<PAGE>
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 September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-63787
---------
ONEPOINT COMMUNICATIONS CORP.
<TABLE>
<CAPTION>
<S> <C>
State of Delaware 36-4225811
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
2201 Waukegan Road, Suite E-200 60015
Bannockburn, IL (Zip Code)
(Address of principal executive offices)
</TABLE>
Telephone number, including area code: 847-374-3700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 at November 12, 1999 was 1,000,000 shares.
<PAGE>
ONEPOINT COMMUNICATIONS CORP.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
- ------------------------------ ----
<C> <S> <C>
Item 1. Financial Statements
ONEPOINT COMMUNICATIONS CORP.
. Unaudited Consolidated Statements of Operations for the three
and nine months ended September 30, 1999 and 1998 3
. Unaudited Consolidated Balance Sheets as of September 30, 1999
and December 31, 1998 4
. Unaudited Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 5
. Notes to Unaudited Consolidated Financial Statements 6
VIC-RMTS-DC, LLC
. Unaudited Statements of Operations for the three and nine months ended
September 30, 1999 and 1998 11
. Unaudited Balance Sheets as of September 30, 1999 and December 31, 1998 12
. Unaudited Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 13
. Notes to Unaudited Consolidated Financial Statements 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
ONEPOINT COMMUNICATIONS CORP. 15
VIC-RMTS-DC, LLC 20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
PART II. OTHER INFORMATION:
- ------------------------------
Item 1. Legal Proceedings 26
Item 2. Changes in Securities and Use of Proceeds 26
Item 3. Defaults upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
Exhibit Index 29
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
OnePoint Communications Corp.
Unaudited Consolidated Statements of Operations
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------------ ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 5,957 $ 2,765 $ 15,080 $ 3,440
Cost of revenue 5,869 2,916 15,096 4,822
------------------ ----------------- ---------------- ----------------
88 (151) (16) (1,382)
Expenses:
Selling, general and administrative 12,766 8,858 33,432 17,723
Depreciation and amortization 727 462 1,947 773
------------------ ----------------- ---------------- ----------------
Loss from operations (13,405) (9,471) (35,395) (19,878)
Other income (expense)
Interest income 506 930 2,308 1,509
Interest expense (3,369) (6,671) (11,489) (9,648)
Other (141) -- (102) 17
------------------ ----------------- ---------------- ----------------
(3,004) (5,741) (9,283) (8,122)
------------------ ----------------- ---------------- ----------------
Equity in losses of unconsolidated
subsidiaries (1,097) (1,078) (2,641) (2,577)
------------------ ----------------- ---------------- ----------------
Loss before extraordinary item (17,506) (16,290) (47,319) (30,577)
Extraordinary gain on bond repurchases -- -- 20,506 --
------------------ ----------------- ---------------- ----------------
Net loss $ (17,506) $ (16,290) $ (26,813) $ (30,577)
================== ================= ================ ================
Basic Earnings Per Share:
(Loss) before extraordinary item $ (17,506) $ (16,290) $ (47,319) $ (30,577)
Extraordinary item -- -- 20,506 --
------------------ ----------------- ---------------- ----------------
Net (loss) $ (17,506) $ (16,290) $ (26,813) $ (30,577)
================== ================= ================ ================
Shares used in computing loss per
share:
Weighted average common shares -
basic 1,000,000 1,000,000 1,000,000 1,000,000
================== ================= ================ ================
</TABLE>
See accompanying notes.
3
<PAGE>
OnePoint Communications Corp.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 (*)
------------- ------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ 5,730
Restricted cash 132 5,199
Investment in marketable securities, current 5,013 13,118
Accounts receivable, net 3,246 2,277
Affiliate receivable 287 653
Prepaid expenses 1,374 898
-------- --------
Total current assets 10,052 27,875
Investment in marketable securities, non-current ($27,344 and $73,377,
restricted at September 30, 1999 and December 31, 1998, respectively) 29,076 86,705
Investments in unconsolidated subsidiaries 3,642 6,283
Property and equipment, net 17,962 10,923
Intangible assets, net 8,295 11,549
Other assets 5,872 5,972
-------- --------
Total assets $ 74,899 $149,307
======== ========
Liabilities, Redeemable Preferred Stock and Stockholder's Equity/(Deficit)
Current liabilities:
Accounts payable and accrued expense $ 7,956 $ 7,167
Affiliate payable 3,200 3,558
Accrued interest payable 4,022 1,701
Current portion of long term debt 250 250
-------- --------
Total current liabilities 15,428 12,676
Long term debt - affiliate -- --
Long term debt 88,751 138,503
Redeemable preferred stock, $1.00 par value, 35,000 shares authorized, 35,000
shares issued and outstanding at redemption value 35,000 35,000
Stockholder's deficit:
Common stock, $0.01 par value, 2,000,000 shares authorized, 1,000,000 shares 10 10
issued and outstanding at September 30, 1999 and December 31, 1998
Additional capital 5,370 5,370
Accumulated deficit (69,768) (42,953)
Other comprehensive (loss) income 108 701
-------- --------
Total stockholder's (deficit) (63,929) (36,872)
-------- --------
Total liabilities, redeemable preferred stock and stockholder's equity/(deficit) $ 74,899 $149,307
======== ========
</TABLE>
(*) The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
4
<PAGE>
OnePoint Communications Corp.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
----------------- -----------------
<S> <C> <C>
Operating activities
Net loss $ (26,813) $ (30,576)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,947 773
Amortization of premium of securities acquired included in interest income (973) --
Amortization of debt discount issuance cost and warrants included in
interest expense 683 219
Amortization of developer payments included in reselling costs 1,475 --
Losses in equity of interest of unconsolidated investments 2,641 2,577
Extraordinary gain on bond repurchases (20,506) --
Unrealized loss on investments in marketable securities (593) 230
Loss on disposal of property and equipment 114 --
Change in allowance for doubtful accounts 172 --
Changes in operating assets and liabilities:
Accounts receivable (1,141) (1,554)
Prepaid expenses (1,951) (51)
Other assets 100 (5,522)
Affiliate payables (358) --
Affiliate receivables 366 (158)
Accounts payable and accrued expenses 788 4,863
Accrued interest 2,320 9,178
----------------- -----------------
Net cash used in operating activities (41,729) (20,023)
Investing activities
Restricted cash, net 5,066 (5,127)
Acquisition of intangible assets -- (5,278)
Proceeds from sale of marketable securities 74,987 35,309
Purchase of marketable securities (8,313) (169,425)
Acquisition of property and equipment (8,714) (6,397)
----------------- -----------------
Net cash provided by (used in) investing activities 63,026 (150,919)
Financing activities
Proceeds from issuance of long-term debt -- 179,300
Repayment of long-term debt (27,027) (4,300)
Other debt issuance costs -- (9,648)
----------------- -----------------
Net cash (used in) provided by financing activities (27,027) 165,532
Net (decrease) in cash (5,730) (5,410)
Cash at the beginning of period 5,730 5,463
----------------- -----------------
Cash at the end of period $ -- $ 53
================= =================
</TABLE>
See accompanying notes.
5
<PAGE>
OnePoint Communications Corp.
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands, except per share data)
Note 1 - Basis of Presentation
The financial statements for the three and nine months ended September 30,
1999, and 1998 and the related footnote information are unaudited and have been
prepared on a basis consistent with the audited consolidated financial
statements of OnePoint Communications Corp. and subsidiaries as of and for the
year ended December 31, 1998 included in Registration Statement on Form S-4,
filed with the Securities and Exchange Commission on August 4, 1999 (the
"Registration Statement") of OnePoint Communications Corp. ("OnePoint" or the
"Company"). These financial statements should be read in conjunction with the
audited consolidated financial statements and the related notes to Consolidated
Financial Statements of OnePoint Communications Corp. as of and for the year
ended December 31, 1998 and the Financial Statements of OnePoint Communications,
L.L.C., (the "Predecessor Company") as of and for the year ended December 31,
1997 included in the Registration Statement. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (consisting
of normal recurring adjustments), which management considers necessary to
present fairly the consolidated financial position of the Company at September
30, 1999 and the results of its operations and their cash flows for the three
and nine month periods ended September 30, 1999 and 1998.
Note 2 - Summarized Income Statement Information of Affiliates
The Company has investments ranging from 41-50% in two companies and
accounts for those investments using the equity method. The combined results of
operations and financial position of the Company's equity-basis affiliates are
summarized below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Condensed Operating Information
Net sales $ 4,937 $ 4,103 $14,697 $11,548
Profit from operations 1,221 1,088 4,064 3,034
------------ ------------ ------------ ------------
Net loss $(2,675) $(1,581) $(6,407) $(5,001)
============ ============ ============ ============
</TABLE>
Note 3 - Debt
On March 25, 1998, the Company entered into a term note with a bank (the
"Credit Facility"). Under the terms of the Credit Facility, the Company may
borrow up to $9,000. Through September 1999, the Company borrowed $8,750 with
an additional $250 of availability securing a letter of credit. Principal
payments began on January 1, 1999 with all balances payable on or before January
1, 2003. The Credit Facility has mandatory repayment provisions upon certain
events. The Credit Facility is collateralized by certain of the Company's
assets and is guaranteed by SBC Communications Inc. As of September 30, 1999
the outstanding principal balance was $8,500 and the amount available to the
Company under the Credit Facility was $0. On August 30, 1999 the Company
established a second Credit Facility with the same bank enabling the Company to
borrow up to an additional $16,000. The terms of the Credit Facility are
similar to those contained in the previous agreement. On the same date the
first Credit Facility was amended in order to make the default provisions
consistent with both facilities.
On May 15th, 1998 the Company offered 175,000 Units consisting of 14-1/2%
Senior Notes due 2008 and Warrants to purchase 111,125 shares of Common Stock
(the "Senior Notes"). Under the terms of the indenture governing the Senior
Notes, the Company is required to comply with specified covenants. These
covenants include, among other things, limitations on sales of subsidiaries and
certain assets, mergers, and other activities. In connection with the May 1998
offering of Senior Notes and Warrants, the Company entered into a Registration
Rights Agreement (the "Registration Rights Agreement") pursuant to which it
agreed to file and use its best efforts to cause to become effective the
registration statement relating to an offer to exchange the Senior Notes
6
<PAGE>
OnePoint Communications Corp.
Notes to Unaudited Consolidated Financial Statements (Continued)
(Dollars in thousands, except per share data)
Note 3 - Debt (Continued)
for substantially identical notes which are not subject to restrictions on
transfer. The Company filed the registration statement on September 18, 1998, as
required under the Registration Rights Agreement. The Registration Rights
Agreement provides, however, that if the registration statement has not been
declared effective by the Securities and Exchange Commission on or before
November 17, 1998, then liquidated damages will accrue with respect to the
Senior Notes. Such liquidated damages accrue at a rate of $0.05 per week per $1
principal amount of Senior Notes for the first 90 days beyond November 17, 1998,
and thereafter increase by $0.05 per week per $1 outstanding principal amount of
the Senior Notes each 90 day period, up to a maximum of $0.50 per week per $1
principal amount of Senior Notes (all amounts in the preceding sentence in
dollars, not thousands). Liquidated damages ceased to accrue on August 6, 1999
when the registration statement was declared effective. The Company accrued $374
in total damages all of which will be paid by December 1st, 1999.
Note 4 - Debt Repurchases
From January 8, 1999 through June 10, 1999, the Company completed open
market purchases of its 14-1/2% Senior Notes due 2008 having an aggregate
principal amount of $51,250 at various prices for an aggregate cost of
approximately $27,600, including accrued interest and transaction fees. As of
September 30, 1999, there was $82,750 in principal amount of Senior Notes
outstanding. The Company recognized an extraordinary gain on the early
extinquishment of this debt of approximately $20,506 in the first nine months of
1999. Pursuant to the terms of the indenture governing the Senior Notes, the
Company used a portion of the proceeds from the Senior Notes offering to
purchase government securities in an amount intended to be sufficient upon
receipt of scheduled interest and principal payments to provide for payment of
the first seven interest payments on the Senior Notes. These government
securities (the "Pledged Securities") were pledged to the trustee for the
benefit of the holders of the Senior Notes. In connection with the Company's
repurchase of Senior Notes, and pursuant to the terms of the agreement governing
the Pledged Securities, the trustee released Pledged Securities to the Company
totaling approximately $26,700 in February 1999 and $11,500 in July 1999.
Note 5 - Changes in Non-owner Equity
Beginning in the first quarter of 1998, compliance with SFAS No. 130,
"Reporting Comprehensive Income" was required. In accordance with the
requirements of this standard, the components of changes in non-owner equity,
net of related tax for the nine months ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
-------------------------------------------
<S> <C> <C>
Net Loss $26,462 $30,577
Unrealized (Gain)/Loss on securities 593 (230)
-------------------------------------------
Changes in non-owner equity $27,055 $30,347
===========================================
</TABLE>
Note 6 - Loss Per Share
The Company's basic loss per share calculations are based upon the weighted
average shares of common stock outstanding. The dilutive effect of stock
appreciation rights and warrants outstanding are included for purposes of
calculating diluted earnings per share, except for periods when the Company
reports a net loss, in which case the inclusion of stock appreciation rights
and warrants outstanding would be anti-dilutive. Diluted loss per share is not
presented for the periods ended September 30, 1999 and 1998 because the effects
of potentially dilutive instruments are anti-dilutive.
7
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Note 7 - Supplemental Cash Flow Data
The Company made a cash payment of $8,493 for interest during the nine
months ended September 30, 1999. The Company did not make payments for interest
during the nine months ended September 30, 1998. The Company did not make
payments for income taxes during the nine months ended September 30, 1999 or
1998.
Note 8 - Arbitration Proceedings
On March 30, 1999, the Company filed a demand for arbitration seeking
a declaratory ruling on the equity ownership of VIC-RMTS-DC, LLC. The Company
believes that the value of the assets contributed by Mid-Atlantic RMTS Holdings,
LLC was sufficient to give Mid-Atlantic RMTS Holdings, LLC a 5% interest based
on capital contributions though December 31, 1998. The manager of Mid-Atlantic
RMTS Holdings, LLC has suggested that it is entitled to an unspecified, but
higher, equity interest in VIC-RMTS-DC, LLC and on April 5, 1999, Mid-Atlantic
Holdings filed its own demand for arbitration to resolve issues of equity
ownership of VIC-RMTS-DC, LLC. OnePoint will be entitled only to that portion of
any distributions made by VIC-RMTS-DC, LLC corresponding to its percentage
equity ownership therein.
Note 9 - Segment Information
The Company's reportable segments are segregated into business units
that offer services to four distinct geographic regions; (i) Atlanta, Georgia
and Charlotte/Raleigh/Durham, North Carolina (the "Southeast Region"), (ii)
Chicago, Illinois (the "Central Region"), (iii) Denver, Colorado and Phoenix,
Arizona (the "Western Region"), and (iv) Washington, DC/Baltimore,
MD/Philadelphia, PA (the "Mid-Atlantic Region"). The Company's services to each
segment include a combination of telephony, video and/or high-speed Internet
access services.
The Company evaluates performance and allocates resources based on
operating profit or loss. The accounting policies of the reportable segments are
the same as those described in the summary of significant accounting policies.
The Company and its subsidiaries account for their investments in affiliates
using the equity method of accounting. Accordingly, certain segments have
recognized equity in the earnings of other segments and their proportionate
share of the assets and liabilities of investments in affiliates. All inter-
segment investment amounts have been excluded in the reported financial
information for the business segments. The Company's segments do not provide
services to each other; therefore, there were no inter-segment sales or related
cost of sales during the periods presented.
All investments in affiliates accounted for under the equity method
are in the Mid-Atlantic Region segment. Equity in the net losses of investees
accounted for by the equity method totaled $2,641 and $2,577 for the nine months
ended September 30, 1999 and 1998, respectively. The Mid-Atlantic Region's
investment in affiliates accounted for under the equity method totaled $3,642
and $ 6,283 as of September 30, 1999 and December 31, 1998, respectively.
8
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Note 9 - Segment Information (Continued)
The following table provides certain financial information for each
business segment:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
----------------------------------
<S> <C> <C>
Revenues:
Central Region $ 4,512 $ 1,411
Mid-Atlantic Region 3,187 962
Southeast Region 4,232 693
Western Region 3,112 363
Other 37 11
----------------------------------
$ 15,080 $ 3,440
==================================
Earnings (Loss) from operations:
Central Region $ 1,291 $ 494
Mid-Atlantic Region (701) (783)
Southeast Region (251) (574)
Western Region (383) (530)
Other 28 11
----------------------------------
$ (16) $ (1,382)
==================================
Identifiable assets:
Central Region $ 20,784 $ 14,525
Mid-Atlantic Region 4,919 3,053
Southeast Region 3,061 1,951
Western Region 1,794 700
Other 44,341 158,226
----------------------------------
$ 74,899 $178,455
==================================
</TABLE>
The following table provides gross revenues on a service line basis:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
-------------------------------------
<S> <C> <C>
Revenues:
Telephony $11,628 $2,158
Video 3,415 1,282
High-speed Internet 37 --
-------------------------------------
$15,080 $3,440
=====================================
</TABLE>
Note 10 - Related Party Transactions
At September 30, 1999, the Company had accrued $41 in accounts payable
related to reimbursement for seconded personnel provided by SBC Communications
Inc. ("SBC") which indirectly owns approximately 10% of the common stock of the
Company.
9
<PAGE>
OnePoint Communications Corp.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
Note 11 - Subsequent Events
In October 1999 CAIS Internet Inc. made an equity investment in the
Company's parent, Ventures in Communications II, LLC of $2,574. This investment
gave CAIS Internet Inc. a 0.99% indirect ownership in the Company.
The Company entered into a letter of intent with an unrelated third party
in connection with negotiations for the Company's potential acquisition of the
provider of pre-paid telephony services. As of November 15, 1999, the Company
has not entered into a definitive agreement.
In November 1999 the company will begin leasing an 80,000 square foot
office in Herndon, Virginia at 12901 Worldgate Drive. This new office lease will
require a $1.1 million letter of credit which is in place and is a reduction of
the second credit facility of $16,000. The lease commenced on November 1st and
expires on October 31st, 2009. The monthly lease amount will be $172 for each
of the first twelve months and will increase for each 12 month period
thereafter.
In October of 1999 is was announced that a definitive agreement has been
executed for the sale of the assets of Mid-Atlantic Cable. Net proceeds to the
Company from this transaction are estimated to be $34 million, subject to
adjustments and closing anticipated during the first quarter of 2000. The
estimated gain to the Company will be approximately $30 million.
10
<PAGE>
Item 1. Financial Statements
- ----------------------------
VIC-RMTS-DC, LLC
Unaudited Statements of Operations
(Dollars in thousands, except for per unit data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 1,291 $ 484 $ 3,187 $ 834
Cost of revenue 1,547 851 3,887 1,744
---------------------------------------------------------------------------------------
(256) (367) (700) (910)
Expenses:
Selling, general and administrative 2,535 3,058 7,365 7,110
Depreciation and amortization 94 55 280 114
---------------------------------------------------------------------------------------
Net loss $ (2,885) $ (3,480) $ (8,345) $ (8,134)
=======================================================================================
Basic loss per unit $(106,534.49) $(453,464.55) $(322,128.00) $(1,125,337.33)
=======================================================================================
Units used in the computation of
basic loss per unit 27.1 7.7 25.9 7.2
=======================================================================================
</TABLE>
See accompanying notes.
11
<PAGE>
VIC-RMTS-DC, LLC
Unaudited Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998(*)
-------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Accounts receivable, net $ 770 $ 490
Affiliate receivable 284 139
Prepaid expenses 315 336
-------------------------------------------------
Total current assets 1,369 965
Property and equipment, net 2,562 2,248
Intangible assets, net 825 900
Other assets 163 265
-------------------------------------------------
Total assets $ 4,919 $ 4,378
=================================================
Liabilities and Unitholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,534 $ 1,011
Other current liabilities 140 52
Total current liabilities 1,674 1,063
Unitholders Equity:
Contributed capital 28,710 20,434
Accumulated deficit (25,465) (17,119)
-------------------------------------------------
Total unitholders' equity 3,245 3,315
-------------------------------------------------
Total liabilities and unitholders' equity $ 4,919 $ 4,378
=================================================
</TABLE>
(*) The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
12
<PAGE>
VIC-RMTS-DC, LLC
Unaudited Statements of Cash Flow
(Dollars in thousands, except per unit data)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
-----------------------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (8,345) $ (8,134)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 280 114
Amortization of developer payments included in reselling cost 527 397
Change in allowance for doubtful accounts 70 28
Changes in operating assets and liabilities:
Accounts receivable (350) (637)
Affiliate receivables (142)
Prepaid expenses (506) 96
Other assets 102 (299)
Affiliate payables -- 173
Accounts payable and accrued expenses 610 (362)
-----------------------------------------------------
Net cash used in operating activities (7,754) (8,073)
Investing activities
Acquisition of property and equipment (522) (876)
-----------------------------------------------------
Net cash used in investing activities (522) (876)
Financing activities
Unitholder contributions 8,276 8,949
-----------------------------------------------------
Net cash provided by financing activities 8,276 8,949
-----------------------------------------------------
Net increase (decrease) in cash -- --
Cash at the beginning of period -- --
-----------------------------------------------------
Cash at the end of period $ -- $ --
=====================================================
</TABLE>
See accompanying notes.
13
<PAGE>
VIC-RMTS-DC, LLC
Notes to Unaudited Consolidated Financial Statements (Continued)
(Dollars in thousands, except per unit data)
Note 1 - Basis of Presentation
The financial statements for the three and nine months ended September 30,
1999, and 1998 and the related footnote information are unaudited and have been
prepared on a basis consistent with the audited financial statements of
VIC-RMTS-DC, LLC ("VIC-RMTS-DC") as of and for the year ended December 31, 1998
included in Registration Statement on Form S-4, filed with the Securities and
Exchange Commission on August 4, 1999 (the "Registration Statement") of OnePoint
Communications Corp. ("OnePoint"). These financial statements should be read in
conjunction with the audited financial statements and the related notes to
Financial Statements of VIC-RMTS-DC as of and for the years ended December 31,
1998 and 1997, and for the period from November 1996 (Inception) through
December 31, 1996 included in the Registration Statement. In the opinion of
management, the accompanying unaudited financial statements contain all
adjustments (consisting of normal recurring adjustments), which management
considers necessary to present fairly the financial position of VIC-RMTS-DC at
September 30, 1999 and the results of its operations and its cash flows for the
three and nine month periods ended September 30, 1999 and 1998.
Note 2 - Intangible Assets
Intangible assets consisted of goodwill with an acquisition value of
approximately $1,000 less accumulated amortization of $175 and $75 at September
30, 1999 and 1998 respectively. Goodwill is amortized under the straight-line
method over a ten-year period.
Note 3 - Guarantor of the Debt of Others
VIC-RMTS-DC is an unconditional guarantor of the 14 1/2% Senior Notes due
2008 issued by OnePoint in May 1998 (The "Senior Notes"). As of September 30,
1999, there was $82,750 in principal amount of Senior Notes outstanding. VIC-
RMTS-DC is required under the indenture governing OnePoint's Senior Notes to
comply with specified debt covenants, including limitations on sales of certain
assets, mergers, distributions, and other activities.
Note 4 - Unitholders' Equity
Through November 1999, VIC-RMTS-DC had issued capital calls to its members
for an aggregate of $27.7 million to fund working capital requirements. As of
September 30, 1999, VIC-RMTS-DC had received approximately $27.7 million, all of
which was paid by OnePoint Communications Holdings, LLC ("OPC Holdings"), VIC-
RMTS-DC's managing member.
Note 5 - Arbitration
On March 30, 1999, OnePoint filed a demand for arbitration seeking a
declaratory ruling on the equity ownership of VIC-RMTS-DC. OnePoint stated that
it believes that the value of the assets contributed by Mid-Atlantic RMTS
Holdings, LLC was sufficient to give Mid-Atlantic RMTS Holdings, LLC a 5%
interest based on capital contributions though December 31, 1998. The manager of
Mid-Atlantic RMTS Holdings, LLC has suggested that it is entitled to an
unspecified, but higher, equity interest in VIC-RMTS-DC. On April 5, 1999, Mid-
Atlantic Holdings filed its own demand for arbitration to resolve issues of
equity ownership of VIC-RMTS-DC.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
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Results of Operations - OnePoint Communications Corp.
(Dollars in thousands, except per share data)
Three Months Ended September 30, 1999 Compared with Three Months Ended
September 30, 1998.
Revenue
The Company began actively marketing its services during the first quarter
of 1998. Total revenues for three months ended September 30, 1999 were $5,957
compared to $2,765 for the three months ended September 30, 1998. Telephony,
video, and other (including high speed Internet access) revenues for three
months ended September 30, 1999 were $4,788 $1,151, and $18, respectively, as
compared to $1,524, $1,241, and $0, respectively, during the three months ended
September 30, 1998. The substantial increase in telephony revenues is
attributable to the expansion of the Company's telephony subscriber base in key
market areas.
Cost of Revenue
Cost of revenue (programming, telecommunication service costs and payments
to owners and employees of MDUs) was $5,869 in the three months ended September
30, 1999 as compared to $2,916 in the three months ended September 30, 1998.
Revenues for the three months ended September 30, 1999 exceeded cost of revenues
by $88.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $12,766 in three months
ended September 30, 1999 compared to $8,858 in the three months ended September
30, 1998, an increase of $3,908, or 44.1%. This was primarily the result of
increases in personnel and related costs and the increased volume of subscribers
for the Company's communications services. The Company continues to experience
higher than anticipated customer activation costs. It currently provides
services through resale agreements with the incumbent local exchange carriers
("ILECs") and is dependent on the ILECs for the efficiency of order processing
and installation while it operates on a resale platform.
Depreciation and Amortization
Depreciation and amortization was $727 in the three months ended September
30, 1999 compared to $462 in three months ended September 30, 1998, an increase
of $265, or 57.4%. The increase is primarily attributable to an increase in
cable and telephone systems and intangible assets resulting from purchases and
construction of such equipment during the past year.
Interest Income and Expenses
Interest expense was $3,369 in the three months ended September 30, 1999
compared to $6,671 in the three months ended September 30, 1998, a decrease of
$3,302, or 49.5%. The decrease results from the repurchase of the Senior Notes,
which were issued in May 1998. Interest income was $506 in the three months
ended September 30, 1999, compared to $930 in the three months ended September
30, 1998. The decrease of $424, or 45.6%, reflects reduced interest income from
the short-term investment due to the repurchase of the Senior Notes and the sale
of the short term investments to fund the repurchase of Senior Notes.
Equity in Losses in Unconsolidated Subsidiaries
The Company recognized equity in losses of its unconsolidated subsidiaries
of $1,097 in the three months ended September 30, 1999. These losses represent
the Company's proportionate share of losses from the operations of Mid-Atlantic
Telcom Plus, LLC ("Mid-Atlantic") and Mid-Atlantic Telcom Plus Interactive ("MAC
Interactive") during the three months ended September 30, 1999 compared to an
equity loss of $1,078 from such investments for the same period in 1998.
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Nine Months Ended September 30, 1999 Compared with Nine Months Ended September
30, 1998.
Revenue
The Company began actively marketing its services during the first quarter
of 1998. Total revenues for the nine months ended September 30, 1999 were
$15,080 compared to $3,440 in the nine months ended September 30, 1998.
Telephony, video, and other (including high speed Internet access) revenues for
the nine months ended September 30, 1999 were $11,628, $3,415, and $37,
respectively, as compared to $2,158, $1,282, and $0, respectively, during the
nine months ended September 30, 1998. The substantial increase in telephony and
video revenues is attributable to the effects of the PCTV acquisition and
expansion of the Company's subscriber base in key market areas.
Cost of Revenue
Cost of revenue (programming, telecommunication service costs and payments
to owners and employees of MDUs) was $15,096 in the nine months ended September
30, 1999 as compared to $4,822 in the same period ended September 30, 1998. Cost
of revenue for the nine months ended September 30, 1999 exceeded revenues by
$16.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $33,432 in the nine
months ended September 30, 1999 compared to $17,723 in the nine months ended
September 30, 1998, an increase of $15,709, or 88.6%. This was primarily the
result of increases in personnel and related costs and the increased volume of
subscribers for the Company's communications services. The Company continues to
experience higher than anticipated customer activation costs as it currently
provides services through resale agreements with the ILECs and is dependent on
the ILECs for the efficiency of order processing and installation while it
operates on a resale platform.
Depreciation and Amortization
Depreciation and amortization was $1,947 in the nine months ended September
30, 1999 compared to $773 in nine months ended September 30, 1998, an increase
of $1,174, or 151.9%. The increase is primarily attributable to an increase in
cable and telephone systems and intangible assets resulting from purchases and
construction of such equipment during the past year.
Interest Income and Expenses
Interest expense was $11,489 in the nine months ended September 30, 1999
compared to $9,648 in the 1998 period. The increase of $1,841, or 19.1%, results
from the interest accrued on the Senior Notes, which were issued in May 1998.
Interest income was $2,308 in nine months ended September 30, 1999, compared to
$1,509 in the same period ended September 30, 1998. The increase of $799, or
53.0%, reflects additional interest income from short-term investment of the
proceeds from the offering of the Senior Notes.
Equity in Losses in Unconsolidated Subsidiaries
The Company recognized equity in losses of its unconsolidated subsidiaries
of $2,641 for the nine months ended September 30, 1999. These losses represent
the Company's proportionate share of losses from the operations of Mid-Atlantic
and MAC Interactive during the nine months ended September 30, 1999 compared to
an equity loss of $2,577 from such investments for the same period in 1998.
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Extraordinary Gain
The Company repurchased approximately $51,250 in principal amount of its
Senior Notes during the nine months ended September 30, 1999 at various prices
for an aggregate total cost of approximately $27,600, including accrued interest
and transaction fees and recognized an extraordinary gain of $20,506 related to
these transactions.
Liquidity and Capital Resources - OnePoint Communications Corp.
(Dollars in thousands, except per unit data)
The Company has financed its development through September 1999 with
$35,000 of funding provided by Ventures in Communications, LLC ("VIC"), $80 of
equity invested by VenCom, L.L.C., borrowings under a $9,000 Credit Facility
from Northern Trust (the "Credit Facility"), and the proceeds from the offering
of Senior Notes and Warrants in May 1998. On August 30, 1999 the Company
established a second Credit Facility with the same bank enabling the Company to
borrow up to an additional $16,000. The terms of the Credit Facility are similar
to those contained in the previous agreement. On the same date the first Credit
Facility was amended in order to make the default provisions consistent with
both facilities.
From February to June 1997, the Company made investments totaling
approximately $12,000 in Mid-Atlantic and in December 1997 the Company invested
$750 in MAC Interactive to establish a separate joint venture with the other
investors in Mid-Atlantic to secure exclusive marketing rights for certain
programming services from an affiliated company. During January 1999, the
Company committed to a plan to liquidate and has subsequently sold off the
assets of MAC Interactive.
In March 1998, the Company obtained a $9,000 Credit Facility from a bank
(the "Credit Facility"). Borrowings under the Credit Facility outstanding as of
December 15, 1998 will be amortized over a five-year period. The interest rate
on borrowings under the Credit Facility is, at the Company's election: (i)
Northern Trust's prime rate less 3/4 of 1%; (ii) LIBOR plus 50 basis points; or
(iii) the federal funds rate (as defined) plus 50 basis points. As of September
30, 1999, the outstanding balance on the Credit Facility was approximately
$8,500 in addition to a $250 letter of credit under the facility. In August 1999
the Company negotiated an additional $16,000 Credit Facility with the same bank.
The terms for the new facility are similar to those outlined for the previous
Credit Facility. On the same date the first Credit Facility was amended in order
to make the default provisions consistent with both facilities.
In May 1998, the Company offered 175,000 units each consisting of a $1
principal amount of 14 1/2% Senior Notes due 2008 and a warrant to purchase
0.635 shares of the common stock of the Company for gross proceeds of $175,000.
The Company used approximately $80,500 of the net proceeds from the offering to
purchase the Pledged Securities. The Company also used a portion of the proceeds
to pay down the borrowings under the Credit Facility, which were later re-
borrowed. During the nine months ended September 30, 1999, the Company used
approximately $27,600 to repurchase $51,250 of principal amount of Senior Notes
in the open market. The Company recognized an extraordinary gain on the early
extinguishment of this debt of $20,506 in the nine months ended September 30,
1999. Pursuant to the restricted securities agreement entered into in connection
with the issuance of the Senior Notes, the trustee of the Pledged Securities
released approximately $26,700 and $11,500 of such securities in February and
July 1999, respectively, upon request by the Company. Based on market
conditions, the Company will continue to evaluate the repurchase of Senior Notes
and may continue to utilize existing cash to fund additional purchases.
The balance of the net proceeds from the offering have been, or will be,
used to acquire private cable operators or their assets, to invest in video
infrastructure, to invest selectively in a facilities-based platform for
telephony and internet services, to fund additional open market purchases of
Senior Notes, to fund working capital and for general corporate purposes,
including operating losses. There can be no assurance that the Company will be
successful in raising sufficient
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additional debt or equity capital, or of the terms of any such capital-raising
activities. Failure to raise and generate sufficient funds may require the
Company to delay or abandon some of its planned future expansion or
expenditures, which could have a material adverse effect on the Company's growth
and its ability to compete. In addition the Company anticipated that the current
financing will only cover normal operating expenses to somewhere between the end
of 1999 and the early part of the first quarter of 2000. The Company is
currently exploring options such as additional equity investors, additional
financing or the sale of business units in order to cover the future expansion
and operating expenses.
Cash used in operating activities was $41,729 and $20,023 in nine months
ended September 30, 1999 and 1998, respectively, an increase of $21,706 or
100.1%. The expansion of business operations during the nine months ended
September 30, 1999 precipitated this increase. Cash flows used in operating
activities can vary significantly from period to period depending upon the
timing of operating cash receipts and payments, especially accounts receivable,
prepaid expenses and other assets, and accounts payable and accrued liabilities.
Net cash used by the Company for acquisitions of property and equipment
during nine months ended September 30, 1999 totaled $8,714, compared to $6,397
in nine months ended September 30, 1998. As of September 30, 1999 the Company
had an accumulated deficit of $69,768, and had cash and cash equivalents of $0
and available investments of $6,745, net of the Pledged Securities totaling
$27,344. In July 1999, the trustee released Pledged Securities totaling
approximately $11,500 in connection with the Company's repurchase of $19,000
aggregate principal amount of Senior Notes on June 10,1999.
Cash flows from investing activities in the nine months ended September 30,
1999 were $63,026. Cash flows used in investing activities in the nine months
ended September 30, 1998 were $(150,919). Cash flows (used in)/provided by
financing activities were $(27,027) and $165,532 in the nine months ended
September 30, 1999 and 1998, respectively.
In October of 1999 is was announced that a definitive agreement has been
executed for the sale of the assets of Mid-Atlantic Cable. Net proceeds to
the Company from this transaction are estimated to be $34 million, subject to
adjustments and closing anticipated during the first quarter of 2000. The gain
to the Company is estimated to be approximately $30 million.
The Company incurred liquidated damages resulting from its failure to have
its Registration Statement with respect to its Senior Notes declared effective
by the Commission by November 17, 1998. The Company incurred liquidated damages
based on the amount of Senior Notes outstanding until the Company's Registration
Statement was declared effective on August 6, 1999. As of September 30, 1999,
the Company had accrued approximately $374 to date related to the liquidated
damages all of which will be paid by December 1st, 1999.
In August 1999 the Company signed a three year $50 million agreement with
Lucent Technologies Inc. ("Lucent") for a next-generation, IP-based voice and
data network to deliver integrated voice and internet services to residents of
apartment communities. In October 1999 the Company entered into a master lease
agreement with Comdisco Inc. to provide lease financing for the purchase of
switches and other equipment from Lucent.
In April 1998 the Company entered into a long-term contract with The VenCom
Group, Inc. ("VenCom") whereby the Company is required to make annual payments
of up to $900 (inclusive of annual fees and capital raising fees) to VenCom for
financial and management consulting services and assistance with capital
financing activities. Pursuant to this agreement, the Company receives ongoing
consulting services in exchange for annual payments of $750 and is required to
pay a fee of 2% of any capital raising activity or acquisition activity,
including debt and equity transactions. Since May 1998 the Company has accrued
approximately $3.5 million of fees related to the issuance of the Senior Notes,
of which approximately $0.2 million has been paid through September 30, 1999.
The Company's chairman and chief executive officer is the sole shareholder of
VenCom.
The Company has entered into agreements with the owners of multi-dwelling
unit buildings ("MDUs") whereby the Company has exclusive rights to provide
video services and preferred provider status for the provision of bundled
telephony services to the occupants of the MDU. These agreements are typically
for periods from five to seven years and contain renewal options. Certain of
these agreements require the Company to pay the MDU owner a fixed fee per year
based on the number of units subject to the contract without regard to the
occupant's use of the Company's services while other agreements require the
Company to pay varying amounts per month based on actual
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usage of the Company's services by the MDU occupants.
The Company expects significant cash requirements for at least the next
several years due to continued expansion of its customer base and the need to
invest in facilities and equipment to support telephony, internet and video
services. The Company's cash requirements will depend on a number of factors
including (i) the rate at which the Company secures rights of entry, (ii) the
level of penetration achieved for telephony and video services and the pricing
of such services, (iii) the availability of private cable acquisitions on
favorable terms, (iv) the rate at which the Company deploys telephony
facilities, the cost of equipment required to do so, and its ability to
aggregate traffic onto the Company's facilities, (v) the expansion to additional
markets, if any.
Depending on market conditions and the availability of acquisitions on
favorable terms, the Company may determine to raise additional capital. The
Company may obtain additional funding through the sale of public or private debt
and/or equity securities or through additional borrowings from banks or other
lending institutions. The Company's future results of operations will be
materially impacted by its ability to finance its planned business strategies.
Current projections show that the existing financing will only cover normal
operating expenses through the end of 1999 or early into the first quarter of
2000. The company's ability to obtain additional debt financing is limited by
the bond indenture. The Company is considering options to obtain additional
financing or to modify the business plan. This additional financing may be
accomplished through an equity investment, sale of business units or additional
credit facilities. Additional financing from the sale of the assets of Mid-
Atlantic Cable is anticipated to be available to the Company during 2000.
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Results of Operations - VIC-RMTS-DC, LLC
(Dollars in thousands, except per unit data)
Three Months Ended September 30, 1999 Compared with Three Months Ended
September 30, 1998
Revenue
VIC-RMTS-DC's total revenues, consisting primarily of telephony and high
speed Internet access, for the three months ended September 30, 1999 were $1,291
compared to $484 in the three months ended September 30, 1998. The increase is
primarily due to significant increases in subscriber base and significantly
increased volume of operations throughout the three months ended September 30,
1999.
Cost of Revenue
Cost of revenue (telecommunication service costs and payments to owners and
employees of MDUs) was $1,547 in the three months ended September 30, 1999 as
compared to $851 in the three months ended September 30, 1998. Cost of revenue
for the three months ended September 30, 1999 exceeded revenue by $256 primarily
because payments to certain MDU owners are structured on a per passing basis and
higher costs during a customer's installation period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2,535 in the three
months ended September 30, 1999 compared to $3,058 in the three months ended
September 30, 1998, a decrease of $523, or 17.1%. This was primarily the result
of decrease in allocation of general and administrative costs associated with
the increased volume of passings in other regions. VIC-RMTS-DC currently
provides services through resale agreements with the ILECs and is dependent on
the ILECs for the efficiency of order processing and installation.
Depreciation and Amortization
Depreciation and amortization was $94 in the three months ended September
30, 1999 compared to $55 in the three months ended September 30, 1998, an
increase of $39. The increase is primarily attributable to an increase in
telephone systems and intangible assets resulting from purchases and
installation of such equipment.
Nine Months Ended September 30, 1999 Compared with Nine Months Ended
September 30, 1998
Revenue
VIC-RMTS-DC's total revenues, consisting primarily of telephony and high
speed Internet access, for the nine months ended September 30, 1999 were $3,187
compared to $834 for the same period ended September 30, 1998. The increase is
primarily due to significant increases in subscriber base and increased volume
of operations.
Cost of Revenue
Cost of revenue (telecommunication service costs and payments to owners and
employees of MDUs) was $3,887 in the nine months ended September 30, 1999 as
compared to $1,744 in the same period ended September 30, 1998. Cost of revenue
for the nine months ended September 30, 1999 exceeded revenue by $700 primarily
because payments to certain MDU owners are structured on a per passing basis and
due to higher costs during a customer's installation period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $7,365 in the nine months
ended September 30, 1999 compared to $7,110 in the same period ended September
30, 1998, an increase of $755, or 3.6%. This was primarily the result of
increases in general and administrative costs associated with the increased
volume of passings in this and other regions during 1999. VIC-RMTS-DC continues
to provide services through resale agreements with the ILECs and is dependent on
the ILECs for the efficiency of order processing and installation.
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Depreciation and Amortization
Depreciation and amortization was $280 in the nine months ended September
30, 1999 compared to $114 in the nine months ended September 30, 1998, an
increase of $166, or 145.6%. The increase is primarily attributable to an
increase in telephone and internet systems resulting from installation of such
equipment.
Liquidity and Capital Resources - VIC-RMTS-DC, LLC
(Dollars in thousands, except per unit data)
VIC-RMTS-DC has financed its development with $28,710 of contributed equity
by unit holders.
Cash flows used in operating activities were $7,754 and $8,073 in the nine
months ended September 30, 1999 and nine months ended September 30, 1998,
respectively, a decrease of $319 or 4.0%. This is primarily due to an increase
in accounts payable during the three months ended September 30, 1999. Cash flows
used in operating activities can vary significantly from period to period
depending upon the timing of operating cash receipts and payments, especially
accounts receivable, prepaid expenses and other assets, and accounts payable and
accrued liabilities.
Net cash used by VIC-RMTS-DC for acquisitions of property and equipment
during nine months ended September 30, 1999 totaled $522, compared to $876 in
the nine months ended September 30, 1998. As of September 30, 1999 VIC-RMTS-DC
had an accumulated deficit of $25,465, and had no cash or cash equivalents.
Cash flows provided by financing activities were $8,276 and $8,949 in the
nine months ended September 30, 1999 and the nine months ended September 30,
1998, respectively. As of September 30, 1999 VIC-RMTS-DC had no cash or cash
equivalents.
VIC-RMTS-DC expects significant cash requirements for at least the next
several years due to continued expansion of its customer base and the need to
invest in facilities and equipment to support telephony and internet services.
VIC-RMTS-DC's future cash requirements will depend on a number of factors
including (i) the rate at which VIC-RMTS-DC secures rights of entry, (ii) the
level of penetration achieved for telephony and internet services and the
pricing of such services, (iii) the rate at which VIC-RMTS-DC deploys telephony
and internet facilities, the cost of equipment required to do so, and its
ability to aggregate traffic onto VIC-RMTS-DC's facilities, (iv) the expansion
to additional markets, if any.
VIC-RMTS-DC's future results of operations will be materially impacted by
its ability to finance its planned business strategies. VIC-RMTS-DC expects that
its current financing will be sufficient to fund operations through the end of
1999. Additional financing from the sale of the assets of Mid-Atlantic Cable is
anticipated to be available to the Company.
Year 2000 Issue
The following discussion of the Year 2000 Issue is applicable to both
OnePoint Communications Corp. and its majority-owned subsidiary, VIC-RMTS-DC, as
the subsidiary utilizes and relies upon OnePoint's systems and program related
to the Year 2000 Issue.
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company's Program. The Company has undertaken a program to address the
year 2000 issue with respect to the following: (i) the Company's information
technology and operating and support systems (including its
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customer care, trouble tracking, billing and provisioning systems); (ii) the
Company's non-information technology systems; and (iii) certain systems of the
Company's major suppliers and material service providers (insofar as such
systems relate to the Company's business activities with such parties). As
described below, the Company's year 2000 program involves (i) an assessment of
the year 2000 problems that may affect the Company, (ii) the development of
remedies to address the problems discovered in the assessment phase, (iii) the
testing of such remedies and (iv) the preparation of contingency plans to deal
with worst case scenarios.
Assessment Phase. As part of the assessment phase of its program, the
Company has and will continue to attempt to identify substantially all of the
major components of the systems described above. In order to determine the
extent to which such systems are vulnerable to the year 2000 issue, the Company
continuously evaluates its internal software applications. The Company believes
all internal systems and software have been purchased or developed after 1995
and will thus be year 2000 compliant. From the outset of operations, the
Company's intent has been to procure hardware and software that is year 2000
compliant. The Company has requested year 2000 Compliance statements from the
equipment, billing and communications carriers from which it procures equipment
and services, and has received written confirmation of their compliance or their
intention to become compliant before the year 2000 (although these assurances
are not legally binding). Every piece of computer equipment utilized by the
Company was purchased in new condition after January 1, 1997. The servers are
all either running a version of their operating systems which is certified by
the manufacturer to be year 2000 compliant, or the patch/upgrade has been
identified and the Company is planning the upgrade. Each of the desktop
computers is a Compaq Desk pro-line PC running either Windows 95 or Windows NT
4.0, which, based on the Company's review of manufacturer information contained
on their web site, are compliant according to the manufacturer. The BIOS of each
of these machines has been updated by the Company based on manufacturer
recommendations. The customer care and billing system, provided by CSG, is year
2000 compliant and has been tested by CSG. The telephony provisioning system,
provided by Beechwood Data Systems, is reported to be year 2000 compliant and
has been tested by Beechwood Data Systems. The Company has obtained written
certifications from its underlying local and long distance service providers
that all provisioning applications and interfaces to/from its underlying
carriers will be year 2000 compliant before the year 2000. With respect to the
operation of their network, these local and long distance service providers have
indicated that they have had year 2000 projects underway for several years and
expect to complete all year 2000 upgrades during 1999, with time before year-end
for system testing and quality assurance. The majority of equipment suppliers
have directed the Company to their Internet web sites where they have posted
product information relative to year 2000 compliance. The Company has downloaded
this information and has identified those systems that are compliant, as well as
those systems that will have to be upgraded or replaced to become compliant. The
assurances received by the Company regarding year 2000 compliance are not
legally binding. The Company also relies on the information regarding year 2000
compliance of its local and long distance service providers as supplied to
Public Service Commissions in each state.
Remediation and Testing Phase. Based on the results of its assessment
efforts, the Company will undertake remediation and testing activities. The
activities conducted during the remediation and testing phase are intended to
address information technology systems and non-information technology systems in
an attempt to demonstrate that this software will be made substantially year
2000 compliant on a timely basis. In this phase, the Company evaluates program
applications and, if a potential year 2000 problem is identified, takes steps to
attempt to remediate the problem and to test the application to confirm that the
remediating changes are effective and have not adversely affected the
functionality of the application. The Company has historically tested systems
utilizing internal resources. Testing is accomplished by setting system clocks
ahead and then running these systems as in real operations. The results have
proven that the customer care and billing system is compliant, the long distance
provisioning software is compliant, and applicable SUN and SCO patches will
bring the UNIX servers up to year 2000 compliance. The lone application
developed internally has been tested and is compliant. In addition to the
individual testing of system components, the Company is testing integrated
systems in order to test year 2000 issues which may arise through a combination
of individual systems. The Company is also exploring extending the integrated
testing with EDI partners.
Information Technology and Operating and Support Systems. Assessment of
OnePoint Communication's internal use information technology systems (customer
care, trouble tracking, billing, and provisioning systems) is completed.
Renovation and/or testing of these systems are substantially complete, with two
remaining systems to be upgraded by the end of November 1999.
Interfaces. OnePoint Communications has completed its examination of
external interfaces between OnePoint
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Communications and other trading partners and service providers. Requests for
Year 2000 Readiness have been made and responses are being received. Our
investigation to date has not uncovered any reason to believe that our external
interfaces will not continue to operate properly.
Vendors and Suppliers. The Company has requested Year 2000 Compliance
statements from the equipment, billing and communications carriers from which it
procures equipment and services, and has either received written confirmation of
their compliance or their intention to become compliant before the Year 2000 The
company has obtained written certifications from its underlying local and long
distance service providers that all provisioning that all provisioning
applications and interfaces to/from its underlying carriers will be Year 2000
compliant before the year 2000. With respect to the operation of their network,
these local and long distance providers have indicated that they have had Year
2000 projects underway for several years and expect to complete all Year 2000
upgrades during 1999, with time before year-end for system testing and quality
assurance.
Contingency Plans. The Company has developed contingency plans to handle
the most reasonably likely worst case year 2000 scenarios. Mission-critical
failure would relate to those systems which are vital to the provision of voice
switching, processing, and transport services to our customers. Examples of
mission-critical systems include those network and essential operating
supporting systems provided and provisioned by OnePoint's underlying carriers
that enable the Company to offer its customers local and long distance switched
telecommunications services. Because the Company operates under a resale
arrangement from what are effectively monopoly providers of certain services, it
has not as yet identified a timely and cost-effective contingency plan in the
event of a pervasive and extended failure by its underlying carriers. If the
underlying systems experience errors short of failure, these errors may prevent
correct billing and/or provisioning of new service to the Company's customers.
If any or all of the Company's internal systems fail, but those of its
underlying carriers do not, then service to existing customers would not be
disturbed, although this failure may prevent correct billing and/or provisioning
of new services. The Company intends to complete its contingency plans after it
has monitored progress made by the communications carriers referred to above.
OnePoint Communications has also addressed the need for Year 2000 specific
contingency plan as part of its overall business continuity planning, with
modifications to the plan where Year 2000 specific exposures are identified. A
Year 2000 task force has been formed for all mission critical operations, which
will provide dedicated personnel to escalate the resolution of any Year 2000
specific matter that may occur. OnePoint Communications has also implemented a
restricted vacation policy for December 1999 and January 2000 to ensure all
mission critical personnel are available if any Year 2000 specific matters
occur.
Costs Related to the Year 2000 Issue. To date, the Company has incurred no
explicit costs for its year 2000 program, aside from indirect management costs
related to the research of internal and vendors' systems, plans and procedures.
While the Company anticipates relatively low direct costs related to its
internal systems, total costs related to the year 2000 issue will be a function
of its vendors ability to make timely progress toward their year 2000
compliance.
Risks related to the Year 2000 Issue. Although the Company's year 2000
efforts are intended to minimize the adverse effects of the year 2000 issue on
the Company's business and operations, the actual effects of the issue and the
success or failure of the Company's efforts described above cannot be known
until the year 2000. Failure by the Company or its major suppliers to address
adequately their respective year 2000 issues in a timely manner (insofar as such
issues relate to the Company's business) could have a material adverse effect on
the Company's results of operations and financial condition.
Inflation
The Company's obligations under the Credit Facility bear interest at
floating rates, and an increase in interest rates could adversely affect, among
other things, the Company's ability to meet its debt service requirements. VIC-
RMTS-DC, LLC is not exposed to inflation.
23
<PAGE>
Impact of New Accounting Pronouncements
There are no new accounting pronouncements which would have a significant
impact on the financial position, results of operations, or liquidity of the
Company or VIC-RMTS-DC.
This Form 10-Q contains certain forward-looking statements, including,
without limitation, statements concerning the Company's future financial
position, business strategy, budgets, projected costs and plans and objectives
of management for future operations. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (which do not apply to initial public offerings). Forward-
looking statements generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "intend," "estimate," "anticipate,"
"believe," "should," "plans," or "continue" or the negative thereof or
variations thereon or similar terminology. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
These forward-looking statements are subject to a number of risks and
uncertainties, including, without limitation, those related to the Company's
substantial leverage and debt service requirements, the Company's dependence on
significant customers and on certain suppliers, the effects of competition on
the Company, the risks related to environmental, health and safety laws and
regulations, the Company's exposure to foreign sales risk and the cyclicality of
the textile industry, risks related to the year 2000 issue, and the other
factors discussed in the Company's filings with the Securities and Exchange
Commission. Actual results could differ materially from these forward-looking
statements.
24
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
OnePoint Communications Corp. and VIC-RMTS-DC, LLC
(Dollars in thousands, except per unit data)
The Company's major market risk exposures are to (i) changing interest
rates; (ii) changes in the fair market value of investments in securities; and
(iii) changes in the general economic environment which would negatively impact
the occupancy rates of MDUs. The Company's policy is to manage (i) interest rate
risks through a combination of fixed-rate and variable-rate debt; (ii) acquire
investment grade securities and (a) monitor investments to ensure negative
changes in rating are not permanent (b) liquidate investment prior to incurring
material losses or hold such securities to maturity; and (iii) targeting
operating markets which are geographically diverse. As of September 30, 1999,
the Company's long term debt consisted of fixed rate debt of $82.75 million and
variable rate debt of $8.5 million. The impact also applies to any borrowing
against the additional credit facility of $16,000.
25
<PAGE>
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
- --------------------------
OnePoint Communications Corp. and VIC-RMTS-DC, LLC
From time to time, the Company and VIC-RMTS-DC have been and is involved in
various legal proceedings, all of which management believes are routine in
nature and incidental to the conduct of its business. The ultimate legal and
financial liability of the Company and VIC-RMTS-DC with respect to such
proceedings cannot be estimated with certainty, but the Company and VIC-RMTS-DC
believe, based on their examination of such matters, that none of such
proceedings, if determined adversely to the Company or VIC-RMTS-DC, would have a
material adverse effect on their results of operations and financial condition
and their ability to meet their obligations under the Senior Notes.
On January 15, 1999, the Company, Mid-Atlantic and other related parties
entered into a settlement agreement related to the demand for arbitration made
on August 6, 1998 related to certain disputes under the Mid-Atlantic operating
agreement. The settlement agreement did not have a significant impact on the
Company's financial position, results of operations, or liquidity.
On March 30, 1999, OnePoint filed a demand for arbitration seeking a
declaratory ruling on the equity ownership of VIC-RMTS-DC. OnePoint believes
that the value of the assets contributed by Mid-Atlantic RMTS Holdings, LLC was
sufficient to give Mid-Atlantic RMTS Holdings, LLC a 5% interest based on
capital contributions though December 31, 1998. The manager of Mid-Atlantic RMTS
Holdings, LLC has suggested that they are entitled to an unspecified, but
higher, equity interest in VIC-RMTS-DC. OnePoint will be entitled only to that
portion of any distributions made by VIC-RMTS-DC corresponding to its percentage
equity ownership therein. On April 5, 1999, Mid-Atlantic Holdings filed its own
demand for arbitration to resolve issues of equity ownership of VIC-RMTS-DC.
Item 2. Changes in Securities
- ------------------------------
None
Item 3. Defaults upon Senior Securities
- ----------------------------------------
In connection with the May 1998 offering of Senior Notes and Warrants, the
Company entered into a Registration Rights Agreement (the "Registration Rights
Agreement") pursuant to which it agreed to file and use its best efforts to
cause to become effective the registration statement relating to an offer to
exchange the Senior Notes for substantially identical notes which are not
subject to restrictions on transfer. The Company filed the registration
statement on September 18, 1998, as required under the Registration Rights
Agreement. The Registration Rights Agreement provides, however, that if the
registration statement has not been declared effective by the Securities and
Exchange Commission on or before November 17, 1998, then liquidated damages will
accrue with respect to the Senior Notes. Such liquidated damages accrue at a
rate of $0.05 per week per $1 principal amount of Senior Notes for the first 90
days beyond November 17, 1998, and thereafter increase by $0.05 per week per $1
outstanding principal amount of the Senior Notes each 90 day period, up to a
maximum of $0.50 per week per $1 principal amount of Senior Notes (all amounts
in the preceding sentence in dollars, not thousands). Liquidated damages ceased
to accrue on August 6, 1999 when the registration statement was declared
effective. The Company accrued $374 in total damages all of which will
be paid by December 1st, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
None
Item 5. Other Information
- ---------------------------
26
<PAGE>
None
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) The Company filed herewith the following exhibit:
27. Financial Data Schedule. Filed herewith.
Additional credit facility agreement
Amendment to original credit facility
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on August 13, 1999.
ONEPOINT COMMUNICATIONS CORP.
By: /s/ JOHN D. STAVIG
-----------------------------
John D. Stavig
Chief Financial Officer
(Principal Financial Officer)
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information derived from
financial statements included in OnePoint Communications Corp.'s quarterly
report on Form 10-Q for the six months ended June 30, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 5,013
<RECEIVABLES> 3,246
<ALLOWANCES> 389
<INVENTORY> 0
<CURRENT-ASSETS> 10,052
<PP&E> 17,962
<DEPRECIATION> 3,034
<TOTAL-ASSETS> 75,250
<CURRENT-LIABILITIES> 15,428
<BONDS> 88,751
35,000
0
<COMMON> 10
<OTHER-SE> 5,370
<TOTAL-LIABILITY-AND-EQUITY> 75,250
<SALES> 15,080
<TOTAL-REVENUES> 15,080
<CGS> 15,096
<TOTAL-COSTS> 15,096
<OTHER-EXPENSES> 33,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,489
<INCOME-PRETAX> (46,968)
<INCOME-TAX> 0
<INCOME-CONTINUING> (46,968)
<DISCONTINUED> 0
<EXTRAORDINARY> 20,506
<CHANGES> 0
<NET-INCOME> (26,462)
<EPS-BASIC> (26,462)
<EPS-DILUTED> (26,462)
</TABLE>
<PAGE>
Exhibit 99.1
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Obligor File Name Obligor # Obligation Number Officer # Amount
$16,000,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Chicago, Illinois
Dated as of August 30, 1999
Call On Term-Term Note
This Note has been executed by ONEPOINT COMMUNICATIONS CORP., a corporation
formed under the laws of the State of Delaware ("Borrower").
FOR VALUE RECEIVED, on or before January 1, 2004 (the "Maturity Date"), Borrower
promises to pay to the order of THE NORTHERN TRUST COMPANY, an Illinois banking
corporation (hereafter, together with any subsequent holder hereof, called
"Lender"), at its office at 265 East Deerpath, Lake Forest, Illinois 60045, or
at such other place as Lender may direct, the lesser of (i) the principal sum of
SIXTEEN MILLION AND NO/100 United States Dollars ($16,000,000) (the "Facility
Amount") or (ii) the sum of (A) the outstanding principal amount of Loans as
endorsed on any grid attached to this Note (or recorded in Lender's books and
records, if Lender is the holder hereof) plus (B) the aggregate undrawn face
amount of all issued and unexpired Letters of Credit (hereinafter defined) plus
the aggregate drawn and unreimbursed amount in respect of any Letter of Credit
(whether expired or unexpired) (the amount in clause B only is hereinafter
referred to as the "L/C Amount"). The amount of principal outstanding on the
Loans as of the close of business on December 15, 1999 (the "Final Drawdown
Date") shall be converted into a term loan which shall be payable in four (4)
consecutive quarterly payments of $120,000 each, four (4) consecutive quarterly
payments of $240,000 each, four (4) consecutive quarterly payments of $1,080,000
each, four (4) consecutive quarterly payments of $1,580,000 each, and a final
installment of all then remaining unpaid principal of the Loans and the L/C
Amount, payable on the first day of each January, April, July and October of
each year, beginning on January 1, 2000; provided that notwithstanding the
foregoing, the quarterly payments hereunder shall be reduced in an amount equal
to any reduction of the stated amount available for drawing under any Letter of
Credit occurring during such quarter; provided, further that, notwithstanding
the foregoing, any and all remaining outstanding principal on the Loans plus the
L/C Amount shall be due and payable in full on the Maturity Date. Each advance
of principal hereunder and the term loan are hereafter sometimes referred to as
the "Loan(s)"; the period from the date hereof to and including the Final
Drawdown Date is referred to as the "Drawdown Period" and the period thereafter
is referred to as the "Payback Period". Except as otherwise provided in Section
1.2, no additional advances of principal or issuances of Letters of Credit shall
be made after the Final Drawdown Date. The aggregate amount of Loans shall not
exceed the Facility Amount less the L/C Amount at any time; amounts borrowed
which are repaid may not be reborrowed. Lender has no obligation to refinance
this Note.
Lender is hereby authorized by Borrower at any time and from time to time at
Lender's sole option to attach a schedule (grid) to this Note and to endorse
thereon notations with respect to each Loan specifying the date and principal
amount thereof, the applicable interest rate and rate
<PAGE>
option, and the date and amount of each payment of principal and interest made
by Borrower with respect to each such Loan. Absent manifest error, Lender's
endorsements as well as its records relating to Loans shall be rebuttably
presumptive evidence of the outstanding principal and interest on the Loans,
and, in the event of inconsistency, shall prevail over any records of Borrower
and any written confirmations of Loans given by Borrower; provided, however,
that Lender has provided Borrower with Lender's standard transaction
confirmation tickets at or about the time of each Loan and Borrower has not
objected thereto within 10 days of issue thereof.
Each request for a Loan or Letter of Credit shall be deemed to be a
representation and warranty by Borrower to Lender that: (i) no Event of Default
or Unmatured Event of Default (in each case as defined below) has occurred and
is continuing as of the date of such request or would result from the making of
the Loan or issuance of such Letter of Credit; (ii) Borrower's representations
and warranties herein, in any Letter of Credit Application and in the other
documents delivered in connection herewith or therewith are true and correct as
of such date as though made on such date and (iii) the aggregate amount of Loans
outstanding plus the L/C Amount does not exceed the Facility Amount. Upon
receipt of each Loan or Letter of Credit issuance request, Lender in its sole
discretion shall have the right to request that Borrower provide to Lender,
prior to Lender's funding of the Loan or issuance of such Letter of Credit, a
certificate executed by Borrower's President, Treasurer, or Chief Financial
Officer to such effect.
1. LETTERS OF CREDIT
1.1. LETTERS OF CREDIT. The Borrower may from time to time during the
Drawdown Period request that the Lender issue its documentary commercial or
standby letters of credit (as the same may be amended, renewed, extended or
modified from time to time, collectively called the "Letters of Credit" and
individually called a "Letter of Credit") for the account of the Borrower in
such face amounts as the Borrower may request up to the Facility Amount less the
L/C Amount. Each Letter of Credit that the Lender issues shall be in form and
substance satisfactory to the Lender and shall have a fixed expiration date
occurring not more than one year after the date of issuance thereof (and in no
event later than the Maturity Date). Subject to the terms and conditions of this
Note, Letters of Credit shall be issued by the Lender only upon its receipt at
least two (2) banking days prior to the requested date of issuance of a written
application and agreement (as the same may be amended, modified or supplemented
from time to time, collectively called the "Letter of Credit Applications" and
individually called a "Letter of Credit Application") for the issuance of a
Letter of Credit. Each Letter of Credit Application shall be made on the
Lender's form, shall specify (a) the face amount requested, (b) the tenor, (c)
the documents (if any) required to be presented and (d) any other information
which the Lender may require, and shall be duly executed on the Borrower's
behalf by an authorized officer. In addition to the terms and conditions of this
Note, each Letter of Credit shall be issued subject to the terms and conditions
set forth in or applying in connection with the Letter of Credit Application for
such Letter of Credit. Unless otherwise expressly provided herein, the terms of
the Letter of Credit Application shall control.
1.2. LETTER OF CREDIT LOANS. If the Borrower shall ever fail to reimburse
the Lender in full in accordance with the terms of the applicable Letter of
Credit Application for all
2
<PAGE>
amounts paid or to be paid by the Lender or its agent or any party on the
Lender's behalf on any item drawn or presented under any Letter of Credit, the
Lender shall make, and the Borrower shall accept, a Loan hereunder in the amount
of the Borrower's reimbursement obligation. The proceeds of such Loan shall be
paid directly to the Lender to reimburse it for all amounts paid or to be paid
under such Letter of Credit. Each such loan shall be treated as a Loan hereunder
for all purposes.
2. INTEREST AND FEES.
2.1. INTEREST RATES. The unpaid principal amount from time to time
outstanding hereunder shall bear interest as the following rates per year:
(a) before maturity of any Loan, whether by acceleration or
otherwise, at the option of Borrower, subject to the terms hereof at a rate
equal to:
(i) the "Prime-Based Rate," which shall mean the Prime Rate (as
defined below) less 3/4 of 1%. Changes in the rate of interest
on the Loans resulting from a change in the Prime Rate shall
take effect on the date set forth in each announcement for a
change in the Prime Rate. "Prime Rate" means the rate announced
from time to time by the Lender called its prime rate, which may
not at any time be the lowest rate charged by the Lender;
(ii) "LIBOR," which shall mean that fixed rate of interest per
year for deposits with maturity periods of one, two or three
months (which maturity period Borrower shall select subject to
the terms stated herein) in United States Dollars offered to
Lender in or through the London or another offshore interbank
market, as determined by the Lender in its sole discretion for
or as of the borrowing date requested by the Borrower, divided
by one minus any applicable reserve requirement (expressed as a
decimal) on Eurodollar deposits of the same amount and maturity
as determined by Lender in its sole discretion, plus 50 basis
points; or
(iii) the "Federal Funds Rate," defined as the rate on overnight
Federal funds transactions as determined by the Lender in its
sole discretion, plus 50 basis points. In the case of a
Saturday, Sunday or legal holding, the Federal Funds Rate shall
be the rate applicable on the immediately preceding day for
which such weighted average rate is reported.
(b) after the maturity of any Loan, until paid, at a rate equal to
2% in addition to the Prime Rate (but not less than the Prime Rate in
effect at maturity).
2.2. RATE SELECTION. Borrower shall select and change its selection of
the interest rate as between the Prime-Based Rate, Federal Funds Rate and LIBOR
to apply to at least $100,000 and in integral multiples of $100,000 thereafter
(or the remaining amount available hereunder) of any advance (Loan), subject to
the requirements herein stated:
(a) At the time any advance is made;
3
<PAGE>
(b) At the expiration of the particular LIBOR maturity period
selected for the outstanding principal balance of any advance currently
bearing interest at the LIBOR Rate; and
(c) At any time for the outstanding principal balance of any advance
currently bearing interest at the Prime-Based Rate or Federal Funds Rate.
2.3. RATE CHANGES AND NOTIFICATIONS.
(a) LIBOR. If Borrower wishes to borrow funds at LIBOR or if
Borrower wishes to change the rate of interest on any advance, within the
limits described above, from any other rate to LIBOR, it shall, not less
than three banking days of the Lender prior to the banking day of the
Lender on which such rate is to take effect, give Lender written or
telephonic notice thereof, which shall be irrevocable. Such notice shall
specify the advance to which LIBOR is to apply, and, in addition, the
desired LIBOR maturity period (but not to exceed the Maturity Date unless
the Lender consents otherwise).
(b) Failure to Notify. If Borrower does not notify Lender at the
expiration of a selected maturity period with respect to any principal
outstanding at LIBOR, then in the absence of such notice Borrower shall be
deemed to have elected to have such principal accrue interest after the
respective LIBOR maturity period at the Prime-Based Rate.
(c) Federal Funds Rate/Prime Based Rate. If Borrower wishes to
borrow money at the Federal Funds Rate or the Prime-Based Rate, or to
change the interest rate from the Federal Funds Rate to or from the Prime-
Based Rate, it shall notify Lender on the date of borrowing or conversion;
if any such notification is not received before 10:00 AM Chicago time on a
banking day of the Lender, at Lender's option the borrowing or conversion
may not be effected until the next banking day. If Borrower does not notify
Lender as to its selection of the interest rate option with respect to any
new advance of principal, then in the absence of such notice Borrower shall
be deemed to have elected to have such advance accrue interest at the
Prime-Based Rate.
2.4. INTEREST PAYMENT DATES. Accrued interest shall be paid in respect
of: each portion of principal to which:
(a) the Prime-Based Rate or the Federal Funds Rate applies,
quarterly on the first day of each January, April, July and October of each
year, beginning with the first of such dates to occur after the date of the
first advance, at maturity of this Note, and upon payment in full,
whichever is earlier or more frequent; and
(b) LIBOR applies, monthly on the first day of each month, at the
end of each respective maturity period (unless interest is payable monthly
as provided above), at maturity of this Note, and upon payment in full,
whichever is earlier or more frequent.
After maturity, interest shall be payable upon demand.
4
<PAGE>
2.5. ADDITIONAL PROVISIONS WITH RESPECT TO FEDERAL FUNDS RATE AND LIBOR
LOANS.
The selection by Borrower of the Federal Funds Rate or LIBOR and the
maintenance of advances at such rate shall be subject to the following
additional terms and conditions:
(a) Availability of Deposits at a Determinable Rate. If, after
Borrower has elected to borrow or maintain any advance at LIBOR or the
Federal Funds Rate, Lender notifies Borrower that:
(i) With respect to LIBOR, United States dollar deposits in the
amount and for the maturity requested are not available to
Lender in the London interbank market, or
(ii) Reasonable means do not exist for Lender to determine the
Federal Funds Rate, or LIBOR for the amount and maturity
requested, all as determined by the Lender in its sole
discretion, then the principal subject or to be subject to LIBOR
or the Federal Funds Rate, as applicable, shall accrue or shall
continue to accrue interest at the Prime-Based Rate.
(b) Prohibition of Making, Maintaining, or Repayment or Principal at
LIBOR or Federal Funds Rate. If any treaty, statute, regulation,
interpretation thereof, or any directive, guideline, or otherwise by a
central bank or fiscal authority (whether or not having the force of law)
shall either prohibit or extend the time at which any principal subject to
LIBOR or the Federal Funds Rate may be purchased, maintained, or repaid,
then on and as of the date the prohibition becomes effective, the principal
subject to that prohibition shall continue at the Prime-Based Rate.
(c) Payments of Principal and Interest to be Net of Any Taxes or
Costs. In the event that principal outstanding hereunder is at LIBOR and
Lender incurs taxes and costs from such principal, all payments of
principal and interest shall be made net of all such taxes and costs
incurred by Lender. Without limiting the generality of the preceding
obligation, illustrations of such taxes and costs are:
(i) Taxes (or the withholding of amounts for taxes) of any
nature whatsoever including income, excise, and interest
equalization taxes (other than income taxes imposed by the
United States or any state thereof on the income of Lender), as
well as all levies, imposts, duties, or fees whether now in
existence or resulting from a change in, or promulgation of, any
treaty, statute, regulation, interpretation thereof, or any
directive, guideline, or otherwise, by a central bank or fiscal
authority (whether or not having the force of law) or a change
in the basis of, or time of payment of, such taxes and other
amounts resulting therefrom;
(ii) Any reserve or special deposit requirements against assets
or liabilities of, or deposits with or for the account of,
Lender with respect to principal outstanding at LIBOR (including
those imposed under
5
<PAGE>
Regulation D of the Federal Reserve Board) or resulting from a
change in, or the promulgation of, such requirements by treaty,
statute, regulation, interpretation thereof, or any directive,
guideline, or otherwise by a central bank or fiscal authority
(whether or not having the force of law);
(iii) Any other costs resulting from compliance with treaties,
statutes, regulations, interpretations, or any directives or
guidelines, or otherwise by a central bank or fiscal authority
(whether or not having the force of law);
(iv) Any loss (including loss of anticipated profits) or
expense incurred by reason of the liquidation or re-employment
of deposits acquired by Lender to make advances or maintain
principal outstanding at LIBOR:
(A) As the result of a voluntary prepayment at a date
other than the maturity date selected for principal
outstanding at LIBOR;
(B) As the result of a mandatory repayment at a date other
than the maturity date selected for principal outstanding
at LIBOR as a result of (i) the occurrence of an Event of
Default and the acceleration of any portion of the
indebtedness hereunder, or (ii) the Maturity Date occurring
prior to the LIBOR maturity date due to Borrower's
selection of a LIBOR maturity period which extends beyond
the Maturity Date; or
(C) As the result of a prohibition on making, maintaining,
or repaying principal outstanding at LIBOR.
If Lender incurs any such taxes or costs, Borrower, upon demand in writing
specifying such taxes and costs, shall promptly pay them; save for manifest
error Lender's specification shall be presumptively deemed correct. All advances
made at LIBOR shall be conclusively deemed to have been funded by or on behalf
of Lender in the London interbank market by the purchase of deposits
corresponding in amount and maturity to the amount and interest periods selected
(or deemed to have been selected) by Borrower under this Note.
2.6. LETTER OF CREDIT FEES. In consideration of the Lender's issuance of
any Letter of Credit, the Borrower agrees to pay the Lender:
(a) a fee equal to $200 payable on the issuance of each Letter of
Credit;
(b) a fee equal to $100 payable upon the date of any amendment or
renewal of any Letter of Credit outstanding;
(c) a commission ("Letter of Credit Fee") for the period commencing
on the issuance date of each Letter of Credit and ending on the expiration
date of such Letter of Credit equal to .5% per annum of the face amount of
the Letter of Credit. The accrued Letter of Credit Fee in respect of a
Letter of Credit shall be payable in arrears on each
6
<PAGE>
January, April, July and October and on the earliest of the expiration date
of such Letter of Credit, the date the Facility Amount is terminated or the
Maturity Date.
3. PAYMENT.
3.1. PAYMENT AND PREPAYMENT. Borrower may from time to time, upon at least
three days' prior written notice to Lender, prepay any principal or
reimbursement obligation under a Letter of Credit Application bearing interest
at the Prime-Based Rate or the Federal Funds Rate in whole or in part at any
time and may prepay any principal bearing interest at LIBOR at the end of the
maturity period chosen or agreed to by Borrower applicable to the advance or
portion of the advance being prepaid, without premium or penalty, provided that
any partial prepayment shall be in an aggregate principal amount of at least
$10,000. Any prepayment of an amount bearing interest at LIBOR at a date other
than the maturity date applicable to the advance or the portion of the advance
being prepaid shall be subject to the provisions of Section 2.5. All prepayments
of principal shall include interest accrued to the date of prepayment on the
principal amount being prepaid.
3.2. MANDATORY PREPAYMENT. In the event that twenty percent (20%) or more
of the issued and outstanding shares of Borrower are held, directly or
indirectly, by persons not owning shares of the Borrower, directly or
indirectly, on April 29, 1998 or substantially all the assets of the Borrower
are sold, then on the date such event shall occur, the Borrower immediately
agrees to prepay the entire outstanding principal amount of the Loans, the L/C
Amount and all unpaid and accrued interest on the Loans and the L/C Amount and
acknowledges and agrees that any commitment to lend hereunder or to issue any
Letters of Credit is terminated without further notice or action on the part of
the Lender. In the event that the sum of (a) the aggregate unpaid principal
amount of all Loans, plus (b) the aggregate undrawn face amount of all issued
and unexpired Letters of Credit, plus (c) the aggregate unreimbursed amount in
respect of any Letters of Credit (whether expired or unexpired) shall at any
time exceed the Facility Amount, the Borrower shall, within three (3) calendar
days of the occurrence of such event, take one or more of the following actions
to eliminate such excess: (i) prepay the unpaid principal of the Loans in an
amount sufficient such that the sum of clauses (a), (b) and (c) do not exceed
the Facility Amount, (ii) pay to the Lender the unreimbursed amount in respect
of any amount drawn under any Letter of Credit (whether expired or unexpired) in
an amount sufficient such that the sum of clauses (a), (b) and (c) do not exceed
the Facility Amount, or (iii) provide the Lender with cash collateral to secure
the Borrower's reimbursement obligation with respect to the undrawn face amount
under any then issued and unexpired Letter of Credit in an amount sufficient
such that the sum of clauses (a), (b) and (c) do not exceed the Facility Amount.
Any prepayment of an amount bearing interest at LIBOR on a date other than the
maturity date applicable to the advance or portion of the advance being prepaid
shall be subject to the provisions of Section 2.5.
3.3. BASIS OF COMPUTATION. Interest and the Letter of Credit Fee shall be
computed for the actual number of days elapsed on the basis of a year consisting
of 360 days, including the date a Loan is made or a Letter of Credit is issued
and excluding the date a Loan or any portion thereof is paid or prepaid or a
Letter of Credit expires.
7
<PAGE>
4. REFERENCES TO FACILITY TYPE, COLLATERAL, GUARANTIES, OTHER AGREEMENTS.
4.1. FACILITY TYPE. Lender intends to make available to Borrower the Loans
as outlined herein unless an Event of Default has occurred and is continuing.
4.2. GUARANTY. Payment of this Note and the reimbursement obligations under
any Letter of Credit Application have been unconditionally guaranteed by SBC
Communications Inc. (together with its successors and assigns, the "Guarantor")
pursuant to a guaranty (as amended, modified or supplemented, the "Guaranty") in
form and substance satisfactory to Lender.
5. USE OF PROCEEDS. Borrower represents and warrants that the proceeds of this
Note will be used solely for business purposes, and not for personal, family or
household use, within the meaning of Federal Truth in Lending and similar state
laws and regulations.
6. REPRESENTATIONS.
Borrower hereby represents and warrants to Lender that:
(a) Borrower and any "Subsidiary" (as defined below) are duly
organized, validly existing and in good standing under the laws of their
state of formation, are duly qualified, in good standing and authorized to
do business in each jurisdiction where failure to do so might have a
material adverse impact on the consolidated assets, condition or prospects
of Borrower; the execution, delivery and performance of this Note, any
Letter of Credit Application and all related documents and instruments are
within Borrower's corporate powers and have been authorized by all
necessary corporate action;
(b) the execution, delivery and performance of this Note, any Letter
of Credit Application and all related documents and instruments have
received any and all necessary governmental approval, and do not and will
not contravene or conflict with any provision of law or of the articles of
incorporation or by-laws or similar agreement of Borrower or any agreement
affecting Borrower or its property; and
(c) there has been no material adverse change in the business,
condition, properties, assets, operations or prospects of Borrower or the
Guarantor since the date of the latest financial statements provided on
behalf of Borrower and Guarantor to Lender prior to the execution of this
Note.
"Subsidiary" means any corporation, partnership, joint venture, trust, or other
legal entity of which Borrower owns directly or indirectly fifty percent (50%)
or more of the outstanding voting stock or interest, or of which Borrower has
effective control, by contract or otherwise.
8
<PAGE>
7. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an "Event of Default":
(a) failure to pay, when and as due, any principal, interest or other
amounts payable hereunder or any reimbursement obligation under any Letter
of Credit Application; failure to comply with or perform any agreement or
covenant of Borrower contained herein, which failure shall have continued
unremedied for a period of 10 days after written notice thereof from Lender
to Borrower;
(b) any default, event of default, or similar event shall occur or
continue under any other instrument, document, note, agreement, Letter of
Credit Application or guaranty delivered to Lender in connection with this
Note (including without limitation, the Guaranty), which failure shall have
continued unremedied after the expiration of any grace period therein; or
any such instrument, document, note, agreement, Letter of Credit
Application or guaranty shall not be, or shall cease to be, enforceable in
accordance with its terms;
(c) failure of Borrower or any of its Subsidiaries or the Guarantor
to pay when due any principal of or interest on or any other amount payable
in respect of one or more items of indebtedness or reimbursement obligation
in an aggregate amount in excess of $5,000,000 ($100,000,000 in the case of
the Guarantor only), in each case beyond the end of any grace period
provided therefor, or any breach or default by Borrower or any of its
Subsidiaries or the Guarantor with respect to any term of one or more terms
of indebtedness or reimbursement obligation in the aggregate principal
amount in excess of $5,000,000 ($100,000,000 in the case of the Guarantor
only) shall occur if the effect of such breach or default is to cause, or
permit the holders of that indebtedness to cause, that indebtedness to
become due and payable prior to its stated maturity;
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on behalf of
Borrower, any Subsidiary or Guarantor to Lender is false or misleading in
any material respect on the date as of which the facts therein set forth
are stated or certified;
(e) the Guaranty or any pledge of collateral security for this Note
shall be repudiated or become unenforceable or incapable of performance;
(f) Borrower, any Subsidiary or Guarantor shall fail to maintain
their existence in good standing in their state of formation or shall fail
to be duly qualified, in good standing and authorized to do business in
each jurisdiction where failure to do so is reasonably likely to have a
material adverse impact on the consolidated assets, condition or prospects
of Borrower and such failure is not cured within ten (10) days of the
Borrower, such Subsidiary or the Guarantor having actual notice that they
are not in good standing or duly qualified;
(g) Borrower, any Subsidiary or Guarantor shall dissolve, liquidate,
merge, consolidate, or cease to be in existence for any reason; provided
that, the Borrower or any Subsidiary may merge or consolidate with
Guarantor or any one or more Subsidiaries of
9
<PAGE>
Borrower or with any other entity if, before and after giving effect
thereto, no Event of Default shall have occurred and be continuing and the
surviving entity assumes all the obligations and duties of the Borrower
under this Note and the obligations of the Borrower continue to be
guaranteed by a creditworthy entity and in form and substance satisfactory
to the Lender; provided further that this clause (g) shall not apply to any
Subsidiary to be liquidated or dissolved if the Board of Directors of such
Subsidiary shall determine that the preservation of the existence of such
Subsidiary is no longer desirable in the conduct of business of the
Borrower and its Subsidiaries, and that the loss thereof is not
disadvantageous in any material respect to Lender, as reasonably determined
by the Lender;
(h) James A. Otterbeck and the Guarantor in the aggregate shall cease
to own, directly or indirectly, at least 51% of the issued and outstanding
common stock of Borrower entitled to vote for the election of directors of
Borrower;
(i) any proceeding (judicial or administrative) shall be commenced
against Borrower, any Subsidiary or the Guarantor, or with respect to any
assets of Borrower, any Subsidiary or the Guarantor which could reasonably
be expected to have a material and adverse effect on the assets, condition
or prospects of Borrower, any Subsidiary or the Guarantor; or final
judgment(s) and/or settlement(s) in an aggregate amount in excess of (i) in
the case of the Guarantor, TWENTY-FIVE MILLION AND NO/100 UNITED STATES
DOLLARS ($25,000,000.00), or (ii) in the case of the Borrower or any
Subsidiary, ONE MILLION AND NO/100 UNITED STATES DOLLARS ($1,000,000), in
each case in excess of insurance for which the insurer has confirmed
coverage in writing, a copy of which writing has been furnished to Lender,
shall be entered or agreed to in any suit or action;
(j) any notice of a federal tax lien against Borrower in excess of
$1,000,000 shall be filed with any public recorder and such lien is not
vacated, discharged, stayed or bonded over for a period of 60 days;
(k) the senior unsecured debt rating of Guarantor shall be less than
BBB by Standard & Poors, a division of McGraw Hill Company, Inc. or Baa by
Moody's Investors Services, Inc.;
(l) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by or against Borrower, any Subsidiary or the
Guarantor and in the case of an involuntary proceeding is not dismissed
within 60 days; or Borrower, any Subsidiary or the Guarantor shall take any
steps toward, or to authorize, such a proceeding; or
(m) Borrower, any Subsidiary or any Guarantor shall become insolvent,
generally shall fail or be unable to pay its debts as they mature, shall
admit in writing its inability to pay its debts as they mature, shall make
a general assignment for the benefit of its creditors, shall enter into any
composition or similar agreement, or shall suspend the transaction of all
or a substantial portion of its usual business.
10
<PAGE>
8. DEFAULT REMEDIES.
(a) Upon the occurrence and during the continuance of any Event of
Default specified in Section 7(a)-(k), Lender at its option may declare
this Note and the L/C Amount (principal, interest and other amounts)
immediately due and payable without notice or demand of any kind. Upon the
occurrence of any Event of Default specified in Section 7(l)-(m), this Note
and the L/C Amount (principal, interest and other amounts) shall be
immediately and automatically due and payable without action of any kind on
the part of Lender. Upon the occurrence and during the continuance of any
Event of Default, Lender may exercise any rights and remedies under this
Note, any Letter of Credit Application, any related document or instrument,
and at law or in equity. In addition, the Lender may in the case of an
Event of Default (other than one referred to under Section 7(l) or (m) of
this Note) or shall (in the case of an Event of Default under Section 7(l)
or (m) of this Note) require the Borrower to (i) deliver to the Lender cash
collateral to secure the Borrower's reimbursement obligations with respect
to the undrawn face amount under any of the then issued and unexpired
Letters of Credit and (ii) pay to the Lender the unreimbursed amount in
respect of any amount drawn under any Letter of Credit (whether expired or
unexpired) .
(b) Lender may, by written notice to Borrower, at any time and from
time to time, waive any Event of Default or "Unmatured Event of Default"
(as defined below), which shall be for such period and subject to such
conditions as shall be specified in any such notice. In the case of any
such waiver, Lender and Borrower shall be restored to their former position
and rights hereunder, and any Event of Default or Unmatured Event of
Default so waived shall be deemed to be cured and not continuing; but no
such waiver shall extend to or impair any subsequent or other Event of
Default or Unmatured Event of Default. No failure to exercise, and no delay
in exercising, on the part of Lender of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies of
Lender herein provided are cumulative and not exclusive of any rights or
remedies provided by law. "Unmatured Event of Default" means any event or
condition which would become an Event of Default with notice or the passage
of time or both.
9. NO INTEREST OVER LEGAL RATE.
Borrower does not intend or expect to pay, nor does Lender intend or expect
to charge, accept or collect any interest which, when added to any fee or other
charge which may legally be treated as interest, shall be in excess of the
highest lawful rate. If acceleration, prepayment or any other charges upon the
principal or any portion thereof, or any other circumstance, result in the
computation or earning of interest in excess of the highest lawful rate, then
any and all such excess is hereby waived and shall be applied against the
remaining principal balance. Without limiting the generality of the foregoing,
and notwithstanding anything to the contrary contained herein or otherwise, no
deposit of funds shall be required in connection herewith which will, when
deducted from the principal amount outstanding hereunder, cause the rate of
interest hereunder to exceed the highest lawful rate.
11
<PAGE>
10. PAYMENTS, ETC.
All payments hereunder and in connection with any reimbursement obligation under
any Letter of Credit Application shall be made in immediately available funds,
and shall be applied first to accrued interest and then to principal; however,
if an Event of Default occurs, Lender may, in its sole discretion, and in such
order as it may choose, apply any payment to interest, principal and/or lawful
charges and expenses then accrued. Borrower shall receive immediate credit on
payments received during Lender's normal banking hours if made in cash,
immediately available funds, or by debit to available balances in an account at
Lender; otherwise payments shall be credited after clearance through normal
banking channels. Borrower authorizes Lender to charge any account of Borrower
maintained with Lender for any amounts of principal, interest, taxes, duties, or
other charges or amounts due or payable hereunder, with the amount of such
payment subject to availability of collected balances in Lender's discretion;
unless Borrower instructs otherwise, any Loan shall be credited to an account(s)
of Borrower with Lender. LENDER AT ITS OPTION MAY MAKE LOANS HEREUNDER OR ISSUE
LETTERS OF CREDIT UPON TELEPHONIC INSTRUCTIONS AND IN SO DOING SHALL BE FULLY
ENTITLED TO RELY SOLELY UPON INSTRUCTIONS, INCLUDING WITHOUT LIMITATION
INSTRUCTIONS TO MAKE TRANSFERS TO THIRD PARTIES, REASONABLY BELIEVED BY LENDER
TO HAVE BEEN GIVEN BY AN AUTHORIZED PERSON, WITHOUT INDEPENDENT INQUIRY OF ANY
TYPE. All payments shall be made without deduction for or on account of any
present or future taxes, duties or other charges levied or imposed on this Note,
any Letter of Credit Application, the proceeds of any Loan, Lender (other than
based solely on the income of the Lender) or Borrower by any government or
political subdivision thereof. Borrower shall upon request of Lender pay all
such taxes, duties or other charges in addition to principal and interest,
including without limitation all documentary stamp and intangible taxes, but
excluding income taxes based solely on Lender's income.
11. SETOFF.
At any time and without notice of any kind, any account, deposit or other
indebtedness owing by Lender to Borrower, and any securities or other property
of Borrower delivered to or left in the possession of Lender or its nominee or
bailee, may be set off against and applied in payment of any obligation
hereunder or any reimbursement obligation under any Letter of Credit, whether
due or not.
12. NOTICES.
All notices, requests and demands to or upon the respective parties hereto
shall be deemed to have been given or made when deposited in the mail, postage
prepaid, addressed if to Lender to its main banking office indicated above
(Attention: Division Head, Commercial Division), and if to Borrower to its
address set forth below, or to such other address as may be hereafter designated
in writing by the respective parties hereto or, as to Borrower, may appear in
Lender's records.
12
<PAGE>
13. MISCELLANEOUS.
This Note and any document or instrument executed in connection herewith
shall be governed by and construed in accordance with the internal law of the
State of Illinois, and shall be deemed to have been executed in the State of
Illinois. Unless the context requires otherwise, wherever used herein the
singular shall include the plural and vice versa. Captions herein are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof; references herein to Sections or provisions without reference
to the document in which they are contained are references to this Note. This
Note shall bind Borrower, its successors and assigns, and shall inure to the
benefit of Lender, its successors and assigns, except that Borrower may not
transfer or assign any of its rights or interest hereunder without the prior
written consent of Lender. Borrower agrees to pay upon demand all expenses
(including without limitation attorneys' fees, legal costs and expenses, in each
case whether in or out of court, in original or appellate proceedings or in
bankruptcy) incurred or paid by Lender or any holder hereof in connection with
the enforcement or preservation of its rights hereunder or under any document or
instrument executed in connection herewith. Except as otherwise expressly
provided herein, Borrower expressly and irrevocably waives notice of dishonor or
default as well as presentment, protest, demand and notice of any kind in
connection herewith. Borrower and, by acceptance of this Note, Lender agree not
to amend this Note without the prior written consent of Guarantor if and only if
such amendment relates to (a) subordinating the Lender's right to payment under
this Note to the payment of any other indebtedness or equity interest of the
Borrower, (b) extending the Maturity Date or any installments hereunder, (c)
changing Section 3.2 hereof, (d) increasing the principal amount of this Note
above $16,000,000, (e) impairing the subrogation rights of the Guarantor, or (f)
extending the Final Drawdown Date.
14. WAIVER OF JURY TRAIL, ETC.
BORROWER AND LENDER HEREBY IRREVOCABLY AGREE THAT ALL SUITS, ACTIONS OR
OTHER PROCEEDINGS WITH RESPECT TO, ARISING OUT OF OR IN CONNECTION WITH THIS
NOTE, ANY LETTER OF CREDIT APPLICATION OR ANY DOCUMENT OR INSTRUMENT EXECUTED IN
CONNECTION HEREWITH OR THEREWITH SHALL BE SUBJECT TO LITIGATION IN COURTS HAVING
SITUS WITHIN OR JURISDICTION OVER CHICAGO, ILLINOIS. BORROWER AND LENDER HEREBY
CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT
LOCATED IN OR HAVING JURISDICTION OVER SUCH CITY, AND HEREBY IRREVOCABLY WAIVE
ANY RIGHT IT MAY HAVE TO REQUEST OR DEMAND TRIAL BY JURY, TO TRANSFER OR CHANGE
THE VENUE OF ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT BY LENDER IN
ACCORDANCE WITH THIS PARAGRAPH, OR TO CLAIM THAT ANY SUCH PROCEEDING HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
13
<PAGE>
ONEPOINT COMMUNICATIONS CORP. Address for Notices:
By: /s/ John D. Stavig 2201 N. Waukegan Road
------------------
Type Name John D. Stavig Suite E-200
--------------
Bannockburn, Illinois 60015
Attention: James A. Otterbeck
------------------
14
<PAGE>
Exhibit 99.2
FIRST AMENDMENT DATED
AS OF AUGUST 30, 1999
TO LOAN DOCUMENTS AND GUARANTY
THIS AMENDMENT, dated as of August 30, 1999, is entered into among ONEPOINT
COMMUNICATIONS CORP., a Delaware corporation (the "Borrower"), SBC
COMMUNICATIONS INC., a Delaware corporation (the "Guarantor"), and THE NORTHERN
TRUST COMPANY, an Illinois banking corporation having an office at 265 East
Deerpath Road, Lake Forest, Illinois 60045 (the "Lender").
RECITALS:
A. The Borrower has previously delivered to the Lender (i) an Amended and
Restated Call On Term - Term Note dated as of April 29, 1998 in the original
principal amount of $9,000,000 (as amended, modified, restated or replaced, the
"Note") and (ii) an Amended and Restated Security Agreement dated as of April
29, 1998 (as amended, modified, restated or replaced, the "Security Agreement";
together with the Note, collectively the "Loan Documents" and individually, a
"Loan Document").
B. Guarantor has previously delivered to the Lender an Amended and
Restated Guaranty dated as of April 29, 1998 (as amended, modified or replaced,
the "Guaranty"). Terms defined in the Loan Documents or the Guaranty and not
otherwise defined herein shall be used herein as defined in the Loan Documents
and the Guaranty, as applicable.
C. The Borrower, the Guarantor and the Lender wish to amend the Loan
Documents and the Guaranty.
D. Therefore, the parties hereto agree as follows:
1. AMENDMENTS TO THE NOTE.
1.1. Section 2.2 of the Note. Section 2.2 of the Note is hereby
amended as of the date hereof by deleting the first sentence thereof
and substituting the following therefor:
"2.2 MANDATORY PREPAYMENT. In the event that twenty percent (20%)
or more of the issued and outstanding shares of the Borrower are held
by persons not owning shares of the Borrower, directly or indirectly,
on April 29, 1998 or substantially all the assets of the Borrower are
sold, then on the date such event shall occur, the Borrower immediately
agrees to prepay the entire outstanding principal amount of the Loans
and all unpaid and accrued interest on the Loans and acknowledges and
agrees that any commitment to lend hereunder is terminated without
further notice or action on the part of the Lender."
<PAGE>
1.2. Section 5 of the Note. The definition of "Subsidiary" in Section 5 of
the Note is hereby amended as of the date hereof by deleting the percentage
"eighty percent (80%)" appearing therein and substituting the percentage "fifty
percent (50%)" therefor.
1.3. Sections 6(c), (d), (f), (g), (h), (i), (l) and (m) of the Note.
Sections 6(c), (d), (f), (g), (h), (i), (l) and (m) only of the Note are hereby
amended and restated in their entirety as of the date hereof as follows:
"(c) failure of Borrower or any of its Subsidiaries or the Guarantor
to pay when due any principal of or interest on or any other amount payable
in respect of one or more items of indebtedness or reimbursement obligation
in an aggregate amount in excess of $5,000,000 ($100,000,000 in the case of
the Guarantor only), in each case beyond the end of any grace period
provided therefor, or any breach or default by Borrower or any of its
Subsidiaries or the Guarantor with respect to any term of one or more terms
of indebtedness or reimbursement obligation in the aggregate principal
amount in excess of $5,000,000 ($100,000,000 in the case of the Guarantor
only) shall occur if the effect of such breach or default is to cause, or
permit the holders of that indebtedness to cause, that indebtedness to
become due and payable prior to its stated maturity;
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on behalf of
Borrower, any Subsidiary or Guarantor to Lender is false or misleading in
any material respect on the date as of which the facts therein set forth
are stated or certified; . . .
(f) Borrower, any Subsidiary or Guarantor shall fail to maintain their
existence in good standing in their state of formation or shall fail to be
duly qualified, in good standing and authorized to do business in each
jurisdiction where failure to do so is reasonably likely to have a material
adverse impact on the consolidated assets, condition or prospects of
Borrower and such failure is not cured within ten (10) days of the
Borrower, such Subsidiary or the Guarantor having actual notice that they
are not in good standing or duly qualified;
(g) Borrower, any Subsidiary or Guarantor shall dissolve, liquidate,
merge, consolidate, or cease to be in existence for any reason; provided
that, the Borrower or any Subsidiary may merge or consolidate with
Guarantor or any one or more Subsidiaries of Borrower or with any other
entity if, before and after giving effect thereto, no Event of Default
shall have occurred and be continuing and the surviving entity assumes all
the obligations and duties of the Borrower under this Note and the
obligations of the Borrower continue to be guaranteed by a creditworthy
entity and in form and substance satisfactory to the Lender; provided
further that this clause (g) shall not apply to any Subsidiary to be
liquidated or dissolved if the Board of Directors of such Subsidiary shall
determine that the preservation of the existence of such Subsidiary is no
longer
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<PAGE>
desirable in the conduct of business of the Borrower and its Subsidiaries,
and that the loss thereof is not disadvantageous in any material respect to
Lender, as reasonably determined by the Lender;
(h) James A. Otterbeck and the Guarantor in the aggregate shall cease
to own, directly or indirectly, at least 51% of the issued and outstanding
common stock of Borrower entitled to vote for the election of directors of
Borrower;
(i) any proceeding (judicial or administrative) shall be commenced
against Borrower, any Subsidiary or the Guarantor, or with respect to any
assets of Borrower, any Subsidiary or the Guarantor which could reasonably
be expected to have a material and adverse effect on the assets, condition
or prospects of Borrower, any Subsidiary or the Guarantor; or final
judgment(s) and/or settlement(s) in an aggregate amount in excess of (i) in
the case of the Guarantor, TWENTY-FIVE MILLION AND NO/100 UNITED STATES
DOLLARS ($25,000,000.00), or (ii) in the case of the Borrower or any
Subsidiary, ONE MILLION AND NO/100 UNITED STATES DOLLARS ($1,000,000), in
each case in excess of insurance for which the insurer has confirmed
coverage in writing, a copy of which writing has been furnished to Lender,
shall be entered or agreed to in any suit or action; . . .
(l) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by or against Borrower, any Subsidiary or the
Guarantor and in the case of an involuntary proceeding is not dismissed
within 60 days; or Borrower, any Subsidiary or the Guarantor shall take any
steps toward, or to authorize, such a proceeding; or
(m) Borrower, any Subsidiary or any Guarantor shall become insolvent,
generally shall fail or be unable to pay its debts as they mature, shall
admit in writing its inability to pay its debts as they mature, shall make
a general assignment for the benefit of its creditors, shall enter into any
composition or similar agreement, or shall suspend the transaction of all
or a substantial portion of its usual business."
1.4. Section 6(e) of the Note. Section 6(e) of the Note is hereby amended
as of the date hereof by adding the following immediately after the semicolon
but before the word "or" appearing therein:
"or the senior unsecured debt rating of Guarantor shall be less than BBB by
Standard & Poor's, a division of McGraw Hill Company, Inc. or Baa by
Moody's Investors Services, Inc.;"
1.5. Section 6(j) of the Note. Section 6(j) of the Note is hereby amended
as of the date hereof by deleting everything after the word "documents;"
appearing therein and substituting the following therefor:
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<PAGE>
"or any notice of a federal tax lien against Borrower in excess of
$1,000,000 shall be filed with any public recorder and such lien is not
vacated, discharged, stayed or bonded over for a period of 60 days; or"
2. AMENDMENTS TO THE SECURITY AGREEMENT.
2.1. Section 1(d) of the Security Agreement. Section 1(d) of the Security
Agreement is hereby amended as of the date hereof by deleting the percentage
"80%" appearing therein and substituting the percentage "50%" therefor.
2.2. Sections 9(c), (d), (f), (g), (h), (i), (j) (l) and (m) of the
Security Agreement. Sections 9(c), (d), (f), (g), (h), (i), (j), (l) and (m)
only of the Security Agreement are hereby amended and restated in their entirety
as of the date hereof as follows:
"(c) failure of Debtor or any of its Subsidiaries or the Guarantor to
pay when due any principal of or interest on or any other amount payable in
respect of one or more items of indebtedness or reimbursement obligation in
an aggregate amount in excess of $5,000,000 ($100,000,000 in the case of
the Guarantor only), in each case beyond the end of any grace period
provided therefor, or any breach or default by Debtor or any of its
Subsidiaries or the Guarantor with respect to any term of one or more terms
of indebtedness or reimbursement obligation in the aggregate principal
amount in excess of $5,000,000 ($100,000,000 in the case of the Guarantor
only) shall occur if the effect of such breach or default is to cause, or
permit the holders of that indebtedness to cause, that indebtedness to
become due and payable prior to its stated maturity;
(d) any representation, warranty, schedule, certificate, financial
statement, report, notice, or other writing furnished by or on behalf of
Debtor, any Subsidiary or Guarantor to Secured Party is false or misleading
in any material respect on the date as of which the facts therein set forth
are stated or certified; . . .
(f) Debtor, any Subsidiary or Guarantor shall fail to maintain their
existence in good standing in their state of formation or shall fail to be
duly qualified, in good standing and authorized to do business in each
jurisdiction where failure to do so is reasonably likely to have a material
adverse impact on the consolidated assets, condition or prospects of Debtor
and such failure is not cured within ten (10) days of the Debtor, such
Subsidiary or the Guarantor having actual notice that they are not in good
standing or duly qualified;
(g) Debtor, any Subsidiary or Guarantor shall dissolve, liquidate,
merge, consolidate, or cease to be in existence for any reason; provided
that, the Debtor or any Subsidiary may merge or consolidate with Guarantor
or any one or more Subsidiaries of Debtor or with any other entity if,
before and after giving effect thereto, no Event of Default shall have
occurred and be continuing and the surviving entity assumes all the
obligations and duties of the Debtor under this Note and the obligations of
the Debtor continue to be guaranteed by a
-4-
<PAGE>
creditworthy entity and in form and substance satisfactory to the Secured
Party; provided further that this clause (g) shall not apply to any
Subsidiary to be liquidated or dissolved if the Board of Directors of such
Subsidiary shall determine that the preservation of the existence of such
Subsidiary is no longer desirable in the conduct of business of the Debtor
and its Subsidiaries, and that the loss thereof is not disadvantageous in
any material respect to Secured Party, as reasonably determined by the
Secured Party;
(h) James A. Otterbeck and the Guarantor in the aggregate shall cease
to own, directly or indirectly, at least 51% of the issued and outstanding
common stock of Debtor entitled to vote for the election of directors of
Debtor;
(i) any proceeding (judicial or administrative) shall be commenced
against Debtor, any Subsidiary or the Guarantor, or with respect to any
assets of Debtor, any Subsidiary or the Guarantor which could reasonably be
expected to have a material and adverse effect on the assets, condition or
prospects of Debtor, any Subsidiary or the Guarantor; or final judgment(s)
and/or settlement(s) in an aggregate amount in excess of (i) in the case of
the Guarantor, TWENTY-FIVE MILLION AND NO/100 UNITED STATES DOLLARS
($25,000,000.00), or (ii) in the case of the Debtor or any Subsidiary, ONE
MILLION AND NO/100 UNITED STATES DOLLARS ($1,000,000), in each case in
excess of insurance for which the insurer has confirmed coverage in
writing, a copy of which writing has been furnished to Secured Party, shall
be entered or agreed to in any suit or action; . . .
(l) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by or against Debtor, any Subsidiary or the
Guarantor and in the case of an involuntary proceeding is not dismissed
within 60 days; or Debtor, any Subsidiary or the Guarantor shall take any
steps toward, or to authorize, such a proceeding; or
(m) Debtor, any Subsidiary or any Guarantor shall become insolvent,
generally shall fail or be unable to pay its debts as they mature, shall
admit in writing its inability to pay its debts as they mature, shall make
a general assignment for the benefit of its creditors, shall enter into any
composition or similar agreement, or shall suspend the transaction of all
or a substantial portion of its usual business."
2.3. Section 9(e) of the Security Agreement. Section 9(e) of the Security
Agreement is hereby amended as of the date hereof by adding the following
immediately after the semicolon but before the "or" appearing therein:
"or the senior unsecured debt rating of Guarantor shall be less than BBB by
Standard & Poor's, a division of McGraw Hill Company, Inc. or Baa by
Moody's Investors Services, Inc.;"
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<PAGE>
2.4. Section 9(j) of the Security Agreement. Section 9(j) of the Security
Agreement is hereby amended as of the date hereof by deleting everything after
the phrase "with the terms hereof" appearing therein and substituting the
following therefor:
"or any notice of a federal tax lien against Debtor in excess of $1,000,000
shall be filed with any public recorder and such lien is not vacated,
discharged, stayed or bonded over for a period of 60 days; or"
3. AMENDMENTS TO THE GUARANTY
3.1. Section 2 of the Guaranty. Section 2 of the Guaranty is hereby
amended as of the date hereof by (i) adding a new clause (e) thereto as follows
and (ii) relettering existing clauses (e) and (f) as clauses (f) and (g)
respectively:
"(e) Credit Rating. The Guarantor's senior unsecured debt rating
shall be less than BBB by Standard & Poor's, a division of McGraw Hill
Company, Inc. or Baa by Moody's Investors Services, Inc.; or"
3.2. Section 3 of the Guaranty. Section 3 of the Guaranty is hereby
amended as of the date hereof by deleting the reference to "Section 2(e) - (f)"
appearing therein and substituting "Section 2(f) - (g)" therefor.
4. WARRANTIES. To induce the Lender to enter into this Amendment, the
Borrower and the Guarantor warrant that:
4.1. Authorization. Such party is duly authorized to execute and
deliver this Amendment and is and will continue to be duly authorized, in the
case of the Borrower, to borrow monies under the Loan Documents, as amended
hereby, and to perform its obligations under the Loan Documents, as amended
hereby, and in the case of the Guarantor, to perform its obligations under the
Guaranty, as amended hereby.
4.2. No Conflicts. The execution and delivery of this Amendment, and the
performance by such party of its obligations, in the case of the Borrower under
the Loan Documents, and in the case of the Gurantor, the Guaranty, each as
amended hereby, do not and will not conflict with any provision of law or of the
charter or by-laws of such party or of any agreement binding upon such party.
4.3. Validity and Binding Effect. The Loan Documents and, in the case
of the Guarantor, the Guaranty, each as amended hereby, are legal, valid and
binding obligations of such party, as applicable, enforceable against such
party, as applicable, in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights or by general
principles of equity limiting the availability of equitable remedies.
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<PAGE>
5. CONDITIONS PRECEDENT TO AMENDMENTS. The amendments contemplated by
Sections 1, 2 and 3 hereof are subject to the satisfaction of each of the
following conditions precedent:
5.1. Documentation. The Borrower shall have delivered to the Lender all
of the following, each duly executed and dated the closing date hereof, in form
and substance satisfactory to the Lender:
(a) Certificate. A certificate of the president or chief financial officer
of the Borrower as to the matters set out in Sections 5.2 and 5.3
hereof.
(b) Amendment. The Borrower and the Guarantor shall each have executed a
counterpart of this Amendment and delivered it to the Lender.
(c) Other. Such other documents as the Lender may reasonably request.
5.2. No Default. As of the closing date hereof, no Event of Default or
Unmatured Event of Default under the Loan Documents or Event Requiring Payment
under the Guaranty shall have occurred and be continuing.
5.3. Warranties. As of the closing date hereof, the warranties in the
Loan Documents, the Guaranty and in Section 4 of this Amendment shall be true
and correct as though made on such date, except for such changes as are
specifically permitted under the Loan Documents or the Guaranty.
6. GENERAL.
6.1. Expenses. The Borrower agrees to pay the Lender upon demand for all
reasonable expenses, including reasonable attorneys' and legal assistants' fees
(which attorneys and legal assistants may be employees of the Lender), incurred
by the Lender in connection with the preparation, negotiation and execution of
this Amendment and any document required to be furnished herewith.
6.2. Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
6.3. Successors. This Amendment shall be binding upon the Borrower, the
Guarantor and the Lender and their respective successors and assigns, and shall
inure to the benefit of the Borrower, the Guarantor and the Lender and the
successors and assigns of the Lender.
6.4. Confirmation of the Agreement. The Loan Documents and the Guaranty,
each as amended hereby, shall remain in full force and effect and are hereby
ratified and confirmed in all respects.
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<PAGE>
6.5. References to the Agreement. Each reference in the Loan Documents
or the Guaranty to "this Agreement," "hereunder," "hereof," or words of similar
import in instruments or documents provided for in the Loan Documents or the
Guaranty or delivered or to be delivered thereunder or in connection therewith,
shall, except where the context otherwise requires, be deemed a reference to the
Loan Documents or the Guaranty, each as amended hereby.
6.6. Counterparts. This Amendment may be executed in any number of
counterparts and any party hereto may execute any one or more counterparts, all
of which shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Chicago, Illinois by their respective officers thereunto duly
authorized as of the date first written above.
ONE POINT COMMUNICATIONS CORP.
By: /s/ John D. Stavig
--------------------------------
Title Chief Financial Officer
------------------------------
SBC COMMUNICATIONS, INC.
By: /s/ (Signature Illegible)
--------------------------------
Director-Corporate Finance,
for Roger W. Wohlert,
Assistant Treasurer,
Title: pursuant to Delegation
-----------------------------
THE NORTHERN TRUST COMPANY
By: /s/ Kinley Reddy
--------------------------------
Title Vice President
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