Lease. If such statement shows an amount owing by Tenant that is more than the estimated payments for such Expense Computation Year or Tax Computation Year, or both, previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of such statement. The respective obligations of Landlord and Tenant under this Section 7(c) shall survive the Expiration Date, and, if the Expiration Date is a day other than the last day of an Expense or Tax Computation Year, or both, the adjustment in Rent pursuant to this Section 7 for the Expense Computation Year or Tax Computation Year, or both, in which the Expiration Date occurs shall be prorated in the proportion that the number of days in such Expense Computation Year and/or Tax Computation Year preceding the Expiration Date bears to 365. (d) As used in this Lease, the following terms shall have the meanings specified below: (i) "Expenses" shall mean (1) all costs of management (if applicable, said costs shall not exceed two percent (2%) of the net operating income of the Building), operation, maintenance and repair of the Land, Building and Common Areas, and the improvements situated thereon, including, without limitation, janitorial, maintenance, maintenance and repair of the roof of the Building and parking and landscaped areas on the Land, security guard(s) and other service contracts; costs of supplying, replacing and cleaning employee uniforms; charges for heat, air conditioning, light, power, gas, water, sewer and waste disposal and other utilities furnished by Landlord and not otherwise billed directly to Tenant by Landlord; materials, supplies, equipment and tools; costs for maintenance, replacements and repairs not paid by insurance or third parties; insurance premiums, insurance deductibles, self-insured retentions, and license, permit and inspection fees; depreciation on personal property; wages, salaries, employee benefits and payroll costs of on-site personnel engaged in the management, operation and maintenance of the Building; fees, charges and other costs, including, without limitation, management fees, consulting fees, legal fees and accounting fees, of all independent contractors engaged by Landlord or reasonably charged by Landlord if Landlord performs any such services in connection with the Building; and (2) the cost of any capital improvements made to the Building after its construction that reduce other Expenses or made to the Building after the date of this Lease as a result of governmental orders, ordinances, codes, rules and regulations that were inapplicable to the Building at the time permits for its construction were obtained, such cost to be amortized over the useful life of such capital improvement as determined in accordance with generally accepted accounting procedures, together with interest on the unamortized balance at a rate equal to ten percent (10%) per annum or such higher rate as may have been paid by Landlord on funds borrowed for the purpose of constructing such improvements. Notwithstanding the foregoing, Expenses shall not include Taxes, depreciation on the Building, costs of installing capital improvements (except as provided in clause (2) above), real estate brokers' commissions, executive salaries (exclusive of salaries, wages or fees paid for management activities), tenant installation costs, Landlord's debt service costs and capital items other than those referred to in this clause i. The determination of all Expenses shall be made by Landlord in good faith and shall be final and binding on Tenant. (ii) "Taxes" shall mean all taxes, assessments and charges levied upon or with respect to the Building, any personal property of Landlord used in the operation of the Building or Landlord's interest in the Building or such personal property. Taxes shall include, without limitation, all general real property taxes and general and special assessments, transit charges, service payments in lieu of taxes and any tax, fee or excise on the act of entering into this Lease or any other lease of space in the Building, on the use or occupancy of all or any part of the Building, on the rent payable under this Lease or any other lease of space in the Building or on or in connection with the business of renting space in the Building, that are now or hereafter levied or assessed against Landlord by the United States of America, the Commonwealth of Massachusetts, or any political subdivision, public corporation, district or other political or public entity, and shall also include any other tax, fee or other excise, however described, that may be levied or assessed as a substitute for, or as an addition to, in whole or in part, any other Taxes, whether or not now customary or within the contemplation of the parties. Taxes shall not include franchise, transfer or inheritance taxes, or income taxes measured by the net income of Landlord from all sources, unless, due to a change in the method of taxation, any of these taxes are levied or assessed against Landlord as a substitute for, or as an addition to, in whole or in part, any other tax that would otherwise constitute a Tax. Taxes shall also include reasonable legal and tax consultants' fees, costs and disbursements incurred in connection with proceedings to contest, determine or reduce Taxes. (iii) "Tenant's Share" shall mean the percentage figure so specified in the Basic Lease Information, which is calculated by dividing the Rentable Area of Premises by the Rentable Area of the Building. (iv) "Expense Computation Year" shall mean each twelve (12) consecutive month period commencing January 1st of each year during the Term. (v) "Tax Computation Year" shall mean each Tax fiscal year (currently July 1-June 30) during the Term. 8. USE. (a) Tenant shall use and occupy the Premises for any purpose specified in the Basic Lease Information as a "Permitted Use" and shall not use or permit the Premises to be used for any other purpose. (b) Tenant shall take no action, nor permit any action to be taken, in or about the Premises that will in any way increase the existing rate of or affect any fire or other insurance upon the Building or any of its contents, or cause cancellation of any insurance policy covering all or any part of the Building or any of its contents. Tenant shall not use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, permit pornography or apparatus for the use of illegal drugs to be held on the Premises, or cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall neither commit nor suffer to be committed any waste in, on or about the Premises. (c) Tenant shall not cause or suffer or permit any Hazardous Materials, as defined below, to be brought upon, kept, used, discharged, deposited or leaked in or about the Premises or the Building or Common Areas by Tenant or any of Tenant's agents or by anyone in the Premises (other than Landlord or its agents, employees or contractors), except to the extent such Hazardous Materials are customarily kept or used by typical office tenants and are kept and used in accordance with all applicable Laws. If Tenant breaches the obligations stated in the preceding sentence, or if the presence of any Hazardous Material on the Premises or the Building or Common Areas caused or suffered or permitted by Tenant or any of Tenant's agents or by anyone in the Premises (other than Landlord or its agents, employees or contractors) results in contamination of the Premises or the Building or Common Areas, or if contamination of the Premises or the Building by any Hazardous Material otherwise occurs for which Tenant is legally liable, then Tenant shall indemnify, defend and hold Landlord harmless from any and all claims, damages, costs, liabilities and expenses (including, without limitation, diminution in value or use of the Building, attorneys' fees, consultant fees and expert fees) which arise during or after the Term as a result of such contamination. This indemnification shall include, without limitation, costs incurred in connection with any investigation of site conditions or any clean-up, remediation, removal or restoration work on or under the Premises or the Building or Common Areas. "Hazardous Materials" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local, state or federal governmental authority or by common law decisions, including without limitation (i) all chlorinated solvents, (ii) petroleum products or by-products, (iii) asbestos, and (iv) polychlorinated biphenyls. Notwithstanding the above provisions, Tenant shall have the right to install a "back-up" generator on or about the Premises. Installation of the "back-up" generator shall be performed in a good and workmanlike manner in compliance with all applicable Laws by licensed contractors reasonably approved by Landlord. Landlord agrees that Tenant shall have the right to remove and retain the "back-up" generator upon the expiration or earlier termination of this Lease, provided Tenant repairs and restores the Premises (in connection with the removal of the "back-up" generator) to their condition prior to the installation of such "back-up" generator. Tenant agrees that it shall indemnify, defend and hold Landlord harmless from any and all claims, damages, costs, liabilities and expenses (including, without limitation, diminution in value or use of the Building, reasonable attorneys' fees, consultant fees and expert fees) which arise during or after the Term as a result of the installation, use or removal of such "back-up" generator. 9. COMPLIANCE WITH LAW. Tenant shall not use the Premises in any manner, or permit anything to be done in or about the Premises, which will in any way conflict with any law, statute, ordinance or governmental rule, regulation or order now in force or hereafter enacted or promulgated (collectively, "Laws"). 10. ALTERATIONS. Except for Tenant's Work (for which Landlord review and approval is required pursuant to Exhibit B) and installation of the "back-up" generator referred to above in Section 8(c), Tenant shall not before or during the Term make or suffer to be made any alterations, additions or improvements in or to the Premises (herein collectively called "Alterations") without first obtaining Landlord's written consent. Tenant shall submit detailed plans and specifications for the Alterations in connection with requesting Landlord's consent. Landlord's consent may be withheld in Landlord's sole discretion if the Alterations will affect the structure of the Building or the Building's systems; otherwise Landlord's consent shall not be unreasonably withheld. As a condition of approving the proposed Alterations, Landlord may require Tenant to agree to remove all or any part of such Alterations on or before the Expiration Date and to reimburse Landlord for any reasonable expenses incurred by Landlord in reviewing the plans and specifications, including, without limitation, the reasonable costs of any outside consultants retained by Landlord. All Alterations shall immediately become Landlord's property and shall remain in the Premises at the end of the Term without compensation to Tenant unless Landlord conditioned its approval of such Alterations on Tenant's agreement to remove them, in which event Tenant shall by the Expiration Date remove such Alterations and restore the Premises to their condition prior to the installation of such Alterations. All Alterations shall be done in a good and workmanlike manner, in compliance with all applicable Laws by licensed contractors approved by Landlord. Tenant shall also comply with the provisions of Section 11 in connection with any Tenant Alterations it undertakes at the Premises. 11. REPAIRS. (a) By occupying the Premises, Tenant accepts the Premises as being in the condition in which Landlord is obligated to deliver the Premises under the terms of this Lease. Tenant shall, at all times during the Term, and at Tenant's sole expense, keep all of the Premises in good condition and repair, except for ordinary wear and tear or damage by fire or casualty. Tenant waives all rights to make repairs at the expense of Landlord or in lieu of such repairs to vacate the Premises as provided by any law, statute or ordinance now or hereafter in effect. Tenant shall at the end of the Term surrender the Premises to Landlord in the same or improved condition as when received, except for ordinary wear and tear, damage by fire, casualty and Alterations approved by Landlord and not required by Landlord to be removed by Tenant. (b) Notwithstanding the provisions of Section 11(a), Landlord shall repair and maintain the structural portions of the Building (including load-bearing walls), unless the necessity for such maintenance and repairs is in any way caused by the act, neglect, fault or omission of Tenant, its agents, servants, employees or invitees, in which case Tenant shall pay to Landlord the reasonable cost of such maintenance and repairs. Landlord shall not be liable for any failure to make any such repairs or to perform any such maintenance. Rent shall not abate nor shall Landlord be liable as a result of any injury to or interference with Tenant's business arising from the making of any repairs, or the performance of any maintenance, in or to any portion of the Building or the Premises or the Common Areas. 12. LIENS. Tenant shall keep the Premises and the Building free from any liens arising out of any act or omission of Tenant, including, without limitation, any work performed, materials furnished or obligations incurred by Tenant. In the event that Tenant shall not, within fifteen (15) days following notice of the imposition of any such lien, cause same to be released of record by payment or posting of a bond fully satisfactory to Landlord in form and substance, Landlord shall have, in addition to all other remedies provided herein and by law, the right (but not the obligation) to cause the lien to be released by such means as Landlord shall deem proper, including, without limitation, payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection with investigating, releasing, bonding-off or disputing liens on the Premises or the Building arising out of any act or omission of Tenant shall be considered Additional Charges and shall be payable by Tenant within thirty (30) days after demand. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or that Landlord may deem to be proper for the protection of Landlord, the Premises and the Building from such liens. Tenant shall give to Landlord at least ten (10) days' prior notice of the date of commencement of any Alterations on the Premises in order to permit the posting of such notices by Landlord. Landlord may require, in Landlord's sole discretion, that Tenant, at Tenant's sole expense, provide to Landlord a lien and completion bond in form and substance satisfactory to Landlord in an amount equal to one hundred fifty percent (150%) of the total estimated cost of any Alterations to insure Landlord against any liability for mechanics' and materialmen's liens and to insure completion of work. Notice is hereby given that Landlord shall not be liable for any labor, services or materials furnished or to be furnished to Tenant for the Premises or to anyone holding any of the Premises through or under Tenant, and that mechanics', construction or other liens for any such labor, services or materials shall not attach to the Premises or otherwise affect the interest of Landlord in and to the Premises. Tenant agrees to notify any contractors, subcontractors or others performing services or providing materials to the Premises of the foregoing provision of this Lease. 13. ASSIGNMENT AND SUBLETTING. (a) Tenant shall not (i) assign or mortgage this Lease or any right under or interest in it, (ii) allow this Lease to be assigned by operation of law or otherwise, (iii) sublet the Premises or any part of the Premises, or (iv) permit anyone to use or occupy the Premises or any part of the Premises in place of Tenant without the prior written consent of Landlord. Any sale or other transfer of a majority of the voting stock or partnership interest of Tenant or any guarantor of Tenant's obligations under this Lease shall be considered an assignment for purposes of this Section 13. Any such assignment, mortgage or subletting without Landlord's consent shall be void and shall, at Landlord's option, constitute a breach of this Lease. Notwithstanding consent by Landlord of any subletting or assignment by Tenant, Tenant, any guarantor of Tenant's obligations under this Lease and each assignee and subtenant shall remain directly and primarily responsible and jointly and severally liable for payment of the Rent required under this Lease and for compliance with all of Tenant's other obligations, and no usage of the Premises different from the usage herein provided to be made by Tenant shall be permitted. In the event that the rent due and payable by an assignee or sublessee exceeds the Rent payable under this Lease, the excess rental or consideration shall be paid by Tenant to Landlord within ten (10) days following receipt of any excess rental or consideration by Tenant. Consent of Landlord to any assignment, mortgage or subletting shall constitute approval only as to that specific assignment, mortgage or subletting, and none other. (b) Any request by Tenant for Landlord's consent to a specific assignment or sublease shall include (i) the name of the proposed assignee, sublessee or occupant, (ii) the nature of the proposed assignee's, sublessee's or occupant's business to be carried on in the Premises, (iii) a copy of the proposed assignment or sublease, and (iv) such financial information and such other information as Landlord may reasonably request concerning the proposed assignee, sublessee or occupant or its business. Landlord shall respond in writing, stating the reasons for any disapproval, within fifteen (15) business days after receipt of all information reasonably necessary to evaluate the proposed assignment or sublease. (c) Tenant shall pay to Landlord the reasonable amount of Landlord's cost of processing every proposed assignment or sublease including, but not limited to, attorneys' fees and the reasonable amount of all direct and indirect expenses incurred by Landlord arising from any assignee, sublessee or occupant taking occupancy. (d) Notwithstanding any other provision set forth herein, Tenant shall be permitted to enter into a sublease (the "Sublease") of the Premises by and between Tenant, as sublandlord, and Fleet National Bank, a national banking association (the "Subtenant") as subtenant, for approximately Eighteen Thousand Sixty (18,060) square feet of space on the second floor of the Building and approximately Ten Thousand (10,000) square feet of space on the first floor of the Building. The Sublease shall be in the form attached hereto as Exhibit E. Provided that Subtenant is not in material default of the Sublease, Landlord shall not disturb Subtenant's quiet enjoyment of its premises under the Sublease for the entire term thereof. (e) Notwithstanding the foregoing provisions of this Section 13, an assignment, sublease or transfer of the Premises shall not require the consent of the Landlord if such assignment, sublease or transfer is to an Affiliate of the Tenant (as defined herein) provided such Affiliate agrees directly with Landlord to be bound by all obligations of Tenant hereunder. For purposes hereof, "Affiliate" means (i) any entity directly controlling, controlled by or under common control with Tenant; (ii) any entity owning or controlling fifty percent (50%) or more of the outstanding voting interests of Tenant; (iii) any entity of which Tenant owns or controls fifty percent (50%) or more of the voting interests; (iv) any entity into which Tenant is merged or consolidated; (v) any entity into which Tenant is merged or any corporation or other entity resulting from the consolidation of Tenant with some other entity; and (vi) any successor corporation to Tenant or other entity arising from any bona fide reorganization of Tenant. No subletting, assignment or transfer of this Lease either with or without the consent of Landlord shall relieve the Tenant from its obligations under this Lease and Tenant hereby guarantees the prompt and timely payment of all Base Rent and Additional Charges and the timely performance of all other obligations of Tenant hereunder. 14. INDEMNIFICATION. (a) If Tenant shall default in the performance of its obligations under this Lease, Landlord, at any time thereafter on five (5) business days written notice, may remedy such default for Tenant's account and at Tenant's expense. By curing such default, Landlord does not waive any other rights or remedies of Landlord with respect to such default. (b) Tenant agrees to indemnify Landlord against and hold Landlord harmless from any and all loss, cost, liability, damage and expense including, without limitation, penalties, fines and reasonable attorneys' fees, incurred in connection with or arising from any cause whatsoever in, on or about the Premises. (c) Tenant waives all claims against Landlord for damage to any property or injury or death of any person in, upon or about the Premises or Building or Common Areas arising at any time and from any cause other than solely by reason of the gross negligence or willful act of Landlord or its employees or contractors. (d) Tenant's obligations under this Section 14 shall survive the expiration or sooner termination of the Term. (e) All fixtures, equipment, signs, merchandise, supplies and other property on or about the Premises shall be at Tenant's sole risk and hazard, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by use or abuse of water, or by leaking or bursting of water pipes, or in any way or manner, including, without limitation, the acts or omissions of any other occupant of any portion of the Building, no part of said destruction or damage is to be charged to or borne by Landlord in any case whatsoever, except only to the extent caused by Landlord's gross negligence or willful default and, except to such extent, Tenant agrees to exonerate Landlord from and against any and all claims, suits, obligations, liabilities and damages, including reasonable attorneys' fees, based upon or arising out of any of the foregoing. 15. SUBROGATION. Landlord and Tenant each shall obtain from their respective insurers under all policies of fire and extended coverage insurance maintained by either at any time during the Term insuring or covering the Building or Premises or any improvements, fixtures, equipment, furnishings or other property, including salable goods, merchandise, and inventory in, on or about the Premises, if any, a waiver of all rights of subrogation which such party or the insurer of such party might have against the other party or its insurer. 16. INSURANCE. Tenant agrees to carry and keep in force during the Term, at Tenant's sole expense, the following types of insurance: (i) Public Liability and Property Damage. Commercial general liability insurance including contractual liability with a minimum combined single limit or aggregate of liability equal to the amount set forth in the Basic Lease Information, insuring against any and all liability for property damage and for injuries to or death of persons occurring in, on or about the Premises or arising out of the maintenance, use or occupancy of the Premises. (ii) Tenant's Property. Insurance covering any and all fixtures, equipment, furnishings and personal property of Tenant from time to time in, on or about the Premises, providing protection against all perils included within a standard fire and extended coverage "all risk form" insurance policy, together with insurance against sprinkler damage, vandalism, and malicious mischief. Such insurance shall be in an amount not less than the full replacement cost of the property insured without deduction for depreciation. (iii) Building. Insurance covering the replacement cost of the Building including a standard "all risk of physical loss" insurance policy insuring the Building against loss or damage by any peril, including without limitation riot and civil commotion, vandalism, malicious mischief, burglary, theft and mysterious disappearance in an amount (i) equal to at least one hundred percent (100%) of the then "full replacement cost" of the Building, without deduction for physical depreciation, and (ii) such that the insurer would not deem Landlord's lender to be a coinsurer under such policy. The premium for said policy shall be paid annually in advance and shall contain a "replacement cost endorsement" with a waiver of depreciation and shall have a deductible no greater than Ten Thousand Dollars ($10,000). In addition, said policy shall also include the following coverage: (A) Rental Loss Insurance. Rental loss insurance in an amount equal to at least one hundred percent (100%) of the aggregate annual amount of all rents and additional rents payable by all of the tenants under the leases in the Building (whether or not such leases are terminable in the event of a fire or casualty), such rental loss insurance to cover rental losses for a period of at least one (1) year after the date of the fire or casualty in question. The amount of such rental loss insurance shall be increased from time to time during the term of this Lease as and when new leases and renewal leases are entered into, to reflect all increased rent and increased additional rent payable by all of the tenants under such renewal leases and all rent and additional rent payable by all of the tenants under such new leases; (B) Boiler Insurance. Insurance against loss or damage from explosion of steam boilers, air conditioning equipment, high pressure piping, machinery and equipment, pressure vessels or similar apparatus now or hereafter installed in the Building; and (C) Building Ordinance Insurance. Building ordinance or enforcement of law insurance coverage. (iv) Worker's Compensation. Worker's compensation insurance in such form and amounts as required by local, state or Federal laws, rules and regulations, and employer's liability insurance with a limit of one million dollars ($1,000,000). All policies of insurance provided for in this Section 16 shall be issued by insurance companies with a general policyholders' rating of not less than A and a financial rating of XIII as rated in the most current available "Best's Insurance Reports," and qualified to do business in the Commonwealth of Massachusetts; and, except for workers' compensation and employers' liability, all such policies shall include Landlord and Landlord's lender as additional insureds. All such policies of insurance shall be procured for periods of not less than one (1) year. Executed copies or certificates of all such policies of insurance shall be delivered to Landlord within ten (10) days before delivery of possession of the Premises to Tenant, and thereafter within thirty (30) days prior to the expiration of the term of each such policy. All commercial general liability insurance policies shall contain a provision that Landlord, although included as an additional insured, shall nevertheless be entitled to recovery under such policies for any loss occasioned to Landlord, its agents and employees by reason of the negligence or willful act of Tenant. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All such policies of insurance shall provide that the company writing such policy shall give to Landlord thirty (30) days' prior written notice of any cancellation or lapse or the effective date of any reduction in the amounts of insurance. Notwithstanding the foregoing, if any such insurance expires without having been renewed by Tenant, Landlord shall have the option in addition to Landlord's other remedies to procure such insurance for the account of Tenant immediately and without notice to Tenant, and the cost of such insurance shall be paid to Landlord an Additional Charge. The limits of the insurance required under this Lease shall not limit the liability of Tenant. All public liability, property damage and other casualty policies shall be written as primary policies, not contributing with and not in excess of, any coverage which Landlord may carry. 17. SERVICES AND UTILITIES. (a) Tenant shall make all arrangements for and pay before delinquent all charges for all utilities and services furnished to or used by it in connection with the Premises, including, without limitation, gas, electricity, water, telephone service, and trash collection, and for all connection charges. Landlord shall not be liable for, and Tenant shall not be entitled to, any reduction of Rent by reason or on account of (i) the installation, use of or interruption of use of any equipment in connection with the furnishing of any of the foregoing services, (ii) the failure to furnish or delay in furnishing any of the foregoing services when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, or by any other cause, similar or dissimilar, or by the making of any repairs or improvements to the Premises or to the Building or any portion of either, or (iii) the limitation, curtailment, rationing or restriction on use of water, electricity, gas or any other utility serving the Premises or the Building by any utility or governmental agency. (b) The cost of any such meters and of their installation, maintenance and repair shall be paid for by Tenant, and Tenant agrees to pay to Landlord as Additional Charges promptly upon demand all charges for such water and electric current consumed as shown by such meters, at the rates charged for such services by the local public utility furnishing the same, plus any additional expense incurred in providing and keeping account of the water and electric current so consumed. If a separate meter is not installed, such excess cost for such water and electric current shall be established by an estimate made by a utility company or an engineer selected by Landlord and shall be paid to Landlord as Additional Charges. 18. TAXES ON TENANT'S PERSONAL PROPERTY. Tenant agrees to pay, before delinquency, any and all taxes levied or assessed during the Term upon Tenant's equipment, furniture, fixtures, and other personal property located in, on or about the Premises or Building. In the event any or all of Tenant's equipment, furniture, fixtures and other personal property shall be assessed and taxed with the Building, Tenant shall pay to Landlord as Additional Charges the taxes so levied with respect to such personal property within ten (10) days after delivery to Tenant by Landlord of a statement setting forth the amount of such taxes applicable to Tenant's property. 19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with the rules and regulations with respect to the Building and Common Areas that are attached as Exhibit C. Landlord reserves the right from time to time to make reasonable additions and modifications to such rules and regulations. Any such additions and modifications shall be binding upon Tenant upon delivery of a copy of them to Tenant. 20. HOLDING OVER. Any holding over by Tenant after the Expiration Date with the prior consent of Landlord shall be construed to be a tenancy from month to month on all of the terms, covenants, and conditions herein specified but at a monthly Base Rent equal to twice the monthly Base Rent in effect immediately prior to the Expiration Date, provided that Tenant shall not be liable for consequential damages in connection with holding over pursuant to the provisions of this Section 20. Acceptance by Landlord of Rent after the Expiration Date without Landlord's prior consent shall not constitute a consent by Landlord to any such tenancy from month to month or result in any other tenancy or any renewal of the Term. The provisions of this Section 20 are in addition to, and do not affect, Landlord's right of re-entry or other rights under this Lease or provided by law. 21. ENTRY BY LANDLORD. Landlord, its agents, and employees shall have access to and the right to enter upon the Premises at any reasonable time upon reasonable advance notice to Tenant, to examine the condition of the Premises, to make any repairs or alterations required to be made by Landlord under this Lease, to show the Premises to prospective purchasers, lenders, or tenants, and for any other purpose deemed reasonable by Landlord, without liability for trespass. In any circumstances where Landlord is permitted to enter upon the Premises during the Term, no such entry shall constitute an eviction or disturbance of Tenant's use and possession of the Premises or a breach by Landlord of any of its obligations under this Lease or render Landlord liable for damages for loss of business or otherwise entitle Tenant to be relieved from any of its obligations under this Lease or grant Tenant any right of setoff or recoupment remedy. 22. DAMAGE AND DESTRUCTION. If the Premises or the Building is damaged by fire or other casualty, Landlord shall promptly repair such damage to the extent of the insurance proceeds (after deduction of Landlord's costs of adjustment and collection) available for restoration of the Premises or the Building, as the case may be, subject to the provisions of this Section 22, if, in Landlord's judgment, such repairs can be made within one hundred twenty (120) days. During the making of such repairs by Landlord, this Lease shall remain in full force and effect, except that if the damage is not the result of any act, neglect, default or omission of Tenant, its agents, employees or invitees, Tenant shall be entitled to a reduction of Rent while such repair is being made in the proportion that the Premises Rentable Area rendered untenantable by such damage bears to the total Premises Rentable Area. In the event (i) the uninsured portion of any damage to or destruction of the Building equals or exceeds ten percent (10%) of the replacement cost of the Building; or (ii) the Term will expire within one (1) year from the date of any material damage to or destruction of the Premises; or (iii) the damage cannot, in Landlord's reasonable opinion, be repaired within one hundred twenty (120) days, Landlord shall have the option either (a) to repair such damage, this Lease continuing in full force and effect but with the Rent proportionately reduced upon the conditions and as provided above, or (b) at any time within thirty (30) days after the occurrence of such damage, to give notice to Tenant terminating this Lease as of a date specified in such notice, which date shall not be less than thirty (30) nor more than sixty (60) days after the giving of such notice. If Landlord elects to terminate this Lease by giving such notice of termination to Tenant, this Lease and all interest of Tenant in the Premises shall terminate on the date specified in such notice, and the Rent, proportionately reduced as provided above, shall be paid up to the date of such termination, with Landlord refunding to Tenant any Rent previously paid for any period of time subsequent to such date. If Landlord elects or is required to repair the Premises or the Building under this Section 22, Landlord shall repair at its cost any injury or damage to the Building and the leasehold improvements in the Premises, and Tenant shall be responsible for and shall repair at its sole cost all fixtures, equipment, furniture or any other property of Tenant in the Premises. Tenant shall not be entitled to any compensation or damages from Landlord for damage to any of Tenant's fixtures, personal property or equipment, for loss of use of all or any part of the Premises, for any damage to Tenant's business or profits, or for any disturbance to Tenant caused by any casualty or the restoration of the Premises following such casualty. 23. DEFAULT. The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant (collectively, an "Event of Default"): (a) The failure of Tenant to pay any installment of Rent on or before the date such installment is due and such delinquency or failure to pay shall continue for ten (10) days after written notice from Landlord. (b) The failure by Tenant to observe or perform any of the provisions of this Lease to be observed or performed by Tenant, other than as described in Section 23(a), where such failure shall continue for a period of fifteen (15) days after notice of such failure by Landlord to Tenant; provided, however, that if the nature of Tenant's default is such that more than fifteen (15) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within such fifteen (15) day period and thereafter diligently prosecutes such cure to completion. (c) The making by Tenant of any general assignment or general arrangement for the benefit of creditors; or the filing of any action by or against Tenant under any insolvency, bankruptcy, reorganization, moratorium, or other debtor relief statute, whether now or hereafter existing, (unless in the case of such action taken against Tenant, the same is dismissed within sixty (60) days); or the appointment of a trustee or a receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged in ten (10) days; or the admission by Tenant in writing of the inability to pay its debts as they become due. (d) If this Lease or all or any part of the estate or interest of Tenant under this Lease or created by this Lease shall be assigned, subleased, mortgaged, encumbered or otherwise disposed of without compliance with the provisions of this Lease. 24. REMEDIES IN DEFAULT. (a) Upon the occurrence of an Event of Default, Landlord shall have the option to take any one or more of the following actions without notice or demand, in addition to and not in limitation of any other remedy permitted by law or by this Lease. (i) Terminate this Lease, at which time Tenant shall immediately surrender the Premises to Landlord. If Tenant fails to do so, Landlord may expel or remove Tenant and its property and retake possession of the Premises without liability for any prosecution or any claim for damages by reason of such re-entry. Tenant further agrees to indemnify Landlord for all loss and damage suffered by Landlord by reason of such termination, including loss of Rent for the remainder of the Term. (ii) Enter upon and take possession of the Premises as Tenant's agent without terminating this Lease and without liability to prosecution of any claim for damages by reason of such re-entry, and relet the Premises as Tenant's agent and receive rent for such reletting. Tenant agrees to pay to Landlord on demand for any costs incurred by Landlord through such reletting, including costs of renovating or repairing the Premises for a new tenant and for any deficiency that may arise between the amount of rent due for the remainder of the Term and that received by Landlord from reletting the Premises. (iii) Landlord may do whatever Tenant is obligated to do under the terms of this Lease and in order to accomplish this purpose Landlord may enter the Premises without liability to prosecution or any claim for damages arising from Landlord's entering the Premises to satisfy Tenant's obligations under this Lease. Tenant shall reimburse Landlord for any expenses Landlord may incur in effecting compliance with this Lease on Tenant's behalf. Tenant further agrees that Landlord shall not be liable for any damages which may result to Tenant from such action by Landlord, whether caused by Landlord's negligence or otherwise. (b) In the event of any termination of this Lease, Tenant shall pay the Base Rent, Additional Charges, Taxes, Expenses and all other amounts payable under this Lease up to the time of such termination, and thereafter Tenant, until the end of what would have been the Term in the absence of such termination, and whether or not the Premises shall have been relet, shall be liable to Landlord for, and shall pay to Landlord, as liquidated current damages, the Base Rent, Additional Charges, Taxes, Expenses and all other amounts payable under this Lease had such termination not occurred, less the net proceeds, if any, of any reletting of the Premises, after deducting all expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, advertising and marketing costs, expenses of employees, and expenses of preparation for such reletting. Tenant shall pay such current damages to Landlord monthly on the days on which the Base Rent, Additional Charges, Taxes, Expenses and all other amounts payable under this Lease which would have been payable had this Lease not been terminated. (c) At any time after the termination of this Lease, whether or not Landlord shall have collected any current damages pursuant to Section 24(b), as liquidated final damages, and in lieu of all current damages payable by Tenant pursuant to Section 24(b) thereafter, at Landlord's election, Tenant shall pay to Landlord an amount which at the time of such election represents the then value of the excess, if any, of (1) the Base Rent, Additional Charges, Taxes, Expenses and all other amounts payable under this Lease which would have been payable by Tenant (conclusively presuming the annual payments with respect to Base Rent, real estate taxes and expense escalation obligations to be the same as were payable for the preceding year) for the period commencing with the date of Landlord's election and ending with the date contemplated as the expiration date hereof if this Lease had not so terminated, over (2) the aggregate fair market rental value of the Premises for the same period. 25. EMINENT DOMAIN. In the event the Building, Premises, or any portion of the Building or the Premises shall be taken or condemned in whole or in part for public purposes then the Term shall, at the option of Landlord, forthwith cease and terminate, and Landlord shall receive the entire award, including any award for the value of the leasehold estate created under this Lease. In the event Landlord does not terminate as herein provided, Rent shall abate in proportion to the portion of the Premises taken by such condemnation or other taking. 26. ESTOPPEL CERTIFICATE. At any time and from time to time but on not less than ten (10) business days' prior notice by Landlord, Tenant shall promptly execute, acknowledge and deliver to Landlord, and, at Landlord's request, to any prospective purchaser, ground lessor, or mortgagee, a certificate certifying (a) that Tenant has accepted the Premises (or, if Tenant has not done so, that Tenant has not accepted the Premises and specifying the reasons for not accepting them); (b) the Commencement and Expiration Dates; (c) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect as modified and stating the date and nature of each modification); (d) the dates, if any, to which Rent has been paid; (e) whether or not there are then existing any defenses against the enforcement of any of the obligations of Tenant under this Lease (and, if so, specifying same); (f) whether or not there are then existing any defaults by Landlord in the performance of its obligations under this Lease (and, if so, specifying same); and (g) such other matters as may be reasonably requested by Landlord. Any such certificate may be relied upon by Landlord and by any prospective purchaser, ground lessor, or mortgagee considering the purchase of or a loan on all or any part of the Building or interest in the Building. Tenant shall indemnify and hold Landlord harmless from and against all costs, damages, expenses, liabilities and fees, including, without limitation, reasonable attorneys' fees and any consequential damages or lost profits, arising from or in any way related to or connected with Tenant's failure to deliver any such certificate within the time specified in this Section 26. 27. AUTHORITY OF PARTIES. If Tenant is a corporation or partnership, each individual executing this Lease on behalf of Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of Tenant, that Tenant is a duly authorized and existing entity, that Tenant has and is qualified to do business in Massachusetts, that Tenant has full right and authority to enter into this Lease, and that this Lease is binding upon such corporation or partnership in accordance with its terms. Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing representations and warranties. 28. BROKERS. Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease excepting only the brokers specified in the Basic Lease Information, and it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Tenant agrees to indemnify Landlord and hold Landlord harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including reasonable attorneys' fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of Tenant's dealings with any real estate broker or agent other than as specified in the Basic Lease Information. 29. GENERAL PROVISIONS. (a) Waiver. The waiver by Landlord or Tenant of the other party's failure to perform or observe any provision of this Lease shall not be deemed to be a continuing waiver of such provision or a waiver of any subsequent failure of Landlord or Tenant to perform or observe the same or any other such provision, and no custom or practice which may develop between the parties during the Term shall be deemed a waiver of, or in any way affect, the right of Landlord or Tenant to insist upon performance and observance by the other party in strict accordance with the terms of this Lease. (b) Notices. Any bills, statements, notices, demands, requests or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by a recognized overnight courier service or delivered personally, (a) to Tenant (i) at Tenant's address set forth in the Basic Lease Information, if sent prior to Tenant's taking possession of the Premises, or (ii) at Tenant's address at the Building, if sent subsequent to Tenant's taking possession of the Premises, or (iii) at any place where Tenant or any agent or employee of Tenant may be found if sent subsequent to Tenant's vacating, deserting, abandoning, or surrendering the Premises, or (b) to Landlord at Landlord's address set forth in the Basic Lease Information, or (c) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Section 29(b). Any such bill, statement, notice, demand, request or other communication shall be deemed to have been rendered or given one (1) day after the date when it shall have been mailed as provided in this Section 29(b) if sent by a recognized overnight courier service, or upon the date personal delivery is made or refused. If Tenant is notified of the identity and address of Landlord's mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor notice of any default by Landlord under the terms of this Lease in writing sent by a recognized overnight courier service, and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such default prior to Tenant exercising any remedy available to it. (c) Examination of Lease. Submission of this instrument to Tenant for its execution does not constitute a reservation, offer or option for a lease, and this instrument is not and shall not be deemed to be effective as a lease or otherwise until its execution and delivery by both Landlord and Tenant. This Lease may be executed in counterparts and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument. (d) Captions. The captions of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision of this Lease. (e) Definitions. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. The words used in the neuter gender include the masculine and feminine. If the Tenant is more than one entity, the obligations under this Lease imposed on Tenant shall be joint and several. (f) Time. Time is of the essence of this Lease and each and all of its provisions in which performance is a factor. (g) Successors and Assigns. The terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and, except as otherwise provided herein, their respective personal representatives and successors and assigns; provided, however, upon the sale, assignment or transfer by the Landlord named herein (or by any subsequent landlord) of its interest in the Building as owner or lessee, including any transfer by operation of law, the Landlord named herein (or any subsequent landlord) shall be relieved from all subsequent obligations or liabilities under this Lease, and all obligations subsequent to such sale, assignment or transfer (but not any obligations or liabilities that have accrued prior to the date of such sale, assignment or transfer) shall be binding upon the grantee, assignee or transferee of such interest, and any such grantee, assignee or transferee, by accepting such interest, shall be deemed to have assumed such subsequent obligations and liabilities. (h) Recordation. Tenant may record a notice of this Lease in the form of Exhibit F hereto. In the event that a notice of Lease is consented to by Landlord and such notice of Lease is recorded, Tenant agrees to execute a discharge or release of such notice of Lease upon the expiration or earlier termination of this Lease. Tenant further agrees that should Tenant fail to execute such discharge or release, that Tenant shall appoint Landlord its attorney-in-fact and give Landlord such power of attorney for the sole purpose of executing a discharge or release of such notice of Lease on behalf of Tenant. (i) Quiet Possession. Upon Tenant paying the Rent reserved under this Lease and observing and performing all of the provisions of this Lease, Tenant shall have quiet possession of the Premises for the entire Term, subject to all the provisions of this Lease. (j) Prior Agreements. This Lease contains all of the agreements of the Landlord and Tenant with respect to any matter covered or mentioned in this Lease, and no prior agreements or understandings pertaining to any such matters shall be effective for any purpose. No provision of this Lease may be amended or added to except by an agreement in writing signed by the parties or their respective successors in interest. Tenant acknowledges that in executing and delivering this Lease, Tenant is not relying on any verbal or written understanding, promise or representation outside the scope of this Lease and not described or referred to herein. (k) Attorneys' Fees. In the event of any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover all costs and expenses including its attorneys' fees in such action or proceeding in such amount as the court may adjudge reasonable. The prevailing party shall be determined by the court based upon an assessment of which party's major arguments made or positions taken in the proceedings could fairly be said to have prevailed over the other party's major arguments or positions on major disputed issues in the court's decision. If the party which shall have commenced or instituted the action, suit or proceeding shall dismiss or discontinue it without the concurrence of the other party, such other party shall be deemed the prevailing party. (l) Subordination; Attornment. Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, this Lease shall be subject and subordinate at all times to: (i) all ground leases or underlying leases which may now exist or hereafter be executed affecting the Building or the Land or both, and (ii) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Building, Land, ground leases or underlying leases or Landlord's interest or estate in any of such liens is specified as security, provided that the lessees under such ground or underlying leases, and the mortgagees or beneficiaries named in such mortgages or deeds of trust, shall agree to recognize the interest of Tenant under this Lease in the event of foreclosure, if Tenant is not then in default. Landlord agrees to use commercially reasonable efforts to obtain and deliver to Tenant a non- disturbance agreement executed and delivered by Landlord's fee mortgagee/lender, in said fee mortgagee/lender's standard form. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to this Lease. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, at the option of such successor in interest. The provisions of this paragraph shall be self- operative and no further instrument shall be required to effect the provisions of this paragraph. Notwithstanding the foregoing, Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such liens. (m) Names. Tenant shall not use the name of the Building or of the development in which the Building is situated for any purpose other than as an address of the business to be conducted by Tenant in the Premises. (n) Separability. Any provision of this Lease which shall prove to be invalid, void, illegal or unenforceable shall in no way affect, impair or invalidate any other provisions of this Lease, and such other provisions and this Lease shall remain in full force and effect. (o) Cumulative Remedies. No remedy or election under this Lease shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. (p) Choice of Law. This Lease shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. (q) Signs and Building Name. Tenant shall not place any sign upon the Premises, Building or Land without Landlord's prior consent, such consent not to be unreasonably withheld, delayed or conditioned. All signs so consented to by Landlord and placed by Tenant upon or in the Premises shall comply in all respects with size, design, lettering and material guidelines established by Landlord for the Building. Landlord reserves the right to change or alter such guidelines at such times and for such tenants as Landlord may determine in its sole and absolute discretion. (r) No Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation of this Lease, shall not constitute a merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all such subleases or subtenancies. (s) Jury Trial. Tenant and Landlord waive the right to a jury trial in any action brought under this Lease or arising out of the landlord/tenant relationship. (t) Force Majeure. In the event Landlord shall be delayed, hindered, or prevented from the performance of any act required under this Lease by reason of act of God; act of common enemy; fire, storm, flood, explosion or other casualty; strike, lockouts, labor disputes, labor troubles; inability to procure materials; failure of power; restrictive governmental laws or regulations; riots; insurrection; war; settlement of losses with insurance carriers; injunction; order of any court or governmental authority; or other cause not within the reasonable control of Landlord, then the performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. (u) Financial Statements. Upon Landlord's written request from time to time (but not more frequently than once per year), Tenant shall promptly furnish Landlord with certified financial statements reflecting Tenant's then-current financial condition, in such form and detail as Landlord may reasonably request; provided, however, that if the stock of Tenant is traded on a national exchange, Tenant may furnish a copy of the annual report filed with the Securities and Exchange Commission instead of financial statements. (v) Compliance with Americans with Disabilities Act. Notwithstanding any provision of this Lease to the contrary, Tenant is and shall be solely responsible for assuring that the Premises at all times comply in full with the Americans with Disabilities Act, 42 USC Section 12181 et seq. (the "Act") as now or hereafter amended, and all regulations now or hereafter promulgated pursuant to the Act (the "Regulations"), including but not limited to any remodeling or alterations done to the Premises. Tenant is and shall be solely responsible for all costs and expenses associated with complying with the Act and the Regulations, whether such expenditures are capital or otherwise. Tenant acknowledges that Landlord makes no representations or warranties regarding the Premises' compliance with the Act or Regulations. Tenant shall indemnify and defend Landlord against, and hold Landlord harmless from any and all claims, demands, causes of action, suits, lawsuits, costs and expenses (including, but not limited to, reasonable attorneys' fees and litigation costs), damages, penalties and fines asserted against, or suffered or incurred by, Landlord in any way relating to or arriving from, in whole or in part, an actual or asserted claim that Premises or any portion of the Premises, is in violation of the Act or the Regulations. (w) Limitation on Landlord Liability. Neither the shareholders, investors, officers, directors, trustees, employees, individuals, or partners comprising Landlord, nor the shareholders, investors, directors, trustees, officers, or partners of any of the foregoing (collectively, the "Parties") shall be liable for the performance of Landlord's obligations under this Lease. Tenant shall look solely to Landlord to enforce Landlord's obligations under this Lease and shall not seek any damages against any of the Parties. Tenant shall not look to the property or assets of Landlord, excepting only the Building, or of any of the Parties, in seeking to enforce Landlord's obligations under this Lease or to satisfy a judgment for Landlord's failure to perform such obligations. (x) Exhibits. The Exhibits listed in the Table of Contents to this Lease are incorporated herein by reference and shall be read and construed as if they formed a part hereof. [Balance of Page Intentionally Left Blank IN WITNESS WHEREOF, each of Landlord and Tenant has caused this Lease to be duly executed and delivered as an instrument under seal as of the date first written above. LANDLORD: TELECOM REALTY, LLC, a Massachusetts limited liability company By: TELECOM MANAGEMENT CORP., a Massachusetts corporation, its manager By: Thomas Fabbricatore Executive Vice-President and Secretary-Treasurer TENANT: CTC COMMUNICATIONS CORP., a Massachusetts corporation By: Name: Title: EXHIBIT A PREMISES [Plans(s) to be attached by Landlord EXHIBIT A-1 PLAN OF COMMON AREAS [Plans(s) to be attached by Landlord] EXHIBIT B TENANT IMPROVEMENT WORKLETTER This Exhibit B and the provisions of the Lease set forth the terms and provisions which shall govern the performance of Tenant's Work (as hereinafter defined). 1. Definitions As used in this Exhibit B, all capitalized terms shall have the same meanings as defined in the Lease unless otherwise defined herein. In addition, the following terms shall have the following respective meanings: A. "Tenant's Work" shall mean the work to be performed by Tenant in preparing the Premises for Tenant's occupancy, as more particularly described in Section 4(b) of the Lease; B. "Plans" shall mean complete plans, working drawings, specifications and information necessary for the performance of Tenant's Work; and C. "Tenant's Work Rules" shall have the meaning provided in Section 2 hereof. 2. Conditions to Performance of Tenant's Work All Tenant's Work shall be performed subject to, and in accordance with the requirements of Exhibit B-1 attached hereto entitled "Tenant Construction Work at 115-125 Second Avenue, Waltham, MA" (referred to herein as "Tenant's Work Rules"). Landlord agrees that: A. Wherever the consent or approval of Landlord or Landlord's Construction Representative is required under the Tenant's Work Rules or hereunder, such consent or approval shall not be unreasonably withheld, delayed or conditioned. Landlord and Landlord's Construction Representative shall respond to any request for consent or approval under the Tenant's Work Rules or hereunder as promptly as possible based upon the nature of such request and, where specific time periods for consent or approval are set forth in the Tenant's Work Rules or hereunder, within such time periods. B. All Tenant's Work shall be performed in compliance with: (i) all applicable laws, rules, orders and regulations of governmental authorities having jurisdiction thereof; (ii) orders, rules and regulations of any Board of Fire Underwriters, and governing insurance rating bureaus; and (iii) the approved (i.e. by Landlord) Plans for Tenant's Work. All Tenant's Work shall be performed in a first-class good and workmanlike manner. 3. Preparation of Tenant's Plans; Plan Requirements; Approval by Landlord (a) Tenant shall submit to Landlord, for Landlord's approval, complete Plans necessary for the performance of Tenant's Work. (b) The Plans shall be fully detailed and coordinated, shall show complete dimensions, shall have designated thereon all points of location and other matters required to perform Tenant's Work and shall consist of the final plans and specifications (including air-conditioning, ventilating, electrical, and plumbing design drawings and specifications, if any) prepared by Tenant's licensed interior architect or designer and engineer approved by Landlord to describe the manner in which Tenant intends to finish the Premises. Each submission shall consist of three (3) sets of the relevant Plans. Notwithstanding the foregoing, Tenant may submit to Landlord for approval two separate submission of Plans at different times, one submission consisting of the architectural and structural Plans and the other submission consisting of the mechanical, electrical, plumbing and sprinkler Plans. Submissions shall identify changes from prior submissions. After approval by Landlord of any Plans, any changes thereto from time to time made by Tenant shall be approved by Landlord in accordance with subsection (c) below. All Plans shall comply with and conform to all legal requirements relating to the Building. (c) Landlord's review and approval of Tenant's Plans shall be as to layout only and shall not be deemed to be an approval of the legality of the Plans, the cost of Tenant's Work, or whether the Plans will satisfy Tenant's needs. Subject to the preceding sentence, after approval by Landlord, the Plans shall not be changed or modified in any respect by Tenant in any way which affects the HVAC (on a Building-wide basis), plumbing, electrical or other systems of the Building, or the structure of the Building, without the further approval in writing by Landlord in accordance with this subsection (c) below. Landlord will not unreasonably withhold its approval of any Plans or any change or modification thereof. Landlord shall specify in reasonable detail any objections to any of such Plans or changes thereto, as the case may be. Provided that any such request shall specify that failure to disapprove the same within ten (10) Business Days shall be deemed approval thereof, failure to timely disapprove any such Plans or changes thereto shall, for all purposes of the Lease and this Exhibit B, be deemed to be approval thereof, in writing, by Landlord. No Tenant's Work shall be commenced prior to the approval (or deemed approval) by Landlord of Plans therefor. Tenant shall have the right, subject to the terms and provisions of the Lease and this Exhibit B, to perform Tenant's Work shown on any Plans, or any changes thereto, approved by Landlord. 4. Performance of Tenant's Work; Tenant's Cost (a) Tenant shall complete Tenant's Work in accordance with the approved Plans no later than one (1) year after the Commencement Date of the Lease. Tenant's Work shall be completed at Tenant's sole cost and expense. (b) Tenant shall perform all of Tenant's Work by contracting separately with a contractor approved by Landlord. (c) Upon completion of Tenant's Work, Tenant shall deliver to Landlord three (3) complete sets of Tenant's Plans, as changed, and shop drawings. 5. Landlord Cooperation with Tenant's Filings for Governmental Approvals Landlord shall cooperate with Tenant, in such manner as Tenant may reasonably request, in connection with any filings which Tenant is required to make with appropriate governmental authorities in connection with the performance of Tenant's Work. Such cooperation shall include, without limitation, the prompt execution of all documents, instruments, and certificates as are reasonably required by such governmental authorities in connection with the performance of Tenant's Work. 6. Loading Docks A. Subject to causes beyond Landlord's reasonable control, access to the Building will be made available to Tenant and Tenant's contractor seven (7) days per week, twenty-four (24) hours per day. B. All deliveries (whether incoming or outgoing) may be subject to reasonable inspection. 7. Trash Disposal; Garbage A. All construction and related debris, trash and garbage shall be disposed of only in Tenant's dumpsters, at Tenant's sole expense. Tenant shall be responsible for pest and vermin control arising out of or caused by the performance of Tenant's Work and/or the disposal of such debris, trash and garbage. B. Portable trash containers shall be stored by Tenant's contractors in the portions of the Premises where Tenant is performing Tenant's Work. 8. Access A. All Tenant's construction employees, service vendors, vendor service contractors, technicians, delivery personnel, messenger and construction related personnel shall use the loading docks as the only means of ingress to and egress from the Building (unless otherwise mutually agreed to by Landlord and Tenant) and shall provide reasonable identification. B. Keys required for access to the Premises shall be provided to Tenant and Tenant's contractors. 9. Site Office A. Tenant or Tenant's contractor shall construct an appropriate site office for personnel and materials within the Premises. B. Subject to reasonable security requirements imposed by Landlord and causes beyond Landlord's reasonable control, access to the portions of the Premises in which Tenant's Work may be performed hereunder and the site office will be made available to Tenant and Tenant's contractors seven (7) days per week, twenty-four (24) hours per day. 10. Coordination of Landlord's Work and Tenant's Work The parties acknowledge that both Tenant and Landlord may be performing work in the same areas. Therefore, the parties hereby agree to use all reasonable efforts to coordinate the scheduling and performance of such work so that each may prosecute such work in an efficient and timely manner. 11. Insurance A. Prior to the commencement of Tenant's Work, Tenant shall deliver to Landlord a true copy of all insurance policies or certificates of insurance issued in conformity with Section 11B below, for the insurance coverages described below, which shall name (1) Tenant and (except with respect to the workers' compensation and disability insurance, described in clause (ii) below) Landlord as insured parties; and (2) Landlord's Construction Representative and each ground lessor and mortgagee named in writing to Tenant as additional insureds: (i) commercial general liability insurance, such insurance to be on an occurrence basis and to insure against liability for bodily injury and death and for property damage occurring in, on or about the Premises with respect to Tenant's Work, and the performance thereof, in an amount not less than $5,000,000 in the event of personal injury to any number of persons or damage to property arising out of any one occurrence, such insurance to include premises operations liability, independent contractor's coverage, products/completed operations for at least a period of two (2) years beyond completion, broad-form comprehensive general liability endorsement, cross-liability and, if any operations to which the "XCU Exclusion" would be applicable, an endorsement that such operations are covered and the "XCU Exclusions" have been deleted; (ii) workers' compensation and statutory disability providing statutory State benefits for all persons employed in connection with Tenant's Work at or in connection with the Premises; and statutory employer's liability; and (iii) "all-risk" builder's risk insurance with respect to Tenant's Work and materials stored on the Premises or in the Building, written on a completed value, replacement cost basis. Such insurance shall be in an amount not less than ninety percent (90%) of the actual replacement cost of Tenant's Work and such materials, which replacement value shall be determined from time to time, and approved by the insurers, it being agreed that no omission on the part of a party to request any such determination shall relieve Tenant of its obligation to have such replacement value determined as aforesaid. Such insurance shall contain the waiver of subrogation or right for Tenant to waive its claims against Landlord and an endorsement stating that "permission is granted to complete and occupy". Said insurance policies shall be kept in full force and effect until the Tenant's Work has been fully completed and the Tenant's Work Completion Criteria have been satisfied in accordance with Section 4(e). B. All insurance required pursuant to this Section 11 shall be effected with insurers in a financial size category of not less than IX and with a general policy holders ratings of not less than A-, as rated in the most current available "Bests" insurance reports, or the then equivalent thereof, authorized to do business in the Commonwealth of Massachusetts under valid and enforceable policies. Such insurance shall provide that such policy shall not be cancelled (including for non-payment of premium), allowed to lapse or modified to reduce coverage without at least thirty (30) days' prior written notice to each insured named therein. [Balance of Page Intentionally Left Blank] EXHIBIT B-1 TENANT CONSTRUCTION WORK AT 115-125 SECOND AVENUE, WALTHAM, MA RULES AND REGULATIONS 1. DEFINITIONS 1.1 Building: 115-125 Second Avenue, Waltham, MA. 1.2 Landlord's Construction Representative: ________________________, or such other Construction Representative as Landlord may designate, from time to time. 1.3 Consultant: Any architectural, engineering or design consultant engaged by Tenant in connection with Tenant's Work. 1.4 Contractor: Any Contractor engaged by Tenant for the performance of any Tenant's Work, and any Subcontractor employed by any such Contractor. 1.5 Plans: As defined in Section 1B of Exhibit B. Plans must be prepared and stamped by professionals registered in Massachusetts. 1.6 Business Hours: Monday - Friday, 8:00 AM to 6:00 PM, holidays excluded. 1.7 Tenant: Telecom Realty, LLC 1.8 Tenant's Work: Any alterations, improvements, additions, repairs or installations in the Building performed by or on behalf of Tenant prior to Tenant's receipt of a certificate of occupancy for the Premises. 1.9 Tradesperson: Any employee (including, without limitation, any mechanic, laborer, or tradesperson) employed by a Contractor performing Tenant's Work. 2. GENERAL 2.1 All Tenant's Work shall be performed in accordance with these Rules and Regulations. 2.2 The provisions of these Rules and Regulations shall be incorporated in all agreements governing the performance of Tenant's Work, including, without limitation, any agreements governing services to be rendered by each Contractor and Consultant. 2.3 Except as otherwise provided in these Rules and Regulations, all inquiries, submissions and approvals in connection with any Tenant's Work shall be processed through Landlord's Construction Representative. 2.4 The quality of construction will be consistent with that of a first-class office/data center use building in the City of Waltham, MA. 3. PLANS 3.1 Review and Approval: See Section 3 of Exhibit B. 3.2 Submission Requirements: Tenant shall, at the earliest possible time, furnish to Landlord's Construction Representative three (3) sets of Plans describing any Tenant's Work. 4. PRECONSTRUCTION NOTIFICATION AND APPROVALS 4.1 Approval to Commence Work a. Tenant shall submit to Landlord's Construction Representative, for the approval of Landlord's Construction Representative, the names of all prospective Contractors prior to issuing any bid packages to such Contractors. b. No Tenant's Work shall be undertaken by any Contractor or Tradesperson unless and until all the matters set forth in Paragraph 4.2 below have been received for the Tenant's Work in question and unless Landlord's Construction Representative has approved the matters set forth in Paragraph 4.2 below. 4.2 Commencement of Work No Tenant's Work shall be performed unless, at least one week before any Tenant's Work is to begin, all of the following has been provided to Landlord's Construction Representative and approved. Landlord's Construction Representative shall respond to any request for approval by Tenant under this Section 4.2 as promptly as possible based upon the nature of such request. In the event that Tenant proposes to change any of the following, Landlord's Construction Representative shall be immediately notified of such change and such change shall be subject to the approval of Landlord's Construction Representative: a. Schedule for the work, indicating material deliveries, any phasing and special working hours. b. List of all Contractors and Subcontractors, including addresses, telephone numbers, trades employed, and the union affiliation, if any, of each Contractor and Subcontractor. c. Names and telephone numbers of the supervisors of the work. d. Copies of all necessary governmental permits, licenses and approvals. e. Proof of current insurance, to the limits set out in Exhibit B-1A to these Rules and Regulations, naming Landlord as an additional insured. f. To the best of Tenant's knowledge, notice of the involvement of any Contractor in any ongoing or threatening labor dispute which affects or may affect the Building. g. Evidence that Tenant has made provision for either written waivers of lien from all Contractors and suppliers of material, or other appropriate protective measures approved by Landlord. h. Tenant's safety program which shall be consistent with the requirements of local ordinances and officials. 4.3 Reporting Incidents All accidents, disturbances, labor disputes or threats thereof known to Tenant or its Contractors pertaining to the Building or Tenant's property and recordable under OSHA or the rules and regulations promulgated thereunder, as the same may be amended from time to time, shall be reported to Landlord's Construction Representative on the day when such event becomes known to Tenant or its Contractors. A written report must follow as soon as reasonably practicable and in any event within 72 hours. 5. CONSTRUCTION SCHEDULE 5.1 Coordination Tenant and its Contractors, during the performance of Tenant's Work, shall use commercially reasonable efforts to minimize discomfort, inconvenience and annoyance to any other tenants and occupants of the Building and the public at large. 5.2 Time Restrictions a. Subject to Paragraph 5.1 of these Rules and Regulations, general construction work will generally be permitted at all times, including during Business Hours. b. If coordination, labor disputes or other circumstances reasonably require, Landlord's Construction Representative may change the hours during which regular construction work can be scheduled and/or restrict or refuse entry to and exit from the Building by any Contractor. 6. CONTRACTOR PERSONNEL 6.1 Work in Harmony a. All Contractors shall be responsible for employing skilled and competent personnel and suppliers who shall abide by the Rules and Regulations herein set forth as amended from time to time by Landlord. b. Tenant shall not at any time, either directly or indirectly, employ, permit the employment, or continue the employment of any Contractor if such employment or continued employment will or does interfere or cause any labor disharmony, coordination difficulty, delay or conflict with any other contractors engaged in construction work in or about the Building. Landlord shall not, directly or indirectly employ, permit the employment or continue the employment of any contractor if such employment or continued employment will or does interfere or cause any labor disharmony, coordination difficulty, delay or conflict with any Contractors engaged by Tenant. The foregoing agreement by Landlord shall not apply to contractors engaged by Landlord to provide or perform services in or to the Building. c. Should a work stoppage or other action occur anywhere in or about the Building as a result of the presence, anywhere in the Building, of a Contractor engaged directly or indirectly by Tenant, or should such Contractor be deemed by Landlord to have violated any applicable Rules or Regulations, and if the same shall be continuing for 24 or more hours after Landlord has given Tenant written notice thereof, Landlord may, without incurring any liability to Tenant or said Contractor, require any such Contractor to vacate the Premises and the Building, and to cease all further construction work therein. 6.2 Conduct a. While in or about the Building, all Tradespersons shall perform in a dignified, quiet, courteous, and professional manner at all times. Tradespersons shall wear clothing suitable for their work and shall remain fully attired at all times. All Contractors will be responsible for their Tradesperson's proper behavior and conduct. b. The Landlord's Construction Representative reserves the right, upon twenty-four (24) hours' written notice to Tenant, to require the removal of any person who, or any Contractor which, is causing a disturbance to any tenant or occupant of the Building or any other person using or servicing the Building or is materially adversely interfering with the work of others, unless such person or Contractor is performing Tenant's Work in accordance with a construction schedule previously approved by Landlord. 6.3 Access a. No Contractor or Tradesperson will be permitted to enter any private or public space in the Building, other than the common areas of the Building necessary to give direct access to the Premises for which he has been employed, without the prior approval of Landlord's Construction Representative. b. Tenant shall require its Contractors to obtain permission from Landlord's Construction Representative prior to undertaking work in any space outside of the Premises. 6.4 Safety a. All Contractors shall police ongoing construction operations and activities at all times, keeping the Premises orderly, maintaining cleanliness in and about the Premises, and ensuring safety and protection of all areas, including truck docks, elevators, lobbies and all other public areas which are used for access to the Premises. b. All Contractors shall appoint a supervisor who shall be responsible for all safety measures, as well as for compliance with all applicable governmental laws, ordinances rules and regulations such as, for example, "OSHA" and "Right-to-Know" legislation. c. Any damage caused by Tradespersons or other Contractor employees shall be the responsibility of Tenant. Costs for repairing such damage shall be charged directly to Tenant. 6.5 Parking a. Parking is not allowed in or near any truck docks, in any handicapped or fire access lanes, or any private ways in or surrounding the property. Vehicles so parked will be towed at the expense of Tenant. 7. BUILDING MATERIALS 7.1 Delivery All deliveries of construction materials shall be made at the predetermined times coordinated with Landlord's Construction Representative and shall be effected safely and expeditiously only at the location determined by Landlord's Construction Representative. 7.2 Storage and Placement a. All construction materials shall be stored only in the premises where they are to be installed. No storage of materials will be permitted in any public areas, loading docks or corridors leading to the premises. b. No flammable, toxic or otherwise hazardous materials may be brought in or about the Building unless (i) prior notice is given to Landlord's Construction Representative, (ii) all applicable laws, ordinances, rules and regulations are complied with, and (iii) all necessary permits have been obtained. Notwithstanding the foregoing, normal construction materials which might otherwise be considered flammable, toxic, or hazardous may be brought into the Building, provided that the quantities of such materials are limited to the amount necessary to perform Tenant's Work, and further provided that such materials are handled by Tenant strictly in accordance with Tenant's approved safety program. All necessary precautions shall be taken by the Contractor handling such materials against damage or injury caused by such materials. c. All materials required for the construction of the Premises must conform with the Plans approved by Landlord, and must be installed in the locations shown on the drawings approved by Landlord. d. All work shall be subject to reasonable supervision and inspection by Landlord's Construction Representative. e. No material changes to approved Plans will be made without prior knowledge and approval of Landlord's Construction Representative. f. All protective devices (e.g., temporary enclosures and partitions) and materials which protect public areas or areas occupied by other tenants, as well as their placement, must be approved by Landlord's Construction Representative. g. It is the responsibility of Contractors to ensure that the temporary placement of materials does not impose a hazard to the Building or its occupants, either through overloading, or interference with Building systems, access, egress or in any other manner whatsoever. h. All new openings made through the floor slab for piping, cabling, etc. must be "fire stopped" in a manner consistent with all applicable codes and ordinances. All holes in the floor slab at abandoned floor outlets, etc. will be filled with solid concrete. 7.3 Salvages, Waste Removal and Cleaning a. All rubbish, waste and debris shall be neatly and cleanly removed from the Building by Contractors daily unless otherwise approved by Landlord's Construction Representative. The Building's trash compactor shall not be used for construction or other debris. b. Toxic or flammable waste is to be properly removed daily and disposed of in full accordance with all applicable laws, ordinances, rules and regulations. c. Tenant's Contractor shall be responsible for maintaining the loading area and related corridors in broom clean condition when such areas are being used by Tenant's Contractor. If such broom clean condition is not maintained, and such failure continues for 24 hours or more after written notice thereof to Tenant, Landlord may do so at Tenant's cost and expense. 8. CABLING AND WELDING All cabling, welding and heat cutting shall be performed in accordance with Exhibit B-1B attached hereto. 9. PAYMENT OF CONTRACTORS Tenant shall promptly pay the cost of all Tenant's Work so that the Premises and the Building shall be free of liens for labor or materials. If any mechanic's lien is filed against the Building or any part thereof which is claimed to be attributable to Tenant, its agents, employees or contractors, Tenant shall give immediate notice of such lien to Landlord and shall promptly discharge the same by payment or filing any necessary bond within 10 days after Tenant has first notice of such mechanic's lien. 10. CONTRACTORS INSURANCE Prior to commencing any Tenant's Work, and throughout the performance of the Tenant's Work, each Contractor shall obtain and maintain insurance in accordance with Exhibit B-1A attached hereto. Each Contractor shall, prior to making entry into the Building, provide Landlord with certificates that such insurance is in full force and effect. 11. SUBMISSION UPON COMPLETION a. Upon completion of any Tenant's Work and prior to taking occupancy, Tenant shall submit to Landlord (i) a permanent Certificate of Occupancy allowing Tenant to use the Premises for the Permitted Use, and (ii) final approval of Tenant's Work from any other governmental agencies having jurisdiction. b. Except to the extent there shall be a bona fide dispute between the parties in question, upon completion of Tenant's Work Tenant shall submit to Landlord a general release for Tenant's Contractor including waivers of lien from all contractors and suppliers of material in formats approved by the Landlord. [Balance of Page Intentionally Left Blank] EXHIBIT B-1A INSURANCE REQUIREMENTS FOR CONTRACTORS Prior to the commencement of Tenant's Work, Tenant shall include in the contract(s) which Tenant or its agents sign for such work the following insurance and indemnity requirements to the extent that they are applicable. Insurance certificates must be received prior to commencement of construction. Landlord's Construction Representative and Landlord shall be named as additional insured parties on all certificates. Each Contractor and each Subcontractor shall, until the completion of the Tenant's Work in question, procure and maintain at its expense, the following insurance coverages with companies acceptable to Landlord in the following minimum limits: Workers' Compensation (including coverage for Occupational Disease) Limit of Liability Workers' Compensation Statutory Benefits Employer's Liability $500,000 Commercial General Liability Limit of Liability Bodily Injury and Property Damage $2,000,000 annual general aggregate per location Comprehensive Automobile Liability (including coverage for hired and non-owned Automobiles) Limit of Liability Bodily Injury and Property Damage $1,000,000 per occurrence Without limiting the foregoing, Tenant's General Contractor shall also procure and maintain at its expense an umbrella liability insurance policy with a minimum limit of liability of $5,000,000 annual general aggregate. Such umbrella policy shall name Landlord and Landlord's Construction Representative as additional insured parties and shall be evidenced by an insurance certificate delivered to Landlord prior to commencement of construction. EXHIBIT B-1B CABLING, WELDING AND HEAT CUTTING RULES 1. Installation of Cables 1.1 Computer and Telephone Cables 1.1.1 Layout A layout of cables must be submitted to Landlord's Construction Representative for approval prior to installation. 1.1.2 Installation a. Cables installed above the ceiling must be teflon coated or encased in metal conduit. b. Cables must be tagged and/or color coded. c. Cables must be properly affixed to the framing above any duct work so that they are self-supporting and are not to be fastened to light fixtures. d. Cables must not sag and will be installed in the shortest possible runs. e. Connections (connectors, splices, etc.) must be securely installed so that they will not pull apart if cable is accidentally touched or pulled. 1.2 Electrical Floor Outlet Cables 1.2.1 Layout A layout of cables must be submitted to Landlord's Construction Representative for approval prior to installation. 1.2.2 Installation a. Cables must be tagged and/or color coded. b. Runs will be as short and as free of slack as possible. c. Cables are to be installed in Tenant's own ceiling. d. Cables must be properly secured so that they are self-supporting. e. All connections (connectors, splices, etc.) must be located in Tenant's own space to avoid damage from below. f. Cables must be secured with clamps where they pass through the floor to prevent connections from separating. g. Where feasible, cables shall be installed above duct work and other materials in the ceiling. 2. Welding and Heat Cutting Work 2.1 Welding and heat cutting activities as well as soldering and brazing shall constitute "Special Work". To the extent that Special Work shall not be identified on a construction schedule previously approved by Landlord, Tenant shall provide Landlord's Construction Representative with at least seventy-two (72) hours notice before proceeding and such Special Work shall be performed during periods outside of regular Business Hours. Landlord shall use reasonable efforts to schedule the performance by Tenant of such Special Work on shorter notice. 2.1.1 PERMITTING The Contractor must obtain a permit from Landlord's Construction Representative before commencing Special Work. See sample permit attached hereto. 2.2 PRECAUTIONS Because welding and other hot work is a fire hazard, the Contractor must observe the following precautions and procedures: a) Sprinklers shall be in service while work is underway. b) Smoke detectors in the work area should be de-activated by Landlord's Construction Representative for the duration of the work. Landlord's Construction Representative will re- activate smoke detectors when the work is complete. c) Combustible materials shall be located at least 35 feet from hot work operations and shall be covered with non- combustible materials. d) All flammable liquids and other hazards must be removed. e) All floor and wall openings must be covered with non- combustible material. f) Containers, tanks, ducts, etc. must be cleaned and purged of flammable vapors, liquids, dusts, etc. g) A minimum of one multi-purpose 4A - 2OBC rated portable fire extinguisher must be provided within 10 ft. of the work area. The extinguisher shall be fully charged and have been properly serviced within the last year. It is the responsibility of the Contractor to provide fire extinguishers. Building extinguishers shall not be used. h) A fire watch shall be maintained on the floor levels where the work was conducted for at least one half hour after welding or burning has ceased. If there is a chance that slag could enter into a utility or elevator shaft, then the fire watch should cover the base of the shaft as well as the intermediate floors. [Balance of Page Intentionally Left Blank] WELDING AND BURNING PERMIT (Work is not permitted unless this card is filled in and posted in work area.) DATE (of work) , 20__ BUILDING TENANT FLOOR CONTRACTOR WORK TO BE DONE SPECIAL PRECAUTIONS FIRE WATCH REQUIRED ON LEVELS: ____, ____, ____, ____, ____, ___, ___ Permission is granted for this work provided that the necessary precautions are taken (see back of permit) PERMIT EXPIRES SIGNED PROPERTY MANAGER TIME STARTED COMPLETED LOCATION OF NEAREST FIRE PULL STATION EMERGENCY PHONE NUMBERS: FIRE DEPARTMENT PROPERTY MANAGER FINAL CHECK-UP Work area and all adjacent areas where sparks might have spread were inspected for at least 30 minutes after the work was completed and no fire conditions were noted. CONTRACTOR PROPERTY MANAGER EXHIBIT C RULES AND REGULATIONS 1. The sidewalks, halls, passages, exits and entrances of the Building shall not be obstructed by Tenant or used by it for any purpose other than for ingress to and egress from the Premises. The halls, passages, exits, entrances, elevators, and stairways are not for the use of the general public, and Landlord shall in all cases retain the right to control and prevent access to the Premises of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein confined shall be construed to prevent such access to persons with whom Tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. 2. The Premises shall not be used for lodging or sleeping, and no cooking shall be done or permitted by Tenant on the Premises, except that the use of any microwave oven and the preparation of coffee, tea, hot chocolate and similar items for Tenant and its employees shall be permitted. 3. Except as provided in Section 8 of the Lease, Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline or flammable or combustible fluid or materials or use any method of heating or air conditioning other than that supplied by Landlord. Tenant shall not use, keep or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations, or interfere in any way with other tenants or those having business in the Building. 4. In case of invasion, mob, riot, public excitement or other circumstances rendering such action advisable in Landlord's opinion, Landlord reserves the right to prevent access to the Building during the continuance of same by such action as Landlord may deem appropriate, including closing entrances to the Building. 5. Tenant shall see that the doors of the Premises are closed and securely locked at such time as Tenant's employees leave the Premises. 6. The toilet rooms, toilets, urinals, wash bowls and other similar apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be deposited therein, and any damage resulting to same from Tenant's misuse shall be paid for by Tenant. 7. Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or exterior walls of the Building. 8. No material shall be placed in the Building trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the municipality in which the Building is located without being in violation of any law or ordinance governing such disposal. 9. Canvassing, soliciting, peddling or distribution of handbills or any other written maternal in the Building is prohibited, and Tenant shall cooperate to prevent same. 10. Tenant shall not permit the use or the operation of any coin-operated machines on the Premises' including, without limitation, vending machines, video games, pinball machines, or pay telephones, without the prior written consent of Landlord. 11. Landlord may direct the use of all pest extermination and scavenger contractors at such intervals as Landlord may require. 12. Landlord reserves the right to select the name of the Building and the buildings therein and to make such change or changes of name as it may deem appropriate from time to time, and Tenant shall not refer to the Building and the buildings therein by any name other than: (i) the names as selected by Landlord (as same may be changed from time to time), or (ii) the post office address, approved by the United States Postal Service. Tenant shall not use the name of the Building in any respect other than as an address of its operation in the Building without the prior written consent of Landlord. 13. Except with the prior written consent of Landlord, such consent not to be unreasonably withheld delayed or conditioned, Tenant shall not place any sign on the Building or in any window therein. 14. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of these Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building. 15. Whenever the word "Tenant" occurs in these Rules and Regulations, it is understood and agreed that it shall mean Tenant's associates, agents, clerks, employees and visitors. Wherever the word "Landlord" occurs in these Rules and Regulations, it is understood and agreed that it shall mean Landlord's assigns, agents, clerks, employees and visitors. 16. These Rules and Regulations are in addition to, and shall not be construed in any way to modify, alter, limit or amend, in whole or part, the terms, covenants, agreements and conditions of any lease of premises in the Building. 17. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building, and for the preservation of good order therein. [Balance of Page Intentionally Left Blank] EXHIBIT D PREVAILING MARKET RATE DETERMINATION PROCEDURE If Landlord exercises its option to adjust the Base Rent pursuant to paragraph "c" in the definition of "Base Rent" set forth in the Basic Lease Information, the "Prevailing Market Rate" shall be determined as set forth below. As used herein, the term "Prevailing Market Rate" for the Premises shall mean the rental and all other monetary payments and escalations, including, without limitation, consumer price indexing, that Landlord could obtain from an arm's length third party desiring to lease the Premises as of the date at which Base Rent is to be adjusted (the "Base Rent Adjustment Date") taking into account the age of the Building, the size of the Premises, the quality of construction of the Building and the Premises, the services provided under the terms of this Lease, the rental then being obtained for new leases of space comparable to the Premises in the locality of the Building, and all other factors that would be relevant to a third party desiring to lease the Premises as of the Base Rent Adjustment Date in determining the rental such party would be willing to pay therefor; provided, however, that no allowance for the construction of tenant improvements shall be taken into account in determining the Prevailing Market Rate. No later than one hundred twenty (120) days prior to the Base Rent Adjustment Date, Landlord shall notify Tenant of Landlord's determination of the Prevailing Market Rate to be used to calculate the Base Rent after the Base Rent Adjustment Date. If Tenant wishes to dispute Landlord's determination Tenant shall give notice to Landlord, within thirty (30) days after receipt of notice of Landlord's determination, of Tenant's intent to submit the matter to the appraisal process described below. If Tenant so elects, then within fifteen (15) days after the date of Tenant's notice of its election to submit the matter to the appraisal process, each party, at its sole cost, shall engage a real estate appraiser to act on its behalf in determining the Prevailing Market Rate for the Premises as of the Base Rent Adjustment Date. The appraisers shall have at least five (5) years' commercial experience in the metropolitan area in which the Building is located, be designated as an MAI appraiser, and shall be persons who would qualify as expert witnesses over objection to give opinion testimony on the issue of the Prevailing Market Rate for the Premises in a court of competent jurisdiction. If a party does not appoint an appraiser within fifteen (15) days after the other party has given written notice to the non- appointing party of the name of its appraiser, the single appraiser appointed shall be the sole appraiser and shall set the Prevailing Market Rate for the Premises as of the Base Rent Adjustment Date. If the two appraisers are appointed by the parties in accordance with this Exhibit D, such appraisers shall meet promptly and attempt to set the Prevailing Market Rate for the Premises as of the Base Rent Adjustment Date. If such appraisers are unable to agree within thirty (30) days after appointment of the second appraiser, the appraisers shall elect a third appraiser meeting the qualifications stated in this Exhibit D within ten (10) days after the last date the two appraisers are given to set the Prevailing Market Rate for the Premises. If the two appraisers are unable to agree on the third appraiser, either party may apply to the Superior Court in the county in which the Building is located, to appoint said third appraiser. Each of the parties shall bear one-half (1/2) the cost of appointing the third appraiser and of paying the third appraiser's fee. The third appraiser shall be a person who has not previously acted in any capacity for either party. Within thirty (30) days after the selection of the third appraiser, the Prevailing Market Rate for the Premises as of the Base Rent Adjustment Date shall be fixed by the three appraisers in accordance with the following procedures. Each of the appraisers selected by the parties shall state, in writing, his or her determination of the Prevailing Market Rate for the Premises as of the Base Rent Adjustment Date supported by the reasons therefor and shall make counterpart copies for each of the other appraisers. The appraisers shall arrange for a simultaneous exchange of such proposed resolutions. The role of the third appraiser shall be to select which of the two proposed resolutions most closely approximates his or her determination of Prevailing Market Rate for the Premises as of the Base Rent Adjustment Date. The third appraiser shall have no right to propose a middle ground or any modification of either of the two proposed resolutions. The resolution he chooses as that most closely approximating his determination of the Prevailing Market Rate for the Premises as of the Base Rent Adjustment Date shall constitute the decision of the appraisers and shall be final and binding upon the parties. If either by agreement of the parties or by appraisal the Prevailing Market Rate is not finally determined by the Base Rent Adjustment Date, then Tenant shall continue to pay the monthly Base Rent in effect for the annual period immediately prior to the Base Rent Adjustment Date until such time as the Prevailing Market Rate is finally determined by agreement of the parties or by an appraiser. If the monthly Prevailing Market Rate as finally determined as of the Base Rent Adjustment Date exceeds the monthly amount previously paid by Tenant for said period following the Base Rent Adjustment Date, Tenant shall forthwith pay the difference to Landlord for each of the months Tenant paid the lesser amount. Notwithstanding the provisions set forth above in this Exhibit D, in the event that said provisions result in a Prevailing Market Rate which is below the amount of Base Rent paid by Tenant during the year of the Lease Term immediately preceding the Base Rent Adjustment Date the Prevailing Market Rate shall be the Base Rent paid by Tenant during said year of the Lease Term immediately preceding the Base Rent Adjustment Date. Once determined, the Prevailing Market Rate (expressed on a per square foot basis) shall be deemed to be substituted for the rate of Base Rent set forth in paragraph "a" of the definition of Base Rent set forth in the Basic Lease Information section hereof and Tenant shall pay said revised rate in accordance with the terms of this Lease from and after the Base Rent Adjustment Date. [Balance of Page Intentionally Left Blank] EXHIBIT E FORM OF SUBLEASE See next page. EXHIBIT F NOTICE OF LEASE In accordance with the provisions of Massachusetts General Laws, Chapter 183, Section 4, as amended, notice is hereby given of that certain lease arrangement by and between Telecom Realty, LLC, a Massachusetts limited liability company, and CTC Communications Corp., a Massachusetts corporation (the "Lease"): PARTIES TO LEASE: Landlord: Telecom Realty, LLC c/o Mr. Thomas Fabbricatore 220 Bear Hill Road Waltham, Massachusetts 02154; and Tenant: CTC Communications Corp. Attn: Mr. Thomas Fabbricatore 360 Second Avenue Waltham, Massachusetts 02154. DATE OF COMMENCEMENT OF LEASE: May ___, 2000. DESCRIPTION OF THE DEMISED PREMISES: Sixty-Nine Thousand Seven Hundred Forty-Four (69,744) rentable square feet on the first and second floors of the building located at 115-125 Second Avenue, Waltham, Massachusetts, as more completely described in the Lease. TERM OF LEASE: The term of the Lease shall be fifteen (15) years commencing on the Date of Commencement of Lease (as defined above) and ending on May 31, 2015 (the "Original Term"). The provisions and terms contained in this Notice of Lease do not in any manner modify or otherwise alter any of the provisions or terms of the Lease. WITNESS the execution and delivery hereof as an instrument under seal as of this ____ day of May, 2000. LANDLORD: TELECOM REALTY, LLC, a Massachusetts limited liability company By: TELECOM MANAGEMENT CORP., a Massachusetts corporation, its manager By: Thomas Fabbricatore Executive Vice-President and Secretary-Treasurer TENANT: CTC COMMUNICATIONS CORP., a Massachusetts corporation By: Name: Title: COMMONWEALTH OF MASSACHUSETTS ) ) ss. May __, 2000 COUNTY OF SUFFOLK ) Then personally appeared before me the above-named , as ______________________ of ______________________, managing member of Telecom Realty, LLC and acknowledged the foregoing instrument to be his free act and deed, and the free act and deed of said corporation as aforesaid, before me. NOTARIAL ______________________ SEAL Notary Public My commission expires: COMMONWEALTH OF MASSACHUSETTS ) ) ss. May __, 2000 COUNTY OF SUFFOLK ) Then personally appeared before me the above-named , as ______________________ of CTC Communications Corp., and acknowledged the foregoing instrument to be his free act and deed, and the free act and deed of said corporation as aforesaid, before me. NOTARIAL ______________________ SEAL Notary Public My commission expires: EXHIBIT G TENANT IMPROVEMENT AGREEMENT See next page. EXHIBIT H DISPOSITION OF SECURITY DEPOSIT AGREEMENT See next page. EXHIBIT I DESCRIPTION OF TENANT'S WORK See next page. EX-23 4 0004.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-44337) pertaining to the Employee Stock Purchase Plan of CTC Communications Group, Inc. (as successor to CTC Communications Corp.), the Registration Statement (Form S-8 No. 333-17613) pertaining to the 1996 Stock Option Plan of CTC Communications Group, Inc., the Registration Statement (Form S-8 No. 333-68767) pertaining to the 1998 Incentive Plan, the 1996 Stock Option Plan and the Employee Stock Purchase Plan of CTC Communications Group, Inc. and the Registration Statement (Form S-8 No. 333-93735) pertaining to the 1999 Equity Incentive Plan for Non- Employee Directors, the 1998 Incentive Plan and the 1993 Stock Option Plan of CTC Communications Group, Inc., of our report dated May 18, 2000, except for Note 2, as to which the date is June 26, 2000, with respect to the consolidated financial statements and schedule of CTC Communications Group, Inc. included in the Annual Report (Form 10-K) for the year ended March 31, 2000. Boston, Massachusetts June 26, 2000 /s/ Ernst & Young LLP EX-27 5 0005.txt FDS FOR Y.E. 03/31/00
5 1,000 12-MOS MAR-31-2000 APR-01-1999 MAR-31-2000 20,093 0 39,967 2,000 0 63,634 120,605 29,369 162,233 58,974 0 0 0 258 (15,958) 162,233 153,101 154,105 119,586 195,016 0 0 16,163 (57,073) 0 (57,073) 0 (2,430) 0 (59,503) (3.01) (3.01)
EX-99.1 6 0006.txt RISK FACTORS EXHIBIT 99.1 RISK FACTORS From time to time we have, and may in the future make, forward-looking statements, based on our then-current expectations, including statements made in Securities and Exchange Commission filings, in press releases and oral statements. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties, and actual results could differ materially from those expressed or implied in the forward- looking statements for a variety of reasons. These reasons include, but are not limited to, factors outlined below. We do not undertake to update or revise our forward-looking statements publicly even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. BECAUSE OUR REVENUES PRIOR TO JANUARY 1998 RESULTED FROM A BUSINESS STRATEGY WE ARE NO LONGER PURSUING, YOU MAY HAVE DIFFICULTY EVALUATING US. We began offering local services under our own brand name in January 1998 and began providing network services to customers since September 1999. As a result, we can only provide limited historical operating and financial information about our current business strategy for you to evaluate. IF WE DO NOT SUCCESSFULLY EXECUTE OUR NEW BUSINESS STRATEGY, WE MAY BE UNABLE TO COMPETE EFFECTIVELY. Our business strategy is complex and requires that we successfully complete many tasks, a number of which we must complete simultaneously. If we are unable to effectively implement or coordinate the implementation of these multiple tasks, we may be unable to compete effectively in our markets and our financial results may suffer. OUR INCURRENCE OF NEGATIVE CASH FLOWS AND OPERATING LOSSES DURING THE NEXT SEVERAL YEARS MAY ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK. During recent periods we have experienced substantial net losses, operating losses and negative cash flow. Our expenses have increased significantly, and we expect our expenses to continue to increase as we deploy our network and implement our business plan. Accordingly, we expect to incur significant operating losses, net losses and negative cash flow during the next several years, which may adversely affect the price of our common stock. IF OUR NETWORK DOES NOT FUNCTION PROPERLY, WE WILL BE UNABLE TO PROVIDE THE TELECOMMUNICATIONS SERVICES ON WHICH OUR FUTURE PERFORMANCE WILL IN LARGE PART DEPEND. Because the design of our network has not been widely deployed, we cannot assure you that our network will provide the functionality that we expect. We also cannot be sure that we will be able to incorporate local dial tone capabilities into our network because this technology has not been widely implemented. Without this capability we will not be able to provide on our network all of our target customers' fixed line telecommunications services. IF WE DO NOT OBTAIN INTERCONNECTION AGREEMENTS WITH OTHER CARRIERS, WE WILL BE UNABLE TO PROVIDE ENHANCED SERVICES ON OUR NETWORK. Negotiation of interconnection agreements with incumbent local exchange carriers, or ILECs, can take considerable time, effort and expense, and these agreements are subject to federal, state and local regulation. We may not be able to effectively negotiate the necessary interconnection agreements. Without these interconnection agreements, we will be unable to provide enhanced connectivity to our network and local dial tone services and to achieve the financial results we expect. BECAUSE OF OUR LIMITED EXPERIENCE, WE MAY NOT BE ABLE TO PROPERLY OR TIMELY DEPLOY, OPERATE AND MAINTAIN OUR NETWORK, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR FINANCIAL RESULTS. The failure of our network equipment to operate as anticipated or the inability of equipment suppliers to timely supply such equipment could materially and adversely affect our financial results. Because we have limited experience operating and maintaining telecommunications networks, we may not be able to deploy our network properly or do so within the time frame we expect. In addition, we may encounter unanticipated difficulties in operating and maintaining out network. If network implementation does not occur in a timely and effective manner, our financial results could be adversely affected. OUR HIGH LEVERAGE CREATES FINANCIAL AND OPERATING RISK THAT COULD LIMIT THE GROWTH OF OUR BUSINESS. We have a significant amount of indebtedness. As of March 31, 2000, we had approximately $129.1 million of total indebtedness outstanding. We do not expect to generate sufficient cash flow from operations to repay our existing credit facilities. We have incurred substantial debt financing to fund our business plan. Our high leverage could have important consequences to us, including, . limiting our ability to obtain necessary financing for future working capital, capital expenditures, debt service requirements or other purposes; . limiting our flexibility in planning for, or reacting to, changes in our business; . placing us at a competitive disadvantage to competitors with less leverage; . increasing our vulnerability in the event of a downturn in our business or the economy generally; . requiring that we use a substantial portion of our cash flow from operations for debt service and not for other purposes. WE MAY BE UNABLE TO OBTAIN THE ADDITIONAL CAPITAL WE WILL REQUIRE TO FUND OUR OPERATIONS AND FINANCE OUR GROWTH ON ACCEPTABLE TERMS OR AT ALL, WHICH COULD CAUSE US TO DELAY OR ABANDON OUR DEVELOPMENT AND EXPANSION PLANS. We will need significant additional capital to expand our business plan. We cannot assure you that capital will be available to us when we need it or at all. If we are unable to obtain capital when we need it, we may delay or abandon our expansion plans. That could have a material adverse effect on our business and financial condition. OUR MARKET IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY, ESPECIALLY AGAINST ESTABLISHED COMPETITORS WITH GREATER FINANCIAL RESOURCES AND MORE EXPERIENCE. We operate in a highly competitive environment. We have no significant market share in any market in which we operate. We will face substantial and growing competition from a variety of data transport, data networking, telephony service and integrated telecommunications service providers. We also expect that the incumbent local exchange carriers ultimately will be able to provide the range of services we currently offer. Many of our competitors are larger and better capitalized than we are, are incumbent providers with long-standing customer relationships, and have greater name recognition. We may not be able to compete effectively against our competitors. OUR INFORMATION SYSTEMS MAY NOT PRODUCE ACCURATE AND PROMPT BILLS WHICH COULD CAUSE A LOSS OR DELAY IN THE COLLECTION OF REVENUE AND COULD ADVERSELY AFFECT OUR RELATIONS WITH OUR CUSTOMERS. We depend on our information systems to bill our customers accurately and promptly. Because of the deployment of our network and our expansion plans, we are continuing to upgrade our information systems. Our failure to identify all of our information and processing needs or to adequately upgrade our information systems could delay our collection efforts, cause us to lose revenue and adversely affect our relations with our customers. WE MAY NOT RECEIVE TIMELY AND ACCURATE CALL DATA RECORDS FROM OUR SUPPLIERS WHICH COULD CAUSE A LOSS OR DELAY IN THE COLLECTION OF REVENUE AND COULD ADVERSELY AFFECT OUR RELATIONS WITH OUR SUPPLIERS. Our billing and collection activities are dependent upon our suppliers providing us with accurate call data records. If we do not receive accurate call data records in a timely manner, our collection efforts could suffer and we could lose revenue. In addition, we pay our suppliers according to our calculation of the charges based upon invoices and computer tape records provided by these suppliers. Disputes may arise between us and our suppliers because these records may not always reflect current rates and volumes. If we do not pay disputed amounts, a supplier may consider us to be in arrears in our payments until the amount in dispute is resolved, which could adversely affect our relations with our suppliers. WE DEPEND ON THE NETWORKS AND SERVICES OF THIRD PARTY PROVIDERS TO SERVE OUR CUSTOMERS AND OUR RELATIONSHIPS WITH OUR CUSTOMERS COULD BE ADVERSELY AFFECTED BY FAILURES IN THOSE NETWORKS AND SERVICES. We depend on other carriers for the switching and transmission of our customer traffic. After we complete deploying our network, we will still rely to some extent on others for switching and transmission of customer traffic. We cannot be sure that any third party switching or transmission facilities will be available when needed or on acceptable terms. Although we can exercise direct control of the customer care and support we provide, most of the services we currently offer are provided by others. These services are subject to physical damage, power loss, capacity limitations, software defects, breaches of security and other factors which may cause interruptions in service or reduced capacity for our customers. These problems, although not within our control, could adversely affect customer confidence and damage our relationships with our customers. INCREASES IN CUSTOMER ATTRITION RATES COULD ADVERSELY AFFECT OUR OPERATING RESULTS. Our customers may not continue to purchase local, long distance, data or other services from us. Because we have been selling voice and data telecommunications under our own brand name for a short time, our customer attrition rate is difficult to evaluate. We could lose customers as a result of national advertising campaigns, telemarketing programs and customer incentives provided by major competitors as well as for other reasons not in our control as well as a result of our own performance. Increases in customer attrition rates could have a material adverse effect on our results of operations. WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WHICH COULD MATERIALLY ADVERSELY AFFECT ALL ASPECTS OF OUR BUSINESS. We are pursuing a business plan that will result in rapid growth and expansion of our operations if we are successful. This rapid growth would place significant additional demands upon our current management and other resources. Our success will depend on our ability to manage our growth. To accomplish this we will have to train, motivate and manage an increasing number of employees. Our failure to manage growth effectively could have a material adverse effect on our business, results of operations and financial condition. WE MAY BE UNABLE TO RETAIN OR REPLACE OUR SENIOR MANAGEMENT OR HIRE AND RETAIN OTHER HIGHLY SKILLED PERSONNEL UPON WHICH OUR SUCCESS WILL DEPEND. We believe that our continued success will depend upon the abilities and continued efforts of our management, particularly members of our senior management team. The loss of the services of any of these individuals could have a material adverse effect on our business, results of operations and financial condition. Our success will also depend upon our ability to identify, hire and retain additional highly skilled sales, service and technical personnel. Demand for qualified personnel with telecommunications experience is high and competition for their services is intense. If we cannot attract and retain the additional employees we need, we will be unable to successfully implement our business strategy. CHANGES TO THE REGULATIONS APPLICABLE TO OUR BUSINESS COULD INCREASE OUR COSTS AND LIMIT OUR OPERATIONS. We are subject to federal, state, and local regulation of our local, long distance, and data services. The outcome of the various administrative proceedings at the federal and state level and litigation in federal and state courts relating to this regulation as well as federal and state legislation may increase our costs, increase competition and limit our operations. RAPID TECHNOLOGICAL CHANGES IN THE TELECOMMUNICATIONS INDUSTRY COULD RENDER OUR SERVICES OR NETWORK OBSOLETE FASTER THAN WE EXPECT OR REQUIRE US TO SPEND MORE THAN WE CURRENTLY ANTICIPATE. The telecommunications industry is subject to rapid and significant changes in technology. Any changes could render our services or network obsolete, require us to spend more than we anticipate or have a material adverse effect on our operating results and financial condition. Advances in technology could also lead to more entities becoming our direct competitors. Because of this rapid change, our long-term success will increasingly depend on our ability to offer advanced services and to anticipate or adapt to these changes, such as evolving industry standards. We cannot be sure that: . we will be able to offer the services our customers require; . our services will not be economically or technically outmoded by current or future competitive technologies; . our network or our information systems will not become obsolete; . we will have sufficient resources to develop or acquire new technologies or introduce new services that we need to effectively compete; or . our cost of providing service will decline as rapidly as the costs of our competitors. WE MAY PURSUE ACQUISITIONS WHICH COULD DISRUPT OUR BUSINESS AND MAY NOT YIELD THE BENEFITS WE EXPECT. We may pursue strategic acquisitions as we expand. Acquisitions may disrupt our business because we may: . experience difficulties integrating acquired operations and personnel into our operations; . divert resources and management time; . be unable to maintain uniform standards, controls, procedures and policies . enter markets or businesses in which we have little or no experience; and . find that the acquired business does not perform as we expected. OUR EXISTING PRINCIPAL STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS CONTROL A SUBSTANTIAL AMOUNT OF OUR VOTING SHARES AND WILL BE ABLE TO SIGNIFICANTLY INFLUENCE ANY MATTER REQUIRING SHAREHOLDER APPROVAL. Our officers and directors and parties related to them now control approximately 34.9% of the voting power of our outstanding capital stock. Robert J. Fabbricatore, our Chairman and Chief Executive Officer, controls approximately 15.6% of our voting power. Therefore, the officers and directors are able to significantly influence any matter requiring shareholder approval. FLUCTUATIONS IN OUR OPERATING RESULTS COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK. Our annual and quarterly revenue and results could fluctuate as a result of a number of factors, including: . variations in the rate of timing of customer orders, . variations in our provisioning of new customer services, . the speed at which we expand our network and market presence, . the rate at which customers cancel services, or churn, . costs of third party services purchased by us, and . competitive factors, including pricing and demand for competing services. Also, our revenue and results may not meet the expectations of securities analysts and our stockholders. As a result of fluctuations or a failure to meet expectations, the price of our common stock could be materially adversely affected. OUR STOCK PRICE IS LIKELY TO BE VOLATILE. The trading price of our common stock is likely to be volatile. The stock market in general, and the market for technology and telecommunications companies in particular, has experienced extreme volatility. This volatility has often been unrelated to the operating performance of particular companies. Other factors that could cause the market price of our common stock to fluctuate substantially include: . announcements of developments related to our business, or that of our competitors, our industry group or our customers; . fluctuations in our results of operations; . hiring or departure of key personnel; . a shortfall in our results compared to analysts' expectations and changes in analysts' recommendations or projections; . sales of substantial amounts of our equity securities into the marketplace; . regulatory developments affecting the telecommunications industry or data services; and . general conditions in the telecommunications industry or the economy as a whole. -----END PRIVACY-ENHANCED MESSAGE-----