-----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, MZ8dWT9fiNsGrZcf28/VmS8PLZobkyBgHayCQBcepttn5QyEdzTE1M3YgkGZBLE8 gdMnRvcFLt75lJ1s/pcxwQ== /in/edgar/work/20000822/0000904454-00-000096/0000904454-00-000096.txt : 20000922 0000904454-00-000096.hdr.sgml : 20000922 ACCESSION NUMBER: 0000904454-00-000096 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000822 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEXENT INC CENTRAL INDEX KEY: 0001105503 STANDARD INDUSTRIAL CLASSIFICATION: [7385 ] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-31105 FILM NUMBER: 707494 BUSINESS ADDRESS: STREET 1: 3 NEW YORK PLAZA CITY: NEW YORK STATE: NY ZIP: 10004 BUSINESS PHONE: 2129810700 MAIL ADDRESS: STREET 1: 3 NEW YORK PLAZA CITY: NEW YORK STATE: NY ZIP: 10004 10-Q 1 0001.txt 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934 for the Period Ended June 30, 2000. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-31105 LEXENT INC. ----------- (Exact name of registrant as specified in its charter) Delaware 13-3990223 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Three New York Plaza New York, New York 10004 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 212-981-0700 ---------------------------- 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 No X ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.001 par value, 40,850,975 shares outstanding as of August 18, 2000. LEXENT INC. AND SUBSIDIARIES TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page No. -------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 3 Condensed Consolidated Statements of Income (Loss) for the three months ended June 30, 2000 (unaudited) and 1999 (unaudited) and the six months ended June 30, 2000 (unaudited) and 1999 (unaudited) 4 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2000 (unaudited) and 1999 (unaudited) 5 Notes to Condensed Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 13 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 14 ITEM 2. Changes in Securities and Use of Proceeds 14 ITEM 4. Submission of Matters to a Vote of Security Holders 15 ITEM 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 2 PART I. FINANCIAL INFORMATION ITEM 1: Financial Statements -------------------- LEXENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands except per share amounts)
June 30, December 31, 2000 1999 ---- ---- Assets: (unaudited) Current Assets: Cash $ 1,705 $ 1,158 Receivables, net 74,377 48,748 Prepaid expenses and other assets 394 156 Deferred tax asset, net 10,135 3,592 -------- -------- Total current assets 86,611 53,654 Property and equipment, net 8,741 6,180 Other assets 1,837 545 -------- -------- Total assets $ 97,189 $ 60,379 ======== ======== Liabilities and Stockholders' Equity: Current liabilities: Accounts payable $ 16,560 $ 8,434 Accrued liabilities 13,075 9,613 Income taxes payable 3,628 5,798 Billings in excess of costs and estimated earnings on uncompleted projects 5,687 1,084 Subordinated note payable to stockholder 1,582 1,582 Equipment and capital lease obligations 1,300 1,014 Due to related parties 309 432 -------- -------- Total current liabilities 42,141 27,957 Subordinated notes payable to stockholders 4,741 5,533 Notes payable to banks 9,600 8,841 Equipment and capital lease obligations 2,286 1,842 -------- -------- Total liabilities 58,768 44,173 -------- -------- Redeemable convertible preferred stock at stated liquidation preference of $2.2864 per share at June 30, 2000 and $2.2553 per share at December 31, 1999, $.001 par value, 5,538,458 shares authorized, issued and outstanding 12,836 12,491 -------- -------- Stockholders' equity: Common stock, $.001 par value, 50,000,000 shares authorized, and 24,080,412 and 22,919,100 shares outstanding at June 30, 2000 and December 31, 1999, respectively 24 23 Additional paid-in capital 58,747 11,787 Deferred stock-based compensation (27,193) (7,142) Retained earnings (5,993) (953) -------- -------- Total stockholders' equity 25,585 3,715 -------- -------- Total liabilities and stockholders' equity $ 97,189 $ 60,379 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 LEXENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME(LOSS) (dollars in thousands except per share amounts) (unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues $ 65,027 $ 29,357 $121,237 $ 49,522 Cost of sales 47,898 24,501 90,047 40,541 General, administrative and marketing expenses 5,934 2,462 10,045 4,373 Depreciation and amortization 789 276 1,447 474 Non-cash stock based compensation 2,244 19 21,671 19 -------- -------- -------- -------- Operating income(loss) 8,162 2,099 (1,973) 4,115 Interest expense 343 238 734 462 Other expense(income), net 4 - (6) - -------- -------- -------- -------- Income(loss) before income taxes 7,815 1,861 (2,701) 3,653 Provision for income taxes 3,605 860 1,994 1,688 -------- -------- -------- -------- Net income(loss) $ 4,210 $ 1,001 $ (4,695) $ 1,965 ======== ======== ======== ======== Net income(loss) per share: Basic $ 0.17 $ 0.04 $ ( 0.21) $ 0.07 ======== ======== ======== ======== Diluted $ 0.12 $ 0.03 $ ( 0.21) $ 0.06 ======== ======== ======== ======== Weighted average common shares outstanding: Basic 23,882 22,717 23,582 22,717 ======== ======== ======== ======== Diluted 35,768 31,563 23,582 31,563 ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. 4 LEXENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (dollars in thousands) (unaudited)
2000 1999 ---- ---- Cash flows from operating activities: Net (loss) income $ (4,695) $ 1,965 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for uncollectible amounts, net 1,394 579 Depreciation and amortization 1,447 474 Non-cash stock based compensation 21,671 19 Provision for deferred taxes (6,543) 522 Changes in working capital items: Receivables (27,023) (6,757) Prepaid expenses and other assets (1,530) 57 Accounts payable 8,126 1,315 Accrued liabilities 3,462 896 Income taxes payable (2,170) (851) Billings in excess of costs and estimated earnings on uncompleted contracts 4,603 3,007 -------- -------- Net cash (used in) provided by operating activities (1,258) 1,226 -------- -------- Cash from investing activities: Acquisitions of property, plant and equipment, net of equipment loans and capital leases (2,715) (1,141) -------- -------- Net cash used in investing activities (2,715) (1,141) -------- -------- Cash flows from financing activities: Proceeds from exercise of stock options and sales of restricted stock 5,239 -- Repayment of subordinated notes payable to stockholder (792) (791) Net borrowings under revolving credit line 759 -- Net payments to related parties (123) 312 Repayment of equipment loans and capital leases (563) (262) -------- -------- Net cash provided by (used in) financing activities 4,520 (741) -------- -------- Net increase (decrease) in cash 547 (656) Cash at beginning of period 1,158 1,495 -------- -------- Cash at end of period $ 1,705 $ 839 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 LEXENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, (dollars in thousands) (unaudited)
2000 1999 ---- ---- Supplemental cash flow information: Cash paid for: Interest $ 708 $ 450 Income taxes $ 10,706 $ 2,014 Supplemental disclosures of noncash investing and financing activities: Property, plant and equipment additions financed by equipment loans and capital leases $ 1,293 $ 861 Accrued dividends on preferred shares $ 345 $ 345
See accompanying notes to condensed consolidated financial statements. 6 LEXENT INC. AND SUBSIDIARES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (unaudited) The condensed consolidated financial statements of Lexent Inc. and Subsidiaries (the "Company"), included herein, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to SEC rules and regulations. The condensed consolidated financial statements of the Company reflect, in the opinion of management, all adjustments necessary to present fairly the financial position of the Company at June 30, 2000 and the results of its operations and cash flows for the periods ended June 30, 2000 and June 30, 1999. All adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the annual financial statements and notes thereto for the fiscal year ended December 31, 1999 included in the Company's final prospectus filed with the SEC on July 27, 2000. The results for the three and six months ended June 30, 2000 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2000. 1. NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss)(after deducting dividends accrued on preferred stock) by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of other securities by assuming the redeemable convertible preferred stock had been converted into common stock as of the later of the date of issuance of the preferred stock or the beginning of the fiscal period presented at the conversion rates that would have been in effect at such dates (and without deducting from net income dividends accrued on preferred stock), and by including the dilutive effect of outstanding stock options in the weighted average number of common shares outstanding for each period. Details of the calculation are as follows:
Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 2000 1999 2000 1999 ---- ---- ---- ---- (in thousands, except per share amounts) Net Income (Loss) per share - basic: Net Income (loss)................................ $ 4,210 $ 1,001 $ (4,695) $ 1,965 Less: preferred dividends........................ (173) (173) (345) (345) -------- -------- -------- -------- Net income (loss) available to common stockholders................................... $ 4,037 $ 828 $ (5,040) $ 1,620 ======== ======== ======== ======== Weighted average shares - basic.................. 23,882 22,717 23,582 22,717 ======== ======== ======== ======== Net income (loss) per share - basic.............. $ 0.17 $ 0.04 $ (0.21) $ 0.07 ======== ======== ======== ======== 7 Net Income per share - diluted: Net Income....................................... $ 4,210 $ 1,001 * $ 1,965 ======== ======== ======== ======== Weighted average shares outstanding.............. 23,882 22,717 * 22,717 Assumed conversion of preferred stock as of the later of the date of issuance of the preferred stock or the beginning of the fiscal period presented, at the conversion rates that would have been in effect at such dates........................ 9,815 8,740 * 8,740 Dilutive effect of stock options................. 2,071 106 * 106 -------- -------- -------- -------- Weighted average shares - diluted................ 35,768 31,563 * 31,563 ======== ======== ======== ======== Net income per share - diluted................... $ 0.12 $ 0.03 * $ 0.06 ======== ======== ======== ========
* Common stock equivalent shares, such as redeemable convertible preferred stock and stock options, have been excluded in the computation for the six months ended June 30, 2000, as their effect is antidilutive. As a result, the computation for diluted loss per share does not differ from basic loss per share. 2. RECEIVABLES, NET June 30, December 31, 2000 1999 ---- ---- (in thousands) Accounts receivable - billed to customers $ 48,258 $ 30,226 Unbilled receivables on completed projects accounted for under the completed contract method......................................... 9,887 4,908 Costs and estimated earnings in excess of billings on projects accounted for under the percentage-of-completion method................ 2,269 3,858 Unbilled receivables on cost-plus contracts...... 8,083 6,066 Costs of uncompleted projects accounted for under the completed contract method............ 9,658 6,138 Retainage........................................ 1,218 1,154 -------- -------- 79,373 52,350 Less: allowance for uncollectible amounts........ (4,996) (3,602) -------- -------- $ 74,377 $ 48,748 ======== ======== For the six months ended June 30, 2000 and the year ended December 31, 1999, the Company's provision for uncollectible amounts was $1.9 million and $1.5 million, respectively. The amounts written off against the provision for those periods were $1.1 million and $0.6 million, respectively. Amounts retained by customers related to projects which are progress-billed may be outstanding for periods that exceed one year. 8 3. NOTES PAYABLE AND OTHER FINANCING ARRANGEMENTS On March 8, 2000, the Company's revolving credit facility with banks was increased to $20 million and its expiration date was extended to June 2003. In addition, the amendment released the restriction on acquisition of other businesses in excess of $250,000 in any calendar year, and also provides for the release of the following, upon consummation of an initial public offering: restriction on payment of cumulative dividends on preferred stock and personal guarantees of the Company's stockholders. 4. RELATED PARTY TRANSACTIONS On May 1, 2000, the Company entered into a ten-year lease for a garage and warehouse facility in Long Island City, New York. The lease payments are $0.5 million per year commencing May 1, 2000. The facility is leased from an entity which is owned by the Company's two principal common stockholders. 5. CONTINGENCIES From time to time, the Company is involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. On or about March 31, 2000 a former employee filed a lawsuit against the Company and certain of the Company's employees, officers and directors in the U.S. District Court for the Southern District of New York, seeking, among other things, reinstatement with back and front pay, compensatory damages in excess of $5,050,000, punitive damages, costs and attorneys' fees based upon allegations of sexual harassment, employment discrimination and retaliation. The Company intends to defend this claim vigorously. As this litigation is still in its early stages, the Company is not yet able to determine whether the resolution of this matter will have a material adverse effect on the Company's financial condition or results of operations. 6. STOCK OPTIONS AND AWARDS During the three and six months ended June 30, 2000, 428,500 and 2,431,000 options, respectively, were granted. As of June 30, 2000, 4,896,312 options were outstanding. For certain options and restricted stock granted in the first quarter of 2000, the exercise or sale prices were determined by the Board of Directors at dates of grant to be equal to the fair value of the underlying stock, however such exercise or sale prices were subsequently determined to be lower than the deemed fair values for financial reporting purposes of the underlying common stock on the date of grant. Accordingly, for those options and restricted stock grants, the Company recorded deferred non-cash stock-based compensation of $41.7 million in the first quarter of 2000. Amortization of such deferred non-cash stock-based compensation for the three and six months ended June 30, 2000 was $19.4 and $21.6 million, respectively. Deferred tax benefits of $5.7 million and $6.5 million were recorded in the three and six months ended June 30, 2000, respectively, in connection with amortization of deferred non-cash stock-based compensation related to non-qualified options, to the extent that the Company expects to realize such tax benefits. 7. SUBSEQUENT EVENT On July 6, 2000, the Company effected a 1-for-2 reverse stock split of the Company's common stock with no change in par value. Accordingly, the stock split has been recognized by reclassifying $22,717, the par value reduction in shares resulting from the split, from common stock to retained 9 earnings. Retained earnings, common stock, per share and shares outstanding data in the Condensed Consolidated Financial Statements and Notes to the Condensed Consolidated Financial Statements have been retroactively restated to reflect this stock split. On July 6, 2000, the Company filed an amendment to its Restated Certificate of Incorporation. This amendment decreased the shares of authorized common stock from 94,461,542 to 50,000,000 shares. On July 31, 2000, the Company filed a Second Amended and Restated Certificate of Incorporation. Among other things, this restated certificate increased the shares of authorized common stock from 50,000,000 to 120,000,000 and authorized the issuance of up to 5,000,000 shares of preferred stock, the terms of which can be set at the discretion of the board of directors of the Company. On August 2, 2000, the Company completed an initial public offering of 6,900,000 shares of its common stock at a price of $15.00 per share. The Company received net proceeds of $96.3 million after underwriting discount and before expenses of the offering. The Company used $10.1 million of the proceeds to repay notes payable to banks, and $1.1 million to pay dividends on outstanding preferred shares accrued since January 1, 1999. All outstanding shares of redeemable convertible preferred stock were converted into 9,814,624 shares of common stock as of August 2, 2000. 10 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------- The following discussion and analysis provides information which should be read in conjunction with the historical consolidated financial statements, including the notes thereto, included elsewhere in this Form 10-Q. OVERVIEW We provide outsourced local telecommunications network services to telecommunications companies by supplying the expertise and resources needed to enable our customers to build and connect their networks to other telecommunications companies and individual end users. For the three and six months ended June 30, 2000, approximately 78% and 79%, respectively, of our revenues were earned from services provided in the New York metropolitan region, including New York City, New Jersey, Long Island and Westchester. Our customers for the design and deployment of telecommunications networks are large, well-established telecommunications carriers as well as smaller, early stage telecommunications carriers. We have derived a significant portion of our revenues from a limited number of customers. For the three and six months ended June 30, 2000, we derived approximately 23% of our revenues from our largest customer and 12% of our revenues from our second largest customer. RESULTS OF OPERATIONS FOR THE SECOND QUARTER OF 2000 COMPARED TO THE SECOND QUARTER OF 1999. Revenues. Our revenues increased by 122% to $65.0 million for the second quarter of 2000 from $29.4 million in the second quarter of 1999. The increase in revenues was primarily attributable to higher demand for our services from customers as they expanded their telecommunications networks. Cost of revenues. Our cost of revenues increased by 96% to $48.5 million for the second quarter of 2000 from $24.8 million in the second quarter of 1999. The increase was due in part to increased technical personnel in support of additional demand from customers for our services and in part to an increase in our fleet of specialty vehicles. The costs of technical personnel are comprised of wages, related benefits and payroll-based insurance premiums. Cost of revenues declined to 75% of total revenues in the second quarter of 2000 from 84% in the same period of 1999, because an increased portion of our revenues was derived from higher-margin network upgrade and maintenance services this year. General, administrative and marketing expenses. Our general, administrative and marketing expenses increased 147% to $6.2 million for the second quarter of 2000 from $2.5 million in the second quarter of 1999. The increase was primarily due to salaries and related benefits for additional executive and administrative personnel required to support our increased revenues and in part to an increase in rent expense for additional office space and equipment this year. Non-cash stock-based compensation. We recorded amortization of non-cash stock-based compensation of $2.2 million in the second quarter of 2000 related to options and restricted stock previously granted at exercise prices determined by our board of directors at dates of grant to be equal to the fair value of the underlying stock, but with respect to which, for financial reporting purposes, the exercise or sales prices were subsequently determined to be lower than the deemed fair values of the underlying common stock at dates of grant. Interest expense. Interest expense increased to $0.3 million for the second quarter of 2000 from $0.2 million in the second quarter of 1999. The increase was due to a higher level of borrowings under our revolving credit line and increases in equipment and capital lease obligations. 11 Provision for income taxes. Our effective tax rate is approximately 46% because a significant portion of our operations is currently concentrated in New York City, which subjects us to a local tax on income derived in that jurisdiction. FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999. Revenues. Our revenues increased by 145% to $121.2 million for the six months ended June 30, 2000 from $49.5 million for the six months ended June 30, 1999. The increase in revenues was primarily attributable to higher demand for our services from customers as they expanded their telecommunications networks. Cost of revenues. Our cost of revenues increased by 122% to $91.1 million for the six months ended June 30, 2000 from $41.0 million for the six months ended June 30, 1999. The increase was due in part to increased technical personnel in support of additional demand from customers for our services and to an increase in our fleet of specialty vehicles. Cost of revenues declined to 75% of total revenues for the six months ended June 30, 2000 from 83% in the same period of 1999, because an increased portion of our revenues was derived from higher-margin network upgrade and maintenance services this year. General, administrative and marketing expenses. Our general, administrative and marketing expenses increased 136% to $10.4 million for the six months ended June 30, 2000 from $4.4 million for the six months ended June 30, 1999. The increase was primarily due to $2.7 million for additional salaries and related benefits for new executive and administrative personnel required to support our increased revenues. In addition, the provision for unrealizable accounts receivable increased by $0.7 million for the six months ended June 30, 2000 compared to the six months ended June 30, 1999 as a result of our increased level of revenues. Non-cash stock-based compensation. We recorded amortization of non-cash stock-based compensation of $21.7 million for the six months ended June 30, 2000 related to options and restricted stock granted during that period at exercise prices determined by our board of directors at dates of grant to be equal to the fair value of the underlying stock, but with respect to which, for financial reporting purposes, the exercise or sales prices were subsequently determined to be lower than the deemed fair values of the underlying common stock at dates of grant. Operating income. Operating income for the six months ended June 30, 2000 (before amortization of deferred non-cash stock-based compensation) was $19.7 million, compared with $4.1 million for the six months ended June 30, 1999. After giving effect to amortization of deferred non-cash stock-based compensation, operating loss for the six months ended June 30, 2000 was $2.0 million. Interest expense. Interest expense increased to $0.7 million for the six months ended June 30, 2000 from $0.5 million for the six months ended June 30, 1999. The increase was due to a higher level of borrowings under our revolving credit line and increases in equipment and capital lease obligations. Provision for income taxes. Our normal effective tax rate is approximately 46% because a significant portion of our operations is currently concentrated in New York City, which subjects us to a local tax on income derived in that jurisdiction. However, amortization of deferred non-cash stock-based compensation ($21.7 million for the six months ended June 30, 2000) relates to both incentive stock options and nonqualified stock options, but tax benefits are not available for compensation expense recorded in connection with incentive stock options. Deferred tax benefits of $6.5 million were recorded for the six months ended June 30, 2000 in connection with non-cash stock-based compensation related to nonqualified stock options. LIQUIDITY AND CAPITAL RESOURCES Cash used in operations is primarily derived from our projects in process and changes in working capital. Net cash used in operations was $1.3 million for the six months ended June 30, 2000. For the six months ended June 30, 2000, our primary use of cash was to finance higher receivables, which 12 increased by $27.0 million as a result of our increased revenues. This use of cash was offset in part by increases in accounts payable, accrued liabilities, and billings in excess of costs and estimated earnings on uncompleted contracts. Cash used in investing activities was $2.7 million for the six months ended June 30, 2000. Investing activities consist of capital expenditures to support our growth. Net cash provided by financing activities for the first six months of 2000 was $4.5 million, comprised of $5.2 million in proceeds from exercises of stock options and sales of restricted stock, and net borrowings under our revolving credit facility of $0.8 million, offset by payments of $0.8 million on a subordinated note payable to a stockholder, payments of $0.1 million to related parties and $0.6 million of repayments on equipment loans and capital leases. As of June 30, 2000, we had cash of $1.7 million and $10.4 million of availability under our bank credit facility. We have no material commitments other than obligations under our bank credit facility, installment obligations related to equipment purchases, leases for facilities, computer equipment and vehicles, and subordinated notes payable to stockholders. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The following discusses our exposure to market risk related to changes in interest rates, equity prices and foreign currency exchange rates. We do not believe that our exposure to market risk is material. As of June 30, 2000, we had cash of $1.7 million. As of August 2, 2000, we completed an offering of 6,900,000 shares of common stock for net proceeds of $96.3 million. We intend to invest those net proceeds in interest-bearing investment grade securities, primarily short-term, highly liquid investments with maturities at the date of purchase of less than 90 days. These investments are subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical increase or decrease in the market interest rates by 10 percent from the rates in effect on the date of this Form 10-Q would cause the fair value of these short-term investments to decline by an insignificant amount. We have the ability to hold these investments until maturity, and therefore we do not expect the value of these investments to be affected to any significant degree by the effect of a sudden change in market interest rates. Declines in interest rates over time will, however, reduce our interest income. We do not own any investments in publicly traded equity securities. Therefore, we do not currently have any direct equity price risk. We do not have any international operations, and we do not enter into forward exchange contracts or other financial instruments with respect to foreign currency. Accordingly, we do not have any foreign currency exchange rate risk. FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. These forward-looking statements are only predictions and generally can be identified by use of statements that include phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee" or other words or phrases of similar import. Similarly, statement that describe the Company's objectives, plans or goals also are forward-looking statements. The Company's operations are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. The forward-looking statements included herein are made only as of the date of this Quarterly Report on Form 10-Q and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. No assurances can be given that projected results or events will be achieved. 13 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings ----------------- From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. In addition, on or about March 31, 2000 a former employee, Italia Casella, filed a lawsuit against us in the U.S. District Court for the Southern District of New York, naming as defendants Lexent, Hugh O'Kane Electric Co., Hugh O'Kane Electric Co., LLC, National Network Technologies, LLC, and certain of our employees, officers and directors. Casella seeks, among other things, reinstatement with back and front pay, compensatory damages in excess of $5,050,000, punitive damages, costs and attorneys' fees based upon allegations of sexual harassment, employment discrimination and retaliation. Our management intends to defend this claim vigorously. As this litigation is still in its early stages, we are not yet able to determine whether the resolution of this matter will have a material adverse effect on our financial condition or results of operations. ITEM 2. Changes in Securities and Use of Proceeds ----------------------------------------- (a) As part of the consummation of our initial public offering ("IPO") on August 2, 2000, we completed a recapitalization which included the conversion of our Series A Convertible Preferred Stock, par value $.001 per share ("redeemable convertible preferred stock") and the accrued and unpaid dividends through December 31, 1998 on such stock into an aggregate 9,814,624 shares of our common stock. The conversion ratio, calculated in accordance with the terms of the redeemable convertible preferred stock, was 1.77209 shares of common stock per share of preferred stock. The remainder of the accrued and unpaid dividends on the redeemable convertible preferred stock was paid in cash to the holders thereof out of the proceeds received by us in the IPO. See Item 2 (d). (c) During the period from April 1, 2000 to June 30, 2000, we issued 202,500 shares of common stock upon the exercise of stock options granted under our stock option plan. The exercise price for such options was $0.49 per share. This issuance of securities was deemed to be exempt from registration under the Securities Act of 1933 in reliance on Rule 701 under the Securities Act or as a private placement under Section 4(2) of the Securities Act. (d) On August 2, 2000, we completed an IPO of 6,900,000 shares of our common stock at a price per share of $15.00 (including 900,000 shares that were subject to the underwriters' overallotment option, which was exercised in full). The aggregate offering price was $103,500,000. The amount of all applicable underwriting discounts and commissions was $7,245,000. The amount of all other issuance costs incurred by us was approximately $1,425,000. After deducting all underwriting discounts and commissions and other issuance costs, the total net proceeds we received was $94,830,000. Of the net proceeds of the IPO, approximately $10.1 million were used to prepay a portion of the outstanding balance (including any accrued interest thereon) under our revolving credit facility. We also used $1.1 million of the net proceeds to pay dividends accrued after December 31, 1998 on the redeemable convertible preferred stock converted to common stock upon consummation of our IPO. The remaining net proceeds have been invested in cash, cash equivalents and short-term investments. Other than the payment of dividends accrued after December 31, 1998 on our redeemable convertible preferred stock, none of the net proceeds from our IPO were used to pay, directly or indirectly, directors, officers, persons owning ten percent or more of our equity securities or any of out affiliates. The effective date of our registration statement on Form S-1 was July 27, 2000, and the Commission file number assigned to the registration statement was 333-30660. The IPO was completed upon the sale of all securities registered. Credit Suisse First Boston Corporation, Chase Securities, Inc. and Raymond James & Associates, Inc. acted as lead underwriters for the IPO. 14 ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On June 30, 2000, the holders of more than a majority of each class of our capital stock then outstanding acted by written consent to approve an amendment to our Amended and Restated Certificate of Incorporation which authorized a one-for-two reverse stock split of our common stock. The reverse stock split took effect on July 6, 2000. ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: -------- The following exhibits are filed as part of this report: Exhibit No. Description ----------- ----------- 10.1 Underwriting Agreement 27.1 Financial Data Schedule (b) Reports: ------- None. 15 SIGNATURES Pursuant to the requirements 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. LEXENT INC. (Registrant) By: /s/ ALF T. HANSEN --------------------------- Alf T. Hansen President and Chief Executive Officer, on behalf of the Registrant By: /s/ JONATHAN H. STERN --------------------------- Jonathan H. Stern Executive Vice President and Chief Financial Officer August 22, 2000 16 EX-10.1 2 0002.txt UNDERWRITING AGREEMENT EXHIBIT 10.1 6,000,000 Shares LEXENT INC. Common Stock, par value $.001 per share UNDERWRITING AGREEMENT July 27, 2000 CREDIT SUISSE FIRST BOSTON CORPORATION CHASE SECURITIES INC. RAYMOND JAMES & ASSOCIATES, INC. As Representatives of the Several Underwriters, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629 Dear Sirs: 1. Introductory. Lexent Inc., a Delaware corporation ("Company"), proposes to issue and sell 6,000,000 shares ("Firm Securities") of its Common Stock, par value $.001 per share ("Securities") and also proposes to issue and sell to the Underwriters, at the option of the Underwriters, an aggregate of not more than 900,000 additional shares ("Optional Securities") of its Securities as set forth below. The Firm Securities and the Optional Securities are herein collectively called the "Offered Securities". As part of the offering contemplated by this Agreement, Credit Suisse First Boston Corporation (the "Designated Underwriter") has agreed to reserve out of the Firm Securities purchased by it under this Agreement, up to 823,333 shares, for sale to the Company's directors, officers, employees and other parties associated with the Company (collectively, "Participants"), as set forth in the Prospectus (as defined herein) under the heading "Underwriting" (the "Directed Share Program"). The Firm Securities to be sold by the Designated Underwriter pursuant to the Directed Share Program (the "Directed Shares") will be sold by the Designated Underwriter pursuant to this Agreement at the public offering price. Any Directed Shares not subscribed for by the end of the business day on which this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus. The Company hereby agrees with the several Underwriters named in Schedule A hereto ("Underwriters") as follows: 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Underwriters that: 2 (a) A registration statement (No. 333_30660) relating to the Offered Securities, including a form of prospectus, has been filed with the Securities and Exchange Commission ("Commission") and either (i) has been declared effective under the Securities Act of 1933 ("Act") and is not proposed to be amended or (ii) is proposed to be amended by amendment or post_effective amendment. If such registration statement ("initial registration statement") has been declared effective, either (i) an additional registration statement ("additional registration statement") relating to the Offered Securities may have been filed with the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has become effective upon filing pursuant to such Rule and the Offered Securities all have been duly registered under the Act pursuant to the initial registration statement and, if applicable, the additional registration statement or (ii) such an additional registration statement is proposed to be filed with the Commission pursuant to Rule 462(b) and will become effective upon filing pursuant to such Rule and upon such filing the Offered Securities will all have been duly registered under the Act pursuant to the initial registration statement and such additional registration statement. If the Company does not propose to amend the initial registration statement or if an additional registration statement has been filed and the Company does not propose to amend it, and if any post_effective amendment to either such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent amendment (if any) to each such registration statement has been declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case of the additional registration statement, Rule 462(b). For purposes of this Agreement, "Effective Time" with respect to the initial registration statement or, if filed prior to the execution and delivery of this Agreement, the additional registration statement means (i) if the Company has advised the Representatives that it does not propose to amend such registration statement, the date and time as of which such registration statement, or the most recent post_effective amendment thereto (if any) filed prior to the execution and delivery of this Agreement, was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c), or (ii) if the Company has advised the Representatives that it proposes to file an amendment or post_effective amendment to such registration statement, the date and time as of which such registration statement, as amended by such amendment or post_effective amendment, as the case may be, is declared effective by the Commission. If an additional registration statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the Representatives that it proposes to file one, "Effective Time" with respect to such additional registration statement means the date and time as of which such registration statement is filed and becomes effective pursuant to Rule 462(b). "Effective Date" with respect to the initial registration statement or the additional registration statement (if any) means the date of the Effective Time thereof. The initial registration statement, as amended at its Effective Time, including all information contained in the additional registration statement (if any) and deemed to be a part of the initial registration statement as of the Effective Time of the additional registration statement pursuant to the General Instructions of the Form on which it is filed and including all information (if any) deemed to be a part of the initial registration statement as of its Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is 3 hereinafter referred to as the "Initial Registration Statement". The additional registration statement, as amended at its Effective Time, including the contents of the initial registration statement incorporated by reference therein and including all information (if any) deemed to be a part of the additional registration statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as the "Additional Registration Statement". The Initial Registration Statement and the Additional Registration Statement are herein referred to collectively as the "Registration Statements" and individually as a "Registration Statement". The form of prospectus relating to the Offered Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is required) as included in a Registration Statement, is hereinafter referred to as the "Prospectus". No document has been or will be prepared or distributed in reliance on Rule 434 under the Act. (b) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement: (i) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission ("Rules and Regulations") and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) on the Effective Date of the Additional Registration Statement (if any), each Registration Statement conformed, or will conform, in all material respects to the requirements of the Act and the Rules and Regulations and did not include, or will not include, any untrue statement of a material fact and did not omit, or will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) on the date of this Agreement, the Initial Registration Statement and, if the Effective Time of the Additional Registration Statement is prior to the execution and delivery of this Agreement, the Additional Registration Statement each conforms, and at the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Date of the Additional Registration Statement in which the Prospectus is included, each Registration Statement and the Prospectus will conform, in all material respects to the requirements of the Act and the Rules and Regulations, and neither of such documents includes, or will include, any untrue statement of a material fact or omits, or will omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. If the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement: on the Effective Date of the Initial Registration Statement, the Initial Registration Statement and the Prospectus will conform in all material respects to the requirements of the Act and the Rules and Regulations, neither of such documents will include any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and no Additional Registration Statement has been or will be filed. The two preceding sentences do not apply to statements in or omissions from a Registration Statement or the Prospectus based upon written information furnished to the Company by any Underwriter 4 through the Representatives specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. (c) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"). (d) Each subsidiary of the Company has been duly incorporated or organized, as the case may be, and is an existing corporation or limited liability company, as the case may be, in good standing under the laws of the jurisdiction of its incorporation or organization, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and each subsidiary of the Company is duly qualified to do business as a foreign corporation or limited liability company, as the case may be, in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect; and all of the issued and outstanding ownership interests of each subsidiary of the Company has been duly authorized and validly issued; and all the ownership interests of each subsidiary are owned directly by the Company and, except as described in the Prospectus, are free from liens, encumbrances and defects. (e) The Offered Securities and all other outstanding shares of capital stock of the Company have been duly authorized; all outstanding shares of capital stock of the Company are, and, when the Offered Securities have been delivered and paid for in accordance with this Agreement on each Closing Date (as defined below), such Offered Securities will have been, validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus; and the stockholders of the Company have no preemptive rights arising by operation of law, under the Company's certificate of incorporation or by-laws or otherwise with respect to the Securities. (f) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering. (g) Except for the Registration Rights Agreement, dated as of July 23, 1998, between the Company and the investors named therein, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any 5 securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to a Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. (h) The Offered Securities have been approved for listing on the Nasdaq Stock Market's National Market. (i) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities by the Company, except such as have been obtained and made under the Act or as may be required under state securities laws. (j) The execution, delivery and performance of this Agreement, and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by_laws of the Company or certificate of formation or limited liability company agreement of any such subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (k) This Agreement has been duly authorized, executed and delivered by the Company. (l) Except as disclosed in the Prospectus, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Prospectus, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (m) The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. 6 (n) No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent that might have a Material Adverse Effect. (o) The Company and its subsidiaries own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know_how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (p) Except as disclosed in the Prospectus, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmental laws"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off_site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim. (q) Except as disclosed in the Prospectus, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are threatened or, to the Company's knowledge, contemplated. (r) The financial statements included in each Registration Statement and the Prospectus present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis; and the assumptions used in preparing the pro forma financial statements included in each Registration Statement and the Prospectus provide a reasonable basis for presenting the significant effects directly attributable to the transactions or events described therein, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma columns therein reflect the proper application of those adjustments to the corresponding historical financial statement amounts. 7 (s) Except as disclosed in the Prospectus, since the date of the latest audited financial statements included in the Prospectus there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Prospectus, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (t) Furthermore, the Company represents and warrants to the Underwriters that (i) the Registration Statement, the Prospectus and any preliminary prospectus comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and that (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities law and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States. (u) The Company has not offered, or caused the Underwriters to offer, any Offered Securities to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products. (v) The Company has the authorized, issued and outstanding capitalization as of December 31, 1999 set forth in the prospectus under the heading "Capitalization". (w) There are no parties that have rights to register any securities of the Company, other than Allegra Capital Partners III, L.P., Allegra Capital Partners IV, L.P. and Abbott Capital 1330 Investors I, L.P., each of which has waived such rights by executing the Lock-Up Agreement dated the date hereof, substantially in the form of Exhibit A attached hereto. (x) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 8 (y) All material tax returns required to be filed by the Company and any of its subsidiaries in any jurisdiction have been filed or have properly been extended, and all material taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due pursuant to such returns or pursuant to any assessment received by the Company or any of its subsidiaries have been paid, other than those which are being contested in good faith and for which adequate reserves have been provided. There are no transfer taxes or other similar fees or charges under federal law or the laws of any state, or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement by the Company or the issuance by the Company or the sale by the Company of the Offered Securities, except for fees or charges that may be required to be paid in connection with applicable blue sky laws, which fees and charges the Company hereby agrees to pay. (z) PricewaterhouseCoopers LLC are independent public accountants with respect to the Company and its subsidiaries as required by the Act and the Rules and Regulations. (aa) The statements in the Prospectus under the heading "Certain Relationships and Related Transactions" set forth all existing agreements, arrangements, understanding or transactions, or proposed agreements, arrangements, understandings or transactions, between or among the Company, on the one hand, and any officer, director or stockholder of the Company, or with any partner, affiliate or associate of any of the forgoing persons or entities, on the other hand, required to be set forth or described thereunder. (bb) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be, an "investment company" or a company "controlled" by and "investment company" as such term is defined in the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters, and the Underwriters agree, severally and not jointly, to purchase from the Company, at a purchase price of $13.95 per share, the respective numbers of shares of Firm Securities set forth opposite the names of the Underwriters in Schedule A hereto. The Company will deliver the Firm Securities to the Representatives for the accounts of the Underwriters, against payment of the purchase price in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to Credit Suisse First Boston Corporation ("CSFBC") drawn to the order of the Company at the office of Simpson Thacher & Bartlett, at 10:00 A.M., New York time, on August 2, 2000, or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "First Closing Date". For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if later than the otherwise applicable settlement date) shall be the settlement date for payment of funds and delivery of 9 securities for all the Offered Securities sold pursuant to the offering. The Firm Securities so to be delivered will be in definitive form, in such denominations and registered in such names as CSFBC requests and will be made available for checking and packaging at the above office of Simpson Thacher & Bartlett at least 24 hours prior to the First Closing Date. In addition, upon written notice from CSFBC given to the Company from time to time not more than 30 days subsequent to the date of the Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the purchase price per Security to be paid for the Firm Securities. The Company agrees to sell to the Underwriters the number of shares of Optional Securities specified in such notice and the Underwriters agree, severally and not jointly, to purchase such Optional Securities. Such Optional Securities shall be purchased for the account of each Underwriter in the same proportion as the number of shares of Firm Securities set forth opposite such Underwriter's name bears to the total number of shares of Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over_allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by CSFBC to the Company. Each time for the delivery of and payment for the Optional Securities, being herein referred to as an "Optional Closing Date", which may be the First Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be determined by CSFBC but shall be not later than five full business days after written notice of election to purchase Optional Securities is given. The Company will deliver the Optional Securities being purchased on each Optional Closing Date to the Representatives for the accounts of the several Underwriters, against payment of the purchase price therefor in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to the order of the Company, at the above office of Simpson Thacher & Bartlett. The certificates for the Optional Securities being purchased on each Optional Closing Date will be in definitive form, in such denominations and registered in such names as CSFBC requests upon reasonable notice prior to such Optional Closing Date and will be made available for checking and packaging at the above office of Simpson Thacher & Bartlett at a reasonable time in advance of such Optional Closing Date. 4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Prospectus. 5. Certain Agreements of the Company. The Company agrees with the several Underwriters that: (a) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of (A) 10 the second business day following the execution and delivery of this Agreement or (B) the fifteenth business day after the Effective Date of the Initial Registration Statement. The Company will advise CSFBC promptly of any such filing pursuant to Rule 424(b). If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement and an additional registration statement is necessary to register a portion of the Offered Securities under the Act but the Effective Time thereof has not occurred as of such execution and delivery, the Company will file the additional registration statement or, if filed, will file a post_effective amendment thereto with the Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date of this Agreement or, if earlier, on or prior to the time the Prospectus is printed and distributed to any Underwriter, or will make such filing at such later date as shall have been consented to by CSFBC. (b) The Company will advise CSFBC promptly of any proposal to amend or supplement the initial or any additional registration statement as filed or the related prospectus or the Initial Registration Statement, the Additional Registration Statement (if any) or the Prospectus and will not effect such amendment or supplementation without CSFBC's consent; and the Company will also advise CSFBC promptly of the effectiveness of each Registration Statement (if its Effective Time is subsequent to the execution and delivery of this Agreement) and of any amendment or supplementation of a Registration Statement or the Prospectus and of the institution by the Commission of any stop order proceedings in respect of a Registration Statement and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. (c) If, at any time when a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will promptly notify CSFBC of such event and will promptly prepare and file with the Commission, at its own expense, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (d) As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its securityholders an earnings statement covering a period of at least 12 months beginning after the Effective Date of the Initial Registration Statement (or, if later, the Effective Date of the Additional Registration Statement) which will satisfy the provisions of Section 11(a) of the Act. For the purpose of the preceding sentence, "Availability Date" means the 45th day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Date, except 11 that, if such fourth fiscal quarter is the last quarter of the Company's fiscal year, "Availability Date" means the 90th day after the end of such fourth fiscal quarter. (e) The Company will furnish to the Representatives copies of each Registration Statement (four of which will be signed and will include all exhibits), each related preliminary prospectus, and, so long as a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, the Prospectus and all amendments and supplements to such documents, in each case in such quantities as CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business day following the later of the execution and delivery of this Agreement or the Effective Time of the Initial Registration Statement. All other documents shall be so furnished as soon as available. The Company will pay the expenses of printing and distributing to the Underwriters all such documents. (f) The Company will arrange for the qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFBC designates and will continue such qualifications in effect so long as required for the distribution; provided, however, that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction. (g) During the period of five years hereafter, the Company will furnish to the Representatives and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representatives (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Securities Exchange Act of 1934 or mailed to stockholders, and (ii) from time to time, such other information concerning the Company as CSFBC may reasonably request. (h) The Company will pay all expenses incident to the performance of its obligations under this Agreement, for any filing fees and other expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFBC designates, for the filing fee incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the National Association of Securities Dealers, Inc. ("NASD") of the Offered Securities, for any travel expenses of the Company's officers and employees and any other expenses of the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities and for expenses incurred in distributing preliminary prospectuses and the Prospectus (including any amendments and supplements thereto) to the Underwriters. (i) For a period of 180 days after the date of the initial public offering of the Offered Securities, the Company will not offer, sell, contract to sell, announce its intention to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Act relating to, any additional shares of its Securities or 12 securities convertible into or exchangeable or exercisable for any shares of its Securities, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of CSFBC, except (i) issuances of Securities pursuant to the conversion or exchange of the Company's preferred stock or the exercise of options, in each case outstanding on the date hereof, (ii) grants of stock options pursuant to stock option plans in effect on the date hereof and the issuance of securities pursuant to the exercise of such stock options, (iii) issuances of Securities to participants in any employee stock purchase plan in effect on the date hereof, (iv) issuances of Securities in connection with strategic acquisitions or alliances so long as the recipients of such Securities enter into the restrictions on the disposition of such Securities set forth in this Section 5(i) for the remainder of the 180-day period set forth in this Section 5(i) and (v) filings of registration statements on Form S-8 with the Commission registering the shares of Common Stock issuable under its stock option and employee stock purchase plans in effect on the date hereof. (j) The Company will (i) enforce the terms of each Lock-up Agreement (as hereinafter defined), and (ii) issue stop-transfer instructions to the transfer agent for the Securities with respect to any transaction or contemplated transaction that would constitute a breach of or default under the applicable Lock-up Agreement. In addition, except with the prior written consent of CSFBC, the Company agrees (i) not to amend or terminate, or waive any right under, any Lock-up Agreement, or take any other action that would directly or indirectly have the same effect as an amendment or termination, or waiver of any right under any Lock-up Agreement, that would permit the holder of any Securities, or any securities convertible into, or exercisable or exchangeable for, Securities, to make any short sale of, grant any option for the purchase of, or otherwise transfer or dispose of, any such Securities or other securities, prior to the expiration of the 180 days after the date of the Prospectus, and (ii) not consent to any sale, short sale, grant of an option for the purchase of, or other disposition or transfer of shares of Securities, or securities convertible into or exercisable or exchangeable for Securities, subject to a Lock-Up Agreement. (k) In connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by the NASD or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of the effectiveness of the Registration Statement. The Designated Underwriter will notify the Company as to which Participants will need to be so restricted. The Company will direct the transfer agent to place stop transfer restrictions upon such securities for such period of time. (l) The Company will pay all fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the underwriters in connection with the Directed Share Program. Furthermore, the company covenants with the Underwriters that the company will comply with all applicable securities and other applicable laws, rules and 13 regulations in each foreign jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program. 6. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Securities on the First Closing Date and the Optional Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Representatives shall have received a letter, dated the date of delivery thereof (which, if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post_effective amendment to the registration statement to be filed shortly prior to such Effective Time), from PricewaterhouseCoopers LLP to the effect that they are independent accountants with respect to the Company within the meaning of the Securities Act of 1933 and the applicable rules and regulations thereunder adopted by the SEC and stating to the effect that: (i) in their opinion the financial statements examined by them and included in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements included in the Registration Statements; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial data of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial data included in the Registration Statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial data and summary of earnings for them to be stated on a basis substantially consistent with the audited financial statements included in the Registration Statement; 14 (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of this Agreement, there was any change in the capital stock or any increase in short_term indebtedness or long_term debt of the Company and its consolidated subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net current assets or net assets, as compared with amounts shown on the latest balance sheet included in the Prospectus; or (C) for the period from the closing date of the latest income statement included in the Prospectus to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year, in consolidated net revenues or net operating income or in the total or per share amounts of consolidated income before extraordinary items or net income; except in all cases set forth in clauses (A) and (B) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Registration Statements (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement wish such results, except as otherwise specified in such letter. (v) they proved the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts as set forth in the Registration Statement under the captions "Summary Consolidated Financial Data", "Capitalization", "Dilution" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". For purposes of this subsection, (i) if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, "Registration Statements" shall mean the initial registration statement as proposed to be amended by the amendment or post-effective amendment to be filed shortly prior to its Effective Time, (ii) if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement but the Effective Time of the Additional Registration is 15 subsequent to such execution and delivery, "Registration Statements" shall mean the Initial Registration Statement and the additional registration statement as proposed to be filed or as proposed to be amended by the post-effective amendment to be filed shortly prior to its Effective Time, and (iii) "Prospectus" shall mean the prospectus included in the Registration Statements. (b) If the Effective Time of the Initial Registration Statement is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or such later date as shall have been consented to by CSFBC. If the Effective Time of the Additional Registration Statement (if any) is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or, if earlier, the time the Prospectus is printed and distributed to any Underwriter, or shall have occurred at such later date as shall have been consented to by CSFBC. If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing Date, no stop order suspending the effectiveness of a Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission. (c) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as one enterprise which, in the judgment of a majority in interest of the Underwriters including the Representatives, is material and adverse and makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities or preferred stock of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities or preferred stock of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange or the Nasdaq Stock Market's National Market, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over_the_counter market; (iv) any banking moratorium declared by U.S. Federal or New York authorities; or (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters including the Representatives, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities. 16 (d) The Representatives shall have received an opinion, dated such Closing Date, of Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for the Company, to the effect that: (i) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect; (ii) Each subsidiary of the Company has been duly incorporated or organized, as the case my be, and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation or organization, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and each subsidiary of the Company is duly qualified to do business as a foreign corporation or limited liability company, as the case may be, in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect; all of the issued and outstanding ownership interests of each subsidiary of the Company has been duly authorized and validly issued; and all the ownership interests of each subsidiary are owned directly by the Company and, except as described in the Prospectus, are free from liens, encumbrances and defects. (iii) The Offered Securities delivered on such Closing Date and all other outstanding shares of the Common Stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and conform to the description thereof contained in the Prospectus; and the stockholders of the Company have no preemptive rights arising by operation of law, under the Company's certificate of incorporation or bylaws or otherwise with respect to the Securities; (iv) Except for the Registration Rights Agreement, dated as of July 23, 1998, between the Company and the investors named therein, there are no contracts, agreements or understandings known to such counsel between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act; 17 (v) No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance or sale of the Offered Securities by the Company, except such as have been obtained and made under the Act and such as may be required under state securities laws; (vi) The execution, delivery and performance of this Agreement and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument filed as an exhibit to the Registration Statement to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by_laws of the Company or certificate of formation or limited liability company agreement any such subsidiary, and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement; (vii) The Initial Registration Statement was declared effective under the Act as of the date and time specified in such opinion, the Additional Registration Statement (if any) was filed and became effective under the Act as of the date and time (if determinable) specified in such opinion, the Prospectus either was filed with the Commission pursuant to the subparagraph of Rule 424(b) specified in such opinion on the date specified therein or was included in the Initial Registration Statement or the Additional Registration Statement (as the case may be), and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of a Registration Statement or any part thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, and each Registration Statement and the Prospectus, and each amendment or supplement thereto, as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act and the Rules and Regulations; such counsel have no reason to believe that any part of a Registration Statement or any amendment thereto, as of its effective date or as of such Closing Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto, as of its issue date or as of such Closing Date, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; the descriptions in the Registration Statements and Prospectus of statutes, legal and governmental proceedings and contracts and other documents are accurate in all material respects and fairly present the information required to be shown; and such counsel do not know of any legal or governmental proceedings required to be described in a Registration Statement or the Prospectus which are not described as required or of any contracts or documents of a character required to be described in 18 a Registration Statement or the Prospectus or to be filed as exhibits to a Registration Statement which are not described and filed as required; it being understood that such counsel need express no opinion as to the financial statements or other financial data contained in the Registration Statements or the Prospectus; and (viii) This Agreement has been duly authorized, executed and delivered by the Company. (e) The Representatives shall have received from Simpson Thacher & Bartlett, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities delivered on such Closing Date, the Registration Statements, the Prospectus and other related matters as the Representatives may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (f) The Representatives shall have received a certificate, dated such Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that: the representations and warranties of the Company in this Agreement are true and correct; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; no stop order suspending the effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission; the Additional Registration Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance with Rule 111(a) or (b) under the Act, prior to the time the Prospectus was printed and distributed to any Underwriter; and, subsequent to the dates of the most recent financial statements in the Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Prospectus or as described in such certificate. (g) The Representatives shall have received a letter, dated such Closing Date, of PricewaterhouseCoopers LLC which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to such Closing Date for the purposes of this subsection. (h) On or prior to the date of this Agreement, the Representatives shall have received lockup letters, in the form attached hereto as Exhibit A (each, a "Lock-Up 19 Agreement"), from each of the executive officers, directors, shareholders and optionholders of the Company identified on Schedule B attached hereto. The Company will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives reasonably requests. CSFBC may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional Closing Date or otherwise. 7. Indemnification and Contribution. The Company will indemnify and hold harmless each Underwriter, its partners, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (b) below. The Company agrees to indemnify and hold harmless the Designated Underwriter and each person, if any, who controls the Designated Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (the "Designated Entities"), from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of the Designated Entities. 20 (b) Each Underwriter will severally and not jointly indemnify and hold harmless the Company, its directors and officers and each person, if any who controls the Company within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the fourth paragraph and last paragraph under the caption "Underwriting." (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to the last paragraph in Section 7 (a) hereof in respect of such action or proceeding, then in addition to such separate firm for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one separate firm (in addition to any local counsel) for the Designated Underwriter for the defense of any losses, claims, damages and liabilities arising out of the Directed Share Program, and all persons, if any, who control the Designated Underwriter within the meaning of either Section 15 of the Act of Section 20 of the Exchange Act. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action 21 and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of an indemnified party. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company, to each officer of the Company who has signed a Registration Statement and to each person, if any, who controls the Company within the meaning of the Act. 22 8. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Offered Securities hereunder on either the First or any Optional Closing Date and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 9 (provided that if such default occurs with respect to Optional Securities after the First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional Securities purchased prior to such termination). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Underwriters is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Underwriters pursuant to Section 7 shall remain in effect, and if any Offered Securities have been purchased hereunder the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the Underwriters for all out_of_pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or sent by facsimile transmission and confirmed to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010_3629, Attention: Investment Banking Department--Transactions Advisory Group, or, if sent to the Company, will be mailed, delivered or sent by facsimile transmission and 23 confirmed to it at Lexent Inc., 3 New York Plaza, New York, NY 10004, Attention: Chief Operating Officer; provided, however, that any notice to an Underwriter pursuant to Section 7 will be mailed, delivered or sent by facsimile transmission and confirmed to such Underwriter. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder. 12. Representation of Underwriters. The Representatives will act for the several Underwriters in connection with this financing, and any action under this Agreement taken by the Representatives jointly or by CSFBC will be binding upon all the Underwriters. 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 24 If the foregoing is in accordance with the Representatives' understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, LEXENT INC. By /s/ KEVIN M. O'KANE -------------------------- Name: Kevin M. O'Kane Title: Vice Chairman and Chief Operating Officer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION CHASE SECURITIES INC. RAYMOND JAMES & ASSOCIATES Acting on behalf of themselves and as the Representatives of the several Underwriters By CREDIT SUISSE FIRST BOSTON CORPORATION By /s/ HAROLD W. BOGLE ------------------- Name: Harold W. Bogle Title: Managing Director SCHEDULE A Underwriter Firm Securities ----------- --------------- Credit Suisse First Boston Corporation ...................... 2,685,000 Chase Securities Inc. ....................................... 1,611,000 Raymond James & Associates, Inc. ............................ 1,074,000 E*Offering Corp. ............................................ 90,000 Fahnestock & Co. Inc. ....................................... 90,000 Invemed Associates LLC ...................................... 90,000 Prudential Securities Incorporated .......................... 90,000 Sands Brothers & Co., Ltd. .................................. 90,000 Shields & Company ........................................... 90,000 H.G. Wellington & Co. Inc. .................................. 90,000 --------- Total ................................................. 6,000,000 ========= SCHEDULE B Parties Delivering a Lock-Up Agreement Directors and Executive Officers - -------------------------------- Charles T. Christ Peter O. Crisp Victor P. DeJoy Joseph Haines Thomas W. Hallagan Alf T. Hansen Nancy T. Huson Kevin M. O'Kane Hugh J. O'Kane, Jr. L. White Matthews III Sidney A. Sayovitz Richard L. Schwob Richard W. Smith Jonathan H. Stern Walter C. Teagle III Stockholders - ------------ Abbott Capital 1330 Investors L.L.P. Allegra Capital Partners III, L.P. Allegra Capital Partners IV, L.P. Denis J. O'Kane Hugh J. O'Kane, Jr. Irrevocable Trust H dated January 2, 1999 Hugh J. O'Kane, Jr. Irrevocable Trust A dated January 2, 1999 Hugh J. O'Kane, Jr. Irrevocable Trust K dated January 2, 1999 Hugh J. O'Kane, Jr. Irrevocable Trust J dated January 2, 1999 Kevin M. O'Kane, Jr. Irrevocable Living Trust I dated January 2, 1999 Kevin M. O'Kane, Jr. Irrevocable Living Trust II dated January 2, 1999 Hugh J. O'Kane, Jr. 2000 Grantor Retained Annuity Trust Alf T. Hansen 2000 Grantor Retained Annuity Trust Victor P. DeJoy Trust Nicholas A. DeJoy Trust W. Clark Teagle, IV Rev Trust (70H338) Trust FBO Clifton D. Teagle dated December 29, 1981 (794050) Trust FBO Janet W. Teagle dated December 18, 1984 (795084) Haines Family Charitable Remainder Trust for the benefit of Robert Palumbo and Nina Palumbo Haines Family Charitable Remainder Trust for the benefit of Douglas Haines and Dawn Haines Haines Family Charitable Remainder Trust for the benefit of Marie Palumbo Haines Family Charitable Remainder Trust for the benefit of Joseph Haines and Michele Haines Optionholders - ------------- Rif Haffar EXHIBIT A Form of Lock-Up Agreement July __, 2000 Lexent Inc. Three New York Plaza New York, NY 10004 Credit Suisse First Boston Corporation Chase Securities Inc. Raymond James & Associates, Inc. As Representatives of the Several Underwriters, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue New York, NY 10010-3629 Dear Sirs: As an inducement to the Underwriters to execute the Underwriting Agreement, pursuant to which an offering will be made that is intended to result in the establishment of a public market for the Common Stock, par value $.001 per share (the "Securities"), of Lexent Inc. (the "Company"), the undersigned, a stockholder of the Company, hereby agrees that from the date hereof and until 180 days after the public offering date set forth on the final prospectus used to sell the Securities (the "Public Offering Date") pursuant to the Underwriting Agreement, the undersigned will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of Securities or securities convertible into or exchangeable or exercisable for any shares of Securities, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the Securities, whether any such aforementioned transaction is to be settled by delivery of the Securities or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston Corporation. Furthermore, the undersigned hereby agrees that from the date hereof until 180 days after the Public Offering Date, the undersigned waives any and all registration rights or similar rights with respect to any securities of the Company under any agreement or understanding to which the undersigned is a party. Any Securities received upon exercise of options granted to the undersigned [insert for Allegra Capital Partners --, or Securities purchased under the Directed Share Program (as defined in the Underwriting Agreement)] will also be subject to this Agreement. Any Securities acquired by the undersigned in the open market will not be subject to this Agreement. A transfer of Securities to a family member or trust may be made, provided the transferee agrees to be bound in writing by the terms of this Agreement. A-1 In furtherance of the foregoing, the Company and its transfer agent and registrar are hereby authorized to decline to make any transfer of shares of Securities if such transfer would constitute a violation or breach of this Agreement. This Agreement shall be binding on the undersigned and the successors, heirs, personal representatives and assigns of the undersigned. This Agreement shall lapse and become null and void if the Public Offering Date shall not have occurred on or before January __, 2001. Very truly yours, ------------------------------- Name: A-2 EX-27.1 3 0003.txt ART. 5 FDS FOR 2ND QUARTER
5 1,000 6-MOS DEC-31-1999 JUN-30-2000 1,705 0 76,693 4,996 0 86,611 13,050 4,308 97,189 42,141 0 0 12,836 24 25,561 97,189 121,237 121,237 90,047 90,047 (6) 0 734 (2,701) (1,994) (4,695) 0 0 0 (4,695) (0.21) (0.21)
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