Exhibit 10.33
JOINT VENTURE AGREEMENT
between
RHYTHMS NETCONNECTIONS INC. and RHYTHMS LINKS, INC.,
Delaware corporations,
and
OPTEL COMMUNICATIONS CORPORATION,
an Ontario corporation,
to form
RHYTHMS CANADA INC.,
a corporation incorporated under the laws of New Brunswick.
Dated January 1, 2000
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS........................................................ 1
1.1 "Affiliate".............................................. 1
1.2 "Annual Budgets"......................................... 2
1.3 "Ancillary Agreements"................................... 2
1.4 "Articles of Incorporation".............................. 2
1.5 "Board".................................................. 2
1.6 "Bona Fide Offer"........................................ 2
1.7 "Business Day"........................................... 2
1.8 "Business Deadlock"...................................... 2
1.9 "Business Plan".......................................... 2
1.10 "Bylaws"................................................. 2
1.11 "Canadian Carrier Telecommunications Assets"............. 2
1.12 "Canadian Communications Market"......................... 2
1.13 "Capital Budget"......................................... 2
1.14 "Capital Call"........................................... 2
1.15 "Chairperson"............................................ 3
1.16 "Change Order Proposal".................................. 3
1.17 "Confidential Information"............................... 3
1.18 "CRTC"................................................... 3
1.19 "Customer Requirement Modification Notice"............... 3
1.20 "Customer Requirement Notice"............................ 3
1.21 "Customer Premises Equipment"............................ 3
1.22 "Data Network Equipment"................................. 3
1.23 "Data Products".......................................... 4
1.24 "Data Products and Services Support Center".............. 4
1.25 "Data Services".......................................... 4
1.26 "Direct Cost"............................................ 4
1.27 "Director"............................................... 4
1.28 "Disclosing Party"....................................... 4
1.29 "Dollars" and "$"........................................ 4
1.30 "DSL".................................................... 4
1.31 "Effective Date"......................................... 4
1.32 "Event of Withdrawal".................................... 4
1.33 "Fair Market Value"...................................... 5
1.34 "Human Resources Plan"................................... 5
1.35 "Independent Appraiser".................................. 5
1.36 "Independent Businesses"................................. 5
1.37 "ILEC"................................................... 5
1.38 "ISP".................................................... 5
1.39 "JVCO"................................................... 5
1.40 "JVCO Auditor"........................................... 5
1.41 "JVCO Business".......................................... 5
1.42 "JVCO Communications Markets"............................ 5
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TABLE OF CONTENTS (Continued)
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1.43 "JVCO Customers"............................... 6
1.44 "JVCO Dedicated Assets"........................ 6
1.45 "Majority Decision"............................ 6
1.46 "Network Operations Support Center"............ 6
1.47 "OCI".......................................... 6
1.48 "Operating Budget"............................. 6
1.49 "Operating Plan"............................... 6
1.50 "OPTEL"........................................ 6
1.51 "Optel Pre-Existing Customers"................. 6
1.52 "Optel Combined Service Customers"............. 6
1.53 "Optel Customer Base".......................... 6
1.54 "Optel Outsourced Services".................... 6
1.55 "Outsourced Services".......................... 6
1.56 "Outsourcing Proposal"......................... 6
1.57 "Party" and "Parties".......................... 6
1.58 "Percentage Shares"............................ 7
1.59 "Person"....................................... 7
1.60 "Prime Rate"................................... 7
1.61 "Quarterly Outlook"............................ 7
1.62 "Receiving Party".............................. 7
1.63 "Regulatory Requirements"...................... 7
1.64 "RHYTHMS"...................................... 7
1.65 "Rhythms Outsourced Services".................. 7
1.66 "Seconded Employees"........................... 7
1.67 "Share"........................................ 7
1.68 "Shared Assets"................................ 7
1.69 "Small and Medium Business Customers".......... 7
1.70 "Subscription Agreement"....................... 7
1.71 "Telecommunications Provider".................. 7
1.72 "Telecommunications Services".................. 8
1.73 "Third Party".................................. 8
1.74 "Unanimous Decision"........................... 8
1.75 "Underlying Network Facilities"................ 8
1.76 "Voice Services"............................... 8
ARTICLE II CORPORATE ORGANIZATION....................................... 8
2.1 Formation...................................... 8
2.2 Name........................................... 8
2.3 Place of Business.............................. 8
2.4 Conduct of JVCO Business....................... 8
2.5 Independent Organization....................... 9
2.6 Duration of Corporation........................ 9
2.7 Title to JVCO Property......................... 9
2.8 Partition..................................... 10
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TABLE OF CONTENTS (Continued)
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2.9 Fiscal Year............................................. 10
ARTICLE III CAPITAL STRUCTURE AND FINANCING.................................. 10
3.1 Capital Structure....................................... 10
3.2 Capital Contributions................................... 10
3.3 Dividend Policy......................................... 12
3.4 Redemption of Series A Preferred Shares................. 12
ARTICLE IV MANAGEMENT........................................................ 12
4.1 Board of Directors...................................... 12
4.2 Officers................................................ 14
4.3 Authority of the Board and Officers..................... 14
4.4 Provisions for Dealing with Board Deadlock.............. 18
4.5 JVCO Plans and Budgets.................................. 18
4.6 Accounting and Internal Controls........................ 19
4.7 Access to Books and Records............................. 20
ARTICLE V CONTRIBUTED RESOURCES.............................................. 20
5.1 Seconded Employees...................................... 20
5.2 Outsourced Services..................................... 21
5.3 Optel Leased Assets..................................... 23
5.4 Trademark Licenses...................................... 24
5.5 Technology Licenses..................................... 24
5.6 Non-Competition; Other Businesses....................... 24
5.7 Non-Solicitation of Employees........................... 27
5.8 Transition of Business.................................. 27
ARTICLE VI CONFIDENTIAL INFORMATION.......................................... 28
6.1 Treatment of Confidential Information................... 28
6.2 Copying Confidential Information........................ 29
6.3 Time Period............................................. 29
6.4 Remedies................................................ 29
6.5 Confidential Information of JVCO........................ 29
ARTICLE VII SHARE TRANSFER RESTRICTIONS...................................... 29
7.1 Transfer Restrictions................................... 29
7.2 Buy-Sell Option......................................... 32
7.3 Additional Parties...................................... 32
7.4 Event of Withdrawal..................................... 33
ARTICLE VIII REPRESENTATIONS AND WARRANTIES.................................. 33
8.1 Mutual Representations and Warranties................... 33
8.2 Additional Representations, Warranties and Covenants.... 34
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TABLE OF CONTENTS (Continued)
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ARTICLE IX TERMINATION....................................................... 35
9.1 General.............................................. 35
9.2 Termination by a Party for Cause..................... 35
9.3 Liquidation; Survival................................ 36
ARTICLE X MISCELLANEOUS PROVISIONS........................................... 36
10.1 Publicity............................................ 36
10.2 Assignment........................................... 36
10.3 Governing Law........................................ 36
10.4 Force Majeure........................................ 36
10.5 Waiver............................................... 37
10.6 Notice, Consents, Etc................................ 37
10.7 Entire Agreement..................................... 38
10.8 Headings............................................. 38
10.9 Severability......................................... 38
10.10 Dispute Resolution................................... 38
10.11 Counterparts......................................... 39
10.12 Expenses............................................. 39
10.13 Applicable Laws and Regulations...................... 39
10.14 Indemnities.......................................... 39
10.15 Ancillary Agreements................................. 39
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TABLE OF CONTENTS (Continued)
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SCHEDULE 1.25 DATA SERVICES................................................. 42
SCHEDULE 1.3 ANCILLARY AGREEMENTS........................................... 44
SCHEDULE 1.42 COMMUNICATIONS MARKETS........................................ 45
SCHEDULE 1.43 PRELIMINARY CUSTOMERS......................................... 46
SCHEDULE 4.1(a) INITIAL BOARD OF DIRECTORS.................................. 47
SCHEDULE 4.5(a) INITIAL BUSINESS PLAN AND SUPPORTING FINANCIAL INFORMATION.. 48
SCHEDULE 5.1(a) PRELIMINARY HUMAN RESOURCES PLAN............................ 49
SCHEDULE 5.3(a) OPTEL LEASED ASSETS......................................... 50
EXHIBIT A FORM OF ARTICLES OF INCORPORATION................................. 1
EXHIBIT B FORM OF BYLAWS.................................................... 1
EXHIBIT C FORMS OF EMPLOYEE PROPRIETARY INFORMATION AND
INVENTIONS AGREEMENTS.......................................... 1
EXHIBIT D FORM OF TRADEMARK LICENSING AGREEMENT............................. 1
EXHIBIT E FORM OF TECHNOLOGY LICENSE AGREEMENTS............................. 1
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JOINT VENTURE AGREEMENT
-----------------------
This Joint Venture Agreement ("Agreement") is entered into as of January 1,
2000 (the "Effective Date"), between Rhythms NetConnections Inc. and Rhythms
Links, Inc., corporations formed under and governed by the laws of the State of
Delaware and having their principal place of business at 0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxx, Xxxxxxxx 00000-0000 (collectively, with their Affiliates (as
defined below), "RHYTHMS"), and Optel Communications Corporation, a corporation
incorporated under the laws of the Province of Ontario and having its principal
place of business at 000 Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxx X0X 0X0 (collectively,
with its Affiliates, "OPTEL").
RECITALS
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WHEREAS, OPTEL, a wholly-owned subsidiary of OCI Communications Inc.
("OCI"), is engaged in the business of providing telecommunications services in
selected markets of Canada as a Competitive Local Exchange Carrier ("CLEC"); and
WHEREAS, RHYTHMS is engaged in the business of providing data
communications products and services within the United States of America
("U.S.") and, in the course of such efforts, has developed significant technical
and marketing expertise related to the same; and
WHEREAS, RHYTHMS and OPTEL desire to establish a joint venture through the
formation of a corporation in Canada ("JVCO") in order to create a national
presence in Canada for the purpose of marketing and providing data
communications products and services to select customers within selected local
markets in Canada; and
WHEREAS, RHYTHMS and OPTEL will make substantially equal contributions to
the initial capital investment in JVCO as reflected by OPTEL's initial
US$10,000,000 funding of JVCO in exchange for RHYTHMS investment of US$5,300,000
in equity securities of OCI.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement and other good and valuable consideration, receipt
and sufficiency of which are acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following capitalized terms, whether used in
the singular or the plural, will have the following meanings:
1.1 "Affiliate" means with respect to a specified entity, an entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the entity specified, except for
JVCO. For purposes of this Section 1.1, "control" means the possession, direct
or indirect, of the power to direct or cause the direction of the management and
policies of an entity, whether through the ownership of voting securities, by
contract, or otherwise.
1.2 "Annual Budgets" means the budgets described in Section 4.5(b)(i) of
this Agreement.
1.3 "Ancillary Agreements" means the agreements described in Schedule 1.3
to this Agreement.
1.4 "Articles of Incorporation" means the articles of incorporation for
JVCO to be filed in accordance with the laws of the Province of New Brunswick in
substantially the form attached hereto as Exhibit A.
1.5 "Board" means the Board of Directors of JVCO described in Section 4.1
of this Agreement.
1.6 "Bona Fide Offer" means a written offer from a Third Party, with the
required financial means, to purchase all or any portion of a Party's interest
in JVCO from such Party wishing to sell on the same terms and conditions
contained in such offer.
1.7 "Business Day" means any day except a Saturday, Sunday, statutory
holiday in Xxxxxxx, Xxxxxxx, or any day on which banks in the United States are
not open for regular business.
1.8 "Business Deadlock" means (a) the inability of the Board to obtain the
unanimous consent of all Board members for any Unanimous Decision or (b) the
inability to obtain the majority consent of the Board for any other decision,
for a period of at least sixty (60) days from the time the decision at issue was
initially presented to the Board for action.
1.9 "Business Plan" means the business plan of JVCO, as amended and in
effect from time to time, described in Section 4.5(a) of this Agreement. The
Parties have agreed on the initial Business Plan, which is set forth as Schedule
4.5(a) to this Agreement.
1.10 "Bylaws" means the bylaws of JVCO as amended from time to time in
substantially the form attached hereto as Exhibit B.
1.11 "Canadian Carrier Telecommunications Assets" means those assets and
facilities that can only be owned and operated by a telecommunications common
carrier in accordance with the Canadian Telecommunications Act and the Canadian
Telecommunications Common Carrier Ownership and Control Regulations.
1.12 "Canadian Communications Market" means the market for communications
goods and services within the geographic area of the country of Canada.
1.13 "Capital Budget" means the annual capital expenditures budget
described in Section 4.5 of this Agreement.
1.14 "Capital Call" means the installment payment by a Party of additional
capital contributions described in Section 3.2(d) of this Agreement.
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1.15 "Chairperson" means chairperson of the Board described in Section
4.1(e) of this Agreement.
1.16 "Change Order Proposal" means the proposal described in Section
5.2(d) of this Agreement.
1.17 "Confidential Information" means any and all technical and business
information of JVCO, a Party or an Affiliate of a Party (the "Disclosing
Party"), that is (a) material, competitively sensitive, and not generally known
in the industry or the public, including but not limited to trade secrets and
proprietary information, in whatever form or medium (including, but not limited
to product/service specifications, prototypes, computer programs, methods of
equipment interconnection, drawings, models, marketing plans, financial data),
and (b) obtained by any other Person including JVCO, a Party or an Affiliate of
a Party (the "Receiving Party"): (i) through the working arrangement between the
Disclosing Party and Receiving Party, regardless whether a formal "disclosure"
event occurs; (ii) disclosed in writing and marked or otherwise indicated orally
or in writing as Confidential Information; (iii) disclosed orally and identified
as Confidential Information at the time of disclosure; or (iv) which the
Receiving Party knows or has reason to know is Confidential Information. For the
purposes of this definition, any technical or business information of a Third
Party furnished or disclosed by one Party to another will be deemed Confidential
Information of the Disclosing Party unless otherwise specifically indicated in
writing to the contrary.
Information will not be considered Confidential Information if it is: (i)
in the public domain without breach of this Agreement; (ii) developed
independently, with no effort or thought of circumventing or contravening the
rights of the Party or Person owning the information; (iii) lawfully disclosed,
without breach of a nondisclosure agreement, from a Third Party under no
restriction on disclosure; or (iv) documented as being known to the Receiving
Party, or in the Receiving Party's lawful possession, without burden of
confidentiality, prior to its disclosure hereunder.
1.18 "CRTC" means the Canadian Radio-television and Telecommunications
Commission.
1.19 "Customer Requirement Modification Notice" means the notice to JVCO
of modified customer requirements as described in Section 5.6(b)(ii)of this
Agreement.
1.20 "Customer Requirement Notice" means the notice to JVCO of modified
customer requirements as described in Section 5.6(b)(i)of this Agreement.
1.21 "Customer Premises Equipment" means equipment employed on the
premises of a Person (other than a carrier) to originate, route, or terminate
telecommunications.
1.22 "Data Network Equipment" means data networking equipment, including
(without limitation), OSI layer 2 switches and layer 3 routers and Digital
Subscriber Line Access Multiplexers (DSLAM) that are utilized in connection with
Underlying Network Facilities for the purposes of providing Data Services.
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1.23 "Data Products" means the Customer Premises Equipment which is
necessary for JVCO Customers to access Data Services.
1.24 "Data Products and Services Support Center" means the centralized
support center that will manage JVCO's Data Network Equipment and Underlying
Network Facilities by providing services such as monitoring, reconfiguring, and
troubleshooting, as well as providing customer support services to JVCO
Customers.
1.25 "Data Services" means those services that are expressly defined on
Schedule 1.25 of this Agreement or that may be added to the Schedule 1.25 from
time to time upon the Unanimous Decision of the Board; except that Data Services
shall not include Voice Services.
1.26 "Direct Cost" means:
(a) with regard to any services to be performed, the actual salaries
of the individuals for the time expended in performing such services plus all
attendant benefit expenses for each such individual;
(b) with regard to third-party provided products and services, the
actual invoiced amount plus any applicable taxes; and
(c) with regard to any regulated functions to be performed by the
Parties or their Affiliates, the fully distributed cost. Direct Cost will also
include an allocation of shared and other costs, including overhead costs, which
increase directly in proportion to the activity.
1.27 "Director" means a member of the Board as described in Section 4.1(a)
of this Agreement.
1.28 "Disclosing Party" means the Person disclosing Confidential
Information as described in Section 1.17 of this Agreement.
1.29 "Dollars" and "$" mean dollars in currency of the United States of
America unless otherwise specifically indicated.
1.30 "DSL" means digital subscriber line and related technology as
described in Schedule 1.25 to this Agreement.
1.31 "Effective Date" means the date set forth in the preamble to this
Agreement.
1.32 "Event of Withdrawal" means the occurrence of any of the following:
(a) the dissolution or the revocation of a Party's charter or
certificate of incorporation; provided, however, that the merger of a Party with
an Affiliate will not be considered an Event of Withdrawal for the purposes of
this Agreement;
(b) the dissolution and commencement of winding up a Party;
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(c) the entry of a final order by a court of competent jurisdiction
adjudicating any Party to be incapable of performing such Party's obligations
under this Agreement (in which case the effective date of withdrawal will be the
date such decree is entered);
(d) the filing by a Party of any petition in bankruptcy or for
reorganization, management, composition, re-adjustment, liquidation or similar
relief under any statute, law or regulation governing the rights and relief of
debtors; or the adjudication of a Party as bankrupt or insolvent; or the
application by a Party for or such Party's consent to or acquiescence in the
appointment of a trustee, receiver or liquidator for all or any substantial part
of such Party's assets; or the making by a Party of an assignment for the
benefit of creditors; or any substantially similar action on the part of a
Party.
1.33 "Fair Market Value" means the fair market value assigned to the
object or interests being valued as will be conclusively determined by the
Independent Appraiser. For the sole purpose of determining the Fair Market
Value, the Independent Appraiser shall be given access and may review all books
and records of, and information available for, JVCO.
1.34 "Human Resources Plan" means the human resources plan of JVCO, as
amended and in effect from time to time, described in Section 5.1(a) of this
Agreement. The Parties have agreed on the initial Human Resources Plan, which is
set forth as Schedule 5.1(a) to this Agreement.
1.35 "Independent Appraiser" means the appraisal firm which is selected by
a Unanimous Decision of the Board.
1.36 "Independent Businesses" means the separate businesses of the Parties
as described in Section 5.6(h)(ii) of this Agreement.
1.37 "ILEC" means an Incumbent Local Exchange Carrier in Canada.
1.38 "ISP" means Internet Service Provider, an entity that provides direct
access to the Internet.
1.39 "JVCO" means the corporation referenced in the recitals of this
Agreement (and any successor entity to JVCO in the form of a corporation during
the term of this Agreement).
1.40 "JVCO Auditor" means the outside accountants of JVCO described in
Section 4.3(e)(ix) of this Agreement.
1.41 "JVCO Business" means the development, marketing and sale of the Data
Products and Data Services, either directly or through subsidiaries or
Affiliates or Third Parties to JVCO Customers in accordance with the Business
Plan.
1.42 "JVCO Communications Markets" means the markets in which JVCO
provides communications goods and services as described in Schedule 1.42 to this
Agreement.
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1.43 "JVCO Customers" means the wholesale customers, large business
customers (excluding Small and Medium Business Customers) and residential
customers (if and when approved by the Board) in the JVCO Communications Markets
as set forth on Schedule 1.43.
1.44 "JVCO Dedicated Assets" means those assets loaned or leased to JVCO
by a Party that are utilized as a necessary part of the JVCO Business, but
excluding Shared Assets.
1.45 "Majority Decision" means a decision of the Board as described in
Section 4.3(e) of this Agreement.
1.46 "Network Operations Support Center" means the centralized support
center which will manage the Underlying Network Facilities which are used by
JVCO in connection with its Data Services by providing services such as
monitoring, reconfiguring, and troubleshooting.
1.47 "OCI" means the corporation described in the recitals to this
Agreement.
1.48 "Operating Budget" means the annual operating budget described in
Section 4.5 of this Agreement.
1.49 "Operating Plan" means the plan for implementing the Business Plan as
described in Section 4.5 of this Agreement.
1.50 "OPTEL" means the corporation described in the preamble to this
Agreement.
1.51 "Optel Pre-Existing Customers" means the customers of OPTEL prior to
the Effective Date as set forth on Schedule 1.43.
1.52 "Optel Combined Service Customers" means the prospective customers of
OPTEL for the provision of combined voice and data services as set forth on
Schedule 1.43.
1.53 "Optel Customer Base" means the group or groups of customers
comprised of Small and Medium Business Customers, Optel Pre-Existing Customers
and Optel Combined Service Customers.
1.54 "Optel Outsourced Services" means services provided to JVCO by OPTEL
as described in Section 5.2(b) of this Agreement.
1.55 "Outsourced Services" means services provided to JVCO by the Parties
as described in Section 5.2 of this Agreement.
1.56 "Outsourcing Proposal" means the proposal described in Section 5.2(d)
of this Agreement.
1.57 "Party" and "Parties" mean RHYTHMS and OPTEL and each permitted
successor and assign of such Party which executes a written agreement to be
bound by the terms of this Agreement.
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1.58 "Percentage Shares" means, as to each Party, the percentage ownership
of issued and outstanding Class A Voting Shares of JVCO.
1.59 "Person" means any natural person, estate, trust, corporation,
company, limited liability company, limited company, or other entity, legal or
otherwise, recognized at law.
1.60 "Prime Rate" means the prime rate of interest as published in the
Wall Street Journal under the heading "Money Rates" (if there is more than one,
then the highest) three editions prior to the date on which the event that gave
rise under this Agreement to the need to refer to such Prime Rate.
1.61 "Quarterly Outlook" means the quarterly forecast described in Section
4.5(b)(ii) of this Agreement.
1.62 "Receiving Party" means the Person receiving Confidential Information
as described in Section 1.17 of this Agreement.
1.63 "Regulatory Requirements" means all applicable laws, orders, rules,
and regulations of any regulatory agency, including, without limitation,
individual state and provincial regulatory commissions and the CRTC, which
relate to JVCO Customers.
1.64 "RHYTHMS" means, collectively, the corporations described in the
preamble to this Agreement.
1.65 "Rhythms Outsourced Services" means services provided to JVCO by
RHYTHMS as described in Section 5.2(b) of this Agreement.
1.66 "Seconded Employees" means employees of the Parties described in
Section 5.1 of this Agreement.
1.67 "Share" means any share or unit representing an equity interest of
JVCO under the Articles of Incorporation, regardless of label or designation.
1.68 "Shared Assets" means those assets loaned or leased to JVCO by a
Party that are also utilized as a necessary part of such Party's business to
provide data and telecommunications products and services to non-JVCO Customers.
1.69 "Small and Medium Business Customers" means small and medium-sized
business entities in the JVCO Communications Markets as set forth on Schedule
1.43.
1.70 "Subscription Agreement" means that certain Subscription and Purchase
Agreement between RHYTHMS and OCI Communications Inc. dated October 26, 1999.
1.71 "Telecommunications Provider" means an entity which leases, owns
and/or operates Underlying Network Facilities within a Canadian Communications
Market other than OPTEL.
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1.72 "Telecommunications Services" means the transmission of
communications between and among various geographic locations.
1.73 "Third Party" means any entity which is not a Party or an Affiliate
of a Party to this Agreement.
1.74 "Unanimous Decision" means a decision of the Board as described in
Section 4.3(d) of this Agreement.
1.75 "Underlying Network Facilities" means transmission equipment and
associated electronics that are used to facilitate Telecommunications Services
that are provided by broadband network, including, without limitation, unbundled
local loop, wire, cable, fiber optics, private lines, DSOs, DS1s, and DS3s.
1.76 "Voice Services" means those services that provide the transmission
of voice data over DSL.
ARTICLE II
CORPORATE ORGANIZATION
----------------------
2.1 Formation. On or before the Effective Date, the Parties shall cause
JVCO to be incorporated as a corporation pursuant to the laws of the Province of
New Brunswick. The initial Articles of Incorporation and Bylaws of JVCO shall be
in substantially the form attached hereto as Exhibit A and Exhibit B,
respectively.
2.2 Name. The name of JVCO shall be "Rhythms Canada Inc." or such other
name as the Board may from time to time determine. The Board will cause to be
filed on behalf of JVCO such business name registrations as may from time to
time be required by law.
2.3 Place of Business. The principal place of business of JVCO will be 000
Xxxxx Xxxxxx, Xxxxxxx, Xxxxxxx X0X 0X0. The Board may, at any time and from time
to time, change the location of JVCO's principal place of business and establish
such additional place or places of business of JVCO.
2.4 Conduct of JVCO Business.
(a) The Parties shall organize JVCO for the purpose of developing and
providing, alone or in combination with others, directly or indirectly, Data
Products and Data Services that utilize DSL to JVCO Customers located in the
JVCO Communications Markets.
(b) Each Party shall vote its Shares and shall take all other actions
reasonably necessary to ensure that the Articles of Incorporation and Bylaws do
not at any time conflict with the provisions of this Agreement. In the event of
a conflict between this Agreement and the Articles of Incorporation and Bylaws,
the terms of this Agreement shall prevail.
(c) In order to accomplish and give effect to this Agreement, each
Party covenants and agrees to vote, or cause to be voted, the Shares owned by it
in accordance with the
8
provisions and intent of this Agreement. Each Party also covenants and agrees
that it will at all times vote and act and take all such steps as may be
reasonably within its power and use reasonable commercial efforts to cause JVCO
to act in accordance with the provisions and intent of this Agreement.
(d) The operations of JVCO shall be in compliance with all laws
applicable thereto and be conducted to avoid the application of any penalty,
sanction or loss to JVCO. The Parties will respectively use reasonable efforts
to channel to JVCO appropriate business opportunities in the JVCO Communications
Markets of which the Parties become aware, and jointly consider ways in which
they can promote, support and market the Data Products and Data Services of
JVCO, provided that nothing in the foregoing shall be construed to limit either
Party in any way from conducting their own Independent Businesses in their sole
discretion.
2.5 Independent Organization.
(a) The Parties agree that JVCO shall be operated by the Board as an
independent legal and economic entity in accordance with this Agreement and
applicable law. JVCO shall be solely and independently responsible for the Data
Products and Data Services, including without limitation (a) the adoption of
policies regarding pricing, marketing, sales and promotions, and operations and
(b) the planning and strategic direction of the Data Products and Data Services.
The Board, Parties and management of JVCO, in their respective capacities as
directors, officers or employees of JVCO, shall at all times act in the best
interests of JVCO. Except as set forth herein, neither Party shall be obligated
to act in a manner that would be detrimental to their Independent Businesses.
(b) The Parties agree to provide sufficient personnel and outsourced
services to JVCO in accordance with Sections 5.1 and 5.2 of this Agreement and
the Business Plan in effect from time to time.
(c) Each Party hereby assures the other, and further agrees to be
responsible for ensuring, that any management or other personnel nominated,
appointed or otherwise supplied by it, in their respective capacities as
directors, officers or employees of JVCO, shall abide by the terms of this
Agreement and act impartially and in the best interests of JVCO. Nothing herein
shall be interpreted as precluding or lessening the obligations and duties that
directors, officers and employees may have to the Parties or that a Party shall
have to its shareholders.
2.6 Duration of Corporation. The term of this Agreement will commence on
the Effective Date and, unless otherwise extended by the mutual agreement of the
Parties, will continue until dissolution and termination of JVCO as provided in
Article IX below.
2.7 Title to JVCO Property. All property owned by JVCO, whether real or
personal, tangible or intangible, will be deemed to be owned by JVCO as an
entity, and no Party, individually, will have direct ownership of such property.
JVCO may hold any of its assets in its own name or in the name of its nominee,
which nominee may be one or more individuals, corporations, trusts or other
entities.
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2.8 Partition. No Party, nor any successor-in-interest to any Party, will
have the right while this Agreement remains in effect to have the property of
JVCO partitioned, or to file a complaint or institute any proceeding at law or
in equity to have the property of JVCO partitioned, and each Party, on behalf of
itself, its successors and assigns, waives any such right. It is the intention
of the Parties that during the term of this Agreement, the rights of the Parties
and their successors-in-interest, as among themselves, will be governed by the
terms of this Agreement, and that the right of any Party or its successors-in-
interest to assign, transfer, sell or otherwise dispose of its interest in
JVCO's properties will be subject to the limitations and restrictions of this
Agreement.
2.9 Fiscal Year. The fiscal year of JVCO will end on the last day of
December of each calendar year.
ARTICLE III
CAPITAL STRUCTURE AND FINANCING
-------------------------------
3.1 Capital Structure. The capital structure of JVCO shall be composed of:
(a) common shares (the "Common Shares") which shall be divided into
two classes: (i) an unlimited number of Class A Voting Shares, of which one
hundred thousand (100,000) shares shall be issued to RHYTHMS and one hundred
thousand (100,000) shares shall be issued to OPTEL pursuant to Section 3.2(a) of
this Agreement; and (ii) an unlimited number of Class B Non-Voting Shares which
shall be reserved for issuance in the form of options or shares, as determined
by the Board, to employees and consultants of JVCO pursuant to incentive
agreements and on such terms as approved in accordance with this Agreement; and
(b) an unlimited number of preferred shares issuable in series, of
which ten million (10,000,000) shares of Series A Preferred Shares with a
redemption amount of US$1.00 per share shall be issued to OPTEL pursuant to
Section 3.2(b) of this Agreement. The Series A Preferred Shares shall have no
voting or conversion rights, but shall earn dividends at a rate of six percent
(6%) per annum payable only upon redemption in accordance with Section 3.4. The
rights and obligations of the Common Shares and Preferred Shares shall be
substantially as set forth in the Articles of Incorporation attached hereto as
Exhibit A.
3.2 Capital Contributions.
(a) Initial Capital Contributions in Exchange for Class A Voting
Shares. On or before the Effective Date, each Party shall subscribe for and
purchase one hundred thousand (100,000) Class A Voting Shares at an issue price
of US$0.001 per share.
(b) Initial Capital Contributions in Exchange for Series A Preferred
Shares. On or before the Effective Date, OPTEL shall subscribe for and purchase
one million (1,000,000) shares of Series A Preferred Shares at an issue price of
US$1.00 per share. No later than fifteen (15) Business Days following approval
of the initial Business Plan by the Board, OPTEL shall subscribe for and
purchase the remaining nine million (9,000,000) shares of Series A Preferred
Shares at an issue price of US$1.00 per share.
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(c) Third-Party Financing. Notwithstanding the power of the Board to
obtain additional capital contributions from the Parties pursuant to Section
3.2(d), the Parties intend that JVCO shall be self-financed with (i) debt
financing from Third Parties, without such financing involving any recourse to
the Parties as shareholders of JVCO, and/or (ii) equity financing through
private placements to Third Parties and/or an initial public offering by JVCO.
(d) Installments of Capital Contributions. To the extent that JVCO is
unable to receive sufficient amounts of financing through Third Parties, the
Parties shall be obligated to provide additional capital contributions through
installments as set forth in the Annual Budgets and as approved by the Board
("Capital Calls").
(i) At the beginning of each fiscal quarter, each Party shall
contribute to JVCO such cash amounts as required by the Capital Call identified
in the Quarterly Outlook preceding such fiscal quarter.
(ii) Each Party's obligation to make its share of each installment of
additional capital contributions shall be subject to satisfaction, on or before
the beginning of the fiscal quarter for which such installment would otherwise
be due, of the following conditions:
(A) JVCO shall be validly existing and in good standing under
the laws of New Brunswick, as indicated by a Certificate of Status from the
Province of New Brunswick;
(B) all regulatory and legal requirements applicable to payment
of such installment shall have been met; and
(C) the other Party shall have contributed each installment of
its capital contribution required to have been contributed by it pursuant to
this Section 3.2(d).
(iii) In exchange for additional capital contributions under this
Section 3.2(d), the Parties shall receive additional Class A Voting Shares in
the amount of X/Y, where X is the amount in Canadian dollars of each individual
capital contribution, and where Y is the fair market value per Class A Voting
Share in Canadian dollars at the time of the contribution as determined in good
faith by the Board of Directors.
(iv) Either Party may notify the other Party within ten (10) Business
Days of receiving notice of a required capital contribution approved by the
Board (an "Installment Notice") of such Party's intention not to pay the
required installment by the date such installment would otherwise be due (a
"Non-Payment Notice"). The Party providing the Non-Payment Notice shall have a
ninety (90) day cure period from the date of the Installment Notice in which to
pay the required installment. If a Party either (i) fails to provide a Non-
Payment Notice and fails to pay the required installment or (ii) provides a Non-
Payment Notice and fails to pay the required installment within ninety (90) days
of the Installment Notice, then such Party shall be deemed in default of its
capital contribution installment requirement (the "Defaulting Party"). If the
other Party has paid its required installment (the "Paying Party"), such Paying
Party shall have the option of also paying the Defaulting Party's installment
whereupon the total number of additional shares of Class A Voting Shares
provided pursuant to Section 3.2(d)(iii) shall be issued to the Paying Party.
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(e) No Further Funding Obligations. Except as provided in this
Section 3.2, neither Party will be obligated to make contributions to the
capital of JVCO, lend any funds, or otherwise advance or contribute any
additional funds to JVCO.
(f) Limitation on Repayment of Capital Contributions. Except for
dividends on Series A Preferred Shares, no interest or dividends will accrue on
any contributions to the capital of JVCO, and no Party will have the right to
withdraw or to be repaid any capital contributed by it or to receive any other
payment in respect of its interest in JVCO, including without limitation as a
result of its withdrawal from JVCO, except as specifically provided in this
Agreement.
3.3 Dividend Policy. The Parties acknowledge and agree that the Business
Plan contemplates the use of retained earnings to fund the growth of the JVCO
Business. JVCO shall have the right, but not the obligation, to pay dividends to
the Parties hereunder subject to approval by the Board.
3.4 Redemption of Series A Preferred Shares. OPTEL shall have the right to
redeem all or any portion of its Series A Preferred Shares, payable by JVCO in
cash based on the initial purchase price per share plus any accumulated
dividends for any shares redeemed, upon the occurrence of any of the following
events:
(a) the sale by RHYTHMS of any equity holdings of OCI (in which event
the Series A Preferred Shares may be redeemed on a pro rata basis with the
percentage sale of OCI equity holdings sold);
(b) the receipt by JVCO of at least twenty-five million U.S. dollars
(US$25,000,000) through an arm's length financing transaction with a Third
Party;
(c) the confirmation by the JVCO Auditor of JVCO achieving positive
EBITDA; or
(d) the third anniversary date of the Effective Date and/or any
subsequent anniversary date thereafter.
ARTICLE IV
MANAGEMENT
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4.1 Board of Directors.
(a) Except as otherwise expressly provided in this Agreement, the
Parties hereby delegate to the Board of Directors of JVCO all power and
authority to manage the business and affairs of JVCO.
(b) JVCO shall be governed by a board of directors (the "Board")
comprised of four directors (the "Directors") with each Party entitled to
nominate two (2) Directors. The initial nominees are set forth on Schedule
4.1(a) to this Agreement. The Parties agree to elect the
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foregoing nominees at any shareholder meeting (or any proposed action by written
consent) for the purpose of electing Directors to the Board.
(c) If the Percentage Shares of the Parties are no longer equal, the
composition and size of the Board will change as follows:
(i) In the event that a Party's Percentage Share equals or
exceeds sixty percent (60%), such Party shall be entitled to nominate one (1)
additional Director for a total of three (3) Directors on the Board representing
such Party. The Parties agree to (i) approve any action necessary to increase to
five (5) the authorized number of Directors on the Board, and (ii) elect the
foregoing additional nominee at any shareholder meeting (or any proposed action
by written consent) for the purpose of electing Directors to the Board.
(ii) In the event that a Party's Percentage Share equals eighty
percent (80%), such Party shall be entitled to nominate two (2) additional
Directors for a total of four (4) Directors on the Board representing such
Party. Accordingly, the other Party with a Percentage Share equal to or below
twenty percent (20%) will only be entitled to nominate a total of one (1)
Director on the Board representing the other Party.
(iii) In the event that a Party's Percentage Share exceeds eighty
percent (80%), such Party shall be entitled to nominate all Directors and the
other Party with a Percentage Share below twenty percent (20%) will no longer be
entitled to nominate any Director on the Board representing the other Party.
(iv) If a Party's Percentage Share is greater than or equal to
sixty percent (60%) but less than or equal to eighty percent (80%), such Party
shall be entitled to representation on the Board in proportion to such Party's
Percentage Share. In order to effectuate such proportionate representation, the
Parties agree to (A) approve any action necessary to increase the authorized
number of Directors on the Board (B) elect the requisite number of nominees in
the manner described herein in order to adjust the Board composition to reflect
the Parties' Percentage Shares.
(d) Subject to the nomination provisions of Sections 4.1(b) and
4.1(c), if a Director dies, resigns, or becomes incapacitated, the Party that
nominated such Director will designate a replacement to serve until the election
of a new Director can be held.
(e) The Chairperson of the Board will serve for a term of one (1)
calendar year and will be designated by RHYTHMS for terms in even numbered years
and by OPTEL for terms in odd years. If a Party's Percentage Share falls below
forty percent (40%), such Party shall lose the right to designate the
Chairperson and the other Party holding a Percentage Share above sixty percent
(60%) will be entitled to designate the Chairperson. The initial Chairperson,
whose term will end December 31, 2000, will be Xxxxx Xxxxxxxx.
(f) The Board will meet once each quarter (unless different intervals
are designated in writing by the Board). Meetings may also be called for any
purpose by the Chairperson forthwith upon receipt of a written request from a
Director or the President. Board meetings may be held by telephone. Written
notice of the time, place and purpose of any meeting of the Board will be given
by the Chairperson to each Director at least ten (10) Business
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Days prior to such meeting unless a shorter period of written notice is agreed
in writing to by all Directors. Each Director will be informed in writing not
less than five (5) Business Days in advance of any meeting of the agenda or
matters to be presented to the meeting; provided, however, that in the case of
emergency matters regarding JVCO or its business, the Chairperson and the
President may call a meeting of the Board by sending a written notice containing
the reason for such meeting to each Director at least forty eight (48) hours
prior to such meeting. Any matter, whether or not on the agenda may be raised at
any meeting at which all four (4) Directors are present, provided that if any
Director objects to discussion of a matter not on the agenda, that matter will
not be discussed until the next meeting with respect to which such matter
appears on the agenda. Minutes of the Board meetings will be recorded. These
minutes will be circulated to each Director for approval as soon as practicable
following the relevant Board meeting. Upon adoption, the minutes will be signed
in counterparts by each member and filed at JVCO's principal office.
4.2 Officers.
(a) Directions from the Board will be executed through the President.
The President will be responsible for the management of the day-to-day
operations of JVCO in accordance with the Business Plan and Operating Plan and
will have such other powers and duties as may be assigned by the Board from time
to time. The President's salary, benefits, and expenses will be funded by JVCO.
The President will report directly to the Board and will be an ex officio member
of the Board without voting privileges. Without limiting the foregoing, the
President will have the duty and power to:
(i) retain, hire, and terminate all permanent and temporary
employees of JVCO;
(ii) supervise and review the performance of all employees of
JVCO and to direct their efforts in accordance with this Agreement, the Business
Plan and Operating Plan, and any other direction from the Board;
(iii) oversee and implement the preparation of the Business Plan
and Operating Plan, and participate in the preparation of the Annual Budgets,
Quarterly Outlooks and related financial reports; and
(iv) approve any payment or other disbursement of funds on
behalf of JVCO in amounts up to US$10,000 as well as such larger amounts up to
US$250,000 for specific expenditures contained in the current Annual Budgets as
approved by the Board.
(b) The President may be terminated or removed from performing any
and all duties for JVCO, including, without limitation, managing the day-to-day
operations of the same, upon the affirmative vote of any two Directors of the
Board.
4.3 Authority of the Board and Officers.
(a) JVCO's business and affairs will be managed by or under the
direction of the Board in accordance with the Business Plan, Operating Plan and
Annual Budgets.
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(b) Except as otherwise provided in this Agreement, any action to be
taken by the Board will require a majority vote of the total number of
Directors. Each Director shall be entitled to one (1) vote on each issue before
the Board. A majority of the total number of Directors will constitute a quorum
of the Board, provided, however, that at least one Director representing each of
the Parties must be present for a quorum to exist. No action may be taken by the
Board unless a quorum is present, provided, however, in no event will any
Unanimous Decision be adopted by the Board if less than all of the Directors are
in attendance or consent in writing to such Unanimous Decision. No individual
Party will have the authority to act for, or to assume any obligation or
responsibility on behalf of the other Party or JVCO unless, and then only to the
extent, authorized to do so by the Board in writing or by further written
agreement between the Parties.
(c) So long as each Party has a Percentage Share of at least forty
percent (40%), all Unanimous Decisions and Majority Decisions by or on behalf of
JVCO will be made by the Board acting by the unanimous consent of all Directors.
In the event that a Party's Percentage Share exceeds sixty percent (60%), all
Majority Decisions will be made by the Board acting by the simple majority
consent of Directors. In the event that a Party's Percentage Share exceeds
eighty percent (80%), all Unanimous Decisions and Majority Decisions will be
made by the Board acting by the simple majority consent of Directors.
(d) As used in this Agreement, and subject to Section 4.3(c), the
term "Unanimous Decisions" will include:
(i) approval of the addition of a new Person as a Party to
this Agreement and determination of the terms and conditions pursuant to which
such Person will be added whether as a result of (A) a transfer and sale of a
Party's interest in accordance with Section 7.1(d); or (B) a request to admit an
additional Party pursuant to Section 7.3;
(ii) a decision as to whether to effect a dissolution of JVCO;
(iii) amendments to the Articles of Incorporation or Bylaws of
JVCO;
(iv) approval of a change in the capital structure of JVCO;
(v) approval of the payment of dividends or distributions on
the equity securities of JVCO in accordance with the Articles of Incorporation
and as specified in the Articles of Amendment for the Series A Preferred Shares;
(vi) approval of a high-yield debt offering or initial public
offering of JVCO equity securities, including the timing, nature, and investment
bank selection;
(vii) execution or amendment of any material agreement (other
than the execution of this Agreement and the Ancillary Agreements referred to in
Schedule 1.3) between JVCO and any Party (or any of its Affiliates);
(viii) approval of a change of the location of JVCO's principal
place of business;
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(ix) approval of all additional capital contributions whether
or not reflected in the Business Plan and/or Operating Plan;
(x) establishment of reasonable funded reserves to provide
for payment of any JVCO operating expenses, debt payments, and capital
expenditures;
(xi) approval of all material activities of JVCO not in the
ordinary course of business, including, without limitation, (A) the disposition
of all or substantially all of JVCO's assets or other business interests; (B)
any acquisition or divestiture by JVCO of any interest in a business entity and
the merger of JVCO with any other entity; (C) the borrowing of funds or
incurring of other liabilities not in the ordinary course of business by JVCO;
(D) the creation of any mortgage, security interest, lien or other encumbrance
on JVCO property; and (E) the making by JVCO of any loans, granting any credit,
entering into any guaranties or giving any indemnities;
(xii) appointment of the President and any other senior
officers of JVCO;
(xiii) appointment of the Independent Appraiser;
(xiv) determination of the (A) date by which the Fair Market
Value will be determined; and (B) assumptions, if any, to be provided to and
used by the Independent Appraiser;
(xv) determination of the number of additional Class A Voting
Shares received by the Parties in exchange for capital contributions in
accordance with Section 3.2(d)(iii);
(xvi) review and approval of each business case for a proposed
new Data Product and/or Data Service to be offered by JVCO; the business case
will include, without limitation, an assessment by OPTEL of the feasibility of
offering the proposed new Data Products and/or Data Services utilizing the
existing Underlying Network Facilities architecture within each of the JVCO
Communications Markets. Such business cases may be presented to the Board
individually or as part of a proposed Business Plan;
(xvii) approval of the addition and/or removal of a JVCO
Communications Market from Schedule 1.42;
(xviii) approval of the addition of residential customers as JVCO
Customers;
(xix) approval of any individual expenditure in excess of
US$250,000 regardless of its inclusion in any Annual Budget; and
(xx) adjustment of the amount of individual expenditures
subject to approval by Majority Decision in accordance with Section 4.3(e)(i).
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(e) As used in this Agreement, and subject to Section 4.3(c), the
term "Majority Decisions" will include:
(i) approval of any individual expenditure of more than
US$10,000 which is not included in the Annual Budget, provided that the Board
will use its best efforts to incorporate into the Annual Budgets, each
individual expenditure over US$10,000. The Board has the authority by Unanimous
Decision to raise or lower the amounts subject to its approval. In the event the
Board receives information from the President that a revenue assumption or any
other financial assumption contained in a Business Plan, Operating Plan or
Annual Budget will not occur, the Board will have the right to withdraw its
approval of any individual expenditure which was approved in reliance on such
assumption. Notwithstanding the foregoing, the Board must approve by Unanimous
Decision each individual expenditure in excess of US$250,000 regardless of its
inclusion in any Annual Budget;
(ii) approval of all Business Plans, Operating Plans, Annual
Budgets, Quarterly Outlooks, and Human Resources Plans, including any additional
capital contributions reflected therein, as well as any revisions to approved
Business Plans, Operating Plans, Annual Budgets, Quarterly Outlooks, and Human
Resources Plans; provided, however, that with regard to a Party's Outsourcing
Proposal, a price overrun of twenty percent (20%) or less than the price
reflected in such Party's Outsourcing Proposal will not be considered a revision
to the Annual Budget;
(iii) approval of all material contracts of JVCO including those
involving (A) nonstandard terms and conditions and sales revenue to JVCO or
obligations of JVCO in excess of US$100,000; and (B) standard terms and
conditions and sales revenue to JVCO or obligations of JVCO in excess of
US$500,000;
(iv) approval of the adoption or change of any significant tax
and accounting policies or elections;
(v) approval of any action to be taken in response to a
communication received by the JVCO Auditor not in the ordinary course of
business;
(vi) approval of the purchase, lease or other acquisition of
any real property interests;
(vii) approval of material decisions with respect to any
judicial, administrative, or other proceeding by or against JVCO or referencing
the JVCO name;
(viii) approval of the selection, use, licensing and sale of any
and all JVCO trade marks, trade names and service marks;
(ix) approval of the appointments and changes of JVCO's outside
accountants (the "JVCO Auditor"), attorneys and other professional advisors;
(x) selection of all vendors to provide material outsourced
services to JVCO and determination of whether to engage in a competitive bid
process for the selection of such vendors in accordance with Section 5.2(e);
17
(xi) determination of whether a JVCO function, other than those
being provided by each of the Parties, will be performed through outsourced
services; and
(xii) selection of the vendor to provide any outsourced services
to JVCO, including, without limitation, choosing between substantially
competitive bids submitted by two or more Parties and/or Affiliates.
4.4 Provisions for Dealing with Board Deadlock. In the event that the
Board shall fail to reach agreement on any material matter before it after
deliberating upon such matter at any properly constituted Board meeting (such
failure to be hereinafter referred to as a "Deadlock"), any Director may, upon
simultaneous notice to the Parties and the other Directors, refer such matter to
the Parties for resolution by them. Such Director's notice shall be accompanied
by a memorandum or other form of statement setting out such Director's position
on the matter in dispute and such Director's recommendation. The other Directors
may also prepare and distribute memoranda or other forms of statement. If a
dispute is so referred to them, the Parties shall, within ten (10) Business Days
from the date of such notice, confer in good faith with a view toward resolving
such matter and, if it is appropriate, shall cause the Directors to take such
action as is necessary to resolve such matter in the manner agreed by the
Parties. The failure to resolve an issue under this Section by referral to
senior management of the Parties shall specifically not create any right to
utilize the arbitration procedures in Section 10.10.
4.5 JVCO Plans and Budgets.
(a) Business Plans and Operating Plans. The Board will cause to be
prepared annually a five year business plan ("Business Plan") which will include
an analysis of all strategic development and marketing plans for JVCO,
including, without limitation, JVCO's network deployment plan, as well as an
operating plan for a two-year period describing the manner in which JVCO will
implement such Business Plan (the "Operating Plan"). OPTEL agrees to submit for
inclusion in the Business Plan a description of its five-year plan, including,
without limitation, projected milestones, for constructing or deploying
Underlying Network Facilities within each of the JVCO Communications Markets.
The initial Business Plan, together with the supporting financial information,
is attached hereto as Schedule 4.5(a), and the Parties recognize that such
financial information is subject to further review and approval by the Board.
(b) Budgets and Forecasts.
(i) Operating Budget and Capital Budget. The Board will cause
to be prepared an annual operating budget ("Operating Budget") and an annual
capital expenditures budget ("Capital Budget") (collectively, the "Annual
Budgets") for each fiscal year of JVCO, commencing with the fiscal year ending
December 31, 2000, on or before ninety (90) days prior to the commencement of
such fiscal year. The Board will review the Annual Budgets which will not be
effective until unanimously approved by the Board. Should the Board be unable to
agree on the Annual Budgets for any fiscal year, the Annual Budgets for the
preceding fiscal year will remain in effect for a maximum of ninety (90) days at
a level not less than one hundred percent (100%) of each of the Annual Budgets
for the prior fiscal year, during which time the Board will use all reasonable
efforts to agree upon the Annual Budgets for the period in question. The initial
Annual Budgets for the Fiscal Year ending December 31, 2000 will be
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prepared no later than forty-five (45) days after the Effective Date and
submitted to the Board for its consideration. The Operating Budget will set
forth in reasonable detail (a) the authorized expenses on a quarterly basis of
each functional area of JVCO, (b) estimated revenue by product and distribution
channel on a quarterly basis, (c) a projected profit and loss statement for the
fiscal year on a quarterly basis, (d) a projected balance sheet as of each
quarter of each fiscal year, (e) a schedule of projected cash flow, including
estimated Party and capital contributions for each quarter of each fiscal year
and (f) any other information any member of the Board may reasonably request.
The Capital Budget will set forth and itemize in reasonable detail amounts to be
committed or expended on a quarterly basis for equipment, leasehold improvements
and other capitalized items and any other items as any member of the Board may
reasonably request.
(ii) Quarterly Outlook. The Board will cause to be prepared a
quarterly forecast in such detail and for such periods as the Board may
reasonably request (a "Quarterly Outlook") to be prepared at least thirty (30)
days prior to commencement of the applicable fiscal quarter. The Board will
review the Quarterly Outlooks which will not be effective until unanimously
approved by the Board. All cash required to be contributed by the Parties to
JVCO in the next succeeding calendar quarter will be reflected in the Quarterly
Outlook.
4.6 Accounting and Internal Controls.
(a) JVCO will conduct its business at all times in accordance with
high standards of business ethics and maintain JVCO's accounts in accordance
with generally accepted accounting principles consistently applied and
specifically, will:
(i) maintain full and accurate books, records, and accounts
which will, in reasonable detail, accurately and fairly reflect all transactions
of JVCO; and
(ii) devise and maintain a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with general or specific authorizations, and (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and all
tax information returns, and to maintain accountability for assets.
(b) JVCO books will be kept on the accrual method of accounting, and
will be closed and balanced at the end of each fiscal year. JVCO's books,
records and accounts shall be audited annually by such independent certified
public accountant as may be selected by the Board from time to time. The Board
will make such tax elections as may be necessary or desirable and will direct
JVCO's tax advisor to file them accordingly. The Board will cause the timely
preparation and filing of all required federal and provincial income tax
returns. Unless otherwise agreed in writing by the Parties, the Board will use
reasonable efforts to submit any tax filing to each Party for review and
approval at least thirty (30) days prior to its due date plus all extensions.
The Board will also provide to each Party all JVCO information necessary to
prepare the Party's tax return. This information will be furnished to the
Parties by the original due date of JVCO's tax return (including all extensions)
unless otherwise agreed to in writing by the Parties.
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4.7 Access to Books and Records. JVCO will permit each Party or its
authorized representative to visit and inspect the properties of JVCO, including
its corporate and financial records, during normal business hours following
reasonable notice and as often as may be reasonably requested.
ARTICLE V
CONTRIBUTED RESOURCES
---------------------
5.1 Seconded Employees.
------------------
(a) The Parties intend that JVCO initially operate with a minimal
number of employees hired by JVCO. In lieu of hiring employees by JVCO , the
Parties shall make certain of their own employees available to JVCO on a
temporary or secondment basis (the "Seconded Employees") in accordance with the
Human Resources Plan attached hereto as Schedule 5.1(a).
(b) Each calendar quarter (as soon as practicable but in no event
later than thirty (30) days after the end of such quarter), JVCO will reimburse
each Party that provided Seconded Employees for the actual salary of each of its
Seconded Employees plus all costs related to attendant benefit and overhead
allocations and all other expenses directly incurred by the Party for each
Seconded Employee. Seconded Employees will not be eligible for incentive or
performance bonuses specific to the Party or Affiliate from which they were
seconded after the date of secondment, but will be eligible for a JVCO incentive
or performance bonus of up to forty percent (40%) of his or her base salary.
Notwithstanding the foregoing, the Parties acknowledge that it is their
intention that as JVCO implements the Business Plan, JVCO will hire permanent
employees as is reasonable under the circumstances.
(c) All tangible and intangible work product including, without
limitation, inventions (whether or not patentable), works of authorship,
computer programs, trade secrets, proprietary information, algorithms, patents,
copyrights, and other technology, information, and intellectual property of
Seconded Employees in the course of their services to JVCO will be owned solely
by JVCO and will be deemed to be Confidential Information of JVCO. Each Party
providing Seconded Employees (i) will make any assignments necessary to
accomplish the foregoing and (ii) represents that it has appropriate agreements
with its Seconded Employees to ensure that it is entitled to make such
assignments.
(d) JVCO, or its successor, shall have the right to offer permanent
employment to all Seconded Employees with the prior written consent of the Party
which employs such Seconded Employee.
(e) At such time as an employment opportunity arises within JVCO,
each of the Parties will be provided with a written description of the vacant
position. The job description will at a minimum identify the responsibilities of
the position as well as any required skills and qualifications. A Party will
have two (2) weeks from receipt of each job description to provide the President
with a list of all interested employees interested in the subject position.
Nothing in this Section 5.1(e) will preclude JVCO from conducting a search for
candidates external to the Parties subsequent to giving the Parties notice of
the vacant position.
20
(f) A Party will provide JVCO with written notice of its intent to
remove a Seconded Employee from JVCO ninety (90) days prior to the date of such
removal and will not remove such Seconded Employee until the expiration of such
notice without the consent of the other Parties.
5.2 Outsourced Services. Certain functions of the JVCO Business will be
outsourced by JVCO for performance by the Parties or their Affiliates as
follows:
(a) RHYTHMS will provide to JVCO at its Direct Cost, any and all of
the following functions as outsourced services (collectively, the "Rhythms
Outsourced Services"):
(i) marketing functions related to JVCO's offering of Data
Products and Data Services, including, without limitation, product development,
product management, vendor relations, direct sales of U.S. ISPs/carriers by
RHYTHMS' U.S. Affiliates, indirect sales of U.S. ISPs/carriers, channel support,
market communications, and brand advertising;
(ii) operational functions related to JVCO's provision and
maintenance of Data Products and Data Services, including, without limitation,
ordering, planning/design of capacity management, providing customer support
services, vendor relations relating to network equipment, and technical support;
(iii) logistical functions related to JVCO's procurement of
Customer Premises Equipment and Data Network Equipment to be used in its
provision of Data Products and Data Services including supply, installation and
maintenance; and
(iv) Data Products and Services Support Center.
(b) OPTEL will provide to JVCO, at its Direct Cost, any and all of
the following functions as outsourced services (collectively, the "Optel
Outsourced Services"):
(i) Network Operations Support Center for Underlying Network
Facilities (specifically, the unbundled local loops);
(ii) Underlying Network Facilities planning, engineering,
installation and maintenance (specifically, the ordering of unbundled local
loops, collocation space, and DS-3 connectivity);
(iii) power, space and communications for OPTEL-owned Data
Network Equipment to be leased to JVCO and located in ILEC central offices for
each of the JVCO Communications Markets; and
(iv) where available, office space and attendant support for
all individuals who will be located in each of the particular JVCO
Communications Markets for the purposes of staffing JVCO's business activities
which will be charged at direct cost.
(c) Within sixty (60) days from the Effective Date, the Board will
determine which Parties will perform the necessary administrative functions
related to JVCO's marketing, offering and maintenance of Data Products and Data
Services, including, without limitation,
21
invoicing, collections, cash management, payroll, accounting and taxes. Each of
the Parties will submit to the Board:
(i) within ten (10) Business Days of the Effective Date,
written notice informing the Board whether or not the Party is interested in
performing such functions; and
(ii) subject to a Party having informed the Board of its
interests by complying with Section 5.2(d) below within thirty (30) days of the
Effective Date, an Outsourcing Proposal for such administrative functions as
well as such other information as the Board may reasonably request to assist in
making this decision.
In its review of the foregoing information, the Board will take into
consideration those factors described in Section 5.2(e) below. Each Party agrees
to reasonably cooperate with the Board to achieve the purposes of this Section
5.2(c).
(d) Each Party will submit annually, for inclusion in the Annual
Budgets, a proposal detailing the functions that it will perform on behalf of
JVCO during the ensuing year as well as the projected costs to be charged to
JVCO for such functions (each proposal, an "Outsourcing Proposal"). Further, in
the event JVCO requests a change in the scope of work pursuant to the
Outsourcing Proposal, the affected Party will submit a proposal of the projected
costs, if any, associated with such change ("Change Order Proposal") for
appropriate review and approval by JVCO. To the extent that the actual costs
charged by a Party to JVCO exceed twenty percent (20%) of the estimated cost
originally contained in such Party's Outsourcing Proposal and/or Change Order
Proposal, the Board will decide by Unanimous Decision whether such cost overrun
will be paid by JVCO.
(e) The Board may determine by a Unanimous Decision that certain
functions of the JVCO Business other than those described in either Section
5.2(a) or Section 5.2(b) may be outsourced to Third Parties. In making a
determination regarding the appropriate Third Party vendor to provide a function
to be outsourced, the Board may entertain an offer by one or more of the Parties
(or their Affiliates) to provide such functions; provided, however, the Board
may solicit a Third Party vendor to provide any such services pursuant to a
competitive bid process following the following guidelines:
(i) Any Party (or any of its Affiliates) will be afforded
ample opportunity to submit a bid;
(ii) If a Party (or any of its Affiliates) submits a bid that
is substantially competitive with the best bid the Board receives from a Third
Party, then, in making its selection, the Board will prefer the bid of such
Party or Affiliates to that of any Third Party vendor. Whether a bid of a Party
or Affiliate is substantially competitive will be decided by a Unanimous
Decision of the Board. In making this decision, the Board will take into
consideration the following factors (which are not listed in order of
importance):
(A) the nature and experience of the bidder in providing
the service in question or in providing like services to the service in
question;
22
(B) the specifications of the service offered by the
bidder (including but not limited to any special terms, the specified technical
support, the time of performance and the level of resources to be dedicated to
the service);
(C) the response time and contingency facilities and
arrangements offered by the bidder to address routine and extraordinary
problems;
(D) any cost savings to JVCO as a result of the
particular specifications offered by the bidder in question; and
(E) the price for the service, provided, however, that a
bid which is no more than 5% higher in price will be deemed substantially
competitive if all other relevant factors are deemed equal;
(iii) In the event two or more Parties and/or Affiliates submit
bids that are substantially competitive, the Board will use the same factors in
Section 5.2(e)(ii) above to determine by Unanimous Decision which of these bids
is more substantially competitive than the other(s) and, further, will award the
bid to such Party or Affiliate having the most substantially competitive bid;
and
(iv) In the event that a Party's (or any of its Affiliates')
bid is not substantially competitive with the best bid the Board receives from a
Third Party, such Party or Affiliate will be entitled to modify its bid to make
it substantially competitive with the best bid submitted by a Third Party
vendor.
5.3 Optel Leased Assets.
(a) The Parties acknowledge that, due to the initial fifty percent
(50%) ownership of JVCO by a non-Canadian entity, the Telecommunications Act of
Canada will not permit JVCO to qualify as a Canadian Carrier or to own, lease or
operate certain telecommunications assets ("Canadian Carrier Telecommunications
Assets"). OPTEL shall provide JVCO with long-term lease arrangements, providing
access to and use of any and all Canadian Carrier Telecommunications Assets
necessary for the conduct of JVCO Business. OPTEL shall propose, for approval by
the Board, lease arrangements, on commercially reasonable terms, for Canadian
Carrier Telecommunications Assets that will be owned and operated by OPTEL and
purchased expressly for the use of JVCO as set forth on Schedule 5.3(a) (the
"Optel Leased Assets"). Such lease arrangements shall provide terms describing
the assets provided by OPTEL, the services provided by OPTEL to operate the
assets, the lease payment terms from JVCO to OPTEL, and any financing guarantee
obligations of JVCO or the Parties as a condition of any Third Party financing
required for OPTEL to purchase or lease the Optel Leased Assets. RHYTHMS hereby
acknowledges and agrees that RHYTHMS will guarantee one half of any obligation
that JVCO has to OPTEL with respect to the financing of any Optel Leased Assets.
(b) For any telecommunications equipment or property provided by
RHYTHMS to OPTEL or JVCO, RHYTHMS agrees to provide such telecommunication
equipment or property at Direct Cost.
23
(c) In the event that the Telecommunications Act of Canada is amended
or the percentage ownership of JVCO changes to permit JVCO to own Canadian
Carrier Telecommunications Assets, JVCO shall have the option to purchase the
Optel Leased Assets that OPTEL had previously provided to JVCO pursuant to
Section 5.3(a) above. JVCO shall have the right to (i) purchase the Optel Leased
Assets at book value, and/or (ii) in the case of assets subject to lease
agreements entered into by OPTEL on behalf of JVCO, assume the lease obligations
for the Optel Leased Assets at Direct Cost.
(d) Within one hundred twenty (120) days of becoming eligible to own
Canadian Carrier Telecommunications Assets, JVCO will notify OPTEL of its
intention to purchase the Optel Leased Assets. Once JVCO notifies OPTEL of such
intention, JVCO and OPTEL shall have one hundred twenty (120) days to complete
the purchase of Optel Leased Assets by JVCO.
5.4 Trademark Licenses.
(a) The Data Products and Data Services will be offered by JVCO using
the "Rhythms" service xxxx.
(b) RHYTHMS shall grant to JVCO a non-exclusive license for the use
of RHYTHMS trade/service marks and trade names in the JVCO Business under the
terms of a license agreement in substantially the form attached hereto as
Schedule D.
5.5 Technology Licenses. The Parties shall negotiate in good faith and
enter into technology licensing agreements between (a) RHYTHMS and JVCO, and (b)
OPTEL and JVCO in substantially the form attached hereto as Schedule E.
5.6 Non-Competition; Other Businesses.
(a) JVCO Customers. Except as otherwise provided in this Agreement,
the Parties intend that JVCO will have the exclusive right to market and provide
the Data Products and Data Services to JVCO Customers within the JVCO
Communications Markets. Except as otherwise provided in this Agreement, the
Parties and their Affiliates will not engage in or benefit from, directly or
indirectly, the marketing and providing of any Data Products or Data Services,
as identified in Schedule 1.25, to JVCO Customers in any JVCO Communications
Markets throughout the term of this Agreement. Unless the Parties mutually agree
in writing to the contrary or except as provided in this Agreement: (i) all Data
Products and Data Services will be provided to JVCO Customers in JVCO
Communications Markets as products and services of JVCO; (ii) no Party will
engage in any solicitation of JVCO Customers for Data Products or Data Services;
and (iii) JVCO will not market directly to non-JVCO Customers.
(b) Non-JVCO Customers. The Parties intend that JVCO will be the
supplier of choice for RHYTHMS and OPTEL for marketing and providing the Data
Products and Data Services (except in the case of OPTEL, Voice Services) to all
other customers within the JVCO Communications Markets that are not JVCO
Customers. JVCO shall have the right of first refusal to supply Data Products
and Data Services to RHYTHMS or OPTEL for such non-JVCO Customers.
24
(i) Proposed Non-JVCO Customers. The Party planning to provide
Data Products or Data Services to non-JVCO customers within the JVCO
Communications Markets shall send written notification to the President of JVCO
specifying the customer and the customer's requirements for Data Products and/or
Data Services (the "Customer Requirement Notice"). Within three (3) Business
Days of receipt of a Customer Requirement Notice, the President shall notify the
Party submitting such Customer Requirement Notice of the decision of JVCO to
elect to either accept or decline the opportunity of providing Data Products
and/or Data Services under the terms of the Customer Requirement Notice. If JVCO
elects to decline such opportunity, the Party may submit the Customer
Requirement Notice (under the same terms submitted to JVCO) to an alternate
supplier or suppliers of data products and services, with a copy provided to the
President of JVCO.
(ii) Existing Non-JVCO Customers. If for performance or market
coverage reasons, a Party determines that JVCO is not adequately addressing the
needs of such Party's non-JVCO Customer, such Party shall send written
notification to the President of JVCO specifying the customer and the
modifications in products or services necessary to satisfy such non-JVCO
customer's requirements for Data Products and/or Data Services (the "Customer
Requirement Modification Notice"). Within three (3) Business Days of receipt of
a Customer Requirement Modification Notice, the President shall notify the Party
submitting such Customer Requirement Modification Notice of the decision of JVCO
to elect to either accept or decline the opportunity to continue providing Data
Products and/or Data Services under the terms of the Customer Requirement
Modification Notice. If JVCO elects to decline such opportunity, the Party may
submit a revised Customer Requirement Notification (under the same terms of the
Customer Requirement Modification Notice submitted to JVCO) to an alternate
supplier or suppliers of data products and services, with a copy provided to the
President of JVCO.
(iii) A Party shall be permitted to provide the data products
and services of an alternate supplier to non-JVCO Customers pursuant to
subsections 5.6(b)(i) and 5.6(b)(ii), above, notwithstanding the intention of
the Parties that JVCO be the supplier of choice as provided in Section 5.6(b).
(c) Optel Customers. OPTEL intends to use JVCO Data Products and Data
Services (excluding Voice Services) when marketing to (i) Small and Medium
Business Customers, (ii) Pre-Existing Optel Customers, and (iii) Optel Combined
Service Customers (collectively, the "Optel Customer Base"). If for performance
or market coverage reasons, the Parties determine that OPTEL is not adequately
addressing the needs of customers in the Optel Customer Base, JVCO may amend its
Business Plan to provide JVCO Data Products and Data Services directly to
customers in the Optel Customer Base.
(d) Joint Marketing to Rhythms Customers. The Parties intend that
JVCO may engage in certain joint marketing efforts with RHYTHMS to target
existing customers of RHYTHMS as set forth on Schedule 1.43 which have
facilities located in each of the JVCO Communications Markets.
(e) Voice Services. In the event that JVCO determines to provide
Voice Services to JVCO Customers, the Parties intend that JVCO will contract
with OPTEL to supply the necessary switched services required to provide Voice
Services and that OPTEL will supply
25
such switched services on a basis that is substantially competitive with other
Third Party providers.
(f) Transfer Pricing. For the two (2) year period following the
----------------
effective Date, JVCO shall supply RHYTHMS and OPTEL with Data Products and Data
Services for provision to the respective customers of RHYTHMS and OPTEL in the
JVCO Communications Markets at prices and terms no less favorable than those
prices and terms for similar Data Products and Data Services provided or offered
by JVCO to any other JVCO Customer (based on similar scope, volume and customer
requirements) ("Transfer Pricing"). Upon the second anniversary of the Effective
Date and each year thereafter, the Parties agree to review the current Transfer
Pricing, with the intention of implementing a pricing system to RHYTHMS and
OPTEL based on incremental cost. Incremental cost includes variable or direct
costs (included in the Business Plan as variable cost of sales), plus the
average semi-variable cost per line item (including the fixed cost of sales and
operating costs) calculated over the subsequent twelve (12)-month period across
all Canadian communications markets, in accordance with the approved Annual
Budget. If the calculated amount of incremental cost exceeds the current
Transfer Pricing, incremental cost-based pricing to RHYTHMS and/or OPTEL will
not be implemented for that twelve (12)-month period.
(g) Non-Competition Following Withdrawal from JVCO. Except as
----------------------------------------------
provided in Sections 5.6(b) and 5.6(c), no Party will represent, establish or
maintain an independent or separate visibility or presence in the JVCO
Communications Markets with regard to any of the Data Products or Data Services.
The Parties further agree that upon a Party's withdrawal from or transfer of its
entire interest in JVCO, for any reason (except for an Event of Withdrawal),
such Party and its Affiliates will not engage in or benefit from, directly or
indirectly, the marketing and providing of any Data Products or Data Services to
JVCO Customers in any JVCO Communications Market for a period of one (1) year
from the effective date of such withdrawal or transfer; provided, however, that
-------- -------
this non-compete obligation will be limited to those (A) Data Products and Data
Services being provided by JVCO to JVCO Customers, (B) within the JVCO
Communications Markets, and (C) in the case of withdrawal by RHYTHMS, to
customers that are in the Optel Customer Base, as of effective date of such
withdrawal or transfer. Nothing in this Section 5.6(g) will be deemed to
prohibit either Party from engaging in or benefiting from, directly or
indirectly, the marketing and providing of: (i) other products or services that
are not Data Products and Data Services; (ii) Data Products and Data Services to
customers that are not JVCO Customers; or (iii) Data Products and Data Services
outside of the geographic areas defined as the JVCO Communications Markets in
this Agreement. In the event that OPTEL withdraws from JVCO for any reason
whatsoever, JVCO shall not directly engage in or benefit from the marketing and
providing of any Data Products or Data Services to the Optel Customer Base for a
period of one (1) year from the effective date of OPTEL's withdrawal
(h) New Business Proposals. Each Party shall bring to the Board for
----------------------
its review business cases for proposed new Data Products and/or Data Services
(except in the case of OPTEL, Voice Services) ("New Business Opportunity") to be
provided by JVCO either through internal development or acquisition. In the
event the Board reviews a New Business Opportunity to be offered by JVCO and
fails to approve such New Business Opportunity by Unanimous Decision, the
Parties agree that the Party presenting the New Business Opportunity to the
Board shall be permitted to pursue such New Business Opportunity (except that if
such
26
New Business Opportunity involves the acquisition of a DSL business, then
neither Party shall be permitted to pursue such New Business Opportunity) while
the other Party will be prohibited from pursuing such New Business Opportunity
in any JVCO Communications Markets for a period of six (6) months from the date
the Board makes such determination. Any and all information provided by a Party
in connection with a New Business Opportunity will be deemed to be Confidential
Information of such Disclosing Party and will be subject to the confidentiality
provisions set forth in Article VI of this Agreement. Notwithstanding the
foregoing, any offering of a New Business Opportunity will be subject to the
following conditions:
(i) OPTEL and its Affiliates will not in any manner use any of the
trade/service marks or trade names owned by RHYTHMS including, without
limitation, the "Rhythms" brand name, in connection with such offering; and
(ii) notwithstanding anything to the contrary in this Section 5.6(h),
it is understood that the Parties and their Affiliates are and will be engaged
in other separate activities and businesses in and outside of the JVCO
Communications Markets that may not be directly related to the JVCO Business
(the "Independent Businesses"), and except to the extent otherwise agreed to,
the Parties and their Affiliates will be required to devote only so much time as
each in its sole discretion may deem necessary as shareholders of JVCO.
(i) Independent Businesses. Except as otherwise specifically provided in
----------------------
this Agreement and the Ancillary Agreements, and without affecting either
Party's or its Affiliates' duties to perform its obligations under this
Agreement and the Ancillary Agreements in the best interest of JVCO, nothing
contained in this Agreement and the Ancillary Agreements will be construed as
limiting the right of any Party or its Affiliates to engage in any Independent
Businesses, including (but not limited to) the businesses in which such Party or
its Affiliates are currently engaged or in which any Party or its Affiliates may
hereinafter engage. The Parties hereby acknowledge and agree that the provision
by OPTEL of (i) voice services, including, without limitation, Voice Services,
to any customer and (ii) Data Products and Data Services to non-JVCO customers
shall constitute an Independent Business of OPTEL. For greater certainty and
notwithstanding the foregoing, the Parties acknowledge and agree that the
marketing and provision by OPTEL of voice services, including, without
limitation, Voice Services, to any customer shall not be limited in any way by
any provision of this Agreement. Any benefits or obligations arising from such
Independent Businesses will inure solely to such Party or their Affiliates and
not JVCO or the other Party or their Affiliates; and neither JVCO nor the other
Party will have any rights by virtue of this Agreement to such Independent
Businesses or the income or profits derived therefrom.
5.7 Non-Solicitation of Employees. JVCO will not solicit employees of RHYTHMS
-----------------------------
or OPTEL (and their respective Affiliates), and RHYTHMS and OPTEL (and their
respective Affiliates) will not solicit employees of JVCO or one another without
the prior written consent of the employing party, except for general
solicitation (e.g., newspaper advertisements) not specifically targeted to
employees of the employing party.
5.8 Transition of Business.
----------------------
Upon a Party's withdrawal from or transfer of its entire interest in JVCO
pursuant to either Section 5.6(g), Section 7.2 or Article IX, the Parties agree
to cooperate to ensure an orderly transition of business between JVCO and the
Parties.
27
(a) During such transition, the withdrawing Party shall be permitted
wholesale access to the services and assets of JVCO on commercially reasonable
terms, including the use of (i) equipment and real property assets for a period
of twelve (12) months, (ii) intellectual property rights (including
trade/service marks and trade names) and assets for a period of six (6) months,
and (iii) Outsourced Services for a period of twelve (12) months.
(b) The Party withdrawing from or transferring its entire interest in
JVCO shall be required to transfer or sell to JVCO, at Fair Market Value as
determined by the Independent Appraiser, any JVCO Dedicated Assets that had been
provided to JVCO (excluding trade/service marks and trade names) for conducting
the JVCO Business, and provided that any Optel Leased Assets shall be
transferred in accordance with Section 5.3(c).
(c) For a period of one (1) year following the withdrawal, the
withdrawing Party will not solicit employees of JVCO without the written consent
of JVCO.
ARTICLE VI
CONFIDENTIAL INFORMATION
------------------------
6.1 Treatment of Confidential Information.
-------------------------------------
(a) Each of JVCO, the Parties, and the Parties' Affiliates will
hold and maintain in strictest confidence all Confidential Information and
during the period in which the obligations imposed by the Article VI are in
effect, and, except as otherwise provided in Section 6.5, the Receiving Party
will not disclose or otherwise communicate such Confidential Information to
others, or use it for any purpose, except for the sole purposes of this
Agreement.
(b) Each member of the Board and all employees of JVCO, seconded
or otherwise, will sign a proprietary information and inventions agreement
substantially in the form of that reflected in Exhibit C to this Agreement.
---------
(c) Except as otherwise provided in Section 6.5, each Receiving
Party will not copy Confidential Information unless specifically authorized in
writing by the Disclosing Party and will not make disclosure of any such
Confidential Information to anyone except its employees and Affiliates to whom
disclosure is necessary for the purposes of this Agreement or the business of
JVCO.
(d) Each Party will appropriately notify each of its directors,
officers, employees and Affiliates to whom such disclosure is made that such
disclosure is made in confidence and will be kept in confidence by such Persons.
(e) Notwithstanding the foregoing, each Receiving Party will
protect Confidential Information with the same degree of care that it protects
its own sensitive information of a similar nature, but in any event will
exercise reasonable efforts, consistent with the nature of each particular piece
of Confidential Information, to protect it from unauthorized disclosure.
28
6.2 Copying Confidential Information. In the event that any copies of
--------------------------------
Confidential Information that bears a confidential, proprietary, or similar
notice or legend (a "Confidentiality Legend") are made, each such copy will
contain and state the same Confidentiality Legend, if any, which appear on the
original.
6.3 Time Period. Confidential Information will he deemed a valuable trade
-----------
secret of a Disclosing Party, and each Receiving Party will hold such
Confidential Information in confidence for the greater of (i) the term of this
Agreement or (ii) a period of three (3) years from the date of receipt of same,
unless otherwise agreed to in writing by the Disclosing Party. Upon expiration
of the applicable time period, all Confidential Information together with any
copies of same, will be returned or certified destroyed by the Receiving Party
to the Disclosing Party. The requirements of use and confidentially set forth
herein will survive after termination and after return of such Confidential
information.
6.4 Remedies. The Parties acknowledge that the unauthorized disclosure or
--------
use of any Confidential Information could cause irreparable harm and significant
injury, the extent and consequence of which may be difficult to assess.
Therefore, the Parties agree that if a Party believes its Confidential
Information may have been disclosed contrary to this Article VI, that in
addition to any other remedies in law or equity available to the aggrieved
Party, such Party will be entitled to immediate injunctive relief.
6.5 Confidential Information of JVCO. Each Party will have the right to
--------------------------------
use Confidential Information owned by JVCO in connection with its or an
Affiliate's business purposes subject to the condition that each Party will
protect such Confidential Information with the same degree of care that it
protects its own sensitive information of a similar nature, but in any event
will exercise reasonable efforts, consistent with the nature of each particular
piece of Confidential Information received from JVCO, to protect it from
unauthorized disclosure. In no event will the Confidential Information owned by
either a Party or an Affiliate of a Party which is provided either to (i) JVCO
for use in connection with its business; or (ii) the Board in connection with a
review or a business case for a proposed new Data Product and/or Data Service,
be deemed to be Confidential Information of JVCO unless and until otherwise
agreed to in writing by the Disclosing Party.
ARTICLE VII
SHARE TRANSFER RESTRICTIONS
---------------------------
7.1 Transfer Restrictions.
---------------------
(a) Except as set forth in this Section 7.1, and subject to
compliance with the other terms of this Agreement, no Party shall sell, assign,
or otherwise transfer any Shares owned by it (each action, a "Share Transfer")
without the prior written consent of the other Party. No Party shall create or
permit to exist any security interest, lien, claim, pledge, option, right of
first refusal, agreement, limitation on the voting rights, charge or other
encumbrance of any nature whatsoever (each action, an "Encumbrance") in respect
of the Shares of JVCO without the prior written consent of the other Party.
Except as otherwise provided herein, no Party shall attempt a Share Transfer or
Encumbrance prior to the fifth anniversary of the Effective Date. Any
29
attempted Share Transfer or Encumbrance in violation of this Section 7.1 will be
deemed null and void. Notwithstanding the foregoing, OPTEL shall have the right
to create a security interest in and to pledge any of its Shares to Nortel
Networks Corporation or its affiliates (collectively, "Nortel") in connection
with a proposed credit facility to be provided by Nortel to OPTEL. In the event
of a default by OPTEL under such a credit facility, beneficial ownership of
OPTEL's Shares shall not transfer to Nortel, unless Nortel agrees in writing to
be bound by the terms and conditions of this Agreement.
(b) To the extent allowable under law, a Party may transfer all, but
not less than all, of its Shares in JVCO to an Affiliate provided that such
transferring Party will remain fully responsible for the satisfaction of its
obligations under this Agreement.
(c) The certificates evidencing the Shares shall bear a legend
substantially as set forth below :
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY BE
SOLD, ASSIGNED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH, THE
PROVISIONS OF A JOINT VENTURE AGREEMENT DATED AS OF JANUARY 1, 2000
BETWEEN RHYTHMS NETCONNECTIONS INC. AND OPTEL COMMUNICATIONS
CORPORATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE
OFFICE OF RHYTHMS CANADA IN TORONTO, ONTARIO. ANY TRANSFER THEREOF IN
CONTRAVENTION OF SUCH PROVISIONS SHALL BE VOID AND OF NO EFFECT.
(d) Right of First Offer.
--------------------
(i) General. If, after the fifth anniversary of the Effective
-------
Date, a Party ("Selling Party") proposes a Share Transfer by such Party to a
Third Party (a "Proposed Sale"), the Selling Party must first offer such Shares
to JVCO (the "Right of First Offer") at the same price and on the same other
terms and conditions as the Proposed Sale (except that JVCO exercising its Right
of First Offer shall be entitled to pay cash for the purchase price) in
accordance with this Section 7.1(d):
(A) the consideration for the Proposed Sale shall consist
solely of cash, cash equivalents or marketable securities;
(B) the Selling Party shall deliver an Offering Notice to
JVCO and each of the Parties not less than thirty (30) days prior to each
Proposed Sale, setting forth: (1) the name of the Selling Party and the number
of Shares proposed to be sold; (2) the name and address of the proposed
purchaser; and (3) the proposed per share purchase price (which must be payable
in cash, cash equivalents or marketable securities) and the terms and conditions
of payment offered by such proposed purchaser;
(C) JVCO shall give a Purchase Notice or a Refusal Notice
to the Selling Party and each of the Parties within ten (10) Business Days of
receipt of the Offering Notice; and
30
(D) if JVCO declines to purchase all of the Shares in the Proposed
Sale, the Parties shall have a Right of First Offer on such Shares. The Parties
shall give a Purchase Notice or a Refusal Notice to all other Parties within ten
(10) Business Days after receipt of JVCO's Refusal Notice. A Party electing to
purchase any Shares in the Proposed Sale shall be entitled to purchase the
amount of Shares so elected unless the amount elected by all Parties would
exceed the amount of Shares to be sold, in which case it shall be entitled to
purchase the lower of the amount of Shares so elected and a pro rata portion of
the Shares to be sold based on the amount of Shares beneficially owned by it and
its Affiliates and the amount of Shares beneficially owned by each other elected
Party and their Affiliates. Any failure by a party hereto to give a Purchase
Notice or a Refusal Notice in a timely manner is contemplated herein shall have
the same effect as the giving of a Refusal Notice by such party.
(ii) The closing of the purchase of the Shares pursuant to the Right of First
Offer shall take place at the principal executive offices of JVCO on the
thirtieth day after delivery of the Purchase Notice (or upon such other date as
may be mutually agreed) (the "Final Transaction"). At such closing, the Selling
Party will deliver certificates representing the Shares so purchased duly
endorsed against payment therefor.
(iii) In the event that all of the Shares are not sold pursuant to the Right
of First Offer set forth in Section 7.1(d)(i), the Selling Party may sell, at
any time within ninety (90) days from the date of the last Refusal Notice, the
Shares in the Proposed Sale in cash, cash equivalents or marketable securities
at a price per share equal to or greater than and on other terms and conditions
no more favorable to the purchaser than those of the Proposed Sale. As a
condition of the sale of such Shares, the Selling party must first obtain a
written agreement by such purchaser to adhere to this Agreement and/or any other
terms and conditions that are mutually agreed upon by the existing members of
the Board.
(iv) The obligations set forth in this Section 7.1(d) shall not apply to
Share Transfers (A) pursuant or subsequent to an initial public offering, or (B)
that constitute permitted Share Transfers to Affiliates pursuant to Section
7.1(b).
(v) The Selling Party will continue to provide services of the type and
pursuant to the same terms and conditions which it is obligated to provide
pursuant to Section 5.2 of this Agreement until the date of the Final
Transaction which results in the Selling Party's sale of all of its Shares.
Further, notwithstanding consummation of the Final Transaction, at the option of
JVCO, as evidenced by written notice provided within sixty (60) days from the
date of the Offering Notice which contemplates the Final Transaction, the
Selling Party will continue to provide the above described services to JVCO for
a term of not less than two (2) years from the date of the Final Transaction
(the "Transition Term"); provided, however, that in the event JVCO has
commitments to JVCO Customers greater than two (2) years, with respect
specifically to each of said JVCO Customers, the Transition Term will be
commensurate with the term of a particular JVCO Customer's contract with JVCO.
Further, the Parties agree to negotiate the extending of the Transaction Term
for specific situations other than those described herein on a case-by-case
basis.
(vi) Notwithstanding the five (5) year period from the Effective Date during
which a Selling Party is restricted from entertaining a Proposed Sale (the
"Restricted
31
Transfer Period"), a Selling Party may entertain a Proposed Sale to sell a
portion of the Selling Party's Shares for the purpose of financing JVCO's
business activities and the Right of First Offer described in this Section
7.1(d) shall apply. In addition to the information described above, the Offering
Notice shall also contain a certification from an officer of the Selling Party
that the purpose for such Proposed Sale is to seek additional parties for
financing assistance. No Selling Party may seek to sell more than twenty percent
(20%) of its Percentage Shares, in the aggregate, during the Restricted Transfer
Period.
(vii) The Right of First Offer set forth in this Section 7.1(d) may not
be assigned or transferred, except that such rights are assignable by each Party
to (A) any Affiliate of such Party, or (B) a party or parties reasonably
acceptable to each of the other Parties.
7.2 Buy-Sell Option.
---------------
(a) Either Party shall have the right to exercise an option to sell all
of its Shares to the other Party or to buy all of the Shares of the other Party
(the "Buy-Sell Option") upon the earlier of:
(i) the fifth anniversary of the Effective Date; or
(ii) the date when the Telecommunications Act of Canada is amended
to permit RHYTHMS to qualify as a Canadian Carrier or to own, lease or operate
Canadian Carrier Telecommunications Assets, but not earlier than the second
anniversary of the Effective Date.
(b) The Party exercising the Buy-Sell Option (the "Exercising Party")
shall provide the other Party (the "Non-Exercising Party") with a notice (the
"Buy-Sell Notice") (i) informing the other Party of the intent to exercise the
Buy-Sell Option, and (ii) designating the price per share of Class A Voting
Shares at which the Exercising Party is offering to either (A) sell all of the
Exercising Party's shares of Class A Voting Shares to the Non-Exercising Party
or (B) purchase all of the Non-Exercising Party's shares of Class A Voting
Shares.
(c) The Non-Exercising Party shall have thirty (30) days from receipt
of the Buy-Sell Notice to elect whether to (i) sell all of such Non-Exercising
Party's shares of Class A Voting Shares to the Exercising Party or (ii) purchase
all of the Exercising Party's shares of Class A Voting Shares. Within thirty
(30) days of the Non-Exercising Party's election, the Parties shall conclude the
transaction to transfer all of the shares of Class A Voting Shares to the Party
designated through the election of the Buy-Sell Option.
(d) In the event that ownership by RHYTHMS of one hundred percent
(100%) of JVCO Class A Voting Shares precludes JVCO from qualifying under the
Telecommunications Act of Canada as a Canadian Carrier or to own or operate
Canadian Carrier Telecommunications Assets and a Party exercises its rights
under Section 7.2(a)(i), RHYTHMS shall be permitted to transfer any shares
purchased from OPTEL to a Third Party or Affiliate of RHYTHMS as permitted under
Canadian law.
7.3 Additional Parties. Additional parties may be added to this Agreement
------------------
but only upon the Unanimous Decision of the Board. Prior to being admitted,
additional partners will
32
agree in writing to adhere to this Agreement and/or any other terms and
conditions that are mutually agreed upon by the existing members of the Board.
7.4 Event of Withdrawal.
-------------------
(a) When an Event of Withdrawal occurs, the affected Party or
legal representative thereof or successor in interest thereto (the "Successor")
will promptly give notice to JVCO. If such notice is not given within ten (10)
Business Days after the Event of Withdrawal occurs, any Party having a knowledge
of the occurrence may give notice thereof. Unless otherwise provided in the
definition of Event of Withdrawal above, the effective date of withdrawal shall
be the date such notice is given.
(b) When an Event of Withdrawal occurs, the affected Party
("Former Party") shall cease to be a shareholder of JVCO as of the effective
date of withdrawal. Except as otherwise provided by this Agreement, a Successor
shall have no right to become a substitute shareholder of JVCO. Unless and until
a Former Party's interest in JVCO is purchased pursuant to this Article, the
Former Party or Successor shall be entitled to receive the share of JVCO profits
and distributions to which the Former Party or Successor would be entitled to
receive hereunder had no Event of Withdrawal occurred. Except as otherwise
provided herein, neither a Former Party nor a Successor shall have any liability
with respect to obligations incurred by JVCO after the effective date of
withdrawal, or any right to participate in the management of JVCO or the
decisions of the Parties; provided, however, that the Parties may not, without
the express written consent of the Former Party or Successor, take any action
which would change the Former Party's interest in JVCO profits, losses or
distributions, or the time at which distributions are payable if such action
could have required the Former Party's consent if taken prior to the effective
date of withdrawal.
(c) When an Event of Withdrawal occurs, if all Parties elect to
continue the business of JVCO, and JVCO gives notice of such election to the
Former Party or Successor within ninety (90) days after the effective date of
withdrawal, then the business of JVCO shall be continued by the Parties. If the
Parties elect to continue the business of JVCO, JVCO or the Parties shall have
the option to purchase the Former Party's entire JVCO interest as of the
effective date of withdrawal, in the manner and on the terms provided in Section
7.1.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
------------------------------
8.1 Mutual Representations and Warranties. Each Party hereby
-------------------------------------
represents and warrants to the other Party as of the Effective Date as follows:
(a) Corporate Existence and Power. Such Party (i) is a
-----------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction in which it is incorporated, and (ii) has full corporate
power and authority and the legal right to own and operate its property and
assets and to carry on its business as it is now being conducted and as is
contemplated in this Agreement.
33
(b) Authorization. Such Party (i) has the corporate power and
-------------
authority and the legal right to enter into the Agreement and perform its
obligations hereunder, and (ii) has taken all necessary corporate action on its
part required to authorize the execution and delivery of the Agreement and the
performance of its obligations hereunder. The Agreement has been duly executed
and delivered on behalf of such Party, and constitutes a legal, valid, binding
obligation of such Party and is enforceable against it in accordance with its
terms subject to the effects of bankruptcy, insolvency or other laws of general
application affecting the enforcement of creditor rights and judicial principles
affecting the availability of specific performance and general principles of
equity whether enforceability is considered a proceeding at law or equity.
(c) Absence of Litigation. Such Party is not aware of any pending or
---------------------
threatened litigation (and has not received any communication) which alleges
that such Party's activities related to this Agreement have violated, or that by
conducting the activities as contemplated herein such Party would violate, any
of the intellectual property rights of any other person.
(d) Consents. All necessary consents, approvals and authorizations
--------
of all governmental authorities and other persons or entities required to be
obtained by such Party in connection with the Agreement have been obtained,
except for the final consent required from the senior note holders of OPTEL.
(e) No Conflict. The execution and delivery of the Agreement and the
-----------
performance of such Party's obligations hereunder (i) do not conflict with or
violate any requirement of applicable law or regulation or any provision of the
articles of incorporation or bylaws of such Party in any material way, and (ii)
do not conflict with, violate or breach or constitute a default or require any
consent under, any contractual obligation or court or administrative order by
which such Party is bound.
(f) Intellectual Property. Such Party represents and warrants to the
---------------------
other that, to the best of its knowledge, it has sufficient legal and/or
beneficial title and ownership under its intellectual property rights necessary
for it to fulfill its obligations under this Agreement and that it is not aware
of any communication alleging that it has violated or by conducting its business
as contemplated by this Agreement would violate any of the intellectual property
rights of any other person. As used herein, "intellectual property rights" means
all patent rights, copyrights, trademarks, trade secret rights, and know-how
rights necessary or useful to make, have made, use, offer for sale, sell, have
sold, import and export the Data Products and Data Services.
8.2 Additional Representations, Warranties and Covenants. OPTEL hereby
----------------------------------------------------
represents, warrants and covenants to RHYTHMS as follows:
(a) Authorization as Canadian Carrier. OPTEL is a duly authorized
Canadian carrier and is eligible to operate as a telecommunications common
carrier in Canada, as those terms are defined under and in accordance with the
Telecommunications Act and the Canadian Telecommunications Common Carrier
Ownership and Control Regulations. OPTEL has met all of the requirements imposed
by the Canadian Radio-television and Telecommunications Commission (the "CRTC")
and any other regulatory authority to operate as a competitive local
34
exchange carrier ("CLEC") and has been recognized by the CRTC as a CLEC eligible
to operate in Canada in certain defined markets.
(b) Permits. OPTEL (i) owns, possesses, holds or has obtained all
-------
material Canadian federal or provincial governmental and third party licenses,
permits, certificates, certifications, consents, orders, approvals and other
authorizations, including, without limitation, all waivers, licenses and
authorizations under the Telecommunications Act and decisions, orders and rules
established thereunder by the CRTC necessary to operate the business of OPTEL
and necessary to own and operate the Underlying Network Facilities and all
property associated therewith (the "Licenses"), other than those the absence of
which could not reasonably be expected to, individually or in the aggregate,
have a material adverse effect on OPTEL, and (ii) have not received any notice
of proceedings relating to the revocation or the modification of any of the
Licenses that, if determined adversely to OPTEL, could reasonably be expected
to, individually or in the aggregate, have a material adverse effect on OPTEL
taken as a whole.
(c) Telecommunications Assets. OPTEL owns, possesses, or leases and
-------------------------
maintains sufficient and appropriate telecommunications facilities and assets in
order to perform its obligations under the Agreement, and that those assets and
facilities are free of encumbrances other than any encumbrances disclosed to
RHYTHMS prior to the execution of the Agreement.
ARTICLE IX
TERMINATION
-----------
9.1 General. This Agreement shall terminate on the earlier to occur of:
-------
(a) written agreement of the Parties setting forth the terms of such
termination;
(b) the transfer of all of the Shares of JVCO held by the Parties to one
Party; or
(c) the twentieth anniversary of the Effective Date.
9.2 Termination by a Party for Cause. If any material breach of this
--------------------------------
Agreement shall occur and to the extent that such material breach is capable of
being cured, but is (A) not cured within one hundred twenty (120) days or (B)
reasonable steps to cure are not taken within twenty (20) Business Days after
the date that the Party committing such material breach (the "Defaulting Party")
receives written notice thereof, the non-Defaulting Party may deliver a written
notice of termination (the "Termination Notice") to the Defaulting Party at any
time, which Termination Notice shall be effective upon such delivery thereof.
Upon the effective date of such Termination Notice, the Parties agree as
follows:
(a) the Defaulting Party shall be deemed to have submitted the
resignation of each of the Directors nominated by it (and the Defaulting Party
shall cause each of such Directors to immediately so resign);
35
(b) the Defaulting Party shall, upon request by the non-Defaulting Party,
assign all of its right, title and interest in the Shares of JVCO then held by
it to the non-Defaulting Party in exchange for payment of the Fair Market Value
of such transferred Shares;
(c) JVCO shall have the right, but not the obligation, upon written
notice to the Defaulting Party, to terminate the Defaulting Party's rights to
use or otherwise practice any intellectual property or technology developed
after the date of the other Party's receipt of the Termination Notice;
(d) the non-Defaulting Party and JVCO shall be entitled to avail
themselves cumulatively of any and all remedies available at law or in equity.
9.3 Liquidation; Survival.
---------------------
(a) Liquidation. Upon any termination and liquidation, to the extent
-----------
permitted by applicable law, the assets of JVCO shall be sold and distributed in
accordance with the Articles of Incorporation and applicable law.
(b) Survival. The Parties' rights and obligations which, by their
--------
nature, would continue beyond the termination, cancellation, or expiration of
this Agreement, including but not necessarily limited to Article VI and Sections
5.6(g), 5.8, 7.2, 10.1, 10.10 and 10.14 shall survive any termination of this
Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
10.1 Publicity. No Party (nor any Affiliate of any Party) will originate any
---------
publicity, news release, or other public announcement, relating to JVCO, this
Agreement or any other agreement between JVCO and either RHYTHMS or OPTEL or
their respective Affiliates, or the existence of an arrangement between the
Parties, without the prior written approval of the other Party, which approval
will not, be unreasonably withheld or delayed, except as otherwise required by
law.
10.2 Assignment. Neither this Agreement nor any of the rights or obligations
----------
under this Agreement may be assigned by any Party without the prior written
consent of the other Party, except to a permitted transferee under Article VII
of this Agreement.
10.3 Governing Law. This Agreement will be governed by and interpreted in
-------------
accordance with the internal laws of the Province of Ontario and the federal
laws of Canada applicable therein, without regard to conflicts-of-law
provisions.
10.4 Force Majeure. In the event that any Party is prevented from performing or
-------------
is unable to perform any of its obligations under this Agreement due to any act
of God; fire; casualty; flood; war; strike; lockout; failure of public
utilities; injunction or any act, exercise, assertion or requirement of
governmental authority; epidemic; destruction or production facilities; riots,
insurrection; inability to procure or use materials, labor, equipment,
transportation or energy; or any other cause beyond the reasonable control of
the Party invoking
36
this Section 10.4 if such Party will have used its reasonable efforts to avoid
such occurrence and minimize its duration, such Party will give notice to the
other Party in writing promptly, and the affected Party's performance will be
excused and the time for performance will be extended for the period of delay or
inability to perform due to such occurrence.
10.5 Waiver. The waiver by either Party of a breach or a default of any
------
provision of this Agreement by the other Party will not be construed as a waiver
of any succeeding breach of the same or any other provision, nor will any delay
or omission on the part of either Party to exercise or avail itself of any
right, power or privilege that it has or may have operate as a waiver of any
right, power or privilege by such Party.
10.6 Notice, Consents, Etc. Except as otherwise provided in this
---------------------
Agreement, all notices, consents, agreements, confirmations, designations,
indications, requests, authorizations, and the like to be given under this
Agreement will be sufficient if in writing and sent via first class mail, or
delivered in person or by express courier or by facsimile with confirmed receipt
(with a copy sent via first class mail), addressed as follows:
If to RHYTHMS: Rhythms NetConnections Inc.
0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx Xxxxxxxxxx
Fax No.: (000) 000-0000
With a copy to: Rhythms NetConnections Inc.
0000 Xxxxx Xxxxxx Xxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Chief Financial Officer
Fax No.: (000) 000-0000
If to OPTEL: Optel Communications Corporation
000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attn: President
Fax No.: (000) 000-0000
With a copy to: Optel Communications Corporation
000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attn: Chief Financial Officer
Fax No.: (000) 000-0000
If to JVCO: Rhythm Canada Inc.
000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxx X0X 0X0
Attn: President
Fax No.: _____
37
10.7 Entire Agreement. This Agreement and the Ancillary Agreements contain
----------------
the full understanding of the Parties with respect to the subject matter of this
Agreement and supersede all prior understandings and writings relating to such
subject matter; provided, however, that, this Agreement will not supersede or
-------- -------
modify in any respect any of the Ancillary Agreements identified in Schedule 1.3
------------
to this Agreement. No waiver, alteration or modification of any of the
provisions of this Agreement will be binding unless in writing and signed by all
the Parties.
10.8 Headings. The headings contained in this Agreement are for convenience
--------
of reference only and will not be considered in construing this Agreement.
10.9 Severability. In the event that any provision of this Agreement is
------------
held by a court of competent jurisdiction to be unenforceable because it is
invalid or in conflict with any law of any relevant jurisdiction, the validity
of the remaining provisions will not be affected, and the rights and obligations
of the Parties will he construed and enforced as if the Agreement did not
contain the particular provision held to be unenforceable.
10.10 Dispute Resolution.
------------------
(a) The Parties recognize that bona fide disputes as to business
matters may arise in the conduct of the JVCO Business, which disputes may impair
their ability of JVCO to effectively carry on its business.
(b) Each Party will act reasonably and in good faith to avoid
Business Deadlock. In the event of the occurrence of a Business Deadlock, either
Party may, by written notice to the other Party, have the Business Deadlock
referred to a panel consisting of one senior executive from RHYTHMS and one
senior executive from OPTEL for resolution by negotiation within thirty (30)
days after such written notice is received. All such negotiations will be
conducted reasonably and in a good faith manner in an effort to reach a mutually
satisfactory, unanimous resolution. Such resolution, if any, of the Business
Deadlock will be binding on the Parties, and the Parties will instruct the
members of the Board designated by them to approve such resolution.
(c) If, after the informal resolution procedure set forth in this
Section 10.10 has failed or the Parties are otherwise unable to resolve such
dispute within thirty (30) days (or such other period as the Parties may agree),
the Parties will submit the matter for binding resolution in accordance with the
rules of arbitration of the Arbitration Act (Ontario).
(d) Such arbitrator is authorized to render awards of monetary
damages, direction to take or refrain from taking action, or both. The
prevailing party, as determined by the arbitrator will be entitled to an award
of reasonable attorneys, fees and costs. Judgment upon the award rendered in any
such proceeding may be entered in any court of competent jurisdiction, or
application may be made to such court for judicial acceptance and enforcement of
the award and direction. Any such award or direction will be binding on the
Parties to the proceeding and final, except that for appeals on the grounds that
the award or direction were obtained through fraud. Such proceeding will be
confidential and no stenographic or other record need made of any such
proceeding other than a memorandum of understanding setting forth the elements
of any settlement or award reached. It is expressly agreed that either Party
38
may seek injunctive relief or specific performance of the obligations under this
Agreement in an appropriate court of law or equity pending an award in
arbitration.
10.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
10.12 Expenses. Whether or not the transactions contemplated by this
--------
Agreement or the Ancillary Agreements will be consummated, RHYTHMS and OPTEL
will each bear its own expenses, including without limitation all expenses
relating to counsel incurred in connection with the preparation of this
Agreement or the Ancillary Agreements, the consummation of the transactions
contemplated hereby and thereby, and any waiver or amendment of, or consent
under this Agreement or the Ancillary Agreements.
10.13 Applicable Laws and Regulations. The Parties agree that all
-------------------------------
activities to be undertaken by or on behalf of JVCO will be conducted in
compliance with all applicable laws and regulations of the relevant
jurisdiction(s).
10.14 Indemnities.
(a) Each Party will indemnify and hold harmless the other Party or
Parties from and against any suit, claim, demand, liability, damage, loss, cost,
or expense, including legal fees and court costs ("Claim"), resulting from,
arising out of, or in any manner attributable to (i) any inaccuracy in any
representation or any breach of any warranty or other agreement or promise
contained in this Agreement or due to the inaccuracy of any document furnished
to it or caused to be furnished to it by the indemnifying Party pursuant to the
terms of this Agreement, (ii) any matter involving a Party's gross negligence or
intentional misconduct, or (iii) any act by a Party in violation of Article VI
and Sections 4.3 of this Agreement; provided, however, that this Section will
-------- -------
not be deemed to include any Claims resulting from, arising out of, in any
manner attributable to taxes based on income.
(b) A Party entitled to indemnification under this Section 10.14
will deliver written notice of any Claim to the indemnifying Party within ten
(10) Business Days following the date such Party first receives written notice
of such Claim; provided that failure to give this notice within the required
time period will not relieve the indemnifying Party of its obligations under
this Section 10.14 so long as no prejudice results from such failure. The
partner seeking indemnification will keep the indemnifying Party fully informed
of the progress of the claim and will afford the indemnifying Party and its
counsel full opportunity to participate in any action of the Claim. A Party
seeking indemnification will not settle the Claim for which indemnification is
sought without first obtaining written approval from the indemnifying Party.
Approval of a settlement by a Party against whom indemnification is being sought
will not be deemed an admission of liability under this Section 10.14.
10.15 Ancillary Agreements. Notwithstanding anything to the contrary in
--------------------
this Agreement, both Parties agree to use commercially reasonable efforts and to
diligently negotiate in good faith each of the Ancillary Agreements contemplated
by this Agreement within one
39
hundred twenty (120) days after both Parties have executed this Agreement or
such extended period to which the Parties mutually agree.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
40
IN WITNESS WHEREOF, the Parties to have caused this Agreement to be
executed in their names by their properly and duly authorized officers or
representatives as of January 1, 2000.
RHYTHMS NETCONNECTIONS INC., and
RHYTHMS LINKS, INC.
By: _______________________________________
Xxxxx X. Xxxxxxxx
Chief Financial Officer
and Executive Vice President
OPTEL COMMUNICATIONS CORPORATION
By: _______________________________________
Xxxxxx Xxxxxx
Chief Executive Officer and President
[SIGNATURE PAGE TO JOINT VENTURE AGREEMENT]
SCHEDULE 1.25
-------------
DATA SERVICES
-------------
I. "DSL Service" means digital subscriber line, a transmission technology
-----------
enabling high-speed access in the local copper loop, often referred to as the
last mile between the network service provider i.e., an incumbent carrier,
competitive carrier or an internet service provider and end user. Included are
the various implementations of DSL including ADSL, SDSL, IDSL, RADSL and HDSL.
II. Technical Description.
---------------------
1. The Company will be in the business of providing services to customers.
The Company will provide services to customers from demanding industries like
banking and brokerage services, high-tech manufacturing, healthcare, media, and
other organizations with mission-critical networking requirements. The Company
will offer the following services:
. Internet Access - An affordable and reliable solution for any size
business to connect to the net through partnering ISP's. The Company
has chosen to team with a limited number of ISP partners.
. Teleworking - A solution for businesses whose employees need to work
from home and connect to a corporate network at higher speeds at any
hour.
. Branch Office Interconnect - A solution for businesses with multiple
branch offices or affiliates. The service provides communication with
their corporate network.
. New products and services as they are developed and become available
such as voice over DSL.
. Business to business connectivity.
2. From a technical perspective the Company offers:
. Dedicated and secure, always on broadband access, such as high-speed
DSL technology.
. Pan-Canadian coverage.
. Carrier-class reliable and managed network.
. Flexibility in Layer2 and Layer3 connectivity, including multi-protocol
support.
. Service selection possibilities for end-users.
Schedule 1.25
. Scalable services (upgrade paths for speeds, features and endpoints).
. Complete installation all the way to the desktop.
. Customer service and support at any hour 24 hours a day, 7 days a week.
. Network based on technology positioned to carry integrated voice, data,
video, and multimedia all over a single line.
. Value Added Services like automatic data backup, PBX extension, caching,
multicast, etc.
The Company's service solutions include best-in-class customer service and
proactive network management. This means complete attention to every detail,
including ordering, provisioning, installation, billing and performance
reporting.
The Company also offers the possibility of turnkey project management for
each and every (end-user) installation. The installation includes the
installation all the way to your desktop, including inside wiring and equipment.
3. Technology platform. The infrastructure that the Company will deploy
-------------------
will have an architecture of hubs and spokes. In a selected number of cities
Metropolitan Service Centers (MSC's) will be built to which several Rhythms
Canada Connection Points (CP's) are connected. The CP's connect to the
individual endpoints (at the end-user premises) to provide high-speed access.
The Company's service delivery platform architecture in the Rhythms Canada CP's
and MSC's will mirror the service delivery platform used by Rhythms. The
Company's MSC's will be interconnected with the Rhythms MSC's. The costs of
these connections will be shared by the Company and Rhythms on a basis that is
consistent with the benefit that accrues to each Party.
Schedule 1.25
SCHEDULE 1.3
------------
ANCILLARY AGREEMENTS
--------------------
Trademark Licensing Agreement
Technology License Agreement between RHYTHMS and JVCO
Technology License Agreement between OPTEL and JVCO
Schedule 1.3
SCHEDULE 1.42
-------------
COMMUNICATIONS MARKETS
----------------------
The JVCO Communications Markets include the following metropolitan areas and
cities in Canada including their surrounding townships and villages:
1. Toronto (including Brampton, Mississauga, Oakville, Vaughan)
2. Montreal (Cote-St. Luc, Dorval)
3. Vancouver (including Burnaby, Coquitlam, Langley, New Westminster,
Richmond, Surrey)
4. Ottawa-Hull (including Gatineau, Hull, Kanata, Nepean, Orleans)
5. Edmonton (including Fort Saskatchewan, Leduc, Spruce Grove)
6. Calgary (including Airdrie)
7. Quebec City
8. Winnipeg
9. Hamilton (including Burlington, Stoney Creek)
10. London (including St. Xxxxxx)
11. Kitchener-Waterloo (including Cambridge)
12. St. Catherines-Niagara
13. Halifax (including Dartmouth)
14. Victoria
15. Windsor
16. Oshawa
17. Saskatoon
18. Xxxxxx
19. St. John's
20. Sudbury
Schedule 1.42
SCHEDULE 1.43
-------------
PRELIMINARY CUSTOMERS
---------------------
JVCO Customers are those large business customers listed on the Financial Post
--------------
500 (attached hereto as Annex 1.43-A) with the exception of those Optel Pre-
------------
Existing Customers listed below.
Small and Medium Business Customers are those businesses in Canada that are:
-----------------------------------
(a) not listed on the Financial Post 500 (attached hereto as Annex 1.43-A),
------------
and
(b) not on the preliminary list of U.S. business customers of RHYTHMS
(attached hereto as Annex 1.43-B) with facilities in Canada.
------------
Optel Pre-Existing Customers are the following businesses:
----------------------------
Sony Corporation MDS Inc.
Xxxxxx Xxxxxx Limited Cara Operations Limited
Loblaw Companies Limited Chrysler Credit Canada Ltd.
Magna International Inc. Cinram International Inc.
Xxxxxx'x Bay Company Chapters Inc.
Sears Canada Inc. Oxford Properties Group Inc.
Canadian Tire Corporation, Limited Xxxxx'x Restaurants Inc.
Dofasco Inc. Imax Corporation
Lafarge Corporation Mark's Work Wearhouse Ltd.
Westburne Inc. First Marathon Inc.
Future Shop Ltd. Vincor International Inc.
Union Gas Limited Chateau Stores of Canada Ltd.
Loews Cineplex Entertainment Corporation Arbor Memorial Services Inc.
Dylex Limited Pallet Pallet Inc.
Dover Industries Limited
Optel Combined Service Customers are the following businesses:
--------------------------------
York University
The Montreal Hospital Association
Schedule 1.43
SCHEDULE 4.1(a)
---------------
INITIAL BOARD OF DIRECTORS
--------------------------
RHYTHMS:
1. Xxxxx Xxxxxxxx
2. Xxxxx Xxxxxxxx
OPTEL:
1. Xxxx Xxxxx
2. Xxxxxx Xxxxxx
Schedule 4.1(a)
SCHEDULE 4.5(a)
---------------
INITIAL BUSINESS PLAN AND SUPPORTING FINANCIAL INFORMATION
----------------------------------------------------------
The initial Business Plan with supporting financial information is attached
hereto as
Annex 4.5-A.
-----------
Schedule 4.5(a)
SCHEDULE 5.1(a)
---------------
PRELIMINARY HUMAN RESOURCES PLAN
--------------------------------
The preliminary Human Resources Plan of JVCO shall be based on the Staffing Plan
described on pages 11-14 of the Business Plan (attached hereto as Annex 4.5-A).
Schedule 5.1(a)
SCHEDULE 5.3(a)
---------------
OPTEL LEASED ASSETS
-------------------
Equipment Description Quantity
--------------------- --------
BPXS ATM Switch 2
7200 Router 1
Cisco 6100 DSLAM Chassis 14
Cisco 6130 DSLAM Chassis 7
Schedule 5.3(a)
EXHIBIT A
---------
FORM OF ARTICLES OF INCORPORATION
---------------------------------
Exhibit A-1
EXHIBIT B
---------
FORM OF BYLAWS
--------------
Exhibit B-1
EXHIBIT C
---------
FORMS OF EMPLOYEE PROPRIETARY INFORMATION
-----------------------------------------
AND INVENTIONS AGREEMENTS
-------------------------
Exhibit C-1
EXHIBIT D
---------
FORM OF TRADEMARK LICENSING AGREEMENT
-------------------------------------
Exhibit D-1
EXHIBIT E
---------
FORM OF TECHNOLOGY LICENSE AGREEMENTS
-------------------------------------
Exhibit E-1
