<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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 333-64663
NETWORK PLUS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 04-3430576
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
234 COPELAND STREET, QUINCY, MASSACHUSETTS 02169
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICER) (ZIP CODE)
</TABLE>
(617) 786-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMAL FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
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 [ ]
The number of shares of the registrant's Common Stock ($0.01 par value)
outstanding on May 9, 2000 was 59,960,582.
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<PAGE> 2
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Network Plus Corp.
Unaudited Condensed Consolidated Balance Sheets March 31,
2000 and December 31, 1999............................. 2
Unaudited Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999............. 3
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999............. 4
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 14
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........... 14
Item 6. Exhibits and Reports on Form 8-K.................... 15
Signatures.................................................. 16
Exhibit Index............................................... 17
</TABLE>
1
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PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NETWORK PLUS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MARCH 31,
MARCH 31, 2000 DECEMBER 31,
2000 (NOTE 9) 1999
--------- --------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.............................. $ 5,285 $207,927 $ 43,031
Accounts receivable, net of allowance for doubtful
accounts of $2,576 and $2,624, respectively......... 40,655 40,655 31,814
Prepaid expenses....................................... 2,422 2,422 489
Other current assets................................... 1,450 1,450 958
-------- -------- --------
Total current assets................................ 49,812 252,454 76,292
Property and equipment, net.............................. 138,405 138,405 101,944
Other assets............................................. 1,265 1,265 1,117
Investment............................................... 3,203 3,203 3,333
Intangible assets, net................................... 2,605 2,605 3,286
-------- -------- --------
Total assets........................................ $195,290 $397,932 $185,972
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................... $ 30,422 30,422 $ 48,704
Accrued liabilities.................................... 7,692 7,692 6,370
Revolving credit facility.............................. 40,000 -- --
Current portion of capital lease obligations........... 11,827 11,827 11,346
-------- -------- --------
Total current liabilities........................... 89,941 49,941 66,420
Long-term debt and capital lease obligations............. 26,681 26,681 28,188
Long-term note payable to stockholder.................... 1,875 1,875 1,875
Other long-term liabilities.............................. 254 254 208
Commitments
Redeemable 7 1/2% Series A Cumulative Convertible
Preferred Stock........................................ -- 119,750 --
Stockholders' equity
Common stock, $0.01 par value, 150,000,000 shares
authorized, 55,329,196 and 45,333,333 shares,
respectively, issued and outstanding................... 553 598 548
Additional paid-in capital............................... 142,560 265,407 138,767
Stock subscription receivable............................ -- -- (155)
Warrants................................................. 4,249 4,249 4,405
Other comprehensive income............................... 703 703 833
Accumulated deficit...................................... (71,526) (71,526) (55,117)
-------- -------- --------
Total stockholders' equity.......................... 76,539 199,431 89,281
-------- -------- --------
Total liabilities and stockholders' equity.......... $195,290 $397,932 $185,972
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
2
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NETWORK PLUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues.................................................... $ 50,259 $ 33,581
Operating expenses
Costs of services......................................... 40,854 26,546
Selling, general and administrative expenses.............. 20,053 10,716
Depreciation and amortization............................. 4,748 984
----------- -----------
65,655 38,246
----------- -----------
Operating loss.............................................. (15,396) (4,665)
Other income (expense)
Interest and dividend income.............................. 408 141
Interest expense.......................................... (1,449) (521)
Other income.............................................. 28 18
----------- -----------
(1,013) (362)
----------- -----------
Net loss before income taxes................................ (16,409) (5,027)
Benefit for income taxes.................................... -- (1,810)
----------- -----------
Net loss.................................................... (16,409) (3,217)
Preferred stock dividends and accretion of offering
expenses and discount.................................. -- 1,554
----------- -----------
Net loss applicable to common stockholders.................. $ (16,409) $ (4,771)
=========== ===========
Net loss per share applicable to common stockholders --basic
and diluted............................................... $ (0.30) $ (0.11)
=========== ===========
Weighted average shares outstanding -- basic and diluted.... 55,074,721 45,333,333
=========== ===========
Comprehensive loss
Net loss.................................................. $ (16,409) $ (3,217)
Unrealized loss on investment securities, net of tax...... (130) --
----------- -----------
Comprehensive loss.......................................... $ (16,539) $ (3,217)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
3
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NETWORK PLUS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(16,409) $(3,217)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization.......................... 4,748 984
Interest payable on note payable to stockholder........ 46 36
Changes in assets and liabilities:
Accounts receivable.................................. (8,841) (4,571)
Prepaid expenses..................................... (1,933) (117)
Deferred taxes....................................... -- (1,810)
Other current assets................................. (492) (1,510)
Other assets......................................... (148) 95
Accounts payable..................................... (18,282) 5,828
Accrued liabilities.................................. 1,322 909
Other liabilities.................................... 302 --
-------- -------
Net cash used for operating activities............ (39,687) (3,373)
Cash flows from investing activities:
Capital expenditures...................................... (38,533) (6,601)
Purchase of investment.................................... -- (2,500)
Proceeds from sale and leaseback of fixed assets.......... -- 4,443
-------- -------
Net cash used for investing activities............ (38,533) (4,658)
Cash flows from financing activities:
Net proceeds from revolving credit facility............... 40,000 --
Principal payments on capital lease obligations........... (3,323) (585)
Net proceeds from issuance of common stock.................. 3,797 --
Distribution to stockholders................................ -- (3)
-------- -------
Net cash provided by (used for) used for financing
activities....................................... 40,474 (3,855)
-------- -------
Net decrease in cash........................................ (37,746) (8,619)
Cash at beginning of period................................. 43,031 12,197
-------- -------
Cash at end of period....................................... $ 5,285 $ 3,578
======== =======
Noncash Investing and Financing Activities:
Fixed assets acquired under capital leases................ $ 1,995 $23,999
======== =======
Preferred stock dividends paid-in-kind.................... $ -- $ 1,411
======== =======
</TABLE>
The accompanying notes are an integral part of the unaudited condensed
consolidated financial statements.
4
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NETWORK PLUS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
On July 15, 1998, Network Plus Corp. (the "Company") was incorporated in
the state of Delaware. The stockholders of Network Plus, Inc. contributed 100%
of their shares to the Company, in return for an aggregate of 45,333,333 shares
of the common stock. Accordingly, Network Plus, Inc. became a wholly-owned
subsidiary of the Company.
The Company's consolidated financial statements reflect the financial
position and results of operations of its wholly-owned subsidiary, Network Plus,
Inc. All intercompany transactions are eliminated in consolidation. For periods
prior to the formation of the Company on July 15, 1998, the financial statements
reflect the activities of Network Plus, Inc., as it was the sole operating
entity.
The accompanying condensed consolidated financial statements of the Company
are unaudited. In the opinion of management, the accompanying consolidated
financial statements contain all adjustments necessary for a fair presentation
of the Company's financial position, results of operations and cash flows at the
dates and for the periods indicated, which adjustments, consist only of
adjustments of a normal, recurring nature. The balance sheet data as of December
31, 1999 has been derived from the Company's audited financial statements.
These financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 1999 which are
contained in the Company's Form 10-K, as amended, for such year end, as well as
the registration statements on Form S-3, as amended (File Nos. 333-32040 and
333-32042), effective April 6, 2000. The results of operations for the three
months ended March 31, 2000 are not necessarily indicative of the results to be
expected for the entire year ended December 31, 2000 or any future period.
Certain amounts in the financial statements for the prior year have been
reclassified to conform with the current year presentation. Such
reclassifications had no effect on previously reported results of operations.
2. INVESTMENT
On March 23, 1999, the Company entered into a market development agreement
with NorthPoint Communications, Inc. ("NorthPoint") for a period of two years.
Under the terms of the agreement the Company will resell xDSL products and
services to businesses currently reached by NorthPoint's infrastructure.
NorthPoint will provide co-marketing funds to launch this new service to the
Company's customers. In addition, the agreement contains certain volume
commitments subject to non-usage charges at the end of the term. The Company
also made an equity investment of $2,500 in NorthPoint, which will be accounted
for on a cost basis.
3. REVOLVING CREDIT AGREEMENTS
On October 7, 1998, the Company entered into a loan agreement with Goldman
Sachs Credit Partners, L.P. and Fleet National Bank ("Fleet") for a $60,000
revolving credit facility (the "Senior Credit Facility"), and concurrently
terminated an existing $23,000 facility with Fleet. The Company formerly
referred to the Senior Credit Facility as the "New Revolving Credit Facility".
The Senior Credit Facility has a term of 18 months. Under the Senior Credit
Facility, $30,000 of the $60,000 is immediately available, while the additional
$30,000 is available based upon a percentage of accounts receivable. Interest is
payable monthly at one percent above the prime rate. The Senior Credit Facility,
as amended, requires the Company, among other things, to meet minimum levels of
revenues and earnings before interest, taxes, depreciation and amortization and
debt to revenue ratios, places the Company in default in the event of a material
adverse change in the Company's business and restricts our ability to pay
dividends. The Senior Credit Facility, as
5
<PAGE> 7
NETWORK PLUS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
amended, is collateralized by substantially all of the assets of the Company. In
March 2000, the Senior Credit Facility was extended to December 31, 2000. At
March 31, 2000, there was $40,000 outstanding under the Senior Credit Facility
and no amounts were outstanding at December 31, 1999.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATE MARCH 31, DECEMBER 31,
USEFUL LIFE 2000 1999
-------------- --------- ------------
<S> <C> <C> <C>
Network infrastructure and equipment.............. 5 and 10 years $ 87,505 $ 50,276
Computer equipment................................ 3-5 years 5,396 5,228
Office furniture and equipment.................... 7 years 2,349 1,975
Software.......................................... 3 years 6,763 6,325
Motor vehicles.................................... 5 years 256 256
Leasehold improvements............................ Term of Lease 8,464 7,959
Construction in progress.......................... 42,172 40,355
-------- --------
152,905 112,374
Less accumulated depreciation and amortization.... (14,500) (10,430)
-------- --------
$138,405 $101,944
======== ========
</TABLE>
Depreciation and amortization expense related to property and equipment for
the three months ended March 31, 2000 and the year ended December 31, 1999
amounted to $4,072 and $8,379, respectively.
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Notes payable............................................... $ 200 $ 200
Capital lease obligations................................... 38,308 39,334
Less current portion........................................ (11,827) (11,346)
-------- --------
$ 26,681 $ 28,188
======== ========
</TABLE>
6
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NETWORK PLUS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment under capital leases are as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Telecommunications equipment................................ $36,938 $34,770
Computer equipment.......................................... 2,178 2,062
Motor vehicles.............................................. 99 99
Construction in progress.................................... 9,407 9,696
------- -------
48,622 46,627
Less accumulated amortization............................... (6,037) (4,004)
------- -------
$42,585 $42,623
======= =======
</TABLE>
In December 1998, the Company received an $81,000 commitment for equipment
lease financing for telecommunications equipment to be acquired through December
31, 1999. Depending on the type of equipment, the lease term is either three or
five years. All of the leases contain bargain purchase options upon conclusion
of the lease term. In March 2000, we extended our Comdisco capital lease
facility to make an additional $29,000 available for continued network expansion
through December 31, 2000. No leases were entered into under this facility in
the three months ended March 31, 2000.
6. NET LOSS PER SHARE
The computations of basic and diluted earnings per common share are based
upon the weighted average number of common shares outstanding and potentially
dilutive securities. Potentially dilutive securities for the Company include
stock options and warrants.
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------ ------------------
<S> <C> <C>
Net loss applicable to Network Plus Corp. common
stock -- basic and diluted.................... $ (16,409) $ (4,771)
Shares used in loss per share basic and
diluted....................................... 55,074,721 45,333,333
=========== ===========
Net loss per share applicable to common
stockholders -- basic and diluted............. $ (0.30) $ (0.11)
=========== ===========
</TABLE>
Warrants for the purchase of 1,366,238 and 1,405,333 shares and stock
options for the purchase of 4,374,382 and 3,937,499 shares of common stock were
not included in the computation of net loss per share for the three months ended
March 31, 2000 and 1999, respectively, because inclusion of such shares would
have an anti-dilutive effect.
7. NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101A, an amendment to SAB 101, "Revenue
Recognition in Financial Statements." SAB 101A defers the required
implementation of SAB 101 until the fiscal quarter ended June 30, 2000. The
Company is currently evaluating the effects, if any, of SAB 101 on the Company's
financial position on results of operations.
7
<PAGE> 9
NETWORK PLUS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation -- an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company is
still assessing the impact of FIN 44 on the Company's financial position or
results of operations.
8. SEGMENT INFORMATION
The Company has two reportable segments which management operates as
distinct sales organizations: these two segments are segregated by type of
customer base to whom services are provided. The two customer base types are:
retail telecommunications and data services, and wholesale telecommunications.
The Company measures and evaluates its two reportable segments based on revenues
and costs of services. The retail telecommunications and data services segment
provides local and long distance services including voice and data transport,
and enhanced and custom calling features. This segment focuses on selling these
services to end user customers, such as businesses and residences. The wholesale
telecommunications segment provides transport and termination services. This
segment focuses on selling these services to large communication carriers, who
utilize the Company's excess capacity to provide telephone voice services to
their customers.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------ ------------------
<S> <C> <C>
Revenues:
Retail telecommunications and data services... $27,860 $22,079
Wholesale telecommunications.................. 22,399 11,502
------- -------
Total revenues.................................. $50,259 $33,581
======= =======
Costs of services:
Retail telecommunications and data services... $20,403 $15,631
Wholesale telecommunications.................. 20,451 10,915
------- -------
Total costs of services......................... $40,854 $26,546
======= =======
</TABLE>
9. RECENT FINANCING
On April 12, 2000, the Company sold in concurrent underwritten public
offerings (i) 5,000,000 shares of common stock for aggregate net proceeds of
$122,900 to the Company and $13,400 to certain selling stockholders and (ii)
2,500,000 depositary shares, each representing 1/10 of a share of 7 1/2% series
A cumulative convertible preferred stock for aggregate net proceeds to the
Company of $119,800. Each depositary share is initially convertible into 1.4368
shares of common stock.
8
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes of Network Plus
(the "Company") included herein as well as the consolidated financial statements
and notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Form 10-K, as amended, for the
fiscal year ended December 31, 1999 as well as the registration statements on
Form S-3, as amended (File Nos. 333-32040 and 333-32042), effective April 6,
2000. In addition to historical information, the following discussion and other
information in this report contains forward-looking information that involves
risks and uncertainties. For this purpose, any statement that is not a statement
of historical fact is forward-looking information, including without limitation
statements concerning the Company's future capital requirements, sufficiency of
available capital and availability of additional financing. Without limiting the
generality of the foregoing, words such as "believes," "anticipates," "expects"
and similar expressions identify forward-looking statements. The Company's
actual results could differ materially from those anticipated by such forward-
looking information due to competitive factors, risk associated with the
Company's expansion plans and other factors discussed in the Company's Form 10-K
for the year ended December 31, 1999, as amended and below under "Certain
Factors That May Affect Future Operating Results."
OVERVIEW
Network Plus, founded in 1990, is a network-based communications provider
offering a comprehensive suite of broadband data, telecommunications and
e.Commerce hosting services. The Company's services include local and long
distance voice, high-speed data, Internet and web and managed server hosting.
The Company currently utilizes digital subscriber line, or DSL, technology to
provide high-speed data and Internet access and provides local and long distance
services using voice over digital subscriber line, or VoDSL, technology. The
Company currently serves small and medium-sized business customers in the
northeastern and southeastern regions of the United States.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
------- ------
<S> <C> <C>
Revenues.................................................... 100.0% 100.0%
Costs of services........................................... 81.3 79.1
Selling, general and administrative......................... 39.9 31.9
Depreciation and amortization............................... 9.4 2.9
Operating loss.............................................. (30.6) (13.9)
Other income (expense)...................................... (2.0) (1.1)
Loss before income taxes.................................... (32.6)% (15.0)%
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues
Revenues increased $16.7 million, or 50%, to $50.3 million for the three
months ended March 31, 2000 from $33.6 million for the same period in the prior
year. Revenues generated from international wholesale traffic which results from
utilizing excess capacity on our long distance switches represent 65% of the
increase in revenues for the period. The resale of local service contributed
$7.2 million in revenues for the period,
9
<PAGE> 11
representing 29% of the increase in total revenues for the period. We operate in
a competitive market for long distance service which has experienced price
erosion of the average rate per minute from the prior year. We expect this price
trend to continue in the future.
Costs of Services
Costs of services increased $14.3 million, or 54%, to $40.9 million for the
three month ended March 31, 2000 from $26.5 million for the same period in the
prior year. As a percentage of revenues, costs of services increased to 81% for
the three months ended March 31, 2000 from 79% for the three months ended March
31, 1999. The increase was primarily due to the increased volume of
international wholesale traffic, which has higher origination, transport and
termination costs as compared to other long distance traffic. In addition, we
maintain rate agreements with various local and long distance carriers for
access, termination and transport which are continually reviewed and negotiated
based on changes in volume and types of traffic. These changes to rate
agreements may result in credits for costs associated with prior traffic or
reductions in current costs based on the mix of traffic and rate. Cost of
services is comprised primarily of carrier costs to originate, transport and
terminate traffic for our network switches. As the deployment of our local
network continues and the facilities become operational, the costs associated
with the co-location facilities, including rent and access charges, are
reflected in cost of services. These costs are generally fixed and will result
in fluctuations in margin in the future as a result of costs incurred for
capacity, which are not immediately utilized in these co-locations.
Selling, General and Administrative
Selling, general and administrative expenses increased $9.3 million, or
87%, to $20.0 million for the three months ended March 31, 2000 from $10.7
million for the same period in the prior year. As a percentage of revenues,
selling, general and administrative expenses increased to 40% for the three
months ended March 31, 2000 from 32% for the same period in the prior year. We
employed 706 people at March 31, 2000, compared with 397 at March 31, 1999,
resulting in a 72% increase in payroll and related expenses. The sales
organization increased by 80 people as compared to the prior period, and we
added 134 people to support the build-out of our local network. We expect
selling, general and administrative expenses to continue to increase as we add
employees to support our anticipated growth. Other selling, general and
administrative expenses increased as a result of our growth in revenues and the
expansion of the infrastructure to support future growth. Costs associated with
the co-location facilities including rent, access and leased line charges for
facilities which are not fully deployed are included in selling, general and
administrative expenses. We expect these charges to increase until the
co-location facilities are on our fiber network. When the facilities become
operational the related costs are reclassified to costs of services.
Depreciation and Amortization
Depreciation and amortization increased $3.8 million, or 383%, to $4.7
million for three months ended March 31, 2000 from $984,000 for the same period
in the prior year. The increase is primarily due to additional local network
facilities, fiber, computer and other telecommunications and data services
equipment to support our network expansion. In particular the Cambridge,
Massachusetts and New York City local switch equipment, the northeast fiber ring
and the Los Angeles and Chicago long distance switches, which were put into
service during 1999, began depreciating. We expect the depreciation and
amortization expense to increase as we bring additional local network facilities
on-line and as we make additional investments in our network and operational
infrastructure.
Interest
Interest expense net of interest income increased $660,000, or 174%, to
$1.0 million for the three months ended March 31, 2000 from $380,000 for the
same period in the prior year. The increase is primarily due to interest paid on
our capital lease obligations and outstanding balances on the line of credit. We
expect interest expense to increase as a result of the continued financing of
the local network buildout.
10
<PAGE> 12
Net Loss and Net Loss Applicable to Common Stockholders
As a result of the increase in revenues, operating expenses, depreciation
and amortization, and net interest expense noted above, we incurred a net loss
of $16.4 million for the three months ended March 31, 2000 compared to $3.2
million for the same period in the prior year.
The effect of the preferred stock dividends of $1.6 million for the three
months ended March 31, 1999 resulted in net loss applicable to common
stockholders of $4.8 million for the period. Our offering of convertible
preferred stock on April 12, 2000 will result in increased net loss applicable
to common stockholders in the future.
EBITDA. EBITDA was negative $10.6 million for the three months ended March
31, 2000 compared to negative $3.7 million for the three months ended March 31,
1999. This decline was due to the changes in revenues, network development,
operations and selling, general and administrative expenses due to the rapid
implementation of our local network and infrastructure to support future growth.
LIQUIDITY AND CAPITAL RESOURCES
In March 2000, we extended our Comdisco capital lease facility to make an
additional $29 million available for continued network expansion through
December 31, 2000. We have also amended our existing $60 million senior credit
facility to extend the maturity date until June 30, 2000, or at our option upon
payment of an extension fee, December 31, 2000.
On March 8, 2000, we received a commitment from Goldman Sachs Credit
Partners to provide and syndicate new senior secured credit facilities in a
total principal amount of up to $225 million. The senior secured credit
facilities will consist of a revolving credit facility in the principal amount
of up to $150 million, and a delayed draw term loan facility in the principal
amount of up to $75 million.
These senior secured credit facilities will replace our existing $60
million senior credit facility and will be used for working capital purposes and
the purchase and acquisition of telecommunications assets. We expect these
facilities to become available during July 2000. The closing of the new senior
credit facilities is subject to customary closing conditions including no
material adverse change in our business.
On April 12, 2000, we sold in concurrent underwritten public offerings (i)
5,000,000 shares of common stock for aggregate net proceeds of $122.9 million to
us and $13.4 million to certain selling stockholders and (ii) 2,500,000
depositary shares, each representing 1/10 of a share of 7 1/2% series A
cumulative convertible preferred stock, for aggregate net proceeds to us of
$119.8 million. Each depositary share is initially convertible into 1.4368
shares of our common stock.
Total assets were $195.3 million at March 31, 2000 compared to $186.0
million at December 31, 1999. Cash and cash equivalents were $5.3 million at
March 31, 2000 compared to $43.0 million at December 31, 1999. Net cash used for
operating activities was $39.7 million during the three months ended March 31,
2000 as compared to net cash used in operating activities of $3.4 million during
the three months ended March 31, 1999. Capital expenditures were $40 million for
the three months ended March 31, 2000.
Our strategic initiatives include the deployment of additional local and
long distance switches, the co-location of network equipment, the offering of
new services such as local exchange and data services, the expansion of our
sales force and other personnel, and significant investment in our information
technology systems. These initiatives will require a substantial amount of
capital for the installation of network switches and related equipment, fiber,
personnel additions and funding of operating losses and working capital.
Our ability to meet our projected growth will require substantial cash
resources. The anticipated expansion of our network infrastructure through
year-end 2000 and in 2001, including the addition of co-locations, switches,
e.Commerce data centers and other network elements and our anticipated funding
of negative cash flow from operating activities through year-end 2000 and in
2001, will require approximately $475 million of capital. Furthermore, if we
acquire other businesses, we may require additional financing. We expect the
proceeds of our April 2000 offerings of common stock and convertible preferred
stock, our current
11
<PAGE> 13
and proposed financing arrangements and cash flow from operations to provide
sufficient capital to fully fund our business plan.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2000, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101A, an amendment to SAB 101, "Revenue
Recognition in Financial Statement." SAB 101A defers the required implementation
of SAB 101 until the fiscal quarter ended June 30, 2000. The Company is
currently evaluating the effects, if any of SAB 101 on the Company's financial
position or results of operations.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" (FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25, the criteria for determining whether a plan qualifies us a
noncompensatory plan, the accounting consequence of various modifications to the
terms of previously fixed stock options or awards, and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company is
still assessing the impact of FIN 44 on the Company's financial position or
results of operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company had operating losses for the three months ended March 31, 2000
and in each of the last five years and negative cash flow from operations for
the three months ended March 31, 2000 and in the year ended December 31, 1998.
The Company expects to incur significant expenditures in connection with the
acquisition, development and expansion of its network infrastructure, product
offerings, information technology systems and employee base. As a result, the
Company expects to incur significant future operating losses and negative cash
flow. If its revenues do not increase significantly or the increase in its
expenses is greater than expected, the Company may not achieve or sustain
profitability or generate positive cash flow in the future.
The Company's ability to meet its projected growth will require substantial
cash resources. The Company's ability to satisfy future capital needs will
depend upon its ability to renegotiate or replace our credit and equipment lease
facilities, obtain supplemental financing or raise additional capital. If the
Company does not close the new senior secured credit facilities, it can give no
assurance that it will be able to renegotiate or replace its credit and
equipment lease facilities on acceptable terms or at all. Additional financing
may also place significant limits on its financial and operating flexibility or
may not be available. Failure to obtain future financing when needed or on
acceptable terms could cause the Company to delay or abandon its development and
expansion plans and could materially adversely affect its growth and ability to
compete.
The Company has a significant amount of indebtedness outstanding and, as a
result of its growth strategy, expects to incur significant additional
indebtedness in the future. The Company's ability to make cash payments with
respect to its outstanding indebtedness and to repay its obligations on such
indebtedness at maturity will depend on its future operating performance, which
will be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond the Company's control. In addition,
the terms of the indebtedness impose operating restrictions on the Company,
which limit its flexibility and create a risk that it could default on its
obligations.
The Company's future performance will depend, in large part, upon its
ability to implement and manage its growth effectively. The Company's rapid
growth has placed, and in the future will continue to place, a significant
strain on its administrative, operational and financial resources. Failure to
retain and attract additional qualified sales and other personnel, including
management personnel who can manage the Company's growth effectively, and
failure to successfully integrate such personnel, could have a material adverse
effect on the Company. To manage its growth successfully, the Company will also
have to continue to improve and upgrade operational, financial, accounting and
information systems, controls and infrastructure as well as expand, train and
manage its employee base. In the event the Company is unable to upgrade its
12
<PAGE> 14
financial controls and systems adequately to support its anticipated growth, the
Company could be materially adversely affected.
The Company's success will depend upon its ability to develop and expand
its network infrastructure and support services in order to offer local
telecommunication services, Internet access and other services. Executing the
Company's business strategy will require that the Company enter into agreements,
on acceptable terms and conditions, with various providers of infrastructure
capacity, in particular, interconnection agreements with ILECs and peering
agreements with internet service providers ("ISPs"). No assurance can be given
that all of the requisite agreements can be obtained on satisfactory terms and
conditions.
The Company has limited experience providing Internet access, broadband
data including VODSL and DSL, web and managed server hosting and local services
on its own network. There can be no assurance that these services will receive
market acceptance in a timely manner, if at all, or that prices and demand for
these services will be sufficient to provide profitable operations.
The Company relies on other companies to supply certain key components of
its network infrastructure, including telecommunications services including DSL
services, network capacity and switching and networking equipment, which, in the
quantities and quality demanded by the Company, are available only from sole or
limited sources. The Company is also dependent upon incumbent local exchange
carriers and other carriers to provide telecommunications services and
facilities to the Company and its customers and upon third parties for other
services. There can be no assurance that the Company will be able to obtain such
services or facilities on the scale and within the time frames required by the
Company at an affordable cost, or at all.
The Company operates in a highly competitive environment and currently does
not have a significant market share in any of its markets. Most of its actual
and potential competitors have substantially greater financial, technical,
marketing and other resources, and brand or corporate name recognition, than the
Company. Also, the continuing trend toward business alliances in the
telecommunications industry and the absence of substantial barriers to entry in
the data and Internet services markets could give rise to significant new
competition. In addition, prices for communication services have fallen
historically, a trend the Company expects will continue. The Company's success
will depend upon its ability to provide high-quality services at prices
competitive with those charged by its competitors.
Telecommunications services are subject to significant regulation at the
Federal, state, local and international levels, affecting the Company and its
existing and potential competitors. Delays in receiving required regulatory
approvals or the enactment of new and adverse legislation, regulations or
regulatory requirements may have a material adverse effect on the Company's
financial condition, results of operations and cash flow. In addition, future
legislative, judicial and regulatory agency actions could alter competitive
conditions in the markets in which the Company is operating or intends to
operate in ways that are materially adverse to the Company.
The telecommunications industry has been, and is likely to continue to be,
characterized by rapid technological change, frequent new service introductions
and evolving industry standards. Increases or changes in technological
capabilities or efficiencies could create an incentive for more competitors to
enter the facilities-based local exchange business in which the Company intends
to compete. Similarly, such changes could result in lower retail rates for
telecommunications services, which could have a material adverse effect on the
Company's ability to price its services competitively or profitably.
13
<PAGE> 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
Since December 26, 1999, the Company has issued 61,759 shares of Common
Stock upon the exercise of warrants that were (i) issued and sold in the
Company's September 1998 sale of Units consisting of shares of 13.5% Series A
Cumulative Preferred Stock and warrants and (ii) issued to certain lenders in
May 31, 1999 in connection with an amendment to the Company's credit facility.
All of such warrant exercises were effected through "cashless" exercises that
did not involve the payment of additional consideration to the Company. The
shares of Common Stock issued pursuant to such warrant exercises were offered
and sold in reliance upon exemptions set forth in Sections 3(b) and 4(2) of the
Securities Act, or Regulation D promulgated thereunder, relating to sales by an
issuer not involving a public offering. No underwriters or placement agents were
involved in the issuance of Common Stock pursuant to any exercise of the
foregoing warrants.
Use of Proceeds
In connection with the Company's initial public offering of Common Stock,
the effective date of its registration statement on Form S-1 under the
Securities Act of 1933 (No. 333-79479) was June 29, 1999.
During the quarter ended March 31, 2000, we used the remaining net proceeds
from the Company's initial public offering as follows:
<TABLE>
<S> <C>
Purchase and installation of property and
equipment $28,300,000
</TABLE>
The amount shown above is an estimate.
The remaining net proceeds were invested in short-term financial
instruments.
None of such uses involved direct or indirect payments to directors or
officers of Network Plus or their associates, 10% stockholders of Network Plus,
or affiliates of Network Plus.
Convertible Preferred Stock Offering
On April 12, 2000, the Company designated 500,000 shares of its previously
undesignated preferred stock as 7 1/2% Series A Cumulative Convertible Preferred
Stock (the "convertible preferred stock") and issued 250,000 shares of the
convertible preferred stock in a registered public underwritten offering. The
convertible preferred stock was issued by the Company in the form of 2,500,000
depositary shares, liquidation preference $50 per depositary share. Each
depositary share represents 1/10 of a share of convertible preferred stock.
The following is a summary of certain terms of the convertible preferred
stock. For a complete description of the terms of the convertible preferred
stock, reference is made to the Certificate of Designations filed as an exhibit
hereto.
The convertible preferred stock is subordinated to the Company's existing,
and any future, indebtedness, but ranks pari passu with any existing or future
preferred stock and has priority over the Company's Common Stock.
Dividends on the convertible preferred stock are payable quarterly and
accumulate at a rate of 7 1/2% per annum per share on a liquidation preference
of $500 per share, or $37.50 per annum per share. The first dividend payment of
$8.229 per share of convertible preferred stock will be payable on July 1, 2000.
Dividends may, at the Company's option, be paid in cash, shares of Common Stock
or a combination thereof. If the Company elects to pay a dividend with Common
Stock, the market price of the Company's Common Stock for purposes of
calculating the number of shares required to satisfy the dividend payment will
be equal to 95% of the average of the closing price of the Common Stock on the
five trading days preceding the dividend
14
<PAGE> 16
payment date. The number of shares of Common Stock to be delivered to the
holders of the convertible preferred stock will be the amount of the dividend
payment divided by the market price of the Common Stock determined as described
above.
Unless previously redeemed or repurchased, the convertible preferred stock
is convertible at the option of the holders at any time prior to April 1, 2012,
into shares of Common Stock at a rate, subject to adjustment in certain events,
of 14.368 shares of Common Stock for each share of convertible preferred stock.
The Company will be entitled to redeem the convertible preferred stock after
April 10, 2005, by paying cash, Common Stock or a combination thereof, at the
Company's option. From April 10, 2005 until March 31, 2006, the redemption price
for each share will equal $518.75 plus accumulated and unpaid dividends. The
redemption price will decline ratably each year beginning on April 1, 2006,
until it equals $500.00 on April 1, 2010 and thereafter will remain at $500.00
until redeemed. If the Company elects to pay the redemption price with Common
Stock, the market price of the Common Stock for purposes of calculating the
number of shares required to satisfy the redemption payment will be equal to 95%
of the average of the closing price of the Common Stock on the ten trading days
following the end of the notice period specified in the redemption notice. The
number of shares of Common Stock to be delivered to the holders of convertible
preferred stock will be the amount of the redemption payment divided by the
market price of the Common Stock determined as described above.
Upon the occurrence of a change of control, as defined in the Certificate
of Designations governing the convertible preferred stock, each holder of the
convertible preferred stock has the right to require the Company to purchase all
or a portion of the holder's convertible preferred stock at a price equal to the
liquidation preference plus accumulated and unpaid dividends. The Company may
pay the redemption price in respect of the change of control purchase obligation
in cash or Common Stock or a combination thereof. If the Company pays the
redemption price in Common Stock, the market price of the Common Stock will be
determined the same way as if the convertible preferred stock were being
redeemed by the Company.
The Company will be required to redeem all the remaining shares of the
convertible preferred stock on April 1, 2012. In the event of the liquidation,
dissolution or winding up of the Company's business, holders of the convertible
preferred stock are entitled to receive the liquidation preference of $500 per
share plus all accrued and unpaid dividends. Except as may be required by
Delaware law, or if the Company fails to pay dividends for six quarters, the
convertible preferred stock will have no voting rights.
The payment of dividends or other distributions on the Common Stock is
subject to the declaration and payment of preferential dividends on the
convertible preferred stock. Upon a liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, the rights of the holders of
Common Stock are subordinate to the rights of holders of convertible preferred
stock to receive their aggregate liquidation preference. Accordingly, the
issuance of convertible preferred stock may adversely affect the rights of the
holders of Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index are filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended March 31, 2000.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Quincy, State of Massachusetts, on May
15, 2000.
NETWORK PLUS CORP.
By: /s/ GEORGE ALEX
------------------------------------
George Alex
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------- -----
<C> <S>
10.1 Letter agreement, dated March 9, 2000, by and among the
Registrant and Network Plus, Inc., jointly and severally, as
the Borrower, Goldman Sachs Credit Partners L.P.
("Goldman"), as Syndication and Arrangement Agent, Fleet
National Bank ("Fleet"), as Agent, and Fleet, Goldman and
other lenders, as Lenders, amending the Loan and Security
Agreement, dated October 7, 1998, as amended, by and among
the Borrower, Agent, Syndication and Arrangement Agent and
Lenders.
10.2 Letter agreement, dated March 15, 2000, by and among the
Registrant and Network Plus, Inc., jointly and severally, as
the Borrower, Goldman Sachs Credit Partners L.P.
("Goldman"), as Syndication and Arrangement Agent, Fleet
National Bank ("Fleet"), as Agent, and Fleet, Goldman and
other lenders, as Lenders, amending the Loan and Security
Agreement, dated October 7, 1998, as amended, by and among
the Borrower, Agent, Syndication and Arrangement Agent and
Lenders.
10.3 Letter agreement, dated March 9, 2000, by and between
Network Plus, Inc. and Comdisco, Inc., amending the Master
Lease Agreement, dated as of December 30, 1998, as amended,
by and among Comdisco, Inc. and Network Plus, Inc.
27 Financial Data Schedule
</TABLE>
17
<PAGE> 1
EXHIBIT 10.1
March 9, 2000
Network Plus, Inc.
Network Plus Corp.
234 Copeland Street
Quincy, MA 02169
Attn: Chief Financial Officer
Re: October 7, 1998 $60,000,000 Loan and Security Agreement
-----------------------------------------------------------
Gentlemen:
Reference is hereby made to that certain Loan and Security Agreement dated
as of October 7, 1998 (as amended, the "Loan Agreement") by and between Network
Plus Corp., a Delaware corporation ("Holdings") and Network Plus, Inc., a
Massachusetts corporation ("NPI"), as borrowers (individually and collectively,
jointly and severally, the "Borrower"), Fleet National Bank, a national banking
association, as Agent ("Agent"), and Goldman Sachs Credit Partners L.P., a
Bermuda limited partnership, as syndication and arrangement agent for the
Lenders (the "S&A Agent"), Fleet National Bank and the other lenders party
thereto from time to time (collectively, the "Lenders"). Capitalized terms used
herein and not otherwise defined shall have the meaning given to such term in
the Loan Agreement.
The Borrower has requested that the Agent and the Lenders modify the Loan
Agreement so as to, among other things, extend the Maturity Date until December
31, 2000. The Agent and Lenders are willing to extend such accommodation based
upon and subject to the Borrower acknowledging its agreement to pay an extension
fee (the "Extension Fee") equal to two (2%) percent of the Commitment in the
event that the Loan Agreement is not terminated and remains available to the
Borrower beyond June 30, 2000. Such Extension Fee shall be due and payable to
the Lenders based upon each Lender's Pro Rata Share of the Commitment. The terms
and conditions of this letter shall override and govern and control any and all
agreements, written or oral, between the Borrower and any of the Lenders, and
such extension fee shall be in lieu of and not in addition to any extension fee
agreed to by the Borrower with any Lender on or before the date hereof. Your
acceptance of this extension fee arrangement set forth herein is a precondition
to the effectiveness and validity of that certain Amendment Letter dated of even
date.
Kindly indicate your assent to the foregoing arrangement by signing this
letter on the space provided below.
<PAGE> 2
This Letter Agreement may be executed in multiple counterparts, each of
which shall constitute an original, but all of which, when taken together, shall
constitute one and the same instrument.
The parties hereto have caused this Letter Agreement to be duly executed as
a sealed instrument as of the day and year first above written.
Very truly yours,
Fleet National Bank, as Agent and a Lender
By: /s/ David Belanger
---------------------------------------
Name: David Belanger
-------------------------------------
Title: Assistant Vice President
-----------------------------------
<PAGE> 3
Goldman Sachs Credit Partners, L.P., as
S&A Agent and a Lender
By: /s/ Bruce H Mendelsohn
---------------------------------------
Name: Bruce H Mendelsohn
-------------------------------------
Title: Authorized Signatory
-----------------------------------
<PAGE> 4
Transamerica Business Credit Corporation,
as a Lender
By: /s/ Gary P. Moro
---------------------------------------
Name: Gary P. Moro
-------------------------------------
Title: Senior Vice President
-----------------------------------
<PAGE> 5
FINOVA Capital Corporation (successor
in interest to Fremont Financial
Corporation), as a Lender
By: /s/ Gerald C. Wordell
---------------------------------------
Name: /s/ Gerald C. Wordell
-------------------------------------
Title: Authorized Signer
-----------------------------------
<PAGE> 6
Accepted and Agreed as of the 15th day of March, 2000
Network Plus, Inc., as Borrower
By: /s/ George C. Alex
-----------------------------
Name: George C. Alex
---------------------------
Title: Chief Financial Officer
--------------------------
Network Plus Corp., as Borrower
By: /s/ George C. Alex
-----------------------------
Name: George C. Alex
---------------------------
Title: Chief Financial Officer
--------------------------
<PAGE> 7
EXHIBIT A
Schedule C-1
COMMITMENTS
<TABLE>
<CAPTION>
PRO RATA SHARE PRO RATA SHARE TOTAL PRO RATA
TRANCHE A OF TRANCHE A TRANCHE B OF TRANCHE B COMMITMENTS SHARE OF TOTAL
LENDER COMMITMENT COMMITMENT COMMITMENTS COMMITMENTS OF LENDER COMMITMENTS
- ------ ---------- -------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
GSCP 0 0% $30,000,000 100% $30,000,000 66-2/3%
FNB $15,000,000 100% $ 0 0% $15,000,000 33-1/3%
All Lenders $15,000,000 100% $30,000,000 100% $45,000,000 100%
</TABLE>
<PAGE> 1
EXHIBIT 10.2
March 15, 2000
Network Plus, Inc.
Network Plus Corp.
234 Copeland Street
Quincy, MA 02169
Attn: Chief Financial Officer
Re: October 7, 1998 $60,000,000 Loan and Security Agreement
-------------------------------------------------------
Gentlemen:
Reference is hereby made to that certain Loan and Security Agreement dated
as of October 7, 1998 (as amended, the "Loan Agreement") by and between Network
Plus Corp., a Delaware corporation ("Holdings") and Network Plus, Inc., a
Massachusetts corporation ("NPI"), as borrowers (individually and collectively,
jointly and severally, the "Borrower"), Fleet National Bank, a national banking
association, as Agent ("Agent"), and Goldman Sachs Credit Partners L.P., a
Bermuda limited partnership, as syndication and arrangement agent for the
Lenders (the "S&A Agent"), Fleet National Bank and the other lenders party
thereto from time to time (collectively, the "Lenders"). Capitalized terms used
herein and not otherwise defined shall have the meaning given to such term in
the Loan Agreement.
The Borrower has requested that the Agent and the Lenders amend certain
provisions of the Loan Agreement, as follows:
1. The Maturity Date of the Loan Agreement is hereby extended to December
31, 2000, and all references to the "Maturity Date" in the Loan Documents shall
be deemed to mean and refer to December 31, 2000.
2. The Borrower, the Agent and the Lenders agree to amend Section 7.20(a)
of the Loan Agreement by deleting Section 7.20(a) of the Loan Agreement in its
entirety and by inserting the following in its place and stead:
(a) Profitability. Achieve operating EBITDA of not less than the
amount shown below for the one month period corresponding thereto
(except for March 31, 1999 which shall be for the six month period and
for March 31, 2000, June 30, 2000, September 30, 2000 and December 31,
2000, which shall each be for the three month period then ending):
<PAGE> 2
<TABLE>
Period ending Minimum operating EBITDA
------------- ------------------------
<S> <C>
For the six month period ending ($7,000,000)
March 31, 1999
For the one month period ending ($1,800,000)
April 30, 1999
For the one month period ending ($2,800,000)
May 31, 1999
For the one month period ending ($2,700,000)
June 30, 1999
For the one month period ending ($2,500,000)
July 31, 1999
For the one month period ending ($2,200,000)
August 31, 1999
For the one month period ending ($1,800,000)
September 30, 1999
For the one month period ending ($1,600,000)
October 31, 1999
For the one month period ending ($1,800,000)
November 30, 1999
For the one month period ending ($4,000,000)
December 31, 1999
For the three month period ending ($11,500,000)
March 31, 2000
For the three month period ending ($9,750,000)
June 30, 2000
For the three month period ending ($6,950,000)
September 30, 2000
For the three month period ending ($3,450,000)
December 31, 2000
</TABLE>
3. The Borrower, the Agent and the Lenders agree to amend Section
7.20(b) of the Loan Agreement by deleting Section 7.20(b) of the Loan Agreement
in its entirety and by inserting the following in its place and stead;
<PAGE> 3
(b) Total Revenues. Achieve total revenues, determined in accordance with GAAP,
of not less than the amount shown below for the period corresponding thereto:
<TABLE>
Period Minimum Total Revenue
- ------------------------------- ---------------------
<S> <C>
For the six month period ending $56,100,000
March 31, 1999
For the six month period ending $61,500,000
June 30, 1999
For the six month period ending $70,000,000
September 30, 1999
For the six month period ending $79,500,000
December 31, 1999
For the three month period ending $42,000,000
March 31, 2000
For the three month period ending $50,000,000
June 30, 2000
For the three month period ending $58,200,000
September 30, 2000
For the three month period ending $67,825,000
December 31, 2000
</TABLE>
4. The amendments set forth herein shall be effective as of December 31,
1999.
5. Notwithstanding the foregoing amendments, each and every term,
condition and other provision on the Loan Agreement (as previously amended and
as amended hereby) shall continue in full force and effect. The Borrower
ratifies and confirms all of the representations, warranties and covenants
contained in the Loan Agreement as modified hereby and agrees that the Agent and
the Lenders may continue to rely upon all of the representations, warranties and
covenants contained therein.
6. This Letter Agreement incorporates all discussions and negotiations
between the Agent, the Lenders and the Borrower, either express or implied,
concerning the matters included herein, any custom, usage, or course of dealing
to the contrary notwithstanding. No such discussions, negotiations, custom,
usage, or course of dealing shall limit, modify or otherwise affect the
provisions hereof. No modifications, amendment or waiver of any provision of
this Letter Agreement is effective unless executed in writing by the party to be
charged with such modification, amendment or waiver, and if such party be the
Agent, then by a duly authorized
<PAGE> 4
officer thereof.
7. This Letter Agreement may be executed in multiple counterparts, each
of which shall constitute an original, but all of which, when taken together,
shall constitute one and the same instrument.
8. The parties hereto have caused this Letter Agreement to be duly
executed as a sealed instrument as of the day and year first above written.
Very Truly yours,
Fleet National Bank, as Agent and a Lender
By: /s/ David Belanger
-------------------
Name: DAVID BELANGER
Title: Assistant V.P.
<PAGE> 5
Goldman Sachs Credit Partners, L.P., as
S&A Agent and a Lender
By: /s/ JOHN URBAN
-------------------
Name: JOHN URBAN
Titel: Authorized Signatory
<PAGE> 6
FINOVA Capital Corporation (successor in interest
to Fremont Financial Corporation),
as a Lender
By: /s/ Richard A. Sutton
-------------------------
Name: Richard A. Sutton
Title: Vice President and CA
<PAGE> 7
Transamerica Business Credit Corporation,
as a Lender
By: /s/ Gary P. Moro
-----------------------
Name: Gary P. Moro
Title: Senior Vice President
<PAGE> 8
Accepted and Agreed as of the 15th day of March, 2000
Network Plus Inc., as Borrower
By: /s/ George C. Alex
-------------------------------
Name: George C. Alex
Title: Chief Financial Officer
Network Plus Corp., as Borrower
By: /s/ George C. Alex
-------------------------------
Name: George C. Alex
Title: Chief Financial Officer
<PAGE> 1
EXHIBIT 10.3
COMDISCO
A TECHNOLOGY SERVICES COMPANY
JOHN C. KENNING
President
*** SENT VIA FAX & FEDERAL EXPRESS MAL ***
March 8, 2000
Mr. George Alex
Chief Financial Officer
Network Plus, Inc.
234 Copeland Street
Quincy, MA 02169
Dear Mr. Alex:
This letter shall supersede and cancel that previous proposal dated February
28, 2000 and such proposal shall be of no further force and effect. In
connection with our recent discussion, Comdisco, Inc. ("Comdisco") will provide
Network Plus, Inc. ("Network Plus") with an extension of the term of
availability for the balance of existing facility in the amount of $29,000,000
(hereinafter "Extended Facility". Comdisco hereby agrees, notwithstanding any
provision to the contrary in any agreement or document between Comdisco and
Network Plus, to finance through December 31, 2000, additional equipment
acquisitions as stated in Section 1 by Network Plus under the master lease dated
December 30, 1998, as amended, and all addendums and schedules thereto, up to
the amount of the Extended Facility. In addition, Comdisco and Network Plus
agree to the following.
1. The availability of the Extended Facility would be limited to hardware,
including operating software, PROVIDED Comdisco is granted remarketing
rights in connection with the right to use such software, and would be for
the following types of equipment, manufacturers and lease terms.
- Nortel Networks or Lucent Technologies Central
Office Switches: 5 years (20 quarters)
- Nortel Networks or Lucent Technologies
Optical Equipment: 3 years (12 quarters)
- Nortel Networks or Cisco Systems Backbone
Switching/Routing: 3 years (12 quarters)
- Access Lan and JetStream Remote Access: 3 years (12 quarters)
2. Network Plus will be required to provide Comdisco with monthly balance
sheets, income and cashflow statements.
3. Network Plus shall authorize Comdisco, or its assigns, to institute
electronic funds transfer debit instructions against Network Plus'
band account using the Automated Clearing House funds-transfer
systems in order to make payments for any and all Network Plus'
payment obligations when due in connection with the existing Equipment
Schedules between Comdisco and Network Plus as well as any additional
Equipment Schedules entered into in connection with the Extended
Facility.
4. Network Plus will grant Comdisco the right of first refusal to provide
used telecommunications equipment and further, Comdisco shall have the
right to match any third party offer for used equipment. In addition,
Network Plus shall designate Comdisco as its exclusive remarketer of all
surplus telecommunications equipment upon terms and conditions as shall be
agreed between the parties. In consideration of the foregoing, Comdisco and
Network Plus shall enter into an agreement whereby Comdisco shall provide
to Network Plus for a period of twelve (12) months
COMMUNICATIONS
CAPITAL
DIVISION
<PAGE> 2
COMDISCO
Network Plus, Inc.
March 3, 2000
Page 2
free of charge, its Market Insight Services in connection with Network
Plus' telecommunications equipment acquisitions and after the expiration of
such twelve (12) month period, through the balance of the lease term, fees
shall be structured based upon the net savings to Network Plus as a result
of such services.
5. The availability of the Extended Facility shall be subject to no event of
default under the lease and no material adverse charge in Network Plus'
credit standing.
6. The Extended Facility shall be subject to mutually agreeable documentation
set forth herein.
7. In addition, based upon Comdisco's status as a Cisco Systems Gold
Certified Partner, Comdisco would like the opportunity to provide Network
Plus with its Cisco equipment requirements in connection with its network
infrustructure.
8. This lease proposal shall expire on March 10, 2000. Terms and conditions
are subject to change after this date.
Please sign this agreement in the place indicated below and return to me by
return mail or fax. If you have any questions, please give me a call. Thank you
and I look forward to continuing our relationship.
Sincerely,
/s/ John C. Kenning
- ----------------------------------
John C. Kenning
President, Comdisco Communications
Capital Division
Acknowledged and Agreed
NETWORK PLUS, INC.
By: /s/ George C. Alex
- ----------------------------------
Title: Chief Financial Officer
Date: March 9, 2000
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<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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0
0
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