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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ to _______
Commission file number 333-53953
CONVERGENT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
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Colorado 84-1337265
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
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400 Inverness Drive South, Suite 400
Englewood, Colorado 80112
(303) 749-3000
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
Common Stock Nasdaq National Market
Securities registered pursuant to section 12(g) of the Act:
Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
On March 20, 2000, 28,932,281 shares of the registrant's Common Stock were
outstanding. On March 20, 2000, the aggregate market value of our common stock
held by non-affiliates was approximately $314.6 million, based on a price per
share of common stock of 10.875.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to our
definitive Proxy Statement for the 2000 Annual Meeting of Stockholders which
will be filed with the Securities and Exchange Commission no later than 120 days
after December 31, 1999.
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TABLE OF CONTENTS
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PART I
Item 1. Business .................................................................................... 1
Item 2. Properties .................................................................................. 13
Item 3. Legal Proceedings ........................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders ......................................... 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ....................... 14
Item 6. Selected Financial Data ..................................................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation ........ 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................. 28
Item 8. Financial Statements and Supplementary Data ................................................. 29
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ........ 52
PART III
Item 10. Directors and Executive Officers of the Registrant ......................................... 52
Item 11. Executive Compensation ..................................................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and Management ............................. 52
Item 13. Certain Relationships and Related Transactions ............................................. 52
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ........................... 53
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Note Concerning Forward-Looking Information
Some of the information in this report contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they: (1) discuss our
future expectations; (2) contain projections of our future results of operations
or of our financial condition; or (3) state other "forward-looking" information.
We believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we have not
accurately predicted or over which we have no control. These events may include
future operating results and potential competition, among other things.
Cautionary language in this report provides examples of risks, uncertainties and
events that may cause our actual results to differ materially from the
expectations we describe in our forward-looking statements. You should be aware
that the occurrence of the events described in this report could have a material
adverse effect on our business, operating results and financial condition.
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PART I
Item 1. Business
Introduction
We are a rapidly growing national provider of e-Sourcing solutions
primarily to businesses with 25 to 500 employees. "e-Sourcing" is the management
of communications solutions that allow businesses to leverage technology,
systems and networking resources -including broadband Internet Protocal based
applications- without having to "own" or internally build and manage those
resources. Inside our customers' premises we own communications networks and
provide professional services, such as the design, installation, management and
monitoring of those networks. Outside our customers' premises, we provide a full
range of data and voice transport services. By operating networks both inside
and outside our customers' premises, and by offering a broad range of Internet,
data and voice systems and services, we provide small and medium sized
businesses with state-of-the-art communications solutions, including data and
voice networks based on broadband Internet Protocol, electronic commerce,
connections to the Internet and sophisticated communications systems.
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Internet Protocol
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Internet Protocol or IP is a standard industry method of identifying,
tracking and reassembling packets of information transferred over multiple
communications networks, including the Internet.
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We offer each of our systems and services on a stand alone basis or as a
bundled communications solution under long-term service agreements in which we
may own all or a portion of the inside network, provide professional services
inside our customers' premises, supply data network services outside their
premises and provide equipment financing where the customer chooses to own their
inside network. The comprehensive solution, which we call Enterprise Managed
Services, reduces our customers' capital needs, technical staffing requirements
and risks associated with evolving communications technologies.
We are deploying Cisco Systems, Inc.'s multi-service data and voice switch
in each of the 35 metropolitan areas in which we currently operate and will also
deploy them in additional markets we expect to enter. These next-generation
switches will enable us to route our customers' external communications traffic
more efficiently and with lower capital outlay than with traditional switches.
Over the last three years, we have:
. rapidly established a nationwide presence in 35 metropolitan markets;
. grown our customer base and provided our systems and services to more
than 33,000 customers in the last two years either directly or through
businesses we have acquired;
. increased sales to $160.0 million in 1999 from $61.6 million in 1998
and $10.2 in 1997;
. raised $338.6 million in debt and equity offerings;
. completed 18 acquisitions, expanding our market presence, technicians
and capabilities to deliver our comprehensive service offerings;
. designed and implemented an IP/ATM network that will connect our
multi-service, data and voice switching platforms and carry our
customers' traffic using ATM technology;
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ATM
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Asynchronous Transfer Mode (or ATM) is a high-speed technology used to
transport information in packets. ATM packets are fixed in size and allow the
transport of size-intensive and time-sensitive applications, such as video and
voice, quickly and efficiently.
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. grown our employee base to more than 1,500, including an experienced
sales team of 375, technical staff of 558 and customer care support
staff of 180;
. devoted significant resources to the development, testing and
implementation of our operational support system; and
. developed, tested and implemented our national network operations
center.
Our Solutions
We offer comprehensive communications solutions--ones that have
traditionally been readily available only to large enterprises--to small and
medium sized businesses. The combination of our focus on this market and our
national scale enables us to design sophisticated data and voice systems and
solutions tailored to these small and medium sized businesses.
Our services utilize the data and voice networks, inside and outside of our
customers' enterprises.
. Inside our customers' enterprises we own networks and design, install,
manage, maintain and monitor these networks (local area networks, wide
area networks, computers, private branch exchanges, key systems,
handsets, etc.) under long-term service agreements for which the
customer pays a flat monthly fee. The IP-based integrated data and
voice network solutions that we provide (including eCommerce, web
application development and web hosting), and which we expect will
become a larger portion of our business, can significantly reduce
overall network administration and capital costs for our customers.
. Outside our customers' enterprises, we provide next generation data
centric networks that connect the internal network to the Internet
using broadband transport technology. As we continue to build our
IP/ATM network, we will migrate many of these services to our own
network.
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With our premiere offering, Enterprise Managed Services, our most
comprehensive eSourcing solution, we become an outsourcing partner to our
clients by taking ownership and full responsibility for planning, installing,
provisioning and maintaining their communications systems and networks,
including their critical eBusiness integration projects. We offer this service,
in addition to owning all or a portion of the data and voice communications
systems inside our customers' enterprises, for a flat, monthly, per user fee
under a long-term contract. Using these inside networks in conjunction with our
comprehensive next generation IP/ATM networks, we lower our customers' costs by
reducing network outages and providing faster Internet access which allows them
to use their applications more efficiently. This offering can also reduce their
capital expenditures, technical staffing requirements and risks associated with
quickly evolving communications technologies.
Our Business Strategy
Our business strategy is designed to generate a broad source of stable and
recurring revenue. In implementing this strategy, we will:
Target Small and Medium Sized Businesses. The small and medium sized
business market has historically been underserved by national systems
integrators, outsourcers, data technology companies and telecommunications
providers, even though many small and medium sized businesses demand high-
performance communications solutions. Because we are focused on this market, we
have developed systems, services and solutions that are well suited for the
financial resources, growth characteristics, technological sophistication and
other needs of small and medium sized businesses.
Provide Sophisticated, One-Stop, Integrated Communications Solutions.
Most small and medium sized businesses do not have the internal capability or
capital required to deploy, fully utilize and effectively manage evolving data
and voice systems. We are increasingly able to respond to substantially all of
our customers' communications needs and can offer equipment leasing and
maintenance contracts. This comprehensive approach is designed to reduce the
complexity and expense of owning and operating communications networks for our
customers. Our solutions are designed to facilitate the migration of traditional
communications systems to integrated IP-based data and voice networks.
Own the Communications Network Inside Our Customers' Enterprises.
Through our Enterprise Managed Services, we seek to own the data and voice
networks inside our customers' premises and provide these networks to our
customers along with management, maintenance and monitoring services under long-
term service agreements. This approach is designed to:
. allow our customers to focus on their core business and outsource
their communications needs;
. capture a large portion of our customers' communications spending;
. minimize customer turnover;
. generate high-margin revenue; and
. enhance our opportunities to sell additional systems and service
upgrades to existing customers.
Focus on Solutions-Based Selling. We market our systems and services, such
as Enterprise Managed Services, as solutions to business problems rather than as
stand-alone products. We do so by marketing to the senior management and
principals of our potential customers, providing them with an analysis of the
benefits of our comprehensive solutions. In the process we become the single
source provider (e-Sourcer) to these customers under long-term service
contracts.
Provide Preeminent, Local Customer Care. We strive to provide best-in-care
service by offering our customers immediate and around-the-clock access to our
customer care staff. Our 180 customer care specialists are trained in all
aspects of the systems, services and solutions offered in their market.
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Our Systems and Services
As a single-source provider of a wide array of communications systems,
services and solutions we have identified three core areas of expertise from
which these solutions are produced and supported. These areas, segmented by our
Strategic Management Units (SMUs), include eBusiness Solutions, Enterprise
Services and Enterprise Systems.
eBusiness Solutions
Our eBusiness capabilities allow growing enterprises to capitalize on the
power of the Internet to reach and support their customers. Managed through five
national eBusiness solution centers in Portland, Denver, Chicago, Atlanta and
San Francisco, services offered are as follows:
. Application Service Provider ("ASP") Services. We offer ASP Services,
which are custom-tailored service offerings for growing enterprises
seeking rapid delivery of cost-effective, high value-added,
comprehensive solutions for their eBusiness initiatives. ASP Services
consist of eCommerce applications, e-procurement, and other electronic
Customer Relationship Management (eCRM) applications. These services
transform the methods by which organizations connect buyers and
sellers and process transactions, as well as customize and sell their
systems and services.
. Strategic Web Development. We specialize in creating dynamic Web sites
that perform beyond that of a "static" home page, incorporating
features such as database integration, multimedia streaming and one-
to-one marketing capabilities. In cases in which a business has an
existing Web site, we provide enhancements that increase its
functionality and performance. In either case, we help make the
Internet presence an even more valuable part of their business.
. eCommerce. Our eBusiness Solutions Group uses creativity and digital
technology to transform the way organizations connect buyers and
sellers, process payments and customize and sell systems and services.
We develop and implement custom eCommerce solutions to help clients
generate new and additional sources of revenue, streamline business
processes, extend marketing efforts and maximize efficiency. We also
integrate those eCommerce solutions with our clients' existing
database and back-office systems.
. Intranet Development. Our custom intranet solutions turn simple Web
sites running on a corporate network into a strategy for information
distribution across our client's company and the world. We implement
dynamic and manageable intranets that streamline business processes,
and maximize efficiency.
. Extranet Development. We extend the use of our clients' intranet to
enable selected suppliers, distributors, and customers to communicate
through a business-to-business extranet. We build and implement
applications that allow selected users access to private data and
applications via the World Wide Web. By applying an extranet
application to business processes, we enhance marketing efforts and
maximize efficiency.
. Custom Web Hosting. We offer three types of hosting environments:
shared, dedicated and co-located. Our hosting solutions are customized
on multiple platforms to meet our clients' online requirements and to
ensure that the final online product is reliable. We have the
facilities and manpower to ensure the connectivity, redundancy and
security of our customers' online business objectives.
. e-WebBuilder. We offer e-WebBuilder, which allows businesses to
realize the promise of online technology today, without having to
divert funds from their operating budget to buy expensive equipment,
or hire and retain the networking staff needed to design and maintain
web-based programs. With e-WebBuilder Express, customers develop the
information about their company that they want to place online. Then,
choosing from more than 100 professionally designed templates, they
select a look for the
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site that best reflects the image of their company. Our Catalog option
adds the benefits of e-commerce by allowing customers to display
products and services in an online catalog.
Enterprise Services
Our Enterprise Services SMU is focused on the support of both inside and
outside premises services and solutions, including:
. Enterprise Managed Services (EMS). We provide Enterprise Managed Services
solutions under long-term service agreements for a flat, monthly, per user
fee. We believe the EMS offering to be particularly attractive to our small
and medium sized business customers because it:
. provides them with a broadband network platform with highspeed
connectivity to the Internet;
. reduces their costs of long-term ownership while increasing their
business effectiveness;
. reduces their risks and burdens associated with owning, operating and
maintaining data and voice networks;
. replaces costly and unpredictable capital outlays with stable and
predictible monthly expenses; and
. reduces their need to employ costly and difficult-to-recruit
information technology personnel.
Other services we offer in conjunction with EMS are as follows:
- EMS Connect. EMS Connect is a bundled solution delivering our most
popular network services in a pre-designed format including DSL,
dedicated long distance and frame relay service.
- EMS Telephony. EMS Telephony is a complete service offering of voice
communications systems tailored to meet the needs of small and medium
sized businesses.
- EMS Office. EMS Office is an offering that includes packaged voice and
data desktop configurations, internet access, LAN and telephony
servers offered at a flat rate based on the number of desktops.
In addition, for customers that choose to own their internal network, we
provide leasing options to facilitate the purchase of their data and voice
systems. We use our existing credit arrangements, or obtain new credit
facilities, to provide lease alternatives to our customers. We believe that
these services enhance our ability to attract customers and act as their single-
source provider. We also believe that these services allow us to maintain
contact with customers and provide us with the opportunity to sell additional
systems and services to them.
. Professional Services. We design, install, manage, maintain and monitor
networks and systems including local area networks, wide area networks and
integrated IP-based networks, and assist our customers with adding and
moving phone lines. The benefits to our customers include:
. A single point of contact for networking services;
. Improved reliability and quality of our customer's network through
proactive trending analysis;
. Real-time, Web-based network performance reporting available 24 hours
per day, 7 days a week; and
. Lower cost of network management through leveraging shared resources;
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. Broadband Services. Our Broadband Services include Internet access, frame
relay (ATM and IP switching), long distance service, local telephone
service and public phone service.
. Internet Access. We currently offer highspeed Internet access services
in all of our markets through our EMS Connect service using
interconnections with UUNet. Our network is connected to three primary
Internet gateways located at Hearndon, Virginia, Santa Clara,
California, and Chicago, Illinois.
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Frame Relay
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Frame relay is a high-speed sevice which transports information in packets of
varying sizes. Frame relay is a highly reliable digital service, efficient at
handling high-speed, "bursty" data over wide area network.
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. Transport Services. We are developing an ATM service in conjunction
with our development and deployment of our national IP/ATM network. We
also provide managed frame relay services to our customers allowing
them to transmit data, voice and video traffic on a single digital
facility. We are currently testing various types of digital subscriber
line, or DSL, services with a leading provider. Once we select a
primary provider of digital subscriber line services, we will begin
providing those transport services to our customers.
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DSL
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Digital Subscriber Line (or DSL) enables high-speed local data transport over
the existing copper wire insfrastructure.
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. Long Distance Services. We provide resold inter-state and intra-state
long distance services. We also provide enhanced services such as
toll-free calling services and travel card services.
. Local Phone Services. We provide resold local phone services.
Enterprise Systems
. Data Systems. We are a provider of systems from a large variety of
suppliers needed to create data networks including routers, hubs, bridges,
multiplexers, switches, servers, personal computers, and other equipment.
We also market integrated IP-based private branch exchanges, or PBXs, and a
broad range of other IP-based devices.
. Voice Systems. We are a provider of voice network systems such as private
branch exchanges, key systems (smaller versions of PBXs), handsets, voice
processing and messaging systems and call management software.
Sales and Marketing
Since January 1, 1998, we have provided our systems or services to more
than 35,000 businesses, either directly or through businesses we have acquired.
As of December 31, 1999, we are selling all our data systems and services in 17
of our markets, voice systems and services in all of our markets and a full
suite of offerings, including EMS, in seven markets. We are developing
additional data, Internet and EMS expertise in the markets in which we do not
currently offer those systems and services. We anticipate being able to provide
all of our systems and services in an additional four of our markets by the end
of 2000, and in all of our existing markets by the second half of 2002.
Our Sales Team. We sell our systems, services and solutions through our
staff of approximately 375 sales representatives and support and approximately
558 technicians in 49 offices in our 35 markets. Our sales force is supervised
by area and regional general managers, each of whom has responsibility for all
sales functions in one of our geographic regions. A significant portion of the
compensation of the sales force is tied to annual goal and quota programs with
incentive bonuses paid based on gross margin (rather than revenue) targets set
by us.
Selling Our Enterprise Managed Services. We market our Enterprise Managed
Services to the upper level management of our current and potential customers as
a business solution rather than a technology solution. Our
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sales teams seek to demonstrate to the business decision makers the quantifiable
benefits of not owning their inside communications systems and networks and
allowing us to own and manage the communications systems and networks inside
their premises. The analyses we use to accomplish this task include:
. Vendor Cost-Efficiency Analysis. A field audit of a customer's past
communications bills for a variety of services from outside vendors
identifies the total cost for these services, vendor billing errors,
services billed but not provided, or services paid for but not
utilized.
. Network Analysis. A physical audit of a customer's communications
network assets quantifies the capital a customer has invested in their
communications network and the costs associated with future upgrades
to the customers network to meet their growing needs, and identifies
design flaws in the customer's network.
. Resource and Skill Set Analysis. An audit of internal resources
required to maintain the customer's communications system and network
quantifies the labor costs and identifies the skill sets required to
achieve the customer's stated business goals.
. Security Analysis. An audit of a customer's system and network
determines the vulnerability of a customer's proprietary information
to hackers and competitors.
. The Convergent Communications Solution. A custom-tailored proposal
that presents our advanced communications solution to the customer's
Internet, data and voice requirements.
As part of our solution, we conclude by providing a comparative "total cost of
ownership analysis." This analysis is an economic comparison of our solution to
the customer's current communications system and network and management
approach. The comparison includes the potential cash infusion the customer will
receive from the sale of its network assets to us and the potential reduction in
expenses associated with reducing personnel and outside vendor costs.
Marketing. We use a variety of marketing programs and media to raise
awareness of our systems, services and solutions and to generate sales leads and
opportunities. In addition, sales leads often come from our existing satisfied
customers. Our programs include:
. advertising in newspapers, magazines and trade journals;
. advertising on radio;
. sending direct mail solicitations;
. conducting business seminars;
. participating in trade shows;
. cross selling systems and services to the more than 81,000 customers
who have previously purchased voice systems or services from us or
companies we have acquired; and
. creating alliances and lead referral agreements with key vendors and
suppliers.
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Customers and Markets
Our Customers. We have provided our systems and services to more than
35,000 customers since January 1, 1998, either directly or through businesses we
have acquired.
Our Markets. We currently provide our systems and services in 35
metropolitan areas and we intend to expand into an additional 15 markets over
the next two years. Our existing markets are:
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Customer Care and Operations Support
Our Customer Care Staff. Our sales and customer support functions are
highly integrated. Our 180 customer care specialists are trained in all aspects
of the systems, services and solutions offered in their markets. Our integrated
approach allows us to pursue our goal of providing best-in-care service starting
with the initial customer contact and continuing throughout the life of the
account.
Commitment to Superior Service. In order to provide superior service we:
. Act Immediately. Our employees are specialists who will begin
troubleshooting immediately to resolve any problem and reach a
conclusion during the initial contact. Our national customer care
center provides additional around-the-clock support, 365 days a year
and the seven regional customer care centers are staffed nine hours a
day, five days a week to handle the anticipated workload.
. Provide a Single Point of Contact. Our customers can call a single
toll-free number for assistance in solving most problems. Because our
customer care teams are trained in the entire suite of communication
systems and services we offer, they are able to assist customers in
solving problems that may involve more than one system or service
issue.
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Our Operational Support System. Our operational support system is
designed to integrate all of our internal support services. This integration
will permit customer care, sales engineering, service management, service
delivery, accounting and inventory sales management personnel to access a single
customer record. Accordingly, a customer can get support for any of our systems
and services with one phone call. By providing comprehensive, real-time customer
information, this system is designed to enable our customer support
representatives to respond faster to inquiries, provide greater quality customer
care, and identify more opportunities to sell additional systems and services.
We are in the process of adding additional functionality to our operational
support system, including improved order entry systems, dispatch and other
logistics functions, improved trouble ticket systems and contract management
features. These enhancements are designed to increase our efficiency in
supporting our existing voice product and service customers and to increase our
sales of data systems and services to them.
National Network Operations Center. Our national network operations center
provides customer support and proactive and fully redundant network monitoring
systems. These systems provide us the ability to monitor all types of network
and customer devices installed in the field including routers, hubs, servers,
switches, desktop computers, printers and other peripheral devices. For these
devices, our system provides:
. logical depictions of our customers' networks for quick isolation of
trouble;
. graphical presentations of equipment locations by bay, shelf and card
for quick identification;
. remote connection and testing capability; and
. network administration to manage bandwidth and configure and manage
equipment.
Network Architecture
Our DS3 nationwide network connects our Cisco powered next generation
multi-services switching platforms (NG-MSSP) which we call our Enterprise Points
of Presence, or ePOPs. This nationwide network carries our customers' voice,
video, data and Internet traffic using Internet Protocol (IP) and ATM
technology, unlike traditional switches, which are designed to transport only
specific types of data or voice services. Our NG-MSSP allows for customers to
connect to the network via multiple technologies including XDSL, Frame Relay,
ATM, IP, Private Line, and wireless at speeds ranging from 64k (DS0) up to DS3.
We lease fiber capacity from Level 3 Communications, MCI Worldcom and Williams
Communications and install our equipment at the connection points. Our NG-MSSP
network is connected to three regional Internet aggregation private peering
gateways located in Hearndon, VA, Chicago, IL, and Santa Clara, CA. These
gateways provide redundant connectivity to the Internet, improve throughput
speed, allow private and public connections over the same customer connection,
and provide connectivity to hosting facilities. We have 16 nationwide
operational ePOPs. We expect to have 32 operational ePOPs by the end of 2000.
As of December 31, 1999, we had deployed 16 ePOPs with 8 additional ePOPs
under construction with estimated completion by July 2000. During the next 30
months, we intend to deploy 34 additional ePOPs, including the 8 currently under
construction. This switching architecture allows us to offer more functionality
at a substantially lower capital and operating cost than the combination of
traditional switches necessary to carry the same types of traffic. Our agreement
with Cisco also makes us a Cisco Powered Network Partner, which is a designation
that recognizes a select group of service providers who are committed to
providing high-performance reliable networking services. In addition, we have a
$103.5 million financing facility with Cisco Systems Capital Corporation to
finance the purchase and installation of ePOPs.
Acquisitions
Since our inception, we have completed 18 acquisitions that have aided in
establishing our operations in 28 of our 35 markets and have added to our skills
and areas of expertise. We are expanding the product and service
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offerings available to the acquired sales and field personnel, thereby creating
new sales opportunities. We expect to continue to make selective acquisitions to
expand our expertise and broaden our geographic coverage.
The key factors we have and will continue to use in evaluating potential
acquisitions are:
. cross-selling and up-selling opportunities;
. size and quality of the acquired customer base;
. acceleration of our new market entry or expansion of existing markets;
. additions to our sales force and technical personnel;
. costs of acquisition; and
. historical and projected financial performance.
Market Environment
Although several larger data and voice companies have entered or will enter
our market, we believe that we will be successful because:
. we have expertise in providing integrated data and voice systems,
services and solutions specifically tailored to the needs of small and
medium sized business;
. we provide broad product and service offerings with a suitable
solution and price point for nearly every business in our target
market;
. we have already established a sizeable customer base and a well
trained technical staff;
. we are focused on providing extremely high quality customer service
and technical support;
. we are willing to lease our network solutions to our customers; and
. we intend to continue to offer new systems, services and solutions to
enable small and medium sized businesses to take advantage of leading
technology.
We expect that we will face growing competition from a number of systems
integrators, outsourcers, data technology companies and telecommunications
providers, among others. Although we do not believe that a significant number of
other companies are providing Enterprise Managed Services solutions or a
comparable range of data and telephony systems, services and solutions to small
and medium sized businesses, we do face intense competition in each of our
individual product and service offerings.
Regulatory Environment
Overview. Some of our offerings are subject to federal and state
regulation. At the federal level, we are subject to the Communications Act of
1934 and the regulations of the Federal Communications Commission (FCC) to the
extent that we provide interstate and international telecommunications services.
At the state level, we are subject to state laws and the jurisdiction of the
state public utility commissions. The degree of regulation varies from state to
state.
The regulation of telecommunications services at all levels is in flux in
the aftermath of the Telecommunications Act of 1996, which comprehensively
amended the Communications Act of 1934 to promote competition in all areas of
telecommunications. The Telecommunications Act of 1996 amendments eliminated
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many legal barriers to competition in various telecommunications marketplaces
and set many of the basic terms governing the relationships between competing
telecommunications carriers, particularly in the provision of local telephone
service. The implementation of the Telecommunications Act of 1996 is ongoing. It
is the subject of numerous administrative proceedings both before the FCC and
the various state public utility commissions, and litigation in both the federal
and state courts. These proceedings could, to varying degrees, significantly
alter the regulatory landscape. We cannot predict the outcome of any of these
proceedings or whether they will adversely affect our business.
Federal Regulation. Our interstate and international "telecommunications
services", like those of all carriers, are subject to the regulations of the
FCC. By contrast, our "information services" offerings, network design and
maintenance services, network management services, and web page development and
hosting services are not regulated. Also unregulated is the equipment that we
provide to our customers to use with our telecommunications services, although,
as discussed below, the FCC does require that equipment connected to the public
network meet certain technical standards.
There is some ambiguity regarding the regulatory status of certain of our
services. While we regard those services as unregulated, to date there has been
no ruling on their status by the FCC. It is possible that the FCC will
ultimately rule that they are telecommunications services and therefore are
subject to regulation. For example, under the current regulatory structure, we
believe our national IP/ATM network is an information service, and therefore
exempt from regulation. However, the regulatory classification of voice
communications using IP or ATM technology is in a state of flux, and there is a
possibility that voice communications using IP or ATM technology will be subject
to regulation in the near future. A determination that these products are not
information services could make them significantly less competitive.
The FCC has established different levels of regulation for dominant and
nondominant carriers. The regional Bell operating companies, GTE, and other
incumbent local exchange telephone companies are classified as dominant. All
other carriers, including us, are classified as nondominant. As a nondominant
carrier, we are subject to much less regulation than are the dominant carriers.
Among other things, the FCC does not regulate the rates that we charge for our
interstate and international services or require us to obtain authorization in
advance for the installation, acquisition or operation of our domestic network
facilities.
The FCC has also decided that nondominant carriers should not file tariffs
setting forth their rates for interstate services. That ruling, however, has
been stayed pending the resolution of a court challenge. Until the stay is
lifted, we are required to file tariffs for our interstate services, including
resold long-distance, frame relay, and operator services. If and when the
decision not to require the filing of tariffs becomes effective, we could
benefit from the decrease in compliance costs and the elimination of delays in
getting new products to market.
Regardless of our nondominant status, we must comply with the provisions of
the Communications Act of 1934 pertaining to common carriers. We are subject to
the general requirement that the rates, terms, and conditions of our services be
"just and reasonable" and we may not make any "unjust or unreasonable"
discrimination in our rates, terms, and conditions. The FCC has the authority to
enforce our compliance with these requirements.
We offer some services that are subject to specific regulatory
requirements, including operator services and public phone service. With respect
to our operator services, we are required to disclose to callers that they may
obtain a rate quote before placing a call and must file informational tariffs
with the FCC containing detailed information about our rates. With respect to
our public phone services, the FCC requires us to post certain consumer
information at each public phone location.
The FCC also requires that equipment that is connected to the public
switched telephone network will not harm the network. The systems we install
must meet the FCC's technical standards. While we are ultimately responsible for
ensuring that our equipment complies with federal network standards, as a
practical matter, the burden of compliance lies with our suppliers.
11
<PAGE>
While the FCC recently ruled that calls to the Internet are interstate
calls and thus subject to the FCC's jurisdiction, the FCC currently does not
regulate the Internet and has said that it will refrain from doing so in the
future. No assurances can be given, however, as to the degree of the FCC's
regulation of the Internet in the future, or its effect on our website hosting
and other Internet-related systems or services. Potential negative effects could
include the increased costs to comply with any regulations which are imposed and
delays in getting new products and services to market.
In addition to regulating interstate and international telecommunications
services, the FCC also has a significant new role under the Telecommunications
Act of 1996 in overseeing the opening of the intrastate telecommunications
marketplace to competition. The FCC has issued an extensive framework of rules
governing the terms under which incumbent local exchange companies are required
to open their networks to competing providers. Among other things, the incumbent
local exchange companies must allow competitors to interconnect with their
networks and must make their retail services available to competitors at
wholesale rates for resale. We have taken advantage of these rules to enter the
local telecommunications marketplace by reselling incumbent local exchange
companies' services. Numerous parties have challenged various portions of the
resale regulations both before the FCC and in the courts, including the
discounts at which the local exchange companies must make their services
available to us for resale. If the discounts available to us are decreased as a
result of those challenges, it would affect our costs of providing local
telephone service.
State Regulation. Some of our resold local and long-distance services are
classified as intrastate and therefore are subject to state regulation. In most
states in which we do business, we are required to obtain a certificate of
public convenience and necessity and operating authority for the sale of long
distance and local phone services. In addition, we are often required to file
tariffs setting forth the terms, conditions, and prices for services which are
classified as intrastate, particularly local exchange services.
The state public utility commissions also must approve the agreements that
we enter into allowing us to purchase the retail services of the incumbent local
exchange carriers at a discount for resale.
Our Regulatory Status. We are authorized by the FCC to provide resold
international services. We also have tariffs on file with the FCC for interstate
long distance services, frame relay services and operator services. At the state
level, we are authorized to provide intrastate long distance services in 47
states and are certified to provide local telephone services in 17 states.
Employees
As of December 31, 1999, we had 1,559 full-time employees, none of whom are
represented by unions.
<TABLE>
<CAPTION>
Number of
Job Description Employees
- --------------- ----------
<S> <C>
Sales Representatives and Sales Management.................. 375
Technical Staff............................................. 558
Customer Care............................................... 180
Information Technology...................................... 49
Support Services........................................... 397
-----
1,559
=====
</TABLE>
Employee Retention. We believe that our ability to implement our business
plan and continue to grow will depend in large part on our ability to continue
to attract and retain qualified employees. In addition to fixed base
compensation, employees at all levels participate in our incentive compensation
plan. All employees are eligible to receive cash bonuses, while management may
receive bonuses including both cash and shares of our common stock. In addition,
we offer a comprehensive benefits package including a 401(k) plan with a
discretionary company match of shares of our common stock, insurance, cafeteria
plan, tuition reimbursement, and, for upper management, a deferred compensation
plan.
12
<PAGE>
Item 2. Properties
We lease sales and support facilities in each of our markets. Our principal
corporate and support facilities are also leased, and are as follows:
<TABLE>
<CAPTION>
Location Size (sq. ft) Lease Expiration Use of Facility
- -------- ------------- ---------------- ---------------
<S> <C> <C> <C>
Englewood, Colorado 28,488 April 30, 2003 Headquarters and support services
Englewood, Colorado 68,566 February 28, 2002 Information systems, information technology
and other support services
Englewood, Colorado 16,700 November 30, 2000 National Operations Center and Denver
Operations
</TABLE>
Item 3. Legal Proceedings
We are involved in legal proceedings from time to time, none of which we
believe, if decided adversely to us, would have a material adverse effect on our
business, financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
This item is inapplicable.
13
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Our common stock is quoted on The Nasdaq National Market under the symbol
"CONV." Trading in our common stock began on July 19, 1999. The following
table sets forth the high and low intra-day sales prices per share of our common
stock as reported on The Nasdaq National Market based on published financial
sources, for the periods indicated:
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
1998
First Quarter n/a n/a
Second Quarter n/a n/a
Third Quarter n/a n/a
Fourth Quarter n/a n/a
1999
First Quarter n/a n/a
Second Quarter n/a n/a
Third Quarter $28,000 $8,500
Fourth Quarter $18,750 $8,563
</TABLE>
As of March 20, 2000, there were 28,932,281 shares of our common stock
issued and outstanding held by approximately 6,000 shareholders of record.
We have never paid cash dividends on our common stock. We currently intend
to retain future earnings, if any, to fund the development and growth of our
business. Therefore, we do not currently anticipate paying any cash dividends in
the foreseeable future. In addition, the terms of the indenture governing our
13% Series B Senior Notes due 2008 contain restrictions on our ability to pay
dividends or other distributions.
14
<PAGE>
The following tables summarize all equity securities issued or sold by us
during the fiscal year ended December 31, 1999 that were not sold pursuant to
registered offerings:
<TABLE>
<CAPTION>
Underwriters or Class of Number of Exemption
Date Purchasers Shares Consideration ($) Claimed
- ----------------- ------------------------ --------- ---------------------------------- ------------
<S> <C> <C> <C> <C>
Feb. 12, 1999 and Sellers in an acquisition 24,925 Substantially all of the assets of Section 4(2)
May 26, 1999........ the target company
Mar. 31, 1999 Employee options 48,250 $193,500 Rule 701
through Aug. 2,
1999 ...............
Apr. 19, 1999........ Sellers in an acquisition 37,000 100% equity interest in the target Section 4(2)
company
Apr. 23, 1999 and Employees 93,547 Deferred compensation plan payment Section 4(2)
May 7, 1999.........
Apr 23, 1999 through Warrant Exercises 2,285,040 $13,130,195 Section 4(2)
Dec. 21, 1999.......
Jul. 19, 1999........ Series A Preferred Stock 2,666,677 Conversion of previously issued Section 4(2)
Conversion securities. No additional
consideration received.
Aug. 3, 1999......... Employee options 30,552 $54,800 Section 4(2)
Aug. 4, 1999......... Employees 27,500 Services performed Section 4(2)
Sep. 10, 1999........ Sellers in an acquisition 2,500 Additional consideration for purchase Section 4(2)
pursuant to earn-out provisions
Sep. 23, 1999........ Sellers in an acquisition 40,771 100% equity interest in the target Section 4(2)
company
Oct. 19, 1999........ Employees 5,498 Incentive compensation plan payment Section 4(2)
Oct. 29, 1999........ Sellers in an acquisition 217,671 100% equity interest in the target Section 4(2)
company
Nov. 30, 1999........ Sellers in an acquisition 84,165 Substantially all of the assets of Section 4(2)
the target company
Warrants
Mar. 17, 1999 and Series A Preferred Stock 958,334 Additional consideration for Series A Section 4(2)
Mar. 31, 1999....... holders Preferred Stock purchase
Mar. 21, 1999........ Credit facility provider 200,000 Increase in credit facility Section 4(2)
Jun. 3, 1999......... Credit facility provider 375,000 $20 million credit facility Section 4(2)
Jul. 16, 1999........ Credti facility provider 575,000 $105 million credit facility Section 4(2)
Series A Preferred Stock
Mar. 17, 1999 and
Mar. 31, 1999........ Accredited investors 800,000 $20,000,000 Section 4(2)
</TABLE>
15
<PAGE>
Item 6. Selected Financial Data
The following selected financial data should be read along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and accompanying notes all
of which appear later in this Form 10-K. The selected financial data have been
derived from our consolidated financial statements and the financial statements
of our predecessor, which have been audited by PricewaterhouseCoopers LLP,
independent accountants. On December 17, 1996, we acquired Integrated
Communication Networks, L.C., which is referred to as the "predecessor" for the
period prior to the acquisition. Convergent Communications, since March 1, 1996,
together with Integrated Communication Networks, L.C., since December 17, 1996,
is referred to as the "successor." Share and per share information is not
presented for the predecessor as they are not relevant due to the predecessor's
different capital structure.
in thousands, except per share amounts
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------- ---------------------------------------------------------------
January 1, March 1,
For the Year 1996 1996 For the Year For the Year For the Year
Ended through through Ended Ended Ended
December 31, December 16, December 31, December 31, December 31, December 31,
1995 1996 1996 1997 1998 1999
------------- ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Statement Data:
Revenue..................... $1,434 $1,496 $ 98 $ 10,210 $ 61,600 $ 159,922
Cost of sales excluding
depreciation............... 964 1,018 79 7,368 43,703 104,045
Selling, general and
administrative............. 405 554 552 10,983 47,862 125,350
Depreciation and
amortization............... 127 124 41 1,453 7,493 17,295
Impairment of long-lived
assets..................... -- -- -- -- -- 650
------ ------ ------ -------- -------- ---------
Total operating expenses... 1,496 1,696 672 19,804 99,058 247,340
Operating loss............. (62) (200) (574) (9,594) (37,458) (87,418)
Interest expense............ (17) (21) (1) (156) (17,502) (25,491)
Interest income............. -- -- -- 251 4,632 4,880
Other expense, net.......... -- -- -- (156) (248) (231)
------ ------ ------ -------- -------- ---------
Net loss.................... (79) $ (221) $ (575) $ (9,655) $(50,576) $(108,260)
====== ====== ====== ======== ======== =========
Net loss per share (basic
and diluted)............... $(0.15) $ (0.92) $ (3.68) $ (5.32)
Weighted average shares
outstanding (basic and
diluted)................... 3,887 10,461 13,732 20,356
Other Operating Data:
Net cash provided by (used
in) operating activities... 60 $ (31) $ (242) $ (6,698) $(28,698) $ (97,355)
Net cash used in investing
activities................. (8) (36) (1,446) (11,648) (94,647) (61,143)
Net cash provided by (used
in) financing activities... (61) 91 4,849 15,852 148,274 158,116
EBITDA(1)................... 65 (76) (534) (8,141) (29,965) (69,473)
</TABLE>
- ---------------
(1) As used in this report, EBITDA consists of earnings before interest (net),
income taxes, depreciation and amortization, impairment of long-lived
assets and other income (expense). EBITDA is a measure commonly used to
analyze companies on the basis of operating performance. It is not a
measure of financial performance under GAAP and should not be considered as
an alternative to net income (loss) as a measure of performance or as an
alternative to cash flow as a measure of liquidity. Our measure of EBITDA
may not be comparable to similarly titled measures used by other companies.
16
<PAGE>
Item 6. Selected Financial Data-(Continued)
in thousands
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- --------------------------------------------------------------------
As of As of As of As of As of
December 31, December 31, December 31, December 31, December 31,
1995 1996 1997 1998 1999
------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet:
Cash, cash equivalents and short-term
investments................................ $ 13 $3,161 $ 8,039 $ 25,597 $ 59,957
Restricted cash............................. -- -- 406 51,350 38,469
Working capital............................. (10) 1,890 5,334 28,500 76,975
Goodwill, net............................... 228 3,201 6,393 46,526 56,037
Total assets................................ 797 9,887 24,922 185,656 295,213
Total debt.................................. 440 1,456 1,933 168,268 205,474
Total liabilities ......................... 580 1,902 6,194 207,005 258,593
Shareholders' equity (deficit).............. 217 7,985 18,728 (21,349) 36,620
</TABLE>
- -------------
17
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read along with the consolidated
financial statements and the accompanying notes included later in this Form 10-
K. This discussion includes forward-looking statements and is based on current
expectations which involve risks and uncertainties. Because of the uncertainty
of many factors, what actually occurs in the future may be very different from
what we project in our forward-looking statements.
Overview
We are a rapidly growing national provider of e-Sourcing solutions
primarily to businesses with 25 to 500 employees. "e-Sourcing" is the management
of communications solutions that allow businesses to leverage technology,
systems and networking resources such as broadband Internet Protocol based
applications. Inside our customers' premises we own communications networks and
provide professional services, such as the design, installation, management and
monitoring of those networks. Outside our customers' premises, we provide a full
range of data and voice transport services. By operating networks both inside
and outside our customers' premises, and by offering a broad range of Internet,
data and voice systems and services, we enable small and medium sized businesses
to use state-of-the-art communications solutions, including data and voice
networks based on broadband Internet Protocol, electronic commerce, the Internet
and sophisticated communications systems. We intend to become the leading
provider of IP-based Internet, data and voice systems and services to small and
medium sized businesses.
We were first capitalized in March 1996. Since that time, we have
successfully raised $338.9 million in capital, including $450,000 in founders'
capital, $24.0 million in two private placements of common stock in 1996 and
1997 (including an additional $450,000 from the founders), $160.0 million
through the 1998 sale of our 13% Senior Notes and related warrants, $20.0
million in a 1999 sale of our convertible preferred stock and warrants to
affiliates of Sandler Capital Group and $134.1 million in our Initial Public
Offering in July 1999. We also have borrowing capacity under our existing
Comdisco equipment lease facility of $30.0 million.
In the last three years, we completed 18 strategic acquisitions, the most
significant of which was the 1998 acquisition of substantially all of the assets
of Tie Communications at a cost of approximately $51.4 million. With the
acquisition of these assets, we accelerated our growth by adding 24 new markets
and 452 employees with experience in voice systems and services. This
acquisition also gave us the opportunity to cross-market our data systems and
services, including Enterprise Managed Services, to customers that purchased
systems or services from Tie in the past.
We began offering Enterprise Managed Services in December 1997 and, as of
December 1999, had entered into long-term Enterprise Managed Services contracts
with 64 customers with an aggregate of approximately 3,246 computers and
telephones. We expect these contracts to provide us with approximately $9.1
million in annual contract revenue, and over their terms we expect them to
produce total revenue of approximately $46.4 million.
18
<PAGE>
Description of Financial Components
We classify our business into three segments: eBusiness, Enterprise
Services and Enterprise Systems.
Revenue and cost of sales. The following chart outlines the components of
revenue and the related cost of sales excluding depreciation, by segment:
<TABLE>
<S> <C>
Revenue: Cost of Sales (excluding depreciation):
e Business
. web design and hosting . engineer and technician compensation and benefits
. eCommerce
. intranet and extranet development
-------------------------------------------------
Enterprise Services
Professional Services . engineer and technician compensation and benefits
. network planning, design, maintenance,
and monitoring
Broadband Services . leased line facilities' costs of connecting a
. frame relay (ATM and IP switching), customer's to long distance or local network
Internet access, long distance service, . capacity charges that long distance and local carriers,
local telephone service and public phone Internet service providers and others impose to use their
service equipment and network
Managed Services . all the costs associated with all the data and voice
. long-term contracts (typically three to five systems and services described in this table
years) under which we own, manage and are
responsible for all or a portion of the
network inside our customers' premises
-------------------------------------------------
Enterprise Systems
. sale and installation of data, voice and video . cost of data, voice and video network systems
network systems
. costs of installation, including technician
compensation and benefits
</TABLE>
19
<PAGE>
Selling, general and administrative expenses have increased significantly
and will continue to increase as we recruit additional management and support
personnel necessary for continued growth. However, we expect these expenses to
decline as a percentage of our revenue as we expand our customer base and begin
selling additional systems and services in each of our markets.
. Sales and marketing expenses include commissions paid in connection
with our sales programs, marketing salaries and benefits, travel
expenses, trade show expenses, consulting fees and promotional costs.
Also included are the costs of soliciting potential customers such as
telemarketing, brochures, targeted advertising and promotional
campaigns. We expect these expenses to increase as we add additional
sales and marketing personnel and further implement our business plan.
. General and administrative expenses primarily consist of salaries and
related expenses of management and support services personnel,
occupancy fees, professional fees and general corporate and
administrative expenses. We also include costs associated with the
development, support and expected enhancements of our operational
support software platform, to the extent these costs are not
capitalized.
Depreciation and amortization expense includes depreciation of property,
network and equipment (over two to five years), including our assets located
inside our customers' premises provided under Enterprise Managed Services
contracts. Amortization expense includes the amortization of intangible assets
(over three to ten years), primarily goodwill (over ten years), that resulted
from business acquisitions. We had 56.0 million of goodwill, net of
amortization, on December 31, 1999. Depreciation and amortization will increase
as we install additional ePOP switching platforms and expand our Enterprise
Managed Services business and as a result of increased amortization of
intangibles expected to result from future acquisitions.
Interest expense includes interest expense on our short-term and long-term
debt, including capital leases. The majority of the interest expense is related
to our 13% Senior Notes which mature in 2008. Interest expense will increase as
we continue to finance a significant portion of our capital expenditures,
including our purchase of Cisco Systems Inc.'s multi-service, data and voice
switches and additional Cisco Systems, Inc. equipment under our $103.5 million
equipment facility with Cisco Systems Capital Corporation.
20
<PAGE>
Results of Operations
Management evaluates and makes operating decisions about each of our
operating segments based on a number of factors. Two of the more significant
factors we use in evaluating operating performance are: revenue and gross margin
before depreciation. We do not account for assets by business segment. As a
result, depreciation and amortization are not factors used by management in
evaluating the operating performance of our segments.
The percentages shown in the following table with respect to revenue
represent revenue for each business segment as a percentage of total revenue.
Percentages with respect to cost of sales excluding depreciation and gross
margin before depreciation are a percentage of revenue for the related segment.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------
1997 1998 1999
------------------ ------------------ -------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
eBusiness................................................ $ - -% $ - -% $ 1,742 1%
Enterprise Services...................................... 2,795 27 27,922 45 64,806 41
Enterprise Systems....................................... 7,415 73 33,678 55 93,374 58
------- --- ------- --- -------- ---
Total revenue........................................... 10,210 100 61,600 100 159,922 100
------- --- ------- --- -------- ---
Cost of sales excluding depreciation:
eBusiness................................................ - - - - 720 41
Enterprise Services...................................... 1,278 46 15,587 56 32,827 51
Enterprise Systems....................................... 6,090 82 28,116 84 70,498 76
------- --- ------- --- -------- ---
Total cost of sales excluding depreciation.............. 7,368 72 43,703 71 104,045 65
------- --- ------- --- -------- ---
Gross margin before depreciation:
eBusiness................................................ - - - - 1,022 59
Enterprise Services...................................... 1,517 54 12,335 44 31,979 49
Enterprise Systems....................................... 1,325 18 5,562 17 22,876 25
------- --- ------- --- -------- ---
Total gross margin before depreciation.................. $ 2,842 28% $17,897 29% $ 55,877 35%
======= ======= ========
</TABLE>
Summary Quarterly Financial Data
The table below presents unaudited quarterly statement of operations data
for each of the last eight quarters through December 31, 1999. This information
has been derived from unaudited financial statements that have been prepared on
the same basis as the audited financial statements contained elsewhere in this
Form 10-K and, in our opinion, includes all adjustments, consisting only of
normal recurring adjustments, that are necessary for a fair presentation of the
information. You should read these unaudited quarterly results along with our
consolidated financial statements and the accompanying notes appearing later in
this Form 10-K. The operating results for any quarter are not necessarily
indicative of results for any future periods.
<TABLE>
<CAPTION>
1998 1999
------------------------------------------ ------------------------------------------
1st 2nd 3rd(1) 4th 1st 2nd 3rd 4th
--------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarterly Operating Data:
Revenue................................ $ 6,523 $ 7,982 $ 22,316 $ 24,779 $ 31,709 $ 38,053 $ 42,422 $ 47,738
Cost of sales excluding depreciation... 4,798 5,772 14,717 18,416 20,743 23,714 26,977 32,610
Selling, general and administrative.... 6,062 7,710 15,507 18,583 23,337 27,411 31,927 42,675
Depreciation and amortization.......... 762 1,191 2,646 2,894 2,863 4,107 4,872 5,453
Impairment of long-lived assets........ - - - - - - 650
--------------------------------------------------------------------------------------
Operating loss........................ (5,099) (6,691) (10,554) (15,114) (15,234) (17,179) (21,355) (33,650)
Net loss............................... $(5,111) $(11,169) $(15,355) $(18,941) $(20,129) $(22,960) $(26,358) $(38,813)
======================================================================================
EBITDA(2).............................. $(4,337) $ (5,500) $ (7,908) $(12,220) $(12,372) $(13,071) $(16,483) $(27,547)
======================================================================================
</TABLE>
- ---
(1) On August 1, 1998, we completed our largest acquisition to date when we
acquired substantially all of the assets of Tie Communications, Inc. for
$51.4 million, including $40.0 million in cash plus other costs and assumed
liabilities.
21
<PAGE>
(2) As used in this report, EBITDA consists of earnings before interest (net),
income taxes, depreciation and amortization, impairment of long-lived
assets and other income (expense). EBITDA is a measure commonly used to
analyze companies on the basis of operating performance. It is not a
measure of financial performance under GAAP and should not be considered as
an alternative to net income (loss) as a measure of performance or as an
alternative to cash flow as a measure of liquidity. Our measure of EBITDA
may not be comparable to similarly titled measures used by other companies.
We have generated greater revenue in each successive quarter since our
inception, reflecting increases in the number of customers, mainly due to
acquisitions, and in sales to existing customers. Cost of sales excluding
depreciation has increased in every quarter, reflecting product and service
costs directly associated with revenue. Our selling, general and administrative
expenses have increased in every quarter and reflect sales and marketing costs
such as sales commissions, and the development and growth of regional and
corporate support staff. Depreciation and amortization has increased in each
quarter through December 31, 1999. The increases in depreciation are due to the
purchase of property, network and equipment inside and outside our customers'
premises associated with our expansion to 35 markets as of December 31, 1999,
and due to the deployment of our multi-service data and voice switching platform
in 16 markets. The increases in amortization are due to the increase in goodwill
and other intangible assets resulting from the completion of 18 acquisitions
through December 31, 1999. We have also experienced increasing operating, EBITDA
and net losses every quarter.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1999
Revenue for 1999 was approximately $159.9 million, $98.3 million greater than
revenue for 1998. The increase in revenue was a result of both acquisitions and
internal growth. We completed six acquisitions during 1999, one
telecommunications equipment provider and integrator and five data network
integration services providers. The increase in revenue was also largely due to
our growing operations and sales staff having pursued the cross selling
opportunities presented in new markets. The majority of the increase in revenue
was attributable to the enterprise systems segment of our business, which
increased $59.7 million while enterprise services increased $36.9 million. The
majority of the increase in enterprise systems revenue was from sales of voice
communications systems which is attributable to the influence of the sales force
obtained through the Tie acquisition which was a voice equipment provider and
long-distance reseller acquired in the third quarter of 1998. The increase in
enterprise services revenue consisted of increases of $29.8 million in
professional services, $4.1 million in broadband services and $3.0 million in
Enterprise Managed Services. Also, during 1999 we implemented a new segment,
eBusiness Solutions, which accounted for the remaining $1.7 million of the
increase in revenue for 1999.
A significant factor in our strategy to increase recurring enterprise services
revenue is through our Enterprise Managed Services offering. While revenue from
Enterprise Managed Services contributed $2.9 million to the increase in revenue
for 1999, contract value increased from $14.6 million as of December 31, 1998 to
$46.4 million as of December 31, 1999. This represents an increase in customers
from 18 at the end of 1998 to 64 at the end of 1999.
Cost of sales excluding depreciation increased $60.3 million from 1998 to 1999,
while declining as a percentage of total revenue from 71% for the year ended
December 31, 1998 to 65% for the year ended December 31, 1999. This decline as a
percentage of total revenue is a reflection of the decline in cost of sales
excluding depreciation for both systems and services. Cost of enterprises
systems sales excluding depreciation declined 8.0% as a percentage of enterprise
systems revenue, from 84% for 1998 to 76% for 1999. This decrease as a
percentage of product revenue is due to an increase in sales of voice systems,
which have a lower related cost of sales excluding depreciation than data
systems. Cost of enterprise services sales, as a percentage of enterprises
services revenue, decreased from 56% for 1998 to 51% for 1999. The decrease in
cost of service sales as a percentage of service revenue was primarily due to an
increase in our offering of professional services such as network and Web
design, maintenance and monitoring and Enterprise Managed Services, which have a
lower related cost.
Selling, general and administrative expenses increased $77.5 million from 1998
to 1999. This increase in selling, general and administrative expenses is
largely due to continued growth of the support services organization required to
support expanding field operations, which accounted for approximately $59.9
million or 48% of total selling, general and administrative expenses for the
year ended December 31, 1999. Salary and benefit related expenses increased
$53.5 million, as a result of adding 682 employees between December 31, 1998 and
December 31, 1999,
22
<PAGE>
and as a result of having a full year of expenses related to the 452 employees
obtained through the Tie acquisition compared to five months of Tie related
expenses in 1998. The increase in expense is also a result of the six business
combinations completed during 1999. Selling, general and administrative expenses
remained constant as a percentage of revenue at 78% for both 1998 and 1999. We
expect selling, general and administrative expenses to decrease as a percentage
of revenue as we limit the growth of our corporate support services organization
and continue to expand our customer base and sell additional systems and
services in all of our markets.
Depreciation and amortization expense increased approximately $9.8 million from
1998 to 1999. The increase is a direct result of an increase of $49.3 million in
property, network and equipment and $15.1 million in goodwill. Other intangible
assets increased $2.8 million. As of December 31, 1999 we had $56.0 million in
goodwill, net of amortization, which is being amortized over ten years. The
increase in property, network and equipment is largely due to:
. the addition and expansion of new and existing markets;
. the completion of six acquisitions;
. the development and deployment of 16 of our multi-functional,
integrated data and voice switching platforms;
. continued development of our operational support system;
. the increase in assets managed under Enterprise Managed Services
contracts; and
. office equipment and furniture related to the growth of our support
services organization.
Impairment of long-lived assets resulted from the writeoff of certain of our
operating systems which are no longer being utilized.
Interest expense increased by approximately $8.0 million from 1998 to 1999. The
increase is primarily a result of a full year of interest expense in 1999
compared to nine months of interest in 1998 on $160.0 million in principal
amount of our 13% Senior Notes issued in April 1998. The increase is also a
result of:
. assumed indebtedness from acquisitions;
. increased indebtedness under our equipment financing facilities with
Comdisco and GATX Capital;
. indebtedness under the Goldman Sachs Credit Partners L.P. senior
secured credit facility;
. indebtedness incurred under the financing facility with Cisco Systems
Capital Corporation; and
. indebtedess for proceeds received in discounted long-term receivables
transactions.
We expect that interest expense will increase as we continue to finance a
significant portion of our capital expenditures, including equipment purchased
for installation at our customers' offices in connection with the provision of
Enterprise Managed Services and equipment purchased under our $103.5 million
equipment facility with Cisco Systems Capital Corporation.
Interest income increased approximately $248,000 from 1998 to 1999. The
increase in interest income is due to earnings on the remaining proceeds from
the $160.0 million in principal amount of our 13% Senior Notes issued in April
1998, proceeds from the sale of convertible preferred stock in March 1999, a
$10.0 million credit facility entered into in June 1999 and net proceeds of
approximately $122.3 million from our initial public offering in July 1999
compared to interest income on the proceeds of the $160.0 million in principal
amount of our 13% Senior Notes in 1998.
23
<PAGE>
Other income (expense), net which consists of miscellaneous other non-operating
types of income and expenses, changed slightly from net other expense of
approximately $248,000 in 1998 to net other expense of approximately $231,000 in
1999. Net other expense for 1999 is primarily due to a loss recognized on the
termination of a stock purchase agreement and sale of an investment.
24
<PAGE>
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1998
Revenue increased by $51.4 million in 1998, to approximately six times 1997
revenue. The increase in revenue was primarily due to our expansion from
eight markets at December 31, 1997 to 32 markets at December 31, 1998, as a
result of the six acquisitions we completed during the year. The increase
in revenue was also due to internal growth of our operations and sales
staff. The most significant acquisition was the acquisition of the assets
of Tie, which occurred in the third quarter of 1998. The Tie acquisition
contributed most of the sizable increase in enterprise systems revenue and
an even greater increase in enterprise services revenue. The balance of the
growth in enterprise systems revenue was primarily a result of the
development and growth of existing markets and a full year of operations in
1998 compared to a partial year of operations in 1997 for those markets we
entered in late 1997. As a result of the Tie acquisition and our strategy
to increase our service offerings, our overall revenue mix shifted from
approximately 27% in services in 1997, to 45% in services in 1998.
Cost of sales excluding depreciation increased $36.3 million from 1997 to
1998. While it declined slightly as a percentage of total revenue from 72%
in 1997 to 71% in 1998, cost of enterprise services sales as a percentage
of enterprise services revenue increased from 46% in 1997 to 56% in 1998.
The increase as a percentage of enterprise services revenue was primarily
due to a shift in service mix to services such as long-distance which have
a higher related cost of sales. Cost of enterprise systems sales excluding
depreciation, as a percentage of enterprise systems revenue, remained
relatively constant, increasing from 82% in 1997 to 84% in 1998.
Selling, general and administrative expenses increased $36.9 million from
1997 to 1998, but decreased as a percentage of revenue from 108% in 1997 to
78% in 1998. However, we expect selling general and administrative expenses
to increase as a percentage of revenue over the short term as we incur
costs associated with the aligning of our operations to capitalize on our
eBusiness Solutions and IP-based (Internet Protocol) infrastructure areas
of our business and also the growth of our support services organization
required to support expanding field operations.
The $36.9 million increase was primarily a result of:
. the expansion from eight to 32 markets;
. the completion of six acquisitions, including the assets of Tie;
. an increase from 165 employees at December 31, 1997 to 877 at
December 31, 1998 (452 of which were hired as a result of the Tie
acquisition); and
. continued growth of the support services organization required
for expanding field operations, which accounted for approximately
$20.2 million or 42% of total selling, general and administrative
expenses for 1998.
Depreciation and amortization expense increased approximately $6.0 million
from 1997 to 1998. This increase was a direct result of an increase of
$22.7 million in property, network and equipment from 1997 to 1998 and an
increase in goodwill (before 1998 amortization) of $42.6 million and other
intangible assets of $1.7 million as a result of the six acquisitions
completed in 1998. As of December 31, 1998 we had $46.5 million in
goodwill, net of amortization, which will be amortized over the next ten
years. The increase in property, network and equipment is largely due to:
. the expansion from eight to 32 markets;
. the development and deployment of our multi-service data and
voice switching platform in three markets;
. continued development of our operational support system;
. the increase in assets managed under Enterprise Managed Services
contracts; and
25
<PAGE>
. office equipment and furniture related to the growth of our
support services organization.
Interest expense increased by approximately $17.3 million as a result of
the April 1998 issuance of our 13% Senior Notes, which consisted of $160
million in principal amount of promissory notes and warrants to purchase
864,000 shares of common stock. Approximately $1.2 million of this increase
relates to accretion of the debt discount resulting from the value assigned
to the warrants and amortization of debt issuance costs, neither of which
are cash expenses. Interest expense also increased as a result of assumed
indebtedness from acquisitions, as well as increased indebtedness under our
equipment financing facilities with Comdisco and Sun Financial Group, Inc.
due to property, network and equipment purchased for our networks both
inside and outside our customers' premises.
Interest income increased approximately $4.4 million as a result of the
temporary investment of the proceeds of the offering of our 13% Senior
Notes, prior to the use of these proceeds in our business.
Other expense (net) increased by approximately $92,000 and primarily
consisted of losses on disposal of assets and miscellaneous other non-
operating types of expenses.
Liquidity and Capital Resources
Since inception, in addition to borrowings under our credit facilities we
have funded our net losses and capital expenditures through financing
activities as outlined in the following table. In the table below, net
proceeds equals the gross proceeds of the offering less advisors' fees,
underwriting discounts and other expenses associated with the offering.
<TABLE>
<CAPTION>
Gross Net
Securities Sold Proceeds Proceeds
- ----------------------------------------------------------------------------- -------- --------
(in thousands)
<S> <C> <C>
Initial sale of 3,750 shares of common stock to founders
(April through October 1996)............................................... $ 450 $ 450
3,500 shares of common stock and 1,750 warrants
(December 1996 through February 1997)...................................... 7,000 6,296
3,410 shares of common stock and 1,705 warrants
(October through November 1997)............................................ 17,050 15,340
13% Senior Notes and 864 warrants (April 1998).............................. 160,000 152,378
Sale of 800 shares of Series A Convertible Preferred Stock and
958 warrants (March 1999).................................................. 20,000 19,300
Initial Public Offering of 8,937 shares of common stock (July 1999)......... 134,051 122,281
-------- --------
Total funds raised......................................................... $338,551 $316,045
======== ========
</TABLE>
Our principal uses of cash are to fund working capital requirements,
capital expenditures, business acquisitions, operating losses and interest
expenses. We expect that our expansion will require additional capital
expenditures and direct operating costs and expenses. As a result, we expect to
incur net losses for at least the next 36 months. However, if our customer base
grows and we are successful in offering all of our data services and systems, we
believe revenue will increase in larger proportion than operating expenses.
As of December 31, 1999, we had current assets of $141.4 million,
including cash, cash equivalents and short-term investments of $60.0 million and
restricted cash of $20.8 million, and working capital of $77.0 million. In
addition, we also had $17.7 million in non-current restricted cash. The majority
of our restricted cash, along with the interest we earn on this cash, will be
used to make the interest payments through April 2001 on our 13% Senior Notes.
We invest excess funds in short-term investments until these funds are needed
for debt payments, capital investments, acquisitions and operations of the
business.
26
<PAGE>
Cash Flows From Operating Activities. Operating activities used cash of
approximately $97.4 million during 1999, $28.7 million during 1998 and $6.7
million during 1997. Cash used in operating activities in 1999 was primarily due
to the net loss of $108.3 million, an increase in trade accounts receivable and
other current asset categories of $23.2 million and a decrease in other accrued
liabilities of $3.0 million. These uses of cash were partially offset by $27.3
million in non-cash expenses such as depreciation and amortization and stock
compensation and an increase in trade payables and accrued compensation of $9.7
million. While cash used in operating activities as a percentage of revenue
declined from 66% in 1997 to 47% in 1998, the percentage, as a percentage of
revenue increased in 1999 to 61%. The primary reason for this increase is due to
our vendor credit lines not increasing adequately to support the significant
increase in our purchasing activity. The strengthening of our liquidity
position, as a result of the expected proceeds from the sales of our preferred
stock and borrowing under the $50.0 million credit facility ( see "Cash Flow
From Financing Activities" and "Future Capital Requirements" below), should
allow us to negotiate better credit terms with our vendors.
The majority of the increase from 1997 to 1998 was due to an increase in
trade accounts receivable of approximately $11.0 million and a $40.9 million
increase in the operating loss, which were partially offset by an increase in
trade accounts payable of approximately $12.4 million, an increase of $5.2
million of accrued interest expense, and non-cash expenses such as depreciation
and amortization and other changes in working capital. Cash used in operating
activities during 1997 was primarily due to our net loss of $9.7 million,
partially offset by non-cash expenses such as depreciation and amortization and
changes in working capital.
Cash Flows From Investing Activities. Investing activities used cash of
$61.1 million during 1999, $94.6 million during 1998 and $11.6 million during
1997. The majority of the cash used in investing activities in 1999 consisted of
short-term investments of $34.3 million, capital expenditures of $20.8 million,
acquisitions of $10.5 million and investment in leases receivable of $8.2
million. An additional $28.3 million of capital expenditures were financed under
our financing facilities, including approximately $9.5 million for our ePOP
deployment and $3.3 million in assets being utilized in Enterprise Managed
Services contracts.
Cash used in investing activities during 1998 consisted primarily of
restricted cash investments in U.S. government securities of $50.9 million in
connection with the sale of our 13% Senior Notes, acquisitions of $42.4 million
($40.0 million of which was used for the Tie acquisition) and capital
expenditures of $6.9 million. These cash uses were partially offset by maturing
short-term investments of $7.4 million. Cash used for investing activities
during 1997 consisted of $7.4 million used for short-term investments, $2.0
million in capital expenditures and $1.5 million for business combinations.
Cash Flows From Financing Activities. Financing activities provided cash of
approximately $158.1 million during 1999, $148.3 million during 1998 and $15.9
million during 1997. Cash provided by financing activities during 1999 consisted
of $122.3 million in net proceeds from our initial public offering, $19.2
million in net proceeds from the sale of our convertible preferred stock, $16.2
million, net of financing costs, in new borrowing under the senior secured
credit facility ($9.5 million) and discounting of long-term receivables with
lendors ($6.7 million). We received an additional $13.3 million in new proceeds
from the exercise of options and warrants. Cash provided was partially offset by
approximately $12.8 million in payments on long-term borrowings.
Cash provided by financing activities during 1998 consisted of
approximately $152.4 million in net proceeds from the sale of our 13% Senior
Notes and warrants, which was partially offset by approximately $4.3 million in
payments on long-term borrowings. In 1997 cash flows from financing activities
consisted of $17.3 million in net proceeds from the sale of shares of our common
stock and warrants, which was partially offset by approximately $1.4 million in
debt repayments.
The following is a description of the significant financing activities that have
funded our operations to date:
In November 1997, we entered into an agreement with Comdisco, Inc. through
which we can receive up to $50 million of equipment lease financing. At December
31, 1999, $30 million was available to us under this facility of which a total
of approximately $24.8 million had been utilized. The remaining $20 million will
become available upon the satisfaction of additional conditions. This facility
will expire on June 30, 2000.
27
<PAGE>
On April 2, 1998 we completed the offering of our 13% Senior Notes, in the
aggregate principal amount of $160.0 million and warrants to purchase 864,000
shares of common stock. At the closing, we deposited $56.8 million of the
proceeds from that offering in a collateral account. The amount in the
collateral account along with the interest earned, will be sufficient to pay the
first six interest payments on the 13% Senior Notes, of which two have been made
as of April 1, 1999. We received approximately $95.6 million after deducting
offering costs of approximately $7.6 million and funding the collateral account.
The 13% Senior Notes contain certain covenants that restrict our ability to
incur additional debt and make certain payments, including dividends.
In March 1999, we sold to affiliates of the Sandler Capital Group 800,000
shares of our convertible preferred stock and warrants to purchase 958,333
shares of our common stock, for total consideration of $20.0 million. The
proceeds from the sale, net of related offering costs, were approximately $19.2
million. These shares of preferred stock were converted to 2,666,667 shares of
our common stock in conjunction with our initial public offering in July 1999.
In June 1999, we entered into a $10.0 million senior secured credit
facility with Goldman Sachs Credit Partners L.P. The proceeds of this facility
are being used for working capital and other general corporate purposes.
Interest accrues at the greater of 13.0% or LIBOR plus 6.0% with interest
payments due monthly. The principal amount outstanding along with any accrued
interest is due in June, 2002. We cannot re-borrow amounts repaid under this
facility. In connection with this facility, we also issued to Goldman Sachs
Credit Partners L.P. a warrant to acquire 375,000 shares of common stock at an
exercise price of $15.00 per share, none of which had been exercised as of
December 31, 1999. We have obtained waivers for non-compliance with certain
financial covenants of this facility as of December 31, 1999. We have borrowed
the full amount available under this facility and anticipate repaying it in full
during the second quarter of 2000 with a portion of the proceeds from the sale
of our preferred stock, discussed below.
In July 1999, we entered into a six-year $103.5 million credit facility
with Cisco Systems Capital Corporation. This credit facility will provide the
financing for the purchase and installation of our Cisco Systems, Inc. multi-
service data and voice switching platform and for other Cisco equipment. Under
the terms of this agreement, Cisco Systems, Inc. also received a warrant to
purchase 575,000 shares of our common stock, none of which had been exercised as
of December 31, 1999. The warrant has an exercise price of $15.00 per share and
is exercisable for three years from the date of issuance. The facility will be
available in three tranches over a three year period with quarterly payments due
over three years beginning one year from the availability of each tranche. As of
December 31, 1999, we had borrowed $9.5 million under this facility.
We have an agreement with GATX Capital Corporation, that was used to
finance our internal capital needs under which $4.7 million was outstanding on
December 31, 1999.
In April 2000, we entered into a $50.0 million Senior Secured Revolving
Line of Credit Facility with Foothill Capital Corporation. Under the terms of
this $50.0 million credit facility we are able to borrow up to 85% of eligible
receivables, as defined in the agreement, and the lessor of $12.0 million or 50%
of eligible inventory, as defined in the agreement.
In April 2000 we sold to an investment group led by Texas Pacific Group
(TPG), 175,000 shares of our 8% convertible redeemable preferred stock, 700,000
warrants exercisable at $20 per share and 1.17 million warrants exercisable at
$25 per share. The investment was a combination of $150 million from TPG and $25
million from affiliates of Sandler Capital Management. The preferred stock is
convertible into shares of our common stock at a conversion price of $13 per
share. As a condition of the investment, TPG has designated two members to our
board of directors. In addition, in connection with this transaction, we have,
with the approval of TPG, appointed Joseph Zell as our President and CEO.
Future Capital Requirements. We have significant debt in relation to our
equity. At December 31, 1999, we had $205.5 million in debt and $36.6 million in
shareholders' equity, which includes paid-in capital of $205.0 million. Our
business plan will continue to require a substantial amount of capital to fund
our expansion of existing markets and acquisitions. Our business plan includes
the following:
28
<PAGE>
. deploying our multi-service data and voice switching platform in all
of our markets and leasing of our IP/ATM network connecting our
switches;
. funding the purchase, installation and ownership of the enterprise
networks of our Enterprise Managed Services customers (which includes
providing these customers with all necessary hardware, software,
transmission facilities and management, maintenance and monitoring
services);
. continuing to develop customer care and sales organizations;
. continuing to develop our operational support system; and
. funding operating losses and debt service requirements.
. evaluate acquisitions and investments
We estimate that our existing funds at December 31, 1999, our available
borrowing under our financing and leasing facilities currently in place and
additional funds from the sale of our 8% preferred stock and the $50.0 million
senior secured credit facility will be sufficient to meet our capital
requirements for the foreseeable future. We may require additional capital
sooner than anticipated if there are material shortfalls in our operating and
financial performance or if we are more aggressive in our expansion than
currently contemplated. We cannot be certain that we would be successful in
raising sufficient debt or equity capital to fund our operations on a timely
basis or on acceptable terms. If needed financing were not available on
acceptable terms, we could be compelled to alter our business strategy, delay or
abandon some of our future plans or expenditures or fail to make interest
payments on our debt. Any of these events would have a material adverse effect
on our business, financial condition, results of operations and liquidity and on
the price of our common stock.
Recent Accounting Standards
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance in applying generally accepted accounting
principles to selected revenue recognition issues. We are currently evaluating
changes to our current revenue recognition policies that may result from the
application of this SAB.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This item is inapplicable.
29
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Independent Accountants
To the Board of Directors of Convergent Communications, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Convergent Communications, Inc. at December 31, 1998 and 1999, and
the results of their operations and their cash flows for the years ended
December 31, 1997, 1998, and 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Our report on the consolidated financial statements referred to above previously
contained an explanatory paragraph indicating that there was substantial doubt
about the Company's ability to continue as a going concern. As discussed in Note
1 to the consolidated financial statements, on April 18, 2000 the Company
obtained additional financing, which alleviated this uncertainty..
PricewaterhouseCoopers LLP
Denver, Colorado
March 13, 2000, except for
Note 7 as to which the date is March 28, 2000 and
Note 1 as to which the date is April 18, 2000
30
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 25,597 $ 25,215
Short-term investments........................................................... -- 34,742
Restricted cash.................................................................. 20,800 20,800
Trade accounts receivable, net of allowance for doubtful accounts of
$1,909 and $2,512, respectively................................................ 17,661 37,778
Inventory........................................................................ 6,827 13,810
Prepaid expenses, deposits, leases receivable and other.......................... 2,134 9,070
-------- ---------
Total current assets.......................................................... 73,019 141,415
Property, network and equipment.................................................... 28,139 77,455
Less accumulated depreciation...................................................... (4,883) (15,292)
-------- ---------
Total property, network and equipment......................................... 23,256 62,163
Restricted cash.................................................................... 30,550 17,669
Goodwill, net of amortization of $2,967 and $8,528, respectively................... 46,526 56,037
Other intangible assets, net of amortization of $1,470 and $3,589, respectively.... 10,281 10,967
Leases receivable, net of current portion.......................................... 797 6,150
Investments and other assets....................................................... 1,226 812
-------- ---------
Total assets.................................................................. $185,655 $ 295,213
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Trade accounts payable........................................................... $ 15,061 $ 25,086
Accrued compensation............................................................. 4,583 10,423
Accrued interest................................................................. 5,214 5,308
Other accrued liabilities........................................................ 8,666 5,990
Deferred revenue and customer deposits........................................... 5,212 6,312
Current portion of notes payable................................................. 604 1,788
Current portion of capital leases................................................ 5,179 9,533
-------- ---------
Total current liabilities..................................................... 44,519 64,440
Long-term notes payable, less current portion...................................... 153,731 177,995
Long-term capital leases, less current portion..................................... 8,754 16,158
-------- ---------
Total liabilities............................................................. 207,004 258,593
-------- ---------
Commitments (Note 8)
Shareholders' equity (deficit):
Preferred stock, 1 million shares authorized, none issued........................ -- --
Common stock, no par value, 100 million shares authorized, 13,924 and
28,642 shares issued and outstanding, respectively.............................. 27,487 196,937
Additional paid-in-capital....................................................... 11,719 8,025
Treasury stock................................................................... (502) (919)
Deferred compensation obligation................................................. 502 919
Accumulated other comprehensive income........................................... -- 573
Unearned compensation............................................................ (150) (250)
Accumulated deficit.............................................................. (60,405) (168,665)
-------- ---------
Total shareholders' equity (deficit).......................................... (21,349) 36,620
-------- ---------
Total liabilities and shareholders' equity (deficit)....................... $185,655 $ 295,213
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenue................................................................. $10,210 $ 61,600 $ 159,922
------- -------- ---------
Cost of sales, excluding depreciation................................... 7,368 43,703 104,045
Selling, general and administrative..................................... 10,983 47,862 125,350
Depreciation and amortization........................................... 1,453 7,493 17,295
Impairment of long-lived assets......................................... -- -- 650
------- -------- ---------
Total operating expenses........................................... 19,804 99,058 247,340
------- -------- ---------
Operating loss.......................................................... (9,594) (37,458) (87,418)
Interest expense........................................................ (156) (17,502) (25,491)
Interest income......................................................... 251 4,632 4,880
Other income (expense).................................................. (156) (248) (231)
------- -------- ---------
Net loss........................................................... (9,655) (50,576) (108,260)
Other comprehensive income,
unrealized holding gains on investments................................ -- -- 573
------- -------- ---------
Comprehensive loss...................................................... $(9,655) $(50,576) $(107,687)
======= ======== =========
Net loss per share (basic and diluted).................................. $ (0.92) $ (3.68) $ (5.32)
======= ======== =========
Weighted average shares outstanding (basic and diluted)................. 10,461 13,732 20,356
======= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Additional Deferred
Common Common Paid-in Treasury Compensation
Shares Stock Capital Stock Obligation
-------- --------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996........................ 7,870 $ 8,007 $ 152 $ -- $ --
Sale of stock in private placement............... 4,530 15,846 3,415 -- --
Offering costs................................... -- (2,780) 777 -- --
Stock issued to SONeTech......................... 187 375 -- -- --
Stock issued in acquisitions..................... 437 2,112 -- -- --
Exercise of stock options........................ 475 262 -- -- --
Stock purchases.................................. (100) (12) -- -- --
Compensation..................................... 30 194 -- -- --
Warrants......................................... -- -- 430 -- --
Other comprehensive income:
Unrealized loss on securities................... -- -- -- -- --
Net loss......................................... -- -- -- -- --
------ -------- ------- ------ -----
Balance, December 31, 1997........................ 13,429 24,004 4,774 -- --
Common stock issued for:
401(k) match.................................... 69 436 -- -- --
Payments to consultants......................... 10 55 -- -- --
Correction of private placement................. 10 -- -- -- --
Business combinations........................... 240 2,267 -- -- --
Exercise of stock options....................... 44 17 -- -- --
Exercise of warrants............................ 35 129 (21) -- --
Compensation..................................... 87 579 -- -- --
Deferred stock compensation...................... -- -- -- (502) 502
Warrants issued in private placement............. -- -- 6,886 -- --
Warrants issued to consultants................... -- -- 80 -- --
Other comprehensive income:
Reclassification adjustment for loss
included in net loss........................... -- -- -- -- --
Net loss......................................... -- -- -- -- --
------ -------- ------- ----- -----
Balance, December 31, 1998........................ 13,924 27,487 11,719 (502) 502
Common stock issued for:
Initial Public Offering, net of
offering costs................................. 8,937 122,281 -- -- --
401(k) match.................................... 257 2,751 -- -- --
Business combinations........................... 405 4,234 -- -- --
Exercise of stock options....................... 79 248 -- -- --
Exercise of warrants............................ 2,285 19,346 (6,325) -- --
Preferred stock conversion....................... 2,667 19,206 -- -- --
Compensation..................................... 130 1,388 -- -- --
Shares repurchased............................... (38) (4) -- -- --
Distribution of deferred stock................... (4) (50) -- 180 (180)
Deferred stock compensation...................... -- -- -- (597) 597
Warrants issued in connection with financing..... -- 50 2,459 -- --
Options issued to employees...................... -- -- 172 -- --
Other comprehensive income:
Unrealized gain on investments................... -- -- -- -- --
Net loss......................................... -- -- -- -- --
------ -------- ------- ----- -----
Balance, December 31, 1999........................ 28,642 $196,937 $ 8,025 $(919) $ 919
====== ======== ======= ===== =====
<CAPTION>
Accumulated
Other
Unearned Comprehensive Accumulated
Compensation Income Deficit Total
------------ -------------- ------------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1996........................ $ -- $ -- $ (174) $ 7,985
Sale of stock in private placement............... -- -- -- 19,261
Offering costs................................... -- -- -- (2,003)
Stock issued to SONeTech......................... -- -- -- 375
Stock issued in acquisitions..................... -- -- -- 2,112
Exercise of stock options........................ (205) -- -- 57
Stock purchases.................................. -- -- -- (12)
Compensation..................................... -- -- -- 194
Warrants......................................... -- -- -- 430
Other comprehensive income:
Unrealized loss on securities................... -- (17) -- (17)
Net loss......................................... -- -- (9,655) (9,655)
------ ----- --------- ---------
Balance, December 31, 1997........................ (205) (17) (9,829) 18,727
Common stock issued for:
401(k) match.................................... -- -- -- 436
Payments to consultants......................... -- -- -- 55
Correction of private placement................. -- -- -- --
Business combinations........................... -- -- -- 2,267
Exercise of stock options....................... -- -- -- 17
Exercise of warrants............................ -- -- -- 108
Compensation..................................... 55 -- -- 634
Deferred stock compensation...................... -- -- -- --
Warrants issued in private placement............. -- -- -- 6,886
Warrants issued to consultants................... -- -- -- 80
Other comprehensive income:
Reclassification adjustment for loss
included in net loss........................... -- 17 -- 17
Net loss......................................... -- -- (50,576) (50,576)
------ ----- --------- ---------
Balance, December 31, 1998........................ (150) -- (60,405) (21,349)
Common stock issued for:
Initial Public Offering, net of
offering costs................................. -- -- -- 122,281
401(k) match.................................... -- -- -- 2,751
Business combinations........................... -- -- -- 4,234
Exercise of stock options....................... -- -- -- 248
Exercise of warrants............................ -- -- -- 13,021
Preferred stock conversion....................... -- -- -- 19,206
Compensation..................................... (100) -- -- 1,288
Shares repurchased............................... -- -- -- (4)
Distribution of deferred stock................... -- -- -- (50)
Deferred stock compensation...................... -- -- -- --
Warrants issued in connection with financing..... -- -- -- 2,509
Options issued to employees...................... -- -- -- 172
Other comprehensive income:
Unrealized gain on investments................... -- 573 -- 573
Net loss......................................... -- -- (108,260) (108,260)
------ ----- --------- ---------
Balance, December 31, 1999........................ $(250) $ 573 $(168,665) $ 36,620
===== ===== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss........................................................... $ (9,655) $(50,576) $(108,260)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................................... 1,453 7,493 17,295
Impairment of long-lived assets.................................... -- -- 650
Amortization of deferred financing costs and accretion of
debt discount..................................................... -- 1,162 1,984
Provision for uncollectible accounts............................... -- 197 3,153
Stock compensation expense......................................... 195 634 1,460
401k contributions through the issuance of stock................... -- 436 2,751
Warrants issued for the payment of consulting fees................. -- 80 --
Loss from sale of equipment and investment......................... 91 -- 221
Change in working capital (net of acquisitions):
Trade accounts receivable......................................... (1,527) (10,970) (16,489)
Inventory......................................................... (230) (2,068) (2,527)
Prepaid expenses, deposits and other current assets............... (43) (870) (4,181)
Trade accounts payable............................................ 1,327 12,357 4,194
Accrued compensation.............................................. 1,468 2,592 5,459
Accrued interest.................................................. -- 5,214 94
Deferred revenue and customer deposits............................ 62 3,300 (194)
Other accrued liabilities......................................... 161 2,321 (2,965)
-------- -------- ---------
Net cash used in operating activities.............................. (6,698) (28,698) (97,355)
Cash flows from investing activities
Additions of property and equipment................................ (2,042) (6,877) (20,820)
Acquisitions, net of cash acquired................................. (1,542) (42,364) (10,545)
Short-term investments............................................. (7,388) 7,388 (34,343)
Restricted cash.................................................... (406) (50,944) 12,880
Leases receivable.................................................. -- (1,174) (8,242)
Proceeds from sale of investment................................... -- -- 155
Intangible and other assets........................................ (270) (675) (228)
-------- -------- ---------
Net cash used in investing activities.............................. (11,648) (94,646) (61,143)
Cash flows from financing activities
Proceeds from initial public offering, net......................... -- -- 122,281
Proceeds from private placements of debt and equity, net........... 17,257 152,378 19,206
Payments on notes payable.......................................... (1,450) (1,397) (5,642)
Payments on capital leases......................................... -- (2,941) (7,193)
Proceeds from borrowings, net of costs............................. -- 109 16,199
Proceeds from exercise of stock options and warrants............... 57 125 13,269
Repurchase of common shares........................................ (12) -- (4)
-------- -------- ---------
Net cash provided by financing activities.......................... 15,852 148,274 158,116
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents................ (2,494) 24,930 (382)
Cash and cash equivalents at beginning of period.................... 3,161 667 25,597
-------- -------- ---------
Cash and cash equivalents at end of period......................... $ 667 $ 25,597 $ 25,215
======== ======== =========
Supplemental disclosure of other cash and non-
cash investing and financing activities:
Acquisition of equipment through financing facilities.............. $ 1,675 $ 13,039 $ 28,304
Interest paid...................................................... $ 145 $ 11,125 $ 23,413
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation:
References in these footnotes to "Convergent Communications," "us," "we,"
and "our" refer to Convergent Communications, Inc. and its subsidiaries.
We are a rapidly growing national provider of e-Sourcing solutions
primarily to businesses with 25 to 500 employees. "e-Sourcing" is the purchase
of managed communications solutions over broadband Internet Protocol based
applications. Inside our customers' premises we own communications networks and
provide professional services, such as the design, installation, management and
monitoring of those networks. Outside our customers' premises, we provide a full
range of data and voice transport services. By operating networks both inside
and outside our customers' premises, and by offering a broad range of Internet,
data and voice systems and services, we enable small and medium sized businesses
to use state-of-the-art communications solutions, including data and voice
networks based on broadband Internet Protocol, electronic commerce, the Internet
and sophisticated communications systems. We intend to become the leading
provider of IP-based Internet, data and voice systems and services to small and
medium sized businesses. We provide the following systems and services:
. eBusiness which includes Web development and hosting;
. Enterprise Services which include integration services, enterprise managed
services and broadband services;
. Enterprise Systems which consists of data and voice systems.
Our ultimate success depends upon, among other factors, establishment of
our nationwide network, funding the development of our enterprise networks,
continuing to develop our customer care and sales organizations, integrating
acquired businesses, attracting and retaining customers, continuing to develop
and integrate our operational support system and other back office systems,
responding to competitive developments, continuing to attract, retain and
motivate qualified personnel, and continuing to upgrade our technologies and
commercialize our services incorporating such technologies. There is no
assurance that we will be successful in addressing these matters and failure to
do so could have a material adverse effect on our business prospects, operating
results and financial condition. Our business plan will continue to require a
substantial amount of capital to fund our expansion of our existing and acquired
markets. As we continue to expand our business, we will seek additional sources
of financing to fund our development. If we are unsuccessful in obtaining such
financing, we would be compelled to alter our business strategy or delay or
abandon some of our future plans.
In April 2000, we entered into a three year $50.0 million Senior Secured
Revolving Line of Credit Facility with Foothill Capital Corporation. Under the
terms of this $50.0 million credit facility we are able to borrow up to 85% of
eligible receivables, as defined in the agreement, and the lessor of $12.0
million or 50% of eligible inventory, as defined in the agreement. The facility
will automatically renew for one year periods unless earlier terminated and
carries an interest rate of 1.0% above the Wells Fargo Bank, N.A., base rate.
In April 2000 we sold to an investment group led by Texas Pacific Group
(TPG), 175,000 shares of our 8% convertible redeemable preferred stock, 700,000
warrants exercisable at $20 per share and 1.17 million warrants exercisable at
$25 per share. The investment was a combination of $150 million from TPG and $25
million from affiliates of Sandler Capital Management. The preferred stock is
convertible into shares of our common stock at a conversion price of $13 per
share. As a condition of completing the investmentTPG has designated two members
to our board of directors. In addition, in connection with this transaction, we
have, with the approval of TPG, appointed Joseph Zell as our President and CEO.
35
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. Summary of Significant Accounting Policies:
Principles of Consolidation:
The accompanying consolidated financial statements include our accounts and
the accounts of our wholly-owned subsidiaries. All intercompany amounts and
transactions have been eliminated
Use of Estimates:
Our management is required to make estimates and assumptions in order to
prepare the financial statements in conformity with generally accepted
accounting principles. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and also affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents:
We consider all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Short-term Investments:
Short-term investments are classified as available-for-sale securities at
December 31, 1999. Gains or losses on the sale of short-term investments are
recognized on the specific identification method. Unrealized gains or losses are
treated as a separate component of comprehensive income until the security that
the unrealized gain or loss was recorded on is sold.
Restricted Cash:
Restricted cash primarily represents funds held in collateral accounts for
paying semi-annual interest payments on our 13% Senior Notes through April 1,
2001. The cash is invested in U.S. Government Securities, which mature semi-
annually on October 1 and April 1 through April 1, 2001 (see Note 7). Restricted
cash also represents cash used to collateralize letters of credit, which are
held as collateral for certain of our office leases, capital lease obligations
and performance bonds. The amounts invested are classified as held to maturity
and carried at amortized cost which approximates fair value.
Fair Value of Financial Instruments:
The carrying amounts reported in the balance sheets for cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
short-term borrowings approximate fair value because of the immediate or short-
term maturity of these financial instruments. The carrying amounts reported for
long-term debt other than the 13% Senior Notes approximate fair value based upon
management's best estimates of what interest rates would be available for the
same or similar instruments. The 13% Senior Notes are publicly traded
securities. The quoted fair market value and the carrying amount of the 13%
Senior Notes at December 31, 1998 and 1999 are as follows:
36
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
Carrying Fair Market
Amount Value
------------- -------------
<S> <C> <C>
1998........................... $160,000,000 $ 76,800,000
1999........................... $160,000,000 $120,000,000
</TABLE>
Property, Network and Equipment:
Property, network and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets or the lease term if shorter, which range from two to five years.
Expenditures which significantly increase asset values or extend useful lives
are capitalized. Maintenance and repairs are expensed as incurred. When
property, network and equipment is retired, sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts, and
resulting gains and losses are reflected in operations.
Inventory:
Inventory primarily consists of new and refurbished equipment for resale
and is valued at the lower of cost or market using the first-in, first-out
method. We evaluate the need and establish reserves associated with obsolete and
excess inventory.
Intangible Assets:
. Intangible assets consist of the following:
. Goodwill represents the excess purchase price over the net assets
acquired in acquisitions and is being amortized over ten years.
. Customer lists were obtained through business combinations and are
being amortized over five years.
. Debt offering costs represent costs incurred in connection with an
offering of 13% senior notes (see Note 7) and are being amortized over
the term of the notes, ten years.
. Deferred finance costs are costs associated with obtaining certain
financing arrangements and are amortized over the life of the
financing arrangements, two to four years.
. Site location contracts are exclusive rights to operate public
telephones at various locations we acquired through business
combinations. The site location contracts are being amortized over the
average lives of the contracts, primarily three years.
. Software license fees represent proprietary rights to software
associated with our public telephones which are being amortized over
five years, the estimated life of the related equipment.
We periodically evaluate the carrying amount of our intangible assets based
on undiscounted cash flows, or other indicators of fair value, to determine
whether adjustments to these amounts are required.
Long-Lived Assets:
We evaluate the recoverability of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
37
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Disposed Of" ("SFAS 121"). SFAS 121 requires an evaluation of indicators of
impairment and future undiscounted cash flows to be generated by those assets.
Impairment is measured as the amount by which the asset's carrying amounts
exceed the future discounted cash flows estimated to be generated by those
assets. Certain of our long-lived operating assets were written off during 1999
in accordance with SFAS 121.
Investments:
Investments consist of ownership interests of less than 20% in unrelated
entities and are accounted for as available for sale securities. Changes in
market value of the investments are included as a component of other
comprehensive income.
Software:
We capitalize certain internal and external costs of developing software
for internal use in accordance with SOP 98-1. These costs are amortized on a
straight line basis over three years, which is the estimated useful life of the
software.
Revenue Recognition:
Revenue is recognized for product sales when the product is shipped.
Revenue from non-recurring services are recognized when the services are
provided. Revenue for long-term service and maintenance contracts is recognized
over the term of the contract as the services are provided. Revenue from
reselling of long distance service is recognized at the time of performance
based on customer usage. Revenue from sales of equipment under sales type leases
is recognezed at the inception of the lease.
Deferred Revenue:
Deferred revenue represents the unearned portion of revenue related to our
long-term service and maintenance contracts, which is recognized over the term
of the contract, generally one year.
Income Taxes:
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to the differences between the financial statement
carrying value of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured by using enacted tax
rates that are applicable to the future years in which deferred tax assets or
liabilities are expected to be realized or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in net earnings
in the period in which the tax rate change is enacted. We establish a valuation
allowance when it is more likely than not that a deferred tax asset will not be
recovered.
Stock-Based Compensation:
We use the intrinsic value method under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," to account for our
employee stock-based compensation plans. We account for options and warrants
granted to non-employees in accordance with Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"),
which requires that we recognize an amount based on the fair value of the option
or warrant at the time of grant.
Concentrations of Credit Risk:
38
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
We sell systems and services to small and medium sized businesses on open
account and do not obtain collateral for our receivables. We also offer services
and systems and lease equipment to our customers under long-term contracts,
generally three to five years, in which we maintain ownership in the underlying
equipment. We believe our reserves for potential credit losses are adequate and
we perform on-going credit evaluations.
All of our cash, cash equivalents and investments are maintained at three
financial institutions. The investments consist of high-quality commercial
paper.
Reclassifications:
Certain reclassifications have been made to the prior year data to make it
consistent with the 1999 presentation. These reclassifications had no impact on
net loss.
Recent Accounting Standards:
In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance in applying generally accepted accounting
principles to selected revenue recognition issues. We are currently evaluating
changes to our current revenue recognition policies that may result from the
application of this SAB.
3. Acquisitions:
Communication Services of Iowa, Inc. In April 1997, we acquired
Communication Services of Iowa, Inc. (CSI), an Iowa reseller of telephony
keyboard PBX telephone equipment to businesses. We paid $100,000 cash, issued a
$100,000 one-year promissory note at 8% and issued 25,000 shares of our common
stock valued at $50,000 for total consideration of $250,000. The note was paid
in March 1998.
A.T.T.ex Corporation. In September 1997, we acquired A.T.T.ex Corporation
(A.T.T.ex) of Des Moines, Iowa, a telecommunications service company that
provided direct telephony service support to corporate customers. The purchase
price consisted of $450,000 in cash and the issuance of 37,500 shares of our
common stock valued at $187,500 for total consideration of $637,500.
Vital Integration Solutions, Inc. In September 1997, we acquired Vital
Integration Solutions, Inc. (Vital) of Des Moines, Iowa and Omaha, Nebraska, a
full service integration solutions provider which specialized in comprehensive
information management and networking solutions. Vital provided its clients with
the hardware, software and integration services necessary to build information
systems and networks. We paid $500,000 in cash and issued 375,000 shares of our
common stock valued at $1,875,000 for total consideration of $2,375,000.
Telephone Communications Corporation. In February 1998, we acquired the
assets and assumed certain liabilities of Telephone Communications Corporation
(TCC) of Vail, Colorado. TCC was a long distance switchless reseller providing
1+, 0+, 800, and Calling Card services to cities such as Dillon, Frisco and the
Vail Valley. We paid $400,000 in cash, issued a $200,000 one-year note at 8% and
issued 5,000 shares of our common stock which for purchase accounting purposes
were assigned a value of $8.00 per share. We also assumed a note with National
Network Corporation of approximately $287,000, which was paid in April 1998.
Total consideration for the purchase was $927,000. We negotiated an early
discounted payoff of the $200,000 note in the total amount of $180,000
(including accrued interest of $2,250) in May 1998.
Network Computer Solutions, LLC. In February 1998, we acquired the assets
and assumed certain liabilities of Network Computer Solutions (NCS) of Greenwood
Village, Colorado. NCS provided network integration services. We paid $500,000
in cash, issued 50,000 shares of our common stock which for purchase
39
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
accounting purposes were assigned a value of $8.00, assumed liabilities of
$438,372 and paid a finders fee of $150,000 for total consideration of
$1,488,372.
Communication Services of Colorado. In May 1998, we completed a merger
with Communication Services of Colorado (CSC) of Englewood, Colorado. CSC was a
long distance switchless reseller providing 1+, 0+, 800, and Calling Card
services. The purchase price consisted of $475,000 in cash, the issuance of a
$530,000 one-year note at 8% and assumed liabilities of $341,054 for total
consideration of $1,346,054.
HH&H Communications Technologies, Inc. In May 1998, we completed the
acquisition of the assets and certain liabilities of HH&H Communications
Technologies, Inc. (CTI), a voice equipment provider in Texas. We paid $200,000
in cash, issued 15,000 shares of our common stock, which for accounting purposes
were assigned a value of $8.50 per share, and assumed liabilities of $151,383
for total consideration of $478,883.
CMB Holdings, Inc. d/b/a Independent Equipment Company. In June 1998, we
completed the acquisition of substantially all of the assets of CMB Holdings,
Inc. d/b/a Independent Equipment Company (IEC), an equipment remarketer in
Florida. The purchase price consisted of the issuance of 170,000 shares of our
common stock, which for accounting purposes were assigned a value of $10.00 per
share, for total consideration of $1.7 million.
Tie Communications, Inc. Effective August 1, 1998 we completed the
acquisition of substantially all the assets and certain of the liabilities of
Tie Communications, Inc. (Tie). The purchase price consisted of $40.0 million in
cash and the assumption of certain liabilities, which with legal and
professional and other costs resulted in a total purchase price of approximately
$51.4 million. Tie was a telecommunications equipment provider and a nationwide
reseller of long-distance service.
Kansas Communications, Inc. In February 1999, we acquired the assets and
assumed certain liabilities of Kansas Communications, Inc. (KCI). KCI was a
telecommunications equipment provider and integrator. The purchase price
consisted of $1.5 million in cash, $4.5 million in notes payable and 24,925
shares of our common stock, which, for purchase accounting purposes, were
assigned a value of $10.00 per share, and assumed liabilities of $2.4 million
resulting in total consideration of $8.7 million. In April 1999, $1.5 million of
the notes payable were paid with the proceeds from the sale of our Series A
Convertible Preferred Stock. In July 1999 $2.0 million of the notes payable was
repaid and the remaining balance was paid in November 1999.
BSSi Innovations, Inc. In April 1999, we acquired BSSi Innovations, Inc.
(BSSi). BSSi was a data network integration services provider based in Chicago,
Illinois. The purchase price consisted of $455,000 in cash, 37,000 shares of our
common stock, which for purchase accounting purposes were assigned a value of
$10.00 per share, and assumed debt of approximately $525,000, resulting in total
consideration of $1.4 million. An additional 20,000 shares may be issued if
certain financial conditions are met.
Choice Solutions, Inc. In June 1999 we purchased the majority of the assets
and assumed certain liabilities of Choice Solutions, Inc. (CSI). CSI was a data
network integration services provider based in Dallas, Texas. The purchase price
consisted of $1.1 million in cash. Up to $225,000 in additional shares of our
common stock may be issued if certain financial conditions are met.
Network Technologies Group. In September 1999, we purchased the majority of
the assets and assumed certain liabilities of Network Technologies Group (NTG).
NTG was a data network integration services provider based in Miami, Florida.
The purchase price consisted of $675,000 in cash and $475,000 in shares of our
common stock for a total purchase price of $1.2 million. Up to an additional
$500,000 in shares of our common stock may be issued if certain financial
conditions are met.
Entre Business Technology Group. In October 1999, we acquired Video
Enterprises Corporation, d/b/a Entre Business Technology Group (EBTG). EBTG was
a data network integration services provider based in Atlanta, Georgia. The
purchase price consisted of $2.0 in cash, $2.1 million in shares of our common
stock, and assumed debt of approximately $2.6 million, resulting in total
consideration of $6.7 million. Up to $700,000 in additional shares of our common
stock may be issued if certain financial conditions are met.
40
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Classic Datacom, Inc. In November 1999, we purchased the majority of the
assets and assumed certain liabilities of Classic Datacom, Inc. (CDI). CDI was a
data network integration services provider based in Hartford, Connecticut. The
purchase price consisted of $1.7 million in cash and $1.0 million in common
stock for total consideration of $2.7 million. Up to $600,000 in additional
shares of our common stock may be issued if certain financial conditions are
met.
We accounted for these acquisitions as business combinations, which were
accounted for by the purchase method of accounting. We valued the acquisitions
at the fair market value of the consideration given. With regard to our common
stock and warrants, prior to our initial public offering, we determined the fair
market value based upon a number of factors including a market analysis of
publicly traded companies and a discounted cash flow analysis. An option pricing
model was also used to value our warrants. In connection with the acquisitions,
the excess of consideration given over the fair market value of the net assets
acquired is being amortized on a straight line basis over the estimated life of
the intangible assets acquired which is five to ten years. The accompanying
financial statements include the accounts of the acquired companies from the
effective dates of the acquisitions.
In addition to the business acquisitions previously discussed, we have also
completed purchases of certain assets of other companies as follows:
Big Planet, Inc. In October 1997, we acquired certain assets and assumed
certain liabilities of Big Planet, Inc., of Portland, Oregon. Big Planet is an
Internet service provider (ISP) offering a full range of Internet services,
including Internet access, Web hosting, maintenance, and site design. We paid
$250,000 in cash for the assets and the assumption of certain trade payables.
Sigmacom Corporation. In December 1997, we acquired certain data
integration assets of Cavion Technology, Inc. (formerly Sigmacom Corporation).
Cavion is a systems integrator for corporate audio, video and data
communications, providing state-of-the-art systems that combine
telecommunications and computer network technologies. Cavion is also developing
Internet application software for financial institutions such as credit unions.
We paid $875,000 in cash and issued Sigmacom a warrant to purchase 25,000 shares
of our common stock at an exercise price of $15.00 per share, which expired in
December 1999. We valued the warrants, at an aggregate value of $30,000
utilizing an option pricing model and a number of factors including a market
analysis of publicly traded companies and a discounted cash flow analysis. We
also acquired a minority interest in Cavion's software development business to
which we allocated $350,000 of the purchase price. The value of this minority
interest as of December 31, 1999 was approximately $520,000.
The consideration paid for acquisitions in 1997, 1998 and 1999, and the
allocation of such consideration to the acquired assets and assumed liabilities
is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
Cash paid, net of cash acquired............................. $1,542 $42,364 $10,545
Common stock issued to the former owners.................... 2,113 2,266 4,234
Notes payable and liability to former owners................ 100 908 4,490
Warrants issued............................................. 55 -- --
------ ------- -------
Total amount to be allocated.............................. $3,810 $45,538 $19,269
====== ======= =======
Allocation to acquired assets and assumed
liabilities:
Goodwill.................................................. $3,384 $42,544 $15,344
Accounts receivable....................................... 400 4,813 6,959
Inventory................................................. 116 4,586 4,300
Equipment................................................. 356 2,945 1,202
Customer lists............................................ -- 1,684 --
</TABLE>
41
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<S> <C> <C> <C>
Prepaid expenses, deposits and other
current assets........................................... 4 669 153
Investment................................................ 350 -- --
Accounts payable and accrued liabilities.................. (637) (6,804) (6,903)
Deferred revenue, net of costs............................ -- (1,912) (1,602)
Debt...................................................... (163) (2,987) (184)
------ ------- -------
Amounts allocated........................................... $3,810 $45,538 $19,269
======= ======= =======
</TABLE>
On a pro forma basis, as though the above combinations had taken place at
the beginning of the periods presented, revenue, net loss and net loss per share
would have been as follows (unaudited):
<TABLE>
<CAPTION>
1998 1999
------------- ---------------
(in thousands, except
per share amounts)
<S> <C> <C>
Revenue ...................................................... $ 109,667 $ 192,895
Net loss ..................................................... $ (59,462) $ (110,041)
Net loss per share ........................................... $ (2.14) $ (5.33)
Weighted average shares ...................................... 27,847 20,628
</TABLE>
4. Short-Term Investments:
All of our short-term investments as of December 31, 1999 are classified as
available for sale. The investments had an amortized cost basis of $34.3 million
at December 31, 1999 and a fair value of $34.7 million at December 31, 1999. The
unrealized gain at December 31, 1999 related to these investments which matured
in 2000 was $398,881.
5. Leases Receivable:
Our wholly owned subsidiary, Convergent Capital Corporation (CCC), leases
data and telephony equipment to our customers under direct financing and sales
type leases. The receivables, which are due over two to five years, are
collateralized by the equipment being leased. The current portion of leases
receivable is included in other current assets. The components of leases
receivable and the future minimum payments receivable are as follows:
<TABLE>
<CAPTION>
December 31,
1999
------------
(in thousands)
<S> <C>
Receivable:
2000................................................... $ 3,858
2001................................................... 3,446
2002................................................... 2,582
2003................................................... 1,055
2004................................................... 505
Thereafter........................................... 76
-------
Gross receivables........................................ 11,522
Unearned income.......................................... (1,747)
-------
Lease receivables........................................ 9,775
Less: current portion.................................... (3,625)
-------
Long-term lease receivables.............................. $ 6,150
=======
</TABLE>
42
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. Property, Network and Equipment:
Property, network and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
-------- -------
(in thousands)
<S> <C> <C>
Office furniture and equipment........................................... $14,057 $27,424
Network equipment........................................................ 8,608 37,843
Enterprise Managed Services network equipment............................ 4,297 7,611
Leasehold improvements................................................... 939 2,875
Company vehicles......................................................... 238 1,702
------- -------
28,139 77,455
Less accumulated depreciation............................................ (4,883) (15,292)
------- -------
Net property, network and equipment...................................... $23,256 $62,163
======= =======
</TABLE>
Depreciation expense was $515,317 for the year ended December 31, 1997,
$4.3 million for the year ended December 31, 1998 and $10.6 million for the year
ended December 31, 1999.
We enter into capital leases for various equipment. Equipment under capital
leases is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
-------- -------
(in thousands)
<S> <C> <C>
Network equipment......................................................... $11,865 $15,189
Furniture and equipment................................................... 4,020 16,072
Vehicles.................................................................. - 1,431
------- -------
15,885 32,692
Less accumulated depreciation............................................. (2,906) (7,872)
------- -------
$12,979 $24,820
======= =======
</TABLE>
7. Notes Payable and Capital Leases:
Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
13% Senior Notes payable, (i) below.................................. $153,630 $154,319
$10.0 Million Senior Facility, (ii) below............................ - 9,631
$103.5 Million Credit Facility, (iii) below.......................... - 9,537
Notes payable for discounted long-term receivables, (iv) below....... - 6,193
Note payable for acquisition, interest at 8%, principal and
accrued interest due May 1999..................................... 530 -
Other................................................................ 175 103
-------- -------
154,335 179,783
Less current portion................................................. (604) (1,788)
-------- -------
Long term portion.................................................... $153,731 $177,995
======== ========
</TABLE>
43
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
- ---------------
(i) On April 2, 1998 we completed a private offering of $160.0 million of 13%
Senior Notes and 640,000 warrants to purchase 864,000 of our common shares. The
13% Senior Notes mature on April 1, 2008 and interest is payable semi-annually
in arrears on April 1 and October 1 of each year beginning October 1, 1998. At
the same time as the closing of the 13% Notes Offering, we deposited U.S.
Government Securities in a collateral account. The amount deposited in the
collateral account together with the interest earned on those securities, will
be enough to pay the first six interest payments on the 13% Senior Notes. The
first payment was made on October 1, 1998. The 13% Senior Notes contain certain
covenants that restrict our ability to incur additional debt and to make certain
payments, including dividends. Each Warrant entitles the holder to purchase 1.35
shares of our common stock at an exercise price of $.02 per share. The Warrants
are currently exercisable and expire on April 1, 2008. Each Warrant was assigned
a value of $21.52 using an option pricing model, a market analysis of publicly
traded companies and a discounted cash flow analysis. The proceeds that were
attributable to the Warrants were treated as a discount to the 13% Senior Notes
and allocated to shareholders' equity. We received proceeds approximately of
$95.6 million after deducting offering costs of approximately $7.6 million and
making the deposit of $56.8 million into the collateral account. As of December
31, 1999 the amount outstanding, net of the unaccreted discount of $6.4 million
resulting from the allocation of the warrants, was $154.3 million.
(ii) In June 1999, we entered into a $10.0 million senior secured credit
facility with Goldman Sachs Credit Partners L.P. The proceeds of this facility
are being used for working capital and other general corporate purposes.
Interest accrues at the greater of 13.0% or LIBOR plus 6.0% with interest
payments due monthly. The principal amount outstanding along with any accrued
interest is due in June, 2002. We cannot re-borrow amounts repaid under this
facility. In connection with this facility, we also issued to Goldman Sachs
Credit Partners L.P. a warrant to acquire 375,000 shares of common stock at an
exercise price of $15.00 per share, which are exercisable through July 23, 2002.
As of December 31, 1999 none of these warrants had been exercised. We have
obtained waivers for non-compliance with certain financial covenants of this
facility as of December 31, 1999. We have borrowed the full amount available
under this facility.
(iii) In July 1999, we entered into a six-year $103.5 million credit facility
with Cisco Systems Capital Corporation. This credit facility will provide the
financing for the purchase and installation of our Cisco Systems, Inc. multi-
service data and voice switching platform and for other Cisco equipment. Under
the terms of this agreement, Cisco Systems, Inc. also received a warrant to
purchase 575,000 shares of our common stock, none of which had been exercised as
of December 31, 1999. The warrant has an exercise price of $15.00 per share and
is exercisable for three years from the date of issuance. The facility will be
available in three tranches over a three year period with quarterly payments due
over three years beginning one year from the availability of each tranche. As
of December 31, 1999, we had borrowed $9.5 million under this facility.
(iv) We have entered into financing arrangements in which we have assigned, on
a non-recourse basis, certain of our long-term receivables resulting from
equipment leasing and Enterprise Managed Services contracts, to financing
institutions. The indebtedness resulting from these transactions is paid down
over the term of the corresponding receivables which is two to five years.
Interest on this borrowing ranges from 6% to 12% and is collateralized by the
equipment provided under the contract with our customer.
Scheduled maturities on debt outstanding are as follows:
<TABLE>
<CAPTION>
December 31,
1999
---------------
Due in: (in thousands)
<S> <C>
2000...................................................................................... $ 1,788
2001...................................................................................... 5,099
2002...................................................................................... 14,939
2003...................................................................................... 3,701
2004...................................................................................... 240
</TABLE>
44
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<S> <C>
Thereafter..................................................................................... 160,066
--------
185,833
Less unaccreted discount....................................................................... (6,050)
--------
Total debt................................................................................... $179,783
========
</TABLE>
Capital Leases
Some of our equipment and equipment used by our customers is leased under
capital leases. The following is a schedule of the minimum lease payments under
capital leases together with the present value of the minimum lease payments.
<TABLE>
<CAPTION>
December 31,
1999
------------
(in thousands)
Due in:
<S> <C>
2000......................................................................................... $14,816
2001.......................................................................................... 12,824
2002.......................................................................................... 9,458
2003.......................................................................................... 823
2004.......................................................................................... 42
------
Total minimum lease payments.................................................................. 37,963
Less amount representing interest............................................................. (12,272)
-------
Present value of minimum lease payments....................................................... 25,691
Less current portion.......................................................................... (9,533)
-------
Long-term portion............................................................................. $16,158
=======
</TABLE>
Comdisco Facility. In November 1997 we entered into an agreement with
Comdisco, Inc. (Comdisco) which provides for up to $50 million of equipment
lease financing. At December 31, 1999, $30 million of the $50.0 million was
available for us to use of which $24.8 million was being utilized. The remaining
$20.0 million will be available upon the satisfaction of additional conditions.
This facility will expire on June 30, 2000.
The Comdisco facility is collateralized by the equipment being financed. In
addition, we are required to issue a warrant to acquire shares of our common
stock in an amount equal to ten percent (10%) of the facility, divided by the
exercise price per share. The exercise price per share is equal to the price
paid by investors in recent equity offerings, not less than $6.00 per share. The
warrants will be issued in three installments based upon amounts available under
the facility. We issued a warrant in 1997 for the purchase of 166,666 shares of
our common stock at an exercise price of $6.00 per share for the first $10
million of the facility. We issued a warrant in 1999 for the purchase of 200,000
shares of our common stock at an exercise price of $10.00 per share for the
second $20.0 million of the facility. The warrants were valued utilizing an
option pricing model, and a number of factors including a market analysis of
publicly traded companies and a discounted cash flow analysis. The warrants, all
of which were outstanding as of December 31, 1999, are being amortized into
interest expense over three years.
GATX Financing. In May 1997, we entered into a Master Equipment Lease
with GATX Technology Services Corporation (GATX) to lease equipment, facilities
and related items for our internal expansion as well as equipment to be used for
customer installations. The facility is collateralized by a $100,000 standby
letter of credit. In connection with the establishment of the facility, we
issued a warrant to GATX for the purchase of 40,285 shares of our common stock
at an exercise price of $6.00 per share. We valued the warrant utilizing an
option pricing model and a number of other factors including a market analysis
of publicly traded companies and a discounted cash flow analysis. The warrant is
being amortized into interest expense over three years. We had amounts
outstanding under this facility of $4.4 million as of December 31, 1998 and $4.7
million as of December 31, 1999.
45
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. Commitments:
We lease a portion of our buildings and equipment under operating leases. Future
minimum payments under operating leases are as follows:
<TABLE>
<CAPTION>
December 31,
1999
------------
(in thousands)
<S> <C>
Due in:
2000................................................................. $ 7,941
2001................................................................. 6,762
2002................................................................. 6,013
2003................................................................. 4,789
2004................................................................. 3,517
Thereafter........................................................... 3,324
-------
$32,346
=======
</TABLE>
Rent expense under operating leases was $431,930 for the year ended December 31,
1997, $4.3 million for the year ended December 31, 1998, and $7.0 million for
the year ended December 31, 1999.
9. Shareholders' Equity (Deficit):
We have 1,000,000 shares of preferred stock authorized none of which were
outstanding as of December 31, 1998 and 1999.
On October 31, 1996, we issued 187,500 shares of our common stock in exchange
for a 10% equity interest in Services-oriented open Network Technologies, Inc.
(SONeTech) and an exclusive engineering and consulting agreement. In May, 1999,
we reacquired 37,500 shares of our common stock for $4,500 and sold our equity
interest. A loss of $220,500 was recognized in the transaction.
In February 1997, we completed the second of two tranches of an offering of an
aggregate of 3,500,000 units. Each of the units consisted of one share of common
stock and one-half warrant to purchase a share of common stock (the first
tranche of 2,369,763 units closed in late 1996). The units were sold at a price
of $2.00 each. One warrant entitled the holder to purchase one share of common
stock for a price of $3.00 per share for five years from the date of the
offering. As part of the offering, we issued warrants to purchase 1,750,000 of
our common shares to investors, which were exercisable at $3.00 per share. As of
December 31, 1999, 173,115 of these warrants had been exercised and 872 had been
cancelled. We also issued warrants to purchase 370,625 of our common shares to
the placement agents, which are exercisable at $2.40 per share through November
7, 2001. As of December 31, 1999, all of these warrants remained outstanding.
In October 1997, we completed an offering of 3,410,000 units consisting of one
share of our common stock and one-half warrant to purchase a share of our common
stock. The units were sold at a price of $5.00 each. The proceeds, net of
related offering costs, were approximately $15.2 million. One warrant entitles
the holder to purchase one share of our common stock for a price of $7.50 per
share, beginning in November 1998 through July 14, 1999. As of December 31,
1999, 1,667,250 of these warrants had been exercised and 37,750 were cancelled.
We also issued warrants to purchase 307,930 of our common shares to the
placement agents exercisable at $6.00 per share beginning in May 1998 through
November 14, 2002. As of December 31, 1999 12,053 of these warrants had been
exercised and 1,627 had been cancelled.
In connection with the signing of financing agreements with Comdisco, Inc. and
GATX, we granted Comdisco warrants to purchase 166,666 shares of our common
stock and granted GATX warrants to purchase 40,285 shares of our common stock.
All of these warrants are exercisable at $6.00 per share. The Comdisco warrants
are currently
46
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
exercisable and expire on July 23, 2004. The GATX warrants are exercisable
beginning in May 1998 and expire in May 2002. As of December 31, 1999, all of
these warrants remained outstanding.
In August 1998, we entered into a consulting agreement under which the
consultant recruited senior management personnel on behalf of our wholly-owned
subsidiary, Convergent Capital Corporation. As a result of the services
performed under this agreement, we issued warrants to the consultant to purchase
62,500 shares of our common stock at $10.00 per share. The warrants are
currently exercisable and expire on August 3, 2008. We valued the warrants using
an option pricing model and recognized consulting expense of $79,883. As of
December 31, 1999, all of these warrants remained outstanding.
Certain holders of our common stock and the holders of certain warrants have the
right to demand that we file a registration statement to register their shares
and the shares underlying their warrants.
Stock Option Plans:
We have adopted the 1996 and 1997 Incentive and Non-Statutory Option Plans, the
1998 and 1999 Stock Option Plan and the Stock Incentive Plan (the "Plans") which
authorize us to grant up to 6,450,000 shares of our common stock to employees,
consultants and directors under incentive stock options within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended, and to grant non-
statutory stock options.
The Plans require that the exercise price of options we grant must be at least
equal to the fair market value of a share of our common stock on the date of the
grant and must be exercisable over a period of up to ten years. However, if an
employee owns more than 10% of our outstanding common stock, then the exercise
price of an incentive option must be at least 110% of the fair market value of a
share of our common stock on the date of grant and must be exercisable over a
period of five years. All of our options vest over five years.
The Plans are administered by our Board of Directors or a committee of the
Board which determines the terms of the options granted, including the exercise
price, the number of shares of our common stock subject to the option, and the
terms and conditions of exercise. No option granted under the Plan is
transferable by the optionee other than by will or the laws of descent and
distribution and each option is exercisable during the lifetime of the optionee
only by such optionee.
In May 1997, we accelerated the vesting provisions related to options of
certain employees to purchase 475,000 shares with an exercise price of $0.12 per
share and all of the options were exercised. The underlying shares are subject
to a repurchase agreement over a five year period whereby we can repurchase a
portion of the shares upon termination of employment. The amount available for
repurchase is reduced by 20% each year of employment. In late 1997, we
repurchased 100,000 shares for $0.12 per share, upon the termination of one of
the exercising employees. The repurchased shares are included in the authorized
but unissued shares of common stock. At December 31, 1999, approximately 105,000
shares were subject to repurchase.
47
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table sets forth our stock option activity:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number of Exercise Grant Date
Shares Price Fair Value
----------- -------------- --------------
(in thousands)
<S> <C> <C> <C>
Outstanding at December 31, 1996............................... $ 905 $ 1.02 $ --
Granted
Above market value........................................ 1,405 3.60 0.52
At market value........................................... 493 3.90 1.12
Exercised .................................................. (475) 0.12 --
Canceled..................................................... (6) 2.66 --
------ ----- -----
Outstanding at December 31, 1997............................... 2,322 3.38 --
Granted
Above market value........................................ 1,361 11.26 0.16
At market value........................................... 321 7.48 1.74
Exercised .................................................. (44) 0.38 --
Canceled..................................................... (638) 5.26 --
----- ----- -----
Outstanding at December 31, 1998............................... 3,322 6.50 --
Granted
Above market value........................................ 475 14.49 5.65
At market value........................................... 549 10.43 5.87
Below market value........................................ 103 14.28 17.35
Exercised .................................................. (98) 4.76 --
Canceled..................................................... (567) 7.13 --
----- ----- -----
Outstanding at December 31, 1999............................... $ 3,784 $ 8.30 $ --
======= ====== ======
</TABLE>
The following table indicates the number of shares exercisable and the weighted
average exercise prices at December 31:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Options exercisable................................................... 172,500 495,050 1,025,200
Weighted average exercise price....................................... $ 2.58 $ 3.32 $ 5.27
</TABLE>
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life for options outstanding was as follows:
<TABLE>
<CAPTION>
Weighted Average
Option Price Remaining Contractual
Number of Shares Range Life
- ---------------- ---------------- ---------------------
<S> <C> <C>
1,265,250 . . . . . . . . . . . $ 2.00 to $ 5.00 5.6 years
842,700 . . . . . . . . . . . $ 5.01 to $10.00 6.4 years
1,574,750 . . . . . . . . . . . $10.01 to $15.00 8.4 years
100,500 . . . . . . . . . . . $15.01 to $20.00 9.3 years
750 . . . . . . . . . . . $20.01 to $21.50 9.6 years
</TABLE>
48
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
If the compensation cost for the Plan was determined based on the fair value at
the grant dates for awards using the method prescribed by SFAS 123, our pro
forma net loss and net loss per share would have been as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1997 1998 1999
---------= ---------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net loss:
As reported............................................ $(9,655) $(50,576) $(108,260)
Pro-forma.............................................. $(9,703) $(50,958) $(109,073)
Net loss per share:
As reported............................................ $ (0.92) $ (3.68) $ (5.32)
Pro-forma.............................................. $ (0.92) $ (3.72) $ (5.36)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method prior to our Initial Public Offering IPO) on July 19,
1999 and the Black Scholes method from July 19, 1999 forward, with the following
assumptions:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Dividend yield............................................ - - -
Volatility................................................ - - 141
Risk-free interest rate................................... 5.65-6.84% 5.38-5.71% 4.60-6.30%
Expected lives............................................ 5 years 5 years 5 years
</TABLE>
Because we expect to make additional option grants, the above pro forma
disclosures are not necessarily representative of pro forma effects on net
income to be reported for future years.
We recognized compensation expense for employee stock grants and stock
options of $194,517 for the year ended December 31, 1997, $633,828 for the year
ended December 31, 1998, and $1.5 million for the year ended December 31, 1999.
49
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
10. Business Segments:
We classify our business into three fundamental areas: eBusiness Solutions,
Enterprise Services and Enterprise Systems. Senior management evaluates and
makes operating decisions about each of these operating segments based on a
number of factors. We do not account for assets by business segment and,
therefore, depreciation and amortization are not factors used in evaluating
operating performance. Two of the most significant factors used in evaluating
the operating performance are: revenue and gross margin before depreciation as
presented below:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1997 1998 1999
-------------- ---------------- ----------------
(in thousands)
<S> <C> <C> <C>
Revenue:
eBusiness Solutions....................................... $ -- $ -- $ 1,742
Enterprise Services....................................... 2,795 27,922 64,806
Enterprise Systems........................................ 7,415 33,678 93,374
-------------- ---------------- ----------------
Total................................................... 10,210 61,600 159,922
-------------- ---------------- ----------------
Gross margin before depreciation:
eBusiness Solutions....................................... -- -- 1,022
Enterprise Services....................................... 1,517 12,335 31,979
Enterprise Systems........................................ 1,325 5,562 22,876
-------------- ---------------- ----------------
Total................................................... 2,842 17,897 55,877
-------------- ---------------- ----------------
Reconciliation to net loss:
Selling, general and administrative....................... (10,983) (47,862) (125,350)
Depreciation and amortization............................. (1,453) (7,493) (17,295)
Impairment of long-lived assets........................... -- -- (650)
-------------- ---------------- ----------------
Operating loss............................................ (9,594) (37,458) (87,418)
Interest expense.......................................... (156) (17,502) (25,491)
Interest income........................................... 251 4,632 4,880
Other income (expense).................................... (156) (248) (231)
-------------- ---------------- ----------------
Net loss................................................ $ (9,655) $ (50,576) $ (108,260)
============== ================ ================
</TABLE>
11. Deferred Compensation:
We have a Deferred Compensation plan whereby certain management employees
can elect to defer a portion of their compensation which will be paid in shares
of our common stock at a future date. The plan requires that we issue shares of
common stock into a rabbi trust which will then be distributed to the employee
at a specified date in the future not less than one year from the deferral date.
We have recorded the deferred compensation amount as treasury stock (for
accounting purposes) and as a deferred compensation obligation in the
shareholders' equity (deficit) section of the balance sheet. As of December 31,
1999, 148,171 shares of our common stock are being held in the rabbi trust.
12. Income Taxes:
For federal income tax purposes we had net operating loss carryforwards of
$152.2 million as of December 31, 1999. Section 382 of the Internal Revenue Code
places certain limitations on the annual amount of net operating loss
carryforwards which can be utilized if certain changes in ownership occur. As a
result, our ability to use these net operating loss carryforwards, which will
begin to expire in 2011, may be limited.
50
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The components of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
--------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $17,058 $57,828
Deferred revenue.................................................. 1,924 2,441
Accrued vacation and bonus........................................ 1,342 1,635
Intangibles....................................................... 549 1,031
Allowance for doubtful accounts................................... 528 747
Deferred gain on sales-type leases................................ - 646
Charitable contributions.......................................... - 16
Property and equipment............................................ 462 367
Self-insurance and warranty liabilities........................... 449 135
Original issue discount........................................... 384 201
Valuation allowance............................................... (22,696) (65,047)
-------- --------
Total net deferred tax assets.................................. $ - $ -
========= ========
</TABLE>
The increase in the valuation allowance of $19.1 million in 1998 and $42.4
million in 1999 are due to increased losses during each year. We have recorded a
full valuation allowance on the net deferred tax assets due to continuing
losses.
Our actual income taxes differed from the expected federal statutory rate as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1998 1999
-------------- ------------- ------------
<S> <C> <C> <C>
Statutory tax rate............................................... 34% 34% 35%
State taxes, net of federal benefit.............................. 4 4 3
Valuation allowance.............................................. (38) (38) (38)
-------------- ------------- ------------
Effective tax rate............................................... -% -% -%
============== ============= ============
</TABLE>
13. Net Loss Per Share:
The net loss available to common shareholders consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1997 1998 1999
----------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Net loss..................................................... $ (9,655) $ (50,576) $ (108,260)
=========== ========== ==========
The weighted average shares consist of the following:
Weighted average common shares used for
basic and fully diluted earnings per share................. 10,461 13,732 20,356
=========== ========== ==========
Anti-dilutive options and warrants not included in
the calculation............................................ 3,827 6,975 8,868
=========== ========== ==========
</TABLE>
14. Employee Benefit Plans:
We adopted an employee benefit 401(k) plan for all employees effective
March 1, 1997. Under the plan, employees may voluntarily elect to have up to 15%
of their salaries deducted from earnings and placed in the plan. We may elect to
match up to 6% of the employee contributions by contributing our common stock to
the plan. Our contributions are determined on a quarterly basis and the number
of shares to be contributed is based upon the
51
<PAGE>
CONVERGENT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
estimated fair value of the stock at the end of each quarter. During 1998 we
contributed $182,792 of our common stock for the year ended December 31, 1997
match and contributed $253,102 of our common stock for the first and second
quarters of 1998. During 1999, we contributed $712,596 for the third and fourth
quarters 1998 and contributed $2.0 million for the first, second, and third
quarters of 1999. An additional $932,498 was accrued as of December 31, 1999 for
the fourth quarter of 1999 which was contributed in February, 2000.
15. Related Party Transactions:
In August 1998, we entered into a two year agreement with Strategic
Healthcare Solutions, LLC (SHS) under which SHS was engaged to provide new
customers in the healthcare industry to us. One of our directors is a principal
of Strategic Asset Management which has an ownership interest in SHS. Under the
agreement, we pay SHS a monthly fee and commissions (an aggregate of
approximately $125,000 in 1998 and $227,336 in 1999). In addition, we issued a
warrant to SHS which entitles them to purchase up to a maximum of 131,250 shares
of our common stock at an exercise price of $12.00.
The warrant includes performance objectives which are reviewed
semiannually. If SHS does not meet those performance objectives, all or a
portion of the shares available for each six-month period (32,813 shares) is
reduced. The warrant is not exercisable until August 1, 2000 and expires August
1, 2003. During 1999, 64,331 shares applicable to the warrant were cancelled as
a result of not meeting the performance objectives.
In October 1999, we entered into a long-term Enterprise Managed Services
agreement with Cavion Technologies, Inc. (Cavion). Under this agreement we have
designed a network which we now own, maintain and monitor and support
connectivity, including providing equipment and related services for the
network. In connection with this agreement we purchased $286,000 of equipment
from Cavion. In exchange for the use of our equipment and services provided,
Cavion will pay us a monthly fee over a term of five years. In October 1999,
John Evans was elected as a member of the Board of Directors of Cavion. In
addition, through a business combination we completed in 1997, we own 67,603
shares of Cavion which represents a less than 2% ownership percentage. In
connection with the EMS agreement we recognized revenue of approximately
$135,000 during 1999 of which, approximately $85,000 remained in trade accounts
receivable as of December 31, 1999.
52
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by reference
to our definitive proxy statement for our 2000 Annual Meeting of Stockholders.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference
to our definitive proxy statement for our 2000 Annual Meeting of Stockholders.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
Principal Shareholders
The information required by this item is incorporated herein by reference
to our definitive proxy statement for our 2000 Annual Meeting of Stockholders.
Item 13. Certain Relationships And Related Transactions
The information required by this item is incorporated herein by reference
to our definitive proxy statement for our 2000 Annual Meeting of Stockholders.
53
<PAGE>
PART IV
Item 14. Exhibits, Financial statements schedules, and reports on form 8-K
(a)(1) The following consolidated financial statements of Convergent
Communications, Inc. are included in Item 8 of this Report on Form 10-K:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999
Consolidated Statements of Shareholders' Equity (Defecit) for the years
ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999
Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedules of Convergent
Communications for the three years ended December 31, 1999 are included in this
Report on Form 10-K, as required by Item 14(d):
. Report of Independent Accountants on Financial Statement Schedule
. Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted because the information is not
required or is included in the consolidated financial statements.
(a)(3) List of Exhibits (including management contracts or compensatory plans
or arrangements required to be filed)
<TABLE>
<CAPTION>
Exhibit
No.
- ------------------
<S> <C>
3.1*** Amended and Restated Articles of Incorporation of Convergent Communications, Inc.
3.2** Articles of Amendment to the Amended and Restated Articles of Incorporation of Convergent
Communications, Inc.
3.3+ Articles of Amendment to the Amended and Restated Articles of Incorporation of Convergent
Communications, Inc.
3.4+++ Third Articles of Amendment to Amended and Restated Articles of Incorporation of Convergent
Communications, Inc.
3.5 Articles of Amendment to Amended and Restated Articles of Incorporation of Convergent
Communications, Inc.
3.6 Amended and Restated Bylaws of Convergent Communications, Inc.
</TABLE>
54
<PAGE>
<TABLE>
<S> <C>
4.1*** Indenture, dated as of April 2, 1998, by and among the Company and Norwest Bank Colorado, N.A.
4.2*** Warrant Agreement, dated as of April 2, 1998
4.3*** Warrant Registration Rights Agreement, dated as of April 2, 1998
4.4*** Collateral Account Control Agreement, dated as of April 2, 1998
4.5*** Custody and Security Agreement, dated as of April 2, 1998
4.6** Investor Rights Agreement, dated as of March 17, 1999
4.7** Warrant Agreement, dated as of March 17, 1999
4.8++ Warrant Agreement, dated as of June 3, 1999
4.9++++ Warrant to Purchase Common Stock of Convergent Communications, Inc. dated as of July 16, 1999
4.10 Securities Purchase Agreement, dated as of April 4, 2000
4.11 Investor Rights Agreement, dated as of April 18, 2000
4.12 Warrant Agreement, dated as of April 18, 2000
10.1 Employment Agreement, dated April 17, 2000, between Joseph R. Zell and the Company
10.2 First Amendment to Employment Agreement, dated April 9, 2000, between Brian R. Ervine and the Company
10.3++++++ Employment Agreement, dated March 9, 2000, between Martin E. Freidel and the Company
10.4++++++ Employment Agreement, dated March 9, 2000, between Brian R. Ervine and the Company
10.5++++++ Employment Agreement, dated March 9, 2000, between Michael Dozier and the Company
10.6++++++ Employment Agreement, dated March 9, 2000, between D. Randall Hake and the Company
10.7++++++ Employment Agreement, dated March 9, 2000, between Gregory P. McGraw and the Company
10.8*** Asset Purchase Agreement, dated June 16, 1998 (as amended) by and between Convergent
Communications Services, Inc. and Tie Communications, Inc., Debtor-in-Possession
10.9*** Master Lease Agreement, dated November 11, 1997, between Comdisco, Inc. and the Company
10.10*** Master Lease Agreement, dated November 17, 1997, between Convergent Capital Corporation
and the Company
10.11*** Program Agreement, dated November 19, 1997, among Comdisco, Inc., Convergent
Communications Services, Inc. and the Company
10.12 Loan and Security Agreement by and between Convergent Communications Services, Inc. and
Foothill Capital Corporation, as agent, dated as of April 18, 2000
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
10.13 Secured Continuing Guaranty by Convergent Communications, Inc. in
favor of Foothill Capital Corporation, as agent, dated as of
April 18, 2000
10.14++ Purchase and License Agreement by and between Cisco Systems, Inc.
and Convergent Communications Services, Inc. dated July 16, 1999
10.15++++ Credit Agreement dated as of July 16, 1999 between Convergent
Communications Services, Inc. and Cisco Systems Capital
Corporation
10.16++++ Guaranty dated as of July 16, 1999 by Convergent Communications,
Inc. in favor of Cisco Systems Capital Corporation
21.1++++++ Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included on page 58)
27.1 Financial Data Schedule
99.1++++++ Audit Committee Charter effective March 9, 2000
* Previously filed and incorporated by reference to the 1999 annual
report on Form 10-K (SEC File No. 333-53953)
** Previously filed and incorporated by reference to the 1998 annual
report on Form 10-K (SEC File No. 333-53953).
*** Previously filed and incorporated by reference to the
Registration Statement on Form S-4 (Reg. No. 333-5393).
+ Previously filed and incorporated by reference to the
Registration Statement on Form S-1 (Reg. No. 333-78483) filed May
14, 1999.
++ Previously filed and incorporated by reference to Amendment No. 1
to Registration Statement on Form S-1 (Reg. No. 333-78483) filed
on June 28, 1999.
+++ Previously filed and incorporated by reference to Amendment No. 2
to Registration Statement on Form S-1 (Reg. No. 333-78483) filed
on July 15, 1999.
++ Previously filed and incorporated by reference to Amendment No. 3
to Registration Statement on Form S-1 (Reg. No. 333-78483) filed
on July 16, 1999
++++ Previously filed and incorporated by reference to Amendment No. 4
to Registration Statement on Form S-1 (Reg. No. 333-78483) filed
on July 19, 1999.
++++++ Previously filed and incorporated by reference to the 1999 annual
report on Form 10-K (SEC File No. 333-53953).
</TABLE>
(b) Reports on Form 8-K
Report on Form 8-K filed April 20, 2000
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
The registrant has not sent to security holders any annual report covering
the registrant's last fiscal year or any proxy material relating to a meeting of
security holders. Copies of such annual report and proxy will be furnished to
the Commission when it is sent to security holders.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 24, 2000.
Convergent Communications, Inc.
By: /s/ Joseph R. Zell
--------------------------------------
Joseph R. Zell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- --------------------------------------- ------------------
<S> <C> <C>
/s/ JOSEPH R. ZELL President, Chief Executive April 24, 2000
- -------------------------------------- Officer and Director
Joseph R. Zell (Principal ExecutiveOfficer)
/s/ BRIAN R. ERVINE Chief Financial Officer and April 24 2000
- -------------------------------------- Treasurer (Principal Financial and
Brian R. Ervine Principal Accounting Officer)
Director April 24, 2000
- --------------------------------------
Jeffrey A. Shaw
Director April 24, 2000
- --------------------------------------
Richard W. Boyce
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------------- -------------------------------------------- ---------------------
<S> <C> <C>
/s/ Spencer I. Browne* Director April 24, 2000
- --------------------------------------------
Spencer I. Browne
/s/ Michael J. Marocco* Director April 24, 2000
- --------------------------------------------
Michael J. Marocco
/s/ Richard G. Tomlinson* Director April 24, 2000
- --------------------------------------------
Richard G. Tomlinson
* By /s/ MARTIN E. FREIDEL
Martin E. Freidel, attorney in fact.
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Martin E. Freidel, as such person's true
and lawful attorney-in-fact and agent with full power of substitution for such
person and in such person's name, place and stead, in any and all capacities, to
sign and to file with the Securities and Exchange Commission a report of
Convergent Communications, Inc., a Colorado corporation (the "Corporation"), on
Form 10-K, with exhibits thereto and other documents in connection therewith,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or any substitute therefor, may lawfully do or cause
to be done by virtue thereof.
58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Convergent Communications, Inc.
Our audits of the consolidated financial statements referred to in our
report dated March 13, 2000 except for Note 7 as to which the date is March 28,
2000 and Note 1 as to which the date is April 18, 2000, appearing in Item 8 of
this Annual Report on Form 10-K also included an audit of the financial
statement schedule listed in the index in Item 14(a)(2) of this Form 10-K. In
our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Denver, Colorado
March 13, 2000
59
<PAGE>
SCHEDULE II
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance Charged
at to Costs Balance at
Beginning and Deductions/ End of
of Period Expenses Writeoffs Other Period
------------ ----------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for uncollectible trade
receivables:
Year ended December 31, 1997 $ -- $ 21 $ -- $ -- $ 21
------- ------- ------- ------ -------
Year ended December 31, 1998 $ 21 $ 401 $ (205) $1,691 (i) $ 1,908
------- ------- ------- ------ -------
Year ended December 31, 1999 $ 1,908 $ 3,154 $(2,550) $ -- $ 2,512
------- ------- ------- ------ -------
Allowance for obsolete or excess
inventory:
Year ended December 31, 1997 $ -- $ -- $ -- $ -- $ --
------- ------- ------- ------ -------
Year ended December 31, 1998 $ -- $ 68 $ -- $ -- $ 68
------- ------- ------- ------ -------
Year ended December 31, 1999 $ 68 $ 1,368 $ (88) $ -- $ 1,348
------- ------- ------- ------ -------
Valuation allowance for deferred
tax assets:
Year ended December 31, 1997 $ -- $ 3,582 (ii) $ -- $ -- $ 3,582
------- ------- ------- ------ -------
Year ended December 31, 1998 $ 3,582 $19,114 (ii) $ -- $ -- $22,696
------- ------- ------- ------ -------
Year ended December 31, 1999 $22,696 $42,351 (ii) $ -- $ -- $65,047
------- ------- ------- ------ -------
</TABLE>
(i) Represents amount from acquisition of certain assets of Tie
Communications, Inc.
(ii) Represents a full valuation against the net deferred tax assets.
60
<PAGE>
EXHIBIT 3.5
ARTICLES OF AMENDMENT
TO
THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CONVERGENT COMMUNICATIONS, INC.
Pursuant to the Provisions of
Section 7-106-102 of the Business Corporation Act
of the State of Colorado
CONVERGENT COMMUNICATIONS, INC., a corporation organized and
existing under the laws of the State of Colorado, hereby certifies that,
pursuant to authority contained in its Amended and Restated Articles of
Incorporation and in accordance with Section 7-106-102 of the Business
Corporation Act of the State of Colorado, the Board of Directors of the
Corporation on April 17, 2000, duly adopted the following resolution without
shareholder action, such shareholder action not being required:
RESOLVED, that pursuant to authority expressly granted by the
Amended and Restated Articles of Incorporation of Convergent Communications,
Inc., a Colorado corporation (the "Corporation"), the Board of Directors hereby
creates and authorizes the issuance of a series of the preferred stock, no par
value, of the Corporation, to consist of one hundred seventy-five thousand
(175,000) shares, and hereby fixes the designation, dividend rights, voting
powers, rights on liquidation or dissolution and other preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions of the shares of such series (in addition to any thereof set forth
in the Corporation's Amended and Restated Articles of Incorporation that are
applicable to the Corporation's preferred stock of all series) as follows:
Section 1. Designation; Original Issuance; Status of Reacquired or Converted
Shares.
1.1 The designation of the series of the preferred stock, no par
value, of the Corporation authorized hereby is "Series B Senior Cumulative
Convertible Preferred Stock" (the "Series B Preferred Stock"), the stated value
(the "Stated Value") per share shall be $1,000 and the number of shares
constituting such series shall be one hundred seventy five thousand (175,000).
The dividend rights, voting powers, rights on liquidation or dissolution and
other preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions of the shares of such series are as
set forth in these Articles.
1
<PAGE>
1.2 Shares of the Series B Preferred Stock shall be originally
issued pursuant to the Purchase Agreement (as defined in Section 2 below) and,
thereafter, no additional shares of Series B Stock shall be issued by the
Corporation other than with the prior written consent of the Majority Holders
(as defined in Section 2 below).
1.3 All shares of Series B Preferred Stock received by the
Corporation upon conversion or redeemed, retired, purchased or otherwise
acquired by the Corporation or any of its Subsidiaries shall be retired and
shall be restored to the status of authorized, undesignated and unissued shares
of preferred stock of the Corporation and, subject to the restrictions contained
in these Articles, may be reissued as part of another series of the preferred
stock of the Corporation, but such shares shall not be reissued as Series B
Preferred Stock.
Section 2. Certain Definitions.
The terms defined in this Section 2 shall have the meanings herein
specified:
"Accumulated Arrearage" means, with respect to any Series B Share as
of any date of determination the aggregate amount of all accumulated and unpaid
dividends, whether or not earned or declared, which shall have become Arrearages
in respect of such Series B Share from and after the date of original issuance
thereof to such date of determination, without any reduction for payments
subsequently made by the Company in respect thereof.
"Adjustment Date" has the meaning set forth in Section 10.3(d).
"Additional Shares of Common Stock" means any shares of Common Stock
issued or deemed to be issued by the Corporation after the Closing Time (other
than shares issued upon conversion of any Series B Share or exercise of any
Warrant).
"Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Exchange Act. The term "affiliated" (whether
or not capitalized) shall have a correlative meaning. For purposes hereof,
neither the Corporation nor any Subsidiary shall be deemed to be an Affiliate of
any Purchaser and no Purchaser nor any of its Affiliates shall be deemed to be
an Affiliate of the Corporation.
"Arrearage" has the meaning set forth in Section 4.1(b).
"Bankruptcy Code" means Title 11 of the United States Code.
"Beneficial Owner" means a beneficial owner within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act, as interpreted by the Commission,
provided that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire without regard to the 60 day
limitation in subdivision (d)(i) of such Rule 13d-3. The terms (whether or not
capitalized) "beneficially own" and "owned beneficially" shall have correlative
meanings.
2
<PAGE>
"Board" means the Board of Directors of the Corporation.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in either New York, New York, or the city and
state in which the principal executive offices of the Corporation within the
United States are located are authorized or obligated by law or executive order
to close.
"capital stock" when used with respect to any corporation means
(unless the context otherwise indicates) any and all shares of capital stock
(however designated) of such corporation, including each class and series of
common stock and preferred stock of such corporation, any class or series, any
and all stock appreciation rights and any and all equivalents of any of the
foregoing, and including any security or interest convertible into or warrant,
option or other right (absolute or contingent) to subscribe for, purchase or
otherwise acquire any of the foregoing, in each case whether or not evidenced by
any certificate, instrument or other document and whether voting or nonvoting.
"Change of Control" means the occurrence of any of the following
events: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), excluding the Permitted Holders, is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the Company; (b) the
Company consolidates with, or merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or its parent corporation and/or (2) cash,
securities and other property in an amount which could be paid by the Company as
a Restricted Payment under the Indenture and (ii) immediately after such
transaction no "person" or "group" (as such terms are used in clause (a)),
excluding Permitted Holders, is the "beneficial owner" (as such term is used in
clause (a)), directly or indirectly, of more than 50% of the total Voting Stock
of the surviving or transferee corporation or its parent corporation, as
applicable; or (c) during any consecutive two-year period, individuals who at
the beginning of such period constituted the Board (together with any new
directors whose election by the Board or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board then in
office.
"Closing Date" means the date of the closing of the consummation of
the issuance of Series B Shares to the Purchasers pursuant to the Purchase
Agreement.
3
<PAGE>
"Closing Time" means 10:00 A.M., New York City time, on the Closing
Date.
"Commission" means the Securities and Exchange Commission or any
successor federal agency administering the Securities Act.
"Common Stock" means the Common Stock, no par value, of the
Corporation as constituted on the Closing Date, and any capital stock into which
such Common Stock may thereafter be changed, and (except where the context
otherwise requires) shall also include (i) capital stock of the Corporation of
each and every other class or series (regardless of how denominated) which is
also not preferred as to dividends or assets on liquidation over any other class
or series of stock of the Corporation and which is not subject to redemption and
(ii) shares of common stock of any successor or acquiring Entity (as defined in
Section 10.16) received by or distributed to the holders of Common Stock of the
Corporation in the circumstances contemplated by such Section.
"Conversion Price" means, as of any time and with respect to any
Series B Share, the initial price of Thirteen Dollars ($13.00), as such initial
price shall have from time to time been cumulatively adjusted pursuant to
Section 10 through such time.
"Conversion Rate" means, as of any time and with respect to any
Series B Share, (x) the number of shares of Common Stock obtained by dividing
(i) the sum of (A) the Stated Value, (B) the Accumulated Arrearage and (C) the
aggregate amount of all other accumulated and unpaid dividends, in each case in
respect of such Series B Share at such time by (ii) the Conversion Price in
effect at such time, determined in accordance with Section 9 and Section 10
after giving cumulative effect to all adjustments pursuant to Section 10 through
such time, together with (y) the kind, number and amount of any other securities
and other property made part of the Conversion Rate as the result of adjustments
made pursuant to Section 4.2(b) or Section 10, if applicable.
"Conversion Securities" means, with respect to any Series B Share at
any time, each class and series of Conversion Stock, each class, series and
issue of any other securities, and any Rights with respect to any of such
Conversion Stock or other securities, any shares, number or other amount of
which at such time are deliverable upon conversion of any Series B Share.
"Conversion Stock" means, with respect to any Series B Share at any
time, the Common Stock, each other class or series of capital stock and any
Rights with respect to any of the foregoing shares, the number or other amount
of which at such time is deliverable upon conversion of any Series B Share.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities or obligations (except the Series B Preferred Stock
and the Warrants) that are convertible into or exchangeable, with or without
payment of additional consideration in cash or property, for any Common Stock,
either immediately or upon the occurrence of a specified date or a specified
event or the satisfaction or happening of any other condition or contingency.
4
<PAGE>
"Current Market Price" means, in respect of any share of Common
Stock as of any date, the average of the reported last sales prices for the ten
consecutive Trading Days commencing twenty Trading Days before the date in
question. The reported last sales price for each Trading Day shall be the
reported last sales price, regular way, as reported on the National Market tier
of The Nasdaq Stock Market (or, if the Common Stock shall be traded principally
through the facilities of a national securities exchange other than Nasdaq Stock
Market, such national securities exchange). As used herein, the term "Trading
Day" means a day on which The Nasdaq Stock Market (or such other national
securities exchange) is open for business, provided that if no sales of the
Common Stock take place on such day on the relevant exchange or stock market
determined under the immediately preceding sentence, such day shall not be a
Trading Day. In case any event that would require an adjustment to the
Conversion Price pursuant to Section 10 occurs with an "ex" date or an effective
date occurring during the foregoing ten consecutive Trading Day period, the last
sales prices used in determining the Current Market Price shall be appropriately
adjusted to take such event into account.
"Designated Director" has the meaning set forth in Section 7.1.
"Dividend Rate" means the rate of eight percent (8%) per annum.
"Election Form" has the meaning set forth in Section 3.7(a)(iii).
"Employee Option" means any option to purchase Common Stock for
cash, which is granted by or with the approval of the Board to any director,
officer, employee or consultant of the Corporation or any subsidiary of the
Corporation pursuant to (i) the Corporation's stock option plans disclosed in a
schedule to the Purchase Agreement and as in effect on the Closing Date or (ii)
any other option plan adopted by the Corporation after the Closing Date with the
approval of the Majority Holders or the Series B Directors (collectively, the
"Stock Option Plans").
"Entity" means any corporation, limited liability company, general
or limited partnership, joint venture, association, joint stock company, trust,
other unincorporated business or organization or other Person which is not
either a natural person or a governmental authority or agency.
An "equity interest" in or of any Entity includes any capital stock
or other equity security issued by such Entity, any partnership (general or
limited) or joint venture interest in such Entity, any other equity, ownership,
participating or beneficial interest in such Entity, any stock appreciation or
other equity appreciation right with respect to such Entity, and any equivalent
of any of the foregoing, regardless of how denominated and whether voting or
non-voting, and any security or interest convertible into or warrant, option or
other right (absolute or contingent) to subscribe for, purchase or otherwise
acquire, any of the foregoing, in each case whether or not evidenced by any
certificate, instrument or other document and whether voting or nonvoting.
5
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Existing Rights" means all Rights (including stock options issued
pursuant to the Corporation's Stock Option Plans) and Convertible Securities,
not including any Series B Shares or Warrants, which were outstanding, or which
the Corporation had agreed to issue, at the Closing Time and disclosed on a
schedule to the Purchase Agreement.
"Fair Market Value" means, in respect of any security, asset or
other property, the price at which a willing seller would sell and a willing
buyer would buy such security, asset or other property having full knowledge of
the facts, in an arm's-length transaction without time constraints, and without
being under any compulsion to buy or sell. The Fair Market Value of a share of
Common Stock as of any time shall be equal to the Current Market Price in effect
at the time of determination. The Fair Market Value of the Corporation shall be
determined on a going concern basis, and on the basis that the management and
other key employees of the Corporation and its subsidiaries will continue to be
employed indefinitely and without treating as liabilities the amount, if any,
payable or which may be payable by the Corporation pursuant to the
indemnification provisions of the Purchase Agreement.
"Guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Holder" means (whether or not capitalized) a Person in whose name
any Series B Share is registered on the books of the Corporation maintained for
such purpose.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indenture" means the Indenture, dated as of April 2, 1998, between
the Corporation and Norwest Bank Colorado, N.A., a national banking association,
as Trustee (the "Trustee"), as in effect at the date hereof, regardless of any
subsequent amendment, modification, termination or expiration thereof.
"Indebtedness" means, with respect to any Person, without
duplication, (i) all obligations of such Person for money borrowed, (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments, (iii) all obligations of such Person upon which interest
charges are customarily paid, (iv) all obligations of such Person under
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, (v) all obligations of such Person issued or
assumed as the deferred purchase price of property or services
6
<PAGE>
(excluding (x) trade accounts payable and accrued obligations incurred in the
ordinary course of business and (y) deferred earn-out and other performance-
based payment obligations incurred in connection with any Permitted Acquisition
(as such term is defined in the Indenture as in effect on the date of the
Purchase Agreement)), (vi) all Indebtedness of others secured by (or for which
the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien on property owned or acquired by such Person, whether
or not the obligations secured thereby have been assumed, (vii) all Guarantees
by such Person of Indebtedness of others, (viii) all capital lease obligations
of such Person, (ix) all obligations (determined on the basis of actual, not
notional, obligations) of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or exchange
rate hedging arrangements and (x) all obligations of such Person as an account
party in respect of letters of credit and bankers' acceptances issued in support
of obligations that constitute Indebtedness under any other clause of this
definition (unless such obligations are fully cash collateralized).
"Insolvency Law" means the Bankruptcy Code and any other law,
foreign, federal or state, relating to bankruptcy, receivership, reorganization,
insolvency, adjustment, compromise or extension of debt or other relief of a
debtor from creditors.
"Investor Rights Agreement" means the Investor Rights Agreement,
dated as of the Closing Date, among the Corporation and the Purchasers, as it
may be further amended from time to time in accordance with its terms.
"Junior Stock" means (i) each class or series of Common Stock, (ii)
any other class or series of capital stock of the Corporation hereafter created,
other than (A) any class or series of Parity Stock (except to the extent
provided under clause (iii) of this sentence) and (B) any class or series of
Senior Stock (except to the extent provided under clause (iii) of this
sentence), and (iii) any class or series of Parity Stock or Senior Stock to the
extent that it ranks junior to the Series B Preferred Stock as to dividend
rights, rights of redemption or rights on liquidation, as the case may be. For
purposes of clause (iii) above, a class or series of Parity Stock or Senior
Stock shall rank junior to the Series B Preferred Stock as to dividend rights,
rights of redemption or rights on liquidation if the holders of shares of Series
B Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding up
of the Corporation, as the case may be, in preference or priority to the holders
of shares of such class or series.
"Lien" means any mortgage, charge, pledge, lien (statutory or
other), security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind. A Person shall be deemed to own subject to a Lien any property
which such Person has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement.
"Liquidation Price" means, with respect to any share of Series B
Preferred Stock as of any date of determination, the amount equal to the Stated
Value of such share, plus the aggregate
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amount of all other accumulated and unpaid dividends on such share, including
any Arrearage (whether or not earned or declared and whether or not there are
unrestricted funds of the Corporation legally available for the payment of
dividends), if any, as of such date of determination.
"Majority Holders" or "Holders of a majority of the shares of Series
B Preferred Stock" means, as of any time, the holder or holders of record of
more than fifty percent (50%) of the Series B Shares then outstanding.
"Make-Whole Premium" means, with respect to the Series B Shares at
any Redemption Date, the aggregate present value of all required interest
payments due on such Series B Shares through the Scheduled Redemption Date,
computed using a discount rate equal to the Treasury Rate plus 100 basis points.
"Notes" means the Corporation's 13% Series B Senior Notes due 2008
issued under the Indenture.
"Originally Issued Shares" means, as of any time, the aggregate
number of Conversion Securities represented by the Series B Shares issued to TPG
on the Closing Date, as such aggregate number shall have from time to time been
cumulatively adjusted as a result of the operation of Section 9 and Section 10
through such time.
"Outstanding Common Shares" means, as of any time, all issued and
outstanding shares of Common Stock as of such time, except shares then owned or
held by or for the account of the Corporation or any subsidiary thereof.
Outstanding Common Shares shall not include any shares issuable upon exercise,
conversion or exchange of any Rights or Convertible Securities or the Series B
Preferred Stock or issuable in payment of any dividend or other distribution
which has been declared but not actually paid, nor any other shares which have
not actually been issued.
"Parity Stock" means each class or series of capital stock of the
Corporation, if any, hereafter created with the approval of the Majority Holders
and ranking on a parity basis with the Series B Preferred Stock as to any of the
following: dividends, rights of redemption or rights on liquidation. Capital
stock of any class or series shall rank on a parity as to dividends, rights of
redemption or rights on liquidation with shares of Series B Preferred Stock,
whether or not the dividend rates, dividend payment dates, redemption or
liquidation prices per share or sinking fund provisions, if any, are different
from those of the Series B Preferred Stock if the holders of such stock shall be
entitled to the receipt of dividends, amounts distributable upon dissolution,
liquidation or winding up of the Corporation or redemption payments, as the case
may be, in proportion to their respective dividend rates, liquidation prices or
redemption prices, respectively, without preference or priority, one over the
other, as between the holders of such stock and the holders of shares of the
Series B Preferred Stock. No class or series of capital stock that ranks junior
to the Series B Preferred Stock as to rights on liquidation shall rank or be
deemed to rank on a parity basis with the Series B Preferred Stock as to
dividend rights or rights of redemption, unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly provides.
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"Permitted Holders" means (i) John R. Evans, Keith V. Burge and
Philip G. Allen and their spouses, issue or other members of their immediate
families (the "Evans Family," the "Burge Family" and the "Allen Family,"
respectively), (ii) trusts or other entities created for the benefit of any
member of the Evans Family, the Burge Family or the Allen Family, (iii) entities
controlled by any of the Evans Family, the Burge Family or the Allen Family,
(iv) in the event of the death of any member of the Evans Family, the Burge
Family or the Allen Family, the heirs or testamentary legatees of such member of
the Evans Family, the Burge Family or the Allen Family and (v) TPG.
"Person" means any individual, corporation, limited liability
company, general or limited partnership, joint venture, association, joint stock
company, trust, unincorporated business or organization, government or agency or
political subdivision thereof, or other entity, whether acting in an individual,
fiduciary or other capacity.
"Preferred Interest" as applied to the equity interests of any
Person means equity interests of any class or classes (however designated) which
are preferred as to the payments of dividends or distributions, as to rights of
redemption or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over equity interests of any other
class of such Person.
"Purchase Agreement" means the Securities Purchase Agreement, dated
as of April 4, 2000, between the Corporation and the Purchasers, as the same may
be amended from time to time in accordance with its or their respective terms
and with the prior written consent of the Majority Holders.
"Purchasers" mean TPG, Sandler Capital and any of their respective
Affiliates, successors or permitted assignees under the Purchase Agreement.
"Rate of Return" shall, for any Purchaser, mean a rate of return of
the applicable percentage per annum on the aggregate purchase price paid for the
Series B Shares purchased by such Purchaser, compounded monthly, taking into
account the timing and amounts of all distributions attributable to such Series
B Shares. For purposes of calculating such Rate of Return, any distributions
received by such Purchaser during any month shall be deemed to have been
received on the last day of such month.
"Redeemable Stock" has the meaning set forth in Section 10.3(c).
"Redemption Agent" has the meaning set forth in Section 6.7.
"Redemption Date" as to any share of Series B Preferred Stock shall
mean:
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(i) in the case of a redemption pursuant to Section 6.1, the
Scheduled Redemption Date;
(ii) in the case of a redemption pursuant to Section 6.2 or
Section 6.3, the date determined pursuant to such Section; or
(iii) in the case of a redemption pursuant to Section 6.4, the
date after the fifth anniversary of the Closing Date specified in the notice of
redemption given in accordance with Section 6.6;
provided that, for purposes of all provisions of these Articles, including any
provision under which any Series B Share is stated to cease to be outstanding or
convertible on or as of the Redemption Date or any date determined by reference
to the Redemption Date, in none of the foregoing cases shall such date be a
Redemption Date unless (A) the applicable Redemption Price is actually
indefeasibly paid in full on such date or (B) such date is a Business Day and
the consideration sufficient for the payment thereof, and for no other purpose,
has been indefeasibly deposited in a trust fund with the Redemption Agent, with
irrevocable instructions and authority to the Redemption Agent to pay the
Redemption Price, all in accordance with Section 6.7, and if the Redemption
Price is not so indefeasibly paid in full or the consideration sufficient
therefor is not so indefeasibly deposited, then the Redemption Date will be the
date on which such Redemption Price is indefeasibly and fully paid or the first
Business Day on which the consideration sufficient for the payment thereof, and
for no other purpose, has been so indefeasibly deposited, except that this
proviso is not intended to eliminate, qualify, modify or limit the rights of the
holders of the Series B Preferred Stock under any provision of these Articles,
or any other rights or remedies which such holders may have at law, in equity or
by contract in the event of the failure of the Corporation to redeem shares of
Series B Preferred Stock as and when required by these Articles.
"Redemption Price" means, as to any share of Series B Preferred
Stock that is to be redeemed on any Redemption Date pursuant to Section 6.1,
Section 6.2, Section 6.3 or Section 6.4, the Redemption Price of such share
determined pursuant to such Section.
"Reference Price" means, as of any time, the higher of (x) the
Conversion Price then in effect or (y) the Current Market Price per share of the
Common Stock determined as of such time.
A "Reorganization Event" shall be deemed to have occurred upon the
happening of any of the following:
(i) the appointment of a receiver or trustee to administer all
or a substantial portion of the Corporation or any material Subsidiary's assets
which shall remain in effect for 60 days;
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(ii) the filing by the Corporation or any material Subsidiary
of a voluntary petition for relief under any Insolvency Law or of a pleading in
any court of record admitting in writing its inability to pay its debts as they
become due;
(iii) the making by the Corporation or any material Subsidiary
of a general assignment for the benefit of creditors;
(iv) the filing by the Corporation or any material Subsidiary
of an answer admitting the material allegations of, or its consenting to or
defaulting in answering, a petition for relief filed against it in any
proceeding under any Insolvency Law; or
(v) the entry of an order, judgment or decree by any court of
competent jurisdiction granting relief against the Corporation or any material
Subsidiary in an involuntary proceeding under any Insolvency Law and the
continuance of any such decree or order for relief unstayed and in effect for a
period of 60 consecutive days.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board, by a Board Resolution delivered to the
Trustee, as an Unrestricted Subsidiary pursuant to and in compliance with
Section 1017 of the Indenture. Any such Designation may be revoked by a Board
Resolution delivered to the Trustee, subject to the provisions of such covenant.
"Rights" means any options, warrants or other rights (except
Convertible Securities, the Series B Preferred Stock and the Warrants), however
denominated, to subscribe for, purchase or otherwise acquire any Common Stock or
Convertible Securities, with or without payment of additional consideration in
cash or property, either immediately or upon the occurrence of a specified date
or a specified event or the satisfaction or happening of any other condition or
contingency.
"Sale of the Company" means any of the following:
(i) any Change of Control; or
(ii) the Corporation, in one or more transactions, sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person or Persons; or
(iii) the Corporation consolidates with, or merges with or into,
another Person, sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets directly or indirectly to any Person,
or any person consolidates with, or merges with or into, the Corporation, in any
such event pursuant to a transaction in which the outstanding Common Stock of
the Corporation is converted into or exchanged for cash, securities, equity
interests or other property and immediately after such transaction the Persons
who were the Beneficial Owners of the outstanding Common Stock of the
Corporation immediately prior to such transaction are not the
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Beneficial Owners, directly or indirectly, of more than 50% of the combined
voting power represented by all then outstanding common stock of the surviving
or transferee Person; or
(iv) any Reorganization Event.
"Sandler Capital" means Sandler Capital Partners IV, L.P., Sandler
Capital Partners IV FTE, L.P., Sandler Capital Partners V, L.P. and their
Affiliates.
"Scheduled Redemption Date" means April 18, 2010, the tenth
anniversary of the Closing Date.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Senior Stock" means each class or series of capital stock of the
Corporation, if any, hereafter created with the approval of the Majority Holders
and ranking prior to the Series B Preferred Stock as to dividends, rights of
redemption or rights on liquidation, as the case may be. Capital stock of any
class or series shall rank prior to the Series B Preferred Stock as to
dividends, upon redemption or upon liquidation if the holders of such class or
series shall be entitled to the receipt of dividends, payments on redemption or
payments of amounts distributable upon the dissolution, liquidation or winding
up of the Corporation, as the case may be, in preference or priority to the
holders of shares of Series B Preferred Stock. No class or series of capital
stock that ranks junior to or on parity with the Series B Preferred Stock as to
rights on liquidation shall rank or be deemed to rank as senior to the Series B
Preferred Stock as to dividend rights or rights of redemption, unless the
instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Series B Articles of Amendment" means the Articles of Amendment to
the Amended and Restated Articles of Incorporation of the Corporation setting
forth the resolution of the Board creating and authorizing the issuance of the
Series B Preferred Stock and filed with the Colorado Secretary of State pursuant
to the Colorado Business Corporation Act or any successor provisions of the
Corporation's Articles of Incorporation, as the same may have been amended prior
to or concurrently with the Closing Time and thereafter may be amended.
"Series B Director" means each director of the Corporation (i)
designated by TPG as a "Series B Director" under the Investor Rights Agreement
or (ii) who is a Designated Director.
"Series B Preferred Stock" has the meaning set forth in Section 1.1.
"Series B Share" means any issued and outstanding share of Series B
Preferred Stock. In no event shall shares of Series B Preferred Stock owned or
held by or for the account of the Corporation or any Subsidiary be deemed to be
issued and outstanding for any purpose.
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"Stated Value" means, with respect to each share of Series B
Preferred Stock, the amount of One Thousand Dollars.
"Stock Option Plans" has the meaning given to such term within the
definition of Employee Option, as set forth above.
"Subsidiary" means, as of any time, each Entity as to which any of
the following statements is true as of such time:
(i) such Entity is an Affiliate of the Corporation which is
controlled by the Corporation, or
(ii) the Corporation owns or controls, directly or indirectly
through one or more intermediaries, 50% or more of the outstanding equity
interests in such Entity having ordinary voting power to elect a majority of the
members of the Board or joint venture, partnership or other management
committee, trustees, managers or other Persons ordinarily having the power,
authority or responsibility for managing or directing the management of such
Entity, or
(iii) the Corporation, directly or indirectly through one or
more intermediaries, is entitled under ordinary circumstances to 50% or more of
the profits or losses of such Entity or to receive upon dissolution and
liquidation of such Entity 50% or more of the assets available for distribution
to the holders of equity interests in such Entity, or
(iv) such Entity is a partnership (general or limited) or other
unincorporated Entity and the Corporation or another Subsidiary (i) is a general
partner thereof or acts in a similar capacity with respect thereto or (ii) has
liability for the debts and obligations thereof over and above its investment
therein.
"TPG" means TPG Partners III, L.P., T3 Partners, L.P. and their
Affiliates and designated assignees under the Purchase Agreement.
"Treasury Rate" means the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve Statistical Release
H.15 (519) which has become publicly available at least two business days prior
to the Redemption Date (or, if such Statistical Release is no longer published,
any publicly available source or similar market data)) most nearly equal to the
period from the Redemption Date through the Scheduled Redemption Date; provided,
however, that if the period from the Redemption Date to the Scheduled Redemption
Date is not equal to the constant maturity of a United States Treasury security
for which a weekly average yield is given, the Treasury Rate shall be obtained
by linear interpolation (calculated to the nearest one-twelfth of a year) from
the weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the Redemption Date through the
Scheduled Redemption Date is less than one year, the weekly average yield on
actually traded United States Treasury securities adjusted to
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a constant maturity of one year shall be used.
"Trustee" means the trustee under the Indenture.
"Warrant Agreement" means the Warrant Agreement, dated as of the
Closing Date, between the Corporation and the Purchasers, as it may be amended
from time to time in accordance with its terms.
"Warrant Shares" means the shares of Common Stock issued or issuable
upon exercise of the Warrants.
"Warrants" means the Warrants to purchase shares of Common Stock
issued and sold by the Corporation to, and purchased by, the Purchasers pursuant
to the Purchase Agreement and the Warrant Agreement.
"Wholly Owned Subsidiary" means an Entity all of the equity
interests of which at the time are owned beneficially and of record by the
Corporation, one or more Wholly Owned Subsidiaries of the Corporation or the
Corporation and one or more Wholly Owned Subsidiaries of the Corporation.
Section 3. Rank; Certain Restrictions; Fractional Shares; Certain Notices to be
Given; Actions to Facilitate Redemption.
3.1 Rank. The Series B Preferred Stock shall, with respect to
dividend rights, rights on liquidation, winding up and dissolution and rights
upon redemption, rank prior to (i) the Common Stock and (ii) any other class or
series of capital stock of the Corporation, whether now existing or hereafter
created, except (in the case of this clause (ii) only) any class or series of
Parity Stock or Senior Stock hereafter created and issued with the prior
approval of the Majority Holders, to the extent otherwise provided for by the
terms of such other class or series of Parity Stock or Senior Stock set forth in
the instrument creating and authorizing such Parity Stock or Senior Stock,
provided that such terms shall have been furnished in writing to and approved by
the Majority Holders.
3.2 Certain Restrictions on Payments in Respect of Capital Stock.
Except if and to the extent expressly authorized by or provided in Section 3.4
or Section 3.5 or with the prior approval of the Majority Holders so long as any
Series B Preferred Stock is outstanding, the Corporation shall not, directly or
indirectly through any Subsidiary:
(i) declare or pay dividends on, or declare or make any other
distribution, whether in cash, property, securities or any other form of
consideration, to the holders of or otherwise with respect to, the Common Stock
or any other class or series of capital stock of the Corporation now existing or
hereafter created other than the Series B Preferred Stock;
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(ii) redeem, purchase or otherwise acquire for cash, property,
securities or any other form of consideration any outstanding shares of Common
Stock or any other class or series of capital stock of the Corporation now
existing or hereafter created other than the Series B Preferred Stock;
(iii) redeem, purchase or otherwise acquire for cash, property,
securities or any other form of consideration any Series B Shares otherwise than
in accordance with the terms of these Articles, but conversion of any Series B
Shares in accordance with the terms of these Articles shall not be deemed to be
a redemption, purchase or other acquisition subject to this clause; or
(iv) set aside, pursuant to a sinking fund or otherwise, any
cash, property, securities or other form of consideration for any of the
foregoing purposes.
3.3 Pro Rata Redemptions and Purchases. If any date or event shall
occur that requires the Corporation to redeem any Series B Shares and the
Corporation has insufficient legally available funds to redeem all Series B
Shares required to be redeemed, then: (i) the Corporation shall give written
notice to such effect to the holders of Series B Shares as soon as practicable
(and in any event not later than ten Business Days) prior to the applicable
redemption date; and (ii) subject to the third sentence of this subsection, (A)
the funds legally available for such purpose shall be applied to redeem the
Series B Shares then required to be redeemed ratably in proportion to the
respective full amounts to which the holders of the Series B Shares would be
entitled if the Corporation had sufficient legally available funds to redeem all
Series B Shares then required to be redeemed and (B) as and when the Corporation
has additional legally available funds, it shall apply such funds to redeem the
balance of the Series B Shares so required to be redeemed proportionately as
provided above in this sentence. In the event of any such partial redemption,
the Series B Shares to be redeemed shall be selected on a pro rata basis from
among all holders of the Series B Shares. At any time after a notice from the
Corporation is given pursuant to the first sentence of this subsection and
before the applicable redemption date, the Majority Holders may notify the
Corporation in writing that such Majority Holders object to partial redemptions
as provided in the first sentence of this subsection. If such a written
objection is given, the Corporation shall not make any such redemption of any
Series B Shares unless or until it is otherwise instructed in writing by the
Majority Holders. Nothing contained in this Section 3.3 is intended to
eliminate, qualify, modify or limit the rights of the holders of any Series B
Shares under any provision of these Articles, including Section 3.8, at law, in
equity, by contract or otherwise in the event of the failure of the Corporation
to redeem any Series B Shares as and at the times that would be required but for
the provisions of this Section 3.3.
3.4 Restriction on Dividends, Redemptions, Etc. by Subsidiaries.
So long as any shares of Series B Preferred Stock shall be outstanding, without
the prior approval of the Majority Holders, the Corporation will not permit any
Subsidiary to declare or pay any dividend on or declare or make any other
distribution to any holder or holders of or otherwise with respect to any equity
interest in such Subsidiary (whether in cash, property, securities or any other
form of consideration) nor redeem, purchase or otherwise acquire for cash,
property or any other form of consideration any
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equity interest in such Subsidiary. Neither this Section 3.4 nor Section 3.2
hereof shall (i) restrict investments by any Restricted Subsidiary in the
Corporation or another Restricted Subsidiary or (ii) restrict the payment by any
Restricted Subsidiary of dividends and other distributions solely in respect of,
and redemptions, purchases and other acquisitions solely of, equity interests in
such Restricted Subsidiary owned by the Corporation or any other Restricted
Subsidiary or (iii) so long as any Notes are outstanding, impose upon any
Restricted Subsidiary any restriction prohibited by Section 1016 of the
Indenture. The Corporation will not, without the prior approval of the Majority
Holders, permit any of the Subsidiaries to issue any Preferred Interest other
than issuances by a Restricted Subsidiary to the Corporation or another
Restricted Subsidiary.
3.5 Certain Exceptions.
(a) Senior and Parity Stock Created with Consent of Series B
Directors. If, after the Closing Date, the Corporation, with the prior approval
of the Series B Directors, creates and issues any class or series of Parity
Stock or Senior Stock, the restrictions contained in Section 3.2 shall be
subject to such exceptions, if any, expressly provided for by the terms of such
Parity Stock or Senior Stock set forth in the instrument creating and
authorizing such Parity Stock or Senior Stock.
(b) Certain Payments on Junior Stock. (i) The Corporation may pay
cash in lieu of fractional shares of Common Stock pursuant to the Warrants or
the terms of Existing Rights as in effect on the Closing Date; (ii) the
Corporation may repurchase shares of capital stock in connection with cashless
exercises of the Warrants or Convertible Securities (provided that such
repurchase does not result in any actual payment of cash, securities or other
property to the holders of such Warrants or Convertible Securities (other than
issuance of the Junior Stock deliverable by virtue of such exercise)); and (iii)
provided that the Corporation is in compliance with all of its obligations under
these Articles, the Corporation may repurchase or otherwise acquire for value
shares of Common Stock of the Corporation or any options or rights to acquire
Common Stock of the Corporation owned by any director, officer or employee of
the Corporation or its Subsidiaries pursuant to any management equity
subscription agreement or similar agreement, or otherwise upon the death,
disability, retirement or termination of employment or departure from the Board,
provided, that for purposes of this clause (iii), the aggregate price paid for
all such repurchased, redeemed, acquired or retired Common Stock of the
Corporation or options shall not exceed in the aggregate $500,000 in any
calendar year.
3.6 Fractional Shares. Fractional shares of Series B Preferred
Stock may be issued, either upon original issuance pursuant to the Purchase
Agreement or otherwise as permitted by Section 1.2, or from time to time
thereafter upon transfers, exchanges or partial conversions or redemptions of
outstanding shares (or fractional shares) thereof or certificates therefor. Each
fractional share of Series B Preferred Stock, if any, outstanding shall be
entitled to ratably proportionate rights, powers, privileges, benefits and
preferences, and be subject to the same qualifications, limitations and
restrictions, as a whole share of the Series B Preferred Stock, including
conversion rights.
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3.7 Certain Notices and Other Obligations Relating to Change of
Control or Sale of the Company.
(a) Notices.
(i) If the Corporation agrees or the Board passes a resolution
authorizing the Corporation to voluntarily consummate or take, or assist any one
or more of the holders of its Common Stock in consummating or taking, any
transaction or action which would, if consummated, result in a Change of Control
or Sale of the Company, or if the Corporation receives formal written notice
that any Person has engaged or is proposing to engage in any such transaction
which would, if consummated, result in a Change of Control or Sale of the
Company, then it shall send to each holder of Series B Preferred Stock, at least
30 days prior to the scheduled or anticipated closing of such transaction or the
taking of such action (or, in the case where the Corporation receives formal
written notice of such transaction, immediately upon receiving such formal
written notice if such notice is received less than 30 days prior to the
scheduled or anticipated closing of such transaction), a written notice which
will summarize the material terms of such transaction or action, and if any of
such terms change in any material respect prior to such closing, the Corporation
shall promptly notify the holders of the Series B Preferred Stock in writing.
(ii) If any Change of Control or Sale of the Company occurs,
the Corporation shall give the holders of the Series B Preferred Stock written
notice thereof promptly, and in any event not later than the fifth Business Day
after the Corporation has knowledge of such occurrence, and such notice shall
summarize the material facts relating to such event or transaction.
(iii) If Section 6.2 applies, each notice given by the
Corporation pursuant to Section 3.7(a)(ii) shall be accompanied by an
appropriate form (an "Election Form") by which the holders of the Series B
Preferred Stock may elect whether or not to require the Corporation to redeem
their shares of the Series B Preferred Stock in accordance with the terms of
Section 6.2.
(b) Redemption Election. If Section 6.2 applies, and, at any time
within a period of 30 days after Election Forms are mailed, the Corporation
shall have received completed Election Forms from the Majority Holders electing
to require the Corporation to redeem the Series B Shares held by them, the
Corporation shall upon the consummation of such transaction redeem from all
holders of Series B Preferred Stock, in accordance with Section 6.2 and the
other applicable provisions of these Articles, all outstanding shares of Series
B Preferred Stock; provided, however, that the Corporation shall not, at any
time that no Notes are outstanding, voluntarily consummate, or assist any of the
holders of its Common Stock in consummating, any transaction which would result
in a Change of Control unless (i) prior to the date such transaction is
consummated, the procedures specified in this Section 3.7 shall have been
followed and the period of 30 days referred to in this sentence shall have
expired; (ii) if the Corporation would be required to redeem all shares of
Series B Preferred Stock by virtue of such Change of Control, the Corporation
shall have deposited with a Redemption Agent funds sufficient to redeem on the
applicable redemption date all Series B Shares required to be redeemed at the
applicable Redemption Price; and (iii) the
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Corporation shall have given written notice of its compliance with clause (ii)
of this sentence to each holder of Series B Preferred Stock.
(c) Successive Events. The provisions of this Section 3.7 shall
apply successively to each Change of Control or Sale of the Company which may
occur.
3.8 Actions to Facilitate Required Redemptions.
(a) Company Obligations. If, at any time that any redemption of
any share of Series B Preferred Stock is, or with the passage of time after any
notice will be, required by any provision of these Articles, the Corporation is
in material violation or breach of the terms of any material indebtedness of the
Corporation or a default or event of default with respect to or under any
material indebtedness of the Corporation exists and has not been waived or
cured, if the Corporation is insolvent under applicable law, or if the
Corporation's capital is impaired under the law of the jurisdiction of
incorporation, or if any such violation, breach, default, event of default,
insolvency or impairment of capital or any material violation of law would
result from such redemption, then the Corporation shall (i) promptly give
written notice to such effect to the holders of the Series B Preferred Stock and
(ii) subject to the terms of the Indenture, take all reasonable lawful actions
to cure or avoid such violation, breach, default or event of default, to restore
or preserve its solvency or to cure or avoid such impairment of capital, in each
case as necessary to enable the Corporation to make such redemption to the
fullest extent possible.
(b) Other Rights of Holders. Nothing contained in this Section 3.8
is intended to eliminate, qualify, modify or limit the rights of the holders of
the Series B Preferred Stock under any provision of these Articles, or any other
rights or remedies which such holders may have at law, in equity or by contract
in the event of the failure of the Corporation to redeem shares of Series B
Preferred Stock as and when required by these Articles.
Section 4. Dividends.
4.1 Fixed Rate Dividends.
(a) Dividend Rate; Compounding of Dividends. The holders of the
Series B Preferred Stock shall be entitled to receive, when, as and if declared
by the Board, out of funds legally available therefor, cumulative cash
dividends, in preference and priority to dividends on any Junior Stock, that
shall accrue on the Stated Value of each share of the Series B Preferred Stock
at the Dividend Rate from time to time in effect, from and including the Closing
Date of such share to and including the date on which such share ceases to be
outstanding in accordance with the terms of these Articles. Dividends shall be
payable in four equal quarterly installments on the last day of March, June,
September and December of each year, or if any such date is not a Business Day,
on the Business Day next preceding such day (each such date, regardless of
whether any dividends have been paid or declared and set aside for payment on
such date, a "Dividend Payment Date"), to holders of record as they appear on
the stock record books of the Corporation on the fifteenth day
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prior to the relevant Dividend Payment Date; provided, however, that the
Corporation may elect not to declare or make any dividend payment due hereunder
on any Dividend Payment Date (other than as required in connection with any
redemption of shares of Series B Preferred Stock or any liquidation, dissolution
or winding up of the Corporation), and any such amount then due in respect of
dividends shall constitute an Arrearage (as defined below). Dividends shall be
paid only when, as and if declared by the Board out of funds at the time legally
available for the payment of dividends. Dividends shall begin to accumulate on
outstanding shares of Series B Preferred Stock from the date of issuance and
shall be deemed to accumulate from day to day whether or not earned or declared
until paid. Dividends shall accumulate on the basis of a 360-day year consisting
of twelve 30-day months (four 90-day quarters) and the actual number of days
elapsed in the period for which payable.
(b) Compounding of Fixed Rate Dividends. Dividends on the Series B
Preferred Stock shall be cumulative, and from and after any Dividend Payment
Date on which any dividend that has accumulated or been deemed to have
accumulated through such date, whether or not declared, has not been paid in
full, additional dividends shall accumulate in respect of the amount of such
unpaid dividends (such amount, the "Arrearage") at the Dividend Rate (or such
lesser rate as may be the maximum rate that is then permitted by applicable
law). Such additional dividends in respect of any Arrearage shall be deemed to
accumulate from day to day whether or not earned or declared until the Arrearage
is paid, shall be calculated as of such successive Dividend Payment Date and
shall constitute an additional Arrearage from and after any Dividend Payment
Date to the extent not paid on such Dividend Payment Date. Unless the context
requires otherwise, references in any Article herein to dividends that have
accumulated or that have been deemed to have accumulated with respect to the
Series B Preferred Stock shall include the amount, if any, of any Arrearage
together with any dividends accumulated or deemed to have accumulated on such
Arrearage pursuant to the immediately preceding two sentences.
(c) Payment and Record Dates. Dividends paid on the shares of
Series B Preferred Stock in an amount less than the total amount of such
dividends at the time accumulated and payable on all outstanding shares of
Series B Preferred Stock shall be allocated pro rata on a share-by-share basis
among all such shares then outstanding. Dividends that are declared and paid in
an amount less than the full amount of dividends accumulated on the Series B
Preferred Stock (and on any Arrearage) shall be applied first to any current
dividend that has not become an Arrearage. All cash payments of dividends on the
shares of Series B Preferred Stock shall be made in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts.
4.2 Participating Dividend Rights.
(a) Right to Participating Dividends. Subject to the prior
preferences and other rights of any Senior Stock ranking prior to the Series B
Preferred Stock with respect to dividends and the provisions of Section 3 and
Section 4.2(b), if the Corporation shall at any time or from time to time
declare or pay any dividend or declare or make any distribution, whether payable
in cash or in
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assets, securities (whether issued by the Corporation or another Person, but
other than Common Stock) or any other form of property or consideration other
than cash, on the Common Stock of any class or series into which the Series B
Preferred Stock is then convertible, the holders of Series B Preferred Stock
shall be entitled to receive, when, as and if declared by the Board and from
assets of the Corporation legally available therefor, a dividend or distribution
per Series B Share in like kind and equal to the amount of such cash or such
assets, securities or any other form of property or consideration (as the case
may be) declared, paid or made with respect to a number of shares of such class
or series of Common Stock equal to the number of shares of such class or series
into which a share of Series B Preferred Stock may be converted as of the date
such dividend on the Series B Preferred Stock is paid. If, in connection with
any such dividend or distribution declared or paid or made on any such class or
series of Common Stock, the holders of such class or series are given any
election with respect to the form of consideration to be received, the same
right of election shall be given to the holders of the Series B Preferred Stock
with respect to the corresponding dividend or distribution on the Series B
Preferred Stock. The Board shall declare a dividend or distribution on the
Series B Preferred Stock as contemplated by this Section 4.2(a) immediately
prior to the time it declares a dividend or distribution on the Common Stock.
(b) Coordination With Conversion Right. To the extent that Section
10 provides for an adjustment to the Conversion Price by reason of any dividend
or distribution of cash or property other than Common Stock on any class or
series of Common Stock referred to in Section 4.2(a), the Majority Holders shall
have the right to elect either (i) to require the corresponding dividend or
distribution on the Series B Preferred Stock contemplated by Section 4.2(a) to
be declared and paid or made as provided herein, in which case such adjustment
to the Conversion Price shall not be made to such extent or (ii) to require
such adjustment to the Conversion Price to be made, in which case such
corresponding dividend or distribution on the Series B Preferred Stock shall not
be declared and paid or made to such extent. The election of the Majority
Holders shall bind all holders of Series B Shares. In declaring, making and
paying dividends and distributions on the Common Stock as to which such right of
election exists, the Corporation shall provide the holders of the Series B
Shares with reasonable advance notice and forms of election, and shall otherwise
act in good faith, so that such holders may effectively exercise all rights of
election provided for in this Section on a timely basis.
(c) Record and Payment Dates. The Board may fix a record date for
the determination of holders of Series B Preferred Stock entitled to receive a
dividend or distribution pursuant to Section 4.2(a), which date shall be the
same as the record date for the corresponding dividend or distribution on the
Common Stock. The payment date for any such dividend or distribution shall be
on or before the payment date for the corresponding dividend or distribution on
the Common Stock.
(d) Dividends Are Preferred and Fully Cumulative. Dividends on
the Series B Preferred Stock provided for in Section 4.2(a) shall be payable
prior and in preference to any dividends or distributions to the holders of any
Junior Stock, and, if not paid, shall be fully cumulative, whether or not
declared.
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4.3 No Offset; Accrued Dividends. None of the accrual, declaration
or payment of dividends provided for in Section 4.1 shall reduce or otherwise
affect the amount, or the accrual or payment, of dividends to which the holders
of the Series B Preferred Stock shall from time to time be or become entitled
under Section 4.2. Similarly, none of the accrual, declaration or payment of
dividends provided for in Section 4.2 shall reduce or otherwise affect the
amount, or the accrual or payment, of dividends to which the holders of the
Series B Preferred Stock shall from time to time be or become entitled under
Section 4.1. The amount of dividends "accrued (or accumulated) and unpaid" with
respect to any share of Series B Preferred Stock as of any date shall include
(i) all dividends and dividends on dividends provided for in Section 4.1
(whether or not declared) that have accrued on such share as provided in such
Section to and including such date of determination that have not been paid as
of such date and (ii) all dividends on such share provided for in Section 4.2
that have been declared but not been paid as of such date.
Section 5. Distributions Upon Liquidation, Dissolution or Winding Up.
5.1 Payment of Preference Amount.
(a) Liquidation Preference. Subject to the prior preferences and
other rights of any Senior Stock ranking prior to the Series B Preferred Stock
with respect to rights upon liquidation, dissolution or winding up of the
Corporation, in the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares of the
Series B Preferred Stock shall be entitled to receive from the assets of the
Corporation available for distribution to stockholders after payment of all
other debts and obligations of the Corporation, before any payment or
distribution on any Junior Stock is declared, made or provided for or any cash,
property or other consideration shall be set aside for such purpose, cash in an
amount per share of Series B Preferred Stock equal to the Liquidation Price of
such share determined as of the Determination Time (as defined below in this
Section). The "Determination Time" shall be immediately prior to the record
date for such distribution to the holders of such class or series of Common
Stock or, if no such record date is fixed, immediately prior to any other time
as of which the holders of such class or series of Common Stock entitled to
receive such distribution is determined. In connection with any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after payment in full to the holders of the Series B Preferred Stock and the
holders of all other classes or series of Parity Stock, if any, which rank on a
parity basis with the Series B Preferred Stock with respect to distributions
upon such liquidation, dissolution or winding up of the respective preferential
amounts to which they are entitled, the Corporation shall distribute its
remaining assets and properties available for distribution to the holders of
Common Stock and the Series B Preferred Stock, with the distribution to holders
of the Series B Preferred Stock being in like kind and equal to the amount of
assets and property distributed with respect to a number of shares of Common
Stock equal to the number of shares of Common Stock into which a share of Series
B Preferred Stock may be converted.
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(b) Elections. If, in connection with any distribution with
respect to any class or series of Common Stock referred to in the last sentence
of Section 5.1(a), the holders of such class or series are given any election
with respect to the form of consideration to be received, the same right of
election shall be given to the holders of the Series B Preferred Stock with
respect to the corresponding distribution to the holders of the Series B
Preferred Stock. The Corporation shall provide the holders of the Series B
Shares with reasonable advance notice and forms of election, and shall otherwise
act in good faith, so that such holders may effectively exercise all such rights
of election on a timely basis.
5.2 Pro Rata Distributions to Parity Stock Holders. If, upon
distribution of the Corporation's assets in liquidation, dissolution or winding
up, the assets of the Corporation available for distribution to its stockholders
shall be insufficient to permit payment in full to the holders of the Series B
Preferred Stock and the holders of all other classes or series of Parity Stock,
if any, which rank on a parity basis with the Series B Preferred Stock with
respect to distributions upon such liquidation, dissolution or winding up of the
respective full preferential amounts to which they are entitled, then the entire
assets of the Corporation available for distribution to stockholders (after full
distribution on Senior Stock, if any) shall be distributed ratably to such
holders in proportion to the respective full preferential amounts to which the
shares of Series B Preferred Stock and all such other classes and series of
Parity Stock would otherwise be entitled.
5.3 Record Date and Notice. Unless the Majority Holders otherwise
agree in writing, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary:
(i) Any distribution to the holders of capital stock of the
Corporation of any class or series of assets of the Corporation available for
distribution to its stockholders will be made to the holders of record of such
class or series as of a record date that is not less than 10 days nor more than
30 days prior to the date such distribution is proposed to be made (each, a
"Distribution Date"). Each Distribution Date for any distribution to the
holders of the Series B Shares shall not in any event be later than the date of
any related or contemporaneous distribution to the holders of any Parity Stock
or Junior Stock.
(ii) The Corporation shall give to each holder of Series B
Preferred Stock at least 20 days' prior written notice of the record date to be
fixed for any payment or distribution to any of the holders of any capital stock
of the Corporation of any class or series. In addition to any other information
required by these Articles, any contract or applicable law, such notice shall
describe in reasonable detail each payment or distribution proposed to be made,
identify all classes and series of capital stock that will participate in such
payment or distribution and the relative participations of the holders of each
such class or series and state the record date and Distribution Date for such
payment or distribution. Such notice shall be accompanied by a statement, in
reasonable detail, showing the amount, kind and value of all assets of the
Corporation available for payment or distribution to its stockholders. After any
such notice is given, the Corporation shall promptly furnish to each holder of
Series B Preferred Stock any information that such holder may reasonably
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request relating to the liquidation, dissolution or winding up of the
Corporation and its assets and liabilities, including any information reasonably
requested and in the possession of the Corporation in order to assist such
holder in determining whether to exercise any right to convert any or all of
such holder's shares of Series B Preferred Stock pursuant to Section 9.
(iii) The Series B Shares shall continue to be convertible into
Common Stock in accordance with the terms of these Articles unless and until
such holders have received payment of the full preferential amounts to which
they are entitled pursuant to Section 5.1.
Section 6. Redemption.
6.1 Mandatory Redemption. On the Scheduled Redemption Date, the
Corporation shall redeem all shares of Series B Preferred Stock then outstanding
at a Redemption Price per share equal to the greater of (i) the Liquidation
Price of such share and (ii) sixty percent (60%) of the Current Market Price of
the Conversion Securities and other assets or property, if any, into which one
Series B Share is then convertible, in each case determined as of such date.
6.2 Redemption Upon Change of Control That Occurs When No Notes Are
Outstanding.
(a) Redemption Right When Notes Are Not Outstanding. The provisions
of this Section 6.2 shall be suspended, and shall not have any force or effect
so long as any Notes continue to be outstanding, but shall automatically become
effective and enforceable in accordance with their terms as to any Change of
Control that occurs at any time after the first time as of which no Notes are
outstanding.
(b) Redemption at Option of Holders. Upon the occurrence of a
Change of Control to which this Section 6.2, on the Redemption Date determined
pursuant to this Section 6.2, is applicable, the Majority Holders shall have the
right to require the Corporation to redeem, on the Redemption Date determined
pursuant to this Section 6.2, all of the Series B Shares outstanding on the date
of the occurrence of such Change of Control at the Redemption Price per share
equal to 101% of the Liquidation Price thereof, determined as of the Redemption
Date. Such right may be exercised by one or more Election Forms or any other
written notices to such effect which, collectively, have been signed by the
Majority Holders and given to the Corporation at any time after the date of
occurrence of such Change of Control and prior to the expiration of the period
of 30 days after Election Forms are delivered to the holders of the Series B
Preferred Stock pursuant to Section 3.7. If such right is so exercised, the
Redemption Date shall be a Business Day selected by the Majority Holders that is
not sooner than the tenth day after and not later than the twentieth day after
the Election Forms or other written notices referred to in the second sentence
of this Section are submitted to the Corporation.
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6.3 Redemption Upon Change of Control That Occurs When Notes Are
Outstanding.
(a) Redemption Right When Notes Are Outstanding. The provisions of
this Section 6.3 shall apply to any Change of Control that occurs while any
Notes are outstanding, but shall not apply to any Change of Control that occurs
after the first time as of which no Notes are outstanding.
(b) Redemption at the Option of the Holders. Upon the occurrence
of a Change of Control to which this Section 6.3 is applicable, the Majority
Holders shall have the right to require the Corporation to redeem, on the
Redemption Date determined pursuant to this Section 6.3, all of the Series B
Shares outstanding on the date of the occurrence of such Change of Control at
the Redemption Price per share equal to 101% of the Liquidation Price thereof,
determined as of the Redemption Date. The Corporation shall give written notice
of such redemption to each Holder of Series B Shares by telegram, telex,
facsimile transmission or first-class mail, postage prepaid. Such notice shall
be given to the holders of the Series B Shares not less than twenty-five days
nor more than forty-five days before the Redemption Date and in no event later
than the date the related notice required by Section 1014(a) of the Indenture is
given to holders of Notes. If the Corporation shall have insufficient legally
available funds to redeem all Series B Shares, the Series B Shares to be
redeemed shall be selected as provided in Section 3.3. The Majority Holders
shall have the right to revoke any redemption pursuant to this Section 6.3 in
the manner described in Section 6.3(c)(v).
(c) Additional Procedures. The Corporation's notice given pursuant
to Section 6.3(b) shall, in addition to containing or being accompanied by any
other information required by these Articles or applicable law, state the
following: (i) the Redemption Price and the Redemption Date, which shall be a
Business Day no earlier than twenty-five days nor later than forty-five days
from the date such notice is mailed, or such later date as is necessary to
comply with any applicable securities laws or regulations, but in no event later
than the first Business Day after the "Change of Control Payment Date"
established pursuant to Section 1014(b) of the Indenture; (ii) that all Series B
Shares to be redeemed will continue to accrue dividends, continue to be
convertible and continue to be outstanding for all purposes until the Redemption
Price thereof is paid as provided herein; (iii) that, unless the Corporation
defaults in the payment of the Redemption Price, any Series B Shares redeemed as
provided herein shall cease to accrue dividends after the Redemption Date; (iv)
that, in order to receive payment of the Redemption Price therefor, holders of
Series B Shares to be redeemed shall be required to surrender the stock
certificates evidencing such Series B Shares to the Redemption Agent at the
address specified in the notice prior to the close of business on the fifth
Business Day preceding the Redemption Date; (v) that the Majority Holders shall
be entitled to elect to waive and revoke the redemption of Series B Shares
pursuant to this Section 6.3 if the Corporation or the Redemption Agent
receives, not later than the close of business on the second Business Day
preceding the Redemption Date, a telegram, telex, facsimile transmission or
letter specifically to that effect, and that such election shall bind all
holders of Series B Shares, in which case the provisions of this Section 6.3
shall cease to be applicable to such Change of Control; and (vi) the
circumstances and relevant facts regarding such Change of Control.
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(d) Deposit With Redemption Agent; Redemption. Unless the Majority
Holders make the election referred to in clause (v) of Section 6.3(c), on the
Redemption Date the Corporation shall, subject to Section 6.3(e), deposit with
the Redemption Agent money, in immediately available funds, sufficient to pay
the Redemption Price of all Series B Shares to be redeemed. The Redemption
Agent will promptly mail or deliver to the holders of the Series B Shares to be
redeemed payment in an amount equal to the aggregate Redemption Price for such
Series B Shares and the Corporation shall promptly issue, execute and mail or
deliver to each holder who delivered to the Corporation or the Redemption Agent
any stock certificate evidencing more Series B Shares than are redeemed a
replacement stock certificate evidencing the Series B Shares not redeemed. If
any of the Series B Shares evidenced by any stock certificate are not redeemed
for any reason when required, the Corporation shall cause the Redemption Agent
to promptly mail or deliver such certificate to the holder of such Series B
Shares.
(e) Sections 1009 and 1014 of Indenture. If any Notes are
outstanding at the Redemption Date for a redemption required by Section 6.3(b)
and any Notes are required to be repurchased pursuant to Section 1014 of the
Indenture, the Corporation shall not be required to redeem any Series B Shares
pursuant to this Section 6.3 prior to the time of the Corporation's repurchase
of all such Notes so required to be repurchased and the Redemption Date
otherwise determined pursuant to this sentence shall be deferred until the date
such repurchase is completed. The redemption of any Series B Shares pursuant to
this Section 6.3 shall, at all times while any Notes are outstanding, be subject
to the Corporation's compliance with Section 1009 of the Indenture. If, by
reason of the restrictions contained in Section 1009 of the Indenture, the
Corporation is unable, without default under the Indenture, to pay, on the
Redemption Date established pursuant to this Section 6.3 the full Redemption
Price for one hundred percent of all Series B Shares outstanding on the date of
the occurrence of such Change of Control pursuant to such Redemption Date, then
(i) the Corporation shall promptly give, by telegram, telex or
facsimile transmission, a written notice to that effect to each holder of Series
B Shares, with such notice also stating (A) the relevant facts establishing that
such payment would result in a violation of the Indenture, and (B) the maximum
amount of funds available to the Corporation for such redemption of Series B
Shares under Section 1009 of the Indenture and the maximum number of Series B
Shares that the Corporation could redeem using those funds and the percentage of
all outstanding Series B Shares represented by such number of Series B Shares
that could be so redeemed; and
(ii) the Majority Holders may elect, by written notice given to
the Corporation by telegram, telex or facsimile transmission within ten Business
Days after the notice for the Corporation is given, to either
(A) require the Corporation to promptly apply to the
redemption (in accordance with the provisions of this Section 6.3) of the Series
B Shares required to be redeemed the maximum amount of funds available to the
Corporation under Section 1009 of the Indenture, and thereafter (x) promptly
apply all funds that thereafter become available for use for such purpose by
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the Corporation without violation of the Indenture to redeem Series B Shares and
(y) if any Series B Shares continue to be outstanding on the first date as of
which no Notes are outstanding, promptly redeem all such Series B Shares as
hereinafter provided in this Section, or
(B) waive the requirement that the Corporation redeem any
Series B Shares pursuant to this Section 6.3 until the first day after the final
maturity of the Notes, in which case the provisions of this Section 6.3 shall
cease to be applicable to such Change of Control.
If the Majority Holders make the election under subclause (ii)(B) of the
immediately preceding sentence, then the Corporation shall, on the first day
after the final maturity date of the Notes, promptly redeem all Series B Shares
then outstanding in accordance with this Section 6.3 and the other applicable
provisions of this Section 6 as though it were assumed that such day were the
date of the occurrence of a Change of Control, with such redemption to be made
on the Redemption Date and at the Redemption Price determined pursuant to this
Section 6.3 based on such assumption (but ignoring any qualifications or
limitations that are attributable to the Notes and the Indenture). If the
Majority Holders make the election under subclause (ii)(A) of the second
preceding sentence, then each redemption required by subclause (ii)(A)(x) or
(ii)(A)(y) of such sentence shall be made in accordance with the following:
(i) the Redemption Price per share for all Series B Shares to be
redeemed shall be equal to 101% of the Liquidation Price as of the date the
Redemption Price is actually paid to the holders of the Series B Shares
redeemed;
(ii) the Redemption Date shall be a Business Day no earlier than
twenty-five days nor later than forty-five days from the date that funds for
such redemption became available under Section 1009 of the Indenture or, in the
case of subclause (ii)(A)(y), the first date as of which no Notes shall be
outstanding;
(iii) the Corporation shall give written notice of such redemption
to each holder of Series B Shares by telegram, telex, facsimile transmission or
first-class mail, postage prepaid, with such notice to be given to the holders
of the Series B Shares not less than twenty-five days nor more than forty-five
days before the applicable Redemption Date, and
(iv) Sections 6.7, 3.3 and 3.8 shall apply.
(f) Selection of Shares to be Redeemed; Shares Remain Outstanding
Until Paid For. Section 3.3 hereof shall govern the selection of the Series B
Shares to be redeemed in the case of any partial redemption pursuant to this
Section. Notwithstanding any other provision of these Series B Articles of
Amendment, no Series B Share required to be redeemed or delivered for redemption
pursuant to this Section 6.3 shall cease to be, or shall be deemed to cease to
be, outstanding for any purpose unless or until the applicable Redemption Price
therefor is actually paid in cash to the holder thereof or deposited with the
Redemption Agent as provided in Section 6.7.
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6.4 At Corporation's Option. At any time after the fifth
anniversary of the Closing Date, all but not less than all of the Series B
Shares then outstanding may be redeemed at the option of the Corporation at the
per share redemption price equal to the sum of (i) the greater of (A) the
Liquidation Price of such share determined as of the Redemption Date and (B) the
Current Market Price of the Conversion Securities and other assets or property,
if any, into which one Series B Share is convertible on the Redemption Date,
plus (ii) the Make-Whole Premium. Unless otherwise approved by the Majority
Holders, the Corporation shall not exercise its right of redemption pursuant to
this Section 6.4 unless such redemption does not and shall not result in
impairment of the Corporation's capital, otherwise result in a violation of
applicable law or result in a material breach, violation, default or event of
default under any agreement or instrument to which the Corporation is a party or
by or to which it or its assets are bound or subject and unless the Corporation
is not then insolvent and would not be rendered insolvent as a result of such
redemption.
6.5 Form and Source of Redemption Payments. The Redemption Price
for all shares redeemed pursuant to Section 6.1, Section 6.2, Section 6.3 or
Section 6.4 shall be paid in cash from unrestricted funds legally available for
such purpose.
6.6 Notice of Redemption. Notice of any redemption by the
Corporation pursuant to Section 6.1 or Section 6.4 shall be given to the holders
of record of the shares of Series B Preferred Stock to be redeemed, at their
respective addresses as the same appear upon the books of the Corporation or are
supplied by them in writing to the Corporation for the purpose of such notice.
Such notice shall be given not more than 45 days nor less than 20 days prior to
the applicable redemption date. In addition to any information required by law
or by the applicable rules of any national stock exchange or national
interdealer quotation system, such notice shall set forth the Redemption Price,
the redemption date, the number of shares to be redeemed and the place at which
the shares called for redemption will, upon presentation and surrender of the
stock certificates evidencing such shares, be redeemed, and shall state the name
and address of the Redemption Agent appointed in accordance with Section 6.7.
6.7 Deposit of Redemption Price. If any shares of Series B
Preferred Stock are to be redeemed pursuant to Section 6.1, Section 6.2, Section
6.3 or Section 6.4, then on or before the applicable Redemption Date the
Corporation shall deposit, in an irrevocable trust fund for the sole purpose of
redeeming the shares of Series B Preferred Stock to be redeemed on such
Redemption Date, with any bank or trust company organized under the laws of the
United States of America or any state thereof having capital, undivided profits
and surplus aggregating at least $250,000,000 or having capital, undivided
profits and surplus aggregating at least $250,000,000 on a consolidated basis
with such bank's or trust company's parent; provided, however, that, in such
case, such parent has guaranteed all of the existing and future obligations of
such bank or trust company (a "Redemption Agent"), immediately available
unrestricted funds legally available for such purpose sufficient to redeem all
outstanding Series B Shares for the applicable Redemption Price on such
Redemption Date, with irrevocable instructions and authority to the Redemption
Agent, on behalf and at the expense of the Corporation, to pay, commencing on
such Redemption Date or prior
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thereto, the Redemption Price of the Series B Shares to their respective holders
upon the surrender of their share certificates and, from and after the later of
the date of such deposit and such Redemption Date, such shares shall be deemed
to be no longer outstanding and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto, except the right to receive payment, as provided in these Articles, of
the Redemption Price of such shares, calculated through such Redemption Date,
upon surrender of the certificates therefor. Until such date, the Series B
Shares shall, continue to be convertible into Common Stock in accordance with
Section 9 and shall continue to be issued and outstanding for all other
purposes. Any funds so deposited with the Redemption Agent by the Corporation
and unclaimed for six months from the Redemption Date shall (unless an
applicable escheat or abandoned property law designates another Person) be paid
to the Corporation, after which repayment the holders of such shares of Series B
Preferred Stock shall look to the Corporation for the payment of the Redemption
Price therefor, without interest. If, in the case of a redemption pursuant to
Section 6.3, there is a conflict between the provisions of Section 6.3 and this
Section 6.7, the provisions of Section 6.3 shall govern to the extent of the
conflict.
7 Board Representation.
7.1 Right to Elect Three Directors. For so long as TPG is the
Beneficial Owner of at least forty percent (40%) of the Originally Issued
Shares, in the event that TPG shall have voted its shares of capital stock of
the Corporation in accordance with Section 8.02 of the Investor Rights Agreement
and, notwithstanding such vote, the Board shall not include at least two
designees of TPG as contemplated by the Investor Rights Agreement, the number of
directors constituting the Board shall, in accordance with the resolution
adopted by the Board on April 17, 2000, be increased by three (3), and the
Holders shall have, in addition to the other voting rights set forth herein and
under Colorado law, the exclusive right, voting as a separate class, to elect
three directors of the Corporation, provided that such right shall terminate (i)
upon the redemption of all of the Series B Shares completed in accordance with
Section 6.1, Section 6.2, Section 6.3 or Section 6.4 or (ii) at any time the
members of the Board (other than the directors elected pursuant to this Section
7.1) shall include at least two designees of TPG as contemplated by the Investor
Rights Agreement. The directors whom, at any time and from time to time, the
holders of the Series B Preferred Stock elect or are entitled to elect voting as
a separate class are sometimes herein referred to as the "Designated Directors".
Subject to earlier death, resignation or removal pursuant to Section 7.3, each
Designated Director elected or appointed at any time as provided herein shall
serve until his or her term shall have expired and his or her successor shall
have been elected as provided herein. At their option and in their sole
discretion and for any one or more periods of any length of time, the Holders at
any time and from time to time may choose not to exercise their right to elect
the Designated Directors or to fill any vacancy existing in the office of a
Designated Director, without prejudice to any subsequent exercise of such right.
7.2 Manner of Election. Subject to the last sentence of this
Section 7.2 and Section 4 of Article III of the By-Laws, each Designated
Director shall be elected (and if such directors previously have been elected
and any vacancy shall exist, such vacancy shall be filled) either
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(i) by written consent of the Majority Holders given in accordance with Section
8.1; or (ii) by vote of the Holders voting as a separate class and in accordance
with Section 8.2, at (A) annual meetings of the shareholders of this
Corporation, or (B) a special meeting of the holders of Series B Preferred Stock
for the purpose of electing such directors (or filling any such vacancy), to be
called by the Secretary of this Corporation upon the written request of the
holders of record of 10% or more of the number of shares of Series B Preferred
Stock then outstanding; provided, however, that if the Secretary of this
Corporation shall fail to call any such special meeting within 10 days after any
such request, such meeting may be called by any Series B Director.
Notwithstanding the foregoing, the Secretary shall not be required to call any
such special meeting in the case of any such request received by this
Corporation less than 45 days before the date fixed for any annual meeting of
shareholders, and if in such case such special meeting is not called, the
holders of Series B Preferred Stock shall be entitled to vote (as a class) at
such annual meeting to elect the Designated Director (or to fill any such
vacancy).
7.3 Removal. Any Designated Director may at any time and from time
to time be removed, with or without cause, by and only by the Holders. Any
vacancy in the office of a Designated Director resulting from death, resignation
or removal or existing for any other reason whatsoever may be filled only by the
Holders. Any director elected to fill a vacancy shall serve the same remaining
term as that of his or her predecessor and until his or her successor has been
elected.
7.4 Certain Procedural Matters. So long as the Holders of the
Series B Preferred Stock shall have the right to elect a Designated Director:
(i) any one or more members of the Board or any committee thereof
may participate in meetings of the Board by conference telephone;
(ii) each member of the Board or any committee thereof shall be
given not less than three Business Days' prior written notice of each meeting of
the Board or such committee (or one day's prior written notice in case of
meetings to consider emergency matters), specifying the time and place of such
meeting and the matters to be discussed thereat, unless such member signs
(either before or after such meeting) a written waiver of his right to be given
such notice, or attends such meeting without protesting (prior thereto or at the
commencement thereof) the failure to be given such notice;
(iii) each member of the Board or any committee thereof shall be
given not less than three Business Days' prior written notice of any action
proposed to be taken by the Board or such committee without a meeting (or one
day's prior written notice in case of proposed actions involving emergency
matters), unless such member signs (either before or after such action is taken)
a written waiver of his right to be given such notice, or gives his written
consent to such action without protesting the failure to be given such notice;
and
(iv) no executive committee of the Board, and no other new
committee of the Board which is authorized to exercise any powers of the Board,
shall be created except (A) for committees
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satisfying the requirements of Section 7.6 or (B) otherwise with the concurrence
of the Series B Directors or the Holders; and at any meeting of the Board or any
committee thereof, a quorum for the purpose of taking any action shall require
the presence in person or participation by conference telephone or similar
communications equipment of a number of directors equal to at least a majority
of the entire Board or the entire committee, respectively.
7.5 Indemnification. The Corporation shall (i) to the fullest
extent permitted by applicable law, indemnify the holders of the Series B
Preferred Stock and each current and former Series B Director who is made a
party or threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such Person is or was a shareholder or
director of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such Person in connection with such action,
suit or proceeding and (ii) pay in advance, or advance to each such shareholder,
director and former director for payment of, expenses incurred in defending any
such action, suit or proceeding to the maximum extent permitted by applicable
law. The rights conferred on any Person by this Section 7.5 shall not be
exclusive of any other rights which such Person may have or acquire under any
statute, under the Corporation's Amended and Restated Articles of Incorporation,
under the Corporation's By-laws, under any agreement, vote of stockholders or
disinterested directors or otherwise.
7.6 Committees. For so long as TPG is the Beneficial Owner of at
least forty percent (40%) of the Originally Issued Shares, at least one-third of
the members of each and every committee of the Board shall be comprised of
Series B Directors unless compliance with this Section 7.6 would result in a
breach by the Company of the listing requirements of The Nasdaq Stock Market.
8 Actions by Holders Generally; Consistent Charter and By-law
Provisions.
8.1 Actions by Written Consent or at Meetings. With respect to
action by the Holders of the Series B Preferred Stock upon any matter on which
the Holders are entitled to vote as a separate series or class, such action may
be taken either at a meeting of the Holders or without a stockholder meeting by
the written consent of Holders of shares of Series B Preferred Stock having
voting power to cast not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares of
Series B Preferred Stock entitled to vote were present and voted. Notice shall
be given in accordance with the applicable provisions of the Colorado Business
Corporation Act of the taking of corporate action without a meeting by less than
unanimous written consent to those Holders of Series B Preferred Stock whose
shares were not represented on the written consent.
8.2 Meetings. At any meeting having as a purpose either the
election of a Series B Director or any action upon any other matter on which the
Holders of the Series B Preferred Stock
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are entitled to vote as a separate series or class, the presence, in person or
by proxy, of the Holders of record of at least a majority of the Series B Shares
then outstanding shall be required and be sufficient to constitute a quorum of
such series or class for any such purpose, and the affirmative vote of the
Holders of a majority of the shares of Series B Preferred Stock then present at
and entitled to vote at such meeting shall be the act of the Series B Preferred
Stock, except where these Articles require a greater affirmative vote, in which
case such greater voting requirement shall apply. At any such meeting or
adjournment thereof, (i) the absence of a quorum of such Holders of Series B
Preferred Stock shall not prevent the election of the directors to be elected by
the Holders of shares other than the Series B Preferred Stock or the taking of
any other action which they are entitled to take, and the absence of a quorum of
Holders of shares other than the Series B Preferred Stock shall not prevent the
election of any director to be elected by the Holders of the Series B Preferred
Stock or the taking of any other action which they are entitled to take and (ii)
in the absence of such quorum, either of Holders of the Series B Preferred Stock
or of shares other than the Series B Preferred Stock (or both), a majority of
the Holders, present in person or by proxy, of the series, class or classes of
stock which lack a quorum shall have power to adjourn the meeting for the
election of directors which they are entitled to elect or the taking of any
other action which they are entitled to take, from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
8.3 Consistent By-laws and Charter. The Amended and Restated
Articles of Incorporation and the By-laws of the Corporation shall at all times
contain provisions consistent with the provisions, purposes and intent of
Sections 3 through 11, inclusive, and the other provisions of these Articles,
and in the event of any conflict between the provisions of these Articles and
such other instruments, the provisions of these Articles shall prevail to the
fullest extent permitted by Colorado law.
9 Conversion Right Generally.
9.1 Conversion Right. Unless previously redeemed in accordance
with Section 6, each share of Series B Preferred Stock may be converted at the
option of the holder thereof, in whole or in part, at any time into the number
of fully paid and nonassessable shares of Common Stock equal to the Conversion
Rate in effect at the time of conversion and in the manner and on the terms and
conditions hereinafter provided in this Section 9 and Section 10. The Conversion
Rate, the Conversion Price and the kind, number and amount of securities and
other property deliverable upon conversion of any Series B Share shall be
subject to adjustment from time to time as set forth in Section 10. In the event
that cash, property or securities other than Common Stock shall be payable,
deliverable or issuable upon conversion, then all references to Common Stock in
this Section 9 and in Section 10 shall be deemed to apply, so far as appropriate
and as nearly as may be, to such cash, property or other securities.
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9.2 Mechanics of Conversion.
(a) Conversion Notice. In order to convert any Series B Share, the
holder thereof shall deliver to the Corporation at its principal executive
offices within the United States or at another office or agency designated by
the Corporation pursuant to Section 10.14, the certificate(s) evidencing the
Series B Share(s) to be converted, which certificate(s), if the Corporation
shall so request, shall be duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in blank
(such endorsements or instruments of transfer to be in form reasonably
satisfactory to the Corporation), and shall give written notice to the
Corporation at said office that such holder elects to convert all or a part of
the Series B Share(s) represented by said certificate(s) in accordance with the
terms of this Section 9, and shall state in writing therein the name or names
and denomination or denominations in which such Holder wishes certificate(s) for
Common Stock to be issued.
(b) Subscription. Subject to Section 9.2(d), every such notice of
election to convert shall constitute a contract between the holder of such
Series B Share(s) and the Corporation, whereby the holder of such Series B
Share(s) shall be deemed to subscribe for the amount of Common Stock which such
holder shall be entitled to receive upon conversion of the number of shares of
Series B Preferred Stock to be converted, and, in satisfaction of such
subscription, to deliver the shares of Series B Preferred Stock to be converted,
and whereby the Corporation shall be deemed to agree that the surrender of the
shares of Series B Preferred Stock to be converted shall constitute full payment
of such subscription for such Common Stock to be issued upon such conversion.
(c) Issuance of Conversion Securities. The Corporation will as
soon as practicable after such deposit of a certificate or certificates for
Series B Preferred Stock to be converted, accompanied by the written notice
above prescribed, issue and deliver at such offices of the Corporation or at
such other office or agency to the Person for whose account such Series B
Preferred Stock was so surrendered, or to his nominee(s) or, subject to
compliance with applicable law, transferee(s), a certificate or certificates for
the number of whole shares of Common Stock to which such holder shall be
entitled. Subject to Section 9.2(d), such conversion shall be deemed to have
been made as of the date of such surrender of the Series B Preferred Stock to be
converted, and the Person or Persons entitled to receive the Common Stock
issuable upon conversion of such Series B Preferred Stock shall be treated for
all purposes as the record holder or holders of such Common Stock on such date.
Simultaneously with the delivery of such certificate(s) for such Common Stock,
the Corporation also shall duly deliver to such holder all cash, other
securities and other property, if any, to which he is entitled by virtue of the
conversion of such Series B Preferred Stock. If fewer than all of the Series B
Shares evidenced by any stock certificate delivered to the Corporation in
connection with a conversion are to be converted, the Corporation shall also
deliver to such holder, at the time of delivery of the certificate(s)
representing such Common Stock, a new stock certificate, dated as of the Closing
Date, evidencing the number of Series B Shares remaining unconverted and
otherwise identical to the stock certificate for Series B Shares so delivered by
such holder.
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(d) Conversions Associated With Public Offerings. Notwithstanding
the foregoing, if any notice of conversion given by any Holder states that such
conversion is in connection with an offering of securities registered or to be
registered pursuant to the Securities Act, then such conversion may, at the
option of such Holder, be conditioned upon and deferred until the closing of the
sale of such securities pursuant to such offering or another date designated by
such Holder, in which event the Series B Share(s) covered by such notice shall
not be deemed to have been converted until immediately prior to the closing of
such sale or such other date (as the case may be) and the Corporation shall,
unless otherwise instructed by such Holder, deliver the stock certificate(s) and
any cash, securities or other property to which such Holder shall be entitled at
such time or times as such Holder shall reasonably request.
9.3 Expenses and Taxes. The Corporation shall pay all expenses in
connection with, and all stamp, transfer and other similar taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
of the shares of Common Stock and cash, property or other securities which any
Holder is entitled to receive upon conversion of any Series B Share(s). The
Corporation shall not be required, however, to pay any stamp, stock transfer or
other similar tax or other governmental charge required to be paid solely by
virtue of any transfer involved in the issue of shares of Common Stock in any
name other than that of the Holder of the Series B Share(s) converted at the
order of such Holder, and if any such transfer is involved, the Corporation
shall not be required to issue or deliver the shares of Common Stock as to which
such tax or charge is applicable until such tax or other charge shall have been
paid or it has been established to the Corporation's reasonable satisfaction
that no such tax or other charge is due.
9.4 Fractional Shares of Common Stock. If the number of shares of
Common Stock issuable on the conversion of Series B Share(s) is not a whole
number, the Corporation shall not be required to issue any fraction of a share
of Common Stock and such number of shares issuable shall be rounded up to the
next highest whole number. If a certificate or certificates evidencing more
than one Series B Share shall be surrendered for conversion at one time by the
same Holder, the number of full shares which shall be issuable upon conversion
thereof shall be computed on the basis of the aggregate number of Series B
Shares so surrendered for conversion. Notwithstanding the provisions of this
Section 9.4, in computing adjustments to the Conversion Rate pursuant to Section
10, fractional shares of Common Stock shall be taken into account as provided in
Section 10.8(c) and any outstanding Series B Share may at any time represent the
right to receive upon conversion less than one share of Common Stock or some
other number of shares of Common Stock which is not a whole number.
9.5 Covenant to Reserve Shares for Issuance on Conversion. The
Corporation shall at all times reserve and keep available out of the authorized
but unissued shares of Common Stock, solely for the purpose of issuance upon
conversion of Series B Shares, the full number of shares of Common Stock
issuable if all outstanding Series B Shares were to be converted in full. All
shares of Common Stock which shall be issuable upon conversion of any Series B
Share shall be newly issued, duly authorized, validly issued, fully paid and
nonassessable and without any personal liability attaching to the ownership
thereof, and the issuance thereof shall not give rise or otherwise
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be subject to preemptive or similar purchase rights on the part of any Person or
Persons, and the Corporation shall take any corporate and other actions that
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable all shares of Common
Stock and all shares of the Corporation's capital stock of any other class or
series issuable upon conversion of the Series B Preferred Stock. The Corporation
hereby authorizes and directs its current and future transfer agents, if any,
for the Common Stock and for any shares of the Corporation's capital stock of
any other class or series issuable upon the conversion of the Series B Preferred
Stock at all times to reserve such number of authorized shares as shall be
required for such purpose. The Corporation shall supply such transfer agents
with duly executed stock certificates for such purposes.
9.6 Compliance with Governmental Requirements; Listing of Shares.
(a) General. If issuance of any Conversion Securities issuable
upon conversion of any Series B Share(s) require, under any applicable federal,
state, local or foreign law, rule or regulation or any applicable requirement of
any national securities exchange or inter-dealer quotation system, any
registration, qualification, listing or approval before such shares may be
issued upon conversion, the Corporation shall in good faith, as promptly as
practicable and at its expense, diligently endeavor to cause such shares to be
duly registered, qualified, approved or listed, as the case may be, and the
conversion of such Series B Share(s) shall be suspended for the period during
which such registration, qualification, approval or listing is being diligently
pursued or sought by the Corporation.
(b) Listing. During all periods during which shares of Common Stock
or any other capital stock or securities of the same class, series or issue as
are issuable upon conversion of any Series B Share are listed, qualified or
otherwise eligible for trading or quotation on any national securities exchange
or The Nasdaq Stock Market, the National Association of Securities Dealers, Inc.
Automated Quotation System or any similar quotation system, the Corporation
shall cause all shares of Common Stock, and all such other capital stock and
securities, issuable upon conversion of such Series B Share to be listed,
qualified or eligible for trading or quotation thereon upon issuance thereof.
(c) HSR Act, Etc. If any Holder's intended conversion of any
Series B Shares would or might be subject to the HSR Act, the Corporation shall
promptly comply with any applicable requirements under the HSR Act relating to
filing and furnishing of information to the Federal Trade Commission and the
Antitrust Division of the Department of Justice and shall cooperate, and cause
all Persons which are part of the same "person" (as defined for purposes of the
HSR Act) as the Corporation to cooperate and assist in such filing and
compliance. If any Holder is advised by its legal counsel that its intended
conversion of any Series B Share(s) would or might be subject to any other law,
rule or regulation which requires any filing with or review or approval by any
governmental authority or agency, the Corporation shall promptly comply with any
requirements of such law, rule or regulation applicable to it and shall
cooperate with such Holder in such Holder's efforts to comply with the
requirements of such law, rule or regulation applicable to it on a timely basis.
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(d) Expenses. Each of the Corporation and such Holder shall bear
and pay any costs or expenses that it incurs in complying with this Section 9.6,
except that each shall pay one half of any filing fee payable to the FTC or the
Department of Justice pursuant to this Section 9.6 and the HSR Act.
10. Conversion Adjustments.
10.1 Adjustment Generally. The Conversion Price and the Conversion
Rate shall be subject to adjustment from time to time as hereinafter set forth.
Adjustments of the Conversion Price and the Conversion Rate shall be cumulative
and shall be made successively on each and every occasion that any event
requiring any such adjustment shall occur. The form of the stock certificate(s)
evidencing the Series B Shares need not be changed because of any adjustment
made pursuant hereto.
10.2 Stock Dividends, Subdivisions, Combinations and
Recapitalizations. If the Corporation shall at any time (i) declare or pay a
dividend or declare, pay or make any other distribution on the Common Stock in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock
into a greater number of shares or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each and every such event
the Conversion Price in effect immediately prior to (x) in the case of a
dividend or distribution, the record date for the determination of stockholders
entitled to receive such dividend or distribution (or, if no such record date is
fixed, immediately prior to any other time as of which the stockholders entitled
to participate in such dividend or distribution is determined) or (y) in the
case of a subdivision, combination or reclassification, the effectiveness of
such subdivision, combination or reclassification shall be adjusted to a price
obtained by multiplying such Conversion Price by a fraction of which (1) the
numerator shall be the number of shares of Common Stock outstanding immediately
prior to such record date or effective time referred to in clause (x) or (y) of
this sentence and (2) the denominator shall be the sum of such number of shares
of Common Stock outstanding and the total number of shares of Common Stock
constituting such dividend or distribution.
An adjustment made pursuant to this Section 10.2 shall become
effective immediately after such record date (or other applicable date referred
to in clause (x) of the immediately preceding sentence) in the case of a
dividend or distribution, subject to Section 10.8(d), and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
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10.3 Certain Other Distributions.
(a) Adjustment Formula. Subject to Section 10.3(b) and Section
10.3(c), if the Corporation shall at any time declare or make any distribution,
by dividend or otherwise, to all holders of outstanding shares of Common Stock
of any cash or other assets or property of any nature whatsoever, any debt
securities or other evidences of its indebtedness, any capital stock, any other
securities of any nature whatsoever or any warrants, options or other Rights to
subscribe for, purchase or otherwise acquire any assets, property, capital
stock, debt or other securities or evidences of indebtedness (excluding
dividends, distributions or issuances covered by Section 10.2, Rights covered by
Section 10.5 and Convertible Securities covered by Section 10.6), or shall take
a record of such holders for the purpose of entitling them to receive such a
distribution, then the Conversion Price shall be adjusted to equal the product
of
(i) the Conversion Price determined as of immediately prior
to the applicable Adjustment Date determined pursuant to Section 10.3(d)
multiplied by
(ii) a fraction, the numerator of which shall be the excess
of (x) the Current Market Price per share of the Outstanding Common Shares
immediately before such Adjustment Date over (y) the amount allocable to one
share of the Outstanding Common Shares as of such Adjustment Date of the sum of
(A) any such cash so distributable and (B) the Fair Market Value (as determined
as of such date in good faith by the Board) of any and all such evidences of
indebtedness, shares of capital stock, debt securities, other securities,
property, assets or Rights so distributable, and the denominator of which shall
be such Current Market Price per share of the Outstanding Common Shares
immediately before the Adjustment Date.
(b) When Adjustment Is Not to be Made. No adjustment pursuant to
the provisions of Section 10.3(a) shall be made if such adjustment would result
in a Conversion Price that is greater than the Conversion Price in effect prior
to such adjustment. In addition, at the election of the Majority Holders made
within 30 days of receipt of the notice with respect to such adjustment issued
pursuant to Section 10.10, in lieu of the adjustment to the Conversion Price
pursuant to the provisions of Section 10.3(a), but subject to Section 10.3(c),
the Conversion Rate determined as of immediately prior to the effective date for
such adjustment specified in the last sentence of this Section 10.3 shall be
adjusted so that the Holder of any Series B Share thereafter surrendered for
conversion shall be entitled to receive the kind and number or amount of shares
of Common Stock (or other capital stock of the Corporation), other Conversion
Securities and other property or assets which such Holder would have received
(after giving effect to all adjustments required by this Section 10) had such
Series B Share been converted immediately prior to
(i) the record date for the determination of the
stockholders entitled to receive such distribution, or
(ii) if no such record date is fixed, as of any other time as
of which the holders of Common Stock entitled to participate in such
distribution was determined,
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plus the kind and amount of cash, other assets or property, debt securities,
other evidences of indebtedness, other securities or Rights which such Holder
would have been entitled to receive by virtue of being the record holder, as of
such record date or other time, of such kind and number or amount of shares of
Common Stock or other Conversion Securities. For such purpose, it shall be
assumed that such holder of Common Stock or other Conversion Securities failed
to exercise rights of election, if any, as to the kind or amount of shares or
stock, other securities or property receivable in such distribution, provided
that if the kind or amount of shares of stock, other securities or property
receivable in such distribution is not the same for each non-electing share,
then the kind and amount of shares of stock, other securities or property
receivable upon consummation of such transaction for each non-electing share
shall be deemed to be the kind and amount so receivable per share by a plurality
of the non-electing shares. If after an adjustment a Holder upon conversion of
a Series B Share may receive shares of two or more classes of capital stock of
the Company, the Board shall determine, in good faith, the allocation of the
adjusted Conversion Price between the classes of capital stock. After such
allocation, the conversion privilege and the Conversion Price shall thereafter
be subject to adjustment on terms comparable to those applicable to Common Stock
in this Section 10.
(c) Special Rule for Distributions of Redeemable Stock. If by
virtue of the applicability of Section 10.3(b) in any one or more events, the
Conversion Securities issuable upon conversion of any Series B Share consist of
or include any shares of any class or series of capital stock that provides by
its terms a right in favor of the Corporation to call, redeem, exchange or
otherwise acquire all of the outstanding shares or units of such class or series
(such class or series of capital stock being herein referred to as "Redeemable
Stock") and if the Corporation redeems all or any part of the outstanding shares
of such Redeemable Stock prior to the date on which such Series B Share is
converted, then upon conversion of such Series B Share the Holder thereof shall
be entitled to receive, in lieu of such shares of Redeemable Stock or, in the
event of such a partial redemption, a pro rata portion of such shares, the kind
and amount of cash or other assets, securities or other property or
consideration paid by the Corporation with respect to its redemption of an equal
number of shares of such Redeemable Stock. If the consideration so paid upon the
Corporation's redemption of any such Redeemable Stock consists of or includes
any other class or series of Redeemable Stock which is also redeemed before
conversion of any Series B Share, then the provisions of the first sentence of
this Section 10.3(c) (and of this sentence) shall apply to successively to the
shares of such other class or series of Redeemable Stock.
(d) Adjustment Date. The "Adjustment Date" for any distribution in
respect of which an adjustment is required by this Section 10.3 shall be either
(i) the date of taking of a record of holders of Common Stock for the purpose
of entitling them to receive such distribution or, if no record is taken, at the
date as of which the holders of Common Stock entitled to participate in such
distribution were determined or (ii) the date of such distribution, whichever
date yields the largest decrease in the Conversion Price, as the case may be, in
applying the formula contained in the first sentence of this Section 10.3.
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(e) Adjustment Effective Date. An adjustment made pursuant to this
Section 10.3 shall become effective, subject to Section 10.8(d), immediately
after such record date or, if no such record date is fixed, immediately after
the time as of which holders of Common Stock entitled to participate in such
distribution were determined or, if no such time is fixed, as of the date of
such distribution.
10.4 Issuance of Additional Shares of Common Stock.
(a) Adjustment Formula. Subject to Section 10.4(b), if at any time
the Corporation shall issue, or pursuant to Section 10.5, Section 10.6, Section
10.7 or Section 10.8 be deemed to issue, any Additional Shares of Common Stock
in exchange for consideration in an amount, determined in accordance with
Section 10.8(a) and Section 10.8(e), per Additional Share of Common Stock less
than the Reference Price as of the applicable time of determination specified in
the last sentence of this Section 10.4(a), then the Conversion Price shall be
adjusted to equal the product obtained by multiplying the Conversion Price in
effect immediately prior to such time of determination by a fraction (i) the
numerator of which shall be the number of Outstanding Common Shares immediately
before such issuance or deemed issuance plus the number of shares which the
aggregate amount of consideration, if any, received by the Corporation upon such
issuance or deemed issuance of all the Additional Shares of Common Stock so
issued or deemed to be issued would purchase at the Reference Price determined
as of such time and (ii) the denominator of which shall be the number of
Outstanding Common Shares immediately before such issuance or deemed issuance
plus such number of Additional Shares of Common Stock so issued or deemed to be
issued. The applicable time of determination shall be:
(i) if the event requiring the adjustment is the taking of a
record date for any dividend or distribution referred to in Section 10.5 or
Section 10.6, as of either the close of business on such record date or the date
such dividend or distribution is paid, whichever produces the highest Reference
Price, or
(ii) in the case of any other issuance or deemed issuance,
immediately prior to the time of such issuance or deemed issuance.
(b) When Adjustment is Not Required. The provisions of Section
10.4(a) shall not apply to any issuance of Additional Shares of Common Stock for
which an adjustment is made under Section 10.2 or Section 10.3. Subject to
Section 10.7, no adjustment of the Conversion Price shall be made under this
Section 10.4 upon the issuance of any Additional Shares of Common Stock which
are or are deemed to be issued pursuant to (i) the exercise of any Existing
Rights in accordance with the terms thereof in effect as of the Closing Date or
(ii) the exercise of any other Rights or the exercise of any conversion or
exchange rights in any other Convertible Securities if, in the case of any such
Rights or Convertible Securities referred to in this clause (ii) any such
adjustment shall previously have been made, or no such adjustment shall have
been required to be made, upon the issuance of such Rights or upon the issuance
of such Convertible Securities (or upon the issuance of any Rights therefor)
pursuant to Section 10.5 or Section 10.6.
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(c) Effective Date. Each adjustment pursuant to this Section 10.4
by reason of any issuance or deemed issuance of any Additional Shares of Common
Stock shall be effective as of the date of such issuance or deemed issuance.
10.5 Issuance of Rights.
(a) Adjustment. If at any time the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or other distribution of, or shall in any manner (whether directly or
indirectly by assumption in a consolidation or in a merger in which the
Corporation is the surviving corporation or otherwise) issue to any Person or
Persons, any Rights to subscribe for, purchase or otherwise acquire any
Additional Shares of Common Stock or any Convertible Securities, in any case
whether or not such Rights or the right to exchange or convert such Convertible
Securities is immediately exercisable, and the consideration per share for which
Common Stock is issuable upon the exercise of such Rights or upon conversion or
exchange of such Convertible Securities, determined pursuant to Section 10.8(a)
and Section 10.8(e), shall be less than the Reference Price determined as of the
applicable time of determination specified in the last sentence of this Section
10.5(a), then the maximum number of shares of Common Stock issuable upon the
exercise of such Rights or, in the case of Rights for Convertible Securities,
upon the conversion or exchange of such Convertible Securities determined as of
such applicable time shall be deemed to be Additional Shares of Common Stock
issued as of such applicable time for such consideration per share and the
Conversion Price shall be adjusted as provided in Section 10.4. The applicable
time of determination shall be:
(i) if the event requiring the adjustment is the taking of a
record date for any dividend or distribution of Rights referred to in this
Section 10.5(a), as of either the close of business on such record date or the
date such dividend or distribution is paid, whichever produces the highest
Reference Price, or
(ii) in the case of any other issuance of Rights, immediately
prior to the time of such issuance.
(b) No Further Adjustment on Exercise. Subject to Section 10.7, no
further adjustments of the Conversion Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon exercise of
such Rights or upon the actual issuance of such Common Stock upon such
conversion or exchange of such Convertible Securities for which an adjustment
pursuant to this Section 10.5 previously had been made or was not required to be
made. Subject to Section 10.7, no adjustment under this Section 10.5 shall be
required by reason of the grant of Employee Options that have an exercise price
per share of Common Stock at least equal to the Current Market Price at the time
of grant.
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10.6 Issuance of Convertible Securities.
(a) Adjustment. If at any time the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or other distribution of, or shall in any manner (whether directly or
indirectly by assumption in a consolidation or in a merger in which the
Corporation is the surviving corporation or otherwise) issue to any Person or
Persons, any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the consideration per share
for which Common Stock is issuable upon such conversion or exchange, determined
pursuant to Section 10.8(a) and Section 10.8(e), shall be less than the
Reference Price determined as of the applicable time of determination specified
in the last sentence of this Section 10.6(a), then the maximum number of shares
of Common Stock issuable upon the conversion or exchange of such Convertible
Securities determined as of such time of determination shall be deemed to be
Additional Shares of Common Stock issued as of such time of determination for
such consideration per share and the Conversion Price shall be adjusted as
provided in Section 10.4. If the terms of any Convertible Securities provide
for any issuance of additional Convertible Securities (whether in payment of
dividends or interest or otherwise), then each occasion on which any such
additional Convertible Securities are issued shall be deemed a new issuance of
Convertible Securities for which an adjustment pursuant to this Section 10.6
shall be made. The applicable time of determination shall be:
(i) if the event requiring the adjustment is the taking of a
record date for any dividend or distribution of Rights referred to in this
Section 10.6(a), as of either the close of business on such record date or the
date such dividend or distribution is paid, whichever produces the highest
Reference Price, or
(ii) in the case of any other issuance of Rights, immediately
prior to the time of such issuance.
(b) No Further Adjustment Upon Conversion. Subject to Section
10.7, no further adjustment of the Conversion Price shall be made under this
Section 10.6 upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any Rights therefor if any such adjustment shall
previously have been made upon the issuance of such Rights pursuant to Section
10.5. Subject to Section 10.7, no further adjustments of the Conversion Price
shall be made upon the actual issuance of such Common Stock upon conversion or
exchange of Convertible Securities for which an adjustment pursuant to this
Section 10.6 previously had been made or was not required.
10.7 Superseding Adjustment.
(a) Readjustment if Adjustment Previously Made. If, at any time
after any adjustment of the Conversion Price shall have been made pursuant to
Section 10.5 or Section 10.6 in respect of any Rights or any Convertible
Securities:
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(i) the consideration paid or payable to the Corporation, or
the number of shares of Common Stock issued or issuable, upon the exercise,
conversion or exchange of the Rights or Convertible Securities in respect of
which such adjustment was made is increased or decreased by virtue of provisions
contained therein for an automatic increase or decrease (as the case may be)
upon the occurrence of a specified date or event, any amendment or modification
of or departure from the terms thereof previously in effect or otherwise (other
than under or by reason of an event resulting in a change pursuant to the
provisions set forth in the documents governing such Rights or Convertible
Securities designed to protect against dilution, which event also results in an
adjustment pursuant to this Section 10), the adjustments to the Conversion Price
computed upon the original grant, issuance or sale thereof or upon the taking of
a record date with respect thereto (as the case may be), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be readjusted to the Conversion Price which would then be in effect
had such adjustment originally been made on the basis that such increased or
decreased consideration paid or payable or such increased or decreased number of
shares of Common Stock issued or issuable was the consideration paid or payable
or the number of shares issued or issuable in respect of such Rights or
Convertible Securities which are actually outstanding immediately prior to the
effective time of such increase or decrease (but no such readjustment shall be
made with respect to any Rights or Convertible Securities which for any reason
no longer are outstanding as of such time); or
(ii) any Rights or any rights of conversion or exchange under
Convertible Securities in respect of which such adjustment was made shall expire
without having been fully exercised, the adjustments to the Conversion Price
computed upon the original grant, issuance or sale thereof or upon the taking of
a record date with respect thereto (as the case may be), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as if:
(1) in the case of such Rights or Convertible
Securities, the only Additional Shares of Common Stock issued were the shares of
Common Stock, if any, actually issued upon the exercise of such Rights or the
conversion or exchange of such Convertible Securities and the consideration
received for such Additional Shares of Common Stock was, in the case of Rights,
the consideration actually received by the Corporation for the grant, issuance
or sale of all such Rights, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or, in the case of
Convertible Securities, the consideration actually received by the Corporation
for the issuance or sale of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange; and
(2) in the case of any such Rights exercisable for
Convertible Securities, only the Convertible Securities, if any, actually issued
or sold upon the exercise thereof were issued at the time of grant, issuance or
sale of such Rights, and the consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for the grant, issuance or
sale of all such Rights, whether or not exercised, plus the additional
consideration, if any, actually received by the
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Corporation upon the issuance or sale of the Convertible Securities with respect
to which such Rights were actually exercised.
(b) When Readjustment is Not to be Made. No readjustment pursuant
to this Section 10.7 shall have the effect of (i) decreasing the number of
shares of Common Stock or the amounts of other Conversion Securities, cash or
other property into which any Series B Share is convertible below the number of
such shares and the amounts of such other Conversion Securities, cash and
property into which such Series B Share would have been convertible if the
original adjustment had not been made but all subsequent adjustments, if any,
required by this Section 10 had been made or (ii) requiring any surrender,
return or redelivery of any shares of Common Stock, other Conversion Securities,
cash or other property delivered upon any conversion of any Series B Share prior
to the time such readjustment is made, requiring that the converting Holder or
any subsequent holder of any such shares of Common Stock, Conversion Securities
or other property make any payment to the Corporation or otherwise affecting
such shares of Common Stock, other Conversion Securities or other property or
the rights or obligations of the converting Holder or any such subsequent holder
with respect thereto. From and after any adjustment or adjustments provided for
in this Section 10.7, the Conversion Price shall continue to be subject to
further adjustment as provided in this Section 10.
(c) Adjustment When No Adjustment Was Previously Made. If, at any
time after any grant, sale or other issuance of any Rights or Convertible
Securities for which an adjustment of the Conversion Price shall not have been
required to be made pursuant to the provisions of Section 10.5 or Section 10.6
(as the case may be), the consideration paid or payable to the Corporation upon
the exercise of such Rights or Convertible Securities is decreased, or the
number of shares of Common Stock issued or issuable upon the exercise of such
Rights or Convertible Securities is increased, in either case by virtue of
provisions contained therein for an automatic decrease or increase (as the case
may be) upon the occurrence of a specified date or event, any amendment or
modification of or departure from the terms thereof previously in effect or
otherwise (other than under or by reason of an event resulting in a change
pursuant to the provisions set forth in the documents governing such Rights or
Convertible Securities designed to protect against dilution, which event also
results in an adjustment pursuant to this Section 10), then such event shall,
for purposes of Section 10.5 (in the case of such Rights) or Section 10.6 (in
the case of such Convertible Securities) be deemed to be a new issuance, as of
the date of the effectiveness of such decrease or increase (as the case may be)
of Rights or Convertible Securities having terms reflecting such changes.
(d) Adjustment for Events Affecting Existing Rights. If the number
of shares of Common Stock issued or issuable upon exercise of any Existing Right
is increased as a direct or indirect result of any amendment or modification of
or departure from the terms thereof previously in effect (other than as a result
of the issuance of the Series B Shares, the conversion of the Series B Shares,
the issuance of the Warrants or the exercise of the Warrants), then such
increased number of shares of Common Stock issued or issuable upon exercise
thereof shall be deemed to be Additional Shares of Common Stock issued as of the
effective date of such increase for the additional consideration, if any,
payable to acquire such increased number of shares upon exercise of such
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Existing Right, and the Conversion Price shall be adjusted as provided in
Section 10.4. If the consideration payable for shares of Common Stock issued or
issuable upon exercise of any Existing Right is decreased as a direct or
indirect result of any amendment or modification of or departure from the terms
thereof previously in effect, then such event shall be deemed to be the
issuance, as of the effective date of such decrease, of a number of Additional
Shares of Common Stock equal to the excess of (i) the maximum number of shares
of Common Stock issuable upon exercise of such Existing Right over (ii) the
number of shares of Common Stock determined by dividing the total consideration,
if any, that would be payable to the Corporation upon the exercise in full of
such Existing Right after giving effect to such decrease by the amount of
consideration per share of Common Stock issuable upon exercise of such Existing
Right that would have been payable to the Corporation absent such decrease. The
provisions of this Section 10.7(d) are in addition to (and not exclusive of) any
other rights or remedies of such holders in the event that any such amendment,
modification or departure occurs without any required approval of the holders of
Series B Shares.
10.8 Other Provisions Applicable to Adjustments. The following
provisions shall be applicable to the making of adjustments provided for in this
Section 10:
(a) Computation of Consideration.
Subject to Section 10.8(e) and the last sentence of this Section
10.8(a):
(i) To the extent that any Additional Shares of Common Stock, any
Convertible Securities or any Rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued or deemed
to be issued for cash consideration, the consideration received or deemed to be
received by the Corporation therefor shall be the net amount of the cash
received or deemed to be received by the Corporation therefor (in any such case
subtracting any amounts received in respect of accrued interest, accrued
dividends or other similar amounts which the Corporation may be obligated to pay
to the holders thereof in the future and any compensation, discounts or expenses
paid or incurred by the Corporation in connection with the issuance thereof).
(ii) To the extent that such issuance or deemed issuance shall be
for a consideration other than cash, then, except as herein otherwise expressly
provided, the amount of such consideration shall be deemed to be the Fair Market
Value of such consideration at the time of such issuance or deemed issuance as
determined in good faith by the Board.
(iii) In case any Additional Shares of Common Stock, any
Convertible Securities or any Rights to subscribe for, purchase or otherwise
acquire Additional Shares of Common Stock or Convertible Securities shall be
issued or deemed to be issued in connection with any merger, consolidation,
share exchange or similar transaction, the amount of consideration therefor
shall be deemed to be the Fair Market Value, as determined in good faith by the
Board, of such portion of the assets and business of the nonsurviving
corporation as the Board in good faith shall determine
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to be attributable to such Additional Shares of Common Stock, Convertible
Securities, or Rights, as the case may be.
(iv) In case any Additional Shares of Common Stock, any
Convertible Securities or any Rights to subscribe for, purchase or otherwise
acquire Additional Shares of Common Stock or Convertible Securities are issued
or deemed to be issued in combination with each other or with any other
securities or property in connection with any transaction in which the
Corporation receives cash, securities, property or other consideration, or any
combination of the foregoing, then the amount of consideration therefor shall be
deemed to be such portion of the cash, securities, property and other
consideration received by the Corporation as the Board in good faith shall
determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities or Rights, as the case may be, with any noncash
consideration being valued at its Fair Market Value as determined by the Board
in good faith. The consideration for any Additional Shares of Common Stock
issuable or deemed to be issuable pursuant to any Rights to subscribe for,
purchase or otherwise acquire the same shall be the consideration received or
deemed to be received by the Corporation for issuing such Rights plus the
minimum additional consideration, if any, paid or payable to the Corporation
upon the exercise or deemed exercise of such Rights.
(v) The consideration for any Additional Shares of Common Stock
issued or issuable pursuant to the terms of any Convertible Securities covered
by any Rights to subscribe for, purchase or otherwise acquire such Convertible
Securities shall be the consideration received or deemed to be received by the
Corporation for issuing such Rights, plus the minimum additional consideration,
if any, paid or payable to the Corporation in respect of the subscription for,
purchase or other acquisition of such Convertible Securities, plus the minimum
additional consideration, if any, paid or payable to the Corporation upon the
exercise or deemed exercise of the right of conversion or exchange in such
Convertible Securities.
(vi) The consideration for any Additional Shares of Common Stock
issuable or deemed to be issuable pursuant to the terms of any Convertible
Securities, other than any covered by any Rights to subscribe for, purchase or
acquire the same, shall be the consideration received or deemed to be received
by the Corporation for issuing such Convertible Securities plus the minimum
additional consideration, if any, paid or payable to the Corporation upon the
exercise of the right of conversion or exchange in such Convertible Securities.
(vii) For all purposes of this Section 10, all Rights or
Convertible Securities issued or deemed to be issued to directors, officers,
employees or consultants of the Corporation or any Subsidiary shall be deemed to
be issued for no consideration except to the extent the Corporation receives in
exchange for the issuance thereof consideration other than services rendered or
to be rendered.
(b) When Adjustments to Be Made. The adjustments required by this
Section 10 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock into which a Series B Share
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is convertible that would otherwise be required may be postponed (except in the
case of a subdivision or combination of shares of the Common Stock) up to, but
not beyond the date of conversion if such adjustment either by itself or with
other adjustments not previously made adds or subtracts less than 1% of the
shares of Common Stock into which a Series B Share is convertible immediately
prior to the making of such adjustment. Any adjustment representing a change of
less than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 10 and not previously made by virtue of
this Section 10.8(b), would result in a minimum adjustment or on the date of
conversion or, if earlier, upon conversion. For the purpose of any adjustment,
any specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 10, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share.
(d) Delivery of Due Bills. If, after the taking of any record of
the holders of any class or series of capital stock of the Corporation for the
purpose of entitling them to receive a dividend or distribution for or in
connection with any other event which an adjustment pursuant to this Section 10
is required, but prior to the occurrence of the event for which such record is
taken, any Series B Share is converted, the Corporation shall deliver to the
converting Holder a due bill or other appropriate instrument evidencing such
Holder's right to receive the additional shares of Common Stock, other
securities, cash and other property receivable upon conversion by reason of an
adjustment pursuant to this Section 10 that would have been required by reason
of such dividend, distribution or other event if the Series B Shares had
continued to be outstanding immediately after the occurrence of the event
requiring such adjustment.
(e) Certain Determinations. Any determination of the Current
Market Price of any share of Common Stock or the Fair Market Value of any other
security, asset, property or consideration which may be required to be made by
the Board pursuant to or in connection with the application of any provision of
these Articles may be disputed in good faith by the Holders and any such dispute
shall be resolved by an independent investment banking firm of recognized
national standing jointly selected by the Holders and the Corporation (and whose
fees and expenses shall be paid by the Corporation), whose decision with respect
to such dispute shall be final and conclusive and binding on the Corporation and
all holders of Series B Shares. Any determination by the Board pursuant to
Section 10.9(b) or Section 10.16 may be disputed in good faith by the Holders,
and any such dispute shall be resolved in accordance with Section 10.15.
(f) Other Action Affecting Common Stock. In case at any time or
from time to time the Corporation shall take any action in respect of its Common
Stock which is not one described in any other provision of Section 10 as
requiring an adjustment, then, unless such action will not have an adverse
effect upon the rights and intended benefits of the holders of Series B Shares,
the number of shares of Common Stock and the kind and amount of other securities
and property into which
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each Series B Share is convertible shall be increased in such manner as may be
equitable in the circumstances.
10.9 Multiple Classes of Common Stock.
(a) Election Right. If, at any time while any Series B Shares are
outstanding, the Corporation's authorized capital stock shall include two or
more classes or series of Common Stock, then each Holder shall have the right,
upon each conversion of any of such Holder's Series B Share(s), to elect to
receive such number of shares of each such class or series as such Holder
desires, provided that the total number of shares of all classes and series
selected by such Holder shall not exceed the aggregate number of shares of
Common Stock issuable upon conversion of such Series B Share(s).
(b) Adjustment Rights Apply. If, as a result of any adjustment
made pursuant to Section 10, by virtue of the existence of Section 10.9(a), as a
result of any event referred to in Section 10.16, or otherwise, the Holder of a
Series B Share would, upon conversion thereof, become the holder of more than
one class or series of capital stock of the Corporation, then the Conversion
Rate and the Conversion Price shall be subject to adjustment in respect of each
such class and series of capital stock in a manner and on terms as nearly as
equivalent as practicable to all the provisions set forth in this Section 10,
which manner and terms shall be determined by the Board promptly after each such
adjustment, each such action by the Corporation and each other event which has
or might have such result. Promptly after the Board makes any such
determination, the Corporation shall deliver to each Holder a written notice
which shall describe in reasonable detail the manner and terms so determined.
10.10 Notices to Holders.
(a) Notice of Adjustments. Whenever the Conversion Price or the
Conversion Rate shall be adjusted pursuant to Section 10, the Corporation at its
expense shall forthwith prepare a certificate to be executed by the chief
financial officer of the Corporation setting forth, in reasonable detail, the
event requiring the adjustment, the nature and amount of such adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination required by any provision of
Section 10), the date as of which such adjustment was or will be effective as
provided herein, the Conversion Price and the Conversion Rate immediately prior
to such event and the Conversion Price and the Conversion Rate immediately after
such adjustment and all other relevant information. The Corporation shall
promptly cause to be delivered to each Holder a signed copy of such certificate.
The Corporation shall, upon the written request at any time of any Holder,
furnish or cause to be furnished to such Holder a like certificate setting forth
the Conversion Price and the Conversion Rate at the time in effect and showing
how such Conversion Price and Conversion Rate were calculated.
(b) Notice of Corporate Action. If at any time:
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(i) the Corporation shall take a record of the holders of
any class, series or issue of its capital stock or other securities for the
purpose of entitling them to receive a dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any evidences of its
indebtedness, any shares of capital stock of any class or series, any cash or
any other securities or property, or to receive any other right, interest or
benefit, or
(ii) there shall be any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation or any consolidation or merger or binding share exchange of the
Corporation with, or any sale, transfer or other disposition of all or
substantially all the property, assets or business of the Corporation to,
another Person or any other event referred to in Section 10.16 or within the
definition of the term "Sale of the Company" shall occur or be proposed, or
(iii) there shall be any tender offer or exchange offer for
Conversion Securities of any class, series or issue, or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation,
then the Corporation shall (x) give to each Holder at least 20 days' prior
written notice of the date on which a record date shall be fixed for such
dividend, distribution or right or for determining rights to vote in respect of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, (y) promptly
after learning of any such tender or exchange offer, deliver to each Holder
notice thereof, a copy of all written offering material which the Corporation
possesses or reasonably can obtain or if no such materials exist or are
possessed or can reasonably be obtained by the Corporation, a written summary of
all material terms and conditions of and other material facts relating thereto
known to the Corporation and (z) give each Holder at least 20 days' prior
written notice of the scheduled, planned or anticipated date when any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation, winding up or other event shall take
place. Such notice in accordance with clause (x) of the immediately preceding
sentence also shall specify (i) the date on which any such record is to be taken
for the purpose of the event covered by the notice or any related event, and
(ii) the date on which such event or related event is to take place and, if
applicable, the time, if any such time is to be fixed, as of which the holders
of Common Stock shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable as a result of such event or
related event.
(c) Notices To Stockholders. In addition to the foregoing, each
Holder shall be given the same notices of corporate action or proposed corporate
action as any holder of Common Stock.
10.11 No Impairment. The Corporation shall not by or through
amending its Articles of Incorporation, any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid
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the observance or performance of any of the terms of these Articles, but will at
all times in good faith carry out and assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or appropriate
to protect the rights and intended benefits of the holders of the Series B
Shares against impairment. Without limiting the generality of the foregoing, the
Corporation (i) will not directly or indirectly increase the par value of any
shares of Common Stock or other capital stock receivable upon the conversion of
any Series B Share above the Conversion Price immediately prior to such increase
in par value, (ii) will not take any action that results in any adjustment to
the Conversion Rate or Conversion Price pursuant to Section 10 if after such
adjustment the total number of shares of Common Stock or shares of any other
class or series of Conversion Stock issuable upon the conversion of all of the
outstanding Series B Shares would exceed the total number of shares of Common
Stock or such other Conversion Stock, respectively, then authorized by the
Corporation's Articles of Incorporation and available and reserved for the
purpose of issuance upon such conversion, (iii) will not enter into any
transaction or take any action which, by reason of any resulting adjustment
hereunder, would cause the Conversion Price to be less than the par value per
share of Common Stock and (iv) will take all such action as may be necessary or
appropriate in order that the Corporation may validly and legally issue shares
of each class and series of Conversion Stock and other Conversion Securities
upon the conversion of any Series B Share which in each case are fully paid,
non-assessable and without personal liability attaching to the ownership thereof
and not subject to preemptive and similar purchase rights. Upon the request of
any Holder, at any time, the Corporation will acknowledge in writing, in form
satisfactory to such Holder, the continuing validity of each certificate for any
Series B Share(s) then held by such Holder and the obligations of the
Corporation with respect thereto and thereunder.
10.12 Taking of Record; Stock Transfer Books. In the case of all
dividends or other distributions by the Corporation to the holders of its Common
Stock with respect to which any provision of Section 10 refers to the taking of
a record of such holders, in each such case the Corporation will not declare,
pay or make any such dividend or distribution unless it shall take such a record
and the Corporation shall take each such record as of the close of business on a
Business Day. The Corporation shall not be required to convert any shares of
Series B Preferred Stock, and no surrender of Series B Preferred Stock shall be
effective for that purpose, while the stock transfer books of the Corporation
are closed for any proper purpose; but the surrender of Series B Preferred Stock
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if the
conversion had been made on the date such Series B Preferred Stock was
surrendered for conversion. The Corporation will not at any time voluntarily
close its stock transfer books so as to result in preventing or delaying the
conversion or transfer of any Series B Share.
10.13 Each Holder May Enforce Rights. Notwithstanding any of the
provisions hereof, any Holder, without the consent of any other Holder, or any
holder of any Conversion Securities may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Corporation suitable to enforce, or otherwise in respect of, his
rights with respect to his Series B Shares or Conversion Securities.
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10.14 Office of the Corporation. As long as any of the Series B
Shares are outstanding, the Corporation shall maintain one or more offices or
agencies where the Series B Shares may be presented for conversion and Series B
Shares and Conversion Securities may be presented for registration of transfer,
division or combination. Series B Shares and Conversion Securities may, in any
event, be presented for such purposes at the principal executive offices of the
Corporation in the United States.
10.15 Resolution of Certain Disputes.
(a) Consultation. If there shall arise any dispute between the
Corporation and the Majority Holders concerning the interpretation, application
or operation of the adjustment provisions of Section 10 (other than any such
dispute referred to in the first sentence of Section 10.8(e), which shall be
resolved as stated therein), the Corporation and the Majority Holders will
promptly attempt to settle such dispute through consultation and negotiation in
good faith and in a spirit of mutual cooperation. If agreement is reached
concerning the resolution of such dispute, then such agreement shall be final,
conclusive and binding on the Corporation and all holders of Series B Shares.
(b) Arbitration. If, on or before the thirtieth day after written
notice of such dispute is given by the Corporation to the holders of the Series
B Shares or the Majority Holders to the Corporation, such dispute has not been
resolved by the agreement of the Corporation and the Majority Holders, such
dispute shall be settled by an expedited arbitration proceeding conducted in
accordance with the then current Commercial Arbitration rules of the American
Arbitration Association in New York, New York by a single arbitrator who
satisfies the requirements of Section 10.15(e) and who is mutually acceptable to
the Corporation and the Majority Holders or, in the event such Persons fail to
agree upon such arbitrator within ten Business Days after such written notice of
dispute is given, an arbitrator who satisfies such requirements appointed by the
American Arbitration Association upon application of either the Corporation or
the Majority Holders. Neither the Corporation nor the Majority Holders shall
unreasonably withhold its approval of the selection of an arbitrator satisfying
the requirements of Section 10.15(e).
(c) Certain Provisions Applicable to Arbitration. The Corporation
and the Majority Holders shall provide such arbitrator with such information as
may be reasonably requested in connection with the arbitration of such dispute
and shall otherwise cooperate with each other and such arbitrator in good faith
and with the goal of resolving such dispute as promptly as reasonably
practicable. The arbitrator shall not have authority to award damages, but
shall have only the authority to determine disputes regarding the matters set
forth in the first sentence of Section 10.15(a). Subject to the immediately
preceding sentence and to Section 10.15(f), the arbitrator's decision based on
written conclusions of law and fact with respect to the dispute referred to such
arbitration shall be final and binding and may be entered in any court with
jurisdiction, and the Corporation and the holders of the Series B Shares shall
abide by such decision. Each party shall bear its own costs and expenses,
including attorney's fees, incurred in connection with any arbitration
proceeding, except that the Corporation and the holders of the Series B Shares
(as a
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group) each shall pay one-half of all fees, costs and disbursements of the
arbitrator and of or charged by the American Arbitration Association.
(d) Other Remedies. The provisions of this Section 10.15 shall not
in any way limit or otherwise affect (i) the right of any Holder to seek, with
regard to the matter in dispute, specific performance or other injunctive relief
in any court of competent jurisdiction or (ii) the rights or remedies of any
Holder with respect to any claim, controversy or dispute not submitted to and
decided by an arbitrator pursuant to this Section 10.15.
(e) Arbitrators. Each arbitrator appointed pursuant to Section
10.15(a) shall be an attorney who practices law in New York City, who has
substantial experience in sophisticated corporate and securities transactions
generally and in negotiating and drafting "antidilution" provisions of warrants
and convertible securities in particular and who has not, and who is not a
member or employee of any firm which has, rendered legal services to any of the
parties to the dispute or any of their respective Affiliates within the
preceding two years and who has no interest (other than the receipt of customary
fees for his services as an arbitrator) in the matter in dispute.
(f) Other Rights Unaffected. Nothing contained in this Section
10.15 or any other provision hereof is intended to or shall preclude any holder
of any Series B Share or Conversion Securities from exercising or pursuing or
otherwise limiting or affecting the rights or remedies which such holder may
have pursuant to the Purchase Agreement, at law, in equity or otherwise by
reason of any matter which is the subject of or basis for any dispute referred
to in Section 10.15(a) (or any other matter), and the dispute resolution
mechanisms provided for in this Section 10.15 are intended solely as a means of
resolving bona fide disputes concerning the interpretation, application or
operation of the adjustment provisions of Section 10 (other than any such
dispute referred to in the first sentence of Section 10.8(e), which shall be
resolved as stated therein) or bona fide disputes which the last sentence of
Section 10.8(e) provides will be resolved pursuant to this Section 10.15, and
not for the purpose of determining the rights of holders of Series B Shares or
Conversion Securities or the liabilities or obligations of the Corporation, for
the purpose of resolving or settling any claim by any such holder of any breach
or inaccuracy of any representation or warranty of, or any breach or failure to
perform any covenant, agreement or obligation, of the Corporation contained
herein or in the Purchase Agreement or any other Transaction Document (as
defined in the Purchase Agreement) or any other purpose. Without limiting the
generality of the immediately preceding sentence, no decision of any arbitrator
appointed pursuant to this Section 10.15 shall have or be given any res judicata
or similar effect in any action, suit or proceeding in which any claim by any
holder of any Series B Share or Conversion Securities of any breach or
inaccuracy of any representation or warranty of, or any breach or failure to
perform any covenant, agreement or obligation, of the Corporation contained
herein or in the Purchase Agreement or any other agreement or instrument is to
be adjudicated.
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10.16 Reclassification, Consolidation, Merger or Sale, Conveyance
or Lease or Assets.
(a) Adjustments. Unless, as a result of such event, the Series B
Shares are redeemed in accordance with Section 6.2 by reason of the election of
the Majority Holders in accordance with such Section, if any of the following
shall occur while any Series B Shares are outstanding:
(i) any consolidation, merger, binding share exchange or
reorganization to which the Corporation is party (other than a consolidation,
merger, share exchange or reorganization in which the Corporation is the
continuing corporation and which does not result in any reclassification of or
change in the outstanding shares of Conversion Securities of any class or series
issuable upon conversion of the Series B Preferred Stock); or
(ii) any sale, conveyance, transfer or lease to another
Entity of the properties and assets of the Corporation as an entirety or
substantially as an entirety,
then the Corporation or the successor or acquiring Entity, as the case may be,
shall thereupon make appropriate provision, reasonably satisfactory to the
Majority Holders, so that the holders of the Series B Shares then outstanding
shall have the right at any time thereafter, upon conversion of the Series B
Shares, to receive the kind and amount of shares of common stock of such
successor or acquiring Entity, other capital stock or equity interests, other
securities and property receivable or purchasable (as the case may be) upon such
reclassification, change, consolidation, merger, sale, conveyance, transfer or
lease as would be received by a holder of the number of shares of Common Stock,
the number of shares of each other class or series of Conversion Stock and the
kind and amount of all other Conversion Securities issuable upon conversion of
such Series B Shares immediately prior to such consolidation, merger, sale,
conveyance, transfer or lease (after giving effect to all adjustments required
by this Section 10). If the holders of the Common Stock, any other shares of
Conversion Stock or any other Conversion Securities of any class or series have
rights of election as to the kind or amount of capital stock or other equity
interests, other securities or other property receivable upon consummation of
any such transaction, then the same right of election shall be given to the
holders of the Series B Preferred Stock. For purposes of this Section 10.16,
"common stock of the successor or acquiring Entity" shall include capital stock
(or other equity interests if such Entity is not a corporation) of such Entity
of any class which is not preferred as to dividends or assets on liquidation
over any other class or series of stock of such corporation (or other equity
interests of a non-corporate Entity) and which is not subject to redemption and
shall also include any evidences of indebtedness, shares of capital stock,
equity interests or other securities which are convertible into or exchangeable
for any such capital stock (or other equity interests), either immediately or
upon the arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such capital stock
(or other equity interests).
(b) Express Assumption by Successor or Acquiring Corporation. In
case of any such merger, consolidation, share exchange, reorganization, or
disposition of assets, the successor or
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acquiring corporation shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of these Articles to be
performed and observed by the Corporation and all the obligations and
liabilities thereunder or otherwise with respect thereto, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board) in order to provide for adjustments of shares of the capital stock, other
securities or other property into which Series B Shares are convertible which
shall be as nearly equivalent as practicable to the adjustments provided for in
Section 10. Promptly after the Board makes any such determination, the
Corporation shall deliver to each Holder a written notice which shall describe
in reasonable detail the manner and terms so determined.
(c) Provisions Apply Successively. The foregoing provisions of
this Section 10.16 shall similarly apply to successive reorganizations, mergers,
consolidations or disposition of assets.
Section 11. Voting Rights. (a) The Series B Shares shall not carry voting
rights except as provided in these Articles and except for any voting rights to
which the holders thereof may be or become entitled under the Business
Corporation Act of the State of Colorado as in effect from time to time (or any
successor statutory provisions) or other applicable law. The foregoing shall
not prevent the Corporation from granting, by contract or otherwise, to any
holder or holders of any Series B Shares any consent or approval, veto or
similar rights of any nature whatsoever. So long as any shares of the Series B
Preferred Stock are outstanding, each share of Series B Preferred Stock shall
entitle the holder thereof to vote on all matters voted on by holders of Common
Stock, and the shares of Series B Preferred Stock shall vote together with
shares of Common Stock as a single class on such matter. With respect to any
such vote, each share of Series B Preferred Stock shall entitle its holder to a
number of votes equal to the number of shares of Common Stock into which such
share of Series B Preferred Stock is convertible at the time of the record date
with respect to such vote (assuming all conditions precedent to such conversion
have been satisfied and that such conversion had occurred as of the record date
for such vote).
(b) If on any date (i) the Corporation shall have failed to satisfy
its obligation to redeem shares of Series B Preferred Stock pursuant to the
terms of these Articles or (ii) any default or event of default has occurred and
is continuing under any Indebtedness of the Corporation or any of its
Subsidiaries, the outstanding principal amount of which is in excess of
$5,000,000, and as a result of such default or event of default the holders
thereof have accelerated the maturity thereof, and such default, event of
default or event is not cured or waived within 30 days after the Majority
Holders shall have furnished to the Corporation notice of their intention to
exercise the rights set forth in this Section 11(b), then the number of members
constituting the Board shall be increased (as provided in the resolution adopted
by the Board on April 17, 2000) so as to enable the holders of the Series B
Preferred Stock to designate a majority of the Board of Directors (including the
Series B Directors), and the Holders, voting together as a separate class, shall
have, in addition to the other voting rights set forth herein, the exclusive
right to elect that number of directors (such additional directors, the
"Majority Directors") of the Corporation necessary to fill such newly-created
directorships. Such additional voting right shall continue until such time as
such failure, default, event of default or event is cured, at which time such
additional voting rights of the Series B Preferred
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Stock shall terminate subject to revesting in the event of each and every
subsequent event of the character indicated above.
(c) The foregoing rights of holders of shares of Series B Preferred
Stock to take any action as provided in this Section 11 may be exercised at any
annual meeting of stockholders or at a special meeting of stockholders held for
such purpose as hereinafter provided or at any adjournment thereof, or by the
written consent, delivered to the Secretary of the Corporation, of the holders
of the minimum number of shares required to take such action. So long as such
right to vote continues (and unless such right has been exercised by written
consent of the minimum number of shares required to take such action), the
Chairman of the Board may call, and upon the written request of holders of
record of 10% of the outstanding shares of Series B Preferred Stock, addressed
to the Secretary of the Corporation at the principal office of the Corporation,
shall call, a special meeting of the holders of shares entitled to vote as
provided herein. Such meeting shall be held as soon as reasonably practicable
after delivery of such request to the Secretary, at the place and upon the
notice provided by law and in the By-laws for the holding of meetings of
stockholders.
(d) Each director elected pursuant to subsection (b) hereof shall
serve until the next annual meeting or until his or her successor shall be
elected and shall qualify. In case any vacancy shall occur among the directors
elected pursuant to subsection (b) hereof, such vacancy shall be filled for the
unexpired portion of the term by vote of the remaining director or directors
theretofore elected pursuant to the same subsection (or such director's or
directors' successor in office), if any. If any such vacancy is not so filled
within 20 days after the creation thereof or if all of the directors so elected
shall cease to serve as directors before their term shall expire, the holders of
the shares of Series B Preferred Stock then outstanding and entitled to vote for
such director pursuant to the provisions of subsection (b) hereof, as the case
may be, may elect successors to hold office for the unexpired terms of any
vacant directorships, by written consent as provided herein, or at a special
meeting of such holders called as provided herein. The holders of a majority of
the shares entitled to vote for directors pursuant to subsection (b) hereof, as
the case may be, shall have the right to remove with or without cause at any
time and replace any directors such holders have elected pursuant to such
section, by written consent as herein provided, or at a special meeting of such
holders called as provided herein.
(e) For so long as TPG is the Beneficial Owner of at least forty
percent (40%) of the Originally Issued Shares, without the consent of the
Majority Holders:
(i) the Corporation shall not amend, alter, repeal or waive
(whether by amendment, merger, consolidation or otherwise) any of the provisions
of its Amended and Restated Articles of Incorporation, these Series B Articles
of Amendment or its By-laws, or any resolution of the Board or any other
instrument establishing and designating any capital stock of the Corporation and
determining the relative rights, privileges, powers or preferences thereof;
(ii) the Corporation shall not, and shall cause each
Subsidiary not to, (A) authorize, create or designate any new class or series of
capital stock, or (B) issue or sell any
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shares of capital stock or derivative securities, except as already authorized,
or (C) combine, subdivide or recapitalize the Series B Preferred Stock;
(iii) the Corporation shall not, and shall cause each
Subsidiary not to, engage or participate in, or agree to engage or participate
in, a Sale of the Company, except in the event that such Sale of the Company
would result in proceeds in respect of the Series B Preferred Stock of at least
the greater of (A) two times the Liquidation Price, and (B) a thirty percent
(30%) Rate of Return on the per share purchase price of $1,000 for each Series B
Share paid pursuant to the Purchase Agreement, calculated from the Closing Date
to the date of such transaction, in which case the consent of the Majority
Holders to such Sale of the Company shall not be required;
(iv) appoint or terminate the Chief Executive Officer or any
other member of senior management of the Company; or
(v) alter the number of directors comprising the Board
(other than pursuant to the resolutions of the Board adopted on April 17, 2000).
(f) The Corporation shall not enter into any agreement, amend or
modify any existing agreement or obligation or issue any security that
prohibits, conflicts or is inconsistent with, or would be breached by, the
Corporation's performance of its obligations hereunder.
(g) Solely for the purposes of this Section 11, the consent of the
Majority Holders shall be deemed to have been given with respect to any matter
if the Series B Directors shall have unanimously consented thereto.
Section 12. Headings. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
Section 13. Terms Generally. References herein to "these Articles" are to the
Series B Articles of Amendment as the same may be amended from time to time in
accordance with Section 19. The definitions of terms contained herein shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
The words "herein", "hereof" and "hereunder" and words of similar import refer
to these Articles in its entirety and not to any part hereof, unless the context
shall otherwise require. All references herein to Sections shall be deemed
references to Sections of these Articles, unless the context shall otherwise
require. Unless the context shall otherwise require, any references to any
agreement or other instrument or to any statute or regulation or any specific
section or other provision thereof are to it as amended and supplemented from
time to time (and, in the case of a statute or regulation or specific section or
other provision thereof, to any successor to such statute, regulation, section
or other provision). Unless otherwise expressly provided herein or unless the
context shall otherwise require, any provision of this Agreement using a defined
term (such as "Subsidiary" or "Wholly Owned Subsidiary") which
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is based on a specified relationship between one Person and one or more other
Persons shall, as of any time, refer to such Persons who have the specified
relationship as of that particular time. Any reference in this Agreement to a
"day" or number of "days" (without the explicit qualification of "Business")
shall be interpreted as a reference to a calendar day or number of calendar
days. Unless the context clearly indicates otherwise, "or" shall not be
exclusive and means "and/or." When used with reference to any Right or
Convertible Security, the term "exercise" means to exercise the right to
subscribe for, purchase or otherwise acquire shares of Common Stock represented
by such Right or the right to exchange or convert such Convertible Security for
or into shares of Common Stock represented by such Convertible Security, and
variants of such word (including "exercised" and "exercisable") shall have
correlative meanings. Whenever used with respect to any Additional Share of
Common Stock or any other share of Common Stock, the word "issue" includes any
issuance, sale or other method of transfer or delivery of such share, whether
such share is newly issued or is a treasury share and variants of such word
(including "issued", "issuance" or "issuable") used with respect to any
Additional Share of Common Stock or any other share of Common Stock shall have
correlative meanings; therefore, any provision of these Articles which is stated
to be applicable if the Corporation issues or shall issue any share is
applicable both to a newly issued share and to a treasury share sold or
otherwise transferred or delivered. The word "property" shall include assets or
property of any kind, real, personal, tangible or intangible.
Section 14. Actions on Non-Business Days. If any action or notice is to be
taken or given on or by a particular calendar day, and such calendar day is not
a Business Day, then such action or notice shall be deferred until, and may be
taken or given on, the next Business Day.
Section 15. Severability. If any provision of these Articles shall be illegal,
invalid or unenforceable by reason of any rule of law or public policy, that
provision will be enforced to the maximum extent permissible so as to effect the
intent thereof and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. In any such
case, if requested by the Majority Holders, the Corporation will negotiate in
good faith to amend these Articles to replace the illegal, invalid or
unenforceable language with legal, valid and enforceable language which as
closely as possible reflects such intent.
Section 16. Waivers. Any provision of these Articles that prohibits, limits or
restricts actions by the Corporation, or imposes obligations on the Corporation,
may be waived in whole or in part, or the application of all or any part of such
provision in any particular circumstance or generally may be waived, in each
case with the consent of the Majority Holders, either in writing or by vote at a
meeting called for such purpose at which the holders of Series B Preferred Stock
shall vote as a separate class, unless a greater vote or consent is required
under Colorado law, in which event such greater vote or consent requirement
shall apply.
Section 17. Defects in Notices. No failure on the part of the Corporation to
give any notice required by any provision of these Articles, nor any delay or
defect in any such notice which is given or in the giving thereof, shall
adversely affect the rights which the holders of the Series B Preferred Stock
would have if such notice had been duly given on a timely basis, and such
holders shall be
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entitled to exercise such rights from and at any time after they acquire actual
knowledge of the matters required to be set forth in such notice.
Section 18. Specific Performance; Injunctive Relief. In addition to any other
rights or remedies which may be available at law, in equity or by contract, any
holder from time to time of shares of Series B Preferred Stock shall be entitled
to obtain in any court of competent jurisdiction specific performance of, or an
injunction or other order restraining any act or proposed act by the Corporation
which would result in a violation of, any of the terms or provisions of these
Articles.
Section 19. Amendment. The Series B Articles of Amendment may be amended from
time to time by the Board with the affirmative vote at a meeting duly called and
held or written consent of the Majority Holders, unless a greater vote or
consent is required under Colorado law, in which event such greater vote or
consent requirement shall apply. Unless otherwise required by mandatory
provisions of applicable law, no vote or consent of the holders of any other
class or series of the Corporation's stock shall be necessary.
Section 20. Decisions by Holders Generally. Unless otherwise expressly
provided herein, all decisions and determinations required or permitted to be
made hereunder by the holders collectively or as a class (including any decision
as to whether to give any consent or approval) shall be made by the Majority
Holders. To the maximum extent permitted by law, each Person who is or shall
become a holder of any Series B Share waives all fiduciary duties to such
Person, if any, that the Majority Holders or any other holder otherwise would or
might have in its or their capacities as such.
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Dated: April 17, 2000
CONVERGENT COMMUNICATIONS, INC.
By: /s/ Joseph R. Zell
_________________________________________
Name: Joseph R. Zell
Title: President and Chief Executive Officer
By: /s/ Martin E. Freidel
_________________________________________
Name: Martin E. Freidel
Title: Secretary
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Exhibit 3.6
AMENDED AND RESTATED BYLAWS
OF
CONVERGENT COMMUNICATIONS, INC.
ARTICLE I
1. Offices.
1.1 The principal office of the corporation shall be designated from
time to time by the corporation and may be within or outside of Colorado.
1.2 The corporation may have such other offices, either within or
outside Colorado, as the board of directors may designate or as the business of
the corporation may require from time to time.
1.3 The registered office of the corporation required by the Colorado
Business Corporation Act to be maintained in Colorado may be, but need not be,
identical with the principal office, and the address of the registered office
may be changed from time to time by the board of directors.
ARTICLE II
Shareholders
1. Annual Meeting.
1.1 The annual meeting of the shareholders shall be held during the
first or second fiscal quarters of the corporation of each year on a date and at
a time fixed by the board of directors of the corporation (or by the president
in the absence of action by the board of directors), beginning with the year
1997, for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the election of directors is
not held on the day fixed as provided herein for any annual meeting of the
shareholders, or any adjournment thereof, the board of directors shall cause the
election to be held at a special meeting of the shareholders as soon thereafter
as it may conveniently be held.
<PAGE>
1.2 A shareholder may apply to the district court in the county in
Colorado where the corporation's principal office is located or, if the
corporation has no principal office in Colorado, to the district court of the
county in which the corporation's registered office is located to seek an order
that a shareholder meeting be held (i) if an annual meeting was not held within
six months after the close of the corporation's most recently ended fiscal year
or fifteen months after its last annual meeting, whichever is earlier, or (ii)
if the shareholder participated in a proper call of or proper demand for a
special meeting and notice of the special meeting was not given within thirty
days after the date of the call or the date the last of the demands necessary to
require calling of the meeting was received by the corporation pursuant to
Section 7-107-102(1)(b) of the Colorado Business Corporation Act, or the special
meeting was not held in accordance with the notice.
2. Special Meetings. Unless otherwise prescribed by statute, special
meetings of the shareholders may be called for any purpose by the chairman of
the board, the chief executive officer, the president, the secretary or by the
board of directors. The president or secretary shall call a special meeting of
the shareholders if the corporation receives one or more written demands for the
meeting, stating the purpose or purposes for which it is to be held, signed and
dated by holders of shares representing at least ten percent of all the votes
entitled to be cast on any issue proposed to be considered at the meeting. In
addition, special meetings of preferred shareholders shall be held at such time
and in such manner as may be proscribed in the terms of such preferred shares.
3. Place of Meeting. The board of directors may designate any place,
either within or outside Colorado, as the place for any annual meeting or any
special meeting called by the board of directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or outside Colorado, as the place for such meeting. If no designation is
made, or if a special meeting is called other than by the board, the place of
meeting shall be the principal office of the corporation.
4 Notice of Meeting.
4.1 Written notice stating the place, date, and hour of the meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting, except that (i) if the number of authorized shares is to be increased,
at least thirty days' notice shall be given, or (ii) any other longer notice
period is required by the Colorado Business Corporation Act. Notice of a
special meeting shall include a description of the purpose or purposes of the
meeting. Notice of an annual meeting need not include a description of the
purpose or purposes of the meeting except the purpose or purposes shall be
stated with respect to (i) an amendment to the articles of incorporation of the
corporation, (ii) a merger or share exchange in which the corporation is a party
and, with respect to a share exchange, in which the corporation's shares will be
acquired, (iii) a sale, lease, exchange or other disposition, other than in the
usual and regular course of business, of all or substantially all of the
property of the corporation or of another entity which this corporation
controls, in each case with or without the goodwill, (iv) a dissolution of the
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corporation, or (v) any other purpose for which a statement of purpose is
required by the Colorado Business Corporation Act. Notice shall be given
personally or by mail, private carrier, telegraph, teletype, electronically
transmitted facsimile or other form of wire or wireless communication by or at
the direction of the president, the secretary, or the officer or persons calling
the meeting, to each shareholder of record entitled to vote at such meeting. If
mailed and if in a comprehensible form, such notice shall be deemed to be given
and effective when deposited in the United States mail, addressed to the
shareholder at his address as it appears in the corporation's current record of
shareholders, with postage prepaid. If notice is given other than by mail, and
provided that such notice is in a comprehensible form, the notice is given and
effective on the date received by the shareholder.
4.2 If requested by the person or persons lawfully calling such
meeting, the secretary shall give notice thereof at the corporation's expense.
No notice need be sent to any shareholder if three successive notices mailed to
the last known address of such shareholder have been returned as undeliverable
until such time as another address for such shareholder is made known to the
corporation by such shareholder. In order to be entitled to receive notice of
any meeting, a shareholder shall advise the corporation in writing of any change
in such shareholder's mailing address as shown on the corporation's books and
records.
4.3 When a meeting is adjourned to another date, time or place,
notice need not be given of the new date, time or place if the new date, time or
place of such meeting is announced before adjournment at the meeting at which
the adjournment is taken. At the adjourned meeting the corporation may transact
any business which may have been transacted at the original meeting. If the
adjournment is for more than 120 days, or if a new record date is fixed for the
adjourned meeting, a new notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting as of the new record date.
4.4 A shareholder may waive notice of a meeting before or after the
time and date of the meeting by a writing signed by such shareholder. Such
waiver shall be delivered to the corporation for filing with the corporate
records. Further, by attending a meeting either in person or by proxy, a
shareholder waives objection to lack of notice or defective notice of the
meeting unless the shareholder objects at the beginning of the meeting to the
holding of the meeting or the transaction of business at the meeting because of
lack of notice or defective notice. By attending the meeting, the shareholder
also waives any objection to consideration at the meeting of a particular matter
not within the purpose or purposes described in the meeting notice unless the
shareholder objects to considering the matter when it is presented.
5. Fixing of Record Date.
5.1 For the purpose of determining shareholders entitled to (i)
notice of or vote at any meeting of shareholders or any adjournment thereof,
(ii) receive distributions or share dividends, or (iii) demand a special
meeting, or to make a determination of shareholders for any other proper
purpose, the board of directors may fix a future date as the record date for any
such
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determination of shareholders, such date in any case to be not more than
seventy days, and, in case of a meeting of shareholders, not less than ten days,
prior to the date on which the particular action requiring such determination of
shareholders is to be taken. If no record date is fixed by the directors, the
record date shall be the date on which notice of the meeting is mailed to
shareholders, or the date on which the resolution of the board of directors
providing for a distribution is adopted, as the case may be. When a
determination of shareholders entitled to vote at any meeting of shareholders is
made as provided in this Section, such determination shall apply to any
adjournment thereof unless the board of directors fixes a new record date, which
it must do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting.
5.2 Notwithstanding the above, the record date for determining the
shareholders entitled to take action without a meeting or entitled to be given
notice of action so taken shall be the date a writing upon which the action is
taken is first received by the corporation. The record date for determining
shareholders entitled to demand a special meeting shall be the date of the
earliest of any of the demands pursuant to which the meeting is called.
6. Voting Lists.
6.1 The secretary shall make, at the earlier of ten days before each
meeting of shareholders or two business days after notice of the meeting has
been given, a complete list of the shareholders entitled to be given notice of
such meeting or any adjournment thereof. The list shall be arranged by voting
groups and within each voting group by class or series of shares, shall be in
alphabetical order within each class or series, and shall show the address of
and the number of shares of each class or series held by each shareholder. For
the period beginning the earlier of ten days prior to the meeting or two
business days after notice of the meeting is given and continuing through the
meeting and any adjournment thereof, this list shall be kept on file at the
principal office of the corporation, or at a place (which shall be identified in
the notice) in the city where the meeting will be held. Such list shall be
available for inspection on written demand by any shareholder (including for the
purpose of this Section 6 any holder of voting trust certificates) or his agent
or attorney during regular business hours and during the period available for
inspection. The original stock transfer books shall be prima facie evidence as
to the shareholders entitled to examine such list or to vote at any meeting of
shareholders.
6.2 Any shareholder, his agent or attorney may copy the list during
regular business hours and during the period it is available for inspection,
provided (i) the shareholder has been a shareholder for at least three months
immediately preceding the demand or holds at least five percent of all
outstanding shares of any class of shares as of the date of the demand, (ii) the
demand is made in good faith and for a purpose reasonably related to the
demanding shareholder's interest as a shareholder, (iii) the shareholder
describes with reasonable particularity the purpose and the records the
shareholder desires to inspect, (iv) the records are directly connected with the
described purpose, and (v) the shareholder pays a reasonable charge
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covering the costs of labor and material for such copies, not to exceed the
estimated cost of production and reproduction.
7. Recognition Procedure for Beneficial Owners. The board of directors
may adopt by resolution a procedure whereby a shareholder of the corporation may
certify in writing to the corporation that all or a portion of the shares
registered in the name of such shareholder are held for the account of a
specified person or persons. The resolution may set forth (i) the types of
nominees to which it applies, (ii) the rights or privileges that the corporation
will recognize in a beneficial owner, which may include rights and privileges
other than voting, (iii) the form of certification and the information to be
contained therein, (iv) if the certification is with respect to a record date,
the time within which the certification must be received by the corporation, (v)
the period for which the nominee's use of the procedure is effective, and (vi)
such other provisions with respect to the procedure as the board deems necessary
or desirable. Upon receipt by the corporation of a certificate complying with
the procedure established by the board of directors, the persons specified in
the certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the registered holders of the number of shares specified in
place of the shareholder making the certification.
8. Quorum and Manner of Acting.
8.1 A majority of the votes entitled to be cast on a matter by a
voting group shall constitute a quorum of that voting group for action on the
matter. If less than a majority of such votes are represented at a meeting, a
majority of the votes so represented may adjourn the meeting from time to time
without further notice, for a period not to exceed 120 days for any one
adjournment. If a quorum is present at such adjourned meeting, any business may
be transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, unless the meeting is adjourned and a
new record date is set for the adjourned meeting.
8.2 If a quorum exists, action on a matter other than the election of
directors by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast within the voting group opposing
the action, unless the vote of a greater number or voting by classes is required
by law or the articles of incorporation.
9. Proxies.
9.1 At all meetings of shareholders, a shareholder may vote by proxy
by signing an appointment form or similar writing, either personally or by his
duly authorized attorney-in-fact. A shareholder may also appoint a proxy by
transmitting or authorizing the transmission of a telegram, teletype, or other
electronic transmission providing a written statement of the appointment to the
proxy, a proxy solicitor, proxy support service organization, or other person
duly authorized by the proxy to receive appointments as agent for
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the proxy, or to the corporation. The transmitted appointment shall set forth
or be transmitted with written evidence from which it can be determined that the
shareholder transmitted or authorized the transmission of the appointment. The
proxy appointment form or similar writing shall be filed with the secretary of
the corporation before or at the time of the meeting. The appointment of a
proxy is effective when received by the corporation and is valid for eleven
months unless a different period is expressly provided in the appointment form
or similar writing.
9.2 Any complete copy, including an electronically transmitted
facsimile, of an appointment of a proxy may be substituted for or used in lieu
of the original appointment for any purpose for which the original appointment
could be used.
9.3 Revocation of a proxy does not affect the right of the
corporation to accept the proxy's authority unless (i) the corporation had
notice that the appointment was coupled with an interest and notice that such
interest is extinguished is received by the secretary or other officer or agent
authorized to tabulate votes before the proxy exercises his authority under the
appointment, or (ii) other notice of the revocation of the appointment is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. Other notice of
revocation may, in the discretion of the corporation, be deemed to include the
appearance at a shareholders' meeting of the shareholder who granted the proxy
and his voting in person on any matter subject to a vote at such meeting.
9.4 The death or incapacity of the shareholder appointing a proxy
does not affect the right of the corporation to accept the proxy's authority
unless notice of the death or incapacity is received by the secretary or other
officer or agent authorized to tabulate votes before the proxy exercises his
authority under the appointment.
9.5 The corporation shall not be required to recognize an appointment
made irrevocable if it has received a writing revoking the appointment signed by
the shareholder (including a shareholder who is a successor to the shareholder
who granted the proxy) either personally or by his attorney-in-fact,
notwithstanding that the revocation may be a breach of an obligation of the
shareholder to another person not to revoke the appointment.
9.6 Subject to Article II, Section 11 and any express limitation on
the proxy's authority appearing on the appointment form, the corporation is
entitled to accept the proxy's vote or other action as that of the shareholder
making the appointment.
10. Voting of Shares.
10.1 Each outstanding share, regardless of class, shall be entitled to
one vote, except in the election of directors, and each fractional share shall
be entitled to a corresponding fractional vote on each matter submitted to a
vote at a meeting of shareholders, except to the extent that the voting rights
of the shares of any class or classes are limited or denied by the
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articles of incorporation as permitted by the Colorado Business Corporation
Act. Cumulative voting shall not be permitted in the election of directors or
for any other purpose. Each record holder of stock shall be entitled to vote
in the election of directors and shall have as many votes for each of the
shares owned by him as there are directors to be elected and for whose
election he has the right to vote.
10.2 At each election of directors, that number of candidates
equaling the number of directors to be elected, having the highest number of
votes cast in favor of their election, shall be elected to the board of
directors.
10.3 Except as otherwise ordered by a court of competent
jurisdiction upon a finding that the purpose of this Section would not be
violated in the circumstances presented to the court, the shares of the
corporation are not entitled to be voted if they are owned, directly or
indirectly, by a second corporation, domestic or foreign, and the first
corporation owns, directly or indirectly, a majority of the shares entitled to
vote for directors of the second corporation except to the extent the second
corporation holds the shares in a fiduciary capacity.
10.4 Redeemable shares are not entitled to be voted after notice of
redemption is mailed to the holders and a sum sufficient to redeem the shares
has been deposited with a bank, trust company or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
surrender of the shares.
10.5 Notwithstanding the foregoing, the voting rights of the Series
B Senior Cumulative Convertible Preferred Stock (the "Series B Stock") shall be
as set forth in the Articles of Amendment to the Amended and Restated Articles
of Incorporation related to the Series B Stock (the "Articles of Amendment").
11. Corporation's Acceptance of Votes.
11.1 If the name signed on a vote, consent, waiver, proxy
appointment, or proxy appointment revocation corresponds to the name of a
shareholder, the corporation, if acting in good faith, is entitled to accept
the vote, consent, waiver, proxy appointment or proxy appointment revocation
and give it effect as the act of the shareholder. If the name signed on a
vote, consent, waiver, proxy appointment or proxy appointment revocation does
not correspond to the name of a shareholder, the corporation, if acting in
good faith, is nevertheless entitled to accept the vote, consent, waiver, proxy
appointment or proxy appointment revocation and to give it effect as the act
of the shareholder if:
(i) the shareholder is an entity and the name signed purports to be that of
an officer or agent of the entity;
(ii) the name signed purports to be that of an administrator, executor,
guardian or conservator representing the shareholder and, if the
corporation requests, evidence of
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fiduciary status acceptable to the corporation has been presented with
respect to the vote, consent, waiver, proxy appointment or proxy
appointment revocation;
(iii) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of
this status acceptable to the corporation has been presented with respect
to the vote, consent, waiver, proxy appointment or proxy appointment
revocation;
(iv) the name signed purports to be that of a pledgee, beneficial owner
or attorney-in-fact of the shareholder and, if the corporation requests,
evidence acceptable to the corporation of the signatory's authority to sign
for the shareholder has been presented with respect to the vote, consent,
waiver, proxy appointment or proxy appointment revocation;
(v) two or more persons are the shareholder as co-tenants or fiduciaries
and the name signed purports to be the name of at least one of the co-
tenants or fiduciaries, and the person signing appears to be acting on
behalf of all the co-tenants or fiduciaries; or
(vi) the acceptance of the vote, consent, waiver, proxy appointment or
proxy appointment revocation is otherwise proper under rules established by
the corporation that are not inconsistent with this Section 11.
11.2 The corporation is entitled to reject a vote, consent, waiver,
proxy appointment or proxy appointment revocation if the secretary or other
officer or agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or about
the signatory's authority to sign for the shareholder.
11.3 Neither the corporation nor its officers nor any agent who
accepts or rejects a vote, consent, waiver, proxy appointment or proxy
appointment revocation in good faith and in accordance with the standards of
this Section is liable in damages for the consequences of the acceptance or
rejection.
12. Informal Action by Shareholders.
12.1 Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if a written consent (or
counterparts thereof) that sets forth the action so taken is signed by all of
the shareholders entitled to vote with respect to the subject matter thereof and
received by the corporation. Such consent shall have the same force and effect
as a unanimous vote of the shareholders and may be stated as such in any
document. Action taken under this Section is effective as of the date the last
writing necessary to effect the action is received by the corporation, unless
all of the writings specify a different effective date, in which case such
specified date shall be the effective date for such action. If any shareholder
revokes his consent as provided for herein prior to what would otherwise be the
effective date, the action
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proposed in the consent shall be invalid. The record date for determining
shareholders entitled to take action without a meeting is the date the
corporation first receives a writing upon which the action is taken.
12.2 Any shareholder who has signed a writing describing and
consenting to action taken pursuant to this Section may revoke such consent by a
writing signed by the shareholder describing the action and stating that the
shareholder's prior consent thereto is revoked, if such writing is received by
the corporation before the effectiveness of the action.
13. Meetings by Telecommunication. Any or all of the shareholders may
participate in an annual or special shareholders' meeting by, or the meeting may
be conducted through the use of, any means of communication by which all persons
participating in the meeting may hear each other during the meeting. A
shareholder participating in a meeting by this means is deemed to be present in
person at the meeting.
ARTICLE III
Board of Directors
1. General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
managed under the direction of its board of directors, except as otherwise
provided in the Colorado Business Corporation Act or the articles of
incorporation.
2. Number, Qualifications and Tenure.
2.1 Prior to the purchase and sale of the corporation's Series B
Stock, the number of directors of the corporation shall be fixed from time to
time by the board of directors, within a range of no fewer than one or more than
eleven. A director shall be a natural person who is eighteen years of age or
older. A director need not be a resident of Colorado or a shareholder of the
corporation.
2.2 (a) Following the sale of the Series B Stock, the board of
directors of the corporation shall have seven members unless and until it is
changed pursuant to these Bylaws.
(b) If, (i) TPG and its Affiliates (as such terms are defined
in the Articles of Amendment) is the Beneficial Owner of at least forty percent
of the Originally Issued Shares (as such terms are defined in the Articles of
Amendment); (ii) TPG shall have voted its shares for directors in accordance
with the terms of Section 8.02 of the Investor Rights Agreement dated April 18,
2000 by and among the corporation and certain investors (the "Investor Rights
Agreement"); and (iii) the board of directors shall not include at least two
directors so designated by TPG, then the board of directors of the corporation
shall have ten members, three of which
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shall be elected by a majority of the holders of the Series B Stock voting
together as a separate class.
(c) If on any date when any Series B Stock is outstanding (i) the
corporation shall have failed to satisfy its obligation to redeem shares of
Series B Stock pursuant to the terms of the Articles of Amendment or (ii) any
default or event of default has occurred and is continuing under any
Indebtedness (as defined in the Articles of Amendment) of the corporation or any
of its subsidiaries, the outstanding principal amount of which is in excess of
$5,000,000, and as a result of such default or event of default the holders
thereof have accelerated the maturity thereof, and such default, event of
default or event is not cured or waived within 30 days after the Majority
Holders (as defined in the Articles of Amendment) shall have furnished to the
corporation notice of such default, event of default or event, then the number
of members constituting the board of directors shall be increased so as to
enable the holders of the Series B Stock to designate a majority (including the
Series B Directors (as defined in the Articles of Amendment)) of the board of
directors. If the conditions precedent set forth in (i) or (ii) of the
immediately preceding sentence are satisfied and the size of the board of
directors is increased in accordance with the immediately preceding sentence,
then the holders of the Series B Stock, voting together as a separate class,
shall have the exclusive right to elect that number of directors of the
corporation necessary to fill such newly created directorships.
(d) If at any time after the board of directors has been increased in
accordance with Section 2.2(b) of this Article III, two designees of TPG are
elected to the board of directors as contemplated by Section 8.02 of the
Investor Rights Agreement, the size of the board of directors shall be decreased
and the board of directors shall return to the size it was immediately preceding
the increase in the size of the board of directors pursuant to Section 2.2(b).
If at any time after the board of directors has been increased in accordance
with Section 2.2(c) of this Article III, the failure, default, event of default
or event provided for in (i) or (ii) of Section 2.2(c) is cured, the size of the
board of directors shall be decreased and the board of directors shall return to
the size it was immediately preceding such failure, default, event of default or
event.
(e) The increases or decreases in the size of the board of directors
contemplated by this Section 2.2 shall automatically and immediately occur if
the conditions precedent to such increase or decrease shall occur, and no
further action by the board of directors shall be required to effectuate the
change in the size of the board of directors contemplated by this Section 2.2.
2.3 The board of directors shall be divided into three classes, Class
I, Class II and Class III. Such classes shall be as nearly equal in number of
directors as possible. Each director shall serve for a term ending on the third
annual meeting of shareholders at which such director was elected; provided,
however, that the directors first elected to Class I shall serve for a term
ending on the third annual meeting next following the end of the calendar year
1998, the directors first elected to Class II shall serve for a term ending on
the second annual meeting next
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following the end of the calendar year 1998 and the directors first elected to
Class III shall serve for a term ending on the annual meeting next following
the end of the calendar year 1998. The foregoing notwithstanding, each
director shall serve until his successor shall have been duly elected and
qualified unless he shall resign, become disqualified, disabled or shall
otherwise be removed. Directors shall be removed in the manner provided by
the Colorado Business Corporation Act.
3. Vacancies. Any director may resign at any time by giving written
notice to the corporation. Such resignation shall take effect at the time the
notice is received by the corporation unless the notice specifies a later
effective date. Unless otherwise specified in the notice of resignation, the
corporation's acceptance of such resignation shall not be necessary to make it
effective. Any vacancy on the board of directors may be filled by the
affirmative vote of a majority of the shareholders or the board of directors,
and if the directors remaining in office constitute fewer than a quorum of the
board, the directors may fill the vacancy by the affirmative vote of a majority
of all the directors remaining in office; provided, however, that if a vacancy
occurs with respect to a director elected solely by the shareholders of a series
of preferred shares, such vacancy shall be filled in accordance with the terms
of such preferred shares. Any director elected to fill a vacancy shall hold
office for the unexpired term of his predecessor in office.
4. Nomination of Directors. If any class or holder(s) of securities of
the corporation is entitled to elect directors to serve on the board of
directors pursuant to the terms of the corporation's Articles of Incorporation,
as in effect from time to time, such class or holder(s) shall nominate directors
according to the following procedure:
(a) the holder(s) of shares of such class may present a nominee or
nominees to the board of directors for approval; and
(b) the board of directors shall then either approve and nominate, or
disapprove and reject the nominee or nominees of the class or holder(s). If the
board approves such nominee(s), the board of directors shall either elect such
nominee(s) or present such nominee(s) for election by the shareholders of the
corporation; and
(c) if the board of directors rejects the nominee(s), then the class
or holder(s) may select an alternative nominee or nominees and present the
alternative nominee(s) to the board as provided in (a), or the class or
holder(s) shall be entitled to nominate such nominees for election to the board
of directors in accordance with the applicable provisions of the Articles of
Incorporation, these Bylaws, and the Colorado Business Corporation Act.
5. Regular Meetings. A regular meeting of the board of directors shall
be held without notice immediately after and at the same place as the annual
meeting of shareholders. The board of directors may provide by resolution the
time and place, either within or outside Colorado, for the holding of additional
regular meetings without other notice.
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6. Special Meetings. Special meetings of the board of directors may be
called by or at the request of the chief executive officer, president or any two
directors. The person or persons authorized to call special meetings of the
board of directors may fix any place, either within or outside Colorado, as the
place for holding any special meeting of the board of directors called by them,
provided that no meeting shall be called outside the State of Colorado unless a
majority of the board of directors has so authorized.
7. Notice.
7.1 Notice of any special meeting shall be given at least three
business days prior to the meeting by written notice either personally delivered
or mailed to each director at his business address, or by notice transmitted by
telegraph, telex, electronically transmitted facsimile or other form of wire or
wireless communication. If mailed, such notice shall be deemed to be given and
to be effective on the earlier of (i) three days after such notice is deposited
in the United States mail, properly addressed, with postage prepaid, or (ii) the
date shown on the return receipt, if mailed by registered or certified mail
return receipt requested. If notice is given by telex, electronically
transmitted facsimile or other similar form of wire or wireless communication,
such notice shall be deemed to be given and to be effective when sent, and with
respect to a telegram, such notice shall be deemed to be given and to be
effective when the telegram is delivered to the telegraph company. If a
director has designated in writing one or more reasonable addresses or facsimile
numbers for delivery of notice to him, notice sent by mail, telegraph, telex,
electronically transmitted facsimile or other form of wire or wireless
communication shall not be deemed to have been given or to be effective unless
sent to such addresses or facsimile numbers, as the case may be. If a special
meeting is called to address or consider emergency matters, then notice given
one business day prior to the meeting by written notice either personally
delivered or by notice transmitted by telegraph, telex, electronically
transmitted facsimile or other form of wire or wireless communication shall be
sufficient.
7.2 A director may waive notice of a meeting before or after the time
and date of the meeting by a writing signed by such director. Such waiver shall
be delivered to the corporation for filing with the corporate records. Further,
a director's attendance at or participation in a meeting waives any required
notice to him of the meeting unless at the beginning of the meeting, or promptly
upon his later arrival, the director objects to holding the meeting or
transacting business at the meeting because of lack of notice or defective
notice and does not thereafter vote for or assent to action taken at the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
8. Quorum.
8.1 A majority of the number of directors fixed by the board of
directors or, if no number is fixed, a majority of the number in office
immediately before the meeting begins, shall constitute a quorum for the
transaction of business at any meeting of the board of directors.
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8.2 If less than such majority is present at a meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice, for a period not to exceed sixty days at any one adjournment.
9. Manner of Acting. The act of the majority of the directors present at
a meeting at which a quorum is present shall be the act of the board of
directors.
10. Compensation. By resolution of the board of directors, any director
may be paid any one or more of the following: his expenses, if any, of
attendance at meetings, a fixed sum for attendance at each meeting, a stated
salary as director, or such other compensation as the corporation and the
director may reasonably agree upon. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
11. Presumption of Assent. A director of the corporation who is present
at a meeting of the board of directors or committee of the board at which action
on any corporate matter is taken shall be presumed to have assented to the
action taken unless (i) the director objects at the beginning of the meeting, or
promptly upon his arrival, to the holding of the meeting or the transaction of
business at the meeting and does not thereafter vote for or assent to any action
taken at the meeting, (ii) the director contemporaneously requests that his
dissent or abstention as to any specific action taken be entered in the minutes
of the meeting, or (iii) the director causes written notice of his dissent or
abstention as to any specific action to be received by the presiding officer of
the meeting before its adjournment or by the corporation promptly after the
adjournment of the meeting. A director may dissent to a specific action at a
meeting, while assenting to others. The right to dissent to a specific action
taken at a meeting of the board of directors or a committee of the board shall
not be available to a director who voted in favor of such action.
12. Committees.
12.1 By resolution adopted by a majority of all the directors in
office when the action is taken, the board of directors may designate from among
its members an executive committee and one or more other committees, and appoint
one or more members of the board of directors to serve on them; provided,
however, that for so long as TPG is the Beneficial Owner of at least forty
percent (40%) of the Originally Issued Shares, at least one-third of the members
of each and every committee of the board of directors shall be comprised of
Series B Directors unless compliance with this Section 12.1 would result in a
breach by the corporation of the listing requirements of The Nasdaq Stock
Market; and provided further, however, that for so long as the holders of the
Series B Stock have the right to elect a Designated Director, no executive
committee of the board of directors, and no other new committee of the board of
directors which is authorized to exercise any powers of the board of directors,
shall be created except for committees satisfying the requirements of the other
proviso of this sentence or otherwise with the concurrence of either the Series
B Directors or the holders of the Series B
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Stock. To the extent provided in the resolution, each committee shall have all
the authority of the board of directors, except that no such committee shall
have the authority to (i) authorize distributions, (ii) approve or propose to
shareholders actions or proposals required by the Colorado Business Corporation
Act to be approved by shareholders, (iii) fill vacancies on the board of
directors or any committee thereof, (iv) amend articles of incorporation,
(v) adopt, amend or repeal the bylaws, (vi) approve a plan of merger not
requiring shareholder approval, (vii) authorize or approve the reacquisition
of shares unless pursuant to a formula or method prescribed by the board of
directors, or (viii) authorize or approve the issuance or sale of shares, or
contract for the sale of shares or determine the designations and relative
rights, preferences and limitations of a class or series of shares, except
that the board of directors may authorize a committee or officer to do so
within limits specifically prescribed by the board of directors. The committee
shall then have full power within the limits set by the board of directors to
adopt any final resolution setting forth all preferences, limitations and
relative rights of such class or series and to authorize an amendment of the
articles of incorporation stating the preferences, limitations and relative
rights of a class or series for filing with the Secretary of State under the
Colorado Business Corporation Act. For purposes of this Section 12.1 of
Article III, the terms "Affiliates," "Beneficial Owner," "Designated Director,"
"Holders" and "Series B Directors" shall have the respective meanings assigned
to them in the Articles of Amendment.
12.2 Sections 5, 6, 7, 8, 9, 13 and 14 of Article III, which govern
meetings, notice, waiver of notice, quorum, voting requirements, action without
a meeting of the board of directors and telephonic meetings, shall apply to
committees and their members appointed under this Section 12.
12.3 Neither the designation of any such committee, the delegation
of authority to such committee, nor any action by such committee pursuant to its
authority shall alone constitute compliance by any member of the board of
directors or a member of the committee in question with his responsibility to
conform to the standard of care set forth in Article III, Section 15 of these
bylaws.
12.4 Operating Committee. There shall be an Operating Committee to
consist of five directors, two of whom shall be Series B Directors (as that term
is defined in the Series B Articles of Amendment) and one of whom shall be the
director designated by Sandler Capital Partners IV, L.P. pursuant to the terms
of the Investor Rights Agreement dated April 18, 2000 between the corporation
and certain investors. The members of the Operating Committee shall have no
power or authority unless and until such time as the corporation shall fail to
comply with any material provision of (i) its annual budget, including, without
limitation, by falling at least fifteen percent (15%) short of any of the
revenue or EBITDA targets established in any such budget (as adjusted for any
acquisitions made by the corporation) or (ii) any of the budget, restrictive or
financial covenants in the corporation's Indenture dated April 2, 1998 or in any
other credit agreement with respect to Indebtedness (as defined in the
Indenture) in excess of $5 million to which the corporation is a party.
Following the occurrence of an event described in (i) or (ii) in the immediately
preceding sentence, the Operating Committee shall have the power and
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authority to direct management in the implementation of the corporation's
long-term and annual operating plans and budget.
13. Informal Action by Directors. Any action required or permitted to be
taken at a meeting of the directors or any committee designated by the board of
directors may be taken without a meeting if a written consent (or counterparts
thereof) that sets forth the action so taken is signed by all of the directors
entitled to vote with respect to the action taken. Such consent shall have the
same force and effect as a unanimous vote of the directors or committee members
and may be stated as such in any document. Unless the consent specifies a
different effective date, action taken under this Section 13 is effective at the
time the last director signs a writing describing the action taken, unless,
before such time, any director has revoked his consent by a writing signed by
the director and received by the chief executive officer, president or the
secretary of the corporation. A facsimile signature shall be adequate to
evidence a director's consent.
14. Telephonic Meetings. The board of directors may permit any director
(or any member of a committee designated by the board) to participate in a
regular or special meeting of the board of directors or a committee thereof
through the use of any means of communication by which all directors
participating in the meeting can hear each other during the meeting. A director
participating in a meeting in this manner is deemed to be present in person at
the meeting.
15. Standard of Care.
15.1 A director shall perform his duties as a director, including
without limitation his duties as a member of any committee of the board, in good
faith, in a manner he reasonably believes to be in the best interests of the
corporation, and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances. In performing his duties, a
director shall be entitled to rely on information, opinions, reports or
statements, including financial statements and other financial data, in each
case prepared or presented by the persons herein designated. However, he shall
not be considered to be acting in good faith if he has knowledge concerning the
matter in question that would cause such reliance to be unwarranted. A director
shall not be liable to the corporation or its shareholders for any action he
takes or omits to take as a director if, in connection with such action or
omission, he performs his duties in compliance with this Section 15.
15.2 The designated persons on whom a director is entitled to rely are
(i) one or more officers or employees of the corporation whom the director
reasonably believes to be reliable and competent in the matters presented, (ii)
legal counsel, public accountant, or other person as to matters which the
director reasonably believes to be within such person's professional or expert
competence, or (iii) a committee of the board of directors on which the director
does not serve if the director reasonably believes the committee merits
confidence.
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16. Designated Directors. In the event that Designated Directors (as
defined in the Articles of Amendment) are elected pursuant to the terms of the
Articles of Amendment, the provisions of Section 7.4 of the Articles of
Amendment shall govern the procedural matters addressed therein.
ARTICLE IV
Officers and Agents
1. General. The officers of the corporation shall be a president and a
secretary, each of whom shall be a natural person eighteen years of age or
older. The board of directors or an officer or officers authorized by the board
may appoint such other officers, assistant officers, committees and agents,
including a chairman of the board, chief executive officer, chief operating
officer, chief financial officer, vice presidents, treasurer, controller,
assistant secretaries and assistant treasurers, as they may consider necessary.
The board of directors or the officer or officers authorized by the board shall
from time to time determine the procedure for the appointment of officers, their
term of office, their authority and duties and their compensation. One person
may hold more than one office. In all cases where the duties of any officer,
agent or employee are not prescribed by the bylaws or by the board of directors,
such officer, agent or employee shall follow the orders and instructions of the
president of the corporation.
2. Appointment and Term of Office. The officers of the corporation shall
be appointed by the board of directors at each annual meeting of the board held
after each annual meeting of the shareholders. If the appointment of officers
is not made at such meeting or if an officer or officers are to be appointed by
another officer or officers of the corporation, such appointments shall be made
as soon thereafter as conveniently may be. Each officer shall hold office until
the first of the following occurs: his successor shall have been duly appointed
and qualified, his death, his resignation, or his removal in the manner provided
in Section 3.
3. Resignation and Removal.
3.1 An officer may resign at any time by giving written notice of
resignation to the corporation. The resignation is effective when the notice is
received by the corporation unless the notice specifies a later effective date.
3.2 Any officer or agent may be removed at any time with cause by the
board of directors or an officer or officers authorized by the board. Such
removal does not affect the contract rights, if any, of the corporation or of
the person so removed. The appointment of an officer or agent shall not in
itself create contract rights.
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4. Vacancies. A vacancy in any office, however occurring, may be filled
by the board of directors, or by the officer or officers authorized by the
board, for the unexpired portion of the officer's term. If an officer resigns
and his resignation is made effective at a later date, the board of directors,
or officer or officers authorized by the board, may permit the officer to remain
in office until the effective date and may fill the pending vacancy before the
effective date if the board of directors or officer or officers authorized by
the board provide that the successor shall not take office until the effective
date. In the alternative, the board of directors, or officer or officers
authorized by the board of directors, may remove the officer at any time before
the effective date and may fill the resulting vacancy.
5. Chief Executive Officer. Subject to the direction and supervision of
the board of directors the chief executive officer of the corporation shall, in
general, supervise and control all of the business and affairs of the
corporation. The chief executive officer shall, when present, preside at all
meetings of the shareholders and of the board of directors unless a chairman of
the board has been appointed in which case the chief executive officer shall
preside at such meetings only in the absence of the chairman of the board. The
chief executive officer may sign, with the president, secretary, assistant
secretary or any other proper officer of the corporation, any deeds, mortgages,
bonds, contracts or other instruments which the board of directors has
authorized to be executed, except in cases in which the signing and execution
thereof shall be expressly delegated by the board of directors or by these
bylaws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties as may be prescribed by the board of directors from time to time.
6. President. Subject to the direction and supervision of the board of
directors and unless a chief executive officer has been appointed, the president
shall be the chief executive officer of the corporation, and shall have general
and active control of its affairs and business and general supervision of its
officers, agents and employees. Unless otherwise directed by the board of
directors, the president shall attend in person or by substitute appointed by
him, or shall execute on behalf of the corporation written instruments
appointing a proxy or proxies to represent the corporation, at all meetings of
the stockholders of any other corporation in which the corporation holds any
stock. On behalf of the corporation, the president may in person or by
substitute or by proxy execute written waivers of notice and consents with
respect to any such meetings. At all such meetings and otherwise, the
president, in person or by substitute or proxy, may vote the stock held by the
corporation, execute written consents and other instruments with respect to such
stock, and exercise any and all rights and powers incident to the ownership of
said stock, subject to the instructions, if any, of the board of directors. The
president shall have custody of the treasurer's bond, if any. All powers of the
president shall be conferred on the chief executive officer if one shall be
appointed.
7. Vice Presidents. When and if appointed, the vice presidents shall
assist the president and shall perform such duties as may be assigned to them by
the president or by the board of directors. In the absence of the president,
the vice president, if any (or, if more than one, the vice presidents in the
order designated by the board of directors, or if the board makes no
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such designation, then the vice president designated by the president, or if
neither the board nor the president makes any such designation, the senior vice
president as determined by first election to that office), shall have the powers
and perform the duties of the president.
8. Secretary.
8.1 The secretary shall (i) prepare and maintain as permanent records
the minutes of the proceedings of the shareholders and the board of directors, a
record of all actions taken by the shareholders or board of directors without a
meeting, a record of all actions taken by a committee of the board of directors
in place of the board of directors on behalf of the corporation, and a record of
all waivers of notice of meetings of shareholders and of the board of directors
or any committee thereof, (ii) see that all notices are duly given in accordance
with the provisions of these bylaws and as required by law, (iii) serve as
custodian of the corporate records and of the seal of the corporation and affix
the seal to all documents when authorized by the board of directors, (iv) keep
at the corporation's registered office or principal place of business a record
containing the names and addresses of all shareholders in a form that permits
preparation of a list of shareholders arranged by voting group and by class or
series of shares within each voting group, that is alphabetical within each
class or series and that shows the address of, and the number of shares of each
class or series held by, each shareholder, unless such a record shall be kept at
the office of the corporation's transfer agent or registrar, (v) maintain at the
corporation's principal office the originals or copies of the corporation's
articles of incorporation, bylaws, minutes of all shareholders' meetings and
records of all action taken by shareholders without a meeting for the past three
years, all written communications within the past three years to shareholders as
a group or to the holders of any class or series of shares as a group, a list of
the names and business addresses of the current directors and officers, a copy
of the corporation's most recent corporate report filed with the Secretary of
State, and financial statements showing in reasonable detail the corporation's
assets and liabilities and results of operations for the last three years, (vi)
have general charge of the stock transfer books of the corporation, unless the
corporation has a transfer agent, (vii) authenticate records of the corporation,
and (viii) in general, perform all duties incident to the office of secretary
and such other duties as from time to time may be assigned to him by the
president or by the board of directors. Assistant secretaries, if any, shall
have the same duties and powers, subject to supervision by the secretary. The
directors and/or shareholders may however respectively designate a person other
than the secretary or assistant secretary to keep the minutes of their
respective meetings.
8.2 Any books, records, or minutes of the corporation may be in
written form or in any form capable of being converted into written form within
a reasonable time.
9. Treasurer.
9.1 When and if appointed, the treasurer shall be the principal
financial officer of the corporation, shall have the care and custody of all
funds, securities, evidences of
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indebtedness and other personal property of the corporation and shall deposit
the same in accordance with the instructions of the board of directors. He
shall receive and give receipts and acquittances for money paid in on account
of the corporation, and shall pay out of the corporation's funds on hand all
bills, payrolls and other just debts of the corporation of whatever nature upon
maturity. He shall perform all other duties incident to the office of the
treasurer and, upon request of the board, shall make such reports to it as may
be required at any time. He shall, if required by the board, give the
corporation a bond in such sums and with such sureties as shall be satisfactory
to the board, conditioned upon the faithful performance of his duties and for
the restoration to the corporation of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the corporation. He shall have such other powers and perform such
other duties as may from time to time be prescribed by the board of directors
or the president. The assistant treasurers, if any, shall have the same powers
and duties, subject to the supervision of the treasurer.
9.2 The treasurer shall also be the principal accounting officer of
the corporation. He shall prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account as
required by the Colorado Business Corporation Act, prepare and file all local,
state and federal tax returns, prescribe and maintain an adequate system of
internal audit and prepare and furnish to the president and the board of
directors statements of account showing the financial position of the
corporation and the results of its operations.
ARTICLE V
Stock
1. Certificates. The board of directors shall be authorized to issue any
of its classes of shares with or without certificates. The fact that the shares
are not represented by certificates shall have no effect on the rights and
obligations of shareholders. If the shares are represented by certificates,
such shares shall be represented by consecutively numbered certificates signed,
either manually or by facsimile, in the name of the corporation by one or more
persons designated by the board of directors. In case any officer who has
signed or whose facsimile signature has been placed upon such certificate shall
have ceased to be such officer before such certificate is issued, such
certificate may nonetheless be issued by the corporation with the same effect as
if he were such officer at the date of its issue. Certificates of stock shall
be in such form and shall contain such information consistent with law as shall
be prescribed by the board of directors. If shares are not represented by
certificates, within a reasonable time following the issue or transfer of such
shares, the corporation shall send the shareholder a complete written statement
of all of the information required to be provided to holders of uncertificated
shares by the Colorado Business Corporation Act.
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2. Consideration for Shares. Certificated or uncertificated shares shall
not be issued until the shares represented thereby are fully paid. The board of
directors may authorize the issuance of shares for consideration consisting of
any tangible or intangible property or benefit to the corporation, including
cash, promissory notes, services performed or other securities of the
corporation. Future services shall not constitute payment or partial payment
for shares of the corporation. The promissory note of a subscriber or an
affiliate of a subscriber shall not constitute payment or partial payment for
shares of the corporation unless the note is negotiable and is secured by
collateral, other than the shares being purchased, having a fair market value at
least equal to the principal amount of the note. For purposes of this Section
2, "promissory note" means a negotiable instrument on which there is an
obligation to pay independent of collateral and does not include a non-recourse
note.
3. Lost Certificates. In case of the alleged loss, destruction or
mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as the board may prescribe. The board of directors may in
its discretion require an affidavit of lost certificate and/or a bond in such
form and amount and with such surety as it may determine before issuing a new
certificate.
4. Transfer of Shares.
4.1 Upon surrender to the corporation or to a transfer agent of the
corporation of a certificate of stock duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, and receipt of such
documentary stamps as may be required by law and evidence of compliance with all
applicable securities laws and other restrictions, the corporation shall issue a
new certificate to the person entitled thereto, and cancel the old certificate.
Every such transfer of stock shall be entered on the stock books of the
corporation which shall be kept at its principal office or by the person and the
place designated by the board of directors.
4.2 Except as otherwise expressly provided in Article II, Sections 7
and 11, and except for the assertion of dissenters' rights to the extent
provided in Article 113 of the Colorado Business Corporation Act, the
corporation shall be entitled to treat the registered holder of any shares of
the corporation as the owner thereof for all purposes, and the corporation shall
not be bound to recognize any equitable or other claim to, or interest in, such
shares or rights deriving from such shares on the part of any person other than
the registered holder, including without limitation any purchaser, assignee or
transferee of such shares or rights deriving from such shares, unless and until
such other person becomes the registered holder of such shares, whether or not
the corporation shall have either actual or constructive notice of the claimed
interest of such other person.
5. Transfer Agent, Registrars and Paying Agents. The board may at its
discretion appoint one or more transfer agents, registrars and agents for making
payment upon any class of stock, bond, debenture or other security of the
corporation. Such agents and
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registrars may be located either within or outside Colorado. They shall have
such rights and duties and shall be entitled to such compensation as may be
agreed.
ARTICLE VI
Indemnification of Certain Persons
1. Indemnification.
1.1 For purposes of Article VI, a "Proper Person" means any person
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether formal or informal, by reason of
the fact that he is or was a director, officer, employee, fiduciary or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, fiduciary or agent of any foreign
or domestic profit or nonprofit corporation or of any partnership, joint
venture, trust, profit or nonprofit unincorporated association, limited
liability company, or other enterprise or employee benefit plan. The
corporation shall indemnify any Proper Person against reasonably incurred
expenses (including attorneys' fees), judgments, penalties, fines (including any
excise tax assessed with respect to an employee benefit plan) and amounts paid
in settlement reasonably incurred by him in connection with such action, suit or
proceeding if it is determined by the groups set forth in Section 4 of this
Article that he conducted himself in good faith and that he reasonably believed
(i) in the case of conduct in his official capacity with the corporation, that
his conduct was in the corporation's best interests, or (ii) in all other cases
(except criminal cases), that his conduct was at least not opposed to the
corporation's best interests, or (iii) in the case of any criminal proceeding,
that he had no reasonable cause to believe his conduct was unlawful. A Proper
Person will be deemed to be acting in his official capacity while acting as a
director, officer, employee or agent on behalf of this corporation and not while
acting on this corporation's behalf for some other entity.
1.2 No indemnification shall be made under this Article VI to a
Proper Person with respect to any claim, issue or matter in connection with a
proceeding by or in the right of a corporation in which the Proper Person was
adjudged liable to the corporation or in connection with any proceeding charging
that the Proper Person derived an improper personal benefit, whether or not
involving action in an official capacity, in which he was adjudged liable on the
basis that he derived an improper personal benefit. Further, indemnification
under this Section in connection with a proceeding brought by or in the right of
the corporation shall be limited to reasonable expenses, including attorneys'
fees, incurred in connection with the proceeding.
2. Right to Indemnification. The corporation shall indemnify any Proper
Person who was wholly successful, on the merits or otherwise, in defense of any
action, suit, or proceeding as to which he was entitled to indemnification under
Section l of this Article VI against expenses (including attorneys' fees)
reasonably incurred by him in connection with the
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proceeding without the necessity of any action by the corporation other than
the determination in good faith that the defense has been wholly successful.
3. Effect of Termination of Action. The termination of any action, suit
or proceeding by judgment, order, settlement or conviction, or upon a plea of
nolo contendere or its equivalent shall not of itself create a presumption that
the person seeking indemnification did not meet the standards of conduct
described in Section l of this Article VI. Entry of a judgment by consent as
part of a settlement shall not be deemed an adjudication of liability, as
described in Section 2 of this Article VI.
4. Groups Authorized to Make Indemnification Determination. Except where
there is a right to indemnification as set forth in Sections 1 or 2 of this
Article or where indemnification is ordered by a court in Section 5, any
indemnification shall be made by the corporation only as authorized in the
specific case upon a determination by a proper group that indemnification of the
Proper Person is permissible under the circumstances because he has met the
applicable standards of conduct set forth in Section l of this Article. This
determination shall be made by the board of directors by a majority vote of
those present at a meeting at which a quorum is present, which quorum shall
consist of directors not parties to the proceeding ("Quorum"). If a Quorum
cannot be obtained, the determination shall be made by a majority vote of a
committee of the board of directors designated by the board, which committee
shall consist of two or more directors not parties to the proceeding, except
that directors who are parties to the proceeding may participate in the
designation of directors for the committee. If a Quorum of the board of
directors cannot be obtained and the committee cannot be established, or even if
a Quorum is obtained or the committee is designated and a majority of the
directors constituting such Quorum or committee so directs, the determination
shall be made by (i) independent legal counsel selected by a vote of the board
of directors or the committee in the manner specified in this Section 4 or, if a
Quorum of the full board of directors cannot be obtained and a committee cannot
be established, by independent legal counsel selected by a majority vote of the
full board (including directors who are parties to the action) or (ii) a vote of
the shareholders.
5. Court-Ordered Indemnification. Any Proper Person may apply for
indemnification to the court conducting the proceeding or to another court of
competent jurisdiction for mandatory indemnification under Section 2 of this
Article, including indemnification for reasonable expenses incurred to obtain
court-ordered indemnification. If the court determines that such Proper Person
is fairly and reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not he met the standards of conduct set forth in
Section l of this Article or was adjudged liable in the proceeding, the court
may order such indemnification as the court deems proper except that if the
Proper Person has been adjudged liable, indemnification shall be limited to
reasonable expenses incurred in connection with the proceeding and reasonable
expenses incurred to obtain court-ordered indemnification.
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6. Advance of Expenses. Reasonable expenses (including attorneys' fees)
incurred in defending an action, suit or proceeding as described in Section 1
may be paid by the corporation to any Proper Person in advance of the final
disposition of such action, suit or proceeding upon receipt of (i) a written
affirmation of such Proper Person's good faith belief that he has met the
standards of conduct prescribed by Section l of this Article VI, (ii) a written
undertaking, executed personally or on the Proper Person's behalf, to repay such
advances if it is ultimately determined that he did not meet the prescribed
standards of conduct (the undertaking shall be an unlimited general obligation
of the Proper Person but need not be secured and may be accepted without
reference to financial ability to make repayment), and (iii) a determination is
made by the proper group (as described in Section 4 of this Article VI) that the
facts as then known to the group would not preclude indemnification.
Determination and authorization of payments shall be made in the same manner
specified in Section 4 of this Article VI.
7. Witness Expenses. The sections of this Article VI do not limit the
corporation's authority to pay or reimburse expenses incurred by a director in
connection with an appearance as a witness in a proceeding at a time when he has
not been made a named defendant or respondent in the proceeding.
8. Report to Shareholders. Any indemnification of or advance of expenses
to a director in accordance with this Article VI, if arising out of a proceeding
by or on behalf of the corporation, shall be reported in writing to the
shareholders with or before the notice of the next shareholders' meeting. If
the next shareholder action is taken without a meeting at the instigation of the
board of directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consenting to such action.
ARTICLE VII
Provision of Insurance
1. Insurance. By action of the board of directors, notwithstanding any
interest of the directors in the action, the corporation may purchase and
maintain insurance, in such scope and amounts as the board of directors deems
appropriate, on behalf of any person who is or was a director, officer,
employee, fiduciary or agent of the corporation, or who, while a director,
officer, employee, fiduciary or agent of the corporation, is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee, fiduciary or agent of any other foreign or domestic corporation or of
any partnership, joint venture, trust, profit or nonprofit unincorporated
association, limited liability company or other enterprise or employee benefit
plan, against any liability asserted against, or incurred by, him in that
capacity or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Article VI or applicable law. Any such insurance may be procured
from any insurance company designated by the board of directors of the
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corporation, whether such insurance company is formed under the laws of Colorado
or any other jurisdiction of the United States or elsewhere, including any
insurance company in which the corporation has an equity interest or any other
interest, through stock ownership or otherwise.
ARTICLE VIII
Miscellaneous
1. Seal. The corporate seal of the corporation shall be circular in form
and shall contain the name of the corporation and the words, "Seal, Colorado."
2. Fiscal Year. The fiscal year of the corporation shall be as
established by the board of directors.
3. Amendments. The board of directors, with the consent of either (a)
holders of more than fifty percent of the Series B Preferred Stock then
outstanding or (b) the Series B Directors, shall have power, to the maximum
extent permitted by the Colorado Business Corporation Act, to make, amend and
repeal the bylaws of the corporation at any regular or special meeting of the
board unless the shareholders, in making, amending or repealing a particular
bylaw, expressly provide that the directors may not amend or repeal such bylaw.
The shareholders also shall have the power to make, amend or repeal the bylaws
of the corporation at any annual meeting or at any special meeting called for
that purpose; provided, however, that the shareholders may only make, amend or
repeal the bylaws with approval of the holders of more than fifty percent of the
Series B Preferred Stock then outstanding and the approval of that portion of
the holders of the Common Stock required under the Colorado Business Corporation
Act.
4. Gender. The masculine gender is used in these bylaws as a matter of
convenience only and shall be interpreted to include the feminine and neuter
genders as the circumstances indicate.
5. Conflicts. In the event of any irreconcilable conflict between these
bylaws and either the corporation's articles of incorporation or applicable law,
the latter shall control.
6. Definitions. Except as otherwise specifically provided in these
bylaws, all terms used in these bylaws shall have the same definition as in the
Colorado Business Corporation Act.
7. Rules of Order. At any meeting of shareholders or directors of the
Corporation at which a question of procedure arises, the person presiding at the
meeting may rely upon the Robert's Rules of Order, Newly Revised as then in
effect to resolve any such question.
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Adopted: April 17, 2000.
/s/ Martin E. Friedel
-----------------------------------------
Secretary
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EXHIBIT 4.10
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
-----------------------------
SECURITIES PURCHASE AGREEMENT, dated as of April 4, 2000, between
Convergent Communications, Inc., a Colorado corporation (the "Company"), and
each of the entities named on Exhibit A hereto (each, a "Purchaser").
---------
In consideration of the representations, warranties, and covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows.
ARTICLE I
DEFINITIONS
-----------
1.1 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following meanings:
"Accredited Investor" has the meaning set forth in Regulation D promulgated
-------------------
under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, Judgments,
rulings, damages, dues, penalties, fines, costs, amounts paid in settlement,
Liabilities, obligations, Taxes, Liens, losses (other than investment losses),
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
---------
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
----------------
Section 1504(a).
"Agreement" means this Securities Purchase Agreement, including all
---------
exhibits and schedules hereto, between the Parties, as the same may be amended
from time to time in accordance with the provisions hereof.
"Assets" means all properties and assets, real and personal, tangible and
------
intangible, of every type and description, whether owned or leased or otherwise
possessed, used, held for use or usable in the Company's or any of its
Subsidiaries' businesses, including the Licenses, the Intangible Property and
the Company Contracts.
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"Balance Sheet" means the audited consolidated balance sheet of the Company
-------------
and its Subsidiaries as of December 31, 1999 included in the Financial
Statements.
"Basis" means, with respect to any specified consequence, any past or
-----
present fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act or transaction that
reasonably could form the basis for such consequence.
"Business Day" has the meaning set forth in the Series B Articles of
------------
Amendment in Exhibit B.
---------
"CEO" means Joseph Zell.
---
"CEO Agreement" has the meaning set forth in Section 2.2(d) hereof, in the
-------------
form attached hereto as Exhibit F.
---------
"Class I" means the class of directors of the Board of Directors with a
-------
term expiring at the annual meeting of stockholders of the Company in 2000 and
every third annual meeting thereafter.
"Class II" means the class of directors of the Board of Directors with a
--------
term expiring at the annual meeting of stockholders of the Company in 2001 and
every third annual meeting thereafter.
"Class III" means the class of directors of the Board of Directors with a
---------
term expiring at the annual meeting of stockholders of the Company in 2002 and
every third annual meeting thereafter.
"Closing" has the meaning set forth in Section 2.2(b).
------- --------------
"Closing Date" has the meaning set forth in Section 2.2(b).
------------ --------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Commission" means the Securities and Exchange Commission or any successor
----------
Governmental Authority.
"Common Stock" has the meaning set forth in the Series B Articles of
------------
Amendment in Exhibit B.
---------
"Company" has the meaning set forth in the preface above.
-------
"Company Contracts" has the meaning set forth in Section 3.20.
----------------- ------------
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"Company Transaction" means any (A) direct or indirect acquisition or
-------------------
purchase of any equity securities of the Company or any of its Subsidiaries,
that results in any Person (other than TPG) Beneficially Owning 25% or more of
any class of equity securities of the Company or equity securities of any of its
Subsidiaries, (B) business combination, sale of all or substantially all of the
Company's assets, liquidation, dissolution or similar transaction involving the
Company or any of its Subsidiaries, or (C) other transaction by the Company the
consummation of which would prevent or materially delay the transaction
contemplated hereby.
"Company Parties" means the Company and its Subsidiaries.
---------------
"Company's Knowledge" means the actual knowledge of the Company's officers,
-------------------
after due inquiry.
"Contract" means any agreement, contract, commitment, indenture, lease,
--------
license, instrument, note, bond, security, agreement in principle, letter of
intent, undertaking, promise, covenant, arrangement or understanding, whether
written or oral.
"Conversion Shares" has the meaning set forth in Section 2.2(a).
----------------- --------------
"Disclosure Schedule" has the meaning set forth in the preface of Article
------------------- -------
III.
- ---
"Employee Benefit Plan" means any (i) nonqualified deferred or incentive
---------------------
compensation, retirement, bonus, stock option or other equity based, severance,
termination, retention or change in control plan or arrangement, (ii) qualified
defined contribution retirement plan or arrangement which is an Employee Pension
Benefit Plan, (iii) qualified defined benefit retirement plan or arrangement
which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or
(iv) Employee Welfare Benefit Plan or material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
-----------------------------
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
-----------------------------
3(1).
"Entity" means a partnership, limited liability partnership, corporation,
------
limited liability company, association, joint stock company, trust, estate,
joint venture, or unincorporated organization.
"Environmental, Health, and Safety Laws" means federal, state, local, and
--------------------------------------
foreign law (including common law), statutes, regulations, ordinances, Judgments
or binding agreements with any Governmental Authority concerning pollution or
protection of the environment, public health and safety, or employee health and
safety, including laws relating to emissions, discharges, releases, or
threatened releases of Hazardous Materials into ambient air, surface water,
ground water, or lands
3
<PAGE>
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of Hazardous Materials.
"Environmental Studies" has the meaning set forth in Section 3.14(d).
--------------------- ---------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Affiliate" means each entity which is treated as a single employer
---------------
with the Company for purposes of Code Section 414.
"FCPA" means the Foreign Corrupt Practices Act of 1977, as amended.
----
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
---------
"Financial Statements" has the meaning set forth in Section 3.9.
-------------------- -----------
"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
"Governmental Authority" means any nation or government, any state or other
----------------------
political subdivision thereof, and any Person exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Hazardous Materials" shall mean any chemical substance, including without
-------------------
limitation any: pollutant; contaminant; chemical; raw material; intermediate,
product or by-product; industrial, solid, toxic or hazardous substance, material
or waste; petroleum or any fraction thereof; asbestos or asbestos-containing-
material; and polychlorinated biphenyls; including without limitation all
substances, materials or wastes; which are now regulated, classified or
considered to be hazardous, dangerous or toxic under any Environmental, Health
or Safety Law, now or hereafter enacted, promulgated, or amended.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended, and the regulations promulgated thereunder.
"Indemnified Party" has the meaning set forth in Section 6.4.
----------------- -----------
"Indemnifying Party" has the meaning set forth in Section 6.4.
------------------ -----------
"Indenture" means the Indenture dated April 2, 1998 between Convergent
---------
Communications, Inc. as Issuer and Norwest Bank Colorado, N.A., as Trustee.
4
<PAGE>
"Intangible Property" means all certificates of deposit, bank accounts,
-------------------
securities, partnership or other ownership interests, rights to receive money or
property by assignment, future interests, claims and rights against third
parties, accounts and notes receivables owned or held directly or beneficially
by or on behalf of the account of the Company or any of its Subsidiaries, the
Licenses, the Intellectual Property and any other intangible property of any
nature of the Company or any of its Subsidiaries.
"Intellectual Property" means (i) all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, (ii) all
trademarks, service marks, trade dress, logos, trade names, and corporate names,
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (iii) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (iv) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (v) all
computer software (including data and related documentation), (vi) all other
proprietary rights, and (vii) all copies and tangible embodiments thereof (in
whatever form or medium).
"Investor Rights Agreement" means the Investor Rights Agreement, dated as
-------------------------
of April [__], 2000, between the Company and the Purchasers, as it may be
amended from time to time in accordance with its terms, having the terms set
forth in the form of Investor Rights Agreement attached hereto as Exhibit G.
---------
"Judgment" means any judgment, writ, order or decree of or by any
--------
arbitrator, court, judge, justice or magistrate, including any bankruptcy court
or judge, and any order of or by any other Governmental Authority.
"Liability" means any liability (whether known or unknown, whether asserted
---------
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any such liability for Taxes and any such liability with respect to any
Redeemable Equity.
"Licenses" has the meaning set forth in Section 3.16.
-------- ------------
"Lien" means any mortgage, pledge, lien (statutory or other), encumbrance,
----
hypothecation, charge, security interest, claim, option, right to acquire,
adverse interest, assignment, deposit arrangement, restriction, or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including any conditional sale or other title retention
agreement, any financing lease involving substantially the same economic effect
as any of the
5
<PAGE>
foregoing and the filing of any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction).
"Material Adverse Effect" means any event, fact, circumstance or occurrence
-----------------------
which results or would result in a material adverse change in or a material
adverse effect on any of (i) the financial condition, results of operation,
business, operations or regulatory status of the Company and its Subsidiaries
taken as one enterprise, or (ii) the legality or validity as to the Company or
enforceability as against the Company of any Transaction Document or (iii) the
ability of the Company or any of its Subsidiaries to perform its material
obligations hereunder or under any other Transaction Document.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
------------------
"Ordinary Course of Business" means the ordinary course of business of the
---------------------------
Company and its Subsidiaries consistent with past custom and practice (including
with respect to quantity and frequency) taking into consideration increases in
quantity and frequency resulting from the recent growth of the Company.
"Originally Issued Shares" means, as of any time, the aggregate number of
------------------------
Conversion Shares represented by the Series B Shares issued to TPG on the
Closing Date, as such aggregate number shall have been from time to time
cumulatively adjusted as a result of the operation of Section 9 and Section 10
--------- ----------
of the Series B Articles of Amendment through such time.
"Parties" means the Company and the Purchasers.
-------
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Permitted Liens" means (i) mechanic's, materialmen's, and similar Liens
---------------
for construction in progress or evidencing indebtedness for related services
that are not more than sixty days past due, (ii) Liens for Taxes not yet due and
payable or for Taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (iii) purchase money Liens and Liens securing rental
payments under capital lease arrangements, (iv) Liens incurred pursuant to the
transactions entered into in connection with, or permitted by, the Indenture;
(v) Liens existing as of the date hereof and disclosed in the Disclosure
Schedule or disclosed to Purchasers pursuant to Section 3.26 and (vi) other
Liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money which do not materially impair the current use,
occupancy or value or the marketability of title of the Asset subject thereto.
"Person" means an individual, Entity, or Governmental Authority.
------
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 or
----------------------
Code Section 4975.
6
<PAGE>
"Purchasers" means each of the parties identified as such on Exhibit A and
---------- ---------
their Affiliates and designated assignees.
"Purchaser Indemnified Parties" means the Purchasers and their successors
-----------------------------
and Representatives.
"Purchaser Placement Fee" means $5,250,000.
-----------------------
"Redeemable Equity" of any Person means any equity interest of such Person
-----------------
that by its terms or otherwise, absolutely, contingently or otherwise, is or may
be required to be redeemed or repurchased by such Person or is or may become
redeemable or repurchasable at the option of the holder thereof.
"Registrable Shares" has the meaning set forth in the Investor Rights
------------------
Agreement.
"Related Persons" means, as to any Person, (i) any Affiliate of such Person
---------------
(other than a Company Party), (ii) any Entity (other than a Company Party) of
which such Person or any of its Related Persons is a director, officer, partner,
manager or other member of management with the power to direct the management
and policies of such Entity, (iii) any Entity (other than a Company Party) that
is the issuer of any equity interests of any class or series beneficially owned
by such Person or any of its Related Persons which represent 10% or more of all
outstanding equity interests of that class or series, or (iv) any trust or
estate in which such Person has a substantial beneficial interest or as to which
such Person serves as trustee or in a similar capacity. If such Person is a
natural person, such Person's "Related Persons" shall also include such Person's
parents, children, siblings and spouse, the parents and siblings of such
Person's spouse and the spouses of such Person's children and any Entity (other
than a Company Party), trust or estate with which any such relative of such
Person has any relationship specified in clause (i), (ii) or (iii) of the first
sentence of this definition.
"Remedies Exception" means (i) applicable bankruptcy, insolvency,
------------------
reorganization, moratorium, and other laws of general application, heretofore or
hereafter enacted or in effect, affecting the rights and remedies of creditors
generally, and (ii) the exercise, whether in an action or proceeding at law or
in equity, of judicial or administrative discretion in accordance with general
equitable principles, particularly as to the availability of the remedy of
specific performance or other injunctive relief.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
----------------
"Regulatory Approvals" means (i) any and all certificates, permits,
---------------------
licenses, franchises, concessions, grants, consents, approvals, orders,
registrations, authorizations, waivers, variances or
7
<PAGE>
clearances from, or filings or registrations with, Governmental Authorities, and
(ii) any and all waiting periods imposed by applicable laws.
"Representatives" means, with respect to any Person, any of such Person's
---------------
officers, directors, employees, agents, attorneys, accountants, consultants,
equity financing partners or financial advisors or other Person associated with,
or acting on behalf of, such Person.
"Required Regulatory Approval" means a Regulatory Approval (i) necessary
----------------------------
under the HSR Act, or required under the Securities Act, the Exchange Act or the
securities laws of the several states of the United States, for or in connection
with the consummation by the parties thereto of the transactions contemplated by
the Transaction Documents, or (ii) consisting of the filing by the Company of
the Series B Articles of Amendment with the Secretary of State of the State of
Colorado.
"Requirement of Law" means, as to any Person, the charter and bylaws or
------------------
other organizational or governing documents of such Person, and all federal,
state and local laws, rules, regulations, Judgments or other determinations of
an arbitrator, court or other Governmental Authority, applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
"Rights" means, with respect to any Person, any subscription, option,
------
warrant, convertible or exchangeable security or other right, however
denominated, to subscribe for, purchase or otherwise acquire any capital stock,
other equity interest or other security of any class or series and of any
issuer, with or without payment of additional consideration in cash or property,
either immediately or upon the occurrence of a specified date or a specified
event or the satisfaction or happening of any other condition or contingency.
"Securities" means the collective reference to the Shares and the Warrants.
----------
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
"Series A Warrants" has the meaning set forth in Section 2.2(a).
----------------- --------------
"Series B Warrants" has the meaning set forth in Section 2.2(a).
----------------- --------------
"Series B Articles of Amendment" means the Articles of Amendment to the
------------------------------
Amended and Restated Articles of Incorporation of the Company setting forth a
copy of the resolution adopted by the Board of Directors of the Company creating
and authorizing the Series B Preferred Stock, as filed with the Secretary of
State of the State of Colorado on or prior to the date hereof, in the form
attached hereto as Exhibit B, or any successor provisions of the Company's
---------
Articles of Incorporation.
8
<PAGE>
"Series B Preferred Stock" means the Series B Senior Cumulative Convertible
------------------------
Preferred Stock, no par value, of the Company.
"Shares" has the meaning set forth in Section 2.2(a).
------ ---------------
"Subsidiary" means, when used with respect to any Person as of any time,
----------
any other Person as to which any of the following statements is true as of such
time:
(i) such second Person is an Affiliate of such first Person which
is, directly or indirectly through one or more intermediaries, controlled
by such first Person, or
(ii) such first Person owns or controls, directly or indirectly
through one or more intermediaries, 50% or more of the outstanding equity
interests in such second Person having ordinary voting power to elect a
majority of the members of the board of directors or joint venture,
partnership or other management committee, trustees, managers or other
Persons ordinarily having the power, authority or responsibility for
managing or directing the management of such second Person, or
(iii) such first Person, directly or indirectly through one or
more intermediaries, is entitled under ordinary circumstances to 50% or
more of the profits or losses of such second Person or to receive upon
dissolution and liquidation of such second Person 50% or more of the assets
available for distribution to the holders of equity interests in such
second Person,
and in the case of any of clauses (i), (ii) and (iii), disregarding any voting
power, equity interests or other rights or interests which any Person other than
the first Person or another Subsidiary of the first Person would or might have
upon the happening of any contingency, the satisfaction of any condition or the
occurrence of any event which has not happened, been satisfied or occurred as of
such time.
"Tax" means any federal, state, local, or foreign income, gross receipts,
---
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
----------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof, required to be filed
under any statute, rule or regulation.
"Termination Fee" means $5,250,000.
---------------
9
<PAGE>
"Third Party Claim" has the meaning set forth in Section 6.4 below.
----------------- -----------
"TPG" means TPG Partners III, L.P. and its Affiliates.
---
"Transaction Documents" means this Agreement, the Investor Rights
---------------------
Agreement, the Series B Articles of Amendment, the Warrant Agreement, the
Warrants and each other certificate, instrument or agreement executed and
delivered by the Company or any of its Subsidiaries pursuant to or in connection
with the transactions contemplated by any of the foregoing.
"Transactions" means any and all of the transactions contemplated by this
------------
Agreement or any of the other Transaction Documents, including the issuance,
sale and purchase of the Shares and the Warrants on the date hereof or at the
Closing, the issuance and sale of Warrant Securities upon the exercise of any
Warrants and the issuance and delivery of the Conversion Shares upon the
conversion of any Series B Preferred Stock.
"Underlying Shares" means the collective reference to the Shares of Common
-----------------
Stock issuable upon conversion of the Series B Preferred Stock in accordance
with the Series B Articles of Amendment or upon exercise of the Warrants in
accordance with the Warrant Agreement.
"Warrant Agreement" means the Warrant Agreement, dated the date hereof,
-----------------
between the Company and the Purchasers, as it may be amended from time to time
in accordance with its terms, having the terms set forth in the form of Warrant
Agreement attached hereto as Exhibit E.
---------
"Warrant Certificate" means any certificate evidencing one or more Warrants
-------------------
which may at any time or from time to time be outstanding in accordance with the
terms of the Warrant Agreement.
"Warrants" means, collectively, the Series A Warrants and the Series B
--------
Warrants.
"Warrant Securities" has the meaning set forth in the Warrant Agreement.
------------------
1.2 Certain Rules of Construction. This Agreement is to be interpreted
-----------------------------
in accordance with the following rules of construction:
(i) Number and Gender. All definitions of terms apply equally to
-----------------
both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.
(ii) "Including," "Herein," Etc. The words "include," "includes"
--------------------------
and "including" are deemed to be followed by the phrase "without
limitation". The words "herein", "hereof",
10
<PAGE>
and "hereunder" and words of similar import refer to this Agreement
(including all Exhibits and Schedules) in its entirety and are not limited
to any part hereof unless the context shall otherwise require. The word
"or" is not exclusive and means "and/or."
(iii) Subdivisions and Attachments. All references in this
----------------------------
Agreement to Articles, Sections, subsections, Exhibits and Schedules are,
respectively, references to Articles, Sections and subsections of, and
Exhibits and Schedules attached to, this Agreement, unless otherwise
specified.
(iv) References to Documents and Laws. All references to any
--------------------------------
Transaction Document are to it as amended, modified and supplemented from
time to time in accordance with its terms. All references to (x) any other
agreement or instrument or (y) any Requirement of Law, License or similar
item are to it as amended and supplemented from time to time (and, in the
case of a statute, law or regulation, to any corresponding provisions of
successor statutes, laws or regulations), unless otherwise specified.
(v) References to Days. Any reference in this Agreement or a
------------------
Transaction Document to a "day" or number of "days" (without the explicit
qualification "Business") is a reference to a calendar day or number of
calendar days. If any action or notice is to be taken or given on or by a
particular calendar day, and such calendar day is not a Business Day, then
such action or notice may be taken or given on the next Business Day.
(vi) Examples. If, in any provision of any Transaction Document,
--------
any example is given (through the use of the words "such as," "for
example," "e.g." or otherwise) of the meaning, intent or operation of any
---
provision, such example is intended to be illustrative only and not
exclusive.
(vii) Participation in Drafting. The Parties and their respective
-------------------------
legal counsel have participated in the drafting of this Agreement, and this
Agreement will be construed simply and according to its fair meaning and
without any presumption or prejudice for or against any Party.
(viii) Headings. The table of contents and section headings
--------
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
ARTICLE II
PURCHASE AND SALE
-----------------
2.1 Authorization of Securities. Prior to the execution and delivery of
---------------------------
this Agreement, the Company has duly (i) designated, created and authorized the
Series B Preferred Stock and the
11
<PAGE>
issuance and sale of shares thereof pursuant to this Agreement and (ii)
authorized the Warrants and the issuance and sale thereof pursuant to this
Agreement.
2.2 Securities Purchase.
-------------------
(a) Sale and Purchase. At the Closing, the Company shall issue and sell
-----------------
to the Purchasers, and the Purchasers shall purchase from the Company, for an
aggregate purchase price of $175,000,000 (i) a total of 175,000 shares of Series
B Preferred Stock (the "Shares"), having the rights, preferences, privileges and
restrictions set forth in the Series B Articles of Amendment, each share
convertible at the option of the holder at any time following the Closing into
shares (the "Conversion Shares") of Common Stock in accordance with the terms of
the Series B Articles of Amendment, (ii) Series A Warrants, having the terms set
forth in the form of Warrant attached hereto as Exhibit C, to purchase an
---------
aggregate of 700,000 shares of Common Stock (the "Series A Warrants"), and (iii)
Series B Warrants, having the terms set forth in the form of Warrant attached
hereto as Exhibit D, to purchase 1,166,667 shares of Common Stock (the Series B
---------
Warrants"), in the case of each of (ii) and (iii) subject to adjustment in
accordance with the Warrant Agreement. The number of Shares, Series A Warrants
and Series B Warrants to be purchased at the Closing by each Purchaser, and the
portion of the aggregate purchase price to be paid by each Purchaser, are set
forth next to such Purchaser's name on Exhibit A hereto.
---------
(b) Delivery of Securities; Payment of Purchase Price. The closing of the
-------------------------------------------------
purchase and sale of the Securities (the "Closing") shall take place on the
third Business Day following the satisfaction or waiver of each of the
conditions set forth in Sections 2.2(c), (d) and (e) at the offices of Gibson,
----------------------------
Dunn & Crutcher LLP, 1801 California Street, Suite 4100, Denver, Colorado (the
"Closing Date"), or at such other time and place as is mutually acceptable to
the Parties. Delivery of the Securities purchased by the Purchasers pursuant to
this Agreement will be made at the Closing by the Company delivering to the
Purchasers, against payment of the purchase price therefor, (i) a stock
certificate or certificates, dated the Closing Date, representing the number of
Shares purchased by the Purchasers, with each such certificate being registered
in the name of the Purchasers and (ii) Warrant Certificates, dated the Closing
Date, representing the number of Warrants purchased by the Purchasers, with each
such certificate being registered in the name of the respective Purchaser,
together with the Warrant Agreement, duly executed and delivered by the Company
and the Purchasers. Payment by the Purchasers of the agreed purchase price for
the Shares and Warrants (against which the Purchaser Placement Fee payable to
the Purchasers (which shall be allocated pro rata to the respective purchase
prices payable by them as set forth in Exhibit A) and any amounts due to the
---------
Purchaser for expenses pursuant to Section 8.9 hereof has been netted) shall be
-----------
made by wire transfer (to the account of the Company previously designated by it
in writing) and the Company shall acknowledge receipt from the Purchasers of
payment in full.
(c) Conditions of Each Party. The obligation of the Company and the
------------------------
Purchasers to consummate the sale and purchase of the Securities as contemplated
by this Agreement is subject
12
<PAGE>
to the satisfaction of the following conditions, any of which may be waived in
writing by the Company and the Purchasers:
(i) Proceedings Not Restrained. No order or injunction shall
--------------------------
have been issued by a court of competent jurisdiction preventing the
consummation of the transactions contemplated hereby, and no action, suit,
proceeding or investigation shall have been instituted or threatened that
seeks to restrain, restrict or prohibit or impose substantial penalties or
damages with respect to (or any other materially adverse relief or remedy
in connection with) such transactions.
(ii) Purchase Permitted By Applicable Laws. All Regulatory
-------------------------------------
Approvals shall have been received, and the purchase and sale of the
Securities to be purchased at the Closing by the Purchasers on the terms
and conditions herein provided (including the application of the proceeds
therefrom by the Company) shall not violate any applicable Requirement of
Law.
(d) Conditions of the Purchasers. The obligation to purchase and pay for
----------------------------
the Securities to be purchased by the Purchasers at the Closing Date as
contemplated by this Agreement is subject to the satisfaction, on or before the
Closing Date, of the following conditions, any of which may be waived in writing
by the Purchasers:
(i) Certain Documents. In addition to the stock certificates and
-----------------
Warrant Certificates required by Section 2.2(b), the Purchasers shall have
--------------
received the following, each dated the Closing Date (except as otherwise
specified below):
(A) a certificate of the Secretary or an Assistant Secretary
of the Company certifying (x) the names and signatures of the officers
of the Company authorized to sign the certificates and other documents
to be delivered by the Company on the Closing Date and (y) that the
conditions contained in the other subdivisions of this Section 2.3(d)
--------------
and, to the knowledge of the Company, subdivision (i) of Section
-------
2.3(c), have been satisfied;
------
(B) a certificate of the chief executive officer of the
Company and the Secretary of the Company (x) attaching copies,
certified by such officers as true and complete, of the resolutions of
the Board of Directors of the Company in connection with the
authorization and approval of the execution, delivery and performance
of the Transaction Documents and consummation of the Transactions and
of all other documents evidencing all necessary corporate action taken
in connection therewith, (y) attaching copies, certified by such
officers as true and complete, of the Amended and Restated Articles of
Incorporation and By-laws of the Company and of the Series B Articles
of Amendment, each as amended through the Closing Date, and (z) which
includes a representation by such officers that the copies
13
<PAGE>
of the Series B Articles of Amendment, the Articles of Incorporation
and By-Laws or other organizational documents of each Subsidiary of
the Company, as previously provided to the Purchasers, are true and
complete in all respects;
(C) favorable opinions of Gibson, Dunn & Crutcher LLP,
counsel to the Company, and Martin E. Freidel, General Counsel to the
Company, in form and substance satisfactory to the Purchasers.
(ii) Representations and Warranties; No Default. The
------------------------------------------
representations and warranties of the Company contained in this Agreement
shall have been true and correct in all material respects (except that any
representation or warranty qualified by materiality or Material Adverse
Effect shall be true and correct in all respects) on the date of this
Agreement and as of the Closing Date as if made on the Closing Date; and
the Company shall have performed and complied with all agreements,
covenants, conditions and obligations contained in this Agreement, the
Series B Articles of Amendment, the Investor Rights Agreement and the
Warrant Agreement that are required to be performed or complied with by it
on or before the Closing.
(iii) No Material Adverse Change. Since the date hereof, the
--------------------------
Company shall have operated its business only in the Ordinary Course of
Business and there shall not exist or have occurred any condition, event or
state of facts that has had or is reasonably likely to have a Material
Adverse Effect, whether or not arising in the Ordinary Course of Business.
(iv) Absence of Certain Events. No Sale of the Company (as
-------------------------
defined in Exhibit B), no Reorganization Event (as defined in Exhibit B),
--------- ---------
no Change of Control (as defined in Exhibit B) and no action or event shall
---------
have been taken or shall have occurred which has or would result in any
adjustment under Section 10 of the Series B Articles of Amendment or
Article III of the Warrant Agreement.
(v) Fairness Opinion. Warburg Dillon Read LLC shall have
----------------
delivered (and not withdrawn or modified in any adverse respect) a written
opinion to the Board of Directors to the effect that the consideration paid
to the Company for the shares of Series B Preferred Stock sold pursuant to
Section 2.2, is fair, from a financial point of view, to the Company, and a
true and correct copy of such opinion shall have been delivered to the
Purchasers.
(vi) Consents. All Regulatory Approvals (including, without
--------
limitation, the Required Regulatory Approvals) from any Governmental
Authority and all consents, waivers or approvals from any other Person
(including, without limitation, the former holders of the Series A
Preferred Convertible Stock of the Company or pursuant to the Indenture or
any of the Company's other debt or credit agreements or material contracts)
required for or
14
<PAGE>
in connection with the execution and delivery of the Transaction Documents
and the consummation of the transactions contemplated thereby shall have
been obtained or made on terms reasonably satisfactory to the Purchasers,
and all waiting periods specified under applicable Law (including, without
limitation, the waiting period under the HSR Act), the expiration of which
is necessary for such consummation, shall have expired or been terminated.
(vii) Board Composition; By-laws. (i) The Board shall have
--------------------------
been constituted in the manner contemplated by the Investor Rights
Agreement (including that: the size of the Board shall be seven directors
(subject to increase only to the extent provided in the Series B Articles
to accommodate the Designated Directors or the Majority Directors (each as
defined in the Series B Articles of Amendment)), and the composition of the
Board shall be as specified in Schedule 2.2(d)(vii) and, if necessary,
there shall be one vacancy for the future election of an independent
director to be designated by TPG); (ii) appropriate resolutions to effect
the establishment of the Operating Committee contemplated by the Investor
Rights Agreement (the "Operating Committee") shall have been duly adopted
by the Board; (iii) the By-laws of the Company shall have been amended, in
form and substance satisfactory to the Purchasers, to effectuate the
purposes and intentions of Sections 7 and 11 of the Series B Articles of
Amendment and the Investor Rights Agreement, including by providing: (A)
that the Board shall have seven members, subject to increase only to the
extent provided in the Series B Articles to accommodate the Designated
Directors or the Majority Directors (each as defined in the Series B
Articles of Amendment); (B) for the establishment of the Operating
Committee; (C) that directors may take action in the manner described in
Section 7.4 of the Series B Articles of Amendment; (D) that for so long as
TPG is the Beneficial Owner of at least 40% of the Originally Issued
Shares, except to the extent that the listing requirements of the Nasdaq
Stock Market's National Market would be breached by the operation of this
clause (D), at least one-third of the members of each and every committee
of the Board will be Series B Directors (as defined in the Series B
Articles of Amendment); and (E) for the indemnification described in
Section 7.5 of the Series B Articles of Amendment; and (iv) directors' and
shareholders' liability insurance shall be available to the directors
designated by the Purchasers on terms satisfactory to the Purchasers and in
an amount of coverage at least equal to $40,000,000.
(viii) CEO and Related Matters. The CEO shall have been duly
-----------------------
and validly appointed Chief Executive Officer of the Company by all
necessary action of the Board of Directors, and the Company and CEO shall
have executed the employment agreement (the "CEO Agreement") substantially
-------------
in the form of Exhibit F hereto or otherwise on terms reasonably acceptable
---------
to the Purchasers and the Company.
(ix) Agreements. Each of the Series B Articles of Amendment,
----------
the Investor Rights Agreement and the Warrant Agreement shall have been
executed and delivered and shall be in full force and effect in
substantially the forms attached hereto, and
15
<PAGE>
the Series B Articles of Amendment shall have been duly filed with and
recorded by the Secretary of State of the State of Colorado; and the
Company shall have furnished to the Purchaser evidence satisfactory to the
Purchaser of such filing.
(x) Credit Facilities; Defaults. (i) The entire outstanding
---------------------------
principal amount of and accrued interest on the $10,000,000 credit facility
between the Company and Goldman Sachs Credit Partners, L.P., which amount
shall be no greater than $12,000,000, shall have been paid in full and the
obligations of the Company with respect to such loan shall be satisfied in
full, in each case concurrently with the consummation of the transactions
contemplated by this Agreement, no default shall exist (or occur upon
consummation of the Transactions) under such loan or any other material
financing instrument of the Company or any other Company Contract, and no
action shall be taken to accelerate any material indebtedness of the
Company. Contemporaneously with the Closing hereunder, the Company shall
enter into a new working capital facility with Foothill Capital (or
comparable institution) on terms and conditions reasonably acceptable to
the Purchasers (the "Foothill Facility"); and (ii) the Foothill Facility
shall be in full force and effect thereafter and the Company shall have at
least $50,000,000 in firmly committed availability thereunder.
(e) Condition of the Company. The Company's obligation to issue and
------------------------
sell the Securities to be sold to and purchased by the Purchasers at the Closing
Date as contemplated by this Agreement is subject to the satisfaction of the
condition, which may be waived in writing by the Company, that the
representations and warranties contained in Article IV of this Agreement shall
be true and correct in all material respects (except that any representation or
warranty qualified by materiality or Material Adverse Effect shall be true and
correct in all respects) on and as of the Closing Date, and the Company shall
have received a certificate to that effect signed by each of the Purchasers.
2.3 Use of Proceeds. The Company shall use all proceeds of the sale of
---------------
the Securities for working capital and capital expenditures as provided in the
Company's 2000 business plan heretofore approved by the Company's Board of
Directors and furnished to the Purchasers.
ARTICLE III
COMPANY REPRESENTATIONS AND WARRANTIES
---------------------------------------
The Company represents and warrants to and covenants and agrees with the
Purchasers as follows as of the date hereof and, after giving effect to all of
the Transactions being consummated on the Closing Date, as of the Closing Date
with the same force and effect as if made at and as of such time, in each case,
except as set forth in the disclosure schedule delivered by the Company to the
Purchasers on the date hereof (the "Disclosure Schedule"). Such
representations, warranties, covenants and agreements have constituted a
material inducement to the Purchasers to enter into this
16
<PAGE>
Agreement, to enter into the other Transaction Documents to which it has become
a party, to purchase the securities purchased by it pursuant hereto and to
consummate the other Transactions. The Disclosure Schedule is arranged in
sections corresponding to the lettered and numbered sections in this Agreement
which require the disclosure. Any matter disclosed in one section of the
Disclosure Schedule may be cross-referenced in other sections of the Disclosure
Schedule, and upon such cross-referencing shall be deemed disclosed for all
purposes of the section of the Disclosure Schedule in which such cross-reference
is contained.
3.1 Certain Representations and Warranties Regarding the Transactions.
-----------------------------------------------------------------
(a) Authorization of Transactions. The Company has full power and
-----------------------------
authority to execute and deliver this Agreement and each other Transaction
Document and to perform its obligations hereunder and thereunder. The
execution, delivery and performance by the Company of this Agreement and each
other Transaction Document have been duly authorized by the Board of Directors
of the Company and by all other necessary corporate action on the part of the
Company. Each of this Agreement and each other Transaction Document to which
the Company is a named party has been duly executed and delivered by the Company
and constitutes the valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to the
Remedies Exception. The Company is not required to give any notice,
declaration, report or statement to, make any filing with, or obtain any
authorization, consent, declaration or approval of any Governmental Authority or
any other Person in connection with the execution, delivery or performance by
the Company or any of its Subsidiaries of this Agreement or any other
Transaction Document or the consummation of the Transactions or in order to
preclude any termination, suspension, modification or impairment of any of the
Company Contracts or any legal or contractual right, privilege, license or
franchise which is included in the Assets.
(b) Consents; No Conflicts. Except as set forth in the Disclosure
-----------------------
Schedule, no regulatory approval from, or registration, disclosure, declaration
or filing with, any Governmental Authority is required to be made or obtained by
the Company or any of its Subsidiaries in connection with the execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated thereby. The execution and delivery of the
Transaction Documents and the consummation of the Transactions contemplated
hereby will not constitute a "Change of Control" or "Change in Control" (or
similar concept) as such term (or concept) is defined in any material contract,
agreement, indenture, mortgage, note, lease or other instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any
such Subsidiary is bound or to which the properties of the Company or any such
Subsidiary is subject.
(c) Series B Articles of Amendment. By the Closing, all actions necessary
------------------------------
in order to duly and validly authorize and designate the Series B Preferred
Stock and authorize and create the Warrants, including all necessary corporate
action on the part of the Company and its stockholders, shall have been taken
and the Series B Articles of Amendment in the form attached hereto as Exhibit
-------
17
<PAGE>
B and the Warrant Agreement shall each be in full force and effect and shall not
- -
have been amended, modified or supplemented.
(d) Financial Advisors and Brokers; Fairness Opinion. Except for Warburg
------------------------------------------------
Dillon Read L.L.C., no Person has acted, directly or indirectly, as a broker,
finder or financial advisor of the Company in connection with the Transaction
Documents or the transactions contemplated thereby, and no Person is entitled to
receive any broker's, finder's or similar fee or commission in respect thereof
based in any way on any agreement, arrangement or understanding made by or on
behalf of the Company, any of its Subsidiaries or any of their respective
directors, officers or employees. Furthermore: (i) true and correct copies of
all agreements between the Company, on the one hand, and Warburg Dillon Read
L.L.C., on the other, have been delivered to the Purchasers; and (ii) the
Company has received an opinion of Warburg Dillon Read L.L.C. to the effect that
the consideration to be paid to the Company for the shares of Series B Preferred
Stock to be sold hereunder is fair, from a financial point of view, to the
Company.
(e) Offerees; Exemption from Registration. None of the Company Parties,
-------------------------------------
their respective directors and officers, their respective Affiliates or any
Person acting as agent for or on behalf of any of the Company Parties has,
directly or indirectly, sold, offered for sale, or solicited offers to buy any
of the Securities or other securities of the Company so as to bring the offer,
issuance or sale of the Securities as contemplated by this Agreement within the
registration requirements of Section 5 of the Securities Act, or within the
registration or qualification requirements of any "blue sky" or securities laws
of any state or other jurisdiction. Assuming the Purchasers are all Accredited
Investors, the offering, issuance and sale of the Securities are exempt from the
registration provisions of the Securities Act.
3.2 Organization, Qualification, and Corporate Power. The Company is a
------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Colorado. Each of its Subsidiaries is a limited liability
company or a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each of the Company
Parties is duly authorized, qualified and licensed and is in good standing to
conduct business under the laws of each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or license necessary, except in such jurisdictions
where the lack of such qualification or license or the failure to be in good
standing would not have a Material Adverse Effect. Each jurisdiction in which
the Company or any of its Subsidiaries is authorized to conduct business is
identified in the Disclosure Schedule. Each of the Company Parties has full
corporate power and authority to carry on the businesses in which it is engaged
as such businesses are now being conducted and to own, lease and use the
properties currently owned, leased and used by it. The Disclosure Schedule
lists the directors and officers of the Company and the managers or directors
and officers, as the case may be, of each of its Subsidiaries. The Company has
made available to the Purchasers true, correct and complete copies of the
charter and bylaws or other operational documents of each of its Subsidiaries
(in each case as amended to date).
18
<PAGE>
3.3 Terms, Validity, Etc. The Company has delivered to the Purchasers
---------------------
true and complete copies of its Articles of Incorporation and By-Laws as in
effect on the date hereof. The Shares and the Warrants, when issued as provided
herein, and the Underlying Shares, when issued upon conversion of Series B
Shares in accordance with the Series B Articles of Amendment or the exercise,
conversion or exchange of Warrants in accordance with the Warrant Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, free and
clear of any Lien, restriction or claim, other than any restriction on transfer
under applicable Federal and State securities laws, and with no personal
liability attaching to the ownership thereof, and the holder thereof will have
the respective rights, preferences and privileges, and will be subject only to
the applicable limitations and restrictions, provided in the Company's Amended
and Restated Articles of Incorporation (including the Series B Articles of
Amendment), the Warrant Agreement and the other Transaction Documents.
3.4 Capitalization.
--------------
(a) The authorized and issued capital stock of the Company consisted solely
of (i) 100,000,000 authorized shares of Common Stock, of which 28,929,824 shares
were issued and outstanding, all Persons, to the Company's Knowledge, owning of
record greater than 5% of the outstanding shares are named in the Disclosure
Schedule and no shares were held in treasury, and (ii) 1,000,000 authorized
shares of "blank-check" Preferred Stock, none of which was designated, issued or
outstanding, except for 175,000 unissued shares designated as Series B Preferred
Stock. As of such time, except as set forth in the Disclosure Schedule, (i) no
shares of capital stock of the Company of any class or series were reserved for
issuance except for the shares of Common Stock issuable upon conversion of the
Shares or exercise of the Warrants; and (ii) other than pursuant to certain
provisions of the Transaction Documents, there were no voting trusts or other
Contracts, arrangements or understandings to which the Company was a party or by
which it was bound or of which the Company had knowledge that directly,
indirectly, absolutely or contingently, related to the issuance, ownership,
pledge, transfer, purchase, redemption or repurchase, voting or registration
under the Securities Act of, or any restrictions with respect to, any shares of
authorized, issued, or outstanding capital stock of the Company of any class or
series. No Redeemable Equity of the Company is authorized, issued or
outstanding. The Company has previously furnished to the Purchasers a true,
correct and complete copy of each registration rights agreement entered into by
the Company in favor of any Person.
(b) Immediately after the Closing and after giving effect to the
issuance of the Shares and the Warrants, the statements in Section 3.4(a) shall
--------------
be true, accurate and complete in all material respects, except that the Shares
and the Warrants will be outstanding.
(c) Except as set forth in the Disclosure Schedule, there are no
outstanding or authorized Rights or other Contracts, commitments, arrangements
or understandings that could require the Company to issue, sell, or otherwise
cause to become outstanding any shares of its capital stock, or stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the
19
<PAGE>
Company. No capital stock or other securities of the Company have been, and the
Securities are not being, and the Underlying Shares, when issued upon conversion
of the Series B Shares or exercise of the Warrants, as the case may be, will not
be, issued in violation of any preemptive rights. The Company has duly reserved
15,328,206 shares of Common Stock for issuance upon conversion, exercise or
exchange of the Shares and the Warrants. None of the issuance or sale of the
Securities, any future conversion, exercise or exchange of any Series B Share or
Warrant, nor any future adjustments in the number of shares of Common Stock or
the kinds or amounts of other securities or property deliverable upon exercise,
conversion or exchange of the Warrants or conversion of Series B Shares or in
the amount of consideration payable by holders upon such exercise or conversion
shall (i) give any Person any preemptive right or any similar or other right to
subscribe for, purchase or otherwise acquire any of the Securities, any Warrant
Securities, any convertible securities, any other shares of capital stock of the
Company of any class or series or any Rights with respect thereto or any other
securities of the Company or (ii) result in any adjustments in the number of
shares of Common Stock or the kinds or amounts of other securities or property
deliverable upon exercise of the Existing Rights or in the amount of
consideration payable by the holders thereof upon such exercise. Without
limiting the generality of the foregoing, except as set forth in the Disclosure
Schedule, no conversion price or exercise price of any Right or other security
of the Company will be reduced, and the number of shares of Common Stock
underlying any Right or other security of the Company shall not be increased, as
the result of the issuance or exercise of the Securities.
3.5 Indebtedness. The Disclosure Schedule contains a list of all
------------
outstanding loan or credit agreements, notes, bonds, mortgages, indentures and
other similar agreements and instruments pursuant to which the Company or any of
its Subsidiaries has borrowed money (other than purchase money indebtedness and
indebtedness for money borrowed by a Subsidiary from the Company, in each case
incurred in the Ordinary Course of Business) in excess of $250,000, and the
respective amounts of principal and accrued and unpaid interest outstanding
thereunder as of a recent date.
3.6 Compliance with Laws; Noncontravention.
--------------------------------------
(a) Compliance and Noncontravention. Neither the execution, delivery or
-------------------------------
performance of this Agreement or any other Transaction Document, nor the
consummation of any of the Transactions does or will (i) violate any Requirement
of Law or Judgment to which the Company, any of its Subsidiaries or any of the
Assets is subject or bound, or any provision of the charter or bylaws of the
Company or of the charter, bylaws, operating agreement or other organizational
document of any of its Subsidiaries, or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under, any Company Contract or any legal or contractual right,
privilege, License or franchise which is included in the Assets, or result in
the imposition of any Lien upon any of the Assets, except where any such
violation, conflict, breach, default, right to accelerate, terminate, modify or
cancel, or require a notice or result in the imposition of a Lien would not have
a Material Adverse Effect. Assuming that the representations and warranties of
the Purchasers contained herein are true, neither the Company nor any of its
Subsidiaries is required to give any
20
<PAGE>
notice, declaration, report or statement to, make any filing with, or obtain any
authorization, consent, declaration or approval of any Governmental Authority or
other third party in connection with the execution and delivery by the Parties
of, or the consummation of the Transactions or in order to preclude any
termination, suspension, modification or impairment of any of the Company
Contracts or any material legal or contractual right, privilege, License or
franchise which is included in the Assets.
(b) Corporate Controls. Neither the Company nor any of its Subsidiaries:
------------------
(i) are aware of or have taken any action, directly or indirectly, that would
result in a violation by such Persons of the FCPA or the Federal Law for the
Liability of Public Servants, had such laws applied, including, without
limitation, making use of the mails or any means or instrumentality of
interstate commerce corruptly in furtherance of an offer, payment, promise to
pay or authorization of the payment of any money, or other property, gift,
promise to give, or authorization of the giving of anything of value to any
"foreign official" (as such term is defined in the FCPA) or any foreign
political party or official thereof or any candidate for foreign political
office, in contravention of the FCPA or in violation of any Law of any Country
of Operations; or (ii) have offered, promised, authorized or made, directly or
indirectly, any unlawful payments or any payments or other inducements to any
foreign official, with the intent or purpose or result of: (A) influencing any
act or decision of such official in his official capacity, (B) inducing such
official to do or omit to do any act in violation of the lawful duty of such
official, or (C) inducing such official to use his influence with a government
or instrumentality thereof to affect or influence any act or decision of such
government or instrumentality, in each case in order to assist the Company or
any of its Subsidiaries in obtaining or retaining business for or with, or
directing business to, any Person.
3.7 Subsidiaries.
------------
(a) The Disclosure Schedule sets forth for each Subsidiary of the Company
(i) its name and jurisdiction of organization, (ii) its form of organization and
capital structure, and (iii) the capital stock or membership or other equity
interests held by the Company in such Subsidiary. The Company holds of record
and owns beneficially all of the outstanding shares of capital stock or other
equity or ownership interests in each of its Subsidiaries, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws or as disclosed on the Disclosure Schedule), Taxes, Liens,
options, warrants, purchase rights, contracts, commitments, equities, claims,
and demands of any nature whatsoever.
(b) Except as set forth in the Disclosure Schedule, there are no
outstanding or authorized Rights, Contracts, arrangements or understandings that
could require the Company or any of its Subsidiaries to sell, transfer, or
otherwise dispose of any equity or ownership interest in any of its Subsidiaries
or that could require any Subsidiary of the Company to issue, sell, or otherwise
cause to become outstanding any of its own shares of capital stock or membership
or other equity or ownership interests or any shares of capital stock or
membership or other equity or ownership interests in any other Subsidiary. There
are no (i) authorized or outstanding stock appreciation,
21
<PAGE>
phantom stock, profit participation, or similar rights with respect to or
Redeemable Equity of, any Subsidiary of the Company or (ii) voting trusts,
proxies, or other agreements or understandings with respect to the voting of any
capital stock, membership interest or other equity or ownership interests of any
such Subsidiary. Except as set forth in the Disclosure Schedule, none of the
Company Parties controls directly or indirectly or has any direct or indirect
equity participation or other investment in any Person which is not a
Subsidiary.
3.8 Corporate Records. The minute books or similar records of the
-----------------
Company and each of its Subsidiaries, which have been made available to the
Purchasers, contain true and complete records in all material respects of all
meetings of, or written consents in lieu of meetings executed by, the respective
boards of directors (and all committees thereof) and shareholders or other
equity owners of the Company and each such Subsidiary. All material actions and
transactions taken or entered into by the Company or any such Subsidiary and
requiring action by its Board of Directors (or Persons performing similar
functions for any non-corporate Subsidiary) or shareholders or other equity
owners have been duly authorized or ratified as necessary and are evidenced in
such minute books; except where the failure of such authorization, ratification
or evidence in the minute book would not have a Material Adverse Effect. The
stock certificate books and stock records of the Company and each such
Subsidiary, as made available to the Purchasers, are true and complete.
22
<PAGE>
3.9 Financial Statements.
--------------------
(a) Company Reports; Financial Statements. (a) The Company has made
-------------------------------------
available to the Purchasers a true and complete copy of (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1999, (ii) the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1999 and (iii)
each registration statement, report on Form 8-K, proxy statement, information
statement or other report or statement filed by the Company with the Commission
since September 30, 1999 and prior to the date hereof, in each case in the form
(including exhibits and any amendments thereto) filed with the Commission
(collectively, the "SEC Reports"). As of their respective dates, the SEC
-----------
Reports and any registration statement, report, proxy statement, information
statement or other statement filed by the Company with the Commission after the
date hereof and before the Closing Date ("Subsequent Reports") (i) was, or will
------------------
be, as the case may be, timely filed with the Commission; (ii) complied, or will
comply, as the case may be, in all material respects, with the applicable
requirements of the Exchange Act and the Securities Act, and (iii) did not, or
will not, as the case may be, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) Each of the consolidated balance sheets (including, where applicable,
the related notes and schedules) included in or incorporated by reference into
the SEC Reports and any Subsequent Reports fairly presents, or will fairly
present, as the case may be, in all material respects, the consolidated
financial position of the Company and its Subsidiaries as of the date thereof,
and each of the consolidated statements of income (or statements of results of
operations), stockholders' equity and cash flows (including the related notes
and schedules) included in or incorporated by reference into the SEC Reports and
any Subsequent Reports fairly presents or will fairly present as the case may
be, in all material respects, the results of operations, retained earnings and
cash flows, as the case may be, of the Company and its Subsidiaries (on a
consolidated basis) for the periods or as of the dates, as the case may be, set
forth therein, in each case in accordance with GAAP applied on a consistent
basis throughout the periods covered (except as otherwise noted therein) and in
compliance with the rules and regulations of the Commission.
3.10 Events Subsequent to Most Recent Fiscal Period End. Except as
--------------------------------------------------
disclosed in the SEC Reports or the Disclosure Schedule, since December 31,
1999, there has not been any Material Adverse Effect and each Company Party has
conducted its business and affairs in the Ordinary Course of Business. Without
limiting the generality of the foregoing, since December 31, 1999:
(a) none of the Company Parties has sold, leased, transferred, or
assigned any of its Assets, other than (i) immaterial Assets or (ii) Assets
sold, leased, transferred or assigned in the Ordinary Course of Business;
23
<PAGE>
(b) none of the Company Parties has entered into any agreement,
Contract or license (or series of related Contracts) involving more than
$250,000 and outside the Ordinary Course of Business;
(c) none of the Company Parties has accelerated, terminated (other
than upon the expiration of its term), modified, or canceled any Contract (or
series of related Contracts) and involving more than $250,000 to which the
Company or any of its Subsidiaries is or was a party or by which it is or was
bound;
(d) none of the Company Parties has imposed or suffered to exist any
Lien upon any of the Assets, other than Permitted Liens;
(e) none of the Company Parties has purchased, leased or acquired any
Assets or made any capital or operating expenditure (or series of related
capital or operating expenditures), capital addition or improvement, in either
case, not contemplated by the Company's current annual operating budget and
involving more than $250,000;
(f) none of the Company Parties has made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any other Person
(or series of related capital investments, loans, and acquisitions) not
contemplated by the Company's current annual operating budget and involving more
than $250,000;
(g) none of the Company Parties has issued any note, bond or other
debt security or Redeemable Equity or created, incurred, assumed, or guaranteed
any indebtedness for borrowed money or capitalized lease obligations involving
more than $250,000 singly or $500,000 in the aggregate (other than indebtedness
for money borrowed by a Subsidiary from the Company, in each case incurred in
the Ordinary Course of Business);
(h) there has been no change made or authorized in the charter or
bylaws of the Company or in the charter, bylaws, operating agreement or other
organizational documents of any of its Subsidiaries (except for the designation
of the Series B Preferred Stock);
(i) the Company has not declared, set aside, or paid any dividend or
made any distribution with respect to its capital stock (whether in cash,
securities, property or otherwise) or redeemed, purchased, or otherwise acquired
any of its capital stock, or granted any Rights to purchase or obtain (including
upon conversion, exchange, or exercise) any of its capital stock;
(j) none of the Company Parties has experienced any damage,
destruction, or loss (whether or not covered by insurance) to any material
amount of its Assets;
(k) none of the Company Parties has made any loan to any Person,
(other than accounts receivable in the Ordinary Course of Business) or entered
into any other transaction with
24
<PAGE>
or for the benefit of any of the Company's stockholders, directors, officers, or
employees, in each case involving more than $25,000;
(l) none of the Company Parties has discharged or satisfied any Lien,
or paid, canceled, compromised or otherwise satisfied any obligation,
indebtedness or Liability (absolute or contingent) other than the payment in the
Ordinary Course of Business of current Liabilities shown on the Balance Sheet or
incurred since the date thereof in the Ordinary Course of Business;
(m) none of the Company Parties has (A) increased the rate of
compensation payable or to become payable by it to any of its officers,
directors, employees or agents, except for increases in the Ordinary Course of
Business or required under the current terms of employment agreements, or (B)
granted, made or accrued any bonus, incentive compensation, service award or
other like benefit, contingently or otherwise, to or for the credit of any of
its officers, directors, employees or agents, other than in the Ordinary Course
of Business, or made or provided under any employee welfare, pension,
retirement, profit sharing or similar payment or benefit except pursuant to
regularly scheduled payments required pursuant to the current terms of the
Employee Benefit Plans described in the Disclosure Schedule or (C) paid or
granted any right to receive any severance or termination pay to any officer,
director, or agent;
(n) except as disclosed in the Financial Statements, none of the
Company Parties has made any material change in any method of accounting or any
accounting practice; and
(o) none of the Company Parties has entered into any Contract to do
any of the foregoing.
3.11 Undisclosed Liabilities. (i) None of the Company Parties has any
-----------------------
Liability or other obligation which, singly or in the aggregate, would be
required to be reflected or reserved against in a balance sheet of the Company
and its Subsidiaries prepared in accordance with GAAP and (ii) to the Company's
Knowledge, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
which if asserted could result in any such Liability or other obligation which,
singly or in the aggregate, would be required to be reflected or reserved
against in a balance sheet of the Company and its Subsidiaries prepared in
accordance with GAAP, except for (x) Liabilities set forth on the face of the
Balance Sheet (rather than in any notes thereto), (y) Liabilities which have
arisen after the date of the Balance Sheet in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of Contract, tort, infringement, or violation of law)
and (z) Liabilities that do not have a Material Adverse Effect on the Company
Parties. Other than as set forth on the Disclosure Schedule, there are no
contractual or other restrictions or limitations on the ability of the Company
Parties to pay any dividends or make any other distributions on, or to purchase,
redeem or otherwise acquire any of its Securities.
25
<PAGE>
3.12 Legal Compliance. Each of the Company Parties has complied in all
----------------
material respects with all applicable Requirements of Law and Judgments, and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply except to the extent that such failure would not have a
Material Adverse Effect.
3.13 Tax Matters.
-----------
(a) Each of the Company Parties has filed on a timely basis all Tax
Returns that it was required to file on or prior to the date hereof. All such
Tax Returns were, when filed, correct and complete in all material respects.
All Taxes owed by the Company Parties (whether or not shown on any Tax Return)
have been paid or accrued. None of the Company Parties is currently the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by a Governmental Authority in a jurisdiction where any
of the Company Parties does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Liens on any of the Assets that
arose in connection with any failure (or alleged failure) to pay any Tax.
(b) Each Company Party has withheld and paid to the proper
Governmental Authority all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(c) There is no dispute or claim concerning any Tax Liability of the
Company or any of its Subsidiaries either (i) claimed or raised by any
Governmental Authority in writing or (ii) to the Company's knowledge, based upon
personal contact by any officer or employee of the Company or any of its
Subsidiaries with any agent of any Governmental Authority. The Disclosure
Schedule lists all federal, state, local, and foreign income Tax Returns that
have been audited, and indicates those Tax Returns that currently are the
subject of audit.
(d) None of the Company Parties has waived any statute of limitations
in respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) None of the Company Parties has filed a consent under Code Section
341(f) concerning collapsible corporations. None of the Company Parties has
made any payments, is obligated to make any payments, nor is a party to any
agreement that under certain circumstances could obligate it to make any
payments, that will not be deductible under Code Section 280G. None of the
Company Parties is a party to any Tax allocation or sharing agreement which will
not be terminated effective as of the First Closing. Neither the Company nor
its Subsidiaries has been a member of an Affiliated Group filing a consolidated
federal income Tax Return other than a group the common parent of which was the
Company.
26
<PAGE>
(f) None of the Company Parties has any liability for the Taxes of any
Person other than another Company Party under Reg. Section 1.1502-6 (or any
similar provisions of state, local, or foreign law, as a transferee or
successor, by contract or otherwise).
3.14 Real Property; Environmental Matters.
------------------------------------
(a) The Disclosure Schedule identifies all real property as to which
the Company or any of its Subsidiaries is the fee owner, operator or the lessee
under a lease described in Section 3.14(e).
---------------
(b) To the Company's Knowledge there are no pending actions or
proceedings (including condemnation proceedings) concerning any such current or
formerly owned, operated or leased real property that, if adversely determined
to the Company or its Subsidiaries, can reasonably be expected to have a
Material Adverse Effect and, to the Company's knowledge, no such action or
proceeding has been threatened.
(c) None of the Company Parties has received any written notice from
any city, village or Governmental Authority requiring the correction of any
condition with respect to any Property by reason of a violation or alleged
violation of any applicable law or regulation which could reasonably be expected
to have a Material Adverse Effect, other than notices with respect to violations
or alleged violations that have been cured.
(d) The Company has made available to the Purchasers complete copies
of any third party reports that are in the Company's possession or control, have
been prepared within the last five years, and relate to the physical or
environmental condition of any of the real property currently or formerly owned,
operated, leased or occupied by the Company or any of its Subsidiaries (the
"Environmental Studies").
- ----------------------
(e) The Disclosure Schedule contains a list of all leases or other
Contracts or arrangements pursuant to which real property is leased to or
otherwise occupied or used by any Company Party requiring payments in excess of
$500,000 per year. With respect to each such Contract:
(i) if written, the Company has provided the Purchasers with
true, correct and complete copy thereof, as in effect and as amended or
modified or agreed to be amended or modified;
(ii) such Contract is in full force and effect and is legal,
valid, binding and enforceable against the parties thereto, subject to the
Remedies Exception; and
(iii) neither the Company nor any of its Subsidiaries is in
default in its obligations to pay rent under such Contract and to the
Company's knowledge, neither the
27
<PAGE>
Company nor any of its Subsidiaries nor any other party thereto is in
default in any of its other material obligations thereunder.
(f) No Company Party nor, to the Company's knowledge, any owner of any
real property owned, leased or occupied by the Company or any of its
Subsidiaries has received any outstanding written notice or request for
information from any Governmental Authority regarding any release or threatened
release of any Hazardous Materials or any actual or alleged material violation
of Environmental, Health, and Safety Laws relating to such property or its
occupancy, operation or use by the Company or any of its Subsidiaries and
arising under Environmental, Health, and Safety Laws, which if adversely
determined to the Company, any of its Subsidiaries or such owner, as the case
may be, could reasonably be expected to have a Material Adverse Effect.
(g) Except as described in the Environmental Studies, each of the
Company Parties has complied and is in compliance, with all Environmental,
Health, and Safety Laws and has obtained, has complied, and is currently in
compliance with, in each case in all material respects, all Licenses that are
required pursuant to Environmental, Health, and Safety Laws for the occupation
of its facilities or the operation of its businesses, in each case where
noncompliance could reasonably be expected to have a Material Adverse Effect.
(h) to the Company's Knowledge, there are no past or present events,
conditions or circumstances, including but not limited to pending changes in any
Environmental, Health and Safety Law or License, that are likely to interfere
with or otherwise affect the businesses or operations of the Company or any of
its Subsidiaries in the manner now conducted or which would interfere
substantially with compliance or continued compliance with any Environmental,
Health and Safety Law or License, in each case in a manner that could reasonably
be expected to have a Material Adverse Effect.
3.15 Intellectual Property.
---------------------
(a) The Disclosure Schedule sets forth an accurate and complete list
of the material Intellectual Property owned by the Company Parties. Except as
expressly set forth in the Disclosure Schedule, the Company is the sole and
exclusive owner of all such Intellectual Property. The Company has rights to
use all Intellectual Property material to its Business or has readily available
substitutes for such Intellectual Property.
(b) Each of the Company Parties owns or has adequate rights to use (in
the manner and to the extent presently used) all of the Intellectual Property
used in or necessary for the operation and conduct of its business as presently
or proposed to be conducted, without, to the Company's knowledge, any material
conflict or claim of conflict with the rights of others. None of such
Intellectual Property is subject to any outstanding Judgment restricting the use
thereof by the Company or any of its Subsidiaries.
28
<PAGE>
(c) (i) None of the Company Parties has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties and (ii) to the knowledge of the Company, no
third party has interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of the Company Parties.
(d) No Company Party is in material default in the payment of any
royalties, license fees or other consideration to any owner or licensor of any
Intellectual Property used in or necessary for the conduct of its business as
now conducted and as proposed to be conducted or to any agent or representative
of any such owner or licensor by reason of such Company Party's use thereof nor
otherwise is in default in any material respect in the performance of any of its
obligations to any such owner or licensor, and no such owner or licensor, nor
any such agent or representative, has notified any Company Party in writing of
any claim of any such default.
3.16 Licenses; Requirements of Law. Each of the Company Parties
-----------------------------
possesses all material authorizations, approvals, consents, licenses, permits,
easements, certificates and other rights and permissions necessary to conduct
its respective business and to own, lease and operate its respective properties
as currently or proposed to be conducted, owned, leased or operated
(collectively for all Company Parties, the "Licenses"). All of the Licenses are
in full force and effect. The Company has no reason to believe that any of the
Licenses will be revoked, canceled, rescinded, or not renewed in the ordinary
course and on the same or more favorable material terms, other than any such
revocation, cancellation, rescission, or non-renewal of any License which is not
individually or in the aggregate with one or more other License(s), material to
the business or operations of the Company and the Subsidiaries taken as whole.
There is not now pending any material complaint nor, to the knowledge of the
Company, any basis for any such complaint, which might have any of the results
referred to in the immediately preceding sentence. Each of the Company Parties
is operating in all material respects in accordance with the terms of the
Licenses. Each of the Company Parties is, and has conducted its business and
affairs, in compliance with all applicable Requirements of Law, except where the
failure to comply has not had and, insofar as reasonably can be foreseen, will
not have a Material Adverse Effect.
3.17 Title to Personal Property; Liens; Intangible Property. Each
------------------------------------------------------
Company Party has good title to all of its properties which are not real
property, free and clear of all Liens, other than Permitted Liens.
3.18 Insurance. The properties and operations of each Company Party are
---------
insured under various policies of general liability and other forms of insurance
covering such risks as are usually insured against by reasonably prudent
companies engaged in the businesses and activities in which such Company Party
is engaged, in amounts which are customarily considered adequate in relation to
the business and properties of such Company Party, and all premiums to date have
been paid in full. No Company Party has been refused any insurance, nor has its
coverage been limited, by an
29
<PAGE>
insurance carrier to which it has applied for insurance or with which it has
carried insurance during the past five years.
3.19 Absence of Certain Interests of Affiliated Parties. Except as set
--------------------------------------------------
forth in the Disclosure Schedule, no present or former stockholder, partner,
director, officer or employee of any Company Party nor any of their Related
Persons owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, in any Intellectual Property or any other
material asset or property which any Company Party owns, possesses or uses in
its business as now or proposed to be conducted, or is involved in any business
arrangement or relationship with any Company Party which is material to the
business and operations of the Company Parties. None of the present or former
stockholders, partners, joint venturers, directors or officers of any Company
Party or any Related Person of any of the foregoing is indebted to any Company
Party, and no Company Party is indebted or has any other liability to any such
Person, except (i) pursuant to the express terms of one or more Contracts
identified in the Disclosure Schedule and (ii) liabilities to directors or
officers for compensation for services in such capacity (or as employees) or to
stockholders who are employees rendered since the end of the last calendar
month.
3.20 Contracts. The Disclosure Schedule lists the following contracts
---------
and other agreements to or by which the Company or any of its Subsidiaries is a
party or bound (the "Company Contracts"):
(i) Contract with any present or former stockholder, director,
officer, or consultant or any Related Person of such Person or for the
employment of any such Person involving payments in excess of $200,000 per
year, including any consultant or any oral contract with any such Person
which is not terminable at will by the Company Party which is a party
thereto without any payment of any kind and except for (x) employment
contracts with stockholders who are employees of the Company, (y) the
Company Plans and (z) Contracts exclusively between and for the benefit of
and enforceable by Company Parties;
(ii) Contract outside the Ordinary Course of Business for the
future purchase of, or payment for, equipment, inventory, supplies, other
goods or products or services having a total value or involving total
payments or costs of $250,000 or more in any one case or in the aggregate
for all Contracts which are related or which are with the same Person or
group of affiliated Persons;
(iii) Contract outside the Ordinary Course of Business continuing
over a period of more than six months from the date hereof having a total
value or involving total payments or costs of $250,000 or more in any one
case or in the aggregate for all Contracts which are related or which are
with the same Person or a group of affiliated Persons;
(iv) distribution, dealer, representative or agency Contract
outside the Ordinary Course of Business which, individually or together
with one or more such Contracts which
30
<PAGE>
are related or are with the same Person or group of affiliated Persons,
involve payments in excess of $250,000.
(v) lease outside the Ordinary Course of Business under which any
Company Party is either lessor or lessee of any real property or any
material personal property having annual lease payments in excess of
$250,000;
(vi) note, debenture, bond or other security or evidence of
indebtedness, equipment trust agreement, letter of credit agreement, loan
agreement, pledge or security agreement, mortgage or other Contract
pursuant to which any material contingent obligation (or any other
Liability) in excess of $250,000 of any Company Party to any other Person
or of any other Person to any Company Party was incurred or may be incurred
in the future or otherwise relating to any such contingent obligation or
other Liability;
(vii) Except as provided in the Company's current annual operating
budget previously approved by the Company's board of directors, Contract
for any capital expenditure or leasehold improvement outside the Ordinary
Course of Business in excess of $250,000 per year in any single case or
$500,000 per year in the aggregate for all cases;
(viii) Contract, not otherwise disclosed (with sufficient
specificity regarding the following), limiting or restraining any Company
Party from engaging in any business or competing in any manner generally or
in any specific geographic area or obligating any Company Party to present
any business or other opportunity to any other Person or grant or offer to
grant any other Person any participation or other interest in any business
or other opportunity;
(ix) Contract, not otherwise disclosed (with sufficient
specificity regarding the following), pursuant to which any Person has a
right of first refusal, a "tag-along" right or any similar right with
respect to any proposed disposition by any Company Party of any equity
interest in another Company Party or of any other property of such first
Company Party;
(x) Contract with any labor union or other labor representative;
(xi) bonus, pension, profit-sharing, retirement, stock purchase,
stock option or other equity based, deferred or incentive compensation,
death benefit, disability, severance, termination, retention, change in
control, insurance, medical, fringe or other benefit plan, or similar plan,
program or Contract in effect with respect to its employees or the
employees of others, except for the Employee Benefit Plans;
(xii) Except as otherwise disclosed, any Contract which provides
for "golden parachute" or similar benefits;
31
<PAGE>
(xiii) Except as otherwise disclosed, any Material Contract outside
the Ordinary Course of Business relating to the mortgaging, pledging or
other placing of a Lien on any properties of any Company Party;
(xiv) Except as otherwise disclosed, any Contract under which the
consequences of a default or termination would have a Material Adverse
Effect;
The Company has made available to the Purchasers a correct and complete copy of
each written Contract (as amended to date) listed in the Disclosure Schedule.
Each Contract required to be identified in the Disclosure Schedule is in full
force and effect and, to the Company's knowledge, is the legal, valid and
binding obligation of the parties thereto other than a Company Party and
enforceable against such other parties in accordance with its terms, subject to
the Remedies Exception.
3.21 Litigation. The Disclosure Schedule sets forth each Judgment
----------
entered against or specifically relating to any of the Company Parties or any of
the Assets. No Company Party is a party to or otherwise involved in or, to the
Company's knowledge, is threatened to be made a party to or threatened to be
involved in any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator which,
individually or in the aggregate, would, if determined adversely, have a
Material Adverse Effect.
3.22 Employees. Except as set forth in the Disclosure Schedule, none of
---------
the Company Parties is a party to or bound by any collective bargaining or
similar labor agreement, nor has any Company Party experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. None of the Company Parties has committed any unfair labor practice
within the meaning of any applicable Requirement of Law. Each of the Company
Parties is in compliance in all material respects with all applicable
Requirements of Law relating to the employment, the terms and conditions of
employment and the termination of employment of their respective employees.
Except as set forth in the Disclosure Schedule to the Company's Knowledge, there
is no organizational effort presently being made or threatened by or on behalf
of any labor union or other labor representative with respect to employees of
any Company Party.
3.23 Employee Benefits.
-----------------
(a) The Disclosure Schedule lists each Employee Benefit Plan established
or maintained the Company or any of its Subsidiaries or ERISA Affiliates or to
which the Company or any of its Subsidiaries or ERISA Affiliates contributes or
is obligated to contribute (and each related trust, insurance contract or fund)
complies in form and in operation in all material respects with the applicable
requirements of ERISA, the Code, and other applicable Requirements of Law.
Except as set forth on the Disclosure Schedule, none of the Company Parties
maintains any Employee
32
<PAGE>
Benefit Plan which is an Employee Pension Benefit Plan. The Company has made
available to the Purchasers correct and complete copies of the plan documents
and summary plan descriptions, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and other funding agreements
which implement each such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that any of the Company
Parties or any ERISA Affiliate maintains or ever has maintained or to which any
of them contributes, ever has contributed, or ever has been required to
contribute:
(i) To the knowledge of the Company, no Such Employee Benefit Plan
which is an Employee Pension Benefit Plan has been completely or partially
terminated or been the subject to a Reportable Event as to which notice
would be required to be filed with the PBGC. No proceeding by the PBGC to
terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(ii) To the knowledge of the Company, there have been no
Prohibited Transactions with respect to any such Employee Benefit Plan. No
Fiduciary has any Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan that would have
a Material Adverse Effect.
(iii) No action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is pending
or, to the Company's knowledge, threatened, except where the action, suit,
proceeding, hearing or investigation would not have a Material Adverse
Effect.
(iv) None of the Company Parties nor any ERISA Affiliate has
incurred any Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title I or IV of ERISA (including any withdrawal Liability)
or under the Code with respect to any such Employee Benefit Plan which is
an Employee Pension Benefit Plan.
(v) None of the Company Parties nor any ERISA Affiliates has
incurred or reasonably expects to incur any material liability under or
pursuant to Title I or IV or ERISA or the penalty or excise tax provisions
of the Code relating to Employee Benefit Plans.
(c) None of the Company Parties nor any ERISA Affiliate contributes to,
ever has contributed to, or ever has been required to contribute to any
Multiemployer Plan or has any Liability (including withdrawal Liability) in
respect of any Multiemployer Plan.
(d) None of the Company Parties maintains nor ever has maintained nor
contributes, nor ever has contributed, nor ever has been required to contribute
to any Employee Welfare Benefit Plan
33
<PAGE>
providing medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or their
dependents (other than in accordance with Part 6 of Title I of ERISA).
(e) The Company Parties have complied with the applicable requirements of
Parts 6 and 7 of Title I of ERISA with respect to any Employee Welfare Benefit
Plan providing health benefits, except where such noncompliance would not have a
Material Adverse Effect.
(f) No current or former employee of any Company Party is or may become
entitled, as a result of the consummation of the Transactions (either alone or
together with the occurrence of any other event), to (i) any accelerated or
increased payment or benefit, (ii) any accelerated or special vesting of any
payment, right or benefit or (iii) any payment or benefit that is not tax
deductible by the applicable Company Party.
3.24 Guaranties. Except as set forth in the Disclosure Schedule and
----------
except for guarantees of customer obligations to equipment lessors made in the
Ordinary Course of Business, none of the Company Parties is a guarantor or co-
borrower in respect of any Liability or obligation or is otherwise liable for
any Liability or obligation (including indebtedness) of any other Person other
than another Company Party.
3.25 Availability of Documents. The Company has made available to the
-------------------------
Purchasers copies of all documents, including all Contracts, insurance polices,
leases, plans, instruments, and Licenses listed in the Disclosure Schedule or
otherwise referred to herein. Such copies are true and complete and include all
amendments, supplements and modifications thereto or waivers currently in effect
thereunder. The Company will deliver to the Purchasers, at the Closing, (i) a
certificate, dated the date hereof, of the chief executive officer of the
Company and the Secretary of the Company (A) attaching copies, certified by such
officers as true and complete, of the resolutions of the Board of Directors of
the Company in connection with the authorization and approval of the execution,
delivery and performance of the Transaction Documents and consummation of the
Transactions and of all other documents evidencing all necessary corporate
action taken in connection therewith, (B) attaching copies, certified by such
officers as true and complete, of the Amended and Restated Articles of
Incorporation and By-laws of the Company and of the Series B Articles of
Amendment, (C) which includes a representation by such officers that the copies
of the Amended and Restated Articles of Incorporation and By-Laws or other
organizational documents of each Subsidiary of the Company, as previously
provided to the Purchasers, are true and complete in all respects, and (D)
setting forth the incumbency of the officer or officers of the Company who have
executed and delivered this Agreement and each other Transaction Document,
including therein a signature specimen of each such officer or officers; (ii)
copies, certified by an officer of the Company, of each Company Party's Articles
of Incorporation or other organizational documents (including, in the case of
the Company, the Series B Articles of Amendment), in each case as of the date of
this Agreement, (iii) the results of such Lien and suits and Judgment searches
previously requested by the Purchasers and performed by a company specializing
in such searches and (iv) the
34
<PAGE>
opinion of counsel to the Company in the form previously agreed upon by the
Company and the Purchasers. The Company covenants and agrees with the Purchasers
that it shall deliver to the Purchasers a long form certificate of existence and
good standing (including tax good standing) as to each Company Party, dated as
of a recent date, of the Secretary of State of the State of Colorado or the
jurisdiction of incorporation of such Company Party.
3.26 Restrictions. Except as set forth in Section 3.26 of the
------------
Disclosure Schedule, none of the Company Parties is currently a party to or
bound by any Contract, subject to any restriction of any nature under any of its
charter or other organizational or constituent documents, subject to any
Requirements of Law or subject to any Judgment which materially adversely
affects or materially restricts or, so far as the Company can now reasonably
foresee, may in the future have a Material Adverse Effect or materially
restrict, the business, operations, properties, results of operations, prospects
or condition (financial or otherwise) of such Company Party.
3.27 Key Employees. Except as set forth on the Disclosure Schedule,
-------------
none of the officers or key employees of any Company Party, to the Company's
knowledge, presently intends to terminate his or her employment by such Company
Party.
3.28 Suppliers; Customers.
--------------------
(a) Suppliers. The Disclosure Schedule sets forth the twenty (20) largest
---------
suppliers of the Company in terms of purchases as of December 31, 1999, showing
the approximate value of such purchases from each supplier. None of such
suppliers has notified any Company Party that it intends to terminate or change
significantly its sale of products purchased by such party or any of the
material terms thereof. To the knowledge of the Company Parties none of such
suppliers is insolvent. Except as specifically set forth in the Disclosure
Schedule, neither the Company nor any of the Company Parties has granted or
agreed to grant any unusual credit, trade-in, free return, discount or other
unusual sales terms in the acquisition of its inventory. The Company Parties
have taken all necessary action to protect their rights under applicable
warranties. There are no claims pending or threatened by any Company Party
against any of their suppliers, other than those which would not result in a
Material Adverse Effect.
(b) Customers. The Disclosure Schedule sets forth the twenty (20) largest
---------
customers of the Company and the other Company Parties in terms of aggregate
sales as of December 31, 1999. None of such customers has any Company Party
that it intends to terminate or change significantly its purchase of products or
any of the material terms thereof. To the knowledge of the Company none of such
customers is insolvent. Except as specifically set forth in the Disclosure
Schedule neither the Company nor any of the Company Parties has granted or
agreed to grant any unusual credit, trade-in, free return, discount or other
unusual sales terms in its sales agreement. The Company and the Company Parties
have taken all necessary action to protect their rights under applicable
warranties. There are no claims pending or threatened by any customers against
the any Company Party, other than those which would not result in a Material
Adverse Effect.
35
<PAGE>
3.29 Other Agreements. All representations and warranties of any
----------------
Company Party contained in any of the Transaction Documents other than this
Agreement are accurate and complete in all material respects.
3.30 Disclosure. The representations and warranties contained in this
----------
Article III hereto do not contain any untrue statement of a material fact or
- -----------
omit to state any material fact necessary in order to make the statements and
information contained in this Article III not misleading.
-----------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each Purchaser, severally and not jointly, agrees with, and represents and
warrants, to the Company as follows:
4.1 Purchase for Investment. The Securities being acquired on the date
-----------------------
hereof by such Purchaser pursuant to this Agreement are being acquired for its
own account and with no intention of distributing or reselling such Securities
or any part thereof in any transaction which would be in violation of the
Securities Act, without prejudice, however, to any right of such Purchaser to
sell or otherwise dispose of all or any part of such Securities pursuant to a
registration under the Securities Act or under an exemption from such
registration available under the Securities Act, and subject, nevertheless, to
the disposition of the Purchasers' property being at all times within its
control and discretion.
4.2 Organization; Status As Accredited Investor. Such Purchaser is a
-------------------------------------------
limited partnership or limited liability company duly organized under the laws
of its jurisdiction of organization and is an Accredited Investor.
4.3 Power. Such Purchaser has all requisite power and authority to
-----
execute, deliver and perform its obligations under each of the Transaction
Documents, and to consummate the respective Transactions contemplated hereby and
thereby.
4.4 Execution and Delivery; Authorization. Each of the Transaction
-------------------------------------
Documents has been duly and validly executed and delivered by such Purchaser.
The execution, delivery and performance by such Purchaser of, and the
consummation of the Transactions contemplated by, this Agreement and each of the
other Transaction Documents have been duly and validly authorized by all
necessary partnership action on the part of such Purchaser. Each of the
Transaction Documents, when executed and delivered, will constitute a legal,
valid and binding obligation of such Purchaser, enforceable in accordance with
its terms, subject to the Remedies Exception.
36
<PAGE>
4.5 Broker's Fees. Such Purchaser does not have any liability or
-------------
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the Transactions, with respect to which the Company will have any
liability.
4.6 Restricted Securities. Such Purchaser understands that the
---------------------
Securities being acquired by it at the Closing have not been registered under
the Securities Act or the securities laws of any state, based upon an exemption
from such registration requirements for non-public offerings pursuant to
Regulation D under the Securities Act or other exemptions thereunder, and that
such Securities are "restricted securities," as said term is defined in Rule 144
of the Rules and Regulations promulgated under the Securities Act.
4.7 Information.
-----------
(i) Such Purchaser has had a reasonable opportunity to ask
questions of and receive answers and documents from the Company concerning
the Company, and such Purchaser has such knowledge and expertise in
financial and business matters that it is capable of evaluating the merits
and risk involved in an investment in the Securities;
(ii) Except as set forth in this Agreement and the other
Transaction Documents, no representations or warranties have been made to
such Purchaser by the Company or any agent, employee or affiliate of the
Company relying upon any other information; and
(iii) Such Purchaser understands that the Securities being
acquired by it at the Closing are being offered and sold to it in reliance
on specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying upon the
truth and accuracy of the representations and warranties of such Purchaser
set forth in this Agreement in order to determine the applicability of such
exemptions and the suitability of such Purchaser to acquire the Securities.
37
<PAGE>
ARTICLE V
COVENANTS
---------
5.1 Conduct of Business. (a) From the date hereof until the Closing Date,
-------------------
except as set forth in the Disclosure Schedule hereto or as provided in Section
5.1(b) hereof, the Company shall conduct its business and shall cause its
Subsidiaries to conduct their respective businesses in, and only in, the
Ordinary Course of Business and shall use, and shall cause its Subsidiaries to
use, their best efforts to preserve intact their respective present business
organizations, operations, goodwill and relationships with third parties
(including, without limitation, clients and providers) and to keep available the
services of the present directors, officers and key employees. Without limiting
the generality of the foregoing, from the date hereof until the Closing Date,
without the prior written consent of the Purchasers (except as expressly
permitted or required by this Agreement):
(i) the Company shall not, and shall cause each of its Subsidiaries
not to, sell any of the assets of the Company or its
Subsidiaries (or the securities of entities holding the
same) to any Person, other than the Company or a Wholly-
Owned Subsidiary of the Company, in one transaction or a
Series of related transactions, in which the fair value of
the assets being sold, or the total consideration (in the
form of cash or property and including any contingent
consideration and any Indebtedness or other obligations
assumed) to be received by the Company and its
Subsidiaries, exceeds $2,000,000;
(ii) other than in the ordinary course of business consistent with
past practice, the Company shall not, and shall cause each
of its Subsidiaries not to, acquire any assets, in one
transaction or Series of related transactions, in which the
total consideration (in the form of cash or property and
including any contingent consideration and any Indebtedness
or other obligations assumed) to be paid by the Company and
its Subsidiaries exceeds $2,000,000;
(iii) the Company shall not, and shall cause each of its Subsidiaries
not to take any of the actions or enter into any of the
agreements, commitments or transactions described in
Section 3.10 hereof;
(iv) the Company shall not, and shall cause each of its Subsidiaries
not to, take any action that it knows or has reason to
believe would cause a representation or warranty of the
Company set forth herein to be untrue in any material
respect if made at such time, or a covenant of the Company
to fail to be satisfied as of the Closing Date;
(v) the Company shall not take, consummate, approve or authorize
any action or transaction that results or (with the passage
of time or otherwise) would result
38
<PAGE>
in any adjustment not pursuant to Section 10 of the Series
B Articles of Amendment or Article III of the Warrant
Agreement;
(vi) the Company shall not take, consummate, approve or authorize
any action or transaction which would require the consent
of the Majority Holders (as such term is defined in the
Series B Articles of Amendment) after the issuance of the
Series B Preferred Stock;
(vii) the Company shall not, and shall cause each of its Subsidiaries
not to, commit or agree to do any of the foregoing.
5.2 Reasonable Best Efforts. Each of the parties hereto agrees to use its
-----------------------
reasonable best efforts promptly to take or cause to be taken all actions and
promptly to do or cause to be done all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement in accordance with the terms of the
Agreement. Without limiting the foregoing, the Purchasers and the Company will
use their reasonable best efforts to make all filings with respect to (including
filings under the HSR Act), and to obtain, all regulatory approvals necessary
or, in the opinion of the Purchasers or the Company, advisable, in order to
permit the consummation of the Transactions contemplated hereby.
5.3 Access. Prior to the Closing, the Company Parties shall grant to the
------
Purchasers, or cause to be granted to the Purchasers and their respective
representatives, employees, counsel and accountants reasonable access, during
normal business hours and upon reasonable notice, to the personnel, properties,
books and records of the Company and each of the Company Parties.
5.4 Publicity. Except as required by Law or by obligations pursuant to any
---------
listing agreement with or requirement of any national securities exchange or
national quotation system on which the Common Stock is listed, admitted to
trading or quoted, neither the Company (nor any of its Affiliates), nor any
Purchaser (nor any of its Affiliates) shall, without the prior written consent
of each other party hereto, which consent shall not be unreasonably withheld or
delayed, make any public announcement or issue any press release with respect to
the transactions contemplated by this Agreement. Prior to making any public
disclosure required by applicable Law or pursuant to any listing agreement with
or requirement of any relevant national exchange or national quotation system,
the disclosing party shall consult with the other parties hereto, to the extent
feasible, as to the content and timing of such public announcement or press
release.
5.5 Status of Dividends. The Company agrees to treat the Series B
-------------------
Preferred Stock as equity for all Tax purposes. The Company shall take no
action (other than as required by Law) that would jeopardize the availability of
the dividends received deduction under Section 243(a)(1) of the Code for the
distributions on the Series B Preferred Stock that are paid out of current or
accumulated earnings and profits, if any.
39
<PAGE>
5.6 Exclusivity. (a) The Company shall immediately cease and terminate
-----------
any existing solicitation, initiation, encouragement, activity, discussion or
negotiation with any Persons conducted heretofore by the Company, or any of its
Subsidiaries with respect to any proposed, potential or contemplated Company
Transaction.
(b) From the date hereof until the earlier of (i) the Closing Date and (ii)
the termination of this Agreement (the "Exclusivity Period"), the Company shall
------------------
not, and shall not permit any of its Subsidiaries or Affiliates or any of its or
their directors, officers or Representatives to, directly or indirectly, (A)
solicit or initiate, or encourage the submission of, any offer, (B) participate
in any discussions or negotiations regarding, or furnish to any Person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any offer that constitutes, or may reasonably be
expected to lead to, any proposal or Company Transaction, other than a
transaction with TPG, or (C) authorize, engage in, or enter into any agreement
or understanding with respect to, any Company Transaction; provided that the
--------
Company may, in response to an unsolicited written proposal from a third party,
engage in the activities specified in clause (B) and (C) of this Section 5.6(b),
if (x) in the opinion of the Company's outside legal counsel, such action is
required for the Board of Directors to comply with its fiduciary duties under
Colorado law, (y) the Company shall have notified the Purchasers not later than
24 hours after having received the relevant proposal for a Company Transaction
(which notice shall identify the Person making the proposal and set forth the
material terms thereof) and (z) the Company shall have refrained from taking any
action specified in clause (C) of this Section 5.6(b) until the third day
following the receipt by the Purchasers of the notification referred to in
clause (y) of this Section 5.6(b). The Company will keep the Purchasers fully
informed of the status and details of any such proposal or request and any
related discussions or negotiations. The Company will promptly notify the
Purchasers of any proposal (which notice shall identify the Person making the
proposal and set forth the material terms thereof) that the Company, any of its
Subsidiaries or Affiliates or any of its or their directors, officers or
representatives may receive during the Exclusivity Period.
5.7 Notifications. At all times prior to the Closing Date, the
-------------
Purchasers shall promptly notify the Company and the Company shall promptly
notify the Purchasers in writing of any fact, change, condition, circumstance or
occurrence or nonoccurrence of any event which will or is reasonably likely to
result in the failure to satisfy the conditions to be complied with or satisfied
by it hereunder, provided, however, that the delivery of any notice pursuant to
-------- -------
this Section 5.7 shall not limit or otherwise affect the remedies available
hereunder to any party receiving such notice.
5.8. Listing; Reservation. (a) So long as there are shares of Series B
--------------------
Preferred Stock, Conversion Shares, Warrants or Warrant Shares outstanding, the
Company shall use its reasonable best efforts to ensure that the Common Stock
continues to be quoted on the Nasdaq Stock Market's National Market.
(b) From and after the Closing, the Company shall at all times reserve and
keep available, out of its authorized and unissued Common Stock, solely for the
purpose of issuing Common Stock
40
<PAGE>
upon the exercise of Warrants, such number of shares of Common Stock free of
preemptive rights as shall be sufficient to issue Common Stock upon the exercise
of all outstanding Warrants.
ARTICLE VI
INDEMNIFICATION
---------------
6.1 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties contained in this Agreement shall survive the
Closing hereunder and continue in full force and effect until the second
anniversary of the Closing. To be effective, any claim for indemnification for
a breach of a representation or warranty must be made prior to such second
anniversary.
6.2 Indemnification Provisions for Benefit of the Purchasers. The
--------------------------------------------------------
Company agrees to defend, protect, indemnify and hold harmless each Purchaser
Indemnified Party against, from and for any and all Adverse Consequences of any
kind or nature (including reasonable fees and disbursements of counsel and other
costs reasonably incurred in connection with any action, suit or proceeding
initiated by such Purchaser Indemnified Party in connection with securing,
exercising, enjoying and enforcing such Purchaser Indemnified Party's rights,
benefits and privileges or enforcing any Company Party's obligations and
liabilities under any Transaction Document), whether direct, indirect or
consequential, in any manner resulting from, arising out of, based upon or
related or attributable to: (i) any breach or inaccuracy of any representation
or warranty of, or any breach or failure to perform any covenant, agreement or
obligation, of any Company Party contained in this Agreement or any other
Transaction Document; (ii) the invalidity or unenforceability, or alleged
invalidity or unenforceability, of any provision of any Transaction Document;
(iii) any liability or obligation arising as a result of any Person claiming a
commission, finder's fee or other payment for services rendered as a broker or
finder on behalf of any Company Party in connection with any of the
Transactions; or (iv) any claim by any holder or former holder of capital stock,
equity interests or other securities, or any creditor, of any Company Party or
any Affiliate of any Company Party or any other Person with whom any Company
Party has contractual relationships relating to any claim against any Company
Party or by reason of consummation of any of the Transactions; provided that
--------
unless and until a final and non-appealable judicial determination shall be made
that such Indemnified Party is not entitled to indemnification under clause (ii)
above, each such Indemnified Party shall be reimbursed for all indemnified
losses under clause (ii) above as they are incurred; provided, further, that if
-------- -------
a final and non-appealable judicial determination shall be made that such
Indemnified Party is not entitled to be indemnified for losses under clause (ii)
above, such Indemnified Party shall repay to the Company the amount of such
Losses for which the Company shall have reimbursed such Indemnified Party.
6.3 Indemnification Provisions for Benefit of the Company. In the event
-----------------------------------------------------
that any Purchaser breaches any of its representations, warranties, and
covenants contained herein, the Purchaser shall protect, defend, hold harmless
and indemnify the Company against, from and for the entirety of any Adverse
Consequences the Company may suffer through and after the date of the claim for
indemnification (but excluding any Adverse Consequences the Company may suffer
after
41
<PAGE>
the end of any applicable survival period) resulting from or caused by the
breach, including all Adverse Consequences arising out of the enforcement of
this Section 6.3.
-----------
6.4 Matters Involving Third Parties.
-------------------------------
(a) If any third party shall notify any Party (the "Indemnified Party")
with respect to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against any other Party (the "Indemnifying Party")
under this Article V, then the Indemnified Party shall promptly notify each
---------
Indemnifying Party thereof in writing; provided, however, that no delay on the
-----------------
part of the Indemnified Party in notifying any Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless (and then solely to
the extent) the Indemnifying Party thereby is prejudiced; it being understood
and agreed that the failure of the Indemnified Party to so notify the
Indemnifying Party prior to settling a Third Party Claim (whether by paying a
claim or executing a binding settlement agreement with respect thereto) or the
entry of a judgment or issuance of an award with respect to a Third Party Claim
shall constitute actual prejudice to the Indemnifying Party's ability to defend
against such Third Party Claim.
(b) Any Indemnifying Party will have the right to defend the Indemnified
Party against the Third Party Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party so long as (i) the Indemnifying Party
notifies the Indemnified Party in writing within 30 calendar days after the
Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party or Parties will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by the Third Party Claim (it being understood by the Parties that the
Indemnified Party may take such actions as are reasonable in connection with its
defense until it receives such notice from the Indemnifying Party), and (ii) the
Indemnifying Party conducts the defense of the Third Party Claim actively and
diligently.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 6.4(b) above, (i) the Indemnified
--------------
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim (provided that the
Indemnified Party will have the right to employ separate counsel to represent
the Indemnified Party (the fees and expenses of which will be borne by the
Indemnifying Party if, in the Indemnified Party's reasonable judgment, a
conflict of interest between the Indemnified Party and the Indemnifying Party
exists with respect to such claim), (ii) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnifying Party
(not to be withheld unreasonably), and (iii) the Indemnifying Party will not,
without the prior written consent of the Indemnified Party (not to be withheld
unreasonably), consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim in which any relief other than the payment
of money damages is sought against any Indemnified Party, unless such
settlement, compromise or consent includes as an
42
<PAGE>
unconditional term thereof the giving by the claimant, petitioner or plaintiff,
as applicable, to such Indemnified Party of a release from all liability with
respect to such Third Party Claim.
(d) In the event any of the conditions in Section 6.4(b) above is or
--------------
becomes unsatisfied, however, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Parties will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party
Claim to the fullest extent provided in this Article VI.
----------
ARTICLE VII
TERMINATION
-----------
7.1 Termination of Agreement. Subject to Section 7.2 hereof, this
------------------------
Agreement may be terminated by notice in writing at any time prior to the
Closing by:
(a) the Purchasers or the Company, if the Closing shall not have occurred
on or before May 31, 2000; provided, however, that the right to terminate this
-------- -------
Agreement under this Section 7.1(a) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date;
(b) the Purchasers or the Company, if any Governmental Entity of competent
jurisdiction shall have issued any judgment, injunction, order, ruling or decree
or taken any other action restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by the Transaction Documents and
such judgment, injunction, order, ruling, decree or other action becomes final
and nonappealable; provided that the party seeking to terminate this Agreement
--------
pursuant to this clause (b) shall have used its best efforts to have such
judgment, injunction, order, ruling or decree lifted, vacated or denied;
(c) the Purchasers, if the Company shall have taken any action described
in clause (B) or (C) of Section 5.6(b) hereof;
(d) TPG, if any Person (other than TPG) acquires, or the Company accepts
or recommends a fully financed offer made by any Person (other than TPG) to
acquire, more than twenty-five percent (25%) of the Common Stock or otherwise to
effect a Change in Control (as defined in Exhibit B); or
---------
43
<PAGE>
(e) the Purchasers or the Company, if the Purchasers and the Company so
mutually agree in writing.
7.2 Effect of Termination. (a) If this Agreement is terminated in
---------------------
accordance with Section 7.1 hereof and the transactions contemplated hereby are
not consummated, this Agreement shall become null and void and of no further
force and effect except that (i) the terms and provisions of this Section 7.2
and Articles VI and VIII hereof shall remain in full force and effect and (ii)
any termination of this Agreement shall not relieve any party hereto from any
liability for any breach of its obligations hereunder.
(b) If (i) this Agreement is terminated in accordance with Section 7.1(a)
hereof and as of the date set forth in Section 7.1(a) hereof the conditions set
forth in Section 2.2 hereof shall not have been satisfied, and (ii) a proposal
is made to the Company or any of its Representatives with respect to a Company
Transaction (whether or not the same Company Transaction as is ultimately
consummated or as to which a written agreement, letter of intent, agreement in
principle, memorandum of understanding or similar writing is ultimately entered
into) prior to the Cut-Off Date (as defined below) or a proposal with respect to
a Company Transaction is publicly announced by the Person contemplating such
transaction or a Representative of such Person prior to the Cut-Off Date, the
Company shall pay each Purchaser the Termination Fee pro rata in accordance with
the shares of Series B Preferred Stock to be purchased by it hereunder on the
date on which a Company Transaction is consummated. The term "Cut-Off Date"
------------
shall mean the date of termination of this Agreement.
(c) If this Agreement is terminated in accordance with Section 7.1(c)
hereof, the Company shall pay each Purchaser the Termination Fee pro rata in
accordance with the shares of Series B Preferred Stock to be purchased by it
hereunder on the second Business Day following such termination.
44
<PAGE>
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 No Third Party Beneficiaries. Except as expressly provided in
----------------------------
Article V, nothing in this Agreement, expressed or implied, is intended to
- ---------
confer upon any Person other than the Parties or their respective successors and
permitted assigns any rights, benefits, remedies, obligations or liabilities
under or by reason of this Agreement.
8.2 Entire Agreement. This Agreement and the Transaction Documents
----------------
collectively constitute the entire agreement among the Parties with reference to
the matters set forth herein and therein and supersede any prior understandings,
negotiations, agreements, or representations by or among the Parties, written or
oral, to the extent they related in any way to the subject matter hereof or
thereof.
8.3 Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns; provided, however, that neither this Agreement nor any of
-------- -------
the rights, interests or obligations of such Party hereunder shall be assigned
or delegated by such Party without the prior written consent of the other
Parties, which consent may be withheld in the sole discretion of such Parties;
provided further, that a Purchaser shall be permitted to assign its rights
- -------- -------
hereunder to an Affiliate thereof, it being understood that no such assignment
shall relieve such Purchaser of its obligations hereunder.
8.4 Counterparts. This Agreement and each other Transaction Document
------------
may be executed in counterparts, each of which shall be deemed to be an original
and all of which together shall be deemed to constitute one and the same
agreement. In addition to any other lawful means of execution or delivery, this
Agreement and the other Transaction Documents may be executed by facsimile
signatures and may be delivered by the exchange of counterparts of signature
pages by means of telecopier transmission.
8.5 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
45
<PAGE>
If to the Company: Convergent Communications, Inc.
400 Inverness Drive South, Suite 400
Englewood, Colorado 80112
Attn: General Counsel
Telephone: (303) 749-3000
Telecopy: (303) 749-3113
with a copy to: Richard M. Russo, Esq.
Gibson, Dunn & Crutcher LLP
1801 California Street, Suite 4100
Denver, Colorado 80202
Telephone: (303) 298-5715
Telecopy: (303) 296-5310
If to TPG, to TPG at TPG's address supplied from time to time in writing to the
Company, with a copy to:
Paul J. Shim, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Telephone: (212) 225-2930
Telecopy: (212) 225-3999
If to Sandler Capital, to Sandler Capital at Sandler Capital's address supplied
from time to time in writing to the Company.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, facsimile transmission, ordinary mail, or electronic mail), but
no such notice, request, demand, claim, or other communication shall be deemed
to have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.
8.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
46
<PAGE>
8.7 Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence. No waiver shall be effective
hereunder unless contained in a writing signed by the Party sough to be charged
with such waiver.
8.8 Severability. If any provision of this Agreement or any other
------------
Transaction Document or the application thereof to any person or circumstance is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions hereof, or the application of such provision to Persons
or circumstances other than those as to which it has been held invalid, void or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, provided, that if any provision
--------
hereof or thereof or the application of any such provisions shall be so held to
be invalid, void or unenforceable by a court of competent jurisdiction, then
such court may substitute therefor a suitable and equitable provision in order
to carry out, so far as may be valid and enforceable, the intent and purpose of
the invalid, void or unenforceable provision and, if such court shall fail or
decline to do so, the Parties shall negotiate in good faith a suitable and
equitable substitute provision. To the extent that any such provision shall be
judicially unenforceable in any one or more states, such provision shall not be
affected with respect to any other state, each provision with respect to each
state being construed as several and independent.
8.9 Fees and Expenses. (a) The Company shall be responsible for the
-----------------
payment of all expenses incurred by the Company in connection with the
Transaction Documents and the transactions contemplated thereby, regardless of
whether such transactions are consummated, including, without limitation, all
fees and expenses of the Company's legal counsel, all third-party consultants
engaged by the Company to assist in such transactions, all fees and expenses
incurred in connection with any filings to be made with any governmental agency.
The Company also agrees to reimburse the Purchasers for all out-of-pocket
expenses reasonably incurred by the Purchasers in connection with the
Transaction Documents and the transactions contemplated thereby, regardless of
whether or not the transactions are consummated, including, without limitation,
all fees and expenses of the Purchasers' legal counsel, financial advisors,
accountants, actuaries, and all third-party consultants engaged by the
Purchasers to assist in such transactions (including, without limitation,
McKinsey & Company) and all fees and expenses, including fees and expenses of
legal counsel, incurred in connection with enforcing the provisions of, and
collecting amounts payable pursuant to, this Agreement. Such reimbursements
shall be due to the Purchasers at the Closing, or promptly following any earlier
termination of this Agreement for any reason or, in the case of fees and
expenses incurred thereafter, promptly upon demand therefor.
(b) All amounts payable under this Agreement shall be paid in immediately
available funds to an account or accounts designated by the recipient of such
amounts.
47
<PAGE>
8.10 Accuracy of Information. The obligations of the Purchasers hereunder
-----------------------
are subject to the accuracy, on and as of the date hereof, of the
representations and warranties of the Company, and to the accuracy and
completeness of the information provided by the Company to the Purchasers under
the Transaction Documents.
8.11 Specific Performance. The parties hereto specifically acknowledge
--------------------
that monetary damages are not an adequate remedy for violations of this
Agreement, and that any party hereto may, in its sole discretion, apply to a
court of competent jurisdiction for specific performance or injunctive or such
other relief as such court may deem just and proper in order to enforce this
Agreement or prevent any violation hereof and, to the extent permitted by
applicable law and to the extent the party seeking such relief would be entitled
on the merits to obtain such relief, each party waives any objection to the
imposition of such relief.
8.12 Purchaser Obligations Several, Not Joint. The obligations of the
----------------------------------------
Purchasers under this Agreement are several and not joint.
8.13 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof to the extent expressly referred to herein.
8.14 Legends. Each stock certificate or other instrument evidencing the
-------
Series B Shares, the Warrants, any Conversion Stock or any Warrant Stock shall
bear a legend in substantially the form described in Section 9.01 of the
Investor Rights Agreement.
48
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Securities
Purchase Agreement as an instrument under seal on the date first above written.
CONVERGENT COMMUNICATIONS, INC.
By: /s/ John R. Evans
------------------------------
Name: John R. Evans
Title: Chief Executive Officer
TPG CONVERGENT I, L.L.C.
By: /s/ Richard A. Ekleberry
------------------------------
Name: Richard A. Ekleberry
Title: Vice President
SANDLER CAPITAL PARTNERS V, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By: /s/ Edward G. Grinacoff
------------------------------
Edward G. Grinacoff
President
49
<PAGE>
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By: /s/ Edward G. Grinacoff
------------------------------
Edward G. Grinacoff
President
50
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Number of Number of
Number Series A Series B Aggregate
Purchasers of Shares Warrants Warrants Purchase Price
- ---------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
TPG Convergent I, L.L.C. 150,000 600,000 1,000,000 $150,000,000
Sandler Capital Partners IV, L.P. 10,000 40,000 66,667 $10,000,000
Sandler Capital Partners V, L.P. 15,000 60,000 100,000 $15,000,000
------- ------- --------- ------------
Totals: 175,000 700,000 1,166,667 $175,000,000
</TABLE>
51
<PAGE>
EXHIBIT 4.11
INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS AGREEMENT, dated April 18, 2000, between Convergent
Communications, Inc., a Colorado corporation (the "Company"), and each of the
entities named on Exhibit A hereto (each, an "Initial Investor" and,
---------
collectively, the "Initial Investors").
The Company and the Initial Investors have entered into that certain
Securities Purchase Agreement, dated as of April 4, 2000, pursuant to which the
Initial Investors are purchasing from the Company, simultaneously with the
execution and delivery of this Agreement on the date hereof, certain securities
of the Company that are convertible into or exercisable for shares of the
Company's common stock. The Company has agreed to grant the Initial Investors
certain rights with respect to such securities and the underlying common stock
of the Company.
In consideration of the premises and the covenants and agreements
herein contained, in order to induce the Initial Investors to enter into such
Securities Purchase Agreement and consummate the transactions contemplated
thereby and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows.
ARTICLE I
DEFINITIONS
SECTION 1.01. As used in this Agreement, the following terms have the
meanings indicated:
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act. The term "affiliated" (whether or not
capitalized) shall have a correlative meaning. For purposes hereof, the Company
shall not be deemed to be an Affiliate of any Investor or any Affiliate of any
Investor.
"Agreement" means this Investor Rights Agreement, as amended from time
to time in accordance with the terms hereof.
"Beneficial Owner" means a beneficial owner within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act, as interpreted by the Commission,
provided that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire without regard to the 60 day
limitation in subdivision (d)(i) of such Rule 13d-3. The terms (whether or not
capitalized) "beneficially own" and "owned beneficially" shall have correlative
meanings.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in either New York, New York, or the city and
state in which the principal executive offices of the Company within the United
States are located are authorized or obligated by law or executive order to
close.
1
<PAGE>
"Closing Date" has the meaning given to such term in the Purchase
Agreement.
"Commencement Date" means the 120th day following the Closing Date.
"Commission" means the Securities and Exchange Commission or any other
federal agency then administering the Securities Act.
"Common Stock" means the Common Stock, no par value, of the Company
and any capital stock into which such Common Stock may be reclassified or
otherwise changed, and, unless the context otherwise requires, such term shall
also include all securities of the Company or any other issuer issued to the
holders of shares of Common Stock as a dividend or other distribution on, in
exchange for, in replacement of or upon the exercise of any conversion, purchase
or subscription right associated with any shares of Common Stock.
"Common Stock Rights" shall mean any Rights to subscribe for, purchase
or otherwise acquire any share or shares of Common Stock.
"Company Indemnified Parties" has the meaning set forth in Section
-------
6.02.
- ----
"Convertible Securities" means evidences of indebtedness, shares of
capital stock or other securities or obligations that are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for any Common Stock, either immediately or upon the occurrence of a
specified date or a specified event or the satisfaction or happening of any
other condition or contingency.
"Demand Registration" has the meaning set forth in Section 2.01.
------------
"Disadvantageous Effect" has the meaning set forth in Section 2.07.
------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and (unless the context otherwise indicates)
the rules and regulations of the Commission promulgated thereunder, as they each
may, from time to time, be in effect.
"Existing Registration Rights" mean, as of any time of determination,
contractual commitments of the Company that existed as of January 1, 2000, were
disclosed on a schedule to the Purchase Agreement and remain in effect as of
such time, entitling Persons to exercise piggy-back registration rights if the
Company registers any of its securities for itself or for others.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indemnified Party" has the meaning set forth in Section 6.03.
------------
"Indemnifying Party" has the meaning set forth in Section 6.03.
------------
"Initial Investor" has the meaning set forth in the introductory
paragraph.
"Initiating Investor" has the meaning set forth in Section 2.02.
------------
2
<PAGE>
"Investors" means:
(i) the Initial Investors,
(ii) each other Person, other than the Company or an Affiliate of the
Company, who at any time acquires any Registrable Shares directly
or indirectly from any Initial Investor or other Investor in a
transaction or chain of transactions not involving a public
offering within the meaning of and registered under the
Securities Act, and who
(A) so acquires the lesser of (1) all of the Registrable Shares
held by such Investor, and (2) 10% of the original number of
Registrable Shares initially held by all Initial Investors;
or
(B) is a constituent stockholder, partner or member (including
limited partners and retired partners or members) of an
Investor to whom Registrable Shares are distributed as part
of a distribution by such Investor to its constituent
stockholders, partners or members generally, or is a
liquidating trust established in connection with the
dissolution or winding up of any Investor; and
(iii) any Investor's successors, Affiliates and, in the case of any
Investor who is a natural person, such individual's spouse,
ancestors, lineal descendants, siblings, executors,
administrators and heirs who acquire Registrable Shares by gift,
will or intestate succession,
in each of the foregoing cases, if such Person (if not an Initial Investor)
agrees in writing to be bound by this Agreement as an Investor and for so long
as such Person continues to hold any Registrable Shares.
"Losses" has the meaning set forth in Section 6.01.
------------
"Majority Investors" means any one or more Investors who hold a total
number of Registrable Shares equal to at least a majority of the aggregate
number of Registrable Shares then held by all Investors.
"Majority Selling Investors" means, with respect to any Demand
Registration or Piggyback Registration, any one or more Selling Investors who
hold a total number of Registrable Shares equal to at least a majority of the
aggregate number of Registrable Shares that are or are to be included in such
Demand Registration or Piggyback Registration.
"New Securities" means, subject to Section 7.04, any newly issued
------------
shares of capital stock of the Company, including Common Stock and any class or
series of preferred stock, whether authorized or not, and Rights to acquire
shares of capital stock.
"New Securities Purchaser" has the meaning set forth in the definition
of "Preissuance Notice" set forth below in this Section 1.01.
------------
3
<PAGE>
"Notes" means the Company's 13% Series B Senior Notes due 2008 issued
under the Indenture, dated as of April 2, 1998, between the Company and Norwest
Bank Colorado, N.A., a national banking association, as Trustee.
"Number of Common Shares Outstanding" has the meaning set forth in
Section 7.01.
- ------------
"Originally Issued Shares" means, as of any time, the aggregate number
of Conversion Securities (as defined in the Series B Articles of Amendment)
represented by the Series B Shares issued to the Investors on the Closing Date,
as such aggregate number shall have from time to time been cumulatively adjusted
as a result of the operation of the Series B Articles of Amendment.
"Pari Passu Registration Rightsholder" means:
(i) as used in Section 2.06 with respect to any Demand Registration
------------
requested by the Investors, a Person (A) who has, at the time of
such request, the right, under a then-effective written contract
entered into with the Company prior to the Closing Date and
disclosed on a schedule to the Purchase Agreement, to require
shares of Common Stock then owned by such Person to be included
in such Demand Registration and (B) who exercises that right with
respect to all or some of those shares in accordance with the
terms of such contract, if and to the extent a breach of such
--------------------
contract by the Company would result from the reduction, in the
circumstances contemplated by Section 2.06, of the number of such
------------
shares requested to be included by such Person in such Demand
Registration before any reduction in the number of Registrable
Shares sought to be included in such Demand Registration by the
Investors; or
(ii) as used in Section 3.02(b) with respect to any Piggyback
---------------
Registration in which any Investors have requested inclusion of
Registrable Shares in accordance with Section 3.01, a Person (A)
------------
who has, at the time of such request, the right, under a then-
effective written contract entered into with the Company prior to
the Closing Date and disclosed on a schedule to the Purchase
Agreement or granted after the Closing Date without violation of
Section 8.03, to require shares of Common Stock then owned by
------------
such Person to be included in such Piggyback Registration and (B)
who exercises that right with respect to all or some of those
shares in accordance with the terms of such contract, if and to
---------
the extent a breach of such contract by the Company would result
----------
from the reduction, in the circumstances contemplated by Section
-------
3.02(b), of the number of such shares requested to be included by
-------
such Person in such Piggyback Registration before any reduction
in the number of Registrable Shares sought to be included in such
Piggyback Registration by the Investors.
4
<PAGE>
"Person" means any individual, corporation, limited liability company,
general or limited partnership, joint venture, association, joint stock company,
trust, unincorporated business or organization, government or agency or
political subdivision thereof, or other entity, whether acting in an individual,
fiduciary or other capacity.
"Piggyback Registration" has the meaning set forth in Section 3.01.
------------
"Preissuance Notice" shall be a written notice given to the Investors
pursuant to Section 7.01 no later than ten days prior to the date the Company
------------
plans to issue New Securities. Each Preissuance Notice shall (i) specify the
kind and amount of New Securities proposed to be issued, (ii) if such New
Securities consist of or include Common Stock Rights, briefly describe the terms
of such Common Stock Rights, (iii) identify each Person to whom such New
Securities are proposed to be issued (each a "New Securities Purchaser"), if
then known by the Company, (iv) state the method or manner of issuance, (v)
state the kind(s) and amount(s) of consideration for which such New Securities
are proposed to be issued and the determination of the Company's Board of
Directors of the fair market value of any such consideration other than cash
and (vi) describe the other material terms and conditions of the proposed
issuance of New Securities.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of April 4, 2000, between the Company and the Investor, as the same may be
amended from time to time in accordance with its terms.
"Qualifying Rights" means, as of any time, shares of the Series B
Preferred Stock and the Warrants, and also includes all other Common Stock
Rights which, by their terms, are exercisable for shares of Common Stock only
upon the payment, conversion, surrender, exchange or delivery by the holder of
additional consideration in cash or property in an amount or having a fair
market value per share of Common Stock which, as of such time, is equal to or
less than the fair market value per share of the Common Stock determined as of
such time.
"Registrable Shares" means (i) any and all shares of Common Stock
issued or issuable upon conversion of any Series B Share or upon exercise,
conversion or exchange of any Warrant, (ii) any and all shares of Common Stock,
and any shares of Common Stock issued or issuable upon the exercise of any
Rights or other securities, acquired by or issuable to the Investors pursuant to
Article VII of this Agreement and (iii) any other shares of Common Stock issued
in respect of any such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); provided, however,
-------- -------
that shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares (x) upon any sale pursuant to a Registration Statement or
Rule 144 under the Securities Act, (y) upon any sale in any manner to a Person
which is not entitled to the rights provided by this Agreement or (z) with
respect to the Registrable Shares held by any specific Investor, when all such
Registrable Shares held by such Investor either (1) may be sold by such Investor
under Rule 144 under the Securities Act without limitation as to manner of sale
and without any limitation as to volume or (2) are equal to or less than the
number that may be sold by such Investor under Rule 144(e) within any three-
month period. For purposes of this Agreement, any Person shall be deemed to
hold, as of any time, (A) all issued and outstanding shares of Common Stock,
5
<PAGE>
Registrable Shares or other securities then held or deemed to be held by such
Person, (B) all additional shares of Common Stock, Registrable Shares or other
securities which would then be held by such Person if it were assumed that all
shares of Series B Preferred Stock and Warrants, if any, then held or deemed to
be held by such Person had been duly and effectively exercised, exchanged or
converted in full at and effective as of such time, (C) all additional shares of
Common Stock, Registrable Shares or other securities which would then be held by
such Person if it were assumed that all Rights, if any, then held or deemed to
be held by such Person had been duly and effectively exercised in full at and
effective as of such time and (D) all additional shares of Common Stock,
Registrable Shares or other securities, if any, which such Person then has a
right to purchase pursuant to the preemptive rights granted pursuant to this
Agreement by virtue of any prior exercise of such preemptive rights, assuming,
in the case of each of clauses (B) and (C), that all adjustments to the kind,
number and amount of shares of capital stock or other securities issuable upon
exercise, exchange or conversion of any of the shares of Series B Preferred
Stock, Warrants or other Rights referred to in such clause required by reason of
any event or transaction occurring at or prior to such time had been duly and
effectively made as and when required by the terms thereof.
"Registration Expenses" shall mean, with respect to any Demand
Registration or Piggyback Registration all (i) registration, qualification and
filing fees, (ii) fees and expenses of compliance with securities or blue sky
laws (including the reasonable fees and disbursements of counsel for any
underwriters, dealers or placement agents in connection therewith), (iii)
printing expenses (or comparable duplication expenses) and escrow fees, (iv)
internal expenses of the Company (including all salaries and expenses of
officers and employees performing legal or accounting duties), (v) fees and
disbursements of counsel for the Company, (vi) fees and expenses for independent
certified public accountants retained by the Company (including all fees and
expenses associated with special audits or the delivery by independent certified
public accountants of a "cold comfort" letter or letters), (vii) fees and
expenses of any special experts retained by the Company in connection with such
registration, (viii) fees and expenses of listing the Registrable Shares on a
securities exchange or otherwise in connection with subdivision (r) of Section
-------
4.01, (ix) the reasonable fees and expenses of a single firm of legal counsel
- ----
for the Investors participating in such Demand Registration or Piggyback
Registration up to $75,000 in connection with a Demand Registration and $25,000
in connection with a Piggyback Registration and (x) all other reasonable fees,
costs, expenses and disbursements incurred in connection with or incident to the
Company's compliance with Article IV. Registration Expenses do not include
underwriting commissions or discounts payable in respect to Registrable Shares
of an Investor included in a Demand Registration or Piggyback Registration.
"Registration Statement" means a registration statement of the Company
under the Securities Act on any form for which the Company then qualifies and
which permits the sale thereunder of the number of Registrable Shares (and any
other securities of the Company) to be included therein in accordance with this
Agreement by the Selling Investors and, in the case of the Registrable Shares,
according to the method(s) of distribution determined in accordance with this
Agreement and in the case of any other securities covered thereby, according to
the plan(s) of distribution described therein, including all exhibits and
schedules to, all financial statements included in or otherwise filed with, and
all documents incorporated by reference in any such registration statement, in
each case as amended or supplemented as of any reference date.
6
<PAGE>
"Rights" means any options, warrants, convertible or exchangeable
securities or other rights, however denominated, to subscribe for, purchase or
otherwise acquire any equity interest or other security of any class or series,
with or without payment of additional consideration in cash or property, either
immediately or upon the occurrence of a specified date or a specified event or
the satisfaction or happening of any other condition or contingency.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and (unless the context otherwise indicates) the
rules and regulations of the Commission promulgated thereunder, as they each
may, from time to time, be in effect.
"Selling Investors" means, with respect to any Demand Registration or
Piggyback Registration, any Investors holding any Registrable Shares which are
or are to be included in such Demand Registration or Piggyback Registration in
accordance with this Agreement.
"Series B Articles of Amendment" means the Amended and Restated
Articles of Incorporation of the Company setting forth the resolution of the
Board creating and authorizing the issuance of the Series B Preferred Stock and
filed with the Colorado Secretary of State or any successor provisions of the
Company's Articles of Incorporation, as the same may have been amended prior to
or concurrently with the Closing Date and thereafter may be amended.
"Series B Preferred Stock" means the Series B Senior Cumulative
Convertible Preferred Stock, no par value, of the Company.
"Series B Share" means, as of any time, any share of Series B
Preferred Stock then issued and outstanding.
"Shelf Registration" has the meaning set forth in Section 2.10.
------------
"TPG" means TPG Partners III, L.P., T3 Partners, L.P. and their
Affiliates.
"Warrant Agreement" means the Warrant Agreement, dated the date
hereof, between the Company and the Initial Investors, as it may be amended from
time to time in accordance with its terms.
"Warrants" means the Warrants to purchase shares of Common Stock
issued and sold by the Company to, and purchased by, the Initial Investors
pursuant to the Purchase Agreement and the Warrant Agreement.
"Warrant Stock" means, with respect to any Warrant at any time, the
Common Stock, each other class or series of capital stock and any Rights with
respect to any of the foregoing, any shares, number or other amount of which at
such time is deliverable upon exercise of such Warrant.
SECTION 1.02. Terms Generally; Certain Rules of Construction. The
----------------------------------------------
definitions of terms contained in this Agreement shall apply equally to both the
singular and plural forms of the terms defined and words in the singular include
the plural and words in the plural include the singular.
7
<PAGE>
(a) Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.
(b) The words "include", "includes" and "including" shall be deemed
to be followed by the phrase "without limitation." The words "herein",
"hereof" and "hereunder" and words of similar import refer to this
Agreement in its entirety and not to any part hereof unless the context
shall otherwise require.
(c) All references herein to Sections shall be deemed references to
Sections of this Agreement unless the context shall otherwise require.
(d) Unless otherwise expressly provided herein or unless the context
shall otherwise require, any references as of any time to any agreement or
other Contract, instrument or document or to any statute or regulation or
any specific section or other provision thereof are to it as amended and
supplemented through such time (and, in the case of a statute or regulation
or specific section or other provision thereof, to any successor of such
statute, regulation, section or other provision).
(e) Any reference herein to a "day" or number of "days" (without the
explicit qualification of "Business") shall be interpreted as a reference
to a calendar day or number of calendar days. If any action or notice is to
be taken or given on or by a particular calendar day, and such calendar day
is not a Business Day, then such action or notice shall be deferred until,
or may be taken or given on, the next Business Day.
(f) Unless otherwise expressly provided herein or unless the context
shall otherwise require, any provision of this Agreement using a defined
term (by way of example and without limitation, such as "Investors") which
is based on a specified characteristic, qualification, feature or status
shall, as of any time, refer only to such Persons who have the specified
characteristic, qualification, feature or status as of that particular
time.
(g) For purposes of this Agreement, (i) any acquisition or transfer
of any Rights to subscribe for, purchase or otherwise acquire any
Registrable Shares shall also constitute an acquisition or transfer or
proposed transfer of the Registrable Shares issuable upon the exercise,
exchange or conversion thereof and (ii) any Person who holds any Right to
subscribe for, purchase or otherwise acquire any Common Stock, Registrable
Shares or other securities shall be deemed to hold all such Common Stock,
Registrable Shares or other securities which then would be issuable if it
were assumed that such Right were then duly exercised, exchanged or
converted in full. When used with reference to any Right, the term
"exercise" shall mean to exercise the right to exchange or convert such
Right for or into, subscribe for, purchase or otherwise acquire shares of
Common Stock represented by such Right, and variants of such word
(including "exercised" and "exercisable") shall have correlative meanings.
8
<PAGE>
(h) The terms "register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
ARTICLE II
DEMAND REGISTRATION
SECTION 2.01. Right to Demand Registration. The Investors shall have
----------------------------
the right to require the Company to register Registrable Shares under the
Securities Act (a "Demand Registration"), which right shall be exercisable in
the manner set forth in this Article II at any time or from time to time on or
----------
after the Commencement Date.
SECTION 2.02. Registrations. Any Investor or Investors holding in
-------------
the aggregate twenty-five percent (25%) of the Registrable Shares (the
"Initiating Investors") then held by all Investors may request, in writing, that
the Company effect a Demand Registration on any form available for such
registration under the Securities Act, of Registrable Shares constituting at
least 25% of the Registrable Shares owned by the Investors. If the Initiating
Investors intend to distribute the Registrable Shares by means of an
underwritten offering, they shall so advise the Company in their request. In
the event such Demand Registration is underwritten, the right of any other
Investor to participate in such Demand Registration shall be conditioned on such
Investor's participation in such underwriting on the same terms as the
Initiating Investors. Upon receipt of any such request, the Company shall
promptly give written notice of such proposed registration to all other
Investors. Such Investors shall have the right, by giving written notice to the
Company within thirty days after the Company provides its notice, to elect to
have included in such Demand Registration such of their Registrable Shares as
such Investors may request in such notice of election. Subject to Section 2.03,
------------
the Investors shall be entitled in the aggregate to require the Company to
effect four Demand Registrations pursuant to this Section 2.02 (any of which may
------------
be a Shelf Registration as provided in Section 2.10) and, except as provided in
------------
Section 5.01, a Demand Registration shall not be deemed to have been effected
- ------------
unless such registration has been declared or ordered effective and the
securities offered pursuant to such registration have been sold.
SECTION 2.03. Continuing Demand Registration. Subject to Sections
------------------------------ --------
2.06, 2.10 and 4.04, holders of Existing Registration Rights may participate in
- ---- ---- ----
the Investors' Demand Registrations; provided, however, that if the number of
-------- -------
Registrable Shares sought to be included by the Investors in the first of their
four Demand Registrations is reduced pursuant to Section 2.06, by reason of the
------------
inclusion in such Demand Registration of shares of Common Stock held by any
Person(s) other than Investors, by more than 25%, the registration shall not
count as a Demand Registration and if the number of Registrable Shares sought to
be included by the Investors in any subsequent Demand Registration is reduced
pursuant to Section 2.06, by reason of the inclusion in such Demand Registration
------------
of shares of Common Stock held by any Person(s) other than Investors, by more
than 10%, the registration shall not count as a Demand Registration.
9
<PAGE>
SECTION 2.04. Reasonable Efforts by the Company. Subject to Section
--------------------------------- -------
2.05, if a Demand Registration is requested pursuant to Section 2.02 the Company
- ---- ------------
shall, as soon as practicable after the period of thirty days referred to in
such Section, file with the Commission and use its reasonable efforts to cause
to become effective a Registration Statement which shall cover the Registrable
Shares requested to be registered by the Selling Investors and shall take all
other actions (including those required by Article IV) as may be necessary or
----------
advisable to permit the Selling Investors to dispose of all such Registrable
Shares requested to be included in such Demand Registration in accordance with
the intended method(s) of distribution and in compliance with the Securities Act
and state "blue sky" and securities laws.
SECTION 2.05. Withdrawals. The Majority Selling Investors may, at
-----------
any time and from time to time reasonably in advance of the planned date of
consummation of the sale or other distribution of Registrable Shares pursuant to
any Demand Registration, (i) permit any Selling Investor to withdraw, in whole
or in part, from participation in such Demand Registration, (ii) permit any
Investor who was not originally a Selling Investor to become a Selling Investor
and include in such Demand Registration any or all of such Investor's
Registrable Shares or (iii) otherwise increase or decrease the number of
Registrable Shares to be included in such Demand Registration; provided,
--------
however, that if any such decrease would result in the reduction of the number
- -------
of Registrable Shares to be registered in such Demand Registration to a number
that would not be sufficient to satisfy the condition stated in Section 2.02,
------------
then such decrease shall not be effective unless approved by the Majority
Selling Investors and, if so approved, the Selling Investor(s) shall be deemed
to have abandoned and terminated such Demand Registration. The Majority Selling
Investors may terminate or abandon such Demand Registration upon written notice
to the Company to that effect, in which event such Demand Registration shall be
deemed not to have been requested.
SECTION 2.06. Methods of Distribution; Reduction in Shares to be
--------------------------------------------------
Registered. (a) Subject to the last sentence of this Section 2.06(a) and to
- ---------- ---------------
the provisions of Section 2.06(b), the Registrable Shares of any Selling
---------------
Investor included in a Demand Registration may be registered for sale by such
Selling Investor directly or through sale or placement agents or to or through
one or more underwriters designated from time to time by such Selling Investor
and approved by the Company in its reasonable discretion and for resale by any
such underwriter or broker-dealer, through broker-dealers or in any other
manner, in one or more transactions and at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, at prices determined on a negotiated or
competitive bid basis or at a price or prices otherwise determined by such
Selling Investor. Notwithstanding the preference of any Selling Investor in any
Demand Registration, if the Majority Selling Investors, in their sole
discretion, determine that the offering and sale of Registrable Shares pursuant
to such Demand Registration should be pursuant to an underwriting or through a
selling or placement agent or syndicate, then such Majority Selling Investors
shall have the right to select the underwriters or managing underwriter, selling
or placement agent or managing selling or placement agent or syndicate manager
for such offering and sale and to establish, by agreement with such
underwriters, managing underwriter, selling or placement agents, managing
selling or placement agent or syndicate manager or otherwise the price or prices
and other terms of such underwriting, offering and sale, and in such event no
Selling Investor who otherwise would be entitled to include Registrable Shares
in such Demand
10
<PAGE>
Registration shall be entitled to have such Registrable Shares so included
unless they are included in such underwritten offering or offered and sold
through such selling or placement agent or syndicate at such price or prices and
on such terms. Any such managing underwriter, managing selling or placement
agent or syndicate manager selected by the Majority Selling Investors, shall be
subject to the Company's approval, which shall not be unreasonably withheld or
delayed.
(b) If a Demand Registration is for or includes an underwritten
offering or an offering through a sales or placement agent or syndicate, and the
managing underwriter, such sales or placement agent, or the managing sales agent
or the syndicate manager determines in good faith that inclusion in such
registration of all Registrable Shares and other securities, if any, requested
or proposed to be included in such offering exceeds the number that could be
sold without having an adverse effect on such offering, including the price at
which the Majority Selling Investors propose to sell their Registrable Shares
included in such offering, then the number of Registrable Shares to be offered
for the accounts of the Selling Investors shall be reduced or limited on such
basis in proportion to the respective numbers of Registrable Shares requested to
be included in such offering by the Selling Investors, to the extent necessary
to reduce the total number of shares to be included in such offering to the
amount recommended by such managing underwriter, agent, managing sales agent or
syndicate manager; provided, however, that if, without violation of Section
-------- ------- -------
2.10, in connection with such Demand Registration securities other than
- ----
Registrable Shares held by Selling Investors are being offered (whether for the
account of the Company or any Person other than an Investor), such reduction
shall be made (i) first, from any shares proposed to be sold for the accounts of
the Company or other Persons who are neither Investors nor Pari Passu
Registration Rights Holders, allocated among the Company and such other Persons
in such manner as may be acceptable to the Company and (ii) second, from the
Registrable Shares requested to be included in such registration by the
Investors and Pari Passu Registration Rights Holders (allocated, if necessary,
pro rata among all such Investors and such Pari Passu Registration Rights
- --- ----
Holders on the basis of the relative numbers of shares each such Person has
requested to be included in such registration), it being understood and agreed
that the securities referred to in clause (i) above shall not be included in any
such offering unless or until all the Registrable Shares requested to be
included in such offering by the Investors are so included.
SECTION 2.07. Right of the Company to Suspend Registration. The
--------------------------------------------
Company shall be entitled to suspend, for a reasonable period of time not in
excess of ninety days after its receipt of a request for a Demand Registration
pursuant to Section 2.02, the filing of any Registration Statement which it
------------
otherwise would be required to file pursuant to this Article II, if (i) at any
----------
time prior to the filing of such Registration Statement the Board of Directors
of the Company determines, in good faith and in the exercise of reasonable
business judgment, that such filing would materially interfere with or otherwise
adversely affect in any material respect any material planned financing,
acquisition, corporate reorganization or other transaction involving the Company
(a "Disadvantageous Effect") and (ii) the Company gives all Selling Investors
written notice of such suspension; provided, however, that a suspension pursuant
-------- -------
to this Section 2.07 or pursuant to Section 4.02 by reason of the existence of
------------ ------------
one or more Disadvantageous Effects shall be authorized only once during any
twelve-month period. In the event of any suspension pursuant to this Section
-------
2.07, then unless the request for the Demand
- ----
11
<PAGE>
Registration is withdrawn pursuant to the last sentence of this Section 2.07,
------------
the Company shall file such Registration Statement as soon as practicable after
the first to occur of (w) the consummation of the transaction which is the
asserted basis for such Disadvantageous Effect, (x) the abandonment or
termination of such transaction prior to consummation, (y) the determination by
the Board of Directors of the Company that such filing would not or would no
longer result in such Disadvantageous Effect and (z) the ninety-first (91st) day
after the receipt of the applicable Demand Notice. If the Company shall suspend
the filing of any Registration Statement pursuant to this Section 2.07, the
------------
Majority Selling Investors shall have the right to withdraw the Demand Notice
for such registration by giving written notice to the Company prior to
expiration of such suspension period.
SECTION 2.08. Form of Registration Statement. If in connection with
------------------------------
a Demand Registration, the Company proposes to effect such registration through
the filing of a Registration Statement on a particular registration form
available for such registration under the Securities Act and either the
underwriters or managing underwriter, selling or placement agent or managing
selling or placement agent or syndicate manager, if any, in connection with such
Demand Registration shall advise the Company in writing of its or their
reasonable and good faith opinion that the use of another available form is of
material importance to the success of the proposed offering or sale or other
distribution contemplated, then such Demand Registration shall be effected on
such other form.
SECTION 2.09. No Other Participants in Demand Registration. Unless
--------------------------------------------
otherwise agreed by the Majority Investors, neither the Company nor any other
Person except Investors and holders of Existing Registration Rights shall be
permitted to include any shares of Common Stock, Rights or other securities for
registration, offering, sale or distribution in any Demand Registration.
SECTION 2.10. Shelf Registration. (a) The Company shall use its
------------------
reasonable best efforts to qualify for registration on Form S-3 or any
comparable or successor form or forms. Any request by any Investor for a Demand
Registration pursuant to Section 2.02 or Section 2.03 may, at the election of
------------ ------------
the Initiating Investor by specification in the applicable request, include a
request that all or any of the Registrable Shares requested to be included in
such Demand Registration be registered under the Securities Act for offering and
sale on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act (a "Shelf Registration") to be made effective on or after the Commencement
Date. In the event of any such request for a Shelf Registration, the notice
given by the Initiating Investor pursuant to Section 2.02 shall state that such
------------
request was for or included a Shelf Registration. To the extent that a request
for a Demand Registration is for or includes a Shelf Registration, no Selling
Investor participating in such Shelf Registration shall be required to provide
information with respect to the desired price range for the Registrable Shares
requested to be included therein by any Selling Investor or the intended
method(s) of disposition or distribution thereof except to the extent and at the
time or times required in order to satisfy the applicable requirements of
Regulation S-K promulgated by the Commission. The method(s) of distribution of
the Registrable Shares of any Selling Investor included in any Shelf
Registration may be any method or methods permitted by Rule 415 of the
Securities Act and any such Selling Investor may change such method or methods
of distribution at any time and from time to time while the Registration
Statement relating to such Shelf
12
<PAGE>
Registration is required to remain effective in accordance with the terms of
Section 2.10(b) hereof, provided that such Selling Investor provides to the
Company the information reasonably required to permit compliance with the
applicable requirements of Regulation S-K promulgated by the Commission.
(b) The Company shall use all reasonable efforts to keep each
Registration Statement filed with respect to any Shelf Registration continuously
effective until the later of (i) two years from the date on which the Commission
declares such Registration Statement effective or (ii) three years from the
Closing Date. Such period shall be automatically extended by the aggregate
number of days, if any, during which any delay, deferral, postponement or
suspension is in effect with respect to such Registration Statement.
(c) The Company shall effect any Shelf Registration requested
pursuant to this Agreement on a Registration Statement of the Company under the
Securities Act on any form, including Form S-3, for which the Company then
qualifies and which permits the offering and distribution thereunder of the
number of Registrable Shares to be included therein in accordance with the
method(s) of distribution determined in accordance with this Agreement.
(d) The fact that a Registration Statement with regard to a Shelf
Registration is effective as of a particular time shall not prejudice or
otherwise affect the rights of the Selling Investors to participate in any such
Demand Registration requested by any other Investors or to participate in any
Piggyback Registration.
ARTICLE III
PIGGYBACK REGISTRATION
SECTION 3.01. Right to Require Piggyback Registration. (a) If at any
---------------------------------------
time or from time to time, the Company shall determine to register any of its
securities, either for its own account or the account of a security holder or
holders (other than (i) a registration statement on Form S-4 or S-8 (or any
substitute form that may be adopted by the SEC) or (ii) a registration statement
filed in connection with an offer of securities solely to the Company's existing
security holders) in a transaction that may be used for the registration of
Registrable Shares for distribution by any one or more of the methods permitted
by Section 3.02(a), then upon each and every such occasion the Company shall
---------------
give prior written notice of such proposed registration to each Investor of its
intention to do so promptly and in any event not later than the tenth Business
Day before the anticipated filing date of the applicable Registration Statement.
Such notice shall specify whether the proposed registration is for the account
of the Company, for the account of one or more other Persons or both and also
specify the kind and number or amount of securities proposed to be registered on
behalf of each thereof and the proposed offering price or prices and
distribution methods and arrangements. Upon the terms and subject to the
conditions and limitations set forth in this Article III, each Investor may
elect to participate in such registration by giving the Company, within ten days
after such notice has been given by the Company, a written request to register
any or all of such Investor's Registrable Shares in connection with such
registration (any such registration as to which any such request is made being
sometimes referred to as an "Piggyback Registration"); provided, however, that
-------- -------
if the registration is a
13
<PAGE>
"demand" registration made pursuant to the exercise of Existing Registration
Rights in accordance with the original terms thereof and if, by the original
terms of such Existing Registration Rights, the holders having such Existing
Registration Rights have the right to exclude from such demand registration
securities proposed to be registered by any Persons except holders of such
Existing Registration Rights, then the Investors shall not be entitled to
participate in such registration unless the holders of such Existing
Registration Rights participating in such registration otherwise agree in
writing.
(b) Any such request by an Investor shall state (i) the kind and
number of Registrable Shares to be included in such registration by such
Investor (ii) such Investor's preferred method of distribution of such
Registrable Shares permitted by Section 3.02(a) and (iii) any other information
that the Company reasonably requests in such notice given by it to the
Investors. Upon receipt of one or more of such requests, the Company shall,
subject to Section 3.03, as soon as practicable, file with the Commission and
use its reasonable efforts to cause to become effective, a Registration
Statement which shall cover the Registrable Shares requested to be registered by
the requesting Investors and shall take all such other actions (including those
required by Article IV) as may be necessary or advisable to permit the
requesting Investors to dispose of all such Registrable Shares requested to be
included in such Piggyback Registration in accordance with the permitted
intended method or methods of distribution in compliance with the Securities Act
and state "blue sky" and securities laws.
SECTION 3.02. Methods of Distribution; Reduction in Number of Shares
------------------------------------------------------
to be Registered. (a) Subject to Section 3.02(b), Section 3.02(c) and Section
- ---------------- --------------- --------------- -------
4.5, the Registrable Shares of any Investor included in a Piggyback Registration
- ---
may be registered for sale by such Investor directly or through sales or
placement agents designated from time to time or to or through one or more
underwriters or broker-dealers designated from time to time by such Investor and
for resale by any such underwriter or broker-dealer, in one or more transactions
and at a fixed price, which may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at prices
determined on a negotiated or competitive bid basis or at a price otherwise
determined by such Investor.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Investors as a part of the written notice given pursuant to Section
-------
3.01. In such event, the right of any Investor to participate in such
- ----
registration pursuant to this Article III shall be conditioned upon such
-----------
Investor's participation in such underwriting and the inclusion of Registrable
Shares in the underwriting to the extent provided herein. Subject to Section
-------
4.04, if any Piggyback Registration is for (or includes) an underwritten
- ----
offering, the Company will permit each Investor who elects to include any of his
Registrable Shares in such Piggyback Registration to elect to include any or all
of such Registrable Shares in such underwritten offering on the same terms and
conditions as any similar securities included therein. In a registration
pursuant to Section 3.01 hereof involving an underwritten public offering, if
------------
the managing underwriter or underwriters of such underwritten offering have
informed, in writing, the Company and each Investor who requested Registrable
Shares to be included in such offering that in such underwriter's or
underwriters' reasonable opinion the total number of securities which the
Company, the Investors who requested Registrable Shares to be included in such
offering and any other Persons desiring
14
<PAGE>
to participate in such registration intend to include in such offering is such
as to materially and adversely affect the success of such offering, including
the price at which such securities can be sold, then the Company will be
required to include in such registration only the amount of securities which it
so advised should be included in such registration. In such event:
(i) if the registration was initiated by any security holder(s) of
the Company exercising "demand" registration rights, securities
shall be registered in such offering in the following order of
priority (unless a different order is specified in the document
granting such holder's demand rights which is in effect prior to
the Closing Date):
(A) first, the securities, if any, which the Company proposes to
-----
register and the securities such security holder(s)
initiating such registration propose to register, allocated,
if necessary, pro rata among the Company and such holder(s)
--- ----
on the basis of the relative numbers of shares each such
Person proposes to include in the registration, provided
--------
that if such initiating holder or holders are Investors, the
Company shall not be entitled to include any securities in
such registration without the prior written consent of the
Majority Investors and, as among Investors there shall be no
priority and Registrable Securities sought to be included by
Investors shall be included pro rata based on the amount of
--- ----
securities sought to be registered by such Persons
(B) second, provided that no securities sought to be included by
------ --------
the Company or such initiating holder(s) have been excluded
from such registration, the securities which have been
requested to be included in such registration by Investors
pursuant to this Agreement (unless the initiating holder(s)
are Investors, in which case clause (i)(A) shall govern the
priority of the Investors) or by Pari Passu Registration
Rights Holders (allocated, if necessary, pro rata among all
--- ----
such Investors and Pari Passu Registration Rights Holders on
the basis of the relative numbers of shares each such Person
has requested to include in registration), and
(C) third, provided that no securities sought to be included
----- --------
under clause(i)(A) or (i)(B) have been excluded, the
securities of all other Persons sought to be included in
such registration (allocated, if necessary, among such
Persons in such manner as the Company deems acceptable); or
(ii) if the registration was initiated by the Company, otherwise than
by reason of any such exercise of "demand" registration rights,
securities shall be registered in such offering in the following
order of priority:
(A) first, the securities, if any, which the Company proposes to
-----
register,
15
<PAGE>
(B) second, provided that no securities sought to be included by
------ --------
the Company have been excluded from such registration, the
securities which have been requested to be included in such
registration by Investors pursuant to this Agreement or by
Pari Passu Registration Rights Holders (allocated, if
necessary, pro rata among all such Investors and Pari Passu
--- ----
Registration Rights Holders on the basis of the relative
numbers of shares each such Person has requested to include
in registration), and
(C) third, provided that no securities sought to be included
----- --------
under clause(ii)(A) or (ii)(B) have been excluded, the
securities of all other Persons sought to be included in
such registration (allocated, if necessary, among such
Persons in such manner as the Company deems acceptable).
(c) If, as a result of the provisions of Section 3.02(b), any Investor
shall not be entitled to include all Registrable Securities in a Piggy-Back
Registration that such Investor has requested to be included, such Investor may
elect to withdraw his request to include Registrable Securities in such
registration.
SECTION 3.03. Withdrawal of Registration. The Company may, without
--------------------------
the consent of any Investor, delay, suspend, abandon or withdraw any Piggyback
Registration and any related proposed offering or other distribution in which
any Investor has requested inclusion of Registrable Shares pursuant to this
Article III.
- -----------
ARTICLE IV
OBLIGATIONS WITH RESPECT TO REGISTRATION
SECTION 4.01. In General. Whenever the Company is obligated by the
----------
provisions of Article II or Article III to effect the registration of any
---------- -----------
Registrable Shares under the Securities Act, the Company shall use its
reasonable efforts to effect the registration of all Registrable Shares which
any Investor has requested to be included therein for offering, sale and
distribution in accordance with the permitted intended methods of distribution
thereof as quickly as practicable, and in connection therewith the Company will
do the following as expeditiously as possible:
(a) prepare and file with the Commission a Registration Statement on
any form for which the Company then qualifies and which is available for
the registration of the Registrable Shares requested to be registered in
accordance with the intended methods of distribution thereof, (i) include
in the Registration Statement all Registrable Shares requested to be
included pursuant to Article II or Article III (as the case may be), and
---------- -----------
(ii) use its reasonable efforts to cause such Registration Statement to
become effective;
(b) prepare and file with the Commission such amendments and post-
effective amendments and supplements to the Registration Statement or any
prospectus as may be
16
<PAGE>
necessary to keep the Registration Statement effective, current and in
compliance with the provisions of the Securities Act, until the last to
occur of (i) the sale or other distribution of all of the Registrable
Shares covered by such Registration Statement in accordance with the
intended methods of distribution thereof, (ii) the expiration of all
periods during which transactions in Registrable Shares by a dealer are not
exempt from the provisions of Section 5 of the Securities Act by virtue of
Section 4(3) of the Securities Act or during which any dealer is obligated
under the Securities Act to deliver a prospectus in connection with
transactions involving Registrable Shares and (iii) the expiration of all
other periods, if any, during which the Registration Statement is required
to remain effective in order to avoid a violation of applicable law by any
Investor or the Company related to the sale or other distribution of all of
the Registrable Shares covered by such Registration Statement in accordance
with the intended methods of distribution thereof;
(c) at least three Business Days prior to filing any Registration
Statement or prospectus or any amendment or supplement thereto, furnish to
each Investor and each underwriter, if any, of the Registrable Shares
covered by such Registration Statement copies of the current draft of such
Registration Statement or prospectus (including documents to be
incorporated by reference therein), which documents will be subject to the
reasonable review and comments of such Investors (and their respective
counsel) during such three Business Day period, and if any Investor objects
in writing to any statements in any such documents with respect to such
Investor or the distribution of the Registrable Shares to be included by
him in such Registration Statement, the Company shall, subject to
applicable law, promptly revise such statements to such Investor's
reasonable satisfaction;
(d) promptly notify each Investor of the effectiveness of the
Registration Statement;
(e) furnish to each Investor without charge and as soon as such
documents become available to the Company, at least one copy of the
Registration Statement and each amendment thereto, and such number of
conformed copies thereof, copies of the prospectus (including each
preliminary prospectus and each amendment or supplement thereto), in each
case together with all exhibits thereto and all documents incorporated by
reference in any of such documents as such Investor may reasonably (in
light of such Investor's intended method of distribution) request in order
to facilitate the disposition of the Registrable Shares being sold by such
Investor (it being understood that the Company consents to the use, in
compliance with the Securities Act, of each preliminary prospectus and
prospectus and each amendment or supplement thereto by each Investor, each
underwriter, broker, dealer, placement agent and other securities industry
professional and each agent of each Investor in connection with the
offering, sale and distribution of the Registrable Shares covered thereby);
(f) promptly notify each Investor, at any time when a prospectus
relating to Registrable Shares of such Investor covered by the Registration
Statement is required to be delivered under the Securities Act, of the
happening of any event as a result of which the preliminary prospectus or
prospectus included in such Registration Statement or any
17
<PAGE>
prospectus supplement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
the Company will, as promptly as practicable thereafter, prepare and file
with the Commission and furnish to each Investor a supplement or amendment
to such preliminary prospectus, prospectus or prospectus supplement so
that, as thereafter delivered to the prospective purchasers of the
Registrable Shares being distributed by such Investor, such preliminary
prospectus, prospectus or prospectus supplement will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(g) enter into customary agreements (including, in the case of an
underwritten offering, an underwriting agreement in customary form) and
make such representations and warranties to any underwriters, brokers,
dealers, placement agents and other Persons involved in the distribution of
the Registrable Shares included in such Registration Statement as in form,
substance and scope are customarily made by issuers in similar
circumstances or which may be reasonably requested;
(h) furnish to each underwriter, broker, dealer or placement agent
participating in any offering or sale or other distribution pursuant to
such Registration Statement a signed counterpart of (i) an opinion of
counsel to the Company addressed to such underwriter, broker, dealer or
placement agent (as the case may be) and (ii) a "cold comfort" letter or
letters from the Company's independent certified public accountants, each
in customary form and covering such matters of the type customarily covered
by legal opinions or "cold comfort" letters (as the case may be) in similar
offerings, sales or distributions of securities of similarly situated
issuers and such other matters as the Majority Selling Investors may
reasonably request;
(i) prepare and file with the Commission promptly upon the request of
any such Investor, any amendments or supplements to such Registration
Statement or the applicable prospectus which, in the reasonable opinion of
counsel for such Investor, is required under the Securities Act in
connection with the distribution of Registrable Shares by such Investor;
(j) effective on or prior to the date the Registration Statement
becomes effective, use its reasonable efforts to register or qualify the
Registrable Shares covered by a Registration Statement under the securities
or blue sky laws of such jurisdictions in the United States as the Majority
Selling Investors or any underwriter, broker, dealer or placement agent
participating in the offering or sale or other distribution of the
Registrable Shares covered thereby shall reasonably request, and do any and
all other acts and things which may be reasonably necessary to enable each
Selling Investor to consummate the offering and disposition of such
Registrable Shares in such jurisdictions of such Registrable Shares in
accordance with the permitted methods of distribution described in such
Registration Statement; provided, however, that the Company shall in no
-------- -------
event be required to qualify generally to do business as a foreign
corporation in any
18
<PAGE>
jurisdiction where it is not otherwise required to be so qualified or, to
conform its capitalization or the composition of its assets at the time to
the securities or blue sky laws of such jurisdiction;
(k) make generally available to the Company's security-holders
earnings statements satisfying the provisions of the last sentence of
Section 11(a) of the Securities Act no later than forty-five days after the
end of the twelve-month period beginning with the first month of the first
fiscal quarter commencing after the effective date of the Registration
Statement, which earnings statements shall cover said twelve-month period;
(l) promptly notify each Selling Investor and each underwriter,
broker, dealer and placement agent participating in any offering or sale or
other distribution of securities covered by such Registration Statement of
the issuance or threatened issuance of any stop order or other order
suspending the effectiveness of the Registration Statement or preventing or
suspending the use of any preliminary prospectus, prospectus or prospectus
supplement; use reasonable efforts to prevent the issuance of any such
threatened stop order or other order, and if any such order is issued, use
its best efforts to obtain the lifting or withdrawal of such order at the
earliest possible moment and promptly notify each Selling Investor and each
such underwriter, broker, dealer and placement agent of any such lifting or
withdrawal;
(m) as promptly as practicable after filing with the Commission of any
document which is incorporated by reference into a Registration Statement,
notify each Selling Investor of such filing and deliver a copy of such
document to each Selling Investor;
(n) cooperate with each Selling Investor and the underwriters,
brokers, dealers and placement agents participating in any offering or sale
or other distribution of securities covered by such Registration Statement
to facilitate the timely preparation and delivery of certificates, not
bearing any restrictive legends, unless otherwise required by such
Investor, representing the securities covered by such Registration
Statement, and enable all Registrable Shares of such Selling Investor
covered thereby to be in such denominations and registered in such names as
such Selling Investor may request;
(o) use its reasonable efforts to cause the Registrable Shares covered
by the Registration Statement to be registered with or approved by such
other governmental authorities within the United States and its territories
as may be necessary to enable the Selling Investors to consummate the
disposition of such securities in accordance with the intended methods of
disposition;
(p) cooperate with the Selling Investors and the underwriters,
brokers, dealers and placement agents participating in any offering or sale
or other distribution of securities covered by such Registration Statement
in making any filings or submissions required to be made, and in furnishing
all appropriate information in connection therewith, with the National
Association of Securities Dealers, Inc., any national
19
<PAGE>
securities exchange, any other "self-regulatory organization" (as defined
in the Exchange Act) or with any governmental authority;
(q) promptly notify each Selling Investor and each underwriter,
broker, dealer and placement agent participating in any offering or sale or
other distribution of securities covered by such Registration Statement of
the issuance or threatened issuance of any order suspending the
registration or qualification of any Registrable Shares covered by such
Registration Statement for disposition in any jurisdiction; use its
reasonable efforts to prevent the issuance of any such threatened order
and; if any such order is issued, use its reasonable best efforts to obtain
the lifting or withdrawal of such order at the earliest possible moment and
promptly notify each Selling Investor and each such underwriter, broker,
dealer and placement agent of any such lifting or withdrawal;
(r) if any shares of Common Stock or any other capital stock or
securities of the same class, series, issue or other type as any
Registrable Shares covered by such Registration Statement are or upon
consummation of all sales and other distributions covered by such
Registration Statement will be listed, qualified or otherwise eligible for
trading or quotation on a national securities exchange or The Nasdaq Stock
Market, use its reasonable best efforts to cause, by the date of the first
sale of any Registrable Shares pursuant to such Registration Statement, all
Registrable Shares covered by such Registration Statement to be listed,
qualified or eligible for trading or quotation on each such exchange or
quotation system;
(s) take, and use its reasonable efforts to cause each of the
respective Affiliates of the Company to take, all action necessary to
effect each registration, offering, sale and distribution of the
Registrable Shares contemplated hereby, including preparing and filing any
required financial or other information;
(t) make available to each registrar, transfer agent, trustee or
similar agent or fiduciary for each class, series, issue or other type of
Registrable Shares a supply of certificates or other instruments evidencing
or constituting such Registrable Shares which shall be in a form complying
with the requirements of such registrar, transfer agent, trustee or similar
agent or fiduciary promptly after the registration of such Registrable
Shares;
(u) in the case of an underwritten offering, use its reasonable best
efforts to cause the senior executive officers of the Company to
participate in the customary "road show" presentations that may be
reasonably requested by the managing underwriter or underwriters in any
such underwritten offering and otherwise to facilitate, cooperate with, and
participate in each proposed offering contemplated herein and customary
selling efforts related thereto; and
(v) take all other actions which are reasonably necessary or which may
be reasonably requested by the Majority Selling Investors or the Majority
Investors or any underwriter, broker, dealer or placement agent
participating in any offering or sale or other distribution of securities
covered by such Registration Statement to effect the
20
<PAGE>
registration and qualification of the Registrable Shares covered by such
Registration Statement and to facilitate the disposition thereof in
accordance with the respective plans of distribution of the Selling
Investors.
SECTION 4.02. Suspension of Registration Proceedings.
--------------------------------------
Notwithstanding anything to the contrary contained herein, if at any time after
the filing of a Registration Statement in a Demand Registration but before it is
declared effective by the Commission the Company determines, in its reasonable
business judgment, that such offering, sale or other distribution covered
thereby would result in a Disadvantageous Effect, then the Company may suspend
the offering, sale or distribution of any of the Registrable Shares pursuant to
such Registration Statement by giving written notice to such effect to each
Selling Investor; provided, however, that (i) the Company may not require such
-------- -------
suspension unless such suspension is also required on the part of each and every
Person (including the Company) who proposes to offer, sell or otherwise
distribute any securities pursuant to such Registration Statement and (ii) a
suspension pursuant to this Section 4.02 or pursuant to Section 2.07 by reason
------------ ------------
of the existence of one or more Disadvantageous Effects shall be authorized only
once during any twelve-month period. Any such suspension pursuant to this
Section 4.02 shall terminate upon the first to occur of (i) the consummation of
- ------------
the transaction which is the asserted basis for such Disadvantageous Effect,
(ii) the abandonment or termination of such transaction by the Majority Selling
Investors prior to consummation (which will constitute the withdrawal of the
Demand Notice with respect to such Demand Registration), (iii) the determination
by the Board of Directors of the Company that such offering, sale or other
distribution would not or would no longer result in such Disadvantageous Effect
and (iv) the ninety-first day after the written notice of such suspension is
given in accordance with this Section.
SECTION 4.03. Procedures if Stop Order Issued. Each Selling
-------------------------------
Investor, upon receipt of any written notice from the Company of the happening
of any event of the kind described in Section 4.01(f), will forthwith
---------------
discontinue disposition of Registrable Shares pursuant to the applicable
Registration Statement until such Selling Investor's receipt of the copies of
the supplemented or amended preliminary prospectus, prospectus or prospectus
supplement contemplated by Section 4.01(f), and, if so directed by the Company,
---------------
such Selling Investor will deliver to the Company all copies in its possession
of the most recent preliminary prospectus, prospectus or prospectus supplement
covering such Registrable Shares at the time of receipt of such notice. In the
event the Company shall give any such notice after a Registration Statement has
become effective, the Company shall extend the period during which the
effectiveness of such Registration Statement shall be maintained pursuant to
Section 4.01(b) hereof by the number of days during the period from and
- ---------------
including the date of the giving of notice pursuant to Section 4.01(f) to the
---------------
date when the Company shall make available to each Selling Investor the copies
of the supplemented or amended preliminary prospectus, prospectus or prospectus
supplement contemplated by Section 4.01(f).
---------------
SECTION 4.04. Participation in Underwritten Offers. No Investor or
------------------------------------
other Person who otherwise has a right to participate in any underwritten
offering in connection with a Demand Registration or a Piggyback Registration
shall be entitled to so participate unless such Person (i) agrees to sell its
securities on the basis provided in any underwriting arrangements applicable to
all stockholders who participate therein (including so-called "lock-up"
21
<PAGE>
arrangements) and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and this Agreement;
provided, that in the case of any Demand Registration, the Majority Selling
- --------
Investors shall have the right to determine those arrangements by agreement with
the managing underwriter(s) as provided in Section 2.06(a).
SECTION 4.05. Restriction on Other Sales. If, in the case of the
--------------------------
first underwritten offering after the date of this Agreement that consists of or
includes offerings of Common Stock for the account of the Company registered
pursuant to Section 5 of the Securities Act, the managing underwriter(s) for
such offering determine in good faith that public sales of Common Stock by the
Investors otherwise than as part of such offering would adversely affect the
success of such offering, and if the Investors, collectively, then own
Registrable Shares constituting 5% or more of the fully diluted shares of Common
Stock then outstanding (after giving effect to all sales, including any by
Investors, and issuances of Common Stock or Rights to acquire Common Stock
pursuant to the Registration Statement covering such offering), then to the
extent requested by such managing underwriter(s), no Investor shall effect any
sale or distribution into the public market of any Common Stock owned by such
Investor, other than as part of such underwritten offering (to the extent that
such Investor has the right or is otherwise allowed to participate therein), for
such period after the effective date of the Registration Statement covering such
offering as such managing underwriter(s) shall specify, provided that (i) such
--------
period shall not exceed ninety days and (ii) each of the executive officers and
the directors of the Company who beneficially own Common Stock or Rights to
acquire Common Stock, and each Person who holds a number of shares of Common
Stock (including shares issuable upon exercise of Rights but excluding shares
acquired in a public market) equal to or greater than the number of Registrable
Shares held (after giving effect to any sales pursuant to such Registration
Statement) by the Investors, collectively, also agree to be subject to the same
restrictions for the same period and any waiver or release from such restriction
granted to any such officer, director or Person is also granted to each of the
Investors with respect to the same number of shares. Any contract or agreement
entered into on or after the date hereof pursuant to which the Company issues
any securities or becomes or may become obligated to register or to permit the
participation in the registration of any securities of the Company shall contain
restrictions upon the holders of such securities equivalent to those imposed
upon the Investors under this Section. The provisions of this Section 4.05
------------
shall not prevent the conversion, exchange or exercise of any securities
pursuant to their respective terms into or for other securities of the Company
or any public sale or other distribution by any of the Investors with the prior
consent of the Company, and are supplemental to any similar requirements imposed
by the Securities Act.
ARTICLE V
EXPENSES OF REGISTRATION
SECTION 5.01. Expenses. Except as provided in the last sentence of
--------
this Section 5.01, all Registration Expenses incurred in connection with or
------------
otherwise incident to any Demand Registration or Piggyback Registration and the
offering or sale or other distribution of any Registrable Shares in connection
therewith shall be borne by the Company, whether or not any Registration
Statement filed in connection therewith ever becomes effective or any such sale
22
<PAGE>
or other distribution ever is consummated. Underwriting discounts and selling
commissions attributable to the Registrable Shares included in such registration
shall be borne by the holders of such Registrable Shares pro rata on the basis
of the respective numbers of such included Registrable Shares. Subject to the
last sentence of this Section 5.01, the Company shall not be required to pay the
------------
Registration Expenses of any Demand Registration begun pursuant to Section 2.02
------------
that is withdrawn at the request of the Majority Selling Investors, unless the
Majority Investors elect in writing to have such registration counted as a
Demand Registration. In any such case, (i) the Holders of Registrable Shares to
have been registered shall bear all such Registration Expenses pro rata on the
basis of the number of shares to have been registered, and (ii) the Company
shall not be deemed to have effected a Demand Registration for purposes of the
last sentence of Section 2.02. Notwithstanding the foregoing, however, the
------------
Company shall pay such Registration Expenses (and shall not be deemed to have
effected a Demand Registration for purposes of the last sentence of Section
-------
2.02) if the withdrawal is pursuant to Section 2.07 or Section 3.02.
- ---- ------------ ------------
ARTICLE VI
INDEMNIFICATION AND CONTRIBUTION
SECTION 6.01. Indemnification by the Company. The Company shall
------------------------------
indemnify and hold harmless each Investor, each former Investor, each Person (if
any) who controls such Investor or former Investor within the meaning of the
Securities Act or the Exchange Act and each of their respective Affiliates,
partners, directors, officers, employees and agents (collectively, the "Investor
Indemnified Parties") from and against any liabilities, obligations, losses,
damages, assessments, fines and penalties of any kind or nature, including all
amounts paid or agreed to be paid in settlement of any claim, action, suit,
hearing, proceeding or investigation (collectively, "Losses"), whether direct,
indirect, joint or several, and subject to Section 6.03, also shall indemnify
------------
and reimburse each Investor Indemnified Party for all reasonable fees, costs and
expenses (including reasonable fees and disbursements of counsel) in connection
with preparing for, defending against or settling, prosecuting any appeal of any
judgment entered in, or otherwise as a result of, any claim, action, suit,
hearing, proceeding or investigation, in each case which in any manner results
from, arises out of, or is based upon or related or attributable to (i) any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement as originally filed or in any amendment thereof, or
in any preliminary, final or summary prospectus, or in any amendment thereof or
supplement thereto, or any omission or alleged omission to state in any thereof
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any violation by the Company of any
federal or state law, rule or regulation or common law applicable to the Company
and relating to action required of or inaction by the Company in connection with
any Demand Registration or Piggyback Registration; provided, however, that, in
-------- -------
the case of clause (i), the Company shall not be obligated to indemnify any
Investor or any of its controlling Persons, Affiliates, partners, directors,
officers, employees or agents for any Loss to the extent (and only to the
extent) that such Loss arises from any such untrue statement made in or omission
from the Registration Statement or any amendment thereof, or any related
preliminary, final or summary prospectus or any amendment thereof or supplement
thereto, which statement or omission related to information about such Investor
or its proposed plan of distribution of the
23
<PAGE>
Registrable Shares of such Investor covered by such Registration Statement and
was made or omitted in reliance upon and in conformity with the latest
information about such Investor or its proposed plan of distribution of the
Registrable Shares of such Investor covered by such Registration Statement which
was provided to the Company by such Investor in writing and stated in writing to
be specifically for use in such Registration Statement (or amendment thereto) or
such prospectus (or amendment thereof or supplement thereto). The Company will
also indemnify each underwriter, selling broker, dealer manager, placement agent
and similar securities industry professional participating in the distribution
of Registrable Shares, its officers and directors and each Person who controls
such Person (within the meaning of the Securities Act) to the extent required by
such underwriter; provided, however, that if the Company and any such
-------- -------
underwriter, selling broker, dealer manager or similar industry professional
enters into an underwriting, purchase or other agreement relating to such
distribution which contains provisions relating to indemnification and
contribution between the Company and such Person, such provisions shall be
deemed to govern indemnification and contribution as between the Company and
such Person.
SECTION 6.02. Indemnification by Each Investor. Each Investor,
--------------------------------
individually and not jointly, shall indemnify and hold harmless the Company and
each Person, if any, who controls the Company within the meaning of the
Securities Act and the Exchange Act (the "Company Indemnified Parties") and the
Investor Indemnified Parties (other than such indemnifying Investor and its
controlling Persons, Affiliates, partners, directors, officers, employees and
agents) from and against any Loss to which such Company Indemnified Parties
and/or Investor Indemnified Parties may become subject, and subject to Section
-------
6.03, also shall indemnify and reimburse each Company Indemnified Party for all
- ----
reasonable fees, costs and expenses (including reasonable fees and disbursements
of counsel) in connection with preparing for, defending against or settling,
prosecuting any appeal of any Judgment entered in, or otherwise as a result of
any claim, action, suit, hearing, proceeding or investigation, in each case
insofar and to the extent (and only insofar and to the extent) as such Loss or
such claim, action, suit, hearing, proceeding or investigation arises out of or
is based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement pursuant to which any Registrable
Shares of such Investor were offered and sold or in any related preliminary,
final or summary prospectus, or in any amendment thereof or supplement thereto,
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, if the statement or
omission related to information about such Investor or its proposed plan of
distribution of the Registrable Shares of such Investor covered by such
Registration Statement and was made or omitted in reliance upon and in
conformity with the latest information about such Investor or its proposed plan
of distribution of the Registrable Shares of such Investor covered by such
Registration Statement which was provided by such Investor in writing and stated
in writing to be specifically for inclusion therein; provided, however, that
-------- -------
such Investor will not indemnify or hold harmless any Company Indemnified Party
and/or Investor Indemnified Party from or against any such Loss, fee, cost or
expense if the untrue statement, omission or alleged untrue statement or
omission upon which such Losses or expenses are based was contained in or
omitted from (as the case may be) any preliminary prospectus, prospectus or
summary prospectus, or any amendment thereof or supplement thereto,
24
<PAGE>
used after such time as the Company was advised by or on behalf of such Investor
or the Company had knowledge that the information about such Selling Investor
contained therein needs to be corrected, revised or supplemented.
SECTION 6.03. Procedures. Each party claiming a right to
----------
indemnification under this Article VI (the "Indemnified Party") shall give
----------
notice to the party from whom such indemnification is or may be sought (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnification may be sought, and the Indemnifying
Party may participate at its own expense in the defense, or if it so elects,
assume the defense of any such claim and any action or proceeding resulting
therefrom, including the employment of counsel and the payment of all expenses.
The failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party from its obligations to indemnify such
Indemnified Party, except to the extent the Indemnified Party's failure to so
notify actually and materially prejudices the Indemnifying Party's ability to
defend against such claim, action or proceeding. In the event that the
Indemnifying Party elects to assume the defense in any action or proceeding, an
Indemnified Party shall have the right to employ separate counsel in any such
action or proceeding and to participate in the defense thereof, but such
Indemnified Party shall pay the fees and expenses of such separate counsel
unless (i) the Indemnifying Party has agreed to pay such fees and expenses, (ii)
any relief other than the payment of money is sought against the Indemnified
Party or (iii) the named parties to any such action or proceeding (including any
impleaded parties) include such Indemnified Party and the Indemnifying Party,
and such Indemnified Party shall have been advised by counsel that there is a
conflict of interest between such Indemnified Party and the Indemnifying Party
in the conduct of the defense of such action (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not assume the defense of such action or proceeding on such
Indemnified Party's behalf, it being understood, however, that the Indemnifying
Party shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys at any time for
all Indemnified Parties, which firm shall be designated in writing by the
applicable Indemnified Parties). If the Indemnifying Party elects not to
defend, or if, after commencing or undertaking any such defense, the
Indemnifying Party fails to prosecute or withdraws from such defense or fails to
appeal any Judgment adverse or unfavorable to the Indemnified Party, the
Indemnified Party shall have the right to undertake the defense, settlement or
appeal thereof (as the case may be), at the Indemnifying Party's expense. If
the Indemnified Party assumes the defense of any such claim, investigation,
action, suit, hearing or proceeding pursuant to this Section 6.03 and proposes
------------
to settle the same prior to a final judgment thereon or to forgo or abandon any
appeal available after final judgment thereon, then the Indemnified Party shall
give the Indemnifying Party prompt written notice thereof and the Indemnifying
Party shall have the right to participate in the settlement, assume or reassume
the defense thereof or prosecute such appeal, in each case at the Indemnifying
Party's expense. The Indemnifying Party shall not, without written consent of
such Indemnified Party, settle or compromise or consent to entry of any judgment
with respect to any such claim, investigation, action, suit, hearing or
proceeding (i) in which any relief other than the payment of money damages is or
may be sought against such
25
<PAGE>
Indemnified Party or (ii) which does not include as an unconditional term
thereof the giving by the claimant, Person conducting such investigation or
initiating such hearing, plaintiff or petitioner to such Indemnified Party of a
release from all liability with respect to such claim, investigation, action,
suit or proceeding and all other claims or causes of action (known or unknown)
arising or which might arise out of the same facts.
SECTION 6.04. Contribution. In order to provide for just and
------------
equitable contribution if a claim for indemnification pursuant to the
indemnification provisions of this Article VI is made but it is found in a final
----------
judgment by a court of competent jurisdiction (not subject to further appeal)
that such indemnification may not be enforced in such case, even though the
express provisions hereof provide for indemnification in such case or the
indemnification provided for under this Article VI, even though so provided for,
----------
otherwise is unavailable to or insufficient to hold any Indemnified Party
harmless to the full extent provided herein with respect to any Loss (or any
fees, costs or expenses) for which such indemnification is provided for, then
the Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses (i) in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other, in connection with the
statements or omissions which resulted in such Losses or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative fault referred to
in clause (i) above but also the relative benefits received by the Indemnifying
Party, on the one hand, and such Indemnified Party, on the other, from the
subject offering or distribution, as well as any other relevant equitable
considerations. Relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by (or omitted to be supplied by) the Indemnifying Party or the
Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The relative benefits received by the Indemnifying Party, on the one hand, and
the Indemnified Party, on the other, shall be deemed to be in the same
proportion as the net proceeds of the offering or other distribution received by
the Indemnifying Party bears to the net proceeds of the offering or other
distribution received by the Indemnified Party. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Company and the Investors agree that it would
not be just and equitable if contributions pursuant to this Section 6.04 were to
------------
be determined by pro rata allocation (even if all Investors were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
-------
6.04.
- ----
SECTION 6.05. Limit on Liability of Investors. The parties agree, to
-------------------------------
the maximum extent permitted by law, that the obligations and liability of each
Selling Investor with respect to any Demand Registration or Piggyback
Registration, whether for indemnification pursuant to Section 6.02, contribution
------------
pursuant to Section 6.04 or otherwise, shall not in any event exceed in the
------------
aggregate the amount of net proceeds received by such Selling Investor from the
sale of the Registrable Shares sold by such Selling Investor in such Demand
Registration or Piggyback Registration.
26
<PAGE>
ARTICLE VII
RIGHT OF FIRST OFFER
SECTION 7.01. Issuance of New Securities. Subject to Section 7.04,
-------------------------- ------------
if and whenever the Company issues any New Securities, each Investor holding at
least 10% of the Originally Issued Shares will have the right, but not the
obligation, to purchase such New Securities up to an amount sufficient to permit
it to maintain its percentage common equity interest in the Company (based on
the Number of Common Shares Outstanding immediately prior to the issuance of the
New Securities). The "Number of Common Shares Outstanding" as of any time means
the sum of (i) the number of shares of Common Stock which then are actually
issued and outstanding, plus (ii) the total number of additional shares of
Common Stock which would then be issued and outstanding if it were assumed that
all Qualifying Rights, if any, then held by the Investors and other holders of
Qualifying Rights were then duly exercised in full (whether or not then
exercisable). Within ten Business Days after the receipt of such Preissuance
Notice, each Investor may exercise its rights under this Section 7.01 by giving
------------
written notice to that effect to the Company. Failure to give such notice
within that ten Business Days period or failure to pay at the required time the
purchase price for any New Securities as to which a right to purchase will have
been exercised will constitute a waiver of the rights granted by this Section
-------
7.01 as to the particular issuance of New Securities specified in the Company's
- ----
Preissuance Notice. In the event that any Investor does not exercise its rights
under this Section 7.01, such Investor's pro rata share of the New Securities
------------
shall be re-offered to those Investors, if any, who did exercise their rights
under this Section 7.01. Within ten Business Days after the receipt of written
------------
notice of such re-offering (the "Subsequent Notice"), each such Investor may
exercise its further rights by giving written notice to that effect to the
Company.
SECTION 7.02. Per Share Price; Valuations. The per share purchase
---------------------------
price to be paid upon exercise of the rights granted under this Article VII will
-----------
be equal to the lowest per share consideration at which the New Securities are
offered or proposed to be offered by the Company to any New Securities
Purchaser. The consideration for which New Securities are offered or proposed
to be offered will be determined as follows: (i) in case of the proposed
issuance of New Securities for cash, the consideration to be received by the
Company will be the amount of cash for which the New Securities are proposed to
be issued and (ii) in case of the proposed issuance of New Securities in whole
or in part for consideration other than cash, the value of the consideration to
be received by the Company other than cash will be the fair market value of that
consideration as reasonably determined by the Board of Directors of the Company
in good faith. If any Investor within five days of receipt of any Preissuance
Notice notifies the Company in writing that it objects to any statement of the
fair market value of any security or other property contained therein, the
Company and the Investors shall attempt in good faith to agree on the fair
market value of such security or other property. If they are unable to so agree
within five Business Days after such notice of objection was given, then within
five Business Days thereafter, the Company and the Majority Investors shall
select one appraiser and the Company and the Majority Investors shall submit to
such appraiser (and each other) a brief written statement of their position
regarding the matter in dispute and supporting arguments, and each shall be
given a period of five Business Days thereafter to submit to the other and to
the appraiser a written response to such written statement of the other. Such
appraiser shall within
27
<PAGE>
fifteen days of the date of its selection, resolve such dispute by choosing
either the position of the Company set forth in such written statement so
submitted by the Company or the position of the Investors set forth in such
written statement so submitted by the Majority Investors, whichever in the
opinion of the appraiser, in its sole discretion, is more consistent with the
purposes and intent of this Agreement. Decisions with respect to such
determination made pursuant to this Section 7.02 by the Majority Investors shall
------------
be binding on all Investors. Any determination of fair market value for
purposes of this Article VII by agreement of the Company and the Majority
-----------
Investors or by an appraiser appointed as provided in this Section 7.02 shall be
------------
final and binding on the Company, and each Investor for all purposes of this
Article VII. Promptly after any final determination of fair market value
- -----------
pursuant to this Section 7.02, the Company shall give each Investor a written
------------
notice stating such fair market value. Each appraiser shall be a nationally
recognized appraiser or investment banking firm which has substantial experience
in making appraisals similar to that being made, which is not directly or
indirectly affiliated with the Company or any other Person who is a party to or
otherwise interested in the event resulting in the need for such appraisal and
which has no interest (other than the receipt of customary fees) in such event.
In the event the appraiser agrees with the written statement submitted by the
Investors, the fees and expenses of any appraiser appointed in connection with
an appraisal pursuant to this Article VII shall be paid by the Company. In the
event the appraiser agrees with the written statement submitted by the Company,
the fees and expenses of any appraiser appointed in connection with an appraisal
pursuant to this Article VII shall be paid by the Investors.
-----------
SECTION 7.03. Representations, Warranties and Certain Covenants. In
-------------------------------------------------
connection with each issuance of New Securities to any Investor pursuant to this
Article VII, the Company shall, in the event the Company is making
- -----------
representations, warranties and/or covenants to the New Securities Purchaser,
make to each Investor such representations, warranties, and covenants as are
customarily made by issuers in similar instances (but which in no event shall be
less favorable to the Investors than those contemplated by the Preissuance
Notice or otherwise made to or for the benefit of any New Securities Purchaser)
and each Investor shall be separately and independently entitled to rely on such
representations and warranties, to the benefit of such covenants and to exercise
all available rights and remedies in the event of any breach or violation of any
such representations, warranties and covenants. Any representations and
warranties made by an Investor shall consist solely of such representations and
warranties relating to (i) such Investor's authority to consummate the purchase
of the New Securities from the Company and (ii) other similar representations
and warranties as are customarily given by similarly situated purchasers of
securities similar to those being purchased by an Investor in a similar
transaction but no Investor shall be required to give any such representation or
warranty which the New Securities Purchaser does not give. The representations,
warranties, covenants and agreements of each Investor shall be several and not
joint and the representations and warranties of the Investor and of the Company
(unless, in the case of the Company, otherwise required by the New Securities
Purchasers) shall terminate upon the earlier of (i) the termination of any
representation or warranty made by the New Securities Purchaser or by the
Company and (ii) one year after closing. The right of each Investor to purchase
the full number of New Securities which such Investor is entitled to purchase
under this Article VII shall not be subject to any conditions whatsoever, other
-----------
than the accuracy of the representations made by such Investor, the payment of
28
<PAGE>
the purchase price therefor determined as provided herein, and the consummation
of the transaction between the Company and the New Securities Purchaser. If any
Investor shall fail for any reason to purchase any New Securities which it has
elected to purchase, the sole right, remedy and recourse of the Company, the New
Securities Purchaser, and the complying Investors, as the case may be, shall be
the right of the Company to issue to the New Securities Purchaser and the other
Investors, pro rata based on their respective participations in the transaction
as determined pursuant to Section 7.01, additional New Securities equal in kind
------------
and number or other relevant amount to the New Securities which such Investor
failed to purchase at the closing, in which event the Majority Investors may
elect to postpone the closing for five Business Days. Unless the Company and
any Investor otherwise agree, the closing of any issuance of New Securities to
any Investor pursuant to this Article VII shall take place at the principal
-----------
executive offices of the Company at 11:00 A.M., local time, on the later of (i)
the thirtieth day following the expiration of the period of fifteen Business
Days after the later of (A) the date of the relevant Preissuance Notice was
given (except if there is a relevant Subsequent Notice, in which case the date
of such Subsequent Notice) and (B) the date all disputes as to the valuations
have been resolved and (ii) the fifteenth Business Day following the expiration
of all applicable waiting periods, if any, under the HSR Act and the receipt of
all consents, approvals and authorizations from governmental authorities or
other Persons which the Majority Investors believe to be necessary or desirable
in connection with the acquisition of the New Securities to be issued to the
Investor. The Company shall execute such documents and instruments as may be
necessary or reasonably requested to effectuate the issuance of New Securities
to any Investor.
SECTION 7.04. Limitations. The provisions of this Article VII will
----------- -----------
not apply to (i) shares of Common Stock issued as a stock dividend to all
holders of shares of Common Stock or upon any subdivision or combination of
shares of Common Stock, (ii) securities issued for the acquisition by the
Company of another entity or business by merger or such other transaction as
would result in the ownership by the Company of not less than a majority of the
voting power of the other entity or for the purchase of all the assets of an
entity or business, (iii) shares of Common Stock or Rights that are sold by the
Company pursuant to a bona fide public offering pursuant to a registration
---- ----
statement filed under the Act, (iv) shares of Common Stock or Rights issued
pursuant to the Company's stock option plans in existence at the date of this
Agreement or other such stock option plans as approved by the Series B
Directors, (v) the shares of Series B Preferred Stock or Warrants issued
pursuant to the Purchase Agreement or any other Common Stock Rights or any
shares of Common Stock issued upon conversion or exercise thereof, (vi) shares
of Common Stock issued upon exercise of any Common Stock Rights as to which the
Holders shall have been afforded the opportunity to exercise their rights of
first refusal pursuant to this Article VII, or (vii) securities issued upon
exercise of Common Stock Rights outstanding on the Closing Date and described in
the Purchase Agreement or disclosed on a schedule to the Purchase Agreement.
SECTION 7.05. Terms of Payment of Purchase Price. Subject to Section
---------------------------------- -------
7.03 and the rest of this Section, each issuance of New Securities to each
- ----
Investor must be on terms not less favorable to such Investor than the most
favorable terms on which the Company issues or proposes to issue in the
transaction in connection with which the preemptive right is being exercised New
Securities to any New Securities Purchaser, any other Investor or any other
Person (without discrimination based on differences in the number or amount of
New Securities to be
29
<PAGE>
acquired). Without limiting the generality of the immediately preceding
sentence, (i) each Investor must be given the same options and rights of
election, if any, as to the kind(s) or amount(s) of consideration to be paid or
delivered for New Securities as any other purchaser is given or was proposed to
be given in the Preissuance Notice and (ii) the purchase price to be paid by
each Investor upon exercise of its rights under this Article VII will be paid
-----------
upon terms which are not less favorable than those on which the New Securities
are sold to any other purchaser, unless those terms provide for payment in a
manner which could not reasonably be duplicated by any Investor, such as the
transfer of specific property to the Company, in which event such payment will
be in cash in an amount equal to the fair market value of such specific property
as reasonably determined by the Board of Directors in good faith. The giving of
a Preissuance Notice shall constitute the representation and warranty by the
Company to each Investor that (i) the proposed issuance is not subject to
conditions, contingencies or material terms not disclosed in the Preissuance
Notice or in the accompanying documents delivered therewith; and (ii) neither
the amount or kind of consideration offered by the New Securities Purchaser for
the New Securities nor any other terms of the proposed issuance or of any other
transaction or proposed transaction with the New Securities Purchaser or any of
its Affiliates have been established for the purpose of circumventing,
increasing the cost of exercising or otherwise impairing any Investor's right of
first refusal pursuant to this Article VII or increasing the probability that
any Investor's right of first refusal will not be exercised in full.
SECTION 7.06. Issuance to Others Not Permitted Absent Compliance. If
--------------------------------------------------
the Company does not issue and deliver, to each Investor, on or before the 120th
day after the date the applicable Preissuance Notice with respect to any
proposed issuance of New Securities is given, all New Securities which such
Investor is entitled to be issued in accordance with the provisions of this
Article VII for any reason other than the failure of such exercising Investor to
- -----------
tender the purchase price therefor if and when required by this Article VII,
-----------
then the Company shall not be entitled to issue any New Securities pursuant to
the related Preissuance Notice. If, after compliance with Section 7.02, there
------------
remains any portion of the New Securities specified in a Preissuance Notice
which have not been elected to be acquired by one or more Investors, the Company
shall be entitled to issue such remaining portion to the Persons, in the manner
and on terms and conditions not materially more favorable to the purchaser than
those specified in such Preissuance Notice, but only if such issuance is
consummated not later than the 120th day after the date such Preissuance Notice
was given. If such issuance is not so consummated within such period, then the
Company shall not be entitled to issue any such New Securities without again
complying with the provisions of this Article VII. Notwithstanding the
foregoing provisions of this Article VII, unless a binding purchase agreement
-----------
entered into pursuant to this Article VII by the Company and such Investor
-----------
otherwise provides, the Company may, without liability to any Investor, abandon
the proposed issuance of New Securities.
SECTION 7.07. Rights Apply to Each Issuance of New Securities.
-----------------------------------------------
Subject to the last sentence of Section 7.01, the provisions of this Article VII
-----------
shall apply successively to each and every issuance or proposed issuance of any
New Securities.
30
<PAGE>
ARTICLE VIII
CERTAIN OTHER COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
SECTION 8.01. Financial Information. So long as an Investor is the
---------------------
Beneficial Owner of at least 10% of the Originally Issued Shares, the Company
will furnish to such Investor the following reports:
(a) Within the applicable time period required under the Exchange Act,
after the end of each fiscal year of the Company, the information required
by Form 10-K (or any successor form thereto) under the Exchange Act with
respect to such period (including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section that describes
the consolidated financial condition and results of operations of the
Company), together with a report thereon by the Company's certified
independent accountants;
(b) Within the applicable time period required under the Exchange Act
after the end of each of the first three fiscal quarters of each fiscal
year of the Company, the information required by Form 10-Q (or any
successor from thereto) under the Exchange Act with respect to such period
(including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section that describes the consolidated
financial condition and results of operations of the Company);
(c) Any current reports on Form 8-K (or any successor forms) required
to be filed under the Exchange Act; and
(d) As soon as practicable upon approval or adoption by the Company's
Board of Directors, the Company will furnish such Investor with the
Company's budget and operating plan (including projected balance sheets and
profit and loss and cash flow statements) for such fiscal year.
SECTION 8.02. (a) Board Representation. For so long as TPG is the
--------------------
Beneficial Owner of at least 40% of the Originally Issued Shares held by it at
the Closing Date, the Investors shall vote all shares of capital stock of the
Company held by them and otherwise use best efforts to cause (i) the Board to
consist of seven members, of whom two members will be individuals designated by
TPG, one member will be an individual designated by Sandler Capital Partners IV,
L.P., a Delaware limited partnership, one member will be the Chief Executive
Officer of the Company, one member will be an independent director acceptable to
TPG in its discretion and the remaining two members will be other individuals
reasonably acceptable to TPG; and (ii) at least one-third of the members of each
committee of the Board to consist of Series B Directors. The directors whom, at
any time and from time to time, TPG is entitled to designate under this Section
8.02(a), are sometimes herein referred to as the "Series B Directors". As of
the Closing Date, the directors of the Board shall be in the classes of the
Board specified in Exhibit A. The Parties recognize that certain of the
---------
directors referred to in clause (i)
31
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of the immediately preceding sentence will not be designated at the Closing
Date. Accordingly, the Parties shall use best efforts to cause to exist
vacancies on the Board in respect of such undesignated directors and to fill
those vacancies with individuals satisfying the requirements of clause (i) of
the immediately preceding sentence at the earliest practicable time.
(b) Qualifications of Independent Directors. For purposes hereof, an
---------------------------------------
"independent director" is an individual who (unless otherwise approved by the
Series B Directors or, if there is no Series B Director, by TPG) (i) has either
a significant financial investment in the Company or a significant strategic
position or expertise relative to the business of the Company and (ii) is not
(A) an officer or employee of the Company or any of its Subsidiaries, (B) a
director, employee, partner, manager or other member of management of any
Affiliate of the Company (except a director of a Subsidiary of the Company), (C)
a relative of any Person described in subclause (ii)(A) or (ii)(B) or (D) a
trustee of any trust or estate in which any Person described in subclause
(ii)(A), (ii)(B) or (ii)(C) is a beneficiary and has a substantial beneficial
interest.
(c) Removal. The Investors shall vote, and otherwise shall use all
-------
reasonable efforts to cause any director designated by an Investor to be removed
at and only at the request of such Investor. The Investors and the Company
(subject to the fiduciary duties of the members of the Board) shall use their
best efforts to cause any vacancy in the office of a director designated by an
Investor resulting from death, resignation or removal or existing for any other
reason whatsoever to be filled only by such Investor. In addition, in the event
that the holders of the Series B Shares shall have the right to elect Majority
Directors pursuant to Section 11(b) of the Series B Articles of Amendment and
such right is terminated by operation of the last sentence of such Section
11(b), the Investors shall use best efforts to cause any additional directors
elected pursuant to such Section 11(b) to be removed as promptly as practicable
and, in the event that the holders of the Series B Shares shall have the right
to elect Designated Directors pursuant to Section 7.1 of the Series B Articles
of Amendment and such right is terminated by operation of Section 7.1, the
Investors shall use best efforts to cause any additional directors elected
pursuant to such Section 7.1 to be removed as promptly as practicable.
(d) Indemnification. The Company shall (i) to the fullest extent
---------------
permitted by applicable law, indemnify the holders of the Series B Preferred
Stock and each current and former Series B Director who is made a party or
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such Person is or was a shareholder or director of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such Person in connection with such action, suit or proceeding and (ii) pay
in advance, or advance to each such shareholder, director and former director
for payment of, expenses incurred in defending any such action, suit or
proceeding to the maximum extent permitted by applicable law. The rights
conferred on any Person by this Section 8.02(d) shall not be exclusive of any
---------------
other rights which such Person may have or acquire under any
32
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statute, under the Company's Articles of Incorporation, under the Company's By-
laws, under any agreement, vote of stockholders or disinterested directors or
otherwise.
(e) Actions Prohibited Under Series B Articles of Amendment. For so
-------------------------------------------------------
long as TPG is the Beneficial Owner of at least 40% of the Originally Issued
Shares, the Company shall not, and the Investors shall use best efforts to cause
the Company not to, take any action prohibited by Section 11(e) of the Series B
-------------
Articles of Amendment.
(f) Operating Committee. For so long as TPG is the Beneficial Owner of
-------------------
at least 40% of the Originally Issued Shares, in the event that the Company
shall fail to comply with any material provision of (A) its annual budget
(including, without limitation, by falling at least fifteen percent (15%) short
of any of the revenue or EBITDA targets established in any such budget (as
adjusted for any acquisitions made by the Company after the setting of such
targets)) or (B) any of the budget, restrictive or financial covenants in the
Indenture or in any other credit agreement with respect to Indebtedness in
excess of $5,000,000 to which the Company is a party (whether or not such
agreement is existing as of the date hereof), the Investors and the Company
(subject to the fiduciary duties of the members of the Board) shall use their
best efforts to cause the Board to establish, if such committee does not already
exist, and maintain an Operating Committee consisting of five members, two of
whom shall be the Series B Directors, one of whom shall be a representative of
Sandler (as defined below) and two of whom shall be other members of the Board.
The Operating Committee shall have the sole power and authority to direct
management in the implementation of the Company's long-term and annual operating
plans and budget.
(g) Board Observer Rights. In the event that any Investor declines to
---------------------
designate a director of the Company which it is entitled to designate pursuant
to Section 8.02(a), the Investors shall take such action as is necessary to
---------------
cause such Investor to have the right, in its sole discretion, to have
representatives (in the same number as the number of directors which such
Investor has the right to designate pursuant to Section 8.02(a)) appointed by
---------------
them attend any one or more meetings of the Board as observers, and not as
directors, which representatives shall be entitled to receive the same notices
of meetings of and proposed actions by the Board as directors generally, but
shall not be entitled to any voting or consent rights of a director.
SECTION 8.03. Additional Piggyback Registration Rights. From and
----------------------------------------
after the Closing Date, the Company shall not (i) grant to any Person rights to
participate in any Piggyback Registration that are more favorable than the
rights granted to the Investors in the case of a cut-back in a Piggyback
Registration or (ii) grant any Person a right to piggyback on a Demand
Registration unless such Persons agree that in the event of any required cut-
back, such Persons shall have their security proposed to be included in such
registration reduced prior to any reduction in Registrable Shares of the
Investors included in such registration.
ARTICLE IX
MISCELLANEOUS
33
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SECTION 9.01. Securities Act Legend. Except as otherwise provided in
---------------------
this Section 9.01, each stock certificate or other instrument evidencing the
------------
Series B Shares, the Warrants, any Conversion Stock or any Warrant Stock shall
bear a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR OTHER
SECURITIES LAWS. THEY ARE `RESTRICTED SECURITIES' WITHIN THE MEANING
OF SEC RULE 144. THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND SUCH LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
ACT AND SUCH LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO
THE REASONABLE SATISFACTION OF THE COMPANY. THE SALE, TRANSFER OR
OTHER DISPOSITION OF THE SECURITIES IS ALSO SUBJECT TO COMPLIANCE WITH
THE TERMS AND CONDITIONS OF THAT CERTAIN INVESTORS RIGHTS AGREEMENT,
DATED AS OF APRIL 18, 2000, AS SUPPLEMENTED, MODIFIED AND AMENDED FROM
TIME TO TIME, AMONG THE COMPANY AND THE INVESTORS NAMED THEREIN, A
COPY OF WHICH AGREEMENT IS AVAILABLE FOR INSPECTION DURING REGULAR
BUSINESS HOURS AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY. A
COPY OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
APPLICABLE TO THIS CLASS OF SECURITIES WILL BE FURNISHED TO THE
SHAREHOLDER ON REQUEST IN WRITING AND WITHOUT CHARGE."
Any holder of any such certificate or instrument bearing the foregoing legend
shall be entitled to promptly receive from the Company, without expense, a new
certificate or instrument of identical tenor representing the same kind of
securities and the same number or other amount thereof not bearing such legend
if such securities shall have been effectively registered under the Securities
Act and are sold or otherwise disposed of in accordance with the intended method
of disposition by the seller thereof set forth in the registration statement, or
such securities may be freely transferred by such holder by reason of an
exemption from registration under the Securities Act, or such legend otherwise
is not required in order to ensure compliance with the Securities Act. The
written opinion of Cleary, Gottlieb, Steen & Hamilton, or other legal counsel
selected by such holder and reasonably satisfactory to the Company with respect
to any of the foregoing or with respect to any question concerning whether any
proposed transfer of any such securities would violate the Securities Act shall
be sufficient to determine the issue.
SECTION 9.02. Rule 144. The Company covenants that following the
--------
initial registration of any Common Stock, it will file any reports required to
be filed by it under the Securities Act and the Exchange Act so as to enable
Investors who continue to hold any
34
<PAGE>
Registrable Shares to sell such Registrable Shares without registration under
the Securities Act within the limitation of the exemptions provided by (i) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(ii) any similar rule or rules now in effect or hereafter adopted by the
Commission. Upon the request of any Investor, the Company will promptly deliver
to such Investor a written statement as to whether it has complied with such
requirements.
SECTION 9.03. Amendments and Waivers. The provisions of this
----------------------
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers of or consents to departures from the
provisions hereof may not be given, unless approved in writing by the Company
and by the Majority Investors. Notwithstanding the foregoing, any waiver or
departure with respect to any matter which relates exclusively to the rights and
obligations of Investors in a specific Piggyback Registration or Demand
Registration, which relates only to the Registrable Shares being registered
pursuant to that Piggyback Registration or Demand Registration, which applies
only to such specific Piggyback Registration or Demand Registration, and which
does not directly or indirectly adversely affect the rights of any other
Investor with respect to any Registrable Shares not being so registered, shall
be authorized and effective if approved in writing by the Company and the
Majority Investors.
SECTION 9.04. Termination. The provisions of this Agreement shall
-----------
terminate as to any particular Investor, other than the provisions of Article
VI, which shall survive any such termination indefinitely, at the first time as
of which all Registrable Shares held by such Investor may be publicly sold by
such Investor pursuant to Rule 144 under the Securities Act without registration
or qualification under the Securities Act or state securities laws, without
limitations as to volume or manner of sale and without any limitation,
restriction or condition; provided, however, that any obligations of the Company
-------- -------
pursuant to Article V or any other provision of this Investor Rights Agreement
---------
with respect to any pending or completed Demand Registration or Piggyback
Registration which have not been fully performed shall survive until fully
performed. In the case of any dispute concerning whether the condition stated
in the immediately preceding sentence has been satisfied as of any time, the
opinion of an independent law firm of nationally recognized standing selected by
the Majority Investors reasonably satisfactory to the Company shall be final and
conclusive. The fees and expense of such law firm will be paid by the losing
party to such dispute.
SECTION 9.05. Certain Mergers and Other Events. If the Company
--------------------------------
proposes to consummate any consolidation, merger, binding share exchange or
reorganization in which the Company is not the continuing corporation or any
sale, conveyance, transfer or lease to another Person of the properties and
assets of the Company as an entirety or substantially as an entirety and if, as
a result of or in connection with such transaction, the Investors would receive
or would be entitled to receive, in exchange for or otherwise with respect to
the Registrable Shares held by them, any common stock, other capital stock or
other securities of the successor or acquiring corporation or any Affiliate
thereof or any Rights for any such common stock, capital stock or other
securities, then the Company shall not consummate such transaction unless the
successor or acquiring Person (as the case may be) shall, in a manner reasonably
satisfactory to the Majority Investors, grant to the Investors registration
rights which shall be no less favorable to the
35
<PAGE>
Investors than the provisions of this Agreement. In the event of (i) any
reclassification, reorganization or change of the outstanding shares of Common
Stock or other capital stock of the Company, (ii) any consolidation, merger,
binding share exchange or reorganization to which the Company is party (other
than a consolidation, merger, share exchange or reorganization in which the
Company is the continuing corporation and which does not result in any
reclassification of or change in the Registrable Shares of any class, series or
type), (iii) any event which results in the securities deliverable upon exercise
or conversion of any Common Stock Rights referred to in the definitions of
Registrable Shares in Section 1.01 consisting of or including any securities
------------
other than shares of Common Stock, or (iv) any other event of any kind occurs
which results in a change in the securities constituting or included in the
Registrable Shares immediately before such event, then the Investors shall be
entitled to registration rights with respect to all such securities issued or
issuable to them by reason thereof which are comparable in all material respects
to those provided for herein with respect to Registrable Shares. In the event
any dispute relating to this Section 9.5 shall arise, then such dispute shall
-----------
promptly thereafter be submitted for resolution by an independent law firm of
recognized national standing selected by the Company and reasonably acceptable
to the Majority Investors (acting as provided above in this Section), whose
decision (with the advice of an independent investment banking firm of
recognized national standing selected by such law firm, if such law firm
believes it advisable to seek such advice) shall be final and conclusive. The
reasonable fees and expenses of such law firm (and of any such investment
banking firm) shall be paid by the Company.
SECTION 9.06. Determinations Generally. Unless otherwise expressly
------------------------
provided herein, all decisions and determinations required or permitted to be
made hereunder by any Investor (including any decision as to whether to give any
consent or approval) shall be made by such Person in its sole discretion.
SECTION 9.07. Binding Effect; Successors and Assigns; Entire
----------------------------------------------
Agreement. Except as expressly provided in this Agreement, nothing in this
- ---------
Agreement, express or implied, is intended or shall be construed to confer upon
or give any creditor, stockholder or Affiliate of the Company or any other
Person except the parties and the Persons who from time to time are Investors
any remedy or claim under or by reason of this Agreement or any term, covenant
or condition hereof, all of which shall be for the sole and exclusive benefit of
the parties. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the Company and the Persons who from time to
time are Investors and their respective successors and permitted assigns.
Except as otherwise specifically permitted or contemplated by this Agreement,
neither this Agreement nor any of the rights, interests or obligations of the
Company hereunder shall be assigned or delegated without the prior written
consent of the Majority Investors. The provisions of Article VI shall inure to
----------
the benefit of, and be enforceable by, each of the Investor Indemnified Parties
and the Company Indemnified Parties. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter herein and supersede
all prior agreements and undertakings, both written and oral, among the parties,
or any of them, with respect to the specific subject matter hereof.
SECTION 9.08. Interpretation. The headings of the articles and
--------------
sections contained in this Agreement are solely for the purpose of reference,
are not part of the agreement of the parties and shall not affect the meaning or
interpretation of this Agreement.
36
<PAGE>
SECTION 9.09. No Implied Waivers. No action taken pursuant to this
------------------
Agreement, including, without limitation, any investigation by or on behalf of
any party or beneficiary, shall be deemed to constitute a waiver by the party or
beneficiary taking such action of compliance with any agreements, covenants,
obligations or commitments contained herein or made pursuant hereto. The waiver
by any party of a breach or benefit of any provision of this Agreement shall not
operate or be construed as a waiver of any preceding or succeeding breach and no
failure by any party or beneficiary to exercise any right, privilege or remedy
hereunder shall be deemed a waiver of such party's or beneficiary's rights,
privileges or remedies hereunder or shall be deemed a waiver of such party's or
beneficiary's rights to exercise the same at any subsequent time.
SECTION 9.10. Further Assurances. Each party shall cooperate and
------------------
take such actions as may be reasonably requested by another party in order to
carry out the provisions and purposes of this Agreement and the transactions
contemplated hereby. The obligations of the Company with respect to the
Registrable Shares of any Investor included in any Demand Registration or
Piggyback Registration are subject to the compliance by such Investor with the
immediately preceding sentence, but the failure of any Investor to so comply
shall not affect the Company's obligations with respect to the Registrable
Shares of any other Investor included therein.
SECTION 9.11. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement. In addition
to any other lawful means of execution or delivery, this Agreement may be
executed by facsimile signatures and may be delivered by the exchange of
counterparts of signature pages by means of telecopier transmission.
SECTION 9.12. Notices. All notices, requests, demands, claims, and
-------
other communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Company:
Convergent Communications, Inc.
400 Inverness Drive South
Suite 400
Englewood, Colorado 80112
Attn: General Counsel
Telephone: (303) 749-3000
Telecopy: (303) 749-3113
with a copy to:
Richard M. Russo, Esq.
Gibson, Dunn & Crutcher L.L.P.
37
<PAGE>
1801 California Street
Suite 4100
Denver, Colorado 80202
Telephone: (303) 298-5715
Telecopy: (303) 296-5310
38
<PAGE>
If to any Investor, to such Investor at such Investor's address specified
on Schedule 1 or supplied by such Investor in writing to the Company for
purposes hereof, with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Paul J. Shim, Esq.
Telephone: (212) 225-2930
Telecopy: (212) 225-3999
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, facsimile transmission ordinary mail, or electronic mail), but
no such notice, request, demand, claim, or other communication shall be deemed
to have been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.
SECTION 9.13. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York without giving
effect to any choice or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York; provided, however,
that matters subject to the Business Corporation Act of the State of Colorado
shall be governed thereby.
SECTION 9.14. Severability. If any provision of this Agreement or
------------
the application thereof to any person or circumstance is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid, void or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, provided, that if any provision
--------
hereof or thereof or the application of any such provisions shall be so held to
be invalid, void or unenforceable by a court of competent jurisdiction, then
such court may substitute therefor a suitable and equitable provision in order
to carry out, so far as may be valid and enforceable, the intent and purpose of
the invalid, void or unenforceable provision and, if such court shall fail or
decline to do so, the parties shall negotiate in good faith a suitable and
equitable substitute provision. To the extent that any such provision shall be
judicially unenforceable in any one or more states, such provision shall not be
affected with respect to any other state, each provision with respect to each
state being construed as several and independent.
SECTION 9.15. Specific Performance. Without intending to limit the
--------------------
remedies available to any of the parties, each of the Investors and the Company
acknowledges and agrees that a violation, breach or threatened by the other of
any term of this Agreement will cause such party irreparable injury for which an
adequate remedy at law is not available. The parties agree that each party
shall have the right of specific performance and, accordingly, shall
39
<PAGE>
be entitled to an injunction, restraining order or other form of equitable
relief, in addition to any and all other rights and remedies at law, from any
court of competent jurisdiction restraining any other party from committing any
breach or threatened breach of, or otherwise specifically to enforce, any
provision of this Agreement and all such rights will be cumulative. The parties
further agree that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
SECTION 9.16. Sandler Capital Agreements. Sandler Capital Partners
--------------------------
IV, L.P., Sandler Capital Partners IV FTE, L.P. and Sandler Capital Partners V,
L.P., each an Initial Investor hereunder, agree on behalf of themselves and
their Affiliates (collectively, "Sandler") for the benefit of the Investors that
notwithstanding the other terms of this Agreement or the terms of any securities
or agreement to which Sandler may be a party:
(i) the Investors shall be entitled to exercise piggyback
registration rights hereunder in connection with any demand
registration right exercised by Sandler otherwise than pursuant
to this Agreement with respect to a number of Registrable Shares
not to exceed 50% of the securities sought to be registered by
Sandler pursuant to such demand registration; and
(ii) the issuance, exercise, conversion or accumulation of dividends
in respect of any Series B Share or Warrant shall not result in
any adjustment to the exercise price of any warrants held by
Sandler or other holder of similar warrants or the number of
securities for which such warrants are exercisable.
If requested, Sandler shall execute and deliver such instruments as shall be
necessary or desirable to effect the foregoing agreements.
(Signatures continued on the next page)
40
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investor Rights
Agreement as of the date first written above.
CONVERGENT COMMUNICATIONS, INC.
By: /s/ Joseph R. Zell
-----------------------------------------
Joseph R. Zell, Chief Executive Officer
TPG CONVERGENT I, LLC
By: /s/ Richard A. Ekleberry
-----------------------------------------
Name: Richard A. Ekleberry
Title: Vice President
SANDLER CAPITAL PARTNERS V, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By: /s/ Edward G. Grinacoff
------------------------------------
Edward G. Grinacoff
President
41
<PAGE>
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By: /s/ Edward G. Grinacoff
-----------------------------------
Edward G. Grinacoff
President
SANDLER CAPITAL PARTNERS IV FTE, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By: /s/ Edward G. Grinacoff
---------------------------------
Edward G. Grinacoff
President
42
<PAGE>
EXHIBIT 4.12
WARRANT AGREEMENT
-----------------
WARRANT AGREEMENT, dated April 18, 2000, between Convergent
Communications, Inc., a Colorado corporation (the "Corporation"), and each of
the entities named on Exhibit A hereto (each, a "Purchaser" and collectively,
---------
the "Purchasers").
The Corporation and the Purchasers have entered into a certain Securities
Purchase Agreement, dated as of April 4, 2000, pursuant to which each Purchaser
is purchasing from the Corporation certain warrants issued by the Corporation in
two series, the Series A Warrants and the Series B Warrants, that are
convertible into or exercisable for shares of the Corporation's common stock.
The Corporation and the Purchasers intend for this document to set forth the
terms of such warrants.
In consideration of the premises and the covenants and agreement herein
contained, in order to induce the Purchasers to enter into such Securities
Purchase Agreement and consummate the transactions contemplated thereby and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows.
ARTICLE I
DEFINITIONS
Section 1.1 As used in this Agreement, the following terms have the
-----------
meanings indicated:
"Additional Shares of Common Stock" means any shares of Common Stock issued
or deemed to be issued by the Corporation after the Closing Time (other than
shares issued upon conversion of any Series B Share or exercise of any Warrant).
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act. The term "affiliated" (whether or not
capitalized) shall have a correlative meaning. For purposes hereof, neither the
Corporation nor any Subsidiary shall be deemed to be an Affiliate of any
Purchaser and no Purchaser nor any Affiliate of any Purchaser shall be deemed to
be an Affiliate of the Corporation.
"Agreement" means this Warrant Agreement, as amended from time to time in
accordance with the terms hereof.
1
<PAGE>
"Beneficial Owner" means a beneficial owner within the meaning of Rules
13d-3 and 13d-5 under the Exchange Act, as interpreted by the Commission,
provided that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire without regard to the 60 day
limitation in subdivision (d)(i) of such Rule 13d-3. The terms (whether or not
capitalized) "beneficially own" and "owned beneficially" shall have correlative
meanings.
"Board" means the Board of Directors of the Corporation.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in either New York, New York, or the city and state
in which the principal executive offices of the Corporation within the United
States are located are authorized or obligated by law or executive order to
close.
"capital stock" when used with respect to any corporation means (unless the
context otherwise indicates) any and all shares of capital stock (however
designated) of such corporation, including each class and series of common stock
and preferred stock of such corporation, any class or series, any and all stock
appreciation rights and any and all equivalents of any of the foregoing, and
including any security or interest convertible into or warrant, option or other
right (absolute or contingent) to subscribe for, purchase or otherwise acquire
any of the foregoing, in each case whether or not evidenced by any certificate,
instrument or other document and whether voting or nonvoting.
"Change of Control" has the meaning set forth in Section 101 of the
Indenture. The definition of such term, together with the definitions of all
capitalized terms used therein that are also defined in the Indenture, are
hereby incorporated herein by reference.
"Closing Date" means the date of the closing of the consummation of the
issuance of Series B Shares to the Purchasers pursuant to the Purchase
Agreement.
"Closing Time" means 10:00 A.M., New York City time, on the Closing Date.
"Commission" means the Securities and Exchange Commission or any successor
federal agency administering the Securities Act.
"Common Stock" means the Common Stock, no par value, of the Corporation as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and (except where the context otherwise
requires) shall also include (i) capital stock of the
2
<PAGE>
Corporation of each and every other class or series (regardless of how
denominated) which is also not preferred as to dividends or assets on
liquidation over any other class or series of stock of the Corporation and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 3.13) received by or distributed to
the holders of Common Stock of the Corporation in the circumstances contemplated
by Section 3.13.
"Convertible Securities" means evidences of indebtedness, shares of stock
or other securities or obligations (except the Series B Preferred Stock and the
Warrants) that are convertible into or exchangeable, with or without payment of
additional consideration in cash or property, for any Common Stock, either
immediately or upon the occurrence of a specified date or a specified event or
the satisfaction or happening of any other condition or contingency.
"Corporation Parties" means the Corporation and its Subsidiaries.
"Current Market Price" means, in respect of any share of Common Stock as of
any date, the average of the reported last sales prices for the ten consecutive
Trading Days commencing twenty Trading Days before the date in question. The
reported last sales price for each Trading Day shall be the reported last sales
price, regular way, as reported on the National Market tier of The Nasdaq Stock
Market (or, if the Common Stock shall be traded principally through the
facilities of a national securities exchange other than The Nasdaq Stock Market,
such national securities exchange). As used herein, the term "Trading Day"
means a day on which The Nasdaq Stock Market (or such other national securities
exchange) is open for business, provided that if no sales of the Common Stock
--------
take place on such day on the relevant exchange or stock market determined under
the immediately preceding sentence, such day shall not be a Trading Day. In
case any event that would require an adjustment to the Warrant Price pursuant to
Article III occurs with an "ex" date or an effective date occurring during the
foregoing ten Trading Day period, the last sales prices used in determining the
Current Market Price shall be appropriately adjusted to take such event into
account.
"Election to Convert" is defined in Section 2.3.
-----------
"Election to Exercise" is defined in Section 2.2.
-----------
"Employee Option" means any option to purchase Common Stock for cash which
is granted by or with the approval of the Board to any director, officer,
employee or consultant of the Corporation or any subsidiary of the Corporation
pursuant to (i) the Corporation's stock option plans disclosed in a schedule to
the Purchase Agreement and as in effect on the Closing Date or (ii) any other
option plan adopted by the Corporation after the Closing Date with the prior
approval of the Majority Holders or the Series B Directors (collectively, the
"Stock Option Plans").
3
<PAGE>
"Entity" means any corporation, limited liability company, general or
limited partnership, joint venture, association, joint stock company, trust,
other unincorporated business or organization or other Person which is not
either a natural person or a governmental authority or agency.
An "equity interest" in or of any Entity includes any capital stock or
other equity security issued by such Entity, any partnership (general or
limited) or joint venture interest in such Entity, any other equity, ownership,
participating or beneficial interest in such Entity, any stock appreciation or
other equity appreciation right with respect to such Entity, and any equivalent
of any of the foregoing, regardless of how denominated and whether voting or
non-voting, and any security or interest convertible into or warrant, option or
other right (absolute or contingent) to subscribe for, purchase or otherwise
acquire, any of the foregoing, in each case whether or not evidenced by any
certificate, instrument or other document and whether voting or nonvoting.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Rights" means all Rights (including stock options issued pursuant
to the Corporation's Stock Option Plans) and Convertible Securities, not
including any Series B Shares or Warrants, which were outstanding, or which the
Corporation had agreed to issue, at the Closing Time and disclosed on a schedule
to the Purchase Agreement.
"Fair Market Value" means, in respect of any security, asset or other
property, the price at which a willing seller would sell and a willing buyer
would buy such security, asset or other property having full knowledge of the
facts, in an arm's-length transaction without time constraints, and without
being under any compulsion to buy or sell. The Fair Market Value of a share of
Common Stock as of any time shall be equal to the Current Market Price in effect
at the time of determination. The Fair Market Value of the Corporation shall be
determined on a going concern basis, and on the basis that the management and
other key employees of the Corporation and its subsidiaries will continue to be
employed indefinitely and without treating as liabilities the amount, if any,
payable or which may be payable by the Corporation pursuant to the
indemnification provisions of the Purchase Agreement.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Indenture" means the Indenture, dated as of April 2, 1998, between the
Corporation and Norwest Bank Colorado, N.A., a national banking association, as
Trustee, as in effect at the Closing Time, regardless of any subsequent
amendment, modification, termination or expiration thereof.
4
<PAGE>
"Investor Rights Agreement" means the Investor Rights Agreement, dated as
of the Closing Date, among the Corporation and the Purchasers, as it may be
further amended from time to time in accordance with its terms.
"Majority Holders" means, as of any time, the holders of a majority of the
Warrants then outstanding.
"Outstanding Common Shares" means, as of any time, all issued and
outstanding shares of Common Stock as of such time, except shares then owned or
held by or for the account of the Corporation or any subsidiary thereof.
Outstanding Common Shares shall not include any shares issuable upon exercise,
conversion or exchange of any Rights or Convertible Securities or issuable in
payment of any dividend or other distribution which has been declared but not
actually paid, nor any other shares which have not actually been issued.
"Permitted Holders" has the meaning set forth in Section 101 of the
Indenture. The definition of such term, together with the definitions of all
capitalized terms used therein that are also defined in the Indenture are hereby
incorporated herein by reference.
"Person" means any individual, corporation, limited liability company,
general or limited partnership, joint venture, association, joint stock company,
trust, unincorporated business or organization, government or agency or
political subdivision thereof, or other entity, whether acting in an individual,
fiduciary or other capacity.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
April 4, 2000, between the Corporation and the Purchasers, as the same may be
amended from time to time in accordance with its terms and with the prior
written consent of the Majority Holders.
"Purchaser" means each of TPG, Sandler Capital and their respective
Affiliates and permitted assignees under the Purchase Agreement.
"Redeemable Stock" has the meaning set forth in Section 3.2(b).
--------------
"Reference Price" means, as of any time, the higher of (x) one-half of the
Warrant Price then in effect or (y) the Current Market Price per share of the
Common Stock determined as of such time.
"Reorganization Event" has the meaning assigned to it in the Series B
Articles of Amendment.
5
<PAGE>
"Rights" means (i) any Convertible Securities and (ii) any options,
warrants or other rights (except Convertible Securities, the Series B Preferred
Stock and the Warrants), however denominated, to subscribe for, purchase or
otherwise acquire any Common Stock or Convertible Securities, with or without
payment of additional consideration in cash or property, either immediately or
upon the occurrence of a specified date or a specified event or the satisfaction
or happening of any other condition or contingency.
"Sale of the Company" means any of the following:
(i) any Change of Control; or
(ii) the Corporation consolidates with, or merges with or into,
another Person, directly or indirectly sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with, or merges with or into, the Corporation
or any Subsidiary of the Corporation, in any such event pursuant to a
transaction in which the outstanding Common Stock of the Corporation is
converted into or exchanged for cash, securities, equity interests or other
property and immediately after such transaction the Persons who were the
Beneficial Owners of the outstanding Common Stock of the Corporation immediately
prior to such transaction are not the beneficial owners, directly or indirectly,
of more than 50% of the combined voting power represented by all then
outstanding common stock of the surviving or transferee Person; or
(iii) the Corporation or any of its Subsidiaries purchase, lease or
otherwise acquire assets of any Person or Persons, in one or a series of related
transactions, for consideration consisting in whole or in part of Common Stock,
Convertible Securities or Rights and the number of shares of Common Stock issued
by the Corporation (including all shares issuable or purchasable upon exercise
of all such Convertible Securities and Rights) in such transaction is equal to
50% or more of the number of fully diluted shares of Common Stock outstanding
immediately prior to such transaction (or the first of such series of
transactions); or
(iv) any Reorganization Event.
"Sandler Capital" means Sandler Capital Partners IV, L.P. and its
Affiliates.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Series B Articles of Amendment" means the Articles of Amendment to the
Amended and Restated Articles of Incorporation of the Corporation setting forth
the resolution of the Board
6
<PAGE>
creating and authorizing the issuance of the Series B Preferred Stock and filed
with the Colorado Secretary of State pursuant to the Colorado Business
Corporation Act or any successor provisions of the Corporation's Articles of
Incorporation, as the same may have been amended prior to or concurrently with
the Closing Time and thereafter may be amended.
"Series B Director" has the meaning assigned to it in the Series B Articles
of Amendment.
"Series B Preferred Stock" means the Series B Senior Cumulative Convertible
Preferred Stock, no par value, of the Corporation as constituted on the Closing
Date, and any capital stock into which such Preferred Stock may thereafter be
changed (otherwise than upon conversion thereof).
"Series B Share" means any issued and outstanding share of Series B
Preferred Stock. In no event shall shares of Series B Preferred Stock owned or
held by or for the account of the Corporation or any subsidiary thereof be
deemed to be issued and outstanding for any purpose.
"TPG" means TPG Partners III, L.P. and its Affiliates.
"Warrant Certificate" means a certificate, substantially in the form
attached hereto, evidencing one or more Warrants.
"Warrant Price" means, as of any time and with respect to any Warrant, the
price payable upon exercise of such Warrant, in whole or in part, for one share
of Common Stock, which price shall be: (i) for the Series A Warrants, the
initial price of Twenty Dollars ($20) per share of Common Stock; and (ii) for
the Series B Warrants, the initial price of Twenty-Five Dollars ($25) per share
of Common Stock, in each case as such initial prices shall have from time to
time been cumulatively adjusted pursuant to Article III through such time.
-----------
"Warrant Securities" means, with respect to any Warrant at any time, each
class and series of Warrant Stock, each class, series and issue of any other
securities, and any Rights with respect to any of such Warrant Stock or other
securities, any shares, number or other amount of which at such time are
deliverable to a holder of any Warrant upon exercise of such Warrant.
"Warrant Stock" means, with respect to any Warrant at any time, the Common
Stock, each other class or series of capital stock and any Rights or Convertible
Securities with respect to any of the foregoing any shares, number or other
amount of which at such time is deliverable to a holder of any Warrant upon
exercise of such Warrant.
"Warrants" means collectively, the Series A Warrants and the Series B
Warrants.
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<PAGE>
"Warrantholder" means the holder of any Warrant or Warrants.
Section 1.2 Terms Generally; Certain Rules of Construction. This Agreement
----------------------------------------------
is to be interpreted in accordance with the following rules of construction:
(i) Number and Gender. All definitions of terms apply equally to both
-----------------
the singular and plural forms of the terms defined. Whenever the text
may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.
(ii) "Including," "Herein," Etc. The words "include," "includes" and
--------------------------
"including" are deemed to be followed by the phrase "without
limitation". The words "herein", "hereof", and "hereunder" and words
of similar import refer to this Agreement (including all Exhibits and
Schedules) in its entirety and are not limited to any part hereof
unless the context shall otherwise require. The word "or" is not
exclusive and means "and/or."
(iii) Subdivisions and Attachments. All references in this Agreement to
----------------------------
Articles, Sections, subsections, Exhibits and Schedules are,
respectively, references to Articles, Sections and subsections of,
and Exhibits and Schedules attached to, this Agreement, unless
otherwise specified.
(iv) References to Documents and Laws. Except as expressly provided
--------------------------------
herein, all references to (x) any other agreement or instrument or
(y) any law, statute, rule, regulation, permit, license or similar
item are to it as amended and supplemented from time to time (and, in
the case of a law, statute, rule or regulation, to any corresponding
provisions of successor laws, statutes, rules or regulations).
(v) References to Days. Any reference in this Agreement to a "day" or
------------------
number of "days" (without the explicit qualification "Business") is a
reference to a calendar day or number of calendar days. If any action
or notice is to be taken or given on or by a particular calendar day,
and such calendar day is not a Business Day, then such action or
notice may be taken or given on the next Business Day.
(vi) Examples. If, in any provision of this Agreement, any example is
--------
given (through the use of the words "such as," "for example," "e.g."
---
or otherwise) of the meaning, intent or operation of any provision,
such example is intended to be illustrative only and not exclusive or
limiting.
8
<PAGE>
(vii) Participation in Drafting. The parties and their respective legal
-------------------------
counsel have participated in the drafting of this Agreement, and this
Agreement will be construed simply and according to its fair meaning
and not strictly for or against any party.
(viii) Headings. The table of contents and section headings contained in
--------
this Agreement are inserted for convenience only and shall not affect
in any way the meaning or interpretation of this Agreement.
(ix) "Exercise". When used with reference to any Series B Share, Warrant,
--------
Convertible Security or Right, the term "exercise" shall mean the
exercise of the right to exchange or convert such Series B Share,
Warrant, Convertible Security or Right for or into, subscribe for,
purchase or otherwise acquire shares of Common Stock or other
underlying securities represented by such Series B Share, Warrant,
Convertible Security or Right, including an exercise, conversion or
exchange of a Warrant pursuant to Section 2.2, 2.3 or 2.4. Variants
of such word (including "exercised" and "exercisable") shall have
correlative meanings.
(x) "Issue" and "Property". Whenever used with respect to any Additional
--------------------
Share of Common Stock or any other share of Common Stock, the word
"issue" includes any issuance, sale or other method of transfer or
delivery of such share, whether such share is newly issued or is a
treasury share and variants of such word (including "issued",
"issuance" or "issuable") used with respect to any Additional Share
of Common Stock or any other share of Common Stock shall have
correlative meanings; therefore, any provision of this Agreement
which is stated to be applicable if the Corporation issues or shall
issue any share is applicable both to a newly issued share and to a
treasury share sold or otherwise transferred or delivered. The word
"property" shall include assets or property of any kind, real,
personal, tangible or intangible.
ARTICLE II
EXERCISE OF WARRANTS
Section 2.1 Exercise of Warrants. Any Warrant or Warrants may be
--------------------
exercised, in whole or in part, as provided in this Article II at any time and
----------
from time to time during the period of five consecutive years beginning on the
Closing Date.
Section 2.2 Mechanics of Exercise. Subject to Section 2.3 and Section
--------------------- ----------- -------
2.4, any Warrant or Warrants may be exercised by any Warrantholder, at any time
- ---
and from time to time and in whole
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<PAGE>
or in part, upon delivery to the Corporation at its principal executive offices
within the United States or at another office or agency designated by the
Corporation pursuant to Section 4.3, of the Warrant Certificate(s) evidencing
the Warrant(s) to be exercised, together with the form of election to purchase
(the "Election to Purchase") substantially in the form annexed to this Agreement
duly completed and signed by such Warrantholder or by such Warrantholder's duly
appointed legal representative or attorney-in-fact, and payment in full to the
Corporation of the aggregate Warrant Price with respect to each Warrant
exercised. Payment of the aggregate Warrant Price for the Warrant(s) exercised
shall be made in cash, by bank wire transfer or by check payable to the order of
the Corporation. Unless such Warrantholder is a Purchaser, if such payment is
made by check, such check shall be certified or an official bank check. Subject
to Section 2.7, any Warrant (or portion thereof) exercised shall be deemed to
have been exercised immediately prior to the close of business on the day of
delivery of the last to be delivered of such items.
Section 2.3 Conversion In Lieu of Exercise. Any Warrantholder, in its
------------------------------
sole discretion may elect, in lieu of the exercise of any Warrant held by such
Warrantholder or any portion thereof in accordance with Section 2.2, to convert
-----------
such Warrant or portion thereof into
(i) the nearest whole number of shares of Common Stock equal to the
quotient obtained by dividing "A" by "B" where
"A" is the product of (x) the number of shares of Common Stock then
issuable if such Warrant (or portion thereof) were exercised on the
date of conversion and (y) the excess, if any, of (1) the Current
Market Price per share of Common Stock as of the date of conversion
over (2) the Warrant Price in effect on the date of conversion, and
"B" is the Current Market Price per share of Common Stock as of the
date of conversion, and
(ii) the kind and amount of cash, other securities and other property, if
any, to which such Warrantholder would be entitled upon an exercise of
such Warrant or portion thereof.
The conversion right provided for in this Section 2.3 may be exercised in whole
-----------
or in part and at any time and from time to time while any Warrant or any
portion of any Warrant is outstanding. The conversion right may be exercised by
any Warrantholder in whole or in part upon delivery to the Corporation at its
principal executive offices within the United States or at another office or
agency designated by the Corporation pursuant to Section 4.3 of the Warrant
-----------
Certificate(s) evidencing the Warrant(s) to be converted, together with a form
of election to convert (the "Election to Convert")
10
<PAGE>
substantially in the form attached to this Agreement duly completed and signed
by such Warrantholder or by such Warrantholder's duly appointed legal
representative or attorney-in-fact. Any Warrant (or portion thereof) converted
shall be deemed to have been converted immediately prior to the close of
business on the day of surrender of such Warrant for conversion in accordance
with the foregoing.
Section 2.4 Exchange of Warrants In a Recapitalization. The Corporation,
------------------------------------------
with the prior written consent of the holders of a majority of the Warrants then
outstanding, may elect to effect a partial recapitalization of the Corporation
pursuant to which all or a portion of the Warrants then outstanding are
exchanged, on a per Warrant basis, into the number of shares of Common Stock and
the kind and amount of cash, other securities and other property, if any, into
which a Warrant could be converted pursuant to Section 2.3 as of the date of
-----------
such recapitalization. Any such exchange of less than all outstanding Warrants
will be made on a pro rata basis, and shall be effective (subject to Section
--- ---- -------
2.7) on such date as may be determined by the Corporation with the consent of
the Majority Holders.
Section 2.5 Delivery of Warrant Securities. As promptly as practicable
------------------------------
after exercise, conversion or exchange of any Warrant (or portion thereof) as
provided in Section 2.2, 2.3 or 2.4, and in any event within five Business Days
----------- --- ---
thereafter, the Corporation shall issue and deliver to the holder, or to his
nominee(s) or, subject to compliance with the Securities Act, transferee(s), a
certificate or certificates for the number of whole shares of Common Stock to
which such holder shall be entitled, registered in such name or names as such
Warrantholder may designate in writing. Subject to Section 2.7, each such
-----------
certificate shall be dated as of the effective date of exercise as determined
pursuant to Section 2.2, Section 2.3 or Section 2.4, as applicable, and such
----------- ----------- -----------
Warrantholder shall be deemed to have become a holder of record of such Common
Stock for all purposes as of such date. Simultaneously with the delivery of
such certificate(s) for such Common Stock, the Corporation also shall deliver to
such holder all cash, other securities and other property, if any, to which he
is entitled by virtue of the Warrants exercised. If fewer than all of the
Warrants evidenced by any Warrant Certificate delivered to the Corporation for
exercise, conversion or exchange are exercised, converted or exchanged, the
Corporation shall also deliver to the Warrantholder, at the time of delivery of
the certificate(s) representing such Common Stock, a new Warrant Certificate,
dated as of the Closing Date, evidencing the number of Warrants remaining
unexercised and otherwise identical to the Warrant Certificate so delivered, or
if requested in writing by the holder, in lieu of issuing such new Warrant
Certificate, the Corporation shall make an appropriate notation on such Warrant
Certificate so delivered for exercise indicating the number of Warrants
evidenced thereby which remain unexercised and shall return such Warrant
Certificate to the holder.
Section 2.6 Expenses and Taxes. The Corporation shall pay all expenses
------------------
in connection with, and all taxes and other governmental charges that may be
imposed with respect to, the issue
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<PAGE>
or delivery of the Warrant Securities and other property which any holder is
entitled to receive upon exercise of any Warrant or Warrants pursuant to Section
2.2, Section 2.3 or Section 2.4. The Corporation shall not be required, however,
to pay any stamp, stock transfer or other similar tax or other governmental
charge required to be paid solely by virtue of any transfer involved in the
issue of Warrant Securities in any name other than that of the holder of the
Warrant(s) exercised at the order of such Holder, and if any such transfer is
involved, the Corporation shall not be required to issue or deliver the Warrant
Securities as to which such tax or charge is applicable until such tax or other
charge shall have been paid or it has been established to the Corporation's
reasonable satisfaction that no such tax or other charge is due.
Section 2.7 Exercise Associated With Public Offerings or Requiring
------------------------------------------------------
Governmental Action. Any Warrantholder may, by a letter or other written notice
- -------------------
to the Corporation accompanying such Warrantholder's Notice of Election to
Exercise or Election to Convert state that the exercise or conversion by such
Warrantholder of any Warrant or portion thereof (i) is in connection with an
offering of securities registered or to be registered pursuant to the Securities
Act and is conditioned upon, and subject to withdrawal or revocation (in whole
or in part) at the election of such Warrantholder at any time prior to, the
closing of the sale of such securities pursuant to such offering or (ii) is
subject to one or more filings with, reviews or approvals by or other
requirements of any governmental authority or agency and is conditioned upon,
and is subject to withdrawal or revocation (in whole or in part) at the election
of such Warrantholder at any time prior to, the completion of such filings or
reviews, the receipt of such approvals or the satisfaction of such other
requirements. In such event, if such exercise or conversion is not so withdrawn
or revoked, the delivery to or upon the order of the exercising or converting
Warrantholder of the certificate(s) or instrument(s) representing or evidencing
the Warrant Shares deliverable by reason of such exercise or conversion shall be
at such time or times as such Warrantholder shall specify in a written notice to
the Corporation. During any period following delivery of the Election to
Exercise or the Election to Convert until such time or times (or such withdrawal
or revocation) such Warrant or portion thereof shall continue to be outstanding
for all purposes, including for purposes of adjustments pursuant to Article III.
The Majority Holders shall have similar rights in the event of any exchange
pursuant to Section 2.4.
-----------
Section 2.8 Fractional Shares of Common Stock. If the number of shares of
---------------------------------
Common Stock issuable on the exercise of any Warrant is not a whole number, the
Corporation shall not be required to issue any fraction of a share of Common
Stock and such number of shares issuable shall be rounded up to the next highest
whole number. If more than one Warrant shall be surrendered for conversion at
one time by the same holder, the number of full shares which shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of Warrants so surrendered for conversion. Notwithstanding the provisions of
this Section 2.8, in computing adjustments to the Exercise Price pursuant to
-----------
Article III, fractional shares of Common Stock shall
12
<PAGE>
be taken into account and any outstanding Warrant may at any time represent the
right to receive upon conversion less than one share of Common Stock or some
other number of shares of Common Stock which is not a whole number.
Section 2.9 Covenant to Reserve Shares for Issuance on Exercise. The
---------------------------------------------------
Corporation shall at all times reserve and keep available out of the authorized
but unissued shares of Common Stock, solely for the purpose of issue upon
exercise of the Warrants, the full number of shares of Common Stock issuable if
all outstanding Warrants were to be converted in full. All shares of Common
Stock which shall be issuable upon exercise of any Warrant (or portion thereof)
shall be newly issued, duly authorized, validly issued, fully paid and
nonassessable and without any personal liability attaching to the ownership
thereof, and the issuance thereof shall not give rise or otherwise be subject to
preemptive or similar purchase rights on the part of any Person or Persons, and
the Corporation shall take any corporate and other actions that may, in the
opinion of its counsel, be necessary in order that the Corporation may comply
with the foregoing. The Corporation hereby irrevocably authorizes and directs
its current and future transfer agents, if any, for the Common Stock and for any
shares of the Corporation's capital stock of any other class or series issuable
upon the conversion of the exercise of the Warrants at all times to reserve such
number of authorized shares as shall be requisite for such purpose. The
Corporation shall supply such transfer agents with duly executed stock
certificates for such purposes.
Section 2.10 Compliance with Governmental Requirements; Listing of Shares.
------------------------------------------------------------
(a) General. If issuance of any Warrant Securities issuable upon
-------
exercise of any Warrant(s) require, under any applicable federal, state, local
or foreign law, rule or regulation or any applicable requirement of any national
securities exchange or inter-dealer quotation system, any registration,
qualification, listing or approval before such shares may be issued upon
conversion, the Corporation shall in good faith, as promptly as practicable and
at its expense, diligently endeavor to cause such shares to be duly registered,
qualified, approved or listed, as the case may be and Section 2.7 shall apply.
-----------
(b) Listing. Without limiting the generality of Section 2.10(a),
-------
if any shares of Common Stock or other capital stock or securities required to
be reserved for issuance upon exercise of any Warrant(s) require registration or
qualification with any governmental authority under any federal or state law
before such shares may be so issued, the Corporation will in good faith and as
expeditiously as possible and at its expense endeavor to cause such shares to be
duly registered. During all periods during which shares of Common Stock or any
other capital stock or securities of the same class, series or issue as are
issuable upon exercise of any Warrant are listed, qualified or otherwise
eligible for trading or quotation on any national securities exchange or The
Nasdaq Stock Market or any similar quotation system, the Corporation shall cause
all shares of Common Stock,
13
<PAGE>
and all such other capital stock and securities, issuable upon conversion of
such Warrant to be listed, qualified or eligible for trading or quotation
thereon upon issuance thereof.
(c) HSR Act, Etc. Without limiting the generality of Section 2.10(a),
------------ ---------------
if any holder's intended exercise of any Warrant (alone or with other proposed
acquisitions of Common Stock or other securities of the Corporation) would or
might be subject to the HSR Act, the Corporation shall promptly comply with any
applicable requirements under the HSR Act relating to filing and furnishing of
information to the Federal Trade Commission and the Antitrust Division of the
Department of Justice and shall cooperate, and cause all Persons which are part
of the same "person" (as defined for purposes of the HSR Act) as the Corporation
to cooperate and assist in such filing and compliance. If any holder is advised
by its legal counsel that its intended exercise of Warrant(s) would or might be
subject to any other law, rule or regulation which requires any filing with or
review or approval by any governmental authority or agency, the Corporation
shall promptly comply with any requirements of such law, rule or regulation
applicable to it and shall cooperate with such holder in such holder's efforts
to comply with the requirements of such law, rule or regulation applicable to it
on a timely basis.
(d) Expenses. Each of the Corporation and such holder shall bear and
--------
pay any costs or expenses that it incurs in complying with this Section 2.10,
------------
except that each shall pay one half of any filing fee payable to the FTC or the
Department of Justice pursuant to Section 2.10(c) and the HSR Act.
---------------
ARTICLE III
ADJUSTMENT OF WARRANT PRICE AND
WARRANT SECURITIES PURCHASABLE
------------------------------
Section 3.1 Adjustment Generally. Initially as of the Closing Time,
--------------------
each Warrant issued on the Issue Date shall represent the right to purchase one
share of Common Stock for an initial Warrant Price of: (i) Twenty Dollars ($20)
per share for Series A Warrants; and (ii) Twenty-Five Dollars ($25) per share
for Series B Warrants. The Warrant Price payable and the type and number and
amount of securities and other property deliverable upon exercise of a Series A
Warrant or a Series B Warrant shall be subject to adjustment from time to time
as set forth in this Article III. Such adjustments shall be cumulative and
-----------
shall be made successively on each and every occasion that any event requiring
any such adjustment shall occur. The form of Warrant Certificate need not be
changed because of any adjustment made pursuant to this Article III, and Warrant
-----------
Certificates outstanding at the time of such adjustment or issued after such
adjustment may state the same Warrant Price and the same number of shares of
Common Stock as are stated in the Warrant Certificates prior to such adjustment.
14
<PAGE>
Section 3.2 Stock Dividends, Subdivisions, Combinations and
-----------------------------------------------
Recapitalizations. If the Corporation shall at any time (i) declare or pay a
- -----------------
dividend or declare, pay or make any other distribution on the Common Stock in
shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock
into a greater number of shares or (iii) combine the outstanding shares of
Common Stock into a smaller number of shares, then in each and every such event,
the number of shares of Common Stock purchasable upon exercise of each Warrant
shall be adjusted so that the holder of any Warrant thereafter surrendered for
exercise shall be entitled to receive the aggregate number of shares of Common
Stock or other capital stock of the Corporation which such holder would have
owned and would have been entitled to receive by virtue of the happening of any
of the events described above had such Warrant been exercised (x) in the case of
a dividend or distribution, immediately prior to the record date for the
determination of the stockholders entitled to receive such dividend or
distribution (or, if no such record date is fixed, immediately prior to any
other time as of which the holders of Common Stock entitled to participate in
such distribution was determined) or (y) in the case of a subdivision,
combination or reclassification, on the effective date of such subdivision,
combination or reclassification. Upon such adjustment, the Warrant Price shall
be adjusted to be the Warrant Price in effect immediately prior to the
effectiveness of such adjustment multiplied by the quotient obtained by dividing
the number of shares of Common Stock for which a Warrant was exercisable
immediately prior to effectiveness by the number of shares of Common Stock for
which a Warrant shall be exercisable immediately after such effectiveness. An
adjustment made pursuant to this Section 3.2 shall become effective immediately
-----------
after such record date (or other applicable date referred to in subclause (A)(x)
of the immediately preceding sentence) in the case of a dividend or
distribution, subject to Section 3.9(d) and 3.9(e), and shall become effective
-------------- ------
immediately after the effective date in the case of a subdivision, combination
or reclassification.
Section 3.3 Certain Other Distributions.
---------------------------
(a) Other Distributions. Subject to Section 3.3(b) and Section
------------------- -------------- -------
3.3(c), if the Corporation shall at any time declare or make any distribution,
by dividend or otherwise, to all holders of outstanding shares of Common Stock
of any cash or other assets or property of any nature whatsoever, any debt
securities or other evidences of its indebtedness, any capital stock, any other
securities of any nature whatsoever or any warrants, options or other Rights to
subscribe for, purchase or otherwise acquire any assets, property, capital
stock, debt or other securities or evidences of indebtedness (excluding
dividends or distributions referred to in Section 3.2, Rights referred to in
-----------
Section 3.5 and Convertible Securities referred to in Section 3.6), or shall
- ----------- ------------
take a record of such holders for the purpose of entitling them to receive such
a distribution, then (i) the number of shares of Common Stock for which each
Warrant is exercisable shall be adjusted to equal the product of the number of
shares of Common Stock for which such Warrant is exercisable immediately prior
to the applicable Adjustment Date determined pursuant to Section 3.3(d),
--------------
15
<PAGE>
multiplied by a fraction, the numerator of which shall be the Current Market
Price per share of the Outstanding Common Shares immediately before such
Adjustment Date and the denominator of which shall be the excess of (x) such
Current Market Price per share of the Outstanding Common Shares as of the
Adjustment Date over (y) the amount allocable to one share of the Outstanding
Common Shares as of such Adjustment Date of any such cash so distributable and
of the Fair Market Value (as determined as of such date in good faith by the
Board) of any and all such evidences of indebtedness, shares of capital stock,
debt securities, other securities, property, assets or Rights so distributable
and (ii) the Warrant Price shall be adjusted to equal (A) the Warrant Price in
effect immediately prior to such adjustment multiplied by the quotient obtained
by dividing the number of shares of Common Stock for which a single Warrant is
exercisable immediately prior to the adjustment by (B) the number of shares of
Common Stock for which a single Warrant is exercisable immediately after such
adjustment.
(b) When Adjustment Is Not To Be Made. No adjustment pursuant to the
---------------------------------
provisions of Section 3.3(a) shall be made if such adjustment would result in
--------------
the number of shares of Common Stock for which each Warrant is exercisable being
lower, or a Warrant Price that is higher, than was the case immediately prior to
such adjustment. In addition, at the election of the Majority Holders made
within 30 days of receipt of the notice with respect to such adjustment issued
pursuant to Section 3.10, in lieu of the adjustment pursuant to Section 3.3(a),
------------ --------------
but subject to Section 3.3(c), the type and number and amount of securities and
--------------
other property deliverable upon exercise of any Warrant determined as of
immediately prior to the effective date for such adjustment specified in Section
-------
3.3(c) shall be adjusted so that the holder of any such Warrant thereafter
- ------
surrendered for conversion shall be entitled to receive the kind and number or
amount of shares of Common Stock (or other capital stock of the Corporation),
other Warrant Securities and other property which such holder would have
received (after giving effect to all adjustments required by this Article III)
had such Warrant been exercised immediately prior to
(i) the record date for the determination of the stockholders entitled
to receive such distribution, or
(ii) if no such record date is fixed, as of any other time as of which
the holders of Common Stock entitled to participate in such distribution
was determined,
plus the kind and amount of cash, other assets or property, debt securities,
other evidences of indebtedness, other securities or Rights which such holder
would have been entitled to receive by virtue of being the record holder, as of
such record date or other time, of such kind and number or amount of shares of
Common Stock or other Conversion Securities. For such purpose, it shall be
assumed that such holder of Common Stock or other Conversion Securities failed
to exercise rights of election, if any, as to the kind or amount of shares or
stock, other securities or property receivable
16
<PAGE>
in such distribution, provided that if the kind or amount of shares of stock,
other securities or property receivable in such distribution is not the same for
each non-electing share, then the kind and amount of shares of stock, other
securities or property receivable upon consummation of such transaction for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares. If after an adjustment a holder
of a Warrant upon exercise may receive shares of two or more classes of capital
stock of the Company, the Board shall determine, in good faith, the allocation
of the adjusted Warrant Price between the classes of capital stock. After such
allocation, the exercise privilege and the exercise price of each class of
capital stock shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this Article.
(c) Special Rule for Distributions of Redeemable Stock. If by virtue
--------------------------------------------------
of the applicability of Sections 3.2(b) and 3.3(b) in any one or more events,
---------------------------
the Warrant Securities issuable upon conversion of any Warrant consist of or
include any shares of any class or series of capital stock that provides by its
terms a right in favor of the Corporation to call, redeem, exchange or otherwise
acquire all of the outstanding shares or units of such class or series (such
class or series of capital stock being herein referred to as "Redeemable Stock")
and if the Corporation redeems all or any part of the outstanding shares of such
Redeemable Stock prior to the date on which such Warrant is exercised, then upon
exercise of such Warrant the holder thereof shall be entitled to receive, in
lieu of such shares of Redeemable Stock or, in the event of such a partial
redemption, a pro rata portion of such shares, the kind and amount of cash or
--- ----
other assets, securities or other property or consideration paid by the
Corporation with respect to its redemption of an equal number of shares of such
Redeemable Stock. If the consideration so paid upon the Corporation's
redemption of any such Redeemable Stock consists of or includes any other class
or series of Redeemable Stock which is also redeemed before exercise of any
Warrant, then the provisions of the first sentence of this Section 3.3(c) (and
--------------
of this sentence) shall apply to successively to the shares of such other class
or series of Redeemable Stock.
(d) Adjustment Date. The "Adjustment Date" for any distribution in
---------------
respect of which an adjustment is required by this Section 3.3 shall be either
-----------
(i) the date of taking of a record of holders of Common Stock for the purpose
of entitling them to receive such distribution or, if no record is taken, at the
date as of which the holders of Common Stock entitled to participate in such
distribution were determined or (ii) the date of such distribution, whichever
date yields the largest increase in the number of shares of Common Stock
issuable upon exercise of a Warrant in applying the formula contained in the
first sentence of Section 3.3(a).
--------------
(e) Adjustment Effective Date. An adjustment made pursuant to this
-------------------------
Section 3.3 shall become effective, subject to Section 3.8(d), immediately after
- ----------- --------------
such record date or, if no such record date is fixed, immediately after the time
as of which holders of Common Stock entitled to
17
<PAGE>
participate in such distribution were determined or, if no such time is fixed,
as of the date of such distribution.
Section 3.4 Issuance of Additional Shares of Common Stock.
---------------------------------------------
(a) Adjustment Formula. Subject to Section 3.4(b), if at any time
the Corporation shall issue, or pursuant to Section 3.5, Section 3.6, or Section
3.7 be deemed to issue, any Additional Shares of Common Stock in exchange for
consideration in an amount, determined in accordance with Section 3.8(a) and
Section 3.8(e), per Additional Share of Common Stock less than the Reference
Price as of the applicable time of determination specified in the last sentence
of this Section 3.4(a), then (i) the number of shares of Common Stock for which
each Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the number of shares of Common Stock for which such Warrant was
exercisable immediately prior to such time of determination by a fraction (x)
the numerator of which shall be the number of Outstanding Common Shares
immediately before such issuance or deemed issuance plus the number of
Additional Shares of Common Stock so issued or deemed to be issued and (y) the
denominator of which shall be the number of Outstanding Common Shares
immediately before such issuance or deemed issuance plus the number of shares
which the aggregate amount of consideration, if any, received by the Corporation
upon such issuance or deemed issuance of all such Additional Shares of Common
Stock would purchase at the Reference Price determined as of such time and (ii)
the Warrant Price shall be adjusted to equal the Warrant Price immediately prior
to such adjustment multiplied by the quotient obtained by dividing the number of
shares of Common Stock for which such Warrant was exercisable immediately prior
to the adjustment under clause (i) by the number of shares of Common Stock for
which such Warrant is exercisable immediately after the adjustment under clause
(i). The applicable time of determination shall be:
(i) if the event requiring the adjustment is the taking of a record date
for any dividend or distribution referred to in Section 3.5 or
Section 3.6, as of either the close of business on such record date
or the date such dividend or distribution is paid, whichever produces
the highest Reference Price, or
(ii) in the case of any other issuance or deemed issuance, immediately
prior to the time of such issuance or deemed issuance.
(b) When Adjustment is Not Required. The provisions of
-------------------------------
Section 3.4(a) shall not apply to any issuance of Additional Shares of Common
Stock for which an adjustment is made under Section 3.2 or Section 3.3. Subject
to Section 3.7, no adjustment of the Warrants or the Warrant Price shall be made
under this Section 3.4 upon the issuance of any Additional Shares of Common
Stock which are or are deemed to be issued pursuant to (i) the exercise of any
Existing Rights in
18
<PAGE>
accordance with the terms thereof in effect on the Closing Date or (ii) the
exercise of any other Rights or the exercise of any conversion or exchange
rights in any other Convertible Securities if, in the case of any such Rights or
Convertible Securities referred to in this clause (ii) any such adjustment shall
previously have been made, or no such adjustment shall have been required to be
made, upon the issuance of such Rights or upon the issuance of such Convertible
Securities (or upon the issuance of any Rights therefor) pursuant to Section 3.5
or Section 3.6.
(c) Effective Date. Each adjustment pursuant to this Section 3.4
--------------
by reason of any issuance or deemed issuance of any Additional Shares of Common
Stock shall be effective as of the date of such issuance or deemed issuance.
Section 3.5 Issuance of Rights.
------------------
(a) Adjustment. If at any time the Corporation shall take a record
----------
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or other distribution of, or shall in any manner (whether directly or
indirectly by assumption in a consolidation or in a merger in which the
Corporation is the surviving corporation or otherwise) issue to any Person or
Persons, any Rights to subscribe for, purchase or otherwise acquire any
Additional Shares of Common Stock or any Convertible Securities, in any case
whether or not such Rights or the right to exchange or convert such Convertible
Securities are immediately exercisable, and the consideration per share for
which Common Stock is issuable upon the exercise of such Rights or upon
conversion or exchange of such Convertible Securities determined pursuant to
Section 3.8(a) and Section 3.8(e) shall be less than the Reference Price
determined as of the applicable time of determination specified in the last
sentence of this Section 3.5(a), then the maximum number of shares of Common
Stock issuable upon the exercise of such Rights or, in the case of Rights for
Convertible Securities, upon the conversion or exchange of such Convertible
Securities determined as of such applicable time shall be deemed to be
Additional Shares of Common Stock issued as of such applicable time for such
consideration per share and the number of shares of Common Stock for which each
Warrant is exercisable and the Warrant Price shall be adjusted as provided in
Section 3.4(a). The applicable time of determination shall be
(i) if the event requiring the adjustment is the taking of a
record date for any dividend or distribution of Rights
referred to in this Section 3.5(a), as of either the close of
business on such record date or the date such dividend or
distribution is paid, whichever produces the highest Reference
Price, or
(ii) in the case of any other issuance of Rights, immediately prior
to the time of such issuance.
19
<PAGE>
(b) No Further Adjustment on Exercise. Subject to Section 3.7, no
--------------------------------- -----------
further adjustments of the Warrants or the Warrant Price shall be made upon the
actual issuance of such Common Stock or of such Convertible Securities upon
exercise of such Rights or upon the actual issuance of such Common Stock upon
such conversion or exchange of such Convertible Securities for which an
adjustment pursuant to this Section 3.5 previously had been made or was not
-----------
required to be made. Subject to Section 3.7, no adjustment under this Section
----------- -------
3.5 shall be required by reason of the grant of Employee Options that have an
- ---
exercise price per share of Common Stock, at least equal to the Current Market
Price at the time of grant.
Section 3.6 Issuance of Convertible Securities.
----------------------------------
(a) Adjustment. If at any time the Corporation shall take a record of
----------
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution of, or shall in any manner (whether directly or
indirectly by assumption in a consolidation or in a merger in which the
Corporation is the surviving corporation or otherwise) issue, to any Person or
Persons, any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange determined
pursuant to Section 3.8(a) and Section 3.8(e) shall be less than the Reference
-------------- --------------
Price determined as of the applicable time of determination specified in the
last sentence of this Section 3.6(a), then the maximum number of shares of
--------------
Common Stock issuable upon the conversion or exchange of such Convertible
Securities determined as of such applicable time shall be deemed to be
Additional Shares of Common Stock issued as of such applicable time for such
consideration per share and the number of shares of Common Stock for which each
Warrant is exercisable and the Warrant Price shall be adjusted as provided in
Section 3.4. If the terms of any Convertible Securities provide for any
- -----------
issuance of additional Convertible Securities (whether in payment of dividends
or interest or otherwise), then each occasion on which any such additional
Convertible Securities are issued shall be deemed a new issuance of Convertible
Securities for which an adjustment pursuant to this Section 3.6 shall be made.
-----------
The applicable time of determination shall be:
(i) if the event requiring the adjustment is the taking of a record date
for any dividend or distribution of Rights referred to in this Section
-------
3.6(a), as of either the close of business on such record date or the date
------
such dividend or distribution is paid, whichever produces the highest
Reference Price, or
(ii) in the case of any other issuance of Rights, immediately prior to the
time of such issuance.
20
<PAGE>
(b) No Further Adjustment Upon Conversion. Subject to Section 3.7,
------------------------------------- -----------
no further adjustment of the Warrants or the Warrant Price shall be made under
this Section 3.6 upon the issuance of any Convertible Securities which are
-----------
issued pursuant to the exercise of any Rights therefor if any such adjustment
shall previously have been made upon the issuance of such Rights pursuant to
Section 3.5. Subject to Section 3.7, no further adjustments of the Warrants or
- ----------- -----------
the Warrant Price shall be made upon the actual issuance of such Common Stock
upon conversion or exchange of Convertible Securities for which an adjustment
pursuant to this Section 3.6 previously had been made or was not required.
-----------
Section 3.7 Superseding Adjustment.
----------------------
(a) Readjustment if Adjustment Previously Made. If, at any time
after any adjustment of the number of shares of Common Stock for which each
Warrant is exercisable and the Warrant Price shall have been made pursuant to
Section 3.5 or Section 3.6:
(i) the consideration paid or payable to the Corporation,
or the number of shares of Common Stock issuable, upon the exercise, conversion
or exchange of the Rights or Convertible Securities in respect of which such
adjustment was made is increased, in the case of such consideration, or
decreased in the case of such number of shares, by virtue of provisions
contained therein for an automatic increase or decrease (as the case may be)
upon the occurrence of a specified date or event, any amendment or modification
of or departure from the terms thereof previously in effect or otherwise (other
than under or by reason of an event resulting in a change pursuant to the
provisions set forth in the documents governing such Rights or Convertible
Securities designed to protect against dilution, which event also results in an
adjustment pursuant to this Article III), the adjustments to the Warrant Price
and the number of shares of Common Stock issuable upon exercise of each Warrant
computed upon the original issuance thereof (or upon the taking of a record date
with respect thereto), and any subsequent adjustments based thereon, shall, upon
any such increase or decrease becoming effective, be readjusted to the Warrant
Price and number of shares issuable upon exercise of a single Warrant which
would then be in effect had such adjustment originally been made on the basis
that such increased or decreased consideration payable or such increased or
decreased number of shares of Common Stock issued or issuable was the
consideration payable or the number of shares issued or issuable in respect of
such outstanding Rights or Convertible Securities which are actually outstanding
on the effective time of such increase or decrease (but no such readjustment
shall be made with respect to any Rights or Convertible Securities which for any
reason no longer are outstanding as of such time); or
(ii) any Rights or any rights of conversion or exchange
under Convertible Securities in respect of which such adjustment was made shall
expire without having been fully exercised, the Warrant Price computed upon the
original grant, issuance or sale thereof or upon the
21
<PAGE>
taking of a record date with respect thereto (as the case may be), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(A) in the case of such Rights or Convertible
Securities, the only Additional Shares of Common Stock issued were the shares of
Common Stock, if any, actually issued upon the exercise of such Rights or the
conversion or exchange of such Convertible Securities and the consideration
received for such Additional Shares of Common Stock was, in the case of Rights,
the consideration actually received by the Corporation for the grant, issuance
or sale of all such Rights, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or, in the case of
Convertible Securities, the consideration actually received by the Corporation
for the issuance or sale of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange; and
(B) in the case of any such Rights exercisable for
Convertible Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issuance or sale of such
Rights, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the grant, issuance or sale of all such
Rights, whether or not exercised, plus the additional consideration, if any,
actually received by the Corporation upon the issuance or sale of the
Convertible Securities with respect to which such Rights were actually
exercised.
(b) When Readjustment is Not to be Made. No readjustment pursuant to
-----------------------------------
this Section 3.7 shall have the effect of (i) decreasing the number of shares of
-----------
Common Stock or the amounts of other Warrant Securities, cash or other property
for which any Warrant is exercisable below the number of such shares and the
amounts of such other Warrant Securities, cash and property for which such
Warrant would have been exercisable if the original adjustment had not been
made, but all subsequent adjustments, if any, required by this Article III had
-----------
been made or (ii) requiring any surrender, return or redelivery of any shares of
Common Stock, other Conversion Securities, cash or other property delivered upon
any exercise of any Warrant prior to the time such readjustment is made,
requiring that the exercising holder or any subsequent holder of any such shares
of Common Stock, Warrant Securities or other property make any payment to the
Corporation or otherwise affecting such shares of Common Stock, other Warrant
Securities or other property or the rights or obligations of the exercising
Holder or any such subsequent holder with respect thereto. From and after any
adjustment or adjustments provided for in this Section 3.7, the Warrants and the
-----------
Warrant Price shall continue to be subject to further adjustment as provided in
this Article III.
-----------
22
<PAGE>
(c) Adjustment When No Adjustment Was Previously Made. If, at any
-------------------------------------------------
time after any grant, sale or other issuance of any Rights or Convertible
Securities for which an adjustment of the Conversion Rate shall not have been
required to be made pursuant to the provisions of Section 3.5 or Section 3.6 (as
----------- -----------
the case may be), the consideration paid or payable to the Corporation upon the
exercise of such Rights or Convertible Securities is decreased, or the number of
shares of Common Stock issued or issuable upon the exercise of such Rights or
Convertible Securities is increased, in either case by virtue of provisions
contained therein for an automatic decrease or increase (as the case may be)
upon the occurrence of a specified date or event, any amendment or modification
of or departure from the terms thereof previously in effect or otherwise (other
than under or by reason of an event resulting in a change pursuant to the
provisions set forth in the documents governing such Rights or Convertible
Securities designed to protect against dilution, which event also results in an
adjustment pursuant to this Article III), then such event shall, for purposes of
-----------
Section 3.5 (in the case of such Rights) or Section 3.6 (in the case of such
- ----------- -----------
Convertible Securities) be deemed to be a new issuance, as of the date of the
effectiveness of such decrease or increase (as the case may be) of Rights or
Convertible Securities having terms reflecting such changes.
(d) Adjustment for Events Affecting Existing Rights . If the number
-----------------------------------------------
of shares of Common Stock issued or issuable upon exercise of any Existing Right
is increased as a direct or indirect result of any amendment or modification of
or departure from the terms thereof previously in effect (other than as a result
of the issuance of the Series B Shares, the conversion of the Series B Shares,
the issuance of the Warrants or the exercise of the Warrants), then such
increased number of shares of Common Stock issued or issuable upon exercise
thereof shall be deemed to be Additional Shares of Common Stock issued as of the
effective date of such increase for the additional consideration, if any,
payable to acquire such increased number of shares upon exercise of such
Existing Right, and the number of shares of Common Stock for which each Warrant
is exercisable and the Warrant Price shall be adjusted as provided in Section
-------
3.4. If the consideration payable for shares of Common Stock issued or issuable
- ---
upon exercise of any Existing Right is decreased as a direct or indirect result
of any amendment or modification of or departure from the terms thereof
previously in effect, then such event shall be deemed to be the issuance, as of
the effective date of such decrease, of a number of Additional Shares of Common
Stock equal to the excess of (i) the maximum number of shares of Common Stock
issuable upon exercise of such Existing Right over (ii) the number of shares of
Common Stock determined by dividing the total consideration, if any, that would
be payable to the Corporation upon the exercise in full of such Existing Right
after giving effect to such decrease by the amount of consideration per share of
Common Stock issuable upon exercise of such Existing Right that would have been
payable to the Corporation absent such decrease. The provisions of this Section
-------
3.7(d) are in addition to (and not exclusive of) any other rights or remedies of
- ------
Warrantholders in the event that any such amendment, modification or departure
occurs without any required approval of Warrantholders.
23
<PAGE>
Section 3.8 Other Provisions Applicable to Adjustments. The following
------------------------------------------
provisions shall be applicable to the making of adjustments provided for in this
Article III:
- -----------
(a) Computation of Consideration.
----------------------------
Subject to Section 3.8(e):
--------------
(i) To the extent that any Additional Shares of Common
Stock, any Convertible Securities or any Rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities shall be issued
or deemed to be for cash consideration, the consideration received or deemed to
be received by the Corporation therefor shall be the net amount of the cash
received or deemed to be received by the Corporation therefor (in any such case
subtracting any amounts received in respect of accrued interest, accrued
dividends or other similar amounts which the Corporation may be obligated to pay
to the holders thereof in the future and any compensation, discounts or expenses
paid or incurred by the Corporation in connection with the issuance thereof).
(ii) To the extent that such issuance or deemed issuance
shall be for a consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to be the
Fair Market Value of such consideration at the time of such issuance or deemed
issuance as determined in good faith by the Board.
(iii) In case any Additional Shares of Common Stock, any
Convertible Securities or any Rights to subscribe for, purchase or otherwise
acquire Additional Shares of Common Stock or Convertible Securities shall be
issued or deemed to be issued in connection with any merger, consolidation,
share exchange or similar transaction, the amount of consideration therefor
shall be deemed to be the Fair Market Value, as determined in good faith by the
Board, of such portion of the assets and business of the nonsurviving
corporation as the Board in good faith shall determine to be attributable to
such Additional Shares of Common Stock, Convertible Securities, or Rights, as
the case may be.
(iv) In case any Additional Shares of Common Stock, any
Convertible Securities or any Rights to subscribe for, purchase or otherwise
acquire Additional Shares of Common Stock or Convertible Securities are issued
or deemed to be issued in combination with each other or with any other
securities or property in connection with any transaction in which the
Corporation receives cash, securities, property or other consideration, or any
combination of the foregoing, then the amount of consideration therefor shall be
deemed to be such portion of the cash, securities, property and other
consideration received by the Corporation as the Board in good faith shall
determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities
24
<PAGE>
or Rights, as the case may be, with any noncash consideration being valued at
its Fair Market Value as determined by the Board in good faith. The
consideration for any Additional Shares of Common Stock issuable or deemed to be
issuable pursuant to any Rights to subscribe for, purchase or otherwise acquire
the same shall be the consideration received or deemed to be received by the
Corporation for issuing such Rights plus the minimum additional consideration,
if any, paid or payable to the Corporation upon the exercise or deemed exercise
of such Rights.
(v) The consideration for any Additional Shares of Common
Stock issued or issuable pursuant to the terms of any Convertible Securities
covered by any Rights to subscribe for, purchase or otherwise acquire such
Convertible Securities shall be the consideration received or deemed to be
received by the Corporation for issuing such Rights, plus the minimum additional
consideration, if any, paid or payable to the Corporation in respect of the
subscription for, purchase or other acquisition of such Convertible Securities,
plus the minimum additional consideration, if any, paid or payable to the
Corporation upon the exercise or deemed exercise of the right of conversion or
exchange in such Convertible Securities.
(vi) The consideration for any Additional Shares of Common
Stock issuable or deemed to be issuable pursuant to the terms of any Convertible
Securities, other than any covered by any Rights to subscribe for, purchase or
acquire the same, shall be the consideration received or deemed to be received
by the Corporation for issuing such Convertible Securities plus the minimum
additional consideration, if any, paid or payable to the Corporation upon the
exercise of the right of conversion or exchange in such Convertible Securities.
(vii) For all purposes of this Article III, all Rights or
Convertible Securities issued or deemed to be issued to directors, officers,
employees or consultants of the Corporation or any Subsidiary shall be deemed to
be issued for no consideration except to the extent the Corporation receives in
exchange for the issuance thereof consideration other than services rendered or
to be rendered.
(b) When Adjustments to Be Made. The adjustments required by this
---------------------------
Article III shall be made whenever and as often as any specified event requiring
- -----------
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which a Warrant is exercisable that would otherwise be required
may be postponed (except in the case of a subdivision or combination of shares
of the Common Stock) up to, but not beyond the date of conversion if such
adjustment either by itself or with other adjustments not previously made adds
or subtracts less than 1% of the shares of Common Stock for which a Warrant is
exercisable immediately prior to the making of such adjustment. Any adjustment
representing a change of less than such minimum amount (except as aforesaid)
which is postponed shall be carried forward and made as soon as such adjustment,
together with other adjustments required by this Article III and not previously
-----------
made by
25
<PAGE>
virtue of this Section 3.8(b), would result in a minimum adjustment or
--------------
on the date of conversion. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date of
its occurrence.
(c) Fractional Interests. In computing adjustments under this
--------------------
Article III, fractional interests in Common Stock shall be taken into account to
- -----------
the nearest 1/100th of a share.
(d) Delivery of Due Bills. If, after the taking of any record of
---------------------
the holders of any class or series of capital stock of the Corporation for the
purpose of entitling them to receive a dividend or distribution for or in
connection with any other event in respect of which an adjustment pursuant to
this Article III is required, but prior to the occurrence of the event for which
-----------
such record is taken, any Warrant is exercised, the Corporation shall deliver to
the exercising Warrantholder a due bill or other appropriate instrument
evidencing such holder's right to receive the additional shares of Common Stock,
other securities, cash and other property receivable upon conversion by reason
of an adjustment pursuant to this Article III that would have been required by
-----------
reason of such dividend, distribution or other event if the Warrant had
continued to be outstanding immediately after the occurrence of the event
requiring such adjustment.
(e) Certain Determinations. Any determination of the Current Market
----------------------
Price of any share of Common Stock or the Fair Market Value of any other
security, asset, property or consideration which may be required to be made by
the Board pursuant to or in connection with the application of any provision of
this Agreement may be disputed in good faith by the Majority Holders and any
such dispute shall be resolved by an independent investment banking firm of
recognized national standing mutually selected by the Majority Holders and the
Corporation (and whose fees and expenses shall be paid by the Corporation),
whose decision with respect to such dispute shall be final and conclusive and
binding on the Corporation and all holders of Series B Shares. Any determination
by the Board pursuant to Section 3.9(b) or Section 3.13 may be disputed in good
-------------- ------------
faith by the Majority Holders, and any such dispute shall be resolved in
accordance with Section 3.12.
------------
(f) Other Action Affecting Common Stock. In case at any time or
-----------------------------------
from time to time the Corporation shall take any action in respect of its Common
Stock which is not one described in any other provision of Article III as
-----------
requiring an adjustment, then, unless such action will not have an adverse
effect upon the rights and intended benefits of the holders of Warrants, the
number of shares of Common Stock and the kind and amount of other securities and
property for which each Warrant is exercisable shall be increased in such manner
as may be equitable in the circumstances.
26
<PAGE>
Section 3.9 Multiple Classes of Common Stock.
--------------------------------
(a) Election Right. If, at any time while any Warrants are
--------------
outstanding, the Corporation's authorized capital stock shall include two or
more classes or series of Common Stock, then each Warrantholder shall have the
right, upon each exercise of any of such holder's Warrant(s), to elect to
receive such number of shares of each such class or series as such holder
desires, provided that the total number of shares of all classes and series
selected by such holder shall not exceed the aggregate number of shares of
Common Stock issuable upon exercise of such Warrants(s).
(b) Adjustment Rights Apply. If, as a result of any adjustment
-----------------------
made pursuant to Article III, by virtue of the existence of Section 3.9(a), as a
----------- --------------
result of any event referred to in Section 3.13, or otherwise, the holder of a
------------
Warrant would, upon exercise thereof, become the holder of more than one class
or series of capital stock of the Corporation, then (i) the Warrant Price shall
be allocated among such classes or series in such manner as the Board shall
determine in good faith and (ii) number, amount and type of shares of Common
Stock and other securities and property for which any Warrant may be exercised
and the Warrant Price shall be subject to adjustment in respect of each such
class and series of capital stock in a manner and on terms as nearly as
equivalent as practicable to the provisions set forth in this Article III, which
-----------
manner and terms shall be determined by the Board promptly after each such
adjustment, each such action by the Corporation and each other event which has
or might have such result. Promptly after the Board makes any such
determination, the Corporation shall deliver to each Warrantholder a written
notice which shall describe in reasonable detail the manner and terms so
determined.
Section 3.10 Notices to Warrant Holders.
--------------------------
(a) Notice of Adjustments. Whenever the Warrant Price or the
---------------------
number of shares of Common Stock or the kind or amount of other securities or
property for which any Warrant is exercisable shall be adjusted pursuant to
Article III, the Corporation at its expense shall forthwith prepare a
- -----------
certificate to be executed by the chief financial officer of the Corporation
setting forth, in reasonable detail, the event requiring the adjustment, the
nature and amount of such adjustment, the method by which such adjustment was
calculated (including a description of the basis on which the Board made any
determination required by any provision of Article III), the date as of which
-----------
such adjustment was or will be effective as provided herein, the number of
shares of Common Stock and the kinds and amounts, other securities, cash and
other property for which and the Warrant Price at which each Warrant was
exercisable immediately prior to such event and for and at which such Warrant is
exercisable immediately after such adjustment and all other relevant
information. The Corporation shall promptly cause to be delivered to each
Warrantholder a signed copy of such certificate. The Corporation shall, upon
the written request at any time of any Warrantholder, furnish or cause to be
furnished to such Warrantholder a like certificate setting forth (i) the Warrant
27
<PAGE>
Price at the time in effect and showing how such Warrant Price was calculated,
and (ii) the number of shares of each class or series of Warrant Stock and the
kind and amount, if any, of other Warrant Securities, cash and other property
which at the time would be received upon the exercise of a Warrant at the time
and showing how the same were calculated.
(b) Notice of Corporate Action. If at any time
--------------------------
(i) the Corporation shall take a record of the holders of
any class, series or issue of its capital stock or other securities for the
purpose of entitling them to receive a dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any evidences of its
indebtedness, any shares of capital stock of any class or series, any cash or
any other securities or property, or to receive any other right, interest or
benefit, or
(ii) there shall be any capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation or any Sale of the Company or any other event referred to in
Section 3.2 or 3.13 shall occur or be proposed, or
(iii) there shall be any tender offer or exchange offer for
Warrant Securities of any class, series or issue, or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation,
then the Corporation shall (x) give to each Warrantholder at least 20 days'
prior written notice of the date on which a record date shall be fixed for such
dividend, distribution or right or for determining rights to vote in respect of
any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, (y) promptly
after learning of any such tender or exchange offer, deliver to each
Warrantholder notice thereof, a copy of all written offering material which the
Corporation possesses or reasonably can obtain or if no such materials exist or
are possessed or can reasonably be obtained by the Corporation, a written
summary of all material terms and conditions of and other material facts
relating thereto known to the Corporation and (z) give each Warrantholder at
least 20 days' prior written notice of the scheduled, planned or anticipated
date when any such reorganization, reclassification, Sale of the Company,
merger, consolidation, sale, transfer, dissolution, liquidation, winding up or
other event shall take place. Such notice in accordance with clause (x) of the
immediately preceding sentence also shall specify (i) the date on which any such
record is to be taken for the purpose of the event covered by the notice or any
related event, and (ii) the date on which such event or related event is to take
place and, if applicable, the time, if any such time is to be fixed, as of which
the holders of Common Stock shall
28
<PAGE>
be entitled to exchange their shares of Common Stock for securities, cash or
other property deliverable as a result of such event.
(c) Notices To Stockholders. In addition to the foregoing, each
-----------------------
Warrantholder shall be given the same notices of corporate action or proposed
corporate action as any holder of Common Stock.
Section 3.11 No Impairment. The Corporation shall not by or through
-------------
amending its certificate of incorporation, any reorganization, transfer of
assets, consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of any Warrant or Warrant Certificate, but
will at all times in good faith carry out and assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights and intended benefits of the Warrantholders
against impairment. Without limiting the generality of the foregoing, the
Corporation (i) will not directly or indirectly increase the par value of any
shares of Common Stock or other capital stock receivable upon the exercise of
any Warrant above the amount payable therefor upon such exercise immediately
prior to such increase in par value, (ii) will not take any action that results
in any adjustment to the Warrant Price if after such adjustment the total number
of shares of Common Stock or shares of any other class or series of Warrant
Stock issuable upon the exercise of all of the outstanding Warrants would exceed
the total number of shares of Common Stock or such other Warrant Stock,
respectively, then authorized by the Corporation's Certificate of Incorporation
and available and reserved for the purpose of issuance upon such exercise, and
(iii) will take all such action as may be necessary or appropriate in order that
the Corporation may validly and legally issue shares of each class and series of
Warrant Stock and other Warrant Securities upon the exercise of any Warrant
which in each case are fully paid, non-assessable and without personal liability
attaching to the ownership thereof and not subject to preemptive and similar
purchase rights. Upon the request of any Warrantholder, at any time, the
Corporation will acknowledge in writing, in form satisfactory to such
Warrantholder, the continuing validity of each Warrant and Warrant Certificate
then held by such Warrantholder and the obligations of the Corporation with
respect thereto and thereunder.
Section 3.12 Resolution of Certain Disputes.
------------------------------
(a) Consultation. If there shall arise any dispute between the
------------
Corporation and the Majority Holders concerning the interpretation, application
or operation of the adjustment provisions of Article III (other than any such
-----------
dispute referred to in the first sentence of Section 3.8(e), which shall be
--------------
resolved as stated therein), the Corporation and the Majority Holders will
promptly attempt to settle such dispute through consultation and negotiation in
good faith and in a spirit of mutual cooperation. If agreement is reached
concerning the resolution of such dispute,
29
<PAGE>
then such agreement shall be final, conclusive and binding on the Corporation
and all Warrantholders.
(b) Arbitration. If, on or before the thirtieth day after
-----------
written notice of such dispute is given by the Corporation to the Warrantholders
or the Majority Holders to the Corporation, such dispute has not been resolved
by the agreement of the Corporation and the Majority Holders, such dispute shall
be settled by an expedited arbitration proceeding conducted in accordance with
the then current Commercial Arbitration rules of the American Arbitration
Association in New York, New York by a single arbitrator who satisfies the
requirements of Section 3.12(e) and who is mutually acceptable to the
---------------
Corporation and the Majority Holders or, in the event such Persons fail to agree
upon such arbitrator within ten Business Days after such written notice of
dispute is given, an arbitrator who satisfies such requirements appointed by the
American Arbitration Association upon application of either the Corporation or
the Majority Holders. Neither the Corporation nor the Majority Holders shall
unreasonably withhold its approval of the selection of an arbitrator satisfying
the requirements of Section 3.12(e).
---------------
(c) Certain Provisions Applicable to Arbitration. The
--------------------------------------------
Corporation and the Majority Holders shall provide such arbitrator with such
information as may be reasonably requested in connection with the arbitration of
such dispute and shall otherwise cooperate with each other and such arbitrator
in good faith and with the goal of resolving such dispute as promptly as
reasonably practicable. The arbitrator shall not have authority to award
damages, but shall have only the authority to determine disputes regarding the
matters set forth in the first sentence of Section 3.12(a). Subject to the
---------------
immediately preceding sentence and to Section 3.12(f), the arbitrator's decision
---------------
based on written conclusions of law and fact with respect to the dispute
referred to such arbitration shall be final and binding and may be entered in
any court with jurisdiction, and the Corporation and the Warrantholders shall
abide by such decision and award. Each party shall bear its own costs and
expenses, including attorney's fees, incurred in connection with any arbitration
proceeding, except that the Corporation and the Warrantholders (as a group) each
shall pay one-half of all fees, costs and disbursements of the arbitrator and of
or charged by the American Arbitration Association.
(d) Other Remedies. The provisions of this Section 3.12 shall
-------------- ------------
not in any way limit or otherwise affect (i) the right of any Warrantholder to
seek, with regard to the matter in dispute, specific performance or other
injunctive relief in any court of competent jurisdiction or (ii) the rights or
remedies of any Warrantholder with respect to any claim, controversy or dispute
not submitted to and decided by or within the authority of an arbitrator
pursuant to this Section 3.12.
------------
(e) Arbitrators. Each arbitrator appointed pursuant to Section
----------- -------
3.12(a) shall be an attorney who practices law in New York City, who has
- -------
substantial experience in sophisticated
30
<PAGE>
corporate and securities transactions generally and in negotiating and drafting
"antidilution" provisions of warrants and convertible securities in particular
and who has not, and who is not a member or employee of any firm which has,
rendered legal services to any of the parties to the dispute or any of their
respective Affiliates within the preceding two years and who has no interest
(other than the receipt of customary fees for his services as an arbitrator) in
the matter in dispute.
(f) Other Rights Unaffected. Nothing contained in this Section
----------------------- -------
3.12 or any other provision hereof is intended to or shall preclude any holder
- ----
of any Warrant or Warrant Stock from exercising or pursuing or otherwise
limiting or affecting the rights or remedies which such holder may have pursuant
to the Purchase Agreement, at law, in equity or otherwise by reason of any
matter which is the subject of or basis for any dispute referred to in Section
-------
3.12(a) (or any other matter), and the dispute resolution mechanisms provided
- -------
for in this Section 3.12 are intended solely as a means of resolving bona fide
------------ ---- ----
disputes concerning the interpretation, application or operation of the
adjustment provisions of Article III (other than any such dispute referred to in
-----------
the first sentence of Section 3.8(e), which shall be resolved as stated
--------------
therein) or bona fide disputes which the last sentence of Section 3.8(e)
---- ----
provides will be resolved pursuant to this Section 3.12, and not for the purpose
--------------
of determining the rights of holders of Warrants or Warrant Stocks or the
liabilities or obligations of the Corporation, for the purpose of resolving or
settling any claim by any such holder of any breach or inaccuracy of any
representation or warranty of, or any breach or failure to perform any covenant,
agreement or obligation, of the Corporation contained herein or in the Purchase
Agreement or any other Transaction Agreement (as defined in the Purchase
Agreement) or any other purpose. Without limiting the generality of the
immediately preceding sentence, no decision of any arbitrator appointed pursuant
to this Section 3.12 shall have or be given any res judicata or similar effect
------------ --------
in any action, suit or proceeding in which any claim by any holder of any
Warrant or Warrant Stock of any breach or inaccuracy of any representation or
warranty of, or any breach or failure to perform any covenant, agreement or
obligation, of the Corporation contained herein or in the Purchase Agreement or
any other agreement or instrument is to be adjudicated.
Section 3.13 Reclassification, Consolidation, Merger or Sale, Conveyance
-----------------------------------------------------------
or Lease or Assets.
- ------------------
(a) Adjustments. If any of the following shall occur while any
-----------
Warrants are outstanding:
(i) any consolidation, merger, binding share exchange or
reorganization to which the Corporation is party (other than
a consolidation, merger, share exchange or reorganization in
which the Corporation is the continuing corporation and which
does not result in any reclassification of or change in the
outstanding shares of Warrant Securities issuable upon
exercise of the Warrants); or
31
<PAGE>
(ii) any sale, conveyance, transfer or lease to another Entity of
the properties and assets of the Corporation as an entirety
or substantially as an entirety,
then the Corporation or the successor or acquiring Entity, as the case may be,
shall thereupon make appropriate provision, reasonably satisfactory to the
Majority Holders, so that the holders of the Warrants then outstanding shall
have the right at any time thereafter, upon exercise of the Warrants, to
purchase the kind and amount of shares of common stock of such successor or
acquiring Entity, other capital stock or equity interests, other securities and
property receivable or purchasable (as the case may be) upon such
reclassification, change, consolidation, merger, sale, conveyance, transfer or
lease as would be received by a holder of the number of shares of Common Stock,
the number of shares of each other class or series of Warrant Stock and the kind
and amount of all other Warrant Securities issuable upon exercise of such
Warrant immediately prior to such consolidation, merger, sale, conveyance,
transfer or lease (after giving effect to all adjustments required by this
Article III. If the holders of the Common Stock or any other shares of Warrant
- -----------
Stock of any class or series have rights of election as to the kind or amount of
capital stock or other equity interests, other securities or other property
receivable upon consummation of any such transaction, then the same right of
election shall be given to the holders of the Warrants. For purposes of this
Section 3.13, "common stock of the successor or acquiring Entity" shall include
- --------------
capital stock (or other equity interests if such Entity is not a corporation) of
such Entity of any class which is not preferred as to dividends or assets on
liquidation over any other class or series of stock of such corporation (or
other equity interests of a non-corporate Entity) and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of
capital stock, equity interests or other securities which are convertible into
or exchangeable for any such capital stock (or other equity interests), either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such capital stock (or other equity interests).
(b) Express Assumption by Successor or Acquiring Corporation.
--------------------------------------------------------
In case of any such merger, consolidation, share exchange, reorganization, or
disposition of assets, the successor or acquiring Entity shall expressly assume
the due and punctual observance and performance of each and every covenant and
condition of this resolution to be performed and observed by the Corporation and
all the obligations and liabilities thereunder or otherwise with respect
thereto, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board) in order to provide for adjustments of
shares of the capital stock, other securities or other property for which
Warrants may be exercised which shall be as nearly equivalent as practicable to
the adjustments provided for in Article III. Promptly after the Board makes any
-----------
such determination, the Corporation shall deliver to each Warrantholder a
written notice which shall describe in reasonable detail the manner and terms so
determined.
32
<PAGE>
(c) Provisions Apply Successively. The foregoing provisions of
-----------------------------
this Section 3.13 shall similarly apply to successive reorganizations, mergers,
------------
consolidations or disposition of assets.
Section 3.14 Taking of Record; Stock and Warrant Transfer Books. In the
--------------------------------------------------
case of all dividends or other distributions by the Corporation to the holders
of its Common Stock with respect to which any provision of Article III refers to
-----------
the taking of a record of such holders, in each such case the Corporation will
not declare, pay or make any such dividend or distribution unless it shall take
such a record and the Corporation take each such record as of the close of
business on a Business Day. The Corporation will not at any time, except upon
dissolution, liquidation or winding up of the Corporation, close its stock
transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS
OF HOLDERS OF WARRANTS
----------------------
Section 4.1 No Rights or Obligations as Warrant Securityholder Conferred
------------------------------------------------------------
by Warrants or Warrant Certificates. Except as otherwise provided herein, no
- -----------------------------------
Warrant Certificate or Warrant evidenced thereby shall, prior to exercise
thereof, entitle the holder thereof to any of the rights of a holder of Warrant
Securities, including the right to vote at or to receive notice of any meeting
of stockholders of the Corporation or any consent action or other proceeding of
the Corporation. Neither the ownership of any Warrants or Warrant Certificate
nor any provision of any Warrant Certificate shall give rise to any liability of
the holder thereof for the purchase price of any Warrant Security or as a holder
of any Warrant Security, whether such liability is asserted by or on behalf of
the Corporation, creditors of the Corporation or any other Person.
Section 4.2 Holder of Warrant Certificate May Enforce Rights.
------------------------------------------------
Notwithstanding any of the provisions of any Warrant Certificate, any holder of
a Warrant or a Warrant Certificate, without the consent of the holder of any
Warrant Securities or the holder of any other Warrant or Warrant Certificate
may, on his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Corporation suitable to
enforce, or otherwise in respect of, his rights under his Warrant Certificate(s)
or otherwise with respect to his Warrant(s).
Section 4.3 Office of the Corporation. As long as any of the Warrants
-------------------------
remain outstanding, the Corporation shall maintain one or more offices or
agencies where the Warrants may be presented for exercise and Warrants and
Warrant Securities may be presented for registration of
33
<PAGE>
transfer, division or combination. Warrants and Warrant Securities may, in any
event, be presented for such purposes at the principal executive offices of the
Corporation in the United States.
Section 4.4 Uniform Terms. The substantive terms, conditions and other
-------------
provisions of all Warrants and Warrant Certificates shall at all times be
uniform and identical within each class (except, in the case of Warrant
Certificates, as to the number of Warrants evidenced thereby). The Corporation
shall not issue any Warrants except pursuant to the Purchase Agreement. All
Warrants outstanding from time to time shall be deemed to have been issued on
the Issue Date, and all Warrant Certificates, whenever issued, shall be deemed
to have been issued, and shall be dated, as of the Issue Date.
ARTICLE V
TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS
----------------------------------------------
Section 5.1 Exchange and Transfer. Transfer of Warrants shall be
---------------------
registered on the books of the Corporation to be maintained for such purpose,
upon surrender of the Warrant Certificate representing the Warrant or Warrants
to be transferred at any office or agency designated by the Corporation pursuant
to Section 4.3, together with a written Assignment Form substantially in the
-----------
form annexed to this Agreement duly executed by the holder thereof or his duly
appointed legal representative or attorney-in-fact. Upon such surrender, the
Corporation shall, at its expense, execute and deliver a new Warrant Certificate
or Warrant Certificates in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant Certificate evidencing the Warrants
not so assigned. Warrants, if properly assigned in compliance herewith, may be
exercised by a new holder thereof without having a new Warrant Certificate
issued. At the option of any Warrantholder (i) a Warrant Certificate may be
exchanged for other Warrant Certificates representing, in the aggregate, the
same number of Warrants as the Warrant Certificate exchanged or (ii) two or more
Warrant Certificates may be exchanged for a single Warrant Certificate
representing, or some other number of Warrant Certificates representing in the
aggregate, the same number of Warrants as the Warrant Certificates exchanged, in
each case upon surrender of the Warrant Certificate(s) to be exchanged at the
office of the Corporation referred to in Section 2.1 or another office or agency
designated by the Corporation pursuant to Section 4.3. Whenever any Warrant
-----------
Certificate is so surrendered for exchange, the Corporation shall, at its
expense, execute and deliver the Warrant Certificate(s) which the Warrantholder
making the exchange is entitled to receive. Upon receipt by the Corporation of
any mutilated Warrant Certificate, or of evidence reasonably satisfactory to it
of the loss, theft or destruction of any Warrant Certificate and, in the case of
loss, theft or destruction, of indemnity reasonably satisfactory to it, the
Corporation will make and deliver a new Warrant Certificate of identical tenor
and representing the same number of Warrants as such mutilated, lost, stolen or
34
<PAGE>
destroyed Warrant Certificate. Any Warrant Certificate issued in exchange for
any Warrant Certificate, in replacement of any mutilated, lost, stolen or
destroyed Warrant Certificate or upon transfer of any Warrant shall be dated the
Issue Date and shall represent an additional contractual obligation of the
Corporation, whether or not the mutilated, lost, stolen or destroyed Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled to
rights and benefits equally and proportionately with any and all other Warrant
Certificates duly executed and delivered hereunder.
Section 5.2 Supplying Information. The Corporation shall cooperate with
---------------------
each Warrantholder and each holder of Warrant Securities in supplying such
information as may be reasonably necessary for such Warrantholder or holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from registration under the Securities Act for the sale or other transfer of any
Warrant or Warrant Securities. Without limiting the generality of the
immediately preceding sentence, Warrantholders and prospective purchasers of
Warrants designated by such holders will have the right to obtain from the
Corporation upon request by such holders or prospective purchasers, during any
period in which the Corporation is not subject to Section 13 or 15(d) of the
Exchange Act, the information required by paragraph (d)(4)(i) of Rule 144A in
connection with any transfer or proposed transfer of Warrants.
Section 5.3 Expenses. No service or other charge shall be made for any
--------
exchange, substitution, replacement or registration of transfer of Warrants or
Warrant Certificates and the Corporation shall bear its own costs and expenses
in connection therewith, but the Corporation may require payment of a sum
sufficient to cover any stamp, stock transfer or other similar tax or
governmental charge that is required to be paid by the Corporation solely by
virtue of any transfer. All Warrant Certificates issued upon any exchange,
substitution, replacement or registration of transfer of Warrant Certificates
shall be the valid obligations of the Corporation, evidencing the same
obligations, and entitled to the same benefits under this Agreement, as the
Warrant Certificate surrendered for such exchange, substitution, replacement or
registration of transfer.
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.1 Reacquired Warrants. All Warrants received by the
-------------------
Corporation upon exercise or redeemed, retired, purchased or otherwise lawfully
acquired by the Corporation or any of its Subsidiaries shall be retired and
canceled and shall not be deemed outstanding for any purpose or reissued.
35
<PAGE>
Section 6.2 Amendment. The terms, conditions and other provisions of
---------
the Warrants and Warrant Certificates which, as indicated hereinabove, are
intended to be uniform may be amended only with the written consent of the
Corporation and the Majority Holders. Any such amendment which is so consented
to shall be conclusive and binding on all present and future holders of Warrant
Certificates whether or not they have consented to such modification or
amendment or waiver and whether or not notation of such modification or
amendment is made upon such Warrant Certificates. Any instrument given by or on
behalf of any holder of a Warrant Certificate in connection with any consent to
any modification or amendment will be conclusive and binding on all subsequent
holders of such Warrant Certificate.
Section 6.3 Determinations Generally. Unless otherwise expressly
------------------------
provided herein, all decisions and determinations required or permitted to be
made hereunder by any Purchaser (including any decision as to whether to give
any consent or approval) shall be made by such Person in its sole discretion.
Section 6.4 Binding Effect; Successors and Assigns; Entire Agreement.
--------------------------------------------------------
Except as expressly provided in this Agreement, nothing in this Agreement,
express or implied, is intended or shall be construed to confer upon or give any
creditor, stockholder or Affiliate of the Corporation or any other Person except
the parties and the Persons who from time to time are holders of Warrants any
remedy or claim under or by reason of this Agreement or any term, covenant or
condition hereof, all of which shall be for the sole and exclusive benefit of
the parties. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties and the Persons who from time to
time are holders of Warrants and their respective successors and permitted
assigns. Except as otherwise specifically permitted or contemplated by this
Agreement, neither this Agreement nor any of the rights, interests or
obligations of the Corporation hereunder shall be assigned or delegated without
the prior written consent of the Majority Holders. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter herein
and supersede all prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the specific subject matter
hereof.
Section 6.5 No Implied Waivers. No action taken pursuant to this
------------------
Agreement, including, without limitation, any investigation by or on behalf of
any party or beneficiary, shall be deemed to constitute a waiver by the party or
beneficiary taking such action of compliance with any agreements, covenants,
obligations or commitments contained herein or made pursuant hereto. The waiver
by any party of a breach or benefit of any provision of this Agreement shall not
operate or be construed as a waiver of any preceding or succeeding breach and no
failure by any party or beneficiary to exercise any right, privilege or remedy
hereunder shall be deemed a waiver of such party's or beneficiary's rights,
privileges or remedies hereunder or shall be deemed a waiver of such party's or
beneficiary's rights to exercise the same at any subsequent time.
36
<PAGE>
Section 6.6 Further Assurances. Each party shall cooperate and take
------------------
such actions as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
Section 6.7 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to constitute one and the same agreement. In addition
to any other lawful means of execution or delivery, this Agreement may be
executed by facsimile signatures and may be delivered by the exchange of
counterparts of signature pages by means of telecopier transmission.
Section 6.8 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two Business Days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Corporation: Convergent Communications, Inc.
400 Inverness Drive South, Suite 400
Englewood, Colorado 80112
Attn: General Counsel
Telephone: (303) 749-3000
Telecopy: (303) 749-3113
with a copy to: Richard M. Russo, Esq.
Gibson, Dunn & Crutcher LLP
1801 California Street, Suite 4100
Denver, Colorado 80202
Telephone: (303) 298-5715
Telecopy: (303) 296-5310
If to any Warrantholder, to such Warrantholder at its address or supplied
by such Warrantholder form time to time in writing to the Corporation, with
copies to:
Paul J. Shim, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Telephone: (212) 225-2930
Telecopy: (212) 225-3999
37
<PAGE>
Any party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, facsimile transmission ordinary mail, or electronic mail), but
no such notice, request, demand, claim, or other communication shall be deemed
to have been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other parties notice in the manner herein set forth.
Section 6.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York without giving
effect to any choice or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
Section 6.10 Severability. If any provision of this Agreement or the
------------
application thereof to any person or circumstance is held by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid, void or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, provided, that if any provision
--------
hereof or thereof or the application of any such provisions shall be so held to
be invalid, void or unenforceable by a court of competent jurisdiction, then
such court may substitute therefor a suitable and equitable provision in order
to carry out, so far as may be valid and enforceable, the intent and purpose of
the invalid, void or unenforceable provision and, if such court shall fail or
decline to do so, the parties shall negotiate in good faith a suitable and
equitable substitute provision. To the extent that any such provision shall be
judicially unenforceable in any one or more states, such provision shall not be
affected with respect to any other state, each provision with respect to each
state being construed as several and independent.
Section 6.11 Specific Performance. Without intending to limit the
--------------------
remedies available to any of the parties, each of the parties acknowledges and
agrees that a violation, breach or threatened by the other of any term of this
Agreement will cause such party irreparable injury for which an adequate remedy
at law is not available. The parties agree that each party shall have the right
of specific performance and, accordingly, shall be entitled to an injunction,
restraining order or other form of equitable relief, in addition to any and all
other rights and remedies at law, from any court of competent jurisdiction
restraining any other party from committing any breach or threatened breach of,
or otherwise specifically to enforce, any provision of this Agreement and all
such rights will be cumulative. The parties further agree that any defense in
any action for specific performance that a remedy at law would be adequate is
waived.
38
<PAGE>
(Signatures continued on the next page)
39
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Warrant Agreement as of
the date first written above.
CONVERGENT COMMUNICATIONS, INC.
By: /s/ Joseph R. Zell
_________________________________________
Joseph R. Zell, Chief Executive Officer
TPG CONVERGENT I, LLC
By: /s/ Richard A. Ekleberry
_________________________________________
Name: Richard A. Ekleberry
Title: Vice President
SANDLER CAPITAL PARTNERS V, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By: /s/ Edward G. Grinacoff
_________________________________________
Edward G. Grinacoff
President
40
<PAGE>
SANDLER CAPITAL PARTNERS IV, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By: /s/ Edward G. Grinacoff
_______________________
Edward G. Grinacoff
President
SANDLER CAPITAL PARTNERS IV FTE, L.P.
By: Sandler Investment Partners, L.P.,
General Partner
By: Sandler Capital Management,
General Partner
By: MJDM Corp., a General
Partner
By: /s/ Edward G. Grinacoff
_______________________
Edward G. Grinacoff
President
41
<PAGE>
EXHIBIT 10.1
Convergent Communications(TM) Proprietary Information
- --------------------------------------------------------------------------------
Employment Services Agreement
- --------------------------------------------------------------------------------
Employee Information
- --------------------
Joseph R. Zell
- -------------------------------------- -------------------------
(Name)
-------------------------
Effective Date: April 17, 2000 (Address)
----------------
1. Employment. The Company agrees to employ Employee and Employee hereby agrees
----------
to be employed by the Company and/or such of its subsidiaries and affiliate
corporations as determined by the Company on a full-time basis, for the period
and upon the terms and conditions hereinafter set forth, provided that this
Agreement shall not be effective unless and until the Company has executed a
definitive Securities Purchase Agreement with one or more investors whereby the
Company will receive a minimum of $150 million in gross proceeds pursuant to the
sale of certain securities.
2. Capacity and Duties. Employee shall be employed in the following capacity
-------------------
for the Company or any of its affiliates in such capacity of equal or greater
responsibility. During his employment, Employee shall perform the duties and
bear the responsibilities commensurate with his position and shall devote his
full working time, energy and attention to the performance of his duties and
responsibilities hereunder and shall faithfully and diligently endeavor to
promote the business and best interests of the Company and its affiliates.
During his employment, Employee may not, without the prior written consent of
the Company, operate, participate in the management, operations or control of,
or act as an employee, officer, consultant, agent or representative of, any type
of business or service (other than as an employee of the Company), provided that
it shall not be a violation of the foregoing for Employee to (i) act or serve as
a director, trustee or committee member of any civic or charitable organization
and (ii) manage his personal, financial and legal affairs, so long as such
activities (described in clauses (i) and (ii)) do not interfere with the
performance of his duties and responsibilities to the Company as provided
hereunder.
- --------------------------------------------------------------------------------
Title: Chief Executive Officer and President
- --------------------------------------------------------------------------------
3. Compensation and Benefits.
-------------------------
3.1 The Company shall pay Employee during the Term of this Agreement an
annual base salary, payable semi-monthly as follows. The annual base salary may
be adjusted from time to time for merit increases in the sole discretion of the
Company.
- --------------------------------------------------------------------------------
Annual Base Salary: Five Hundred Thousand Dollars ($500,000)
- --------------------------------------------------------------------------------
3.2 In addition to his Annual Base Salary, during the Term of this
Agreement, Employee shall be eligible to receive a performance bonus (the
"Performance Bonus") for each fiscal year of the Company, payable after the end
of the fiscal year, if certain performance objectives to be determined by the
Board of Directors of the Company are achieved. The target Performance Bonus
will be a percentage of Employee's annual base salary.
- --------------------------------------------------------------------------------
Target Performance Bonus: One Hundred Percent (100%) of Annual Base Salary
- --------------------------------------------------------------------------------
3.3 Throughout the Term of this Agreement, the Company shall provide
Employee a monthly car allowance as shall be determined in accordance with the
Company's policies.
3.4 In addition to the compensation as provided above, the Company shall
provide Employee during the Term of this Agreement, with the benefits of such
insurance plans, hospitalization plans, stock plans, retirement plans and other
employee fringe benefits (including sick leave and four (4) weeks annual
vacation time) as shall be generally provided to the other executives of the
Company and for which Employee may be eligible under the terms and conditions
thereof. The Company reserves the right to modify, delete or change its benefits
at any time provided that any such changes applied to Employee shall also apply
to the same extent to the Company's other executive officers.
3.5 Throughout the Term of this Agreement, the Company shall reimburse
Employee for all reasonable out-of-pocket expenses incurred by Employee in
connection with the business of the Company and in performance of his duties
under this Agreement, upon presentation to the Company by Employee of an
itemized accounting of such expenses with reasonable supporting data.
This Employment Services Agreement is further subject to the Employment
Agreement Terms ("Agreement Terms") attached hereto, and, if this box is marked,
[X] Addendum A attached hereto (collectively the "Agreement"). Employee has read
and understands the Agreement Terms and agrees to be bound by those conditions.
Acceptance of this Agreement is contingent upon acceptance by a representative
of the Company duly authorized to execute this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the last date
shown below.
CONVERGENT COMMUNICATIONS, INC. JOSEPH R. ZELL
(Company) (Employee)
By: /s/ John R. Evans /s/ Joseph R. Zell
---------------------------- -----------------------------------------
Title: Chief Executive Officer
-------------------------
<PAGE>
Employment Agreement Terms
The following Employment Agreement Terms are in addition to the terms and
conditions contained in the Employement Services Agreement cover sheet :
4. Term. The initial term of this Agreement shall commence on the
----
Effective Date of this Agreement and shall continue until the third anniversary
of the Effective Date, unless sooner terminated by either party pursuant to
Section 5 below ("Term"). The applicable provisions of Sections 6, 7, 8, 9 and
10 shall remain in full force and effect as provided and for the time periods
specified in such Sections notwithstanding the termination of this Agreement;
all other obligations of either party to the other under this Agreement shall
terminate at the end of the Term.
5. Termination.
-----------
5.1 If, during the Term of this Agreement, Employee dies or is prevented
from performing his duties by reason of illness or incapacity for one hundred
forty (140) days in any one hundred eighty (180) day period, the Company may
terminate this Agreement, upon thirty (30) days prior notice thereof to Employee
or his duly appointed legal representative.
5.2 The Company or the Employee may terminate this Agreement upon at least
thirty (30) days prior notice to Employee upon the happening of any of the
following events ("Change of Control Event"):
5.2.1 The sale by the Company of substantially all of its assets to a
single purchaser or associated group of purchasers who are not affiliates of the
Company. For the purposes of this Agreement, the term "affiliate" means a
person, firm or corporation that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
Company or with the Texas Pacific Group or any of its affiliates.
5.2.2 The sale, exchange or other disposition in one transaction of
eighty percent (80%) or more of the outstanding voting stock of the Company to
or with a person, firm or corporation not then an affiliate of the Company.
5.2.3 The merger or consolidation of the Company in a transaction not
involving an affiliate of the Company in which the shareholders of the Company
receive less than fifty percent (50%) of the outstanding voting stock of the new
continuing corporation.
5.2.4 A bona fide decision by the Company to terminate its business
and liquidate its assets (but only if such liquidation is not part of a plan to
carry on the Company's business through its shareholders).
5.2.5 If Employee's employment is terminated prior to the date on
which a Change of Control Event occurs, and such termination was at the request
of a third party who has taken steps to effect a Change of Control Event or was
otherwise caused by the Change of Control Event, then for all purposes of this
Agreement, a Change of Control Event shall be deemed to have occurred prior to
such termination.
5.3 The Company may terminate this Agreement at any time for gross
negligence or willful non-performance by Employee of any duty as an employee of
the Company which continues for a period of thirty (30) days after written
notice specifying such negligence or non-performance.
5.4 The Company may terminate this Agreement immediately upon a material
breach of any obligation or covenant created by or under this Agreement that is
not cured by Employee within thirty (30) days of his receipt of written notice
of said breach, or upon Employee's intentional commission of a violation of any
federal law, rule or regulation, or any theft, fraud, embezzlement or similar
crime involving the commission of any felony.
5.5 Company or Employee may terminate this Agreement without cause upon at
least thirty (30) days prior notice.
5.6 Termination Fees. In the event that this Agreement is terminated
----------------
pursuant to this Section 5, Company shall pay Employee a Termination Fee as
described below, provided that such Termination Fee shall be conditioned upon
and subject to Employee executing a valid release and waiver waiving all claims
that Employee may have against the Company, its affiliates and their respective
assigns, successors, employees, directors, officers, shareholders and agents,
and upon Employee's compliance with the restrictive covenants provided in
Sections 6 and 7 hereof.
5.6.1 If this Agreement is terminated by (a) the Company under
subsections 5.1, 5.2 or 5.5 above, or (b) by the Employee for any or no reason
more than three
Initials: Date:
--------- --------
<PAGE>
Employment Agreement Terms
(3) months following a Change of Control Event; or (c) by the Employee (i) for
Good Reason during the three (3) months following a Change of Control Event as
described in subsection 5.2 above or such shorter period as the parties may
mutually agree is required to effectuate an orderly transition of Employee's
responsibilities, or (ii) at any time for Good Reason (as defined below), then:
(1) the Company shall continue to pay Employee's monthly base salary, as shall
be in effect on the termination date, for a period of twenty-four (24) months
following the date of termination; (2) the Company shall provide Employee with
the following benefits coverage: life, medical, dental and vision, for a period
of twenty-four (24) months following the date of termination; (3) two times the
amount of the incentive bonus, if any, earned by Employee in the fiscal year
ending prior to the date of termination pursuant to Section 3.2 and (4) vesting
of Employee's stock options, if any, shall be accelerated such that all stock
options granted to Employee will vest as of the date of termination; provided
that Employee shall not receive any Termination Fee if he terminates this
Agreement without Good Reason during the three (3) months following a Change of
Control Event as described in subsection 5.2 above or such shorter period as the
parties may mutually agree is required to effectuate an orderly transition of
Employee's responsibilities.
5.6.2 For purposes of this Agreement, "Good Reason" shall mean,
without the Employee's express written consent, the occurrence of any of the
following circumstances, unless in the case of clauses (i), (v), or (vi), such
circumstances are fully corrected within thirty (30) days following notice to
the Company:
(i). The material diminution of Employee's authority, duties
and reporting relationships, or a substantial adverse alteration in the nature
or status of the Employee's responsibilities from those in effect immediately
after the commencement of his employment;
(ii). A reduction by the Company in the Employee's annual base
salary as then in effect;
(iii). A new Company requirement is instituted which requires
the Employee to change his work location to a location greater than fifty (50)
miles from Employee's work location immediately prior to the institution of the
requirement, but not including a requirement that the Employee travel on the
Company's business to an extent substantially consistent with his present
business travel obligations;
(iv). The failure by the Company, without the Employee's
consent, to pay to the Employee any portion of any base salary, bonus, other
material cash compensation, Common Stock or stock options payable in
consideration of Employee's employment with the Company, or to pay to the
Employee any portion of an installment of deferred compensation under any
deferred compensation program of the Company within seven (7) days of the date
such compensation is due, unless such failure to pay is reasonably in dispute by
the Company;
(v). The failure by the Company to continue in effect any
compensation plan in which the Employee participates that is material to the
Employee's total compensation, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to such plan
, or the failure by the Company to continue the Employee's participation
therein; provided that this subsection shall not apply in the event of a change
in any compensation plan that applies generally to all of the Company's
executive officers;
(vi). following a Change of Control Event only: the failure by
the Company to continue to provide the Employee with benefits substantially
similar to those enjoyed by the Employee under any of the Company's pension,
life insurance, medical, health and accident, or disability plan in which the
Employee was participating immediately after the commencement of his employment;
the taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the Employee of any material
fringe benefit enjoyed by the Employee immediately after the commencement of his
employment; or the failure by the Company to provide the Employee with the
number of paid vacation days to which the Employee is entitled pursuant to the
greater of (a) this Agreement or (b) the basis of years of service with the
Company in accordance with the Company's normal vacation policy in effect
immediately after the commencement of his employment.
The Employee's right to terminate his employment pursuant to this subsection
shall not be affected by his incapacity due to physical or mental illness. The
Employee's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
Initials: Date:
--------- --------
<PAGE>
Employment Agreement Terms
5.6.3 No Termination Fee shall be paid to Employee in the event that
this Agreement is terminated for any other reason, including, without
limitation, pursuant to subsections 5.3 and 5.4 herein or by Employee pursuant
to Section 5.5.
5.6.4 Employee shall not be required to mitigate the amount of any
payment provided for in Section 5.6 of this Agreement by seeking other
employment or otherwise.
5.7 In the event that this Agreement is terminated pursuant to subsection
5.2 or by the Company pursuant to subsection 5.5, Employee shall have a period
of twelve (12) months from the date of termination in which to exercise
Employee's vested stock options.
5.8 Any termination of Employee's employment by Company (other than
termination pursuant to Section 5.1) shall be communicated by a written notice
(the "Notice of Termination"), which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Employee's employment under the provision so indicated. Any purported
termination pursuant to Section 5.3 and 5.4 that is disputed and finally
determined not to have been proper shall be a termination by Company in breach
of this Agreement.
5.9 Notwithstanding any other provision of this Agreement, Employee shall
not be deemed to have been terminated in conformity with section 5.3 and/or 5.4
of this Agreement unless Employee has first received: (A) reasonable notice to
Employee setting forth the reasons for Company's intention to terminate for
Cause; and (B) an opportunity, with his counsel, to appear before and be heard
by the Board at the earliest reasonable date; and (C) delivery of a Notice of
Termination from the Board finding that, in the good faith opinion of the Board,
Cause as specified in the notice required by clause 5.9(A), above, exists, and
specifying the particulars thereof in detail.
6. Covenant Not to Compete.
-----------------------
6.1 During the term of this Agreement, Employee shall not directly or
indirectly, own, manage, operate, control, be employed by, or participate in the
ownership, management, operation or control of a business that is a Direct
Competitor of the Company within a Relevant Area. For the purposes of this
Section 6, including all subsections of this Section 6, a "Direct Competitor" is
a company engaged in providing integrated communications services and/or
equipment to small and medium-sized business enterprises, and the "Relevant
Area" shall be defined as any area located within, or within fifty (50) miles
of, the legal boundaries or limits of any city within which the Company or any
parent, subsidiary or affiliate thereof is providing services, has commenced the
acquisition of any authorizations, rights of way or facilities or has commenced
the construction of facilities for the purpose of providing services, or the
Company has publicly announced or privately disclosed in writing to Employee
that it plans to provide Services.
6.2 If, after the termination of this Agreement, Employee directly or
indirectly, owns, manages, operates, controls, becomes employed by, or
participates in the ownership, management, operation or control of a business
that is a Direct Competitor of the Company within a Relevant Area, then the
Company shall thereafter be relieved of its obligation, if any, to continue the
payment of any Termination Fee to Employee; provided that this section 6.2 shall
not apply if Employee terminates this Agreement for Good Reason, or following a
Change of Control Event.
6.3 During the Term of this Agreement (or, if longer, during the term of
Employee's employment with the Company or any of its affiliates) and for a
period of twenty-four (24) months after termination of this Agreement (or, if
longer, termination of Employee's employment with the Company or any of its
affiliates), Employee shall not (i) directly or indirectly cause or attempt to
cause any employee of the Company or any of its affiliates to leave the employ
of the Company or any affiliate, (ii) in any way interfere with the relationship
between the Company and any employee or between an affiliate and any employee of
the affiliate, (iii) directly or indirectly hire any employee of the Company or
any affiliate to work for any organization of which Employee is an officer,
director, employee, consultant, independent contractor or owner of an equity or
other financial interest, or (iv) interfere or attempt to interfere with any
transaction in which the Company or any of its affiliates was involved during
the Term of this Agreement or Employee's employment, which ever is longer.
6.3 Employee agrees that, because of the nature and sensitivity of the
information to which he will be privy and because of the nature and national and
international scope of the Company's business, the restrictions in this Section
6 are fair and reasonable.
7. Confidential Information.
------------------------
Initials: Date:
--------- --------
<PAGE>
Employment Agreement Terms
7.1 The relationship between the Company and Employee is one of confidence
and trust.
7.2 As used in this Agreement (i) "Confidential Information" means
information disclosed to or acquired by Employee about the Company's plans,
products, processes and services including the Services and any Relevant Area,
including information relating to research, development, inventions,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
selling, pricing and tariffed or contractual terms, customer lists and prospect
lists or other market information, with respect to any of the Company's then
current business activities; and (ii) "Inventions" means any inventions,
discoveries, concepts and ideas, whether patentable or not, including, without
limitation, processes, methods, formulas, and techniques (as well as related
improvements and knowledge) that are based on or related to Confidential
Information, that pertain in any manner to the Company's then currently used
technology, expertise or business and that are made or conceived by Employee,
either solely or jointly with others, and while employed by the Company or
within six (6) months thereafter, whether or not made or conceived during
working hours or with the use of the Company's facilities, materials or
personnel.
7.3 Employee agrees that he shall at no time during the term of his
employment or at any time thereafter disclose any Confidential Information,
Inventions or component thereof to any person, firm or corporation to any extent
or for any reason or purpose or use any Confidential Information or component
thereof for any purpose other than the conduct of the Company's business.
7.4 Any Confidential Information, Invention or component thereof that is
directly or indirectly originated, developed or perfected to any degree by
Employee during the term of his employment by the Company shall be and remain
the sole property of the Company and shall be deemed trade secrets of the
Company.
7.5 Upon termination of Employee's employment pursuant to any of the
provisions herein, Employee or his legal representative shall deliver to the
Company all originals and all duplicates and/or copies of all documents,
records, notebooks, and similar repositories of or containing Confidential
Information or subject matter then in his possession, whether prepared by him or
not.
7.6 Employee agrees that the covenants and agreements contained in this
Section 7 are fair and reasonable and that no waiver or modification of this
Section or any covenant or condition set forth herein shall be valid unless set
forth in writing and duly executed by the parties hereto. Employee agrees to
execute such separate and further confidentiality agreements embodying and
enlarging upon the provisions of this Section 7 as the Company may reasonably
request.
8. Injunctive Relief. Upon a breach or threatened breach by Employee of any
-----------------
of the provisions of Sections 6 and 7 of this Agreement, the Company shall be
entitled to an injunction restraining Employee from such breach if the Company
satisfies the requirements of Rule 65, Colorado Rules of Civil Procedure, and
Colorado decisional law applying Rule 65. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies for such breach or
threatened breach, including recovery of damages from Employee.
9. No Waiver. A waiver by the Company of a breach of any provision of this
---------
Agreement by Employee shall not operate or be construed as a waiver of any
subsequent or other breach by Employee.
10. Severability. It is the desire and intent of the parties that the
------------
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion of
this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such Section in the particular jurisdiction in which
such adjudication is made.
11. Notices. All communications, requests, consents and other notices provided
-------
for in this Agreement shall be in writing and shall be deemed given if mailed by
first class mail, postage prepaid, certified or return receipt requested to the
addresses set forth herein, or last known address and received by the intended
party. If the mailing is returned to the sender due to an incorrect address,
the correct address must be obtained in order for the communication to be
received and completed.
12. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Colorado.
13. Assignment. The Company may assign its rights and obligations under this
----------
Agreement to any affiliate of the Company or, subject to the provisions of
Section 5, to
Initials: Date:
--------- --------
<PAGE>
Employment Agreement Terms
any acquirer of substantially all of the business of the Company, and all
covenants and agreements hereunder shall inure to the benefit of and be
enforceable by or against any such assignee. Neither this Agreement nor any
rights or duties hereunder may be assigned or delegated by Employee.
14. Amendments. No provision of this Agreement shall be altered, amended,
----------
revoked or waived except by an instrument in writing, signed by each party to
this Agreement.
15. Binding Effect. Except as otherwise provided herein, this Agreement shall
--------------
be binding upon and shall inure to the benefit of the parties hereto and their
respective legal representatives, heirs, successors and assigns.
16. Execution in Counterparts. This Agreement may be executed in any number of
-------------------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Entire Agreement. This Agreement (and the Company's arbitration procedures
----------------
described below) sets forth the entire agreement and understanding of the
parties and supersedes all prior understandings, agreements or representations
by or between the parties, whether written or oral, which relate in any way to
the subject matter hereof, including, without limitation, any previously
executed employment agreements or amendments thereto.
18. Indemnification
---------------
18.1 To the greatest extent allowable under applicable law, the Company
shall indemnify and defend Employee from and against all claims, demands and
liabilities arising from or relating to Employee's employment or other
relationships with the Company ("Indemnified Claims"), and advance to Employee
all costs and attorneys' fees incurred by him or on his behalf in connection
with any Indemnified Claim; provided that in no circumstances shall the
indemnification and/or cost advance requirements of this paragraph exceed the
scope of the indemnification and cost advance rights extended by the Company's
bylaws to the Company's executive officers.
18.2 Employee represents and warrants that he is not in breach of his
obligations to any former employer under any agreement limiting his ability or
right to solicit or hire any individual, and agrees that he shall not during the
term of this Agreement knowingly and intentionally violate any such obligation.
Provided that Employee has not knowingly and intentionally violated any
obligations described in the previous sentence, the Company shall fully
indemnify Employee concerning and defend him against any claim or demand by, or
liability by Employee to, Employee's former employer (including, without
limitation, any demand for repayment of cash, stock or stock options, or any
effort to cancel stock options or otherwise avoid any obligation relating
thereto) arising from or relating to any contractual or other legal limitation
on or prohibition of the solicitation or hiring of any person, as an employee,
contractor or otherwise, by the Company or any affiliate thereof.
19. Arbitration. Any dispute arising out of this Agreement, the Employee's
-----------
application for employment, the Employee's relationship with the Company, or the
Employee's employment or separation from employment shall be subject to
arbitration pursuant to the Company's arbitration procedures. The Employee
acknowledges that a copy of the procedures has been delivered to and read by the
Employee prior to the time he/she executed this Agreement. It is understood
that all sections of the Arbitration Procedures apply, except those sections
pertaining to at-will employment, which are superseded by this Employment
Agreement. In his or her final award, the arbitrator shall award the party
substantially prevailing all costs incurred by that party in connection with the
arbitration, including reasonable attorneys' fees and that party's share, if
any, of the fees charged by the arbitrator, and all filing and/or arbitration
administration fees incurred by that party in connection with the arbitration.
Initials: Date:
--------- --------
<PAGE>
Convergent Communications(TM) Proprietary Information
- --------------------------------------------------------------------------------
Addendum A to Employment Services Agreement
- --------------------------------------------------------------------------------
1. Additional Provisions. The Company and Employee agree to the following
---------------------
additions, changes and amendments to the Employment Services Agreement and the
Agreement Terms:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Section Reference Additions, Changes or Amendments
- -------------------- ----------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S>
3.2 Employee's Performance Bonus described in Section 3.2 shall be guaranteed to be a minimum of
(addendum) $250,000 for the first fiscal year of Employee's employment which amount shall be offset by any
actual Performance Bonus earned in such year.
- ---------------------------------------------------------------------------------------------------------------------------
3.3 Employee's monthly car allowance shall be $1,200 payable semi-monthly.
(addendum)
- ---------------------------------------------------------------------------------------------------------------------------
3.4 The Company hereby represents and warrants that all stock option grants contemplated or required by
(addendum) this Agreement are authorized by and permissible under its various stock option plans and programs,
and that it shall exercise its best efforts to obtain all board and/or shareholder approvals, if
any, required to allow such stock option grants to be made to Employee as, when and on the terms
specified hereunder. Employee shall receive an option to purchase 1,500,000 shares of Company
common stock at an exercise price of $13.00 per share. 25% of the shares underlying the option
shall be immediately vested upon grant. The remaining 75% of the shares underlying the option
shall vest in three equal installments on each of the succeeding three anniversaries of the date of
grant, provided that Employee is still employed by the Company on each such anniversary. The
terms and conditions of the Company's Stock Incentive Plan shall govern all other aspects of the
stock option grant; provided that in the event of any conflict between any term of this Agreement
and any term of the Plan or any Option Certificate issued thereunder, the terms of this Agreement
shall control.
{Rest of Page Intentionally Blank}
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
3.6 3.6.1 The Company shall pay Employee a signing bonus comprised of a combination of
(new) cash and Common Stock with a total value of $20 million ("Signing Bonus"), which shall
be payable in two equal installments as follows: (i) $10 million in cash or Common
Stock in a combination designated by Employee as provided in section 3.6.2, below, on
the later of (a) 31 days after the Company receives Employee's designation or (b) the
date by which the Company has executed definitive Securities Purchase Agreements with
one or more investors whereby the Company will receive a minimum of $150 million in
gross proceeds pursuant to the sale of certain securities ("Initial Installment"), and
(ii) $10 million in cash or Common Stock in a combination designated by Employee as
provided in section 3.6.2, on the earlier to occur of (a) the closing of the merger of
US West Communications, Inc. and Qwest Communications, Inc., and (b) December 31, 2000
("Final Installment").
3.6.2 On or before March 29, 2000, Employee shall deliver to the company a written
designation (the "Designation") specifying the combination of cash and Common Stock
that shall together comprise the Initial Installment and the Final Installment (which
may be comprised of different combinations of cash and Common Stock). To the extent
that Employee elects to receive any portion of Signing Bonus payable in the Initial
Installment in the form of Common Stock, the number of shares of Common Stock to be so
granted shall be determined by dividing the number of dollars of the Signing Bonus
designated by Employee to be payable in Common Stock by $13.00 To the extent that
Employee elects to receive any portion of Signing Bonus payable in the Final
Installment in the form of Common Stock, the number of shares of Common Stock to be so
granted shall be determined by dividing the number of dollars of the Signing Bonus
designated by Employee to be payable in Common Stock by the volume-weighted average
closing price of the Common Stock on the NASDAQ National Market for the twenty trading
days immediately preceding the date of the grant. Employee shall have the right,
before his first date of active employment under this Agreement, to defer any cash
payment received as a result of a designation under this section 3.6.2 into a deferred
compensation plan established by the Company. Upon Employee's request, the Company
shall establish a deferred compensation plan as of Employee's first day of active
employment under this Agreement giving effect to Employee's deferral election.
Employee and the Company shall cooperate concerning the terms and conditions of such a
plan.
- --------------------------------------------------------------------------------------------------------------------------
3.6.3 In the event that Employee's employment is terminated prior to the earlier to
occur of (i) the closing of the merger of US West Communications, Inc. and Qwest
communications, Inc., and (ii) December 31, 2000 and is (A) voluntarily terminated by
Employee without Good Reason or (B) terminated by the Company pursuant to Section 5.4
of this Agreement, then Employee hereby agrees and acknowledges that he shall, only
with respect to the Initial Installment of the Signing Bonus, repay the net cash
portion (after taxes withheld) of the Signing Bonus and return any shares of Common
Stock received by Employee as the Common Stock portion of the Signing Bonus to the
Company within twenty (20) days after such termination of employment.
3.6.4 In the event that, after Employee receives the Final Installment, Employee's
employment is (A) voluntarily terminated by Employee without Good Reason or (B)
terminated by the Company pursuant to Section 5.4 of this Agreement, then Employee
hereby agrees and acknowledges that he shall, only with respect to the Final
Installment of the Signing Bonus, repay the net cash portion (after taxes withheld) of
the Signing Bonus and return any shares of Common Stock received by Employee as the
Common Stock portion of the Signing Bonus to the Company within twenty (20) days after
such termination of employment in accordance with the following schedule:
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date of Termination of Employment Cash, Common Stock Portion of Final
(based upon the applicable period of Installment of Signing Bonus to be Returned to
time following Employee's receipt of Company
the Final Installment of the Signing
Bonus)
<S> <C>
-----------------------------------------------------------------------------------------
During the 1st through 3rd month 80%
-----------------------------------------------------------------------------------------
During the 4th through 6th month 60%
-----------------------------------------------------------------------------------------
During the 7th through 9th month 40%
-----------------------------------------------------------------------------------------
During the 10th through 12th month 20%
-----------------------------------------------------------------------------------------
3.6.5 The Company shall have the right to offset and/or withhold any amounts accrued
or owed to Employee in order to satisfy all or any portion of Employee's obligations
under this Section 3.6.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
2. Part of Agreement. This Addendum is a part of the Employment Services
-----------------
Agreement executed on the same date as this Addendum.
3. Other Terms and Conditions. All other terms and conditions of the
--------------------------
Agreement shall remain in full force and effect, as if fully stated herein.
4. Capitalized Terms. Capitalized terms, and other defined terms, shall have
-----------------
the same meaning as that accorded to them in the Agreement, unless the context
requires otherwise.
5. Conflict. If there are any conflicting terms or conditions between the
--------
terms and conditions of this Addendum and the terms and conditions of the
Agreement, the terms and conditions of this Addendum shall control.
<PAGE>
EXHIBIT 10.2
Convergent Communications(TM) Proprietary Information
Amendment 1 to Employment Services Agreement
1. Original Agreement. The Company and Employee have entered into an
Employment Services Agreement dated effective March 9, 2000 ("Agreement"). This
Amendment is entered into effective April 17, 2000.
2. Modifications. The Company and Employee agree to the following additions,
changes and amendments to the Agreement:
Section Reference Additions, Changes or Amendments
Company and Employee acknowledge that for purposes of
3.6 this Agreement, the Company will provide temporary
(Amendment) living and furniture storage as described in Section 3.6
for a period of one (1) year from the date of Employee's
employment.
Company agrees to pay down Employee's first residential
3.7 mortgage interest rate to 7% on Employee's first
(new) residence purchased in the Denver metropolitan area;
provided, that (i) the mortgage obtained by Employee is
satisfactory to Company and is less than $1 million,
(ii) this section shall not apply to any subsequent
residences purchased by Employee or any subsequent
mortgages obtained by Employee, and (iii) this section
shall only apply during the Term of Employee's
employment with the Company.
3. Part of Agreement. This Amendment is a part of the Agreement.
4. Other Terms and Conditions. All other terms and conditions of the
Agreement shall remain in full force and effect, as if fully stated herein.
5. Capitalized Terms. Capitalized terms, and other defined terms, shall have
the same meaning as that accorded to them in the Agreement, unless the context
requires otherwise.
6. Conflict. If there are any conflicting terms or conditions between the
terms and conditions of this Amendment and the terms and conditions of the
Agreement, the terms and conditions of this Amendment shall control.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
shown above.
CONVERGENT COMMUNICATIONS, INC. BRIAN R. ERVINE
(Company) (Employee)
By: /s/ Joseph R. Zell /s/ Brian R. Ervine
________________________________ ________________________________
Title: Chief Executive Officer
_____________________________
<PAGE>
EXHIBIT 10.12
================================================================================
LOAN AND SECURITY AGREEMENT
by and between
CONVERGENT COMMUNICATIONS SERVICES, INC.
as Borrower
and
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as the Lenders,
and
FOOTHILL CAPITAL CORPORATION
as Agent
Dated as of April 18, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION....................................................................................... 1
1.1 Definitions.................................................................................................. 1
1.2 Accounting Terms............................................................................................. 21
1.3 Code......................................................................................................... 21
1.4 Construction................................................................................................. 21
1.5 Schedules and Exhibits....................................................................................... 22
2. LOAN AND TERMS OF PAYMENT.......................................................................................... 22
2.1 Revolving Advances........................................................................................... 22
2.2 Letter of Credit Subfacility................................................................................. 28
2.3 [Intentionally Omitted.]..................................................................................... 32
2.4 Payments..................................................................................................... 32
2.5 Overadvances................................................................................................. 33
2.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations....................................... 33
2.7 Collection of Accounts....................................................................................... 34
2.8 Crediting Payments; Application of Collections............................................................... 35
2.9 Designated Account........................................................................................... 35
2.10 Maintenance of Loan Account; Statements of Obligations...................................................... 36
2.11 Fees........................................................................................................ 36
3. CONDITIONS; TERM OF AGREEMENT...................................................................................... 37
3.1 Conditions Precedent to Closing Date......................................................................... 37
3.2 Conditions Precedent to the Initial Advance and Letter of Credit............................................. 39
3.3 Conditions Precedent to all Advances and all Letters of Credit............................................... 40
3.4 Condition Subsequent......................................................................................... 41
3.5 Term; Automatic Renewal...................................................................................... 41
3.6 Effect of Termination........................................................................................ 41
3.7 Early Termination by Borrower................................................................................ 42
3.8 Termination Upon Event of Default............................................................................ 42
4. CREATION OF SECURITY INTEREST...................................................................................... 42
4.1 Grant of Security Interest................................................................................... 42
4.2 Negotiable Collateral........................................................................................ 43
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral....................................... 43
4.4 Delivery of Additional Documentation Required................................................................ 43
4.5 Power of Attorney............................................................................................ 43
4.6 Right to Inspect............................................................................................. 44
5. REPRESENTATIONS AND WARRANTIES..................................................................................... 44
5.1 No Encumbrances.............................................................................................. 44
5.2 Eligible Accounts............................................................................................ 44
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
5.3 Eligible Inventory........................................................................................... 44
5.4 Equipment.................................................................................................... 45
5.5 Location of Inventory and Equipment.......................................................................... 45
5.6 Inventory Records............................................................................................ 45
5.7 Location of Chief Executive Office; FEIN..................................................................... 45
5.8 Due Organization and Qualification; Subsidiaries............................................................. 45
5.10 Litigation.................................................................................................. 47
5.11 No Material Adverse Change.................................................................................. 47
5.12 No Fraudulent Transfer...................................................................................... 47
5.13 Employee Benefits........................................................................................... 47
5.14 Environmental Condition..................................................................................... 47
5.15 Brokerage Fees.............................................................................................. 48
5.16 Permits and other Intellectual Property..................................................................... 48
5.18 Outstanding Balance of Unsecured Notes...................................................................... 48
6. AFFIRMATIVE COVENANTS.............................................................................................. 49
6.1 Accounting System............................................................................................ 49
6.2 Collateral Reporting......................................................................................... 49
6.3 Financial Statements, Reports, Certificates.................................................................. 50
6.4 Tax Returns.................................................................................................. 51
6.5 Intentionally Omitted........................................................................................ 51
6.6 Returns...................................................................................................... 51
6.7 [Intentionally Omitted.]..................................................................................... 51
6.8 Maintenance of Equipment..................................................................................... 51
6.9 Taxes........................................................................................................ 51
6.10 Insurance................................................................................................... 52
6.11 No Setoffs or Counterclaims................................................................................. 53
6.12 Location of Inventory and Equipment......................................................................... 53
6.13 Compliance with Laws........................................................................................ 54
6.14 Employee Benefits........................................................................................... 54
6.15 Leases...................................................................................................... 54
6.16 Broker Commissions.......................................................................................... 55
6.17 Certain Notices............................................................................................. 55
7. NEGATIVE COVENANTS................................................................................................. 55
7.1 Indebtedness................................................................................................. 55
7.2 Liens........................................................................................................ 56
7.3 Restrictions on Fundamental Changes.......................................................................... 56
7.4 Disposal of Assets........................................................................................... 57
7.5 Change Name.................................................................................................. 57
7.6 Guarantee.................................................................................................... 57
7.7 Nature of Business........................................................................................... 57
7.8 Prepayments and Amendments................................................................................... 57
7.9 Change of Control............................................................................................ 58
7.10 Consignments................................................................................................ 58
7.11 Distributions............................................................................................... 58
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
7.12 Accounting Methods........................................................................................... 59
7.13 Investments.................................................................................................. 59
7.14 Transactions with Affiliates................................................................................. 59
7.15 Suspension................................................................................................... 60
7.16 Compensation................................................................................................. 60
7.17 Use of Proceeds.............................................................................................. 60
7.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees........................... 60
7.19 No Prohibited Transactions Under ERISA....................................................................... 60
7.20 Tangible Net Wroth........................................................................................... 61
7.21 Capital Expenditures......................................................................................... 62
7.22 Benefit Plans................................................................................................ 62
8. EVENTS OF DEFAULT................................................................................................... 62
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.............................................................................. 65
9.1 Rights and Remedies........................................................................................... 65
9.2 Remedies Cumulative........................................................................................... 67
10. TAXES AND EXPENSES.................................................................................................. 67
11. WAIVERS; INDEMNIFICATION............................................................................................ 68
11.1 Demand; Protest; etc......................................................................................... 68
11.2 The Lender Group's Liability for Collateral.................................................................. 68
11.3 Indemnification.............................................................................................. 68
12. NOTICES............................................................................................................. 68
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.......................................................................... 70
14. DESTRUCTION OF BORROWER'S DOCUMENTS................................................................................. 70
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.......................................................................... 71
15.1 Assignments and Participations............................................................................... 71
15.2 Successors................................................................................................... 73
16. AMENDMENTS; WAIVERS................................................................................................. 73
16.1 Amendments and Waivers....................................................................................... 73
16.2 No Waivers; Cumulative Remedies.............................................................................. 74
17. AGENT; THE LENDER GROUP............................................................................................. 74
17.1 Appointment and Authorization of Agent....................................................................... 74
17.2 Delegation of Duties......................................................................................... 75
17.3 Liability of Agent........................................................................................... 75
17.4 Reliance by Agent............................................................................................ 76
17.5 Notice of Default or Event of Default........................................................................ 76
17.6 Credit Decision.............................................................................................. 76
17.7 Costs and Expenses; Indemnification.......................................................................... 77
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
17.8 Agent in Individual Capacity................................................................................ 78
17.9 Successor Agent............................................................................................. 78
17.10 Withholding Tax............................................................................................. 78
17.11 Collateral Matters.......................................................................................... 80
17.12 Restrictions on Actions by Lenders; Sharing of Payments..................................................... 81
17.13 Agency for Perfection....................................................................................... 81
17.14 Payments by Agent to the Lenders............................................................................ 81
17.15 Concerning the Collateral and Related Loan Documents........................................................ 82
17.16 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders;
Other Reports and Information............................................................................... 82
17.17 Several Obligations; No Liability........................................................................... 83
18. GENERAL PROVISIONS................................................................................................. 84
18.1 Effectiveness................................................................................................ 84
18.2 Section Headings............................................................................................. 84
18.3 Interpretation............................................................................................... 84
18.4 Severability of Provisions................................................................................... 84
18.5 Amendments in Writing........................................................................................ 84
18.6 Counterparts; Telefacsimile Execution........................................................................ 84
18.7 Revival and Reinstatement of Obligations..................................................................... 84
18.8 Integration.................................................................................................. 85
</TABLE>
SCHEDULES AND EXHIBITS
----------------------
Schedule C-1 Commitments
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Other Indebtedness
Schedule 7.14 Transactions with Affiliates
Exhibit A-1 Form of Assignment and Acceptance Agreement
Exhibit C-1 Form of Compliance Certificate
Exhibit 3.1(p) Permitted Items and Property to Secure Indebtedness
Exhibit 3.2(e) Required UCC Terminations, Amendments, and Releases
iv
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
April 18, 2000, among the financial institutions listed on the signature pages
hereof (such financial institutions, together with their respective successors
and assigns, are referred to hereinafter each individually as a "Lender" and
collectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, a California
corporation, as agent for the Lenders ("Agent"), with a place of business
located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California
90025-3333 and CONVERGENT COMMUNICATIONS SERVICES, INC., a Colorado corporation
("Borrower"), with its chief executive office located at 400 Inverness Drive
South, Suite 400, Englewood, Colorado 80112.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become
--------------
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
--------
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
Borrower, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"Acquisition Sub" means CCSI Acquisition Corporation No. 1, a
---------------
Colorado corporation.
"Advances" has the meaning set forth in Section 2.1(a).
-------- --------------
"Affiliate" means, as applied to any Person, any other Person
---------
who directly or indirectly controls, is controlled by, is under common control
with or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 5% or more of the securities having ordinary voting power for the
election of directors or the direct or indirect power to direct the management
and policies of a Person.
"Agent" means Foothill, solely in its capacity as agent for
-----
the Lenders, and shall include any successor agent.
"Agent Account" has the meaning set forth in Section 2.7.
------------- -----------
"Agent Advances" has the meaning set forth in Section 2.1(g).
-------------- --------------
1
<PAGE>
"Agent's Liens" has the meaning set forth in Section 4.1.
------------- -----------
"Agent-Related Persons" means Agent and any successor agent,
---------------------
together with their respective Affiliates, and the officers, directors,
employees, counsel, agents, and attorneys-in-fact of such Persons and their
Affiliates.
"Agreement" has the meaning set forth in the preamble hereto.
---------
"Assignee" has the meaning set forth in Section 15.1.
-------- ------------
"Assignment and Acceptance" has the meaning set forth in
-------------------------
Section 15.1 and shall be in the form of Exhibit A-1 attached hereto.
"Authorized Person" means any officer or other employee of
-----------------
Borrower.
"Availability" means the amount that Borrower is entitled to
------------
borrow as Advances under Section 2.1, such amount being the difference derived
-----------
when (a) the sum of (i) the principal amount of Advances (including Agent
Advances and Foothill Loans) then outstanding (including any amounts that the
Lender Group may have paid for the account of Borrower pursuant to any of the
Loan Documents and that have not been reimbursed by Borrower), plus (ii) the
----
aggregate amount of the accounts payable of Borrower and the other Loan Parties
that are not within 45 days of due date, as determined by Agent, is subtracted
from (b) the least of (i) the Maximum Revolving Amount less the Letter of Credit
----
Usage, or (ii) the Borrowing Base less the aggregate amount of all Letter of
Credit Usage, or (iii) the Unsecured Notes Indebtedness Limitation less the
----
Letter of Credit Usage.
"Average Unused Portion of Maximum Revolving Amount" means,
--------------------------------------------------
as of any date of determination, (a) the Maximum Revolving Amount, less (b) the
----
sum of (i) the average Daily Balance of Advances that were outstanding during
the immediately preceding month, plus (ii) the average Daily Balance of the
----
Letter of Credit Usage during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11
---------------
U.S.C. (S) 101 et seq.), as amended, and any successor statute.
------
"Benefit Plan" means a "defined benefit plan" (as defined in
------------
Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)
within the past six years.
"Books" means all of Borrower's and each other Loan Party's,
-----
and their respective Subsidiaries', books and records (in whatever media or form
they may now or hereafter exist) including: ledgers; records indicating,
summarizing, or evidencing Borrower's and each other Loan Party's, and their
respective Subsidiaries', properties or assets (including the Collateral) or
liabilities; all information relating to Borrower's and each other Loan Party's,
and their respective Subsidiaries', business operations or financial condition;
all billing software, programs, systems and
2
<PAGE>
source codes; and all computer programs, disk or tape files, printouts, runs, or
other computer prepared information.
"Borrower" has the meaning set forth in the preamble to this
--------
Agreement.
"Borrowing" means a borrowing hereunder consisting of
---------
Advances made on the same day by the Lenders to Borrower, or by Foothill in the
case of a Foothill Loan, or by Agent in the case of an Agent Advance.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
-------------- --------------
"Business Day" means any day that is not a Saturday, Sunday,
------------
or other day on which national banks are authorized or required to close.
"CCC" means Convergent Capital Corporation, a Colorado
---
corporation.
"CCI" means Convergent Communications, Inc., a Colorado
---
corporation.
"Change of Control" shall be deemed to have occurred at such
-----------------
time as (a) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) other than TPG (or an Affiliate
of TPG which is controlled by TPG) or SCM (or an Affiliate of SCM which is
controlled by SCM) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of more than
40% of the total voting power of all classes of stock then outstanding of CCI
entitled to vote in the election of directors, or (b) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934) other than CCI becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of any
voting power of any class of stock then outstanding of Borrower or CCC entitled
to vote in the election of directors, or (c) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)
other than Borrower or CCI becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of any
voting power of any class of stock then outstanding of any Subsidiary of
Borrower entitled to vote in the election of directors.
"Closing Date" means the date of the satisfaction, or waiver
------------
in writing by Agent, of all of the conditions contained in Section 3.1.
-----------
"Code" means the California Uniform Commercial Code.
----
"Collateral" means all of Borrower's right, title, and
----------
interest in and to each of the following:
(a) the Accounts,
(b) the Books,
3
<PAGE>
(c) the General Intangibles,
(d) the Inventory,
(e) the Investment Property,
(f) the Negotiable Collateral,
(g) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of any member of the
Lender Group, and
(h) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, the Books, General
Intangibles, Inventory, Investment Property, Negotiable Collateral, money,
deposit accounts, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof; provided,
however, that Collateral shall not include the Excluded Property (as
defined below). As used in this definition of Collateral, "Excluded Property"
means Borrower's contract rights, license agreements, leases pertaining to real
or personal property or other general intangibles with respect to which the
granting of a security interest therein by Borrower to Agent is prohibited by
applicable law or by the terms and provisions of the written agreement, document
or instrument creating or evidencing such contract rights, license agreements,
leases pertaining to real or personal property or other general intangibles
(other than to the extent that such prohibition, or the term or provision
providing for such prohibition, is rendered ineffective pursuant to Section
9318(4) of the Code or other applicable law, including the Bankruptcy Code or
principles of equity); provided, however, that (i) immediately upon the
-------- -------
ineffectiveness, lapse or termination of any such prohibition or term or
provision providing for such prohibition, the Collateral shall include, and
Borrower shall be deemed to have granted a security interest to Agent in, all
such contract rights, license agreements, leases pertaining to real or personal
property and other general intangibles as if such prohibition, or term or
provision providing for such prohibition, had never been in effect, and (ii) in
no event shall "Excluded Property" under any circumstances include "accounts"
(as such term is defined in the Code) or "inventory" (as such term is defined in
the Code).
"Collateral Access Agreement" means a landlord waiver or
---------------------------
consent, mortgagee waiver or consent, bailee letter, or a similar
acknowledgement agreement of any warehouseman, processor, lessor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in the Equipment or Inventory, in each case, in form and substance satisfactory
to Agent.
"Collections" means all cash, checks, notes, instruments, and
-----------
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
4
<PAGE>
"Commitment" means, at any time with respect to a Lender, the
----------
principal amount set forth beside such Lender's name under the heading
"Commitment" on Schedule C-1 attached hereto or on the signature page of the
------------
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 15.1, as such Commitment
------------
may be adjusted from time to time in accordance with the provisions of Section
15.1, and "Commitments" means, collectively, the aggregate amount of the
-----------
commitments of all of the Lenders.
"Compliance Certificate" means a certificate substantially in
----------------------
the form of Exhibit C-1 and delivered by the chief accounting officer of
Borrower to Agent.
"Control Agreement" means a control agreement, in form and
-----------------
substance reasonably satisfactory to Agent, between Borrower, Agent, and the
applicable securities intermediary with respect to the applicable Securities
Account and related Investment Property.
"Daily Balance" means the amount of an Obligation owed at the
-------------
end of a given day.
"deems itself insecure" means that the Person deems itself
---------------------
insecure in accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with
-------
the giving of notice, the passage of time, or both, would be an Event of
Default.
"Defaulting Lender" means any Lender that fails to make any
-----------------
Advance that it is required to make hereunder on any Funding Date and that has
not cured such failure by making such Advance within 1 Business Day after
written demand upon it by Agent to do so.
"Defaulting Lenders Rate" means the Reference Rate for the
-----------------------
first 3 days from and after the date the relevant payment is due and,
thereafter, at the interest rate then applicable to Advances.
"Designated Account" means account number 1018186981 of
------------------
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) which has been
designated, in writing and from time to time, by Borrower to Agent.
"Designated Account Bank" means Norwest Bank Colorado, N.A.,
-----------------------
whose office is located at 1740 Broadway, Denver, Colorado 80274-8685, and whose
ABA number is 102000076.
"Dilution" means, in each case based upon the experience of
--------
the immediately prior 180 days, the result of dividing the Dollar amount of (a)
bad debt write-downs, discounts, advertising, returns, promotions, credits, or
other dilution with respect to the Accounts, by (b) Borrower's Collections
(excluding extraordinary items) plus the Dollar amount of clause (a).
5
<PAGE>
"Dilution Reserve" means, as of any date of determination, an
----------------
amount sufficient to reduce the advance rate against Eligible Accounts hereunder
by one percentage point for each percentage point by which Dilution is in excess
of five percent (5%).
"Disbursement Letter" means an instructional letter executed
-------------------
and delivered by Borrower to Agent regarding the extensions of credit to be made
on the Initial Advance Effective Date, the form and substance of which shall be
satisfactory to Agent.
"Dollars or $" means United States dollars.
------------
"Early Termination Premium" has the meaning set forth in
-------------------------
Section 3.7.
- -----------
"Eligible Accounts" means those Accounts (net of unapplied
-----------------
cash, customer deposits, deferred maintenance, deferred revenue, billings
pertaining to Borrower's "Enterprise Management Services", "Enterprise Network
Solutions" or similar arrangements, unreconciled variances between Borrower's
accounts receivable aging and Borrower's general ledger, and credits posted to
Borrower's general ledger and not reflected on Borrower's accounts receivable
aging) created by Borrower in the ordinary course of business, that arise out of
Borrower's sale of goods or rendition of services, that strictly comply with
each and all of the representations and warranties respecting Accounts made by
Borrower to Agent in the Loan Documents, and that are and at all times continue
to be acceptable to Agent in all respects; provided, however, that standards of
--------- -------
eligibility may be fixed and revised from time to time by Agent in Agent's
reasonable credit judgment. Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay
within 90 days of original invoice date or 60 days of original due date;
(b) Accounts owed by an Account Debtor or its Affiliates
known to any Loan Party where 50% or more of all Accounts owed by that Account
Debtor (or such Affiliates) are deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is
an employee, Subsidiary, Affiliate, or agent of Borrower;
(d) Accounts that have been rebilled;
(e) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(f) Accounts that are not payable in Dollars or with
respect to which the Account Debtor: (i) does not maintain its chief executive
office in the United States, or (ii) is not organized under the laws of the
United States or any State thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political
6
<PAGE>
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof, unless (y) the Account is supported by an irrevocable
letter of credit satisfactory to Agent (as to form, substance, and issuer or
domestic confirming bank) that has been delivered to Agent and is directly
drawable by Agent, or (z) the Account is covered by credit insurance in form and
amount, and by an insurer, satisfactory to Agent;
(g) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Agent, with the Assignment of
Claims Act, 31 U.S.C. (S) 3727), or (ii) any State of the United States
(exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(h) Accounts with respect to which the Account Debtor is
a creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Account, to the extent of
such right, dispute or claim, as the case may be;
(i) Accounts with respect to an Account Debtor whose
total obligations owing to Borrower exceed 10% of all Eligible Accounts, to the
extent of the obligations owing by such Account Debtor in excess of such
percentage;
(j) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(k) Accounts the collection of which Agent, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(l) Accounts with respect to which the goods giving rise
to such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by the
Account Debtor, or the Account otherwise does not represent a final sale;
(m) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement;
(n) Accounts that represent progress payments or other
advance billings that are due prior to the completion of performance by Borrower
of the subject contract for goods or services;
7
<PAGE>
(o) Accounts acquired by Borrower from another Person
(whether in a Permitted Acquisition or otherwise) with respect to which Agent
has not performed an audit the results of which are satisfactory to Agent in its
sole discretion; and
(p) At any time during which Accounts that arise from or
relate to the sale of voice or data long distance services or switching services
provided through a third party (a "Third Party Provider") exceed 30% of
Borrower's revenue during the immediately preceding calendar month, all such
Accounts with respect to which the related Third Party Provider is not a party
to a written intercreditor in favor of Agent, in form and substance satisfactory
to Agent, which provides for, among other things, continuity of service by such
Third Party Provider for a reasonable period of time following a default by any
Loan Party under its agreements with such Third Party Provider.
"Eligible Inventory" means Inventory consisting of first
------------------
quality finished goods held for sale in the ordinary course of Borrower's
business, that are located at or in-transit between Borrower's premises
identified on Schedule E-1, that strictly comply with each and all of the
------------
representations and warranties respecting Inventory made by Borrower to Agent in
the Loan Documents, and that are and at all times continue to be acceptable to
Agent in its sole discretion in all respects; provided, however, that standards
-------- -------
of eligibility may be fixed and revised from time to time by Agent in Agent's
sole discretion. In determining the amount to be so included, Inventory shall be
valued at the lower of cost or market on a basis consistent with Borrower's
current and historical accounting practices. An item of Inventory shall not be
included in Eligible Inventory if:
(a) it is not owned solely by Borrower or Borrower does
not have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth
on Schedule E-1;
(c) it is not located on property owned or leased by
Borrower or in a contract warehouse, in each case, subject to a Collateral
Access Agreement executed by the mortgagee, lessor, the warehouseman, or other
third party, as the case may be, and segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first
priority security interest in favor of Agent for the benefit of the Lender
Group;
(e) it consists of goods returned or rejected by
Borrower's customers or goods in transit;
(f) it is obsolete or slow moving, a restrictive or
custom item, raw materials, work-in-process, a component that is not part of
finished goods, or constitutes spare parts, packaging and shipping materials,
supplies used or consumed in Borrower's business, Inventory subject to a Lien in
favor of any third Person, bill and hold goods, defective goods, "seconds," or
Inventory acquired on consignment or accepted on trade; and
8
<PAGE>
(g) it is Inventory acquired in a transaction outside the
ordinary course of business (whether in a Permitted Acquisition or otherwise)
with respect to which Agent has not performed an audit the results of which are
satisfactory to Agent in its sole discretion.
"Eligible Transferee" means: (a) a commercial bank organized
-------------------
under the laws of the United States, or any state thereof, and having total
assets in excess of $100,000,000; (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development or a political subdivision of any such country, and
having total assets in excess of $100,000,000; provided that such bank is acting
through a branch or agency located in the United States; (c) a finance company,
insurance company or other financial institution or fund that is engaged in
making, purchasing or otherwise investing in commercial loans in the ordinary
course of its business and having total assets in excess of $50,000,000; (d) any
Affiliate (other than individuals) of a pre-existing Lender; (e) so long as no
Event of Default has occurred and is continuing, any other Person approved by
Agent and Borrower; and (f) during the continuation of an Event of Default, any
other Person approved by Agent.
"Equipment" means all of Borrower's present and hereafter
---------
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including, (a) any interest of Borrower in any of the foregoing, and (b) all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, 29 U.S.C. (S)(S) 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA
---------------
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA
whose employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to
-----------
any Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of
its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in
which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a
distress termination (as described in Section 4041(c) of ERISA), (d) the
institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that provides a basis under
Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the
9
<PAGE>
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan,
or (ii) that may result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of Borrower, any of its Subsidiaries
or ERISA Affiliates from a Multiemployer Plan, or (g) providing any security to
any Plan under Section 401(a)(29) of the IRC by Borrower or its Subsidiaries or
any of their ERISA Affiliates.
"Event of Default" has the meaning set forth in Section 8.
---------------- ---------
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and any successor statute thereto.
"FEIN" means Federal Employer Identification Number.
----
"Foothill" means Foothill Capital Corporation, a California
--------
corporation.
"Foothill Loans" has the meaning set forth in Section 2.1(f).
-------------- --------------
"Funding Date" means the date on which a Borrowing occurs.
------------
"GAAP" means generally accepted accounting principles as in
----
effect from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and
-------------------
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, Permits, patents, trade names, trademarks,
servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, rights to payment and
other rights under any royalty or licensing agreements, infringement claims,
computer programs, information contained on computer disks or tapes, billing
software, programs, source codes and systems (in whatever media or form they may
now or hereafter exist), literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund claims), other than
goods, Accounts, and Negotiable Collateral.
"Governing Documents" means, with respect to any Person, the
-------------------
certificate or articles of incorporation, by-laws, or other organizational or
governing documents of such Person.
"Governmental Authority" means any nation or government, any
----------------------
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through Stock or capital ownership or otherwise, by any of the
foregoing.
"Guaranty Agreements" means, collectively, any and all of the
-------------------
guaranty agreements with respect to the Obligations which are, or are to be,
executed by a Guarantor in
10
<PAGE>
favor of Agent for the benefit of the Lender Group, as required from time to
time by Agent, in form and substance satisfactory to Agent, in each case as the
same may be amended, modified, restated, supplemented, increased, renewed,
extended, substituted for or replaced from time to time.
"Guarantor" means all holding companies and parent companies
---------
of Borrower, including, but not limited to CCI and all subsidiaries of CCI and
all subsidiaries of Borrower, including, but not limited to, CCC and WAI, and
each other Person who may hereafter guarantee payment or performance of the
whole or any part of the Obligations.
"Hazardous Materials" means (a) substances that are defined
-------------------
or listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of Borrower or CCI,
------------
or any of their respective Subsidiaries, for borrowed money, (b) all obligations
of Borrower or CCI, or any of their respective Subsidiaries, evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations of Borrower in respect of letters of credit, bankers acceptances,
interest rate swaps, or other financial products, (c) all obligations of
Borrower or CCI, or any of their respective Subsidiaries, under capital leases,
(d) all obligations or liabilities of others secured by a Lien on any property
or asset of Borrower or CCI, or any of their respective Subsidiaries,
irrespective of whether such obligation or liability is assumed, and (e) any
obligation of Borrower or CCI, or any of their respective Subsidiaries,
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to Borrower or CCI, or any of their respective
Subsidiaries) any indebtedness, lease, dividend, letter of credit, or other
obligation of any other Person.
"Indemnified Liabilities" has the meaning set forth in
-----------------------
Section 11.3.
- ------------
"Indemnified Person" has the meaning set forth in Section
------------------ -------
11.3.
- ----
"Initial Advance Effective Date" means the date of the first
------------------------------
Advance made or the first Letter of Credit issued under this Agreement following
the satisfaction, or waiver in writing by Agent, of all of the conditions
contained in Section 3.1, all of the conditions contained in Section 3.2 and all
----------- -----------
of the conditions contained in Section 3.3.
-----------
"Insolvency Proceeding" means any proceeding commenced by or
---------------------
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or
11
<PAGE>
insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that
-----------------
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Intellectual Property" has the meaning ascribed thereto in
---------------------
Section 5.16.
- ------------
"Inventory" means all present and future inventory in which
---------
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
"Inventory Line Conditions" means all of the following: (I)
-------------------------
Agent shall have received and reviewed a current appraisal of Borrower's
Inventory prepared by an appraiser acceptable to Agent in Agent's sole
discretion and such appraisal shall be in form and substance acceptable to
Agent, in Agent's reasonable discretion; (II) Agent shall have reviewed
Borrower's accounting system and Borrower's perpetual inventory accounting
system shall be acceptable to Agent, in Agent's discretion, and (III) Agent
shall have received and reviewed a current audit of Borrower's perpetual
inventory accounting system performed by Foothill's auditors and the results of
such audit shall be acceptable to Agent, in Agent's discretion.
"Inventory Reserves" means reserves (determined from time to
------------------
time by Agent in its discretion) for the estimated reclamation claims of unpaid
sellers of Inventory sold to Borrower.
"Investment Property" means all of a Person's present and
-------------------
hereafter acquired securities, whether certified or uncertified, security
entitlements, securities accounts, commodity contracts and commodity accounts,
together with all "investment property" as that term is defined in Section 9115
of the Code, together with all components thereof, other than the Unsecured
Notes Cash Collateral.
"IRC" means the Internal Revenue Code of 1986, as amended,
---
and the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
--- --------------
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
------------ --------------
"Legal Requirements" means all applicable international,
------------------
foreign, federal, state, and local laws, judgments, decrees, orders, statutes,
ordinances, rules, regulations, or Permits.
12
<PAGE>
"Lender" and "Lenders" have the respective meanings set forth
------ -------
in the preamble to this Agreement, and shall include any other Person made a
party to this Agreement in accordance with the provisions of Section 15.1
------------
hereof.
"Lender Group" means, individually and collectively, each of
------------
the individual Lenders and Agent.
"Lender Group Expenses" means all: costs or expenses
---------------------
(including taxes, and insurance premiums) required to be paid by Borrower under
any of the Loan Documents that are paid or incurred by the Lender Group;
reasonable fees or charges paid or incurred by the Lender Group in connection
with the Lender Group's transactions with Borrower, including, fees or charges
for photocopying, notarization, couriers and messengers, telecommunication,
public record searches (including tax lien, litigation, and UCC (or equivalent)
searches and including searches with the patent and trademark office, the
copyright office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic Collateral appraisals), real estate
surveys, real estate title policies and endorsements, and environmental audits;
costs and expenses incurred by Agent in the disbursement of funds to Borrower
(by wire transfer or otherwise); customary charges paid or incurred by Agent
resulting from the dishonor of checks; reasonable costs and expenses paid or
incurred by the Lender Group to correct any default or enforce any provision of
the Loan Documents, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale, or advertising to
sell the Collateral, or any portion thereof, irrespective of whether a sale is
consummated; reasonable costs and expenses paid or incurred by Agent in
examining the Books; costs and expenses of third party claims or any other suit
paid or incurred by the Lender Group in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or the Lender Group's relationship with Borrower (or any of its
Subsidiaries party to one or more Loan Documents); and the Lender Group's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower), defending, or
concerning the Loan Documents, irrespective of whether suit is brought.
"Lender-Related Persons" means, with respect to any Lender,
----------------------
such Lender, together with such Lender's Affiliates, and the officers,
directors, employees, counsel, agents, and attorneys-in-fact of such Lender and
such Lender's Affiliates.
"Letter of Credit" means an L/C or an L/C Guaranty, as the
----------------
context requires.
"Letter of Credit Usage" means the sum of (a) the undrawn
----------------------
amount of Letters of Credit, plus (b) the amount of unreimbursed drawings under
----
Letters of Credit.
"Lien" means any interest in property securing an obligation
----
owed to, or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest
13
<PAGE>
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment, or bailment for
security purposes and also including reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.10.
------------ ------------
"Loan Documents" means this Agreement, the Security
--------------
Agreements, the Disbursement Letter, the Letters of Credit, the Lockbox
Agreements, the Intercreditor Agreements, any note or notes executed by Borrower
and payable to the Lender Group, and any other agreement entered into, now or in
the future, in connection with this Agreement.
"Loan Party" means Borrower and each Guarantor.
----------
"Lockbox Account" shall mean a depositary account established
---------------
pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
------------------
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Agent, each of which is among Borrower, Agent, and
one of the Lockbox Banks.
"Lockbox Banks" means Norwest Bank, N.A., or such other banks
-------------
as may be agreed to by Borrower and Foothill from time to time.
"Lockboxes" has the meaning set forth in Section 2.7.
--------- -----------
"Material Adverse Change" means (a) a material adverse change
-----------------------
in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower and the Guarantors
taken as a whole, (b) the material impairment of Borrower's ability to perform
its obligations under the Loan Documents to which it is a party or of the Lender
Group to enforce the Obligations or realize upon the Collateral, (c) a material
adverse effect on the value of the Collateral or the amount that the Lender
Group would be likely to receive (after giving consideration to delays in
payment and costs of enforcement) in the liquidation of the Collateral, or (d) a
material impairment of the priority of the Agent's Liens with respect to the
Collateral.
"Maximum Revolving Amount" means $50,000,000.
------------------------
"Multiemployer Plan" means a "multiemployer plan" (as defined
------------------
in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within the
past six years.
"Negotiable Collateral" means all of a Person's present and
---------------------
future letters of credit, notes, drafts, instruments, Investment Property,
documents, personal property leases
14
<PAGE>
(wherein such Person is the lessor), chattel paper, and the Books relating to
any of the foregoing, other than the Unsecured Notes Cash Collateral.
"Obligations" means all loans, Advances, debts, principal,
-----------
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrower's Loan Account pursuant
hereto), obligations, fees, charges, costs, or Lender Group Expenses (including
any fees or expenses that, but for the provisions of the Bankruptcy Code, would
have accrued), lease payments, guaranties, covenants, and duties owing by
Borrower to the Lender Group of any kind and description (whether pursuant to or
evidenced by the Loan Documents or pursuant to any other agreement between the
Lender Group and Borrower, and irrespective of whether for the payment of
money), whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising, and including any debt, liability, or
obligation owing from Borrower to others that the Lender Group may have obtained
by assignment or otherwise, and further including all interest not paid when due
and all Lender Group Expenses that Borrower is required to pay or reimburse by
the Loan Documents, by law, or otherwise.
"Orderly Liquidation Value of Eligible Inventory" shall mean
-----------------------------------------------
the orderly liquidation value of Inventory which otherwise constitutes Eligible
Inventory, as determined by an appraiser satisfactory to Agent, in its sole
discretion, and pursuant to an appraisal satisfactory to Agent, in its
reasonable discretion.
"Overadvance" has the meaning set forth in Section 2.5.
----------- -----------
"Participant" has the meaning set forth in Section 15.1(e).
----------- ---------------
"Pay-Off Letter" means a letter, in form and substance
--------------
reasonably satisfactory to Agent, from Existing Lender respecting the amount
necessary to repay in full all of the obligations of Borrower owing to Existing
Lender and obtain a termination or release of all of the Liens existing in favor
of Existing Lender in and to the properties or assets of Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as
----
defined in Title IV of ERISA, or any successor thereto.
"Permits" of a Person shall mean all rights, franchises,
-------
permits, bonds, authorities, licenses, certificates of approval or
authorizations, including licenses and other authorizations issuable by a
Governmental Authority, which pursuant to applicable Legal Requirements are
necessary to permit such Person lawfully to conduct and operate its business as
currently conducted and to own and use its assets.
"Permitted Acquisition" means an acquisition by Borrower or
---------------------
any other Loan Party of substantially all of the assets of another Person, or an
acquisition by Borrower or any other Loan Party of all or substantially all of
the Stock of another Person, as long as:
15
<PAGE>
(a) no Default of Event of Default shall have occurred and be
continuing or would result from the consummation of the proposed acquisition,
(b) the assets being acquired, or the Person whose Stock is
being acquired, as the case may be, are useful in or engaged in, as applicable,
the business conducted by Borrower as of the Closing Date or a business
reasonably related thereto,
(c) Borrower shall have provided to Agent (i) written notice
of the acquisition and a summary of the material terms and conditions of the
acquisition at least 10 Business Days prior to the consummation of such
acquisition, (ii) copies of the current drafts of the documentation pertaining
to the acquisition as and when prepared, and (iii) copies of substantially final
drafts of the documentation pertaining to the acquisition at least 1 Business
Day prior to the date that the acquisition is consummated;
(d) Borrower has provided Agent with written confirmation,
supported by reasonably detailed calculations, that on a pro forma basis created
--- -----
by adding the historical combined financial statements of Borrower (including
the combined financial statements of any other Person or assets that were the
subject of a prior Permitted Acquisition during the relevant period) to the
historical consolidated financial statements of the Person to be acquired (or
the historical financial statements related to the assets to be acquired)
pursuant to the proposed acquisition (adjusted to eliminate expense items that
would not have been incurred and include income items that would have been
recognized, in each case, if the combination had been accomplished at the
beginning of the relevant period; such eliminations and inclusions to be
satisfactory to Agent), Borrower would have been in compliance with each of the
financial covenants in Section 7.20 hereof for the 12 months ending as of the
------------
fiscal quarter ended immediately prior to the proposed date of consummation of
such proposed acquisition for which there are available financial statements,
(e) Borrower shall have delivered to Agent any and all
security agreements, guarantees, UCC-1 financing statements, fixture filings,
and other documentation requested by Agent in order to include the newly
acquired assets within the Collateral each duly executed by Borrower, the other
Loan Parties and such other Persons formed, acquired or pertaining to such
acquisition as may be required by Agent,
(f) no Loan Party shall incur, assume or otherwise become
liable for any indebtedness or other liabilities in connection with or resulting
from such acquisition which would cause or result in (i) Borrower's failure to
comply with Section 7.20 on a pro-forma basis as if such Permitted Acquisition
------------
was consummated on the last day of the immediately preceding calendar quarter,
or (ii) the creation or existence of any Lien other than a Permitted Lien; and
(g) immediately upon the consummation of such acquisition and
after giving effect to the payment of all purchase consideration payable in
connection therewith, Borrower shall have not less than $50,000,000 of
Availability and unrestricted immediately available cash on hand.
16
<PAGE>
"Permitted Liens" means (a) Liens held by Agent for the
---------------
benefit of the Lender Group, (b) Liens for unpaid taxes that either (i) are not
yet due and payable or (ii) are the subject of Permitted Protests, (c) Liens set
forth on Schedule P-1, (d) the interests of lessors under operating leases,
------------
purchase money Liens of lessors under capital leases and purchase money Liens
arising after the Closing Date solely for the acquisition of fixed assets to the
extent that the acquisition or lease of the underlying asset is permitted under
Section 7.21 and so long as the Lien only attaches to the asset purchased or
- ------------
acquired and only secures the purchase price of the asset, (e) Liens arising by
operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of business
of Borrower and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet due and payable, or (ii) are the subject of
Permitted Protests, (f) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (g) Liens or
deposits to secure performance of bids, tenders, or leases (to the extent
permitted under this Agreement), incurred in the ordinary course of business of
Borrower and not in connection with the borrowing of money, (h) Liens arising by
reason of security for surety or appeal bonds in the ordinary course of business
of Borrower, (i) Liens of or resulting from any judgment or award that
reasonably could not be expected to result in a Material Adverse Change and as
to which the time for the appeal or petition for rehearing of which has not yet
expired, or in respect of which Borrower is in good faith prosecuting an appeal
or proceeding for a review and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured, (j) with respect to any
Real Property, easements, rights of way, zoning and similar covenants and
restrictions, and similar encumbrances that customarily exist on properties of
Persons engaged in similar activities and similarly situated and that in any
event do not materially interfere with or impair the use or operation of the
Collateral by Borrower or the value of any of the Agent's Liens thereon or
therein for the benefit of the Lender Group, or materially interfere with the
ordinary conduct of the business of Borrower, (k) Liens on fixed assets acquired
by Borrower in a Permitted Acquisition securing indebtedness permitted under
Section 7.1(f), provided that such Liens (I) were not created in connection with
- --------------
such Permitted Acquisition, (II) attach only to the fixed assets purchased or
acquired with the proceeds of the indebtedness which were in existence prior to
the consummation of the Permitted Acquisition, and (III) secure no Indebtedness
other than the purchase price of such fixed assets, and (l) during only the
period prior to the Initial Advance Effective Date, the Liens of Deutsche
Financial Services Corporation disclosed on the UCC financing statements naming
Deutsche Financial Services Corporation as secured party which are listed on
Exhibit 3.2(e) attached hereto and made a part hereof.
- -------------
"Permitted Protest" means the right of Borrower to protest
-----------------
any Lien other than any such Lien that secures the Obligations, tax (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the books of Borrower in an amount that is
reasonably satisfactory to Agent, (b) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (c) Agent is satisfied
that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the Agent's Liens in and to the
Collateral.
17
<PAGE>
"Person" means and includes natural persons, corporations,
------
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other
----------------------------
than the Real Property.
"Plan" means any employee benefit plan, program, or
----
arrangement maintained or contributed to by Borrower or with respect to which it
may incur liability.
"Pro Rata Share" means, with respect to a Lender, a fraction
--------------
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the denominator of which is the aggregate amount of the
Commitments.
"Qualifying Lease Financing Transfers" means the following
------------------------------------
transfers by CCC or Borrower, as the case may be, in the ordinary course of its
business for value to third party financing sources that are not an Affiliate of
any Loan Party: (i) transfers by CCC of voice and data communications equipment
lease agreements originated by CCC, as lessor thereunder, entered into with
lessees thereunder which are not an Affiliate of any Loan Party, provided that
the goods which are the subject of such lease agreements shall not constitute
Eligible Inventory and that the rights to payment under such lease agreements
shall not constitute Eligible Accounts, and (ii) transfers by Borrower in the
ordinary course of its business of its Enterprise Management Services (f/k/a
Enterprise Network Services) agreements originated by Borrower, as the service
provider thereunder, with customers which are not an Affiliate of any Loan
Party, provided that such agreements shall be in substantially the form which
has been provided by Borrower to Agent and that the rights to payment under such
agreements shall not constitute Eligible Accounts.
"Real Property" means any estates or interests in real
-------------
property now owned or hereafter acquired by Borrower.
"Reference Rate" means the variable rate of interest, per
--------------
annum, most recently announced by Wells Fargo Bank, N.A., or any successor
thereto, as its "base rate," irrespective of whether such announced rate is the
best rate available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.5.
------------ -----------
"Reportable Event" means any of the events described in
----------------
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Required Lenders" means, at any time, Lenders whose Pro Rata
----------------
Shares aggregate 51% or more of the Commitments, or, if the Commitments have
been terminated irrevocably, 51% of the Obligations then outstanding.
18
<PAGE>
"Retiree Health Plan" means an "employee welfare benefit
-------------------
plan" within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"Revolving Facility Usage" means, as of any date of determination,
------------------------
the sum of (a) the aggregate amount of Advances outstanding, plus (b) the Letter
----
of Credit Usage.
"SCM" means, collectively, Sandler Capital Management, a New
---
York corporation.
"SEC" means the United States Securities and Exchange
---
Commission and any successor Federal agency having similar powers.
"Security Agreements" means, collectively, any and all of the
-------------------
security agreements, guaranties, pledges, mortgages, deeds of trust,
assignments, stock pledge agreements and such other agreements, documents and
instruments, in form and substance satisfactory to Agent, which are, or are to
be, executed by Borrower, CCI and/or any one or more of the Subsidiaries and
Affiliates of either of them in favor of Agent and/or the Lenders as may be
required from time to time by Agent to provide Agent for the benefit of the
Lender Group with Liens upon all of the assets and properties of Borrower, CCI
and each of the Subsidiaries and Affiliates of either of them and as security
for the payment and performance in full of the Obligations, in each case as the
same may be amended, modified, restated, supplemented, increased, renewed,
extended, substituted for or replaced from time to time.
"Securities Account" means a "securities account" as that
------------------
term is defined in Section 8501 of the Code.
"Series B Preferred Stock" means the Series B Senior
------------------------
Cumulative Convertible Preferred Stock, no par value, of CCI.
"Settlement" has the meaning set forth in Section 2.1(h)(i).
---------- -----------------
"Settlement Date" has the meaning set forth in Section
--------------- -------
2.1(h)(i).
- ---------
"Solvent" means, with respect to any Person on a particular
-------
date, that on such date (a) at fair valuations, all of the properties and assets
of such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's
19
<PAGE>
properties and assets would constitute unreasonably small capital after giving
due consideration to the prevailing practices in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount that,
in light of all the facts and circumstances existing at such time, represents
the amount that reasonably can be expected to become an actual or matured
liability.
"Stock" means all shares, options, warrants, interests,
-----
participations, or other equivalents (regardless of how designated) of or in a
corporation or equivalent entity, whether voting or nonvoting, including common
stock, preferred stock, or any other "equity security" (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under
the Exchange Act).
"Stock Pledge Agreements" means, collectively, (a) a stock
-----------------------
pledge agreement, in form and substance satisfactory to Agent, executed by CCI
in favor of Agent for the benefit of the Lenders, pursuant to which CCI grants
to Agent for the benefit of the Lenders a first priority Lien and security
interest in all of the shares of capital stock of Borrower and CCC, and (b) a
stock pledge agreement, in form and substance satisfactory to Agent, executed by
Borrower in favor of Agent for the benefit of the Lenders, pursuant to which
Borrower grants to Agent for the benefit of the Lenders a first priority Lien
and security interest in all of the shares of stock of WAI and all of the shares
owned by Borrower of stock of Cavion Technologies, Inc., a Colorado corporation
"Subsidiary" of a Person means a corporation, partnership,
----------
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of Stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors (or
appoint other comparable managers) of such corporation, partnership, limited
liability company, or other entity.
"Tangible Net Worth" means, as of any date of determination,
------------------
the difference of (a) Borrower's total stockholder's equity (including for this
purpose the Series B Preferred Stock, no par value, of CCI), minus (b) the sum
-----
of: (i) all Intangible Assets of Borrower, (ii) all of Borrower's prepaid
expenses, and (iii) all amounts due to Borrower from Affiliates.
"TPG" means TPG Partners III, L.P., a Delaware limited
---
partnership, T3 Partners, L.P., a Delaware limited partnership, and their
respective Affiliates.
"Unsecured Notes" means those certain 13% unsecured notes in
---------------
the aggregate original principal amount of $160,000,000 dated as of April 2,
1998, and maturing on April 1, 2008, issued under the Unsecured Notes Indenture,
as amended, modified, renewed or restated from time to time.
"Unsecured Notes Cash Collateral" means all of CCI's right,
-------------------------------
title and interest in and to (i) all securities, assets and property held in or
credited to account number 1180808511 of CCI maintained with Norwest Bank
Colorado, N.A., whose office is located at 1740 Broadway, Denver, Colorado
80274-8685, which account contains only the portion of the
20
<PAGE>
cash proceeds from the initial sale of the Unsecured Notes that are restricted
by the terms of the Unsecured Notes Indenture for the payment of interest on the
Unsecured Notes and proceeds thereof (the "Unsecured Notes Cash Collateral
Account"), (ii) any certificates or other evidence of ownership representing any
property in the Unsecured Notes Cash Collateral Account and (iii) all products
and proceeds of any of the foregoing, including, without limitation, all
dividends, interest, principal payments, cash options, warrants, rights,
instruments, subscriptions and other property or proceeds from time to time
received, receivable or otherwise distributed or distributable in respect of or
in exchange for any or all of the securities and cash held in or credited to the
Unsecured Notes Cash Collateral Account and any other property held in or
credited thereto.
"Unsecured Notes Indebtedness Limitation" means at any
---------------------------------------
particular date the maximum amount of Obligations which may at such time be
outstanding pursuant to this Agreement that constitute "Permitted Indebtedness"
(as such term is defined in the Unsecured Notes Indenture) under the Unsecured
Notes Indenture and does not cause or result in a violation of the Unsecured
Notes Indenture or cause or result in any holders of the Unsecured Notes (or any
trustee or agent for the benefit thereof) having the right to demand repayment,
repurchase, retirement or redemption thereof or any similar right with respect
thereto.
"Unsecured Notes Indenture" means that certain Indenture
-------------------------
dated as of April 2, 1998 among CCI and Norwest Bank Colorado, N.A., pursuant to
which the Unsecured Notes have been issued, as amended, modified, renewed or
restated from time to time.
"Voidable Transfer" has the meaning set forth in Section
----------------- -------
15.8.
- ----
"WAI" means World Access, Inc., a Colorado corporation.
---
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 Construction. Unless the context of this Agreement or any
other Loan Document clearly requires otherwise, references to the plural include
the singular, references to the singular include the plural, the term
"including" is not limiting, and the term "or" has, except where otherwise
indicated, the inclusive meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement
or any other Loan Document refer to this Agreement or any other Loan Documents,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified. Any reference in this Agreement or in the Loan Documents to
this Agreement or any of
21
<PAGE>
the Loan Documents shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable.
1.5 Schedules and Exhibits. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this Agreement
and during the term of this Agreement, each Lender agrees to make advances
("Advances") to Borrower in an amount at any one time outstanding not to exceed
such Lender's Pro Rata Share of an amount equal to the least of (i) the Maximum
Revolving Amount less the Letter of Credit Usage, or (ii) the Borrowing Base
----
less the aggregate amount of all Letter of Credit Usage, or (iii) the Unsecured
- ----
Notes Indebtedness Limitation less the Letter of Credit Usage. For purposes of
----
this Agreement, "Borrowing Base", as of any date of determination, shall mean
the result of:
(x) the lesser of (i) 85% of Eligible Accounts, less
----
the amount, if any, of the Dilution Reserve, and (ii) an amount equal
to Borrower's Collections with respect to Accounts for the immediately
preceding 60 day period, plus
(y) upon and after satisfaction of all of the Inventory
Line Conditions in a manner satisfactory to Agent, in its sole
discretion, the least of (i) $12,000,000, (ii) 50% of the value of
Eligible Inventory less the aggregate amount of the Inventory
----
Reserves, (iii) 80% of the Orderly Liquidation Value of the Eligible
Inventory less the aggregate amount of the Inventory Reserves, and
----
(iv) 50% of the amount of credit availability created by clause (x)
----------
above, minus
(z) the aggregate amount of reserves, if any,
established by Agent under Section 2.1(b).
--------------
The Lenders shall have no obligation to make further Advances hereunder to the
extent they would cause the outstanding Revolving Facility Usage to exceed the
Maximum Revolving Amount.
Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the
-----------
terms and conditions of this Agreement, reborrowed at any time during the term
of this Agreement.
(b) Anything to the contrary in this Section 2
notwithstanding, Agent shall have the right to establish reserves against the
Borrowing Base in such amounts as Agent, in its reasonable credit judgement
(from the perspective of an asset-based lender) shall deem necessary or
appropriate, including reserves on account of (A) sums that Borrower is required
to pay (such as taxes, assessments, insurance premiums, or, in the case of
leased assets, rents or other amounts payable under such leases) and has failed
to pay under any Section of this Agreement or any other Loan Document, (B)
without duplication of the foregoing, past due or accrued taxes or other
22
<PAGE>
governmental charges, including ad valorem, personal property and other taxes
which, in the reasonable determination of Agent (from the perspective of an
asset-based lender), could have a priority superior to the Liens or security
interests of Agent in any of the Collateral (such as ad valorem taxes or sales
taxes where given a priority under applicable law), and (C) without duplication
of the foregoing, amounts owing by Borrower to any Person to the extent secured
by a Lien on, or trust over, any of the Collateral, which Lien or trust, in the
reasonable determination of Agent (from the perspective of an asset-based
lender), could have a priority superior to the Agent's Liens (such as landlord
liens) in and to such item of Collateral.
(c) Procedure for Borrowing. Each Borrowing shall be made
-----------------------
upon Borrower's irrevocable request therefor either delivered in writing or made
by telephone to Agent (which notice must be received by Agent (x) no later than
10:00 a.m. (California time) on the Business Day immediately preceding the
requested Funding Date if the aggregate amount requested to be borrowed on such
day by Borrower exceeds $5,000,000, and (y) no later than 10:00 a.m. (California
time) on the same Business Day as the requested Funding Date if the aggregate
amount requested to be borrowed on such day by Borrower is less than $5,000,000)
specifying (i) the amount of the Borrowing; and (ii) the requested Funding Date,
which shall be a Business Day.
(d) Agent's Election. Promptly after receipt of a request
for a Borrowing pursuant to Section 2.1(c), Agent shall elect, in its
--------------
discretion, (i) to have the terms of Section 2.1(e) apply to such requested
--------------
Borrowing, or (ii) to request Foothill to make a Foothill Loan pursuant to the
terms of Section 2.1(f) in the amount of the requested Borrowing; provided,
-------------- --------
however, that if Foothill declines in its sole discretion to make a Foothill
- -------
Loan pursuant to Section 2.1(f), Agent shall elect to have the terms of Section
-------------- -------
2.1(e) apply to such requested Borrowing.
- -----
(e) Making of Advances.
------------------
(i) In the event that Agent shall elect to have the
terms of this Section 2.1(e) apply to a requested Borrowing as described in
--------------
Section 2.1(d), then promptly after receipt of a request for a Borrowing
- --------------
pursuant to Section 2.1(c), Agent shall notify the Lenders, not later than 1:00
--------------
p.m. (California time) on the Business Day immediately preceding the Funding
Date applicable thereto, by telecopy, telephone, or other similar form of
transmission, of the requested Borrowing. Each Lender shall make the amount of
such Lender's Pro Rata Share of the requested Borrowing available to Agent in
immediately available funds, to such account of Agent as Agent may designate,
not later than 10:00 a.m. (California time) on the Funding Date applicable
thereto. After Agent's receipt of the proceeds of such Advances, upon
satisfaction of the applicable conditions precedent set forth in Section 3
---------
hereof, Agent shall make the proceeds of such Advances available to Borrower on
the applicable Funding Date by transferring same day funds equal to the proceeds
of such Advances received by Agent to Borrower's Designated Account; provided,
however, that, subject to the provisions of Section 2.1(k), Agent shall not
--------------
request any Lender to make, and no Lender shall have the obligation to make, any
Advance if Agent shall have received written notice from any Lender, or
otherwise has actual knowledge, that (1) one or more of the applicable
conditions precedent set forth in Section 3 will not be satisfied on the
---------
requested Funding Date for the applicable Borrowing unless such condition has
been waived, or (2) the requested Borrowing would exceed the Availability of
Borrower on such Funding Date.
23
<PAGE>
(ii) Unless Agent receives notice from a Lender on or
prior to the Closing Date or, with respect to any Borrowing after the Initial
Advance Effective Date, at least 1 Business Day prior to the date of such
Borrowing, that such Lender will not make available as and when required
hereunder to Agent for the account of Borrower the amount of that Lender's Pro
Rata Share of the Borrowing, Agent may assume that each Lender has made or will
make such amount available to Agent in immediately available funds on the
Funding Date and Agent may (but shall not be so required), in reliance upon such
assumption, make available to Borrower on such date a corresponding amount. If
and to the extent any Lender shall not have made its full amount available to
Agent in immediately available funds and Agent in such circumstances has made
available to Borrower such amount, that Lender shall on the Business Day
following such Funding Date make such amount available to Agent, together with
interest at the Defaulting Lenders Rate for each day during such period. A
notice submitted by Agent to any Lender with respect to amounts owing under this
subsection shall be conclusive, absent manifest error. If such amount is so made
available, such payment to Agent shall constitute such Lender's Advance on the
date of Borrowing for all purposes of this Agreement. If such amount is not made
available to Agent on the Business Day following the Funding Date, Agent will
notify Borrower of such failure to fund and, upon demand by Agent, Borrower
shall pay such amount to Agent for Agent's account, together with interest
thereon for each day elapsed since the date of such Borrowing, at a rate per
annum equal to the interest rate applicable at the time to the Advances
composing such Borrowing. The failure of any Lender to make any Advance on any
Funding Date shall not relieve any other Lender of any obligation hereunder to
make an Advance on such Funding Date, but no Lender shall be responsible for the
failure of any other Lender to make the Advance to be made by such other Lender
on any Funding Date.
(iii) Agent shall not be obligated to transfer to a
Defaulting Lender any payments made by Borrower to Agent for the Defaulting
Lender's benefit; nor shall a Defaulting Lender be entitled to the sharing of
any payments hereunder. Amounts payable to a Defaulting Lender shall instead be
paid to or retained by Agent. Agent may hold and, in its discretion, re-lend to
Borrower the amount of all such payments received or retained by it for the
account of such Defaulting Lender. Solely for the purposes of voting or
consenting to matters with respect to the Loan Documents and determining Pro
Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender" and
such Lender's Commitment shall be deemed to be zero (-0-). This section shall
remain effective with respect to such Lender until (x) the Obligations under
this Agreement shall have been declared or shall have become immediately due and
payable or (y) the requisite non-Defaulting Lenders and Agent shall have waived
such Lender's default in writing. The operation of this section shall not be
construed to increase or otherwise affect the Commitment of any Lender, or
relieve or excuse the performance by Borrower of its duties and obligations
hereunder.
(f) Making of Foothill Loans.
-----------------------------
(i) In the event Agent shall elect, with the consent of
Foothill as a Lender, to have the terms of this Section 2.1(f) apply to a
--------------
requested Borrowing as described in Section 2.1(d), Foothill as a Lender shall
--------------
make an Advance in the amount of such Borrowing (any
24
<PAGE>
such Advance made solely by Foothill as a Lender pursuant to this Section 2.1(f)
--------------
being referred to as a "Foothill Loan" and such Advances being referred to
collectively as "Foothill Loans") available to Borrower on the Funding Date
applicable thereto by transferring same day funds to Borrower's Designated
Account. Each Foothill Loan is an Advance hereunder and shall be subject to all
the terms and conditions applicable to other Advances, except that all payments
thereon shall be payable to Foothill as a Lender solely for its own account (and
for the account of the holder of any participation interest with respect to such
Advance). Subject to the provisions of Section 2.1(k), Agent shall not request
--------------
Foothill as a Lender to make, and Foothill as a Lender shall not make, any
Foothill Loan if Agent shall have received written notice from any Lender, or
otherwise has actual knowledge, that (i) one or more of the applicable
conditions precedent set forth in Section 3 will not be satisfied on the
---------
requested Funding Date for the applicable Borrowing unless such condition has
been waived, or (ii) the requested Borrowing would exceed the Availability of
Borrower on such Funding Date. Foothill as a Lender shall not otherwise be
required to determine whether the applicable conditions precedent set forth in
Section 3 have been satisfied on the Funding Date applicable thereto prior to
- ---------
making, in its sole discretion, any Foothill Loan.
(ii) The Foothill Loans shall be secured by the
Collateral and shall constitute Advances and Obligations hereunder, and shall
bear interest at the rate applicable from time to time to Advances pursuant to
Section 2.6 hereof.
- -----------
(g) Agent Advances.
--------------
(i) Subject to the limitations set forth in the proviso
contained in this Section 2.1(g), Agent hereby is authorized by Borrower and the
--------------
Lenders, from time to time in Agent's sole discretion, (1) after the occurrence
and during the continuance of a Default or an Event of Default, or (2) at any
time that any of the other applicable conditions precedent set forth in Section
-------
3 have not been satisfied, to make Advances to Borrower on behalf of the Lenders
- -
that Agent, in its reasonable business judgment, deems necessary or desirable
(A) to preserve or protect the Collateral, or any portion thereof, (B) to
enhance the likelihood of repayment of the Obligations, or (C) to pay any other
amount chargeable to Borrower pursuant to the terms of this Agreement, including
Lender Group Expenses and the costs, fees, and expenses described in Section 10
----------
(any of the Advances described in this Section 2.1(g) being hereinafter referred
--------------
to as "Agent Advances"); provided, that the Required Lenders may at any time
--------
revoke Agent's authorization contained in this Section 2.1(g) to make Agent
--------------
Advances, any such revocation to be in writing and to become effective upon
Agent's receipt thereof.
(ii) Agent Advances shall be repayable on demand and
secured by the Collateral, shall constitute Advances and Obligations hereunder,
and shall bear interest at the rate applicable from time to time to the Advances
pursuant to Section 2.6 hereof.
-----------
(h) Settlement. It is agreed that each Lender's funded
----------
portion of the Advances is intended by the Lenders to equal, at all times, such
Lender's Pro Rata Share of the outstanding Advances. Such agreement
notwithstanding, Agent, Foothill, and the other Lenders agree (which agreement
shall not be for the benefit of or enforceable by Borrower) that in order to
facilitate the administration of this Agreement and the other Loan Documents,
settlement among
25
<PAGE>
them as to the Advances, the Foothill Loans, and the Agent Advances shall take
place on a periodic basis in accordance with the following provisions:
(i) Agent shall request settlement ("Settlement") with
the Lenders on a weekly basis, or on a more frequent basis if so determined by
Agent, (1) on behalf of Foothill, with respect to each outstanding Foothill
Loan, (2) for itself, with respect to each Agent Advance, and (3) with respect
to Collections received, as to each by notifying the Lenders by telecopy,
telephone, or other similar form of transmission, of such requested Settlement,
no later than 2:00 p.m. (California time) on the Business Day immediately prior
to the date of such requested Settlement (the date of such requested Settlement
being the "Settlement Date"). Such notice of a Settlement Date shall include a
summary statement of the amount of outstanding Advances, Foothill Loans, and
Agent Advances for the period since the prior Settlement Date, the amount of
repayments received in such period, and the amounts allocated to each Lender of
the interest, fees, and other charges for such period. Subject to the terms and
conditions contained herein (including Section 2.1(e)(iii)): (y) if a Lender's
-------------------
balance of the Advances, Foothill Loans, and Agent Advances exceeds such
Lender's Pro Rata Share of the Advances, Foothill Loans, and Agent Advances as
of a Settlement Date, then Agent shall by no later than 12:00 p.m. (California
time) on the Settlement Date transfer in immediately available funds to the
account of such Lender as such Lender may designate, an amount such that each
such Lender shall, upon receipt of such amount, have as of the Settlement Date,
its Pro Rata Share of the Advances, Foothill Loans, and Agent Advances; and (z)
if a Lender's balance of the Advances, Foothill Loans, and Agent Advances is
less than such Lender's Pro Rata Share of the Advances, Foothill Loans, and
Agent Advances as of a Settlement Date, such Lender shall no later than 12:00
p.m. (California time) on the Settlement Date transfer in immediately available
funds to such account of Agent as Agent may designate, an amount such that each
such Lender shall, upon transfer of such amount, have as of the Settlement Date,
its Pro Rata Share of the Advances, Foothill Loans, and Agent Advances. Such
amounts made available to Agent under clause (z) of the immediately preceding
sentence shall be applied against the amounts of the applicable Foothill Loan or
Agent Advance and, together with the portion of such Foothill Loan or Agent
Advance representing Foothill's Pro Rata Share thereof, shall constitute
Advances of such Lenders. If any such amount is not made available to Agent by
any Lender on the Settlement Date applicable thereto to the extent required by
the terms hereof, Agent shall be entitled to recover for its account such amount
on demand from such Lender together with interest thereon at the Defaulting
Lenders Rate.
(ii) In determining whether a Lender's balance of the
Advances, Foothill Loans, and Agent Advances is less than, equal to, or greater
than such Lender's Pro Rata Share of the Advances, Foothill Loans, and Agent
Advances as of a Settlement Date, Agent shall, as part of the relevant
Settlement, apply to such balance the portion of payments actually received in
good funds by Agent or Foothill with respect to principal, interest, fees
payable by Borrower and allocable to the Lenders hereunder, and proceeds of
Collateral. To the extent that a net amount is owed to any such Lender after
such application, such net amount shall be distributed by Agent or Foothill to
that Lender as part of such next Settlement.
(iii) Between Settlement Dates, Agent, to the extent no
Agent Advances or Foothill Loans are outstanding, may pay over to Foothill any
payments received by
26
<PAGE>
Agent, that in accordance with the terms of this Agreement would be applied to
the reduction of the Advances, for application to Foothill's Pro Rata Share of
the Advances. If, as of any Settlement Date, Collections received since the then
immediately preceding Settlement Date have been applied to Foothill's Pro Rata
Share of the Advances other than to Foothill Loans or Agent Advances, as
provided for in the previous sentence, Foothill shall pay to Agent for the
accounts of the Lenders, and Agent shall pay to the Lenders, to be applied to
the outstanding Advances of such Lenders, an amount such that each Lender shall,
upon receipt of such amount, have, as of such Settlement Date, its Pro Rata
Share of the Advances. During the period between Settlement Dates, Foothill with
respect to Foothill Loans, Agent with respect to Agent Advances, and each Lender
with respect to the Advances other than Foothill Loans and Agent Advances, shall
be entitled to interest at the applicable rate or rates payable under this
Agreement on the daily amount of funds employed by Foothill, Agent, or the
Lenders, as applicable.
(i) Notation. Agent shall record on its books the principal
--------
amount of the Advances owing to each Lender, including the Foothill Loans owing
to Foothill, and Agent Advances owing to Agent, and the interests therein of
each Lender, from time to time. In addition, each Lender is authorized, at such
Lender's option, to note the date and amount of each payment or prepayment of
principal of such Lender's Advances in its books and records, including computer
records, such books and records constituting rebuttably presumptive evidence,
absent manifest error, of the accuracy of the information contained therein.
(j) Lenders' Failure to Perform. All Advances (other than
---------------------------
Foothill Loans and Agent Advances) shall be made by the Lenders simultaneously
and in accordance with their Pro Rata Shares. It is understood that (i) no
Lender shall be responsible for any failure by any other Lender to perform its
obligation to make any Advances hereunder, nor shall any Commitment of any
Lender be increased or decreased as a result of any failure by any other Lender
to perform its obligation to make any Advances hereunder, and (ii) no failure by
any Lender to perform its obligation to make any Advances hereunder shall excuse
any other Lender from its obligation to make any Advances hereunder.
(k) Optional Overadvances. Any contrary provision of this
---------------------
Agreement notwithstanding, if the condition for borrowing under Section 3.2(d)
--------------
cannot be fulfilled, the Lenders nonetheless hereby authorize Agent or Foothill,
as applicable, and Agent or Foothill, as applicable, may, but is not obligated
to, knowingly and intentionally continue to make Advances (including Foothill
Loans) to Borrower such failure of condition notwithstanding, so long as, at any
time, (i) the outstanding Revolving Facility Usage does not exceed the Borrowing
Base by more than five percent (5%) and (ii) the outstanding Revolving Facility
Usage (except for and excluding amounts charged to the Loan Account for
interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolving
Amount. The foregoing provisions are for the sole and exclusive benefit of
Agent, Foothill, and the Lenders and are not intended to benefit Borrower in any
way. The Advances and Foothill Loans, as applicable, that are made pursuant to
this Section 2.1(k) shall be subject to the same terms and conditions as any
--------------
other Advance or Foothill Loan, as applicable, except that the rate of interest
applicable thereto shall be the rates set forth in Section 2.6(c) hereof without
--------------
regard to the presence or absence of a Default or Event of Default; provided,
--------
that the Required Lenders may, at any time during the continuance of an Event of
Default or if Borrower
27
<PAGE>
fails to satisfy any other material lending condition, revoke Agent's
authorization contained in this Section 2.1(k) to make Overadvances (except for
--------------
and excluding amounts charged to the Loan Account for interest, fees, or Lender
Group Expenses), any such revocation to be in writing and to become effective
upon Agent's receipt thereof.
In the event Agent obtains actual knowledge that Revolving
Facility Usage exceeds the amount permitted by the preceding paragraph,
regardless of the amount of or reason for such excess, Agent shall notify
Lenders as soon as practicable (and prior to making any (or any further)
intentional Overadvances (except for and excluding amounts charged to the Loan
Account for interest, fees, or Lender Group Expenses) unless Agent determines
that prior notice would result in imminent harm to the Collateral or its value),
and the Lenders thereupon shall, together with Agent, jointly determine the
terms of arrangements that shall be implemented with Borrower intended to
reduce, within a reasonable time, the outstanding principal amount of the
Advances to Borrower to an amount permitted by the preceding paragraph. In the
event any Lender disagrees over the terms of reduction and/or repayment of any
Overadvance, the terms of reduction and/or repayment thereof shall be
implemented according to the determination of the Required Lenders.
Each Lender shall be obligated to settle with Agent as provided in
Section 2.1(h) for the amount of such Lender's Pro Rata Share of any
- --------------
unintentional Overadvances by Agent reported to such Lender, any intentional
Overadvances made as permitted under this Section 2.1(k), and any Overadvances
--------------
resulting from the charging to the Loan Account of interest, fees, or Lender
Group Expenses.
(l) Effect of Bankruptcy. If a case is commenced by or
--------------------
against Borrower under the U.S. Bankruptcy Code, or other statute providing for
debtor relief, then, unless otherwise agreed by all Lenders, the Lender Group
shall not make additional loans or provide additional financial accommodations
under the Loan Documents to Borrower as debtor or debtor-in-possession, or to
any trustee for Borrower, nor consent to the use of cash collateral (provided
that the Loan Account shall continue to be charged, to the fullest extent
permitted by law, for accruing interest, fees, and Lender Group Expenses).
2.2 Letter of Credit Subfacility.
(a) Agreement to Cause Issuance; Amounts; Outside Expiration
--------------------------------------------------------
Date. Subject to the terms and conditions of this Agreement, Agent agrees to
- ----
issue letters of credit for the account of Borrower (each, an "L/C") or to issue
guarantees of payment, indemnities, participations and/or undertakings (each
such guaranty, indemnity, participation or undertaking, an "L/C Guaranty") with
respect to letters of credit issued by an issuing bank for the account of
Borrower. Agent shall have no obligation to issue a Letter of Credit if any of
the following would result:
(i) the sum of 100% of the aggregate amount of all Letter
of Credit Usage would exceed the Borrowing Base less the amount of
outstanding Advances; or
28
<PAGE>
(ii) the aggregate amount of all Letter of Credit Usage
would exceed the lower of: (x) the Maximum Revolving Amount less the
----
amount of outstanding Advances; or (y) $10,000,000; or
(iii) the outstanding Obligations would exceed the Maximum
Revolving Amount.
Borrower expressly understands and agrees that Agent shall have no obligation to
arrange for the issuance by issuing banks of the letters of credit that are to
be the subject of L/C Guarantees. Borrower and the Lender Group acknowledge and
agree that certain of the letters of credit that are to be the subject of L/C
Guarantees may be outstanding on the Closing Date or the Initial Advance
Effective Date. Each Letter of Credit shall have an expiry date no later than
60 days prior to the date on which this Agreement is scheduled to terminate
under Section 3.5 (without regard to any potential renewal term) and all such
-----------
Letters of Credit shall be in form and substance acceptable to Agent in its sole
discretion. If the Lender Group is obligated to advance funds under a Letter of
Credit, Borrower immediately shall reimburse such amount to Agent and, in the
absence of such reimbursement, the amount so advanced immediately and
automatically shall be deemed to be an Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to such Advances under Section 2.6.
-----------
(b) Indemnification. Borrower hereby agrees to indemnify,
---------------
save, defend, and hold the Lender Group harmless from any loss, cost, expense,
or liability, including payments made by the Lender Group, expenses, and
reasonable attorneys fees incurred by the Lender Group arising out of or in
connection with any Letter of Credit. Borrower agrees to be bound by the issuing
bank's regulations and interpretations of any Letters of Credit guarantied by
the Lender Group and opened to or for Borrower's account or by Agent's
interpretations of any L/C issued by the Lender Group to or for Borrower's
account, even though this interpretation may be different from Borrower's own,
and Borrower understands and agrees that the Lender Group shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letter of Credit or
any modifications, amendments, or supplements thereto. Borrower understands that
the L/C Guarantees may require the Lender Group to indemnify the issuing bank
for certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to indemnify, save, defend, and hold the
Lender Group harmless with respect to any loss, cost, expense (including
reasonable attorneys fees), or liability incurred by the Lender Group under any
L/C Guaranty as a result of the Lender Group's indemnification of any such
issuing bank.
(c) Supporting Materials. Borrower hereby authorizes and
--------------------
directs any bank that issues a letter of credit guaranteed by the Lender Group
to deliver to Agent all instruments, documents, and other writings and property
received by the issuing bank pursuant to such letter of credit, and to accept
and rely upon Agent's instructions and agreements with respect to all matters
arising in connection with such letter of credit and the related application.
Borrower may or may not be the "applicant" or "account party" with respect to
such letter of credit.
29
<PAGE>
(d) Compensation for Letters of Credit. Any and all charges,
----------------------------------
commissions, fees, and costs incurred by Agent relating to the letters of credit
guaranteed by the Lender Group shall be considered Lender Group Expenses for
purposes of this Agreement and immediately shall be reimbursable by Borrower to
Agent.
(e) Cash Collateral. Immediately upon the termination of
---------------
this Agreement, Borrower agrees to either (i) provide cash collateral to be held
by Agent in an amount equal to 105% of the maximum amount of the Lender Group's
obligations under Letters of Credit, or (ii) cause to be delivered to Agent
releases of all of the Lender Group's obligations under outstanding Letters of
Credit. At Agent's discretion, any proceeds of Collateral received by Agent
after the occurrence and during the continuation of an Event of Default may be
held as the cash collateral required by this Section 2.2(e).
-------------
(f) Increased Costs. If by reason of (i) any change in any
---------------
applicable law, treaty, rule, or regulation or any change in the interpretation
or application by any governmental authority of any such applicable law, treaty,
rule, or regulation, or (ii) compliance by the issuing bank or Agent with any
direction, request, or requirement (irrespective of whether having the force of
law) of any governmental authority or monetary authority including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve System
as from time to time in effect (and any successor thereto):
a. any reserve, deposit, or similar requirement is or
shall be imposed or modified in respect of any Letters of Credit issued
hereunder, or
b. there shall be imposed on the issuing bank or any
other condition regarding any letter of credit, or Letter of Credit, as
applicable, issued pursuant hereto; and the result of the foregoing is to
increase, directly or indirectly, the cost to the issuing bank or the Lender
Group of issuing, making, guaranteeing, or maintaining any letter of credit, or
Letter of Credit, as applicable, or to reduce the amount receivable in respect
thereof by such issuing bank or the Lender Group, then, and in any such case,
the Lender Group may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as the issuing bank or Agent may
specify to be necessary to compensate the issuing bank or the Lender Group for
such additional cost or reduced receipt, together with interest on such amount
from the date of such demand until payment in full thereof at the rate set forth
in Section 2.6(a) or (c)(i), as applicable. The determination by the issuing
------------------------
bank or Agent, as the case may be, of any amount due pursuant to this Section
-------
2.2(f), as set forth in a certificate setting forth the calculation thereof in
- ------
reasonable detail, shall, in the absence of manifest or demonstrable error, be
final and conclusive and binding on all of the parties hereto.
(g) Participations.
--------------
(1) Purchase of Participations. Immediately upon
--------------------------
issuance of any Letter of Credit in accordance with this Section 2.2, each
-----------
Lender shall be deemed to have
30
<PAGE>
irrevocably and unconditionally purchased and received without recourse or
warranty, an undivided interest and participation in the credit support or
enhancement provided through Agent to such issuer in connection with the
issuance of such Letter of Credit, equal to such Lender's Pro Rata Share of the
face amount of such Letter of Credit (including, without limitation, all
obligations of Borrower with respect thereto, and any security therefor or
guaranty pertaining thereto).
(2) Documentation. Upon the request of any Lender,
-------------
Agent shall furnish to such Lender copies of any Letter of Credit, reimbursement
agreements executed in connection therewith, application for any Letter of
Credit and credit support or enhancement provided through Agent in connection
with the issuance of any Letter of Credit, and such other documentation as may
reasonably be requested by such Lender.
(3) Obligations Irrevocable. The obligations of each
-----------------------
Lender to make payments to Agent with respect to any Letter of Credit or with
respect to any credit support or enhancement provided through Agent with respect
to a Letter of Credit, and the obligations of Borrower to make payments to
Agent, for the account of the Lenders, shall be irrevocable, not subject to any
qualification or exception whatsoever, including any of the following
circumstances:
(i) any lack of validity or enforceability of this
Agreement or any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense or
other right which Borrower may have at any time against a beneficiary named in a
Letter of Credit or any transferee of any Letter of Credit (or any Person for
whom any such transferee may be acting), any Lender, Agent, the issuer of such
Letter of Credit, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein or any
unrelated transactions (including any underlying transactions between Borrower
or any other Person and the beneficiary named in any Letter of Credit);
(iii) any draft, certificate or any other document
presented under the Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for
the performance or observance of any of the terms of any of the Loan Documents;
or
(v) the occurrence of any Default or Event of
Default.
(g) Recovery or Avoidance of Payments. In the event
---------------------------------
any payment by or on behalf of Borrower received by Agent with respect to any
Letter of Credit (or any guaranty by Borrower or reimbursement obligation of
Borrower relating thereto) and distributed by the Agent to the Lenders on
account of their respective participations therein, is thereafter set aside,
avoided or recovered from Agent in connection with any receivership, liquidation
or bankruptcy proceeding, the Lenders shall, upon demand by Agent, pay to Agent
their respective Pro Rata Shares of such
31
<PAGE>
amount set aside, avoided or recovered, together with interest at the rate
required to be paid by Agent upon the amount required to be repaid by it.
2.3 [Intentionally Omitted.]
2.4 Payments.
(a) Payments by Borrower.
--------------------
(i) All payments to be made by Borrower shall be made
without set-off, recoupment, deduction, or counterclaim, except as otherwise
required by law. Except as otherwise expressly provided herein, all payments by
Borrower shall be made to Agent for the account of the Lenders at Agent's
address set forth in Section 12, and shall be made in immediately available
----------
funds, no later than 11:00 a.m. (California time) on the date specified herein.
Any payment received by Agent later than 11:00 a.m. (California time), at the
option of Agent, shall be deemed to have been received on the following Business
Day and any applicable interest or fee shall continue to accrue until such
following Business Day.
(ii) Whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(iii) Unless Agent receives notice from Borrower prior
to the date on which any payment is due to the Lenders that Borrower will not
make such payment in full as and when required, Agent may assume that Borrower
has made such payment in full to Agent on such date in immediately available
funds and Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent Borrower has not made such
payment in full to Agent, each Lender shall repay to Agent on demand such amount
distributed to such Lender, together with interest thereon at the Reference Rate
for each day from the date such amount is distributed to such Lender until the
date repaid.
(b) Apportionment, Application, and Reversal of Payments.
Except as otherwise provided with respect to Defaulting Lenders, aggregate
principal and interest payments shall be apportioned ratably among the Lenders
(according to the unpaid principal balance of the Advances to which such
payments relate held by each Lender) and payments of the fees (other than fees
designated for Agent's sole and separate account) shall, as applicable, be
apportioned ratably among the Lenders. All payments shall be remitted to Agent
and all such payments not relating to principal or interest of specific
Advances, or not constituting payment of specific fees, and all proceeds of
Accounts or other Collateral received by Agent, shall be applied, first, to pay
-----
any fees, or expense reimbursements then due to Agent from Borrower; second, to
------
pay any fees or expense reimbursements then due to the Lenders from Borrower;
third, to pay interest due in respect of all Advances (including Foothill Loans
- -----
and Agent Advances); fourth, to pay or prepay principal of Foothill Loans and
------
Agent Advances; fifth, ratably to pay principal of the Advances (other than
-----
Foothill Loans and Agent Advances); sixth, to be held by Agent as cash
-----
collateral in accordance
32
<PAGE>
with Section 2.2(e) hereof with respect to unreimbursed obligations in respect
--------------
of Letters of Credit; and seventh, ratably to pay any other Obligations due to
Agent or any Lender by Borrower.
2.5 Overadvances. If, at any time or for any reason, the amount
of Obligations pursuant to Sections 2.1 and 2.2 is greater than either the
--------------------
Dollar or percentage limitations set forth in Sections 2.1 or 2.2 (an
-------------------
"Overadvance"), Borrower immediately (or in the case of an Overadvance that is
caused by the charging of interest, fees or Lender Group Expenses to the Loan
Account, within 5 Business Days of incurring such Overadvance) shall pay to
Agent, in cash, the amount of such excess, which amount shall be used by Agent
to reduce the Obligations in accordance with the priority set forth in Section
-------
2.4(b).
- -------
2.6 Interest and Letter of Credit Fees: Rates, Payments, and
Calculations.
(a) Interest Rate. Except as provided in clause (c) below,
all Obligations (except for the amounts undrawn under Letters of Credit) shall
bear interest on the Daily Balance at a per annum rate of one percentage point
above the Reference Rate.
(b) Letter of Credit Fee. Borrower shall pay Agent, for the
ratable benefit of the Lender Group a fee (in addition to the charges,
commissions, fees, and costs set forth in Section 2.2(d)) equal to 1.5% per
--------------
annum times the Daily Balance of the amount of the undrawn Letters of Credit.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for the amounts
undrawn under Letters of Credit) shall bear interest on the Daily Balance at a
per annum rate equal to four percentage points above the Reference Rate, and
(ii) the Letter of Credit fee provided in Section 2.6(b) shall be increased to
--------------
4.5% per annum times the amount of the undrawn Letters of Credit that were
outstanding during the immediately preceding month.
(d) Minimum Interest. In no event shall the rate of interest
chargeable under Section 2.6(a) for any day be less than 8% per annum. To the
--------------
extent that interest accrued hereunder at the rate set forth in such section
would be less than the foregoing minimum daily rate, the interest rate
chargeable hereunder for such day automatically shall be deemed increased to the
minimum rate.
(e) Payments. Interest and Letter of Credit fees payable
--------
hereunder shall be due and payable, in arrears, on the first day of each month
during the term hereof. Borrower hereby authorizes Agent, at its option, without
prior notice to Borrower, to charge such interest and Letter of Credit fees, all
Lender Group Expenses (as and when incurred), the charges, commissions, fees,
and costs provided for in Section 2.2(d) (as and when accrued or incurred), the
--------------
fees and charges provided for in Section 2.11 (as and when accrued or incurred),
------------
and all installments or other payments due under any Loan Document to Borrower's
Loan Account, which amounts thereafter shall accrue interest at the rate then
applicable to Advances hereunder. Any interest not paid when due shall be
compounded and shall thereafter accrue interest at the rate then applicable to
Advances hereunder.
33
<PAGE>
(f) Computation. The Reference Rate as of the date of this
-----------
Agreement is 9% per annum. In the event the Reference Rate is changed from time
to time hereafter, the rate of interest provided for in Section 2.6(a) and
--------------
Section 2.6(c)(i) and (ii) automatically and immediately shall be increased or
- --------------------------
decreased by an amount equal to such change in the Reference Rate. All interest
and fees chargeable under the Loan Documents shall be computed on the basis of a
360 day year for the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible under
any law that a court of competent jurisdiction shall, in a final determination,
deem applicable. Borrower and the Lender Group in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
-------- -------
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto as
---- -----
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.7 Collection of Accounts. Borrower shall at all times maintain
lockboxes (the "Lockboxes") and, promptly after the Closing Date, (i) shall, and
shall cause each of CCI and the respective Subsidiaries of Borrower and CCI to,
instruct all Account Debtors with respect to the Accounts, General Intangibles,
and Negotiable Collateral of Borrower or CCI, or any of their respective
Subsidiaries, as the case may be, to remit all Collections in respect thereof to
such Lockboxes, and (ii) shall, and shall cause each of CCI and the respective
Subsidiaries of Borrower and CCI to, deposit all other Collections received by
Borrower or CCI, or any of their respective Subsidiaries, from any source
immediately upon receipt into the Lockboxes. Borrower, Agent, and the Lockbox
Banks shall enter into the Lockbox Agreements, which among other things shall
provide for the opening of a Lockbox Account for the deposit of Collections at a
Lockbox Bank. Borrower agrees that all Collections and other amounts received by
Borrower or CCI, or any of their respective Subsidiaries, from any Account
Debtor or any other source immediately upon receipt shall be deposited into a
Lockbox Account. No Lockbox Agreement or arrangement contemplated thereby shall
be modified by Borrower or CCI, or any of their respective Subsidiaries, without
the prior written consent of Agent. Upon the terms and subject to the conditions
set forth in the Lockbox Agreements, all amounts received in each Lockbox
Account (a) prior to the Initial Advance Effective Date, as long as no Default
or Event of Default has occurred which is continuing, shall be wired each
Business Day to the Designated Account, (b) from and after the Initial Advance
Effective Date, or at any time during which a Default or Event of Default has
occurred which is continuing, shall be wired each Business Day into an account
(the "Agent Account") maintained by Agent at a depositary selected by Agent
which is a financial institution that is a member of the Federal Reserve System
and has combined capital and surplus and undivided profits (or any similar
capital concept) of not less than $500,000,000 and whose senior unsecured debt
is rated at least "A-1" by Standard and Poor's Ratings Corporation or "P-1" by
Moody's Investors Service.
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2.8 Crediting Payments; Application of Collections. The receipt
of any Collections by Agent (whether from transfers to Agent by the Lockbox
Banks pursuant to the Lockbox Agreements or otherwise) immediately shall be
applied provisionally to reduce the Obligations outstanding under Section 2.1,
-----------
but shall not be considered a payment on account unless such Collection item is
a wire transfer of immediately available federal funds and is made to the Agent
Account or unless and until such Collection item is honored when presented for
payment. From and after the Closing Date, Agent shall be entitled to charge
Borrower for one Business Day of 'clearance' or 'float' at the rate set forth in
Section 2.6(a) or Section 2.6(c)(i), as applicable, on all Collections that are
- -------------- -----------------
received by Borrower, CCI or any other Loan Party, or any of their respective
Subsidiaries, or Agent (regardless of whether forwarded by the Lockbox Banks to
Agent, whether provisionally applied to reduce the Obligations under Section
-------
2.1, whether wire transferred or otherwise paid to the Agent Account, or
- ---
otherwise). This across-the-board one Business Day clearance or float charge on
all Collections is acknowledged by the parties to constitute an integral aspect
of the pricing of the Lender Group's financing of Borrower, and shall apply
irrespective of the characterization of whether receipts are owned by Borrower,
CCI, any other Loan Party, or any of their respective Subsidiaries, or Agent,
and whether or not there are any outstanding Advances, the effect of such
clearance or float charge being the equivalent of charging one Business Day of
interest on such Collections. Should any Collection item not be honored when
presented for payment, then Borrower shall be deemed not to have made such
payment, and interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any Collection item shall be deemed
received by Agent only if it is received into the Agent Account on a Business
Day on or before 11:00 a.m. California time. If any Collection item is received
into the Agent Account on a non-Business Day or after 11:00 a.m. California time
on a Business Day, it shall be deemed to have been received by Agent as of the
opening of business on the immediately following Business Day. Anything
contained herein to the contrary notwithstanding, the economic benefit of the
one Business Day clearance or float charge provided for in this Section 2.8 is
-----------
not for the ratable benefit of the Lenders, but instead shall be for the sole
and separate account of Agent.
2.9 Designated Account. Agent, Foothill, and the Lenders are
authorized to make the Advances and the Letters of Credit under this Agreement
based upon telephonic or other instructions received from anyone purporting to
be an Authorized Person, or without instructions if pursuant to Section 2.6(e).
--------------
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Agent, Foothill or the Lenders
hereunder. Unless otherwise agreed by Agent and Borrower, any Advance requested
by Borrower and made hereunder shall be made to the Designated Account. If as
the result of the receipt of any Collections into the Agent Account a credit
balance exists in the Loan Account, such credit balance shall not receive
interest in favor of Borrower, but shall be returned to Borrower prior to the
Initial Advance Effective Date, and thereafter as long as no Default or Event of
Default has occurred which is continuing, as follows: (i) a credit balance in
the Loan Account which results from a Collection received into the Agent Account
on a Business Day on or before 11:00 a.m. California time shall be forwarded to
the Designated Account on the same Business Day as received; and (ii) a credit
balance in the Loan Account which results from a Collection received into the
Agent Account on a non-Business Day
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or after 11:00 a.m. California time on a Business Day shall be forwarded to the
Designated Account on the immediately following Business Day.
2.10 Maintenance of Loan Account; Statements of Obligations. Agent
shall maintain an account on its books in the name of Borrower (the "Loan
Account") on which Borrower will be charged with all Advances made by Agent,
Foothill, or the Lenders to Borrower or for Borrower's account, including,
accrued interest, Lender Group Expenses, and any other payment Obligations of
Borrower. In accordance with Section 2.8, the Loan Account will be credited with
-----------
all payments received by Agent from Borrower or for Borrower's account,
including all amounts received in the Agent Account from any Lockbox Bank. Agent
shall render statements regarding the Loan Account to Borrower, including
principal, interest, fees, and including an itemization of all charges and
expenses constituting Lender Group Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and the Lender Group unless, within 30 days after
receipt thereof by Borrower, Borrower shall deliver to Agent written objection
thereto describing the error or errors contained in any such statements.
2.11 Fees. Borrower shall pay to Agent for the ratable benefit of
the Lender Group (except as otherwise indicated) the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of
$375,000 less the $187,500 commitment fee heretofore paid by Borrower or CCI to
Foothill pursuant to that certain letter agreement dated as of on or about March
21, 2000, by and among Foothill, CCI and Borrower;
(b) Unused Line Fee. On the first day of each month after
the Closing Date during the term of this Agreement, an unused line fee in an
amount equal to one quarter of one percent (0.25%) per annum times the Average
Unused Portion of the Maximum Revolving Amount.
(c) Loan Servicing Fee. On the first day of each month
after the Closing Date during the term of this Agreement, a loan servicing fee
in an amount equal to $7,500 per month, which amount shall be fully earned and
nonrefundable and be payable in arrears on the first day of each month;
(d) Financial Examination, Documentation, and Appraisal
Fees. Agent's customary fee of $750 per day per examiner, plus Agent's
reasonable out-of-pocket expenses for each financial analysis and examination
(i.e., audits) of Borrower performed by personnel employed by Agent; Agent's
customary one-time electronic reporting setup fee of $3,000, plus Agent's
out-of-pocket expenses relating thereto; the actual charges paid or incurred by
Agent if it elects to employ the services of one or more third Persons to
perform such financial analyses and examinations (i.e., audits) of Borrower or
to appraise the Collateral. Unless a Default has occurred, the number of audits
and appraisals per calendar year for which Borrower shall be responsible for
paying of the above described appraisal fees and out-of-pocket expenses of Agent
shall not exceed four.
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3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to Closing Date. The Closing Date is
subject to the fulfillment, to the satisfaction of Agent and its counsel, of
each of the following conditions on or before April 28, 2000 (or such earlier
date as may be specified below):
(a) Agent shall have received all financing statements and
fixture filings required by Agent, duly executed by Borrower and each of the
other Loan Parties;
(b) Agent shall have received each of the following
documents, in form and substance satisfactory to Agent, duly executed, and each
such document shall be in full force and effect:
i. the Lockbox Agreements;
ii. the Pay-Off Letters executed by each of Goldman Sachs
Credit Partners, L.P., and its Affiliates under which such
Persons are obligated to deliver to Agent UCC termination
statements and other documentation evidencing the termination
by each of them of its respective Liens in and to the
properties and assets of Borrower and the other Loan Parties;
iii. the Guaranty Agreements;
iv. the Stock Pledge Agreements;
v. the Security Agreements; and
vi. such other documents as shall be required by
Agent;
(c) Agent shall have received a certificate from the
Secretary of Borrower and each other Loan Party attesting to the resolutions of
Borrower's and each other Loan Party's Board of Directors authorizing its
execution, delivery, and performance of this Agreement and the other Loan
Documents to which it is a party and authorizing specific officers of it to
execute the same;
(d) Agent shall have received copies of Borrower's and each
other Loan Party's Governing Documents, as amended, modified, or supplemented to
the Closing Date, certified by the Secretary of Borrower and each other Loan
Party, as the case may be;
(e) Agent shall have received a certificate of status with
respect to Borrower and each other Loan Party, dated within 10 days of the
Closing Date, such certificate to be issued by the appropriate officer of the
jurisdiction of organization of Borrower and each other Loan Party, which
certificate shall indicate that Borrower and each other Loan Party is in good
standing in such jurisdiction;
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(f) Agent shall have received certificates of status with
respect to Borrower and each other Loan Party, each dated within 15 days of the
Closing Date, such certificates to be issued by the appropriate officer of the
jurisdictions in which its failure to be duly qualified or licensed would
constitute a Material Adverse Change, which certificates shall indicate that
Borrower and each other Loan Party is in good standing in such jurisdictions;
(g) [Intentionally omitted];
(h) Agent shall have received an opinion of Borrower's
counsel and each Guarantor's counsel in form and substance satisfactory to Agent
in its sole discretion;
(i) Borrower or CCI shall have not less than $125,000,000 of
Availability and unrestricted immediately available cash on hand after making
the payments described in Section 7.17(a) and the $187,500 due on the Closing
---------------
Date pursuant to Section 2.11(a), as determined by Agent;
---------------
(j) Agent shall have received and reviewed (i) Borrower's
consolidated December 31, 1999 financial statements prepared by Borrower's
accountants which they are prepared to issue as audited provided that such
financial statements would be subject to a going concern qualification, and the
results of such review shall be satisfactory to Agent, and (ii) Borrower's
consolidated February 29, 2000 financial statements prepared by Borrower's
management, and the results of such review shall be satisfactory to Agent, in
its sole discretion;
(k) Agent shall have completed its legal due diligence,
including a review of material contracts (including the indentures with respect
to all material debt), and the results thereof shall be satisfactory to Agent,
in its sole discretion;
(l) there shall have been no material adverse change in the
business, operations, assets, financial condition or prospects of Borrower and
guarantors since December 31, 1999 which is not set forth in Borrower's business
plan and financial projections dated as of February 15, 2000 which Borrower
delivered to Agent prior to March 21, 2000;
(m) at least $150,000,000 of additional equity capital shall
have been contributed to Borrower or CCI, on terms and conditions and pursuant
to documentation mutually acceptable to Borrower and Agent;
(n) Agent and counsel to Agent shall have received and
reviewed all documentation relating to the Unsecured Notes, including, without
limitation, the Unsecured Notes Indenture, and all of such documentation, and
the terms and provisions of such documentation, including, without limitation,
the Unsecured Notes and the Unsecured Notes Indenture, shall be acceptable to
Agent and its counsel;
(o) Agent shall have received payment in full in immediately
available funds of all amounts due on the Closing Date pursuant to Section
-------
2.11(a);
- -------
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(p) Agent shall have received evidence satisfactory to Agent
in its sole discretion that the Lien securing any and all present or future
Indebtedness or obligations of any Loan Party to Cisco Systems, Inc., Cisco
Systems Capital Corporation or any of their respective Affiliates is limited to
the specific items and property described on Exhibit 3.1(p) attached hereto and
--------------
made a part hereof, and that all security agreements pertaining to such
Indebtedness or other obligations shall have been amended to provide that such
Lien is so limited;
(q) Agent shall have received the original stock
certificates evidencing all shares of stock of Cavion Technologies, Inc. owned
or controlled by any Loan Party, together with stock powers covering such shares
duly executed in blank by each Loan Party which owns or controls any such
shares; and
(r) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to Agent
and its counsel.
3.2 Conditions Precedent to the Initial Advance and Letter of
Credit. The obligation of the Lender Group (or any member thereof) to make the
initial Advance or to issue the initial Letter of Credit is subject to the
fulfillment, to the satisfaction of Agent and its counsel, of each of the
following conditions on or before the Initial Advance Effective Date (or such
earlier date as may be specified below):
(a) Agent shall have received searches reflecting the filing
of all financing statements and fixture filings of Borrower and the other Loan
Parties required by Agent;
(b) Agent shall have received each of the following
documents, in form and substance satisfactory to Agent, duly executed, and each
such document shall be in full force and effect:
i. the Disbursement Letter;
ii. the Pay-Off Letter of Deutsche Financial Services
Corporation and its Affiliates, together with UCC
termination statements and other documentation evidencing
the termination by such Persons of their respective Liens in
and to the properties and assets of Borrower and the other
Loan Parties; and
iii. an estoppel letter of Norwest Bank Colorado, N.A.
in favor of Agent for the benefit of the Lender Group,
pursuant to which such bank agrees that it has no present or
future Lien on the Collateral other than specifically
identified deposit accounts at such bank which are consented
to by Agent;
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(c) Agent shall have received a certificate of insurance,
together with the endorsements thereto, as are required by Section 6.10, the
------------
form and substance of which shall be satisfactory to Agent and its counsel;
(d) Agent shall have received satisfactory evidence that
all tax returns required to be filed by Borrower and each other Loan Party have
been timely filed and all taxes upon Borrower and each other Loan Party, or its
respective properties, assets, income, and franchises (including real property
taxes and payroll taxes), have been paid prior to delinquency, except such taxes
that are the subject of a Permitted Protest;
(e) Agent shall have received UCC terminations, UCC
amendments, UCC releases and other documentation evidencing the termination,
amendment and release, as the case may be, of all UCC financing statements and
other documents which disclose a Lien on any of the Collateral other than a
Permitted Lien as are requested by Agent, including those listed on Exhibit
-------
3.2(e) attached hereto and made a part hereof;
- ------
(f) Agent shall have received such Collateral Access
Agreements from lessors, warehousemen, bailees, and other third persons as Agent
may require; and
(g) Agent shall have received and reviewed a current audit
of Borrower performed recently by Foothill's auditors, the results of such audit
shall be acceptable to Agent, in Agent's discretion, and Agent shall have
received from Borrower since the date of such audit current collateral reporting
acceptable to Agent, in Agent's reasonable discretion.
3.3 Conditions Precedent to all Advances and all Letters of
Credit. The following shall be conditions precedent to all Advances and all
Letters of Credit hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties relate
solely to an earlier date);
(b) no Default or Event of Default shall have occurred and
be continuing on the date of such extension of credit, nor shall either result
from the making thereof;
(c) no injunction, writ, restraining order, or other order
of any nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority against
Borrower, Agent, the Lender Group, or any of their Affiliates; and
(d) the amount of the Revolving Facility Usage, after giving
effect to the requested Advance or Letter of Credit, shall not exceed the
Availability.
The foregoing conditions precedent are not conditions to each Lender (i)
participating in or reimbursing Agent for such Lenders' Pro Rata Share of any
drawings under Letters of Credit as
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provided herein, or (ii) participating in or reimbursing Foothill or the Agent
for such Lenders' Pro Rata Share of any Foothill Loan or Agent Advance as
provided herein.
3.4 Condition Subsequent. As a condition subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to Agent the
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by Section 6.10, the form and substance of which shall
------------
be satisfactory to Agent and its counsel; and
(b) within 10 days of the Closing Date, deliver to Agent UCC
amendments and other documentation evidencing the amendment of each UCC
financing statement and other instrument disclosing a Lien of Cisco Systems,
Inc., Cisco Systems Capital Corporation, and any of its respective Affiliates,
to limit the Lien disclosed thereby to the specific items and property described
on Exhibit 3.1(p) attached hereto and made a part hereof.
--------------
3.5 Term; Automatic Renewal.
(a) This Agreement shall become effective upon the execution
and delivery hereof by Borrower and the Lender Group and shall continue in full
force and effect for a term ending on the date (the "Renewal Date") that is
three (3) years from the Closing Date and automatically shall be renewed for
successive one year periods thereafter, unless sooner terminated pursuant to the
terms hereof.
(b) Either party may terminate this Agreement effective on
the Renewal Date or on any one year anniversary of the Renewal Date by giving
the other party at least 90 days prior written notice. The foregoing
notwithstanding, the Lender Group shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.6 Effect of Termination.
(a) On the date of termination of this Agreement, all
Obligations (including contingent reimbursement obligations of Borrower with
respect to any outstanding Letters of Credit) immediately shall become due and
payable without notice or demand. No termination of this Agreement, however,
shall relieve or discharge Borrower of Borrower's duties, Obligations, or
covenants hereunder or under the other Loan Documents, and Agent's continuing
security interests in the Collateral, for the benefit of the Lender Group, shall
remain in effect until all Obligations have been fully and finally discharged
and the Lender Group's obligations to provide additional credit hereunder have
been terminated.
(b) If Borrower has sent a notice of termination pursuant to
the provisions of Section 3.5, but fails to pay the Obligations in full on the
-----------
date set forth in said notice,
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then the Lender Group may, but shall not be required to, renew this Agreement
for an additional term of one year.
3.7 Early Termination by Borrower. The provisions of Section 3.5
-----------
that allow termination of this Agreement by Borrower only on the Renewal Date
and certain anniversaries thereof notwithstanding, Borrower has the option, at
any time upon 90 days prior written notice to Agent, to terminate this Agreement
by paying to Agent, for the ratable benefit of the Lender Group, in cash, the
Obligations (including an amount equal to 105% of the undrawn amount of the
Letters of Credit except for such Letters of Credit as are replaced or
guaranteed in full by financial institutions acceptable to Agent pursuant to
documentation acceptable to Agent), in full, together with a premium (the "Early
Termination Premium") equal to (a) if the termination occurs on or before the
first anniversary of the Closing Date, an amount equal to three percent (3%) of
the Maximum Revolving Amount, (b) if the termination occurs after the first
anniversary of the Closing Date, but on or before the second anniversary of the
Closing Date, an amount equal to one and one-half percent (1.50%), and (c) if
the termination occurs after the second anniversary of the Closing Date (other
than during the 30 day period immediately preceding the Renewal Date) an amount
equal to one-half of one percent (0.50%) of the Maximum Revolving Amount.
3.8 Termination Upon Event of Default. If the Lender Group
terminates this Agreement upon the occurrence of an Event of Default, in view of
the impracticability and extreme difficulty of ascertaining actual damages and
by mutual agreement of the parties as to a reasonable calculation of the Lender
Group's lost profits as a result thereof, Borrower shall pay to Agent, for the
ratable benefit of the Lender Group, upon the effective date of such
termination, a premium in an amount equal to the Early Termination Premium. The
Early Termination Premium shall be presumed to be the amount of damages
sustained by the Lender Group as the result of the early termination and
Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.8 shall
-----------
be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to
Agent, for the benefit of the Lender Group, continuing Liens on all right,
title, and interest of Borrower in and to all currently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents (the "Agent's Liens"). The
Agent's Liens in and to the Collateral shall attach to all Collateral without
further act on the part of the Lender Group or Borrower. Anything contained in
this Agreement or any other Loan Document to the contrary notwithstanding,
except for the sale of Inventory to buyers in the ordinary course of business,
the use of Equipment in the ordinary course of business and dispositions of
Equipment that is obsolete or no longer useful in any Loan Party's business to
the extent permitted in Section 7.4 and other dispositions permitted under
-----------
Section 7.4 hereof, Borrower has no authority, express or implied, to dispose of
- -----------
any item or portion of the Collateral. Subject to Section 2.4(b), the secured
--------------
claims of the Lender Group secured by the Collateral shall be of equal priority,
and ratable according to the respective Obligations due each member of the
Lender Group.
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4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower promptly shall endorse and deliver physical possession of such
Negotiable Collateral to Agent.
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral. At any time, Agent or Agent's designee may at any time after the
occurrence of an Event of Default which is continuing (a) notify customers or
Account Debtors that the Accounts, General Intangibles, or Negotiable Collateral
have been assigned to Agent for the benefit of the Lender Group, or that Agent,
for the benefit of the Lender Group, has a security interest therein and (b)
collect the Accounts, General Intangibles, and Negotiable Collateral directly
and charge the collection costs and expenses to the Loan Account. Borrower
agrees that it will hold in trust for the Lender Group, as the Lender Group's
trustee, any Collections that it receives and immediately will deliver said
Collections to Agent in their original form as received by Borrower.
4.4 Delivery of Additional Documentation Required. At any time
upon the request of Agent, Borrower shall execute and deliver to Agent all
financing statements, collateral assignments, continuation financing statements,
fixture filings, security agreements, pledges, assignments, mortgages, leasehold
mortgages, deeds of trust, leasehold deeds of trust, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that Agent
reasonably may request, in form satisfactory to Agent, to perfect and continue
perfected the Agent's Liens on the Collateral (whether now owned or hereafter
arising or acquired), and in order to consummate fully all of the transactions
contemplated hereby and under the other the Loan Documents; provided, however,
that until such time as Agent or the Lenders have accelerated all or any part of
the Obligations following the occurrence of an Event of Default, Borrower shall
not be required to obtain any Control Agreements for the benefit of Agent or
perfect Agent's Liens on any deposit account (other than with respect to the
Lockbox Accounts and other deposit accounts and/or Securities Accounts which may
contain proceeds of Collateral).
4.5 Power of Attorney. Borrower hereby irrevocably makes,
constitutes, and appoints Agent (and any of Agent's officers, employees, or
agents designated by Agent) as Borrower's true and lawful attorney, with power
to (a) if Borrower refuses to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign the name of Borrower on any of the
-----------
documents described in Section 4.4, (b) at any time that an Event of Default has
-----------
occurred and is continuing or Agent deems itself insecure, sign Borrower's name
on any invoice or bill of lading relating to any Account, drafts against Account
Debtors, schedules and assignments of Accounts, verifications of Accounts, and
notices to Account Debtors, (c) send requests for verification of Accounts (with
respect to such requests sent prior to the occurrence of an Event of Default,
such requests shall be styled in the name of either Borrower or another Person
other than Agent) (d) endorse Borrower's name on any Collection item that may
come into the Lender Group's possession, (e) at any time that an Event of
Default has occurred and is continuing or the Lender Group deems itself
insecure, notify the post office authorities to change the address for delivery
of Borrower's mail to an address designated by Agent, to receive and open all
mail addressed to Borrower, and to retain all mail relating to the Collateral
and forward all other mail to Borrower, (f)
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at any time that an Event of Default has occurred and is continuing or Agent
deems itself insecure, make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance, and (g) at any time that an Event of Default has
occurred and is continuing or Agent deems itself insecure, settle and adjust
disputes and claims respecting the Accounts directly with Account Debtors, for
amounts and upon terms that Agent determines to be reasonable, and Agent may
cause to be executed and delivered any documents and releases that Agent
determines to be necessary. The appointment of Agent as Borrower's attorney, and
each and every one of Agent's rights and powers, being coupled with an interest,
is irrevocable until all of the Obligations have been fully and finally repaid
and performed and the Lender Groups' obligations to extend credit hereunder are
terminated.
4.6 Right to Inspect. Agent (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect the Books and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, quality, value, condition
of, or any other matter relating to, the Collateral; provided, however, that
prior to the occurrence on an Event of Default that is continuing, such right
shall be exercisable only during ordinary business hours.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this Agreement,
Borrower makes the following representations and warranties to the Lender Group
which shall be true, correct, and complete in all respects as of the date
hereof, and shall be true, correct, and complete in all respects as of the
Closing Date, and at and as of the date of the making of each Advance or Letter
of Credit made thereafter, as though made on and as of the date of the making of
such Advance or Letter of Credit (except to the extent that such representations
and warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:
5.1 No Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens except for Permitted Liens.
5.2 Eligible Accounts. The Eligible Accounts are bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Borrower's
business, unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation, except for ordinary product
and service warranty claims in the ordinary cause of business which have not
been asserted by the Account Debtor thereunder and contract terminations in the
ordinary course of business which have not been asserted by the Account Debtor
thereunder. The property giving rise to such Eligible Accounts has been
delivered to the Account Debtor, or to the Account Debtor's agent for immediate
shipment to and unconditional acceptance by the Account Debtor. Borrower has not
received notice of actual or imminent bankruptcy, insolvency, or material
impairment of the financial condition of any Account Debtor regarding any
Eligible Account.
5.3 Eligible Inventory. All Eligible Inventory, other than
Inventory manufactured or assembled by Persons that are not a Loan Party, is of
good and merchantable
44
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quality, free from defects. To the best of Borrower's knowledge, all Eligible
Inventory manufactured or assembled by Persons that are not a Loan Party is of
good and merchantable quality, free from defects.
5.4 Equipment. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5 Location of Inventory and Equipment. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party and are
located only at the locations identified on Schedule 6.12 or otherwise permitted
by Section 6.12.
------------
5.6 Inventory Records. Borrower keeps correct and accurate
records itemizing and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is 84-1387594. The chief executive office of each
of CCI, CCC, and WAI, is located at the same location as Borrower's address
indicated in the preamble to this Agreement, CCI's FEIN is 84-1337265, CCC's
FEIN is 84-1437158, and WAI's FEIN is 84-1301579.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Borrower and each other Loan Party is duly organized and
existing and in good standing under the laws of the jurisdiction of its
incorporation and qualified and licensed to do business in, and in good standing
in, any state where the failure to be so licensed or qualified reasonably could
be expected to constitute a Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate
------------
description of the authorized capital Stock of Borrower, by class, and, as of
the Closing Date, a description of the number of shares of each such class that
are issued and outstanding and the number of such shares that are held in
Borrower's treasury. All such outstanding shares have been validly issued and,
as of the Closing Date, are fully paid, nonassessable shares free of contractual
preemptive rights. The issuance and sale of all such shares have been in
compliance with all applicable federal and state securities laws. Other than as
described on Schedule 5.8, there are no subscriptions, options, warrants, or
------------
calls relating to any shares of Borrower's or any of its Subsidiaries' capital
Stock, including any right of conversion or exchange under any outstanding
security or other instrument. Except as set forth on Schedule 5.8, neither
------------
Borrower nor any of its Subsidiaries is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital Stock or any security convertible into or exchangeable for any of its
capital Stock.
(c) Set forth on Schedule 5.8, is a complete and accurate
------------
list of Borrower's and each other Loan Party's direct and indirect Subsidiaries,
as of the Closing Date, showing: (i) the jurisdiction of their incorporation;
(ii) the number of shares of each class of common and preferred Stock authorized
for each of such Subsidiaries; and (iii) the number and the percentage of the
outstanding shares of each such class owned directly or indirectly by Borrower
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and such Loan Party, as the case may be. All of the outstanding capital Stock of
each such Subsidiary has been validly issued and is fully paid and non-
assessable.
(d) Except as set forth on Schedule 5.8, no capital Stock
------------
(or any securities, instruments, warrants, options, purchase rights, conversion
or exchange rights, calls, commitments or claims of any character convertible
into or exercisable for capital Stock) of any direct or indirect Subsidiary of
Borrower or any of its Subsidiaries is subject to the issuance of any security,
instrument, warrant, option, purchase right, conversion or exchange right, call,
commitment or claim of any right, title, or interest therein or thereto.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower and
each other Loan Party of this Agreement and the Loan Documents to which it is a
party have been duly authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower and
each other Loan Party of this Agreement and the Loan Documents to which it is a
party do not and will not (i) violate any provision of federal, state, or local
law or regulation (including Regulations T, U, and X of the Federal Reserve
Board) applicable to Borrower or such Loan Party, the Governing Documents of
Borrower or such Loan Party, or any order, judgment, or decree of any court or
other Governmental Authority binding on Borrower or such Loan Party, as the case
may be, (ii) conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation or material lease of Borrower or such Loan Party, as the case may be,
(iii) result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of Borrower or such Loan Party, as the
case may be, other than Permitted Liens, or (iv) require any approval of
stockholders or any approval or consent of any Person under any material
contractual obligation of Borrower or such Loan Party, as the case may be.
(c) Other than the taking of any action expressly required
under this Agreement and the Loan Documents, the execution, delivery, and
performance by Borrower and each other Loan Party of this Agreement and the Loan
Documents to which it is a party do not and will not require any registration
with, consent, or approval of, or notice to, or other action with or by, any
federal, state, foreign, or other Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which Borrower
is a party, and all other documents contemplated hereby and thereby, when
executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Agent's Liens granted by Borrower and/or other Loan
Parties to Agent, for the benefit of the Lender Group, in and to its properties
and assets pursuant to this
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Agreement and the other Loan Documents are validly created, perfected, and first
priority Liens, subject only to Permitted Liens and except with respect to
deposit accounts other than the Lockbox Accounts and other deposit accounts
which may contain proceeds of Collateral.
5.10 Litigation. There are no actions or proceedings pending by or
against Borrower or any Loan Party before any court or administrative agency and
neither Borrower nor any other Loan Party has knowledge or belief of any pending
or threatened litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Borrower, any other Loan Party or any
guarantor of the Ob ligations, except for: (a) ongoing collection matters in
which Borrower or such other Loan Party is the plaintiff; (b) matters disclosed
on Schedule 5.10; and (c) matters arising after the date hereof which reasonably
-------------
could not be expected to result in a Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating
to Borrower or any guarantor of the Obligations that have been delivered by
Borrower to the Lender Group have been prepared in accordance with GAAP (except,
in the case of unaudited financial statements, for the lack of footnotes and
being subject to year-end audit adjustments) and fairly present Borrower's (or
such guarantor's, as applicable) financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has not been a
Material Adverse Change with respect to Borrower (or such guarantor, as
applicable) since the date of the latest financial statements submitted to the
Lender Group on or before the Closing Date.
5.12 No Fraudulent Transfer.
(a) Borrower is Solvent.
(b) No transfer of property is being made by Borrower and no
obligation is being incurred by Borrower in connection with the transactions
contemplated by this Agreement or the other Loan Documents with the intent to
hinder, delay, or defraud either present or future creditors of Borrower.
5.13 Employee Benefits. None of Borrower, any of its Subsidiaries,
any other Loan Party, or any of their ERISA Affiliates maintains or contributes
to any Benefit Plan, other than those listed on Schedule 5.13. Borrower, each of
-------------
its Subsidiaries, each other Loan Party and each ERISA Affiliate have satisfied
the minimum funding standards of ERISA and the IRC with respect to each Benefit
Plan to which it is obligated to contribute. No ERISA Event has occurred nor has
any other event occurred that may result in an ERISA Event that reasonably could
be expected to result in a Material Adverse Change. None of Borrower or its
Subsidiaries, any other Loan Party, any ERISA Affiliate, or any fiduciary of any
Plan is subject to any direct or indirect liability in excess of $1,000,000
individually or in the aggregate with respect to any Plan under any applicable
law, treaty, rule, regulation, or agreement. None of Borrower or its
Subsidiaries or any ERISA Affiliate is required to provide security to any Plan
under Section 401(a)(29) of the IRC.
5.14 Environmental Condition. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous owners or
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operators in the disposal of, or to produce, store, handle, treat, release, or
transport, any Hazardous Materials. None of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, or a candidate for
closure pursuant to any environmental protection statute. No Lien arising under
any environmental protection statute has attached to any revenues or to any real
or personal property owned or operated by Borrower. Except for matters arising
after the Closing Date which reasonably could not be expected to result in a
Material Adverse Change, Borrower has not received a summons, citation, notice,
or directive from the Environmental Protection Agency or any other federal or
state governmental agency concerning any action or omission by Borrower
resulting in the releasing or disposing of Hazardous Materials into the
environment.
5.15 Brokerage Fees. No brokerage commission or finders fees has
or shall be incurred or payable in connection with or as a result of Borrower's
obtaining financing from the Lender Group under this Agreement, and Borrower has
not utilized the services of any broker or finder in connection with Borrower's
obtaining financing from the Lender Group under this Agreement. Agent
acknowledges that Agent has not hired any broker that would be entitled to any
brokerage commission or finders fee in connection with the transactions
contemplated herein.
5.16 Permits and other Intellectual Property. Borrower and each
other Loan Party owns or possesses adequate licenses or other rights to use all
Permits, patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, trade secrets
and know-how (collectively, the "Intellectual Property") that are necessary for
the operation of its business as currently conducted. Except for matters arising
after the Closing Date which reasonably could not be expected to result in a
Material Adverse Change, no claim is pending or threatened to the effect that
Borrower or any other Loan Party infringes upon, or conflicts with, the asserted
rights of any other Person under any Intellectual Property, and to the best of
Borrower's knowledge there is no basis for any such claim (whether pending or
threatened). No claim is pending or threatened to the effect that any material
Intellectual Property owned or licensed by Borrower, or in which Borrower
otherwise has the right to use is invalid or unenforceable by Borrower, and to
the best of Borrower's knowledge there is not basis for any such claim (whether
or not pending or threatened).
5.17 Outstanding Balance of Unsecured Notes. The outstanding
balance owing under the Unsecured Notes and the Unsecured Notes Indenture is a
total of $160,000,000 plus interest which has accrued thereon since October 15,
1999 at the rate of 13% per year.
5.18 Filing of Tax Returns and Payment of Taxes. Borrower and each
other Loan Party has timely filed all tax returns required of it and all taxes
upon Borrower and each other Loan Party, or its respective properties, assets,
income, and franchises (including real property taxes and payroll taxes), have
been paid prior to delinquency, except such taxes that are the subject of a
Permitted Protest.
Borrower may, at any time and from time to time and subject to Section 6.12,
------------
amend any one or more of the Schedules referred to in this Section 5 to provide
---------
supplemental information that is acceptable to Agent, and any representation or
warranty contained herein which refers to any
48
<PAGE>
such Schedule shall, from and after the date of any such amendment, refer to
such Schedule as so amended; provided, however, that in no event may Borrower
amend any such Schedule if such amendment would reflect or evidence a Default or
Event of Default; provided further, however, that no amendment to a Schedule
shall cure any misrepresentation prior thereto, nor shall it in any way affect
or limit Agent's or any Lender's rights and remedies with respect to any Default
or Event of Default disclosed thereby or resulting from such misrepresentation.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
shall, and shall cause each Loan Party to, do all of the following:
6.1 Accounting System. Maintain a standard and modern system of
accounting that enables Borrower and each Loan Party to produce financial
statements in accordance with GAAP, and maintain records pertaining to the
Collateral that contain information as from time to time may be requested by
Agent. Borrower and each Loan Party also shall keep a modern inventory reporting
system that shows all additions, sales, claims, returns, and allowances with
respect to the Inventory.
6.2 Collateral Reporting.
(a) Provide Agent, on a weekly basis, Collections reports
specifying Borrower's, CCI's and each other Loan Party's, and each of their
respective Subsidiaries', Collections for the immediately preceding calendar
week; and
(b) From and after the Initial Advance Effective Date,
provide Agent with the following documents at the following times in form
satisfactory to Agent: (i) on each Business Day, or less frequently if agreed to
by Agent, a sales journal, collection journal, and credit register since the
last such schedule and a calculation of the Eligible Accounts component of the
Borrowing Base as of such date, (ii) on a monthly basis and, in any event, by no
later than the 15th day of each month during the term of this Agreement, (A) a
detailed calculation of the Borrowing Base as of the last day of the immediately
preceding month, (B) a detailed aging, by total, of the Accounts as of the last
day of the immediately preceding month, together with a reconciliation to the
detailed calculation of the Borrowing Base previously provided to Agent, and (C)
a detailed calculation of the Unsecured Notes Indebtedness Limitation, (iii) on
a monthly basis and, in any event, by no later than the 15th day of each month
during the term of this Agreement, a summary aging, by vendor, of Borrower's
accounts payable and any book overdraft as of the last day of the immediately
preceding month, (iv) on a monthly basis, Inventory reports specifying
Borrower's cost and the wholesale market value of its Inventory by category,
with additional detail showing additions to and deletions from the Inventory,
(v) upon reasonable request by Agent, notice of all outstanding returns,
disputes, or claims, (vi) upon reasonable request, copies of invoices in
connection with the Accounts, customer statements, credit memos, remittance
advices and reports, deposit slips, shipping and delivery documents in
connection with the Accounts and for Inventory and Equipment acquired by
Borrower, purchase orders and invoices, (vii) on a quarterly basis, a
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detailed list of Borrower's customers, (viii) on a monthly basis, a calculation
of the Dilution for the prior month; and (ix) such electronic data or other
reports as to the Collateral or the financial condition of Borrower as Agent may
reasonably request from time to time.
6.3 Financial Statements, Reports, Certificates. Deliver to
Agent, with copies to each Lender: (a) as soon as available, but in any event
within 30 days after the end of each month during each of CCI's fiscal years, a
company prepared balance sheet, income statement, and statement of cash flow
covering CCI's operations during such period; and (b) as soon as available, but
in any event within 90 days after the end of each of CCI's fiscal years,
financial statements of CCI and its Subsidiaries for each such fiscal year,
audited by independent certified public accountants reasonably acceptable to
Agent and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to Agent stating that such accountants do not have
knowledge of the existence of any Default or Event of Default. Such audited
financial statements shall include a balance sheet, profit and loss statement,
and statement of cash flow and, if prepared, such accountants' letter to
management. Borrower agrees to deliver financial statements prepared on a
consolidating basis so as to present Borrower and each such related entity
separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to Agent,
with copies to each Lender, CCI's Form 10-Q Quarterly Reports, Form 10-K Annual
Reports, and Form 8-K Current Reports, and any other filings made by CCI with
the SEC, if any, as soon as the same are filed, or any other information that is
provided by CCI to its shareholders, and any other report reasonably requested
by the Lender Group relating to the financial condition of Borrower or any other
Loan Party.
Each month, together with the financial statements provided
pursuant to Section 6.3(a), Borrower shall deliver to Agent, with copies to each
--------------
Lender, a certificate signed by its chief financial officer to the effect that:
(i) all financial statements delivered or caused to be delivered to any one or
more members of the Lender Group hereunder have been prepared in accordance with
GAAP (except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
the financial condition of CCI, (ii) the representations and warranties of
Borrower contained in this Agreement and the other Loan Documents are true and
correct in all material respects on and as of the date of such certificate, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date), (iii) for each
month that also is the date on which a financial covenant in Section 7.20 is to
------------
be tested, a Compliance Certificate demonstrating in reasonable detail
compliance at the end of such period with the applicable financial covenants
contained in Section 7.20, and (iv) on the date of delivery of such certificate
------------
to Agent there does not exist, to the knowledge of such officer, any condition
or event that constitutes a Default or Event of Default (or, in the case of
clauses (i), (ii), or (iii), to the extent of any non-compliance, describing
such non-compliance as to which he or she may have knowledge and what action
Borrower has taken, is taking, or proposes to take with respect thereto).
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Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Agent and to
release to Agent whatever financial information concerning Borrower that Agent
may request. Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Agent, at Borrower's expense,
copies of Borrower's financial statements, papers related thereto (except that
audit workpapers shall not be required to be delivered unless there has occurred
an Event of Default which is continuing), and other accounting records of any
nature in their possession, and to disclose to Agent any information they may
have regarding Borrower's business affairs and financial conditions.
6.4 Tax Returns. Deliver to Agent copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within 30 days of
the filing thereof with the Internal Revenue Service.
6.5 [Intentionally Omitted].
6.6 Returns. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of Default
has occurred and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such return and, if
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Agent) in the appropriate amount to such Account Debtor. If, at a time when
an Event of Default has occurred and is continuing, any Account Debtor returns
any Inventory to Borrower, Borrower promptly shall determine the reason for such
return and, if Agent consents (which consent shall not be unreasonably
withheld), issue a credit memorandum (with a copy to be sent to Agent) in the
appropriate amount to such Account Debtor.
6.7 [Intentionally Omitted.]
6.8 Maintenance of Equipment. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9 Taxes.
(a) Cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property or assets to be paid in full, before delinquency
or before the expiration of any extension period, except to the extent that the
validity of such assessment or tax (other than payroll taxes or taxes that are
the subject of a United States federal tax lien) shall be the subject of a
Permitted Protest.
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(b) Make due and timely payment or deposit of all such
federal, state, and local taxes, assessments, or contributions required of it by
law (except for items subject to a Permitted Protest), and will execute and
deliver to Agent, on demand, appropriate certificates attesting to the payment
thereof or deposit with respect thereto.
(c) Make timely payment or deposit of all payroll taxes,
excise taxes, withholding taxes and third-party collection taxes required of it
by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Agent with proof satisfactory to Agent indicating that Borrower has made
such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Collateral insured against loss
or damage by fire, theft, explosion, sprinklers, and all other special perils,
and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Collateral, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the
type necessary to insure the Inventory and Equipment, and each location of the
Loan Parties, for the full replacement cost thereof, against any loss by fire,
lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle damage,
and other risks from time to time included under "special perils coverage"
policies, in such amounts as Agent may require, but in any event in amounts
sufficient to prevent Borrower from becoming a co-insurer under such policies,
(ii) combined single limit bodily injury and property damages insurance against
any loss, liability, or damages on, about, or relating to each of the Loan
Parties' locations, in an amount of not less than $1,000,000 per occurrence and
$2,000,000 in the aggregate; and (iii) insurance for such other risks as Agent
may require.
(c) [Intentionally Omitted.]
(d) All such policies of insurance shall be in such form,
with such companies, and in such amounts as may be reasonably satisfactory to
Agent. All insurance required herein shall be written by companies which have a
Best's rating of A for capital and X for financial stability. All hazard
insurance and such other insurance as Agent shall specify, shall contain a Form
438BFU (NS) mortgagee endorsement, or an equivalent endorsement satisfactory to
Agent, showing Agent as sole loss payee thereof as to all of the Collateral
covered thereby, and shall contain a waiver of warranties. Every policy of
insurance referred to in this Section 6.10 shall contain an agreement by the
------------
insurer that it will not cancel such policy except after 10 days prior written
notice to Agent if cancellation is for nonpayment of premium and 30 days prior
written notice to Agent if the cancellation is for any other reason, and that
any loss payable thereunder shall be payable notwithstanding any act or
negligence of Borrower or the Lender Group which might, absent such agreement,
result in a forfeiture of all or a part of such insurance payment and
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notwithstanding (i) occupancy or use of the Real Property for purposes more
hazardous than permitted by the terms of such policy, (ii) any foreclosure or
other action or proceeding taken by the Lender Group pursuant to the Security
Documents upon the happening of an Event of Default, or (iii) any change in
title or ownership of the Collateral. Borrower shall deliver to Agent certified
copies of such policies of insurance and evidence of the payment of all premiums
therefor.
(e) Original policies or certificates thereof satisfactory
to Agent evidencing such insurance shall be delivered to Agent prior to the
expiration of the existing or preceding policies. Borrower shall give Agent
prompt notice of any loss covered by such insurance which exceeds $100,000
individually or collectively with all other related losses. Prior to the
occurrence of an Event of Default which is continuing, Borrower shall have the
right to adjust any loss which, (i) individually or collectively with all other
related losses, is less than $100,000, (ii) is a property loss to Equipment, or
(iii) is a loss covered under Borrower's liability insurance policies. Except
for property losses to Equipment and losses covered under Borrower's liability
insurance policies, Agent shall have the exclusive right to adjust (A) any loss
which, individually or collectively with all other related losses, is $100,000
or greater, and (B) any loss from and after the occurrence of an Event of
Default which is continuing, in each case without any liability to Borrower
whatsoever in respect of such adjustments. Borrower shall be permitted to
discuss proposed adjustments of losses with its insurance carriers; provided,
however, that (I) Borrower shall not have the authority to agree to or settle
without Agent's prior written approval any loss which Agent has the exclusive
right to adjust hereunder, and (II) Agent reserves the right to adjust such
losses independently of Borrower at any time. Any monies received as payment for
any loss of or affecting any Collateral under any insurance policy including the
insurance policies mentioned above, shall be paid over to Agent for deposit into
the Agent Account to be applied, subject to the terms of the last sentence of
Section 2.9, to the Obligations in such order or manner as Agent may elect.
- -----------
(f) Borrower shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained under
this Section 6.10, unless Agent is included thereon as named insured with the
loss payable to Agent under a standard 438BFU (NS) Mortgagee endorsement, or its
local equivalent. Borrower immediately shall notify Agent whenever such separate
insurance is taken out, specifying the insurer thereunder and full particulars
as to the policies evidencing the same, and originals of such policies
immediately shall be provided to Agent.
6.11 No Setoffs or Counterclaims. Make payments hereunder and
under the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep the Inventory and
Equipment only at the locations identified on Schedule 6.12; provided, however,
------------- -------- -------
that Borrower may amend Schedule 6.12 so long as such amendment occurs by
written notice to Agent not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such
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written notification, Borrower provides any financing statements or fixture
filings necessary or advisable to perfect and continue perfected the Agent's
Liens on such assets and also provides to Agent a Collateral Access Agreement.
6.13 Compliance with Laws. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not result in and reasonably could not
be expected to result in a Material Adverse Change.
6.14 Employee Benefits.
(a) Cause to be delivered to Agent: (i) promptly, and in any
event within 10 Business Days after Borrower or any of its Subsidiaries knows or
has reason to know that an ERISA Event has occurred that reasonably could be
expected to result in a Material Adverse Change, a written statement of the
chief financial officer of Borrower describing such ERISA Event and any action
that is being taking with respect thereto by Borrower, any such Subsidiary or
ERISA Affiliate, and any action taken or threatened by the IRS, Department of
Labor, or PBGC. Borrower or such Subsidiary, as applicable, shall be deemed to
know all facts known by the administrator of any Benefit Plan of which it is the
plan sponsor, (ii) promptly, and in any event within 3 Business Days after the
filing thereof with the IRS, a copy of each funding waiver request filed with
respect to any Benefit Plan and all communications received by Borrower, any of
its Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate with
respect to such request, and (iii) promptly, and in any event within 3 Business
Days after receipt by Borrower, any of its Subsidiaries or, to the knowledge of
Borrower, any ERISA Affiliate, of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, copies of each
such notice.
(b) Cause to be delivered to Agent, upon Agent's request,
each of the following: (i) a copy of each Plan (or, where any such plan is not
in writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 Leases. Pay when due all rents and other amounts payable
under any leases to which Borrower is a party or by which Borrower's properties
and assets are bound, unless such
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payments are the subject of a Permitted Protest. To the extent that Borrower
fails timely to make payment of such rents and other amounts payable when due
under its leases, Agent shall be entitled, in its discretion, to reserve an
amount equal to such unpaid amounts against the Borrowing Base.
6.16 Broker Commissions. Pay any and all brokerage commission or
finders fees incurred or payable in connection with or as a result of Borrower's
obtaining financing from the Lender Group under this Agreement.
6.17 Certain Notices. Promptly, and in any event within 10
Business Days, immediately after Borrower or any other Loan Party becoming aware
thereof, notify Agent of (i) any actions or proceedings pending or threatened by
or against Borrower or any other Loan Party before any court or administrative
agency and any pending or threatened litigation, governmental investigation, or
claims, complaints, actions or projections involving Borrower or any other Loan
Party, (ii) Borrower's, or any other Loan Party's receipt of any summons,
citation, notice or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
Borrower or any other Loan Party resulting in the releasing or disposing of
Hazardous Materials and (iii) any claim pending or threatened to the effect that
Borrower or any other Loan Party infringes upon, or conflicts with, the asserted
rights of any other Person under any Intellectual Property, which in any such
case reasonably could be expected to result in a Material Adverse Change.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
will not, and will not permit any Loan Party to, do any of the following without
the Required Lenders' prior written consent:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together with
Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth on Schedule 7.1;
------------
(c) Indebtedness secured by Permitted Liens;
(d) Indebtedness of Borrower to any of its Subsidiaries and
of any Subsidiary of Borrower to Borrower;
(e) Indebtedness of Borrower to any Loan Party and of any
Loan Party to Borrower, provided that at all times during which such
Indebtedness is outstanding Borrower has not less than $50,000,000 of
Availability and unrestricted immediately available cash on hand and the Loan
Party incurring such Indebtedness is Solvent at the time that the same is
incurred and after giving effect thereto;
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(f) Indebtedness of a Loan Party assumed by such Loan Party
in a Permitted Acquisition from the Person the subject of the Permitted
Acquisition, provided that such indebtedness existed at the time of the
Permitted Acquisition and was not created in contemplation of such Permitted
Acquisition;
(g) unsecured Indebtedness of CCI which is not guaranteed or
secured by any other Loan Party or assets thereof, in an aggregate amount which
does not exceed $10,000,000 outstanding at any time;
(h) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), (d), (e), (f) and (g) of this Section 7.1 (and
-----------
continuance or renewal of any Permitted Liens associated therewith) so long as:
(i) the terms and conditions of such refinancings, renewals, or extensions do
not materially impair the prospects of repayment of the Obligations by Borrower,
(ii) the net cash proceeds of such refinancings, renewals, or extensions do not
result in an increase in the aggregate principal amount of the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, refundings,
or extensions do not result in a shortening of the average weighted maturity of
the Indebtedness so refinanced, renewed, or extended, and (iv) to the extent
that Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to the Lender Group as those
applicable to the refinanced Indebtedness.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(h) and so long as the replacement Liens only encumber those assets
- --------------
or property that secured the original Indebtedness).
7.3 Restrictions on Fundamental Changes.
(a) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital Stock, except for (i) a merger into
Borrower of one or more of the other Loan Parties, provided that Borrower is the
sole surviving entity and (ii) mergers of Persons the subject of a Permitted
Acquisition into Acquisition Sub or Subsidiaries of CCI which are newly-formed
for the purpose of consummating such Permitted Acquisition.
(b) Liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution).
(c) Convey, sell, assign, lease, transfer, or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its property or assets, except for (i) transfers to Borrower
of property or assets by one or more of the other Loan Parties, (ii) sales of
Inventory to buyers in the ordinary course of business as currently conducted
and (iii) Qualifying Lease Financing Transfers.
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7.4 Disposal of Assets. Sell, lease, assign, transfer, or
otherwise dispose of any of Borrower's properties or assets other than (a) sales
of Inventory to buyers in the ordinary course of Borrower's business, (b) sales
of Equipment in the ordinary course of Borrower's business that is obsolete or
no longer useful in any Loan Party's business, (c) Qualifying Lease Financing
Transfers and (d) as long as no Default or Event of Default has occurred which
is continuing, sales of shares of Stock of Cavion Technologies, Inc.
7.5 Change Name. Change Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity, or
add any new fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any way liable
with respect to the obligations of any Person except (i) by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Agent, and (ii) pursuant to the Guaranty
Agreements.
7.7 Nature of Business. Make any change in the principal nature
of Borrower's business.
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by
Section 7.1(h) to the extent permitted therein, prepay, redeem, retire, defease,
- --------------
purchase, or otherwise acquire any Indebtedness owing to any Person (including,
but not limited to, the Unsecured Notes), prior to the original scheduled
maturity date thereof, other than the Obligations in accordance with this
Agreement, or
(b) Except in connection with a refinancing permitted by
Section 7.1(h) to the extent permitted therein, directly or indirectly, amend,
- --------------
modify, alter, increase, or change any of the terms or conditions of (i) any
agreement, instrument, document, indenture, or other writing evidencing or
concerning Indebtedness permitted under Sections 7.1(b), (c), (d), (e), (f) or
-----------------------------------
(g) in any manner which creates collateral security for such Indebtedness or
- ---
expands or provides additional collateral security for such Indebtedness, or if
it results in, or reasonably could be executed to result in, a Material Adverse
Change, without the prior written consent of Agent, which shall not be withheld
unreasonably (except that (A) purchase money financing documentation may be
modified to include purchase money Liens on Equipment acquired with the proceeds
of such financing, (B) prior to the Initial Advance Effective Date, the purchase
money Inventory financing documentation with Deutsche Financial Services
Corporation may be modified to include purchase money Liens on Inventory
acquired with the proceeds of such financing, and (C) prior to the occurrence of
an Event of Default which is continuing, the documentation evidencing the
Qualifying Lease Financing Transfers may be modified to include Liens on the
leases purchased by the transferees of such leases thereunder (except that this
Section 7.8(b) shall not prohibit the creation of Indebtedness permitted
- --------------
under Section 7.1 and shall not prohibit the creation of Permitted Liens
-----------
permitted under Section 7.2), or (ii) the Unsecured Notes or the Unsecured
-----------
Notes Indenture, or any agreement, instrument or document pertaining to any
of them.
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7.9 Change of Control. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 Consignments. Consign any Inventory or sell any Inventory on
bill and hold, sale or return, sale on approval, or other conditional terms of
sale.
7.11 Distributions. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital Stock) on, or purchase,
acquire, redeem, or retire any of Loan Party's capital Stock, of any class,
whether now or hereafter outstanding; except that:
(a) any Subsidiary of Borrower may make distributions or pay
dividends to Borrower;
(b) CCI may repurchase capital Stock of CCI solely in
connection with cashless exercises of options, warrants and other convertible
securities,
(c) provided that there has not occurred a Default or Event
of Default which is continuing, and no Default or Event of Default would exist
after giving effect thereto or result therefrom, Borrower may make distributions
to CCI (i) to the extent necessary to permit CCI to pay ordinary general
administrative costs and expenses, (ii) to the extent necessary to permit CCI to
discharge the consolidated tax liabilities of CCI attributable to Borrower and
the Subsidiaries of Borrower, (iii) to the extent necessary to permit CCI to pay
cash in lieu of fractional shares of common stock pursuant to the terms of any
options, warrants or other rights to acquire shares of any class of capital
Stock of CCI, in an aggregate amount which does not exceed $150,000 in the
aggregate during any fiscal year of Borrower; and (iv) to the extent necessary
to permit CCI to pay interest, principal and mandatory repurchases under the
Unsecured Notes and the Unsecured Notes Indenture in accordance with the terms
thereof, and only to the extent required thereby, as and when the same come due;
and
(d) provided that there has not occurred a Default or Event
of Default which is continuing, no Default or Event of Default would exist after
giving effect thereto or result therefrom, and after giving effect thereto
Borrower would have Availability and unrestricted immediately available cash on
hand of at least $50,000,000:
(i) CCI may make regularly scheduled ordinary
dividend payments on the Series B Preferred Stock, no par value, of CCI, in
accordance with the terms thereof, and only to the extent required thereby, as
and when the same come due; and
(ii) Borrower may make distributions to CCI (A)
to the extent necessary to permit CCI to pay amounts required for any
repurchase, redemption or other acquisition or retirement for value of any
capital Stock of CCI or any options or rights to acquire such capital Stock
owned by any director, officer or employee of CCI pursuant to any management
equity subscription agreement or similar agreement, or otherwise upon death,
disability, retirement or termination of employment or departure from the board,
provided that the aggregate price paid
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for all such repurchased, redeemed, acquired or retired capital Stock of CCI or
options shall not exceed in the aggregate $500,000 in any calendar year.
7.12 Accounting Methods. Modify or change its method of accounting
or enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Agent information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Agent pursuant to or in accordance with this Agreement, and agrees that Agent
may contact directly any such accounting firm or service bureau in order to
obtain such information.
7.13 Investments. Directly or indirectly establish, make, acquire,
or incur any liabilities (including contingent obligations) for or in connection
with (a) any Subsidiary or the acquisition of securities (whether debt or
equity) of, or other interests in, a Person, (b) loans, advances, capital
contributions, or investments to or in a Person, or (c) the acquisition of all
or substantially all of the properties or assets of a Person; except for (i)
Permitted Acquisitions, (ii) investments made by CCI to Borrower, (iii) provided
that there has not occurred a Default or Event of Default which is continuing
and no Default or Event of Default would exist after giving effect thereto or
result therefrom, investments made by Borrower or CCI to any Subsidiary of
Borrower, (iv) investments in money market instruments which have an average
maturity of 365 days or less and are rated at least "A-1" by Standard and Poor's
Ratings Corporation or "P-1" by Moody's Investors Service, (v) the Indebtedness
permitted under Section 7.1, (vi) loans to employees of any of the Loan Parties
-----------
in an aggregate principal amount not to exceed $500,000 in the aggregate at any
time outstanding, (vii) provided that there has not occurred a Default or Event
of Default which is continuing and no Default or Event of Default would exist
after giving effect thereto or result therefrom and after giving effect thereto
Borrower would have Availability and unrestricted immediately available cash on
hand of at least $50,000,000, other investments in an aggregate amount not to
exceed $1,000,000, and (viii) Borrower's investment in existence on the date of
this Agreement of less than 1% of the issued and outstanding common Stock of
Cavion Technologies, Inc., a Colorado corporation.
7.14 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Agent, and that are
no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate; except for (a) any transaction between
Borrower and any Loan Party in the ordinary course of business, (b) reasonable
and customary indemnifications paid to members of the Boards of Directors of
CCI, Borrower and any Subsidiary of Borrower, (c) director, officer and other
employee of CCI, Borrower and any Subsidiary of Borrower compensation and other
customary arrangements entered into in the ordinary course of business as
currently conducted which do not violate Section 7.16 and are approved by the
------------
Board of Directors of CCI, (d) the transactions existing on the Closing Date
which are described on Schedule 7.14, (e) the payments permitted to be paid to
-------------
by Borrower to CCI under Section 7.11 above, and (f) loans or advances to
------------
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officers or employees of any Loan Party for reasonable moving, business
entertainment and business travel expenses, drawing accounts and similar
expenditures made in the ordinary course of business as currently conducted
which are permitted under Section 7.13.
------------
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
7.16 Compensation. Increase the annual fee or per-meeting fees
paid to directors during any year by more than 15% over the prior year; pay or
accrue total cash compensation, during any year, to officers and senior
management employees in an aggregate amount in excess of 115% of that paid,
accrued or targeted in the prior year.
7.17 Use of Proceeds. Use the proceeds of the Advances made
hereunder for any purpose other than (a) on the Initial Advance Effective Date,
(i) to repay in full the outstanding principal, accrued interest, and accrued
fees and expenses owing to Deutsche Financial Services Corporation, and (ii) to
pay transactional fees, costs, and expenses incurred in connection with this
Agreement, and (b) thereafter, consistent with the terms and conditions hereof,
for its lawful and permitted corporate purposes.
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Agent and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected the Agent's Liens and also provides to Agent a Collateral Access
Agreement with respect to such new location. The Inventory and Equipment shall
not at any time on or after the Initial Advance Effective Date be stored with a
bailee, warehouseman, or similar party without Agent's prior written consent
unless such party shall have executed a Collateral Access Agreement in favor of
Agent covering such Inventory and Equipment located at such location.
7.19 No Prohibited Transactions Under ERISA. Directly or
indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage,
in any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC for
which a statutory or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to
pay timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
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(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to
make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to
pay any required installment or any other payment required under Section 412 of
the IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a
Plan resulting in an increase in current liability for the plan year such that
either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $250,000.
7.20 Tangible Net Worth. Fail to maintain Tangible Net Worth as
of any date set forth below of at least the corresponding amount set forth
below:
Period Amount
------ ------
June 30, 2000 $41,400,000
September 30, 2000 $16,250,000
December 31, 2000 <$6,600,000>
March 31, 2001 <$34,000,000>
June 30, 2001 <$58,800,000>
September 30, 2001 <$76,650,000>
December 31, 2001 <$90,450,000>
March 31, 2002 <$102,000,000>
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June 30, 2002 and the last day of each September, <$102,000,000>
December, March and June thereafter
7.21 Capital Expenditures. Make capital expenditures in any
period set forth below in excess of the corresponding amount set forth below:
Period Amount
------ ------
January 1, 2000 through December 31, 2000 $56,000,000
January 1, 2001 through December 31, 2001 $65,000,000
January 1, 2002 through December 31, 2002 $75,000,000
Each calendar year commencing on or after $82,000,000
January 1, 2002
7.22 Benefit Plans. Directly or indirectly establish, maintain
or contribute to any Benefit Plan, except for those described on Schedule 5.13
-------------
as the same are in effect on the date of this Agreement.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower or any other Loan Party fails to pay when due and
payable or when declared due and payable, any portion of the Obligations
(whether of principal, interest (including any interest which, but for the
provisions of the Bankruptcy Code, would have accrued on such amounts), fees and
charges due the Lender Group, reimbursement of Lender Group Expenses, or other
amounts constituting Obligations); provided, however, that in the case of
Overadvances that are caused by the charging of interest, fees or Lender Group
Expenses to the Loan Account, such event shall not constitute an Event of
Default if, within 5 Business Days of incurring such Overadvance, Borrower or
any other Loan Party repays, or otherwise eliminates such Overadvance;
8.2 (a) If Borrower or any other Loan Party fails or neglects to
perform, keep, or observe any term, provision, condition, covenant, or agreement
contained in Section 6.2 (Collateral Reporting) or Section 6.3 (Financial
----------- -----------
Statements, Reports, Certificates) of this Agreement and such failure continues
for a period of 5 Business Days; (b) If Borrower or any other Loan Party fails
or neglects to perform, keep, or observe any term, provision, condition,
covenant, or agreement contained in Section 4.4 (Delivery of Additional
-----------
Documentation Required), Section 6.4 (Tax Returns), Section 6.6 (Returns),
----------- -----------
Section 6.7 (Title to Equipment), Section 6.9 (Taxes), Section 6.12 (Location of
- ----------- ----------- ------------
Inventory and Equipment), Section 6.13 (Compliance with Laws), Section 6.14
------------ ------------
(Employee Benefits), or Section 6.15 (Leases) of this
------------
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Agreement and such failure continues for a period of 5 Business Days following
the earlier of (i) the date upon which Borrower or any other Loan Party first
became aware of the occurrence of such failure or neglect, or (ii) the date on
which Borrower is notified in writing of such failure or neglect by Agent or any
of the Lender Group; (c) If Borrower or any other Loan Party fails or neglects
to perform, keep, or observe any term, provision, condition, covenant, or
agreement contained in this Agreement or in any of the other Loan Documents
(except for any such term, provision, condition, covenant or agreement that is
the subject of subclause (a), (b) or (d) of this Section 8.2 or is the subject
-----------
of another provision of this Section 8, in which event such other subclause or
---------
provision, as the case may be, shall govern) and such failure continues for a
period of 15 Business Days (without duplication, and without addition thereto,
of any grace periods, cure periods or required notices, if any, provided for in
such Loan Document) following the earlier of (i) the date upon which Borrower or
any other Loan Party first became aware of the occurrence of such failure or
neglect, or (ii) the date on which Borrower is notified in writing of such
failure or neglect by Agent or any of the Lender Group; or (d) If Borrower or
any other Loan Party fails or neglects to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in any other term,
provision, condition, covenant, or agreement contained in Section 2.7
-----------
(Collection of Accounts), Section 2.9 (Designated Account), Section 4.1 (Grant
----------- -----------
of Security Interest), Section 4.2 (Negotiable Collateral), Section 4.3
----------- -----------
(Collection of Accounts, General Intangibles, and Negotiable Collateral),
Section 4.5 (Power of Attorney), Section 4.6 (Right to Inspect), Section 6.10
- ----------- ----------- ------------
(Insurance), Section 6.11 (No Setoffs of Counterclaims), Section 6.17 (Certain
------------ ------------
Notices), or Section 7 (Negative Covenants) of this Agreement; in each case,
---------
other than any such term, provision, condition, covenant, or agreement that is
the subject of another provision of this Section 8, in which event such other
---------
provision of this Section 8 shall govern; provided that, during any period of
--------- --------
time that any such failure or neglect of Borrower or such other Loan Party
referred to in this paragraph exists, even if such failure or neglect is not yet
an Event of Default by virtue of the existence of a grace or cure period or the
pre-condition of the giving of a notice, neither Agent nor any Lender shall be
required during such period to make Advances to Borrower or issue any Letter of
Credit;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's or any other Loan
Party's properties or assets is attached, seized, subjected to a writ or
distress warrant, or is levied upon, or comes into the possession of any third
Person;
8.5 If an Insolvency Proceeding is commenced by Borrower or any
other Loan Party;
8.6 If an Insolvency Proceeding is commenced against Borrower or
any other Loan Party and any of the following events occur: (a) Borrower or such
Loan Party consents to the institution of the Insolvency Proceeding against it;
(b) the petition commencing the Insolvency Proceeding is not timely
controverted; (c) the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof; provided,
--------
however, that, during the pendency of such period, Agent, Foothill, and any
- -------
other member of the Lender Group shall be relieved of its obligation to extend
credit hereunder; (d) an interim trustee is appointed to
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take possession of all or a substantial portion of the properties or assets of,
or to operate all or any substantial portion of the business of, Borrower or
such Loan Party, as the case may be; or (e) an order for relief shall have been
issued or entered therein;
8.7 If Borrower or any other Loan Party is enjoined, restrained,
or in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;
8.8 If a notice of Lien, levy, or assessment is filed of record
with respect to any of Borrower's or any other Loan Party's properties or assets
by the United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, or if any
taxes or debts owing at any time hereafter to any one or more of such entities
becomes a Lien, whether choate or otherwise, upon any of Borrower's or any other
Loan Party's properties or assets and the same is not paid on the payment date
thereof (except to the extent that the same is the subject of a Permitted
Protest);
8.9 If a judgment or other claim, in excess of $100,000
individually or in the aggregate, becomes a Lien or encumbrance upon any
material portion of Borrower's or any other Loan Party's properties or assets
and such Lien or encumbrance remains unpaid or the enforcement or execution
thereof is not bonded and stayed in an amount and manner satisfactory to Agent;
8.10 If there is (a) a default in any material agreement to which
Borrower or any other Loan Party is a party with one or more third Persons which
reasonably could be expected to result in a Material Adverse Change, or (b) any
default under the Unsecured Notes or the Unsecured Notes Indenture which results
in a right by any one or more Persons, irrespective of whether exercised, to
accelerate the maturity of Borrower's or any other Loan Party's obligations
thereunder or require any payment or redemption thereunder other than regularly
scheduled payments of interest when due in accordance with the terms thereof, or
(c) any occurrence or existence of any event or condition which results in a
right of any one or more Persons, irrespective of whether exercised, to require
any payment or redemption (other than payments or redemptions payable only in
shares of common Stock of CCI or Series B Senior Cumulative Convertible
Preferred Stock of CCI) on, of or with respect to any shares of the Series B
Preferred Stock other than regularly scheduled payments of ordinary dividends
when due in accordance with the terms thereof;
8.11 If Borrower or any other Loan Party makes any payment on
account of Indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions applicable to such
Indebtedness;
8.12 If any material misstatement or misrepresentation exists now
or hereafter in any warranty, representation, certificate, or report made to the
Lender Group by Borrower any other Loan Party, or any officer, employee, agent,
or director of Borrower, or any other Loan Party, or if any such warranty or
representation is withdrawn;
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8.13 If the obligation of any guarantor under its guaranty or
other third Person under any Loan Document is limited or terminated by operation
of law or by the guarantor or other third Person thereunder, or any such
guarantor or other third Person becomes the subject of an Insolvency Proceeding;
or
8.14 If there occurs or exists any (a) "Change of Control" as such
term is defined in the Unsecured Notes Indenture or (b) any "Change of Control"
as such term is defined in the Articles of Amendment to the Amended and Restated
Articles of Incorporation of Convergent Communications, Inc. filed with the
Secretary of State of the State of Colorado on or about April 18, 2000 which
designate the Series B Preferred Stock and have been provided by Borrower to
Agent prior to the date of this Agreement.
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the
continuation, of an Event of Default, the Required Lenders (at their election
but without notice of their election and without demand) may, except to the
extent otherwise expressly provided or required below, authorize and instruct
Agent to do any one or more of the following on behalf of the Lender Group (and
Agent, acting upon the instructions of the Required Lenders, shall do the same
on behalf of the Lender Group), all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and the Lender Group;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of the Lender Group, but
without affecting Agent's rights and security interests, for the benefit of the
Lender Group, in the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Agent considers advisable, and
in such cases, Agent will credit Borrower's Loan Account with only the net
amounts received by Agent in payment of such disputed Accounts after deducting
all Lender Group Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust
for the Lender Group, segregate all returned Inventory from all other property
of Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of the Lender Group;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Agent considers necessary or
reasonable to protect its security interests in the Collateral. Borrower agrees
to assemble the Personal Property Collateral if Agent so
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requires, and to make the Personal Property Collateral available to Agent as
Agent may designate. Borrower authorizes Agent to enter the premises where the
Personal Property Collateral is located, to take and maintain possession of the
Personal Property Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or Lien that in Agent's determination
appears to conflict with the Agent's Liens and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned or leased
premises, Borrower hereby grants Agent a license to enter into possession of
such premises and to occupy the same, without charge, for up to 120 days in
order to exercise any of the Lender Group's rights or remedies provided herein,
at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower held
by the Lender Group (including any amounts received in the Lockbox Accounts), or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by the Lender Group;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by the Lender Group, and any amounts received in the
Lockbox Accounts, to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, sell (in the manner provided for herein),
bill as to and effect collection of the Personal Property Collateral. Borrower
hereby grants to Agent a license and right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks and advertising matter, or any property of a
similar nature as it pertains to the Personal Property Collateral, in completing
production of, advertising for sale, selling, billing as to and collection of
any Personal Property Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to the Lender Group's benefit;
(j) Sell the Personal Property Collateral at either a public
or private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Agent determines is commercially reasonable. It is not necessary
that the Personal Property Collateral be present at any such sale;
(k) Agent shall give notice of the disposition of the
Personal Property Collateral as follows:
(1) Agent shall give Borrower and each holder of a
security interest in the Personal Property Collateral who has filed with Agent a
written request for notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other disposition other than a
public sale is to be made of the Personal Property Collateral, then the time on
or after which the private sale or other disposition is to be made;
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(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least 5 days
----------
before the date fixed for the sale, or at least 5 days before the date on or
after which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Personal Property
Collateral that is perishable or threatens to decline speedily in value or that
is of a type customarily sold on a recognized market. Notice to Persons other
than Borrower claiming an interest in the Personal Property Collateral shall be
sent to such addresses as they have furnished to Agent;
(3) If the sale is to be a public sale, Agent also
shall give notice of the time and place by publishing a notice one time at least
5 days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
(l) The Lender Group may credit bid and purchase at any
public sale;
(m) The Lender Group shall have all other rights and
remedies available to it at law or in equity pursuant to any other Loan
Documents; and
(n) Any deficiency that exists after disposition of the
Personal Property Collateral as provided above will be paid immediately by
Borrower. Any excess will be returned, without interest and subject to the
rights of third Persons, by Agent to Borrower.
9.2 Remedies Cumulative. The rights and remedies of the Lender
Group under this Agreement, the other Loan Documents, and all other agreements
shall be cumulative. The Lender Group shall have all other rights and remedies
not inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender Group shall constitute a waiver,
election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Agent
determines that such failure by Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrower, Agent may do any
or all of the following: (a) make payment of the same or any part thereof; (b)
set up such reserves in Borrower's Loan Account as Agent deems necessary to
protect the Lender Group from the exposure created by such failure; or (c)
obtain and maintain insurance policies of the type described in Section 6.10,
------------
and take any action with respect to such policies as Agent deems prudent. Any
such amounts paid by Agent shall constitute Lender Group Expenses. Any such
payments made by Agent shall not constitute an agreement by the Lender Group to
make similar payments in the future or a waiver by the Lender Group of any Event
of Default under this Agreement. Agent need not inquire as to, or contest the
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validity of, any such expense, tax, or Lien and the receipt of the usual
official notice for the payment thereof shall be conclusive evidence that the
same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by the Lender Group on which Borrower may in any way be liable.
11.2 The Lender Group's Liability for Collateral. Borrower hereby
agrees that: (a) so long as the Lender Group complies with its obligations, if
any, under Section 9207 of the Code, the Lender Group shall not in any way or
manner be liable or responsible for: (i) the safekeeping of the Collateral; (ii)
any loss or damage thereto occurring or arising in any manner or fashion from
any cause; (iii) any diminution in the value thereof; or (iv) any act or default
of any carrier, warehouseman, bailee, forwarding agency, or other Person; and
(b) all risk of loss, damage, or destruction of the Collateral shall be borne by
Borrower.
11.3 Indemnification. Borrower shall pay, indemnify, defend, and
hold the Agent-Related Persons, the Lender-Related Persons with respect to each
Lender, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
------------
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the other Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to the relevant party at
its address set forth below:
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If to Borrower: CONVERGENT COMMUNICATIONS
SERVICES, INC.
400 Inverness Drive South, Suite 400
Englewood, Colorado 80112
Attn: Legal Department
Fax No. 303.749.2822
with copies to: GIBSON, DUNN & CRUTCHER LLP
1801 California Street, Suite 4200
Denver, Colorado
Attn: Richard M. Russo, Esq.
Fax No. 303.313.2838
If to Agent or
the Lender Group
in care of Agent: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. 310.478.9788
with copies to: PATTON BOGGS LLP
2001 Ross Avenue
Suite 3000
Dallas, Texas 75201
Attn: James C. Chadwick, Esq.
Fax No. 214.758.1550
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to all other
parties. All notices or demands sent in accordance with this Section 12, other
----------
than notices by the Lender Group in connection with Sections 9504 or 9505 of the
Code, shall be deemed received (a) if delivered in person, when received; (b) if
delivered by telefacsimile, on the date of transmission, answerback received, if
transmitted on a Business Day before 3:00 p.m. (California time), or, if not, on
the next succeeding Business Day following such transmission, answerback
received; (c) if delivered by overnight courier that obtains signed proof of
delivery, two (2) Business Days after delivery to such courier properly
addressed; or (d) if by registered or certified mail, upon receipt. Borrower
acknowledges and agrees that notices sent by the Lender Group in connection with
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or personally delivered, or, where permitted by law, transmitted
telefacsimile or other similar method set forth above.
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13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE
OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
-------- -------
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF
ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND THE LENDER GROUP WAIVE,
TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT
THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
--------------------
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.
----------
BORROWER AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND THE LENDER GROUP REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to any one or more members of the Lender Group may be destroyed or otherwise
disposed of by such member of the Lender Group 4 months after they are delivered
to or received by such member of the Lender Group, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
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15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
15.1 Assignments and Participations.
(a) Any Lender may, with the written consent of Agent, assign
and delegate to one or more assignees (provided that no written consent of Agent
shall be required in connection with any assignment and delegation by a Lender
to an Eligible Transferee) (each an "Assignee") all, or any ratable part of all,
of the Obligations, the Commitments and the other rights and obligations of such
Lender hereunder and under the other Loan Documents, in a minimum amount of
$5,000,000; provided, however, that Borrower and Agent may continue to deal
-------- -------
solely and directly with such Lender in connection with the interest so assigned
to an Assignee until (i) written notice of such assignment, together with
payment instructions, addresses and related information with respect to the
Assignee, shall have been given to Borrower and Agent by such Lender and the
Assignee; (ii) such Lender and its Assignee shall have delivered to Borrower and
Agent an Assignment and Acceptance ("Assignment and Acceptance") in form and
substance satisfactory to Agent; and (iii) the assignor Lender or Assignee has
paid to Agent for Agent's sole and separate account a processing fee in the
amount of $5,000. Anything contained herein to the contrary notwithstanding, the
consent of Agent shall not be required (and payment of any fees shall not be
required) if such assignment is in connection with any merger, consolidation,
sale, transfer, or other disposition of all or any substantial portion of the
business or loan portfolio of such Lender.
(b) From and after the date that Agent notifies the assignor
Lender that it has received an executed Assignment and Acceptance and payment of
the above-referenced processing fee, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Lender under the Loan Documents, and (ii) the assignor
Lender shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights (except with respect to Section 11.3 hereof)
------------
and be released from its obligations under this Agreement (and in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement and the other Loan
Documents, such Lender shall cease to be a party hereto and thereto), and such
assignment shall effect a novation between Borrower and the Assignee.
(c) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (1) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto; (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower or the performance or observance by Borrower of any of its obligations
under this Agreement or any other Loan Document furnished pursuant hereto; (3)
such Assignee
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confirms that it has received a copy of this Agreement, together with such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (4) such
Assignee will, independently and without reliance upon Agent, such assigning
Lender or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (5) such Assignee appoints and
authorizes Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (6) such
Assignee agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
(d) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
--- -----
(e) Any Lender may at any time, with the written consent of
Agent, sell to one or more commercial banks, financial institutions, or other
Persons not Affiliates of such Lender (a "Participant") participating interests
in the Obligations, the Commitment, and the other rights and interests of that
Lender (the "originating Lender") hereunder and under the other Loan Documents
(provided that no written consent of Agent shall be required in connection with
any sale of any such participating interests by a Lender to an Eligible
Transferee); provided, however, that (i) the originating Lender's obligations
-------- -------
under this Agreement shall remain unchanged, (ii) the originating Lender shall
remain solely responsible for the performance of such obligations, (iii)
Borrower and Agent shall continue to deal solely and directly with the
originating Lender in connection with the originating Lender's rights and
obligations under this Agreement and the other Loan Documents, (iv) no Lender
shall transfer or grant any participating interest under which the Participant
has the sole and exclusive right to approve any amendment to, or any consent or
waiver with respect to, this Agreement or any other Loan Document, except to the
extent such amendment to, or consent or waiver with respect to this Agreement or
of any other Loan Document would (A) extend the final maturity date of the
Obligations hereunder in which such Participant is participating; (B) reduce the
interest rate applicable to the Obligations hereunder in which such Participant
is participating; (C) release all or a material portion of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating; (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through such Lender; or (E) change
the amount or due dates of scheduled principal repayments or prepayments or
premiums; and (v) all amounts payable by Borrower hereunder shall be determined
as if such Lender had not sold such participation; except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement. The rights of any Participant only shall be
derivative through the originating Lender with whom such Participant
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participates and no Participant shall have any direct rights as to the other
Lenders, Agent, Borrower, the Collections, the Collateral, or otherwise in
respect of the Obligations. No Participant shall have the right to participate
directly in the making of decisions by the Lenders among themselves.
(f) In connection with any such assignment or participation or
proposed assignment or participation, a Lender may disclose all documents and
information which it now or hereafter may have relating to Borrower or
Borrower's business.
(g) Any other provision in this Agreement notwithstanding, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement in favor of any
Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank
or U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
15.2 Successors. This Agreement shall bind and inure to the benefit
of the respective successors and assigns of each of the parties; provided,
--------
however, that Borrower may not assign this Agreement or any rights or duties
- -------
hereunder without the Lenders' prior written consent and any prohibited
assignment shall be absolutely void ab initio. No consent to assignment by the
Lenders shall release Borrower from its Obligations. A Lender may assign this
Agreement and the other Loan Documents and its rights and duties hereunder and
thereunder pursuant to Section 15.1 hereof and, except as expressly required
------------
pursuant to Section 15.1 hereof, no consent or approval by Borrower is required
------------
in connection with any such assignment.
16. AMENDMENTS; WAIVERS.
16.1 Amendments and Waivers. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Required Lenders (or by Agent at the written request
of the Required Lenders) and Borrower and then any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such waiver, amendment, or consent
-------- -------
shall, unless in writing and signed by all the Lenders and Borrower and
acknowledged by Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or other
amounts due to the Lenders (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or any fees or other amounts payable hereunder or under any
other Loan Document;
(d) change the percentage of the Commitments that is required
for the Lenders or any of them to take any action hereunder;
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(f) amend this Section or any provision of the Agreement
providing for consent or other action by all Lenders;
(g) release Collateral other than as permitted by Section 17.11;
-------------
(h) increase the sublimit for credit available against Eligible
Inventory (currently contained in clause (y) of Section 2.1(a));
--------------
(i) change the definition of "Required Lenders";
(j) release Borrower from any Obligation for the payment of
money; or
(k) amend any of the provisions of Article 17.
----------
and, provided further, however, that no amendment, waiver or consent shall,
-------- ------- -------
unless in writing and signed by Agent, affect the rights or duties of Agent
under this Agreement or any other Loan Document; and, provided further, however,
-------- ------- -------
that no amendment, waiver or consent shall, unless in writing and signed by
Foothill in its individual capacity as a Lender, affect the specific rights or
duties of Foothill in its individual capacity as a Lender (as contrasted with
rights or duties of Foothill as a member of the Lender Group) under this
Agreement or any other Loan Document. The foregoing notwithstanding, any
amendment, modification, waiver, consent, termination, or release of or with
respect to any provision of this Agreement or any other Loan Document that
relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of Borrower, shall not require consent
by or the agreement of Borrower.
16.2 No Waivers; Cumulative Remedies. No failure by Agent or any
Lender to exercise any right, remedy, or option under this Agreement, any other
Loan Document, or any present or future supplement hereto or thereto, or in any
other agreement between or among Borrower and Agent or any Lender, or delay by
Agent or any Lender in exercising the same, will operate as a waiver thereof. No
waiver by Agent or any Lender will be effective unless it is in writing, and
then only to the extent specifically stated. No waiver by Agent or the Lenders
on any occasion shall affect or diminish Agent's and each Lender's rights
thereafter to require strict performance by Borrower of any provision of this
Agreement. Agent's and each Lender's rights under this Agreement and the other
Loan Documents will be cumulative and not exclusive of any other right or remedy
which Agent or any Lender may have.
17. AGENT; THE LENDER GROUP.
17.1 Appointment and Authorization of Agent. Each Lender hereby
designates and appoints Foothill as its agent under this Agreement and the other
Loan Documents and each Lender hereby irrevocably authorizes Agent to take such
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other
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Loan Document, together with such powers as are reasonably incidental thereto.
Agent agrees to act as such on the express conditions contained in this Article
-------
17. The provisions of this Article 17 are solely for the benefit of Agent and
- -- ----------
the Lenders, and Borrower shall have no rights as a third party beneficiary of
any of the provisions contained herein; provided, however, that certain of the
-------- -------
provisions of Section 17.10 hereof also shall be for the benefit of Borrower.
-------------
Any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document notwithstanding, Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall Agent have
or be deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against Agent; it being expressly understood and agreed that the use of the word
"Agent" is for convenience only, that Foothill is merely the representative of
the Lenders, and has only the contractual duties set forth herein. Except as
expressly otherwise provided in this Agreement, Agent shall have and may use its
sole discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions which Agent
is expressly entitled to take or assert under or pursuant to this Agreement and
the other Loan Documents. Without limiting the generality of the foregoing, or
of any other provision of the Loan Documents that provides rights or powers to
Agent, Lenders agree that Agent shall have the right to exercise the following
powers as long as this Agreement remains in effect: (a) maintain, in accordance
with its customary business practices, ledgers and records reflecting the status
of the Advances and the Letters of Credit, the Collateral, the Collections, and
related matters; (b) execute or file any and all financing or similar statements
or notices, amendments, renewals, supplements, documents, instruments, proofs of
claim, notices and other written agreements with respect to the Loan Documents;
(c) make Advances and the Letters of Credit, for itself or on behalf of Lenders
as provided in the Loan Documents; (d) exclusively receive, apply, and
distribute the Collections as provided in the Loan Documents; (e) open and
maintain such bank accounts and lock boxes as Agent deems necessary and
appropriate in accordance with the Loan Documents for the foregoing purposes
with respect to the Collateral and the Collections; (f) perform, exercise, and
enforce any and all other rights and remedies of the Lender Group with respect
to Borrower, the Obligations, the Collateral, the Collections, or otherwise
related to any of same as provided in the Loan Documents; and (g) incur and pay
such Lender Group Expenses as Agent may deem necessary or appropriate for the
performance and fulfillment of its functions and powers pursuant to the Loan
Documents.
17.2 Delegation of Duties. Except as otherwise provided in this
section, Agent may execute any of its duties under this Agreement or any other
Loan Document by or through agents, employees or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
Agent shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects as long as such selection was made in
compliance with this section and without gross negligence or willful misconduct.
17.3 Liability of Agent. None of the Agent-Related Persons shall (i)
be liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by Borrower or any Subsidiary
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or Affiliate of Borrower, or any officer or director thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by Agent
under or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of Borrower or any of
Borrower's Subsidiaries or Affiliates.
17.4 Reliance by Agent. Agent shall be entitled to rely, and shall
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent, or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to Borrower
or counsel to any Lender), independent accountants and other experts selected by
Agent. Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Loan Document unless it shall first receive
such advice or concurrence of the Lenders as it deems appropriate and until such
instructions are received, Agent shall act, or refrain from acting, as it deems
advisable. If Agent so requests, it shall first be indemnified to its reasonable
satisfaction by Lenders against any and all liability and expense that may be
incurred by it by reason of taking or continuing to take any such action. Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement or any other Loan Document in accordance with a request or
consent of the Lenders and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Lenders.
17.5 Notice of Default or Event of Default. Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest,
fees, and expenses required to be paid to Agent for the account of the Lenders,
except with respect to Events of Default of which Agent has actual knowledge,
unless Agent shall have received written notice from a Lender or Borrower
referring to this Agreement, describing such Default or Event of Default, and
stating that such notice is a "notice of default." Agent promptly will notify
the Lenders of its receipt of any such notice or of any Event of Default of
which Agent has actual knowledge. If any Lender obtains actual knowledge of any
Event of Default, such Lender promptly shall notify the other Lenders and Agent
of such Event of Default. Each Lender shall be solely responsible for giving any
notices to its Participants, if any. Subject to Section 17.4, Agent shall take
------------
such action with respect to such Default or Event of Default as may be requested
by the Required Lenders in accordance with Section 9; provided, however, that
--------- -------- -------
unless and until Agent has received any such request, Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable.
17.6 Credit Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by Agent
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hereinafter taken, including any review of the affairs of Borrower and its
Subsidiaries or Affiliates, shall be deemed to constitute any representation or
warranty by any Agent-Related Person to any Lender. Each Lender represents to
Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of
Borrower and any other Person (other than the Lender Group) party to a Loan
Document, and all applicable bank regulatory laws relating to the transactions
contemplated hereby, and made its own decision to enter into this Agreement and
to extend credit to Borrower. Each Lender also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of Borrower and any other Person (other than the Lender Group)
party to a Loan Document. Except for notices, reports and other documents
expressly herein required to be furnished to the Lenders by Agent, Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of Borrower and any other
Person party to a Loan Document that may come into the possession of any of the
Agent-Related Persons.
17.7 Costs and Expenses; Indemnification. Agent may incur and pay Lender
Group Expenses to the extent Agent deems reasonably necessary or appropriate for
the performance and fulfillment of its functions, powers, and obligations
pursuant to the Loan Documents, including without limiting the generality of the
foregoing, court costs, reasonable attorneys fees and expenses, costs of
collection by outside collection agencies and auctioneer fees and costs of
security guards or insurance premiums paid to maintain the Collateral, whether
or not Borrower is obligated to reimburse Agent or Lenders for such expenses
pursuant to the Loan Agreement or otherwise. Agent is authorized and directed
to deduct and retain sufficient amounts from Collections to reimburse Agent for
such out-of-pocket costs and expenses prior to the distribution of any amounts
to Lenders. In the event Agent is not reimbursed for such costs and expenses
from Collections, each Lender hereby agrees that it is and shall be obligated to
pay to or reimburse Agent for the amount of such Lender's Pro Rata Share
thereof. Whether or not the transactions contemplated hereby are consummated,
the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent
not reimbursed by or on behalf of Borrower and without limiting the obligation
of Borrower to do so), according to their Pro Rata Shares, from and against any
and all Indemnified Liabilities; provided, however, that no Lender shall be
-------- -------
liable for the payment to the Agent-Related Persons of any portion of such
Indemnified Liabilities resulting solely from such Person's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender shall
reimburse Agent upon demand for its ratable share of any costs or out-of-pocket
expenses (including attorneys fees and expenses) incurred by Agent in connection
with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement, any other Loan Document, or any document contemplated by or
referred to herein, to the extent that Agent is not reimbursed for such expenses
by or on behalf of Borrower. The
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undertaking in this section shall survive the payment of all Obligations
hereunder and the resignation or replacement of Agent.
17.8 Agent in Individual Capacity. Foothill and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with Borrower and its
Subsidiaries and Affiliates and any other Person (other than the Lender Group)
party to any Loan Documents as though Foothill were not Agent hereunder and
without notice to or consent of the Lenders. The Lenders acknowledge that,
pursuant to such activities, Foothill or its Affiliates may receive information
regarding Borrower or its Affiliates and any other Person (other than the Lender
Group) party to any Loan Documents that is subject to confidentiality
obligations in favor of Borrower or such other Person and that prohibit the
disclosure of such information to the Lenders, and the Lenders acknowledge that,
in such circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver Agent will use its reasonable best efforts to obtain),
Agent shall be under no obligation to provide such information to them. With
respect to the Foothill Loans and Agent Advances, Foothill shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not Agent, and the terms "Lender" and "Lenders" include
Foothill in its individual capacity.
17.9 Successor Agent. Agent may resign as Agent upon 45 days notice to
the Lenders. If Agent resigns under this Agreement, the Required Lenders shall
appoint a successor Agent for the Lenders. If no successor Agent is appointed
prior to the effective date of the resignation of Agent, Agent may appoint,
after consulting with the Lenders, a successor Agent. If Agent has materially
breached or failed to perform any material provision of this Agreement or of
applicable law, the Required Lenders may agree in writing to remove and replace
Agent with a successor Agent from among the Lenders. In any such event, upon the
acceptance of its appointment as successor Agent hereunder, such successor Agent
shall succeed to all the rights, powers and duties of the retiring Agent and the
term "Agent" shall mean such successor Agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 17 shall
----------
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement. If no successor Agent has accepted
appointment as Agent by the date which is 45 days following a retiring Agent's
notice of resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective and the Lenders shall perform all of the duties of
Agent hereunder until such time, if any, as the Lenders appoint a successor
Agent as provided for above.
17.10 Withholding Tax. (a) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the IRC and such Lender claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the IRC, such Lender agrees with and in favor of Agent and Borrower, to
deliver to Agent and Borrower:
(i) if such Lender claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty, properly
completed IRS Forms 1001 and W-8 before the payment of any interest in the first
calendar year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this Agreement;
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(ii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Lender, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Lender and in each succeeding
taxable year of such Lender during which interest may be paid under this
Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under
the IRC or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees promptly to notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of Borrower to such Lender, such Lender agrees to
notify Agent of the percentage amount in which it is no longer the beneficial
owner of Obligations of Borrower to such Lender. To the extent of such
percentage amount, Agent will treat such Lender's IRS Form 1001 as no longer
valid.
(c) If any Lender claiming exemption from United States
withholding tax by filing IRS Form 4224 with Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
Borrower to such Lender, such Lender agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the IRC.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, Agent may withhold from any interest payment to such Lender an
amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to Agent, then Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Lender shall indemnify Agent fully for all amounts paid, directly
or indirectly, by Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the amounts payable to
Agent under this Section, together with all costs and expenses (including
attorneys fees and expenses). The obligation of the Lenders under this
subsection shall survive the payment of all Obligations and the resignation or
replacement of Agent.
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17.11 Collateral Matters.
(a) The Lenders hereby irrevocably authorize Agent, at its
option and in its sole discretion, to release any Lien on any Collateral (i)
upon the termination of the Commitments and payment and satisfaction in full by
Borrower of all Obligations; (ii) constituting property being sold or disposed
of if a release is required or desirable in connection therewith and if Borrower
certifies to Agent that the sale or disposition is permitted under Section 7 of
---------
this Agreement or the other Loan Documents (and Agent may rely conclusively on
any such certificate, without further inquiry); (iii) constituting property in
which Borrower owned no interest at the time the security interest was granted
or at any time thereafter; or (iv) constituting property leased to Borrower
under a lease that has expired or is terminated in a transaction permitted under
this Agreement. Except as provided above, Agent will not execute and deliver a
release of any Lien on any Collateral without the prior written authorization of
(y) if the release is of all or substantially all of the Collateral, of all of
the Lenders, or (z) otherwise, the Required Lenders. Upon request by Agent or
Borrower at any time, the Lenders will confirm in writing Agent's authority to
release any such Liens on particular types or items of Collateral pursuant to
this Section 17.11; provided, however, that (1) Agent shall not be required
------------- -------- -------
to execute any document necessary to evidence such release on terms that, in
Agent's opinion, would expose Agent to liability or create any obligation or
entail any consequence other than the release of such Lien without recourse,
representation, or warranty, and (2) such release shall not in any manner
discharge, affect, or impair the Obligations or any Liens (other than those
expressly being released) upon (or obligations of Borrower in respect of) all
interests retained by Borrower, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.
(b) Agent shall have no obligation whatsoever to any of the
Lenders to assure that the Collateral exists or is owned by Borrower or is cared
for, protected, or insured or has been encumbered, or that the Agent's Liens
have been properly or sufficiently or lawfully created, perfected, protected, or
enforced or are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent pursuant to any of the Loan Documents, it being understood
and agreed that in respect of the Collateral, or any act, omission or event
related thereto, subject to the terms and conditions contained herein, Agent may
act in any manner it may deem appropriate, in its sole discretion given Agent's
own interest in the Collateral in its capacity as one of the Lenders and that
Agent shall have no other duty or liability whatsoever to any Lender as to any
of the foregoing, except as otherwise provided herein.
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17.12 Restrictions on Actions by Lenders; Sharing of Payments. (a)
Each of the Lenders agrees that it shall not, without the express consent of
Agent, and that it shall, to the extent it is lawfully entitled to do so, upon
the request of Agent, set off against the Obligations, any amounts owing by such
Lender to Borrower or any accounts of Borrower now or hereafter maintained with
such Lender. Each of the Lenders further agrees that it shall not, unless
specifically requested to do so by Agent, take or cause to be taken any action,
including, the commencement of any legal or equitable proceedings, to foreclose
any Lien on, or otherwise enforce any security interest in, any of the
Collateral the purpose of which is, or could be, to give such Lender any
preference or priority against the other Lenders with respect to the Collateral.
(b) Subject to Section 17.8, if, at any time or times any
------------
Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any
proceeds of Collateral or any payments with respect to the Obligations arising
under, or relating to, this Agreement or the other Loan Documents, except for
any such proceeds or payments received by such Lender from Agent pursuant to the
terms of this Agreement, or (ii) payments from Agent in excess of such Lender's
ratable portion of all such distributions by Agent, such Lender promptly shall
(1) turn the same over to Agent, in kind, and with such endorsements as may be
required to negotiate the same to Agent, or in same day funds, as applicable,
for the account of all of the Lenders and for application to the Obligations in
accordance with the applicable provisions of this Agreement, or (2) purchase,
without recourse or warranty, an undivided interest and participation in the
Obligations owed to the other Lenders so that such excess payment received shall
be applied ratably as among the Lenders in accordance with their Pro Rata
Shares; provided, however, that if all or part of such excess payment received
-------- -------
by the purchasing party is thereafter recovered from it, those purchases of
participations shall be rescinded in whole or in part, as applicable, and the
applicable portion of the purchase price paid therefor shall be returned to such
purchasing party, but without interest except to the extent that such purchasing
party is required to pay interest in connection with the recovery of the excess
payment.
17.13 Agency for Perfection. Agent and each Lender hereby appoints each
other Lender as agent for the purpose of perfecting the Agent's Liens in assets
which, in accordance with Article 9 of the UCC can be perfected only by
possession. Should any Lender obtain possession of any such Collateral, such
Lender shall notify Agent thereof, and, promptly upon Agent's request therefor
shall deliver such Collateral to Agent or in accordance with Agent's
instructions.
17.14 Payments by Agent to the Lenders. All payments to be made by Agent
to the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds to:
If to Foothill: The Chase Manhattan Bank
ABA # 021-000-021
Credit: Foothill Capital Corporation
Account No. 323-266193
Re: Convergent Communications
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or pursuant to such other wire transfer instructions as each party may designate
for itself by written notice to Agent. Concurrently with each such payment,
Agent shall identify whether such payment (or any portion thereof) represents
principal, premium or interest on revolving advances or otherwise.
17.15 Concerning the Collateral and Related Loan Documents. Each
member of the Lender Group authorizes and directs Agent to enter into this
Agreement and the other Loan Documents relating to the Collateral, for the
benefit of the Lender Group. Each member of the Lender Group agrees that any
action taken by Agent or all Lenders, as applicable, in accordance with the
terms of this Agreement or the other Loan Documents relating to the Collateral
and the exercise by Agent or all Lenders, as applicable, of their respective
powers set forth therein or herein, together with such other powers that are
reasonably incidental thereto, shall be binding upon all of the Lenders.
17.16 Field Audits and Examination Reports; Confidentiality;
Disclaimers by Lenders; Other Reports and Information. By signing this
Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such
Lender, promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by
Agent, and Agent shall so furnish each Lender with such Reports;
(b) expressly agrees and acknowledges that neither Foothill
nor Agent (i) makes any representation or warranty as to the accuracy of any
Report, or (ii) shall be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or other party performing any
audit or examination will inspect only specific information regarding Borrower
and will rely significantly upon Borrower's books and records, as well as on
representations of Borrower's personnel;
(d) agrees to keep all Reports and other material, non-public
information regarding Borrower and its Subsidiaries and their operations,
assets, and existing and contemplated business plans in a confidential manner;
it being understood and agreed by Borrower that in any event such Lender may
make disclosures (a) to counsel for and other advisors, accountants, and
auditors to such Lender, (b) reasonably required by any bona fide potential
---- ----
or actual Assignee, transferee, or Participant in connection with any
contemplated or actual assignment or transfer by such Lender of an interest
herein or any participation interest in such Lender's rights hereunder, (c) of
information that has become public by disclosures made by Persons other than
such Lender, its Affiliates, assignees, transferees, or participants, or (d) as
required or requested by any court, governmental or administrative agency,
pursuant to any subpoena or other legal process, or by any law, statute,
regulation, or court order; provided, however, that, unless prohibited by
-------- -------
applicable law, statute, regulation, or court order, such Lender shall notify
Borrower of any request by any court, governmental or administrative agency, or
pursuant to any subpoena or other legal process for
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disclosure of any such non-public material information concurrent with, or where
practicable, prior to the disclosure thereof; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold Agent
and any such other Lender preparing a Report harmless from any action the
indemnifying Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that the indemnifying Lender has made or may make to Borrower, or the
indemnifying Lender's participation in, or the indemnifying Lender's purchase
of, a loan or loans of Borrower; and (ii) to pay and protect, and indemnify,
defend and hold Agent and any such other Lender preparing a Report harmless from
and against, the claims, actions, proceedings, damages, costs, expenses and
other amounts (including, attorney costs) incurred by Agent and any such other
Lender preparing a Report as the direct or indirect result of any third parties
who might obtain all or part of any Report through the indemnifying Lender.
In addition to the foregoing: (x) Any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower to Agent that has not been contemporaneously
provided by Borrower to such Lender, and, upon receipt of such request, Agent
shall provide a copy of same to such Lender promptly upon receipt thereof from
Borrower; (y) To the extent that Agent is entitled, under any provision of the
Loan Documents, to request additional reports or information from Borrower, any
Lender may, from time to time, reasonably request Agent to exercise such right
as specified in such Lender's notice to Agent, whereupon Agent promptly shall
request of Borrower the additional reports or information specified by such
Lender, and, upon receipt thereof from Borrower, Agent promptly shall provide a
copy of same to such Lender; and (z) Any time that Agent renders to Borrower a
statement regarding the Loan Account, Agent shall send a copy of such statement
to each Lender.
17.17 Several Obligations; No Liability. Notwithstanding that
certain of the Loan Documents now or hereafter may have been or will be executed
only by or in favor of Agent in its capacity as such, and not by or in favor of
the Lenders, any and all obligations on the part of Agent (if any) to make any
credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any interest
in, or subject any Lender to any liability for, or in respect of, the business,
assets, profits, losses, or liabilities of any other Lender. Each Lender shall
be solely responsible for notifying its Participants of any matters relating to
the Loan Documents to the extent any such notice may be required, and no Lender
shall have any obligation, duty, or liability to any Participant of any other
Lender. Except as provided in Section 17.7, no member of the Lender Group shall
------------
have any liability for the acts or any other member of the Lender Group. No
Lender shall be responsible to Borrower or any other Person for any failure by
any other Lender to fulfill its obligations to make credit available hereunder,
nor to advance for it or on its behalf in connection with its Commitment, nor to
take any other action on its behalf hereunder or in connection with the
financing contemplated herein.
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18. GENERAL PROVISIONS.
18.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Borrower and each member of the Lender Group whose
signature is provided for on the signature pages hereof.
18.2 Section Headings. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
18.3 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against the Lender Group or
Borrower, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
18.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
18.5 Amendments in Writing. This Agreement can only be amended by a
writing signed by Agent, the requisite Lenders, and Borrower.
18.6 Counterparts; Telefacsimile Execution. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The forgoing shall apply to each other Loan Document mutatis
mutandis.
18.7 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to the Lender Group of any
property of either or both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable Transfer"), and if
the Lender Group is required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to do so upon the reasonable advice of its counsel,
then, as to any such Voidable Transfer, or the amount thereof that the Lender
Group is required or elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of the Lender Group related thereto, the liability
of Borrower or such guarantor automatically shall be
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revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
18.8 Integration. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed.
CONVERGENT COMMUNICATIONS
SERVICES, INC., a Colorado corporation
By: /s/ Brian R. Ervine
____________________________________________
Brian R. Ervine
Executive Vice President and Chief Financial Officer
FOOTHILL CAPITAL CORPORATION,
a California corporation, as Agent for the Lenders
By: /s/ Rhonda Foreman
_____________________________________________
Rhonda Foreman
Senior Vice President
FOOTHILL CAPITAL CORPORATION,
a California corporation, as a Lender
By: /s/ Rhonda Foreman
_____________________________________________
Rhonda Foreman
Senior Vice President
<PAGE>
EXHIBIT 10.13
SECURED CONTINUING GUARANTY
---------------------------
[CONVERGENT COMMUNICATIONS, INC.]
FOR VALUE RECEIVED, and in consideration of any loan or other financial
accommodation heretofore or hereafter at any time made or granted to CONVERGENT
COMMUNICATIONS SERVICES, INC., a Colorado corporation ("Borrower"), by FOOTHILL
CAPITAL CORPORATION, a California corporation ("Foothill") and by other lenders
(Foothill and such other lenders are hereinafter referred to, individually and
collectively, as "Lenders") which are or become parties to the Loan and Security
Agreement dated on or about the date hereof (as the same may be amended,
restated, supplemented, or otherwise modified from time to time, the "Loan
Agreement"), by and among Borrower, Lenders and Foothill as agent for Lenders
(Foothill in such capacity being hereinafter referred to as "Agent"), and by
Agent, the undersigned, CONVERGENT COMMUNICATIONS, INC., a Colorado corporation
("Guarantor") (Guarantor being the legal and beneficial owner of all of the
issued and outstanding capital stock of Borrower which due to its close
business, financial and ownership relationships with Borrower will receive
significant benefits from the loans and other financial accommodations made or
granted to Borrower under the Loan Agreement), hereby agrees as follows:
1. Guaranty of Obligations. Guarantor unconditionally, absolutely and
irrevocably guarantees the full and prompt payment and performance when due,
whether by acceleration or otherwise, and at all times thereafter, of all
obligations of Borrower to Lenders and Agent, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, or now or
hereafter existing or due or to become due under or in connection with the Loan
Agreement and each of the documents, instruments and agreements executed and
delivered in connection with the Loan Agreement, as each may be modified,
amended, supplemented or replaced from time to time (all such obligations are
herein referred to, collectively, as the "Liabilities", and all documents
evidencing or securing any of the Liabilities are herein referred to,
collectively, as the "Loan Documents"). This Secured Continuing Guaranty (this
"Continuing Guaranty") is a guaranty of payment and performance when due and not
of collection.
In the event of any default by Borrower in making payment of, or
default by Borrower in performance of, any of the Liabilities, Guarantor agrees
on demand by Agent to pay and perform all of the Liabilities as are then or
thereafter become due and owing or are to be performed under the terms of the
Loan Documents. Guarantor further agrees to pay all expenses (including
reasonable attorneys' fees and expenses) paid or incurred by Agent or Lenders in
endeavoring to collect the Liabilities, or any part thereof, and in enforcing
this Continuing Guaranty.
2. Security for Continuing Guaranty. This Continuing Guaranty is
secured by various deeds of trust and/or mortgages and/or security agreements
and/or pledge agreements and/or assignments executed by Guarantor
(collectively, the "Security Document").
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3. [This Paragraph is intentionally omitted.]
4. [This Paragraph is intentionally omitted.]
5. Continuing Nature of Guaranty and Liabilities. This Continuing
Guaranty shall be continuing and shall not be discharged, impaired or affected
by:
a. the insolvency of Guarantor or the payment in full of all of the
Liabilities at any time or from time to time;
b. the power or authority or lack thereof of Borrower to incur the
Liabilities;
c. the validity or invalidity of any of the Loan Documents or the
documents securing the same;
d. the existence or non-existence of Borrower as a legal entity;
e. any transfer by Borrower of all or any part of any collateral in
which Lender has been granted a lien or security interest pursuant to the Loan
Documents;
f. any statute of limitations affecting the liability of Guarantor
under this Continuing Guaranty or the Loan Documents or the ability of Agent
or Lenders to enforce this Continuing Guaranty or any provision of the Loan
Documents or the Security Document; or
g. any right of offset, counterclaim or defense of Guarantor,
including, without limitation, those which have been waived by Guarantor
pursuant to Paragraph 9 hereof.
6. Insolvency of Borrower or Guarantor. Without limiting the generality
of any other provision hereof, Guarantor agrees that, in the event of the
dissolution or insolvency of Borrower or Guarantor or the inability of Borrower
or Guarantor to pay their respective debts as they mature, or an assignment by
Borrower or Guarantor for the benefit of creditors, or the institution of any
proceeding by or against Borrower or Guarantor alleging that Borrower or
Guarantor is insolvent or unable to pay their respective debts as they mature,
Guarantor will pay to Agent and Lenders forthwith the full amount which would be
payable hereunder by Guarantor if all of the Liabilities were then due and
payable, whether or not such event occurs at a time when any of the Liabilities
are otherwise due and payable.
7. Payment of the Liabilities. Any amounts received by Agent or Lenders
from whatever source on account of the Liabilities may be applied by Agent or
Lenders toward the payment of such of the Liabilities, and in such order of
application, as Agent may from time to time elect, and notwithstanding any
payments made by or for the account of Guarantor pursuant to this Continuing
Guaranty.
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Guarantor agrees that, if at any time all or any part of any payment
theretofore applied by Agent or Lenders to any of the Liabilities is or must be
rescinded or returned by Agent or Lenders for any reason whatsoever (including,
without limitation, the insolvency, bankruptcy or reorganization of Borrower),
such Liabilities shall, for the purposes of this Continuing Guaranty and to the
extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence notwithstanding such application by Agent or Lenders, and
this Continuing Guaranty shall continue to be effective or be reinstated, as the
case may be, as to such Liabilities, all as though such application by Agent or
Lenders had not been made.
8. Permitted Actions of Agent and Lenders. Each of Agent and Lenders may
from time to time, in its sole discretion and without notice to Guarantor, take
any or all of the following actions:
a. retain or obtain a security interest in any assets of Borrower or
any third party to secure any of the Liabilities or any obligations of Guarantor
hereunder;
b. retain or obtain the primary or secondary obligation of any
obligor or obligors, in addition to Guarantor, with respect to any of the
Liabilities;
c. extend or renew for one or more periods (whether or not longer
than the original period), alter or exchange any of the Liabilities;
d. waive, ignore or forbear from taking action or otherwise
exercising any of its default rights or remedies with respect to any
default by Borrower under the Loan Documents;
e. release, waive or compromise any obligation of Guarantor hereunder
or any obligation of any nature of any other obligor primarily or secondarily
obligated with respect to any of the Liabilities;
f. release its security interest in, or surrender, release or permit
any substitution or exchange for, all or any part of any collateral now or here
after securing any of the Liabilities or any obligation hereunder, or extend or
renew for one or more periods (whether or not longer than the original period)
or release, waive, compromise, alter or exchange any obligations of any nature
of any obligor with respect to any such property; and
g. demand payment or performance of any of the Liabilities from
Guarantor at any time or from time to time, whether or not Agent or Lenders
shall have exercised any of their rights or remedies with respect to any
property securing any of the Liabilities or any obligation hereunder, or
proceeded against any other obligor primarily or secondarily liable for payment
or performance of any of the Liabilities.
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9. Specific Waivers. Without limiting the generality of any other
provision of this Continuing Guaranty, Guarantor hereby expressly waives:
a. notice of the acceptance by Agent and Lenders of this Continuing
Guaranty;
b. notice of the existence, creation, payment, nonpayment,
performance or nonperformance of all or any of the Liabilities;
c. presentment, demand, notice of dishonor, protest, notice of
protest and all other notices whatsoever with respect to the payment or
performance of the Liabilities or the amount thereof or any payment or
performance by Guarantor hereunder;
d. all diligence in collection or protection of or realization upon
the Liabilities or any thereof, any obligation hereunder or any security for or
guaranty of any of the foregoing;
e. any right to direct or affect the manner or timing of Agent's or
Lenders' enforcement of their rights or remedies;
f. all rights and benefits under Section 2809 of the California Civil
Code purporting to reduce Guarantor's obligation in proportion to the principal
obligation hereby guaranteed, and any defense based on or arising out of any
defense the person or entity primarily liable may have to payment or to
performance of any covenants or obligations;
g. all rights and benefits under Section 2845 of the California Civil
Code which, among other things, permits a guarantor or surety to require any
creditor to pursue its debtor, any security which said creditor may hold, or
any other remedy before proceeding against Guarantor;
h. any defense, right of set-off or other claim whatsoever (other than
payment in full and performance in full of all of the Liabilities after any
termination of the Loan Agreement in accordance with the terms of the Loan
Documents) that Borrower or any third party may or might have to the payment or
performance of the Liabilities;
i. any and all defenses which would otherwise arise upon the
occurrence of any event or contingency described in Paragraph 1 hereof or upon
the taking of any action by Agent or Lenders permitted hereunder;
j. any defense, right of set-off, claim or counterclaim whatsoever
(other than payment and performance in full of all of the Liabilities after any
termination of the Loan Agreement in accordance with the terms of the Loan
Documents), and any and all other rights, benefits, protections and other
defenses which Guarantor may have, now or at any time hereafter, to full payment
or performance of the Liabilities pursuant to the terms of this
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Continuing Guaranty, including, without limitation, under California Civil Code
Sections2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845,
2847, 2848, 2849, 2850 and 2855, and California Code of Civil Procedure
Sections 580a, 580b, 580d, and 726 and all successor sections, and Chapter 2 of
Title 14 of the California Civil Code; and
k. all other principles or provisions of law, if any, that
conflict with the terms of this Continuing Guaranty, including, without
limitation, the effect of any circumstances that may or might constitute a
legal or equitable discharge of a guarantor or surety.
10. Irrevocability. Guarantor hereby further waives all rights to revoke
this Continuing Guaranty at any time, and all rights to revoke any agreement
executed by Guarantor at any time to secure the payment and performance of
Guarantor's obligations under this Continuing Guaranty, including, without
limitation, the Security Document. Without limiting the generality of this
paragraph, Guarantor hereby specifically waives the provisions of California
Civil Code Section 2815, and any successor section, with respect to this
Continuing Guaranty and all security for the obligations of Guarantor hereunder.
11. Waiver of Subrogation and Certain Other Rights. Until all of the
Liabilities have been finally and indefeasibly paid in full in cash and all
obligations of the Lenders and Agent to provide credit accommodations to
Borrower shall have terminated, Guarantor hereby waives and shall have no right
of subrogation, reimbursement, exoneration, contribution or indemnity against
Borrower or any other guarantor under Sections 2847, 2848 or 2849 of the Civil
Code or any other provision of law, for any reason, including but not limited
to, by reason of any payments made or acts performed by Guarantor in compliance
with the obligations of Guarantor hereunder or any actions taken by Agent or
Lenders pursuant to this Continuing Guaranty or pursuant to the Loan Documents.
GUARANTOR ACKNOWLEDGES THAT BUT FOR THE FOREGOING WAIVER AND OTHER WAIVERS
CONTAINED HEREIN, UPON ANY PAYMENT OF THE LIABILITIES BY GUARANTOR, GUARANTOR
WOULD HAVE, AMONG OTHER RIGHTS, THE RIGHT UNDER SECTION 2847 OF THE CIVIL CODE
TO DEMAND REIMBURSEMENT FROM BORROWER FOR SUCH PAYMENT, THE RIGHT UNDER SECTION
2848 OF THE CIVIL CODE TO ENFORCE EVERY REMEDY WHICH AGENT OR LENDERS THEN HAVE
AGAINST BORROWER AND TO DEMAND CONTRIBUTION BY ANY OTHER GUARANTOR TO THE EXTENT
OF RECOVERING SUCH REIMBURSEMENT, AND THE RIGHT UNDER SECTION 2849 OF THE CIVIL
CODE TO THE BENEFIT OF ANY SECURITY FOR THE PERFORMANCE OF THE LIABILITIES HELD
BY AGENT OR LENDERS.
Guarantor agrees that nothing contained in this Continuing Guaranty shall
prevent Agent or Lenders from suing to collect on the Liabilities or from
exercising concurrently or successively any rights available to them at law
and/or in equity or under any of the Loan Documents, and that the exercise of
any of the aforesaid rights shall not constitute a legal or equitable discharge
of
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Guarantor. Guarantor hereby authorizes and empowers Agent and Lenders to
exercise, in their sole discretion, any rights and remedies, or any combination
thereof, which may then be available, since it is the intent and purpose of
Guarantor that the obligations hereunder shall be absolute, independent and
unconditional under any and all circumstances.
Notwithstanding any foreclosure of the lien of any deed of trust or
security agreement with respect to any or all of any real or personal property
secured thereby, whether by the exercise of the power of sale contained therein,
by an action for judicial foreclosure, or by the acceptance of a deed or
possession of any other collateral in lieu of foreclosure, Guarantor shall
remain bound under this Continuing Guaranty. Without limiting the generality
of the foregoing,
(a) Guarantor specifically agrees that upon an Event of Default (as
defined in the Loan Agreement) under the Loan Agreement which is continuing,
either Agent or Lenders may elect to nonjudicially or judicially foreclose
against any real or personal property, or any part thereof, subject to any deed
of trust given by Borrower to secure all or any part of the Liabilities, or
exercise any other remedy against Borrower, any security for the Liabilities or
any other guarantor, even if the effect of that action is to deprive Guarantor
of the right to collect reimbursement from the applicable third party for any
sums paid to Agent or Lenders hereunder; and
(b) Guarantor hereby waives all rights and benefits under Section
580d of the California Code of Civil Procedure stating that no deficiency may be
recovered on an obligation secured by a deed of trust on real property if the
real property, or any part thereof, subject to any deed of trust given by
Borrower to secure all or any part of the Liabilities, is sold under a
power of sale contained therein, and all defenses based on any loss as a
result of any such private sale of Guarantor's right to recover any such
amount from the person or entity primarily liable, whether by right of
subrogation or otherwise.
GUARANTOR HEREBY ACKNOWLEDGES THAT BUT FOR THE FOREGOING WAIVERS AND
OTHER WAIVERS CONTAINED HEREIN, THE LOSS OF DEFICIENCY RIGHTS AGAINST BORROWER
RESULTING FROM A PRIVATE SALE OF ANY REAL PROPERTY UNDER SUCH A DEED OF TRUST
COULD CREATE A DEFENSE TO PAYMENT BY GUARANTOR HEREUNDER.
12. Subordination. Guarantor hereby subordinates any and all
indebtedness of Borrower to Guarantor to the full and prompt payment and
performance of all of the Liabilities. Guarantor agrees that each of Agent and
Lenders shall be entitled to receive payment of all Liabilities prior to
Guarantor's receipt of payment of any amount of any indebtedness of Borrower to
Guarantor. Any payments on such indebtedness to Guarantor, if Agent or Lenders
so request, shall be collected, enforced and received by Guarantor, in trust,
as trustee for Agent and Lenders and shall be paid over to Agent on account of
the Liabilities, but without reducing or affecting in any manner the liability
of Guarantor under the other provisions of this Guaranty. Each of Agent and
each Lender is authorized and empowered, but not obligated, in its discretion
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at any time from and after the occurrence of an Event of Default (as defined in
the Loan Agreement) under the Loan Agreement which is continuing, (a) in the
name of Guarantor, to collect and enforce, and to submit claims in respect of,
indebtedness of Borrower to Guarantor and to apply any amounts received thereon
to the Liabilities, and (b) to require Guarantor (i) to collect and enforce, and
to submit claims in respect of, any indebtedness of Borrower to Guarantor, and
(ii) to pay any amounts received on such indebtedness to Agent for application
to the Liabilities.
13. Assignment of Agent's or Lenders' Rights. Each of Agent and each
Lender may, from time to time, without notice to Guarantor, assign or transfer
any or all of the Liabilities or any interest therein and, notwithstanding any
such assignment or transfer of the Liabilities or any subsequent assignment or
transfer thereof, the Liabilities shall be and remain the Liabilities for the
purpose of this Continuing Guaranty. Each and every immediate and successive
assignee or transferee of any of the Liabilities or of any interest therein
shall, to the extent of such party's interest in the Liabilities, be entitled to
the benefits of this Continuing Guaranty to the same extent as if such assignee
or transferee were Agent or such Lender; provided, however, that unless Agent or
such Lender, as the case may be, shall otherwise consent in writing, each of
Agent and each Lender shall have an unimpaired right, prior and superior to that
of any such assignee or transferee, to enforce this Continuing Guaranty for its
own benefit as to those of the Liabilities which Agent or such Lender, as the
case may be, has not assigned or transferred.
14. Indulgences Not Waivers. No delay in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
Agent or Lenders of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy; nor shall any
modification or waiver of any of the provisions of this Continuing Guaranty be
binding upon Agent or Lenders, except as expressly set forth in a writing duly
signed and delivered by Agent and Lenders. No action of Agent or Lenders
permitted hereunder shall in any way affect or impair the rights of Agent and
Lenders or the obligations of Guarantor under this Continuing Guaranty.
15. Financial Condition of Borrower. Guarantor represents and warrants
that it is fully aware of the financial condition of Borrower, and Guarantor
delivers this Continuing Guaranty based solely upon its own independent
investigation of Borrower's financial condition and in no part upon any
representation or statement of Agent or Lenders with respect thereto.
Guarantor further represents and warrants that it is in a position to and
hereby does assume full responsibility for obtaining such additional
information concerning Borrower's financial condition as Guarantor may deem
material to its obligations hereunder, and Guarantor is not relying upon, nor
expecting Agent or Lenders to furnish it any information in Agent's or any
Lender's possession concerning Borrower's financial condition or concerning
any circumstances bearing on the existence or creation, or the risk of
nonpayment or nonperformance of the Liabilities.
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Guarantor hereby waives any duty on the part of Agent or any Lender to
disclose to Guarantor any facts it may now or hereafter know about Borrower,
regardless of whether Agent or such Lender has reason to believe that any such
facts materially increase the risk beyond that which Guarantor intends to
assume, or has reason to believe that such facts are unknown to Guarantor.
Guarantor hereby knowingly accepts the full range of risk encompassed
within a contract of "Continuing Guaranty" which includes, without limitation,
the possibility that Borrower will contract for additional indebtedness for
which Guarantor may be liable hereunder after Borrower's financial condition or
ability to pay its lawful debts when they fall due has deteriorated.
16. Representations and Warranties. Guarantor represents and warrants to
Agent and each Lender that each of the following statements is accurate and
complete as of the date of this Continuing Guaranty:
a. Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation and is duly
qualified and in good standing in each jurisdiction where the nature of its
business or properties requires such qualification and where the failure to
qualify reasonably could be expected to have a material adverse effect on the
condition (financial or otherwise), business, operations, properties or
prospects of Borrower and Guarantor taken as a whole (a "Material Adverse
Effect");
b. the execution, delivery and performance by Guarantor of this
ContinuingGuaranty are within the power of Guarantor and have been duly
authorized by all necessary corporate action on the part of Guarantor;
c. this Continuing Guaranty has been duly executed and delivered by
Guarantor and constitutes a legal, valid and binding obligation of Guarantor,
enforceable against Guarantor in accordance with its terms, except as limited
by bankruptcy, insolvency or other laws of general application relating to or
affecting the enforcement of creditors' rights generally;
d. the execution, delivery and performance of this Continuing
Guaranty do not (i) violate any provisions of law or any order of any court or
other agency of government (each, a "Requirement of Law"), (ii) contravene any
provision of Guarantor's Articles or Certificate of Incorporation, Bylaws or
any material contract or agreement to which Guarantor is a party or by which
Guarantor or Guarantor's assets are bound (each, a "Contractual Obligation"),
or (iii) result in the creation or imposition of any lien, charge or
encumbrance of any nature upon any property, asset or revenue of Guarantor
except Permitted Liens (as defined in the Loan Agreement);
e. all consents, approvals, orders and authorizations of, and
registrations, declarations and filings with, any governmental agency or
authority or other person or entity
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(including, without limitation, the shareholders or partners of
any entity), if any, which are required to be obtained in connection with the
execution and delivery of this Continuing Guaranty or the performance of
Guarantor's obligations hereunder have been obtained, and each is in full force
and effect;
f. Guarantor has paid all taxes and other charges imposed by any
governmental agency or authority due and payable by Guarantor other than those
which are being challenged in good faith by appropriate proceedings and for
which adequate reserves have been established;
g. Guarantor is not in violation of any Requirement of Law or
Contractual Obligation other than any violation the consequences of which could
not reasonably be expected to have a Material Adverse Effect;
h. Guarantor is neither an investment company (as defined in the
Investment Company Act of 1940) nor controlled by an investment company; (i)
no litigation, investigation or proceeding of any governmental authority or
agency is pending or, to the knowledge of Guarantor, threatened against
Guarantor which reasonably could be expected to have a Material Adverse Effect;
and
i. Guarantor owns and controls 100% of the capital stock of Borrower
and due to its close business, financial and ownership relationships with
Borrower, Guarantor will receive significant benefits from the loans and other
financial accommodations made or granted to Borrower under the Loan Agreement.
j. (a) Guarantor is Solvent (as defined in the Loan Agreement) and
(b) no transfer of property is being made by Guarantor and no obligation is
being incurred by Guarantor in connection with this Continuing Guaranty or
otherwise in connection with the transactions contemplated by the Loan
Agreement and the other Loan Documents with the intent to hinder, delay or
defraud either present or future creditors of Guarantor.
17. Guarantor Financial Information. Guarantor will provide Agent in
writing such financial and other information with respect to its assets and
liabilities as Agent shall reasonably request from time to time, in form
satisfactory to Agent, within 5 Business Days following the date of such
request.
18. Binding Upon Successors. This Continuing Guaranty shall be binding up
on Guarantor and its successors and assigns and shall inure to the benefit of
Agent and Lenders and their successors and assigns. All references herein to
Borrower shall be deemed to include its successors and assigns, and all
references herein to Guarantor shall be deemed to include Guarantor and
Guarantor's successors and assigns.
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In addition and notwithstanding anything to the contrary contained in this
Continuing Guaranty or in any other document, instrument or agreement between or
among any of Agent, any Lender, Borrower, Guarantor or any third party, the
obligations of Guarantor with respect to the Liabilities shall be joint and
several with any other person or entity that now or hereafter executes a
guaranty of any of the Liabilities separate from this Continuing Guaranty.
19. Notices. All notices required or permitted to be given hereunder shall
be in writing and shall be either personally delivered, faxed to the fax numbers
provided herein or sent by United States certified or registered mail, return
receipt requested, addressed to Guarantor or Agent (including Agent on behalf of
Lenders) at their respective addresses stated below or at such other address as
either party hereafter notifies the other party as herein provided. Notices
shall be deemed received on the earlier of (i) the date noted on the return
receipt as delivered if mail delivery of the notice is successful or the date
inscribed on a confirmation of successful transmission, if sent by facsimile;
(ii) the last date of attempted delivery, as noted by the United States Postal
Service on the envelope containing the notice, if mail delivery is unsuccessful;
or (iii) the date of the actual delivery if personally delivered or faxed.
20. Governing Law; Additional Waivers. This Continuing Guaranty has been
delivered and shall be governed by and construed in accordance with the internal
laws (as opposed to the conflicts of law provisions) of the State of California.
GUARANTOR HEREBY
(i) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE OR
DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS CONTINUING GUARANTY, AND
ACKNOWLEDGES THAT AGENT AND LENDERS ALSO WAIVE SUCH RIGHT;
(ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED IN LOS ANGELES COUNTY, CALIFORNIA, OVER ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS CONTINUING
GUARANTY;
(iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT GUARANTOR MAY EFFECTIVELY
DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH
ACTION OR PROCEEDING;
(iv) agrees that a final judgment in any such action or proceeding shall
be conclusive (except to the extent that a stay pending appeal is in effect with
respect thereto) and may be enforced in any other jurisdictions by suit on the
judgment or in any other manner provided by law; and
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(v) agrees not to institute any legal action or proceeding against
Agent or any Lender or any of Agent's or any Lender's directors, officers,
employees, agents or property concerning any matter arising out of or relating
to this Continuing Guaranty in any court other than one located in Los Angeles
County, California (provided, however, that this clause (v) shall not
prohibit Guarantor's joinder to or intervention in any legal action or
proceeding initiated by Agent or any Lender against Borrower or Guarantor
in a court or other than one located in Los Angeles County, California).
Nothing herein shall affect or impair either Agent's or any Lender's right
to serve legal process in any manner permitted by law or either Agent's or any
Lender's right to bring any action or proceeding against Guarantor or its
property in the courts of any other jurisdiction. Wherever possible each
provision of this Continuing Guaranty shall be interpreted as to be effective
and valid under applicable law, but if any provision of this Continuing Guaranty
shall be prohibited by or invalid under such law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Continuing Guaranty.
21. KNOWING AND EXPLICIT WAIVERS. GUARANTOR ACKNOWLEDGES THAT IT IS FULLY
AWARE OF THE SPECIFIC PROVISIONS OF DIVISION THREE, PART 4, TITLE 13 OF THE
CALIFORNIA CIVIL CODE, INCLUDING SECTIONS 2787 THROUGH 2855, AND OF SECTIONS
580A, 580B AND 580D OF THE CALIFORNIA CODE OF CIVIL PROCEDURE, AND THAT
GUARANTOR'S WAIVERS HEREIN OF ALL RIGHTS, BENEFITS, PROTECTIONS AND DEFENSES
THAT MAY BE AVAILABLE THEREUNDER AND ALL OTHER WAIVERS HEREIN ARE EXPLICIT,
KNOWING WAIVERS.
GUARANTOR ACKNOWLEDGES THAT IT HAS EITHER OBTAINED THE ADVICE OF COUNSEL OR
HAS HAD THE OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS AND
PROVISIONS OF THIS CONTINUING GUARANTY. GUARANTOR FURTHER ACKNOWLEDGES THAT BY
EXECUTING THIS CONTINUING GUARANTY, IT IS WAIVING CERTAIN RIGHTS AS OTHERWISE
SET FORTH HEREIN TO WHICH GUARANTOR MAY OTHERWISE BE ENTITLED BY LAW.
THIS CONTINUING GUARANTY CONTAINS THE COMPLETE UNDERSTANDING OF THE PARTIES
HERETO WITH RESPECT TO THE SUBJECT MATTER HEREIN. GUARANTOR ACKNOWLEDGES THAT
IT IS NOT RELYING UPON ANY STATEMENTS OR REPRESENTATIONS OF AGENT OR LENDERS NOT
CONTAINED IN THIS CONTINUING GUARANTY AND THAT SUCH STATEMENTS OR
REPRESENTATIONS, IF ANY, ARE OF NO FORCE OR EFFECT AND ARE FULLY SUPERSEDED BY
THIS CONTINUING GUARANTY.
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This Continuing Guaranty may only be modified by a writing executed by
Guarantor and Agent.
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IN WITNESS WHEREOF, Guarantor has caused this Continuing Guaranty to be duly
executed as of the 18th day of April, 2000.
"Guarantor"
CONVERGENT COMMUNICATIONS, INC., a Colorado
corporation
By: /s/ Brian R. Ervine
_______________________________________________
Brian R. Ervine
Executive Vice President and
Chief Financial Officer
Guarantor's Address for Notices:
400 Inverness Drive South
Suite 400
Englewood, Colorado 80112
Fax: 303.749.3113
Agent's address for notices:
Foothill Capital Corporation, Agent
1111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Facsimile No. (310) 575-9623
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-95897 and No. 333-96219 of Convergent
Communications, Inc. of our reports dated March 13, 2000, except for Note 7 as
to which the date is March 28, 2000 and Note 1 as to which the date is April 18,
2000 relating to the consolidated financial statements and financial statement
schedule, which appear in this Form 10-K.
PricewaterhouseCoopers LLP
Denver, Colorado
April 24, 2000
