<PAGE>
As filed with the Securities and Exchange Commission on April 19, 1999
Registration No. 333-73065
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NORTHPOINT COMMUNICATIONS GROUP, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 4813 52-214-7716
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification Number)
</TABLE>
222 Sutter Street
San Francisco, California 94108
(415) 403-4003
(Address, including zip code, and
telephone number of Registrant's principal executive offices)
---------------
Michael W. Malaga
Chief Executive Officer
NorthPoint Communications Group, Inc.
222 Sutter Street
San Francisco, California 94108
(415) 403-4003
Fax: (415) 403-4004
(Name, addess, including ZIP code, and telephone number,
including area code, of agent for service)
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Copies to:
<TABLE>
<S> <C>
Michael W. Hall, Esq. Frank H. Golay, Jr., Esq.
Gregory K. Miller, Esq. Ondraus Jenkins, Esq.
Karen E. Eberle, Esq. Sullivan & Cromwell
Latham & Watkins 1888 Century Park East, 21st Floor
135 Commonwealth Drive Los Angeles, California 90067
Menlo Park, California 94025 (310) 712-6600
(650) 328-4600 Fax: (310) 712-8800
Fax: (650) 463-2600
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of the Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Amount maximum maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered per unit(1) offering price fee(2)
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value........ 14,950,000 shares $19.50 $291,525,000 $81,044
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Warrant to purchase Class B Common
Stock, $.001 par value(3)............ One Warrant $2,618,916 $2,618,916 $729
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</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 (a) under the Securities Act of 1933.
(2) A registration fee of $34,750 was previously paid.
(3) A warrant that may be issued to MicroSoft Corporation, as described
herein.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this preliminary prospectus is not complete and +
+may be changed. These securities may not be sold until the registration +
+statement filed with the Securities and Exchange Commission is effective. The +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated April 19, 1999.
[LOGO OF NORTHPOINT]
13,000,000 Shares
NorthPoint Communications Group, Inc.
Common Stock
------------
This is an initial public offering of shares of common stock of NorthPoint
Communications Group, Inc. We currently estimate that the initial public
offering price will be between $16.50 and $19.50 per share. Our common stock
has been approved for quotation on the Nasdaq National Market under the symbol
"NPNT".
At our request, the underwriters will reserve at the initial public offering
price up to $30 million of common stock for sale to Microsoft Corporation. This
would represent 1,666,667 shares of common stock at the midpoint of the
offering price range. We may also request the underwriters to reserve other
shares of common stock for sale to potential strategic partners.
See "Risk Factors" on page 7 to read about certain factors you should
consider before buying shares of the common stock.
------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
------------
<TABLE>
<CAPTION>
Per Share Total
--------- ------
<S> <C> <C>
Initial public offering price.............................. $ $
Underwriting discount...................................... $ $
Proceeds, before expenses, to NorthPoint................... $ $
</TABLE>
If Microsoft purchases the shares reserved for it, the underwriting discount
will be reduced and the proceeds to NorthPoint will increase by an amount equal
to $ per share with respect to the shares purchased by Microsoft, or an
aggregate of $ . The underwriting discount per share will also be reduced if
other strategic partners purchase reserved shares. See "Underwriting" on
page U-1.
The underwriters may, under certain circumstances, purchase up to an
additional 1,950,000 shares from NorthPoint at the initial public offering
price less the underwriting discount.
------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Credit Suisse First Boston
------------
Prospectus dated , 1999.
<PAGE>
[MAP OF UNITED STATES SHOWING NORTHPOINT DSL NATIONAL COVERAGE]
. Currently in 17 Markets.
. Expanding to 28 Markets by the end of 1999.
Our planned coverage will allow us to reach approximately four million
businesses and 30 million households, including more than 80% of the small- and
medium-sized businesses in our 28 markets.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus, including "Risk Factors" beginning on
page 7, carefully.
Overview of Our Business
We are a national provider of high speed, local data network services. Our
networks use digital subscriber line, or DSL, technology to enable data
transport over telephone company copper lines at guaranteed speeds up to 25
times faster than common dial-up modems. We market our network and data
transport services to Internet service providers, long-distance and local
telephone companies and data service providers, whom we call network service
providers. Our customers can use our fast, secure and reliable data networks to
provide continuously connected, economical Internet access and other data-
intensive applications to end users. These end users are typically small- and
medium-sized businesses with up to 500 employees, people who work in home
offices, and telecommuters.
We are currently providing services in 17 metropolitan areas in the United
States and intend to offer service in a total of 28 metropolitan areas by the
end of this year. We have been and expect to be the first, or one of the first,
to offer DSL services in these markets. Our networks consist principally of
digital communications equipment that we own and install in telephone company
offices known as "central offices" and existing copper telephone lines that we
lease to connect our equipment with end users' premises. We will initially
install our equipment in the central offices with the highest density of small-
and medium-sized businesses in our 28 markets. We have already secured and
purchased space in over 625 of those central offices and intend to expand the
coverage of our networks in these markets over time by installing equipment in
additional central offices.
Upon completion of our planned expansion, our networks will be able to reach
approximately four million businesses and 30 million households, including more
than 80% of the small- and medium-sized businesses in our 28 markets. We have
already obtained required regulatory approvals, including competitive local
exchange carrier authorizations, to offer services in each of those markets.
We are currently providing or have entered into agreements to provide our
services to more than 85 network service providers and have connected
approximately 3,200 of their end users to our networks.
We have entered into strategic and commercial relationships with Microsoft,
Tandy, @Home, Intel, Verio, Cable & Wireless, Frontier Corporation, Concentric
Network, ICG Communications and Enron Communications, among others. Microsoft
has expressed to us its intention to purchase $30 million of our common stock
in this offering, although it is not bound to do so. Other strategic partners
have invested $48.4 million in our company.
NorthPoint was founded in May 1997 by six former MFS/WorldCom executives who
developed and implemented the first commercial DSL service.
Our Solutions Meet The Growing Demand For Data Transport
Data-intensive computing applications such as Internet access are becoming
increasingly commonplace. Forrester Research projects that the total market for
data networking services and Internet access will grow from $6.2 billion in
1997 to approximately $49.7 billion by 2002, of which approximately $27.9
billion will be generated from services to businesses. We believe that local
data transport solutions commonly used today by our target end users to connect
to the Internet and for other data applications are inadequate because they are
either too slow or too expensive, or both.
3
<PAGE>
Our local networks provide end users with:
. a range of fast data transport options, each of which has a combination
of price and performance characteristics superior to traditional options;
. the ability to upgrade data transmission speed without adding hardware;
. dedicated and continuous connections to the Internet or other data
services;
. reliable performance over our continuously monitored network; and
. secure transport of sensitive business data.
Our networks and services offer a number of advantages to network service
providers:
. access to end users in a wide geographic area through a single point of
interconnection in each market, enabling accelerated market entry with
minimal capital expenditures;
. an electronic interface to our national pre-qualification, order entry,
customer support, provisioning, accounting and billing systems;
. assured data transport speeds and service level guarantees; and
. monitoring of our entire network from our control center.
Our Competitive Strengths
. We Are Rapidly Expanding to 28 Markets. We have initially targeted those
central offices in our 28 metropolitan areas with the highest density of
small- and medium-sized businesses. By focusing on these dense business
districts, we believe we can secure scarce central office space, launch
services in new markets more rapidly, maximize the economic return from
our capital expenditures and enable our customers to address a
significant portion of their target end users in each geographic market
quickly. We are currently operational in more than 260 central offices.
. Our Networks Are Designed for Business Needs. Our DSL equipment is well-
suited for business applications because it provides fast data
transmission at symmetrical speeds to and from the end user. As an end
user's needs evolve, we can remotely upgrade the speed of the connection
with no additional capital cost. Business end users expect their
connections to be reliable and their data to be secure. Our networks
provide these features.
. Our Network Architecture Uses Capital Efficiently. In deploying our
networks, we do not rebuild elements such as the copper wire
infrastructure that we can lease inexpensively. Instead, we purchase only
the equipment that converts these elements into sophisticated data
networks. We are also able to achieve substantial cost savings because
our networks in each metropolitan area are based upon a common blueprint.
A significant portion of our capital expenditures are also "success-
based" because we incur them only as we add customers or end users. We
can extend the coverage of our network within our markets as demand
warrants by adding central offices with relatively modest incremental
capital.
. Selling to Network Service Providers Enables Rapid Utilization of Our
Network and Growth. There are thousands of network service providers who
are potential NorthPoint customers. Many of these network service
providers have substantial sales and marketing organizations. We expect
that our customers will be able to sell our services to more end users
than we could on our own, helping us to defray our fixed costs more
rapidly.
4
<PAGE>
The Offering
The shares of common stock to be outstanding after the offering are stated as
of April 12, 1999 and include shares of common stock and Class B common stock
to be issued upon automatic conversion of preferred stock and convertible debt
upon completion of this offering, based upon an assumed initial public offering
price of $18.00 per share. The shares of common stock outstanding exclude:
. 28,125,000 shares of common stock reserved for issuance under our stock
option plans, of which 17,465,510 shares at a weighted average exercise
price of $1.54 were subject to outstanding options;
. 2,250,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and
. 5,677,320 shares of common stock and Class B common stock issuable upon
exercise of outstanding and contingent warrants at a weighted average
exercise price of $6.88, assuming an initial public offering price of
$18.00 per share.
Unless we indicate otherwise, the information in this prospectus assumes the
underwriters will not exercise their over-allotment option. Unless we indicate
otherwise, we have adjusted all information in this prospectus to reflect the
completion of stock splits.
----------------
NorthPoint is a Delaware corporation. The address of our principal executive
office is 222 Sutter Street, San Francisco, California 94108, and our telephone
number is (415) 403-4003. NorthPoint maintains a corporate website at
http://www.northpointcom.com. The contents of our website are not part of this
prospectus.
NorthPoint Communications is our servicemark. This prospectus contains other
product names, trade names, trademarks and servicemarks of NorthPoint and of
other organizations.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(dollars in thousands, except share and per share data)
You should read the following consolidated summary financial data together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and the related notes
included elsewhere in this prospectus.
Our revenues consist entirely of service revenues because we do not currently
sell end-user modems. EBITDA consists of net loss excluding net interest,
taxes, depreciation and amortization. We have provided EBITDA because it is a
measure of financial performance commonly used in the telecommunications
industry, but other companies may calculate it differently from us. We have
presented EBITDA to enhance your understanding of our operating results. You
should not construe it as an alternative to operating income as an indicator of
our operating performance or as an alternative to cash flows from operating
activities as a measure of liquidity.
The pro forma balance sheet information below reflects:
. the issuance of convertible debt and equity securities in 1999; and
. the closing of our secured credit facility in April 1999, our initial
drawdown of $55,000,000 under the facility, and the repayment of certain
other debt.
The pro forma as adjusted balance sheet information reflects all of these
adjustments and:
. the receipt of estimated net proceeds of $216,500,000 from this offering,
based upon an assumed initial public offering price of $18.00 per share;
. the conversion upon the completion of this offering of all outstanding
preferred stock and convertible debt, based upon an assumed initial
public offering price of $18.00 per share; and
. our anticipated issuance to Microsoft of a warrant to purchase Class B
common stock.
6
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
consider the following factors carefully before deciding to purchase shares of
common stock.
Because We Have a Limited Operating History, It Is Difficult to Evaluate Our
Business
We were formed in May 1997 and began offering commercial services in the San
Francisco Bay Area in March 1998. Because of our limited operating history, you
have limited operating and financial data about our company upon which to base
an evaluation of our performance and an investment in our common stock.
You should consider the risks, expenses and difficulties we may encounter,
including those frequently encountered by early stage companies in new and
rapidly evolving markets. As a result, we may be unable to:
. develop our operational support systems and other information technology
systems;
. obtain central office space and suitable copper wire loops;
. expand our customer base;
. raise additional capital;
. maintain adequate control of our expenses;
. attract and retain qualified personnel;
. enter into and implement interconnection agreements with traditional
telephone companies, some of which are our competitors or potential
competitors;
. expand the geographic coverage of our network;
. obtain governmental authorizations to operate as a competitive
telecommunications company in new markets;
. continue to upgrade our technologies and enhance our product features;
and
. respond to technological changes and competitive market conditions.
We Expect Our Losses and Negative Cash Flow to Continue
To date, we have incurred substantial operating losses, net losses and
negative cash flow on both an annual and quarterly basis. For the year ended
December 31, 1998, we had operating losses of approximately $25,361,680, net
losses of $28,846,706, and negative cash flow from operating and investing
activities of $52,913,000. We cannot assure you that we will ever achieve
profitability or generate positive cash flow.
We expect our operating expenses will increase significantly, especially in
the areas of operations, sales and marketing, as we develop and expand our
business and, as a result, we will need to increase our revenue to become
profitable. If our revenue does not grow as expected or increases in our
expenses are not in line with our plans, there could be a material adverse
effect on our business, prospects, financial condition and results of
operations.
We Cannot Predict Whether We Will be Successful Because Our Business Model is
Unproven and Our Market Is Developing
Our business strategy is unproven. To be successful, we must, among other
things, develop and market data networks and services that are widely accepted
by our customers and their end users at
7
<PAGE>
prices that will yield a profit. Because our business and the overall market
for high speed data communications services are in the early stages of
development, we are unsure whether or when our DSL services will achieve
commercial acceptance.
Our Failure to Achieve or Sustain Market Acceptance at Desired Pricing Levels
Could Impair Our Ability to Achieve Profitability or Positive Cash Flow
Prices for digital communication services have fallen historically, a trend
we expect will continue. Accordingly, we cannot predict to what extent we may
need to reduce our prices to remain competitive or whether we will be able to
sustain future pricing levels as our competitors introduce competing services
or similar services at lower prices. Our failure to achieve or sustain market
acceptance at desired pricing levels could impair our ability to achieve
profitability or positive cash flow, which would have a material adverse effect
on our business, prospects, financial condition and results of operations.
Our Quarterly Operating Results Are Likely to Fluctuate Significantly, Causing
Our Stock Price to be Volatile or to Decline
We cannot accurately forecast our revenue because of our limited operating
history and the emerging nature of the data communications industry in our
markets. Our revenue could fall short of our expectations if we experience
delays or cancellations by even a small number of our customers. A number of
factors are likely to cause fluctuations in our operating results, including:
. the rate at which we are able to attract and retain customers, and
whether larger customers fulfill their volume commitments to us;
. the ability of our customers to generate significant end user demand;
. the timing and willingness of traditional telephone companies to provide
and construct the required central office facilities;
. the timing and willingness of traditional telephone companies to provide
suitable copper wire loops at favorable prices;
. the prices our customers and, in turn, their end users pay for our
services;
. availability of financing to continue to fund our expansion;
. our ability to deploy our services on a timely basis to satisfy end user
demand;
. the mix of line orders between lower priced and higher priced lines;
. the amount and timing of capital expenditures and operating costs as we
expand our network;
. the announcement or introduction of new or enhanced services by our
competitors; and
. technical difficulties or network downtime.
As a result, it is likely that in some future quarters our operating results
will be below the expectations of securities analysts and investors. If this
happens, the trading price of our common stock would likely be materially
adversely affected.
A Limited Number of Customers Account for a High Percentage of Our Revenue and
the Loss of a Significant Customer Could Harm Our Business
We currently provide or have agreements to provide data transport solutions
to more than 85 network service providers. We believe that for the quarter
ended March 31, 1999, our two largest customers will account for approximately
40% of our revenue. We anticipate that, as we expand our
8
<PAGE>
business, we will continue to rely upon a limited number of customers for a
high percentage of our revenue and end-user lines. As a result of this
concentration of our customer base, a loss of or decrease in business from one
or more of our customers could have a material adverse effect on our business,
prospects, financial condition and results of operations.
Similarly, if our customers are unsuccessful in competing for end users in
their own intensely competitive markets or experience other financial or
operating difficulties, our business, prospects, financial condition and
results of operations would be materially adversely affected.
Many of our agreements with our customers are non-exclusive, and many of our
customers are also customers of, or have invested in, our competitors. To the
extent our significant customers strengthen their commercial relationships with
our competitors, our business would be materially adversely affected.
We May Not Be Able to Continue to Grow Our Business If We Do Not Obtain
Significant Additional Funds By the Middle of 2000
We believe our current capital resources, together with the proceeds of this
offering, investments from our strategic partners and our $100,000,000 secured
credit facility, will be sufficient for our funding and working capital
requirements and for the deployment and operation of our networks in targeted
markets through the middle of 2000. We will need significant additional funds
beyond then. We expect that the actual amount and timing of our future capital
requirements will depend upon the demand for our services and regulatory,
technological and competitive developments, including additional market
developments and new opportunities, in our industry. We may seek additional
financing earlier than the middle of 2000 if:
. we alter the schedule, targets or scope of our network rollout plan;
. our plans or projections change or prove to be inaccurate;
. we acquire other companies or businesses; or
. market conditions allow us to raise public or privately financed capital
on attractive terms.
We may be unsuccessful in raising sufficient additional capital at all or on
terms that we consider acceptable. If we are unable to obtain adequate funds on
acceptable terms, our ability to deploy and operate our networks, fund our
expansion or respond to competitive pressures would be significantly impaired.
Such limitation could have a material adverse effect on our business,
prospects, financial condition or results of operations.
Our Business Activities and Our Ability to Raise Additional Funds Are Limited
by Covenants Contained in Our Financing Agreements
Our debt agreements and other financing agreements contain and will contain
restrictions on our activities and financial covenants with which we will be
required to comply. If we fail to comply with these requirements, we would be
in default and our obligations could be declared immediately due and payable.
We may be unable to make such required payments, or to raise sufficient funds
from other sources.
In addition, the terms of proposed new indebtedness or other funding may not
be permitted by the terms of our current financing agreements. This may impair
our ability to develop our business. If we fail to raise sufficient funds, we
may be required to modify, delay or abandon some of our expansion plans, which
could have a material adverse effect on our business, prospects, financial
condition and results of operations.
9
<PAGE>
We Need to Make Capital Expenditures, and the Amounts, Timing and Returns are
Uncertain
In 1999, we will have to make significant capital expenditures estimated at
$130,000,000 to $160,000,000 to develop our business and deploy our services
and systems. The amount and timing of these expenditures are uncertain and will
depend upon our ability to execute our plans in a timely and cost-effective
manner. We will need to increase our revenue in order to earn a return from our
capital expenditures. If our revenue does not grow as expected, or capital
expenditures exceed our estimates, there could be a material adverse effect on
our business, prospects, financial condition and results of operations.
Our Failure to Manage Our Growth Effectively Could Impair Our Business
If we are successful in implementing our business plan, our operations will
expand rapidly. This rapid expansion could place a significant strain on our
management, financial and other resources. Our ability to manage future growth,
if it occurs, will depend upon our ability to:
. control costs;
. maintain regulatory compliance;
. implement and significantly expand our financial and operating systems;
. maintain our operations support systems; and
. expand, train and manage our employee base.
We may be unable to do these things successfully. In addition, we may not
successfully obtain, integrate and use our employees and management, operating
and financial resources. Our business, prospects, financial condition and
results of operations will be materially adversely affected if we are unable to
manage our growth effectively.
The Data Communications Industry is Undergoing Rapid Technological Changes and
New Technologies May Be Superior to the Technology We Use
The data communications industry is subject to rapid and significant
technological change, including continuing developments in DSL technology,
which does not presently have widely accepted standards, and alternative
technologies for providing high speed data communications such as cable modem
technology. As a consequence:
. we will rely on third parties, including some of our competitors and
potential competitors, to develop and provide us with access to
communications and networking technology;
. our success will depend on our ability to anticipate or adapt to new
technology on a timely basis; and
. we expect that new products and technologies will emerge that may be
superior to, or may not be compatible with, our products and
technologies.
If we fail to adapt successfully to technological changes or obsolescence or
fail to obtain access to important technologies, our business, prospects,
financial condition and results of operations could be materially adversely
affected.
Our Success in Attracting and Retaining Customers Significantly Depends on Our
Ability to Obtain Central Office Space From Traditional Telephone Companies
We believe the growth and success of our business will depend upon securing
physical central office space for our equipment in the central offices of
traditional telephone companies in our target markets. We have experienced
initial rejections of our applications to obtain space in some central
10
<PAGE>
offices. We believe we will continue to receive rejections of requested
physical central office space as we expand our existing and planned networks.
Although to date a majority of our applications to obtain physical central
office space that were initially rejected have subsequently been accepted, we
cannot assure you that we will be successful in reversing the pending
rejections or any other rejected applications for space in desired central
offices. Nor can we predict the extent of these rejections or their impact on
our ability to provide service in our target markets. The rejection of our
applications for central office space has in the past and could in the future
result in delays and increased costs as we expand our services in our target
markets. This may materially adversely affect our business, prospects,
financial condition and results of operations.
As we grow, we may be unable to secure central office space on a timely basis
or at all. In some cases, although physical central office space is available,
traditional telephone companies have claimed that they must refurbish space to
make it suitable for our equipment--for example, by adding separate entrances,
removing asbestos or obsolete machinery, or increasing power supply and air
conditioning--which in some cases has made the cost to obtain that physical
central office space prohibitively expensive. The FCC recently adopted new
rules designed to make it easier and less expensive for competitive local
exchange carriers to obtain central office space and to require traditional
telephone companies to provide them with alternative arrangements for obtaining
central office space. We cannot be certain of how effective these rules will be
or whether our competitors will benefit to a greater extent from these rules
than we will. We expect physical central office space to become increasingly
scarce due to increasing demand from a growing number of competitive
telecommunications companies.
Even when space is available, we may face delays ranging from four months to
more than a year after we place an order before space for our equipment is made
available. If our applications for physical central office space are rejected,
or the costs or delays associated with obtaining central office space become
too expensive, our expansion plans could be adversely affected, which could
have a material adverse effect on our business, prospects, financial condition
and results of operations.
Broad service availability is also important to our customers and potential
customers that want to provide Internet access or other data services on a
national or regional basis. Our inability to obtain physical central office
space in a timely manner could have a material adverse effect on our ability to
attract and retain customers.
Any disputes with traditional telephone companies over the types of equipment
we seek to install in the central office space could also delay our
installation and even impair our ability to provide service in the manner we
deem appropriate. These delays or refusals could have a material adverse effect
on our business, prospects, financial condition and results of operations.
Our Success Depends on Interconnection Agreements with Traditional Telephone
Companies in Each of Our Markets
The success of our strategy depends on our ability to enter into and renew
interconnection agreements with traditional telephone companies in each of our
target markets on a timely basis. Delays in obtaining additional
interconnection agreements would postpone our entry into a market, which could
have a material adverse effect on our business, prospects, financial condition
and results of operations.
Interconnection agreements have limited terms of two to three years and we
cannot assure you that existing or new agreements will be extended or
negotiated on terms favorable to us. Interconnection agreements are also
subject to state commission, FCC and judicial oversight. These government
bodies may modify the terms or prices of our interconnection agreements in ways
that adversely affect our business, prospects, financial condition and results
of operations.
11
<PAGE>
Our Business Could Suffer if High Quality Copper Lines Are Not Available or
Cost Us More Than We Expect
We significantly depend on the quality of the copper lines and the
traditional telephone companies' maintenance of such lines. We cannot assure
you that we will be able to obtain the copper lines and the services we require
from the traditional telephone companies at quality levels, prices, terms and
conditions satisfactory to us. Our failure to do so would have a material
adverse effect on our business, prospects, financial condition and results of
operations.
Under federal law, traditional telephone companies have an obligation to
negotiate with us in good faith to enter into interconnection agreements,
including agreements on the price at which we can obtain suitable lines from
these telephone companies. If no agreement can be reached, either side may
petition the applicable state commission to arbitrate remaining disagreements.
These arbitration proceedings can last up to 9 months. Moreover, the state
commission must approve any interconnection agreement resulting from
negotiation or arbitration, and any party may appeal an adverse decision by the
state commission to federal district court. The potential cost in resources and
delay from this process could harm our ability to compete in certain markets,
and there is no guarantee that a state commission would resolve disputes,
including pricing disputes, regarding our access to suitable lines in our
favor. Moreover, the FCC rules governing pricing standards for access to the
networks of the traditional telephone companies are currently being challenged
in federal court. If the courts overturn the FCC's pricing rules, the FCC may
adopt a new pricing methodology that would require us to pay a higher price to
traditional telephone companies for access to suitable lines. This could have a
detrimental effect on our business.
We have not yet established a history of ordering and obtaining the
provisioning and repair of very large volumes of lines from any traditional
telephone company. We also depend on cooperation from traditional telephone
companies for repair of transmission facilities. The traditional telephone
companies in turn rely significantly on unionized labor. Labor-related issues
and actions on the part of the traditional telephone companies have in the
past, and may in the future, adversely affect traditional telephone companies'
provision of services and network components that we order.
Our dependence on the traditional telephone companies has caused and could
continue to cause us to encounter delays in establishing our networks,
provisioning lines and upgrading our services. These delays could adversely
affect our relationships with our customers, harm our reputation or could
otherwise have a material adverse effect on our business, prospects, financial
condition and results of operations.
We Depend on Market Acceptance for DSL-Based Services
The market for small- and medium-sized business, telecommuter and residential
Internet access is in the early stages of development. Because we offer
services to a new and evolving market and because current and future
competitors are likely to introduce competing services, it is difficult for us
to predict the rate at which these markets will grow. Various providers of
high-speed digital communications services are testing products from various
suppliers for various applications, and it is unclear if DSL will offer the
same or more attractive price-performance characteristics. If the markets for
our services fail to develop, grow more slowly than anticipated or become
saturated with competitors, our business, prospects, financial condition and
results of operations could be materially adversely affected.
We Depend on Our Billing, Customer Service and Information Support Systems,
Which Need Further Development
Sophisticated information and processing systems are vital to our growth and
ability to monitor costs, bill customers, process customer orders and achieve
operating efficiencies. Our plans for the
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development and implementation of our operations support systems rely, for the
most part, on acquiring products and services offered by third-party vendors
and integrating those products and services in-house to produce efficient
operational solutions. However, we may not successfully identify all of our
information and processing needs or implement these systems on a timely basis
or at all, and these systems may not perform as expected.
In addition, our right to use these systems is dependent upon license
agreements with third-party vendors. Some of those agreements may be cancelable
by the vendor and the cancellation or nonrenewal of these agreements may have a
material adverse effect on our business, prospects, financial condition and
results of operations.
Similar issues are applicable to the operations support systems and other
systems of our customers, and to the interface between our systems and those of
our customers. Therefore, failures at our customers could also have a material
adverse effect on our business, prospects, financial condition and results of
operations.
If We Do Not Adequately Address Year 2000 Issues, We May Incur Significant
Costs and Our Business Could Suffer
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, our
computer programs that have date-sensitive software and software of companies
into which our network is interconnected may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system failures 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. If the systems of other companies on
whose services we depend or with whom our systems interconnect are not year
2000 compliant, it could have a material adverse effect on our business,
prospects, financial condition and results of operations. The year 2000 issue
is discussed at greater length in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of Year 2000 Issue" at
page 34.
We May Be Unable to Expand Our Network Services Effectively and Provide High
Performance to a Substantial Number of End Users
Due to the limited deployment of our services, the ability of our DSL network
to connect and manage a substantial number of end users at high transmission
speeds is still unknown. While peak digital data transmission speeds across our
DSL network to and from the central office and the end user can exceed 1.5
megabits per second, the actual data transmission speeds over our network could
be significantly slower due to:
. the type of DSL technology deployed;
. the distance an end user is located from a central office;
. the configuration of the telecommunications line being used;
. the existence of and number of data transmission impediments on the
copper wires;
. the gauge of the copper wires; and
. the presence and severity of interfering transmissions on nearby lines.
For example, we are not certain whether we can successfully deploy higher DSL
speeds through digital loop carrier systems which, because they connect copper
lines to a fiber link, currently limit DSL service to a maximum speed of 144
kilobits per second.
Because we rely on traditional telephone companies to overcome technical
limitations associated with loop carrier systems, we cannot assure you that we
will be able to successfully deploy high
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speed DSL service to all areas in our markets. As a result, our network may not
be able to achieve and maintain the highest possible digital transmission
speed. Our failure to achieve or maintain high speed digital transmissions
would have a material adverse effect on our business, prospects, financial
condition and results of operations.
Our Success Depends on Our Retention of Executive Officers and Other Key
Personnel and Our Ability to Hire Additional Key Personnel
We are managed by a small number of executive officers. Competition for
qualified executives in the data communications services industry is intense,
and there are a limited number of persons with comparable experience. We depend
upon our executive officers because we believe there are few managerial
personnel with qualifications to swiftly implement a business plan integrating
DSL technology with the existing telephone infrastructure. We do not have
employment agreements with any of our executive officers, so any of these
individuals may terminate his or her employment with us at any time. We do not
have "key person" life insurance policies on any of our executive officers. The
loss of these key individuals could have a material adverse effect on our
business, prospects, financial condition and results of operations. See
"Management" on page 53.
We believe that our success will depend in large part on our ability to
retain and attract qualified technical, marketing, managerial and other
personnel. Additionally, we believe an effective sales force is critical to our
success. The industry in which we compete is characterized by a high level of
employee mobility and aggressive recruiting of skilled personnel. We may be
unable to hire or retain necessary personnel in the future. Our inability to
attract and retain key personnel would have a material adverse effect on our
business, prospects, financial condition and results of operations.
The Market in Which We Operate is Highly Competitive, and We May Not Be Able to
Compete Effectively, Especially Against Established Industry Competitors with
Significantly Greater Financial Resources
We face competition from many competitors with significantly greater
financial resources, well-established brand names and larger customer bases. We
also expect competition to intensify in the future. We expect significant
competition from traditional and new telephone and telecommunications
companies, including national long distance carriers, cable modem service
providers, Internet service providers, on-line service providers, and wireless
and satellite data service providers.
Other Competitive Telecommunications Companies, Some with Greater Financial
Resources, Compete in the Same Markets for the Same Customers. Other
competitive telecommunications companies have entered and may continue to enter
the market and offer high speed data services using a business strategy similar
to ours. Some competitors, including those focusing on data transport such as
Rhythms NetConnections Inc., Covad Communications Group, Inc., HarvardNet Inc.,
Dakota Services Limited, Prism Solutions, Inc. and Network Access Solutions
Corporation, have begun to offer DSL-based access services, and others are
likely to do so in the future. Certain of our customers have made investments
in our competitors, which may enhance their relationships with these
competitors at our expense. The Telecommunications Act of 1996 specifically
grants any competitive local exchange carrier, or CLEC, the right to negotiate
interconnection agreements with traditional telephone companies, or incumbent
local exchange carriers. The Telecommunications Act also allows CLECs to enter
into interconnection agreements which are identical in all respects to ours. In
addition, some competitive telecommunications companies have extensive fiber
networks in many metropolitan areas primarily providing high speed digital and
voice circuits to large corporations, and have interconnection agreements with
incumbent local exchange carriers pursuant to which they have acquired
collocation space in many of our markets. As a result, our customers may
contract with other competitive telecommunications companies, which may
decrease our customers' demand for our services.
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Traditional Telephone Companies With Greater Resources Than Ours May Directly
Compete in Our Markets. The traditional telephone companies have an established
brand name and reputation for high quality in their service areas, possess
significant capital to deploy DSL equipment rapidly, have their own copper
lines and can bundle digital data services with their existing analog voice
services to achieve economies of scale in serving customers. In addition, most
traditional telephone companies have established or are establishing their own
Internet service provider businesses, and all of the largest traditional
telephone companies that are present in our target markets are conducting
market trials of or have commenced offering DSL-based access services. For
example, Pacific Bell and Southwestern Bell are offering commercial services in
some territories in which we offer services, U S WEST is offering commercial
DSL services and Ameritech has announced commercial DSL services in some areas
of Michigan and Illinois. We recognize that the traditional telephone companies
have the potential to quickly deploy DSL services and are in a position to
offer service from central offices where we may be unable to secure collocation
space. In addition, the FCC is considering establishing requirements for
separate subsidiaries through which the traditional telephone companies could
provide DSL service on a largely deregulated basis. As a result, we expect
traditional telephone companies to be strong competitors in each of our target
markets.
National Long Distance Carriers May Begin to Compete for Our Small- and
Medium-Sized Business Customers. Many of the leading traditional national long
distance carriers, including MCI WorldCom, Inc., AT&T Corp. and Sprint
Corporation, are expanding their capabilities to support high speed, end-to-end
data networking services. They also have interconnection agreements with many
of the traditional telephone companies and a number of collocation spaces from
which they could begin to offer competitive DSL services. The newer national
long distance carriers, such as Level 3 Communications, Inc., The Williams
Companies, Inc., IXC Communications, Inc. and Qwest Communications
International, Inc. are building and managing high bandwidth, nationwide IP-
based packet networks and partnering with Internet service providers to offer
services directly to the public. These companies could modify their current
business focus to include small- and medium-sized business customers using DSL
or other technologies in combination with their current fiber networks.
Cable Modem Service Providers May Offer High Speed Internet Access at More
Competitive Rates Than Ours, Forcing Us to Lower Our Prices. Cable modem
service providers, such as At Home Corporation and Road Runner, Inc. (with
their cable partners), are deploying high speed internet access services over
hybrid fiber coaxial cable networks. Where deployed, these networks provide
similar and in some cases higher speed Internet access than we provide. They
also offer these services at lower price points than our services. Actual or
prospective cable modem service provider competition may have a significant
negative effect on our ability to secure customers and may create downward
pressure on the prices we can charge for our services.
Internet Service Providers, Our Targeted Customers, May Begin to Provide DSL
Services Directly. Internet service providers, such as GTE Internetworking,
UUNET (a subsidiary of MCI WorldCom, Inc.), Sprint, Concentric Network
Corporation, MindSpring Enterprises, Inc. and PSINet, Inc., provide Internet
access to residential and business customers, generally using the existing
telephone system at integrated services digital network speeds (ISDN) or below.
Some regional Internet service providers, such as HarvardNet Inc., InterAccess
Co., Vitts Networks Inc. and Prism Solutions, Inc., have begun offering DSL-
based services. Internet service providers could become competing DSL service
providers if they attain CLEC certification in the states in which they planned
to operate.
On-line Service Providers, Our Targeted Customers, May Begin to Provide DSL
Services Directly. On-line service providers, such as America Online, Inc.,
Compuserve (a subsidiary of America Online), Microsoft Network, Prodigy, Inc.,
and WebTV Networks, Inc. (a subsidiary of Microsoft), provide, over the
Internet and on proprietary on-line services, content and applications
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ranging from news and sports to consumer video conferencing. These services are
designed for broad consumer access over telecommunications-based transmission
media, which enable digital services to be provided to the significant number
of consumers who have personal computers with modems. In addition, on-line
service providers provide Internet connectivity, ease-of-use and consistency of
environment. Many of these on-line service providers have developed their own
access networks for modem connections. AOL has announced that it will purchase
DSL services from Bell Atlantic and SBC Communications. If these on-line
service providers were to extend their owned access networks to DSL, they would
be our competitors.
Wireless and Satellite Data Service Providers May Begin to Offer Wireless and
Satellite-Based Internet Connectivity, Also Competing Against Us. Wireless and
satellite data service providers are developing wireless and satellite-based
Internet connectivity. We may face competition from terrestrial wireless
services, including multi-channel multipoint distribution system, local
multipoint distribution system, wireless communication service and point-to-
point microwave systems. The FCC recently adopted new rules to permit multi-
channel multipoint distribution system licensees to use their systems to offer
two-way services, including high speed data, rather than solely to provide one-
way video services. The FCC also has auctioned local multipoint distribution
system licenses in all markets for wireless systems, which can be used for high
speed data services. In addition, companies such as Teligent, Inc., Advanced
Radio Telecom Corp., WNP (which recently agreed to be acquired by NEXTLINK),
and WinStar Communications, Inc. hold point-to-point and/or point-to-multipoint
microwave licenses to provide fixed wireless services such as voice, data and
video conferencing.
We also may face competition from satellite-based systems. Motorola Satellite
Systems, Inc., Hughes Communications, Inc. (a subsidiary of General Motors
Corporation), Teledesic LLC and others have filed applications with the FCC for
global satellite networks which can be used to provide broadband voice and data
services.
In January 1997, the FCC allocated 300 MHz of spectrum in the 5 GHz band for
unlicensed devices to provide short-range, high speed wireless digital
communications. These frequencies must be shared with incumbent users without
causing interference. Although the allocation is designed to facilitate the
creation of new wireless local area networks, it is too early to predict what
kind of equipment might ultimately be manufactured and for what purposes it
might be used.
The telecommunications industry is subject to rapid and significant changes
in technology, and we cannot predict the effect of technological changes on our
business, such as continuing developments in DSL technology and alternative
technologies for providing high speed data communications. These technological
developments in the telecommunications industry could have a material adverse
effect on our competitive position and therefore on our business, prospects,
financial condition and results of operations.
Industry Consolidation Could Make Competing More Difficult
Consolidation of companies offering high speed local data transport is
occurring through acquisitions, joint ventures and licensing arrangements
involving our competitors and our customers' competitors. As a company with
limited operating history, we cannot assure that we will be able to compete
successfully in an increasingly consolidated industry. Any heightened
competitive pressures that we may face may have a material adverse effect on
our business, prospects, financial condition and results of operations.
Additionally, because we rely on our customers' marketing channels to provide
our services to business and residential end users, if our customers are
adversely affected by consolidation and integration in the market, our
business, prospects, financial condition and results of operations could be
materially adversely affected.
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Our Services are Subject to Uncertain Government Regulation, and Changes in
Current or Future Laws or Regulations Could Restrict the Way We Operate Our
Business
We are subject to federal, state and local regulation of our
telecommunications business. With the passage of the Telecommunications Act in
1996, Congress sought to foster competition in the telecommunications industry
and to promote the deployment of advanced telecommunications technology.
Implementation of the Telecommunications Act is the subject of ongoing
administrative proceedings at the federal and state levels, litigation in
federal and state courts, and legislation in federal and state legislatures. We
cannot predict the outcome of the various proceedings, litigation and
legislation or whether or to what extent these proceedings, litigation and
legislation may adversely affect our business and operations.
As a competitive local exchange carrier, or CLEC, we are subject to FCC
regulation for our contractual, or interconnection, arrangements with the
incumbent local exchange carriers, or ILECs, in our markets, but the scope of
this regulation is uncertain because it is the subject of ongoing court and
administrative proceedings. Several parties have brought court challenges to
the FCC's interconnection rules, including the rules that establish the terms
under which a CLEC may use portions of an ILEC's network. Although the Supreme
Court recently held that the FCC has the authority to adopt interconnection
rules and specifically upheld several of these rules, other rules are still
being considered by the courts. If a rule that is beneficial to our business is
struck down, it could harm our ability to compete. In particular, the courts
have not yet resolved the lawfulness of the methodology that the FCC
established to determine the price that CLECs would have to pay ILECs for use
of the ILECs' networks. The courts may determine that the FCC's pricing rules
are unlawful, which would require the FCC to establish a new pricing
methodology. If this occurs, the new pricing methodology that the FCC adopts
may result in our having to pay a higher price to ILECs if we were to use a
portion of their networks in providing our services, and this could have a
detrimental effect on our business.
Although the Supreme Court upheld most of the FCC's rules that the Court
reviewed, it struck down the rule specifying the various portions of the ILECs'
networks that the ILECs were required to make available to CLECs. As a result,
the FCC will have to develop a new standard for determining which portions of
the ILECs' networks must be made available to CLECs. This new standard may
reduce the number of network components to which CLECs will have access. If
this occurs, this may harm our ability to compete.
Recently, various ILECs have requested the FCC grant them regulatory relief
in the provision of data transmission services, including DSL services, which
would allow the ILECs to compete more directly with DSL providers such as
NorthPoint. In response, the FCC issued a decision that data services generally
are telecommunications services that, when provided by ILECs, are subject to
the FCC's interconnection rules, including the rule requiring that an ILEC's
data services be subject to unbundling and resale requirements. This issue is
still pending before the FCC, and we cannot be certain that the FCC will not
reconsider its decision. Moreover, although the FCC recently adopted new rules
designed to provide greater access to central office space at less cost, these
new rules may benefit our competitors to a greater extent than they benefit us,
which could harm our competitiveness. Additionally, since the FCC issued its
decision, various ILECs have again asked the FCC for regulatory relief with
respect to their provision of data transmission services. The FCC has not yet
resolved these later requests. We would expect that an FCC decision in favor of
the ILECs could have a material adverse effect on our business, prospects,
financial condition and results of operations.
Our Debt Creates Financial and Operating Risk That Could Limit the Growth of
Our Business
As of December 31, 1998, we had approximately $55,000,000 of indebtedness. We
entered into a $100,000,000 secured credit facility in April 1999, and used an
initial drawdown of $55,000,000 to
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repay our then-existing debt. We anticipate incurring additional indebtedness
in the future. See "Capitalization" at page 23. After this offering and
assuming we draw the entire $100,000,000 available to us under our secured
credit facility, we will have approximately $311,276,000 in stockholders'
equity and will have approximately $105,806,000 of debt outstanding.
The degree to which we are leveraged could have important consequences to
holders of our common stock, including, but not limited to, the following:
. our ability to obtain additional financing or refinancing in the future
for capital expenditures, repayment of outstanding indebtedness, working
capital, acquisitions, general corporate or other purposes may be
materially limited or impaired;
. our cash flow, if any, may be unavailable for building our business, as a
substantial portion of our cash flow may be dedicated to the payment of
principal and interest on our indebtedness or other indebtedness that we
may incur in the future, and our failure to generate sufficient cash flow
to service such indebtedness could result in a default;
. our debt agreements will contain restrictions and financial covenants
which, if we fail to meet them, could result in our indebtedness being
declared due prematurely, at a time when we could not make the required
payments;
. our leverage may make us more vulnerable to economic downturns, may limit
our ability to withstand competitive pressures and may reduce our
flexibility in responding to changing business and economic conditions;
and
. we may from time to time be more highly leveraged than many of our
competitors, which may place us at a competitive disadvantage.
We Rely on Our Intellectual Property Which We May Be Unable to Protect, or We
May Be Found to Infringe the Rights of Others
Our success depends in part on our ability to protect our proprietary
intellectual property. In addition, we may be sued over intellectual property
rights. These lawsuits, or our inability to protect our intellectual property
rights, could have a material adverse effect on our business, prospects,
financial condition and results of operations.
In April 1999 we received a letter from one of our competitors, Covad
Communications Group, Inc., indicating that it has been informed of allowance
of a United States patent application relating to digital subscriber loop
implementations supporting (a) a bandwidth of 128 kbps or 144 kbps combined
with (b) a bandwidth greater than 128 or 144 kbps. Although the Covad letter
quoted an allegedly allowed patent claim, the allowed patent application
remains secret until issuance of the patent, and we have no other pertinent
information about this patent application. As a result, we are unable to
evaluate fully the validity or relevance of this patent application. If the
patent application results in an issued patent that is valid, and if we
infringe this patent, we could be required to obtain a license under the
patent. While Covad has indicated that we may be interested in obtaining a
license from them at the appropriate time, we cannot be certain that such a
license, if needed, would be available on commercially reasonable terms if at
all.
A System Failure or Breach of Network Security Could Delay or Interrupt Service
to Our Customers
The reliability of our transmission services in our markets would be impaired
by a
natural disaster or other unanticipated interruption of service or damage at
any of our facilities. Additionally, failure of a traditional telephone company
or other service provider to provide communications capacity required by us, as
a result of a natural disaster, operational disruption or for any other reason,
could cause interruptions in our services. Damage or failure that causes
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interruptions in our services could have a material adverse effect on our
business, prospects, financial condition and results of operations.
Our network may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Unauthorized access could also potentially
jeopardize the security of confidential information stored in the computer
systems of our customers, which might result in liability to our customers, and
also might deter potential customers. Although we intend to implement security
measures that are standard within the telecommunications industry, we may be
unable to implement such measures in a timely manner or, if and when
implemented, our security measures may be circumvented. Eliminating computer
viruses and alleviating other security problems may require interruptions,
delays or cessation of service to our customers and these customers' end users.
Any of the foregoing factors relating to network security could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
Our Business Could Suffer From a Reduction or Interruption From Our Equipment
Suppliers or Other Third Parties On Whom We Rely for Installation and Provision
of Field Service
We plan to purchase all of our equipment from various vendors and outsource
the installation and field service of our networks to third parties. We also
depend on the availability of fiber optic transmission facilities from third
parties to connect our equipment within and between metropolitan areas. Any
reduction of or interruption from our equipment suppliers, such as Copper
Mountain Network, Inc., from which we purchase most of our digital subscriber
line access equipment, or interruption in service from any significant
installer or field service provider, such as Lucent Technologies, Inc., which
has installed and maintained our equipment in all of our markets, could have a
disruptive effect on our business, prospects, financial condition and results
of operations.
In addition, the pricing of the equipment we purchase may substantially
increase over time, increasing the costs we pay in the future, or decrease over
time, providing later market entrants with a cost advantage over us. The
availability and pricing of the equipment we purchase would be adversely
affected if our suppliers were to compete with us, or if our competitors enter
into exclusive or restrictive arrangements with our suppliers. It could take a
significant period of time to establish relationships with alternative
suppliers for each of our technologies and substitute their technologies into
our network.
Uncertain Federal and State Tax and Other Surcharges on Our Services May
Increase Our Payment Obligations
Telecommunications providers are subject to a variety of complex federal and
state surcharges and fees on their gross revenues from interstate and
intrastate services, including regulatory fees, and surcharges related to the
support of universal service. A finding that we misjudged the applicability of
the surcharges and fees could increase our payment obligations and have a
material adverse effect on our business, prospects, financial condition and
results of operations.
Claims of Interference Could Harm Our Ability to Deploy Our Services
Certain technical laboratory tests and field experience indicate that some
types of DSL, in particular, asymmetrical DSL--in which data transport to the
end user is faster than transport from the end user--may cause interference
with and be interfered with by other signals present in a traditional telephone
company copper plant. Citing this potential interference, some traditional
telephone companies have imposed restrictions on the use of asymmetrical DSL
technology over their copper lines. However, we do not believe that our
symmetrical DSL technology equipment, which permits the same speed of data
transport to and from the end user, poses interference risks.
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If traditional telephone companies were to restrict our use of our technology
or equipment in the future, our business, prospects, financial condition and
results of operations could be materially adversely affected.
Our Stock Price May Be Volatile
An active trading market for our common stock may not develop or be sustained
after this offering. NorthPoint and the underwriters will determine the initial
public offering price. The price at which our common stock will trade after
this offering is likely to be volatile and may fluctuate substantially due to
factors such as:
. our historical and anticipated quarterly and annual operating results;
. variations between our actual results and analyst and investor
expectations;
. announcements by us or others and developments affecting our business;
. investor perceptions of our company and comparable public companies; and
. conditions and trends in the data communications and Internet-related
industries.
In particular, the stock market has from time to time experienced significant
price and volume fluctuations affecting the common stocks of technology
companies, which may include data communications and Internet-related
companies. These fluctuations may result in a material decline in the market
price of our common stock.
The Sale of Shares Eligible for Future Sale or Perception of Future Sales Could
Depress Our Stock Price
Sales of a large number of shares of common stock in the market after the
offering or the perception that sales may occur could cause the market price of
our common stock to drop.
We will have 119,035,740 shares of common stock outstanding immediately after
the offering, based upon an assumed initial public offering price of $18.00 per
share. Shares sold in this offering except for shares sold to Microsoft and
other reserved shares will be freely tradeable, except for any such shares held
at any time by an "affiliate" of NorthPoint, as defined under Rule 144 under
the Securities Act. Of the remaining shares, approximately 97% are subject to
lock-up agreements in which the holders of the shares have agreed not to sell
any shares, subject to limited exceptions, for a period of 180 days (or in some
cases longer) after the date of this prospectus. The shares not subject to
lock-up agreements are "restricted securities" as defined in Rule 144 under the
Securities Act. These shares may be sold in the future without registration
under the Securities Act to the extent permitted by Rule 144 or an exemption
under the Securities Act. See "Shares Eligible for Future Sale" beginning on
page 66.
You Will Incur Immediate and Substantial Dilution
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. Therefore, you will
incur immediate dilution in net tangible book value of $15.39 per share,
assuming an initial public offering price of $18.00 per share. You may incur
additional dilution if holders of stock options, whether currently outstanding
or subsequently granted, exercise their options or if warrantholders exercise
their warrants to purchase common stock. See "Dilution" on page 25 for more
information.
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Our Principal Stockholders and Management Own a Significant Percentage of
NorthPoint, and Will Be Able to Exercise Significant Influence
Our executive officers and directors and principal stockholders together will
beneficially own approximately 82% of our common stock after completion of this
offering. These stockholders, if they vote together, will be able to exercise
significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also delay or prevent a
change in control of NorthPoint. See "Principal Stockholders" on page 62 for
information about the ownership of common stock by our executive officers,
directors and principal stockholders.
Our Certificate of Incorporation and Bylaws Contain Provisions That Could Delay
or Prevent a Change In Control of NorthPoint
Certain provisions of our certificate of incorporation and bylaws could make
it more difficult for a third party to acquire control of NorthPoint, even if a
change in control would be beneficial to stockholders. Our certificate of
incorporation allows our board of directors to issue, without stockholder
approval, preferred stock with terms set by the board of directors. The
preferred stock could be issued quickly with terms that delay or prevent a
change in control of NorthPoint or make removal of management more difficult.
Also, the issuance of preferred stock may cause the market price of the common
stock to decrease. See "Description of Capital Stock" on page 68 for more
information.
Forward-Looking Statements are Inherently Uncertain
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations,
intentions and assumptions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words "expect"
"anticipate," "intend," "plan," "believe," "seek," "estimate" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties,
including those described in this "Risk Factors" section, actual results may
differ materially from those expressed or implied by these forward-looking
statements. We do not intend to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of common stock in this
offering will be approximately $216,500,000 ($249,000,000 if the underwriters
exercise their over-allotment option in full), based upon an assumed offering
price per share of $18.00 and after deducting estimated underwriting discounts
and commissions and estimated offering expenses.
We intend to use more than $150,000,000 of the net proceeds from this
offering to continue building our networks, and the remainder for working
capital and general corporate purposes.
Prior to the application of the net proceeds from the offering as described
above, the net proceeds from the offering will be invested in marketable,
investment-grade securities.
DIVIDEND POLICY
We have never paid any dividends and do not anticipate declaring or paying
cash dividends in the foreseeable future. We intend to retain future earnings,
if any, to reinvest in our business and repay indebtedness. Certain covenants
in our financing agreements will prohibit or limit our ability to declare or
pay cash dividends.
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CAPITALIZATION
The following table sets forth:
(A) Our capitalization as of December 31, 1998.
(B) Our pro forma capitalization after giving effect to:
. the issuance to strategic investors of subordinated debt and
convertible preferred stock, all of which will convert into
convertible common stock upon this offering;
. a stock split of certain shares of preferred stock;
. the closing of our secured credit facility in April 1999 and our
initial drawdown of $55,000,000 thereunder; and
. the repayment of our line of credit borrowings in April 1999.
(C) Our as adjusted capitalization, assuming an initial public offering
price of $18.00, to reflect, in addition:
. the automatic conversion of the outstanding convertible subordinated
debt and convertible preferred stock upon the closing of this
offering;
. the receipt of the estimated net proceeds from the sale of common
stock in this offering, after deducting estimated underwriting
discounts and estimated offering expenses payable by NorthPoint; and
. our anticipated issuance to Microsoft Corporation of a warrant to
purchase 1,111,111 shares of our Class B common stock, with an
assumed exercise price of $27.00 per share.
You should read this table in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
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(1) Excludes 917,780 shares of Series B preferred stock issuable upon exercise
of outstanding warrants as of December 31, 1998, assuming full vesting. See
note 8 to our consolidated financial statements.
(2) Excludes 17,465,510 total shares of common stock issuable upon exercise of
outstanding options under our stock option plans as of April 12, 1999;
2,250,000 shares of common stock reserved for issuance under our employee
stock purchase plan; and 5,677,320 shares of common stock issuable upon
exercise of outstanding and contingent warrants assuming an initial public
offering price of $18.00 per share.
(3) Reflects the attribution of value to certain warrants issued in conjunction
with our bridge loan and lease agreements, and upon completion of this
offering, the warrants we anticipate issuing to Microsoft.
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DILUTION
The pro forma net tangible book value of NorthPoint as of December 31, 1998
was $89,176,000 or $0.84 per share of outstanding common stock, after giving
effect to the adjustments shown in column (B) under "Capitalization." The pro
forma net tangible book value per share represents our total tangible assets
less total liabilities, divided by 106,035,740 shares of common stock
outstanding on a pro forma basis before the offering. Dilution per share
represents the difference between the amount per share paid by investors in
this offering and the pro forma net tangible book value per share after the
offering. After giving effect to this offering at an assumed initial public
offering price of $18.00 per share, the as adjusted pro forma net tangible book
value at December 31, 1998 would have been $311,276,000 or $2.61 per share.
This represents an immediate increase in the net tangible book value of $1.77
per share to existing stockholders and an immediate dilution in net tangible
book value of $15.39 per share to new investors purchasing shares at the
assumed initial public offering price. The following table illustrates this per
share dilution:
The following table summarizes, on a pro forma basis as of December 31, 1998,
the difference between the existing stockholders and new investors with respect
to the number of shares of common stock purchased from NorthPoint, the total
consideration paid and the average price per share paid at an assumed initial
public offering price of $18.00 per share (before deducting estimated
underwriting discounts and commissions and offering expenses payable by
NorthPoint):
The foregoing table assumes no exercise of stock options or warrants. As of
April 12, 1999, there were options and warrants (including the warrant expected
to be issued to Microsoft Corporation) outstanding to purchase 22,419,401
shares of common stock at a weighted average exercise price of $2.86 per share.
To the extent outstanding options and warrants are exercised, there will be
further dilution to new investors.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the period from May
16, 1997 (inception) to December 31, 1997 and for the year ended December 31,
1998 have been derived from our audited financial statements and the related
notes, which are included elsewhere in this prospectus. You should read the
following consolidated summary financial data together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes included elsewhere
in this prospectus.
Our revenues consist entirely of service revenues because we do not currently
sell end-user modems or other electronic equipment. EBITDA consists of net loss
excluding net interest, taxes, depreciation and amortization. We have provided
EBITDA because it is a measure of financial performance commonly used in the
telecommunications industry, but other companies may calculate it differently
from us. We have presented EBITDA to enhance your understanding of our
operating results. You should not construe it as an alternative to operating
income as an indicator of our operating performance or as an alternative to
cash flows from operating activities as a measure of liquidity. The pro forma
net loss per share reflects the conversion of the preferred stock outstanding
as of December 31, 1998 into common stock.
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The pro forma balance sheet information reflects:
. the issuance of convertible debt and equity securities in 1999; and
. the closing of our secured credit facility in April 1999 and our initial
drawdown of $55,000,000 under the facility, and the repayment of certain
other debt.
In addition to the foregoing, the pro forma as adjusted balance sheet
information reflects:
. the receipt of estimated net proceeds of $216,500,000 from this offering,
after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by NorthPoint.
. the conversion upon the completion of this offering of all outstanding
preferred stock and convertible debt, based upon an assumed initial
public offering price of $18.00 per share; and
. our anticipated issuance to Microsoft of a warrant to purchase Class B
common stock.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of NorthPoint's financial condition and
results of operations should be read in conjunction with "Selected Consolidated
Financial Data" and our financial statements and related notes included
elsewhere in this prospectus. In the discussion below, we refer to the period
from inception to December 31, 1997 as "1997".
Overview
Since inception on May 16, 1997, our principal activities have included:
. developing our business plans;
. procuring governmental authorizations and space in central offices;
. raising capital, hiring management and other key personnel;
. working on the design and development of our network architecture and
operations support systems;
. acquiring equipment and facilities; and
. negotiating interconnection agreements.
As a result of our development activities, we have experienced operating
losses. We expect to experience increasing operating losses as we expand our
operations.
We introduced our commercial services in March 1998 in the San Francisco Bay
Area. We subsequently launched service in 16 additional markets, including the
greater Los Angeles area, Boston, New York, Chicago, San Diego, Washington,
D.C., Dallas, Detroit, Houston, Cleveland, Austin, Atlanta, Baltimore,
Philadelphia, Pittsburgh and Miami/Fort Lauderdale. We intend to offer our
services in 11 additional metropolitan areas by year-end. Deployment of our
networks will require significant upfront capital expenditures. We have
targeted for this year an initial 900 central offices necessary to roll out
services in our 28 targeted markets and, subsequently, an additional 350
central offices that will allow us to achieve blanket coverage in these
markets. We have already secured and purchased space in 625 of the initial
central offices.
The principal capital expenditures we incur when we enter any market include:
. the establishment of a metropolitan node -- a facility at which we
aggregate and disseminate data traffic in each metropolitan area -- and
the purchase and installation of electronic switching equipment for that
node;
. the procurement, design and construction of the collocation cage in each
central office;
. the purchase and installation of the network management and network test
equipment in those cages; and
. the capitalized cost of the installation of such equipment.
In addition, we will incur operations, sales and market development expenses in
order to enter a new market. Once we have deployed our network in a market, the
majority of our additional capital expenditures will be dependent upon orders
to connect new end users. These success-based capital expenditures include DSL
line cards, incremental digital subscriber line access multiplexer and network
test equipment, and line cards for our electronic switches in our metropolitan
node. In addition to the capital expenditures required to enter a market, we
will be required to fund each market's cash flow deficit as we build our
customer base.
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Financial performance will vary from market to market, and the time when we
will achieve positive EBITDA, if at all, will depend on factors such as:
. the size of the addressable market;
. the level of upfront sales and marketing expenses;
. the number and sequencing of central offices built out;
. the cost of the necessary infrastructure;
. the timing of market entry; and
. the commercial acceptance of our services.
Factors Affecting Future Operations
Revenues. We will derive our revenues from monthly recurring and nonrecurring
charges to our wholesale customers. Monthly recurring revenues consist of end
user line fees for the network service providers' end users connected to our
networks and interconnection fees for each connection to our metropolitan node
in each market. Nonrecurring revenues include charges for the installation and
activation of new end users. Our revenues consist exclusively of service
revenues. We do not currently sell end-user modems or other electronic
equipment.
We seek to price our services competitively in relation to those of the
traditional telephone companies and other competitive telecommunications
companies in each market. Current standard end user line prices that we charge
to our network service providers for our services generally range from $75 per
month for 160 kilobits per second service to $250 per month for 1.5 megabits
per second service, before volume discounts. Although pricing will be an
important part of our strategy, we believe that customer relationships,
customer care and consistent quality will be the key to generating customer
loyalty. During the past several years, market prices for many
telecommunications services have been declining, which is a trend that we
believe will likely continue. As prices decline for any given speed of service,
we expect that the total number of end users and the proportion of our end
users purchasing our higher-speed, higher-priced services will increase. The
cost to upgrade an end user's speed is generally minimal.
Network Expenses. Our network expenses consist of nonrecurring and monthly
recurring charges for the commodity transport elements we choose to lease
rather than own. Nonrecurring network expenses include transport and loop
installation fees. We expect these costs will be largely related to the
activation of new central offices and new end users. Monthly recurring network
expenses include loop fees, rent, power and other fees charged by traditional
telephone companies, competitive telecommunications companies and other
providers. As our customer and end user base grows, we expect the largest
element of network expenses to be traditional telephone company charges for
leased copper lines, which have historically been $3 to $40 per line per month,
depending on the identity of the traditional telephone company and the location
of the lines.
Selling, Marketing, General and Administrative Expenses. Our selling,
marketing, general and administrative expenses primarily consist of costs
related to selling, marketing, customer care, provisioning, billing,
regulatory, corporate administration, network engineering and maintenance.
Additionally, we incur other costs associated with administrative overhead,
office leases and bad debt. We expect that our selling, marketing, general and
administrative costs will grow significantly as we expand our operations and
that administrative overhead will be a large portion of these expenses during
the start-up phase of our business. However, we expect these expenses to
decline as a percentage of our revenue as we build our customer base and the
number of end users connected to our networks increases.
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We plan to employ a regional sales team in each market we enter. To attract
and retain a highly qualified sales force, we plan to offer our sales and
customer care personnel a compensation package consisting of commissions and
stock options. We expect to incur significant selling and marketing costs as we
continue to expand our operations. In addition, we plan to offer sales
promotions, especially in the first few years as we establish our market
presence.
Amortization of Deferred Compensation. Deferred compensation arose as a
result of the granting of stock options to employees with exercise prices per
share subsequently determined to be below the fair values per share for
financial reporting purposes of our common stock at dates of grant. The
deferred compensation is being amortized over the vesting period of the
applicable options.
Depreciation and Amortization. We expect depreciation and amortization
expense to increase significantly as more of our network becomes operational
and as we increase capital expenditures to expand our network. Depreciation and
amortization expense includes:
. depreciation of network infrastructure equipment;
. depreciation of information systems, furniture and fixtures;
. amortization of improvements to central offices, network control center
facilities and corporate facilities;
. amortization of central office space and improvements; and
. amortization of software.
Taxation. We have not generated any taxable income to date and therefore have
not paid any federal income taxes since inception. Use of our net operating
loss carryforwards, which begin to expire in 2003, may be subject to
limitations under Section 382 of the Internal Revenue Code of 1986, as amended.
We have recorded a full valuation allowance on the deferred tax asset,
consisting primarily of net operating loss carryforwards, because of
uncertainty regarding its recoverability.
Results of Operations
Revenues. We commercially introduced our services in March 1998. Accordingly,
we recognized no revenues in 1997. Revenues for the year ended December 31,
1998 were approximately $931,000, 75% of which consisted of recurring revenues
and did not include sales of end user modems or other electronic equipment.
Network Expenses. Network expenses were approximately $56,000 in 1997 and
$3,970,000 in the year ended December 31, 1998. These costs consisted primarily
of monthly rental costs for lines between end users and central offices,
between central offices and our metropolitan nodes, between our metropolitan
nodes and our network service providers, and end user line installation and
costs charged to us by the traditional telephone companies.
Selling, Marketing, General and Administrative Expenses. Selling, marketing,
general and administrative expenses were approximately $1,374,000 for 1997 and
$18,340,000 for the year ended December 31, 1998. These expenses consisted
primarily of salaries and related expenses for the development of our business,
network architecture and software, the establishment of our management team and
the development of corporate identification, promotional and advertising
materials.
Amortization of Deferred Compensation. Amortization of deferred compensation
was $173,000 in 1997 and $2,664,000 for the year ended December 31, 1998. The
unamortized balance of $13,023,000 at December 31, 1998 will be amortized over
the vesting period of each grant.
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Depreciation and Amortization. Depreciation and amortization expenses were
approximately $27,000 for 1997 and $1,319,000 for the year ended December 31,
1998. Such expenses consisted primarily of depreciation of network equipment,
information systems, office equipment, furniture and fixtures and amortization
of leasehold improvements.
Interest Income and Expense. We incurred minimal interest expense in 1997.
Interest expense in 1998 was approximately $3,694,000. Interest expense for the
year ended December 31, 1998 includes amortization of $1,868,000 and $198,000
related to debt discount recorded in conjunction with the issuance of bridge
loan warrants and equipment lease warrants, respectively (see notes 6 and 10 to
our consolidated financial statements). Interest income was approximately
$190,000 for 1997 and $209,000 for the year ended December 31, 1998. This
interest income was earned primarily from the proceeds raised in the Series B
preferred stock financing in August 1997.
Quarterly Financial Information
The following table sets forth certain consolidated statements of operations
data for our most recent six quarters. This information has been derived from
our unaudited consolidated financial statements. In our management's opinion,
this unaudited information has been prepared on the same basis as the annual
consolidated financial statements and includes all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented. This information should be read in
conjunction with our consolidated financial statements and the related notes
included elsewhere in this prospectus. The operating results for any quarter
are not necessarily indicative of results for any future period.
We have generated greater revenues in each successive quarter in the last
four quarters, reflecting increases in the number of customers and end users.
Our network expenses have increased in every quarter, reflecting costs
associated with customer and end user growth and the deployment of our networks
in existing and new markets. Our selling, marketing, general and administrative
expenses have increased in every quarter and include operations, sales and
marketing costs associated with the acquisition of customers and end users,
including sales commissions, and the development of regional and corporate
infrastructure. Depreciation and amortization has increased in each quarter,
primarily reflecting the purchase of equipment associated with the deployment
of our networks. We have experienced increasing net losses on a quarterly basis
as we increased our capital expenditures and operating expenses. See "Risk
Factors--We Expect Our Losses and Negative Cash Flow to Continue."
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Liquidity and Capital Resources. Our operations have required substantial
capital investment for the procurement, design and construction of our central
office collocation cages, the purchase of telecommunications equipment and the
design and development of our networks. Capital expenditures were approximately
$41,550,000 for the year ended December 31, 1998. Although we have no material
commitments for capital expenditures during 1999, we expect that our capital
expenditures will be substantially higher in future periods in connection with
the purchase of infrastructure equipment necessary for the development and
expansion of our networks and the development of new markets.
We will make additional capital expenditures in 1999 estimated at
$130,000,000 to $160,000,000 to develop our networks. In each market, we will
initially target the central offices with the highest density of small- and
medium-sized businesses. We will expand into other central offices when we
obtain adequate demand or volume commitments from our customers. We will also
incur capital expenditures for building a metropolitan node in each market and
for expanding our network control center in San Francisco.
From inception to December 31, 1998, we financed our operations primarily
through private placements of $15,700,000 of equity securities, $50,700,000 of
debt securities and $5,200,000 of lease financings. As of December 31, 1998, we
had an accumulated operating deficit of $30,287,000 and cash and cash
equivalents of $10,956,000.
Net cash used in operating activities was $1,094,000 for 1997 and $11,363,000
for the year ended December 31, 1998. The net cash used in operations was
primarily due to net losses, offset in part by increases in accrued expenses.
The net cash used in investing activities was $701,000 in 1997 and $41,550,000
in the year ended December 31, 1998, primarily due to acquisitions of property
and equipment. Net cash provided by financing activities was $11,200,000 for
1997 related to the issuance of common and preferred stock. Net cash provided
by financing activities was approximately $54,420,000 for the year ended
December 31, 1998, of which $4,400,000 related to the issuance of preferred
stock and $50,700,000 related to borrowings, offset in part by the repayment of
certain capital lease obligations of approximately $745,000.
Our working capital deficiency as of December 31, 1998 was $50,267,909. Of
this amount, $47,696,566 consisted of a line of credit borrowing from Morgan
Stanley Bridge Loan Fund, L.L.C. ("MSBLF"). We repaid our borrowing under this
line of credit in full in early April 1999 with the proceeds from the initial
drawdown on our $100,000,000 senior secured credit facility. We believe that
our current capital resources, together with the proceeds from this offering,
investments from our strategic partners and our $100,000,000 senior secured
credit facility will be sufficient for our funding and working capital
requirements and for the deployment and operation of our networks in our 28
targeted markets through the middle of 2000. We do not expect our current
working capital deficiency to have any material effect on our business.
In July 1998, we entered into a bridge loan agreement with MSBLF under which
MSBLF agreed to provide up to $50,000,000 of senior increasing rate notes. The
MSBLF bridge loan allowed us to draw funds and issue notes on an as needed
basis, with interest at 10% per annum. MSBLF received fees consisting of cash
and warrants. Under the bridge loan agreement, we issued warrants to purchase
2,250,000 shares of common stock to MSBLF. In addition, we were obligated to
issue warrants to MSBLF to purchase up to an additional 1,350,000 shares from
time to time:
. as funds were drawn and notes were issued under the bridge loan; and
. if any note remained outstanding under the bridge loan for at least three
months.
As of December 31, 1998, we had drawn down all $50,000,000 under the bridge
loan and issued 2,587,500 warrants to MSBLF. Proceeds from our secured credit
facility (described below) have been used to repay principal (approximately
$51,000,000 as of December 31, 1998) and interest on all
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outstanding indebtedness under the bridge loan and other indebtedness. Upon
repayment of the bridge loan, MSBLF owned warrants to purchase 2,925,000 shares
of common stock. For more information about the terms of the bridge warrants,
see "Description of Capital Stock--Bridge Warrants. "
In July and August 1998, we completed two rounds of private financing
involving the issuance and sale of an aggregate of $4,402,000 of Series C
preferred stock. The terms of a subsequent investment were thereafter
documented and conditions precedent to the subsequent closing were fulfilled.
The subsequent round of Series C financing, which was negotiated beginning in
December 1998 and closed in February 1999, involved the issuance and sale of an
aggregate of $59,171,000 of Series C preferred stock. The proceeds of these
financings, net of expenses, totalled $61,308,000. Purchasers of our Series C
preferred stock included, among others, funds affiliated with At Home
Corporation, Intel Corporation, Carlyle Partners II, L.P. and Vulcan Ventures
Incorporated.
In April 1999, we entered into a secured credit facility with Goldman Sachs
Credit Partners L.P. and Newcourt Commercial Finance Corporation consisting of:
. a $10,000,000 senior first priority secured term loan, all of which we
drew down on the closing date;
. a $50,000,000 senior first priority secured revolving credit facility
that will convert into a senior first priority secured term loan within
six months; and
. a $40,000,000 second priority secured term loan, all of which we drew
down on the closing date.
The secured credit facility matures on the fifth anniversary of its closing
date.
The interest rate provisions of this facility provide that, after taking into
account variations in interest among the different tranches, the total amounts
outstanding under the senior secured credit facility bear interest, in the
absence of an event of default, at the Company's option at:
. The LIBOR rate plus eight percent per year; or
. the greater of the prime rate or the federal funds rate as announced by
The Wall Street Journal plus seven and one-half percent per year.
Borrowings under the secured credit facility are restricted based upon our
leverage ratio and the value of our telecommunications assets from time to
time. We have used and intend to use the proceeds of the secured credit
facility:
. to continue building our networks;
. to repay the MBLSF bridge loan and other indebtedness;
. to fund working capital; and
. for general corporate purposes.
We pledged to the lenders under the secured credit facility all of the capital
stock in NorthPoint Communications, Inc. held by NorthPoint Communications
Group, Inc.
In March and April 1999, we issued and sold an aggregate of $38,800,000 of
Series D-1 preferred stock. Purchasers of our Series D-1 preferred stock
included ICG Services, Inc. (an affiliate of ICG Communications, Inc.), At Home
Corporation, Verio Inc., Cable & Wireless USA, Inc., Concentric Network
Corporation, ALC Communications Corporation (an affiliate of Frontier
Corporation), Network Plus Corporation and Netopia, Inc.
We believe that proceeds from this offering, together with existing capital
resources, the investments from our strategic partners and proceeds from our
secured credit facility, will be
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sufficient to fund our expansion and operating deficits through the middle of
2000. However, we may decide to seek additional capital earlier than the middle
of 2000, the timing of which will depend upon market conditions, among other
things. The actual amount and timing of our future capital requirements may
differ materially from our estimates as a result of, among other things, the
demand for our services and regulatory, technological and competitive
developments, including additional market developments and new opportunities,
in our industry. We may also need additional financing if:
. we alter the schedule, targets or scope of our network rollout plan;
. our plans or projections change or prove to be inaccurate; or
. we acquire other companies or businesses.
We may obtain additional financing through commercial bank borrowings,
equipment financing or the private or public sale of equity or debt securities.
We may be unsuccessful in raising sufficient additional capital. In
particular, we may be unable to raise additional capital on terms that we
consider acceptable, that are within the limitations contained in our financing
agreements and that will not impair our ability to develop our business. If we
fail to raise sufficient funds, we may need to modify, delay or abandon some of
our planned future expansion or expenditures, which could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
As of December 31, 1998, we had not entered into any financial instruments
that expose us to material market risk.
Impact of Year 2000 Issue. We believe that our computer systems and software
are year 2000 compliant. However, we cannot assess the impact of potential year
2000 problems on operators of traditional telephone systems or other service
providers (such as electric and utility) in the markets in which we operate.
Because our systems will be interconnected with those of traditional telephone
companies who operate these traditional telephone systems and other service
providers, any disruption of operations in the computer programs of these
service providers would likely have an impact on our systems in our markets. We
cannot assure you that this impact will not have a material adverse effect on
our business, prospects, financial condition and results of operations.
We have inventoried and tested our enterprise application systems, including
internally-developed and vendor-developed applications and off-the-shelf
software and hardware relating to our internal information systems, and believe
that such systems are year 2000 compliant. We have not reviewed our non-
information technology systems for year 2000 issues relating to embedded
microprocessors. To the extent that year 2000 issues exist, these systems may
need to be replaced or upgraded. Because our systems were implemented within
the last two years, we do not anticipate significant year 2000 issues to arise,
although we cannot be certain about this.
In the provision of our DSL services, we use third party equipment and
software and interact with traditional telephone companies that have equipment
and software that may not be year 2000 compliant. We have requested assurances
regarding year 2000 compliance from our equipment and software vendors and the
traditional telephone companies. We currently have received assurances from
most of our vendors and anticipate receiving assurances soon from the remaining
vendors. We have not received similar assurances from the traditional telephone
companies and do not anticipate that we will be able to do so. We plan to test
our system interfaces with at least one traditional telephone company if we are
able to obtain traditional telephone company cooperation. However, failure of
our third-party or traditional telephone company software and equipment to be
year 2000 compliant could cause us to incur significant expense in correcting
any problems that arise, impacting our business, prospects, operating results
and financial condition.
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We have requested information from our business partners regarding their year
2000 preparedness, but have not been assured that all of their systems are year
2000 compliant. We plan to test and validate our system interfaces with
partners and to develop a contingency plan prior to the end of the third
quarter of 1999. However, if our partners' systems are not year 2000 compliant,
our business, prospects, operating results and financial condition could be
adversely affected.
In the normal course of doing business with our partners and suppliers, we
establish manual back-up processes (fax, phone, e-mail, etc.) for all critical
interconnections and business functions. These manual processes are designed to
replace our automated interfaces and processes in the event of a failure. We
plan to test these contingency procedures on a frequent basis to ensure that
they work properly in support of our business. Our contingency procedures will
be available if year 2000 problems occur in any of our partner or supplier
environments. In addition, we plan to conduct back-ups of all of our mission-
critical systems in advance, with the ability to revert to previous day
transactions to ensure minimal loss of corporate data if year 2000 problems
occur in our systems.
Our aggregate historical and future costs for year 2000 analysis, planning
and remediation have not been material to date and we do not expect them to be
material in the future. However, we cannot assure that these costs will not be
greater than we currently expect. If these costs increase significantly, our
business, prospects, operating results and financial condition could be
adversely affected. Our complete internal review of and planning for year 2000
issues is anticipated to be completed by November 1, 1999.
Recently Issued Accounting Pronouncements
On January 1, 1998, we adopted SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components in a financial statement that is displayed with the
same prominence as other financial statements. Comprehensive income as defined
in SFAS No. 130 includes all changes in equity (net assets) during a period
from nonowner sources. SFAS No. 130 is effective for years beginning after
December 15, 1997. Adoption of SFAS No. 130 did not have any material impact on
our financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides guidance
for determining whether computer software is internal-use software and
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. We have not yet determined the impact
of adopting SOP 98-1, which will be effective for our year ending December 31,
1999.
On April 3, 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of Start-Up
Activities. SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. As we
have not capitalized such costs to date, the adoption of SOP 98-5 is not
expected to have an impact on our financial statements.
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BUSINESS
History
NorthPoint was founded in May 1997 by six former MFS/WorldCom executives who
developed and implemented the first commercial DSL service. We began offering
our network services in March 1998 and have since entered into strategic and
commercial relationships with Microsoft, Tandy (the parent company of the
RadioShack stores), @Home, Intel, Verio, Cable & Wireless, Frontier
Corporation, Concentric Network, ICG Communications, Enron Communications,
Network Plus and Netopia among others. Most of these companies and The Carlyle
Group, Vulcan Ventures, Accel Partners, Benchmark Capital, Greylock and others
have invested in our company.
We have expanded our management team by adding, among others, Elizabeth
Fetter as our President and Chief Operating Officer. Ms. Fetter was previously
the Vice President and General Manager of the Consumer Services Group at U S
WEST. In addition, Reed Hundt, the former Chairman of the Federal
Communications Commission, is a member of our board of directors.
Industry Overview
Data communications is the fastest growing segment of the telecommunications
industry. Small- and medium-sized businesses, people working in home offices
and telecommuters are increasingly demanding high-speed data connections for
applications such as Internet access, intranets, extranets, telecommuting,
e-commerce, e-mail, video conferencing and multimedia.
The number of Internet users worldwide has increased substantially over the
last several years, reaching nearly 140 million in 1998. Forrester Research,
Inc. projects that the total market for data networking services and Internet
access will grow from $6.2 billion in 1997 to approximately $49.7 billion by
2002, of which approximately $27.9 billion will be from services to businesses.
Further, Forrester Research estimates that Internet commerce revenue could
reach $3.2 trillion by 2003.
Small- and Medium-Sized Businesses. We expect that a significant portion of
the growth in data communications will be generated by small- and medium-sized
businesses with up to 500 employees. Data communications, including the
Internet, allow these businesses to compete more effectively by streamlining
communications among employees, customers and suppliers. However, to take full
advantage of these productivity-enhancing applications and the Internet, small-
and medium-sized businesses need high-speed, secure and dedicated data
connectivity.
Home Offices and Telecommuters. We expect that people using computers from
their homes to connect to corporate networks or to the Internet for in-home
business purposes will also be a significant source of demand for high-speed
data connectivity. According to International Data Corporation, or IDC, there
were 26 million residences with computers in their home offices in the U.S. in
1998, growing to an estimated 39.2 million by 2002. A significant portion of
people who work in home offices and telecommuters need access to corporate
networks and/or the Internet for a variety of applications, including e-mail,
databases and corporate intranets. According to The Yankee Group, the market
for remote access services is expected to grow from $460 million in 1998 to
$2 billion by 2002.
Traditionally, small- and medium-sized businesses, people who work in home
offices and telecommuters have relied on low-speed lines for data transport.
For example, according to IDC, approximately 78% of Internet access revenues
derived from small- and medium-sized businesses in 1997 were generated through
the traditional telephone system, using relatively slow 28.8 to 56 kilobits per
second dial-up modems or integrated services digital network (ISDN) lines. For
higher speed connections, these end users have had to purchase T1 service, a
digital transmission link which is fast (1.544 megabits per second) and always-
on, but expensive (typically $300 to $1000 per month depending upon distance
and region).
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Neither the slow dial-up modems and integrated services digital network
service nor the expensive T1 option is an adequate solution for most small- and
medium-sized businesses, people who work in home offices and telecommuters. The
lack of optimal price-performance solutions has left these end users
underserved, since when using a T1 service, the cost is high, and when using a
dial-up modem or integrated-services digital network service, the speed of data
transmission is slow.
Our Solution
We believe that our DSL networks and the wide range of price-performance data
transport options we provide meet the demands of this large, underserved group
of end users. We attach high-speed digital equipment at both ends of a copper
line, allowing data transmission to bypass the components of the traditional
telephone system that are responsible for creating the local data bottleneck.
By using our services with their own Internet access and other data
applications, our network service provider customers--Internet service
providers, long-distance and local telephone companies, and data service
providers--can offer small- and medium-sized businesses, people who work in
home offices and telecommuters:
. A Range of Speed Options. We offer a wide range of data transport speeds,
each with a combination of price and performance that is superior to
traditional options.
. Scaleable Services. End users can upgrade service to higher performance
levels without adding hardware.
. Always-On Connectivity. Traditional networks require a user or system to
dial a phone number and wait while the modem connects to a data service
provider such as an Internet service provider. Our service is always on,
providing instantaneous connections and the capability to receive or
transmit information continuously.
. Reliability. We can remotely monitor and troubleshoot an end user's
connection to ensure reliable performance.
. Secure Transport of Sensitive Business Data. We offer our services over
dedicated copper telephone lines, which ensures that data is protected on
its path to and from an end user.
Our networks and services offer a number of advantages to our network service
provider customers over alternative local access solutions, including:
. A Rapid, Capital-Efficient Method for Providing Service in a Metropolitan
Area. By connecting at one point to each of our metropolitan networks, a
network service provider can immediately offer service to any end user
within the geographic boundaries served by traditional telephone company
central offices in which we have installed our equipment. Using our
networks in this way reduces the capital and operating investment a
network service provider would otherwise need to reach end users in
metropolitan areas that we serve.
. Electronic Connections to Our National Operations Support Systems. We
provide our customers an electronic connection to our national pre-
qualification, order entry, customer support, provisioning, accounting
and billing systems. This provides streamlined operations and lower
overhead costs for our customers.
. Guaranteed Data Transmission Speeds and Service Quality. We guarantee
data throughput at high speeds on our networks.
. Continuously Monitored Networks. We have remote monitoring capabilities
and continuously monitor the entire network from our network control
center. We use three methods to monitor our networks so that we can
continue to monitor the networks even if one or two methods fail.
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Strategy
Our objective is to become the leading national provider of local data
networks and transport services to network service providers serving small- and
medium-sized businesses, people who work in home offices and telecommuters. To
achieve this objective, we will:
. Focus Initially on Business District Central Offices. Before entering a
market, we prepare a detailed analysis of that market's central office
service areas using industry data and business demographic statistics. We
use this analysis to identify attractive service areas and develop a
schedule for network deployment and expansion. We have initially targeted
central offices in our 28 target markets with the highest density of
small- and medium-sized businesses. Based upon our analysis, we believe
that when complete, our networks will be able to reach approximately four
million businesses, including more than 80% of the small- and medium-
sized businesses in our 28 markets. By focusing initially on high-density
business districts, we believe we can secure scarce space in central
offices, open markets more rapidly, maximize the economic return from our
capital expenditures and enable our customers to address a significant
portion of their target end users in each geographic market quickly.
. Enter Markets Early. We seek to obtain an advantage by being the first,
or one of the first, DSL providers in our target markets to offer
optimized local data transport solutions. We believe that the first mover
advantage is valuable because after a network service provider
establishes a relationship with a local data network service provider,
there are costs associated with adding additional providers or switching
providers. We are already providing services to network service providers
in 17 metropolitan areas.
. Rapidly Establish a National Presence. Our goal is to offer local data
network and transport services to our customers in 28 metropolitan areas
by year-end 1999. We expect that offering high speed local data transport
solutions in many metropolitan areas will make our services more
attractive to national and regional network service providers by enabling
them to use our single system interface and uniform provisioning
procedures in each of our markets. We are authorized to operate as a
competitive telecommunications company in all of our 28 target markets.
. Design Networks for Business End Users. Our networks are designed for
business users and business applications and have the appropriate
security, reliability and performance characteristics for those users and
applications. Currently, we are using a type of DSL technology that
permits symmetric data transmission--the same speed of data transport to
and from the end user--which we believe is the best-suited for most
business applications. We believe that business end users will not
compromise the security, reliability and performance of their data
connections and are willing to pay for those features.
. Focus On Wholesale Marketing. We market our local data transport
solutions on a wholesale basis to network service providers who, in turn,
sell to and support end users. By marketing to network service providers,
we:
. minimize sales and marketing expenses by enabling our sales force to
focus on prospective high-volume wholesale customers;
. amortize the cost of our fixed capital expenses over a large base of
end users more rapidly;
. minimize our end user support costs; and
. achieve a nationwide presence more quickly.
. Provide Excellent Customer Service. We are dedicated to providing our
customers and their end users superior customer support and service. Our
systems provide management reports and other critical, real-time data for
our network service provider customers.
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. Exploit Our Scaleable Systems. Our operations support systems have been
designed to take advantage of efficiencies in our digital networks and
can grow with our business. We believe that these systems, including our
electronic connections to traditional telephone companies, will minimize
our overhead and increase both customer and end user satisfaction. Our
systems also give us the capability to monitor usage by our network
service providers' end users and notify network service providers when an
end user's usage patterns indicate that an upgrade in speed is warranted.
These upgrades can be performed remotely and require no additional
capital expenditures.
. Enter Into Strategic Relationships. We have entered into strategic
relationships with Microsoft, Tandy, @Home, Intel, Verio, Cable &
Wireless, Frontier Corporation, Concentric Network, ICG Communications,
Enron Communications, Network Plus and Netopia. We anticipate entering
into additional relationships with others. We believe that these
relationships are valuable because they provide additional technical,
marketing and distribution expertise and, in some cases, involve capital
investment and guaranteed or targeted numbers of new end-user lines.
. Develop New Data Products and Solutions. We intend to expand our product
offerings by providing additional value-added services over our networks
and enhanced transport solutions.
Our Markets
We currently provide service in 17 metropolitan areas and intend to offer
services in a total of 28 metropolitan areas by the end of this year. We
believe that offering local data network and transport services in many areas
makes our services more attractive to national and regional network service
providers because they can use our single system interface and uniform
provisioning procedures in each of our markets. Our existing and planned
markets for 1999 are:
- --------
* Markets in which we currently provide services.
(1) Includes Orange County.
(2) Includes San Francisco, Oakland and San Jose.
(3) Includes northern New Jersey.
(4) Includes northern Virginia and parts of Maryland.
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Network Architecture
We establish each of our regional networks by installing digital
communications equipment in the traditional telephone company central offices
with the highest density of small- and medium-sized businesses. DSL technology
provides for high speed transmission of information over existing copper
telephone lines by encoding the information in a digital format. Our equipment
uses this technology to transmit high speed data over copper lines between the
central office and the end user. In turn, we connect our equipment in each
central office to our metropolitan node, a facility where data is collected in
each metropolitan area. Our customers in each metropolitan area are connected,
typically by leased fiber optic lines, to the metropolitan node. For our
customers, having this single point of interconnection with us in each city
reduces their capital expenditures and local network costs because we aggregate
and disseminate their traffic to and from a central place. By leasing and
reusing the existing copper wire and fiber optic infrastructure, we are able to
use our capital to purchase and develop value-added elements of the network,
including packet switches, digital communications equipment for each central
office, and operations support systems.
Set forth below is a diagram depicting the flow of data traffic in a local
metropolitan market.
[DIAGRAM OF THE FLOW OF DATA TRAFFIC IN A LOCAL METROPOLITAN MARKET]
Our Equipment. We install DSL modems at the end user's premises and lease
copper telephone wires from the traditional telephone company. These wires run
from the end user's premises to the central office of the telephone company,
where we lease space under tariff or renewable interconnection agreements.
Within this space, we maintain equipment that connects to the local copper
wires. Our central office equipment supplies the digital line code that enables
high speed data transport over copper lines, organizes that data into packets
and aggregates end-user traffic for transport to and from our metropolitan
node. Data traffic is aggregated from various central offices at the
metropolitan node and then transported to the network service providers over
leased fiber optic lines. Our systems allow data transmission to bypass the
components of the traditional telephone system that are responsible for
creating inefficient data transmission. Therefore, while using the existing
copper telephone wires from each end user to the central office, we are able to
offer high speed data transmission.
Central Office Installation. We contract with Lucent on a per-order basis to
install our equipment in all traditional telephone company central offices in
which we have space nationwide. Lucent preconfigures this equipment in
accordance with our blueprint and ships it to our central offices for
installation by Lucent's field operations personnel. We maintain our own field
operations personnel to oversee this process and for subsequent maintenance and
upgrades of the central office equipment.
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Sales and Marketing
We provide local data network and transport services on a wholesale basis to
Internet service providers, long-distance and local telephone companies, and
data service providers, whom we call network service providers. Our customers
bundle our services with Internet access or other data-intensive applications
for their customers, who are typically small- and medium-sized businesses,
people who work in home offices and telecommuters. We are providing or have
entered into agreements to provide our services to more than 85 network service
providers and have connected approximately 3,200 of their end users.
Our Sales Staff. We sell exclusively through wholesale channels. Our indirect
sales and support model allows us to benefit from the sales and support
organization of our customers. Our sales organization currently consists of
account executives who are responsible for securing new customers and assisting
customers in increasing the number of end users. The account executives are
supported by regional marketing managers who provide localized marketing,
competitive analysis, cooperative marketing programs, and sales support within
each of our current 17 markets. We intend to increase the size of our sales and
marketing staff as we enter an additional 11 markets by year-end.
Our Services. Our networks and data transport services have been designed to
enable our customers to meet the rapidly increasing information needs of their
end users. By using NorthPoint's networks, network service providers can offer
data services with better price and performance characteristics than dial-up
and integrated services digital network modems and 1.54 megabit per second
connections. Our current range of services and pricing (before volume
discounts) in the San Francisco Bay Area (although pricing in other markets may
vary) is as follows. Some of our higher speed services may be unavailable to
certain end users whose premises are too far from a central office.
[DIAGRAM OF NORTHPOINT SERVICE OFFERINGS]
* As represented above, 56 kbps service is dedicated.
ISDN pricing is usage-based.
ILEC T1 pricing varies by distance between the end user and the service
provider.
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Each of our services is symmetric, providing the same speed to and from the
end user. We believe that this design is well-suited for business data
applications such as Internet access, intranets, extranets, telecommuting, e-
commerce, e-mail, video conferencing and multimedia.
The table below summarizes our services and the targeted end users for each
service. Some of our higher speed services may be unavailable to certain end
users whose premises are too far from a central office. The column marked
"Maximum Range (feet)" in the following table means the estimated maximum
distance between a central office and the end user for each of our services.
Performance Upgrades. We can remotely increase an end user's speed from 160
kilobits per second through 1.54 megabits per second without upgrading the
equipment located at the end user's premises. Remote upgrades allow an end user
to have improved performance without service interruptions or additional
equipment investment. Approximately 62% of the end users currently connected to
our networks are within 10,000 feet of the central office and can be upgraded
to our fastest service. In general, we expect that end users' needs will evolve
over time, resulting in demand for faster connections. The cost to upgrade an
end user's speed is minimal and the cost to provide faster service is not
substantial.
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The Value Proposition to Network Service Providers. In addition to providing
reliable, high quality data network services, we offer our customers:
. Immediate, Capital-Efficient Access to Markets. In the past, network
service providers would have had to make significant capital investments
to provide dedicated data services in their targeted service areas. With
a single connection to our metropolitan node, however, network service
providers can immediately provide high speed dedicated data services to
end users connected to each central office we serve in that metropolitan
area. Using our networks in this way reduces the capital investment a
network service provider would otherwise need to reach end users in our
metropolitan areas and enables network service providers to provide
services in any or all of our markets more quickly than if they built
their own network infrastructure.
. Single-Source Provider. We serve as a single-source provider to our
customers. Because we maintain the physical connection with the
traditional telephone company in each market and assume responsibility
for managing all end-user installations and for monitoring and managing
our data networks, the network service provider does not need to have
relationships with traditional telephone companies, inside wiring
companies or equipment maintenance and monitoring service providers.
. Avoidance of Regulatory Burden. To provide DSL service on its own, an
Internet service provider or other data service provider would have to be
authorized as a competitive telecommunications company in each state in
which it planned to provide service. Network service providers who
partner with us avoid the costs, delays and complexities of achieving
competitive telecommunications company status in each market.
. Transparent Service Delivery to End Users. Our automated order entry,
provisioning and maintenance systems are designed to allow network
service providers to interface directly with our support systems and
provide their end users with completely transparent service delivery. Our
systems also enable our network service providers to pre-qualify
prospective end users. The end user receives a bill from the network
service provider and is not billed by the traditional telephone companies
or NorthPoint.
. Electronic Interfaces. We have designed our national operations support
systems to interface directly with network service providers' existing
provisioning, management, accounting and billing systems. This enables
two-way trouble ticketing and secure connections for both proactive and
query-based status checking on all aspects of service delivery and
billing.
. Broad Range of Speeds and Prices. Our wide range of price and performance
options enables network service providers to match their service
offerings with an end user's specific need for data transmission
capacity. Current options available from traditional telephone companies
are more limited and often fail to address the needs of small- and
medium-sized businesses, people who work in home offices and
telecommuters.
. Identification of Service Upgrade Opportunities. As an end user's data
transmission needs evolve, our operations support systems track end user
usage and identify opportunities on a timely basis for the network
service provider to recommend service upgrades to its end users.
. Reliability and Guaranteed Data Transmission Speeds. We design our
networks for business-quality service, including 24 hours a day, 7 days a
week monitoring, network management links, guaranteed data throughput and
consistent high speed transmission.
. Secure Connections. Our network architecture enables network service
providers to offer to their end users applications that require a secure
connection for transmission of sensitive data.
. Marketing Support. We support our customers by providing sales leads, co-
marketing programs and training for network service provider sales and
service representatives.
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Operations Support Systems
Our operations support systems are designed to grow with our business and
provide us with significantly enhanced operational efficiencies.
Connections to Our Customers. Our Web-based ordering system not only allows
network service providers to place orders on-line, but assists them in
marketing the service to new and existing end users, as well as pre-qualifying
prospective end users for the maximum level of service that will be available
to them. Our systems also interface with our customers' management,
provisioning, accounting and billing systems. Our network statistics allow the
network service provider to track historical usage and suggest service upgrades
based upon customer need.
Connections to the Traditional Telephone Companies. We are currently testing
electronic connections with Pacific Bell and Ameritech and plan to have similar
interfaces to all our traditional telephone company suppliers by the end of
1999. This will provide us with a single electronic ordering interface and will
facilitate provisioning large volumes of orders.
Deployment and Operations
To provide and monitor data transport services to end users, network service
providers have traditionally been required to coordinate multiple service and
equipment suppliers. We act as a single-source provider of a network service
provider's local data networking and transport needs, eliminating both
complexity and inconvenience for our customers.
Interconnecting With New Network Service Providers. When a network service
provider decides to use our services in a metropolitan market, we arrange for
the leasing, testing and monitoring of a fiber connection between our
metropolitan node in the area and the network service provider's local point of
presence. Our customers pay a monthly fee for the connection and for our data
traffic aggregation and monitoring services.
Provisioning with the Traditional Telephone Company. We order from the
traditional telephone companies and test copper wire loops that link central
offices and end users. In most cases, if the line is not testing to our
specifications at the time of provisioning or later, our network control center
is able to help the traditional telephone company pinpoint the source of the
problem.
End User Installation. We contract with third parties for the installation of
lines to end users, including any necessary wiring inside end users' premises.
Our contractors also deliver, install and test the customer premise equipment
and test the connection over our network. Our network service provider customer
generally pays an installation charge to us and sells the modem and/or other
customer premise equipment to the end user.
Network Monitoring. We monitor all of our metropolitan networks from our
network control center on a continuous basis, enabling us to identify and
resolve network problems before they affect our customers or their end users.
The network control center maintains visibility into each element of our
networks, allowing us to provide reliable service and efficient customer
installation, as well as rapid responses to customer inquiries.
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Key Strategic and Commercial Relationships
We have entered into strategic and commercial relationships that we believe
are valuable because they provide additional technical, marketing and
distribution expertise and, in some cases, involve capital investment and
guaranteed or targeted numbers of new end-user lines. We anticipate entering
into additional strategic and commercial relationships with others.
Our strategic and commercial relationships include:
* Microsoft has expressed to us its intention to purchase $30 million of our
common stock in this offering, although it is not bound to do so.
Microsoft. In April 1999, we entered into a strategic relationship with
Microsoft. Microsoft has expressed to us its intention to purchase $30 million
of our common stock in this offering, although it is not bound to do so. Under
our two-year commercial agreement with Microsoft, we will jointly market and
promote NorthPoint's DSL services, and Microsoft intends to use its existing
channels,
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websites and direct sales force to augment our own marketing efforts. Together,
we will also develop the specifications for an open standard to allow broadband
content and application providers to optimize the use of high-speed networks to
deliver their products and services. Microsoft will also provide software
consulting services to us. In addition, subject to conditions, Microsoft will
receive a warrant to purchase an additional $30 million of our Class B common
stock at a price that is 50% above the initial public offering price.
Verio. In February and March 1999, we entered into a strategic relationship
with Verio. Verio has designated us as its preferred provider in 21 of our 28
markets. Verio also committed to purchase a specified number of DSL lines over
the two-year term of the agreement. As of March 31, 1999, Verio marketed
NorthPoint DSL services in 10 markets through a broadcast media campaign
including television and radio advertisements in which the NorthPoint DSL
service is "co-branded" with Verio's Internet services. In connection with
these agreements, Verio provided us with $5.6 million pursuant to a
subordinated convertible promissory note and invested $4.4 million in our
Series D-1 preferred stock. Verio's $10 million investment will convert into
Class B common stock upon this offering.
ICG. In March 1999, we entered into several strategic agreements with
subsidiaries of ICG. Pursuant to these agreements, ICG designated us as its
preferred provider of DSL services, sold us all of its DSL network equipment,
agreed to share certain of its central office space with us, committed to
purchase a specified number of DSL lines and agreed to provide us with local
transport services. In conjunction with these agreements, ICG invested $10
million in our Series D-1 preferred stock.
@Home. In June 1998, we entered into a strategic agreement with @Work (a
division of At Home Corporation) in which @Work agreed to sell our services to
its small- and medium-sized business customers. In March 1999, we entered into
an amended agreement with @Work in which @Work established targeted volume
commitment levels and agreed to jointly develop and implement marketing
programs to expand the demand for @Work DSL lines supplied by us. In addition,
we will jointly pursue additional online activities that will provide services
to small- and medium-sized businesses and promote awareness of our services. In
July 1998, At Home Corporation purchased $2 million of our Series C preferred
stock and in March 1999, it invested $6 million in our Series D-1 preferred
stock.
Cable & Wireless. In March 1999, we signed a two-year agreement with Cable &
Wireless in which we were designated as Cable & Wireless' preferred DSL
provider in the U.S. We will work with Cable & Wireless to develop new products
for the domestic and international markets, as well as to jointly market DSL
and other products. In conjunction with the agreement, Cable & Wireless
invested $5 million in our Series D-1 preferred stock.
Concentric. In April 1999, Concentric committed to purchase a specified
number of DSL lines over the two-year term of our strategic agreement.
Concentric also agreed to use our services in 20 metropolitan areas, in
addition to the seven metropolitan areas in which they currently offer our
services. In addition, Concentric and NorthPoint will undertake development and
co-marketing of new products. In conjunction with the agreement, Concentric
invested $5 million in our Series D-1 preferred stock.
Frontier. In April 1999, a subsidiary of Frontier signed a strategic
development and services agreement with us. In the two-year agreement, Frontier
designated us as a preferred provider of DSL services. In addition, we will
jointly undertake development of new products and systems interfaces.
NorthPoint may also purchase transport, hosting, peering and collocation
services from Frontier. In conjunction with the agreement, another affiliate of
Frontier invested $4.9 million in our Series D-1 preferred stock.
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Network Plus. In March 1999, we entered into a two-year agreement with
Network Plus in which we were designated as Network Plus' preferred provider of
DSL lines. Network Plus also committed to purchase a specific number of DSL
Lines. We will also work with Network Plus to develop new products. In
conjunction with the agreement, Network Plus invested $2.5 million in our
Series D-1 preferred stock.
Intel. We have entered into a strategic relationship with Intel, a company
that designs, develops, manufactures and markets computer components and
related products at various levels of integration. Intel is also one of the
supporters of the G.lite specification for a consumer version of DSL. We are
working with Intel to enhance our service offerings. In August 1998, Intel
purchased $2 million of our Series C preferred stock and acquired contingent
warrants to purchase 212,568 shares of our common stock at the same price per
share. The contingent warrants become exercisable by Intel on or after
September 30, 1999 provided that, by that date, Intel has placed good faith
purchase orders for our DSL services in Phoenix, Arizona and Portland, Oregon,
or we have not used our best efforts to launch our services in those two
markets.
Netopia. In April 1999, Netopia designated NorthPoint as the preferred
provider for its Small Business DSL Education Center and DSL Affiliate Program
on the GeoCities Internet Portal website. This partnership allows us to receive
customer referrals as a result of Netopia's and GeoCities' promotional
activities. The approximately 3.5 million GeoCities website owners (called
Homesteaders) will have the opportunity to participate in the Netopia DSL
Affiliate Program and the approximately 19.5 million GeoCities visitors per
month will have the opportunity to visit the DSL Education Center. In
conjunction with the agreement, Netopia invested $1 million in our Series D-1
preferred stock.
Tandy. In April 1999, we entered into a strategic alliance with Tandy, parent
company of the RadioShack stores. Under the terms of the five-year agreement,
Tandy designated us a preferred provider of DSL services for sale to its
customers in markets we serve. We expect our network to cover approximately
1,400 Tandy-owned RadioShack stores nationwide by the end of 1999. In these
stores, RadioShack will demonstrate our services and sell high-speed Internet
access using our network services. We have agreed to install DSL connections
and certain hardware in RadioShack stores that will be selling our services.
Enron Communications. In April 1999, Enron Communications entered into a
strategic product distribution agreement with us. Under this agreement, we will
enable our networks to deliver Enron's advanced, broadband applications to end
users on our networks. We will receive a portion of the revenue generated by
such applications. We have agreed to cooperate in distributing future products
and applications that meet the needs of our customers and end users and will
jointly promote such services to our network service providers. Enron
Communications is the communications subsidiary of Enron Corp., one of the
world's leading integrated natural gas and electricity companies.
Alternative Data Transport Technologies
We believe that our DSL-enabled networks offer price and performance
characteristics that are attractive to network service providers for many of
their end users when compared with other options:
. Dial-up Analog Modems. Analog modems use the traditional telephone
system, and are the most commonly used data transport technology today.
Because the electronic components of the traditional telephone system
limit data transmission speeds, however, these traditional modems rarely
exceed data throughput of 56 kilobits per second. In addition, modems
generally require that the user or system dial a phone number to connect
with a data service, which creates delays in making connections and may
present security concerns.
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. Integrated Services Digital Network (ISDN). Integrated services digital
network is a technology that works with the traditional telephone system
to send voice and data over existing copper wires at speeds up to 144
kilobits per second. Integrated services digital network is equal in
speed or slower than all of our services. Integrated services digital
network is typically priced with usage charges, making an always-on
connection with an integrated services digital network modem
prohibitively expensive.
. T1 Service. T1 service provides data transmission speed of 1.544 megabits
per second. T1 pricing has traditionally been sensitive to the distance
between an end user and its service provider, creating marketing
difficulties and pricing anomalies.
. Cable Modems. Cable modem networks have penetrated certain residential
markets, but only about half of all homes nationwide are wired for high-
capacity cable. In addition, we believe that many of our target business
end users are not passed by existing cable infrastructure. Moreover,
although cable modems offer high speed services, they operate over a
shared cable infrastructure and therefore cannot offer guaranteed
bandwidth or the network security features that we believe a majority of
our targeted end users demand. In addition, cable modems do not offer
symmetric bandwidth, which we believe is important for business
applications.
. Wireless. Few of our target end users are served today by fixed wireless
infrastructure. We believe further rollout will be slowed by the need for
fixed wireless service providers to obtain roof rights and overcome
technological limitations and interference from terrain, obstructions and
weather.
. Fiber. Fiber optic lines provide high speed data transport, but today
reach only a fraction of our target end users. Local fiber optic builds
have generally targeted large corporations based in downtown office
buildings. Moreover, even where fiber passes a building, our DSL-enabled
network may be more cost effective for small- to medium-sized businesses.
For more information about the highly competitive market in which we operate,
see "Risk Factors--The Market in Which We Operate is Highly Competitive, and We
May Not Be Able to Compete Effectively, Especially Against Established Industry
Competitors with Significantly Greater Financial Resources."
Government Regulation
Overview. Our telecommunications services are subject to varying degrees of
federal, state and local regulation. The FCC and state utility commissions
regulate telecommunications common carriers. A telecommunications common
carrier is a company which offers telecommunications services to the public or
to all prospective users on standardized rates and terms. Our data transport
services are common carrier services.
The FCC exercises jurisdiction over telecommunications common carriers, and
their facilities and services, to the extent they are providing interstate or
international communications. The various state regulatory commissions retain
jurisdiction over telecommunications carriers, and their facilities and
services, to the extent they are used to provide communications that originate
and terminate within the same state. The degree of regulation varies from state
to state.
In recent years, the regulation of the telecommunications industry has been
in a state of flux as the United States Congress and various state legislatures
have passed laws seeking to foster greater competition in telecommunications
markets. The FCC and state utility commissions have adopted many new rules to
implement these new laws and encourage competition. These changes, which are
still incomplete, have created new opportunities and challenges for us and our
competitors. The following summary of regulatory developments and legislation
does not purport to describe all
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present and proposed federal, state and local regulations and legislation
affecting the telecommunications industry. Certain of these and other existing
federal and state regulations are currently the subject of judicial
proceedings, legislative hearings and administrative proposals which could
change, in varying degrees, the manner in which this industry operates. Neither
the outcome of these proceedings nor their impact upon the telecommunications
industry or us can be predicted at this time.
Federal Regulation. Although we currently are not subject to price cap or
rate of return regulation at the federal level and are not currently required
to obtain FCC authorization for the installation, acquisition or operation of
our network facilities, we nevertheless must comply with the requirements of
common carriage under the Communications Act of 1934 (the "Communications
Act"), as amended, to the extent we provide interstate services. Pursuant to
the Communications Act, we are subject to the general requirement that our
charges and regulations for communications services must be "just and
reasonable" and that we may not make any "unjust or unreasonable
discrimination" in our charges or regulations. Certain other specific
regulations applicable to us are discussed below. The FCC also has jurisdiction
to act upon complaints against any common carrier for failure to comply with
its statutory obligations.
Comprehensive amendments to the Communications Act were made by the
Telecommunications Act, which was signed into law on February 8, 1996. The
Telecommunications Act effected plenary changes in regulation at both the
federal and state levels that affect virtually every segment of the
telecommunications industry. The stated purpose of the Telecommunications Act
is to promote competition in all areas of telecommunications. While it may take
years for the industry to feel the full impact of the Telecommunications Act,
it is already clear that the legislation provides us with both new
opportunities and new challenges.
The Telecommunications Act greatly expands the interconnection requirements
on the incumbent local exchange carriers, or ILECs. The Telecommunications Act
requires the ILECs to:
. provide physical collocation, which allows companies such as us and other
interconnectors to install and maintain their own network termination
equipment in ILEC central offices, and virtual collocation only if
requested or if physical collocation is demonstrated to be technically
infeasible;
. unbundle components of their local service networks so that other
providers of local service can compete for a wide range of local services
customers;
. establish "wholesale" rates for their services to promote resale by
competitive local exchange carriers, or CLECs, and other competitors;
. establish number portability, which will allow a customer to retain its
existing phone number if it switches from the ILEC to a competitive local
service provider;
. establish dialing parity, which ensures that customers will not detect a
quality difference in dialing telephone numbers or accessing operators or
emergency services; and
. provide nondiscriminatory access to telephone poles, ducts, conduits and
rights-of-way.
In addition, the Telecommunications Act requires ILECs to compensate
competitive carriers for traffic originated by ILECs and terminated on the
competitive carriers' network.
The FCC is charged with establishing national guidelines to implement certain
portions of the Telecommunications Act. The FCC issued its Interconnection
Order on August 8, 1996. On July 18, 1997, however, the United States Court of
Appeals for the Eighth Circuit issued a decision vacating the FCC's pricing
rules, as well as certain other portions of the FCC's interconnection rules, on
the grounds that the FCC had improperly intruded into matters reserved for
state jurisdiction. On January 25, 1999,
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the Supreme Court largely reversed the Eighth Circuit's order, holding that the
FCC has general jurisdiction to implement the local competition provisions of
the Telecommunications Act. In so doing, the Supreme Court stated that the FCC
has authority to set pricing guidelines for unbundled network elements, to
prevent ILECs from disaggregating existing combinations of network elements,
and to establish "pick and choose" rules regarding interconnection agreements
(which would permit a carrier seeking interconnection to "pick and choose"
among the terms of service from other interconnection agreements between the
ILECs and other CLECs). This action reestablishes the validity of many of the
FCC rules vacated by the Eighth Circuit. Although the Supreme Court affirmed
the FCC's authority to develop pricing guidelines, the Supreme Court did not
evaluate the specific pricing methodology adopted by the FCC and has remanded
the case to the Eighth Circuit for further consideration. In its decision,
however, the Supreme Court also vacated the FCC's rule that identifies the
unbundled network elements that ILECs must provide to CLECs. The Supreme Court
found that the FCC had not adequately considered certain statutory criteria for
requiring ILECs to make those network elements available to CLECs and must
reexamine the matter. Thus, while the Supreme Court resolved many issues,
including the FCC's jurisdictional authority, other issues remain subject to
further consideration by the courts and the FCC. The Eighth Circuit has not yet
reinstated the FCC's rules that were affirmed by the Supreme Court, and several
ILECs have asked the Eighth Circuit not to reinstate those rules until further
legal challenges have been resolved. We cannot predict the ultimate disposition
of those matters. The possible impact of this decision, including the portion
dealing with unbundled network elements, on existing interconnection agreements
between ILECs and CLECs or on agreements that may be negotiated in the future
also cannot be determined at this time.
As a result of the pro-competitive provisions of the Telecommunications Act,
we have been able to obtain authorizations to operate as a CLEC in California,
Colorado, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, New Jersey, New York, North Carolina, Ohio, Oregon,
Pennsylvania, Texas, Virginia, Washington and Washington D.C. We have signed
interconnection agreements in all these states except Illinois and Michigan,
where we are procuring unbundled network elements out of tariff.
The FCC has established different levels of regulation for dominant and non-
dominant carriers. Of domestic common carrier service providers, only GTE, the
regional Bell operating companies and other ILECs are classified as dominant
carriers and all other providers of domestic common carrier services, including
us, are classified as non-dominant carriers. As a non-dominant carrier, we are
subject to less FCC regulation than dominant carriers.
The Telecommunications Act also directs the FCC, in cooperation with state
regulators, to establish a universal service fund that will provide subsidies
to carriers that provide service to under-served individuals and in high cost
areas. A portion of carriers' contributions to the universal service fund also
will be used to provide telecommunications-related facilities for schools,
libraries and certain rural health care providers. The FCC released its initial
order in June 1997. This order will require us to contribute to the universal
service fund, but may also allow us to receive payments from the fund if we are
deemed eligible. We also may provide service to under-served customers in lieu
of making universal service fund payments. The FCC's implementation of
universal service requirements remains subject to judicial and additional FCC
review. Additional changes to the universal service regime, which would
increase our costs, could have adverse consequences for us.
Recently, various regional Bell operating companies have filed petitions with
the FCC requesting regulatory relief in connection with the provision of data
services, including DSL services. In response to these petitions, the FCC
issued a decision that data services generally are telecommunications services
that, when provided by ILECs, are subject to the FCC's interconnection rules,
including the rule requiring that an ILEC's data services be subject to
unbundling and resale requirements under the Telecommunications Act. Petitions
have been filed with the FCC asking it to reconsider its decision in this
regard. The FCC has also initiated a proceeding to determine whether ILECs will
be
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able to avoid certain of their obligations by providing data services through
"truly" separate affiliates, whether the FCC will specifically require ILECs to
unbundle their DSL equipment and resell DSL services, and whether the FCC will
grant the regional Bell operating companies relief in local access and
transport areas for the provision of data services. A decision by the FCC on
these issues is expected shortly. In addition, various regional Bell operating
companies have requested relief from dominant carrier regulation for their data
services in certain regions. The effect that these proceedings will have on our
ability to obtain facilities and services from ILECs and on the competition
that we will face from ILECs cannot be predicted.
As part of the FCC's proceeding regarding the provision of data services, the
FCC adopted new rules designed to make it easier and less expensive for CLECs
to obtain collocation at ILEC central offices by, among other things,
restricting the ILECs' ability to prevent certain types of equipment from being
collocated and requiring ILECs to offer alternative collocation arrangements to
CLECs. The FCC also adopted rules relating to spectrum compatibility, and
initiated a new proceeding to address spectrum compatibility issues in greater
detail. In addition, this new proceeding will address line sharing, which, if
implemented, would allow CLECs to offer data services over the same line that a
consumer uses for voice services without the CLEC having to provide the voice
service. We cannot predict what effect the FCC's decisions on these issues will
have on our business.
State Regulation. To the extent that we provide telecommunications services
which originate and terminate within the same state, we are subject to the
jurisdiction of that state's public service commission. As noted above, we have
obtained authorizations to operate as a CLEC in all of our 28 target markets.
We are not subject to price cap or rate of return regulation in any state in
which we are currently certificated to provide local exchange service.
The Telecommunications Act preempts state statutes and regulations that
prohibit or have the effect of prohibiting the provision of competitive local
services. As a result of this sweeping legislation, we will be free to provide
the full range of intrastate local and long distance services in all states in
which we currently operate, and in any states into which we may wish to expand.
While this action greatly increases our addressable customer base, it also
increases the amount of competition to which we may be subject.
Although the Telecommunications Act's prohibition of state barriers to
competitive entry took effect on February 8, 1996, various legal and policy
matters still must be resolved before the Telecommunications Act's policies
promoting local competition are fully implemented.
To the extent we provide intrastate services, we may be required to file
tariffs with the state public service commission setting forth the terms,
conditions and prices for services classified as intrastate. Like the FCC, most
states also consider complaints relating to a carrier's intrastate services or
rates.
As we expand our operations into other states, we may become subject to the
jurisdiction of their respective public service commissions for certain
services offered by us.
Local Government Authorizations. We may be required to obtain from municipal
authorities street opening and construction permits to install our facilities
in certain cities. In some of the areas where we provide service, we are
subject to municipal franchise requirements requiring us to pay license or
franchise fees either on a percentage of gross revenue, flat fee or other
basis. The Telecommunications Act requires municipalities to charge
nondiscriminatory fees to all telecommunications providers, but it is uncertain
how quickly this requirement will be implemented by particular municipalities
in which we operate or plan to operate or whether it will be implemented
without a legal challenge.
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Customers
In 1998, our two largest customers were Concentric Network Corporation and
Flashcom, Inc. See Note 2 to our consolidated financial statements. A loss of
or decrease in business from any major customer could have a material adverse
effect on our business, prospects, financial condition and results of
operations. For more information, see "Risk Factors--A Limited Number of
Customers Account for a High Percentage of Our Revenue and the Loss of a
Significant Customer Could Harm Our Business."
Employees
As of April 12, 1999, NorthPoint had 423 employees (including 20 temporary
personnel and consultants), employed in engineering, sales, marketing, customer
support and related activities, and general and administrative functions. None
of our employees is represented by a labor union, and we consider our relations
with our employees to be good. See "Risk Factors--Our Success Depends on Our
Retention of Executive Officers and Other Key Personnel and Our Ability to Hire
Additional Key Personnel."
Facilities
We are headquartered in facilities consisting of approximately 50,000 square
feet in the San Francisco Bay Area which we occupy under five-year leases. In
addition, we occupy 12,000 square feet in San Francisco under a two-year lease
and have short-term leases for our 25 regional offices. We consider this space
adequate for our current operations. We also lease space in a number of
traditional telephone company central offices and private facilities in which
we locate our equipment.
Legal Proceedings
We are not currently engaged in any material legal proceedings.
We are, however, subject to state commission, FCC and court decisions as they
relate to the interpretation and implementation of the Telecommunications Act,
the interpretation of CLEC interconnection agreements in general and our
interconnection agreements in particular. In some cases, we may be deemed to be
bound by the results of ongoing proceedings of these bodies or the legal
outcomes of other contested interconnection agreements that are similar to our
agreements. The results of any of these proceedings could have a material
adverse effect on our business, prospects, financial condition and results of
operations.
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MANAGEMENT
Executive Officers and Directors
Our executive officers and directors, and their ages as of April 12, 1999,
are as follows:
Michael W. Malaga is a founder and has been the Chief Executive Officer and
Chairman of NorthPoint since June 1997. Mr. Malaga was also the President of
NorthPoint from June 1997 to March 1999. From June 1995 to June 1997, Mr.
Malaga was employed at MFS Communications Company, Inc., most recently as the
Director of Strategic Development, where he led the strategic and development
efforts for xDSL and small-business Internet access. While at MFS, Mr. Malaga
played a principal role in integrating its purchase of UUNET Technologies,
Inc., a national ISP. Prior to joining MFS, Mr. Malaga worked at GenRad, Inc.'s
Structural Test Products Division from 1988 to June 1995.
Elizabeth A. Fetter has been the President and Chief Operating Officer of
NorthPoint since March 1999. From January 1998 until joining NorthPoint, Ms.
Fetter was Vice President and General Manager of the Consumer Services Group at
U S WEST where she was responsible for a $4.7 billion dollar business serving
over 11 million customers with integrated wireline, wireless and data services.
In 1997, Ms. Fetter served as Vice President and General Manager of Operator
and Directory Services for SBC Communications Inc. From March 1991 to April
1997, Ms. Fetter held various executive positions in strategy, finance, sales,
marketing and general management at Pacific
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Bell, most recently as President of the Industry Markets Group, where she was
responsible for the Company's wholesale, interconnection and resale businesses.
Ms. Fetter worked in international management consulting and at Chevron
Corporation prior to March 1991.
Herman W. Bluestein has been the Chief Development Officer of NorthPoint
since September 1998. From October 1997 until joining NorthPoint, Mr. Bluestein
was Chief Executive Officer of Pacific Communications Services. From 1995
through 1997, Mr. Bluestein was Vice President of Wireless Strategy and
Development for MCI Communications Corp. (now known as MCI WorldCom, Inc.)
where he developed and executed MCI's wireless strategy, negotiated service
agreements with cellular and PCS providers and managed strategic relationships
with service providers. From 1994 to 1995, Mr. Bluestein was Vice President,
Business Development and Alliance General Manager for MCI's alliance with
British Telecommunications, plc. From 1989 to 1994, Mr. Bluestein was Vice
President of Strategic Business Development and Geographic Expansion for Centex
Telemanagement, Inc., a San Francisco-based telecommunications company that was
acquired by MFS in 1994.
William J. Euske is a founder and has been the Chief Technical Officer of
NorthPoint since June 1997. From July 1992 to March 1997, he was the Senior
Vice President of Advanced Networks and Technology at MFS, where he led the
launch of MFS's xDSL services. As Vice President of Product Engineering for its
Data Services unit, he built one of the first commercial ATM networks, which
supported wire-speed LAN traffic, frame relay and variable bit rate voice
traffic. Prior to his employment at MFS, Mr. Euske was the Head of North
American Research and Development for British Telecom from November 1989 to
July 1992.
Nathan T. Gregory is a founder and has been the Chief Network Architect of
NorthPoint since June 1997. Mr. Gregory was with MFS beginning in September
1992, where he was responsible for the data architecture for the xDSL product
offering, including all equipment evaluation and testing, central office
configuration design, and service offering engineering specifications. Mr.
Gregory was also a principal member of the original MFS Data Services team
responsible for releasing the first commercial ATM service in the United States
as well as its worldwide frame relay product.
Henry P. Huff has been the Vice President, Finance and Chief Financial
Officer of NorthPoint since June 1998. Mr. Huff served as the Chief Financial
Officer of Fabrik Communications, Inc., a messaging service provider, from
October 1996 until June 1998 and as the Chief Financial Officer of Sierra
Ventures, a Menlo Park-based venture capital firm, from February 1992 to
September 1996. From August 1986 to February 1992, Mr. Huff was the Chief
Financial Officer of Centex.
Robert F. Flood is a founder and has been the Vice President, Operations of
NorthPoint since June 1997. Prior to joining NorthPoint, Mr. Flood was the Vice
President of Network Administration at MFS, where he was responsible for
traffic engineering, switch translations, capacity planning and network
infrastructure on both the local and long-distance portions of the network.
From 1990 until joining MFS in June 1994, Mr. Flood was Director of Engineering
and Customer Service at Centex where he was responsible for cost management,
provisioning, traffic engineering and customer service.
Steven J. Gorosh is a founder and has been the Vice President, General
Counsel and Secretary of NorthPoint since June 1997. From June 1994 to June
1997, Mr. Gorosh was the Senior Counsel for MFS Intelenet, where he helped set
regulatory strategy and obtain necessary local service regulatory authority for
the nation's largest alternative local service provider. From June 1991 to June
1994, Mr. Gorosh served as the Senior Counsel at Centex prior to its
acquisition by MFS. From April 1988 until joining Centex, Mr. Gorosh was an
attorney in the FCC Common Carrier and General Counsel Bureaus.
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Samuel M. Lamonica, Jr. has been the Vice President, Information Technology
and Application Development of NorthPoint since May 1998. From March 1995 until
joining NorthPoint, Mr. Lamonica was employed at Network Equipment
Technologies, Inc. as a Senior Manager of application development for N.E.T.'s
customer service, engineering and sales and marketing organizations. From
January 1980 to February 1995, Mr. Lamonica served in various technical
capacities for Pacific Bell, including Pacific Bell Service Manager. He was
responsible for the design, development and implementation of projects
including 411 directory assistance systems, hotel billing systems, language
assistance bureau, automated pay-by-phone, message center mass market voice
mail and business market segmentation.
Timothy M. Monahan is a founder and has been the Vice President, Corporate
Development of NorthPoint since June 1998. From June 1997 until June 1998, Mr.
Monahan served as NorthPoint's Vice President, Finance and Chief Financial
Officer. Mr. Monahan was the Director of Corporate Development at MFS from 1996
to 1997, where he led the financial and planning aspects of its commercial xDSL
product and internal ISP creation project, forming an evaluation basis for the
purchase of UUNET by MFS. From 1993 to 1996, Mr. Monahan was Assistant
Treasurer and Manager of Business Planning at MFS. Prior to joining MFS, from
June 1988 to June 1991, Mr. Monahan was a consultant with Booz, Allen &
Hamilton.
Richard J. Morris has been the Vice President, Engineering and Program
Management of NorthPoint since June 1997. From September 1994 until joining
NorthPoint, Mr. Morris was the Director of Data Product Development at MFS,
where he developed its xDSL product and led project teams in engineering
design, operations, provisioning and product rollout. He was also responsible
for the development of domestic and international data services of MFS,
including LAN extension over ATM, MAE Internet connectivity, ATM and frame
relay services. From 1990 until joining MFS, Mr. Morris was the Manager,
Broadband Networks for British Telecom, where he served as deployment project
manager and its representative on the European ATM deployment forums.
John H. Stormer has been the Vice President of Marketing of NorthPoint since
September 1998. Mr. Stormer was previously NorthPoint's Director of Business
Development since November 1997. From August 1991 to April 1996, Mr. Stormer
held several director positions at Sprint Corporation and later at Sprint
Telecommunications Venture (now known as Sprint PCS). At Sprint PCS, Mr.
Stormer led the early development of the consumer marketing strategy to launch
integrated wireless and wireline services. Prior to Sprint, Mr. Stormer held
management positions at AT&T Corporation in Business Marketing and Operator
Services, and at Marion Merrell Dow (now known as Hoechst Marion Rousell) in
Business Planning and Development.
Ann W. Zeichner has been the Vice President, Sales of NorthPoint since
September 1998. From September 1997 until September 1998, Ms. Zeichner served
as NorthPoint's Vice President, Sales and Marketing. From June 1995 to May
1997, Ms. Zeichner was President and Chief Executive Officer of Cambio
Networks, Inc., a supplier of network infrastructure documentation solutions.
From August 1993 to May 1995, Ms. Zeichner served as a Vice President of Sales
at Centrum, a remote-access startup company acquired by 3Com Corporation. After
the acquisition, she joined 3Com as Vice President of Sales for the Personal
Office Division in July 1994 and later was appointed as 3Com's Corporate
Director of Industry Marketing. Prior to that, she held Vice President Sales
positions at Ascend Communications, Inc., ADC Fibermux Corp. and Micom
Communications Corp.
Robert K. Dahl has served as a member of the board of directors since March
1998. Mr. Dahl has been a General Partner at Riviera Ventures, an Alameda-based
private investment and management firm, since February 1998, where he
specializes in investing in companies in the communications sector. From
December 1993 to July 1997, Mr. Dahl served as the Executive Vice President and
Chief Financial Officer for Ascend Communications, Inc. and from July 1997 to
January 1998, Mr. Dahl served as Ascend's Executive Vice President of Corporate
Planning.
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Mr. Dahl also serves as a director of Ascend, Momentum Business Applications,
Inc., the Bank of Alameda and several privately held companies.
Reed E. Hundt has served as a member of the board of directors since May
1998. Mr. Hundt served as Chairman of the FCC from 1993 to 1997. He currently
serves as senior advisor at McKinsey & Company, Inc., an international
consulting firm. Prior to joining the FCC, Mr. Hundt was a partner at Latham &
Watkins, an international law firm. Mr. Hundt also serves on the board of
directors of Allegiance Telecom, Inc., Ascend Communications and Novell, Inc.
Andrew S. Rachleff has served as a member of the board of directors since
August 1997. Since 1995, Mr. Rachleff has been a General Partner at Benchmark
Capital, a Menlo Park-based venture capital firm, where he specializes in
investing in companies in the communications industry. Prior to co-founding
Benchmark Capital, Mr. Rachleff spent ten years as a general partner with
Merrill, Pickard, Anderson & Eyre, a Menlo Park-based venture capital firm. Mr.
Rachleff serves on the boards of directors of several privately held companies.
Dino J. Vendetti has served as a member of the board of directors since
February 1999. Mr. Vendetti has managed investments in the telecommunications,
cable and data networking industries for Vulcan Ventures, Inc. since May 1998.
From August 1997 until joining Vulcan Ventures, Mr. Vendetti was Vice President
and Research Analyst at Dain Rauscher covering the telecommunications industry.
From July 1996 to April 1997, Mr. Vendetti was Vice President of Product
Management at Metawave Communications Corporation. From October 1994 to July
1996, Mr. Vendetti served as Director of Business Development and Product
Management for Qualcomm, Inc., where he was responsible for the global
infrastructure product line.
J. Peter Wagner has served as a member of the board of directors since August
1997. Mr. Wagner joined Accel Partners, a San Francisco-based private equity
investing firm, in July 1996, and has been a General Partner since January
1998, where he specializes in investing in companies in the communications
sector, including networking, telecommunications and wireless technology. From
September 1992 to July 1996, Mr. Wagner was a Product Line Manager for Silicon
Graphics, Inc. Mr. Wagner also serves on the boards of directors of several
privately held companies.
Frank D. Yeary has served as a member of the board of directors since
February 1999. Mr. Yeary joined The Carlyle Group in 1998 as a Managing
Director and is in charge of Carlyle's domestic and global telecommunications
and media investments. From January 1995 to June 1998, Mr. Yeary was Managing
Director, Global Head of Telecommunications & Media and was a member of the
Investment Banking Management Committee at Salomon Smith Barney.
Board of Directors
Our certificate of incorporation divides our directors into three classes.
Three Class I Directors hold office initially for a term expiring at the annual
meeting of stockholders in 2000. Two Class II Directors hold office initially
for a term expiring at the annual meeting of stockholders in 2001. Two Class
III Directors hold office initially for a term expiring at the annual meeting
of stockholders in 2002. The members of each class hold office until their
successors are duly elected and qualified. At each annual meeting of NorthPoint
stockholders, the successors to the class of directors whose term expires at
the meeting will be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
Committees of the Board of Directors
In March 1999, the board of directors established an audit committee and a
compensation committee. The audit committee consists of Messrs. Dahl, Rachleff
and Yeary, all of whom are
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outside directors. The audit committee recommends engagement of NorthPoint's
independent auditors, approves the services performed by such auditors and
reviews and evaluates NorthPoint's accounting policies and its systems of
internal accounting controls. The compensation committee consists of Messrs.
Hundt, Wagner and Vendetti, all of whom are outside directors of NorthPoint.
The compensation committee makes recommendations to the board of directors in
connection with matters of compensation, including determining the compensation
of NorthPoint's executive officers.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between the board of directors or the
compensation committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past. Messrs. Hundt, Wagner and Vendetti are affiliated with Charles Ross
Partners, Accel Partners and Vulcan Ventures, respectively, which are holders
of our preferred stock. See "Certain Transactions."
Executive Compensation
The following table sets forth information concerning compensation of our
Chief Executive Officer and the top four other highly compensated executive
officers whose salary and incentive compensation exceeded $100,000 for the year
ended December 31, 1998 (the "Named Executive Officers"). The column marked
"All Other Compensation" consists of relocation expenses for which we
reimbursed Mr. Bluestein.
SUMMARY COMPENSATION TABLE
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Option Grants and Exercises
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1998
to the Named Executive Officers. In the column marked "Potential Realizable
Value At Assumed Annual Rates of Stock Price Appreciation For Option Term,"
potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation only,
based on the SEC rules. Actual gains if any, on stock option exercises are
dependent on the future performance of the common stock, overall market
conditions and the option-holders' continued employment through the vesting
period. The amounts reflected in this table may not necessarily be achieved.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information concerning exercises of options to
purchase our common stock in the fiscal year ended December 31, 1998, and
unexercised options held as of December 31, 1998, by the Named Executive
Officers. The fair value of the unexercised in-the-money options was determined
by our management to be $1.41 per share at December 31, 1998, less the exercise
price of such options. The option exercise prices were set by our board of
directors and generally reflect its best estimate of the fair value of our
stock on the date of each grant based on recent sales of our equity securities,
developments in our business and developments in the financial markets. When
the board of directors elects to grant options at a lower price we recognize
deferred compensation for the difference.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
1997 Stock Option Plan
Our 1997 Stock Option Plan was adopted by the board of directors and approved
by the stockholders in September 1997. A total of 16,147,647 shares of common
stock has been reserved for issuance under the plan. As of April 12, 1999,
options to purchase 13,537,899 shares of common stock were outstanding under
the plan.
The plan provides for grants to employees of NorthPoint (including officers
and employee directors) of "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal
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Revenue Code of 1986, as amended (the "Code"), and for grants of nonstatutory
stock options ("NSOs") to employees (including officers and employee directors)
and consultants (including non-employee directors) of NorthPoint.
The plan is administered by the board of directors or a committee of the
board of directors. The plan is currently being administered by the
compensation committee of the board of directors. The administrator may
determine the terms of the options granted, including the exercise price, the
number of shares subject to each option and the exercisability of the option.
The administrator also has the full power to select the individuals to whom
options will be granted and to make any combination of grants to any
participants.
Options generally have a term of ten years. One-fourth of the shares subject
to the option vest on the one-year anniversary of the vesting commencement date
and 1/48th of the shares subject to the option vest on each monthly anniversary
of the vesting commencement date thereafter.
The option exercise price may not be less than 100% of the fair market value
of the common stock on the date of grant; provided, however, that NSOs may be
granted at exercise prices of not less than 85% of the fair market value on the
date the option is granted. In the case of an ISO or NSO granted to a person
who at the time of the grant owns stock representing more than 10% of the total
combined voting power of all classes of stock of NorthPoint, the option
exercise price for each share covered by such option may not be less than 110%
of the fair market value of a share of common stock on the date of grant of
such option.
The term of an option is determined by the specific option agreement;
provided, however, the term may not be longer than ten years. Furthermore, the
maximum term for an option granted to an optionee is five years, if at the time
of the grant the optionee owns more than 10% of the total combined voting power
of all classes of stock of NorthPoint. No option may be exercised by any person
after its term expires.
In the event of a sale of all or substantially all of the assets of
NorthPoint, or the merger of NorthPoint with or into another corporation, each
option must be assumed or an equivalent option substituted by the successor
corporation. If the successor corporation does not agree to assume the option
or to substitute an equivalent option, the option will terminate upon the
consummation of the merger or sale of assets; provided, however, the
administrator has the discretion to decide to accelerate the vesting of the
option to make it exercisable as to some or all of the shares subject to the
option. In March 1999, NorthPoint Communications Group assumed all of the
options then outstanding under the 1997 Stock Option Plan.
1999 Stock Plan
NorthPoint's 1999 Stock Plan was adopted by the board of directors in March
1999 and approved by our stockholders in April 1999. A total of 11,977,353
shares of common stock has been reserved for issuance under the 1999 Stock
Plan. As of April 12, 1999, 3,927,611 options have been issued under the 1999
Stock Plan.
The 1999 Stock Plan provides for grants of ISOs to employees, consultants and
members of NorthPoint's board of directors, and for grants of NSOs and stock
purchase rights to employees (including officers and employee directors) and
consultants (including non-employee directors) of NorthPoint.
The 1999 Stock Plan is administered by the compensation committee or another
committee of the board of directors. The 1999 Stock Plan is currently being
administered by the compensation committee. The administrator of the 1999 Stock
Plan may determine the terms of the options and
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stock purchase rights granted, including the exercise price, the number of
shares subject to each option and/or stock purchase right and the
exercisability of the option and/or stock purchase right. The administrator of
the 1999 Stock Plan also has the full power to select the individuals to whom
options and/or stock purchase rights will be granted, to make any combination
of grants to any participants and to determine whether stock acquired pursuant
to a stock purchase right is to be subject to repurchase by NorthPoint.
Options generally have a term of ten years. Options granted to employees vest
at a rate of no less than 20% per year over five years from the date the option
is granted. Options granted to independent directors vest over three years at
the rate of 1/36th on each monthly anniversary of the vesting commencement
date. Subsequent grants of options to outside directors vest over three years,
starting at the beginning of the third year anniversary at the rate of 1/12th
on each monthly anniversary of the vesting commencement date. Stock purchase
rights may be subject to repurchase options that lapse at a rate of no less
than 20% per year over five years from the date of purchase.
Option exercise prices may not be less than 100% of the fair market value of
the common stock on the date of the grant; however, NSOs may be granted at
exercise prices of not less than 85% of the fair market value of the date the
option is granted. In the case of an ISO or NSO granted to a person who at the
time of the grant owns stock representing more than 10% of the total combined
voting power of all classes of stock of NorthPoint, the option exercise price
for each share covered by such option may not be less than 110% of the fair
market value of a share of common stock on the date of grant of such option.
Option terms are determined by the option agreements; however, no option may
have a term longer than ten years. The maximum term for an option granted to an
optionee is five years, if at the time of the grant the optionee owns more than
10% of the total combined voting power of all classes of NorthPoint stock. No
option may be exercised by any person after its term expires.
In the event of a sale of all or substantially all of the assets of
NorthPoint, or the merger of NorthPoint with or into another corporation, the
administrator may provide for the repurchase, replacement or termination of
options or stock purchase rights. The administrator also has the discretion to
accelerate the vesting of options or stock purchase rights to make them
exercisable as to some or all of the underlying shares.
1999 Employee Stock Purchase Plan
NorthPoint's 1999 Employee Stock Purchase Plan was adopted by the board of
directors in March 1999 and approved by the stockholders in April 1999. A total
of 2,250,000 shares of common stock has been reserved for issuance under the
purchase plan. As of the date of this prospectus, no shares have been issued
under the purchase plan.
The purchase plan, which is intended to qualify under Section 423 of the
Code, contains consecutive six-month offering periods. The offering periods
generally start on January 1 and July 1 of each year, except for the first
offering period, which will commence on the effective date of this offering and
will end on June 30, 1999.
Employees are eligible to participate if they are customarily employed by us
or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, no employee may be granted a right
to purchase stock under the purchase plan (1) to the extent that, immediately
after the grant of the right to purchase stock, the employee would own (or be
treated as owning) stock possessing 5% or more of the total combined voting
power or value of all classes of the capital stock of NorthPoint or (2) to the
extent that his or her rights to purchase stock under all of our employee stock
purchase plans accrues at a rate which exceed $25,000 worth of
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stock for each calendar year. The purchase plan permits participants to
purchase common stock through payroll deductions of up to 10% of the
participant's base compensation. Base compensation is defined as the
participant's gross base compensation, excluding overtime payments, sales
commissions, incentive compensation, bonuses, expense reimbursements, fringe
benefits and other special payments. The maximum number of shares a participant
may purchase with respect to a single offering period is 4,500 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lesser of the fair market value
of the common stock (1) at the beginning of the offering period or (2) at the
end of the offering period. Participants may end their participation at any
time other than the final ten days of an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with NorthPoint.
Rights to purchase stock granted under the purchase plan are not transferable
by a participant other than by will, the laws of descent and distribution, or
as otherwise provided under the purchase plan. The purchase plan provides that,
in the event of a merger of NorthPoint with or into another corporation or a
sale of substantially all of NorthPoint's assets, each outstanding right to
purchase stock may be assumed or substituted for by the successor corporation.
The board of directors has the authority to amend or terminate the purchase
plan. However, no such action by the board of directors may adversely affect
any outstanding rights to purchase stock under the purchase plan, except that
the board of directors may terminate an offering period on any exercise date if
the board of directors determines that the termination of the purchase plan is
in the best interests of NorthPoint and its stockholders. Notwithstanding
anything to the contrary, the board of directors may in its sole discretion
amend the purchase plan to the extent necessary and desirable to avoid
unfavorable financial accounting consequences by altering the purchase price
for any offering period, shortening any offering period or allocating remaining
shares among the participants.
Limitation on Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Our bylaws provide that we shall
indemnify each of our directors and officers against expenses (including
attorneys' fees), judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was a director or officer of NorthPoint or serving
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise at our request. We have also entered into agreements
to indemnify directors and our executive officers.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 12, 1999 with
respect to the beneficial ownership of our common stock, as adjusted to reflect
the conversion of outstanding preferred stock into common stock immediately
prior to the completion of this offering, by:
. each person known by us to own beneficially more than five percent, in
the aggregate, of the outstanding shares of our common stock, assuming
the conversion of all preferred stock into common stock;
. our directors and our Named Executive Officers; and
. all executive officers and directors as group.
Share ownership in each case includes shares issuable upon exercise of
outstanding options and warrants that are exercisable within 60 days of April
12, 1999 as described in the footnotes below. Percentage of ownership is
calculated pursuant to SEC Rule 13d-3(d)(1). Percentage ownership calculations
before and after the offering are based on 106,035,740 shares and 119,035,740
shares, respectively, of common stock outstanding. The address for all
executive officers and directors is c/o NorthPoint Communications, Inc., 222
Sutter Street, San Francisco, CA 94108.
- --------
* Less than 1%.
(1) Consists of 11,735,602 shares held by various affiliates of Accel
Partners. Mr. Wagner, a General Partner of Accel Partners, may be deemed
to have voting and investment power over
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the shares held by Accel Partners and its affiliates. Mr. Wagner disclaims
beneficial interest in such shares, except to the extent of his interest in
Accel Partners.
(2) Consists of 10,528,132 shares held by Benchmark Capital Partners, L.P.
and 1,471,460 shares held by Benchmark Founders' Fund, L.P. Mr. Rachleff,
a Managing Member of Benchmark Capital Management Co., LLC, the General
Partner of Benchmark Capital Management and Benchmark Founders' Fund, may
be deemed to have voting and investment power over the shares held by
Benchmark Capital Management and Benchmark Founders' Fund and its
affiliates. Mr. Rachleff disclaims beneficial interest in such shares,
except to the extent of his interest in Benchmark Capital Management Co.,
LLC.
(3) Consists of 23,902,257 shares held by various affiliates of The Carlyle
Group. Mr. Yeary, a director of NorthPoint, is a General Partner of The
Carlyle Group. Mr. Yeary disclaims beneficial interest in such shares,
except to the extent of his interest in The Carlyle Group and its
affiliates.
(4) Consists of 127,477 shares held by The Dahl Family Trust dated October
31, 1989, as amended May 3, 1990. Mr. Dahl is the Trustee of The Dahl
Family Trust.
(5) Consists of 127,477 shares held by Charles Ross Partners Investment Fund
Number 1. Mr. Hundt, a General Partner of Charles Ross Partners, may be
deemed to have voting and investment power over the shares held by
Charles Ross Partners Investment Fund Number 1. Mr. Hundt disclaims
beneficial interest in such shares, except to the extent of his interest
in Charles Ross Partners.
(6) Mr. Vendetti was appointed by Vulcan Ventures as its representative on
NorthPoint's Board of Directors.
(7) Includes 2,516,526 shares of common stock subject to options that are
exercisable within 60 days of April 12, 1999.
(8) Includes 10,528,132 shares held by Benchmark Capital Partners; 1,471,460
shares held by Benchmark Founders' Fund; 11,735,602 shares held by
affiliates of Accel Partners; 23,902,257 shares held by various
affiliates of the Carlyle Group. Andrew Rachleff, a director of
NorthPoint, is a Managing Member of Benchmark Capital Management Co.,
LLC, the General Partner of Benchmark Capital Partners and Benchmark
Founders' Fund. Peter Wagner, a director of NorthPoint, is a General
Partner of Accel Partners. Frank Yeary, a director of NorthPoint, is a
General Partner of The Carlyle Group.
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CERTAIN TRANSACTIONS
Reorganization
In March 1999, we completed a reorganization in which NorthPoint
Communications, Inc. became a wholly owned subsidiary of a newly created
holding company, NorthPoint Communications Group, Inc. As a result of the
reorganization, the stockholders of NorthPoint Communications immediately
before the reorganization became the only stockholders of NorthPoint
Communications Group immediately after the reorganization. The reorganization
allows us to pledge the capital stock of NorthPoint Communications to the
lenders of our $100,000,000 secured credit facility, which closed in April
1999.
Issuance of Stock Options
We have reserved 28,125,000 shares of common stock for issuance under our
stock option plans. On February 26, 1998, we granted an option to purchase
247,500 shares of common stock at an exercise price of $0.03 per share to
Robert Dahl, a Director of NorthPoint. On May 15, 1998, we granted an option to
purchase 247,500 shares of common stock at an exercise price of $0.09 per share
to Reed Hundt, a Director of NorthPoint. On June 1, 1998, we granted an option
to purchase 731,250 shares of common stock at an exercise price of $0.09 per
share to Henry P. Huff, Vice President, Finance and Chief Financial Officer of
NorthPoint. On September 14, 1998, we granted an option to purchase 787,500
shares of common stock at an exercise price of $0.55 per share to Herman W.
Bluestein, Chief Development Officer of NorthPoint. On March 22, 1999, we
granted an option to purchase 2,025,000 shares of common stock at an exercise
price of $6.67 per share to Elizabeth A. Fetter, President and Chief Operating
Officer of NorthPoint. The option exercise prices were set by our board of
directors and generally reflect its best estimate of the fair value of our
stock on the date of each grant based on recent sales of our equity securities,
developments in our business and developments in the financial markets. When
the board of directors elects to grant options at a lower price, we recognize
deferred compensation for the difference.
Issuance of Series C Preferred Stock
In December 1998, we began negotiations for the sale of our Series C
preferred stock. On February 19, 1999, we sold 37,492,251 shares of Series C
preferred stock at a purchase price of $1.57 per share. Purchasers of the
Series C preferred stock included funds affiliated with The Carlyle Group
(23,902,257 shares). Other purchasers of the Series C preferred stock included
Vulcan Ventures Incorporated (10,243,824 shares), Benchmark Capital Partners,
L.P. (279,616 shares), Benchmark Founders' Fund, L.P. (39,079 shares), funds
affiliated with Accel Partners (311,683 shares), The Dahl Family Trust Dated
October 31, 1989, as amended May 3, 1990 (127,477 shares), Dino Vendetti
(31,869 shares) and The Sierra Ventures Mgmt. Co. 1989 Deferred Savings Plan
FBO Henry P. Huff (15,934 shares). Andrew Rachleff, Frank Yeary, Peter Wagner
and Dino Vendetti, each of whom currently serves as a member of the board of
directors, are affiliated with Benchmark Capital, The Carlyle Group, Accel
Partners and Vulcan Ventures, respectively. Upon the completion of this
offering, all outstanding shares of Series C preferred stock will automatically
convert into shares of common stock.
Registration Rights
Some holders of common stock issuable upon conversion of preferred stock and
upon exercise of certain warrants are entitled to registration rights. See
"Description of Capital Stock--Registration Rights."
Vendor Relations
Greylock IX Limited Partnership, a principal stockholder of NorthPoint, owns
more than 10% of the capital stock of Copper Mountain, a vendor of NorthPoint.
Our payments to Copper Mountain for
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the year ended December 31, 1998 totaled approximately $8,490,467. We believe
that the transactions with Copper Mountain were completed on an arm's-length
basis.
The Strategic Investments
The Series D-1 Preferred Stock Private Placements. In March and April 1999,
concurrently with the execution of commercial agreements, we received equity
investments from ALC Communications Corporation (an affiliate of Frontier
Corporation), At Home Corporation, Cable & Wireless USA, Inc., Concentric
Network Corporation, ICG Services, Inc. (an affiliate of ICG Communications,
Inc.), Netopia, Inc., Network Plus Corporation and Verio Inc. ALC
Communications Corporation purchased $4,900,016 of Series D-1 preferred stock.
At Home Corporation purchased $5,999,994 of Series D-1 preferred stock. Cable &
Wireless USA, Inc. purchased $4,999,994 of Series D-1 preferred stock.
Concentric Network Corporation purchased $5,001,120 of Series D-1 preferred
stock. ICG Services, Inc. purchased $9,999,990 of Series D-1 preferred stock.
Netopia, Inc. purchased $999,988 of Series D-1 preferred stock. Network Plus
Corporation purchased $2,499,992 of Series D-1 preferred stock. Verio Inc.
purchased $4,400,000 of Series D-1 preferred stock.
Upon completion of this offering, the Series D-1 preferred stock will convert
into Class B common stock. Each investor in Series D preferred stock will
receive the number of shares of Class B common stock that is the quotient of
their investment divided by the lesser of (a) $18.00 and (b) 90% of the initial
public offering price. The Series D-1 purchasers have each agreed not to
transfer any Series D-1 preferred stock or Class B common stock to any non-
affiliated third party until March 2000. The Series D-1 purchasers have also
each agreed not to acquire more than 10% of NorthPoint's voting stock without
our consent until March 2002. In addition, each of the Series D-1 purchasers
has agreed to vote any voting securities it holds as recommended by our board
of directors, except with respect to votes pursuant to the protective
provisions of our certificate of incorporation.
Microsoft. Microsoft has expressed its intention to purchase $30 million of
our common stock in this offering, but is not bound to do so. We have entered
into a commercial agreement with Microsoft, which is described in "Business--
Key Strategic and Commercial Relationships". Microsoft may also receive,
subject to certain conditions, a warrant to purchase an additional $30 million
of our Class B common stock at an exercise price per share that is 50% above
the initial public offering price. These warrants will be exercisable at any
time and will expire five years after the date of this offering. These warrant
are being registered by the registration statement that includes this
prospectus. We have agreed to grant Microsoft certain registration rights with
respect to the shares of Class B common stock (and the shares of common stock
issuable upon conversion of such shares) to be issued upon exercise of these
warrants. Commencing in March 2000, the Class B common stock may be converted
into common stock on a one-for-one basis, at Microsoft's option, provided that
Microsoft would not hold more than 10% of the voting stock of NorthPoint. The
Class B common stock will automatically convert into common stock upon transfer
by Microsoft to a third party after March 2000.
Microsoft has agreed that, if it purchases any shares of our common stock in
this offering, or if it receives the warrants, it will not transfer any common
stock or Class B common stock issuable upon exercise of the warrants to any
non-affiliated third party until one year after this offering. Microsoft has
also agreed not to acquire more than 10% of our voting stock without our
consent until April 2002.
Each of the above strategic investors will own less than 2.5% of our common
stock outstanding after this offering.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 119,035,740 shares of common
stock outstanding, including shares to be issued upon completion of this
offering upon automatic conversion of preferred stock, based upon an assumed
initial public offering price of $18.00 per share. The shares sold in this
offering except for shares sold to Microsoft and other reserved shares will be
freely tradable without restriction under the Securities Act, except for any
such shares held at any time by an "affiliate" of NorthPoint, as this term is
defined under Rule 144 under the Securities Act. Microsoft has agreed that any
shares it may purchase in this offering (including shares issuable upon
exercise of its warrant) will be subject to a lock-up agreement until one year
after this offering. Each other purchaser of reserved shares will be required
to agree that it will enter into a lock-up agreement with the underwriters. Any
of these reserved shares that are not purchased by Microsoft or others will be
offered to the public on the same basis as the other shares offered hereby and
will be freely tradable following the offering unless held by an affiliate of
NorthPoint.
We issued and sold the remaining 106,035,740 shares in private transactions.
These shares may be publicly sold only if registered under the Securities Act
or sold in accordance with an applicable exemption from registration, such as
Rule 144. In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares for at least one year, including an "affiliate," as
that term is defined in Rule 144, is entitled to sell, within any three-month
period, a number of "restricted" shares that does not exceed the greater of one
percent (1%) of the then outstanding shares of common stock or the average
weekly trading volume during the four calendar weeks preceding such sale. Sales
under Rule 144 are subject to manner of sale limitations, notice requirements
and the availability of current public information about NorthPoint. Rule
144(k) provides that a person who is not deemed an "affiliate" and who has
beneficially owned shares for at least two years is entitled to sell such
shares at any time under Rule 144 without regard to the limitations described
above. Of the 106,035,740 remaining shares outstanding, affiliates beneficially
own approximately 92% of such shares. Of the shares owned by non-affiliates, no
shares have been held by such non-affiliates in excess of two years. See "Risk
Factors--The Sale of Shares Eligible for Future Sale or Perception of Future
Sales Could Depress Our Stock Price."
Any employee, officer, director, advisor or consultant to NorthPoint who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits non-
affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after NorthPoint becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934.
As of April 12, 1999, there were outstanding stock options to purchase an
aggregate of 17,465,510 shares of common stock, of which 3,504,210 are
presently exercisable or exercisable within 60 days. All outstanding stock
options are held by our executive officers, employees or consultants. Following
the offering, we intend to file registration statements on Form S-8 covering
the 28,125,000 shares of common stock issuable under our stock option plans
(including shares subject to outstanding options) and the 2,250,000 shares
reserved for issuance under our employee stock purchase plan, thus permitting
the resale of such shares in the public market without restriction under the
Securities Act.
NorthPoint, NorthPoint's executive officers and directors, certain of
NorthPoint's stockholders, including all of the holders of our Series C
preferred stock, and certain NorthPoint employees holding shares or options
exerciseable in the six months following this offering, have agreed with the
underwriters, subject to certain exceptions, not to sell, otherwise dispose of
or hedge any shares of NorthPoint's common stock, any options or warrants to
purchase NorthPoint's common stock, or any
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securities convertible into, exchangeable for or that represent a right to
acquire shares of common stock for a period of 180 days from the date of this
prospectus without the prior written consent of the representatives of the
underwriters. The lock-up agreements by these persons (other than NorthPoint)
cover an aggregate of approximately 100 million shares. In addition, the
holders of our Series D-1 preferred stock have agreed not to sell or otherwise
dispose of their shares or any securities into which the Series D-1 preferred
stock may convert until March 2000.
Prior to this offering, there has been no public market for the common stock.
We are unable to estimate the number of shares that may be sold in the future
by our existing stockholders or the effect, if any, that sales of shares by
such stockholders will have on the market price of the common stock prevailing
from time to time. Sales of substantial amounts of common stock by existing
stockholders could adversely affect prevailing market prices.
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DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital stock.
However, you should refer to the actual terms of the capital stock contained in
our certificate of incorporation and other agreements referenced below. The
following summary gives effect to the conversion of all outstanding shares of
preferred stock into common stock upon the completion of this offering.
Upon the completion of this offering, the authorized capital stock of
NorthPoint will consist of 281,250,000 shares of common stock and 101,250,000
shares of preferred stock. As of April 12, 1999, there were 44 holders of
record of common stock. The common stock and the preferred stock each have a
par value of $0.001 per share. As of April 12, 1999, there were 25,759,725
shares of common stock outstanding and, after the offering, there will be
119,035,740 shares outstanding. As of April 12, 1999, options to purchase
17,465,510 shares of common stock were outstanding. Upon the completion of this
offering, no shares of preferred stock will be outstanding. We also have
certain other warrants and contingent warrants as described below.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding preferred stock, holders of
common stock are entitled to receive ratably such dividends as may be declared
by the board of directors out of funds legally available therefor. See
"Dividend Policy." In the event of NorthPoint's liquidation, dissolution or
winding up or NorthPoint's acquisition by another entity (including any
reorganization, merger or consolidation or sale of stock) or sale of all or
substantially all of NorthPoint's assets, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and satisfaction of preferential rights of the holders of any outstanding
preferred stock. The common stock has no preemptive or conversion rights or
other subscription rights.
Preferred Stock
Upon the completion of this offering, all outstanding shares of Series B and
Series C preferred stock will automatically convert on a one-for-one basis into
77,535,243 shares of common stock. Assuming an initial public offering price of
$18.00 per share, upon completion of this offering, all outstanding shares of
Series D-1 preferred stock will convert into 2,740,740 shares of Class B common
stock. For more information about the Class B common stock, see "--Class B
Common Stock." See notes 9 and 14 of the notes to our financial statements for
a description of the currently outstanding preferred stock.
Our preferred stock is divisible into and issuable in one or more series. The
rights and preferences of the different series may be established by the Board
of Directors without further action by the stockholders. The board of directors
is authorized with respect to each series to fix and determine, among other
things:
. its dividend rate;
. its liquidation preference;
. whether or not the shares will be convertible into, or exchangeable for,
any other securities; and
. whether or not the shares will have voting rights, and, if so, the
conditions under which the shares will vote as a separate class.
We believe that the board of directors' ability to issue preferred stock on
such a wide variety of terms will enable the preferred stock to be used for
important corporate purposes, such as financing acquisitions or raising
additional capital. However, were it inclined to do so, the board of directors
could issue all or part of the preferred stock with (among other things)
substantial voting power or
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advantageous conversion rights. This stock could be issued to persons deemed by
the board of directors likely to support current management in a contest for
control of the company, either as a precautionary measure or in response to a
specific takeover threat. NorthPoint has no current plans to issue preferred
stock for any purpose.
Class B Common Stock
The rights of holders of Class B common stock are identical to the rights of
holders of common stock except that the holders of Class B common stock do not
have voting rights. Commencing in March 2000, the Class B common stock may be
converted into common stock on a one-for-one basis at the election of the
holder, provided that such holder and its affiliates would not hold more than
10% of the voting stock of NorthPoint, or will automatically convert into
common stock upon transfer after such date to a third party.
Bridge Warrants
Holders of warrants issued under our bridge loan agreement with MSBLF may
purchase shares of common stock for an exercise price of approximately $0.0044
per share for 562,500 shares, and $2.9644 per share for an additional 2,362,500
shares. The bridge warrants expire in July 2003. Holders of unexercised bridge
warrants are not entitled to receive dividends or other distributions or to
receive notice of any meeting of stockholders. Holders of unexercised bridge
warrants also do not have voting or any other rights of stockholders. The
exercise price and number of shares of common stock issuable upon exercise of
the bridge warrants are subject to adjustment upon specified events, including:
. stock or cash dividends, stock splits, reverse stock splits or
reclassifications;
. issuances of common stock, rights, options or warrants at prices per
share lower than the then current market value per share;
. distributions of debt, assets, or cash; and
. our consolidation or merger with or into another person or sale of all or
substantially all of our assets.
Other Warrants
In connection with an equipment lease, we have issued warrants to purchase an
aggregate of 917,779 shares of Series B preferred stock at an exercise price of
$0.30 per share. We have issued contingent warrants to Intel to purchase
212,568 shares of common stock at an exercise price of $1.57 per share,
provided certain conditions are met. In addition, certain holders of our Series
C preferred stock are entitled to receive warrants under antidilution
provisions. These provisions are expected to cause the issuance of warrants to
purchase approximately 510,750 shares of common stock at a weighted average
exercise price of $2.848 per share.
We have agreed that, upon the closing of this offering, in the event that
Microsoft purchases $30,000,000 worth of shares of our common stock
concurrently with this offering at the initial public offering price, we will
grant Microsoft warrants to purchase $30,000,000 of Class B common stock at an
exercise price per share that is 50% above the initial public offering price of
our common stock. These warrants will be exercisable at any time and will
expire five years after the date of this offering. These warrants are being
registered by the registration statement that includes this prospectus.
Registration Rights
Pursuant to the Fifth Amended and Restated Rights Agreement dated March 22,
1999 (the "Rights Agreement"), as of April 12, 1999, holders of 83,413,558
shares of common stock issued or issuable
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upon conversion of Series B preferred stock, Series C preferred stock, Series D
preferred stock, Series D-1 preferred stock and Class B common stock or
exercise of warrants issued under our bridge loan agreement with MSBLF and
certain other outstanding warrants (collectively, the "Rights Holders") are
entitled to certain registration rights with respect to such shares
("Registrable Securities").
Company Registration. If we propose to register any of our or a holder's
common stock under the Securities Act, the Rights Holders are entitled to
notice of such proposed registration and the opportunity to include the
Registrable Securities in the registration. If the registration involves an
underwriting, the underwriters have the right to limit shares proposed to be
included in the registration and underwriting by the Rights Holders to 20% of
the total number of securities included in such registration and underwriting,
unless such offering is the initial public offering of our securities in which
case the Rights Holders may be excluded if no other stockholders' securities
are included.
Requested Registration. At any time after the earlier of (1) six months after
the effective date of the first registration statement for a public offering of
common stock or (2) June 30, 2001, if the holders of at least 20% of the
Registrable Securities relating to the Series B preferred stock, Series C
preferred stock, Series D preferred stock, Series D-1 preferred stock and Class
B common stock or the holders of at least 40% of the Registrable Securities
relating to the Bridge Warrants request that we file a registration statement,
we are required to use our best efforts to cause such shares to be registered,
subject to certain conditions and limitations. The holders of the Registrable
Securities relating to the Series B preferred stock, Series C preferred stock,
Series D preferred stock, Series D-1 preferred stock and Class B common stock
and of the Registrable Securities relating to the warrants issued under our
bridge loan agreement with MSBLF are each entitled to two such demand
registrations. If, in an underwritten public offering, the underwriters require
a limitation on the number of securities to be included in the registration,
then the number of shares of Registrable Securities that may be included in the
registration and underwriting will be allocated (1) among all Rights Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by the Rights Holders at the time of filing the registration
statement in the case of a registration requested by the holders of Registrable
Securities relating to the Series B preferred stock and Series C preferred
stock, and (2) first to the holders of Registrable Securities relating to the
Bridge Warrants and then among all other Rights Holders in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by such Rights Holders at the time of filing the registration statement in the
case of a registration requested by the holders of Registrable Securities
relating to the warrants issued under our bridge loan agreement with MSBLF.
Registration on Form S-3. The Rights Holders have the right to require us to
register all or a portion of their Registrable Securities on Form S-3 when this
form becomes available to us, provided that the aggregate proceeds of such
registration are expected to exceed $1,000,000 or cover all remaining
Registrable Securities relating to the warrants issued under our bridge loan
agreement with MSBLF and provided that we are not required to effect more than
one such registration in any twelve-month period.
Termination of Registration Rights. The registration rights terminate as to
any Rights Holder five years following a bona fide firm underwritten public
offering of shares of common stock registered under the Securities Act,
provided the per share public offering price is not less than $2.55 as adjusted
to reflect subsequent stock dividends, stock splits or recapitalizations and
the aggregate offering price, net of underwriting discounts and commissions,
exceeds $50,000,000.
Other Registration Rights
In addition, in the event we grant warrants to purchase Class B common stock
to Microsoft concurrently with this offering, we have agreed to grant Microsoft
registration rights with respect to the shares of Class B common stock and the
shares of common stock issuable upon
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conversion of such shares (the "Microsoft Registrable Securities") to be issued
upon exercise of these warrants. Specifically, at any time after one year
following the effective date of the first registration statement for a public
offering of common stock, if the holders of at least 50% of the Microsoft
Registrable Securities then held by Microsoft or any of its transferees request
that we file a registration statement, we are required to use our best efforts
to cause the shares to be registered, subject to conditions and limitations.
The holders of the Microsoft Registrable Securities are entitled to two demand
registrations. The rights of the holders of the Microsoft Registrable
Securities are subject to the registration rights granted to the Rights Holders
pursuant to the Rights Agreement. The registration rights granted to Microsoft
and its transferees terminate five years following a bona fide firm
underwritten public offering of shares of common stock registered under the
Securities Act, provided the per share public offering price is not less than
$2.55 as adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations and the aggregate offering price, net of underwriting
discounts and commissions, exceeds $50,000,000.
Certificate of Incorporation, Bylaw and Statutory Provisions Affecting
Stockholders
Our certificate of incorporation divides our board of directors into three
classes of directors serving staggered three-year terms. Under the Delaware
General Corporation Law, directors serving on a classified board can be removed
only for cause.
Our certificate of incorporation and bylaws also provide that stockholder
action can be taken only at an annual or special meeting of stockholders and
cannot be taken by written consent in lieu of a meeting. The certificate of
incorporation and bylaws also:
. provide that special meetings of the stockholders may be called only by a
resolution adopted by a majority of the board of directors;
. establish an advance notice procedure for stockholder proposals;
. require that certain business combinations be approved by supermajority
vote; and
. reserve to the board the exclusive right to change the number of
directors or to fill vacancies on the board.
NorthPoint is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law, which generally prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the time that the
person became an interested stockholder, unless:
. before such time the board of directors of the corporation approved
either the business combination or the transaction in which the person
became an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested person owns at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares owned by persons who are
directors and also officers of the corporation and by certain employee
stock plans; or
. at or after such time the business combination is approved by the Board
of Directors of the corporation and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock of the
corporation that is not owned by the interested stockholder.
A "business combination" generally includes mergers, asset sales and similar
transactions between the corporation and the interested stockholder, and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's outstanding voting stock or
who is an affiliate or
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associate of the corporation and, together with his or her affiliates and
associates, has owned 15% or more of the corporation's outstanding voting stock
within three years.
The provisions of the certificate of incorporation, bylaws and the Delaware
General Corporation Law described above would make more difficult or discourage
a proxy contest or acquisition of control by a holder of a substantial block of
our stock or the removal of the incumbent board of directors. Such provisions
could also have the effect of discouraging an outsider from making a tender
offer or otherwise attempting to obtain control of NorthPoint, even though such
an attempt might be beneficial to us and our stockholders.
Our certificate of incorporation and bylaws also:
. eliminate the personal liability of directors for monetary damages
resulting from breaches of fiduciary duty to the extent permitted by the
Delaware General Corporation Law; and
. indemnify directors and officers to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, including in
circumstances in which indemnification is otherwise discretionary.
We believe that these provisions are necessary to attract and retain
qualified directors and officers. We have also entered into agreements to
indemnify our directors and certain of our officers.
Transfer Agent and Registrar
ChaseMellon Shareholder Services is the transfer agent and registrar for the
common stock.
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LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon for
NorthPoint by Latham & Watkins, Menlo Park, California and for the underwriters
by Sullivan & Cromwell, Los Angeles, California. Regulatory and other matters
requested by the underwriters will be passed upon for NorthPoint by Steven J.
Gorosh, our General Counsel. A partner of Latham & Watkins holds shares of
NorthPoint's common stock.
EXPERTS
The financial statements of NorthPoint Communications, Inc. as of December
31, 1997 and 1998, for the period from May 16, 1997 (date of inception) to
December 31, 1997, and for the year ended December 31, 1998 have been included
in this registration statement and the related prospectus in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, appearing
elsewhere herein, and upon the authority of that firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all the information set forth in
the registration statement, certain portions of which are omitted as permitted
by the rules and regulations of the SEC. For further information about
NorthPoint and the shares offered by this prospectus, you should refer to the
registration statement, including the exhibits and schedules filed with the
Registration Statement. You may obtain copies of the registration statement (of
which this prospectus is a part), together with such exhibits and schedules,
upon payment of the fee prescribed by the SEC, or you may examine these
documents without charge at the office of the SEC.
After the offering is completed, NorthPoint will be subject to the
informational requirements of the Securities Exchange Act of 1934 and will be
required to file annual and quarterly reports, proxy statements and other
information with the SEC. You can inspect and copy reports and other
information filed by NorthPoint with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0300. The SEC also maintains an Internet site at http://www.sec.gov
that contains reports, proxy and information statements regarding issuers,
including NorthPoint, that file electronically with the SEC.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NorthPoint Communications Group, Inc.
F-1
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
Report of Independent Accountants
To the Board of Directors and Stockholders of
NorthPoint Communications, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
NorthPoint Communications, Inc. and its wholly-owned subsidiary (the Company)
as of December 31, 1997 and 1998, and the results of their operations and their
cash flows for the period from May 16, 1997 (date of inception) through
December 31, 1997 and for the year ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 24, 1999, except for Note 14,
for which the date is April 16, 1999
F-2
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NORTHPOINT COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
The Company
NorthPoint Communications, Inc. was formed in May 1997 to provide high speed
network and data transport services, allowing Internet Service Providers
(ISPs), broadband data service providers and long distance and local phone
companies (collectively, network service providers or NSPs) to meet the rapidly
increasing information needs of small and medium-sized businesses, people who
work in home offices and telecommuters.
Basis of Presentation
The consolidated financial statements include the accounts of NorthPoint
Communications, Inc. and its wholly-owned subsidiary (the Company). All
material intercompany accounts and transactions have been eliminated.
The Company was considered a development stage company in 1997. Although the
Company was incorporated on May 16, 1997, principal operations did not
effectively begin until August 1997. These principal activities included
developing business plans, procuring governmental authorizations and central
office collocation space improvements, raising capital, hiring management and
other key personnel, working on the design and development of the Company's
network architecture and operations support system, acquiring equipment and
facilities and negotiating interconnection agreements. In March 1998, the
Company began generating revenue from providing transport services to NSP
customers.
Certain prior year balances have been reclassified to conform with the
current year presentation.
All financial statements have been restated to give retroactive effect for
all periods to a common stock split of 2.0178 for 1 effective August 16, 1997,
a Series C preferred stock split of 1.889518 for 1 effective February 7, 1999
(Note 14), a 3 for 2 common and preferred stock split effective April 9, 1999
and a 3 for 2 common and preferred stock split effective April 16, 1999 (Note
14).
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Business Risks and Credit Concentrations
The Company's operations are subject to significant risks and uncertainties
including competitive, financial, developmental, operational, technological,
regulatory and other risks associated with an emerging business.
As of December 31, 1998, the Company's cash and cash equivalents are
deposited with one financial institution in the form of demand deposits and
money market accounts. At December 31, 1998, the Company had bank deposits of
$10,855,655 in excess of federally insured limits.
F-7
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NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company sells its services on a wholesale basis to NSPs. For the year
ended December 31, 1998, two NSP customers accounted for 70% of revenue. These
same customers accounted for 55% of accounts receivable at December 31, 1998.
The Company is dependent upon a small number of major suppliers and service
providers.
Cash and Cash Equivalents
The Company considers all highly liquid monetary instruments with an original
maturity of three months or less at the date of purchase to be cash
equivalents.
Property and Equipment
Property and equipment, including property and equipment under capital
leases, are recorded at cost and depreciated using the straight-line method
over the shorter of their useful lives or, for leased assets, the remaining
lease term. The estimated useful life is three years for software, and five
years for all other property and equipment. Maintenance and repairs are charged
to expense as incurred, and improvements and betterments are capitalized. When
assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in operations in the period realized.
Central office collocation space improvements represent payments to
compensate carriers for infrastructure improvements within their central
offices to allow the Company to install its equipment, which allows the Company
to interconnect with the carrier's network. These payments are capitalized and
are amortized over their estimated useful lives of five years.
The Company capitalizes costs associated with the design and implementation
of the Company's network including internally and externally developed
software. Capitalized external software costs include the actual costs to
purchase existing software from vendors. Capitalized internal software costs
generally include personnel costs incurred in the enhancement and
implementation of purchased software packages. As of December 31, 1997 and
1998, no internal costs have been capitalized.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, requires that long-lived assets and certain intangible assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If undiscounted expected
future cash flows are less than the carrying value of the assets, an impairment
loss is to be recognized based on the fair value of the assets. No impairment
losses have been recognized to date.
Revenues
Revenues from transport services are recognized when the services are
provided. Payments received in advance of providing services are recorded as
deferred revenue until the period such services are provided. Revenues related
to installation services are recognized when the installation is completed. To
date, such revenues have not significantly exceeded the direct costs of
installation.
F-8
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NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising and Sales Promotion Costs
Advertising and sales promotion costs are expensed as incurred and totaled $0
and $281,539 in 1997 and 1998, respectively.
Income Taxes
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS No.
109). Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
Fair Value of Financial Instruments
Amounts reported for cash and cash equivalents, accounts receivable, accounts
payable, line of credit borrowings, and other accrued expenses are considered
to approximate fair value primarily due to their short maturities. Based on
borrowing rates currently available to the Company for loans with similar
terms, the carrying value of the capital lease obligations approximates fair
value.
Earnings (Loss) Per Share
The Company computes net loss per share pursuant to SFAS No. 128, Earnings
Per Share. Basic net loss per share is computed by dividing income or loss
applicable to common stockholders by the weighted average number of shares of
the Company's common stock outstanding during the period after having given
consideration to shares subject to repurchase. Diluted net loss per share is
determined in the same manner as basic net loss per share except that the
number of shares is increased assuming exercise of dilutive stock options and
warrants using the treasury stock method and conversion of the Company's
convertible preferred stock.
The following table presents the calculation of basic and diluted net loss
per share:
The dilutive effect of options, warrants and convertible preferred stock has
not been considered as their effect would be antidilutive for all periods
presented. See Notes 9 and 10.
F-9
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price of
the option. The Company accounts for equity instruments issued to nonemployees
in accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force ("EITF") 96-18.
Comprehensive Income
The Company has adopted the accounting treatment prescribed by Financial
Accounting Statement No. 130, Comprehensive Income. The adoption of this
statement had no impact on the Company's financial statements for the periods
presented.
Segment Information
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
No. 131). SFAS No. 131 supersedes SFAS 14, Financial Reporting for Segments of
a Business Enterprise. replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. The
Company operates in one segment: High speed network and data transport
services. SFAS No. 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS No. 131 had no
impact on the Company's Financial Statements for the periods presented.
Recently Issued Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company has not yet determined the
impact of adopting SOP 98-1, which will be effective for the Company's year
ending December 31, 1999.
On April 3, 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, (SOP 98-5), Reporting on the Costs of Start-Up
Activities, which provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP-98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. As the
Company has not capitalized such costs to date, the adoption of SOP 98-5 is not
expected to have an impact on the financial statements of the Company.
F-10
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
Property and equipment consist of the following:
Included in accumulated depreciation and amortization is $22,759 and $630,121
of accumulated depreciation and amortization relating to property and equipment
under capital leases as of December 31, 1997 and 1998, respectively (See Note
8).
Depreciation and amortization expense was $27,179 and $1,318,575 for the
period from May 16, 1997 (date of inception) to December 31, 1997 and for the
year ended December 31, 1998, respectively, including amortization of software
of $236 and $88,099, respectively.
4.Income Taxes
The provision for income taxes is summarized as follows:
F-11
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The primary components of temporary differences which give rise to deferred
taxes are as follows:
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has recorded a valuation
allowance against its net deferred tax asset at both December 31, 1997 and
1998. Management evaluates the recoverability of the deferred tax asset and the
level of the valuation allowance. At such time as it is determined that it is
more likely than not that the deferred tax asset will be realizable, the
valuation allowance will be reduced.
At December 31, 1997 and 1998, the Company had net operating loss
carryforwards of approximately $1,336,000 and $23,525,000, respectively, for
both federal and state income tax purposes. The federal carryforwards expire in
the years 2012 through 2018. For federal and state tax purposes, a portion of
the Company's net operating loss may be subject to certain limitations on
annual utilization in case of changes in ownership, as defined by federal and
state tax laws. Such amount, if any, has not yet been determined.
A reconciliation of the provision for income taxes to the federal statutory
rate is as follows:
5.Line of Credit
The Company has a bank line of credit collateralized by accounts receivable,
equipment, and inventories. The line requires monthly payments of interest
only, at prime plus 1.5%, and any unpaid principal and interest will be due on
May 1, 1999. The line has a maximum amount available of $1,000,000, of which
$275,000 is designated under an available standby letter of credit at
December 31, 1998. The letter of credit expires on February 28, 1999. The
amount outstanding under the bank line of credit was $1,000 and $725,000 as of
December 31, 1997 and 1998, respectively, and the interest rate in effect was
10% and 9.25%, respectively.
F-12
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6.Bridge Loan
In July 1998, the Company finalized a commitment from an investment bank to
provide up to $50,000,000 of debt financing (the "Bridge Loan"). The Bridge
Loan carries interest at 10% per annum through January 15, 1999. The interest
rate increases to 11.5% by July 15, 1999 at which date the Bridge Loan is
payable. If not paid by July 15, 1999, the Bridge Loan converts into Senior
Rollover Notes, Series A and B with principal balances of $15,000,000 and
$35,000,000 respectively and the interest rate increases by 50 basis points at
the end of each three month period for which the Senior Rollover Notes remain
outstanding. As of December 31, 1998, the Company has drawn down the entire
$50,000,000 available under its bridge loan commitment.
The Bridge Loan contains various business and financial covenants including,
among other things, (i) limitations on dividends, redemptions and repurchases
of capital stock, (ii) limitations on the incurrence of indebtedness, liens,
leases and sale-leaseback transactions and (iii) limitations on capital
expenditures.
In connection with the Bridge Loan, the Company issued warrants (the Bridge
Loan Warrants) to purchase 2,250,000 shares of common stock to this bank, at
an exercise price of $0.0044 per share for the first 562,500 shares, and
$2.9644 for the remainder. Upon draw down of funds in excess of $15,000,000,
the Company is required to issue warrants to purchase up to 1,350,000
additional shares of common stock at a price of $2.9644. The amount of
additional warrants issued is based on the outstanding principal of the bridge
loan, divided by $35 million and multiplied by 337,500, as of each three month
anniversary of each draw date.
Under the terms of the loan, warrants to purchase 2,587,500 shares of common
stock have been issued, none of which have been exercised as of December 31,
1998. (Note 10)
The fair value of the warrants has been determined using a Black-Scholes
Model, applying an expected life of 5 years, a weighted average risk-free
interest rate of 5.31%, an expected dividend yield of zero percent and a
volatility of 75%. Based on the fair value of these warrants, the Company has
recognized a discount of $4,171,118 to the bridge loan, which is amortized
over the life of the loan term. Amortization of this discount amounted to $0
and $1,867,684 in 1997 and 1998, respectively.
At various dates throughout the period January to July 1999, the Company is
required to issue warrants to purchase a total of 1,012,500 additional shares
of common stock under the Bridge Loan (Note 14). If the loan is repaid prior
to July 15, 1999, fewer warrants will be issued. The fair value of these
warrants will be recognized upon issuance and will be amortized over the
remaining life of the Bridge Loan.
7. Commitments and Contingencies
The Company is subject to state public utilities commission, Federal
Communications Commission and court decisions as they relate to the
interpretation and implementation of the Telecommunications Act, the
interpretation of CLEC interconnection agreements in general and the Company's
interconnection agreements in particular. In some cases the Company may be
bound by the results of ongoing proceedings of these bodies or the legal
outcomes of other contested interconnection agreements that are similar to the
Company's agreements. The Company cannot estimate the effect, if any, of these
proceedings.
F-13
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NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Capital and Operating Leases
In October 1997, the Company entered into an agreement with a lease provider
under which the Company obtained a capital lease facility of up to $7,500,000.
Under this agreement, the Company entered into capital leases for property
and equipment in 1997 and 1998 (Note 3). The property and equipment leased
under this facility are pledged as collateral for the lease commitment.
The Company leases office space under noncancelable operating leases. Rent
expense under operating leases was $56,838 and $830,655 for the period from May
16, 1997 (date of inception) to December 31, 1997 and for the year ended
December 31, 1998, respectively, which includes $3,879 and $272,983 in sublease
rent expense, respectively. The following is a schedule of future minimum lease
payments under capital and operating leases for the year ending December 31,
1998:
9. Convertible Preferred Stock
The Company has authorized 49,060,250 shares of preferred stock, of which
38,265,646 shares are designated Series B preferred stock (Series B stock) and
10,794,604 shares are designated as Series C preferred stock (Series C stock).
On June 18, 1997, the Company issued 13,095,000 shares of Series A preferred
stock (Series A stock) with total proceeds of $582,000. In August 1997 the
Company issued to the holders of Series A stock 1,942,366 shares of Series B
preferred stock at a price of $0.2996345 per share, payable in cash or by
surrender of 2.996345 shares of Series A stock, based on the fair value of
Series B preferred stock and the original issue price of Series A stock. All
holders of Series A stock chose to pay by surrender of their Series A stock and
consequently no shares of Series A stock are outstanding since August 1997. At
December 31, 1998, 37,014,122 shares of Series B stock were outstanding and
2,805,806 shares of Series C stock were outstanding.
Dividends
The holders of Series B stock are entitled to receive noncumulative dividends
and the holders of Series C stock are entitled to receive cumulative dividends
in preference to any dividend on common stock, at an annual rate equal to the
greater of (i) $0.03555555 or $0.18826666 per share, respectively, in the case
of the Series B stock or Series C stock or (ii) a per share amount equal to
F-14
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the per share amount paid on any other outstanding shares of capital stock of
the Company, on an as-converted basis when and if declared by the Board of
Directors. No such dividends have been declared or paid to date.
Liquidation Preference
In the event of any liquidation, dissolution, or winding up of the Company,
including a change of control, the holders of the preferred stock are entitled
to receive, in preference to the holders of common stock, .29963454 per share
for each share of Series B stock and 1.56888888 per share for each share of
Series C stock ($15,492,710 in total), plus all declared but unpaid dividends,
if any. Holders of preferred Series B and Series C stock are then entitled to
receive assets and funds of the Company in proportion to the number of shares
as if converted pursuant to the following paragraph.
Conversion Rights
Each share of Series B and Series C preferred stock is convertible into one
share of common stock, (i) in the event of the closing of an underwritten
public offering of any of the Company's equity securities, (ii) upon the
election of the holders of at least a majority of the then outstanding shares
of Preferred Stock, or (iii) at anytime at the option of the holder.
The preferred stock carries provisions which protect the holders of such
securities from dilution caused by capital reorganizations, stock splits, or
other such capital changes.
Redemption Rights
The convertible preferred stock is not redeemable.
Voting Rights
The holders of preferred stock are entitled to vote on all matters and
entitled to the number of votes equal to the number of shares of common stock
into which the preferred stock could be converted pursuant to the conversion
rights. Except as otherwise required by law, the holders of the preferred stock
have voting rights equal to those of the common stockholders.
The holders of preferred stock have the right to elect three members of the
Board of Directors and the holders of the shares of common stock have the right
to elect one member of the Board of Directors. Any additional directors shall
be elected by holders of both classes of stock.
10.Stock Warrants
Equipment Lease Warrants
In conjunction with the capital leases of property and equipment (Note 8),
the Company has issued warrants to purchase up to 1,251,524 shares of Series B
preferred stock to an equipment lease provider, at an exercise price of $0.30
per share. As of December 31, 1997 and 1998, warrants to purchase 250,303 and
917,779 shares, respectively, had vested. The fair value of the warrants on
each of the vesting dates has been determined using a Black-Scholes Model,
applying an expected life of 5 years, a weighted average risk-free interest
rate of 5.7%, an expected dividend yield of zero percent and a volatility of
75%, resulting in a debt discount of $1,061,286 and related amortization of
$198,204 in 1998.
F-15
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants vest based on the aggregate amounts drawn under the lease facility
up to $7,500,000 as follows: 83,434 fully paid and nonassessable shares of
Preferred Stock vest upon the funding of any portion of each incremental
$500,000 drawn in the aggregate under the facility, and any remaining unvested
warrants will vest on March 31, 1999. In the event that (i) the Company
terminates its right to draw down any unused portion available under the
facility before March 31, 1999; and (ii) at the time of such termination the
amounts drawn representing software and tenant improvements do not exceed 35%
of the aggregate amount drawn under the facility, the remaining unvested
warrants will be cancelled. If however at the time of termination the amounts
drawn representing software and tenant improvements are in excess of 35% of the
aggregate amount drawn under the facility warrants will vest to the maximum of
1,251,524 shares of Preferred Stock.
Bridge Loan Warrants
In conjunction with the Bridge Loan (Note 6) the Company issued warrants to
purchase 562,500 shares of common stock for an exercise price of $.0044 per
share, and 2,025,000 shares of common stock for an exercise price of $2.9644
per share. The Bridge Loan Warrants are exercisable immediately and expire in
July 2003. These warrants carry provisions which protect the holder from
dilution caused by certain specified events, including:
. stock or cash dividends, stock splits, reverse stock splits or
reclassifications;
. issuances of common stock, rights, options or warrants at prices per
share lower than the then current market value per share;
. distributions of debt, assets, or cash; and
. consolidation or merger with or into another person or sale of all or
substantially all of the Company's assets.
In these events, the exercise price and number of shares issuable upon exercise
of these warrants will be adjusted to reduce the dilution caused by these
events.
Contingent Warrants
The Company has agreed to issue warrants to purchase up to 212,568 shares of
its common stock at a price of $1.5689 per share to one of its shareholders,
contingent on the introduction of DSL services in certain markets by the
Company and the placement of a purchase order by this shareholder for a certain
number of DSL end users in those markets, prior to September 30, 1999. No
warrants have been issued under this agreement at December 31, 1998.
11. Stock Options
In September 1997, the Company adopted the 1997 Stock Option Plan under which
the Board of Directors may grant options to purchase common stock either as
incentive stock options to employees and directors or nonstatutory stock
options to employees, directors, and consultants. Options granted as incentive
stock options are issued at an exercise price between 100% and 110% of fair
market value, as determined by the Board of Directors. Nonstatutory options are
issued at between 85% and 110% of their fair market value. At December 31, 1997
and 1998, 8,194,639 and 16,875,000 shares of common stock, respectively, have
been authorized for the exercise of stock options.
Generally, options granted under this plan become exercisable at a rate of
1/4 of the total at the end of twelve months from the vesting commencement
date, and 1/48 of the total per month
F-16
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
thereafter of employment. Options generally expire ten years from the date of
the grant except in the case of an incentive stock option granted to an
optionee who, at the time of the option is granted, owns stock representing
more than ten percent of the voting power of all classes of stock outstanding.
In this case, the term of the option is 5 years from the date of the grant.
The following table summarizes activity under the Company's stock option plan
for the period from May 16, 1997 (date of inception) to December 31, 1997 and
for the year ended December 31, 1998:
The following table summarizes information with respect to stock options
outstanding and exercisable at December 31, 1998:
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB No. 25), Accounting for Stock Options Issued to Employees and related
interpretations in accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized based on the amount by which the fair value
of the underlying common stock exceeds the exercise price of the stock options
at the measurement date, which in the case of employee stock options is
typically the date of grant. For financial reporting purposes, the Company has
determined that the deemed fair market value on the date of grant of employee
stock options was in excess of the exercise price of the options. As a result,
the Company recorded deferred compensation of $1,203,614 and $14,380,698, for
the period from May 16, 1997 to December 31, 1997 and for the year ended
December 31, 1998, respectively. This amount was recorded as a reduction of
stockholders' equity and is being amortized as a charge to operations over the
vesting period of the applicable options.
F-17
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the period from inception to December 31, 1997 and the year ended
December 31, 1998, the Company recognized $173,612 and $2,387,941,
respectively, of stock compensation expense.
SFAS No. 123, Accounting for Stock-Based Compensation, encourages adoption of
a fair value-based method for valuing the cost of stock-based compensation.
However, it allows companies to continue to use the intrinsic value method
under APB No. 25 for options granted to employees and disclose pro forma net
earnings and earnings per share in accordance with SFAS No. 123. Had
compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS No. 123, the Company's net earnings and
earnings per share would have been as follows:
The weighted average fair value of stock options granted during the period
from May 16, 1997 (date of inception) to December 31, 1997 and during the year
ended December 31, 1998 was $0.05 and $.75, respectively.
The effects of applying SFAS No. 123 for the pro forma disclosures are not
representative of the effects expected on reported net earnings and earnings
per share in future years, since valuations are based on highly subjective
assumptions about the future, including stock price volatility and exercise
patterns.
The Company used the Black-Scholes option pricing model to determine the fair
value of grants made in 1997 and 1998. The following assumptions were applied
in determining the pro forma compensation cost:
Because the Company does not have actively traded equity securities,
volatility is not considered in determining the fair value of stock-based
awards to employees.
The Company applies SFAS No. 123 to account for options granted to non-
employees. The fair value of stock options issued to non-employees, using a
Black-Scholes Model with the above assumptions and a volatility of 75% was $0
in 1997 and $275,784 in 1998 which was recognized as deferred compensation.
Amortization was $0 in 1997 and $275,784 in 1998.
12.Employee Benefit Plan
In January 1997, the Company established the NorthPoint Communications 401(k)
plan (the Plan) which covers substantially all employees. Under the Plan,
employees are permitted to contribute up to 20% of gross compensation not to
exceed the annual 402(g) limitation for any plan year. Discretionary
contributions may be made by the Company as determined by the Board of
Directors. No contributions were made by the Company during 1997 and 1998.
F-18
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13.Related Party Transactions
In 1997 and 1998, legal fees of approximately $76,804 and $114,831,
respectively, were paid to a law firm which, along with two partners of the
firm, is a Series B preferred stockholder in the Company.
A principal stockholder of the Company owns more than 10% of the capital
stock of a vendor of the Company. The Company's payments to the vendor for the
period from May 16, 1997 (date of inception) to December 31, 1997, and for the
year ended December 31, 1998 totaled approximately $203,000 and $8,490,467,
respectively.
14.Subsequent Events
NorthPoint Communications Group, Inc.
On February 24, 1999, the Board of Directors approved the merger of
NorthPoint Communications, Inc. with and into NorthPoint Merger Sub, Inc., a
wholly owned subsidiary of NorthPoint Communications Group, Inc. This
reorganization was completed on March 1999, and was a reorganization under
common control.
After the merger, the capital structure and ownership of NorthPoint
Communications Group, Inc. is identical to the capital structure and ownership
of NorthPoint Communications, Inc. prior to the merger. Prior to the merger,
NorthPoint Communications Group, Inc., on a consolidated basis, had not
commenced operations, and had no significant assets, liabilities, contingent
liabilities or commitments.
In April 9, 1999, the Board of Directors of NorthPoint Communications Group,
Inc. authorized two 3-for-2 splits of its common and preferred stock effective
April 9 and April 16, 1999, respectively. All share and per-share amounts in
the accompanying consolidated financial statements have been restated to give
retroactive effect to the stock splits for all periods. Prior to giving
retroactive effect to the stock splits, loss per share was $0.13 and $2.39 for
the period from May 16, 1997 (date of inception) to December 31, 1997 and the
year ended December 31, 1998, respectively.
Common Stock
From January 1, 1999 to April 12, 1999, the Company granted to certain
employees options to purchase an aggregate of 4,883,933 shares of common stock
at an exercise price of $.67 to $6.67 per share. Under the provisions of APB
No. 25, deferred compensation will be recognized in connection with these
grants of approximately $6,465,000.
Pursuant to the terms of the Bridge Loan Agreement (Note 6), the Company has
issued warrants to purchase an additional 337,500 shares of common stock. The
fair value of these warrants, determined using the method and assumptions
discussed in Note 6 was $3,075,000 which will be recognized as debt discount
and amortized as interest expense, over the term of the loan. On April 5, 1999,
the Company paid off the Bridge Loan and therefore all remaining unamortized
debt discount will be recognized as interest expense in 1999. As of April 16,
1999 warrants to issue a total of 2,925,000 shares of common stock were issued
under the Bridge Loan.
Preferred Stock
On February 7, 1999, the Company declared a 1.889518-to-1 Series C preferred
stock split. All share and per-share amounts in the accompanying financial
statements have been restated to give
F-19
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
retroactive effect to the stock split for all periods. Giving retroactive
effect to this split as of December 31, 1998 does not affect earnings per share
as reported, because conversion of the preferred stock would be antidilutive.
On February 19, 1999, the Company issued 37,715,357 shares of Series C
preferred stock with total proceeds of approximately $59,200,000.
In connection with this issuance of Series C stock the Company committed to
issuing to one purchaser of this stock warrants to purchase common stock upon
exercise of warrants by other warrant holders. Under this arrangement the
Company will be required to issue warrants to purchase a number of shares of
the type of capital stock of the Company such that the purchaser's fully
diluted ownership percentage in the Company after the exercise of such warrants
is equal to its fully diluted percentage in the Company immediately prior to
the exercise of such warrants. As of April 16, 1999 no warrant holder has
exercised warrants and consequently no warrants were issued under this
arrangement. Should all warrant holders exercise their warrants, the Company
would be required to issue warrants to purchase a maximum of 644,770 shares of
common stock at a weighted price of $2.85 per share.
In March and April 1999, NorthPoint Communications Group, Inc. issued
3,968,174 shares of Series D-1 preferred stock (Series D-1 stock) with total
proceeds of $38.8 million. Rights and preferences attached to Series D-1 stock
are similar to Series C preferred stock, except that Series D-1 stock is non-
voting and is convertible into a non-voting class of common stock. The
conversion ratio is one-on-one, except in the event of an initial public
offering of the Company's equity securities or sale of the Company, in which
case the conversion price is based on the fair value of the Company's equity.
In connection with this issuance, the purchasers agreed that their Series D-1
stock or common stock into which it converts will not be transferable for a
period of one year after the exercise or the closing date of an initial public
offering of NorthPoint Communications Group, Inc. common stock. In addition,
the purchasers agreed that for a period of three years after the closing date
they will not purchase or otherwise acquire shares that would result in their
direct or indirect or beneficial ownership of more than 10% of NorthPoint
Communications Group, Inc. voting stock.
In connection with the issuance of Series C and Series D-1 preferred stock
the Company issued certain rights to holders of 83,413,558 shares of common
stock issued or issuable upon conversion of Series B stock. Series C stock and
Series D-1 stock or exercise of Bridge Warrants and certain other outstanding
options and warrants (collectively, the "Rights Holders"). The Rights Holders
are entitled to notification if the Company proposes to register any of its or
a holder's common stock under the Securities Act. In addition, subject to
certain conditions and limitations, they can also require the Company to
include their shares in such a registration, or a later registration, or use
its best efforts to cause such shares to be registered.
F-20
<PAGE>
NORTHPOINT COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Credit Facility
In April 1999, the Company entered into a $100 million senior secured credit
facility with two banks under which the banks agreed to provide a five-year
senior secured credit facility consisting of (a) a $50 million senior secured
term loan facility which was drawn down entirely on the closing date, and (b) a
$50 million senior secured revolving credit facility that will convert into a
senior secured loan six months from the date of issuance. The senior secured
credit facility matures on the fifth anniversary of its closing date. All
amounts outstanding under the senior secured credit facility bear interest, in
the absence of an event of default, at the Company's option at:
. The LIBOR rate plus eight percent per year; or
. the greater of the prime rate or the federal funds rate as announced by
The Wall Street Journal plus seven and one-half percent per year.
Borrowings under the senior secured credit facility are restricted based upon
the Company's leverage ratio and the value of the Company's telecommunications
assets from time to time.
The capital stock in NorthPoint Communications held by NorthPoint
Communications Group is pledged as collateral under the Senior Secured Credit
Facility.
Convertible Promissory Note
In February 1999, the Company issued a subordinated convertible promissory
note in the amount of $5.6 million to a customer. This note converts into a
non-voting class of common stock in the event of an initial public offering of
the Company's stock or upon an earlier sale of the Company at a conversion rate
equal to the then outstanding principal amount, plus accrued interest, of the
note divided by the initial price of the Company's common stock to the public
or other sale price.
Commitments
In March 1999, the Company entered into several strategic marketing
agreements under which the Company is obligated to contribute a total of $16
million during 1999 and $600,000 during 2000 to support the development of a
web site and other marketing activities.
F-21
<PAGE>
UNDERWRITING
NorthPoint and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Morgan Stanley &
Co. Incorporated and Credit Suisse First Boston Corporation are the
representatives of the underwriters.
----------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
1,950,000 shares from NorthPoint to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the underwriters by NorthPoint. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares.
If Microsoft purchases the shares reserved for it, the underwriting discount
will be reduced and the amount paid by NorthPoint will decrease by an amount
equal to $ per share with respect to the shares purchased by Microsoft, or an
aggregate of $ . The underwriting discount per share will also be reduced if
other strategic partners purchase reserved shares.
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all the shares are not sold at the
initial offering price, the representatives may change the offering price and
the other selling terms.
NorthPoint, NorthPoint's executive officers and directors and certain of
NorthPoint's stockholders, including all of the holders of our Series C
preferred stock, have agreed with the underwriters not to sell, otherwise
dispose of or hedge any of their common stock, any options or warrants to
purchase
U-1
<PAGE>
NorthPoint's common stock, or securities convertible into, exchangeable for or
that represent a right to acquire shares of common stock during the period from
the date of this prospectus continuing through the date 180 days after the date
of this prospectus, except with the prior written consent of the
representatives and except that (1) holders of warrants outstanding on the date
of this prospectus may exercise those warrants and (2) we may issue our common
stock or securities convertible into or exchangeable for shares of our common
stock in connection with strategic relationships and acquisitions of
businesses, technologies or products complementary to those of ours, so long as
the recipients of such securities agree to be bound by a lock-up agreement for
the remainder of the 180-day lock-up period. The lock-up agreement by
NorthPoint does not apply to any existing employee benefit plans. The lock-up
agreements by persons other than NorthPoint cover an aggregate of approximately
100 million shares. In addition, the holders of the Series D-1 preferred stock
have agreed not to sell or otherwise dispose of their shares or any securities
into which the Series D-1 preferred stock may convert until March 2000. See
"Shares Eligible for Future Sale" for a discussion of certain transfer
restrictions.
At the request of NorthPoint, the underwriters will reserve up to $30 million
of common stock at the initial public offering price for sale to Microsoft
Corporation. This would represent 1,666,667 shares of common stock at the
midpoint of the offering price range. NorthPoint may also request the
underwriters to reserve other shares of common stock for sale to potential
strategic partners. There can be no assurance that any of the reserved shares
will be purchased. Microsoft will agree that, if it purchases any shares of
common stock or other securities of NorthPoint, it will not sell or otherwise
dispose of or hedge such shares or securities until one year after this
offering. Any other strategic partners will also be required to agree to a
lock-up.
The price of shares reserved for Microsoft and any other strategic partners
will be the initial public offering price on the cover of this prospectus. The
number of shares available to the general public will be reduced to the extent
these persons purchase the reserved shares. Any reserved shares not purchased
by them at the closing of the public offering will be offered by the
underwriters to the general public on the same terms as the other shares
offered by this prospectus.
Prior to this offering, there has been no public market for the shares. The
initial public offering price has been negotiated among NorthPoint and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be NorthPoint's historical performance, estimates of the
business potential and earnings prospects of NorthPoint, an assessment of
NorthPoint's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "NPNT", subject to official notice of issuance.
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of such underwriter in stabilizing or short covering
transactions.
U-2
<PAGE>
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of common
stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq in
the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed five
percent of the total number of shares offered.
NorthPoint estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1,250,000.
Certain of the underwriters or their affiliates have in the past and may in
the future provide investment banking or other services for the Company. In
July 1998, an affiliate of Morgan Stanley & Co. Incorporated made a $50,000,000
bridge loan to NorthPoint, and in February 1999 an affiliate of Goldman, Sachs
& Co. committed to provide half of a $100,000,000 secured credit facility to
NorthPoint. These are described in greater detail in "Management's Discussion
and Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources." NorthPoint paid or will pay fees and other considerations
in connection with these transactions.
NorthPoint has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
U-3
<PAGE>
[MAP OF UNITED STATES SHOWING THE NORTHPOINT NETWORK ARCHITECTURE]
<PAGE>
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 25
Selected Consolidated Financial Data..................................... 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 36
Management............................................................... 53
Principal Stockholders................................................... 62
Certain Transactions..................................................... 64
Shares Eligible for Future Sale.......................................... 66
Description of Capital Stock............................................. 68
Legal Matters............................................................ 73
Experts.................................................................. 73
Where You Can Find More Information...................................... 73
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
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13,000,000 Shares
NorthPoint Communications Group, Inc.
Common Stock
------------
[LOGO OF NORTHPOINT]
------------
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Credit Suisse First Boston
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by the Company in connection with the distribution of
the securities being registered are as set forth in the following table:
- --------
* Estimated.
Item 14. Indemnification of Directors and Officers
As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Company's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Company or its
Stockholders for monetary damages for breach of fiduciary duty as a director.
In addition, as permitted by the DGCL, the Bylaws of the Company provide that
(1) the Company shall indemnify each of its directors and officers against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an agent of the
Company; (2) the Company shall have the power to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the Company; (3)
expenses incurred in defending any action or proceeding for which
indemnification is required or permitted by the Bylaws shall be paid by the
Company in advance of final disposition of the action or proceeding upon
receipt of an undertaking by or on behalf of the indemnified party to repay
such amount if ultimately he is not entitled to indemnification; and (4) the
rights conferred in the Bylaws are not exclusive and the Company is authorized
to enter into indemnification agreements with its directors, officers and
employees. The Bylaws permit the Company to maintain director and officer
liability insurance on behalf of any person who is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, office, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Company would have
the power or the obligation to indemnify him or her against such liability
under the indemnification provisions of the DGCL.
The Company has obtained a policy of directors' and officers' liability
insurance for its directors and officers to insure directors and officers
against the costs of defense, settlement or payment of a judgment under certain
circumstances.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Since February 1996, the Registrant has issued and sold unregistered
securities as follows:
(1) The Company issued a subordinated convertible promissory note
convertible into 345,679 shares of Class B common stock, to Verio Inc. on
March 26, 1999. The conversion assumes an initial public offering price of
$18.00 per share.
(2) On March 22, 1999, the Company issued an aggregate of 40,500 shares
of common stock to three consultants in exchange for recruiting and other
consulting services rendered to the Company.
(3) The Company issued an aggregate of 37,492,251 shares of Series C
preferred stock in a private placement on February 19, 1999. The
consideration received for such shares was $59,171,204.93.
(4) The Company issued an aggregate of 1,753,464 (giving effect to a
stock split effected in connection with the February 1999 Series C
preferred stock issuance) shares of Series C preferred stock in a private
placement in August 1998 to Intel Corporation and Mr. Howell. The
consideration received for such shares was $2,400,996.57.
(5) The Company issued an aggregate of 1,275,423 (giving effect to a
stock split effected in connection with the February 1999 Series C
preferred stock issuance) shares of Series C preferred stock in a private
placement in July 1998 to At Home Corporation. The consideration received
for such shares was $2,000,998.15.
(6) The Company issued an aggregate of 36,861,562 shares of Series B
preferred stock in a private placement in August 1997 to Benchmark Capital
Partners, L.P., Benchmark Founder's Fund, L.P., Accel V L.P., Accel
Internet/Strategic Technology Fund, L.P., Accel Keiretsu V L.P., Accel
Investors' 97 L.P., Ellmore C. Patterson Partners, Greylock lX Limited
Partnership, Stanford University, Messrs. Euske, Flood, Gregory, Malaga and
Monahan, VLG Investments and Ms. Chinn. The consideration received for such
shares was $10,463,005.00.
(7) The Company issued an aggregate of 112,500 shares of Series B
preferred stock in a private placement in October 1997 to Mr. Larango and
Ms. Zeichner, trustees of the Zeichner-Larango Family Trust, dated July 28,
1997. The consideration received for such shares was $33,708.89.
(8) The Company issued an aggregate of 40,050 shares of Series B
preferred stock in a private placement in December 1997 to Mr. Hall. The
consideration received for such shares was $12,000.36.
(9) The Company issued an aggregate of 13,095,000 shares of Series A
preferred stock in a private placement in June 1997 to Messrs. Euske,
Flood, Gorosh, Gregory, Malaga and Monahan, VLG Investments and Ms. Chinn.
The consideration received for such shares was $582,000.00. In August 1997,
all of such shares of Series A preferred stock were sold to Benchmark
Capital Partners, L.P., Benchmark Founder's Fund, L.P., Accel V L.P., Accel
Internet/Strategic Technology Fund, L.P., Accel Keiretsu V L.P., Accel
Investors' 97 L.P., Ellmore C. Patterson Partners, Greylock lX Limited
Partnership, Stanford University, and then exchanged for 1,942,366 shares
of Series B preferred stock. Since August 1997, the Company has had no
shares of Series A preferred stock outstanding.
(10) From September 1997 through March 1999, the Company granted stock
options to purchase an aggregate of 7,296,007 shares of common stock to
employees, consultants and directors with exercise prices ranging from
$0.03 to $6.67 per share pursuant to the Company's 1997 Stock Option Plan.
(11) The Company issued an aggregate of 1,728,406 shares of Series D-1
preferred stock in a private placement in March 1999 to ICG Services, Inc.,
Verio Inc. and Network Plus Corporation. The consideration received for
such shares was $16,899,982.00.
II-2
<PAGE>
(12) The Company issued an aggregate of 2,239,768 shares of Series D-1
preferred stock in a private placement in April 1999 to ALC Communications
Corporation (an affiliate of Frontier Corporation), At Home Corporation,
Cable & Wireless USA, Inc., Concentric Network Corporation and Netopia,
Inc. The consideration received for such shares was $21,901,102.00.
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under the
Securities Act pursuant to (1) Rule 701 promulgated thereunder on the basis
that these options were offered and sold either pursuant to a written
compensatory benefit plan or pursuant to written contracts relating to
consideration, as provided by Rule 701, or (2) Section 4(2) thereof, on the
basis that the transactions did not involve a public offering.
Item 16. Exhibits
II-3
<PAGE>
<TABLE>
<C> <S>
10.13 Letter agreement relating to interpretation of Series D-1 Preferred
Stock Purchase Agreement between NorthPoint Communications Group, Inc.
and Verio Inc. dated March 26, 1999.
10.14 Form of Indemnification Agreement of NorthPoint Communications, Inc.+
10.15 Series C Preferred Stock Purchase Warrant Agreement between NorthPoint
Communications, Inc. and Intel Corporation, dated August 26, 1998.+
10.16 Letter agreement dated March 22, 1999 between NorthPoint Communications
Group, Inc. and Morgan Stanley Senior Funding, Inc.+
10.17 Addendum to Series C Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 26,
1998.+
10.18 Subscription Agreement between NorthPoint Communications, Inc. and CNA
Trust FBO Michael W. Hall, dated December 31, 1997.+
10.19 Pledge and Security Agreement, among NorthPoint Communications, Inc.,
NorthPoint Communications of Virginia, Inc., NorthPoint Communications
Group, Inc. and Newcourt Commercial Finance Corporation, as collateral
agent, dated as of April 5, 1999.
10.20 The NorthPoint Communications Group, Inc. 1999 Stock Plan.+
10.21 Form of Indemnification Agreement of NorthPoint Communications Group,
Inc.+
10.22 Agreement and Plan of Merger of NorthPoint Merger Sub, Inc., NorthPoint
Communications Group, Inc. and NorthPoint Communications, Inc., dated
March 22, 1999.+
10.23 Assignment and Assumption Agreement between NorthPoint Communications,
Inc. and NorthPoint Communications Group, Inc., dated March 22, 1999.+
10.24 First Amendment to Note Purchase Agreement between NorthPoint
Communications, Inc. and Morgan Stanley Senior Funding, Inc., dated as
of March 22, 1999.+
10.25 Form of Series D-1 Preferred Stock Purchase Agreement entered into
between NorthPoint Communications Group, Inc. and each of Network Plus
Corporation, ICG Services, Inc., Verio Inc., ALC Communications
Corporation, At Home Corporation, Cable & Wireless USA, Inc., Netopia,
Inc. and Concentric Network Corporation.
10.26 Warrant and Rights Agreement among NorthPoint Communications Group, Inc.
and Microsoft Corporation, dated April 7, 1999.
10.27 Form of Class B Common Stock Purchase Warrant to be made by NorthPoint
Communications Group, Inc. in favor of Microsoft Corporation.
10.28 Loan and Guaranty Agreement among NorthPoint Communications, Inc.,
NorthPoint Communications of Virginia, Inc., NorthPoint Communications
Group, Inc., Goldman Sachs Credit Partners L.P., Canadian Imperial Bank
of Commerce, Newcourt Commercial Finance Corporation and Capital
Syndication Corporation, dated as of April 5, 1999.
10.29 Second Priority Loan and Guaranty Agreement among NorthPoint
Communications, Inc., NorthPoint Communications of Virginia, Inc.,
NorthPoint Communications Group, Inc., Goldman Sachs Credit Partners
L.P., Newcourt Commercial Finance Corporation and Capital Syndication
Corporation, dated as of April 5, 1999.
11.1 Statement regarding Computation of Per Share Earnings.
21 Subsidiaries.+
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney.+
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Previously Filed.
II-4
<PAGE>
Item 17. Undertakings
The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San
Francisco, state of California, on April 19, 1999.
NORTHPOINT COMMUNICATIONS GROUP, INC.
*
By: ______________________________________
Michael W. Malaga
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by each of the following persons in the capacities
and on the dates indicated:
*By: /s/ Henry P. Huff
----------------------------
Henry P. Huff
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.+
3.1 Third Amended and Restated Certificate of Incorporation of NorthPoint
Communications Group, Inc.
3.2 Amended and Restated Bylaws of NorthPoint Communications Group, Inc.+
4.1 Form of Specimen Common Stock Certificate of NorthPoint Communications
Group, Inc.
5.1 Opinion of Latham & Watkins.
9.1 Second Amended and Restated Voting Agreement among NorthPoint
Communications, Inc., NorthPoint Communications Group, Inc. and
certain of its stockholders, dated March 22, 1999.
10.1 The NorthPoint Communications Group, Inc. Employee Stock Purchase
Plan.+
10.2 1997 Stock Option Plan of NorthPoint Communications, Inc.+
10.3 Amended and Restated Series C Preferred Stock Purchase Agreement among
NorthPoint Communications, Inc. and certain of its stockholders, dated
January 20, 1999.+
10.4 Fourth Amended and Restated Right of First Refusal and Co-Sale
Agreement among NorthPoint Communications, Inc., NorthPoint
Communications Group, Inc. and certain of its stockholders, dated
March 22, 1999.
10.5 Fifth Amended and Restated Rights Agreement among NorthPoint
Communications, Inc., NorthPoint Communications Group, Inc. and
certain of its stockholders, dated March 22, 1999.
10.6 Side letter relating to the purchase of Series C preferred stock
between NorthPoint Communications, Inc. and Vulcan Ventures
Incorporated, dated February 19, 1999.+
10.7 Side letter relating to the purchase of Series C preferred stock among
NorthPoint Communications, Inc. and certain of its stockholders, dated
February 19, 1999.+
10.8 Side letter relating to mirror warrants among NorthPoint
Communications Group, Inc. and certain of its stockholders, dated
March 22, 1999.+
10.9 Series B Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 13,
1997.+
10.10 Second Series B Preferred Stock Purchase Agreement among NorthPoint
Communications, Inc. and certain of its stockholders, dated August 13,
1997.+
10.11 Guaranty dated March 22, 1999 from NorthPoint Communications Group,
Inc. as Guarantor.+
10.12 Amended and Restated Convertible Promissory Note made by NorthPoint
Communications, Inc. and NorthPoint Communications Group, Inc. in
favor of Verio, Inc., dated March 26, 1999.
10.13 Letter agreement relating to interpretation of Series D-1 Preferred
Stock Purchase Agreement between NorthPoint Communications Group, Inc.
and Verio Inc. dated March 26, 1999.
10.14 Form of Indemnification Agreement of NorthPoint Communications, Inc.+
10.15 Series C Preferred Stock Purchase Warrant Agreement between NorthPoint
Communications, Inc. and Intel Corporation, dated August 26, 1998.+
10.16 Letter agreement dated March 22, 1999 between NorthPoint
Communications Group, Inc. and Morgan Stanley Senior Funding, Inc.+
10.17 Addendum to Series C Preferred Stock Purchase Agreement among
NorthPoint Communications, Inc. and certain of its stockholders, dated
August 26, 1998.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.18 Subscription Agreement between NorthPoint Communications, Inc. and CNA
Trust FBO Michael W. Hall, dated December 31, 1997.+
10.19 Pledge and Security Agreement, among NorthPoint Communications, Inc.,
NorthPoint Communications of Virginia, Inc., NorthPoint Communications
Group, Inc., and Newcourt Commercial Finance Corporation, as
collateral agent, dated as of April 5, 1999.
10.20 The NorthPoint Communications Group, Inc. 1999 Stock Plan.+
10.21 Form of Indemnification Agreement of NorthPoint Communications Group,
Inc.+
10.22 Agreement and Plan of Merger of NorthPoint Merger Sub, Inc. and
NorthPoint Communications, Inc., dated March 22, 1999.+
10.23 Assignment and Assumption Agreement between NorthPoint Communications,
Inc. and NorthPoint Communications Group, Inc., dated March 22, 1999.+
10.24 First Amendment to Note Purchase Agreement dated as of March 22, 1999
between NorthPoint Communications, Inc. and Morgan Stanley Senior
Funding, Inc.+
10.25 Form of Series D-1 Preferred Stock Purchase Agreement entered into
between NorthPoint Communications Group, Inc. and each of Network Plus
Corporation, ICG Services, Inc., Verio Inc., ALC Communications
Corporation, At Home Corporation, Cable & Wireless USA, Inc., Netopia,
Inc. and Concentric Network Corporation.
10.26 Warrant and Rights Agreement among NorthPoint Communications Group,
Inc. and Microsoft Corporation, dated April 7, 1999.
10.27 Form of Class B Common Stock Purchase Warrant to be made by NorthPoint
Communications Group, Inc. in favor of Microsoft Corporation.
10.28 Loan and Guaranty Agreement among NorthPoint Communications, Inc.,
NorthPoint Communications of Virginia, Inc., NorthPoint Communications
Group, Inc., Goldman Sachs Credit Partners L.P., Canadian Imperial
Bank of Commerce, Newcourt Commercial Finance Corporation, and Capital
Syndication Corporation, dated as of April 5, 1999.
10.29 Second Priority Loan and Guaranty Agreement among NorthPoint
Communications, Inc., NorthPoint Communications of Virginia, Inc.,
NorthPoint Communications Group, Inc., Goldman Sachs Credit Partners
L.P., Newcourt Commercial Finance Corporation and Capital Syndication
Corporation, dated as of April 5, 1999.
11.1 Statement regarding Computation of Per Share Earnings.
21 Subsidiaries.+
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney.+
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Previously Filed.
<PAGE>
EXHIBIT 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NORTHPOINT COMMUNICATIONS GROUP, INC.
The undersigned, Michael Malaga and Steven Gorosh, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of NorthPoint Communications Group, Inc., a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on February 1, 1999, under the
name NorthPoint Communications Holdings, Inc.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
"The name of this corporation is NorthPoint Communications Group, Inc. (the
"Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 9 East Loockerman Street, Dover, County of Kent, 19901. The name of its
registered agent at such address is National Registered Agents, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
382,500,000 shares, each with a par value of $0.001 per share, of which
281,250,000 shares shall be Common Stock and 101,250,000 shares shall be
Preferred Stock. 18,000,000 shares of the Common Stock authorized to be issued
are hereby designated as "Class B Common Stock."
--------------------
<PAGE>
Upon the effective date of the filing of this Third Amended and
Restated Certificate of Incorporation, every share of this Corporation's
outstanding Common Stock and Preferred Stock, par value $0.001 per share, shall
be converted and reconstituted into 1.5 shares of Common Stock and Preferred
Stock, par value $0.001 per share, respectively (the "Stock Split"). In lieu of
-----------
the issuance of fractional shares as a result of the Stock Split, the
Corporation shall pay to the holder thereof in cash an amount equal to the
fraction of a share to which such holder is entitled multiplied by the fair
market value of such share, as determined by the Corporation's Board of
Directors. All share amounts and amounts per share set forth in this Third
Amended and Restated Certificate of Incorporation have been appropriately
adjusted to reflect the Stock Split. No further adjustment of any dividend
preference, liquidation preference or conversion rate pursuant to paragraphs 1,
2 or 4 respectively, of this Article IV(B) shall be made as a result of the
Stock Split.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by this Third Amended and Restated Certificate of Incorporation
may be issued from time to time in one or more series. The first series of
Preferred Stock shall be designated "Series B Preferred Stock" and shall consist
------------------------
of 39,517,170 shares. The second series of Preferred Stock shall be designated
"Series C Preferred Stock" and shall consist of 40,946,428 shares. The third
- -------------------------
series of Preferred Stock shall be designated "Series D Preferred Stock" and
------------------------
shall consist of 8,190,000 shares. The fourth series of Preferred Stock shall
be designated "Series D-1 Preferred Stock" and shall consist of 8,190,000
--------------------------
shares. The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Article IV, to provide for the issuance of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(3) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(4) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
2
<PAGE>
(5) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(6) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(7) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of this Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(8) Any other relative rights, preferences and limitations of that
series.
The rights, preferences, privileges and restrictions granted to and imposed
on the Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series D-1 Preferred Stock are as set forth below in this Article
IV(B). Unless stated otherwise herein, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series D-1 Preferred Stock shall
be referred to collectively as "Preferred Stock."
---------------
1. Dividend Provisions. The holders of shares of Series B Preferred
-------------------
Stock shall be entitled to receive non-cumulative dividends and the holders of
shares of Series C Preferred Stock, Series D Preferred Stock and Series D-1
Preferred Stock shall be entitled to receive cumulative dividends, out of any
assets legally available therefor, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock or other securities
and rights convertible into or entitling the holder thereof to receive, directly
or indirectly, additional shares of Common Stock of the Corporation) on the
Common Stock of the Corporation, at a rate equal to the greater of (i)
$0.03555555 per share (adjusted to reflect subsequent stock dividends, stock
splits, recapitalizations or similar transactions) in the case of the Series B
Preferred Stock, $0.18826666 per share (adjusted to reflect subsequent stock
dividends, stock splits, recapitalizations or similar transactions) in the case
of the Series C Preferred Stock, $1.17333333 per share (adjusted to reflect
subsequent stock dividends, stock splits, recapitalizations or similar
transactions) in the case of the Series D Preferred Stock, or $1.17333333 per
share (adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations or similar transactions) in the case of the Series D-1
Preferred Stock, or (ii) a per share amount equal to the per share amount paid
on any other outstanding shares of capital stock of the Corporation (on an as-
converted basis), per annum from and including the date of issuance of such
share on each outstanding share of Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series D-1 Preferred Stock, payable (x) in
the case of the Series B Preferred Stock, when, as and if declared by the Board
of Directors, and (y) in the case of the Series C Preferred Stock, Series D
Preferred Stock and Series D-1 Preferred Stock, upon any liquidation,
dissolution or winding up of the Corporation or, prior to any such liquidation,
dissolution or winding up, when, as and if declared by the Board of Directors.
Such dividends on the Series C Preferred Stock, Series D Preferred Stock and
Series D-1 Preferred Stock shall accrue whether or not they have been declared
by the Board of Directors and whether or not there
3
<PAGE>
are profits, surplus or other funds of the Corporation legally available for the
payment of dividends. The date on which the Corporation initially issues any
shares of Preferred Stock will be deemed to be its "date of issuance" regardless
------- --------
of the number of times transfer of such shares is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such shares. Unless all dividends
on the outstanding shares of Preferred Stock that shall have accrued and become
payable as of any date shall have been paid, or declared and funds set apart for
payment thereof, no dividend or other distribution (payable other than in shares
of Common Stock) shall be paid to the holders of Common Stock and no shares of
Common Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for Common Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Common Stock; provided, however, that this restriction shall not apply to the
-------- -------
repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Company or any
subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost upon the occurrence of certain events, such as
the termination of employment. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the Common
Stock which may be in arrears.
2. Liquidation.
-----------
(a) Series D, D-1 and C Preference. In the event of any
------------------------------
liquidation, dissolution or winding up of the Corporation, either voluntary
or involuntary, the holders of the Series D Preferred Stock, Series D-1
Preferred Stock and Series C Preferred Stock shall be entitled to receive, on
a pari passu basis (based on the amount of the respective aggregate liquidation
preference for all outstanding shares of each such series) prior and in
preference to any payment of cash or distribution of any of the assets of the
Corporation to the holders of Series B Preferred Stock or Common Stock by reason
of their ownership thereof an amount equal to the greater of (i) (A) $9.77777777
per share, in the case of the Series D Preferred Stock, (B) $9.77777777 per
share, in the case of the Series D-1 Preferred Stock, and (C) $1.56888888 per
share, in the case of the Series C Preferred Stock, in each case as adjusted to
reflect subsequent stock dividends, stock splits, recapitalizations or similar
transactions, for each share of Series D Preferred Stock, Series D-1 Preferred
Stock or Series C Preferred Stock then held by them, respectively, and (ii) the
amount per share that the holders of the Series D Preferred Stock, Series D-1
Preferred Stock and Series C Preferred Stock would have received had they
converted their shares of Series D Preferred Stock, Series D-1 Preferred Stock
and Series C Preferred Stock, respectively, into Common Stock immediately prior
to such liquidation, dissolution or winding up of the Corporation, plus in each
case, only to the extent that the proceeds to the holders of preferred stock by
reason of their ownership thereof from any liquidation, dissolution or winding
up of the Corporation are less than (i) $29.33333333 per share, in the case of
the Series D Preferred Stock, (ii) $29.33333333 per share, in the case of the
Series D-1 Preferred Stock, or (iii) $4.70666666 per share, in the case of the
Series C Preferred Stock, in each case as adjusted to reflect subsequent stock
dividends, stock splits, recapitalizations or similar transactions, an
additional amount equal to any accrued but unpaid dividends on the Series D
Preferred Stock, Series D-1 Preferred Stock or Series C Preferred Stock,
respectively. If, upon
4
<PAGE>
the occurrence of such event, the assets and funds thus distributed among the
holders of the Series C Preferred Stock, Series D Preferred Stock and Series D-1
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series C Preferred Stock, Series D Preferred Stock and
Series D-1 Preferred Stock.
(b) Series B Preference. After payment or setting apart for
-------------------
payment of the distributions required by Section 2(a) above, the holders of the
Series B Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the remaining assets of the Corporation to the
holders of Common Stock by reason of their ownership thereof an amount equal to
$0.29963454 per share (as adjusted to reflect subsequent stock dividends, stock
splits, recapitalizations or similar transactions) for each share of Series B
Preferred Stock then held by them, plus declared but unpaid dividends on the
Series B Preferred Stock. If the remaining assets and funds thus distributed
among the holders of the Series B Preferred Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential amounts,
then the entire remaining assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the holders of the Series B
Preferred Stock.
(c) Remaining Assets. Upon the completion of the distributions
----------------
required by Sections 2(a) and (b) above, if assets and funds remain in the
Corporation, the holders of the Common Stock of the Corporation shall receive
all of the remaining assets of the Corporation in proportion to their ownership
of shares of Common Stock.
(d) Certain Acquisitions.
--------------------
(i) Deemed Liquidation. For purposes of this Section 2, a
------------------
liquidation, dissolution or winding up of the Corporation shall be deemed to be
occasioned by, or to include, (A) the acquisition of a majority of the capital
stock or voting power of the Corporation by another person or entity by means of
any transaction or series of related transactions (including, without
limitation, any reorganization, merger, consolidation or purchase of stock); or
(B) a sale, exchange or other disposition of all or substantially all of the
assets of the Corporation, unless the Corporation's stockholders of record as
------
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Corporation's acquisition or sale or otherwise) hold more than 50% of
the voting power of the surviving or acquiring entity in approximately the same
relative percentages after such acquisition or sale as before such acquisition
or sale (each such event, a "Liquidity Event").
---------------
(ii) Valuation of Consideration. For all purposes under
--------------------------
this Third Amended and Restated Certificate of Incorporation, if the
consideration received by the Corporation is other than cash, its value will
be deemed its fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability:
5
<PAGE>
(1) If traded on a securities exchange or the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty-day period ending
three days prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three days prior to the
closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of (i) at least a majority of the voting power of
all then outstanding shares of Series D Preferred Stock, (ii) at least a
majority of the voting power of all then outstanding shares of Series D-1
Preferred Stock, (iii) at least 66 2/3% of the voting power of all then
outstanding shares of Series C Preferred Stock, and (iv) at least a majority of
the voting power of all then outstanding shares of Series B Preferred Stock;
provided, however, that if the Corporation and such holders do not agree on the
- -------- -------
fair market value of such securities within 30 days of the date such securities
are received by the Corporation, the Corporation shall appoint an independent
qualified appraiser reasonably acceptable to the Company and such holders to
determine the fair market value of such securities.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section 2(d)(ii)(A) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of (i) at least a majority of the voting power of all then outstanding shares of
Series D Preferred Stock, (ii) at least a majority of the voting power of all
then outstanding shares of Series D-1 Preferred Stock, (iii) at least 66 2/3% of
the voting power of all then outstanding shares of Series C Preferred Stock, and
(iv) at least a majority of the voting power of all then outstanding shares of
Series B Preferred Stock; provided, however, that if the Corporation and such
-------- -------
holders do not agree on the fair market value of such securities within 30 days
of the date such securities are received by the Corporation, the Corporation
shall appoint an independent qualified appraiser reasonably acceptable to the
Company and such holders to determine the fair market value of such securities.
(iii) Notice of Transaction. The Corporation shall give each
---------------------
holder of record of Preferred Stock written notice of such impending transaction
not later than 20 days prior to the stockholders' meeting called to approve such
transaction, or 20 days prior to the closing of such transaction, whichever is
earlier, and shall also notify such holders in writing of the final approval of
such transaction. The first of such notices shall describe the material terms
and conditions of the impending transaction and the provisions of this Section
2, and the Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner than 20
days after the Corporation has given the first notice provided for herein or
sooner than 10 days after the Corporation has given notice of any material
changes provided for herein; provided, however, that such periods may be
-------- -------
shortened
6
<PAGE>
upon the written consent of the holders of Preferred Stock that are entitled to
such notice rights or similar notice rights and that represent at least a
majority of the voting power of all then outstanding shares of such Preferred
Stock. Nothing herein shall be deemed to limit any right of approval that any
holder of Preferred Stock may have hereunder or otherwise.
(iv) Effect of Noncompliance. In the event the requirements
-----------------------
of this Section 2(d) are not complied with, the Corporation shall forthwith
either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Preferred Stock
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
Section 2(d)(iii) hereof.
3. Redemption. The Preferred Stock is not redeemable.
----------
4. Conversion. The holders of the Preferred Stock shall have
----------
conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert.
----------------
(i) Subject to Section 4(c), each share of Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (i) $0.29963454 in the case of the
Series B Preferred Stock, (ii) $1.56888888 in the case of the Series C Preferred
Stock, and (iii) $9.77777778 in the case of the Series D Preferred Stock, by the
Conversion Price applicable to such share, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion.
(ii) Subject to Section 4(c), each share of Series D-1
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time beginning one year after the date on which a share of Series D-1
Preferred Stock was first issued, at the office of the Corporation or any
transfer agent for such stock, into one fully paid and nonassessable share of
Series D Preferred Stock, so long as, after giving effect to such conversion,
the total number of shares of the Corporation's capital stock entitled to vote
in any election of directors of the Corporation (the "Voting Shares") held by
-------------
such holder, together with all of its Affiliates, shall be less than 10% (by
voting power) of the total number of Voting Shares then issued and outstanding.
No conversion of shares of Series D-1 Preferred Stock shall be effected pursuant
to this subsection to the extent that it would have the effect of giving the
holder, together with all of its Affiliates, an aggregate number of Voting
Shares equal to or greater than 10% (by voting power) of the total number of
Voting Shares then issued and outstanding. For the purposes of this Article, the
term "Affiliate" shall mean, as to any person or entity, a person or entity
---------
that, directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such person or entity.
7
<PAGE>
(iii) Subject to Section 4(c), each share of Series D-1
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time beginning one year after the date on which a share of Series D-1
Preferred Stock was first issued, at the office of the Corporation or any
transfer agent for such stock, into such number of fully paid and nonassessable
shares of Class B Common Stock as is determined by dividing $9.77777778 by the
Conversion Price applicable to such share, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion.
(iv) Subject to Section 4(c), each share of Class B Common
Stock shall be convertible, at the option of the holder thereof, at any time
beginning one year after the earlier of (i) the date on which a share of Series
D-1 Preferred Stock was first issued, or (ii) the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, which results in aggregate cash
proceeds to the Corporation of at least $50,000,000 (net of underwriting
discounts and commissions), at the office of the Corporation or any transfer
agent for such stock, into one fully paid and nonassessable share of Common
Stock, so long as, after giving effect to such conversion, the total number of
Voting Shares held by such holder, together with all of its Affiliates, shall be
less than 10% (by voting power) of the total number of Voting Shares then issued
and outstanding. No conversion of shares of Class B Common Stock shall be
effected pursuant to this subsection to the extent that it would have the effect
of giving the holder, together with all of its Affiliates, an aggregate number
of Voting Shares equal to or greater than 10% (by voting power) of the total
number of Voting Shares then issued and outstanding.
(v) The initial Conversion Price per share shall be (i)
$0.29963454 per share of Series B Preferred Stock, (ii) $1.56888888 per share of
Series C Preferred Stock, (iii) $9.77777778 per share of Series D Preferred
Stock, and (iv) $9.77777778 per share of Series D-1 Preferred Stock. Such
initial Conversion Prices shall be subject to adjustment as set forth in Section
4(d).
(b) Automatic Conversion.
--------------------
(i) Each share of Series D Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such share immediately upon the earlier of (i) the
Corporation's sale of its Common Stock in a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, and which results in aggregate cash proceeds to the
Corporation of at least $50,000,000 (net of underwriting discounts and
commissions) or (ii) with the consent of the Company, the date specified by
written consent or agreement of the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock, voting together as a class. If,
as a result of any transaction or event, a holder of Series D Preferred Stock,
together with all of its Affiliates, would hold 10% or more (by voting power) of
the total number of Voting Shares then issued
8
<PAGE>
and outstanding, then the number of shares of Series D Preferred Stock held by
such holder of Series D Preferred Stock, if any, that would reduce the total
number of Voting Shares held by such holder of Series D Preferred Stock,
together with all of its Affiliates, to less than 10% (by voting power) of the
total number of Voting Shares then issued and outstanding shall be automatically
converted into the identical number of shares of Series D-1 Preferred Stock.
Such conversion shall be deemed to have occurred immediately prior to the
transaction or events that would otherwise increase the Voting Shares held by
such holder of Series D Preferred Stock, together with all of its Affiliates, to
10% or more of total number of Voting Shares.
(ii) Each share of Series D-1 Preferred Stock shall
automatically be converted into one share of Series D Preferred Stock
immediately upon the earlier of (i) except as provided below in Section 4(c),
the Corporation's sale of its Common Stock, Preferred Stock or debt securities
in a private equity or debt financing and which results in aggregate cash
proceeds to the Corporation of at least $50,000,000 (net of underwriting
discounts and commissions) (other than any sale by the Corporation to a third
party of the Corporation's equity or debt securities in a transaction that
includes a contract for commercial services between the Corporation and such
third party or any sale of Series D-1 Preferred Stock or Series D Preferred
Stock by the Corporation) or (ii) with the consent of the Company, the date
specified by written consent or agreement of the holders of at least a majority
of the then outstanding shares of Series D-1 Preferred Stock, voting together as
a class. Each share of Series D-1 Preferred Stock shall automatically be
converted into the identical number of fully paid and nonassessable shares of
Series D Preferred Stock immediately upon any sale, disposition, assignment or
transfer (each, a "Transfer") of any shares of Series D-1 Preferred Stock by the
--------
original holder thereof after one year from the date on which a share of Series
D-1 Preferred Stock was first issued, other than a Transfer to an Affiliate and
subject to the last sentence of subsection 4(a)(i).
(iii) Each share of Series D-1 Preferred Stock shall
automatically be converted into shares of Class B Common Stock at the Conversion
Price at the time in effect for such share immediately upon, except as provided
below in Section 4(c), the Corporation's sale of its Common Stock in a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, and which results in
aggregate cash proceeds to the Corporation of at least $50,000,000 (net of
underwriting discounts and commissions).
(iv) Each share of Series C Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such share immediately upon the earlier of (i) except
as provided below in Section 4(c), the Corporation's sale of its Common Stock in
a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, the public
offering price of which is not less than $2.55555555 per share (adjusted to
reflect subsequent stock dividends, stock splits, recapitalizations or similar
transactions) and which results in aggregate cash proceeds to the Corporation of
at least $50,000,000 (net of underwriting discounts and commissions) or (ii) the
date specified by written consent or agreement of the holders of at least 66
2/3% of the then outstanding shares of Series C Preferred Stock, voting together
as a class.
9
<PAGE>
(v) Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such share immediately upon the earlier of (i) except
as provided below in Section 4(c), the Corporation's sale of its Common Stock in
a firm commitment underwritten public offering pursuant to a registration
statement under the Securities Act of 1933, as amended, the public offering
price of which is not less than $1.56888888 per share (adjusted to reflect
subsequent stock dividends, stock splits, recapitalizations or similar
transactions) and which results in aggregate cash proceeds to the Corporation of
at least $15,000,000 (net of underwriting discounts and commissions) or (ii) the
date specified by written consent or agreement of the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock, voting
together as a class.
(vi) Each share of Class B Common Stock shall automatically
be converted into the identical number of fully paid and nonassessable shares of
Common Stock immediately upon any Transfer of any shares of Class B Common Stock
by the original holder thereof after one year from the earlier of (i) the date
on which a share of Series D-1 Preferred Stock was first issued, or (ii) the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
which results in aggregate cash proceeds to the Corporation of at least
$50,000,000 (net of underwriting discounts and commissions), other than a
Transfer to an Affiliate.
(vii) Promptly after the occurrence of any of the events
described in Sections 4(b)(i), (ii), (iii), (iv), (v) or (vi) hereof, the
Corporation shall give written notice of the automatic conversion of the shares
of Series D Preferred Stock, shares of Series D-1 Preferred Stock, shares of
Series C Preferred Stock, shares of Series B Preferred Stock and shares of Class
B Common Stock, as the case may be, to each holder of record thereof.
(viii) The Corporation shall, as soon as practicable after
the occurrence of any of the events described in Sections 4(b)(i), (ii), (iii),
(iv), (v) or (vi) hereof, issue and deliver at the office of the Corporation to
the holders of record of the shares of Series D Preferred Stock, shares of
Series D-1 Preferred Stock, shares of Series C Preferred Stock, shares of Series
B Preferred Stock or shares of Class B Common Stock, as the case may be, or to
the nominee or nominees of such holders, a certificate or certificates for the
number of shares of Common Stock, Class B Common Stock or Series D Preferred
Stock to which such holder shall be entitled as aforesaid, whereupon such holder
shall surrender the certificate or certificates for such shares of Preferred
Stock, duly endorsed, at the office of the Corporation or of any transfer agent
for the Preferred Stock; notwithstanding the foregoing, the failure of the
Corporation to deliver any certificate or certificates for such shares of Common
Stock, Class B Common Stock or Series D Preferred Stock shall not affect the
effectiveness or validity of any conversion of shares of Preferred Stock
pursuant to Section 4(b) hereof and, upon the occurrence of any of the events
described in Sections 4(b)(i), (ii), (iii), (iv) or (v) hereof, the certificates
for the shares of Series D Preferred Stock, shares of Series D-1 Preferred
Stock, shares of Series C Preferred Stock, shares of Series B Preferred Stock or
shares of Class B Common Stock, as the case may be, shall be deemed to represent
the shares of Common Stock, Class B Common Stock or Series D Preferred Stock to
which such holder shall be entitled as aforesaid.
10
<PAGE>
(ix) If, as a result of any transaction or event occurring
within three years after the date on which a share of Series D-1 Preferred Stock
was issued, unless such transaction or event is approved by the Board of
Directors of the Corporation, an original holder of Series D-1 Preferred Shares,
together with all of its Affiliates, would hold 10% or more (by voting power) of
the total number of Voting Shares then issued and outstanding, then the number
of shares of Common Stock held by such original holder of Series D-1 Preferred
Stock that would reduce the total number of Voting Shares held by such original
holder of Series D-1 Preferred Stock, together with all of its Affiliates, to
less than 10% (by voting power) of the total number of Voting Shares then issued
and outstanding shall be automatically converted into the identical number of
shares of Class B Common Stock. Such conversion shall be deemed to have occurred
immediately prior to the transaction or event that would otherwise increase the
Voting Shares held by such original holder of Series D-1 Preferred Stock,
together with all of its Affiliates, to 10% or more of the total number of
Voting Shares.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock, Class B
Common Stock or Series D Preferred Stock pursuant to Section 4(a) hereof, he or
she shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or of any transfer agent for the Preferred Stock,
and shall give written notice to the Corporation at its principal corporate
office, of the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock, Class
B Common Stock or Series D Preferred Stock are to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock, Class B
Common Stock or Series D Preferred Stock to which such holder shall be entitled
as aforesaid. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock, Class B Common Stock or Series D Preferred Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock, Class B Common Stock or Series
D Preferred Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, as amended, the conversion may, at the option of any holder tendering
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive Common Stock, Class B Common Stock or Series D
Preferred Stock upon conversion of such Preferred Stock shall not be deemed to
have converted such Preferred Stock until immediately prior to the closing of
such sale of securities.
11
<PAGE>
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Prices of the
- -------------------------------------------
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series D-1 Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) Issuance of Additional Stock below Conversion Price. If the Corporation
---------------------------------------------------
shall issue, after the date of filing of this Third Amended and Restated
Certificate of Incorporation (the "Purchase Date"), any Additional Stock (as
-------------
defined below) without consideration or for a consideration per share less than
the Conversion Price for such series in effect immediately prior to the issuance
of such Additional Stock, the Conversion Price for such series in effect
immediately prior to each such issuance shall automatically be adjusted as set
forth in this Section 4(d)(i), unless otherwise provided in this Section
4(d)(i).
(A) Adjustment Formula. Whenever the Conversion Price
------------------
is adjusted pursuant to this Section (4)(d)(i), the new Conversion Price shall
be determined by multiplying the Conversion Price then in effect by a fraction,
(x) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (the "Outstanding Common") plus
------------------
the number of shares of Common Stock that the aggregate consideration received
by the Corporation for such issuance would purchase at such Conversion Price;
and (y) the denominator of which shall be the number of shares of Outstanding
Common plus the number of shares of such Additional Stock. For purposes of the
foregoing calculation, the term "Outstanding Common" shall include shares of
------------------
Common Stock deemed issued pursuant to Section 4(d)(i)(E) below.
(B) Definition of "Additional Stock". For purposes of
----------------
this Section 4(d)(i), "Additional Stock" shall mean any shares of Common Stock
----------------
or capital stock, securities, options, warrants to purchase or other instruments
of similar effect convertible into or exchangeable for Common Stock issued (or
deemed to have been issued pursuant to Section 4(d)(i)(E)) by the Corporation
after the Purchase Date other than
(1) Common Stock issued pursuant to a transaction
described in Section 4(d)(ii) hereof;
(2) Up to 28,125,000 shares of Common Stock (as
adjusted to reflect subsequent stock dividends, stock splits, recapitalizations
or similar transactions) issuable or issued to employees, consultants or
directors of the Corporation directly or pursuant to a stock option plan or
arrangement or restricted stock plan or arrangement approved by the Board of
Directors of the Corporation, which number of shares shall include all shares
issued or issuable upon exercise of options granted or to be granted under the
Corporation's equity incentive plans;
(3) Capital stock, or options or warrants to
purchase capital stock, issued to financial institutions or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions;
(4) Shares of Common Stock or Preferred Stock
issuable upon exercise of warrants outstanding as of the date of this Third
Amended and Restated Certificate of Incorporation;
12
<PAGE>
(5) Capital stock or warrants or options to purchase
capital stock issued in connection with bona fide acquisitions, mergers,
strategic relationships or similar transactions, the terms of which are approved
by the Board of Directors of the Corporation;
(6) Shares of Common Stock and Class B Common Stock
issued or issuable upon conversion of the Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series D-1 Preferred Stock; and
(7) Shares of Common Stock issued or issuable in a
public offering prior to or in connection with which all outstanding shares of
Series B Preferred Stock, Series C Preferred Stock and Series D Common Stock
will be converted to Common Stock pursuant to Section 4(b) hereof.
(C) No Fractional Adjustments. No adjustment of the
-------------------------
Conversion Price for the Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series D-1 Preferred Stock shall be made in an
amount less than one cent per share, provided that any adjustments which are not
required to be made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment made prior to
three years from the date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of three years from the date of the
event giving rise to the adjustment being carried forward.
(D) Determination of Consideration. In the case of the
------------------------------
issuance of Common Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
In the case of the issuance of Common Stock for a consideration in whole or in
part other than cash, the consideration other than cash shall be deemed to be
the fair value thereof as determined by the Board of Directors in accordance
with Section 2(d)(ii) irrespective of any accounting treatment.
(E) Deemed Issuances of Common Stock. In the case
--------------------------------
of the issuance (whether before, on or after the applicable Purchase Date) of
options to purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock or options to purchase
or rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the satisfaction of any
conditions to exercisability, including without limitation, the passage of time,
but without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed to
have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Section 4(d)(i)(D)), if any, received by the Corporation upon the issuance of
such options or rights plus
13
<PAGE>
the minimum exercise price provided in such options or rights (without taking
into account potential antidilution adjustments) for the Common Stock covered
thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Section 4(d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the consideration payable to the
Corporation upon exercise of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of each of the Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series D-1 Preferred Stock, to the extent in
any way affected by or computed using such options, rights or securities, shall
be recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of such consideration
upon the exercise of any such options or rights or the conversion or exchange of
such securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of each of the Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series D-1 Preferred Stock, to
the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed,
but only to the extent the Company did not pay any consideration in connection
with such expiration or termination, to reflect the issuance of only the number
of shares of Common Stock (and convertible or exchangeable securities which
remain in effect) actually issued upon the exercise of such options or rights,
upon the conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities.
(5) The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor pursuant to Sections
4(d)(i)(E)(1) and 4(d)(i)(E)(2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either Section
4(d)(i)(E)(3) or 4(d)(i)(E)(4).
14
<PAGE>
(F) Special Adjustment to Series C Conversion Price. In
-----------------------------------------------
addition to any other adjustments that may be made to the Conversion Price of
the Series C Preferred Stock pursuant to this Section 4(d)(i), in the event
that, prior to February 19, 2004, either (i) the Company has not consummated an
initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended, the public offering price of which is
not less than $2.55555555 per share (adjusted to reflect subsequent stock
dividends, stock splits, recapitalizations or similar transactions) and which
results in aggregate cash proceeds to the Corporation of at least $50,000,000
(net of underwriting discounts and commissions) or (ii) an event of the type
described in Section 2(d)(i) above has not occurred, then, on such date and on
each successive anniversary of such date thereafter until the occurrence of an
event described in subclauses (i) or (ii) of this Section 4(d)(i)(F), the
Conversion Price of the Series C Preferred Stock then in effect shall be reduced
by 15%. If an event described in subclauses (i) or (ii) of this Section
4(d)(i)(F) occurs on a date after February 19, 2004 that is not an anniversary
of such date, the Conversion Price of the Series C Preferred Stock then in
effect shall be reduced by a pro rata portion of 15% per annum based on the
number of days elapsed in a 365-day year from the date of the last adjustment in
the Conversion Price of the Series C Preferred Stock pursuant to this Section
4(d)(i)(F).
(G) No Increased Conversion Price. Notwithstanding any
-----------------------------
other provisions of this Section (4)(d)(i), except to the limited extent
provided for in Sections 4(d)(i)(E)(3) and 4(d)(i)(E)(4) and except for any
adjustment pursuant to Section 4(d)(i)(H)(3) in the event of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, which results in aggregate cash
proceeds to the Corporation of at least $50,000,000, no adjustment of the
Conversion Price pursuant to this Section 4(d)(i) shall have the effect of
increasing the Conversion Price above (i) the Conversion Price in effect
immediately prior to such adjustment or (ii) the initial Conversion Price
specified in Section 4(a). No readjustment pursuant to Sections 4(d)(i)(E)(3)
and 4(d)(i)(E)(4) above shall have the effect of increasing the Conversion Price
to an amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date and (ii) the Conversion Price that would have resulted from the
issuance of Additional Stock between the original adjustment date and such
readjustment date.
(H) Special Adjustments to Series D and D-1 Conversion
--------------------------------------------------
Prices.
- ------
(1) In addition to any other adjustments that may be
made to the Conversion Prices of the Series D Preferred Stock and the Series D-1
Preferred Stock pursuant to this Section 4(d)(i), in the event that, on or
before the Series D/D-1 Ratchet Cut-Off Date (as defined below), the Corporation
shall issue any Additional Stock without consideration or for a consideration
per share less than the Conversion Price for such series in effect immediately
prior to the issuance of such Additional Stock (other than pursuant to (I) a
firm commitment underwritten public offering of the Corporation's Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, which results in aggregate cash proceeds to the Corporation of
at least $50,000,000 (net of underwriting discounts and commissions) or (II) any
sale by the Corporation to a third party of
15
<PAGE>
the Corporation's equity securities in a transaction that includes a contract
for commercial services between the Corporation and such third party entered
into in conjunction with the sale of Series D-1 Preferred Stock or any sale of
Series D-1 Preferred Stock or Series D Preferred Stock by the Corporation), the
Conversion Price for such series in effect immediately prior to each such
issuance shall automatically be reduced, concurrently with such issue, to a
price (calculated to the nearest cent) determined by dividing the aggregate
consideration received by the Corporation for the total number of shares of
Additional Stock so issued by the total number of shares of Additional Stock so
issued. For purposes of this Section 4(d)(i)(H), the term "Series D/D-1 Ratchet
Cut-Off Date" shall mean the business day next following the earliest to occur
of (i) the closing of a firm commitment underwritten public offering of the
Corporation's Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended, which results in aggregate cash proceeds
to the Corporation of at least $50,000,000 (net of underwriting discounts and
commissions), (ii) the closing of a private equity financing which results in
aggregate cash proceeds to the Corporation of at least $50,000,000 (net of
underwriting discounts and commissions) (other than any sale by the Corporation
to a third party of the Corporation's equity securities in a transaction that
includes a contract for commercial services between the Corporation and such
third party entered into in conjunction with the sale of Series D-1 Preferred
Stock or any sale of Series D-1 Preferred Stock or Series D Preferred Stock by
the Corporation), such financing occurring after the issuance of the Series D-1
Preferred, and (iii) the closing of a Liquidity Event other than an underwritten
public offering.
(2) In addition to any other adjustments that may be
made to the Conversion Prices of the Series D Preferred Stock and the Series D-1
Preferred Stock pursuant to this Section 4(d)(i), in the event that, on or
before the Series D/D-1 Ratchet Cut-Off Date (as defined above), the Corporation
shall close a Liquidity Event (other than an underwritten public offering
pursuant to an effective registration statement under the Securities Act) in
which the quotient (the "Liquidity Quotient") obtained by dividing (I) the
------------------
aggregate value received by the Corporation or the holders of the Corporation's
capital stock in such Liquidity Event (excluding options or warrants outstanding
at the closing of such Liquidity Event), by (II) the total number of shares of
the Corporation's Common Stock outstanding on the date of such event on an as-
converted basis (excluding options or warrants outstanding at the closing of
such Liquidity Event), is less than the Conversion Price for such series in
effect immediately prior to such Liquidity Event, then and in such event, the
Conversion Price for such series in effect immediately prior to each such
issuance shall automatically be reduced, immediately prior to the closing of
such Liquidity Event and immediately prior to any conversion pursuant to
Sections 4(a)(i), (ii) or (iii) above, to a price (calculated to the nearest
cent) equal to the Liquidity Quotient.
(3) In addition to any other adjustments that may be
made to the Conversion Prices of the Series D Preferred Stock and the Series D-1
Preferred Stock pursuant to this Section 4(d)(i), in the event of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, which results in
aggregate cash proceeds to the Corporation of at least $50,000,000 (net of
underwriting discounts and commissions), the Conversion Price per share of
Series D-1
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<PAGE>
Preferred Stock and Series D Preferred Stock shall automatically be adjusted,
immediately prior to the closing of such offering, and immediately prior to any
conversion pursuant to Sections 4(b)(i) and (iii), to:
(I) in the event there has been an adjustment to
the Conversion Prices of the Series D Preferred Stock and the Series D-1
Preferred Stock pursuant to Section 4(d)(i)(H)(1) or (2) prior to the adjustment
pursuant to this clause (4)(d)(i)(H)(3), a price equal to the lesser of (x) the
Conversion Price then in effect, or (y) the lesser of (1) the midpoint of the
price range set forth on the cover page of the prospectus for such underwritten
public offering when such prospectus is first filed with the Securities and
Exchange Commission or (2) the amount equal to 90% multiplied by the price to
the public of shares of the Company's Common Stock in such initial public
offering, or
(II) in the event there has been no adjustment
to the Conversion Prices of the Series D Preferred Stock and the Series D-1
Preferred Stock pursuant to Section 4(d)(i)(H)(1) or (2) prior to the adjustment
pursuant to this clause 4(d)(i)(H)(3), a price equal to the lesser of (x) the
midpoint of the price range set forth on the cover page of the prospectus for
such underwritten public offering when such prospectus is first filed with the
Securities and Exchange Commission or (y) the amount equal to 90% multiplied by
the price to the public of shares of the Company's Common Stock in such initial
public offering.
(ii) Stock Splits and Dividends. In the event the
--------------------------
Corporation should at any time or from time to time after the Purchase Date fix
a record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
------------------------
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of each of the Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series D-1 Preferred Stock shall
be appropriately decreased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be increased in proportion to
such increase of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number of shares
issuable with respect to Common Stock Equivalents determined from time to time
in the manner provided for deemed issuances in Section 4(d)(i)(E).
(iii) Reverse Stock Splits. If the number of shares of
--------------------
Common Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for each of the Series B
Preferred Stock, Series C Preferred Stock, Series D
17
<PAGE>
Preferred Stock and Series D-1 Preferred Stock shall be appropriately increased
so that the number of shares of Common Stock issuable on conversion of each
share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(e) Other Distributions. In the event the Corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 4(d)(i), then, in
each such case for the purpose of this Section 4(e), the holders of Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization, reclassification, combination, subdivision, merger,
transfer, exchange, sale or other disposition of assets, stock split, stock
dividend, reverse stock split or other distribution in respect of the Common
Stock (other than as provided for elsewhere in this Section 4 or in Section 2)
provision shall be made so that the holders of the Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series D-1 Preferred
Stock shall thereafter be entitled to receive upon conversion of the Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series D-
1 Preferred Stock, as the case may be, the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series D-1 Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the
Conversion Prices then in effect and the number of shares purchasable upon
conversion of the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series D-1 Preferred Stock) shall be applicable after that
event and be as nearly equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of Preferred Stock and Class B Common Stock against impairment and
dilution consistent with the terms hereof.
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion
of any share or shares of Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon
18
<PAGE>
such conversion shall be determined on the basis of the total number of shares
of Preferred Stock the holder is at the time converting into Common Stock and
the number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Prices of the Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series D-1 Preferred Stock pursuant to this Section
4, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series D-1 Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price for the Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series D-1 Preferred Stock at the time in
effect, and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series D-1 Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least 20 days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, Class B Common Stock and Series D Preferred
Stock solely for the purpose of effecting the conversion of the shares of Class
B Common Stock and Preferred Stock, such number of its shares of Common Stock,
Class B Common Stock and Series D Preferred Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Class B Common
Stock and Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock, Class B Common Stock and Series D Preferred
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of Class B Common Stock and Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Class B Common Stock and
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock, Class B Common Stock and Series D Preferred Stock to
such number of shares as shall be sufficient for such purposes, including,
without limitation, engaging in best efforts to obtain the requisite stockholder
approval of any necessary amendment to this Certificate of Incorporation.
19
<PAGE>
(k) Notices. Any notice required by the provisions of this
-------
Section 4 to be given to the holders of shares of Class B Common Stock or
Preferred Stock shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand, by messenger or
by facsimile (subsequently confirmed by telephone), addressed or transmitted to
each holder of record at his or her address appearing on the books of the
Corporation. Each such notice or other communication shall be treated as
effective or having been given when delivered if delivered personally, or, if
sent by mail, at the earlier of its receipt or 72 hours after the same has been
deposited in a regularly maintained receptacle for the deposit of the United
States mail, addressed and postage prepaid as aforesaid.
(l) Registrations and Approvals. If any shares of Common Stock,
---------------------------
Class B Common Stock or Series D Preferred Stock which would be issuable upon
conversion of Class B Common Stock or Preferred Stock hereunder require
registration with or approval of any governmental authority before such shares
may be issued upon conversion, the Corporation will in good faith and as
expeditiously as possible cause such shares to be duly registered or approved,
as the case may be. The Corporation will use commercially reasonable efforts to
list the shares of (or depository shares representing fractional interests in)
Common Stock, Class B Common Stock or Series D Preferred Stock required to be
delivered upon conversion of shares of Class B Common Stock or Preferred Stock
prior to such delivery upon the principal national securities exchange upon
which the outstanding Common Stock is listed at the time of such delivery, if
any.
(m) Taxes. The Corporation shall pay any and all issue or other
-----
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock, Class B Common Stock or Series D Preferred Stock on conversion of
shares of Class B Common Stock or Preferred Stock. The Corporation shall not,
however, be required to pay any tax which is payable in respect of any transfer
involved in the issue or delivery of Common Stock, Class B Common Stock or
Series D Preferred Stock in a name other than that in which the shares of the
Class B Common Stock or Preferred Stock so converted were registered, and no
such issue or delivery shall be made unless and until the person or entity
requesting such issue has paid to the Corporation the amount of such tax, or has
established, to the reasonable satisfaction of the Corporation, that such tax
has been paid.
20
<PAGE>
5. Voting Rights. The holders of the Preferred Stock shall have
-------------
voting rights as follows:
(a) In General. Subject to subsection (b) hereof and except as
----------
set forth in the last sentence of this subsection (a), the holder of each share
of Preferred Stock shall have the right to one vote for each share of Common
Stock into which such Preferred Stock could then be converted, and with respect
to such vote, such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any stockholders' meeting in
accordance with the Bylaws of the Corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an as-
converted basis (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward). Except as required by law or
as otherwise set forth herein, holders of Series D-1 Preferred Stock shall not
be entitled to vote for the election of directors or to vote on any other
matter.
(b) Voting for Board of Directors. The holders of shares of
-----------------------------
Common Stock, voting together as a single class, shall elect one member of the
Board of Directors of the Corporation. The holders of shares of Series B
Preferred Stock, voting together as a single class and on an as-converted basis,
shall elect three members of the Board of Directors of the Corporation. The
holders of shares of Series C Preferred Stock, voting together as a single class
and on an as-converted basis, shall elect two members of the Board of Directors
of the Corporation. Additional members of the Board of Directors, if any, shall
be elected by the holders of shares of Common Stock and Preferred Stock, voting
together as a single class and on an as-converted basis. If a vacancy on the
Board of Directors is to be filled by the Board of Directors, only a director or
directors elected by the same class of stockholders as those who would be
entitled to vote to fill such vacancy, if any, shall vote to fill such vacancy.
No action by members of the Board of Directors filling a vacancy on the Board of
Directors shall be effective until 10 days after all Board members who do not
have a right to vote on such appointment have received notice thereof. A
majority of the Board members entitled to receive such notice may waive such
notice requirement on behalf of all such Board members.
6. Protective Provisions.
---------------------
(a) So long as any shares of Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock are outstanding, the Corporation
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of (i) the holders of at least a majority of the then
outstanding shares of Series B Preferred Stock, voting together as a single
class and on an as-converted basis, (ii) the holders of at least 66 2/3% of the
then outstanding shares of Series C Preferred Stock, voting together as a single
class, and (iii) the holders of at least a majority of the then outstanding
shares of Series D Preferred Stock, voting together as a single class:
21
<PAGE>
(i) sell, convey or otherwise dispose of all or substantially
all of its property or business or merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary corporation) or effect any
other transaction or series of related transactions in which more than 50% of
the voting power of the Corporation is disposed of, if, in any of such cases,
such transaction would establish a "fully diluted" valuation for the Company
(assuming the exercise of all outstanding options, warrants or other rights to
acquire capital stock of the Corporation and the conversion to Common Stock of
all outstanding shares of Preferred Stock) of less than $4.44444444 per share
(adjusted to reflect subsequent stock dividends, stock splits, recapitalizations
or similar transactions); provided that this Section 6(a) shall not apply to a
--------
merger effected exclusively for the purpose of changing the domicile of the
Corporation;
(ii) alter or change, or take any action to alter or change,
the rights, preferences or privileges of the shares of Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock so as to affect adversely
the shares of the other series;
(iii) increase or decrease (other than by conversion) the
total number of authorized shares of Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock;
(iv) redeem, purchase or otherwise acquire (or pay into or
set funds aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction shall
-------- -------
not apply to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Company or
any subsidiary pursuant to agreements under which the Company has the option to
repurchase such shares at cost upon the occurrence of certain events, such as
the termination of employment;
(v) pay any dividends or make any distributions with respect
to the Common Stock of the Corporation;
(vi) dissolve, liquidate or wind up the Corporation;
(vii) increase the size of the Board of
Directors of the Corporation to a number greater than eight; or
(viii)create any subsidiary that is not wholly owned by the
Corporation or permit any subsidiary of the Corporation to issue any equity
interests other than to the Corporation.
(b) So long as any shares of Series D Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series D Preferred Stock, voting
together as a single class:
22
<PAGE>
(i) alter or change, or take any action to alter or change,
the rights, preferences or privileges of the shares of Series D Preferred Stock
so as to affect adversely such shares;
(ii) increase or decrease (other than by conversion) the
total number of authorized shares of Series D Preferred Stock; or
(iii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series D Preferred Stock with respect to voting, dividends,
distributions, redemption or upon liquidation.
(c) So long as any shares of Series D-1 Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series D-1 Preferred Stock, voting
together as a single class:
(i) alter or change, or take any action to alter or change,
the rights, preferences or privileges of the shares of Series D-1 Preferred
Stock so as to affect adversely such shares;
(ii) increase or decrease (other than by conversion) the
total number of authorized shares of Series D-1 Preferred Stock; or
(iii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series D-1 Preferred Stock with respect to voting, dividends,
distributions, redemption or upon liquidation.
(d) So long as any shares of Series C Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least 66 2/3%
of the then outstanding shares of Series C Preferred Stock, voting together as a
single class:
(i) alter or change, or take any action to alter or change,
the rights, preferences or privileges of the shares of Series C Preferred Stock
so as to affect adversely such shares;
(ii) increase or decrease (other than by conversion) the
total number of authorized shares of Series C Preferred Stock; or
(iii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series C Preferred Stock with respect to voting, dividends,
distributions, redemption or upon liquidation.
23
<PAGE>
(e) So long as any shares of Series B Preferred Stock are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series B Preferred Stock, voting
together as a single class:
(i) alter or change, or take any action to alter or change,
the rights, preferences or privileges of the shares of Series B Preferred Stock
so as to affect adversely such shares;
(ii) increase or decrease (other than by conversion) the
total number of authorized shares of Series B Preferred Stock; or
(iii) authorize or issue, or obligate itself to issue, any
other equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being on a
parity with, the Series B Preferred Stock with respect to voting, dividends,
distributions, redemption or upon liquidation.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation. The Certificate
of Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital stock.
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock and the Class B Common Stock shall be entitled
to receive, when and as declared by the Board of Directors, out of any assets
and funds of the Corporation legally available therefor, such dividends as may
be declared from time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV.
3. Redemption. The Common Stock and the Class B Common Stock are not
----------
redeemable.
4. Conversion. The Class B Common Stock will be convertible as
----------
provided in Section 4 of Division (B) of this Article IV.
5. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law. Except
as required by law or as set forth herein, holders of
24
<PAGE>
Class B Common Stock shall not be entitled to vote for the election of directors
or to vote on any other matter.
(D) Treatment of Series D Preferred Stock and Series D-1 Preferred Stock.
--------------------------------------------------------------------
Except as otherwise set forth herein, the rights, preferences, privileges and
restrictions of the Series D Preferred Stock and the Series D-1 Preferred Stock
shall be identical in all respects, and any action by the Corporation affecting
the shares of Series D Preferred Stock or the Series D-1 Preferred Stock,
including without limitation, stock dividends, subdivisions, combinations,
consolidations, distributions, reclassifications, exchanges and substitutions,
shall affect the shares of the Series D Preferred Stock and the Series D-1
Preferred Stock equally.
(E) Treatment of Common Stock and Class B Common Stock. Except as
--------------------------------------------------
otherwise set forth herein, the rights, privileges and restrictions of the
Common Stock and the Class B Common Stock shall be identical in all respects,
and any action by the Corporation affecting the Common Stock or Class B Common
Stock, including without limitation, stock dividends, subdivisions,
combinations, consolidations, distributions, reclassifications, exchanges and
substitutions, shall affect the shares of Common Stock and Class B Common Stock
equally.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make, alter
or repeal any or all of the Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he or she, his or her testator or intestate is or was a director or officer
of the Corporation or any predecessor of the Corporation, or serves or served at
any other enterprise as a director or officer at the request of the Corporation
or any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article VII
in respect of any matter occurring, or any
25
<PAGE>
action or proceeding accruing or arising or that, but for this Article VII,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
ARTICLE VII
The Corporation is to have perpetual existence.
ARTICLE VIII
The number of directors which will constitute the whole Board of Directors
of the Corporation shall be designated in the Bylaws of the Corporation.
ARTICLE IX
(A) On or prior to the date on which the Corporation first provides notice
of an annual meeting of the stockholders following the date this Article IX
shall have become effective, the Board of Directors of the Corporation shall
divide the directors into three classes, as nearly equal in number as reasonably
possible with the term of office of the first class to expire at the 2000 annual
meeting of stockholders or any special meeting in lieu thereof, the term of
office of the second class to expire at the 2001 annual meeting of stockholders
or any special meeting in lieu thereof and the term of office of the third class
to expire at the 2002 annual meeting of stockholders or any special meeting in
lieu thereof. At each annual meeting of stockholders or special meeting in lieu
thereof following such initial classification, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the third succeeding annual meeting of the stockholders or special
meeting in lieu thereof after their election and until their successors are duly
elected and qualified.
(B) Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filed only by a majority vote of the directors then
in office even though less than a quorum, or by a sole remaining director. In
the event of any increase or decrease in the authorized number of directors, (i)
each director then serving as such shall nevertheless continue as a director of
the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall if reasonably possible be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent reasonably
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation and newly eliminated directorships shall
be subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.
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<PAGE>
(C) This Article IX shall become effective only when the Corporation
becomes a listed corporation within the meaning of Section 301.5 of the
California Corporations Code.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any statutory provision) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors in
the Bylaws of the Corporation.
ARTICLE XI
Any registered holder of Preferred Stock may proceed to protect and enforce
its rights by any available remedy by proceeding at law or in equity to protect
and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy."
* * *
27
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at San Francisco, California, on April 16, 1999.
/s/ Henry P. Huff
_________________________________
Henry P. Huff,
Chief Financial Officer and Vice President,
Finance
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT 4.1
[NORTHPOINT STOCK CERTIFICATE]
COMMON STOCK [LOGO OF NORTHPOINT] COMMON STOCK
[NPC]
NorthPoint (sm)
NORTHPOINT COMMUNICATIONS GROUP, INC.
THIS CERTIFICATE IS TRANSFERABLE IN BOSTON, MASSACHUSETTS AND IN NEW YORK, NEW YORK
SEE REVERSE FOR
CERTAIN DEFINITIONS
AND TRANSFER RESTRICTIONS
--------------------------------------------------------------------------------------------------------------
THIS CERTIFIES THAT CUSIP 666610 10 0
is the owner of
--------------------------------------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE OF $.001 PER SHARE
(hereinafter called the "Company") transferable on the books of the Company by said owner in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are
issued and shall be held subject to all the provisions of the Certificate of Incorporation and all amendments thereto,
copies of which are on file at the office of the Transfer Agent, and the holder hereof by acceptance of this certificate.
WITNESS, the facsimile signatures of the duly authorized officers of the Corporation.
Dated:
VICE-PRESIDENT FINANCE AND CHIEF FINANCIAL OFFICER CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NORTHPOINT COMMUNICATIONS GROUP, INC.
A statement of the powers, designations, preferences and relative, participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights as
established, from time to time, by the Certificate of Incorporation of the Corporation and by any certificate of designation, and
the number of shares constituting each class and series and the designations thereof, may be obtained by the holder hereof upon
request and without charge from the Corporation a principal office.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as through
they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties ------------------------------------------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
---------------------------------------
(State)
UNIF TRF MIN ACT -- Custodian (until age)
------------------------------------------
(Cust)
under Uniform Transfers
-----------
(Minors)
to Minors Act
----------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------
- --------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
its
- --------------------------------------------------------------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises
Dated
---------------------------
------------------------------------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NOTICE: NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By
-----------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE>
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD APPEARS HERE]
April 19, 1999
NorthPoint Communications Group, Inc.
222 Sutter Street
San Francisco, CA 94108
Ladies and Gentlemen:
This opinion is rendered in connection with the filing by NorthPoint
Communications Group, Inc., a Delaware corporation (the "Company"), of its
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the offer and sale by the Company (the
"Offering") of up to 14,950,000 shares of the Company's common stock, par value
$.001 per share (the "Registered Common Stock"), and warrants to purchase
shares of the Company's Class B common stock, par value $.001 per share (the
"Warrants"), and any subsequent registration statement the Company may hereafter
file with the Commission pursuant to Rule 462(b) under the Securities Act to
register additional shares of the Company's common stock, par value $.001 per
share, in connection with the Offering (such additional shares, together with
the Registered Common Stock, the "Shares"). We have acted as counsel to the
Company in connection with the preparation of the Registration Statement.
In our capacity as such counsel, we are familiar with the proceedings
taken and to be taken by the Company in connection with the authorization,
issuance, and sale of the Common Stock. In addition, we have made such legal
and factual examinations and inquiries, including an examination of originals
(or copies certified or otherwise identified to our satisfaction as being true
reproductions of originals) or such documents, corporate records and other
instruments, and have obtained from officers of the Company and agents thereof
such certificates and other representations and assurances, as we have deemed
necessary or appropriate for the purposes of this opinion.
<PAGE>
LATHAM & WATKINS
April 19, 1999
Page 2
In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
legal capacity of natural persons executing such documents and the authenticity
and conformity to original documents of documents submitted to us as certified
or photostatic copies.
We are opining herein as to the effect on the subject transaction only
of the federal securities laws of the United States, the General Corporation Law
of the State of Delaware and with respect to opinion number 2 below, the
internal laws of the State of California, and we express no opinion with respect
to the applicability thereto, or the effect thereon, of the laws of any other
jurisdiction or, in the case of Delaware, any other laws, or as to any matters
of municipal law or the laws of any local agencies within any state.
Subject to the foregoing and the other qualifications set forth
herein, it is our opinion that, as of the date hereof:
1. Based on the foregoing and the proceedings to be taken by the
Company as referred to above, we are of the opinion that the Shares have been
duly authorized, and upon issuance, delivery and payment therefor in the manner
described in the Registration Statement, such Shares will be validly issued,
fully paid and nonassessable.
2. When (a) the Warrants have been duly executed and delivered and
issued in the form and in the manner contemplated in the Registration Statement,
and (b) when the Registration Statement and any required post-effective
amendment thereto required by applicable law have all become effective under the
Securities Act, and (c) assuming that the terms of the Warrants as executed and
delivered are as described in the Registration Statement and the exhibits
thereto, and (d) assuming that the Warrants, as executed and delivered, do not
violate any law applicable to the Company or result in a default under or breach
of any agreement or instrument binding upon the Company, and (e) assuming the
Warrants as executed and delivered comply with all requirements and
restrictions, if any, applicable to the Company, whether imposed by any court or
governmental or regulatory body having jurisdiction over the Company, and (f)
assuming that the Warrants are then issued and sold as contemplated in the
Registration Statement and the exhibits thereto, the Warrants will constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms.
The opinion in Paragraph 2 above is subject to the following
assumptions, limitations, qualifications and exceptions: (i) the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally; (ii) the effect of
general principles of equity, including without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law; (iii) certain rights,
remedies and waivers contained in the Documents may be limited or rendered
ineffective by applicable California laws or judicial decisions governing such
provisions, but such laws or judicial decisions do not render the Documents
invalid or unenforceable as a whole; and (iv) the unenforceability under certain
circumstances, under California or federal law or court decisions, of provisions
expressly or by implication waiving broadly or vaguely stated rights, unknown
future
<PAGE>
LATHAM & WATKINS
April 19, 1999
Page 3
rights, defenses to obligations or rights granted by law, where such waivers are
against public policy or prohibited by law.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters" of the prospectus included therein, and to the
incorporation by reference of this opinion and consent into a registration
statement filed with the Commission pursuant to Rule 462(b) under the Securities
Act relating to the Offering.
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE>
EXHIBIT 9.1
SECOND AMENDED AND RESTATED VOTING AGREEMENT
--------------------------------------------
This Second Amended and Restated Voting Agreement (the "Agreement") is made
---------
and entered into as of the 22nd day of March, 1999, by and among NorthPoint
Communications Holdings, Inc., a Delaware corporation (the "Company"),
-------
NorthPoint Communications, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company ("NCI"), William J. Euske, Robert Flood, Steven
---
Gorosh, Nathan Gregory, Michael Malaga and Timothy Monahan (collectively, the
"Founders" and individually, a "Founder"), the holders of a majority of the
- --------- -------
share of Common Stock issuable upon the conversion of the Series B Preferred
Stock of the Company (the "Series B Investors") and the holders of at least 66
------------------
2/3% of the shares of Common Stock issuable upon conversion of the Series C
Preferred Stock of the Company (the "Series C Investors" and collectively with
------------------
the Series B Investors, the "Investors" and individually, an "Investor").
--------- --------
RECITALS
--------
WHEREAS, the Company, the Founders, the Series B Investors and the Series C
Investors entered into an Amended and Restated Voting Agreement dated as of
February 19, 1999 (the "Original Agreement").
------------------
WHEREAS, NCI has consummated a reorganization (the "Reorganization")
pursuant to which NorthPoint became a wholly owned subsidiary of the Company.
The Reorganization was effected by a merger between NCI and another Delaware
corporation formed solely for this purpose, which was a wholly owned subsidiary
of the Company, with NCI as the surviving corporation of such merger. As a
result of the Reorganization, each of the holders of capital stock of NCI
immediately prior to the consummation of the Reorganization became the only
holders of capital stock of the Company immediately after the consummation of
the Reorganization, each holding the same number of shares of capital stock of
the same class of the Company with the same rights, privileges, terms and
conditions as the shares of capital stock of NCI held by such holders
immediately prior to the consummation of the Reorganization. The Company owns
all of the capital stock of NCI and has no other significant assets. The
Company, NCI, the Founders, the Series B Investors and the Series C Investors
each desire amend and restate the Original Agreement as set forth herein to
reflect the Reorganization.
WHEREAS, pursuant to Section 5 of the Original Agreement, the Original
Agreement may be amended by written consent of (i) NCI, (ii) holders of at least
a majority of the shares of Common Stock issuable or issued upon the conversion
of the Company's Series B Preferred Stock, (iii) holders of at least 66 2/3% of
the shares of Common Stock issuable or issued upon conversion of the Company's
Series C Preferred Stock, and (iv) holders of a majority of the outstanding
shares of Common Stock of the Company then owned by the Founders as a group.
AGREEMENT
---------
The parties hereby agree as follows:
<PAGE>
1. BOARD REPRESENTATION.
--------------------
(a) SERIES B INVESTORS. With respect to the three (3) members of the
------------------
Company's Board of Directors the Company's Certificate of Incorporation provides
are to be elected by the holders of Series B Preferred Stock voting together as
a single class on an as-converted basis, the Investors agree to vote or act with
respect to their shares of Preferred Stock of the Company and to cause the
directors designated by each them to act so as to elect (or appoint to fill a
vacancy) one (1) member of the Company's Board of Directors designated by each
of (i) Accel Partners, (ii) Benchmark Capital and (iii) Greylock Management
Corporation (collectively, the "Series B Preferred Directors").
----------------------------
(b) SERIES C INVESTORS.
------------------
(i) With respect to the two (2) members of the Company's Board of
Directors the Company's Certificate of Incorporation provides are to be elected
by the holders of Series C Preferred Stock voting together as a single class on
an as-converted basis, the Investors agree to vote or act with respect to their
shares of Preferred Stock of the Company and to cause the directors designated
by each of them to act so as to elect (or appoint to fill a vacancy) one (1)
member of the Company's Board of Directors designated by each of (i) Carlyle-
NorthPoint Partners, L.P. and (ii) Vulcan Ventures Incorporated (collectively,
the "Series C Preferred Directors" and together with the Series B Preferred
----------------------------
Directors, the "Preferred Directors").
-------------------
(ii) If at any time during the term of this Agreement the Board of
Directors shall designate an executive committee or committee performing
substantially similar functions for any purposes, the Investors and the Founders
agree to cause the directors designated by each of them to act so as to elect or
appoint the director designated by Carlyle-NorthPoint Partners, L.P. as a member
of such executive or other committee.
(c) FOUNDERS. With respect to the one (1) member of the Company's
--------
Boardof Directors the Company's Certificate of Incorporation provides is to be
elected by the holders of Common Stock (including Common Stock, if any, issued
upon conversion of Preferred Stock), the Founders and the Investors agree to
vote or act with respect to their shares of Common Stock of the Company and to
cause the directors designated by each of them to act so as to elect (or appoint
to fill a vacancy) the Company's Chief Executive Officer as a member of the
Company's Board of Directors (the "Common Director").
---------------
(d) INVESTORS AND FOUNDERS. The Investors and Founders agree to vote
----------------------
or act with respect to their shares of Common Stock and Preferred Stock and to
cause the directors designated by each of them to act so as to elect (or appoint
to fill a vacancy) any remaining members (or such other additional members of
the Board of Directors as are authorized by the Company's Bylaws) of the
Company's Board of Directors designated by agreement of 66 2/3% of the Preferred
Directors and Common Director as a group, who shall have relevant experience in
the industry in which the Company operates.
2. CHANGE IN NUMBER OF DIRECTORS. The Founders and the Investors will not
-----------------------------
vote for any amendment or change to the Bylaws or Certificate of Incorporation
of the Company
2
<PAGE>
providing for the election of more or less than eight (8) directors, or any
other amendment or change to the Bylaws or Certificate of Incorporation of the
Company inconsistent with the terms of this Agreement, unless such amendment or
change is unanimously approved by the Preferred Directors and Common Director.
3. LEGENDS. Each certificate representing shares of the Company's capital
-------
stock held by Founders or Investors shall be endorsed by the Company with a
legend reading as follows:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT BY AND AMONG
THE COMPANY, THE FOUNDERS AND THE INVESTORS (A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES
THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL
BECOME BOUND BY ALL THE PROVISIONS OF SAID VOTING AGREEMENT."
4. TERMINATION. This Agreement shall terminate upon the earlier of (a) the
-----------
consummation of the Company's initial public offering on a firm underwriting
basis of any of its Common Stock, the public offering price of which is not less
than $5.75 per share (adjusted to reflect subsequent stock dividends, stock
splits, recapitalizations or similar transactions) and which results in
aggregate cash proceeds to the Company of at least $50,000,000 (net of
underwriting discounts and commissions), or (b) ten (10) years from the date
hereof.
5. AMENDMENTS; WAIVERS. Any term hereof may be amended or waived with the
-------------------
written consent of (i) the Company, (ii) holders of at least a majority of the
shares of Common Stock issuable or issued upon the conversion of the Company's
Series B Preferred Stock, (iii) holders of at least 66 2/3% of the shares of
Common Stock issuable or issued upon conversion of the Company's Series C
Preferred Stock, and (iv) holders of a majority of the outstanding shares of
Common Stock of the Company then owned by the Founders as a group (or their
respective successors and assigns). Any amendment or waiver effected in
accordance with this Section 5 shall be binding upon the Company, the Investors
and the Founders, and each of their respective successors and assigns.
6. NOTICES. Any notice required or permitted by this Agreement shall be
-------
in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth on the books of the Company, or as
subsequently modified by written notice.
7. SEVERABILITY. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
3
<PAGE>
8. GOVERNING LAW. This Agreement and all acts and transactions pursuant
-------------
hereto and the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of law.
9. COUNTERPARTS. This Agreement may be executed in two (2) or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
10. SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
11. ATTORNEY'S FEES. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements (including all fees, costs and expenses of appeals) in
addition to any other relief to which such party may be entitled.
12. CARLYLE ENTITIES ONE INVESTOR. For purposes of this Agreement,
-----------------------------
Carlyle Partners II, L.P., a Delaware limited partnership, Carlyle Partners III,
L.P., a Delaware limited partnership, State Board of Administration of Florida,
Carlyle Investment Group, L.P., a Delaware limited partnership, Carlyle
International Partners II, L.P., a Cayman Islands limited partnership, Carlyle
International Partners III, L.P., a Cayman Islands limited partnership, C/S
International Partners, a Cayman Islands general partnership, Carlyle-NorthPoint
Partners, L.P., a Delaware limited partnership, Carlyle-NorthPoint International
Partners, L.P., a Cayman Islands limited partnership, Carlyle Venture Partners,
LP, a Cayman Islands limited partnership, Carlyle U.S. Venture Partners, LP, a
Delaware limited partnership, C/S Venture Investors, LP, a Cayman Islands
limited partnership and Carlyle Venture Coinvestment, LLC, a Delaware limited
liability company (collectively, the "Carlyle Entities") shall be considered as
a single Investor; provided, however, that the Company shall be protected in
relying on the instructions of, and notices received from, Carlyle-NorthPoint
Partners, L.P., a Delaware limited partnership, in connection with the exercise
of any rights or privileges of the Carlyle Entities hereunder.
13. TERMINATION OF ORIGINAL AGREEMENT. By execution of this Agreement
---------------------------------
below, the parties acknowledge and agree that the Original Agreement shall be
terminated and shall be of no further force or effect.
[Signature Page Follows]
4
<PAGE>
The parties hereto have executed this Second Amended and Restated Voting
Agreement as of the date first written above.
COMPANY:
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
By: ___________________________
Title: ________________________
Address:
222 Sutter Street
7th Floor
San Francisco, CA 94108
NCI:
NORTHPOINT COMMUNICATIONS, INC.
By: ___________________________
Title: ________________________
Address:
222 Sutter Street
7th Floor
San Francisco, CA 94108
INVESTORS:
BENCHMARK CAPITAL PARTNERS, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: ________________________________________
Member
5
<PAGE>
BENCHMARK FOUNDERS' FUND, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: ________________________________________
Member
ACCEL V L.P.
By: Accel V Associates L.L.C.
Its General Partner
By: ________________________________________
Managing Member
ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology Fund Associates L.L.C.
Its General Partner
By: ________________________________________
Managing Member
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By: ________________________________________
Managing Member
ACCEL INVESTORS `97 L.P.
By: ________________________________________
General Partner
6
<PAGE>
ELLMORE C. PATTERSON PARTNERS
By: _______________________________________
General Partner
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited Partnership, its General Partner
By: ________________________________________
General Partner
STANFORD UNIVERSITY
_____________________________________________
(Print Title)
_____________________________________________
(Signature)
WILLIAM EUSKE
_____________________________________________
(Signature)
ROBERT FLOOD
_____________________________________________
(Signature)
STEVEN GOROSH
_____________________________________________
(Signature)
7
<PAGE>
NATHAN GREGORY
_____________________________________________
(Signature)
MICHAEL MALAGA
_____________________________________________
(Signature)
TIMOTHY MONAHAN
_____________________________________________
(Signature)
VLG INVESTMENTS 97
_____________________________________________
(Print Title)
_____________________________________________
(Signature)
CATHRYN S. CHINN
_____________________________________________
(Signature)
8
<PAGE>
PAUL A. LARANGO AND ANN W. ZEICHNER,
TRUSTEES OF THE ZEICHNER-LARANGO FAMILY TRUST,
UDT, DATED JULY 28, 1997
By: Ann W. Zeichner, Trustee
__________________________________
(Signature)
AT HOME CORPORATION
By: ________________________________________
________________________________________
(Print Name)
________________________________________
Title
9
<PAGE>
INTEL CORPORATION
By: _______________________________
_______________________________
(Print Name)
_______________________________
Title
______________________________
Lawrence M. Howell
VULCAN VENTURES INCORPORATED
By: _______________________________
_______________________________
_______________________________
(Print Name)
_______________________________
Title
NEWCOURT COMMERCIAL FINANCE CORPORATION
By: _______________________________
_______________________________
(Print Name)
________________________________
Title
10
<PAGE>
EFTIA
By: _______________________________
_______________________________
(Print Name)
_______________________________
Title
___________________________
William Hiller
THE DAHL FAMILY TRUST DATED OCTOBER 31, 1989,
AS AMENDED MAY 3, 1990
By: Robert K. Dahl as Trustee for the Dahl Family Trust
___________________________________
(Signature)
11
<PAGE>
CHARLES ROSS PARTNERS
By: ______________________________
______________________________
(Print Name)
______________________________
Title
___________________________
Reed Hundt
LEAD VENTURES
By: ______________________________
______________________________
(Print Name)
______________________________
Title
12
<PAGE>
CNA TRUST, TTEE FBO VENTURE LAW GROUP 401(K) PLAN MICHAEL W. HALL
By:
___________________________________
(Signature)
THE SIERRA VENTURES MGMT. CO.
1989 DEFERRED SAVINGS PLAN FBO HENRY P. HUFF
By:
___________________________________
(Signature)
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
By: Exeter IV Advisors, Inc.
By: ______________________________
Keith R. Fox, President
__________________________
Mory Ejabat
__________________________
Dino Vendetti
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
13
<PAGE>
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Carlyle Investment Management LLC
Its Manager
By: ______________________________
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
14
<PAGE>
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE-NORTHPOINT PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By: ______________________________
Title: Attorney in Fact
CARLYLE U.S. VENTURE PARTNERS, LP
By: TCG Ventures, LLC
Its General Partner
By: ______________________________
Title: Managing Director
15
<PAGE>
C/S VENTURE INVESTORS, LP
By: TCG Ventures, Limited
Its General Partner
By: ______________________________
Title: Attorney in Fact
CARLYLE VENTURE COINVESTMENT, LLC
By: TCG Ventures, LLC
Its Manager
By: ______________________________
Title: Managing Director
FOUNDERS:
WILLIAM EUSKE
___________________________________
(Signature)
ROBERT FLOOD
___________________________________
(Signature)
STEVEN GOROSH
___________________________________
(Signature)
NATHAN GREGORY
___________________________________
(Signature)
16
<PAGE>
MICHAEL MALAGA
___________________________________
(Signature)
TIMOTHY MONAHAN
___________________________________
(Signature)
17
<PAGE>
EXHIBIT 10.4
FOURTH AMENDED AND RESTATED
----------------------------
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
--------------------------------------------
This Fourth Amended and Restated Right of First Refusal and Co-Sale
Agreement (the "Agreement") is made and entered into as of March 22, 1999 by and
---------
among William Euske, Robert Flood, Steven Gorosh, Nathan Gregory, Michael Malaga
and Timothy Monahan (collectively, the "Founders" and individually, a
--------
"Founder"), NorthPoint Communications Holdings, Inc., a Delaware corporation
-------
(the "Company"), NorthPoint Communications, Inc., a Delaware corporation (the
-------
"NCI"), the holders of a majority of the Series B Preferred Stock of the Company
- ----
(the "Series B Investors"), Morgan Stanley Senior Funding, Inc. ("Morgan
------------------ ------
Stanley") and the holders of 66-2/3% of the Series C Preferred Stock of the
Company (the "Series C Investors" and collectively with the Series B Investors,
------------------
Morgan Stanley and the holders of warrants to initially purchase 1,085,714 and
2/7 shares of Common Stock of the Company issued to Morgan Stanley in connection
with a letter agreement dated May 20, 1998 and in connection with the Senior
Increasing Rate Notes of the Company and any other warrants that may hereafter
be issued in connection with the Senior Increasing Rate Notes of the Company
(collectively, the "Warrants"), the "Investors" and individually, an
-------- ---------
"Investor").
--------
RECITALS
--------
WHEREAS, the Company, the Founders, the Series B Investors, the Series C
Investors and Morgan Stanley entered into a Third Amended and Restated Right of
First Refusal and Co-Sale Agreement dated as of February 19, 1999 (the "Prior
-----
Agreement"); and
- ---------
WHEREAS, NCI has consummated a reorganization (the "Reorganization")
pursuant to which NorthPoint became a wholly owned subsidiary of the Company.
The Reorganization was effected by a merger between NCI and another Delaware
corporation formed solely for this purpose, which was a wholly owned subsidiary
of the Company, with NCI as the surviving corporation of such merger. As a
result of the Reorganization, each of the holders of capital stock of NCI
immediately prior to the consummation of the Reorganization became the only
holders of capital stock of the Company immediately after the consummation of
the Reorganization, each holding the same number of shares of capital stock of
the same class of the Company with the same rights, privileges, terms and
conditions as the shares of capital stock of NCI held by such holders
immediately prior to the consummation of the Reorganization. The Company owns
all of the capital stock of NCI and has no other significant assets. The
Company, NCI, the Prior Holders and Morgan Stanley each desire amend and restate
the Prior Agreement as set forth herein to reflect the Reorganization.
<PAGE>
AGREEMENT
---------
The parties hereby agree as follows:
1. SALES BY FOUNDERS.
-----------------
(a) NOTICE OF SALES; ASSIGNMENT OF COMPANY RIGHT OF FIRST REFUSAL.
-------------------------------------------------------------
(i) After the date of this Agreement, should any Founder propose to
accept one or more bona fide offers (collectively, a "Purchase Offer") from any
--------------
person to purchase shares of the Company's Common Stock (the "Shares") from such
------
Founder (other than as set forth in subsection 1(e) hereof), such Founder shall
promptly deliver a notice (the "Notice") to the Company and each Investor
------
stating the terms and conditions of such Purchase Offer including, without
limitation, the number of Shares to be sold or transferred, the nature of such
sale or transfer, the consideration to be paid, and the name and address of each
prospective purchaser or transferee and, in addition, a subsequent Notice in the
event there has been any material change to any of the foregoing information.
In the event that the sale or transfer is being made pursuant to the provisions
of subsection (e) hereof, the Notice shall state the exception under which such
sale or transfer is being made.
(ii) The Company agrees that in the event that the Company declines
to exercise in full the Right of First Refusal set forth in Section 3 of the
Common Stock Purchase Agreement between such Founder and the Company (the "Right
-----
of First Refusal"), the Company will provide each Investor with notice of such
- ----------------
determination at least fifteen (15) days prior to the end of the period in which
the Right of First Refusal expires under such Common Stock Purchase Agreement.
Each Investor other than Morgan Stanley and any other holder of the Warrants
shall then have the right, exercisable by notice to the Company prior to the end
of such period, to exercise such Right of First Refusal as the Company's
assignee on a pro rata basis (based upon the number of Conversion Shares (as
defined below) held by such Investor relative to the aggregate number of
Conversion Shares held by all Investors other than Morgan Stanley and any other
holder of the Warrants); provided that if fewer than all Investors (other than
Morgan Stanley and any other holder of the Warrants) elect to participate, the
Shares that would otherwise be allocated to non-participating Investors shall be
allocated to each participating Investor (each, a "Participating Investor") at
----------------------
such Participating Investor's option in a manner such that each Participating
Investor is entitled to purchase at least such Participating Investor's pro rata
portion of such unallocated Shares (based upon the number of Conversion Shares
held by all Participating Investors) or such different number of Shares as the
Participating Investors shall mutually agree. The procedures set forth in this
Section 1(a)(ii) with respect to Participating Investors shall be repeated as
necessary until all of the Shares initially subject to this Section 1(a)(ii)
have been purchased or until the final successive Participating Investor has
declined to exercise his or her rights hereunder with respect to any remaining
Shares subject to this Section 1(a)(ii), whichever shall first occur. Upon
expiration or exercise of the Right of First Refusal, the Company will provide
notice to all Investors and the Founders as to whether or not the Right of First
Refusal has been exercised by the Company or the Investors.
2
<PAGE>
(b) CO-SALE RIGHT. To the extent that the Right of First Refusal is
-------------
not exercised by the Company or the Investors, each Investor shall have the
right (the "Co-Sale Right"), exercisable upon written notice to the Company
-------------
within fifteen (15) business days after the expiration of the Right of First
Refusal, to participate in such Founder's sale of Shares pursuant to the
specified terms and conditions of such Purchase Offer; provided, however, that
any such Investor exercising its Co-Sale Right shall not, in connection with
such sale, be obligated to agree to any joint and several liability or
obligation to indemnify the purchaser of such Shares, and any several liability
of such Investor related to any such sale shall in no event exceed the net
proceeds from such sale to be received by such Investor. To the extent an
Investor exercises such Co-Sale Right in accordance with the terms and
conditions set forth below, the number of Shares which such Founder may sell
pursuant to such Purchase Offer shall be correspondingly reduced. The Co-Sale
Right of each Investor shall be subject to the following terms and conditions:
(i) CALCULATION OF SHARES. Each Investor may sell all or any part
---------------------
of that number of shares of Common Stock of the Company issuable or issued (i)
upon conversion of Preferred Stock (including Preferred Stock issuable upon
exercise of warrants), (ii) upon exercise of the Warrants, or (iii) in
connection with any stock dividend, stock split or other reclassification
thereof (all of which are referred to herein as the "Conversion Shares") equal
-----------------
to (i) to the extent that proceeds to such Investor from all prior sales of
securities pursuant to this Agreement are less than such Investor's Aggregate
Purchase Price, an amount equal to the total amount of shares covered by the
Purchase Offer, multiplied by such Investor's Capital Return Ratio, plus (ii) to
the extent that the number of shares covered by the Purchase Offer exceeds the
amount obtained from the application of clause (i) above with respect to all
Investors requesting to include securities in the sale pursuant to such Purchase
Offer, an amount equal to (A) the total amount of shares covered by the Purchase
Offer, less the total amount of securities of all Investors to be included in
such sale pursuant to clause (i) above, multiplied by (B) such Investor's Sale
Ratio. For purposes hereof, as of any date of determination, an Investor's
"Aggregate Purchase Price" is an amount equal to the aggregate purchase price
------------------------
paid to the Company as consideration for all securities held by such Investor;
an Investor's "Capital Return Ratio" is a fraction, the numerator of which is
--------------------
such Investor's Aggregate Purchase Price and the denominator of which is the sum
of the Aggregate Purchase Prices for all Investors and Founders; and an
Investor's "Sale Ratio" is a fraction, the numerator of which is the amount of
----------
securities of the Company held by such Investor and the denominator of which is
the aggregate amount of securities held by all Investors and Founders. The
provisions of this Agreement do not confer any co-sale rights with respect to
any shares of Common Stock or other securities held by an Investor that are not
Conversion Shares.
(ii) DELIVERY OF CERTIFICATES. Each Investor may effect its
------------------------
participation in the sale by delivering to the selling Founder for transfer to
the purchase offeror one or more certificates, properly endorsed for transfer,
which represent the number of shares of Preferred Stock, Warrants or Common
Stock issued upon conversion or exercise thereof, which such Investor elects to
sell.
3
<PAGE>
(c) TRANSFER. The stock or warrant certificate or certificates which
--------
the Investor delivers to the selling Founder pursuant to Section 1(b) shall be
delivered by such Founder to the purchase offeror in consummation of the sale
pursuant to the terms and conditions specified in the Notice, and such Founder
shall promptly thereafter remit to such Investor that portion of the sale
proceeds to which such Investor is entitled by reason of its participation in
such sale. To the extent that any prospective purchaser or purchasers prohibits
such assignment or otherwise refuses to purchase shares of capital stock or
Warrants of the Company from an Investor exercising its Co-Sale Right hereunder,
the selling Founder or Founders shall not sell to such prospective purchaser or
purchasers any shares of Company stock or Warrants unless and until,
simultaneously with such sale, the selling Founder or Founders shall purchase
such shares or Warrants from such Investor for the same consideration and on the
same terms and conditions as the proposed transfer described in the Notice
(which terms and conditions shall be no less favorable than those governing the
sale to the purchaser by the Founder or Founders).
(d) NO ADVERSE EFFECT. The exercise or non-exercise of the rights of
-----------------
the Investors hereunder to participate in one or more sales of Shares made by a
Founder shall not adversely affect their rights to participate in subsequent
sales of Common Stock by a Founder.
(e) PERMITTED TRANSACTIONS. The provisions of Section 1 of this
----------------------
Agreement shall not pertain or apply to:
(i) any pledge of the Company's Common Stock made by a Founder
pursuant to a bona fide loan transaction which creates a mere security interest;
provided, however, that the provisions of Section 1 of this Agreement shall
pertain and apply to any foreclosure, sale or realization on or in respect of
such Common Stock pursuant to any such pledge;
(ii) any repurchase of Common Stock by the Company;
(iii) any bona fide gift;
(iv) any transfer to a Founder's Immediate Family (as defined
below) or a trust for the benefit of such Founder's Immediate Family ("Immediate
---------
Family" as used herein shall mean spouse, lineal descendant or antecedent,
- ------
father, mother, brother or sister); or
(v) any sale or transfer of shares of Common Stock among the
Founders.
provided however, that (x) the Founder(s) shall inform the Investors of such
- ----------------
pledge, transfer or gift prior to effecting it, and (y) the pledgee, transferee
or donee (collectively, the "Permitted Transferees") shall furnish the Investors
---------------------
with a written agreement to be bound by and comply with all provisions of this
Agreement applicable to the Founders.
2. Prohibited Transfers. ANY ATTEMPT BY A FOUNDER TO TRANSFER SHARES IN
--------------------
VIOLATION OF SECTION 1 HEREOF SHALL BE VOID AND THE COMPANY AGREES IT WILL NOT
EFFECT SUCH A TRANSFER NOR WILL IT TREAT ANY ALLEGED TRANSFEREE AS THE HOLDER OF
SUCH SHARES WITHOUT THE
4
<PAGE>
WRITTEN CONSENT OF THE HOLDERS OF A MAJORITY OF THE CONVERSION SHARES. IN THE
EVENT A FOUNDER SHOULD SELL ANY SHARES IN CONTRAVENTION OF THE CO-SALE RIGHTS OF
THE INVESTORS UNDER SECTION 1 (A "PROHIBITED TRANSFER"), THE INVESTORS, IN
-------------------
ADDITION TO SUCH OTHER REMEDIES AS MAY BE AVAILABLE AT LAW, IN EQUITY OR
HEREUNDER, SHALL HAVE THE PUT OPTION PROVIDED BELOW, AND THE FOUNDER SHALL BE
BOUND BY THE APPLICABLE PROVISIONS OF SUCH OPTION.
IN THE EVENT OF A PROHIBITED TRANSFER, EACH INVESTOR SHALL HAVE THE
RIGHT TO SELL TO THE FOUNDER THE TYPE AND NUMBER OF SHARES EQUAL TO THE NUMBER
OF SHARES EACH INVESTOR WOULD HAVE BEEN ENTITLED TO TRANSFER TO THE THIRD-PARTY
TRANSFEREE(S) UNDER SECTION 1 HEREOF HAD THE PROHIBITED TRANSFER BEEN EFFECTED
PURSUANT TO AND IN COMPLIANCE WITH THE TERMS HEREOF. SUCH SALE SHALL BE MADE ON
THE FOLLOWING TERMS AND CONDITIONS:
The price per share at which the shares are to be sold to the Founder
shall be equal to the price per share paid by the third-party transferee(s) to
the Founder in the Prohibited Transfer. The Founder shall also reimburse each
Investor for any and all fees and expenses, including legal fees and expenses,
incurred pursuant to the exercise or the attempted exercise of the Investor's
rights under Section 1.
Within ninety (90) days after the later of the dates on which the
Investor (A) received notice of the Prohibited Transfer or (B) otherwise become
aware of the Prohibited Transfer, each Investor shall, if exercising the option
created hereby, deliver to the Founder the certificate or certificates
representing shares to be sold, each certificate to be properly endorsed for
transfer.
The Founder shall, upon receipt of the certificate or certificates for
the shares to be sold by an Investor, pursuant to this Section, pay the
aggregate purchase price therefor and the amount of reimbursable fees and
expenses, as specified in subparagraph (b)(i), in cash or by other means
acceptable to the Investor.
3. LEGEND ON CERTIFICATES. Each certificate representing shares of the
----------------------
Common Stock of the Company now or hereafter owned by the Founders or issued to
any Permitted Transferee pursuant to Section 1(e) shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT BY AND
BETWEEN THE STOCKHOLDER, THE COMPANY AND CERTAIN HOLDERS OF PREFERRED
STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
The foregoing legend shall be removed upon termination of this
Agreement in accordance with the provisions of Section 4(a).
5
<PAGE>
4. MISCELLANEOUS PROVISIONS.
------------------------
(a) TERMINATION. This Agreement shall terminate upon the earliest to
-----------
occur of any one of the following events (and shall not apply to any transfer by
a Founder in connection with any such event):
(i) The liquidation, dissolution or indefinite cessation of the
business operations of the Company;
(ii) The execution by the Company of a general assignment for the
benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company;
(iii) The closing of the Company's initial public offering of
securities (provided the per share public offering price is not less than $5.75
(as adjusted to reflect subsequent stock dividends, stock splits,
recapitalizations or similar transactions) and such offering results in
aggregate cash proceeds to the Company of at least $50,000,000, net of
underwriting discounts and commissions); provided that all shares of the
--------
Company's Preferred Stock are converted into and all Warrants are exercised for
shares of Common Stock prior to or in connection with such offering; and
(iv) The closing of any acquisition, merger, reorganization or
other transaction which results in the stockholders of the Company immediately
prior to such transaction owning less than 50% of the Company's voting stock
immediately after such transaction.
(b) NOTICES. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient on the date of delivery, when
delivered personally or by overnight courier or sent by telegram or fax, or
forty-eight (48) hours after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, and addressed to the party to be notified
at such party's address as set forth on the books of the Company, or as
subsequently modified by written notice.
(c) SUCCESSORS AND ASSIGNS. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of, and be binding upon, the respective
successors and assigns of the parties. The rights of the Investors hereunder
shall be assignable only (i) by each of such Investors to any other Investor or
any affiliate of any Investor or (ii) an assignee or transferee who acquires not
less than 50,000 shares of the Company's Common Stock (as adjusted for stock
splits, stock dividends and the like, and assuming conversion of all Preferred
Stock held by such Investor); provided that such limitation shall not apply to
--------
transfers by an Investor to a wholly-owned subsidiary, affiliate or constituent
partner (including limited partners) or member of such Investor, if all such
transferees or assignees irrevocably agree in writing to appoint a single
representative as their attorney-in-fact for the purpose of receiving any
notices and exercising their rights under this Agreement.
6
<PAGE>
(d) SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(e) MODIFICATIONS AND AMENDMENTS. Any term hereof may be amended or
----------------------------
waived only with the written consent of the Company and (i) holders of at least
66 2/3% of the outstanding Series C Preferred Stock voting as a class, (ii)
holders of at least a majority of the outstanding Series B Preferred Stock
voting as a class, (iii) holders of a majority of the shares issued or issuable
upon exercise of the Warrants, and (iv) holders of a majority of the outstanding
Founders' Shares (or their respective successors and assigns), each voting
separately as a class. Any amendment or waiver effected in accordance with this
Section 4(e) shall be binding upon the Company, the holders of Series B
Preferred Stock, the holders of the Warrants or any shares issued upon exercise
of the Warrants, the holders of Series C Preferred Stock and any holder of
Founders' Shares, and each of their respective successors and assigns.
(f) ATTORNEY'S FEES. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements (including all fees, costs and expenses of appeals) in
addition to any other relief to which such party may be entitled.
(g) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(h) COUNTERPARTS. This Agreement may be executed in two (2) or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
(i) CARLYLE ENTITIES ONE INVESTOR. For purposes of this Agreement,
-----------------------------
Carlyle Partners II, L.P., a Delaware limited partnership, Carlyle Partners III,
L.P., a Delaware limited partnership, State Board of Administration of Florida,
Carlyle Investment Group, L.P., a Delaware limited partnership, Carlyle
International Partners II, L.P., a Cayman Islands limited partnership, Carlyle
International Partners III, L.P., a Cayman Islands limited partnership, C/S
International Partners, a Cayman Islands general partnership, Carlyle-NorthPoint
Partners, L.P., a Delaware limited partnership, Carlyle-NorthPoint International
Partners, L.P., a Cayman Islands limited partnership, Carlyle Venture Partners,
LP, a Cayman Islands limited partnership, Carlyle U.S. Venture Partners, LP, a
Delaware limited partnership, C/S Venture Investors, LP, a Cayman Islands
limited partnership and Carlyle Venture Coinvestment, LLC, a Delaware limited
liability company (collectively, the "Carlyle Entities") shall be considered as
a single Investor; provided, however, that the Company shall be protected in
relying on the instructions of, and notices
7
<PAGE>
received from, Carlyle-NorthPoint Partners, L.P., a Delaware limited
partnership, in connection with the exercise of any rights or privileges of the
Carlyle Entities hereunder.
(j) TERMINATION OF PRIOR AGREEMENT. By execution of this Agreement
------------------------------
below, the parties acknowledge and agree that the Prior Agreement shall be
terminated and shall be of no further force or effect.
8
<PAGE>
The parties have executed this Fourth Amended and Restated Right of
First Refusal and Co-Sale Agreement as of the date first written above.
COMPANY:
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
By: ________________________________
Title: ________________________________
Company Address:
222 Sutter Street
7th Floor
San Francisco, CA 94108
NCI:
NORTHPOINT COMMUNICATIONS, INC.
By: ________________________________
Title: ________________________________
Company Address:
222 Sutter Street
7th Floor
San Francisco, CA 94108
9
<PAGE>
SERIES B INVESTORS:
BENCHMARK CAPITAL PARTNERS, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: ________________________________
Member
BENCHMARK FOUNDERS' FUND, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: ________________________________
Member
ACCEL V L.P.
By: Accel V Associates L.L.C.
Its General Partner
By: ________________________________
Managing Member
ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology Fund Associates L.L.C.
Its General Partner
By: ________________________________
Managing Member
10
<PAGE>
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By: ________________________________
Managing Member
ACCEL INVESTORS `97 L.P.
By: ________________________________
General Partner
ELLMORE C. PATTERSON PARTNERS
By: ________________________________
General Partner
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited Partnership, its General Partner
By: ________________________________
General Partner
STANFORD UNIVERSITY
_____________________________________
(Print Title)
_____________________________________
(Signature)
11
<PAGE>
VLG INVESTMENTS 97
________________________________
(Print Title)
________________________________
(Signature)
CATHRYN S. CHINN
________________________________
(Signature)
WILLIAM EUSKE
________________________________
(Signature)
ROBERT FLOOD
________________________________
(Signature)
NATHAN GREGORY
________________________________
(Signature)
MICHAEL MALAGA
________________________________
(Signature)
12
<PAGE>
TIMOTHY MONAHAN
___________________________________
(Signature)
PAUL A. LARANGO AND ANN W. ZEICHNER,
TRUSTEES OF THE ZEICHNER-LARANGO FAMILY TRUST,
UDT, DATED JULY 28, 1997
By: Ann W. Zeichner, Trustee
__________________________________
(Signature)
13
<PAGE>
MORGAN STANLEY:
MORGAN STANLEY SENIOR FUNDING, INC.
__________________________________
(Print Title)
__________________________________
(Signature)
14
<PAGE>
SERIES C INVESTORS:
AT HOME CORPORATION
__________________________________
(Print Title)
__________________________________
(Signature)
INTEL CORPORATION
__________________________________
(Print Title)
__________________________________
(Signature)
_______________________________
Lawrence M. Howell
VULCAN VENTURES INCORPORATED
__________________________________
(Print Title)
__________________________________
(Signature)
15
<PAGE>
BENCHMARK CAPITAL PARTNERS, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: __________________________________
Member
BENCHMARK FOUNDERS' FUND, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: __________________________________
Member
ACCEL V L.P.
By: Accel V Associates L.L.C.
Its General Partner
By: __________________________________
Managing Member
ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology Fund Associates L.L.C.
Its General Partner
By: __________________________________
Managing Member
16
<PAGE>
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By: __________________________________
Managing Member
ACCEL INVESTORS `97 L.P.
By: __________________________________
General Partner
ELLMORE C. PATTERSON PARTNERS
By: __________________________________
General Partner
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited Partnership, its General Partner
By: __________________________________
General Partner
NEWCOURT COMMERCIAL FINANCE CORPORATION
By: __________________________________
__________________________________
(Print Name)
__________________________________
Title
17
<PAGE>
EFTIA
By: __________________________________
__________________________________
(Print Name)
__________________________________
Title
__________________________________
William Hiller
THE DAHL FAMILY TRUST DATED OCTOBER 31, 1989,
AS AMENDED MAY 3, 1990
By: Robert K. Dahl as Trustee for the Dahl Family Trust
__________________________________
(Signature)
CHARLES ROSS PARTNERS
By: __________________________________
__________________________________
(Print Name)
__________________________________
Title
LEAD VENTURES
By: __________________________________
__________________________________
(Print Name)
__________________________________
Title
18
<PAGE>
CNA TRUST, TTEE FBO VENTURE LAW GROUP 401(K) PLAN MICHAEL W. HALL
By:
__________________________________
(Signature)
THE SIERRA VENTURES MGMT. CO.
1989 DEFERRED SAVINGS PLAN FBO HENRY P. HUFF
By:
__________________________________
(Signature)
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
By: Exeter IV Advisors, Inc.
By: ______________________________
Keith R. Fox, President
__________________________________
Mory Ejabat
__________________________________
Dino Vendetti
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
19
<PAGE>
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Carlyle Investment Management LLC
Its Manager
By: ______________________________
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
20
<PAGE>
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE-NORTHPOINT PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By: ______________________________
Title: Attorney in Fact
CARLYLE U.S. VENTURE PARTNERS, LP
By: TCG Ventures, LLC
Its General Partner
By: ______________________________
Title: Managing Director
21
<PAGE>
C/S VENTURE INVESTORS, LP
By: TCG Ventures, Limited
Its General Partner
By: ______________________________
Title: Attorney in Fact
CARLYLE VENTURE COINVESTMENT, LLC
By: TCG Ventures, LLC
Its Manager
By: ______________________________
Title: Managing Director
FOUNDERS:
ROBERT FLOOD
____________________________________
(Signature)
STEVEN GOROSH
____________________________________
(Signature)
NATHAN GREGORY
____________________________________
(Signature)
22
<PAGE>
MICHAEL MALAGA
__________________________________
(Signature)
TIMOTHY MONAHAN
_________________________________
(Signature)
23
<PAGE>
EXHIBIT 10.5
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
FIFTH AMENDED AND RESTATED RIGHTS AGREEMENT
DATED AS OF MARCH 22, 1999
<PAGE>
FIFTH AMENDED AND RESTATED RIGHTS AGREEMENT
This FIFTH AMENDED AND RESTATED RIGHTS AGREEMENT is entered into as of the
22nd day of March, 1999, by and among NorthPoint Communications Holdings, Inc.,
a Delaware corporation (the "Company"), NorthPoint Communications, Inc., a
-------
Delaware corporation ("NCI"), persons holding at least 66 2/3% of the
---
Registrable Securities under the Fourth Amended and Restated Rights Agreement
dated February 19, 1999 (the "Existing Rights Agreement") (as "Registrable
------------------------- -----------
Securities" is defined under the Existing Rights Agreement) (the "Prior
- ---------- -----
Holders"), Morgan Stanley Senior Funding, Inc. ("Morgan Stanley") and the
--------------
purchasers of the Company's Series D-1 Preferred Stock (the "Series D-1
----------
Purchasers").
- ----------
RECITALS
WHEREAS, NCI, the Prior Holders and Morgan Stanley entered into a Fourth
Amended and Restated Rights Agreement dated as of February 19, 1999;
WHEREAS, NCI has consummated a reorganization (the "Reorganization")
pursuant to which NorthPoint became a wholly owned subsidiary of the Company.
The Reorganization was effected by a merger between NCI and another Delaware
corporation formed solely for this purpose, which was a wholly owned subsidiary
of the Company, with NCI as the surviving corporation of such merger. As a
result of the Reorganization, each of the holders of capital stock of NCI
immediately prior to the consummation of the Reorganization became the only
holders of capital stock of the Company immediately after the consummation of
the Reorganization, each holding the same number of shares of the same class of
capital stock of the Company with the same rights, privileges, terms and
conditions as the shares of capital stock of NCI held by such holders
immediately prior to the consummation of the Reorganization. The Company owns
all of the capital stock of NCI and has no other significant assets. The
Company, NCI, the Prior Holders and Morgan Stanley each desire amend and restate
the Existing Rights Agreement as set forth herein to reflect the Reorganization;
WHEREAS, the Company is entering into Series D-1 Preferred Stock Purchase
Agreements with each of the Series D-1 Purchasers (the "Series D-1 Purchase
-------------------
Agreements") pursuant to which the Company has sold or desires to sell to the
- ----------
Series D-1 Purchasers and the Series D-1 Purchasers have purchased or desire to
purchase from the Company shares of the Company's Series D-1 Preferred Stock. A
condition to the Series D-1 Purchasers' obligations under the Series D-1
Purchase Agreements is that the Company, NCI, the Prior Holders, Morgan Stanley
and the Series D-1 Purchasers enter into this Agreement for the purpose of
granting certain registration and other rights to the Series D-1 Purchasers. The
Company, NCI, the Prior Holders and Morgan Stanley each desire to facilitate the
arrangements set forth in this Agreement, and the sale and purchase of shares of
Series D-1 Preferred Stock pursuant to the Series D-1 Purchase Agreements by
amending and restating the Existing Rights Agreement as set forth herein; and
2
<PAGE>
WHEREAS, pursuant to Section 3.7 of the Existing Rights Agreement, the
Existing Rights Agreement may be amended by written consent of the holders of at
least 66 2/3% of the outstanding shares of the Registrable Securities, Morgan
Stanley and NCI.
NOW, THEREFORE, the parties hereby agree that the Existing Rights Agreement
is amended and restated in its entirety as follows:
SECTION 1
Restrictions on Transferability;
--------------------------------
Registration Rights
-------------------
1.1 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Carlyle" shall mean TC Group, Inc.
-------
"Carlyle Option" shall mean the option of Carlyle to purchase
--------------
additional shares of the Company's Series C Preferred Stock pursuant to that
certain side letter agreement between the Company and Carlyle dated as of
February 19, 1999, which agreement has been assigned by NCI to the Company in
connection with the Reorganization.
"Carlyle Warrant" shall mean any warrant issued to Carlyle by the
---------------
Company pursuant to that certain side letter agreement between the Company and
Carlyle dated as of February 19, 1999, which warrant agreement has been assigned
by NCI to the Company in connection with the Reorganization.
"Carlyle Warrant and Option Shares" shall mean the Common Stock or
---------------------------------
other securities issuable or issued upon exercise of the Carlyle Warrants or the
Carlyle Option and any stock issued or issuable with respect thereto upon any
stock split, stock dividend, recapitalization or similar event.
"Class B Common Stock" shall mean the Class B Common Stock, par
--------------------
value $0.001 per share, of the Company.
"Class B Common Holder" shall mean any record holder of Class B Common
---------------------
Stock and any person holding Class B Common Stock to whom the rights under this
Agreement have been transferred in accordance with Section 1.15 hereof.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Commitment Letter" shall mean the letter agreement dated May 20, 1998
-----------------
between NCI and Morgan Stanley Bridge Fund L.L.C. relating to the purchase of
Senior
3
<PAGE>
Increasing Rate Notes of NCI, which agreement has been assigned by NCI to the
Company in connection with the Reorganization.
"Common Stock" shall mean the Common Stock, par value $0.001 per
------------
share, of the Company.
"Conversion Shares" means (i) the Common Stock issued or issuable upon
-----------------
conversion of the Series B Preferred Stock, the Series C Preferred Stock and the
Series D Preferred Stock, and (ii) the Common Stock issued or issuable upon
conversion of the Class B Common Stock.
"Holders" shall mean the Preferred Holders, the Class B Common Holders
-------
and the Warrant Holders.
"Initiating Holders" shall mean any Preferred Holders and any Class B
------------------
Common Holders who in the aggregate are Holders of not less than twenty percent
(20%) of the Registrable Securities held by Preferred Holders and Class B Common
Holders.
"Initiating Warrant Holders" shall mean any Warrant Holders who in the
--------------------------
aggregate are Holders of not less than forty percent (40%) of the aggregate
amount of Registrable Securities held by Warrant Holders.
"Preferred Holder" shall mean any record holder of Preferred Shares
----------------
and any person holding Preferred Shares to whom the rights under this Agreement
have been transferred in accordance with Section 1.15 hereof. "Preferred
---------
Holder" shall also mean Carlyle for so long as Carlyle is a holder of the
Carlyle Option or any Carlyle Warrant and Vulcan Ventures Incorporated
("Vulcan") for so long as Vulcan is a holder of the Vulcan Option.
------
"Preferred Shares" shall mean the Series B Preferred Stock, Series C
----------------
Preferred Stock, Series D Preferred Stock and Series D-1 Preferred Stock of the
Company and any stock issued or issuable with respect thereto upon any stock
split, stock dividend, recapitalization or similar event.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Sections 1.5, 1.6 , 1.7 and 1.8 of this Agreement,
including, without limitation, all registration, qualification and filing fees,
printing expenses, messenger and delivery expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses, any travel
and other road show expenses incident to such registration, accounting fees and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
4
<PAGE>
"Registrable Securities" means (i) the Conversion Shares; (ii) the
----------------------
Warrant Shares; (iii) the Carlyle Warrant and Option Shares; (iv) the Vulcan
Option Shares; (v) any Common Stock issued or issuable in respect of the
Preferred Shares, Conversion Shares, Class B Common Stock, Warrant Shares,
Carlyle Warrant and Option Shares or Vulcan Option Shares or other securities
issued or issuable with respect to the Preferred Shares, Conversion Shares,
Class B Common Stock, Warrant Shares, Carlyle Warrant and Option Shares or
Vulcan Option Shares upon any stock split, stock dividend, recapitalization, or
similar event, or any Common Stock otherwise issued or issuable with respect to
the Conversion Shares, Preferred Shares, Class B Common Stock, Warrant Shares,
Carlyle Warrant and Option Shares or Vulcan Option Shares; provided, however,
-------- -------
that shares of Common Stock or other securities shall only be treated as
Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale.
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legend set forth in Section 1.3 of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (except as
provided by Section 1.10).
"Senior Increasing Rate Notes" shall mean the Senior Increasing Rate
----------------------------
Notes issued pursuant to the Note Purchase Agreement dated July 10, 1998,
between Morgan Stanley and NCI, as amended.
"Shares" shall have the meaning given in Section 2.4 of this
------
Agreement.
"Vulcan Option" shall mean the option of Vulcan to purchase additional
-------------
shares of the Company's Series C Preferred Stock pursuant to that certain side
letter agreement between NCI and Vulcan dated as of February 19, 1999, which
agreement has been assigned by NCI to the Company in connection with the
Reorganization.
"Vulcan Option Shares" shall mean the Common Stock or other securities
--------------------
issuable or issued upon exercise of the Vulcan Option and any stock issued or
issuable with respect thereto upon any stock split, stock dividend,
recapitalization or similar event.
"Warrant Holder" shall mean any record holder of Warrant Shares and
--------------
any person holding Warrant Shares to whom rights under this Agreement have been
transferred.
5
<PAGE>
"Warrants" shall mean the warrants to initially purchase 1,235,714 and
--------
2/7 shares of Common Stock of the Company issued to Morgan Stanley in connection
with the Commitment Letter and in connection with the Senior Increasing Rate
Notes and any other warrants that are hereafter issued in connection with the
Senior Increasing Rate Notes, which warrants have been assigned by NCI to the
Company in connection with the Reorganization.
"Warrant Shares" shall mean the Common Stock or other securities
--------------
issuable or issued upon exercise of the Warrants and any stock issued or
issuable with respect thereto upon any stock split, stock dividend,
recapitalization or similar event.
1.2 Restrictions. The Preferred Shares, the Class B Common Stock
------------
and the Conversion Shares shall not be sold, assigned, transferred or pledged
except upon the conditions specified in this Agreement, which conditions are
intended to ensure compliance with the provisions of the Securities Act. The
Preferred Holders and the Class B Common Holders will cause any proposed
purchaser, assignee, transferee or pledgee of the Preferred Shares, the Class B
Common Stock or the Conversion Shares to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Agreement.
1.3 Restrictive Legend. Each certificate representing (i) the
------------------
Preferred Shares, (ii) the Class B Common Stock, (iii) the Conversion Shares and
(iv) any other securities issued in respect of the securities referenced in
clauses (i), (ii) and (iii) upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by the provisions of Section 1.4 below) be stamped or
otherwise imprinted with legends in the following form (in addition to any
legend required under applicable state securities laws) (other than the Series
D-1 Purchasers, whose certificates of Series D-1 Preferred Stock, Series D
Preferred Stock, Class B Common Stock and Common Stock shall bear the legend set
forth in the Series D-1 Purchase Agreements):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH
MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
6
<PAGE>
Each Preferred Holder and Class B Common Holder consents to the Company
making a notation on its records and giving instructions to any transfer agent
of the Restricted Securities in order to implement the restrictions on transfer
established in this Agreement.
1.4 Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of Sections 1.3 and 1.4 of this Agreement.
Prior to any proposed sale, assignment, transfer or pledge of any Restricted
Securities, unless there is in effect a registration statement under the
Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the
manner and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied at such holder's expense by either
(i) a written opinion of legal counsel who shall, and whose legal opinion shall,
be reasonably satisfactory to the Company, addressed to the Company, to the
effect that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company will not require such a legal opinion or "no action"
letter (a) in any transaction in compliance with Rule 144, (b) in any
transaction in which a Preferred Holder which is a corporation distributes
Restricted Securities after six (6) months following the purchase thereof solely
to its affiliates or majority-owned subsidiaries, or (c) in any transaction in
which a Preferred Holder which is a partnership distributes Restricted
Securities after six (6) months following the purchase thereof solely to
partners thereof for no consideration, provided that each transferee agrees in
writing to be subject to the terms of this Section 1.4. Each certificate
evidencing the Restricted Securities transferred as provided for in the
immediately preceding sentence shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
1.3 above, except that such certificate shall not bear such restrictive legend
if, in the opinion of counsel for such holder and the Company, such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
1.5 Warrant Holder Requested Registration.
-------------------------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Warrant Holders a written request that the Company effect any
registration, qualification or compliance with respect to the Registrable
Securities held by such Warrant Holders, the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Warrant Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an
7
<PAGE>
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Warrant Holder or Warrant
Holders joining in such request as are specified in a written request received
by the Company within thirty (30) days after receipt of such written notice
from the Company; provided, however, that the Company shall not be obligated
-------- -------
to take any action to effect any such registration, qualification or compliance
pursuant to this Section 1.5:
(1) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(2) Prior to the earlier of (i) June 30, 2001 or (ii) six (6)
months after the effective date of the first registration statement for a public
offering of Common Stock (other than a registration statement relating solely to
the sale of securities to employees of the Company pursuant to a stock option,
stock purchase or similar plan or a Commission Rule 145 transaction);
(3) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date six
(6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), including, without limitation, a registration pursuant to this Section 1,
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and that the
Company's estimate of the date of filing such registration statement is made in
good faith; provided, however, that the Company shall not defer a registration
pursuant to this Section 1.5(a)(ii)(3) more than once in any twelve (12) month
period.
(4) After the Company has effected two (2) registrations pursuant
to this subparagraph 1.5(a), such registrations have been declared or ordered
effective and the securities offered pursuant to such registrations have been
sold; or
(5) If the Company shall furnish to such Warrant Holders a
certificate, signed by the President of the Company, stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.5 shall be deferred for a single period
not to exceed one hundred-twenty (120) days from the date of receipt of written
request from the Warrant Holders; provided, however, that the Company shall not
make such certification more than once in any twelve (12) month period.
8
<PAGE>
Subject to the foregoing clauses (1) through (5), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Warrant Holders.
(b) Underwriting. In the event that a registration pursuant to
------------
Section 1.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Warrant Holders as part of the notice given pursuant
to Section 1.5(a)(i). The right of any Warrant Holder to registration pursuant
to Section 1.5 shall be conditioned upon such Warrant Holder's participation in
the underwriting arrangements required by this Section 1.5 and the inclusion of
such Warrant Holder's Registrable Securities in the underwriting, to the extent
requested, to the extent provided in this Agreement.
The Company shall (together with all Warrant Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority in interest of the Warrant Holders (which
managing underwriter shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 1.5, if the managing
underwriter advises the Warrant Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all Warrant Holders of Registrable Securities and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated first among all Warrant Holders
thereof in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Warrant Holders at the time of filing the
registration statement. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any Warrant Holder to the nearest 100 shares.
If any Warrant Holder holding Registrable Securities disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Warrant Holders
initiating the request under this Section 1.5. The Registrable Securities
and/or other securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to ninety (90) days after the effective date of such
registration.
1.6 Preferred Holder and Class B Common Holder Requested Registration.
-----------------------------------------------------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to the Registrable Securities held by
Preferred Holders and Class B Common Holders, the anticipated aggregate offering
price, net of underwriting discounts and commissions, of which would exceed
$10,000,000, the Company will:
9
<PAGE>
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within thirty (30) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
-------- -------
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.6:
(1) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(2) Prior to the earlier of (i) June 1, 2001 or (ii) six (6)
months after the effective date of the first registration statement for a public
offering of Common Stock (other than a registration statement relating solely to
the sale of securities to employees of the Company pursuant to a stock option,
stock purchase or similar plan or a Commission Rule 145 transaction);
(3) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of and ending (i) on the date
six (6) months immediately following the effective date of any registration
statement pertaining to Common Stock of the Company or (ii) on the effective
date of any registration statement pertaining to securities of the Company (in
each case other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), including, without limitation, a
registration pursuant to this Section 1, provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective and that the Company's estimate of the date of
filing such registration statement is made in good faith; provided, however,
that the Company shall not defer a registration pursuant to this Section
1.6(a)(ii)(3) more than once in any twelve (12) month period.
(4) After the Company has effected three (3) such
registrations pursuant to this subparagraph 1.6(a), such registrations have been
declared or ordered effective and the securities offered pursuant to such
registrations have been sold; or
(5) If the Company shall furnish to the Initiating Holders a
certificate, signed by the President of the Company, stating that in the good
faith judgment of the
10
<PAGE>
Board of Directors it would be seriously detrimental to the Company or its
stockholders for a registration statement to be filed in the near future, then
the Company's obligation to use its best efforts to register, qualify or comply
under this Section 1.6 shall be deferred for a single period not to exceed one
hundred-twenty (120) days from the date of receipt of written request from the
Initiating Holders; provided, however, that the Company shall not make such
certification more than once in any twelve (12) month period.
Subject to the foregoing clauses (1) through (5), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
------------
Section 1.6 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.6(a)(i). The right of any Holder to registration pursuant to Section
1.6 shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 1.6 and the inclusion of such Holder's
Registrable Securities in the underwriting, to the extent requested, to the
extent provided in this Agreement.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders (which managing underwriter
shall be reasonably acceptable to the Company). Notwithstanding any other
provision of this Section 1.6, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting with
respect to any Holder shall be an amount equal to (i) to the extent that
proceeds to such Holder from any prior sale of Registrable Securities pursuant
to a registration of Registrable Securities pursuant to this Agreement are less
than such Holder's Aggregate Purchase Price, an amount equal to the total amount
of Registrable Securities the managing underwriter advises may be included in
such underwriting, multiplied by such Holder's Capital Return Ratio, plus (ii)
to the extent that the number of shares of Registrable Securities which may be
included in such underwriting exceeds the amount obtained from the application
of clause (i) above with respect to all Holders requesting to include
Registrable Securities in such underwriting, an amount equal to (A) the total
amount of Registrable Securities the managing underwriter advises may be
included in such underwriting, less the total amount of Registrable Securities
of all Holders to be included in such underwriting pursuant to clause (i) above,
multiplied by (B) such Holder's Sale Ratio. For purposes hereof, as of any date
of determination, a Holder's "Aggregate Purchase Price" is an amount equal to
------------------------
the aggregate original purchase price paid to the Company as consideration for
all Registrable Securities held by such Holder; a Holder's "Capital Return
--------------
Ratio" is a fraction, the numerator of which is such Holder's Aggregate Purchase
Price and the denominator of which is the sum of the Aggregate Purchase Prices
for all Holders; and a Holder's "Sale Ratio" is a fraction, the numerator of
----------
which is the amount of Registrable Securities held by such Holder and the
denominator of which is the aggregate amount of Registrable Securities held by
all Holders. No Registrable Securities excluded from the underwriting by reason
of the
11
<PAGE>
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of such registration.
1.7 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time, the
----------------------
Company shall determine to register any of its Common Stock, either for its own
account or the account of a security holder or holders other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved in
such registration, all the Registrable Securities specified in a written request
or requests made within thirty (30) days after receipt of such written notice
from the Company by any Holder, but only to the extent that such inclusion will
not diminish the number of securities included by the Company or by holders of
the Company's securities who have demanded such registration, except as set
forth in subsection (b) below.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 1.7(a)(i). In such event, the right of any Holder to registration
pursuant to Section 1.7 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company (or by the holders who have
demanded such registration). Notwithstanding any other provision of this
Section 1.7, if the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds
the amount of securities sold other than by the Company that the underwriters
determine in their sole discretion is compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (the securities so included to be apportioned pro rata first
(and to the exclusion of any other selling stockholder) such that each selling
Holder may sell
12
<PAGE>
an amount equal to (i) to the extent that proceeds to such Holder from any prior
sale of Registrable Securities pursuant to a registration of Registrable
Securities pursuant to this Agreement are less than such Holder's Aggregate
Purchase Price, an amount equal to the total amount of Registrable Securities
the managing underwriter advises may be included in such underwriting,
multiplied by such Holder's Capital Return Ratio, plus (ii) to the extent that
the number of shares of Registrable Securities which may be included in such
underwriting exceeds the amount obtained from the application of clause (i)
above with respect to all Holders requesting to include Registrable Securities
in such underwriting, an amount equal to (A) the total amount of Registrable
Securities the managing underwriter advises may be included in such
underwriting, less the total amount of Registrable Securities of all Holders to
be included in such underwriting pursuant to clause (i) above, multiplied by (B)
such Holder's Sale Ratio. For purposes hereof, as of any date of determination,
a Holder's "Aggregate Purchase Price" is an amount equal to the aggregate
------------------------
original purchase price paid to the Company as consideration for all Registrable
Securities held by such Holder; a Holder's "Capital Return Ratio" is a fraction,
--------------------
the numerator of which is such Holder's Aggregate Purchase Price and the
denominator of which is the sum of the Aggregate Purchase Prices for all
Holders; and a Holder's "Sale Ratio" is a fraction, the numerator of which is
----------
the amount of Registrable Securities held by such Holder and the denominator of
which is the aggregate amount of Registrable Securities held by all Holders.
Thereafter, the Company shall be required to include in the offering only that
number of securities of such selling stockholder (other than Holders) according
to the total amount of securities entitled to be included therein owned by each
selling stockholder or in such other proportions as shall mutually be agreed to
by such selling stockholders) but in no event shall the amount of securities of
the selling Holders included in the offering be reduced below twenty percent
(20%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Common Stock in which case the
selling stockholders may be excluded if the underwriters make the determination
described above and no other stockholder's securities are included. If any
Holder or other holder disapproves of the terms of any such underwriting, he or
she may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of the registration statement relating thereto.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 1.7
prior to the effectiveness of such registration, whether or not any holder has
elected to include securities in such registration.
1.8 Registration on Form S-3.
------------------------
(a) If any Holder or group of Holders requests that the Company file a
registration statement on Form S-3 (or any successor or substitute form to Form
S-3) for a public offering of shares of the Registrable Securities, the
reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $1,000,000 (or for all
remaining Warrant Shares), and the Company is a registrant entitled to use Form
S-3 to
13
<PAGE>
register the Registrable Securities for such an offering, the Company shall use
its best efforts to cause such Registrable Securities to be registered for
the offering on such form; provided, however, that the Company shall not be
--------- --------
required to effect more than one (1) registration pursuant to this Section 1.8
in any twelve (12) month period. The Company will (i) promptly give written
notice of the proposed registration to all other Holders, and (ii) as soon as
practicable, use its best efforts to effect such registration (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within thirty (30) days after receipt
of such written notice from the Company. The substantive provisions of Section
1.6(b) shall be applicable to each registration initiated under this Section
1.8.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 1.8: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act, (ii) during the period
starting with the date sixty (60) days prior to the filing of, and ending on a
date six (6) months following the effective date of, a registration statement
(other than with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of Registrable Securities), provided that
the Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective, or (iii) if the Company shall
furnish to such Holder a certificate signed by the president of the Company
stating that, in the good faith judgment of the Board of Directors, it would be
seriously detrimental to the Company or its stockholders for registration
statements to be filed in the near future, then the Company's obligation to use
its best efforts to file a registration statement shall be deferred for a single
period not to exceed one hundred twenty (120) days from the receipt of the
request to file such registration by such Holder or Holders; provided, however,
that the Company shall not make such certification more than once in any twelve
(12) month period.
1.9 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not enter into any agreement
granting any holder or prospective holder of any securities of the Company
registration rights with respect to such securities unless such new registration
rights, including standoff obligations, are subordinate to the registration
rights granted Holders under this Agreement.
1.10 Expenses of Registration. All Registration Expenses incurred
------------------------
in connection with any registration pursuant to Sections 1.5, 1.6, 1.7 and the
first three (3) registrations under Section 1.8, and the reasonable fees and
expenses of one special legal counsel to represent all of the Holders together
in any such registration shall be borne by the Company, provided that the
14
<PAGE>
Company shall not be required to pay the Registration Expenses of any
registration proceeding begun pursuant to Section 1.5 or 1.6, the request of
which has been subsequently withdrawn by the Initiating Holders or Initiating
Warrant Holders, as the case may be. In such case, the Holders of Registrable
Securities to have been registered shall bear all such Registration Expenses pro
rata on the basis of the number of shares to have been registered.
Notwithstanding the foregoing, however, if at the time of the withdrawal, the
Initiating Holders or the Initiating Warrant Holders, as the case may be, have
learned of a material adverse change in the condition, business or prospects of
the Company from that known to such Holders at the time of their request, then
the Holders shall not be required to pay any of said Registration Expenses.
Unless otherwise stated, all other Selling Expenses relating to securities
registered on behalf of the Holders and all Registration Expenses incurred in
connection with the fourth and any subsequent registration pursuant to Section
1.8 shall be borne by the holders of the registered securities included in such
registration pro rata on the basis of the number of shares so registered.
1.11 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to Sections 1.6,
1.7 and 1.8, the Company will keep each Holder advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the registration
statement has been completed; and
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as the selling Holders or such underwriters may
reasonably request in order to facilitate the public offering of such
securities.
1.12 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the
15
<PAGE>
Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder, controlling person or underwriter and stated to be specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; provided, however, that the total
amounts payable in indemnity by a Holder under this Section 1.12(b) shall not
exceed the net proceeds received by such Holder in the registered offering in
which the indemnity obligation arose.
(c) Each party entitled to indemnification under this Section 1.12
(the "Indemnified Party") shall give notice to the party required to provide
-----------------
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
------------------
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each
16
<PAGE>
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.12 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that in any such case, the total
amounts payable in contribution by a Holder under this Section 1.12(d) shall not
exceed the net proceeds received by such Holder in the registered offering in
which the contribution obligation arose.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and the Holders under this Section
1.12 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.13 Information by Holders. The Holder or Holders of Registrable
----------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 1.
1.14 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
------------
17
<PAGE>
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Restricted Securities, to furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
ninety (90) days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
1.15 Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities granted Preferred Holders and Class B Common Holders under
Sections 1.6, 1.7 and 1.8 may be assigned to a transferee or assignee reasonably
acceptable to the Company; provided, that (a) such transfer may otherwise be
--------
effected in accordance with applicable securities laws, (b) notice of such
assignment is given to the Company, and (c) such transferee or assignee (i) is a
wholly-owned subsidiary or constituent partner (including limited partners) of
such Preferred Holder or Class B Common Holder, as the case may be, or (ii)
acquires from such Preferred Holder or Class B Common Holder the lesser of (a)
500,000 or more shares of Registrable Securities (as appropriately adjusted for
stock splits and the like) or (b) all of the Registrable Securities then owned
by such Preferred Holder or Class B Common Holder. The rights to cause the
Company to register securities granted Morgan Stanley under Sections 1.5, 1.6,
1.7 and 1.8 may be assigned in connection with any transfer or assignment of
Registrable Securities by Morgan Stanley (together with any affiliates).
Notwithstanding the rights granted pursuant to Sections 1.6, 1.7 and 1.8 of this
Agreement, the Series D-1 Preferred Stock and the securities issuable upon
conversion thereof shall be subject to restrictions on transfer set forth in the
Series D-1 Purchase Agreements.
1.16 Standoff Agreement. In connection with the initial public offering of
------------------
the Company's securities and upon request of the Company or the underwriters
managing such offering, each Holder agrees not to sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed 180 days) from the effective date of
such registration as may be requested by the Company or such managing
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the initial public offering.
1.17 Termination of Rights. The rights of any particular Holder to cause
---------------------
the Company to register securities under Sections 1.5, 1.6, 1.7 and 1.8 shall
terminate with respect to such Holder five (5) years following a bona fide firm
commitment underwritten public offering of
18
<PAGE>
shares of the Company's Common Stock registered under the Securities Act
(provided the per share public offering price is not less than $5.75 (as
adjusted to reflect subsequent stock dividends, stock splits, recapitalizations
or similar transactions) and such offering results in aggregate cash proceeds to
the Company of at least $50,000,000, net of underwriting discounts and
commissions).
SECTION 2
Covenants of the Company
------------------------
The Company hereby covenants and agrees as follows:
2.1 Financial Information. The Company will mail by first class, postage
---------------------
prepaid the following reports to each Preferred Holder and each Class B Common
Holder for so long as such Preferred Holder or Class B Common Holder is a holder
of any Registrable Securities:
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of cash flows of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and audited by independent public accountants of national standing
selected by the Company.
(b) Contemporaneously with delivery to holders of Common Stock, a
copy of each report of the Company delivered to holders of the Common Stock.
(c) For so long as a Preferred Holder or Class B Common Holder is
eligible to receive reports under this Section 2.1, it shall also have the
right, at its expense, to discuss the affairs, finances and accounts of the
Company and its subsidiaries, if any, with the Company's officers, all at such
reasonable times and as often as may be reasonably requested; provided, however,
that the Company shall not be obligated to provide any information that it
reasonably considers to be a trade secret or confidential information.
2.2 Additional Information. As long as a Preferred Holder (together with
----------------------
any affiliate of such Preferred Holder) holds not less than 500,000 Registrable
Securities (except with respect to any Series D-1 Purchaser and their permitted
transferees, who (together with any affiliate of such Holder) holds not less
than 1,000,000 Registrable Securities), as adjusted for recapitalizations, stock
splits, stock dividends and the like, the Company will mail the following
reports to such Preferred Holder:
(a) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company and in any
event within forty-five (45) days thereafter, a consolidated balance sheet of
the Company and its subsidiaries, if any, as of the end of each such quarterly
period, and consolidated statements of income and consolidated
19
<PAGE>
statements of cash flows of the Company and its subsidiaries for such period and
for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles consistently applied (other than for accompanying
notes), all in reasonable detail.
(b) As soon as practicable after the end of each fiscal month, and in
any event within thirty (30) days thereafter, an unaudited consolidated balance
sheet of the Company as at the end of such month, and unaudited consolidated
statements of income and unaudited consolidated statements of cash flows for
such month and for the current fiscal year to date. Such financial statements
shall be prepared in accordance with generally accepted accounting principles
consistently applied (other than accompanying notes), all in reasonable detail.
(c) As soon as practicable, but in any event thirty (30) days prior
to the end of each fiscal year, a budget for the next fiscal year, prepared on a
monthly basis, including balance sheets, income statements and statements of
cash flows for such months and, as soon as prepared, any other budgets or
revised budgets prepared by the Company.
2.3 Transfer of Information Rights. The information rights set forth in
------------------------------
Sections 2.1 and 2.2 may be transferred (a) to any affiliate of a Preferred
Holder or Class B Common Holder, provided that the Company is given notice of
such transfer and (b) in any nonpublic transfer of Registrable Securities,
provided that the Company is given written notice of such transfer, and provided
further that the right to receive the information set forth in Section 2.2 may
only be transferred to a holder of, or affiliated holders who in the aggregate
hold, at least 500,000 Registrable Securities. In the event that the Company
reasonably determines that provision of information pursuant to clause (b) of
the previous sentence to a transferee would materially adversely impact its
proprietary position, such information may be edited in the manner necessary to
avoid such impact.
2.4 Right of First Offer. Subject to the terms and conditions specified
--------------------
in this Section 2.4, the Company hereby grants to each Preferred Holder and
Class B Common Holder a right of first offer with respect to future sales by the
Company of its Shares. A Preferred Holder or Class B Common Holder who chooses
to exercise the right of first offer may designate as purchasers under such
right itself or its partners or affiliates in such proportions as it deems
appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
------
each Preferred Holder and Class B Common Holder in accordance with the following
provisions:
(a) The Company shall deliver a notice by certified mail or by
hand delivery or by messenger ("Notice") to the Holders stating (i) its bona
------
fide intention to offer such Shares, (ii) the number of such Shares to be
offered, and (iii) the price and terms, if any, upon which it proposes to offer
such Shares.
20
<PAGE>
(b) Within thirty (30) days after delivery of the Notice, the
Preferred Holder or Class B Common Holder may elect to purchase or obtain, at
the price and on the terms specified in the Notice, up to that portion of such
Shares which equals the proportion that the number of shares of Common Stock
issued and held, or issuable upon conversion and exercise of all convertible or
exchangeable securities then held, by such Preferred Holder or Class B Common
Holder bears to the total number of shares of Common Stock then outstanding
(assuming full conversion and exercise of all convertible or exchangeable
securities).
(c) The Company may, during the 45-day period following the expiration
of the period provided in subsection 2.4(b) hereof, offer the remaining
unsubscribed portion of the Shares to any person or persons at a price not less
than, and upon terms no more favorable to the offeree than those specified in
the Notice. If the Company does not enter into a definitive agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within sixty (60) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
reoffered to the Preferred Holders and Class B Common Holders in accordance
herewith.
(d) Without limiting any other provision of this Agreement or any
rights a Preferred Holder may have under the Amended and Restated Certificate of
Incorporation of the Company and any amendment or restatement thereof, the right
of first offer in this paragraph 2.4 shall not be applicable (i) to the issuance
or sale of Common Stock (or options therefor) to employees, consultants and
directors, pursuant to plans or agreements approved by the Board of Directors
for the primary purpose of soliciting or retaining their services, or (ii) to or
after consummation of a bona fide, firmly underwritten public offering of shares
of Common Stock, registered under the Act (provided the per share public
offering price is not less than $5.75 (as adjusted to reflect subsequent stock
dividends, stock splits, recapitalizations or similar transactions) and which
results in aggregate cash proceeds to the Company of at least $50,000,000 (net
of underwriting discounts and commissions) or (iii) to the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, or (iv) to the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise, or (v) to the issuance
of securities to financial institutions or lessors in connection with commercial
credit arrangements, equipment financings, or similar transactions, or (vi) to
the issuance or sale of the Warrants, or (vii) to the issuance of securities
that, with unanimous approval of the Board of Directors of the Company, are not
offered to any existing stockholder of the Company.
(e) Notwithstanding the rights set forth in this Section 2.4, the
Series D-1 Purchasers and their permitted transferees shall at all times be
subject to the standstill provisions set forth in the Series D-1 Purchase
Agreements.
2.5 Termination of Covenants. The covenants set forth in this Section 2
------------------------
shall terminate on and be of no further force or effect upon the earlier of (i)
the consummation of the Company's sale of its Common Stock in an underwritten
public offering pursuant to an effective registration statement filed under the
Securities Act (provided the per share public offering price is not less than
$5.75 (as adjusted to reflect subsequent stock dividends, stock splits,
21
<PAGE>
recapitalizations or similar transactions) and which results in aggregate cash
proceeds to the Company of at least $50,000,000, net of underwriting discounts
and commissions), immediately subsequent to which the Company shall be obligated
to file annual and quarterly reports with the Commission pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
------------
or (ii) the registration by the Company of a class of its equity securities
under Section 12(b) or 12(g) of the Exchange Act.
SECTION 3
Miscellaneous
-------------
3.1 Assignment. Except as otherwise provided in this Agreement, the terms
----------
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties to this Agreement,
including, without limitation, subsequent Holders of the Preferred Shares, Class
B Common Stock or the Warrant Shares.
3.2 Voting by Series D-1 Purchasers. Except with respect to votes pursuant
-------------------------------
to Section 6 of Division B of Article IV of the Amended and Restated Certificate
of Incorporation of the Company relating to certain protective provisions, each
Series D-1 Purchaser agrees to vote or cause to be voted all Series D Preferred
Stock owned by it, or over which such Series D-1 Purchaser has voting control,
in accordance with the recommendations of the Board of Directors of the Company.
Each Series D-1 Purchaser shall either attend each meeting of the stockholders
or grant its proxy to the Secretary of the Company, or, in the case of a written
consent of the stockholders, execute and deliver such consent to the Company.
3.3 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any party, other than the parties to this Agreement, and
their respective successors and assigns (including, without limitation,
subsequent Holders of the Warrant Shares, the Preferred Shares or Class B Common
Stock), any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
3.4 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California in the United States of America.
3.5 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
3.6 Notices. Except as otherwise specifically provided in this Agreement,
-------
any notice required or permitted by this Agreement shall be in writing and shall
be sent by prepaid registered or certified mail, return receipt requested, or
otherwise delivered by hand or by messenger addressed to the other party at such
party's address as set forth on the books of the Company or at such other
address for which such party gives notice under this Agreement. Such
22
<PAGE>
notice shall be deemed to have been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or three (3)
business days after deposit in the mail.
3.7 Severability. If one or more provisions of this Agreement are held to
------------
be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
3.8 Amendment and Waiver. Any provision of this Agreement may be amended
--------------------
or waived with the written consent of all of (i) the Company, (ii) the holders
of at least 66 2/3% of the outstanding shares of the Registrable Securities and
(iii) Morgan Stanley. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of Registrable Securities and the
Company. In addition, the Company may waive performance of any obligation owing
to it to the extent that any such waiver does not adversely affect the holders
of any other Registrable Securities, as to some or all of the holders of
Registrable Securities, or agree to accept alternatives to such performance,
without obtaining the consent of any holder of Registrable Securities. In the
event that an underwriting agreement is entered into between the Company and any
Holder of Registrable Securities, and such underwriting agreement contains terms
differing from this Agreement, as to any such Holder the terms of such
underwriting agreement shall govern.
3.9 Effect of Amendment or Waiver. The Holders and their successors and
-----------------------------
assigns acknowledge that by the operation of Section 3.8 of this Agreement the
holders of 66 2/3% of the outstanding Registrable Securities and Morgan Stanley,
acting in conjunction with the Company, will have the right and power to
diminish or eliminate any or all rights or increase any or all obligations
pursuant to this Agreement.
3.10 Rights of Holders. Each Holder of Registrable Securities shall have
-----------------
the absolute right to exercise or refrain from exercising any right or rights
that such Holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
3.11 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies,
either under this Agreement, or by law or otherwise afforded to any holder,
shall be cumulative and not alternative.
23
<PAGE>
3.12 Provisions Not Applicable to Warrant Holders. Section 1.2, Section
--------------------------------------------
1.3, Section 1.4, Section 1.15 and Section 2 hereof shall not be applicable to
the Warrant Holders.
3.13 Waiver of Right of First Offer. By execution of this Agreement below,
------------------------------
the holders of the Company's Series B Preferred Stock and Series C Preferred
Stock, and each of them, hereby consent to the issuance of the shares of Series
D-1 Preferred Stock to the Series D-1 Purchasers as contemplated by the Series
D-1 Purchase Agreements and waive any rights to notice or to acquire shares of
Series D-1 Preferred Stock to which they may be entitled, including but not
limited to, those provided in Section 2.4 of the Existing Rights Agreement.
3.14 Carlyle Entities One Holder. For purposes of this Agreement,
---------------------------
including, without limitation, Sections 2.2 and 2.3 hereof, all of Carlyle
Partners II, L.P., a Delaware limited partnership, Carlyle Partners III, L.P., a
Delaware limited partnership, State Board of Administration of Florida, Carlyle
Investment Group, L.P., a Delaware limited partnership, Carlyle International
Partners II, L.P., a Cayman Islands limited partnership, Carlyle International
Partners III, L.P., a Cayman Islands limited partnership, C/S International
Partners, a Cayman Islands general partnership, Carlyle-NorthPoint Partners,
L.P., a Delaware limited partnership, Carlyle-NorthPoint International Partners,
L.P., a Cayman Islands limited partnership, Carlyle Venture Partners, LP, a
Cayman Islands limited partnership, Carlyle U.S. Venture Partners, LP, a
Delaware limited partnership, C/S Venture Investors, LP, a Cayman Islands
limited partnership and Carlyle Venture Coinvestment, LLC, a Delaware limited
liability company (collectively, the "Carlyle Entities") shall be considered as
a single Preferred Holder and a single Holder; provided, however, that the
Company shall be protected in relying on the instructions of, and notices
received from, Carlyle-NorthPoint Partners, L.P., a Delaware limited
partnership, in connection with the exercise of any rights or privileges of the
Carlyle Entities hereunder.
3.15 Series D-1 Purchasers. Any Series D-1 Purchaser and any purchaser of
---------------------
the Company's Series D Preferred Stock may become a party hereto by executing a
counterpart signature page to this Agreement. Upon delivery of such signature
page to the Company, the Conversion Shares held by such purchaser shall become
Registrable Securities and such purchaser shall become a Preferred Holder under
this Agreement.
[Signature Pages Follow]
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amended and
Restated Rights Agreement as of the day and year first above written.
COMPANY:
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.,
a Delaware corporation
By:_____________________________
Title:__________________________
Address:
222 Sutter Street
7th Floor
San Francisco, CA 94108
PRIOR HOLDERS:
WILLIAM EUSKE
________________________________________________________
(Signature)
ROBERT FLOOD
________________________________________________________
(Signature)
NATHAN GREGORY
________________________________________________________
(Signature)
25
<PAGE>
MICHAEL MALAGA
________________________________________________________
(Signature)
TIMOTHY MONAHAN
________________________________________________________
(Signature)
VLG INVESTMENTS 1997
_________________________________
(Print Title)
_________________________________
(Signature)
CATHRYN S. CHINN
_________________________________
(Signature)
BENCHMARK CAPITAL PARTNERS, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: __________________________________
Member
26
<PAGE>
BENCHMARK FOUNDERS' FUND, L.P.
By: Benchmark Capital Management Co., L.L.C.
Its General Partner
By: __________________________________
Member
ACCEL V L.P.
By: Accel V Associates L.L.C.
Its General Partner
By: __________________________________
Managing Member
ACCEL INTERNET/STRATEGIC TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology Fund Associates L.L.C.
Its General Partner
By: ___________________________________
Managing Member
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By: ___________________________________
Managing Member
ACCEL INVESTORS `97 L.P.
By: ___________________________________
General Partner
27
<PAGE>
ELLMORE C. PATTERSON PARTNERS
By: ________________________________
General Partner
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited Partnership, its General Partner
By: ________________________________
General Partner
STANFORD UNIVERSITY
_____________________________________
(Print Title)
_____________________________________
(Signature)
PAUL A. LARANGO AND ANN W. ZEICHNER,
TRUSTEES OF THE ZEICHNER-LARANGO FAMILY TRUST,
UDT, DATED JULY 28, 1997
By: Ann W. Zeichner, Trustee
_____________________________________
(Signature)
AT HOME CORPORATION
_____________________________________
(Print Title)
_____________________________________
(Signature)
28
<PAGE>
INTEL CORPORATION
_____________________________________
(Print Title)
_____________________________________
(Signature)
___________________________
Lawrence M. Howell
VULCAN VENTURES INCORPORATED
_____________________________________
(Print Title)
_____________________________________
(Signature)
EFTIA
By: ________________________________
________________________________
(Print Name)
________________________________
Title
___________________________
William Hiller
29
<PAGE>
THE DAHL FAMILY TRUST DATED OCTOBER 31, 1989,
AS AMENDED MAY 3, 1990
By: Robert K. Dahl as Trustee for the Dahl Family Trust
___________________________________________________
(Signature)
CHARLES ROSS PARTNERS
By: ______________________________________________
______________________________________________
(Print Name)
______________________________________________
Title
LEAD VENTURES
By: _____________________________________________
_____________________________________________
(Print Name)
_____________________________________________
Title
CNATRUST, TTEE FBO VENTURE LAW GROUP 401(K) PLAN MICHAEL W. HALL
By:
___________________________________________________
(Signature)
30
<PAGE>
THE SIERRA VENTURES MGMT. CO.
1989 DEFERRED SAVINGS PLAN FBO HENRY P. HUFF
By:
___________________________________
(Signature)
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.
By: Exeter IV Advisors, Inc.
By: _______________________________
Keith R. Fox, President
___________________________________
Mory Ejabat
___________________________________
Dino Vendetti
CARLYLE PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
31
<PAGE>
STATE BOARD OF ADMINISTRATION OF FLORIDA
By: Carlyle Investment Management LLC
Its Manager
By: ______________________________
Title: Managing Director
CARLYLE INVESTMENT GROUP, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS II, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE INTERNATIONAL PARTNERS III, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
C/S INTERNATIONAL PARTNERS
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
32
<PAGE>
CARLYLE-NORTHPOINT PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE-NORTHPOINT INTERNATIONAL PARTNERS, L.P.
By: TC Group, L.L.C.
Its General Partner
By: ______________________________
Title: Managing Director
CARLYLE VENTURE PARTNERS, LP
By: TCG Ventures, Limited
Its General Partner
By: ______________________________
Title: Attorney in Fact
CARLYLE U.S. VENTURE PARTNERS, LP
By: TCG Ventures, LLC
Its General Partner
By: ______________________________
Title: Managing Director
C/S VENTURE INVESTORS, LP
By: TCG Ventures, Limited
Its General Partner
By: ______________________________
Title: Attorney in Fact
33
<PAGE>
CARLYLE VENTURE COINVESTMENT, LLC
By: TCG Ventures, LLC
Its Manager
By: ______________________________
Title: Managing Director
MORGAN STANLEY:
MORGAN STANLEY SENIOR FUNDING, INC.
___________________________________
(Print Title)
___________________________________
(Signature)
34
<PAGE>
NCI:
NORTHPOINT COMMUNICATIONS, INC.,
a Delaware corporation
By:________________________________
Title:_____________________________
Address:
222 Sutter Street
7th Floor
San Francisco, CA 94108
35
<PAGE>
SERIES D-1 PURCHASERS:
AT HOME CORPORATION
By:________________________________
________________________________
(Print Name)
________________________________
Title
ALC COMMUNICATIONS CORPORATION
By: _______________________________
_______________________________
(Print Name)
_______________________________
Title
CABLE & WIRELESS USA, INC.
By: _______________________________
_______________________________
(Print Name)
_______________________________
Title
ICG SERVICES, INC.
By: _______________________________
_______________________________
(Print Name)
_______________________________
Title
36
<PAGE>
NETOPIA INC.
By: _______________________________
_______________________________
(Print Name)
_______________________________
Title
NETWORK PLUS CORPORATION
By: _______________________________
_______________________________
(Print Name)
_______________________________
Title
VERIO INC.
By: _______________________________
_______________________________
(Print Name)
_______________________________
Title
37
<PAGE>
EXHIBIT 10.12
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
AMENDED AND RESTATED CONVERTIBLE PROMISSORY NOTE
------------------------------------------------
$5,600,000 March 26, 1999
San Francisco, California
FOR VALUE RECEIVED NORTHPOINT COMMUNICATIONS HOLDINGS, INC., a Delaware
corporation (the "Company"), and NORTHPOINT COMMUNICATIONS, INC., a Delaware
corporation ("NCI"), jointly and severally, promise to pay to VERIO INC. (the
"Holder"), or its registered assigns, the principal sum of Five Million Six
Hundred Thousand Dollars ($5,600,000), or such lesser amount as shall equal the
outstanding principal amount hereof, on the Maturity Date (as defined below).
NCI and the Holder entered into the Convertible Promissory Note (the "Original
Note") on February 5, 1999. The Original Note was issued concurrently with the
execution and delivery of that certain Joint Market Development Agreement (the
"JMD Agreement") between NCI and the Holder. The parties acknowledge that NCI
is obligated to pay to the Holder certain amounts for contributions to joint
marketing costs of NCI's offerings in certain Designated Markets (as defined in
the JMD Agreement). The Company and NCI agree, jointly and severally, that they
will, on or before July 10, 1999, pay to the Holder, promptly upon receipt of
Holder's written request, that amount of principal hereunder equal to $5,600,000
less all joint marketing contributions paid by NCI as of July 1, 1999.
The following is a statement of the rights of the Holder and the conditions to
which this Amended and Restated Convertible Promissory Note (this "Note") is
subject, and to which the Holder, by the acceptance of this Note, agrees:
1. DEFINITIONS. As used in this Note, the following capitalized terms
-----------
have the following meanings:
1.1 "Affiliate" shall mean, as to any person or entity, a person or
entity that, directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such person or
entity.
<PAGE>
1.2 "Class B Common Stock" shall mean the shares of Class B Common
Stock, $0.001 par value per share, of the Company.
1.3 "Common Stock" shall mean the shares of Common Stock, $0.001 par
value per share, of the Company.
1.4 "Company" includes the corporation initially executing this Note
and any Person which shall succeed to or assume the obligations of the Company
under this Note.
1.5 "Commission" shall mean the Securities and Exchange Commission.
1.6 "Conversion Price" shall have the meaning given in Section 5.1
hereof.
1.7 "Conversion Shares" shall mean the shares of Series D Preferred
Stock or Class B Common Stock of NorthPoint Communications Holdings, Inc. issued
to the Holder upon conversion of this Note, and any shares of Common Stock
issued upon conversion thereof.
1.8 "Event of Default" has the meaning given in Section 3 hereof.
1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.10 "Form S-1 Registration Statement" shall mean a registration
statement on Form S-1 (or a successor form) under the Securities Act.
1.11 "Holder" shall mean the Person specified in the introductory
paragraph of this Note or any Person who shall at the time be the registered
holder of this Note.
1.12 "IPO" shall mean a firm commitment underwritten public offering
of the Corporation's Common Stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, which results in
aggregate cash proceeds to the Corporation of at least $50,000,000 (net of
underwriting discounts and commissions).
1.13 "IPO Closing" shall refer to the date on which the Company
issues Common Stock pursuant to the IPO.
1.14 "Liquidity Event" shall mean (a) the acquisition of a majority
of the capital stock or voting power of the Company by another person or entity
by means of any transaction or series of related transactions (including,
without limitation, any reorganization, merger, consolidation or purchase of
stock); or (b) a sale, exchange or other disposition of all or substantially all
of the assets of the Company, unless the Company's stockholders of record as
------
constituted immediately prior to such acquisition or sale will, immediately
after such acquisition or sale (by virtue of securities issued as consideration
for the Company's acquisition or sale or otherwise) hold more than fifty percent
(50%) of the voting power of the surviving or acquiring entity in approximately
the same relative percentages after such acquisition or sale as before such
acquisition or sale.
2
<PAGE>
1.15 "Maturity Date" shall mean February 5, 2000.
1.16 "Note" shall have the meaning given in the introductory
paragraphs hereof.
1.17 "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
1.18 "Restricted Shares" shall have the meaning set forth in Section
8.1 hereof.
1.19 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.20 "Senior Indebtedness" shall have the meaning set forth in
Section 4 of this Note.
1.21 "Series D Preferred Stock" shall mean the shares of Series D
Preferred Stock, $0.001 par value per share, of the Company.
1.22 "Voting Stock" shall mean, any class or series of the Company's
capital stock entitled to vote in any election of directors of the Company.
2. INTEREST. The outstanding principal amount of this Note shall bear
--------
interest through the Maturity Date at the prime rate (as quoted by NationsBanc
from time to time), which shall be payable quarterly (that is, at the end of
each calendar quarter) in arrears.
3. EVENTS OF DEFAULT. The occurrence of any of the following shall
-----------------
constitute an "Event of Default" under this Note.
3.1 Failure to Pay. The Company or NCI shall fail to pay outstanding
principal and accrued interest on the Maturity Date; or.
3.2 Voluntary Bankruptcy or Insolvency Proceedings. The Company or
NCI shall (i) apply for or consent to the appointment of a receiver, trustee,
liquidator or custodian of itself or of all or a substantial part of its
property, (ii) be unable, or admit in writing its inability, to pay its debts
generally as they mature, (iii) make a general assignment for the benefit of any
of its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such
term may be defined or interpreted under any applicable statute), (vi) commence
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or consent to any
such relief or to the appointment of or taking possession of its property by any
official in an involuntary case or other proceeding commenced against it, or
(vii) take any action for the purpose of effecting any of the foregoing; or
3.3 Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the
Company or NCI or of all or a substantial part of the property thereof or an
involuntary case or other proceedings seeking liquidation, reorganization or
other relief with respect to the Company or NCI or the debts thereof
3
<PAGE>
under any bankruptcy, insolvency or other similar law now or hereafter in effect
shall be commenced and an order for relief entered or such proceeding shall not
be dismissed or discharged within thirty (30) days of commencement.
4. SUBORDINATION. The indebtedness evidenced by this Note is hereby
-------------
expressly subordinated in right of payment to any indebtedness at any time owing
by the Company or NCI to any bank, financial or lending institution or other
non-affiliated entity primarily in the business of extending credit or other
financial accommodations (collectively, "Senior Indebtedness"). So long as any
default by the Company or NCI has occurred under any instrument or agreement
evidencing any Senior Indebtedness, no payment shall be made in respect of this
Note until the Senior Indebtedness has been repaid in full in cash or other
provisions satisfactory to the holders of the Senior Indebtedness have been
made; provided, however, that the Holder may require payment of all outstanding
principal and accrued interest on the Maturity Date so long as neither the
Company nor NCI is then in payment default, and by payment hereof will not
become in payment default, under any Senior Indebtedness. In the event the
Holder obtains any payment in violation of the terms of subordination contained
herein, such funds shall be held in trust for the holders of Senior Indebtedness
and paid to them or their representatives upon request.
5. CONVERSION. The outstanding principal amount of this Note plus accrued
----------
interest (if any) shall convert into the Class B Common Stock or the Series D
Preferred Stock of the Company as follows:
5.1 Voluntary Conversion.
(i) Subject to Section 5.4, the entire principal amount of this
Note plus accrued interest (if any) shall be convertible, at the option of the
Holder, at any time beginning one year after the date on which a share of Series
D-1 Preferred Stock of the Company was first issued, at the office of the
Company, into the number of shares of Series D Preferred Stock equal to the
quotient of (a) such outstanding principal amount plus accrued interest (if any)
divided by (b) $22.00, so long as, after giving effect to such conversion, the
total number of shares of the Company's Voting Stock held by the Holder,
together with all of its Affiliates, shall be less than ten percent (10%) (by
voting power) of the total number of shares of Voting Stock then issued and
outstanding. No conversion of shares of Series D-1 Preferred Stock shall be
effected pursuant to this subsection to the extent that it would have the effect
of giving the Holder, together with all of its Affiliates, an aggregate number
of shares of Voting Stock equal to or greater than ten percent (10%) (by voting
power) of the total number of shares of Voting Stock then issued and
outstanding.
(ii) Subject to Section 5.4, the entire principal amount of this
Note plus accrued interest (if any) shall be convertible, at the option of the
Holder, at any time beginning one year after the date on which a share of Series
D-1 Preferred Stock was first issued, at the office of the Company, into the
number of shares of Class B Common Stock of the Company equal to the quotient of
(a) such outstanding principal amount plus accrued interest (if any) divided by
(b) the Conversion Price, determined as hereafter provided, in effect on the
date the Note is surrendered for conversion.
4
<PAGE>
(iii) The initial Conversion Price shall be $22.00 (as adjusted
from time to time pursuant to Section 5.3, the "Conversion Price"). Such initial
Conversion Price shall be subject to adjustment as set forth in Section 5.3.
5.2 Automatic Conversion.
(i) The entire outstanding principal amount of this Note plus
accrued interest (if any) shall automatically be converted into the number of
shares of Series D Preferred Stock of the Company equal to the quotient of (A)
such outstanding principal amount plus accrued interest (if any) divided by (B)
$22.00, immediately upon the earlier of (1) except as provided below in Section
5.4, the Company's sale of its Common Stock, Preferred Stock or debt securities
in a private equity or debt financing and which results in aggregate cash
proceeds to the Company of at least $50,000,000 (net of underwriting discounts
and commissions) (other than any sale by the Company to a third party of the
Company's equity or debt securities in a transaction that includes a contract
for commercial services between the Company and such third party or any sale of
Series D-1 Preferred Stock or Series D Preferred Stock by the Company) or (2)
with the consent of the Company, the date specified by written consent or
agreement of the holders of at least a majority of the then outstanding shares
of Series D-1 Preferred Stock, voting together as a class, as the date for the
conversion of all shares of Series D-1 Preferred Stock then outstanding into
shares of Series D Preferred Stock.
(ii) The entire outstanding principal amount of this Note plus
accrued interest (if any) shall automatically be converted into the number of
shares of Class B Common Stock equal to the quotient of (A) such outstanding
principal amount plus accrued interest (if any) divided by (B) the Conversion
Price at the time in effect, immediately upon, except as provided below in
Section 5.4, the Company's sale of its Common Stock in an IPO.
5.3 Conversion Price Adjustments of Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price shall be
subject to adjustment from time to time as follows:
(i) ISSUANCE OF ADDITIONAL STOCK BELOW CONVERSION PRICE. If the
---------------------------------------------------
Company shall issue, after the date hereof (the "Purchase Date"), any Additional
-------------
Stock (as defined below) without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price in effect immediately prior to each
such issuance shall automatically be adjusted as set forth in this Section
5.3(i), unless otherwise provided in this Section 5.3(i).
(A) ADJUSTMENT FORMULA. Whenever the Conversion Price is
------------------
adjusted pursuant to this Section 5.3(i), the new Conversion Price shall be
determined by multiplying the Conversion Price then in effect by a fraction, (1)
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance (the "Outstanding Common") plus the number of
------------------
shares of Common Stock that the aggregate consideration received by the Company
for such issuance would purchase at such Conversion Price; and (2) the
denominator of
5
<PAGE>
which shall be the number of shares of Outstanding Common plus the number of
shares of such Additional Stock. For purposes of the foregoing calculation, the
term "Outstanding Common" shall include shares of Common Stock deemed issued
------------------
pursuant to Section 5.3(i)(E) below.
(B) DEFINITION OF "ADDITIONAL STOCK". For purposes of this Section
--------------------------------
5.3(i), "Additional Stock" shall have the meaning given such term in the Amended
----------------
and Restated Certificate of Incorporation of the Company.
(C) NO FRACTIONAL ADJUSTMENTS. No adjustment of the Conversion Price
-------------------------
shall be made in an amount less than one cent, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be either taken into account in any subsequent adjustment made
prior to three years from the date of the event giving rise to the adjustment
being carried forward, or shall be made at the end of three years from the date
of the event giving rise to the adjustment being carried forward.
(D) DETERMINATION OF CONSIDERATION. In the case of the issuance of
------------------------------
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof. In the case of the
issuance of Common Stock for a consideration in whole or in part other than
cash, the consideration other than cash shall be deemed to be the fair value
thereof as determined by the Board of Directors in accordance with Section
2(d)(ii) of the Company's Amended and Restated Certificate of Incorporation
irrespective of any accounting treatment.
(E) DEEMED ISSUANCES OF COMMON STOCK. In the case of the issuance
--------------------------------
(whether before, on or after the applicable Purchase Date) of options to
purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 5.3(i):
(1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Section
5.3(i)(D)), if any, received by the Company upon the issuance of such options or
rights plus the minimum exercise price provided in such options or rights
(without taking into account potential antidilution adjustments) for the Common
Stock covered thereby.
(2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable
6
<PAGE>
securities and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities were issued or such options or rights
were issued and for a consideration equal to the consideration, if any, received
by the Company for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the Company (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
Section 5.3(i)(D)).
(3) In the event of any change in the number of shares of Common
Stock deliverable or in the consideration payable to the Company upon exercise
of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price, to the
extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price, to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to such securities,
shall be recomputed, but only to the extent the Company did not pay any
consideration in connection with such expiration or termination, to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.
(5) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to Sections 5.3(i)(E)(1) and
5.3(i)(E)(2) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either Section 5.3(i)(E)(3) or
5.3(i)(E)(4).
(F) NO INCREASED CONVERSION PRICE. Notwithstanding any other
-----------------------------
provisions of this Section 5.3(i), except to the limited extent provided for in
Sections 5.3(i)(E)(3) and 5.3(i)(E)(4) and except for any adjustment pursuant to
Section 5.3(i)(G)(3) in the event of an IPO, no adjustment of the Conversion
Price pursuant to this Section 5.3(i) shall have the effect of increasing the
Conversion Price above (1) the Conversion Price in effect immediately prior to
such adjustment or (2) the initial Conversion Price specified in Section 5.1.
No readjustment pursuant to Sections 5.3(i)(E)(3) and 5.3(i)(E)(4) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the lower of (x) the Conversion Price on the original adjustment date and (y)
the Conversion Price that would have resulted from the issuance of Additional
Stock between the original adjustment date and such readjustment date.
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(G) ADDITIONAL ADJUSTMENTS.
----------------------
(1) In addition to any other adjustments that may be made to the
Conversion Price pursuant to this Section 5.3(i), in the event that, on or
before the Series D/D-1 Ratchet Cut-Off Date (as defined below), the Company
shall issue any Additional Stock without consideration or for a consideration
per share less than the Conversion Price for such series in effect immediately
prior to the issuance of such Additional Stock (other than pursuant to (I) the
IPO or (II) any sale by the Company to a third party of the Company's equity
securities in a transaction that includes a contract for commercial services
between the Company and such third party entered into in conjunction with the
sale of Series D-1 Preferred Stock or any sale of Series D-1 Preferred Stock or
Series D Preferred Stock by the Company), the Conversion Price in effect
immediately prior to each such issuance shall automatically be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by dividing the aggregate consideration received by the Company for
the total number of shares of Additional Stock so issued by the total number of
shares of Additional Stock so issued. For purposes of this Section 5.3(i)(G),
the term "Series D/D-1 Ratchet Cut-Off Date" shall mean the business day next
following the earliest to occur of (i) the closing of the IPO, (ii) the closing
of a private equity financing which results in aggregate cash proceeds to the
Company of at least $50,000,000 (net of underwriting discounts and commissions)
(other than any sale by the Company to a third party of the Company's equity
securities in a transaction that includes a contract for commercial services
between the Company and such third party entered into in conjunction with the
sale of Series D-1 Preferred Stock or any sale of Series D-1 Preferred Stock or
Series D Preferred Stock by the Company), such financing occurring after the
issuance of the Series D-1 Preferred, and (iii) the closing of a Liquidity Event
other than an underwritten public offering.
(2) In addition to any other adjustments that may be made to
the Conversion Price pursuant to this Section 5.3(i), in the event that, on or
before the Series D/D-1 Ratchet Cut-Off Date (as defined above), the Company
shall close a Liquidity Event (other than an underwritten public offering
pursuant to an effective registration statement under the Securities Act) in
which the quotient (the "Liquidity Quotient") obtained by dividing (I) the
------------------
aggregate value received by the Company or the holders of the Company's capital
stock in such Liquidity Event (excluding options or warrants outstanding at the
closing of such Liquidity Event), by (II) the total number of shares of the
Company's Common Stock outstanding on the date of such event on an as-converted
basis (excluding options or warrants outstanding at the closing of such
Liquidity Event), is less than the Conversion Price for such series in effect
immediately prior to such Liquidity Event, then and in such event, the
Conversion Price for such series in effect immediately prior to each such
issuance shall automatically be reduced, immediately prior to the closing of
such Liquidity Event and immediately prior to any conversion pursuant to Section
5.1 above, to a price (calculated to the nearest cent) equal to the Liquidity
Quotient.
(3) In addition to any other adjustments that may be made to
the Conversion Price pursuant to this Section 5.3(i), in the event of the IPO,
the Conversion Price shall automatically be adjusted, immediately prior to the
closing of such offering, and immediately prior to any conversion pursuant to
Sections 5.2, to:
8
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(I) in the event there has been an adjustment to the
Conversion Price pursuant to Section 5.3(i)(G)(1) or (2) prior to the adjustment
pursuant to this clause 5.3(i)(G)(3), a price equal to the lesser of (x) the
Conversion Price then in effect, or (y) the lesser of (1) the midpoint of the
price range set forth on the cover page of the prospectus for such underwritten
public offering when such prospectus is first filed with the Securities and
Exchange Commission or (2) the amount equal to ninety percent (90%) multiplied
by the price to the public of shares of the Company's Common Stock in such
initial public offering, or
(II) in the event there has been no adjustment to the
Conversion Price pursuant to Section 5.3(i)(G)(1) or (2) prior to the adjustment
pursuant to this clause 5.3(i)(G)(3), a price equal to the lesser of (x) the
midpoint of the price range set forth on the cover page of the prospectus for
such underwritten public offering when such prospectus is first filed with the
Securities and Exchange Commission or (y) the amount equal to ninety percent
(90%) multiplied by the price to the public of shares of the Company's Common
Stock in such initial public offering.
(ii) STOCK SPLITS AND DIVIDENDS. In the event the Company should at
--------------------------
any time or from time to time after the date hereof fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
------------------------
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each Conversion Share shall be
increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 5.3(i)(E).
(iii) REVERSE STOCK SPLITS. If the number of shares of Common Stock
--------------------
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each Conversion Share
shall be decreased in proportion to such decrease in outstanding shares.
9
<PAGE>
5.4 Conversion Procedure.
(i) As soon as practicable following any conversion
pursuant to Section 5.2, written notice shall be delivered to the Holder at the
address last shown on the records of the Company for the Holder or given by the
Holder to the Company for the purpose of notice or, if no such address appears
or is given, at the place where the principal executive office of the Company is
located, notifying the Holder of the conversion to be effected and specifying
the principal amount of the Note to be converted, the date on which such
conversion is expected to occur and requesting the Holder to surrender to the
Company, in the manner and at the place designated, the Note. Notwithstanding
the foregoing, the failure of the Company to deliver any certificate or
certificates for such shares of Class B Common Stock or Series D Preferred Stock
shall not affect the effectiveness or validity of any conversion of this Note
pursuant to Section 5.1 or 5.2 hereof
(ii) Upon conversion of this Note pursuant to this Section 5,
the Holder shall surrender this Note, duly endorsed, at the principal office of
the Company. At its expense, the Company shall, as soon as practicable
thereafter, issue and deliver to the Holder at such principal office a
certificate or certificates for the number of Conversion Shares to which the
Holder shall be entitled upon such conversion (bearing the legends set forth in
Section 8 hereof and any other legends required by applicable state and federal
securities laws in the opinion of counsel to the Company), together with any
other securities and property to which the Holder is entitled upon such
conversion under the terms of this Note, including a check payable to the Holder
for any cash amounts payable as described in Section 5.5.
(iii) Any conversion of this Note shall be deemed to have been
made immediately prior to the conversion pursuant to Section 5.1 or 5.2, and on
and after such date the Persons entitled to receive the shares issuable upon
such conversion shall be treated for all purposes as the record holders of such
shares. If the conversion is in connection with an underwritten offering of
securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of the Holder, be conditioned upon the closing
with the underwriters of the sale of securities pursuant to such offering, in
which event the Holder shall not be deemed to have converted the principal
amount of this Note until immediately prior to the closing of such sale of
securities.
5.5 Fractional Shares; Effect of Conversion. No fractional shares
shall be issued upon conversion of this Note. In lieu of the Company issuing
any fractional shares to the Holder upon the conversion of this Note, the
Company shall pay to the Holder an amount equal to the product obtained by
multiplying the Conversion Price, by the fraction of a share not issued pursuant
to the previous sentence. Upon conversion of this Note in full and the payment
of the amounts specified in this Section 5.5, the Company shall be forever
released from all its obligations and liabilities under this Note.
10
<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------
represents and warrants to the Holder as follows:
6.1 Organization, Good Standing and Qualifications. Each of the
Company and its subsidiaries has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as being conducted, and is duly qualified as
a foreign corporation and in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary except where the failure to be so
qualified would not have a material adverse effect on the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
6.2 Capitalization. The authorized capital stock of the Company
consists of 125,000,000 shares of Common Stock, of which 11,162,113 shares are
issued and outstanding, and of which 8,000,000 shares are designated as Class B
Common Stock, none of which are outstanding, and 45,000,000 shares of Preferred
Stock, $0.001 par value, of which 17,563,187 shares are designated as Series B
Preferred Stock, 16,450,721 of which are outstanding, 18,198,413 shares are
designated as Series C Preferred Stock, 18,009,405 of which are outstanding,
3,640,000 shares are designated as Series D Preferred Stock, none of which are
outstanding, and 3,640,000 shares are designated as Series D-1 Preferred Stock,
113,636 of which are outstanding. All issued and outstanding shares have been
duly authorized and validly issued, and are fully paid and nonassessable. The
Company has reserved 17,563,187 shares of Common Stock for issuance upon
conversion of the Series B Preferred Stock, 18,198,413 shares of Common Stock
for issuance upon conversion of the Series C Preferred Stock, 3,640,000 shares
of Series D Preferred Stock for issuance upon conversion of the Series D-1
Preferred Stock, 3,640,000 shares of Common Stock for issuance upon conversion
of the Series D Preferred Stock, 3,640,000 shares of Class B Common Stock for
issuance upon conversion of the Series D-1 Preferred Stock, and 3,640,000 shares
of Common Stock for issuance upon conversion of the Class B Common Stock. All
outstanding securities of the Company were issued in compliance with applicable
federal and state securities laws. The Company has never adopted or maintained
any stock option plan or other plan providing for equity compensation of any
person. The Company has issued warrants to purchase 1,952,387 shares of Common
Stock, all of which are outstanding. Except as described above or as set forth
in the Fifth Amended and Restated Rights Agreement of even date herewith (the
"Rights Agreement"), there are no preemptive rights, options or warrants or
other conversion privileges or rights presently outstanding to purchase any
capital stock of the Company.
6.3 Authorization. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution, delivery and performance by the Company of this Note, the issuance of
the Conversion Shares and the performance of the Company's other obligations
hereunder has been taken. This Note, when executed and delivered by the
Company, shall constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, receivership, moratorium, reorganization and similar
laws addressing the relief of debtors and rules of law governing specific
11
<PAGE>
performance, injunctive relief or other equitable remedies. This Note and the
Conversion Shares, when issued in compliance with the provisions of this Note,
will be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances created by the Company; provided, however, that the
securities shall be subject to restrictions on transfer under this Note and may
be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required at the time a transfer is
proposed.
6.4 Governmental Consents. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Note, or the issuance of the Conversion Shares hereunder, or
the consummation of any other transaction contemplated hereby, except
qualification (or taking such action as is necessary to secure an exemption from
qualification, if available) of the offer and sale of this Note and the
Conversion Shares under the California Corporate Securities Law of 1968, as
amended, and other applicable states securities laws, which filings and
qualifications, if required, will be accomplished in a timely manner.
6.5 No Conflict. The execution, delivery and performance of and
compliance with this Note, and the issuance of the Conversion Shares hereunder,
will not (i) conflict with, or result in a breach of or a default under, the
Certificate of Incorporation or the Bylaws of the Company or NCI, (ii) conflict
with, or result in a breach of or a default under, or accelerate the performance
provided by, or require any consent or waiver under, or give any third party any
right to terminate, any material agreement or other material instrument to which
the Company or NCI is a party or by which any of its properties may be bound,
(iii) to the Company's or NCI's knowledge after reasonable investigation,
violate any federal or state law, rule or regulation applicable to the Company
or NCI, or (iv) constitute an event which, with the lapse of time or action by a
third party, could result in a default under any of such Certificate of
Incorporation, Bylaws, or material agreements or instruments of the Company or
NCI.
7. REPRESENTATIONS AND WARRANTIES OF HOLDER. The Holder hereby represents
----------------------------------------
and warrants to the Company and NCI as follows:
7.1 Experience. It has sufficient knowledge and experience in
investments of this type that it is capable of understanding and evaluating the
merits and risks of this investment and has the ability to bear a complete loss
of its investment. It is an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated under the Securities Act.
7.2 Investment. It is acquiring the Note and the capital stock
issuable upon conversion thereof for investment for its own account and not with
the view to, or for resale in connection with, any distribution thereof. It
understands that the Note and the capital stock issuable upon conversion thereof
have not been registered under the Securities Act or qualified under the
California Corporate Securities Law of 1968, as amended, in reliance on specific
exemptions from the registration and qualification provisions thereunder, which
depend upon, among other things, the bona fide nature of the investment intent
as expressed herein.
12
<PAGE>
7.3 Rule 144. It acknowledges that the Note and the capital stock
issuable upon conversion thereof must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is
available. It is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of securities purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the existence of a public market for the securities, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through a "broker's transaction" or in
transactions directly with a "market maker" (as provided by Rule 144(f)) and the
number of securities being sold during any three-month period not exceeding
specified limitations. It is further aware that Rule 144(k) permits persons who
have not been affiliates (as defined in Rule 144(a)) of the Company for at least
three months and who have beneficially owned their securities for at least two
years after full payment for such securities to sell such securities without
regard to the current public information, manner of sale and volume limitations
described above.
7.4 No Public Market. It understands that no public market now
exists for any of the securities of the Company and no assurances can be given
that such public market will ever exist.
7.5 Access to Data. It has had an opportunity to discuss the
Company's business, management and objectives with the Company's management. It
understands that its discussions, as well as the written information given to it
by the Company were intended to describe the aspects of the Company's business
and prospects which the Company believes to be material but were not necessarily
a thorough or exhaustive description.
8. RESTRICTIONS ON TRANSFER.
------------------------
8.1 Legend. Each certificate representing the Conversion Shares,
and any other securities issued in respect of the foregoing upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event
(the "Restricted Shares"), shall be stamped or otherwise imprinted with legends
substantially in the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES
AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY)
REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SAID ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS
13
<PAGE>
OF CERTAIN AGREEMENTS AMONG THE COMPANY, THE STOCKHOLDER AND
CERTAIN OTHER HOLDERS OF THE COMPANY'S STOCK, WHICH INCLUDE,
WITHOUT LIMITATION, OBLIGATIONS OF RIGHTS OF FIRST OFFER,
RESTRICTIONS ON TRANSFER AND ACQUISITION OF ADDITIONAL SECURITIES
OF THE COMPANY, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF
THE COMPANY.
Upon request of a holder of such a certificate, the Company shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, the Company shall
have received an opinion of counsel to the Holder who shall be reasonably
satisfactory to the Company, addressed to the Company, to the effect that any
transfer by the holder of the securities evidenced by such certificate will not
violate the Securities Act and applicable state securities laws, unless any such
transfer legend may be removed pursuant to Rule 144(k) or any successor rule, in
which case no such opinion shall be required.
8.2 Transfer Restrictions. The Holder shall not, directly or
indirectly, sell or transfer any Conversion Shares or any Common Stock issued
upon conversion thereof for a period of one year following the earlier to occur
of (i) the date hereof or (ii) in the event the Company completes an IPO, the
closing date of the IPO, except pursuant to a sale of all the capital stock of
the Company or a merger or consolidation in which the Company is acquired, or
pursuant to a liquidation of the Company. However, the Holder may sell or
transfer the Conversion Shares or such Common Stock to (i) any Affiliate of the
Holder during such one year period or (ii) any third party after such one year
period, provided that such Affiliate or third party, as the case may be, agrees
in writing to be bound by the obligations of this Note and the restrictions on
transfer, including without the limitation, the "lock-up" agreement, set forth
in the Rights Agreement. No such transfer shall be effective unless the
transferee or assignee assumes in writing the obligations of the under this
Agreement.
8.3 Standstill. For a period of three years after the date hereof,
Holder shall not, and shall cause each of its Affiliates to not, acquire
beneficial ownership (as such term is defined in Rule 13d-3 of the Securities
Exchange Act of 1934, as amended) of any securities of the Company in addition
to the Conversion Shares or any Common Stock issued upon conversion thereof,
which would result in the aggregate beneficial ownership of the Holder and its
Affiliates of Voting Stock of the Company equaling or exceeding 10% of the
outstanding Voting Stock of the Company. The Holder or any of its Affiliates
shall not purchase any securities of the Company without having given thirty
(30) days prior written notice to the Company or without having received the
prior written consent of the Company. Upon notice thereof, the Company shall
inform the Holder whether such purchases cause the aggregate beneficial
ownership of the Holder and its Affiliates to equal or exceed ten percent (10%)
of the outstanding Voting Stock of the Company.
9. MARKET STANDOFF. The Holder agrees, if requested by the Company and
---------------
an underwriter of Common Stock (or other securities) of the Company in
connection with the IPO, not to sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by the Holder during a
period of time determined by the Company and its underwriters (not to exceed one
14
<PAGE>
hundred eighty (180) days following the effective date of the registration
statement of the Company filed under the Securities Act relating to such IPO),
provided that all officers and directors of the Company who then hold Common
Stock (or other securities) of the Company, and third parties with commercial or
strategic relationships with the Company involving investments similar to the
one described in this Note, enter into similar agreements.
10. CERTAIN COVENANTS OF THE COMPANY.
--------------------------------
10.1 Review of Form S-1 Registration Statement. The Holder shall be
given a reasonable opportunity to review the terms and disclosure contained in a
Form S-1 Registration Statement applicable to the Company's IPO (including any
amendments thereto), to the extent such terms and disclosure pertain to the
Holder or the Company's relationship with the Holder, and the Company shall
provide the Holder with copies of the Form S-1 Registration Statement (including
any amendments thereto) and give the Holder reasonable opportunity to review
such terms and disclosure contained therein. The Company shall give the Holder
reasonable notice of the anticipated date of the IPO Closing.
10.2 Review of Private Placement Memorandum. The Holder shall be
given a reasonable opportunity to review the terms and disclosure contained in
any private placement memorandum or similar disclosure document applicable to
the Company's sale of its Common Stock, Preferred Stock or debt securities in a
private equity or debt financing and which results in aggregate cash proceeds to
the Company of at least $50,000,000 (net of underwriting discounts and
commissions) (other than any sale by the Company to a third party of the
Company's equity or debt securities in a transaction that includes a contract
for commercial services between the Company and such third party or any sale of
Series D-1 Preferred Stock or Series D Preferred Stock by the Company), to the
extent such terms and disclosure pertain to the Holder or the Company's
relationship with the Holder, and the Company shall provide the Holder with
copies of such document(s) and give the Holder a reasonable opportunity to
review such terms and conditions. The Company shall give the Holder reasonable
notice of the anticipated date of the closing of any such financing.
10.3 Notice of Certain Events. In addition to any other notice
provisions herein, if, at any time, there shall be:
(i) any reclassification or recapitalization of the Common
Stock;
(ii) any consolidation or merger of the Company or NCI with or
into any Person (including a consolidation or merger that would result in the
voting securities of the Company or NCI outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or such surviving entity's
parent) at least fifty percent (50%) of the total voting power represented by
the voting securities of the Company or NCI, respectively, or such surviving
entity or such surviving entity's parent outstanding immediately after such
consolidation or merger));
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<PAGE>
(iii) a voluntary or involuntary bankruptcy petition or similar
filing involving the Company or NCI; or
(iv) a voluntary or involuntary dissolution, liquidation or
winding up of the Company or NCI;
then, in any one or more case, the Company shall deliver written notice to the
Holder at the address last shown on the records of the Company for the Holder or
given by the Holder to the Company for the purpose of notice or, if no such
address appears or is given, at the place where the principal executive office
of the Company is located, notifying the Holder of the event described above and
specifying the date of which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, recapitalization, merger, sale, bankruptcy, dissolution,
liquidation or winding up, as the case may be. The Holder shall receive notice
pursuant to this Section 10.3 as soon as practicable prior to the event
described above, but in no event less than twenty (20) days prior to (i) the
date on which the event described above is to occur or (ii) the record date for
determining rights to vote with respect to such reclassification,
recapitalization, merger, sale, bankruptcy, dissolution, liquidation or winding
up, as the case may be, whichever is sooner.
10.4 Periodic Reports. For a period of five years from the date
hereof, upon the Holder's written request and representation to the Company that
the documents described below are not publicly available through electronic
means, the Company will furnish to the Holder, for so long as the Holder
continues to own Conversion Shares or any Common Stock issued upon conversion
thereof, copies of the Company's Forms 10-K, 10-Q and Annual Report to
Shareholders, promptly after such documents are filed with the SEC, or in lieu
of such reports, unaudited quarterly and audited annual financial statements of
the Company, promptly after completion.
11. BINDING EFFECT. Subject to the restrictions on transfer described
--------------
in Section 13 below, this Note shall be binding upon the Company, NCI and the
Holder and their respective permitted successors and assigns.
12. WAIVER AND AMENDMENT. Any provision of this Note may be amended,
--------------------
waived or modified upon the written consent of the Company, NCI and the Holder.
13. ASSIGNMENT. Neither this Note nor any of the rights, interests or
----------
obligations hereunder, nor any part hereof or thereof, may be transferred or
assigned, by operation of law or otherwise, by the Holder without the prior
written consent of the Company and NCI, which such consent may not be
unreasonably withheld.
14. NOTICES. Except as otherwise provided herein, all notices required
-------
or permitted hereunder shall be in writing and shall be deemed effectively
given: (i) upon personal delivery to the party to be notified; (ii) five (5)
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iii) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All
16
<PAGE>
communications shall be sent to the parties hereto at the respective addresses
set forth below, or as notified by such party from time to time at least ten
(10) days prior to the effectiveness of such notice:
If to the Company or NCI NorthPoint Communications Holdings, Inc.
222 Sutter Street, 7th Floor
San Francisco, CA 94108
Attention: Kevin Cameron
With a copy to: Latham & Watkins
--------------
135 Commonwealth
Menlo Park, CA 94025
Attention: Michael W. Hall
If to Holder: Verio Inc.
8005 South Chester Street, Suite 200
Englewood, CO 80112
Attention: Carla Hamre Donelson
With a copy to: Morrison & Foerster LLP
--------------
425 Market Street
San Francisco, CA 94105
Attention: Gavin B. Grover
15. EXPENSES; WAIVERS. If action is instituted to collect this Note,
-----------------
the Company and NCI promise to pay all costs and expenses, including, without
limitation, reasonable attorneys' fees and costs, incurred in connection with
such action. The Company and NCI hereby waive notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor and all other
notices or demands relative to this instrument.
16. GOVERNING LAW. This Note is to be construed in accordance with and
-------------
governed by the laws of the State of California (as permitted by Section 1646.5
of the California Civil Code, or any similar successor provision), without
giving effect to any choice of law rule that would cause the application of the
laws of any jurisdiction other than the State of California to the rights and
duties of the parties.
17. SEVERABILITY. If one or more provisions of this Note are held to be
------------
unenforceable under applicable law, such provision(s) shall be excluded from
this Note and the balance of the Note shall be interpreted as if such
provision(s) were so excluded and shall be enforceable in accordance with its
terms.
18. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION
OF THIS NOTE HAVE NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF
THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
17
<PAGE>
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS AN EXEMPTION FROM SUCH
QUALIFICATION IS AVAILABLE. THE RIGHTS OF ALL PARTIES TO THIS NOTE ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, OR SUCH EXEMPTION BEING
AVAILABLE.
19. COUNTERPARTS. This Note may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
20. SUBSEQUENT TRANSACTIONS. The Company covenants until the completion
-----------------------
of an IPO not to issue or sell any shares of Series D Preferred Stock or Series
D-1 Preferred Stock to any investor at a more favorable price or upon more
favorable terms (including rights, preferences, privileges and restrictions)
than those set forth in the Company's Amended and Restated Certificate of
Incorporation, this Note and the Rights Agreement without the prior written
consent of the Holder. Notwithstanding the foregoing, the Company expressly
reserves the right to sell shares of its Series D Preferred Stock without the
prior written consent of the Holder provided that such shares shall not have
been sold or issued by the Company at a more favorable price or on more
favorable terms than those which are reflected in this Note, the Rights
Agreement and the Company's Amended and Restated Certificate of Incorporation;
provided that the Holder expressly acknowledges that the Series D Preferred
Stock, unlike the Series D-1 Preferred Stock, has certain voting rights as set
forth in the Company's Amended and Restated Certificate of Incorporation and
that any issuance of Series D Preferred Stock by the Company will not be
considered to be on more favorable terms solely because of the existence of such
voting rights.
21. APPLICABILITY OF STANDSTILL PROVISION AND VOTING AGREEMENT TO NON-
-----------------------------------------------------------------
AFFILIATE PURCHASERS. Without changing the respective construction of Section
- --------------------
8.3 of this Note, such section shall be inapplicable to non-Affiliate purchasers
(with respect to the transferring Holder) who acquire any shares of Common Stock
from the Holder.
18
<PAGE>
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE EXECUTED THIS NOTE AS OF THE
DATE SET FORTH IN THE FIRST PARAGRAPH HEREOF.
THE COMPANY NorthPoint Communications
Holdings, Inc.
a Delaware corporation
By: _______________________
Name:__________________
Title:_________________
NCI NorthPoint Communications,
Inc.
a Delaware corporation
By:________________________
Name:__________________
Title:_________________
The Holder Verio Inc.
a Delaware corporation
By: _______________________
Name:__________________
Title:_________________
<PAGE>
EXHIBIT 10.13
March 26, 1999
Carla Hamre Donelson
Verio Inc.
RE: NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
----------------------------------------
Ms. Donelson:
This letter will confirm our agreement that, notwithstanding the provisions
of Section 6.3 of the Series D-1 Preferred Stock Purchase Agreement dated as of
March 26, 1999 (the "Purchase Agreement") by and between NorthPoint
------------------
Communications Holdings, Inc. and Verio Inc., the limitations on the purchase by
Verio Inc. and its Affiliates (as defined in the Purchase Agreement) of the
capital stock of NorthPoint Communications Holdings, Inc. shall not apply to any
Affiliates of Verio Inc. that are Affiliates by reason of their control over
Verio Inc. so long as Verio Inc. and such Affiliates are not acting in concert
as a group for the purpose of acquiring, holding, voting or disposing of the
capital stock of NorthPoint Communications Holdings, Inc.
[Signature Pages Follow]
<PAGE>
Very truly yours,
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
By: _____________________________
Title:
Accepted and agreed:
VERIO INC.
By: ____________________________
Title: ___________________________
<PAGE>
EXHIBIT 10.19
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT, dated as of April 5, 1999 (this
"Agreement"), among EACH OF THE UNDERSIGNED, whether as an original signatory
- ----------
hereto or as an Additional Grantor (as herein defined) (each, a "Grantor"), and
-------
NEWCOURT COMMERCIAL FINANCE CORPORATION, as collateral agent (in such capacity,
"Collateral Agent") for Secured Parties (as such term is herein defined).
----------------
RECITALS:
WHEREAS, pursuant to that certain Loan and Guaranty Agreement, dated as of
April 5, 1999 (as it may be amended, supplemented or otherwise modified, the
"First Priority Loan Agreement"), among NorthPoint Communications, Inc., a
- -------------------------------
Delaware corporation ("Borrower"), NorthPoint Communications of Virginia, Inc.,
--------
a Virginia corporation ("NorthPoint Virginia"), NorthPoint Communications
-------------------
Holdings, Inc., a Delaware corporation ("Holdings"), the Lenders party thereto
--------
from time to time (the "First Priority Lenders"), Goldman Sachs Credit Partners
----------------------
L.P., as a Joint Lead Arranger (in such capacity, "First Priority Joint Lead
-------------------------
Arranger") and Syndication Agent (in such capacity, "First Priority Syndication
- -------- --------------------------
Agent"), Canadian Imperial Bank of Commerce, as Administrative Agent (in such
- -----
capacity, "First Priority Administrative Agent"), Newcourt Commercial Finance
-----------------------------------
Corporation, as Documentation Agent (in such capacity, "First Priority
--------------
Documentation Agent" and "Collateral Agent"), and Capital Syndication
- ------------------- ----------------
Corporation, as a Joint Lead Arranger (in such capacity, "First Priority Joint
--------------------
Lead Arranger") pursuant to which the First Priority Lenders have made certain
- -------------
commitments, subject to the terms and conditions set forth in the First Priority
Loan Agreement, to extend certain credit facilities to Borrower;
WHEREAS, pursuant to that certain Loan and Guaranty Agreement, dated as of
April 5, 1999 (as it may be amended, supplemented or otherwise modified, the
"Second Priority Loan Agreement"), among Borrower, NorthPoint Virginia,
- --------------------------------
Holdings, the Lenders party thereto from time to time (the "Second Priority
---------------
Lenders"), Goldman Sachs Credit Partners L.P., as a Joint Lead Arranger (in such
- -------
capacity, "Second Priority Joint Lead Arranger") and Syndication Agent (in such
-----------------------------------
capacity, "Second Priority Syndication Agent"), Newcourt Commercial Finance
---------------------------------
Corporation, as Administrative Agent (in such capacity, "Second Priority
---------------
Administrative Agent"), as Documentation Agent (in such capacity, "Second
- -------------------- ------
Priority Documentation Agent" and "Collateral Agent"), and Capital Syndication
- ---------------------------- ----------------
Corporation, as a Joint Lead Arranger (in such capacity, "Second Priority Joint
---------------------
Lead
- ----
<PAGE>
Arranger") pursuant to which the Second Priority Lenders have made certain
- --------
commitments, subject to the terms and conditions set forth in the Second
Priority Loan Agreement, to extend certain credit facilities to Borrower;
WHEREAS, in consideration of the extensions of credit and other
accommodations of First Priority Lenders and Second Priority Lenders as set
forth in the Financing Agreements, each Grantor has agreed, subject to the terms
and conditions hereof, each other Loan Document, to secure such Grantor's
obligations under the Financing Agreements and the other Loan Documents as set
forth herein.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, each Grantor and Collateral Agent
agree as follows:
SECTION 1. DEFINED TERMS AND INTERPRETATION
1.1. Defined Terms. Capitalized terms used herein, including the recitals
-------------
hereto, not otherwise defined herein shall have the meanings ascribed thereto in
the Financing Agreements. In addition, the following terms shall have the
following meanings:
"Acceleration" shall mean any of the First Priority Loan Obligations or the
------------
Second Priority Loan Agreement Obligations have been declared, or have become,
immediately due and payable, or the commitments of the First Priority Lenders or
the Second Priority Lenders to extend credit to Borrower shall have been
terminated under Section 8 of the First Priority Loan Agreement or Section 7 of
the Second Priority Loan Agreement, respectively.
"Agreement" means this Pledge and Security Agreement, dated as of April 5,
---------
1999, as it may be amended, supplemented or otherwise modified from time to
time.
"Commitments" means the First Priority Commitments and the Second Priority
-----------
Commitments.
<PAGE>
"Event of Default" means any "Event of Default" as defined in any Financing
---------------- ----------------
Agreement.
"Financing Agreement" the First Priority Loan Agreement and the Second
-------------------
Priority Loan Agreement.
"Financing Agreement Obligations" means First Priority Loan Obligations and
-------------------------------
Second Priority Loan Obligations.
"First Priority Commitments" shall mean the "Commitments" as defined in the
-------------------------- -----------
First Priority Loan Agreement.
"First Priority Loan Obligations" shall mean the "Obligations" as defined
------------------------------- -----------
in the First Priority Loan Agreement.
"Intercreditor Agreement" means the Intercreditor Agreement, dated as of
-----------------------
April 5, 1999, by and among First Priority Administrative Agent, Second Priority
Administrative Agent and Collateral Agent, as amended, supplemented or modified
from time to time in accordance with the terms thereof.
"Loan" means any "Loan" as defined in either Financing Agreement.
---- ----
"Loan Document" means any "Loan Document" as defined in either Financing
------------- -------------
Agreement.
"Requisite Obligees" means "Requisite Obligees" as defined in the
------------------ ------------------
Intercreditor Agreement.
"Second Priority Commitments" shall mean the "Commitments" as defined in
--------------------------- -----------
the Second Priority Loan Agreement.
"Second Priority Loan Obligations" shall mean the "Obligations" as defined
-------------------------------- -----------
in the Second Priority Loan Agreement.
SECTION 2. GRANT OF SECURITY
<PAGE>
2.1. Senior Grant. To secure the timely payment and performance of the
First Priority Loan Obligations, each Grantor does hereby assign to and grant a
security interest in, in favor of the Collateral Agent, on behalf of and for the
benefit of the First Priority Lenders and the First Priority Agents a security
interest in all of Grantor's right, title and interest in and to the following,
in each case whether now or hereafter existing or in which Grantor now has or
hereafter acquires an interest and wherever the same may be located
(collectively, the "Collateral"):
----------
2.2.
(a) all "Investment Property", which term means:
-------------------
(b)
(i) all right, title and interest of such Grantor, whether now owned or
hereafter acquired, in all shares of capital stock owned by such Grantor,
including without limitation, all shares of capital stock described on
Schedule 2.1(a), and the certificates representing such shares and any
interest of such Grantor in the entries on the books of any financial
intermediary pertaining to such shares, and all dividends, cash, warrants,
options, rights, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares (all of the foregoing being referred
to herein collectively as the "Pledged Stock"); provided, only the
-------------
outstanding capital stock of a controlled foreign corporation possessing up
to but not exceeding 65% of the voting power of all classes of capital
stock of such controlled foreign corporation entitled to vote shall be
deemed to be pledged hereunder;
(ii) all right, title and interest of such Grantor, whether now owned or
hereafter acquired, of all Indebtedness owed to such Grantor, including,
without limitation, all Indebtedness described on Schedule 2.1(a), issued
by the obligors named therein, the instruments evidencing such
Indebtedness, and all interest, cash, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such Indebtedness (all of the
foregoing being referred to herein collectively as the "Pledged Debt");
------------
(iii) all of such Grantor's right, title and interest as a limited and/or
general partner in all partnerships, including, without limitation, the
partnerships
<PAGE>
described on Schedule 2.1(a) (the "Partnerships"), whether now
------------
owned or hereafter acquired, including, without limitation, all of such
Grantor's right, title and interest in, to and under the partnership
agreements described on Schedule 2.1(a) (as such agreements have heretofore
been and may hereafter be amended, restated, supplemented or otherwise
modified from time to time, collectively, the "Partnership Agreements") to
----------------------
which it is a party (including, if such Grantor is a general partner of any
Partnership, the right to vote with respect to and to manage and administer
the business of such Partnership) together with all other rights,
interests, claims and other property of such Grantor in any manner arising
out of or relating to its limited and/or general partnership interest in
the Partnerships, whatever their respective kind or character, whether they
are tangible or intangible property, and wheresoever they may exist or be
located, and further including, without limitation, (1) all of the rights
of such Grantor as a limited and/or general partner: (A)(I) to receive
money due and to become due (including without limitation profits,
dividends, distributions, interest, income from partnership properties and
operations, proceeds of sale of partnership assets and returns of capital)
under or pursuant to the Partnership Agreements, (II) to receive payments
upon termination of the Partnership Agreements, and (III) to receive any
other payments or distributions, whether cash or noncash, in respect of
such Grantor's limited and/or general partnership interest evidenced by the
Partnership Agreements; (B) in and with respect to claims and causes of
action rising out of or relating to the Partnerships; and (C) to have the
access to the Partnerships' books and records and to other information
concerning or affecting the Partnerships; and (2) any "certificate of
--------------
interest" or "certificates of interest" (or other certificates or
-------- ------------------------
instruments however designated or titled) issued by the Partnerships and
evidencing such Grantor's interest as a limited and/or general partner in
the Partnerships (collectively, the "Certificates" and any interest of such
------------
Grantor in the entries on the books of any financial intermediary
pertaining to such Grantor's interest as a limited and/or general partner
in the Partnerships (all of the foregoing being referred to herein
collectively as the "Partnership Interests");
---------------------
(iv) all of such Grantor's right, title and interest as a member of all
limited liability companies (the "LLCs"), including, without limitation,
----
all of such Grantor's right, title and interest in, to and under the
limited liability company
<PAGE>
interests set forth on Schedule 2.1(a), whether now owned or
hereafter acquired, including, without limitation, all of such Grantor's
right, title and interest in, to and under the operating agreements with
respect to any such LLC (as such agreements have heretofore been and may
hereafter be amended, restated, supplemented or otherwise modified from
time to time, collectively, each, an "LLC Agreement") to which it is a
-------------
party, regardless of whether such right, title and interest arises under
such LLC Agreement, including (1) all rights of such Grantor to receive
distributions of any kind, in cash or otherwise, due or to become due under
or pursuant to each such LLC Agreement or otherwise in respect of such
Person, (2) all rights of such Grantor to receive proceeds of any
insurance, indemnity, warranty or guaranty with respect to each such
Person, (3) all claims of such Grantor for damages arising out of, or for
the breach of, or for a default under, each such LLC Agreement, (4) any
certificated or uncertificated security evidencing any of the foregoing
issued by such Person to such Grantor and (5) to the extent not included in
the foregoing, all proceeds of any and all of the foregoing (all of the
foregoing being referred to herein collectively as the "LLC Interests"; the
-------------
Pledged Stock, the Pledged Debt, the Partnership Interests and the LLC
Interests being herein collectively referred to as the "Pledged
-------
Securities";
----------
(v) all additional shares of, limited and/or general partnership interests
in and limited liability company interests in, and all securities
convertible into and warrants, options and other rights to purchase or
otherwise acquire, stock of any issuer of the Pledged Stock, limited and/or
general partnership interests in the Partnerships, and limited liability
company interests in the LLCs, from time to time acquired by such Grantor
in any manner (which shares or interests shall be deemed to be part of the
Pledged Securities), the certificates or other instruments representing
such additional shares or interests, securities, warrants, options or other
rights and any interest of such Grantor in the entries on the books of any
financial intermediary pertaining to such additional shares or interests,
and all additional indebtedness from time to time owed to such Grantor by
any obligor on the Pledged Debt and the instruments evidencing such
indebtedness, and all interest, cash, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such indebtedness; (all of the
foregoing being referred to herein collectively as the "Additional
----------
<PAGE>
Pledged Securities"), and all dividends, distributions, cash, warrants,
------------------
options, rights, instruments, payments and other property or proceeds from
time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of such Additional Pledged Securities; and
(vi) all shares of, limited and/or general partnership interests in, and
limited liability company interests in, and all securities convertible into
and warrants, options and other rights to purchase or otherwise acquire,
stock of, limited and/or general partnership interests in, or limited
liability company interests in any Person that, after the date of this
Agreement, becomes, as a result of any occurrence, a direct Subsidiary of
such Grantor (which shares or interests shall be deemed to be part of the
Pledged Securities), the certificates or other instruments representing
such shares, interests, securities, warrants, options or other rights and
any interest of such Grantor in the entries on the books of any financial
intermediary pertaining to such shares or interests and all dividends,
distributions, cash, warrants, rights, instruments and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such shares, interests,
securities, warrants, options or other rights, and all Indebtedness from
time to time owed to such Grantor by any Person that, after the date of
this Agreement, becomes, as a result of any occurrence, a Subsidiary of
such Grantor, and the instruments evidencing such Indebtedness, and all
interest, cash, instruments and other property or proceeds from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such Indebtedness;
(a) all "Intellectual Property", which term means:
---------------------
(i) all trademarks, service marks, designs, logos, indicia, trade names,
corporate names, company names, business names, fictitious business names,
trade styles and/or other source and/or business identifiers, and all
trademark or service mark registration in the United States, any state
thereof or in foreign countries (except for U.S. "intent to use"
applications for trademark or service mark registrations filed pursuant to
Section 1(b) of the Lanham Act, unless and until an Amendment to Allege Use
or a Statement of Use under Sections 1(c) and 1(d) of said Act has been
filed), owned or used by the
<PAGE>
Grantor in its business, or hereafter adopted and used by Grantor, together
with the goodwill of the Grantor's business connected with the use of, and
symbolized by each such mark including, without limitation, the trademarks
specifically identified in Schedule 2.1(b), (all of the foregoing
collectively, the "Trademarks").
----------
(ii) all patents and patent applications and rights and interests in
patents and patent applications under any domestic law that are presently,
or in the future may be, owned by such Grantor and all patents and patent
applications and rights and interests in patents and patent applications
under any domestic law that are presently, or in the future may be, held or
used by such Grantor in whole or in part, including, without limitation,
the patents and patent applications listed in Schedule 2.1(b), all rights
(but not obligations corresponding thereto), including, without limitation,
the right (but not the obligation, and exercisable only upon the occurrence
and continuation of an Event of Default) to sue for past, present and
future infringements in the name of such Grantor or in the name of
Collateral Agent or Secured Parties in each case, at the options of
Collateral Agent, and all re-issues, divisions, continuations, renewals,
extensions and continuations-in-part thereof (all of the foregoing being
collectively referred to as the "Patents"); it being understood that the
-------
rights and interest included herein hereby shall include, without
limitation, all rights and interests pursuant to licensing or other
contracts in favor of such Grantor pertaining to patent applications and
patents presently or in the future owned or used by third parties but, in
the case of third parties which are not Affiliates of Grantor, only to the
extent permitted by such licensing or other contracts and, if not so
permitted, only with the consent of such third parties; and
(iii) various published and unpublished works of authorship including,
without limitation, computer programs, computer data bases, other computer
software, including without limitation, object code and source code, mask
works, semiconductor chips, masks, cell libraries, layouts, trade secrets,
trade secret rights, trade dress rights, ideas, drawings, designs,
schematics, algorithms, writings, techniques, processes and formulas,
including, without limitation, the works listed on Schedule 2.1(b), all
copyright registrations issued to such Grantor in the United States and any
state thereof and in foreign
<PAGE>
countries, including, without limitation, the registrations listed on
Schedule 2.1(b), all copyright licenses (but with respect to such copyright
licenses, only to the extent permitted by such licensing arrangements and,
if not so permitted, only with the consent of the other party thereto) (all
of the foregoing being referred to herein collectively as the
"Copyrights"), including, without limitation, each of the Copyrights,
----------
rights, titles and interests in and to the Copyrights and works protectable
by copyright, which are presently, or in the future may be, owned, created
(as a work for hire for the benefit of such Grantor or otherwise), authored
(as a work for hire for the benefit of such Grantor or otherwise), acquired
or used (whether pursuant to a license or otherwise but only to the extent
permitted by agreements governing such license or other use and, if not so
permitted, only with the consent of the other party thereto) by such
Grantor, in whole or in part, and all Copyrights with respect thereto and
all registrations therefor, heretofore or hereafter granted or applied for,
and all renewals and extensions thereof, throughout the world, including
all proceeds thereof (such as, by way of example and not by limitation,
license royalties and proceeds of infringement suits), the right (but not
the obligation) to renew and extend such Copyrights and to register works
protectable by copyright and the right (but not the obligation and
exercisable only upon the occurrence and continuation of an Event of
Default) to sue or bring opposition or cancellation proceedings in the name
of such Grantor or in the name of Collateral Agent or Secured Parties in
each case, at the option of Collateral Agent, for past, present and future
infringements of the Copyrights;
(c) the Collateral Account (as such term is defined in the Intercreditor
Agreement), together with all amounts on deposit from time to time in any
Deposit Accounts, and all interest, cash, instruments, securities, Financial
Assets and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the foregoing;
(d) all of such Grantor's right, title and interest in, to and under any
equipment in all of its forms, all accessions or additions thereto, all parts
thereof, whether or not at any time of determination incorporated or installed
therein or attached thereto, and all replacements therefor, wherever located,
now or hereafter existing (all of the foregoing being referred to herein
collectively as the "Equipment");
---------
<PAGE>
(e) all of such Grantor's right, title and interest in, to and under any
inventory in all of its forms, including, but not limited to, (i) all goods held
by such Grantor for sale or lease or to be furnished under contracts of service
or so leased or furnished, (ii) all raw materials, work in process, finished
goods, and materials used or consumed in the manufacture, packing, shipping,
advertising, selling, leasing, furnishing or production of such inventory or
otherwise used or consumed in such Grantor's business, (iii) all goods in which
such Grantor has an interest in mass or a joint or other interest or right of
any kind, (iv) all goods which are returned to or repossessed by such Grantor,
and all accessions thereto and products thereof (all of the foregoing being
referred to herein collectively as the "Inventory"), and (v) all negotiable and
---------
non-negotiable documents of title, including, without limitation, warehouse
receipts, dock receipts and bills of lading issued by any Person covering any
Inventory;
(f) all of such Grantor's right, title and interest in, to and under any
accounts, contract rights, chattel paper, documents, instruments, general
intangibles and other rights and obligations of any kind (all of the foregoing
being referred to herein collectively as the "Accounts") and all of such
--------
Grantor's rights in, to and under all security agreements, leases and other
contracts securing or otherwise relating to any Accounts (all of the foregoing
being referred to herein collectively as the "Related Contracts");
-----------------
(g) all of such Grantor's right, title and interest in, to and under all
agreements and contracts to which such Grantor is a party as of the date hereof,
or to which such Grantor becomes a party after the date hereof, as each such
agreement may be amended, supplemented or otherwise modified from time to time
(all of the foregoing being referred to herein collectively as the "Assigned
--------
Agreements"), including (i) all rights of such Grantor to receive moneys due or
- ----------
to become due under or pursuant to the Assigned Agreements, (ii) all rights of
such Grantor to receive proceeds of any insurance, indemnity, warranty or
guaranty with respect to the Assigned Agreements, (iii) all claims of such
Grantor for damages arising out of any breach of or default under the Assigned
Agreements, and (iv) all rights of such Grantor to terminate, amend, supplement,
modify or exercise rights or options under the Assigned Agreements, to perform
thereunder and to compel performance and otherwise exercise all remedies
thereunder;
<PAGE>
(h) to the extent not otherwise included in any other paragraph of this Section
2, all other general intangibles, including tax refunds, rights to payment or
performance, choses in action and judgments taken on any rights or claims
included in the Collateral;
(i) all books, records, ledger cards, files, correspondence, computer programs,
tapes, disks and related data processing software that at any time evidence or
contain information relating to any of the Collateral or are otherwise necessary
or helpful in the collection thereof or realization thereupon; and
(j) to the extent not covered by Sections 2.1(a) through 2.1(i), all other
personal property of such Grantor, all proceeds, products, rents and profits of
or from any and all of the foregoing Collateral and, to the extent not otherwise
included, all payments under insurance (whether or not Collateral Agent is the
loss payee thereof), or any indemnity, warranty or guaranty, payable by reason
of loss or damage to or otherwise with respect to any of the foregoing
Collateral. For purposes of this Agreement, the term "proceeds" includes
--------
whatever is receivable or received when Collateral or proceeds are sold,
exchanged, collected or otherwise disposed of, whether such disposition is
voluntary or involuntary.
2.2. Second Priority Grant. To secure the timely payment and performance
of the Second Priority Obligations, each Grantor does hereby assign to and
grant a security interest in, in favor of the Collateral Agent, on behalf of and
for the benefit of the Second Priority Lenders and the Second Priority Agents,
all the estate, right, title and interest of such Grantor, whether now owned or
hereafter acquired or arising and wheresoever located, whether or not of a type
which may be subject to a security interest under the UCC, in, to and under the
Collateral; provided, such assignment and grant shall be junior and subordinate
--------
to the assignment and grant in the Collateral made pursuant to Section 2.1.
-----------
2.3. Certain Limited Exclusions. Notwithstanding anything herein to the
contrary, in no event shall the Collateral include, and no Grantor shall be
deemed to have granted a security interest in, any of such Grantor's rights or
interests in any license, contract or agreement to which such Grantor is a party
or any of its rights or interests thereunder, including, without limitation,
with respect to any LLC Interest or any Partnership Interest, to the extent,
but only to the extent, that such a grant would,
<PAGE>
under the terms of such license, contract or agreement or otherwise, result in a
breach of the terms of, or constitute a default under any license, contract or
agreement to which such Grantor is a party, including, without limitation, with
respect to any LLC Interest or any Partnership Interest (other than to the
extent that any such term would be rendered ineffective pursuant to Section 9-
318(4) of the Uniform Commercial Code of any relevant jurisdiction or any other
applicable law (including the United States Bankruptcy Code) or principles of
equity) unless the consent of the other party thereto has been obtained to such
agent of a security interest; provided, immediately upon the ineffectiveness,
lapse or termination of any such provision, the Collateral shall include, and
such Grantor shall be deemed to have granted a security interest in, all such
rights and interests, including, without limitation, with respect to any LLC
Interest or any Partnership Interest, as if such provision had never been in
effect.
SECTION 3. SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE
This Agreement secures, and the Collateral is collateral security for, the
prompt payment or performance in full when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise (including
the payment of amounts that would become due but for the operation of the United
States Bankruptcy Code, of all Obligations (as such term is defined in each of
the Financing Agreements) with respect to each Grantor (the "Secured
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Obligations"). Anything contained herein to the contrary notwithstanding, (a)
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each Grantor shall remain liable under any Partnership Agreement, LLC Agreement
or any other contracts and agreements included in the Collateral, to the extent
set forth therein, to perform all of its duties and obligations thereunder to
the same extent as if this Agreement had not been executed; (b) the exercise by
Collateral Agent of any of its rights hereunder shall not release any Grantor
from any of its duties or obligations under the contracts and agreements
included in the Collateral; and (c) Collateral Agent shall not have any
obligation or liability under any Partnership Agreement, LLC Agreement or any
other contracts and agreements included in the Collateral by reason of this
Agreement, nor shall Collateral Agent be obligated to perform any of the
obligations or duties of any Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder. Notwithstanding any of the
foregoing, this Agreement shall not in any way be deemed to obligate Collateral
Agent, any other Agent, any Lender or any purchaser at a foreclosure sale under
this Agreement to assume any of any Grantor's obligations, duties, expenses or
liabilities under any LLC Agreement or Partnership Agreement (including any
Grantor's obligations as a general partner for the debts and obligations of a
Partnership) and to manage the business and affairs of any Partnership or any of
such Grantor's obligations for the debts and obligations of an LLC, or under any
and all other agreements now existing or hereafter drafted or executed
(collectively, the "Grantor Obligations") unless Collateral Agent, any other
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Agent, any Lender or any such purchaser otherwise expressly agrees in writing to
assume any or all of said Grantor Obligations. In the event of foreclosure by
Collateral Agent, each Grantor shall remain bound and obligated to perform its
Grantor Obligations arising during or otherwise related to its ownership of the
Collateral, and neither Collateral Agent, nor any other Agent nor any Lender
shall be deemed to have assumed any of such Grantor Obligations except as
provided in the preceding sentence. Without limiting the generality of the
foregoing, neither the grant of the security interest in the Collateral in favor
of Collateral Agent as provided herein nor the exercise by Collateral Agent of
any of its rights hereunder nor any action in connection with a foreclosure on
the Collateral shall be
<PAGE>
deemed to constitute Collateral Agent, any other Agent, or any Lender a partner
of any Partnership or a member of any LLC; provided, in the event Collateral
Agent or any purchaser of Collateral at a foreclosure sale elects to become a
substituted general partner of any Partnership or manager of any LLC in place of
any Grantor, Collateral Agent or such purchaser, as the case may, shall adopt in
writing the applicable Partnership Agreement or LLC Agreement, as the case may
be, and agree to be bound by the terms and provisions thereof.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1. Generally. Each Grantor represents and warrants that each of the
representations and warranties set forth in Section 3.09 of each of the
Financing Agreements is true and correct with respect to each item of Collateral
applicable thereto owned by such Grantor as if fully set forth herein. In
addition to the foregoing, except with respect to any Permitted Lien and such as
may have been filed in favor of Collateral Agent as set forth on Schedule 4.1
hereof, no effective UCC financing statement, fixture filing or other instrument
similar in effect covering all or any part of the Collateral is on file in any
filing or recording office.
4.2. Investment Property. In addition to any other representation made
thereby in any other Loan Document, each Grantor represents and warrants that
(a) with respect to Subsidiaries of a Grantor, all of the Pledged Stock has been
duly authorized and validly issued and are fully paid and non-assessable; (b)
the Pledged Securities constitute all of the issued and outstanding equity
Securities of each issuer thereof that are owned by such Grantor and with
respect to Subsidiaries of a Grantor, there are no outstanding warrants, options
or other rights to purchase, or other agreements outstanding with respect to, or
property that is now or hereafter convertible into, or that requires the
issuance or sale of, any of the Pledged Securities; (c) with respect to
Subsidiaries of a Grantor, all of the Pledged Debt has been duly authorized,
authenticated or issued, and delivered and is the legal, valid and binding
obligation of the issuers thereof and is not in default and constitutes all of
the issued and outstanding inter company Indebtedness evidenced by a promissory
note of the respective issuers thereof owing to such Grantor; (d) the security
interest of Collateral Agent hereunder has been registered on the books and
records of any issuer of "uncertificated securities" (as such term is defined in
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the UCC) included in the Collateral; and (e) with
<PAGE>
respect to Subsidiaries of a Grantor, with respect to any Investment Property,
no consent of any Person, including any other limited or general partner of the
Partnerships, any other member of any LLC, or any creditor of any Grantor, and
no authorization, approval or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for either (i) the
grant by any Grantor of the security interests granted hereby, (ii) the
execution, delivery or performance of this Agreement by any Grantor, or (iii)
the perfection of or the exercise by Collateral Agent of its rights and remedies
hereunder (except as may have been taken by or at the direction of any Grantor).
4.3. Intellectual Property Collateral. In addition to any other
representation made thereby in any other Loan Document, each Grantor represents
and warrants that (a) a true and complete list of all Trademark Registrations
and applications owned, held (whether pursuant to a license or otherwise) or
used by such Grantor, in whole or in part, as of the date of this Agreement is
set forth in Schedule 2.1(b); (b) a true and complete list of all Patents owned,
held (whether pursuant to a license or otherwise) or used by such Grantor, in
whole or in part, as of the date of this Agreement is set forth in Schedule
2.1(b); (c) a true and complete list of all Copyright registrations held
(whether pursuant to a license or otherwise) or used by such Grantor, in whole
or in part, as of the date of this Agreement is set forth in Schedule 2.1(b);
(d) there are not any pending or, to the best of such Grantor's knowledge, any
threatened claims by any third party that any of the Intellectual Property
owned, held or used by such Grantor is invalid or unenforceable; and (e) except
as set forth on Schedule 4.3, no security interest or other Lien covering all or
any part of the Intellectual Property is on file in the United States Patent and
Trademark Office or the United States Copyright Office.
4.4. Location of Equipment and Inventory. In addition to the representations
and warranties made thereby in any other Loan Document, each Grantor represents
and warrants that all of the Equipment and Inventory is, as of the date hereof,
located in the jurisdictions specified in Schedule 4.4.
4.5. Office Locations; Other Names. In addition to the representations and
warranties made thereby in any other Loan Document, each Grantor represents and
warrants that as of the date hereof the chief place of business, the chief
executive office and the office where such Grantor keeps its records regarding
the Accounts and all
<PAGE>
originals of all chattel paper that evidence Accounts is, and has been for the
four month period preceding the date hereof, located at the places indicated on
Schedule 4.5, and no Grantor has in the past twelve months, and does not now do,
business under any other name (including any trade-name or fictitious business
name) except for those names set forth on Schedule 4.5.
SECTION 5. FURTHER ASSURANCES; ADDITIONAL GRANTORS
5.1. Generally. Each Grantor agrees that from time to time, at the expense
of Grantor, each Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that Collateral Agent may reasonably request, in order to perfect
and protect any security interest granted or purported to be granted hereby or
to enable Collateral Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of
the foregoing, each Grantor will (a) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary, or as Collateral Agent may reasonably request, in
order to perfect and preserve the security interests granted or purported to be
granted hereby; (b) at any reasonable time, upon request by Collateral Agent,
exhibit the Collateral to and allow inspection of the Collateral by Collateral
Agent, or persons designated by Collateral Agent; and (c) at Collateral Agent's
request, appear in and defend any action or proceeding that may affect Grantor's
title to or Collateral Agent's security interest in all or any part of the
Collateral. Each Grantor hereby authorizes Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor. Each Grantor
agrees that a carbon, photographic or other reproduction of this Agreement or of
a financing statement signed by Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions. Each Grantor will furnish to Collateral Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Collateral Agent may
reasonably request, all in reasonable detail.
5.2.(a) Investment Property. Each Grantor agrees that it will, upon obtaining
any additional shares of stock or other securities required to be pledged
hereunder,
<PAGE>
promptly (and in any event within five Business Days) deliver to Collateral
Agent a Pledge Supplement, duly executed by Grantor, in substantially the form
of Exhibit A (a "Pledge Supplement"), in respect of the additional Pledged
-----------------
Shares to be pledged pursuant to this Agreement. Each Grantor hereby authorizes
Collateral Agent to attach each Pledge Supplement to this Agreement and agrees
that all Pledged Shares of Grantor listed on any Pledge Supplement shall for all
purposes hereunder be considered Collateral of Grantor; provided, the failure of
any Grantor to execute a Pledge Supplement with respect to any additional
Pledged Shares pledged pursuant to this Agreement shall not impair the security
interest of Collateral Agent therein or otherwise adversely affect the rights
and remedies of Collateral Agent hereunder with respect thereto.
(b) Upon request Collateral Agent, each Grantor shall cause each Person
which is an issuer of an uncertificated security included in the Collateral to
execute and deliver all instruments and documents, and take all further action
Collateral Agent may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted in such uncertificated
securities, to establish "control" (as such term is defined in the UCC) by
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Collateral Agent over such Collateral or to enable Collateral Agent to exercise
and enforce its rights and remedies hereunder with respect to such Collateral,
including, and as applicable, (i) register the security interest granted hereby
upon the books of such Person in accordance with Article 8 of the UCC, and (ii)
deliver to Collateral Agent an Acknowledgment of Pledge, duly executed by such
the issuer of the applicable uncertificated security, in substantially the form
of Exhibit B (an "Acknowledgment of Pledge").
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5.3. Intellectual Property Collateral. If any Grantor shall hereafter obtain
rights to any new Intellectual Property or become entitled to the benefit of (a)
any patent application or patent or any reissue, division, continuation,
renewal, extension or continuation-in-part of any Patent or any improvement of
any Patent; or (b) any Copyright registration or renewals or extension of any
Copyright, then in any such case, the provisions of this Agreement shall
automatically apply thereto. Each Grantor shall promptly notify Collateral Agent
in writing of any of the foregoing rights acquired by Grantor after the date
hereof and of (i) any Trademark registrations issued or applications for
Trademark registration or applications for Patents made, and (ii) any Copyright
registrations issued or applications for Copyright registration made, in any
such case, after the date hereof. Promptly after the filing of an
<PAGE>
application for any (1) Trademark registration; (2) Patent; and (3) Copyright
registration, each Grantor shall execute and deliver to Collateral Agent and
record in all places where this Agreement is recorded a Pledge Supplement,
pursuant to which Grantor shall grant to Collateral Agent a security interest to
the extent of its interest in such Intellectual Property; provided, if, in the
reasonable judgment of Grantor, after due inquiry, granting such interest would
result in the grant of a Trademark registration or Copyright registration in the
name of Collateral Agent, in which event Grantor shall give written notice to
Collateral Agent as soon as reasonably practicable and the filing shall instead
be undertaken as soon as practicable following the grant of the applicable
Trademark registration or Copyright registration, as the case may be. In
addition to the foregoing, each Grantor hereby authorizes Collateral Agent to
modify this Agreement without obtaining Grantor's approval of or signature to
such modification by amending Schedule 2.1(b), as applicable, to include
reference to any right, title or interest in any existing Intellectual Property
or any Intellectual Property acquired or developed by Grantor after the
execution hereof or to delete any reference to any right, title or interest in
any Intellectual Property in which Grantor no longer has or claims any right,
title or interest.
5.4. Accounts. Each Grantor shall (a) mark conspicuously each item of chattel
paper included in the Accounts, each Related Contract and, at the reasonable
request of Collateral Agent, each of its records pertaining to the Collateral,
with a legend, in form and substance reasonably satisfactory to Collateral
Agent, indicating that such Collateral is subject to the security interest
granted hereby, and (b) at the reasonable request of Collateral Agent, deliver
to Collateral Agent hereunder all promissory notes and other instruments
(excluding checks) and all original counterparts of chattel paper constituting
Collateral in excess of $25,000, duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance reasonably
satisfactory to Collateral Agent.
5.5. Equipment. Each Grantor shall (a) promptly after the acquisition by such
Grantor of any material item of Equipment which is covered by a certificate of
title under a statute of any jurisdiction under the law of which indication of a
security interest on such certificate is required as a condition of perfection
thereof, upon the reasonable request of Collateral Agent, execute and file with
the registrar of motor vehicles or other appropriate authority in such
jurisdiction an application or other document requesting the notation or other
indication of the security interest created
<PAGE>
hereunder on such certificate of title, and (b) upon the reasonable request of
Collateral Agent, deliver to Collateral Agent copies of all such applications or
other documents filed during such calendar quarter and copies of all such
certificates of title issued during such calendar quarter indicating the
security interest created hereunder in the items of Equipment covered thereby.
5.6. Additional Grantors. From time to time subsequent to the date hereof,
additional Persons may become parties hereto as additional Grantors (each, an
"Additional Grantor"), by executing a Counterpart Agreement. Upon delivery of
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any such Counterpart Agreement to Collateral Agent, notice of which is hereby
waived by Grantors, each Additional Grantor shall be a Grantor and shall be as
fully a party hereto as if Additional Grantor were an original signatory hereto.
Each Grantor expressly agrees that its obligations arising hereunder shall not
be affected or diminished by the addition or release of any other Grantor
hereunder, nor by any election of Collateral Agent not to cause any Subsidiary
of Borrower to become an Additional Grantor hereunder. This Agreement shall be
fully effective as to any Grantor that is or becomes a party hereto regardless
of whether any other Person becomes or fails to become or ceases to be a Grantor
hereunder.
SECTION 6. COVENANTS OF GRANTORS
6.1. Generally. Each Grantor shall (a) except for the security interest
created by this Agreement, not create or suffer to exist any Lien upon or with
respect to any of the Collateral, except Permitted Liens; (b) not use or permit
any Collateral to be used unlawfully or in violation of any provision of this
Agreement or any applicable statute, regulation or ordinance or any policy of
insurance covering the Collateral; (c) notify Collateral Agent of any change in
Grantor's name, identity or corporate structure within 15 days of such change;
(d) diligently keep reasonable records respecting the Intellectual Property
Collateral and at all times keep at least one complete set of its records
concerning such Collateral at its chief executive office or principal place of
business; (e) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent the validity thereof is being contested in good faith; provided, Grantor
shall in any event pay such taxes, assessments, charges, levies or claims not
later than five days prior to the date of any proposed sale under any judgement,
writ or warrant of attachment entered or filed against Grantor or any of the
Collateral as a result of the failure to make such payment; and (f) upon any
executive officer of such Grantor obtaining knowledge thereof, promptly notify
Collateral Agent in writing of any event that may materially and adversely
affect the ability of Grantor or Collateral Agent to dispose of the Collateral
or any portion thereof, or the rights and remedies of Collateral Agent in
relation thereto, including, without limitation, the levy of any legal process
against the Collateral or any portion thereof. No Grantor shall sell, transfer
or assign (by operation of law or otherwise) any Collateral except as permitted
by Section 6.03 of the Loan Agreement (a "Permitted Sale"). So long as (i) no
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Event of Default shall have occurred and is then continuing or would occur after
giving effect to a Permitted Sale, and (ii) the Net Asset Sale Proceeds with
respect to such Permitted Sale are delivered to Collateral Agent
contemporaneously with such Permitted Sale to the extent required by Section
2.09(c) of either Financing Agreement, Collateral Agent shall release the Lien
hereof encumbering the Collateral that is the subject of such Permitted Sale.
Collateral Agent shall execute each and every appropriate filing statement
and/or recording document reasonably requested by any Grantor is connection with
the foregoing. Any reasonable expense or cost incurred by Collateral Agent in
connection with any such release shall be for the account of the applicable
Grantor.
<PAGE>
6.2. Investment Property.
(a) Delivery. (i) All certificates or instruments representing or evidencing
the Investment Property shall be delivered to and held by or on behalf of
Collateral Agent pursuant hereto and shall be in suitable form for transfer by
delivery or, as applicable, shall be accompanied by Grantor's endorsement, where
necessary, or duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Collateral Agent. Upon the occurrence and
during the continuation of an Event of Default, Collateral Agent shall have the
right, without notice to any Grantor, to transfer to or to register in the name
of Collateral Agent or any of its nominees any or all of the Investment
Property, subject only to the revocable rights specified herein. In addition,
Collateral Agent shall have the right at any time to exchange certificates or
instruments representing or evidencing Investment Property for certificates or
instruments of smaller or larger denominations. (ii)
(ii) Each Grantor hereby consents to the pledge of the Partnership
Interests by each other Grantor in each Partnership pursuant to the
terms hereof, and, subject to Section 8, to the transfer of such
Partnership Interests to Collateral Agent or its nominee and to the
substitution of Collateral Agent or its nominee as a substituted Partner
of each such Partnership with all the rights, powers and duties of a
general partner or a limited partners, as the case may be.
(iii) Each Grantor hereby consents to the pledge of the LLC Interests
by each other Grantor in each LLC pursuant to the terms hereof, and,
subject to Section 8, to the transfer of such LLC Interests to
Collateral Agent or its nominee and to the substitution of Collateral
Agent or its nominee as a substituted member of the LLC with all the
rights, powers and duties of a member of the LLC in question.
(b) Covenants. Each Grantor shall (i) not permit any issuer of Pledged
Shares to merge or consolidate unless all the outstanding capital stock of the
surviving or resulting corporation is, upon such merger or consolidation,
pledged hereunder and no cash, securities or other property is distributed in
respect of the outstanding shares of any other constituent corporation;
provided, if the surviving or resulting corporation
<PAGE>
upon any such merger or consolidation involving an issuer of Pledged Shares
which is a controlled foreign corporation is a controlled foreign corporation,
then such Grantor shall only be required to pledge outstanding capital stock of
such surviving or resulting corporation possessing up to but not exceeding 65%
of the voting power of all classes of capital stock of such issuer entitled to
vote; (ii) cause each issuer of Pledged Shares that is a Subsidiary of a Grantor
not to issue any stock or other securities in addition to or in substitution for
the Pledged Shares issued by such issuer, except to Grantor; (iii) promptly
deliver to Collateral Agent notice of the conversion of any partnership
interests in a Partnership Agreement or any membership interests in a LLC to
certificated form; (iv) not (1) cancel or terminate any of the Partnership
Agreements or LLC Agreements or consent to or accept any cancellation or
termination thereof, (2) except as permitted pursuant to Section 6.03 of either
Financing Agreement, sell, assign (by operation of law or otherwise) or
otherwise dispose of any part of its limited or general partnership interest in
any of the Partnerships or its membership interest in any of the LLCs, (3)
amend, supplement or otherwise modify any of the Partnership Agreements or any
of the LLC Agreements (as in effect on the date hereof), (4) waive any default
under or breach of any of the Partnership Agreements or any of the LLC
Agreements or waive, fail to enforce, forgive or release any right, interest or
entitlement of any kind, howsoever arising, under or in respect of any of the
Partnership Agreements or any of the LLC Agreements or vary or agree to the
variation in any respect of any of the provisions of any of the Partnership
Agreements or any of the LLC Agreements or the performance of any other Person
under any of the Partnership Agreements or any of the LLC Agreements, or (5)
petition, request or take any other legal or administrative action which seeks,
or may reasonably be expected, to rescind, to terminate or to suspend any of the
Partnership Agreements or any of the LLC Agreements or to amend or modify any of
the Partnership Agreements or any of the LLC Agreements; (v) at its expense (1)
perform and comply in all material respects with all terms and provisions of the
Partnership Agreements and the LLC Agreements required to be performed or
complied with by it, (2) maintain the Partnership Agreements and the LLC
Agreements to which it is a party in full force and effect, and (3) enforce each
of the Partnership Agreements and each of the LLC Agreements to which it is a
party in accordance with its terms; (vi) not vote to permit the Partnerships or
the LLCs that are Subsidiaries to enter into any transaction of merger or
consolidation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution); and (vii) pledge hereunder, immediately upon its
acquisition (directly or indirectly) thereof, any and all shares of stock of any
<PAGE>
Person that, after the date of this Agreement, becomes, as a result of any
occurrence, a direct Subsidiary of any Grantor; provided, notwithstanding
anything contained in this clause (vii) to the contrary, such Grantor shall only
be required to pledge the outstanding capital stock of a controlled foreign
corporation possessing up to but not exceeding 65% of the voting power of all
classes of capital stock of such controlled foreign corporation entitled to
vote.
(c) Voting and Distributions. (i) So long as no Event of Default shall have
occurred and be continuing, (1) each Grantor shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Investment Property
or any part thereof for any purpose not inconsistent with the terms of this
Agreement or any Loan Document; provided, no Grantor shall exercise or refrain
from exercising any such right if Collateral Agent shall have notified Grantor
that, in Collateral Agent's reasonable judgment, such action would violate the
terms of a Financing Agreement. It is understood, however, that neither (A) the
voting by Grantor of any Pledged Shares for or Grantor's consent to the election
of directors at a regularly scheduled annual or other meeting of stockholders or
with respect to incidental matters at any such meeting, nor (B) Grantor's
consent to or approval of any action otherwise permitted under this Agreement
and either Financing Agreement shall be deemed inconsistent with the terms of
this Agreement or any Loan Document within the meaning of this Section, and no
notice of any such voting or consent need be given to Collateral Agent; (2)
Grantor shall be entitled to receive and retain, and to utilize free and clear
of the lien of this Agreement, any and all dividends and interest paid in
respect of the Investment Property; provided, any and all (A) dividends and
interest paid or payable other than in cash in respect of, and instruments and
other property received, receivable or otherwise distributed in respect of, or
in exchange for, any Investment Property, (B) dividends and other distributions
paid or payable in cash in respect of any Investment Property in connection with
a partial or total liquidation or dissolution or in connection with a reduction
of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or
otherwise distributed in respect of principal or in redemption of or in exchange
for any Investment Property, shall be, and shall forthwith be delivered to
Collateral Agent to hold as, Investment Property and shall, if received by
Grantor, be received in trust for the benefit of Collateral Agent, be segregated
from the other property or funds of Grantor and be forthwith delivered to
Collateral Agent as Investment Property in the same form as so received (with
all necessary endorsements); and (3) Collateral Agent shall promptly execute and
<PAGE>
deliver (or cause to be executed and delivered) to Grantor all such proxies,
dividend payment orders and other instruments as Grantor may from time to time
reasonably request for the purpose of enabling Grantor to exercise the voting
and other consensual rights when and to the extent which it is entitled to
exercise the same pursuant to clause (i) above and to receive the dividends,
principal or interest payments which it is authorized to receive and retain
pursuant to clause (2) above.
(ii) Upon the occurrence and during the continuation of an Event of
Default, (1) upon written notice from Collateral Agent to any Grantor,
all rights of Grantor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant hereto shall
cease, and all such rights shall thereupon become vested in Collateral
Agent who shall thereupon have the sole right to exercise such voting
and other consensual rights; (2) all rights of Grantor to receive the
dividends and interest payments which it would otherwise be authorized
to receive and retain pursuant hereto shall cease, and all such rights
shall thereupon become vested in Collateral Agent who shall thereupon
have the sole right to receive and hold as Investment Property such
dividends and interest payments; and (3) all payments which are received
by Grantor contrary to the provisions of clause (2) above shall be
received in trust for the benefit of Collateral Agent, shall be
segregated from other funds of Grantor and shall forthwith be paid over
to Collateral Agent as Investment Property in the same form as so
received (with any necessary endorsements); and (4) all rights of such
Grantor or receive any and all payments under or in connection with the
Partnership Agreements and/or the LLC Agreements, including but not
limited to the profits, dividends, and other distributions which it
would otherwise be authorized to receive and retain pursuant hereto,
shall cease, and all such rights shall thereupon become vested in
Collateral Agent who shall thereupon have the sole right to receive and
hold such payments as collateral.
(iii) IN ORDER TO PERMIT SECURED PARTY TO EXERCISE THE VOTING AND
OTHER CONSENSUAL RIGHTS WHICH IT MAY BE ENTITLED TO EXERCISE PURSUANT
HERETO AND TO RECEIVE ALL DIVIDENDS AND OTHER DISTRIBUTIONS WHICH IT MAY
BE ENTITLED TO RECEIVE HEREUNDER, (1) GRANTOR SHALL PROMPTLY EXECUTE AND
DELIVER (OR CAUSE TO BE EXECUTED AND DELIVERED) TO SECURED PARTY ALL
SUCH PROXIES, DIVIDEND PAYMENT ORDERS AND OTHER INSTRUMENTS AS SECURED
PARTY MAY FROM TIME TO TIME REASONABLY REQUEST, AND (2) WITHOUT LIMITING
THE EFFECT OF CLAUSE (1) ABOVE, GRANTOR HEREBY GRANTS TO SECURED PARTY
AN IRREVOCABLE PROXY (BEING COUPLED WITH AN INTEREST) TO VOTE THE
PLEDGED SHARES AND TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND
REMEDIES TO WHICH A HOLDER OF THE PLEDGED SHARES WOULD BE ENTITLED
(INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS,
CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH MEETINGS),
WHICH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE NECESSITY
OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY PLEDGED SHARES ON THE
RECORD BOOKS OF THE ISSUER THEREOF) BY ANY OTHER PERSON (INCLUDING THE
ISSUER OF THE PLEDGED SHARES OR ANY OFFICER OR AGENT THEREOF), UPON THE
OCCURRENCE AND DURING THE CONTINUATION OF AN EVENT OF DEFAULT, AND WHICH
PROXY SHALL ONLY TERMINATE UPON THE PAYMENT IN FULL OF THE SECURED
OBLIGATIONS.
<PAGE>
6.3. Intellectual Property Collateral.
(a) Covenants. Each Grantor shall (i) hereafter use best efforts so as not
to permit the inclusion in any contract to which it hereafter becomes a party of
any provision that could or might in any way materially impair or prevent the
creation of a security interest in, or the assignment of, Grantor's rights and
interests in any property included within the definitions of any Intellectual
Property Collateral acquired under such contracts; (ii) take all steps
reasonably necessary to protect the secrecy of all trade secrets relating to the
products and services sold or delivered under or in connection with the
Intellectual Property Collateral, including, without limitation, entering into
confidentiality agreements with employees and labeling and restricting access to
secret information and documents; (iii) use proper statutory notice in
connection with its use of any of the Intellectual Property Collateral; (iv) use
consistent standards of high quality (which may be consistent with Grantor's
past practices) in the manufacture, sale and delivery of products and services
sold or delivered under or in connection with the Intellectual Property
Collateral; and (v) furnish to Collateral Agent from time to time statements and
schedules further identifying and describing any Intellectual Property
Collateral and such other reports in connection with such Collateral as
Collateral Agent may reasonably request, all in reasonable detail.
(b) Collections. Except as otherwise provided in this Section 6.4, each
Grantor shall continue to collect, at its own expense, all amounts due or to
become due to Grantor in respect of the Intellectual Property or any portion
thereof. In connection with such collections, each Grantor may take (and, at
Collateral Agent's reasonable direction, shall take) such action as Grantor or
Collateral Agent may deem reasonably necessary or advisable to enforce
collection of such amounts; provided, Collateral Agent shall have the right at
any time, upon the occurrence and during the continuation of an Event of Default
and upon written notice to Grantor of its intention to do so, to notify the
obligors with respect to any such amounts of the existence of the security
interest created hereby and to direct such obligors to make payment of all such
amounts directly to Collateral Agent, and, upon such notification and at the
expense of Grantor, to enforce collection of any such amounts and to adjust,
settle or compromise the amount or payment thereof, in the same manner and to
the same extent as Grantor might have done. After receipt by any Grantor of the
notice from Collateral Agent referred to in the proviso to the preceding
sentence and during the continuation of any Event of Default, (i) all amounts
and proceeds (including checks
<PAGE>
and other instruments) received by Grantor in respect of amounts due to Grantor
in respect of the Collateral or any portion thereof shall be received in trust
for the benefit of Collateral Agent hereunder, shall be segregated from other
funds of Grantor and shall be forthwith paid over or delivered to Collateral
Agent in the same form as so received (with any necessary endorsement) to be
held as cash Collateral and applied as provided by Section 8.3, and (ii) Grantor
shall not adjust, settle or compromise the amount or payment of any such amount
or release wholly or partly any obligor with respect thereto or allow any credit
or discount thereon.
(c) Applications and Registrations. Each Grantor shall have the duty
diligently, through counsel reasonably acceptable to Collateral Agent, to
prosecute, file and/or make, unless and until Grantor, in its commercially
reasonable judgment, decides otherwise, (i) any application relating to any of
the Intellectual Property owned by Grantor and identified on Schedule 2.1(b),
that is pending as of the date of this Agreement, (ii) any registration on any
existing or future unregistered but copyrightable works, (iii) application on
any existing patent or future patentable but unpatented invention comprising
Intellectual Property, and (iv) any Trademark opposition and cancellation
proceedings, renew Trademark registrations and Copyright registrations and do
any and all acts which are necessary or desirable, as determined in such
Grantor's commercially reasonable judgment, to preserve and maintain all rights
in all Intellectual Property. Any expenses incurred in connection therewith
shall be borne solely by Grantor. Subject to the foregoing, Grantor shall give
Collateral Agent prior written notice of any abandonment of any Intellectual
Property or any right to file a patent application or any pending patent
application or any Patent.
(d) Litigation. Except as provided herein, each Grantor shall have the right
to commence and prosecute in its own name, as real party in interest, for its
own benefit and at its own expense, such suits, proceedings or other actions for
infringement, unfair competition, dilution, misappropriation or other damage, or
reexamination or reissue proceedings as are in its commercially reasonable
judgment necessary to protect the Intellectual Property Collateral. Collateral
Agent shall provide, at Grantor's expense, all reasonable and necessary
cooperation in connection with any such suit, proceeding or action including,
without limitation, joining as a necessary party. Each Grantor shall promptly,
following its becoming aware thereof, notify Collateral Agent of the institution
of, or of any adverse determination in, any proceeding (whether in the United
States Patent and Trademark Office, the United States
<PAGE>
Copyright Office or any federal, state, local or foreign court) or regarding
Grantor's ownership, right to use, or interest in any Intellectual Property
Collateral. Grantor shall provide to Collateral Agent any information with
respect thereto requested by Collateral Agent.
(e) Certain Rights of Collateral Agent. In addition to, and not by way of
limitation of, the granting of a security interest in the Collateral pursuant
hereto, each Grantor, effective upon the occurrence and during the continuation
of an Event of Default and upon written notice from Collateral Agent, shall
grant, sell, convey, transfer, assign and set over to Collateral Agent, for its
benefit and the ratable benefit of Lenders, all of Grantor's right, title and
interest in and to the Intellectual Property Collateral to the extent necessary
to enable Collateral Agent to use, possess and realize on the Collateral and to
enable any successor or assign to enjoy the benefits of the Collateral. This
right and license shall inure to the benefit of Collateral Agent and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license shall be granted free of charge, without
requirement that any monetary payment whatsoever be made to such Grantor. In
addition, each Grantor hereby grants to Collateral Agent and its employees,
representatives and agents the right to visit Grantor's and any of its
Affiliate's or subcontractor's plants, facilities and other places of business
that are utilized in connection with the manufacture, production, inspection,
storage or sale of products and services sold or delivered under any of the
Intellectual Property Collateral (or which were so utilized during the prior six
month period), and to inspect the quality control and all other records relating
thereto upon reasonable advance written notice to Grantor and at reasonable
dates and times and as often as may be reasonably requested. If and to the
extent that any Grantor is permitted to license the Intellectual Property
Collateral, Collateral Agent shall promptly enter into a non-disturbance
agreement or other similar arrangement, at Grantor's request and expense, with
Grantor and any licensee of any Intellectual Property Collateral permitted
hereunder in form and substance reasonably satisfactory to Collateral Agent
pursuant to which (i) Collateral Agent shall agree not to disturb or interfere
with such licensee's rights under its license agreement with Grantor so long as
such licensee is not in default thereunder, and (ii) such licensee shall
acknowledge and agree that the Intellectual Property Collateral licensed to it
is subject to the security interest created in favor of Collateral Agent and the
other terms of this Agreement.
<PAGE>
6.4. Equipment and Inventory. Each Grantor shall:
(a) keep the Equipment and Inventory in the jurisdictions specified on
Schedule 4.4 or upon 30 days' written notice to Collateral Agent, in such other
jurisdictions where all action that Collateral Agent may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby, or to enable Collateral Agent to exercise and enforce its rights
and remedies hereunder, with respect to such Equipment and Inventory shall have
been taken but no Grantor shall be required to obtain a Landlord Consent and
Estoppel except to the extent required under Section 5.20 of either Financing
Agreement;
(b) provide information as to the kind, type and quantity of Inventory, such
Grantor's cost therefor and (where applicable) the current list prices for the
Inventory, in each case, in reasonable detail; and
(c) if any Inventory is in possession or control of any of such Grantor's
agents or processors, upon the occurrence and during the continuance of an Event
of Default, instruct such agent or processor to hold all such Inventory for the
account of Collateral Agent and subject to the instructions of Collateral Agent.
6.5. Accounts and Related Contracts. Each Grantor shall:
(a) keep its chief place of business and chief executive office and the office
where it keeps its records concerning the Accounts and Related Contracts, and
all originals of all chattel paper that evidence Accounts, at the location
therefor specified on Schedule 6.5 or, upon 30 days' written notice to
Collateral Agent following any change in location, at such other location in a
jurisdiction where all action that Collateral Agent may request, in order to
perfect and protect any security interest granted or purported to be granted
hereby, or to enable Collateral Agent to exercise and enforce its rights and
remedies hereunder, with respect to such Accounts and Related Contracts shall
have been taken. Promptly upon the reasonable request of Collateral Agent, such
Grantor shall deliver to Collateral Agent complete and correct copies of each
Related Contract;
<PAGE>
(b) maintain (i) complete and accurate records of all Accounts, including
records of all payments received, credits granted and merchandise returned, and
(ii) all documentation relating thereto in accordance with prudent business
practices;
(c) except as otherwise provided in this subsection (c), continue to collect,
at its own expense, all amounts due or to become due to such Grantor under the
Accounts and Related Contracts, and in connection with such collections, such
Grantor shall take such action (unless the Grantor has determined in the
exercise of its commercially reasonable judgment that it shall not do so) as
such Grantor or Collateral Agent may deem necessary or advisable to enforce
collection of amounts due or to become due under the Accounts; provided,
Collateral Agent shall have the right at any time, upon the occurrence and
during the continuation of an Event of Default and upon written notice to such
Grantor of its intention to do so, to notify the account debtors or obligors
under any Accounts of the assignment of such Accounts to Collateral Agent and to
direct such account debtors or obligors to make payment of all amounts due or to
become due to such Grantor thereunder directly to Collateral Agent, to notify
each Person maintaining a lockbox or similar arrangement to which account
debtors or obligors under any Accounts have been directed to make payment to
remit all amounts representing collections on checks and other payment items
from time to time sent to or deposited in such lockbox or other arrangement
directly to Collateral Agent and, upon such notification and at the expense of
such Grantor, to enforce collection of any such Accounts and to adjust, settle
or compromise the amount or payment thereof, in the same manner and to the same
extent as such Grantor might have done. After receipt by any Grantor of the
notice from Collateral Agent referred to in the proviso to the preceding
sentence, (i) any payments of Accounts, received by such Grantor shall be
forthwith (and in any event within two Business Days) deposited by such Grantor
in the exact form received, duly indorsed by such Grantor to the Collateral
Agent if required, in a Collateral Account maintained under the sole dominion
and control of the Collateral Agent (the "Collateral Account") subject
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to withdrawal by the Collateral Agent for the account of the Secured
Parties only as provided in Section 11.3, (ii) until so turned over in
accordance with the preceding subsection (i), all amounts and proceeds
(including checks and other instruments) received by such Grantor in respect of
the Accounts and the Related Contracts shall be received in trust for the
benefit of Collateral Agent hereunder and shall be segregated from other funds
of such Grantor and (iii) such Grantor shall not adjust, settle or compromise
the amount or payment of any Account, or release
<PAGE>
wholly or partly any account debtor or obligor thereof, or allow any credit or
discount thereon.
SECTION 7. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT
Each Grantor hereby irrevocably appoints Collateral Agent (such
appointment being coupled with an interest) as Grantor's attorney-in-fact, with
full authority in the place and stead of Grantor and in the name of Grantor,
Collateral Agent or otherwise, from time to time in Collateral Agent's
discretion to take any action and to execute any instrument that Collateral
Agent may deem reasonably necessary or advisable to accomplish the purposes of
this Agreement, including (a) to obtain and adjust insurance required to be
maintained by Grantor or paid to Collateral Agent pursuant to the Financing
Agreement; (b) upon the occurrence and during the continuation of any Event of
Default, to ask for, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral; (c) upon the occurrence and during the
continuation of any Event of Default, to receive, endorse and collect any drafts
or other instruments, documents and chattel paper in connection with clause (b)
above; (d) upon the occurrence and during the continuation of any Event of
Default, to file any claims or take any action or institute any proceedings that
Collateral Agent may deem necessary or desirable for the collection of any of
the Collateral or otherwise to enforce the rights of Collateral Agent with
respect to any of the Collateral; (e) to pay or discharge taxes or Liens (other
than Liens permitted under this Agreement or the Financing Agreement) levied or
placed upon or threatened against the Collateral, the legality or validity
thereof and the amounts necessary to discharge the same to be determined by
Collateral Agent in its sole discretion, any such payments made by Collateral
Agent to become Secured Obligations of Grantor to Collateral Agent, due and
payable immediately without demand; and (f) upon the occurrence and during the
continuation of an Event of Default, generally to sell, transfer, pledge, make
any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though Collateral Agent were the absolute owner thereof
for all purposes, and to do, at Collateral Agent's option and Grantor's expense,
at any time or from time to time, all acts and things that Collateral Agent
deems reasonably necessary to protect, preserve or realize upon the Collateral
and Collateral Agent's security
<PAGE>
interest therein in order to effect the intent of this Agreement, all as fully
and effectively as Grantor might do.
SECTION 8. REMEDIES
8.1. Generally. If any Event of Default shall have occurred and be
continuing, Collateral Agent may exercise in respect of the Collateral, in
addition to all other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Uniform Commercial Code as in effect in any relevant jurisdiction (the
"Code") (whether or not the Code applies to the affected Collateral), and also
----
may (a) require any Grantor to, and each Grantor hereby agrees that it will at
its expense and promptly upon request of Collateral Agent forthwith, assemble
all or part of the Collateral as directed by Collateral Agent and make it
available to Collateral Agent at a place to be designated by Collateral Agent
that is reasonably convenient to both parties; (b) enter onto the property where
any Collateral is located and take possession thereof with or without judicial
process; (c) prior to the disposition of the Collateral, store, process, repair
or recondition the Collateral or otherwise prepare the Collateral for
disposition in any manner to the extent Collateral Agent deems appropriate; (d)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Collateral
Agent's offices or elsewhere, for cash, on credit or for future delivery, at
such time or times and at such price or prices and upon such other terms as
Collateral Agent may deem commercially reasonable; and (e) exercise dominion and
control over, and refuse to permit further withdrawals (whether of money,
securities, instruments or other property) from any deposit account maintained
with Collateral Agent constituting part of the Collateral. Collateral Agent or
any Lender may be the purchaser of any or all of the Collateral at any such sale
and Collateral Agent, as agent for and representative of Lenders (but not any
Lender or Lenders in its or their respective individual capacities unless
Requisite Obligees shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Collateral Agent at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of any Grantor, and each Grantor hereby waives (to
the extent permitted by applicable law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. Each Grantor agrees that,
to the extent notice of sale shall be required by law, at least ten days' notice
to Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Collateral
Agent shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Collateral Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned. Each Grantor hereby waives any claims against Collateral Agent
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale, even if Collateral Agent accepts the first offer
received and does not offer such Collateral to more than one offeree. If the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay all the Secured Obligations, Grantors shall be liable for the deficiency and
the fees of any attorneys employed by Collateral Agent to collect such
deficiency. Each Grantor further agrees that a breach of any of the covenants
contained in this Section will cause irreparable injury to Collateral Agent,
that Collateral Agent has no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this Section
shall be specifically enforceable against Grantor, and Grantor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no default has occurred giving rise to
the Secured Obligations becoming due and payable prior to their stated
maturities. Nothing in this Section shall in any way alter the rights of
Collateral Agent hereunder.
<PAGE>
8.2. Investment Property. Each Grantor recognizes that, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws, Collateral Agent may be compelled, with respect to any sale of all or any
part of the Investment Property conducted without prior registration or
qualification of such Investment Property under the Securities Act and/or such
state securities laws, to limit purchasers to those who will agree, among other
things, to acquire the Investment Property for their own account, for investment
and not with a view to the distribution or resale thereof. Each Grantor
acknowledges that any such private sales may be at prices and on terms less
favorable than those obtainable through a public sale without such restrictions
(including a public offering made pursuant to a registration statement under the
Securities Act) and, notwithstanding such circumstances each Grantor agrees that
any such private sale shall be deemed to have been made in a commercially
reasonable manner and that Collateral Agent shall have no obligation to engage
in public sales and no obligation to delay the sale of any Investment Property
for the period of time necessary to permit the issuer thereof to register it for
a form of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if such issuer would, or should, agree to
so register it. If Collateral Agent determines to exercise its right to sell any
or all of the Investment Property, upon written request, each Grantor shall and
shall cause each issuer of any Pledged Shares to be sold hereunder, each
Partnership and each LLC from time to time to furnish to Collateral Agent all
such information as Collateral Agent may request in order to determine the
number and nature of interest, shares or other instruments included in the
Investment Property which may be sold by Collateral Agent in exempt transactions
under the Securities Act and the rules and regulations of the Securities and
Exchange Commission thereunder, as the same are from time to time in effect.
<PAGE>
8.3. Intellectual Property Collateral. (a) Anything contained herein to the
contrary notwithstanding, upon the occurrence and during the continuation of an
Event of Default, (i) Collateral Agent shall have the right (but not the
obligation) to bring suit, in the name of any Grantor, Collateral Agent or
otherwise, in Collateral Agent's sole discretion, to enforce any Intellectual
Property, in which event Grantor shall, at the request of Collateral Agent, do
any and all lawful acts and execute any and all documents required by Collateral
Agent in aid of such enforcement and Grantor shall promptly, upon demand,
reimburse and indemnify Collateral Agent as provided in Section 6 of the
Intercreditor Agreement in connection with the exercise of its rights under this
Section, and, to the extent that Collateral Agent shall elect not to bring suit
to enforce any Intellectual Property as provided in this Section, each Grantor
agrees to use all reasonable measures, whether by action, suit, proceeding or
otherwise, to prevent the infringement of any of the Intellectual Property by
others and for that purpose agrees (based on its reasonable business judgment)
to diligently maintain any action, suit or proceeding against any Person so
infringing necessary to prevent such infringement; (ii) upon written demand from
Collateral Agent, each Grantor shall execute and deliver to Collateral Agent an
assignment or assignments of the Intellectual Property and such other documents
as are necessary or appropriate to carry out the intent and purposes of this
Agreement; (iii) each Grantor agrees that such an assignment and/or recording
shall be applied to reduce the Secured Obligations outstanding only to the
extent that Collateral Agent (or any Lender) receives cash proceeds in respect
of the sale of, or other realization upon, the Intellectual Property; and (iv)
within five Business Days after written notice from Collateral Agent, Grantor
shall make available to Collateral Agent, to the extent within Grantor's power
and authority, such personnel in Grantor's employ on the date of such Event of
Default as Collateral Agent may reasonably designate, by name, title or job
responsibility, to permit Grantor to continue, directly or indirectly, to
produce, advertise and sell the products and services sold or delivered by
Grantor under or in connection with the Trademarks, such persons to be available
to perform their prior functions on Collateral Agent's behalf and to be
compensated by Collateral Agent at Grantor's expense on a per diem, pro-rata
basis consistent with the salary and benefit structure applicable to each as of
the date of such Event of Default.
(b) If (i) an Event of Default shall have occurred and, by reason of cure,
waiver, modification, amendment or otherwise, no longer be continuing, (ii) no
other Event of Default shall have occurred and be continuing, (iii) an
assignment to Collateral
<PAGE>
Agent of any rights, title and interests in and to the Intellectual Property
shall have been previously made and shall have become absolute and effective,
and (iv) the Secured Obligations shall not have become immediately due and
payable, upon the written request of Grantor, Collateral Agent shall promptly
execute and deliver to Grantor, at Grantor's sole cost and expense, such
assignments as may be necessary to reassign to Grantor any such rights, title
and interests as may have been assigned to Collateral Agent as aforesaid,
subject to any disposition thereof that may have been made by Collateral Agent;
provided, after giving effect to such reassignment, Collateral Agent's security
interest granted pursuant hereto, as well as all other rights and remedies of
Collateral Agent granted hereunder, shall continue to be in full force and
effect; and provided further, the rights, title and interests so reassigned
shall be free and clear of all Liens other than Permitted Liens.
8.4. Accounts. In addition to the rights of the Collateral Agent and the
Secured Parties specified in Section 11 with respect to payments of Accounts, if
an Event of Default shall occur and be continuing, upon request of the
Collateral Agent, all proceeds received by any Grantor consisting of cash,
checks and other near-cash items shall be held by such Grantor in trust for the
Collateral Agent and the Secured Parties, segregated from other funds of such
Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to
the Collateral Agent in the exact form received by such Grantor (duly indorsed
by such Grantor to the Collateral Agent, if required) and held by the Collateral
Agent in the Collateral Account. All proceeds while held by the Collateral
Agent in trust for the Collateral Agent and the Secured Parties shall continue
to be held as collateral security for all the Obligations and shall not
constitute payment thereof until applied as provided in Section 8.5.
8.5. Application of Proceeds. Except as expressly provided elsewhere in
this Agreement, all proceeds received by Collateral Agent in respect of any sale
of, collection from, or other realization upon all or any part of the Collateral
shall be applied as provided in subsection 3 of the Intercreditor Agreement.
<PAGE>
SECTION 9. COLLATERAL AGENT
Collateral Agent has been appointed to act as Collateral Agent hereunder
by and on behalf of the First Priority Lenders and by and on behalf of the
Second Priority Lenders and shall be entitled to the benefits of the
Intercreditor Agreement. Collateral Agent shall be obligated, and shall have the
right hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including,
without limitation, the release or substitution of Collateral), solely in
accordance with this Agreement, the Financing Agreements and the Intercreditor
Agreement; provided that Collateral Agent shall exercise, or refrain from
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exercising, any remedies provided for in Section 8 in accordance with the
instructions of Requisite Obligees.
SECTION 10. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the payment in
full of the Secured Obligations and the cancellation or termination of the
Commitments, (b) be binding upon each Grantor, its successors and assigns, and
(c) inure, together with the rights and remedies of Collateral Agent hereunder,
to the benefit of Collateral Agent and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), but subject to the
terms of the Financing Agreements, any Lender may assign or otherwise transfer
any Loans held by it to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to Lenders herein
or otherwise. Upon the payment in full of all Secured Obligations then owing
and the cancellation or termination of the Commitments, the security interest
granted hereby shall terminate hereunder and of record and all rights to the
Collateral shall revert to Grantor. Upon any such termination Collateral Agent
will, at Grantors' expense, execute and deliver to Grantors such documents as
Grantors shall reasonably request to evidence such termination.
<PAGE>
SECTION 11. STANDARD OF CARE; SECURED PARTY MAY PERFORM.
The powers conferred on Collateral Agent hereunder are solely to protect
its interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the exercise of reasonable care in the custody of
any Collateral in its possession and the accounting for moneys actually received
by it hereunder, Collateral Agent shall have no duty as to any Collateral or as
to the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. Collateral Agent shall be deemed
to have exercised reasonable care in the custody and preservation of Collateral
in its possession if such Collateral is accorded treatment substantially equal
to that which Collateral Agent accords its own property. If any Grantor fails
to perform any agreement contained herein, Collateral Agent may itself perform,
or cause performance of, such agreement, and the expenses of Collateral Agent
incurred in connection therewith shall be payable by each Grantor under Section
12 of this Agreement.
SECTION 12. INDEMNITY AND EXPENSES
(a) Each Grantor agrees:
(i) to indemnify, defend and hold harmless Collateral Agent, its
affiliates and its affiliates' respective directors, officers,
employees, agents and representatives from and against any and all
claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the transactions contemplated hereby
(including without limitation enforcement of this Agreement), except to
the extent such claims, losses or liabilities result from Collateral
Agent's gross negligence, bad faith, or willful misconduct as determined
by a court of competent jurisdiction in a final, non-appealable judgment
or order; and
(i) to pay to Collateral Agent promptly following written demand
(together with appropriate supporting documentation) the amount of any
and all reasonable costs and reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and
agents in accordance with the terms and conditions of the Loan
Agreement.
<PAGE>
(b) The obligations of each Grantor in this Section 12 shall survive the
termination of this Agreement and the discharge of such Grantor's other
obligations under this Agreement, the Financing Agreements and any other Loan
Documents.
SECTION 13. REGULATORY APPROVALS
(a) Any provision contained herein to the contrary notwithstanding, except
for the security interests expressly granted herein or therein or upon the
exercise by the Collateral Agent of rights and remedies in accordance herewith
or therewith and pursuant to clause (b), below, upon the occurrence and
continuation of an Event of Default, this Agreement and the Financing Agreements
and the transactions contemplated hereby and thereby (i) do not and will not
constitute, create, or have the effect of constituting or creating, directly or
indirectly, actual or practical ownership of any Subsidiary of the Borrower by
the Lenders, or control, affirmative or negative, direct or indirect, by the
Lenders over the management or any other aspect of the operation of any
Subsidiary, which ownership and control remain exclusively and at all times in
such Subsidiary, and (ii) do not and will not constitute the transfer,
assignment, or disposition in any manner, voluntarily or involuntarily, directly
or indirectly of any license, permit, certificate or authorization at any time
issued to any Subsidiary by the FCC, any other federal, state or local
regulatory or governmental bodies applicable to or having jurisdiction over the
Borrower or any Governmental Authority, or the transfer of control of any such
Subsidiary within the meaning of the Federal Communications Act of 1934, as
amended and the respective rules and regulations thereunder and thereof, any
other federal or state laws, rules and regulations of other operating
municipality regulatory or governmental bodies applicable to or having
jurisdiction over the Pledgor as well as pursuant to the terms of any franchise,
license or similar operating right held by the Borrower.
(b) Any provision contained herein to the contrary notwithstanding, no
action, including any foreclosure on, sale, transfer or other disposition of, or
the exercise of any right to vote or consent, shall be taken hereunder by the
Collateral Agent with respect to any item of the Collateral unless and until all
applicable requirements (if any) of the FCC under the Federal Communications Act
of 1934, as amended, and the respective rules and regulations thereunder and
thereof, as well as any other
<PAGE>
federal or state laws, rules and regulations of other operating municipality
regulatory or governmental bodies applicable to or having jurisdiction over the
Borrower, have been satisfied with respect to such action and there have been
obtained such consents, approvals and authorizations (if any) as may be required
to be obtained from the FCC, any operating municipality and any other
Governmental Authority under the terms of any franchise, license or similar
operating right held by the Borrower. It is the intention of the parties hereto
that the Liens in favor of the Collateral Agent on the Collateral shall in all
relevant aspects be subject to and governed by said statutes, rules and
regulations as well as the terms of any franchise, license or similar operating
right held by the Borrower and that nothing in this Agreement shall be construed
to diminish the control exercised by the Borrower except in accordance with the
provisions of such statutory requirements and license or similar operating right
held by the Borrower and the obtaining in advance of any necessary consents,
approvals or authorizations pursuant thereto. The Borrower agrees that upon
request by the Collateral Agent from time to time after the occurrence and
during the continuance of an Event of Default it will use its reasonable best
efforts to obtain any governmental, regulatory or third party consents,
approvals or authorizations referred to in this Section 13.
SECTION 14. MISCELLANEOUS
Any notice required or permitted to be given under this Agreement shall
be given in accordance with Section 8(a) of the Intercreditor Agreement. No
failure or delay on the part of Collateral Agent in the exercise of any power,
right or privilege hereunder or under any other Loan Document shall impair such
power, right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other power, right or privilege. All rights and remedies existing under this
Agreement and the other Loan Documents are cumulative to, and not exclusive of,
any rights or remedies otherwise available. In case any provision in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby. All
covenants hereunder shall be given independent effect so that if a particular
action or condition is not permitted by any of such covenants, the fact that it
would be permitted by an exception to, or would otherwise be within the
limitations of, another covenant shall not avoid the occurrence of a Default or
an Event of Default if such action is taken or condition exists. This Agreement
shall be binding upon and inure to the benefit of Collateral Agent and Grantors
and their respective successors and assigns. No Grantor shall, without the prior
written consent of Collateral Agent, assign any right, duty or obligation
<PAGE>
hereunder. This Agreement, the Intercreditor Agreement and the Loan Documents
embody the entire agreement and understanding between Grantors and Collateral
Agent and supersede all prior agreements and understandings between such parties
relating to the subject matter hereof and thereof. Accordingly, this Agreement,
the Intercreditor Agreement and the Loan Documents may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of the parties.
There are no unwritten oral agreements between the parties. This Agreement may
be executed in one or more counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
THE PROVISIONS OF THIS AGREEMENT REGARDING THE CREATION, PERFECTION AND
ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS HEREIN GRANTED SHALL BE GOVERNED
BY AND CONSTRUED UNDER THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED
ALL OTHER PROVISIONS OF THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH
GRANTOR AND SECURED PARTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
[The remainder of this page is intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, each Grantor and Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
CREDIT PARTIES:
NORTHPOINT COMMUNICATIONS, INC.
By: ___________________________
Henry P. Huff
Vice President of Finance and
Chief Financial Officer
NORTHPOINT COMMUNICATIONS OF
VIRGINIA, INC.
By: ___________________________
Henry P. Huff
Vice President of Finance and
Chief Financial Officer
NORTHPOINT COMMUNICATIONS
HOLDINGS, INC.
By: ___________________________
Henry P. Huff
Vice President of Finance and
Chief Financial Officer
<PAGE>
NEWCOURT COMMERCIAL FINANCE
CORPORATION,
as Collateral Agent
By: ___________________________
Name:
Title:
Notice Address:
2 Gatehall Drive
Parsippany, NJ 07054
Attention: Joseph E. Junda
Telephone: 973-355-7616
Facsimile: 973-355-7641
<PAGE>
EXHIBIT A TO
PLEDGE AND SECURITY AGREEMENT
PLEDGE SUPPLEMENT
This PLEDGE SUPPLEMENT, dated , is delivered pursuant to the Pledge
-------
and Security Agreement, dated as of April 5,1999 (as it may be from time to
time amended, modified or supplemented, the "Security Agreement"), among
------------------
NORTHPOINT COMMUNICATIONS, INC., the other Grantors named therein, and Newcourt
Commercial Finance Corporation, as Collateral Agent. Capitalized terms used
herein not otherwise defined herein shall have the meanings ascribed thereto in
the Security Agreement.
Subject to the terms and conditions of the Security Agreement, Grantor
hereby grants to Secured Party a security interest in all of Grantor's right,
title and interest in and to [the Investment Property listed on Supplemental
Schedule 2.1(a) attached hereto] [and] [the Intellectual Property listed on
Supplemental Schedule 2.1(b)] attached hereto] the following, in each case
whether now or hereafter existing or in which Grantor now has or hereafter
acquires an interest and wherever the same may be located. All such [Investment
Property] [and] [Intellectual Property] shall be deemed to be part of the
Collateral and hereafter subject to each of the terms and conditions of the
Security Agreement.
IN WITNESS WHEREOF, Grantor has caused this Supplement to be duly executed
and delivered by its duly authorized officer as of .
--------------
[GRANTOR]
By: ___________________________
Title:
<PAGE>
EXHIBIT B TO
PLEDGE AND SECURITY AGREEMENT
ACKNOWLEDGMENT OF PLEDGE
This ACKNOWLEDGMENT OF PLEDGE, dated , is delivered to Newcourt
-------
Commercial Finance Corporation, as Collateral Agent, pursuant to the Pledge and
Security Agreement, dated as of April 5, 1999, (as it may be from time to time
amended, modified or supplemented, the "Security Agreement"), among NorthPoint
------------------
Communications, Inc., a Delaware corporation, the other Grantors named therein,
and Collateral Agent. Capitalized terms used herein not otherwise defined
herein shall have the meanings ascribed thereto in the Security Agreement.
[NAME OF ISSUER], a ("Issuer"), hereby acknowledges
----------------- ------
receipt of a conformed copy of the Security Agreement and (a) consents to the
terms thereof, and (b) confirms that a pledge of all of [NAME OF APPLICABLE
GRANTOR]'s right, title and interest in, to and under the security referred to
below has been registered or otherwise duly noted in the books and records of
Issuer in the name of Collateral Agent as follows:
1. Security: [Describe Interest]
2. Number of Pledged Stock,
Units or other Interests Pledged: [ ]
--------------
3. Registered Owner: [Name of Grantor]
4. Registered Pledgee: Newcourt Commercial Finance
Corporation, as Collateral
Agent
5. Date of Registration of Pledgee: [ ]
--------------
Issuer hereby represents and warrants that there are no Liens, restrictions
or adverse claims as to which Issuer has a duty pursuant to Section 8-403 of
the UCC to which such Security is or may be subject, other than Permitted Liens.
1
<PAGE>
Issuer hereby agrees, at the request of Collateral Agent and at the sole
cost and expense of Issuer, to register any further pledge or transfer of such
Security effected in the manner contemplated by the Security Agreement and
promptly furnish to Collateral Agent and any such pledgee or transferee any
statement contemplated by Section 8-408 of the UCC.
IN WITNESS WHEREOF, Issuer has caused this Acknowledgment of Pledge to be
duly executed and delivered by its duly authorized officer as of the date above
first written.
[ISSUER]
By: ___________________________
Title:
2
<PAGE>
EXHIBIT 10.25
NORTHPOINT COMMUNICATIONS GROUP, INC.
SERIES D-1 PREFERRED STOCK PURCHASE AGREEMENT
DATED AS OF ________, 1999
<PAGE>
NORTHPOINT COMMUNICATIONS GROUP, INC.
SERIES D-1 PREFERRED STOCK PURCHASE AGREEMENT
This AGREEMENT is made as of ________, 1999, by and between NorthPoint
Communications Group, Inc., a Delaware corporation (the "COMPANY") and
_________, a ________ corporation (the "INVESTOR").
RECITALS
WHEREAS, the Investor is willing to purchase and the Company is willing
to sell to the Investor an aggregate of ______ shares of Series D-1 Preferred
Stock, par value $0.001 per share (with rights and preferences substantially
identical to the Series D Preferred Stock except that Series D-1 Preferred Stock
shall be nonvoting and be convertible into a nonvoting class of Common Stock)
(the "SERIES D-1 PREFERRED STOCK"); and
WHEREAS, the Company and the Investor wish to set forth the terms and
conditions upon which the Company will sell, and the Investor will purchase,
shares of Series D-1 Preferred Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the Company and the Investor hereby
agree as follows:
SECTION 1
Purchase and Sale of Shares
---------------------------
1.1 Authorization of Shares. The Company has authorized the issuance of
------------------------
shares of its Series D-1 Preferred Stock, having the rights, preferences,
privileges and restrictions as set forth in the Company's Second Amended and
Restated Certificate of Incorporation (the "AMENDED CERTIFICATE OF
INCORPORATION") attached to this Agreement as Exhibit A, sufficient to meet the
purposes of Section 1.2.
1.2 Sale of the Stock. Subject to the terms and conditions hereof, the
-----------------
Company will issue and sell to the Investor, and the Investor will purchase from
the Company, at the Closing, an aggregate of ______ shares of Series D-1
Preferred Stock (the "SHARES") for the aggregate purchase price of $_________.
1.3 Closing.
-------
(a) The purchase and sale of the Shares shall take place at a
closing (the "CLOSING") to be held at the offices of Latham & Watkins, 505
Montgomery Street, Suite 1900, San Francisco, CA 94111, on the date hereof.
<PAGE>
(b) On the date of the Closing (the "CLOSING DATE"), subject
to the conditions stated herein, the Company will deliver to the Investor stock
certificates representing the Shares to be purchased by the Investor against
payment to the Company of the purchase price therefor by wire transfer in
federal or other immediately available funds.
SECTION 2
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to the Investor, subject to
the exceptions specifically disclosed in writing in the disclosure letter
supplied by the Company to the Investor dated as of the date hereof (the
"DISCLOSURE LETTER") and certified by a duly authorized officer of the Company,
as follows:
2.1 Organization, Good Standing and Qualifications. Each of the Company
----------------------------------------------
and its subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as currently conducted, and is duly
qualified as a foreign corporation and in good standing in all jurisdictions in
which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary except where the failure
to be so qualified would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"). The outstanding
shares of capital stock of each of its subsidiaries have been duly authorized
and validly issued, are fully paid and non-assessable, and are owned by the
Company free and clear of all liens, encumbrances and equities and claims; and
no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in such subsidiaries are outstanding.
2.2 Valid Issuance, Authority. The Shares, when issued and sold to the
-------------------------
Investors as provided herein, and the Class B Common Stock, Series D Preferred
Stock and Common Stock issuable upon conversion of the Shares when issued
pursuant to the Amended Certificate of Incorporation will be duly and validly
issued, fully paid and nonassessable. The Company has all requisite right, power
and authority to enter into this Agreement and the Rights Agreement (as defined
below), to carry out its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Rights Agreement by the Company, and the consummation by
the Company of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company and, no other
proceedings are necessary to authorize this Agreement and the Rights Agreement
or to consummate the transactions contemplated hereby and thereby. This
Agreement and the Rights Agreement have been duly executed and delivered by the
Company and constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms.
Except
2
<PAGE>
as set forth in the Rights Agreement, the sale of the Shares and the subsequent
conversion of the Shares into Series D Preferred, Class B Common and Common
Stock are not and will not be subject to any preemptive rights, rights of first
refusal or rights of participation that have not been properly waived or
complied with.
2.3 No Conflict. The execution and delivery of this Agreement and the
-----------
Rights Agreement by the Company do not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation, modification or acceleration of any
obligation under (i) any provision of the Amended Certificate of Incorporation
and Amended and Restated Bylaws of the Company or any subsidiary, (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license to which the Company or any subsidiary or any
of their respective properties or assets are subject, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or any subsidiary or their respective properties or assets.
2.4 Company Capital Structure.
-------------------------
(a) As of __________, the authorized capital stock of the
Company consists of _________ shares of authorized Common Stock, $0.001 par
value, of which ________ shares are issued and outstanding, and of which
_________ shares are designated as Class B Common Stock, none of which are
outstanding, and _________ shares of Preferred Stock, $0.001 par value, of which
_________ shares are designated as Series B Preferred Stock, _________ of which
are outstanding, _________ shares are designated as Series C Preferred Stock,
_________ of which are outstanding, _________ shares are designated as Series D
Preferred Stock, none of which are outstanding, and _________ shares are
designated as Series D-1 Preferred Stock, _________ of which are outstanding
(collectively, the "COMPANY CAPITAL STOCK"). Except as provided in the Rights
Agreement, all outstanding shares of Company Capital Stock are duly authorized,
validly issued, fully paid and non-assessable, are not subject to preemptive
rights created by statute, the Amended Certificate of Incorporation or Amended
and Restated Bylaws of the Company or any agreement to which the Company is a
party or by which it is bound and have been issued in compliance with federal
and state securities laws. The Company has no other capital stock authorized,
issued or outstanding.
(b) Except as described in the Disclosure Letter, the Company
has never adopted or maintained any stock option plan or other plan providing
for equity compensation of any person. The Company has issued warrants to
purchase _________ shares of Common Stock, all of which are outstanding, which
warrants are described in the Disclosure Letter. Except as described in this
Section 2.4(b) or in the Disclosure Letter, there are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Company.
3
<PAGE>
2.6 No Material Changes. Since December 31, 1998, there has not been
-------------------
any materially adverse change in the business, properties, financial condition
or results of operations of the Company or its subsidiaries, whether or not
arising from transactions in the ordinary course of business, and since such
date, except in the ordinary course of business, neither the Company nor its
subsidiaries has entered into any material transaction not disclosed in the
Disclosure Letter.
2.7 Intellectual Property. To the knowledge of the Company, the Company
---------------------
or its subsidiaries own and possess or are licensed under all patents, patent
applications, licenses, trademarks, trade secrets, trade names, brand names,
inventions and copyrights or other proprietary rights ("INTELLECTUAL PROPERTY")
employed in the operation of their respective businesses as currently conducted,
and, to the knowledge of the Company, with no infringement of or conflict with
the rights of others respecting any of the same. Neither the Company nor any
subsidiary has received any communications alleging that the Company or any
subsidiary has violated any of the Intellectual Property of any other person or
entity. Reasonable security measures have been taken by the Company and its
subsidiaries to protect the secrecy, confidentiality and value of the Company's
and its subsidiaries' trade secrets, including their respective know-how,
technology, concepts and other technical data for the development, processing,
manufacture and sale of its products. Each employee of and consultant to the
Company or its subsidiaries has executed an invention assignment and
confidentiality agreement with the Company or its subsidiaries.
SECTION 3
Representations and Warranties of the Investor
----------------------------------------------
The Investor hereby represents and warrants to the Company that:
3.1 Investment Representations and Covenants.
----------------------------------------
(a) Investor represents that the Shares to be received will be
acquired for investment for its own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof, and that it has no
present intention of selling, granting any participation in or otherwise
distributing the same.
(b) Investor understands and acknowledges that the offering of
the Shares pursuant to this Agreement will not, and any issuance of Series D
Preferred Stock, Class B Common Stock or Common Stock on conversion thereof may
not, be registered under the Securities Act on the ground that the sale provided
for in this Agreement and the issuance of securities hereunder is exempt
pursuant to Section 4(2) of the Securities Act, and that the Company's reliance
on such exemption is predicated in part on the Investor's representations set
forth herein.
(c) Investor represents that it is experienced in evaluating
companies such as the Company, is able to fend for itself in transactions such
as the one contemplated by this Agreement,
4
<PAGE>
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of its prospective investment in the
Company and is able to afford a complete loss of its investment. The Company
acknowledges that the foregoing representation shall not limit the right of the
Investor to rely on the representations of the Company set forth in Section 2
hereof.
(d) Investor acknowledges and understands that the Shares and
any Series D Preferred Stock, Class B Common Stock and Common Stock acquired
upon the conversion thereof, must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available, and that, except as otherwise provided in the Rights
Agreement, the Company is under no obligation to register either the Shares or
Series D Preferred Stock, Class B Common Stock and Common Stock issuable upon
conversion thereof.
(e) Investor acknowledges that it has reviewed Rule 144
promulgated under the Securities Act, which permits limited public resales of
securities acquired in a non-public offering, subject to the satisfaction of
certain conditions. Investor understands that before the Shares, or any Series D
Preferred Stock, Class B Common Stock and Common Stock issued upon conversion
thereof, may be sold under Rule 144, the following conditions must be fulfilled,
except as otherwise described below: (i) certain public information about the
Company must be available; (ii) the sale must occur at least one year after the
later of the date the Shares were sold by the Company or the date they were sold
by an affiliate of the Company; (iii) the sale must be made in a broker's
transaction; and (iv) the number of Shares sold must not exceed certain volume
limitations. If, however, the sale occurs at least two years after the Shares
were sold by the Company or an affiliate of the Company, and if the Investor is
not an affiliate of the Company, the foregoing conditions will not apply.
(f) Investor acknowledges that in the event the applicable
requirements of Rule 144 are not met, registration under the Securities Act or
compliance with another exemption from registration will be required for any
disposition of its stock. Investor understands that although Rule 144 is not
exclusive, the Securities and Exchange Commission has expressed its opinion that
persons proposing to sell restricted securities received in a private offering
other than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
(g) Investor covenants that, in the absence of an effective
registration statement covering the stock in question, it will sell, transfer or
otherwise dispose of the Shares and any Series D Preferred Stock, Class B Common
Stock and Common Stock issued on conversion thereof only in a manner consistent
with its representations and covenants set forth in this Agreement and the
Rights Agreement. In connection therewith such Purchaser acknowledges that the
Company shall make a notation on its stock books regarding the restrictions on
transfer set forth in this Agreement and the Rights Agreement and shall transfer
shares on the books of the Company only to the extent not inconsistent
therewith.
5
<PAGE>
(h) Investor represents that it is an "ACCREDITED INVESTOR" as
such term is defined in Rule 501(a) under the Securities Act.
3.2 No Public Market. Investor understands that no public market now
----------------
exists for any of the securities issued by the Company and there is no assurance
a public market will be created.
3.3 Domicile. Investor is domiciled in the state set forth at its
--------
address in Section 8.4.
3.4 Authority. Investor has all requisite right, power and authority to
---------
enter into this Agreement and the Rights Agreement, to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Rights
Agreement by the Investor, and the consummation by the Investor of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Investor and, no other proceedings are
necessary to authorize this Agreement and the Rights Agreement or to consummate
the transactions contemplated hereby and thereby. This Agreement and the Rights
Agreement have been duly executed and delivered by the Investor and constitute
legal, valid and binding obligations of the Investor enforceable against the
Investor in accordance with their respective terms.
3.5 No Conflict. The execution and delivery of this Agreement and the
-----------
Rights Agreement by the Investor do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation under (i) any provision of the organizational
documents of the Investor, (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise or license to which
the Investor or any of its properties or assets are subject, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Investor or its properties or assets, except in the case of (ii) and
(iii) for any of the foregoing that in the aggregate would not have a material
adverse effect on Investor.
SECTION 4
Conditions of Investor's and Company's Obligations at Closing
-------------------------------------------------------------
4.1 Conditions. There shall be no conditions to the obligations of the
----------
Investor to purchase the Shares or of the Company to sell the Shares to the
Investor at the Closing except for the deliveries set forth in Section V and the
fulfillment on or before the Closing of each of the following conditions:
6
<PAGE>
(a) Performance. The Investor and the Company shall have
-----------
performed and complied in all material respects with all covenants, agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before Closing.
(b) Securities Law Compliance. The Company shall have obtained
-------------------------
all necessary permits and qualifications, if any, required by any state or
country or secured an exemption therefrom, for the offer and sale of the Shares.
(c) No Injunction, etc. No preliminary or permanent injunction
------------------
or other binding order, decree or ruling issued by a court or governmental
agency shall be in effect which shall have the effect of preventing the
consummation of the transactions contemplated by this Agreement.
(d) Rights Agreement. The Company, the Investor and the
----------------
requisite parties required to amend the Rights Agreement shall have entered into
the Rights Agreement.
(e) Amended Certificate of Incorporation. The Amended
------------------------------------
Certificate of Incorporation shall have been filed with the Secretary of State
of the State of Delaware prior to the Closing.
SECTION 5
Deliveries at Closing
---------------------
At the Closing, the Company or the Investor, as applicable,
shall deliver the following:
5.1 Rights Agreement. A copy of the Fifth Amended and Restated Rights
----------------
Agreement in substantially the form attached hereto as Exhibit B as entered into
by the Company and the Investor on the date hereof (the "RIGHTS AGREEMENT") and
as amended by the Company's existing stockholders prior to the Closing.
5.2 Corporate Proceedings. Such instruments and documents reasonably
---------------------
requested by the Investor to confirm any approvals of the transactions
contemplated hereby required by the Company's Board of Directors and
stockholders.
5.3 Amended Certificate of Incorporation. The Company shall deliver
------------------------------------
such copy of the Amended Certificate of Incorporation as filed with the
Secretary of State of the State of Delaware prior to the Closing.
5.4 Opinion of Counsel. A legal opinion of counsel to the Company in
------------------
form of Exhibit C, addressed to the Investor, dated as of the Closing.
7
<PAGE>
5.5 Payment of Purchase Price. Investor shall deliver to the Company
-------------------------
payment for the Shares to be acquired by such Investor in the amounts set forth
in Section 1.2 hereto pursuant to the wire instructions attached hereto as
Exhibit D.
SECTION 6
Investor Covenants
------------------
6.1 Restrictions on Transfer. Investor shall not, directly or
------------------------
indirectly, sell or transfer any Shares or any Series D Preferred Stock, Class B
Common Stock or Common Stock issued upon conversion thereof for a period of one
year following the earlier to occur of (i) the Closing Date or (ii) in the event
the Company completes a firm commitment underwritten public offering of the
Company's Common Stock pursuant to an effective registration statement under the
Securities Act, which results in aggregate cash proceeds to the Company of at
least $50,000,000 (net of underwriting discounts and commissions) (the "IPO"),
the closing date of the IPO, except pursuant to a Change of Control (as defined
below). However, Investor may sell or transfer the Shares or Series D Preferred
Stock, Class B Common Stock or such Common Stock to (i) any Affiliate (as
defined below) of the Investor during such one year period or (ii) any third
party after such one year period, provided that such Affiliate or third party,
as the case may be, agrees in writing to be bound by the obligations of this
Agreement and the restrictions on transfer, including without the limitation,
the "lock-up" agreement, set forth in the Rights Agreement. No such transfer
shall be effective unless the transferee or assignee assumes in writing the
obligations of the Investor under this Agreement. For purposes of this Section
6.1, a "CHANGE OF CONTROL" shall mean the occurrence of any of the following
events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act is or becomes the "beneficial owner" (as defined in Rule 13d-3
under said Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; or (ii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) at least 50% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets.
8
<PAGE>
6.2 Legends. Investor agrees that each certificate representing Shares,
-------
Series D Common Stock, Class B Common Stock or any Common Stock issued upon
conversion thereof be endorsed with the following restrictive legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE
TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS OF CERTAIN AGREEMENTS
AMONG THE COMPANY, THE STOCKHOLDER AND CERTAIN OTHER HOLDERS OF THE
COMPANY'S STOCK, WHICH INCLUDE, WITHOUT LIMITATION, OBLIGATIONS OF
RIGHTS OF FIRST OFFER, RESTRICTIONS ON TRANSFER AND ACQUISITION OF
ADDITIONAL SECURITIES OF THE COMPANY, COPIES OF WHICH ARE ON FILE WITH
THE SECRETARY OF THE COMPANY.
6.3 Standstill. For a period of three years after the Closing Date,
----------
Investor shall not, and shall cause each of its Affiliates (as defined below) to
not, acquire beneficial ownership (as such term is defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of any securities of the Company in
addition to the Shares or any Series D Preferred Stock, Class B Common and
Common Stock issued upon conversion thereof, which would result in the aggregate
beneficial ownership of Investor and its Affiliates of Voting Stock of the
Company (as defined below) equaling or exceeding 10% of the outstanding Voting
Stock of the Company. Investor or any of its Affiliates shall not purchase any
securities of the Company without having given 30 days prior written notice to
the Company or without having received the prior written consent of the Company.
Upon notice thereof, the Company shall inform the Investor whether such
purchases cause the aggregate beneficial ownership of Investor and its
Affiliates to equal or exceed 10% of the outstanding Voting Stock of the
Company. For the purposes of this Agreement, "Affiliate" shall mean, as to any
person or entity, a person or entity that, directly or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, such person or entity. For the purposes of this Agreement, "Voting Stock
of the Company" shall mean, any class or series of the Company's capital stock
entitled to vote in any election of directors of the Company.
9
<PAGE>
SECTION 7
Company Covenants
-----------------
7.1 Periodic Reports. For a period of five years from the Closing Date,
----------------
upon the Investor's written request and representation to the Company that the
documents described below are not publicly available through electronic means,
the Company will furnish to the Investor, for so long as the Investor continues
to own Shares or any Common Stock issued upon conversion thereof, copies of the
Company's Forms 10-K, 10-Q and Annual Report to Shareholders, promptly after
such documents are filed with the SEC, or in lieu of such reports, unaudited
quarterly and audited annual financial statements of the Company, promptly after
completion.
7.2 Limitation on Sale. The Company covenants until the completion of
------------------
an IPO not to issue or sell any shares of Series D Preferred Stock or Series D-1
Preferred Stock to any investor at a more favorable price or upon more favorable
terms (including rights, preferences, privileges and restrictions) than those
set forth in the Company's Amended Certificate of Incorporation, this Agreement
and the Rights Agreement without the prior written consent of the Investor.
Notwithstanding the foregoing, the Company expressly reserves the right to sell
shares of its Series D Preferred Stock without the prior written consent of the
Investor provided that such shares shall not have been sold or issued by the
Company at a more favorable price or on more favorable terms than those which
are reflected in this Agreement, the Rights Agreement and the Amended
Certificate of Incorporation; provided that Investor expressly acknowledges that
the Series D Preferred Stock, unlike the Series D-1 Preferred Stock, has certain
voting rights as set forth in the Company's Amended Certificate of Incorporation
and that any issuance of Series D Preferred Stock by the Company will not be
considered to be on more favorable terms solely because of the existence of such
voting rights.
7.3 HSR Filing. In the event the Investor determines that the purchase
----------
of the Shares hereunder has not been "solely for the purpose of investment" (as
defined in Rule 801.1(i)(1) under the HSR Act (as defined below)) and the
Investor determines that as a result the Company and the Investors are required
to make appropriate filings with the Federal Trade Commission and Department of
Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), the Company and Investor agree to cooperate, to make
such filings in a timely manner, and to take all other appropriate action in
connection with such required filings.
10
<PAGE>
SECTION 8
Miscellaneous
-------------
8.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California as applied to agreements entered into and
performed entirely in the State of California by residents thereof.
8.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by the Investor and the closing
of the transactions contemplated hereby.
8.3 Successors, Assigns. Except as otherwise provided herein, the
-------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
8.4 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be sent by facsimile or mailed by
registered or certified mail, postage prepaid, return receipt requested, or
otherwise delivered by hand or by messenger, addressed (a) if to Investor, at
__________, addressed to the attention of __________, or (b) if to the Company,
at 222 Sutter Street, San Francisco, CA 94108, addressed to the attention of
Kevin Cameron, or at such other address as the Company shall have furnished to
the Investor (with a copy, which shall not constitute notice, to Greg Miller,
Esq., Latham & Watkins, 505 Montgomery Street, Suite 1900, San Francisco, CA
94111). If notice is provided by facsimile, it must be simultaneously confirmed
via telephone and it shall be deemed to be given one day after transmission. If
notice is provided by U.S. mail, notice shall be deemed to be given three days
after proper deposit in a U.S. mailbox, postage prepaid.
8.5 Expenses. The Company and the Investor shall bear their own
--------
expenses and legal fees incurred on their behalf with respect to this Agreement
and the transactions contemplated hereby.
8.6 Finder's Fees. The Company and the Investor shall each indemnify
-------------
and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee, placement fee or underwriter's
discount (including the costs, expenses and legal fees of defending against such
liability) for which the Company or the Investors, or any of their respective
partners, employees, or representatives, as the case may be, is responsible.
8.7 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be enforceable against the party actually executing the
counterpart, and all of which together shall constitute one instrument.
11
<PAGE>
8.8 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
8.9 Applicability of Standstill Provision and Voting Agreement to
-------------------------------------------------------------
Non-Affiliate Purchasers. Without changing the respective construction of
- ------------------------
Section 6.3 of this Agreement, such section shall be inapplicable to
non-Affiliate purchasers (with respect to the transferring Investor) who acquire
any shares of Series D-1 Preferred Stock, Series D Preferred Stock, Class B
Common Stock or Common Stock from an Investor.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Series D-1 Preferred
Stock Purchase Agreement as of this ____ day of _____, 1999.
NORTHPOINT COMMUNICATIONS
GROUP, INC.
By:____________________________________
Name:
Title:
____________________________
By:____________________________________
Name:
Title:
SIGNATURE PAGE TO SERIES D-1 PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT 10.26
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
WARRANT AND RIGHTS AGREEMENT
----------------------------
This AGREEMENT is made as of April 7, 1999, by and between NorthPoint
Communications Holdings, Inc., a Delaware corporation (the "Company") and
-------
Microsoft Corporation, a Washington corporation (the "Investor").
--------
RECITALS
--------
WHEREAS, the Company desires to issue to the Investor a warrant to
purchase shares of its Class B Common Stock, par value $0.001 per share (with
rights and preferences substantially identical to the Common Stock except that
Class B Common Stock shall be nonvoting) (the "Class B Common Stock");
--------------------
WHEREAS, the Investor proposes to purchase shares (the "Investor
--------
Common Shares") of Common Stock, par value $0.001 per share (the "Common
- ------------- ------
Stock"), of the Company concurrently with the initial firm commitment
underwritten public offering of the Company's Common Stock (the "IPO") upon the
---
terms and conditions set forth herein, either through a direct sale by the
Company or by or through the Company's underwriters, in either case without
underwriting commission, through Goldman, Sachs & Co., the lead manager in the
IPO, in the sole discretion of the Company and Goldman, Sachs & Co.; and
WHEREAS, the Company and the Investor wish to set forth the terms and
conditions upon which the Company will issue the Warrant and sell such shares of
Common Stock to the Investor.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions herein contained, the Company and the Investor hereby
agree as follows:
SECTION 1
Issuance of Warrants
--------------------
1.1 Issuance of the Warrant and Sale of the Investor Common Shares.
--------------------------------------------------------------
(a) Subject to the terms and conditions hereof, concurrently with the
closing of the IPO, the Company will, for an aggregate purchase price of
$30,000,000 payable to the Company by the Investor: (i) issue to the Investor,
at the Closing, a warrant, substantially in the form of Exhibit A attached
---------
hereto (the "Warrant"), to purchase an aggregate number of shares of Class B
-------
Common Stock (the "Shares") determined by dividing $30,000,000 by the amount
equal to 150% multiplied by the price to the public of shares of the Company's
Common Stock in the IPO, which Warrant shall have an initial exercise price
equal to the number determined by multiplying 150% by the price to the public of
shares of the Company's Common Stock in the IPO, and (ii) issue and sell to the
Investor, and the Investor will purchase from the Company,
<PAGE>
either through a direct sale by the Company or by or through the Company's
underwriters, in either case without underwriting commission, through Goldman,
Sachs & Co., the lead manager in the IPO, in the sole discretion of the Company
and Goldman, Sachs & Co., an aggregate number of shares of Common Stock
determined by dividing $30,000,000 by the price to the public of shares of the
Company's Common Stock in the IPO (the "Investor Common Shares"), which shares
----------------------
shall be subject to the restrictions on transfer set forth in this Agreement.
(b) The sale of the Investor Common Shares, which shall be newly
issued shares of Common Stock, shall be fully registered for resale under the
Securities Act of 1933, as amended (the "Securities Act") and the rules and
--------------
regulations thereunder in effect at the time of the IPO. The parties acknowledge
that the Investor cannot make and is not making a commitment to purchase shares
of the Company's Common Stock; rather, the parties agree that the Investor is
stating its current intention, but that its intention is not a binding
commitment.
(c) The Investor acknowledges that it has received and reviewed
the registration statement on Form S-1 filed with the Securities and Exchange
Commission (Registration No. 333-73065) and has all of the information necessary
for it to evaluate an investment in the Investor Common Shares.
1.2 Closing.
-------
(a) The issuance of the Warrant shall take place at a closing
(the "Closing") to be held at the offices of Latham & Watkins, 505 Montgomery
-------
Street, Suite 1900, San Francisco, CA 94111, on the date hereof.
(b) On the date of the closing of the IPO (the "Closing Date"),
------------
subject to the conditions stated herein, the Company will deliver to the
Investor the Warrant.
SECTION 2
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to the Investor, subject to
the exceptions specifically disclosed in writing in the disclosure letter
supplied by the Company to the Investor dated as of the date hereof (the
"Disclosure Letter") and certified by a duly authorized officer of the Company,
- ------------------
as follows:
2.1 Organization, Good Standing and Qualifications. Each of the
----------------------------------------------
Company and its subsidiaries has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as currently conducted, and is duly
qualified as a foreign corporation and in good standing in all jurisdictions in
which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary except where the failure
to be so qualified would not have a material
2
<PAGE>
adverse effect on the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole (a "Material
--------
Adverse Effect"). The outstanding shares of capital stock of each of its
- --------------
subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable, and are owned by the Company free and clear of all liens,
encumbrances and equities and claims; and no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in such
subsidiaries are outstanding.
2.2 Valid Issuance, Authority. The Investor Common Shares and the
-------------------------
Warrant, when issued and sold to the Investors as provided herein, and the Class
B Common Stock issuable upon exercise of the Warrant when issued pursuant to the
terms thereof and the Common Stock issuable upon conversion of such Class B
Common Stock when issued pursuant to the Second Amended and Restated Certificate
of Incorporation of the Company will be duly and validly issued, fully paid and
nonassessable. The Company has all requisite right, power and authority to enter
into this Agreement and the Warrant, to carry out its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Warrant by the Company, and
the consummation by the Company of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of the
Company and, no other proceedings are necessary to authorize this Agreement and
the Warrant or to consummate the transactions contemplated hereby and thereby.
This Agreement and the Warrant have been duly executed and delivered by the
Company and constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms.
2.3 No Conflict. The execution and delivery of this Agreement and
-----------
the Warrant by the Company do not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation, modification or acceleration of any
obligation under (i) any provision of the Second Amended and Restated
Certificate of Incorporation of the Company and Amended and Restated Bylaws of
the Company or any subsidiary, (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise or license to which
the Company or any subsidiary or any of their respective properties or assets
are subject, or (iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any subsidiary or their respective
properties or assets.
2.4 Company Capital Structure.
-------------------------
(a) As of April 7, 1999, the authorized capital stock of the
Company consists of 125,000,000 shares of authorized Common Stock, $0.001 par
value, of which 11,162,113 shares are issued and outstanding, and of which
8,000,000 shares are designated as Class B Common Stock, none of which are
outstanding, and 45,000,000 shares of Preferred Stock, $0.001 par value, of
which 17,563,187 shares are designated as Series B Preferred Stock, 16,450,721
of which are outstanding, 18,198,413 shares are designated as Series C Preferred
Stock, 18,009,405 of which are outstanding, 3,640,000 shares are designated as
Series D
3
<PAGE>
Preferred Stock, none of which are outstanding, and 3,640,000 shares are
designated as Series D-1 Preferred Stock, 1,536,362 of which are outstanding
(collectively, the "Company Capital Stock"). Except as provided in the Fifth
---------------------
Amended and Restated Rights Agreement of the Company, all outstanding shares of
Company Capital Stock are duly authorized, validly issued, fully paid and non-
assessable, are not subject to preemptive rights created by statute, the Second
Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound and have been issued in compliance with federal and state securities
laws. The Company has no other capital stock authorized, issued or outstanding.
(b) Except as described in the Disclosure Letter, the Company has
never adopted or maintained any stock option plan or other plan providing for
equity compensation of any person. Without giving effect to the issuance of the
Warrant, the Company has issued warrants to purchase 1,802,377 shares of the
Company's capital stock, all of which are outstanding, which warrants are
described in the Disclosure Letter. Except as described in this Section 2.4(b)
or in the Disclosure Letter, there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company.
2.6 No Material Changes. Since December 31, 1998, there has not been
-------------------
any materially adverse change in the business, properties, financial condition
or results of operations of the Company or its subsidiaries, whether or not
arising from transactions in the ordinary course of business, and since such
date, except in the ordinary course of business, neither the Company nor its
subsidiaries has entered into any material transaction not disclosed in the
Disclosure Letter.
2.7 Intellectual Property. To the knowledge of the Company, the
---------------------
Company or its subsidiaries own and possess or are licensed under all patents,
patent applications, licenses, trademarks, trade secrets, trade names, brand
names, inventions and copyrights or other proprietary rights ("Intellectual
------------
Property") employed in the operation of their respective businesses as currently
- --------
conducted, and, to the knowledge of the Company, with no infringement of or
conflict with the rights of others respecting any of the same. Neither the
Company nor any subsidiary has received any communications alleging that the
Company or any subsidiary has violated any of the Intellectual Property of any
other person or entity. Reasonable security measures have been taken by the
Company and its subsidiaries to protect the secrecy, confidentiality and value
of the Company's and its subsidiaries' trade secrets, including their respective
know-how, technology, concepts and other technical data for the development,
processing, manufacture and sale of its products. Each employee of and
consultant to the Company or its subsidiaries has executed an invention
assignment and confidentiality agreement with the Company or its subsidiaries.
4
<PAGE>
SECTION 3
Representations and Warranties of the Investor
----------------------------------------------
The Investor hereby represents and warrants to the Company that:
3.1 Investment Representations and Covenants.
----------------------------------------
(a) Investor represents that the Warrant, the Class B Common
Stock issuable upon exercise of the Warrant, any Common Stock issuable on
conversion thereof and any securities issued with respect to any of them will be
acquired for investment for its own account, not as a nominee or agent, and not
with a view to the sale or distribution of any part thereof, and that it has no
present intention of selling, granting any participation in or otherwise
distributing the same.
(b) Investor understands and acknowledges that the Warrant, the
Class B Common Stock issuable upon exercise of the Warrant, any issuance of
Common Stock on conversion thereof and any securities issued with respect to any
of them may not, be registered under the Securities Act on the ground that the
sale provided for in this Agreement and the issuance of securities hereunder is
exempt pursuant to Section 4(2) of the Securities Act, and that the Company's
reliance on such exemption is predicated in part on the Investor's
representations set forth herein.
(c) Investor represents that it is experienced in evaluating
companies such as the Company, is able to fend for itself in transactions such
as the one contemplated by this Agreement, has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of its prospective investment in the Company and is able to afford a
complete loss of its investment. The Company acknowledges that the foregoing
representation shall not limit the right of the Investor to rely on the
representations of the Company set forth in Section 2 hereof.
(d) Investor acknowledges and understands that the Warrant, the
Class B Common Stock issuable upon exercise of the Warrant, any Common Stock
issuable on conversion thereof and any securities issued with respect to any of
them, must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available, and
that, except as otherwise provided in this Agreement, the Company is under no
obligation to register either the Warrant, the Class B Common Stock issuable
upon exercise of the Warrant, any Common Stock issuable on conversion thereof
and any securities issued with respect to any of them.
(e) Investor acknowledges that it has reviewed Rule 144
promulgated under the Securities Act, which permits limited public resales of
securities acquired in a non-public offering, subject to the satisfaction of
certain conditions. Investor understands that before the Warrant, the Class B
Common Stock issuable upon exercise of the Warrant, any Common Stock issuable on
conversion thereof and any securities issued with respect to any of them, may be
sold under Rule 144, the following conditions must be fulfilled, except as
otherwise described
5
<PAGE>
below: (i) certain public information about the Company must be available; (ii)
the sale must occur at least one year after the later of the date the Shares
were sold by the Company or the date they were sold by an affiliate of the
Company; (iii) the sale must be made in a broker's transaction; and (iv) the
number of Shares sold must not exceed certain volume limitations. If, however,
the sale occurs at least two years after the Warrant was sold by the Company or
an affiliate of the Company, and if the Investor is not an affiliate of the
Company, the foregoing conditions will not apply.
(f) Investor acknowledges that in the event the applicable
requirements of Rule 144 are not met, registration under the Securities Act or
compliance with another exemption from registration will be required for any
disposition of its stock. Investor understands that although Rule 144 is not
exclusive, the Securities and Exchange Commission has expressed its opinion that
persons proposing to sell restricted securities received in a private offering
other than in a registered offering or pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales and that such persons and the brokers who
participate in the transactions do so at their own risk.
(g) Investor covenants that, in the absence of an effective
registration statement covering the stock in question, it will sell, transfer or
otherwise dispose of the Warrant, the Class B Common Stock issuable upon
exercise of the Warrant, any Common Stock issuable on conversion thereof and any
securities issued with respect to any of them only in a manner consistent with
its representations and covenants set forth in this Agreement and the Warrant.
In connection therewith such Investor acknowledges that the Company shall make a
notation on its stock books regarding the restrictions on transfer set forth in
this Agreement and the Warrant and shall transfer shares on the books of the
Company only to the extent not inconsistent therewith.
(h) Investor represents that it is an "accredited investor" as
-------------------
such term is defined in Rule 501(a) under the Securities Act.
3.2 No Public Market. Investor understands that no public market now
----------------
exists for any of the securities issued by the Company and there is no assurance
a public market will be created.
3.3 Domicile. Investor is domiciled in the State of Washington.
--------
3.4 Authority. Investor has all requisite right, power and authority
---------
to enter into this Agreement and the Warrant, to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Warrant by the
Investor, and the consummation by the Investor of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on the part
of the Investor and, no other proceedings are necessary to authorize this
Agreement and the Warrant or to consummate the transactions contemplated hereby
and thereby. This Agreement and the Warrant have been duly executed and
delivered by the Investor and constitute legal, valid and binding obligations of
the Investor enforceable against the Investor in accordance with their
respective terms.
6
<PAGE>
3.5 No Conflict. The execution and delivery of this Agreement and
-----------
the Warrant by the Investor do not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation, modification or acceleration of any
obligation under (i) any provision of the organizational documents of the
Investor, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which the Investor or
any of its properties or assets are subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Investor
or its properties or assets, except in the case of (ii) and (iii) for any of the
foregoing that in the aggregate would not have a material adverse effect on
Investor.
SECTION 4
Conditions of Investor's and Company's Obligations at Closing
-------------------------------------------------------------
4.1 Conditions. The obligations of the Company to issue the Warrant
----------
to the Investor at the Closing shall be subject to the fulfillment on or before
the Closing of each of the following conditions:
(a) Performance. The Investor and the Company shall have
-----------
performed and complied in all material respects with all covenants, agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before Closing.
(b) Securities Law Compliance. The Company shall have obtained
-------------------------
all necessary permits and qualifications, if any, required by any state or
country or secured an exemption therefrom, for the issuance of the Warrant and
sale of the Investor Common Shares.
(c) No Injunction, etc. No preliminary or permanent injunction
------------------
or other binding order, decree or ruling issued by a court or governmental
agency shall be in effect which shall have the effect of preventing the
consummation of the transactions contemplated by this Agreement.
(d) IPO. The IPO shall have closed within 270 days of the date
---
hereof.
(e) Purchase of Investor Common Shares. The Investor shall have
----------------------------------
purchased the Investor Common Shares.
7
<PAGE>
SECTION 5
Deliveries at Closing
---------------------
At the Closing, the Company or the Investor, as applicable, shall
deliver the following:
5.1 Warrant. A copy of the Warrant in substantially the form
-------
attached hereto as Exhibit A as duly executed by the Company and the Investor on
---------
the Closing Date.
5.2 Corporate Proceedings. Such instruments and documents reasonably
---------------------
requested by the Investor to confirm any approvals of the transactions
contemplated hereby required by the Company's Board of Directors and
stockholders.
5.3 Opinion of Counsel. A legal opinion of counsel to the Company in
------------------
substantially the form attached hereto as Exhibit B, addressed to the Investor,
---------
dated as of the Closing.
SECTION 6
Registration Rights
-------------------
6.1 Demand Registration.
-------------------
(a) Request for Registration. In case the Company shall receive from
the holders of at least 50% of the shares of the Common Stock issued or issuable
upon conversion of the Class B Common Stock issuable or issued upon exercise of
the Warrants and any stock issued or issuable with respect thereto upon any
stock split, stock dividend, recapitalization or similar event (the "Registrable
Securities," and the holders of such shares, the "Initiating Warrant Holders")
then held by all holders of the Warrants, a written request that the Company
effect any registration, qualification or compliance with respect to the
Registrable Securities held by such Initiating Warrant Holders, the Company
will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other holders of Registrable Securities; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any record
holder of Registrable Securities (a "Warrant Holder")
--------------
8
<PAGE>
joining in such request as are specified in a written request received by the
Company within thirty (30) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to take any
-------- -------
action to effect any such registration, qualification or compliance pursuant to
this Section 1.5:
(1) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(2) Prior to the day that is twelve (12) months after the
effective date of the IPO;
(3) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date six
(6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), including, without limitation, a registration pursuant to this Section 1,
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and that the
Company's estimate of the date of filing such registration statement is made in
good faith; provided, however, that the Company shall not defer a registration
pursuant to this Section 6.1(a)(ii)(3) more than once in any twelve (12) month
period;
(4) After the Company has effected two (2) registrations pursuant
to this subparagraph 6.1(a), such registrations have been declared or ordered
effective and the securities offered pursuant to such registrations have been
sold; or
(5) If the Company shall furnish to such Warrant Holders a
certificate, signed by the President of the Company, stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 6.1 shall be deferred for a single period
not to exceed ninety (90) days from the date of receipt of written request from
the Warrant Holders; provided, however, that the Company shall not make such
certification more than once in any twelve (12) month period.
Subject to the foregoing clauses (1) through (5), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Warrant Holders.
(b) Underwriting. In the event that a registration pursuant to
------------
Section 6.1 is for a registered public offering involving an underwriting, the
Company shall so advise the Warrant Holders as part of the notice given pursuant
to Section 6.1(a)(i). The right of any Warrant Holder to registration pursuant
to Section 6.1 shall be conditioned upon such
9
<PAGE>
Warrant Holder's participation in the underwriting arrangements required by this
Section 6.1 and the inclusion of such Warrant Holder's Registrable Securities in
the underwriting, to the extent requested, to the extent provided in this
Agreement.
The Company shall (together with all Warrant Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority in interest of the Warrant Holders (which
managing underwriter shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 6.1, if the managing
underwriter advises the Warrant Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Company shall so advise all Warrant Holders of Registrable Securities and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated first among all Warrant Holders
thereof in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Warrant Holders at the time of filing the
registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Warrant Holder to the nearest 100 shares.
If any Warrant Holder holding Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Warrant Holders
initiating the request under this Section 6.1. The Registrable Securities
and/or other securities so withdrawn shall also be withdrawn from registration,
and such Registrable Securities shall not be transferred in a public
distribution prior to ninety (90) days after the effective date of such
registration.
6.2 Expenses of Registration. All expenses incurred in connection with
------------------------
any registration pursuant to Section 6.1, including, without limitation, all
registration, qualification and filing fees, printing expenses, messenger and
delivery expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, any travel and other road show expenses
incident to such registration, accounting fees and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company) (the "Registration Expenses"), and the reasonable fees and
---------------------
expenses of one special legal counsel to represent all of the Warrant Holders
together in any such registration shall be borne by the Company, provided that
the Company shall not be required to pay the Registration Expenses of any
registration proceeding begun pursuant to Section 6.1, the request of which has
been subsequently withdrawn by the Initiating Warrant Holders. In such case,
the holders of Registrable Securities to have been registered shall bear all
such Registration Expenses pro rata on the basis of the number of shares to have
been registered. Notwithstanding the foregoing, however, if at the time of the
withdrawal, the Initiating Warrant Holders have learned of a material adverse
change in the condition, business or prospects of the Company from that known to
such Warrant Holders at the time of their request, then the Warrant Holders
shall not be required to pay any of said Registration Expenses.
10
<PAGE>
6.3 Indemnification.
---------------
(a) The Company will indemnify each Warrant Holder, each of its
officers and directors and partners, and each person controlling such Warrant
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification or compliance has been effected pursuant to
this Section 6, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Warrant Holder, each of its officers and directors, and each
person controlling such Warrant Holder, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Warrant Holder, controlling person or underwriter and
stated to be specifically for use therein.
(b) Each Warrant Holder will, if Registrable Securities held by such
Warrant Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Warrant Holder, each of its officers and
directors and each person controlling such Warrant Holder within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Warrant Holders, such
directors, officers, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in
11
<PAGE>
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the total amounts payable in indemnity by a Warrant
Holder under this Section 1.12(b) shall not exceed the net proceeds received by
such Warrant Holder in the registered offering in which the indemnity obligation
arose.
(c) Each party entitled to indemnification under this Section 6.3 (the
"Indemnified Party") shall give notice to the party required to provide
- ------------------
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
------------------
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 6 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 6.1 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission; provided, however,
that in any such case, the total amounts payable in contribution by a Warrant
Holder under this Section 6.1(d) shall not exceed the net proceeds received by
such Holder in the registered offering in which the contribution obligation
arose.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
12
<PAGE>
(f) The obligations of the Company and the Holders under this Section
6.3 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 6, and otherwise.
6.4 Information by Holders. The holder or holders of Registrable
----------------------
Securities included in any registration shall furnish to the Company such
information regarding such holder or holders, the Registrable Securities held by
them and the distribution proposed by such holder or holders as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 6.
6.5 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
------------
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) So long as a Warrant Holder owns any Restricted Securities, to
furnish to the Warrant Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as a Warrant Holder may reasonably request
in availing itself of any rule or regulation of the Commission allowing a
Warrant Holder to sell any such securities without registration.
6.6 Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities granted Warrant Holders under Section 6.1 may be assigned to
a transferee or assignee; provided, that (a) such transfer may otherwise be
--------
effected in accordance with applicable securities laws, (b) notice of such
assignment is given to the Company, and (c) such transferee or assignee (i) is a
wholly-owned subsidiary or constituent partner (including limited partners) of
such Warrant Holder, or (ii) acquires from such Warrant Holder the lesser of (a)
150,000 or more shares of Registrable Securities (as appropriately adjusted for
stock splits and the like) or (b) all of the Registrable Securities then owned
by such Warrant Holder.
13
<PAGE>
6.7 "Market Stand-Off" Agreement. Each Warrant Holder hereby agrees
----------------------------
that, during the period of duration (such period not to exceed 180 days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Securities Act of 1933, as amended, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that:
-------- -------
(a) such agreement shall be applicable only to the first two such
registration statements of the Company which cover common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors and significant stockholders of the
Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the securities of the Company held by the Holder
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
6.8 Termination of Rights. The rights of any particular Warrant Holder
---------------------
to cause the Company to register securities under Sections 6.1 shall terminate
with respect to such Warrant Holder five (5) years following the IPO.
6.9 Existing Registration Rights. The registration rights granted to the
----------------------------
Investor pursuant to this Section 6 are subject to the registration rights
granted to certain of the Company's investors under the Fifth Amended and
Restated Rights Agreement dated as of March 22, 1999, among the Company,
NorthPoint Communications, Inc. and certain of the Company's investors.
SECTION 7
INVESTOR COVENANTS
------------------
7.1 Restrictions. The Warrant, the Class B Common Stock issued upon
------------
exercise of the Warrant and any Common Stock issued upon conversion thereof
shall not be sold, assigned, transferred or pledged except upon the conditions
specified in this Agreement, which conditions are intended to ensure compliance
with the provisions of the Securities Act. The Investor will cause any proposed
purchaser, assignee, transferee or pledgee of the Warrant, the Class B Common
Stock issued upon exercise of the Warrant and any Common Stock issued upon
conversion thereof to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Agreement.
14
<PAGE>
7.2 Restrictive Legend. Each certificate representing the Class B
------------------
Common Stock issued upon exercise of the Warrant and the Common Stock issued
upon conversion thereof and any other securities issued in respect thereof upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section
7.3 below) be stamped or otherwise imprinted with legends in the following form
(in addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH
MAY BE COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS OF CERTAIN AGREEMENTS AMONG
THE COMPANY, THE STOCKHOLDER AND CERTAIN OTHER HOLDERS OF THE COMPANY'S
STOCK, WHICH INCLUDE, WITHOUT LIMITATION, OBLIGATIONS OF RIGHTS OF FIRST
OFFER, RESTRICTIONS ON TRANSFER AND ACQUISITION OF ADDITIONAL SECURITIES OF
THE COMPANY, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE
COMPANY."
The Investor consents to the Company making a notation on its records and
giving instructions to any transfer agent in order to implement the restrictions
on transfer established in this Agreement.
7.3 Notice of Proposed Transfers. The Investor hereby agrees to comply
----------------------------
in all respects with the provisions of Section 7 of this Agreement. Subject to
the provisions of Section 7.4, prior to any proposed sale, assignment, transfer
or pledge of any securities required to bear the legend set forth in Section
7.2, unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the holder thereof shall give written notice to
the Company of such holder's intention to effect such transfer, sale, assignment
or pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) a written opinion of legal
counsel who shall, and whose legal opinion shall, be reasonably satisfactory to
the Company, addressed to the Company, to the effect that the proposed transfer
of such securities may be effected without registration under the Securities
Act, or (ii) a "no action" letter from the Commission to the effect that the
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such securities shall be entitled to
15
<PAGE>
transfer such securities in accordance with the terms of the notice delivered by
the holder to the Company. The Company will not require such a legal opinion or
"no action" letter (a) in any transaction in compliance with Rule 144, (b) in
any transaction in which the Investor (or any of its transferees that is a
corporation) distributes such securities after one (1) year following the
purchase thereof solely to its affiliates or majority-owned subsidiaries, or (c)
in any transaction in which the Investor (or any of its transferees which is a
partnership) distributes such securities after six (6) months following the
purchase thereof solely to partners thereof for no consideration, provided that
each transferee agrees in writing to be subject to the terms of this Section
7.3. Each certificate evidencing such securities transferred as provided for in
the immediately preceding sentence shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
7.2 above, except that such certificate shall not bear such restrictive legend
if, in the opinion of counsel for such holder and the Company, such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
7.4 Restrictions on Transfer. The Investor shall not, directly or
------------------------
indirectly, sell, contract to sell, grant any option to purchase or otherwise
transfer the Investor Common Shares, the Warrant, any Class B Common Stock
issued upon exercise of the Warrant or any Common Stock issued upon conversion
thereof for a period of one year following the closing date of the IPO, except
pursuant to a Change of Control (as defined below). However, the Investor may
sell or transfer the Investor Common Shares, the Warrant, any Class B Common
Stock issued upon exercise of the Warrant or any Common Stock issued upon
conversion thereof to any Affiliate (as defined below) of the Investor during
such one year period or any third party thereafter, provided that such Affiliate
or third party, as the case may be, agrees in writing to be bound by the
obligations of this Agreement. No such transfer shall be effective unless the
transferee or assignee assumes in writing the obligations of the Investor under
this Agreement. For purposes of this Section 6.1, a "Change of Control" shall
-----------------
mean the occurrence of any of the following events: (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 50% or more of the total
voting power represented by the Company's then outstanding voting securities; or
(ii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least 50% of
the total voting power represented by the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
7.5 Standstill. For a period of three years after the date hereof, the
----------
Investor shall not, and shall cause each of its Affiliates (as defined below) to
not, acquire beneficial ownership (as such term is defined in Rule 13d-3 of the
Exchange Act) of any securities of the Company in addition to the Investor
Common Shares, the Warrant, the Class B Common Stock issuable upon exercise of
the Warrant and any Common Stock issued upon conversion thereof,
16
<PAGE>
which would result in the aggregate beneficial ownership of the Investor and its
Affiliates of capital stock of the Company (as defined below) equaling or
exceeding 10% of the outstanding capital stock of the Company. The Investor or
any of its Affiliates shall not purchase any securities of the Company without
having given thirty (30) days prior written notice to the Company or without
having received the prior written consent of the Company. Upon notice thereof,
the Company shall inform the Investor whether such purchases cause the aggregate
beneficial ownership of the Investor and its Affiliates to equal or exceed 10%
of the outstanding capital stock of the Company. For the purposes of this
Agreement, "Affiliate" shall mean, as to any person or entity, a person or
---------
entity that, directly or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, such person or entity.
SECTION 8
MISCELLANEOUS PROVISIONS
------------------------
8.1 Notices. Except as otherwise specified herein to the contrary,
-------
all notices, requests, demands and other communications required or desired to
be given hereunder shall only be effective if given in writing by certified or
registered U.S. mail with return receipt requested and postage prepaid; by
private overnight delivery service (e.g., Federal Express); by facsimile
transmission (if no original documents or instruments must accompany the
notice); or by personal delivery. Any such notice shall be deemed to have been
given (a) five Business Days following the mailing thereof, if mailed by
certified or registered U.S. mail as specified above; (b) on the Business Day
immediately following deposit with a private overnight delivery service if sent
by said service; (c) upon receipt of confirmation of transmission if sent by
facsimile transmission; or (d) upon personal delivery of the notice. All such
notices shall be sent to the following addresses (or to such other address or
addresses as a party may have advised the other in the manner provided in this
Section 8.1):
If to the Company:
NorthPoint Communications Holdings, Inc.
222 Sutter Street
San Francisco, CA 94108
Attn: Kevin Cameron, Esq.
Tel: (415) 403-4003
Fax: (415) 403-4004
17
<PAGE>
With a copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, CA 94025
Attn: Michael Hall, Esq.
Tel: (650) 463-2655
Fax: (650) 328-2600
If to the Investor:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Chief Financial Officer
With a copy to:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: General Counsel, Finance and Administration
8.2 Governing Law. The validity, interpretation and performance
-------------
of this Agreement shall be governed by the laws of the State of California
without regard to principles of conflicts of laws.
8.3 Successors and Assigns. Subject to the restrictions on
----------------------
transfer by Investor set forth in this Agreement, all the terms and provisions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto.
8.4 Amendment. This Agreement may be modified, amended or
---------
terminated by a writing signed by the Company and the Investor.
8.5 Severability. Should any part but not the whole of this
------------
Agreement for any reason be declared invalid, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Agreement had been executed with the invalid portion
thereof eliminated, and it is hereby declared the intention of the parties
hereto that they would have executed the remaining portion of this Agreement
without including therein any such part which may, for any reason, be hereafter
declared invalid.
8.6 Expenses. The Company and the Investor shall bear their own
--------
expenses and legal fees incurred on their behalf with respect to this Agreement
and the transactions contemplated hereby.
18
<PAGE>
8.7 Finder's Fees. The Company and the Investor shall each indemnify
-------------
and hold the other harmless from any liability for any commission or
compensation in the nature of a finder's fee, placement fee or underwriter's
discount (including the costs, expenses and legal fees of defending against such
liability) for which the Company or the Investors, or any of their respective
partners, employees, or representatives, as the case may be, is responsible.
8.8 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be enforceable against the party actually executing the
counterpart, and all of which together shall constitute one instrument.
8.9 Name Change. Investor acknowledges that the Company intends to
-----------
change its name prior to the closing to "NorthPoint Communications Group, Inc."
and that the Warrant, therefore, will reflect the new name of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
19
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered on and as of the day and year first above written.
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.,
a Delaware corporation
By:___________________________
Name:
Title:
MICROSOFT CORPORATION,
a Washington corporation
By:___________________________
Name:
Title:
[SIGNATURE PAGE TO WARRANT AND RIGHT AGREEMENT]
<PAGE>
EXHIBIT A
WARRANT
-------
<PAGE>
EXHIBIT B
FORM OF OPINION
---------------
<PAGE>
EXHIBIT C
WIRING INSTRUCTIONS
-------------------
<PAGE>
EXHIBIT 10.27
THE TRANSFER OF THIS WARRANT IS SUBJECT TO RESTRICTIONS CONTAINED HEREIN. THIS
WARRANT HAS BEEN ISSUED IN RELIANCE UPON THE REPRESENTATION OF THE HOLDER THAT
IT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD THE
RESALE OR OTHER DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.
CLASS B COMMON STOCK PURCHASE WARRANT
-------------------------------------
DATED: APRIL __, 1999
TO SUBSCRIBE FOR AND PURCHASE SHARES OF CLASS B COMMON STOCK OF
NORTHPOINT COMMUNICATIONS GROUP, INC.
-------------------------------------
NORTHPOINT COMMUNICATIONS GROUP, INC., a Delaware corporation (the
"Company"), hereby certifies that MICROSOFT CORPORATION, a Washington
-------
corporation, its permissible transferees, designees, successors and assigns
(collectively, the "Holder"), for value received, is entitled to subscribe for
------
and purchase from the Company at any time commencing on the date hereof (the
"Issuance Date") and terminating on the fifth anniversary of the Issuance Date
- --------------
(the "Exercise Period") up to ______________ (______) shares (each a "Share"
--------------- -----
and, collectively, the "Shares") of fully paid and non-assessable Class B Common
------
Stock of the Company (the "Class B Common Stock"), which is convertible into
--------------------
Common Stock of the Company (the "Common Stock") subject to the provisions and
------------
upon the terms and conditions hereinafter set forth at an initial exercise price
of $_____ per share (such price as from time to time to be adjusted as provided
herein is called the "Exercise Price"). The number of Shares purchasable
--------------
hereunder is subject to adjustment as provided in Section 3 hereof.
This Warrant and any Warrant subsequently issued upon exchange or transfer
hereof are hereinafter collectively called the "Warrant."
-------
1. Exercise of Warrant. The rights represented by this Warrant may be
-------------------
exercised by the Holder, in whole or in part (but not as to fractional shares)
at any time or from time to time upon five (5) business days' notice to the
Company during the Exercise Period by the completion of the purchase form
attached hereto and by the surrender of this Warrant (properly endorsed) at the
office of the Company as it may designate by notice in writing to the Holder
hereof at the address of the Holder appearing on the books of the Company, and
by payment to the Company of the Exercise Price in cash or by certified or
official bank check, for each share being purchased. (In addition, see Section 2
below for net issuance provisions.) In the event of any exercise of the rights
represented by this Warrant, a certificate or certificates for the shares of
Class B Common Stock so purchased, registered in the name of the Holder, or its
nominee or
<PAGE>
other party designated in the purchase form by the Holder hereof, shall be
delivered to the Holder within thirty (30) business days after the date on which
the rights represented by this Warrant shall have been so exercised; and, unless
this Warrant has expired or has been exercised in full, a new Warrant
representing the number of shares (except a remaining fractional share), if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder within such time. The person in whose name any
certificate for shares of Class B Common Stock is issued upon exercise of this
Warrant shall for all purposes be deemed to have become the holder of record of
such shares on the date on which this Warrant was surrendered and payment of the
Warrant is made, except that, if the date of such surrender and payment is a
date on which the stock transfer books of the Company are closed, such person
shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
No fractional shares shall be issued upon exercise of this Warrant and no
payment or adjustment shall be made upon any exercise on account of any cash
dividends on the Class B Common Stock issued upon such exercise. If any
fractional interest in a share of Class B Common Stock would, except for the
provision of this Section 1, be delivered upon such exercise, the Company, in
lieu of delivery of a fractional share thereof, shall pay to the Holder an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Company.
2. Net Issuance.
------------
2.1 Right to Convert. In addition to and without limiting the rights
----------------
of the Holder under the terms of this Warrant, if the Current Market Value (as
defined below) of a share of Common Stock is greater than the Warrant Price, in
lieu of exercising this Warrant for cash the Holder shall have the right to
convert this Warrant or any portion thereof (the "Conversion Right") into shares
----------------
of Class B Common Stock equal to the value of this Warrant or the portion
thereof being canceled as provided in this Section 2 at any time or from time to
time during the Exercise Period. Upon exercise of the Conversion Right with
respect to a particular number of shares subject to the Warrant (the "Converted
---------
Warrant Shares"), the Company shall deliver to the Holder (without payment by
- --------------
the Holder of any exercise price or any cash or other consideration) that number
of shares of fully paid and nonassessable Class B Common Stock computed using
the following formula:
X = Y (A - B)
---------
A
where: X = the number of shares of Class B Common Stock to be
delivered to the Holder;
Y = the number of Converted Warrant Shares;
A = the Current Market Value (as defined below) of one
share of the Company's Common Stock on the Conversion
Date; and
B = the Exercise Price (as of the Conversion Date).
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if
<PAGE>
the number of shares to be issued determined in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the Holder an
amount in cash equal to the fair Current Market Value (as defined below) of the
resulting fractional share on the Conversion Date. Shares issued pursuant to the
Conversion Right shall be treated as if they were issued upon the exercise of
the Warrant.
2.2 Method of Exercise. The Conversion Right may be exercised by the
------------------
Holder by the surrender of the Warrant at the principal office of the Company
together with a written statement specifying that the Holder thereby intends to
exercise the Conversion Right and indicating the total number of shares under
the Warrant that the Holder is exercising through the Conversion Right. Such
conversion shall be effective upon receipt by the Company of the Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"). Certificates for the shares issuable
---------------
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
2.3 Determination of Current Market Value. For purposes of this
-------------------------------------
Section 2, current market value (the "Current Market Value") of a share of
--------------------
Common Stock on the Conversion Date shall mean (i) the average of the closing
selling prices of the Common Stock on the stock exchange determined by the Board
in good faith to be the primary market for the Common Stock over the ten (10)
trading day period (or such shorter period immediately following the closing of
an initial public offering) ending on the date prior to the Conversion Date, as
such prices are officially quoted in the composite tape of transactions on such
exchange, or if the foregoing does not apply, (ii) if the Common Stock is traded
over-the-counter, the average of the closing bid prices (or, if such information
is available, the closing selling prices) of the Common Stock over the ten (10)
trading day period (or such shorter period immediately following the closing of
an initial public offering) ending on the date prior to the Conversion Date, as
such prices are reported by the National Association of Securities Dealers
through its Nasdaq National Market, any successor system or any exchange on
which it is listed, whichever is applicable, or (iii) if there is no public
market for the Common Stock, then the Current Market Value shall be determined
by mutual agreement of the holder of the Warrant and the Company, and if the
holder and the Company are unable to so agree, by an investment banker of
national reputation selected by the Company and reasonably acceptable to the
holder of the Warrant.
3. Adjustments.
-----------
3.1 Dividends, Distributions, Subdivisions, Combinations and
--------------------------------------------------------
Reclassifications. In the event that before the issuance of the shares of Class
- -----------------
B Common Stock into which this Warrant Certificate may be exercised the Company
(i) pays a dividend or makes a distribution on its Common Stock in shares of its
Common Stock, (ii) subdivides its outstanding shares of Common Stock into a
greater number of shares, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, or (iv) increases or decreases the number of
shares of Common Stock outstanding by reclassification of its Common Stock
(including a recapitalization in connection with a consolidation or merger in
which the Company is the
<PAGE>
continuing corporation), the Warrant Price in effect immediately prior to such
action and the number of shares of Class B Common Stock purchasable under this
Warrant shall, concurrently with the effectiveness of such action, be
proportionately adjusted.
3.2 Issuances of Common Stock. In the event the Company shall issue
-------------------------
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for shares of Common Stock to an Affiliate (as defined below) of the
Company at a price per share that as of the date of such issuance is less than
the then Current Market Value per share of Common Stock (determined in
accordance with Section 2.3), excluding, however, (i) shares of Common Stock
issued upon conversion of the shares of Class B Common Stock issued pursuant to
the exercise of this Warrant, (ii) shares of Common Stock issued pursuant to the
conversion rights of any security convertible into or exchangeable or
exercisable for shares of Common Stock, which security was outstanding as of the
Issuance Date (to the extent such issuances are in accordance with the terms of
such securities in effect on the Issuance Date), (iii) shares of Common Stock
issued in any of the transactions described in Section 3.1, and (iv) shares of
Common Stock issued upon the grant, conversion, exchange or exercise of options
granted to the Company's employees, directors, consultants or strategic partners
under a plan or plans adopted by the Company's Board of Directors, the number of
shares of Class B Common Stock issuable upon the exercise of the Warrant shall
be increased to a number determined by multiplying the number of shares of Class
B Common Stock theretofore issuable upon exercise of the Warrant by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
on the date of issuance of such shares of Common Stock or securities plus the
number of additional shares of Common Stock issued or for which such securities
that are issued are convertible, exchangeable or exercisable, and the
denominator of which shall be the number of shares of Common Stock outstanding
on the date of issuance of such shares of Common Stock or securities plus the
total number of shares of Common Stock which the aggregate consideration
expected to be received by the Company (assuming the exercise or conversion of
all such securities) would purchase at the then Current Market Value per share
of Common Stock (determined in accordance with Section 2.3). In the event of any
such adjustment, the Exercise Price shall be adjusted to a number determined by
dividing the Exercise Price immediately prior to such date of issuance by the
aforementioned fraction. Such adjustment shall be made immediately after such
shares of Common Stock or securities are issued and shall become effective,
retroactive to the date of such issuance. No adjustment shall be made pursuant
to this Section 3.2 which shall have the effect of decreasing the number of
shares of Class B Common Stock purchasable upon exercise of the Warrant or of
increasing the Exercise Price. No adjustments shall be made under this Section
3.2 unless the adjustments to be made to the Exercise Price would individually
or together with any prior adjustments to the Exercise Price exceed $.10. If
such securities convertible into or exchangeable or exercisable for shares of
Common Stock expire unexercised, any such adjustments shall be reversed or
adjusted to reflect such expiration. For the purposes of this Section 3.2,
"Affiliate" shall mean, as to any person or entity, a person or entity that,
- ----------
directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such person or entity.
<PAGE>
3.3 Combination; Liquidation.
------------------------
(a) If there shall be effected any consolidation or merger of the
Company with another corporation, or a sale of all or substantially all of the
Company's assets to another corporation (each, a "Combination"), the Holder
-----------
shall have the right to receive upon exercise of the Warrant the kind and amount
of shares of capital stock or other securities or property which such Holder
would have been entitled to receive upon or as a result of such Combination had
such Warrant been exercised immediately prior to such event (subject to further
adjustment in accordance with the terms hereof). If agreed to by the surviving
or acquiring Person (the "Successor Company"), the Company shall provide that
-----------------
the Successor Company in such Combination will assume by written instrument the
obligations under this Section 3.3(a) and the obligations to deliver to the
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. "Person" means any
individual, corporation, partnership, joint venture, limited liability company,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity. The
provisions of this Section 3.3(a) shall similarly apply to successive
Combinations involving any Successor Company.
(b) If there shall be effected any Combination where the holders
of Common Stock shall be entitled pursuant to the terms of any such transaction
to receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such consolidation, merger or sale, lawful and
adequate provisions shall be made whereby the Holder of this Warrant shall
thereafter have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the exercise of such Warrant, such
shares of stock, securities or assets as may be issuable or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such Common Stock immediately theretofore so
receivable had such Combination not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holder to the end that the provisions hereof shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of this Warrant.
3.4 Notice of Adjustment. Whenever the Exercise Price or the number
--------------------
of shares of Class B Common Stock issuable upon exercise of the Warrant
Certificates is adjusted, as herein provided, the Company shall deliver to the
Holder a certificate of the Company's Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment and the method by which
such adjustment was calculated, and specifying the Exercise Price and number of
shares of Class B Common Stock issuable upon exercise of Warrant after giving
effect to such adjustment.
3.5 Stock To Be Reserved. The Company will at all times reserve and
--------------------
keep available out of its authorized Common Stock, solely for the purpose of
issue upon the exercise of this Warrant as herein provided, such number of
shares of Class B Common Stock as shall then be issuable upon the exercise of
this Warrant and such number of shares of Common Stock as shall be issuable upon
conversion thereof.
<PAGE>
3.6 Issue Tax. The issuance of certificates for shares of Class B
---------
Common Stock upon exercise of this Warrant shall be made without charge to the
Holder for any issuance tax in respect thereof provided that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the Holder.
3.7 Closing Of Books. The Company will at no time close its transfer
----------------
books against the transfer of the shares of Class B Common Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
4. Notices Of Record Dates. In the event of:
-----------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right; or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any Change of Control
(as defined below); or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
then and in each such event the Company will give notice to the Holder of this
Warrant specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and stating the amount and
character of such dividend, distribution or right, and (ii) the date on which
any such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock will be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be given at least ten (10) days and not more than ninety (90) days
prior to the date therein specified, and such notice shall state that the action
in question or the record date is subject to the effectiveness of a registration
statement under the Securities Act of 1933, as amended (the "Securities Act") or
--------------
to a favorable vote of shareholders, if either is required. For purposes of this
Section 4, a "Change of Control" shall mean the occurrence of any of the
-----------------
following events: (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing 50% or more of the total voting power represented by the Company's
then outstanding voting securities; or (ii) the stockholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting securities
of the Company
<PAGE>
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets.
5. No Shareholder Rights Or Liabilities. This Warrant shall not entitle
------------------------------------
the Holder hereof to vote for the election of the directors of the Company or on
any other matter or to any other rights as a stockholder of the Company. No
provision hereof, in the absence of affirmative action by the Holder hereof to
purchase shares of Class B Common Stock, and no mere enumeration hereon of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the Exercise Price or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
6. Lost, Stolen, Mutilated Or Destroyed Warrant. If this Warrant is
--------------------------------------------
lost, stolen, mutilated or destroyed, the Company may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
7. Presentment. Prior to due presentment of this Warrant together with a
-----------
completed assignment form attached hereto for registration of transfer, the
Company may deem and treat the Holder as the absolute owner of the Warrant,
notwithstanding any notation of ownership or other writing thereon, for the
purpose of any exercise thereof and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
8. Notices. Except as otherwise specified herein to the contrary, all
-------
notices, requests, demands and other communications required or desired to be
given hereunder shall only be effective if given in writing by certified or
registered U.S. mail with return receipt requested and postage prepaid; by
private overnight delivery service (e.g., Federal Express); by facsimile
transmission (if no original documents or instruments must accompany the
notice); or by personal delivery. Any such notice shall be deemed to have been
given (a) five Business Days following the mailing thereof, if mailed by
certified or registered U.S. mail as specified above; (b) on the Business Day
immediately following deposit with a private overnight delivery service if sent
by said service; (c) upon receipt of confirmation of transmission if sent by
facsimile transmission; or (d) upon personal delivery of the notice. All such
notices shall be sent to the following addresses (or to such other address or
addresses as a party may have advised the other in the manner provided in this
Section 8):
<PAGE>
If to the Company:
NorthPoint Communications Group, Inc.
222 Sutter Street
San Francisco, CA 94108
Attn: Kevin Cameron, Esq.
Tel: (415) 403-4003
Fax: (415) 403-4004
With a copy to:
Latham & Watkins
135 Commonwealth Drive
Menlo Park, CA 94025
Attn: Michael Hall, Esq.
Tel: (650) 463-2655
Fax: (650) 328-2600
If to the Holder:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: Chief Financial Officer
With a copy to:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
Attention: General Counsel, Finance and Adminstration
Notwithstanding the time of effectiveness of notices set forth in this Section,
a purchase form shall not be deemed effectively given until it has been duly
completed and submitted to the Company together with the original Warrant to be
exercised and payment of the Exercise Price in a manner set forth in this
Warrant.
9. Governing Law. The validity, interpretation and performance of this
-------------
Warrant Certificate shall be governed by the laws of the State of California
without regard to principles of conflicts of laws.
10. Successors and Assigns. Subject to the restrictions on transfer by
----------------------
Holder set forth in that certain Warrant and Rights Agreement dated as of April
7, 1999, between the Company and the Holder, all the terms and provisions of
this Warrant shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto.
<PAGE>
11. Amendment. This Warrant may be modified, amended or terminated by a
---------
writing signed by the Company and the Holder.
12. Severability. Should any part but not the whole of this Warrant for
------------
any reason be declared invalid, such decision shall not affect the validity of
any remaining portion, which remaining portion shall remain in force and effect
as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Warrant without including
therein any such part which may, for any reason, be hereafter declared invalid.
13. No Impairment. The Company will not, by any voluntary action, avoid
-------------
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Warrant against impairment.
14. No Right To Redeem. Except as explicitly provided herein, this
------------------
Warrant may not be called by the Company.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and delivered on and as of the day and year first above written by one of its
officers thereunto duly authorized.
NORTHPOINT COMMUNICATIONS GROUP, INC.,
a Delaware corporation
Dated: ________, 1999 By:___________________________
Name:
Title:
The undersigned Holder agrees and accepts this Warrant.
MICROSOFT CORPORATION,
a Washington corporation
By:___________________________
Name:
Title:
[SIGNATURE PAGE TO WARRANT]
<PAGE>
PURCHASE FORM
-------------
(To be executed by the Holder if it desires
to exercise the Warrant in whole or in part)
The undersigned Holder hereby elects to exercise _______ of the rights
to purchase Class B Common Stock represented by the attached Warrant, and to
purchase the shares of Class B Common Stock issuable upon the exercise of such
rights, and requests that certificates for securities be issued in the name of:
____________________________________________________________
(Please type or print name and address)
____________________________________________________________
____________________________________________________________
____________________________________________________________
(Social Security or Tax Identification Number)
and delivered to:____________________________________________________________
_____________________________________________________________________________
(Please type or print name and address if different from above)
If such number of rights being exercised hereby shall not be all the rights
evidenced by the attached Warrant, a new Warrant for the balance of such rights
shall be registered in the name of, and delivered to, the Holder at the address
set forth below.
[In full payment of the purchase price with respect to the rights
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$_______ by check, money order or wire transfer payable in United States
currency to the order of NorthPoint Communications Group, Inc.] or [The
undersigned elects net issuance exercise in accordance with Section 2 of the
Warrant.]
HOLDER:
Dated:_________________________ By:_________________________________
Name:
Title:
Address:_________________________
_________________________
<PAGE>
FORM OF ASSIGNMENT
------------------
(To be executed by the Holder if he desires to effect a transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ________________________________, whose Social Security or other
identification number is ________________________ [residing/located] at
____________________________ ____________________ the attached Warrant, and
appoints _____________________________ residing at ________________________ the
undersigned's attorney-in-fact to transfer said Warrant on the books of the
Company, with full power of substitution in the premises.
Dated:_________________________ By:_________________________
Name:
Title:
(Signature must conform in all respects to
the name of the Holder as specified on the
face of the Warrant, without alteration,
enlargement or any change whatsoever).
In the presence of:
_________________________
<PAGE>
EXHIBIT 10.28
EXECUTION
LOAN AND GUARANTY AGREEMENT
DATED AS OF APRIL 5, 1999
AMONG
NORTHPOINT COMMUNICATIONS, INC.,
AS BORROWER,
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
AND
NORTHPOINT COMMUNICATIONS OF VIRGINIA, INC.,
AS GUARANTORS,
VARIOUS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS JOINT LEAD ARRANGER AND SYNDICATION AGENT,
CANADIAN IMPERIAL BANK OF COMMERCE,
AS ADMINISTRATIVE AGENT,
NEWCOURT COMMERCIAL FINANCE CORPORATION,
AS DOCUMENTATION AGENT AND COLLATERAL AGENT,
AND
CAPITAL SYNDICATION CORPORATION,
AS JOINT LEAD ARRANGER
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS 1
SECTION 1.01 Definitions 1
SECTION 1.02 Accounting Terms. 25
SECTION 1.03 Other Terms Defined in New York Uniform Commercial Code 25
ARTICLE II
LOANS 25
SECTION 2.01 Agreement to Lend 25
SECTION 2.02 Loans 26
SECTION 2.03 Procedure for Loan Request. 26
SECTION 2.04 The Notes 28
SECTION 2.05 Interest on Loans 29
SECTION 2.06 Conversion or Continuation 29
SECTION 2.07 Special Provisions Governing LIBOR Loans 30
SECTION 2.08 Payments 33
SECTION 2.09 Voluntary and Mandatory Prepayment of Loans 34
SECTION 2.10 Certain Provisions Regarding Prepayments. 36
SECTION 2.11 Fees 36
SECTION 2.12 Manner of Payment; Special Tax Considerations 37
SECTION 2.13 Maximum Lawful Interest Rate 41
SECTION 2.14 Funding Issues 41
ARTICLE III
REPRESENTATIONS AND WARRANTIES 43
SECTION 3.01 Organization; Powers 43
SECTION 3.02 Corporate Authorization 43
SECTION 3.03 Financial Statements 44
SECTION 3.04 No Material Adverse Change 44
SECTION 3.05 Litigation 44
SECTION 3.06 Tax Returns 44
SECTION 3.07 No Defaults 45
SECTION 3.08 Properties 45
SECTION 3.09 Collateral 45
</TABLE>
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
<TABLE>
<S> <C>
SECTION 3.10 Licenses, Material Agreements, Intellectual Property 46
SECTION 3.11 Compliance With Laws 47
SECTION 3.12 ERISA 47
SECTION 3.13 Investment Company Act; Public Utility Holding Company Act 48
SECTION 3.14 Federal Reserve Regulations 48
SECTION 3.15 Insurance 48
SECTION 3.16 Capitalization and Subsidiaries 48
SECTION 3.17 Real Estate Assets 49
SECTION 3.18 Solvency 49
SECTION 3.19 Brokers, etc. 49
SECTION 3.20 No Material Misstatements 49
SECTION 3.21 Year 2000 Matters 49
ARTICLE IV
CONDITIONS FOR LOANS 50
SECTION 4.01 Conditions Precedent to Initial Loans 50
SECTION 4.02 Conditions Precedent to All Loans 53
ARTICLE V
AFFIRMATIVE COVENANTS 54
SECTION 5.01 Corporate and Franchise Existence 54
SECTION 5.02 Compliance with Laws, Etc. 54
SECTION 5.03 Maintenance of Properties 54
SECTION 5.04 Insurance 55
SECTION 5.05 Obligations and Taxes 56
SECTION 5.06 Financial Statements, Reports, etc 56
SECTION 5.07 Litigation and Other Notices 58
SECTION 5.08 Future Properties 58
SECTION 5.09 ERISA 59
SECTION 5.10 Access to Premises and Records 59
SECTION 5.11 Design and Construction 59
SECTION 5.12 Environmental Notices 59
SECTION 5.13 Amendment of Organizational Documents 59
SECTION 5.14 Fiscal Year 60
SECTION 5.15 Year 2000 Problems 60
SECTION 5.16 Future Subsidiaries 60
SECTION 5.17 Accounting; Maintenance of Records 60
SECTION 5.18 Further Assurances 60
SECTION 5.19 Interest Rate Agreements 61
</TABLE>
ii
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FIRST PRIORITY LOAN AGREEMENT
-----------------------------
<TABLE>
<S> <C>
ARTICLE VI
NEGATIVE COVENANTS 62
SECTION 6.01 Liens, etc 62
SECTION 6.02 Use of Proceeds 64
SECTION 6.03 Sale of Assets, Consolidation, Merger, Acquisitions etc 64
SECTION 6.04 Dividends and Distributions; Sale of Equity Interests 64
SECTION 6.05 Management Fees and Permitted Corporate Overhead 65
SECTION 6.06 Investments 65
SECTION 6.07 Subsidiaries 66
SECTION 6.08 Permitted Activities 66
SECTION 6.09 Disposition of Licenses, etc. 66
SECTION 6.10 Transactions with Affiliates 66
SECTION 6.11 ERISA 67
SECTION 6.12 Debt 67
SECTION 6.13 Prepayment and Debt Documents 69
SECTION 6.14 Sale and Leaseback Transactions 69
SECTION 6.15 Margin Regulation 69
SECTION 6.16 Restrictive Agreements, etc. 69
ARTICLE VII
FINANCIAL COVENANTS 69
SECTION 7.01 Financial Covenants Prior to Achieving Positive EBITDA 70
SECTION 7.02 Financial Covenants After Achieving Positive EBITDA 72
ARTICLE VIII
GUARANTY 74
SECTION 8.01 Guaranty of the Obligations 74
SECTION 8.02 Contribution by Guarantors 74
SECTION 8.03 Payment by Guarantors 75
SECTION 8.04 Liability of Guarantors Absolute 76
SECTION 8.05 Waivers by Guarantors 78
SECTION 8.06 Guarantors' Rights of Subrogation, Contribution, Etc. 78
SECTION 8.07 Subordination of Other Obligations 79
SECTION 8.08 Continuing Guaranty 79
</TABLE>
iii
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
<TABLE>
<S> <C>
SECTION 8.09 Authority of Guarantors or Borrower 79
SECTION 8.10 Financial Condition of Borrower 79
SECTION 8.11 Bankruptcy, Etc. 80
SECTION 8.12 Notice of Events 81
SECTION 8.13 Discharge of Guaranty Upon Sale of Guarantor 81
ARTICLE IX
EVENTS OF DEFAULT; REMEDIES 81
SECTION 9.01 Events of Default 81
SECTION 9.02 Termination of Commitment; Acceleration 84
SECTION 9.03 Waivers 84
ARTICLE X
AGENTS 85
SECTION 10.01 Appointment of Agents 85
SECTION 10.02 Powers and Duties 85
SECTION 10.03 General Immunity 86
SECTION 10.04 Agents Entitled to Act as Lender 87
SECTION 10.05 Lenders' Representations and Warranties 87
SECTION 10.06 Right to Indemnity 87
SECTION 10.07 Successor Administrative Agent 88
SECTION 10.08 Other Loan Documents 88
ARTICLE XI
MISCELLANEOUS 89
SECTION 11.01 Notices 89
SECTION 11.02 Expenses 89
SECTION 11.03 Indemnity 90
SECTION 11.04 Set-Off 91
SECTION 11.05 Amendments and Waivers 91
SECTION 11.06 Successors and Assigns; Participations 93
SECTION 11.07 Independence of Covenants 96
SECTION 11.08 Survival of Representations, Warranties and Agreements 96
SECTION 11.09 No Waiver; Remedies Cumulative 96
SECTION 11.10 Marshalling; Payments Set Aide 96
SECTION 11.11 Severability 97
SECTION 11.12 Obligations Several; Independent Nature of Lenders' Rights 97
SECTION 11.13 Entire Agreement; Headings 97
SECTION 11.14 APPLICABLE LAW 97
</TABLE>
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FIRST PRIORITY LOAN AGREEMENT
-----------------------------
<TABLE>
<S> <C>
SECTION 11.15 CONSENT TO JURISDICTION 97
SECTION 11.16 WAIVER OF JURY TRIAL 98
SECTION 11.17 Confidentiality 99
SECTION 11.18 Ratable Sharing 99
SECTION 11.19 Counterparts; Effectiveness 100
</TABLE>
v
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
EXHIBITS:
EXHIBIT A-1 Notice of Borrowing
EXHIBIT A-2 Notice of Continuation/Conversion
EXHIBIT B-1 Revolving Loan Note
EXHIBIT B-2 Term Loan Note
EXHIBIT C Compliance Certificate
EXHIBIT D Opinion of Credit Parties' Counsel
EXHIBIT E Assignment Agreement
EXHIBIT F Closing Date Certificate
EXHIBIT G Counterpart Agreement
EXHIBIT H Pledge and Security Agreement
EXHIBIT I Intercreditor Agreement
EXHIBIT J-1 Landlord Consent and Estoppel (Node Site)
EXHIBIT J-2 Landlord Consent and Estoppel (Collocation)
EXHIBIT K Certificate Re Non-bank Status
SCHEDULES:
SCHEDULE 3.02 Certain Disclosures
SCHEDULE 3.10(a) Governmental Authorizations and Approvals
SCHEDULE 3.10(b) Material Agreements
SCHEDULE 3.12 ERISA Matters
SCHEDULE 3.15 Insurance
SCHEDULE 3.16 Capitalization and Subsidiaries
SCHEDULE 3.17 Real Estate Assets
SCHEDULE 6.12 Debt
ANNEXES:
ANNEX A Commitment Amounts
v
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
LOAN AND GUARANTY AGREEMENT
LOAN AND GUARANTY AGREEMENT, dated as of April 5, 1999, among
NORTHPOINT COMMUNICATIONS, INC., a Delaware corporation ("BORROWER"), NORTHPOINT
--------
COMMUNICATIONS OF VIRGINIA, INC., a Virginia corporation ("NORTHPOINT
----------
VIRGINIA"), and NORTHPOINT COMMUNICATIONS HOLDINGS, INC., a Delaware corporation
- --------
("HOLDINGS"), as Guarantors, the Lenders party hereto from time to time
--------
("LENDERS"), Goldman Sachs Credit Partners L.P. ("GSCP"), as a Joint Lead
- --------- ----
Arranger (in such capacity, a "JOINT LEAD ARRANGER") and Syndication Agent (in
-------------------
such capacity, a "SYNDICATION AGENT"), Canadian Imperial Bank of Commerce
-----------------
("CIBC"), as Administrative Agent (in such capacity, the "ADMINISTRATIVE
---- --------------
AGENT"), Newcourt Commercial Finance Corporation ("NEWCOURT"), as Documentation
- ----- --------
Agent (in such capacity, the "DOCUMENTATION AGENT") and Collateral Agent (in
-------------------
such capacity, the "COLLATERAL AGENT"), and Capital Syndication Corporation
----------------
("CSC") as a Joint Lead Arranger (in such capacity, a "JOINT LEAD ARRANGER").
--- -------------------
R E C I T A L S
- - - - - - - -
WHEREAS, Borrower has requested the Lenders to extend credit to
Borrower; and
WHEREAS, the Lenders are willing to extend such credit to Borrower
subject to, and on the terms and conditions of, this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Borrower, each Guarantor, the Agents and the Lenders agree as follows:
1
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
1 ARTICLE
DEFINITIONS
- -----------
2.1 SECTION Definitions. As used in this Agreement, including the preamble,
recitals, exhibits, schedules and annexes hereto, the following words and terms
shall have the meanings specified below:
"AFFILIATE" shall mean, with respect to a Person, any Person (other
---------
than any Lender) directly or indirectly controlling, controlled by or under
common control with such Person and any officer or shareholder of such Person,
which shareholder beneficially owns at least ten percent (10%) of the Equity
Interests of such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by",
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
-------- -------
that beneficial ownership of at least 10% of the Equity Interests of a Person
shall be deemed to constitute control.
"AGENTS" shall mean collectively, the Administrative Agent, the
------
Collateral Agent, the Documentation Agent, the Syndication Agent and the Joint
Lead Arrangers.
"AGGREGATE AMOUNTS DUE" shall have the meaning given to such term in
---------------------
Section 11.18 hereof.
- -------------
"AGGREGATE PAYMENTS" shall have the meaning given to such term in
------------------
Section 8.02.
- ------------
"AGREEMENT" shall mean this Loan and Guaranty Agreement, dated as of
---------
April 5, 1999, as it may be amended, supplemented or otherwise modified from
time to time.
"APPLICABLE MARGIN" shall mean with respect to (i) each Loan bearing
-----------------
interest based upon the Base Rate, 3.50% per annum, and (ii) each Loan bearing
interest based upon the LIBO Rate, 4.50% per annum.
"ASSIGNMENT AGREEMENT" shall mean an assignment agreement entered into
--------------------
in connection with an assignment pursuant to Section 11.06 hereof substantially
-------------
in the form of Exhibit E hereof.
---------
"BASE LIBO RATE" shall mean, with respect to each day during each
--------------
Interest Period pertaining to a LIBOR Loan, the rate per annum determined by the
Administrative Agent to be the arithmetic mean (rounded to the nearest 1/100th
of 1%) of the offered rates for deposits in Dollars with a term comparable to
such Interest Period that appears on the
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
Telerate British Bankers Assoc. Interest Settlement Rates Page (as defined
below) at approximately 11:00 A.M., London time, on the second full Business Day
preceding the first day of such Interest Period; provided, however, that if
there shall at any time no longer exists a Telerate British Bankers Assoc.
Interest Settlement Rates Page, "Base LIBO Rate" shall mean, with respect to
each day during each Interest Period pertaining to a LIBOR Loan, the rate per
annum equal to the rate at which CIBC is offered Dollar deposits at or about
10:00 A.M., New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations in respect of its LIBOR Loans are then
being conducted for delivery on the first day of such Interest Period for the
number of days comprised therein and in an amount comparable to the amount of
its LIBOR Loan to be outstanding during such Interest Period. "Telerate British
Bankers Assoc. Interest Settlement Rates Page" shall mean the display designated
as Page 3750 on the Telerate System Incorporates Service (or such other page as
may replace such page on such service for the purpose of displaying the rates at
which Dollar deposits are offered by leading banks in the London interbank
deposit market).
"BASE RATE" shall mean the higher of (i) a rate per annum equal to
---------
the prime rate announced by CIBC from time to time, changing when and as such
rate changes, it being understood that such rate of interest is not necessarily
the lowest or best rate charged by CIBC to its customers, and (ii) the sum of
the Federal Funds Effective Rate plus one-half percent (0.50%) per annum.
"BASE RATE LOAN" shall mean a Loan, or portion thereof, during any
--------------
period in which it bears interest at a rate based upon the Base Rate.
"BASE RATE REVOLVING LOAN" shall mean a Revolving Loan during any
------------------------
period for which it is a Base Rate Loan.
"BASE RATE TERM LOAN" shall mean any portion of the Term Loans during
-------------------
any period for which such portion is a Base Rate Loan.
"BENEFICIARY" shall mean any Agent or any Lender.
-----------
"BENEFIT PLAN" shall mean a defined benefit plan as defined in Section
------------
3(35) of ERISA (other than a Multiemployer Plan) in respect of which Borrower or
any ERISA Affiliate is, or within the immediately preceding six (6) years was,
an "employer" as defined in Section 3(5) of ERISA.
"BORROWER" shall have the meaning given to such term in the preamble
--------
hereto.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"BORROWING BASE" shall mean, at any time, an amount equal to the sum
--------------
of (i) the aggregate cost of all Telecommunications Equipment of Borrower and
its Subsidiaries in which (or in the proceeds of which, including sale,
insurance or condemnation proceeds) Collateral Agent, on behalf of Secured
Parties, has a valid and perfected first priority security interest and that is
not subject to any Lien pursuant to Section 6.01(ii) or 6.01(iii), (ii) with
---------------- ---------
respect to any Loan made on the six month anniversary of the Closing Date, the
amount of the Escrowed Proceeds and (iii) 100% of the cost of Telecommunications
Equipment proposed to be acquired through any funding being requested by
Borrower.
"BUSINESS" shall mean the business of operating and maintaining the
--------
Systems owned by Borrower and its Subsidiaries and all operations related
thereto or in support thereof.
"BUSINESS DAY" shall mean (a) any day not a Saturday, Sunday or legal
------------
holiday in the State of New York or the State of New Jersey, on which banks are
open for business in New York and New Jersey and (b) with respect to all
notices, determinations, fundings and payments in connection with the LIBO Rate
or LIBOR Loans, any day that is a Business Day pursuant to clause (a) above and
----------
that is also a day on which trading is carried on by and between banks in the
London interbank market.
"CAPITAL EXPENDITURES" shall mean, for any period, the aggregate of
--------------------
all expenditures of Borrower and its Subsidiaries during such period determined
on a consolidated basis that, in accordance with GAAP, are or should be included
in "purchase of property and equipment" or similar items reflected in the
consolidated statement of cash flows of Borrower and its Subsidiaries
including, in any event, the amount of any cash expenditures made with respect
to Permitted Acquisitions.
"CAPITALIZATION" shall mean an amount equal to the funded equity
--------------
capitalization and all funded Debt of Credit Parties, less the aggregate of all
amounts included in clause (ii)(F) of the definition of the term "EBITDA" since
the Closing Date.
"CAPITALIZED LEASE OBLIGATIONS" shall mean indebtedness represented by
-----------------------------
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"CERTIFICATE RE NON-BANK STATUS" means a certificate in the form of
------------------------------
Exhibit K.
"CHANGE OF CONTROL" shall mean (i) prior to the consummation of an
-----------------
initial public offering of common stock by Holdings providing gross proceeds to
Holdings of not less than $125,000,000, the net proceeds of which are used to
make capital contributions to Borrower constituting Contributed Capital, (a)
Michael W. Malaga (or any replacement
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
thereof as Lenders holding at least 66% of the outstanding Loans may approve)
shall cease to be a member of the senior management of Holdings and Borrower, or
(b) either of the Founders referred to in clauses (iii) or (iv) of the
definition thereof shall cease to own and control any of the capital stock of
Holdings owned or controlled by such Founder as of the Closing Date; (ii) for
one year after the Closing Date, either of the Founders referred to in clauses
(i) or (ii) of the definition thereof shall cease to own and control at least
20% of the capital stock of Holdings owned and controlled by such Founder as of
the Closing Date; (iii) any Person (other than one or more of the Founders),
including a "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act) which includes such Person, shall purchase or otherwise
acquire, directly or indirectly, beneficial ownership of securities of Holdings
and, as a result of such purchase or acquisition, any person (together with its
associates and Affiliates), shall directly or indirectly beneficially own in the
aggregate securities representing more than 30% of the combined voting power of
Holdings' voting securities; (iv) a "Change of Control" or similar event shall
occur under any other Debt of a Credit Party or (v) Holdings shall cease to own
and control 100% of the outstanding capital stock of Borrower or any of its
other Subsidiaries or Borrower shall cease to own and control 100% of the
outstanding capital stock of any of its Subsidiaries.
"CLOSING DATE" shall mean the date on which this Agreement is executed
------------
and delivered by the parties hereto.
"CLOSING DATE CERTIFICATE" shall mean a certificate in the form of
------------------------
Exhibit F.
"COLLATERAL" shall mean, all property and interests in property now
----------
owned or hereafter acquired by any Credit Party, whether real, personal or
mixed, and whether tangible or intangible, in or upon which a security interest,
lien or mortgage is granted to the Collateral Agent by any Credit Party under
any of the Loan Documents.
"COLLATERAL AGENT" shall mean Newcourt in its capacity as Collateral
----------------
Agent under the Loan Documents and the Intercreditor Agreement and also means
any successor Collateral Agent appointed pursuant to Section 1 of the
Intercreditor Agreement.
"COLLATERAL DOCUMENTS" shall mean the Pledge and Security Agreement,
--------------------
the Intercreditor Agreement, and all other instruments or documents delivered by
any Credit Party pursuant to this Agreement or any of the other Loan Documents
in order to grant to Collateral Agent, on behalf of Lenders, a Lien on any real,
personal or mixed, or tangible or intangible, property of that Credit Party as
security for the Obligations, as any of the foregoing may be amended,
supplemented or otherwise modified from time to time.
"COMDISCO FACILITY" shall mean the Master Lease Agreement dated as of
-----------------
October 23, 1997 by and between Comdisco, Inc. and Borrower, as it may be
amended from time to time in accordance with this Agreement.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"COMMITMENT" shall mean the commitments of Lenders to lend as set
----------
forth in Section 2.01 hereof.
------------
"COMMITMENT AMOUNT" shall mean (a) as to any Lender, the aggregate of
-----------------
such Lender's Revolving Loan Commitment Amount and Term Loan Commitment Amount
as set forth opposite such Lender's name on Annex A to this Agreement or in the
-------
most recent Assignment Agreement executed by such Lender and (b) as to all
Lenders, the aggregate of all Lenders' Revolving Loan Commitment Amounts and
Term Loan Commitment Amounts, which aggregate commitment shall be Sixty Million
Dollars ($60,000,000) on the Closing Date, as such amount may be adjusted from
time to time in accordance with this Agreement.
"COMMON STOCK" shall mean with respect to any Person, all Equity
------------
Interests of such Person that are generally entitled to (i) vote in the election
of directors of such Person or (ii) if such Person is not a corporation, vote or
otherwise participate in the selection of the governing body, partners, managers
or others that will control the management and policies of such Person.
"COMPLIANCE CERTIFICATE" shall mean a compliance certificate in the
----------------------
form of Exhibit C attached hereto.
---------
"CONSOLIDATED" or "CONSOLIDATED" refers, with respect to any Person,
------------ ------------
to the consolidation of the accounts of such Person and its Subsidiaries, if
any, in accordance with GAAP.
"CONSOLIDATED DEBT" shall mean, as of any date of determination, the
-----------------
Debt of Holdings and its Subsidiaries determined on a consolidated basis in
accordance with GAAP (and shall include, without limitation, the fully accreted
value of any discount notes issued by Holdings) less, prior to the consummation
----
of an initial public offering of common stock by Holdings providing gross
proceeds to Holdings of not less than $125,000,000, the net proceeds of which
are used to make capital contributions to Borrower constituting Contributed
Capital, the amount of cash on hand and any Temporary Cash Investment in excess
of $10,000,000 held by Borrower and its Subsidiaries as of such date.
"CONTAMINANT" shall mean any pollutant, hazardous substance, toxic
-----------
substance, hazardous waste, special waste, petroleum or petroleum derived
substance or waste, or any constituent of any such substance or waste.
"CONTRIBUTED CAPITAL" shall mean, with respect to any Person, at any
-------------------
date of determination, all capital contributed in the form of cash to such
Person, including all funded equity and all Qualified Inter company Loans.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"CONTRIBUTING GUARANTORS" shall have the meaning given to such term in
-----------------------
Section 8.02 hereof.
- ------------
"COUNTERPART AGREEMENT" shall mean a counterpart agreement in the form
---------------------
of Exhibit G hereto.
---------
"CREDIT PARTY" shall mean each Person (other than any Agent or any
------------
Lender or any other representative thereof) from time to time party to a Loan
Document.
"DEBT" shall mean, with respect to any Person, (i) indebtedness for
----
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred purchase price of
property or services, excluding trade payables not more than 90 days past due
and accrued expenses incurred in the ordinary course of business, (iv)
Capitalized Lease Obligations, (v) all Guaranties of such Person, including
without limitation, all debt of any other Person secured by a Lien on property
of such Person, (vi) all reimbursement obligations, contingent or otherwise,
with respect to letters of credit or banker's acceptances issued for the account
of Borrower (other than letters of credit issued in support of ordinary trade
liabilities or workers' compensation obligations, unless and until drawn and
unreimbursed within one Business Day after such drawing), and (vii) all
indebtedness, obligations or other liabilities in respect of any Interest Rate
Agreement/1/, provided that Debt shall not include any liability for Federal,
--------
state, local or other taxes, and provided, further, that the amount outstanding
-------- -------
at any time of any Debt issued with original issue discount is the principal
amount of such Debt less the remaining unamortized portion of the original issue
discount of such Debt at such time as determined in conformity with GAAP, and
that with respect to any high-yield Debt, the amount thereof shall not include
fees incurred in raising such Debt or overfunded amounts set aside solely to pay
interest. Notwithstanding any other provision of the foregoing definition, any
trade payable not more than 90 days past due arising from the purchase of goods
or materials or for services obtained in the ordinary course of business shall
not be deemed to be "Debt" of Borrower for purposes of this definition.
Furthermore, guarantees of (or obligations with respect to letters of credit
supporting) Debt otherwise included in the determination of such amount shall
not be included.
"DEFAULT" shall mean any event which but for the passage of time
-------
requirement or the giving of notice requirement, or both, would constitute an
Event of Default.
____________________
/1/For purposes of determining the amount of Debt associated with any Interest
Rate Agreement, such determination shall only be made as of the last day of each
calendar quarter and shall be effective until the last day of the immediately
succeeding calendar quarter.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
---------------
account with any financial institution, including, without limitation, a bank,
savings and loan association or credit union, other than an account evidenced by
a negotiable certificate of deposit.
"DOLLARS" or "$" shall mean lawful money of the United States of
------- -
America.
"EBITDA" shall mean, with respect to any Person, for any period, an
------
amount equal to, without duplication, (i) Net Income plus (ii) the sum of the
----
following, to the extent deducted in determining Net Income: (A) income and
franchise taxes, (B) interest expense, (C) amortization and depreciation
expense, including, without limitation, amortization of deferred compensation,
(D) all extraordinary non-cash losses, (E) other non-cash charges (including,
without limitation, non-cash charges incurred in connection with the valuation
of warrants) reducing Net Income and (F) to the extent deducted in determining
Net Income, Market Co-Development Costs funded by Permitted Funds, minus (iii)
-----
the sum of (A) interest income, (B) extraordinary gains and (C) other non-cash
items increasing Net Income, all as determined for Borrower and its Subsidiaries
on a consolidated basis and in accordance with GAAP.
"ELIGIBLE ASSIGNEE" shall mean (i) any Lender, any Affiliate of any
-----------------
Lender, and any Related Fund (any two or more Related Funds being treated as a
single Eligible Assignee for all purposes hereof) and (ii) any commercial bank,
insurance company, investment or mutual fund, finance company or other entity
that is an "accredited investor" (as defined in Regulation D under the
Securities Act) and which extends credit or buys loans as one of its businesses;
provided, no Affiliate of Borrower shall be an Eligible Assignee.
"ENVIRONMENTAL LAWS" shall mean all federal, state and local laws,
------------------
rules, regulations, ordinances, programs, permits, guidance, orders and consent
decrees or other binding determination of any Governmental Authority relating to
protection of the environment, the handling, disposal or Release of Contaminants
and occupational safety and health. Such laws and regulations include but are
not limited to the Resource Conservation and Recovery Act, 33 U.S.C. (S) 6901 et
--
seq., as amended; the Comprehensive Environmental Response, Compensation and
- ----
Liability Act, 42 U.S.C. (S) 9601 et seq., as amended; the Toxic Substances
-- ----
Control Act, 15 U.S.C. (S) 2601 et seq., as amended; the Clean Water Act, 33
-- ----
U.S.C. (S) 1251 et seq., as amended; the Clean Air Act, 42 U.S.C. (S) 7401 et
-- ---- --
seq., as amended; state and federal environmental lien and environmental cleanup
- ----
programs; the Occupational Safety and Health Act, 29 U.S.C. (S) 651 et seq.; and
------
U.S. Department of Transportation regulations related to the transportation of
hazardous materials, each as from time to time hereafter in effect.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"EQUITY AFFILIATE" shall mean, as applied to any Person, any other
----------------
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"EQUITY INTEREST" shall mean, with respect to any Person, any and all
---------------
shares or other equivalents (however designated) of capital stock, membership
units, partnership interests or any other participation right or other interest
in the nature of an equity interest in such Person or any option, warrant or
other security convertible into any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean (i) any corporation which is a member of
---------------
the same controlled group of corporations (within the meaning of Section 414(b)
of the IRC) as Borrower, (ii) any partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the IRC) with Borrower and (iii) any member of the same
affiliated service group (within the meaning of Section 414(m) of the IRC) as
Borrower.
"ESCROWED PROCEEDS" shall mean the proceeds of Revolving Loans made on
-----------------
the six-month anniversary of the Closing Date which are deposited in escrow with
the Collateral Agent or its designee, such proceeds to be released from such
escrow solely for the purpose of enabling Borrower to purchase
Telecommunications Equipment.
"EUROCURRENCY LIABILITIES" shall have the meaning assigned to that
------------------------
term in Regulation D of the Federal Reserve Board, as in effect from time to
time.
"EVENT OF DEFAULT" shall have the meaning given to such term in
----------------
Article IX hereof.
- ----------
"EVENT OF LOSS" shall mean, with respect to any item of Collateral,
-------------
the actual or constructive loss of such item of Collateral or the use thereof,
due to theft, destruction, damage beyond repair or damage from any reason
whatsoever, to an extent which makes repair uneconomical, or rendition thereof
unfit for normal use, or the condemnation, confiscation or seizure of, or
requisition of title to or use of, such item of Collateral by any Governmental
Authority or any other Person, acting under or deemed to be acting under color
of any Governmental Authority.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"EXCESS OPERATING CASH FLOW" shall mean, for any period, Net Income of
--------------------------
Borrower and its Subsidiaries plus non-cash interest expense, depreciation and
amortization and any other non-cash items of Borrower and its Subsidiaries
reducing Net Income, minus scheduled Principal Payments of Borrower and its
-----
Subsidiaries, lease payments and capital expenditures of Borrower and its
Subsidiaries (to the extent not otherwise deducted in determining Net Income),
plus or minus changes in working capital of Borrower and its Subsidiaries during
such period.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time.
"FAIR SHARE CONTRIBUTION AMOUNT" shall have the meaning given to such
------------------------------
term in Section 8.02.
------------
"FAIR SHARE" shall have the meaning given to such term in Section
---------- -------
8.02.
- ----
"FAIR SHARE SHORTFALL" shall have the meaning given to such term in
--------------------
Section 8.02.
- ------------
"FCC" shall mean the Federal Communications Commission or any
---
successor commission or agency of the United States of America having
jurisdiction over Borrower or any System.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any period, a
----------------------------
fluctuating interest rate per annum equal for each day during such period to (a)
the weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or if such day is not a Business Day, for the preceding
Business Day) by the Federal Reserve Bank of New York in the Composite Closing
Quotations for U.S. Government Securities; or (b) if such rate is not so
published for any day which is a Business Day, the average of the quotations at
approximately 10:30 a.m. (New York time) for such day on such transactions as
determined by the Administrative Agent from three federal funds brokers of
recognized standing selected by it.
"FEDERAL RESERVE BOARD" shall mean the Board of Governors of the
---------------------
Federal Reserve System or any successor thereto.
"FINANCIALS" shall have the meaning given to such term in Section
---------- -------
3.03.
"FIXED CHARGES" shall mean with respect to any six-month period for
-------------
Borrower and its Subsidiaries, the sum of the following amounts calculated on a
consolidated basis at the end of such period with respect to such period without
duplication and in accordance with GAAP: (i) scheduled principal and interest
payments with respect to Debt dur-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
ing such period, (ii) capital expenditures made during such period, (iii) income
tax payments payable in cash with respect to such period, and (iv) cash dividend
payments made during such period.
"FIXED CHARGE COVERAGE RATIO" shall have the meaning given to such
---------------------------
term in Section 7.02(c).
---------------
"FOUNDERS" shall mean each of (i) Michael W. Malaga, (ii)Tim Monahan,
--------
William Euske, Nathan Gregory, Robert Flood and Steve Gorosh, as a group, (iii)
investment funds controlled by The Carlyle Group owning capital stock of
Holdings as of the Closing Date, as a group, and (iv) investment funds
controlled by Vulcan Ventures Incorporated owning capital stock of Holdings as
of the Closing Date, as a group.
"FUNDING DATE" shall mean each the date upon which, subject to the
------------
satisfaction of all conditions precedent contained in Sections 4.01 and/or 4.02,
-------------
or the waiver thereof by the Agents and the Requisite Lenders, the Loans are
made on or after the Closing Date.
"FUNDING GUARANTOR" shall have the meaning given to such term in
-----------------
Section 8.02.
- ------------
"GAAP" shall mean United States generally accepted accounting
----
principles in effect as of the date of determination thereof.
"GOVERNMENTAL APPROVAL" shall mean, with respect to Borrower or any of
---------------------
its Subsidiaries, any license, permit, franchise or certificate of public
convenience and necessity issued to Borrower or any of its Subsidiaries by the
FCC, any PUC or any other Governmental Authority in connection with any System.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, local or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GUARANTOR" shall mean Holdings and each direct or indirect Subsidiary
---------
of Holdings other than Borrower.
"GUARANTY" shall mean any (y) obligation, contingent or otherwise, of
--------
any Person guaranteeing any Debt of any other Person (the "PRIMARY OBLIGOR") in
---------------
any manner, whether directly or indirectly, and including any obligation of such
Person, direct or indirect, (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
indebtedness; (ii) to purchase property, securities or services for the
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
purpose of assuring the owner of such indebtedness of the payment of such
indebtedness; or (iii) to maintain working capital, equity capital or other
financial statement condition of the Primary Obligor so as to enable the Primary
Obligor to pay such indebtedness and (z) any Interest Rate Agreement.
"HOLDINGS" shall have the meaning as set forth in the preamble to this
--------
Agreement.
"INDEMNIFIED LIABILITIES" shall mean, collectively, any and all
-----------------------
liabilities, obligations, losses, damages (including natural resource damages),
penalties, actions, judgments, suits, claims (including, without limitation,
environmental claims), costs (including the costs of any investigation, study,
sampling, testing, abatement, cleanup, removal, remediation or other response
action necessary to remove, remediate, clean up or abate any hazardous materials
activity), expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened by any Person, whether or not any such Indemnitee shall
be designated as a party or a potential party thereto, and any fees or expenses
incurred by Indemnitees in enforcing this indemnity), whether direct, indirect
or consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or
arising out of (i) this Agreement or any of the other Loan Documents or the
transactions contemplated hereby or thereby (including Lenders' agreement to
make Loans or the use or intended use of the proceeds thereof or the use or
intended use of any thereof, or any enforcement of any of the Loan Documents
(including any sale of, collection from, or other realization upon any of the
Collateral or the enforcement of any Guaranty)); (ii) the statements contained
in the commitment letter delivered by any Lender to Borrower with respect
thereto; or (iii) any environmental claim or any hazardous materials activity
relating to or arising from, directly or indirectly, any past or present
activity, operation, land ownership, or practice of any Credit Party or their
Affiliates.
"INDEMNITEE" shall have the meaning given to such term in Section
---------- -------
11.03 hereof.
- -----
"INITIAL FUNDING DATE" shall mean the date upon which, subject to the
--------------------
satisfaction of all conditions precedent contained in Sections 4.01 and 4.02, or
------------- ----
the waiver thereof by the Agents and the Requisite Lenders, the initial Loans
are made on or after the Closing Date.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreement by
-----------------------
and between Administrative Agent, Collateral Agent and Newcourt, as
Administrative Agent under the Second Priority Loan Documents in substantially
the form of Exhibit I annexed hereto to be executed and delivered pursuant to
---------
Section 4.01.
- ------------
"INTEREST EXPENSE" shall mean for any period, the total interest
----------------
expense (including, without limitation, interest expense attributable to
Capitalized Lease Obligations) determined on a consolidated basis, without
duplication, for Borrower and its Subsidiaries in accordance with GAAP.
"INTEREST PERIOD" shall mean, with respect to each LIBOR Loan, the
---------------
interest period applicable to such LIBOR Loan as set forth in the applicable
Notice of Borrowing or Notice of Continuation/Conversion .
"INTEREST RATE AGREEMENT" shall mean for any Person, any interest rate
-----------------------
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"INVESTMENT" shall mean, as applied to any Person, any direct or
----------
indirect purchase or other acquisition by that Person of securities, or of a
beneficial interest in securities, of any other Person, and any direct or
indirect loan, advance (other than deposits with financial institutions
available for withdrawal on demand, prepaid expenses, advances to employees,
officers and directors and similar items, each made or incurred in the ordinary
course of business), or capital contribution by that Person to any other Person,
including all Debt of such other Person to that Person, but excluding accounts
owed by that other Person in the ordinary course of business. Investments shall
exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices. The amount of any Investment shall be
determined in conformity with GAAP.
"IRC" shall mean the Internal Revenue Code of 1986, as amended from
---
time to time and any successor statutes.
"IRS" shall mean the Internal Revenue Service or any successor agency.
---
"LANDLORD CONSENT AND ESTOPPEL" shall mean (i) with respect to any
-----------------------------
node site, a consent and estoppel in the form of Exhibit J-1 annexed hereto, and
(ii) with respect to any collocation agreement, a consent and estoppel in the
form of Exhibit J-2 annexed hereto; provided that Collateral Agent may, in its
discretion eliminate or modify the provisions otherwise required to be included
in any such Landlord Consent and Estoppel.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"LEASEHOLD PROPERTY" shall mean any leasehold interest of any Credit
------------------
Party as lessee under any lease of real property, other than any such leasehold
interest designated from time to time by Collateral Agent in its sole discretion
as not being required to be included in the Collateral.
"LENDER COUNTERPARTY INTEREST RATE AGREEMENT" shall have the meaning
-------------------------------------------
ascribed thereto in the definition of the term "Loan Documents".
"LENDING OFFICE" shall mean, with respect to a Lender or Agent, any
--------------
office, branch, subsidiary or affiliate of such Lender or the Agent.
"LIBO RATE" shall mean, with respect to each day during each Interest
---------
Period pertaining to a LIBOR Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
LIBO RATE = BASE LIBO RATE
----------------------
1.00 - LIBOR RESERVE PERCENTAGE
"LIBOR INTEREST PAYMENT DATE" shall mean, with respect to a LIBOR
---------------------------
Loan, the last day of each Interest Period applicable to such Loan, and, if such
Interest Period has a duration of more than three months, on each day which
occurs during such Interest Period every three months from the first day of such
Interest Period.
"LIBOR INTEREST RATE DETERMINATION DATE" shall mean each date of
--------------------------------------
calculating the LIBO Rate for purposes of determining the interest rate with
respect to an Interest Period. The LIBOR Interest Rate Determination Date for
any LIBOR Loan shall be the second Business Day prior to the first day of the
related Interest Period for such LIBOR Loan.
"LIBOR LOAN" shall mean a Loan, or portion thereof, during any period
----------
in which it bears interest at a rate based upon the LIBO Rate.
"LIBOR RESERVE PERCENTAGE" shall mean for any day for any Interest
------------------------
Period the maximum reserve percentage (expressed as a decimal, rounded upward to
the next 1/100th of 1.0%) in effect on such day (whether or not applicable to
any Lender) for United States domestic banks under regulations issued from time
to time by the Federal Reserve Board for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency Liabilities having a term comparable
to such Interest Period.
"LIBOR REVOLVING LOAN" shall mean a Revolving Loan during any period
--------------------
for which it is a LIBOR Loan.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"LIBOR TERM LOAN" shall mean any portion of the Term Loans during any
---------------
period for which such portion is a LIBOR Loan.
"LIEN" shall mean any mortgage, pledge, deed of trust, assignment,
----
lien, charge, encumbrance or security interest of any kind, or the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement, but excluding easements, rights of way or similar
encumbrances on real property which are in the ordinary course and which do not
materially affect the value, use and insurability of title of such real
property.
"LOAN" shall mean a Revolving Loan and/or a Term Loan.
----
"LOAN DOCUMENTS" shall mean all agreements, instruments and documents,
--------------
including, without limitation, security agreements, loan agreements, notes,
guarantees, mortgages, deeds of trust, subordination agreements, pledges, powers
of attorney, consents, assignments, contracts, notices, leases, financing
statements, between Borrower, any Guarantor, any Agent or any of the Lenders and
all other written matter whether heretofore, now, or hereafter executed by or on
behalf of Borrower, any Guarantor or any other Person in connection with the
transactions contemplated hereby or by any other Loan Document and delivered to
any Agent or any of the Lenders, together with all agreements and documents
referred to therein or contemplated thereby; provided, the term "Loan Documents"
shall not include any Interest Rate Agreement unless y) such Interest Rate
Agreement is entered into by a Lender or an Affiliate thereof with the Borrower
(each, a "LENDER COUNTERPARTY INTEREST RATE AGREEMENT"), and z) Borrower and
-------------------------------------------
such Lender or Affiliate thereof have agreed that such Lender Counterparty
Interest Rate Agreement is a Loan Document.
"MARKET CO-DEVELOPMENT COSTS" means actual cash expenses incurred by
---------------------------
Borrower or any of its Subsidiaries in connection with the development of a
market; provided that y) such expenses are only incurred as a result of the
--------
development of such market in cooperation with another Person, other than an
Affiliate and z) such expenses are not included as projected expenses in the
Projections.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, a
-----------------------
material adverse effect upon the business, condition (financial or otherwise),
operations, properties, or prospects of such Person, or upon the ability of such
Person to perform, or the ability of such Person to enforce any right or remedy,
under the Loan Documents.
"MAXIMUM RATE" shall have the meaning given to such term in Section
------------ -------
2.13 hereof.
- ----
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"MORGAN STANLEY BRIDGE NOTES" shall mean Senior Increasing Rate Notes
---------------------------
due July 15, 1999 issued pursuant to the Note Purchase Agreement dated as of
July 10, 1998 between NorthPoint and Morgan Stanley Senior Funding, Inc.
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by Borrower or an ERISA Affiliate.
"NET INCOME" shall mean, with respect to any Person for any period,
----------
the net income (or loss) of such Person determined in accordance with GAAP minus
-----
(ii) (a) the income of any Person (other than a Subsidiary of such Person) in
which any other Person has a joint interest, except to the extent of the amount
of dividends or other distributions actually paid to such Person or any of its
Subsidiaries by such Person during such period, (b) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of such Person or is
merged into or consolidated with that Person or that Person's assets are
acquired by such Person, (c) the income of any Subsidiary (other than a
Guarantor) of that Person to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that income is not at
the time permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary, (d) any after-tax gains or losses attributable to
asset sales or returned surplus assets of any pension plan, and (e) (to the
extent not included in clauses (a) through (d) above) any net extraordinary
gains or net non-cash extraordinary losses.
"NOTE" shall mean any Revolving Loan Note or any Term Loan Note.
----
"NOTICE OF BORROWING" shall mean a notice substantially in the form of
-------------------
Exhibit A-1 attached hereto.
- -----------
"NOTICE OF CONVERSION/CONTINUATION" shall mean a notice in
---------------------------------
substantially the form of Exhibit A-2 annexed hereto.
-----------
"OBLIGEE GUARANTOR" shall have the meaning set forth in Section 8.07
----------------- ------------
hereof.
"OBLIGATIONS" shall mean all the obligations of any Credit Party now
-----------
or hereafter existing under this Agreement or any other Loan Document to which
any Credit Party is a party, whether for principal, interest, fees, expenses,
reimbursement, indemnification or otherwise. Obligations shall include,
without limitation, all interest, charges, expenses, fees, attorneys' fees and
disbursements, and paralegals' fees which accrue after the commencement of any
case or proceeding in bankruptcy after the insolvency of, or for the liquidation
or reorganization of any Credit Party, whether or not allowed in such
proceeding.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"PAYMENT ACCOUNT" shall mean the Administrative Agent's account at The
---------------
Bank of New York, New York, New York, ABA No. 021000018, for credit to: CIBC, NY
Agency, Account No.890-0331-046, for further credit to: Agented Loans, Account
No. 07-09611, attention: Agency Services, reference: NorthPoint.
"PAYMENT DATE" shall mean the last day of March, June, September, and
------------
December in each calendar year, but if any such date is not a Business Day, the
next succeeding Business Day, commencing on the first such date to occur after
the Closing Date.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA.
"PERMITTED ACQUISITION" shall mean any acquisition by Borrower,
---------------------
whether by purchase, merger or otherwise (but, in any event, except in the
ordinary course of business), of any assets, or a business line or a division
of, or Equity Securities of, any Person; provided that, (i) immediately prior
to, and after giving effect to such acquisition, no Default or Event of Default
shall have occurred and be continuing or would result therefrom, (ii) all
transactions in connection therewith shall be consummated in accordance with all
applicable laws and in conformity with all applicable Governmental
Authorizations, (iii) all of the Equity Securities acquired or otherwise issued
by such Person or any newly formed Subsidiary of Borrower in connection with
such acquisition shall be owned 100% by Borrower or a Guarantor, and Borrower
shall have taken, or caused to be taken, as of the date such Person becomes a
Subsidiary of Company, each of the actions set forth in Section 5.16 hereof,
------------
(iv) Borrower and its Subsidiaries shall be in compliance with, on a pro forma
basis after giving effect to such acquisition, the provisions of Article VII
hereof, (v) Borrower shall have delivered to Administrative Agent a certificate
in the form of a Compliance Certificate evidencing such compliance with such
Section, together with all relevant financial information for such acquired
assets, (vi) any Person or assets or division as acquired in accordance herewith
shall be in the same business or lines of business in which Borrower and/or its
Subsidiaries are engaged as of the Closing Date and (vii) the aggregate amount
of cash consideration paid by Borrower and its Subsidiaries to third parties in
connection with all such acquisitions shall not exceed $17,000,000.
"PERMITTED FUNDS" shall mean the proceeds of any equity issued by
---------------
Holdings to a Person that will co-develop a market with Borrower or any of its
Subsidiaries and which are contributed as equity to Borrower for the purpose of
funding Market Co-Development Costs referred to in clause (ii)(F) of the
definition of EBITDA for the purpose of developing a market in cooperation with
such Person.
"PERMITTED HOLDINGS DEBT" shall mean unsecured Debt of Holdings in an
-----------------------
aggregate principal amount not to exceed, at any time outstanding, $175,000,000
(or in the
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
case of Debt issued at a discount, an initial accreted value of $175,000,000),
which Debt shall not by its terms, require cash payments of principal or
interest or any mandatory redemption or other repayments (other than in the case
of a change of control or a sale of assets, provided that no such repayment is
required with respect to asset sales so long as the net proceeds thereof are
used to repay Debt of the Borrower and/or its Subsidiaries) with respect thereto
(whether before or after default, at maturity, as a result of acceleration or
otherwise) at any time the Total Leverage Ratio is greater than or equal to
6.00:1.00 and which shall not be guaranteed by Borrower or any of its
Subsidiaries.
"PERMITTED LIENS" shall have the meaning set forth in Section 6.01
--------------- ------------
hereof.
"PERSON" shall mean any natural person, corporation, division of a
------
corporation, business trust, joint venture, association, company, partnership,
unincorporated organization or other legal entity, or a government or any agency
or political subdivision thereof.
"PLAN" shall mean any employee benefit plan as defined in Section 3(3)
----
of ERISA (other than a Multiemployer Plan) in respect of which Borrower or any
ERISA Affiliate is, or within the immediately preceding six (6) years was, an
"employer" as defined in Section 3(5) of ERISA.
"PLEDGE AND SECURITY AGREEMENT" shall mean the Pledge and Security
-----------------------------
Agreement substantially in the form of Exhibit H attached hereto.
---------
"PREPAYMENT PREMIUM" shall mean with respect to a Loan prepaid during
------------------
any of the periods set forth below, the percentage of the amount of the Loan
prepaid indicated opposite such period:
Monthly Anniversary After the
Closing Date Percentage
----------------- ----------
7-12 2%
13-24 1%
25 and thereafter 0%
"PRINCIPAL PAYMENTS" shall mean, for any period, total required Debt
------------------
amortization (including, without limitation, the principal payments attributable
to Capitalized Leases) determined on a consolidated basis, without duplication,
for Borrower and its Subsidiaries in accordance with GAAP.
"PRO RATA SHARE" shall mean with respect to all matters relating to
--------------
any Lender (a) with respect to the Revolving Loans, the percentage obtained by
dividing (1) at any time prior to the Revolving Credit Commitment Termination
Date, the Revolving Loan
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
Commitment Amount of such Lender by the aggregate Revolving Loan Commitment
Amount of all Lenders, and (2) at any time after the Revolving Credit Commitment
Termination Date, the aggregate outstanding principal balance of the sum of the
Revolving Loans held by that Lender by the sum of the aggregate outstanding
principal balance of the Revolving Loans held by all Lenders, and (b) with
respect to the Term Loans, the percentage obtained by dividing (1) at any time
prior to the date on which the Term Loans are funded, the Term Loan Commitment
Amount of that Lender by the Term Loan Commitment Amount of all Lenders, and (2)
on and after the date on which the Term Loans are funded, the aggregate
outstanding principal balance of the Term Loans held by that Lender, by the
aggregate outstanding principal balance of the Term Loans held by all Lenders.
"PRODUCTION READY COS" shall mean a central office (i) where Borrower
--------------------
has secured either physical or virtual collocation, (ii) where equipment and
transport installation have been successfully completed, (iii) with respect to
which paid traffic is being billed and (iv) that has obtained all necessary
Governmental Approvals.
"PROJECTIONS" shall have the meaning given to such term in Section
----------- -------
3.03.
- ----
"PUC" shall mean any state Governmental Authority having utility or
---
telecommunications regulatory authority over Borrower or any System.
"PURCHASE DEBT" shall have the meaning given to such term in Section
------------- -------
6.12(iv).
- --------
"QUALIFIED EQUITY OFFERING" shall mean one or more private or public
-------------------------
offerings of Equity Securities by Holdings providing gross proceeds to Holdings
of not less than $125,000,000, the net proceeds of which are used to make
capital contributions to Borrower constituting Contributed Capital.
"QUALIFIED INTER COMPANY LOAN" shall mean a loan to Borrower from
----------------------------
Holdings, which loan is expressly subordinated to the Obligations on terms and
conditions satisfactory to the Administrative Agent and Documentation Agent, has
a maturity date occurring on or after the annual anniversary of the Term Loan
Termination Date, and requires no cash payment of principal or interest prior to
the scheduled maturity date of such Loan (other than as permitted by Section
-------
6.04).
- ----
"REAL ESTATE ASSET" shall mean, at any time of determination, any
-----------------
interest then owned by any Credit Party in any real property, including, without
limitation, all easements, rights of way, rights of occupancy, licenses and
similar rights with respect thereto.
"REGISTER" shall have the meaning given to such term in Section
-------- -------
2.03(d).
- -------
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"RELATED FUND" shall mean, with respect to any Lender that is an
------------
investment fund, any other investment fund that invests in commercial loans and
that is managed or advised by the same investment advisor as such Lender or by
an Affiliate of such investment advisor.
"RELEASE" shall mean any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment or into or out of any property, including the movement of
Contaminants through or in the air, soil, surface water, groundwater or
property.
"REMEDIAL ACTION" shall mean actions required to (1) clean up, remove,
---------------
treat or in any other way address Contaminants in the environment; (2) prevent
the Release or threat of Release or prevent or minimize the further Release of
Contaminants so they do not migrate or endanger or threaten to endanger public
health or welfare or the environment; or (3) perform preremedial studies and
investigations and postremedial monitoring and care.
"REPORTABLE EVENT" shall mean any reportable event as defined in
----------------
Section 4043 of ERISA unless the reporting requirement with respect to such
reportable event has been waived by the PBGC or other appropriate Governmental
Authority.
"REQUISITE LENDERS" shall mean (a) prior to the date on which the Term
-----------------
Loans are made, Lenders having at least fifty-one percent (51%) of the aggregate
Commitment Amount of all Lenders, (b) on and after the date on which the Term
Loans are made and prior to the date on which all Lenders' Commitments to make
Revolving Loans has been terminated, Lenders holding at least fifty-one percent
(51%) of the sum of (i) the aggregate outstanding amount of the Term Loans and
(ii) the Revolving Loan Commitment Amount of all the Lenders, or (c) on and
after the date on which all Lenders' Commitment to make Revolving Loans has been
terminated, at least fifty-one percent (51%) of the aggregate outstanding amount
of all Loans.
"REQUISITE REVOLVING LENDERS" shall mean (a) prior to the Revolving
---------------------------
Credit Commitment Termination Date, Lenders having at least fifty-one percent
(51%) of the aggregate Revolving Loan Commitment Amount of all Lenders, or (b)
on or after the Revolving Credit Commitment Termination Date, Lenders having at
least fifty-one percent (51%) of the aggregate outstanding amount of the
Revolving Loans.
"REVOLVING CREDIT COMMITMENT TERMINATION DATE" shall mean the date
--------------------------------------------
occurring six months after the Closing Date.
"REVOLVING LENDERS" shall mean, as of any date of determination on or
-----------------
prior to the Revolving Credit Commitment Termination Date, Lenders having a
Revolving Loan Commitment Amount, and thereafter Lenders having outstanding
Revolving Loans.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"REVOLVING LOAN" shall mean any Loan made to Borrower pursuant to the
--------------
provisions of Section 2.01(b) hereof.
---------------
"REVOLVING LOAN COMMITMENT AMOUNT" shall mean (a) as to any Revolving
--------------------------------
Lender, the aggregate commitment of such Revolving Lender to make Revolving
Loans as set forth opposite such Revolving Lender's name on Annex A to this
-------
Agreement or in the most recent Assignment Agreement executed by such Revolving
Lender and (b) as to all Revolving Lenders, the aggregate commitment of all
Revolving Lenders to make Revolving Loans, which aggregate commitment shall be
Fifty Million Dollars ($50,000,000) on the Closing Date, as such amount may be
adjusted from time to time in accordance with this Agreement.
"REVOLVING LOAN NOTE" shall mean a promissory note of Borrower
-------------------
substantially in the form of Exhibit B-1 attached hereto.
-----------
"SECOND PRIORITY LOANS" shall mean the $40,000,000 aggregate principal
---------------------
amount of term loans made to Borrower pursuant to the Second Priority Loan
Documents.
"SECOND PRIORITY LOAN DOCUMENTS" shall mean, collectively, the Loan
------------------------------
and Guaranty Agreement, dated as of April 5, 1999, as it may be from time to
time amended, supplemented or otherwise modified, among Borrower, Holdings,
NorthPoint Virginia, the Lenders party thereto from time to time, GSCP, as a
Joint Lead Arranger and Syndication Agent, Newcourt, as Administrative Agent,
Documentation Agent and Collateral Agent, and Capital Syndication Corporation,
as a Joint Lead Arranger, together with the other "Loan Documents" as such term
is defined in such Loan and Guaranty Agreement.
"SECURED PARTIES" shall have the meaning assigned to that term in the
---------------
Intercreditor Agreement.
"SILICON VALLEY FACILITY" shall mean the QuickStart Loan and Security
-----------------------
Agreement, dated October 23, 1997, between Silicon Valley Bank and Borrower.
"SOLVENT" shall mean, at any time of determination, with respect to
-------
any Person:
(i) the assets of such Person, at a fair valuation, are in
excess of the total amount of its debts (including, without
limitation, contingent liabilities); and
(ii) the present fair saleable value of its assets is greater
than its probable liability on its existing debts as such debts become
absolute and matured; and
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other
commitments) as they mature; and
(iv) it has capital sufficient to carry on its business as
conducted or contemplated to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or mature liability.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation,
----------
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which more than 50% of the total voting power of the Equity Interests
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, officers or trustees thereof is held by such Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the such Person for
financial statement purposes.
"SWITCH EQUIPMENT" shall mean telecommunications switches and
----------------
associated electronics.
"SYSTEM" shall mean each data communications, telecommunications or
------
information system (including, without limitation, any voice, video
transmission, data or Internet services), and any related, ancillary or
complementary services, owned by Borrower or its Subsidiaries and all
replacements, enhancements or additions thereto.
"TAXES" shall mean any and all license, documentation, recording and
-----
registration fees, and all taxes, including, without limitation, income (other
than taxes on net income or profits and franchise taxes imposed on the Lenders
or any Agent by the United States of America, or by the jurisdiction under the
laws of which such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable Lending Office is
located), gross receipts, sales, value-added, use, excise, personal property
(tangible and intangible), real estate and stamp, documentary, transfer or
recording taxes, levies, imposts, deductions, duties, assessments, fees,
charges, and withholdings of any nature whatsoever, whether or not presently in
existence, together with any penalties, fines, additions to tax, or interest
thereon, imposed by any taxing authority or other Governmental Authority.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"TELECOMMUNICATIONS EQUIPMENT" shall mean all assets of Borrower and
----------------------------
its Subsidiaries capitalized in accordance with GAAP, including payments made to
obtain and develop central office collocation space.
"TEMPORARY CASH INVESTMENTS" shall mean (i) Investments in marketable,
--------------------------
direct obligations issued or guaranteed by the United States of America, or of
any governmental agency or political subdivision thereof, maturing within 365
days of the date of purchase; (ii) Investments in certificates of deposit or
time deposits issued by a bank organized under the laws of the United States of
America or any state thereof or the District of Columbia, in each case having
capital, surplus and undivided profits totaling more than $500,000,000 and rated
at least A by Standard & Poor's Ratings Service and A-2 by Moody's Investors
Service, Inc. maturing within 365 days of purchase; (iii) Investments not
exceeding 365 days in duration in money market funds that are sponsored by a
registered broker dealer or mutual fund distributor, (iv) commercial paper
issued by any Person organized under the laws of any State of the United States
of America and rated at least "Prime-1" (or the then equivalent grade) by
Moody's Investor's Service, Inc. or at least "A-1" (or the then equivalent
grade) by Standard and Poor's Ratings Group, a division of McGraw-Hill
Companies, Inc., in each case with maturities of not more than 180 days from the
date of acquisition thereof; and (v) repurchase agreements entered into by
Borrower with a bank or trust company or recognized securities dealer having
combined capital and surplus of at least $50,000,000 for direct obligations
issued by or fully guaranteed by the United States of America in which a Credit
Party shall have a valid and perfected first priority security interest (subject
to no other Liens) provided that each such repurchase agreement shall have a
fair market value of at least 100% of the amount of the repurchase obligations
thereunder on the date of purchase thereof.
"TERM LENDERS" shall mean those Lenders having Term Loan Commitment
------------
Amounts or who have made Term Loans.
"TERM LOAN" shall mean any loan made to Borrower pursuant to Section
--------- -------
2.01(a) hereof.
- -------
"TERM LOAN COMMITMENT AMOUNT" shall mean (a) as to any Lender, the
---------------------------
commitment of such Lender to make a Term Loan as set forth opposite such
Lender's name on Annex A to this Agreement and (b) as to all Lenders, the
-------
aggregate commitment of all Lenders to make Term Loans, which aggregate
commitment shall be Ten Million Dollars ($10,000,000) on the Closing Date.
"TERM LOAN FUNDING DATE" shall mean the date upon which, subject to
----------------------
the satisfaction of all conditions precedent contained in Sections 4.01 and 4.02
------------- ----
hereof, the Term Loans are made.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"TERM LOAN NOTE" shall mean a promissory note of Borrower
--------------
substantially in the form of Exhibit B-2 attached hereto.
-----------
"TERM LOAN TERMINATION DATE" shall mean March 31, 2004.
--------------------------
"TERMINATION EVENT" shall mean (i) a Reportable Event with respect to
-----------------
a Benefit Plan; (ii) the withdrawal of Borrower or any ERISA Affiliate from a
Benefit Plan during a plan year in which Borrower or such ERISA Affiliate was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii) the
imposition of an obligation on Borrower or any ERISA Affiliate under Section
4041 of ERISA to provide affected parties written notice of intent to terminate
a Benefit Plan in a distress termination described in Section 4041(c) of ERISA;
(iv) the institution by the PBGC of proceedings to terminate a Benefit Plan; (v)
the termination of, or the appointment of a trustee to administer, any Benefit
Plan pursuant to Section 4042 of ERISA; or (vi) the partial or complete
withdrawal of Borrower or any ERISA Affiliate from a Multiemployer Plan, in each
case, provided that such event results or is reasonably likely to result in a
material liability to Borrower.
"THIRD PARTY INTERACTIVES" shall mean all Persons with whom Borrower
------------------------
exchanges data electronically in the ordinary course of business, including
without limitation, customers, suppliers, third-party vendors, subcontractors,
processors-converters, shippers and warehousemen.
"TOTAL DEBT" shall mean, as of any date of determination, the Debt of
----------
Borrower and its Subsidiaries determined on a consolidated basis in accordance
with GAAP, less, prior to the consummation of an initial public offering of
----
common stock by Holdings providing gross proceeds to Holdings of not less than
$125,000,000, the net proceeds of which are used to make capital contributions
to Borrower constituting Contributed Capital, the amount of cash on hand and any
Temporary Cash Investment in excess of $10,000,000 held by Borrower and its
Subsidiaries as of such date.
"TOTAL LEVERAGE RATIO" shall mean the ratio of (i) Total Debt as of
--------------------
the last day of any fiscal quarter, to (ii) the product of (A) two (2)
multiplied by (B) EBITDA of Borrower and its Subsidiaries on a consolidated
basis, for the six month period ending on the last day of such fiscal quarter.
"VENDOR FINANCING" means Debt of Borrower owed to the provider of
----------------
Telecommunications Equipment (or an Affiliate thereof) with respect to the
purchase or acquisition of such Telecommunications Equipment by Borrower.
"VOTING STOCK" shall mean securities of any class or classes of a
------------
corporation, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
"YEAR 2000 CORRECTIVE ACTIONS" shall mean, as to each of the Credit
----------------------------
Parties, all actions necessary to eliminate such Credit Party's Year 2000
Problems, including, without limitation, computer code enhancements and
revisions, upgrades and replacements of Year 2000 Date-Sensitive
Systems/Components, and coordination of such enhancements, revisions, upgrades
and replacements with Third Party Interactives.
"YEAR 2000 CORRECTIVE PLAN" shall mean, with respect to each of the
-------------------------
Credit Parties, a comprehensive plan to eliminate all of its Year 2000 Problems
on or before August 31, 1999, including without limitations (i) computer code
enhancements or revisions, (ii) upgrades or replacements of Year 2000 Date-
Sensitive Systems/Components, (iii) test and validation procedures, (iv) an
implementation time line and budget and (v) designation of specific employees
who will be responsible for planning, coordinating and implementing each phase
or subpart of the Year 2000 Corrective Plan.
"YEAR 2000 DATE-SENSITIVE SYSTEM/COMPONENT" shall mean, as to any
-----------------------------------------
Person, any system software, network software, applications software, database,
computer file, embedded microchip, firmware or hardware that accepts, creates,
manipulates, sorts, sequences, calculates, compares or outputs calendar-related
data accurately; such systems and components shall include, without limitation,
mainframe computers, file server/client system, computer workstations, routers,
hubs, other network-related hardware, and other computer-related software,
firmware or hardware and information processing and delivery systems of any kind
and telecommunications systems and other communications processors, security
systems, alarms, elevators and HVAC systems.
"YEAR 2000 IMPLEMENTATION TESTING" shall mean, as to each of the
--------------------------------
Credit Parties, (i) the performance of test and validation procedures regarding
Year 2000 Corrective Actions on a unit basis and a system wide basis, (ii) the
performance of test and validation procedures regarding data exchanges among the
Credit Parties' Year 2000 Date-Sensitive Systems/Components and data exchanges
with Third Party Interactives, and (iii) the design and implementation of
additional Year 2000 Corrective Actions, the need for which has been
demonstrated by test and validation procedures.
"YEAR 2000 PROBLEMS" shall mean, with respect to each of the Credit
------------------
Parties, limitations on the capacity or readiness of any such Credit Party's
Year 2000 Date-Sensitive Systems/Components to accurately accept, create,
manipulate, sort, sequence, calculate, compare or output calendar date
information with respect to calendar year 1999 or any subsequent calendar year
beginning on or after January 1, 2000 (including leap year computations),
including, without limitation, exchanges of information among Year 2000 Date-
Sensitive Systems/Components of the Credit Parties and exchanges of information
among the Credit Parties and Year 2000 Date-Sensitive Systems/Components of
Third Party Interactives and functionality of peripheral interfaces, firmware
and embedded microchips.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
1.1 SECTION ACCOUNTING TERMS. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
-----------------
HEREIN, ALL ACCOUNTING TERMS NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE
MEANINGS ASSIGNED TO THEM IN CONFORMITY WITH GAAP. FINANCIAL STATEMENTS AND
OTHER INFORMATION REQUIRED TO BE DELIVERED BY CREDIT PARTIES TO LENDERS PURSUANT
TO Section 5.06 shall be prepared in accordance with GAAP as in effect at the
------------
time of such preparation. Subject to the foregoing, calculations in connection
with the definitions, covenants and other provisions hereof shall utilize
accounting principles and policies in conformity with those used to prepare the
Financials.
1.2 SECTION OTHER TERMS DEFINED IN NEW YORK UNIFORM COMMERCIAL CODE. All
-------------------------------------------------------
other terms contained in this Agreement (and which are not otherwise
specifically defined herein) shall have the meanings provided by the Uniform
Commercial Code of the State of New York (the "CODE") to the extent the same are
----
used or defined therein.
2 ARTICLE LOANS
-----
3.1 SECTION AGREEMENT TO LEND.
-----------------
(a) Each Term Lender severally agrees, on the terms and conditions
hereinafter set forth, to make in a single draw-down on the Term Loan Funding
Date a Term Loan to Borrower in the amount of such Lender's Term Loan Commitment
Amount.
(b) Each Revolving Lender severally agrees, on the terms and conditions
hereinafter set forth, to make on and after the Initial Funding Date and until
and including the Revolving Credit Commitment Termination Date, one or more
Revolving Loans to Borrower in an amount not to exceed the Revolving Loan
Commitment Amount of such Revolving Lender.
(c) Notwithstanding anything to the contrary contained in this Agreement,
the Borrower may not request a Loan hereunder if, after giving effect to the
application of the proceeds of such Loans, the aggregate amount of the Loans
would exceed the difference of (x) the Borrowing Base less (y) $40,000,000.
(d) The proceeds of the Term Loans, together with the proceeds of Second
Priority Term Loans, shall be used, on the Term Loan Funding Date, to repay the
principal of, interest and prepayment fees relating to the Morgan Stanley Bridge
Notes and the Silicon Valley Facility, and to pay all fees and expenses incurred
in connection with the Loan Documents. The proceeds of Revolving Loans shall be
used to purchase or otherwise acquire Telecommunications Equipment.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(e) Term Loans that are repaid or prepaid may not be reborrowed. Revolving
Loans that are repaid or prepaid may be reborrowed through the Revolving Credit
Commitment Termination Date (but may not be reborrowed after such date).
(f) Notwithstanding anything to the contrary contained in this Agreement,
Borrower shall request that Revolving Loans be made on the Revolving Credit
Commitment Termination Date in an amount equal to the difference, if any, as of
such date, between the aggregate Revolving Loan Commitment Amounts of all
Revolving Lenders and the outstanding Revolving Loans.
3.2 SECTION LOANS.
-----
(a) Each Base Rate Loan shall be in a minimum principal amount of
$1,000,000 and increments of $250,000 in excess thereof. Each LIBOR Loan shall
be in a minimum principal amount of $5,000,000 and increments of $1,000,000 in
excess thereof.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(b) In any calendar month not more than four (4) Loans may be requested.
At any time, Loans may be subject to no more than seven (7) Interest Periods.
3.3 SECTION PROCEDURE FOR LOAN REQUEST.
---------------------------
(a) When requesting a Loan Borrower shall deliver to the Administrative
Agent a Notice of Borrowing on or before 11:00 a.m. (New York time) at least
three (3) Business Days prior to the date on which such Loan is requested to be
made if such Loan is requested to be a LIBOR Loan, and one (1) Business Day
prior to the date on which such Loan is requested to be made if such Loan is
requested to be a Base Rate Loan, which notice, once given, shall be
irrevocable. The Loans made on the Initial Funding Date shall be Base Rate Loans
and thereafter may be continued as Base Rate Loans or converted into LIBOR Loans
in the manner provided in Section 2.06 and subject to the other conditions and
------------
limitations therein set forth and set forth in this Article II. When requesting
----------
a Loan the proceeds of which will be used to purchase Telecommunications
Equipment, Borrower shall deliver to the Collateral Agent on or before 11:00
a.m. (New York time) at least six (6) Business Days prior to the Funding Date,
together with the applicable Notice of Borrowing, a schedule thereto supporting
one hundred percent (100%) of the Telecommunications Equipment requested to be
funded and, with respect to individual items of Telecommunications Equipment
with a purchase price in excess of $250,000, copies of invoices with respect
thereto, in each case, certified in the manner provided in such Notice of
Borrowing. Such schedule will detail all invoices for equipment, third party
labor, permits, other third party costs and all capitalized internal costs of
Borrower with respect to such Telecommunications Equipment permitted under GAAP
and confirming the Borrowing Base (after giving effect to such purchase)
together with invoices with respect thereto. The Notice of Borrowing shall, with
respect to any Loans requested, specify whether such requested Loans are to be
Base Rate Loans or LIBOR Loans, and if such requested Loans are to be LIBOR
Loans, the requested Interest Period for such Loans.
(b) The Administrative Agent agrees, promptly upon (i) receipt of a Notice
of Borrowing, and, (ii) if the Loan being requested is intended to fund the
purchase of Telecommunications Equipment, notice from the Collateral Agent that
it is satisfied, pursuant to the terms and conditions hereof, with the
applicable schedule and invoices delivered to the Collateral Agent with such
Notice of Borrowing, notify each Revolving Lender or Term Lender of the date and
amount of the Loan proposed thereunder and the amount of such Lender's Pro Rata
Share therein. So long as no Event of Default has occurred and is continuing and
upon fulfillment of the applicable conditions set forth in Article IV, each such
----------
Lender severally agrees, on or before 12:00 P.M. (New York time) on the date of
each proposed Loan, to pay into the Payment Account, an amount equal to such
Lender's Pro Rata Share of such Loan in dollars and in same day funds. After the
Administrative Agent's receipt of such Lender's Loan proceeds, the
Administrative Agent shall make available such
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
proceeds to Borrower or the Person entitled to payment thereof at the bank
account(s) specified in the Notice of Borrowing on the date specified in such
Notice of Borrowing in Dollars in immediately available funds.
(c) Unless the Administrative Agent has received written notice from a
Lender on or prior to the date of any proposed Loan that such Lender will not
make available to the Administrative Agent such Lender's Pro Rata Share of such
Loan, the Administrative Agent may, but is not obligated to, assume that such
Lender has made its Pro Rata Share of such Loan available to the Administrative
Agent on the date of such Loan in accordance with paragraph (b) above, and the
------------
Lenders may, in reliance upon such assumption, make available to Borrower on
such date a corresponding amount. If such Pro Rata Share is not, in fact, paid
to Administrative Agent by such Lender when due, the Administrative Agent will
be entitled to recover such amount on demand from such Lender or Borrower which
received the proceeds of such Loan without set-off, counterclaim or deduction of
any kind, together with interest thereon, for each day from the date such amount
is made available to Borrower until the date such amount is repaid to the
Administrative Agent either by Borrower or such Lender, at, (1) in the case of
Borrower, the interest rate applicable to such Loan, and (2) in the case of such
Lender, the Federal Funds Effective Rate. Nothing in this Section 2.03(c) or
---------------
elsewhere in this Agreement or the other Loan Documents shall be deemed to
require Administrative Agent to advance funds on behalf of any Lender or to
relieve any Lender from its obligation to fulfill its Commitment hereunder or to
prejudice any rights that Borrower may have against any Lender as a result of
any default by such Lender hereunder. Without limiting the foregoing, with
respect to any Lender which for any reason fails to make timely payment to the
Administrative Agent of its Pro Rata Share of any Loan, the Administrative
Agent, in addition to other rights and remedies which it may have, shall be
entitled to withhold or set off from any payments due to such Lender hereunder,
an amount equal to the Pro Rata Share required to have been paid by such Lender
plus interest as described above, and to bring an action or suit against such
Lender in a court of competent jurisdiction to recover such Pro Rata Share
thereof and any related interest thereon. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's applicable Pro Rata Share of such Loan for purposes of
this Agreement. If both such Lender and Borrower shall have repaid the
corresponding amount, the Administrative Agent shall promptly return to Borrower
its corresponding amount.
(d) Administrative Agent shall maintain at its principal office a register
for the recordation of the names and addresses of Lenders and the Commitment
Amount and Loans of each Lender from time to time (the "REGISTER"). The Register
--------
shall be available for inspection by Borrower or any Lender at any reasonable
time and from time to time upon reasonable prior notice. Administrative Agent
shall record in the Register the Commitment Amounts and the Loans, and each
repayment or prepayment in respect of the principal
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
amount of the Loans, and any such recordation shall be prima facie evidence of
such matters; provided, failure to make any such recordation, or any error in
such recordation, shall not affect any Commitment Amounts or any Obligations in
respect of any Loan. Each Borrower hereby designates CIBC to serve as such
Borrower's agent solely for purposes of maintaining the Register as provided in
this Section 2.03(d), and Borrower hereby agrees that, to the extent CIBC serves
---------------
in such capacity, CIBC and its officers, directors, employees, agents and
affiliates shall constitute "Indemnitees".
3.4 SECTION THE NOTES. Borrower shall execute and deliver to each Revolving
---------
Lender a Revolving Loan Note and to each Term Lender a Term Loan Note to
evidence the Commitment of that Lender. Each Revolving Loan Note shall be in the
principal amount of the Revolving Loan Commitment Amount of the applicable
Lender, dated the Initial Funding Date, stated to mature on March 31, 2004. Each
Term Loan Note shall be in the principal amount of the Term Loan Commitment
Amount of the applicable Term Lender, dated the Initial Funding Date, stated to
mature on March 31, 2004. The Notes payable to a Lender shall represent the
obligation of Borrower to pay the amount of each Lender's Revolving Loan
Commitment Amount or Term Loan Commitment Amount or, if less, the applicable
Lender's Pro Rata Share of the aggregate unpaid principal amount of all Loans to
Borrower together with interest thereon as prescribed in Section 2.05. The
------------
aggregate principal amount of all the Notes shall not exceed the aggregate
Commitments of all the Lenders. The Administrative Agent is hereby authorized by
Borrower to record in the Register the date and amount of each Revolving Loan or
Term Loan made to Borrower, as applicable, and to record therein the date and
amount of each payment on each Loan made to Borrower, and such recordations
shall be prima facie evidence of the amounts owing to the Lenders with respect
to the Loans in the absence of manifest error; provided, however, that the
-------- -------
failure of the Administrative Agent to register any such information on such
schedule shall not in any manner affect the obligation of Borrower to repay the
Loans made to Borrower in accordance with the terms of this Agreement.
3.5 SECTION INTEREST ON LOANS.
-----------------
(a) General. Subject to the provisions of Sections 2.05(b), 2.06 and 2.07,
------- ---------------- ---- ----
each Loan shall bear interest at the rate per annum equal to (i) the Base Rate
plus the Applicable Margin, computed on the basis of a 365 or 366 day year, or
(ii) the LIBO Rate plus the Applicable Margin, computed on the basis of a 360
day year, as selected by Borrower in the Notices of Borrowing and the Notices of
Continuation/Conversion.
(b) Default Interest. If Borrower shall default in the payment of the
----------------
principal of or interest on any Loan or any other amount becoming due hereunder
or under any of the other Loan Documents on its due date, then Borrower shall,
on demand from the Administrative Agent, thereafter pay interest on all Loans at
a rate that is four percent (4.00%) per
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
annum above the rates of interest otherwise payable on all the Loans from the
date such payment is due to the date such payment default is either cured or
waived in writing by the Requisite Lenders. If any other Event of Default shall
occur and be continuing and shall be declared by the Administrative Agent upon
the direction of the Requisite Lenders, then Borrower shall, on demand,
thereafter pay interest on all the Loans at a rate that is two percent (2.00%)
per annum above the rates of interest otherwise payable on the Loans from the
date of the occurrence of such Event of Default until the date such Event of
Default has been cured or waived in writing by the Requisite Lenders; provided,
--------
that if an Event of Default described in the first sentence of this clause (b)
----------
shall occur at any time that an Event of Default described in this second
sentence has occurred and is continuing, then the rate of interest described in
the first sentence of this clause (b) shall apply. After the occurrence and
----------
during the continuance of any Event of Default, Borrower shall be subject to the
limitations on borrowings of, conversions into and continuations as LIBOR Loans
set forth in Section 2.07(g).
---------------
3.6 SECTION CONVERSION OR CONTINUATION.
--------------------------
(a) Subject to the provisions of Section 2.07, Borrower shall have the
------------
option (i) to convert (A) all or any part of its outstanding Term Loans or (B)
all or any part of its outstanding Revolving Loans, in a minimum amount of
$5,000,000 and integral multiples of $1,000,000 in excess of that amount (in the
case of Term Loans and Revolving Loans) from a Term Loan or Revolving Loans that
are Base Rate Loans to LIBOR Term Loans or LIBOR Revolving Loans, as the case
may be; (ii) to convert (A) all or any part of its outstanding Term Loans or (B)
all or any part of its outstanding Revolving Loans from LIBOR Loans to Base Rate
Loans on the expiration of the Interest Period applicable thereto; and (iii)
upon the expiration of any Interest Period applicable to any outstanding LIBOR
Term Loan or any outstanding LIBOR Revolving Loan, to continue (A) all of such
LIBOR Term Loan or (B) all or any portion of such LIBOR Revolving Loan equal to
$5,000,000 and integral multiples of $1,000,000 in excess of that amount as a
LIBOR Term Loan or LIBOR Revolving Loan, as applicable; provided, however, that
-------- -------
no outstanding Loans may be converted into, or continued as, LIBOR Loans when
any Default or Event of Default referred to in Section 9.01(a) has occurred and
is continuing. Any conversion or continuation made with respect to less than the
entire outstanding balance of a Borrower's Revolving Loans or Term Loans must be
applied pro rata to such Borrower's Revolving Loans or Term Loans, as
applicable, according to the outstanding principal balance of such Revolving
Loans or Term Loans.
(b) Whenever a Borrower elects to convert or continue Loans under this
Section 2.06, Borrower shall deliver to the Administrative Agent a Notice of
- ------------
Conversion/Continuation signed by an authorized officer of Borrower (i) no later
than 10:00 a.m. (New York time) three (3) Business Days in advance of the
requested conversion date, in the
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
case of a conversion into Base Rate Loans, and (ii) no later than 10:00 a.m.
(New York time) three (3) Business Days in advance of the requested conversion
or continuation date, in the case of a conversion into, or continuation of,
LIBOR Loans. The Notice of Conversion/Continuation shall specify (1) the
conversion or continuation date (which shall be a Business Day) and, in the case
of any continuation, the last day of the then applicable Interest Period, (2)
the amount and type of the Loans to be converted or continued, (3) the nature of
the requested conversion or continuation, and (4) in the case of a conversion
into, or continuation of, LIBOR Loans, the requested Interest Period. Promptly
after receipt of a Notice of Conversion/Continuation pursuant to this Section
-------
2.06(b), the Administrative Agent shall notify the Revolving Lenders or the
- -------
Term Lenders, as applicable, by telecopy, telephone or other similar form of
transmission, of the requested conversion or continuation. In the event that a
Borrower should fail to provide a Notice of Conversion/Continuation with respect
to any LIBOR Loans as provided above, such Loans shall, on the last day of the
Interest Period with respect to such Loans, convert to Base Rate Loans.
(c) Any Notice of Conversion/Continuation for conversion to, or
continuation of, Loans made pursuant to this Section 2.06 shall be irrevocable
------------
and the applicable Borrower shall be bound to convert or continue in accordance
therewith.
3.7 SECTION SPECIAL PROVISIONS GOVERNING LIBOR LOANS. Notwithstanding any
----------------------------------------
other provisions to the contrary contained in this Agreement, the following
provisions shall govern with respect to LIBOR Loans as to the matters covered:
(a) Amount of LIBOR Loans. Each continuation of or conversion to LIBOR
---------------------
Term Loans, and each election of, continuation of or conversion to LIBOR
Revolving Loans, shall be in a minimum amount of $5,000,000 and in integral
multiples of $1,000,000 in excess of that amount.
(b) Determination of Interest Period. By giving notice as set forth in
--------------------------------
Section 2.06(b), a Borrower shall have the option, subject to the other
- ---------------
provisions of this Section 2.07, to specify whether the Interest Period for such
------------
LIBOR Loan shall be a one, two, three or six month period. The determination of
Interest Periods shall be subject to the following provisions:
(i) In the case of immediately successive Interest
Periods, each successive Interest Period shall commence on
the day on which the preceding Interest Period expires.
(ii) If any Interest Period would otherwise expire on a day
which is not a Business Day, the Interest Period shall be
extended to expire on the next succeeding Business Day;
provided, however, that if the next succeeding Business Day
-------- -------
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
occurs in the following calendar month, then such Interest
Period shall expire on the immediately preceding Business
Day.
(iii) Borrower may not select an Interest Period for any
LIBOR Loan, which Interest Period expires later than the
maturity date of such Loan.
(iv) There shall be no more than seven (7) Interest Periods
in effect at any one time.
(c) Determination of Interest Rate. As soon as practicable after 10:00
------------------------------
a.m. (New York time) on the LIBOR Interest Rate Determination Date, the
Administrative Agent shall determine (which determination shall, absent manifest
error, be presumptively correct) the interest rate for the LIBOR Loans for which
an interest rate is then being determined and shall promptly give notice thereof
(in writing or by telephone confirmed in writing) to the Borrower and the
Lenders. In the event that on any LIBOR Interest Rate Determination Date the
Administrative Agent shall have determined (which determination shall, absent
manifest error, be presumptively correct and binding upon all parties) that:
(i) adequate and fair means do not exist for ascertaining
the applicable interest rates by reference to which the LIBO
Rate then being determined is to be fixed; or
(ii) Dollar deposits in the relevant amounts and for the
relevant Interest Period are not generally available to
Lenders in the eurodollar market at the LIBO Rate, then:
(A) each LIBOR Loan will automatically, on the last
day of the then existing Interest Period therefor, convert
into a Base Rate Loan; and
(B) the obligation of the Lenders to make, or to
convert Loans into, LIBOR Loans shall be suspended until the
Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no
longer exist.
(d) Illegality. Notwithstanding any other provision of this Agreement, if
----------
any Lender shall notify the Administrative Agent that the introduction of or any
change in or in the interpretation of any law or regulation after the Closing
Date makes it unlawful, or any central bank or other Governmental Authority
asserts that it is unlawful, for any Lender to perform its obligations hereunder
to make LIBOR Loans or to fund or maintain LIBOR
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
Loans hereunder, (i) the obligation of the Lenders to make, or to convert Loans
into or to continue Loans as, LIBOR Loans shall be suspended until the
Administrative Agent shall notify Borrower and the Lenders that the
circumstances causing such suspension no longer exist and (ii) Borrower shall on
the termination of the Interest Period then applicable thereto, or on such
earlier date required by law, prepay in full all LIBOR Loans then outstanding
together with accrued interest thereon, or convert all such LIBOR Loans into
Base Rate Loans in accordance with Section 2.06.
------------
(e) Compensation. In addition to such amounts as are required to be paid by
-----------
Borrower pursuant to the other Sections of this Article II, Borrower agrees to
----------
compensate any Lender for all losses, expenses and liabilities, including,
without limitation, any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund or
maintain such Lender's LIBOR Loans to Borrower, which such Lender may sustain
(i) if for any reason a funding of any LIBOR Loans does not occur on a date
specified therefor in a Notice of Borrowing or Notice of
Conversion/Continuation, or a successive Interest Period does not commence after
notice therefor is given pursuant to Section 2.06 as a result of any act or
------------
omission of Borrower, (ii) if any voluntary or mandatory prepayment of any LIBOR
Loans occurs for any reason on a date which is not the last scheduled day of an
Interest Period, (iii) as a consequence of any required conversion of LIBOR
Loans to Base Rate Loans as a result of any of the events indicated in Section
-------
2.07(d), or (iv) as a consequence of any other failure by a Borrower to repay
- -------
LIBOR Loans when required by the terms of this Agreement.
(f) Booking of LIBOR Loans. The Lenders may make, carry or transfer LIBOR
----------------------
Loans at, to, or for the account of, any of their respective branch offices or
the office of any of their respective affiliates.
(g) LIBOR Loans After Event of Default. After the occurrence of and during
----------------------------------
the continuance of any Event of Default referred to in Section 9.01(a), Borrower
may not borrow Revolving Loans as LIBOR Loans or elect to have any Loans
continued as, or converted to, LIBOR Loans after the expiration of any Interest
Period then in effect for such Loans.
3.8 SECTION PAYMENTS.
--------
(a) Interest on each LIBOR Loan shall be payable in arrears on each LIBOR
Interest Payment Date and, if such LIBOR Loan is paid in full other than on such
LIBOR Interest Payment date, on such other date. Interest on each Base Rate Loan
will be payable in arrears on each Payment Date and, if such Base Rate Loan is
paid in full (other than by means of a conversion to a LIBOR Loan) other than on
such Payment Date, on such other date.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(b) Subject to the provisions of Sections 2.09 and 9.02, the outstanding
------------- ----
principal balance of each of the Term Loans and the Revolving Loans shall be
repaid in the percentages of such Loans outstanding (including any such Loans
constituting Escrowed Proceeds) as of the six month anniversary of the Closing
Date on the dates specified below.
<TABLE>
<CAPTION>
Date % of Outstanding
Loans
---------------------------- -----------------
<S> <C>
June 30, 2001 8.33333%
September 30, 2001 8.33333%
December 31, 2001 8.33333%
March 31, 2002 8.33333%
June 30, 2002 8.33333%
September 30, 2002 8.33333%
December 31, 2002 8.33333%
March 31, 2003 8.33333%
June 30, 2003 8.33333%
September 30, 2003 8.333333%
December 31, 2003 8.333333%
March 31, 2004 8.333337%
</TABLE>
(a) After the occurrence and during the continuance of an Event of
Default, all proceeds received by Administrative Agent or Collateral Agent from
any sale of, collection from, or other realization upon all or any part of the
Collateral under any Collateral Document during the continuation of such Event
of Default shall be applied as follows:
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(i) to the payment of all costs and expenses of such
sale, collection or other realization, including all
expenses, liabilities and advances made or incurred by
Administrative Agent, Collateral Agent and their respective
agents and counsel in connection therewith, and all amounts
for which Administrative Agent, Collateral Agent or any
Lender is entitled to indemnification under any of the Loan
Documents and all advances made by Administrative Agent or
Collateral Agent thereunder for the account of the
applicable Credit Party, and to the payment of all costs and
expenses paid or incurred by Administrative Agent or
Collateral Agent in connection with the exercise of any
right or remedy under any Loan Document;
(ii) thereafter, to the payment of accrued interest and
fees owed to Agents and Lenders;
(iii) thereafter, to the extent of any excess such
proceeds, to the payment of all other Obligations then due
and owing for the benefit of the holders thereof in
accordance with the terms of the Intercreditor Agreement;
and
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(iv) thereafter, to the extent of any excess such
proceeds, to the payment to or upon the order of such Credit
Party or to whosoever may be lawfully entitled to receive
the same or as a court of competent jurisdiction may direct.
1.2 SECTION VOLUNTARY AND MANDATORY PREPAYMENT OF LOANS.
-------------------------------------------
(a) Prior to the six-month anniversary of the Closing Date, Borrower shall
have the right to, upon the provision of five (5) days prior written notice to
the Administrative Agent, which notice, once given, shall be irrevocable, prepay
the outstanding principal amount of Revolving Loans that are Base Rate Loans in
a minimum amount of $1,000,000 and increments of $250,000 in excess thereof, or
the outstanding principal amount of Revolving Loans that are LIBOR Loans in a
minimum principal amount of $5,000,000 and increments of $1,000,000 in excess
thereof (in either case, with no corresponding reduction in the Revolving Loan
Commitment Amounts). No amount of Term Loans may be prepaid at any time prior to
the six-month anniversary of the Closing Date. At any time after the six-month
anniversary of the Closing Date, Borrower shall have the right upon the
provision of five days' prior written notice to the Administrative Agent, which
notice, once given, shall be irrevocable, to prepay the outstanding principal of
the Base Rate Loans in a minimum principal amount of $1,000,000 and increments
of $250,000 in excess thereof, or the outstanding principal amount of the LIBOR
Loans in a minimum principal amount of $5,000,000 and increments of $1,000,000
in excess thereof, together in each case with accrued interest thereon, the
aggregate Prepayment Premium applicable thereto and any amount payable pursuant
to Section 2.07(e). The amount of principal so prepaid shall be applied to the
---------------
remaining scheduled Principal Payments on the type of Loans prepaid in
accordance with Section 2.10.
------------
(b) Upon the occurrence of any Event of Loss in excess of $250,000 with
respect to any item of assets of a Credit Party that is not repaired or replaced
with assets used or useful in the business of such Credit Party that have a
value at least equal to the assets to be replaced before the occurrence of the
Event of Loss (assuming that the assets to be replaced had been maintained in
the condition and repair as required by the terms and conditions hereof or of
any other Loan Document) within 180 days after the occurrence of such Event of
Loss or any Events of Loss which, in the aggregate, exceed $500,000 with respect
to any assets that are not so repaired or replaced (in each case, other than an
item of assets no longer used or useful in the business of the Credit Parties),
Borrower shall make a principal prepayment within thirty (30) days of such Event
of Loss in an amount equal to the net cash proceeds, if any, so received,
together with accrued interest thereon (but without the Prepayment Premium) with
such principal payment to be applied, pro rata, to outstanding principal balance
--- ----
of the Revolving Loans and the Term Loans and further applied to the remaining
scheduled Principal Payments on such Loans in accordance with Section 2.10.
------------
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(c) Borrower shall prepay the Loans on a pro rata basis (and such
prepayment shall be further applied to the remaining scheduled Principal
Payments in accordance with Section 2.10) in a principal amount equal to all of
------------
the net proceeds of any sales of assets of Borrower other than sales in the
ordinary course of business, which proceeds are not reinvested within one
hundred eighty (180) days after receipt thereof in productive long term assets
used or useful in the business of Borrower that have value at least equal to the
assets sold (assuming that such assets were maintained in good condition and
repair as required by the terms and conditions hereof or of any other Loan
Document), plus the applicable Prepayment Premium, within five (5) days after
the expiration of the applicable one hundred eighty (180) day period.
(d) On the first Payment Date of each year, commencing with the Payment
Date occurring on March 31, 2002, the Loans shall be prepaid on a pro rata basis
(and the amount of such prepayment (but without a Prepayment Premium) further
applied to the remaining scheduled Principal Payments on the Loans in accordance
with Section 2.10) by an amount equal to fifty percent (50%) of Excess Operating
------------
Cash Flow for the preceding fiscal year until Borrower has achieved and
maintained for at least two (2) consecutive fiscal quarters (whether before or
after March 31, 2002), a Total Leverage Ratio of less than 6:1, as determined by
reference to the financial statements delivered pursuant to Section 5.06.
------------
(e) Upon the occurrence and during the continuance of a Default, Borrower
shall prepay the Loans on a pro rata basis (and such prepayment shall be further
applied to the remaining scheduled Principal Payments in accordance with Section
-------
2.10) in a principal amount equal to all of the net proceeds of any sales of
- -----
Investments permitted pursuant to Section 6.06(viii), plus the applicable
Prepayment Premium, within five (5) days after the receipt of such proceeds.
(f) Borrower shall also prepay Loans (together with the Prepayment Premium
applicable thereto) in an amount such that the sum of outstanding principal
balance of the Loans does not exceed the Borrowing Base at any time, such
prepayments to be applied to prepay Loans on a pro rata basis and further
applied to the remaining Principal Payments on the Loans in accordance with
Section 2.10.
- ------------
1.3 SECTION CERTAIN PROVISIONS REGARDING PREPAYMENTS.
-----------------------------------------
(a) Any prepayment of Loans shall be applied first to Base Rate Loans to
the full extent thereof before application to LIBOR Loans in each case so as to
minimize the amount of any payments required to be made by Borrower pursuant to
Section 2.07(e).
- ---------------
(b) Notwithstanding any provision to the contrary contained in Section
-------
2.09, no voluntary prepayment of Term Loans and no mandatory prepayment of
- ----
Revolving Loans or Term Loans shall be made until the six-month anniversary of
the Closing Date, and any pro-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
ceeds otherwise required to be used to make a mandatory prepayment prior to such
date shall be delivered on the date otherwise required to be used to prepay
Loans in accordance with Section 2.09 to Collateral Agent to be held in escrow,
------------
and invested in Temporary Cash Investments (to the extent the Collateral Agent
is able to provide or otherwise invest in such Temporary Cash Investments), for
application to prepayment of Loans on the six-month anniversary of the Closing
Date.
(c) Each voluntary and mandatory prepayment (other than voluntary
prepayments of Revolving Loans prior to the Revolving Credit Commitment
Termination) made pursuant to Section 2.09 shall also be applied, on a pro rata
------------
basis, to reduce each Principal Payment scheduled to occur after the date of
such prepayment.
(d) Each voluntary and mandatory prepayment (other than voluntary
prepayments of Revolving Loans prior to the Revolving Credit Commitment
Termination) required under Section 2.09 shall be allocated among the Lenders to
------------
repay their Loans on the basis of their Pro Rata Shares.
1.4 SECTION FEES.
----
(a) COMMITMENT FEE. The Borrower shall pay to the Revolving Lenders a
--------------
commitment fee (the "COMMITMENT FEE") for the period commencing on the Effective
--------------
Date and ending on the Revolving Credit Commitment Termination Date, computed
(on the basis of the actual number of days elapsed over a year of 360 days) at
the rate of 1.50% per annum, on the average daily aggregate amount of unused
Revolving Loan Commitment Amounts. Such Commitment Fee, to the extent then
accrued, shall be payable on each Payment Date.
(b) The Borrower shall also pay the Agents and shall be liable to the
Agents, for payment of other amounts separately agreed to by Borrower and
Agents.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(c) All fees once paid shall be deemed fully earned and nonrefundable.
1.5 SECTION MANNER OF PAYMENT; SPECIAL TAX CONSIDERATIONS.
---------------------------------------------
(a) All payments by Borrower hereunder and under the Notes shall be made
to the Administrative Agent by wire transfer or other electronic payment method
to the Payment Account or to such bank account as the Administrative Agent may
designate, for the account of the Lenders in Dollars in immediately available
funds by 11:00 a.m., New York time, on the date on which such payment shall be
due. The Administrative Agent will promptly thereafter (but in no event later
than the date of receipt of such payment, if such is received at or prior to
12:00 p.m., New York time, on the date immediately following the date of receipt
of such payment, if such is received after 12:00 p.m., New York time) cause to
be distributed like funds relating to the payment of principal or interest or
other fees ratably (other than amounts payable pursuant to Section 2.14) to each
------------
Lender in accordance with its Pro Rata Share. In the event that the
Administrative Agent shall not make distributions to any Lender in accordance
with the terms of the immediately preceding sentence, the amounts required to be
so distributed by the Administrative Agent shall bear interest at then Federal
Funds Effective Rate from the date such amount was required to be distributed to
such Lender pursuant to the immediately preceding sentence until the date such
distribution is actually made to such Lender. Any such accrued interest shall be
payable by the Administrative Agent on demand. Interest in respect of any Loan
hereunder shall accrue from the day such Loan is made up to and including the
day prior to the date on which such Loan is paid in full. Payments received
after 12:00 p.m. New York time shall not be given credit until the next Business
Day, and Borrower shall be liable for interest, if any, accruing on such payment
until the next Business Day.
(1) Any and all payments by Borrower hereunder shall be made free and
clear of and without deduction for any and all Taxes. If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the other Loan Documents to any Lender or Administrative
Agent, (A) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.12) such Lender or Administrative Agent
------------
receives an amount equal to the sum it would have received had no such
deductions been made, (B) Borrower shall make such deductions, and (C) Borrower
shall pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law. If a withholding tax of the United
States of America or any other Governmental Authority shall be or become
applicable (y) after the date of this Agreement, to the payments by Borrower
made to the Lending Office or any other office that a Lender may claim as its
Lending Office, or (z) after such Lender's selection and designation of any
other Lending Office, to such payments made to such other Lending Office, such
Lender shall use reasonable efforts to make, fund and maintain its Loans through
another Lending Office of
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
such Lender in another jurisdiction so as to reduce, but not increase, the
applicable Borrower's liability hereunder, if the making, funding or maintenance
of such Loans through such other Lending Office of such Lender does not, in the
sole and absolute judgment of such Lender, otherwise materially adversely affect
such Loans, such Lender's obligations under its Commitment or such Lender.
Notwithstanding anything to the contrary hereunder, if a Person becomes a Lender
under this Agreement pursuant to Section 11.06 hereof, Borrower shall in no
-------------
event be required to increase any payment pursuant to paragraph (b) of this
Section 2.12 by an amount that would exceed the amount of any increase that
- ------------
would be required to be made under paragraph (b) of this Section 2.12 to the
------------
assigning Lender.
(2) The Borrower will indemnify each Lender and each Agent and hold it
harmless for the full amount of Taxes (including, without limitation, any Taxes
imposed by any Governmental Authority on amounts payable under this Section
-------
2.12 or any other documentary taxes, assessments or charges made by any
- ----
Governmental Authority by reason of the execution and delivery of this Agreement
or any other Loan Document) paid by such Lender or such Agent (as the case may
be) and any liability (including penalties, interest, and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within
thirty (30) days after the date such Lender or such Agent (as the case may be)
makes written demand therefor. A certificate as to any additional amount payable
to any Lender or Agent under this Section 2.12 submitted to Borrower and the
------------
Administrative Agent (if a Lender is so submitting) by such Lender or such Agent
shall show in reasonable detail the amount payable and the calculations used to
determine such amount. With respect to such deduction or withholding for or on
account of any Taxes and to confirm that all such Taxes have been paid to the
appropriate Governmental Authorities, the Borrower shall promptly (and in any
event not later than thirty (30) days after receipt) furnish to each Lender and
each Agent such certificates, receipts and other documents as may be required
(in the judgment of such Lender or such Agent) to establish any tax credit to
which such Lender or such Agent may be entitled.
(3) Within thirty (30) days after the date of any payment of Taxes on
amounts payable hereunder by Borrower, Borrower will furnish to the
Administrative Agent, at its address referred to in Section 11.01, the original
-------------
or a certified copy of a receipt evidencing payment thereof.
(4) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in this Section
-------
2.12 shall survive the payment in full of principal and interest hereunder and
- ----
the termination of this Agreement.
(5) Each Lender that is not created or organized under the laws of the
United States of America or a political subdivision thereof shall deliver to
Borrower and the
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
Administrative Agent on or before the effective date hereof, or, if later, the
date on which such Lender becomes a Lender pursuant to Section 11.06 hereof, a
-------------
true and accurate certificate executed in duplicate by a duly authorized officer
of such Lender, in a form reasonably satisfactory to Borrower and the
Administrative Agent, to the effect that such Lender is capable under the
provisions of an applicable tax treaty concluded by the United States of America
(in which case the certificate shall be accompanied by two original, executed
copies of Form 1001 of the IRS (or any successor form or forms required under
the IRC or the applicable regulations promulgated thereunder)) or under Section
1442 of the IRC (in which case the certificate shall be accompanied by two
original, executed copies of Form 4224 of the IRS (or any successor form or
forms required under the IRC or the applicable regulations promulgated
thereunder)) of receiving payments of interest hereunder exempt from or at a
reduced deduction or withholding of United States federal income tax or that
such Lender is not a bank described in Section 881(c)(3)(A) of the IRC (in which
case the certificate should be accompanied by two original, executed copies of a
Certificate re Non-Bank Status, together with two original, executed copies of
Form W-8 or W-9 of the IRS (or any successor form or forms required under the
IRC or the applicable regulations promulgated thereunder)). Each such Lender
further agrees to deliver to Borrower and the Administrative Agent from time to
time a true and accurate certificate executed in duplicate by a duly authorized
officer of such Lender substantially in a form reasonably satisfactory to
Borrower and the Administrative Agent, before or promptly upon the occurrence of
any event requiring a change in the most recent certificate previously delivered
by it to Borrower and the Administrative Agent pursuant to this Section
-------
2.12(b)(5). Further, each Lender which delivers a certificate accompanied
- ----------
by Form 1001 of the IRS covenants and agrees to deliver to Borrower and the
Administrative Agent within fifteen (15) days prior to the first Payment Date
and every third anniversary of such date thereafter, on which this Agreement is
still in effect, another such certificate and two accurate and complete original
signed copies of Form 1001 (or any successor form or forms required under the
IRC or the applicable regulations promulgated thereunder), and each Lender that
delivers a certificate accompanied by Form 4224 of the IRS (or any successor
form or forms required under the IRC or the applicable regulations promulgated
thereunder) covenants and agrees to deliver to Borrower and the Administrative
Agent within fifteen (15) days prior to the beginning of each subsequent taxable
year of such Lender during which this Agreement is still in effect, another such
certificate and two accurate and complete original signed copies of IRS Form
4224 (or any successor form or forms required under the IRC or the applicable
regulations promulgated thereunder). Each such certificate shall certify as to
one of the following:
(ii) that such Lender is capable of receiving payments of
interest hereunder exempt from withholding of United States
of America federal income tax;
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(iii) that such Lender is not capable of receiving
payments of interest hereunder exempt from withholding of
United States of America federal income tax as specified
therein but is capable of recovering the full amount of any
such withholding from a source other than Borrower and will
not seek any such recovery from Borrower; or
(iv) that, as a result of the adoption of or any change
in any law, treaty, rule, regulation, guideline or
determination of a Governmental Authority or any change in
the interpretation or application thereof by a Governmental
Authority after the date such Lender became a party hereto,
such Lender is not capable of receiving payments of interest
hereunder without deduction or withholding of United States
of America federal income tax as specified therein and that
it is not capable of recovering the full amount of the same
from a source other than Borrower.
Each Lender shall promptly furnish to Borrower and the Administrative Agent such
additional documents as may be reasonably required by Borrower or the
Administrative Agent to establish any exemption from or reduction of any Taxes
required to be deducted or withheld and which may be obtained without undue
expense to such Lender or at the expense of the requisite Person.
(6) For a period with respect to which a Lender has failed to provide the
Administrative Agent and Borrower with the appropriate form described in Section
-------
2.12(b)(5) (other than if such failure is due to a change in law occurring
- ----------
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under this Section 2.12
------------
with respect to Taxes imposed by the United States by reason of such failure;
provided, however, that should a Lender become subject to Taxes because of its
- -------- -------
failure to deliver a form required hereunder, Borrower shall take such steps as
such Lender shall reasonably request, and at such Lender's expense, to assist
such Lender to recover such Taxes.
(7) If a Borrower pays any additional amount under this Section 2.12 and,
as a result, any Lender, together with the Administrative Agent, subsequently,
in their sole discretion and based on their own interpretation of any relevant
laws (but acting in good faith) receive or are granted a final and non-
appealable credit against or deduction from or in respect of any tax payable by
such Lender, or obtain any other final and non-appealable relief in respect of
any tax, which in the opinion of such Lender and the Administrative Agent,
acting in good faith, is both reasonably identifiable and quantifiable by them
without requir-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
ing any Lender, the Administrative Agent or their professional advisers to
expend a material amount of time or incur a material cost in so identifying or
quantifying (any of the foregoing, to the extent so reasonably identifiable and
quantifiable, being referred to as a "SAVING"), such Lender shall, to the extent
------
that it can do so without prejudice to the retention of the Saving, reimburse
Borrower promptly after such identification and quantification with the amount
of such Saving; provided, however, that any such Saving shall be reduced by any
costs incurred by such Lender or the Administrative Agent in obtaining such
Saving.
(8) Nothing in this Section 2.12(c) shall require any Lender to disclose
---------------
to any Person any information regarding its tax affairs or to arrange its tax
and other affairs in any particular manner.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
1.2 SECTION MAXIMUM LAWFUL INTEREST RATE. Notwithstanding any provision
----------------------------
contained herein, the total liability of Borrower for payment of interest
pursuant hereto and the Notes, including any other charges or other amounts, to
the extent such charges and other amounts are deemed to be interest, shall not
exceed the maximum amount of such interest permitted by law to be charged,
collected, or received from Borrower (the "MAXIMUM RATE"). If any payments by
------------
Borrower for the account of any Lender include interest in excess of the Maximum
Rate, such Lender shall apply such excess to the reduction of the unpaid
principal amount owing by Borrower, or if none is due, such excess shall be
returned to Borrower.
1.3 SECTION FUNDING ISSUES.
--------------
(a) Increased Costs. If, due to either (i) the introduction after the date
---------------
hereof of, or any change after the date hereof in or in the interpretation of,
any applicable law, rule or regulation by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof or (ii) compliance by any Lender after the date hereof with any final
request or final directive issued after the date hereof (whether or not having
the force of law) by any such Governmental Authority, central bank or comparable
agency, and, as a result of any of the events set forth in the above clauses (i)
-----------
and (ii), (x) there shall be any increase in the cost to such Lender in
--
maintaining its Commitment under this Agreement or funding or maintaining its
Pro Rata Share of the Loans under this Agreement, or (y) any Lender is subjected
to any charge or withholding on its obligations hereunder, or changes in the
basis of taxation of payments to any Lender in connection with any of the
foregoing (except for changes in the rate of tax on overall net income of any
Lender) (collectively, "INCREASED COSTS"), then Borrower shall, from time to
---------------
time, pay, to the Administrative Agent for the benefit of such Lender within 15
days after such Lender shall have provided notice to the Administrative Agent
(and the Administrative Agent shall have provided notice to Borrower which the
Administrative Agent shall promptly do) of such Increased Cost, an amount
sufficient to compensate such Lender for such Increased Cost, as provided
herein. A certificate setting forth in reasonable detail the computation of the
amount of such Increased Cost (which increase in cost shall be determined by
such Lender's reasonable allocation of the aggregate of such cost increases
resulting from such event), submitted to Borrower by such Lender, shall be
conclusive and binding for all purposes, absent manifest error.
(b) Increased Capital. If any Lender which is subject to minimum capital
-----------------
requirements determines that compliance by such Lender with any guideline or
request from any central bank or other Governmental Authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Lender, or any corporation controlling such
Lender, and such Lender reasonably determines that the amount of such capital is
increased by or based upon any commitment to lend here-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
under or making or maintaining Loans, or other commitments of this type, then,
upon demand by such Person, Borrower agrees to, within five (5) days of such
demand, pay to such Person, from time to time as specified by such Person,
additional amounts sufficient to compensate such Person in the light of such
circumstances, to the extent that such Person reasonably determines such
increase in capital to be allocable to such Person's commitment or maintenance
of Loans hereunder. A certificate as to the amount of such increased cost,
submitted to Borrower by the applicable Person shall, absent manifest error, be
conclusive and binding on Borrower for all purposes.
(c) Replacement of Lender. If Borrower, as a result of the requirements
---------------------
of any of Section 2.12, Section 2.14(a) or Section 2.14(b), shall be required to
------------ --------------- ---------------
pay any particular Lender (an "AFFECTED LENDER") the additional amounts referred
---------------
to in such Section, which costs are not imposed by the other Lenders, and such
additional amounts are material, then Borrower shall be entitled to find a
replacement Lender, reasonably acceptable to the Administrative Agent and the
Requisite Lenders (such consent to such replacement Lender not to be
unreasonably withheld), to replace the Affected Lender. The Affected Lender and
the replacement Lender shall execute an Assignment Agreement with respect to all
of the Affected Lender's Commitments and all Loans owing to the Affected Lender
and comply with the other provisions of Section 11.06. Upon the payment by the
-------------
replacement Lender to the Affected Lender of the then outstanding principal
amount of Loans owing to the Affected Lender, together with accrued interest
thereon, and the payment by Borrower to the Affected Lender of any compensation
required with respect to LIBOR Loans pursuant to Section 2.07(e), the
---------------
replacement Lender shall succeed to all of the Affected Lender's rights and
obligations under this Agreement and the other Loan Documents.
(d) Limitation. Any demand for payment to be given by a Lender under
----------
Section 2.14 shall be effective only if given within 180 days of an officer of
such Lender having knowledge of the facts giving rise to the right to make such
demand.
2 ARTICLE
REPRESENTATIONS AND WARRANTIES
- ------------------------------
Each Credit Party represents and warrants to the Agents and the
Lenders that:
1.1 SECTION ORGANIZATION; POWERS.
--------------------
(a) Such Credit Party (i) is a corporation or limited liability company
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and (ii) is qualified to do business in the
jurisdiction in which its principal place of business is located and in every
other jurisdiction where such qualification is necessary except where a failure
to so qualify is not reasonably expected to have a Material Adverse Effect;
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(b) such Credit Party has the power and authority to own its properties,
to carry on its business as now conducted; and
(c) such Credit Party has the power and the authority to enter into each
Loan Document to which it is a party and to carry out the transactions
contemplated thereby.
1.2 SECTION CORPORATE AUTHORIZATION. The execution, delivery and performance
-----------------------
of this Agreement and the other Loan Documents to which such Credit Party is a
party, and the Loans hereunder:
(a) have been duly authorized by such Credit Party's Board of Directors or
managers and, if necessary, such Credit Party's stockholders or members;
(b) (1) do not (except as disclosed in Schedule 3.02) violate (i) any
-------------
existing provision of law applicable to such Credit Party and not immaterial to
its business, (ii) such Credit Party's Certificate or Articles of Incorporation
or other organizational Documents, as the case may be, or (iii) any applicable
order of any court or other governmental agency, and (2) do not conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any indenture, agreement for borrowed money, bond, note or other
similar instrument or any other material agreement to which such Credit Party is
a party or by which such Credit Party or any of such Credit Party's property is
bound;
(c) do not result in the creation or imposition of any Lien of any nature
whatsoever upon any property or assets of such Credit Party other than the Liens
granted pursuant to this Loan Agreement or the other Loan Documents;
(d) constitute legal, valid and binding obligations of such Credit Party,
enforceable against such Credit Party in accordance with their respective terms;
and
(e) do not, as of the date of execution hereof, require any governmental
consent, filing, registration or approval other than any consent, filing,
registration or approval that have been made to the extent required by
applicable law, order, rule or regulations; provided, the failure of any such
consent or approval to be obtained or filing or registration to be made or
otherwise be effective shall not affect the validity or enforceability of the
Loan Documents or otherwise be adverse in any respect to any Agent or Lender.
1.3 SECTION FINANCIAL STATEMENTS. Borrower has furnished to the Agent and
--------------------
the Lenders the audited consolidated financial statements of Borrower and its
Subsidiaries dated as of, and covering the fiscal year ended, December 31, 1998
(the "FINANCIALS"). The Financials have been prepared in accordance with GAAP
----------
applied on a basis consistent with that of preceding periods and are complete
and correct in all material respects. As of the date of the Financials, (a) the
Financials fairly represent Borrower's and its Subsidiaries'
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
financial position and results of operations; and (b) there are no omissions
from the Financials or any other facts or circumstances not reflected in the
Financials which are or may be material according to GAAP. On and as of the
Closing Date, the Projections of Holdings and its Subsidiaries for the period
from the first day of fiscal year 1999 through and including the last day of
fiscal year 2004 (the "PROJECTIONS") are based on good faith estimates and
assumptions made by the management of Holdings; provided, the Projections are
not to be viewed as facts and that actual results during the period or periods
covered by the Projections may differ from such Projections and that the
differences may be material; provided further, as of the Closing Date,
management of Holdings believed that the Projections were reasonable and
attainable.
1.4 SECTION NO MATERIAL ADVERSE CHANGE. Since December 31, 1998, no event or
--------------------------
change has occurred that has caused or evidences, either in any case or in the
aggregate, a Material Adverse Effect.
1.5 SECTION LITIGATION. There are no actions, suits or proceedings at law or
----------
in equity or by or before any Governmental Authority now pending or, to the
knowledge of such Credit Party, threatened, against or affecting such Credit
Party or any property or rights of such Credit Party as to which there is a
reasonable likelihood of an adverse determination and which, if adversely
determined, would individually or in the aggregate materially impair the right
of any Credit Party to carry on business substantially as now being conducted or
as presently contemplated or which is likely to result in any Material Adverse
Effect.
1.6 SECTION TAX RETURNS. Such Credit Party has filed or caused to be filed
-----------
all material Federal, state and local tax returns that are required to be filed,
which returns are true, correct and complete in all material respects, and has
paid or caused to be paid all taxes that have become due or shown on any
assessment received by it to the extent that such taxes have become due, except
such taxes the amount, applicability or validity of which are being contested in
good faith by appropriate proceedings and with respect to which such Credit
Party shall have set aside on its books adequate reserves with respect to such
taxes as are required by GAAP.
1.7 SECTION NO DEFAULTS. Such Credit Party is not in default (i) with
-----------
respect to any judgment, writ, injunction, decree, rule or regulation of any
Governmental Authority, or (ii) in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any agreement or
instrument to which such Credit Party is a party or by which any of its assets
are bound except, in the case of any matter otherwise included in clause (i) or
(ii), to the extent such matter could not reasonably be expected to have a
Material Adverse Effect.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
1.8 SECTION PROPERTIES. Each Credit Party has good, sufficient,
----------
legal title beneficial to (in the case of fee interests in real property), valid
leasehold interests in (in the case of leasehold interests in real or personal
property), or good and sufficient title to (in the case of all other personal
property), all of their respective properties and assets reflected in the
Financials, except for assets disposed of since the date of such financial
statements in the ordinary course of business or as otherwise permitted under
Section 6.03. Except as permitted by this Agreement, all such properties and
- ------------
assets are free and clear of Liens.
1.9 SECTION COLLATERAL.
(a) The execution and delivery of the Collateral Documents by Credit
Parties, together with the actions taken on or prior to the date hereof pursuant
to Section 4.01, are effective to create in favor of Collateral Agent for the
------------
benefit of Lenders, as security for the Obligations, a valid and perfected
second priority Lien on all of the Collateral, and all filings and other actions
necessary or desirable to perfect and maintain the perfection and second
priority status of such Liens have been duly made or taken and remain in full
force and effect, other than the filing of any UCC financing statements
delivered to Collateral Agent for filing (but not yet filed) and the periodic
filing of UCC continuation statements in respect of UCC financing statements
filed by or on behalf of Collateral Agent and actions necessary with respect to
perfection of security interests not governed by the Uniform Commercial Code.
(b) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
either the pledge or grant by any Credit Party of the Liens purported to be
created in favor of Collateral Agent pursuant to any of the Collateral Documents
or the exercise by Collateral Agent of any rights or remedies in respect of any
Collateral (whether specifically granted or created pursuant to any of the
Collateral Documents or created or provided for by applicable law), except for
filings or recordings contemplated by Section 4.01 and except as may be
------------
required, in connection with the disposition of any Investment Property, by laws
generally affecting the offering and sale of securities.
(c) Except with respect to any Permitted Lien and such as may have been
filed in favor of Collateral Agent as contemplated by Section 4.01, no effective
------------
UCC financing statement, fixture filing or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or recording
office.
(d) All information supplied to Collateral Agent by or on behalf of any
Credit Party with respect to any of the Collateral (in each case taken as a
whole with respect to any particular Collateral) is accurate and complete in all
material respects.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(e) As of the Closing Date, none of the tangible Telecommunications
Equipment included in the Borrowing Base has been in commercial operation for
more than fifteen (15) months.
1.10 SECTION LICENSES, MATERIAL AGREEMENTS, INTELLECTUAL PROPERTY.
----------------------------------------------------
(a) Such Credit Party has obtained all approvals of any Governmental
Authority having jurisdiction over such Credit Party, which approvals are
necessary or appropriate for the construction and operation of the Systems as
are presently operating, to the extent such approvals are required to be
obtained currently. Such Governmental Approvals and approvals are listed on
Schedule 3.10(a) and constitute the only licenses, permits or franchises of any
- ----------------
Governmental Authority required in connection with the Systems as are presently
operating. All Governmental Approvals of such Credit Party are in full force and
effect, are duly issued in the name of, or validly assigned to, such Credit
Party and such Credit Party has the power and authority to operate thereunder.
(b) Schedule 3.10(b) accurately and completely lists all material
----------------
agreements to which such Credit Party is a party as of the Closing Date,
including, without limitation, all purchase agreements, construction contracts,
right of way or right of occupancy agreements, lease agreements, consulting,
employment, management and related agreements. All of the foregoing agreements
are valid, subsisting and in full force and effect and none of such Credit
Party, or any other parties, are in default thereunder in any material respect.
Such Credit Party has given true and complete copies of all such agreements to
the Agents and the Lenders.
(c) Such Credit Party owns or possesses all the patents, trademarks,
service marks, trade names, copyrights and licenses, and all rights with respect
to the foregoing (the "INTELLECTUAL PROPERTY"), necessary for the conduct of its
---------------------
business as presently conducted without any known conflict with the rights of
others except where such conflict is not reasonably expected to have a Material
Adverse Effect. Schedule 2.1(b) of the Pledge and Security Agreement accurately
---------------
and completely lists all Intellectual Property owned or possessed by or licensed
to such Credit Party.
1.11 SECTION COMPLIANCE WITH LAWS. The operations of such Credit Party comply
--------------------
with all applicable federal, state or local laws and regulations, including,
without limitation, Environmental Laws and regulations promulgated by the FCC
and any PUC, and other telecommunications laws and regulations, except where
noncompliance is not reasonably expected to have a Material Adverse Effect. None
of the operations of such Credit Party is subject to any judicial or
administrative proceeding alleging the violation of any Environmental Laws. None
of the operations of such Credit Party is the subject of federal or state
investigation evaluating whether any Remedial Action is needed to respond to a
Release.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
Such Credit Party has not filed any notice under any federal or state law
indicating past or present treatment, storage or disposal of a hazardous waste
or reporting a Release. Such Credit Party has no contingent liability of which
such Credit Party has knowledge or (with the reasonable exercise of diligence)
should have knowledge other than contingent liabilities that are not reasonably
expected to have a Material Adverse Effect.
1.12 SECTION ERISA. None of such Credit Party or any ERISA Affiliate of such
-----
Credit Party maintains or contributes to any Plan other than a Plan listed on
Schedule 3.12 hereto. Except as disclosed on Schedule 3.12, each Plan which is
- ------------- -------------
intended to be qualified under Section 401(a) of the IRC has been determined by
the IRS to be so qualified, and each trust related to any such Plan has been
determined to be exempt from federal income tax under Section 501(a) of the IRC.
Except as disclosed on Schedule 3.12, none of such Credit Party or any ERISA
-------------
Affiliate maintains or contributes to any employee welfare benefit plan within
the meaning of Section 3(1) of ERISA which provides benefits to employees after
termination of employment other than as required by Section 601 of ERISA. None
of such Credit Party or any ERISA Affiliate has breached any of the material
responsibilities, obligations or duties imposed on it by ERISA or regulations
promulgated thereunder with respect to any Plan. No Plan has incurred any
accumulated funding deficiency (as defined in Section 302(a)(2) of ERISA and
Section 412(a) of the IRC), whether waived or not waived. None of such Credit
Party or any ERISA Affiliate nor any fiduciary of any Plan which is not a
Multiemployer Plan (i) has engaged in a nonexempt "prohibited transaction"
described in Section 406 of ERISA or Section 4975 of the IRC or (ii) has taken
or failed to take any action which would constitute or result in a Termination
Event; provided that, in the case of the events described in clauses (i) and
(ii), such action, or failure to take action results in a material liability to
the Borrower. None of such Credit Party or any ERISA Affiliate has incurred any
liability to the PBGC which remains outstanding, other than the payment of
premiums, and there are no premium payments which have become due which are
unpaid. Schedule B to the most recent annual report filed with the IRS with
respect to each Plan is complete and accurate. Since the date of each such
Schedule B, there has been no adverse change in the funding status or financial
condition of the Plan relating to such Schedule B. None of such Credit Party or
any ERISA Affiliate has (i) failed to make a required contribution or payment to
a Multiemployer Plan or (ii) made a complete or partial withdrawal under
Sections 4203 or 4205 of ERISA from a Multiemployer Plan. None of such Credit
Party or any ERISA Affiliate has failed to make a required installment or any
other required payment under Section 412 of the IRC on or before the due date
for such installment or other payment. None of such Credit Party or any ERISA
Affiliate is required to provide security to a Plan under Section 401(a)(29) of
the IRC due to a Plan amendment that results in an increase in current liability
for the plan year.
1.13 SECTION INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
----------------------------------------------------------
Such Credit Party is not an "investment HOLDING COMPANY ACT company" as that
term is defined in, and is not oth-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
erwise subject to regulation under, the Investment Company Act of 1940. Such
Credit Party is not a "holding company" as that term is defined in, and is not
otherwise subject to regulation under, the Public Utility Holding Company Act of
1935.
1.14 SECTION FEDERAL RESERVE REGULATIONS. Such Credit Party is not
---------------------------
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System of the United States), and no part of the proceeds of the Loans
made to such Credit Party will be used to purchase or carry any such margin
stock or to extend credit to others for the purpose of purchasing or carrying
any such margin stock or for any purpose that violates, or is inconsistent with,
the provisions of Regulation T, U or X of said Board of Governors.
1.15 SECTION INSURANCE. Schedule 3.15 contains a description of
--------- -------------
all insurance which such Credit Party maintains or has maintained on its behalf
as of the Closing Date. All of such insurance is in full force and effect.
1.16 SECTION CAPITALIZATION AND SUBSIDIARIES. As of the Closing
-------------------------------
Date, the classes of Equity Interests, number of authorized shares, number of
outstanding shares and par values or other designations of the Equity Interests
or other equity securities or beneficial interests of such Credit Party are
correctly set forth on Schedule 3.16. All the outstanding shares of Equity
-------------
Interests or other equity securities or beneficial interests of such Credit
Party are duly and validly issued, fully paid and nonassessable, and none of
such issued and outstanding shares, equity securities or beneficial interests
has been issued in violation of, or is subject to, any preemptive or
subscription rights. Except as set forth on Schedule 3.16, as of the Closing
-------------
Date, there are no: (A) outstanding shares of Equity Interests or other equity
securities or beneficial interests or other securities convertible into or
exchangeable for shares of Equity Interests or other equity securities or other
beneficial interests of such Credit Party, (B) outstanding rights of
subscription, warrants, calls, options, contracts or other agreements of any
kind, issued, made or granted to or with any Person under which such Credit
Party may be obligated to issue, sell, purchase, retire or redeem or otherwise
acquire or dispose of any shares of Equity Interests or other equity securities
or beneficial interests of such Credit Party, or (C) Subsidiaries of such Credit
Party.
1.17 SECTION REAL ESTATE ASSETS. Set forth on Schedule 3.17 is a
------------------ -------------
list of all Real Estate Assets owned as of the Closing Date by such Credit
Party, together with a street address of each such Real Estate Assets, including
a description of such properties' current use. Such Credit Party's interests in
the Real Estate Assets are sufficient in order for such Credit Party to conduct
its business and operations as conducted on the Closing Date.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
1.18 SECTION SOLVENCY. After giving effect to any Loans made to
--------
such Credit Party hereunder, the disbursement of the proceeds of such Loans
pursuant to such Credit Party's instructions and the execution, delivery and
performance of each of the Loan Documents and transactions contemplated thereby,
such Credit Party is Solvent and is not contemplating either the filing of a
petition by it under any state or federal bankruptcy or insolvency laws or the
liquidation of all or a substantial portion of its property, and has no
knowledge of any Person contemplating the filing of any such petition against
such Credit Party.
1.19 SECTION BROKERS, ETC. Such Credit Party has not dealt with any broker,
------------
finder, commission agent or other similar Person in connection with the Loans or
the transactions being effected contemporaneously with this Agreement, and such
Credit Party covenants and agrees to indemnify and hold harmless the Agents, and
the Lenders from and against, any broker's fee, finder's fee or commission in
connection with such transactions.
1.20 SECTION NO MATERIAL MISSTATEMENTS. Neither any report, financial
-------------------------
statement, exhibit or schedule furnished by or on behalf of such Credit Party to
any of the Agents or any Lender in connection with the negotiation of this
Agreement and the other Loan Documents or included herein or therein, nor any
other information required to be furnished pursuant to the provisions of Article
-------
V hereof, contains any material misstatement of fact or omits to state any
- -
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made.
1.21 SECTION YEAR 2000 MATTERS. Each Credit Party has made a full and
-----------------
complete assessment of the Year 2000 Problems and has a realistic and achievable
program for remediating the Year 2000 Problems on a timely basis. Based on such
assessment and program, such Credit Party does not reasonably anticipate that
Year 2000 Problems will have a Material Adverse Effect.
2 ARTICLE
CONDITIONS FOR LOANS
- --------------------
The obligations of each Lender to make Loans hereunder are subject to
the accuracy, as of the Initial Funding Date and as of the date of making of
each of the Loans after the Initial Funding Date, of the representations and
warranties contained in Article III (except that any representations or
-----------
warranties that relate to a specified date shall only be reaffirmed as of such
date) and the other Loan Documents, to the performance by each Credit Party of
its obligations to be performed hereunder on or before the date of such Loan and
to the satisfaction of the following further conditions:
1.1 SECTION CONDITIONS PRECEDENT TO INITIAL LOANS. In the case of the Loans
------------------------------------
to be made on the Intial Funding Date:
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(a) All then applicable legal matters incident to this Agreement and the
other Loan Documents shall be reasonably satisfactory to Agents.
(b) The Agents, as applicable, shall have received payment in full of the
fees set forth in their separate written agreements and all other out-of-pocket
costs and expenses of the Agents and the Lenders incurred on or prior to the
Initial Funding Date, including, without limitation, attorneys' and paralegals'
fees and expenses and the fees and expenses incurred in connection with
preparation of the Loan Documents.
(c) The Agents shall have received the following items, in each case in form
and substance satisfactory to the Agents:
(i) the Financials and the Projections;
(ii) certificates dated the Initial Funding Date or dated
the Closing Date and a reaffirmation of such certificate
dated the Initial Funding Date, of the secretaries or
assistant secretaries of each of Credit Party, certifying
(1) the names and true signatures of the officers authorized
to sign each Loan Document to which such Credit Party is a
party, (2) the resolutions of the Board of Directors of such
Credit Party approving the transactions contemplated by the
Loan Documents to which each is a party, and (3) such Credit
Party's bylaws;
(iii) the written opinions of special, regulatory and local
counsel for the Credit Parties, dated the Initial Funding
Date, addressed to the Agents and the Lenders satisfactory
to (and containing only such qualifications and limitations
as are satisfactory to) Agents, which opinions shall be
substantially in the forms set forth in Exhibit D attached
hereto;
(iv) certificates of appropriate public officials dated
not more than thirty (30) days prior to the Initial Funding
Date, as to the legal existence or qualification, and good
standing of each Credit Party from such Person's
jurisdiction of organization and from the jurisdiction in
which such Person has its principal place of business;
(v) each Credit Party's Certificate or Articles of
Incorporation or other organizational documents, as amended,
modified or supplemented on or prior to the Initial Funding
Date, each certified to be true, correct and complete by the
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
Secretary of State of the state in which such Person is
organized;
(vi) an originally executed Closing Date Certificate,
together with all attachments thereto;
(vii) a completed Year 2000 questionnaire executed by Borrower;
(viii) the Notes duly executed and delivered by Borrower;
(ix) this Agreement duly executed and delivered by the
Credit Parties;
(x) the Pledge and Security Agreement executed and
delivered by the parties thereto; and
(xi) the Intercreditor Agreement, duly executed and
delivered by each of the parties thereto.
(d) In order to create in favor of the Collateral Agent, for the benefit of
Lenders, a valid and, subject to any filing and/or recording referred to herein,
perfected first priority security interest in all of the Collateral, Collateral
Agent shall have received:
(i) certificates (which certificates shall be
accompanied by irrevocable undated stock powers, duly
endorsed in blank and otherwise satisfactory in form and
substance to Collateral Agent) representing all capital
stock pledged pursuant to the Pledge and Security Agreement,
and Acknowledgments of Pledge from each applicable issuer of
Securities pledged pursuant to the Pledge and Security
Agreement;
(ii) the results of a recent search, by a Person
satisfactory to Agents, of all effective UCC financing
statements and fixture filings and all judgment and tax lien
filings which may have been made with respect to any
personal or mixed property of any Credit Party, together
with copies of all such filings disclosed by such search,
and UCC termination statements duly executed by all
applicable Persons for filing in all applicable
jurisdictions as may be necessary to terminate any effective
UCC financing statements or fixture filings disclosed
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
in such search (other than any such financing statements or
fixture filings in respect of Permitted Liens;
(iii) UCC financing statements, duly executed by each
applicable Credit Party with respect to all personal and
mixed property Collateral of such Credit Party, for filing
in all jurisdictions as may be necessary or, in the opinion
of the Agents, desirable to perfect the security interests
created in such Collateral pursuant to the Collateral
Documents;
(iv) all cover sheets or other documents or instruments
required to be filed in order to create or perfect Liens in
respect of any Intellectual Property;
(v) an opinion of counsel (which counsel shall be
reasonably satisfactory to Collateral Agent) with respect to
the creation and perfection of the security interests in
favor of Collateral Agent in such Collateral and such other
matters governed by the laws of each jurisdiction in which
any Credit Party or any personal or mixed property
Collateral is located as Collateral Agent may reasonably
request, in each case in form and substance reasonably
satisfactory to Agents; and
(vi) evidence that each Credit Party shall have taken or
caused to be taken any other action, executed and delivered
or caused to be executed and delivered any other agreement,
document and instrument, and made or caused to be made any
other filing and recording (other than as set forth herein)
reasonably required by Agents.
(e) The Administrative Agent shall have received evidence satisfactory to
the Administrative Agent that no Credit Party has any Debt other than as
described in Section 6.12.
------------
(f) On the Initial Funding Date, Borrower shall have borrowed $40,000,000 in
aggregate principal amount of Second Priority Loans under the Second Priority
Loan Documents.
(g) All of Borrower's Series C Convertible Preferred Equity Interests shall
have been converted into Equity Interests of Holdings with terms and conditions
identical thereto.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(h) Borrower shall have received from inception to the Closing Date, cash
equity contributions in an aggregate amount equal to at least
$70,000,000.
(i) Borrower shall have delivered to Lenders, as attachments to the Closing
Date Certificate referred to in Section 4.01(c)(iv), a closing balance sheet
giving pro forma effect to the transactions contemplated hereby, including,
without limitation, the making of any Loans on the Initial Borrowing Date, and,
together with a detailed budget for the one year period following the Closing
Date.
(j) Borrower shall have provided to Administrative Agent certificates of
insurance reflecting Borrower's and its Subsidiaries' compliance with the
provisions of Section 5.04 and the applicable provisions of any other Loan
Document, including, without limitation, naming the Collateral Agent as loss
payee and/or additional insured under the applicable coverages.
(k) Borrower shall have delivered to Collateral Agent Landlord Consents and
Estoppel with respect to (x) the Borrower's premises located at 222 Sutter
Street and (y) not less than four (4) of the premises at which a transmission
node (ATM switch center node) is located.
1.2 SECTION CONDITIONS PRECEDENT TO ALL LOANS. In the case of each Loan
---------------------------------
hereunder, including, without limitation, the Loans made on the Initial Funding
Date.
(a) The representations and warranties of Borrower set forth in Article III
-----------
or in any other Loan Document shall be true and correct in all material respects
on and as of the date of such Loan with the same effect as though such
representations and warranties had been made on and as of such date, except that
any representations or warranties that relate to a specified date shall only be
reaffirmed as of such date.
(b) At the time of each such Loan, and after giving effect to such Loan,
each Credit Party shall be in compliance with all the terms and provisions set
forth herein on its part to be observed or performed, and no Event of Default or
Default shall have occurred and be continuing and no event or change shall have
occurred that shall have caused or evidenced, either in any case or in the
aggregate, a Material Adverse Effect.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(c) The Administrative Agent shall have received a Notice of Borrowing for
the Loan together with the other materials required pursuant to Section 2.03.
------------
2 ARTICLE
AFFIRMATIVE COVENANTS
- ---------------------
Each Credit Party covenants and agrees that so long as this Agreement
shall remain in effect, any Commitment hereunder shall be outstanding or any
Obligations hereunder or under any of the other Loan Documents are unpaid,
unless the Requisite Lenders shall have otherwise given prior written consent:
1.1 SECTION CORPORATE AND FRANCHISE EXISTENCE. Such Credit Party shall preserve
---------------------------------
and maintain its corporate or other organizational existence, rights,
franchises, licenses and privileges in its jurisdiction of its organization, and
in all other jurisdictions in which such qualification is necessary in view of
its business and operations and property and preserve, protect and keep in full
force and effect its material rights and its Governmental Approvals except where
the failure to do so would not reasonably be expected to have a Material Adverse
Effect.
1.2 SECTION COMPLIANCE WITH LAWS, ETC. Such Credit Party shall comply in all
--------------------------
material respects with all laws and regulations applicable to it, including,
without limitation, Environmental Laws, regulations promulgated by the FCC and
any PUC, and other telecommunications laws and regulations, and all material
contractual obligations applicable to it except where the failure to do so would
not reasonably be expected to have a Material Adverse Effect.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
1.3 SECTION MAINTENANCE OF PROPERTIES. Such Credit Party shall at all times
-------------------------
maintain in good repair, working order and condition, excepting ordinary wear
and tear, all of its properties material to its operations and make all
appropriate repairs, replacements and renewals thereof, in each case consistent
with prudent industry practices and sound business judgment and with respect to
the maintenance of machinery and equipment, in compliance with applicable
government regulations, manufacturers' warranty request and licensing
requirements, except where the failure to do so would not reasonably be expected
to have a Material Adverse Effect.
1.4 SECTION INSURANCE.
---------
(a) Maintenance of Insurance. Such Credit Party will maintain or cause to
------------------------
be maintained, with financially sound and reputable insurers, such public
liability insurance, third party property damage insurance, business
interruption insurance and casualty insurance with respect to liabilities,
losses or damage in respect of the assets, properties and businesses of such
Credit Party and its Subsidiaries as may customarily be carried or maintained
under similar circumstances by Persons of established reputation engaged in
similar businesses, in each case in such amounts, with such deductibles,
covering such risks and otherwise on such terms and conditions as shall be
customary for such Persons, and in any event, all such insurance shall be
maintained in accordance with the terms set forth on Schedule 3.15 hereof.
Without limiting the generality of the foregoing, such Credit Party will
maintain or cause to be maintained replacement value casualty insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts, with such deductibles, and covering such risks as are at all times
carried or maintained under similar circumstances by Persons of established
reputation engaged in similar businesses. Each such policy of insurance shall
(i) name Collateral Agent, the other Agents and the Lenders and their respective
Affiliates as additional insureds thereunder, as their respective interests may
appear and (ii) in the case of casualty insurance policy, contain a loss payable
clause or endorsement, satisfactory in form and substance to Collateral Agent,
that names Collateral Agent for the benefit of the Lenders and the Second
Priority Lenders as the sole loss payee thereunder under a standard lender loss
payee endorsement for any covered loss in excess of $500,000 and provides for at
least thirty (30) days prior written notice to Collateral Agent of any
modification or cancellation of such policy.
(b) Application of Payments. All payments in excess of $500,000 received by
-----------------------
such Credit Party from any insurance referred in Section 5.04(a) shall, at the
-------
request of Collateral Agent be promptly delivered directly to the Collateral
Agent, which amounts shall be applied by the Collateral Agent, upon request by
such Credit Party (and after receipt by Collateral Agent of such information
with respect to the application of such amounts as Collateral Agent may
reasonably request), for the purposes set forth in Section 2.09(b) unless an
Event of Default or Default shall have occurred and be continuing or such Credit
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
Party shall have failed to make such request within thirty (30) days after
receipt of such amounts by Collateral Agent, in which case such amounts shall be
applied in the Requisite Lenders' sole discretion to the repayment of the
Obligations or such restoration, replacement or rebuilding.
(c) General. The Collateral Agent shall be entitled, upon reasonable advance
-------
notice, to review and/or receive copies of such Credit Party's (or other
appropriate party's) books and records regarding all insurance policies carried
and maintained with respect to each System and such Credit Party's obligations
under this Section 5.04. Notwithstanding anything to the contrary herein, no
------------
provision of this Agreement or any other Loan Document shall impose on the
Collateral Agent, the Agent or any Lender any duty or obligation to verify the
existence or adequacy of the insurance coverage maintained by such Credit Party,
nor shall the Collateral Agent or any Lender be responsible for any
representations or warranties made by or on behalf of such Credit Party to any
insurance broker, company or underwriter. The Collateral Agent, at its sole
option, may obtain such insurance if not provided by such Credit Party; in such
event, such Credit Party shall reimburse the Collateral Agent or the Agents upon
demand for the cost thereof together with interest, and such costs shall
constitute Obligations secured by the Collateral. Not later than thirty (30)
days prior to the anticipated expiration date of any insurance coverage required
hereby, Borrower shall provide to Collateral Agent certificates evidencing the
renewal of each of such insurance coverage.
1.5 SECTION OBLIGATIONS AND TAXES. Such Credit Party shall pay all of its
---------------------
indebtedness and obligations promptly and in accordance with their terms and pay
and discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property, as
such become due, as well as all lawful claims for labor, materials and supplies
or otherwise which, if unpaid, might become a Lien upon such properties or any
part thereof; provided, however, that such Credit Party shall not be required to
-------- -------
pay and discharge or to cause to be paid and discharged any such tax,
assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings diligently pursued,
there exists no material risk of forfeiture and such Credit Party shall set
aside on its books such reserves as are required by GAAP and in an amount
satisfactory to the Administrative Agent with respect to any such tax,
assessment, charge, levy or claim so contested.
1.6 SECTION FINANCIAL STATEMENTS, REPORTS, ETC. Credit Parties shall furnish to
------------------------------------------
the Administrative Agent and the Lenders (except as otherwise provided herein):
(a) as soon as available and in any event within thirty (30) days after the
end of each month occurring after the Closing Date, such financial statements
for Holdings and its Subsidiaries as Holdings or its Subsidiaries may otherwise
prepare as a matter of internal policy;
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(b) as soon as available and in any event within one hundred twenty (120)
days after the end of each fiscal year of Holdings, annual consolidated and
consolidating financial statements for Holdings and its Subsidiaries, including
the balance sheets and statements of operations, income, stockholders' equity
and cash flows, for such fiscal year, prepared in accordance with GAAP, which
consolidated financial statements and other above described financial
information shall have been audited by a nationally recognized independent
certified public accounting firm satisfactory to the Administrative Agent, and
accompanied by such independent certified public accounting firm's unqualified
opinion;
(c) as soon as available and in any event within forty-five (45) days after
the end of each month and each fiscal quarter during each fiscal year of
Holdings, consolidated and consolidating unaudited balance sheets and statements
of operations for Holdings and its Subsidiaries, and consolidated and
consolidating statements of stockholders' equity and cash flows of Holdings and
its Subsidiaries, and consolidated statements of stockholders' equity and cash
flows of Holdings and its Subsidiaries as of the end of each such month or
fiscal quarter, as applicable, and for the then elapsed portion of the fiscal
year;
(d) together with the financial statements delivered pursuant to clause (c)
----------
above a report thereon of PriceWaterhouseCoopers LLP or other independent
certified public accountants of recognized national standing selected by
Holdings and in form and substance satisfactory to Administrative Agent,
together with a written statement (which statement may contain such
qualifications as the accountants deem appropriate) by such independent
certified public accountants stating that their audit examination has included a
review of the terms of the Loan Documents, whether, in connection therewith, any
condition or event that constitutes a Default or an Event of Default has come to
their attention and, if such a condition or event has come to their attention,
specifying the nature and period of existence thereof, and that nothing has come
to their attention that causes them to believe that the information contained in
any Compliance Certificate is not correct or that the matters set forth in such
Compliance Certificate are not stated in accordance with the terms hereof;
(e) concurrently with the delivery of financial statements pursuant to
clauses (b) and (c) above, a Compliance Certificate of the chief financial
officer of Holdings setting forth the calculations contemplated in Article VII
-----------
hereof, which shall include, without limitation, a detailed calculation,
together with the basis therefor, of any amount included in clause (ii)(F) of
the definition of the term "EBITDA" as calculated for such the period for which
such financial statements are being delivered, and certifying as to the fact
that such Person has examined the provisions of this Agreement and that no Event
of Default or any Default, shall have occurred and be continuing or if such an
event has occurred, a statement explaining its nature and extent and setting
forth the steps the Credit Parties propose to take to cure such Event of
Default;
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(f) not later than December 31 of each calendar year (i) consolidated and
consolidating projected annual revenue and income statements (including detailed
revenue and expense statements), balance sheets and cash flow statements for
Holdings and its Subsidiaries for the succeeding fiscal year, such statements to
be reasonably acceptable to the Administrative Agent, and (ii) an annual
operating budget presented on a monthly basis for such succeeding fiscal year;
(g) to the Administrative Agent, promptly upon their becoming available,
copies of any periodic or special Documents, statements or other information
filed by any Credit Party with the FCC, PUC or other Governmental Authority in
connection with the construction and/or operation of any System or with respect
to the transactions contemplated by any of the Loan Documents, and copies of any
material notices and other material communications from the FCC, PUC or from any
other Governmental Authority;
(h) promptly upon any officer of any Credit Party obtaining knowledge of
any condition or event which either constitutes an Event of Default or a Default
or which would result in any financial result for any fiscal year to deviate
materially and adversely from the financial results projected for such fiscal
year in the Projections, a certificate signed by an authorized officer of such
Credit Party specifying in reasonable detail the nature and period of existence
thereof and what corrective action such Credit Party has taken or proposes to
take with respect thereto;
(i) within thirty (30) days after the end of each fiscal year of such
Credit Party, a certificate signed by an authorized officer of such Credit Party
setting forth all the Real Estate Assets acquired by such Credit Party in the
preceding year;
(j) evidence of insurance complying with Section 5.04;
------------
(k) promptly upon the filing thereof, copies of all registration statements
and annual, quarterly, monthly or other regular reports which Holdings files
with the Securities and Exchange Commission; and
(l) promptly from time to time such other information regarding the
operations (including, without limitation, construction budgeting and System
completion), business affairs and condition (financial or otherwise) of such
Credit Party as the Administrative Agent may reasonably request.
1.7 SECTION LITIGATION AND OTHER NOTICES. Such Credit Party shall give the
----------------------------
Administrative Agent prompt written notice upon obtaining knowledge of the
following: (a) all events of default or any event that would become an event of
default upon notice or lapse of time or both under any of the terms or
provisions of any note, or of any other evidence of indebtedness or agreement or
contract governing the borrowing of money of such Credit
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
Party; (b) any levy, attachment, execution or other process against any of the
property or assets, real or personal, of such Credit Party; (c) the filing or
commencement of any action, suit or proceeding by or before any court or any
Governmental Authority which, if adversely determined against such Credit Party,
would likely result in a Material Adverse Effect; (d) any adverse notice, letter
or other correspondence of any kind from the FCC or the PUC relating to the
Governmental Approvals or any System; (e) any material default under any other
material license, agreement or contract to which such Credit Party is a party;
and (f) any matter, individually or in the aggregate with any other matter,
which has resulted in, or which such Credit Party believes may result in, a
Material Adverse Effect on such Credit Party.
1.8 SECTION FUTURE PROPERTIES. In the event that any Credit Party acquires an
-----------------
interest in any Real Estate Asset that the Administrative Agent reasonably
determines is material to such Credit Party's Business, and such interest has
not otherwise been made subject to the Lien of the Collateral Documents in favor
of Collateral Agent, for the benefit of Lenders, then such Credit Party,
contemporaneously with acquiring such Real Estate Asset, shall take all such
actions and execute and deliver, or cause to be executed and delivered, all such
documents, instruments, agreements, opinions and certificates as Collateral
Agent may reasonably request to establish a Lien on such Real Estate Asset in
favor of the Collateral Agent for the benefit of the Lenders; provided, that on
and after the date of consummation of a Qualified Equity Offering, Borrower
shall only by obligated under this Section 5.08 to use its best efforts to
obtain a Landlord Consent and Estoppel with respect to any premise at which a
transmission node (ATM switch center node) is located.
1.9 SECTION ERISA. Such Credit Party shall comply in all material respects with
-----
the applicable provisions of ERISA and furnish to the Agent, (i) as soon as
possible, and in any event within ten (10) days after such Credit Party or any
officer of such Credit Party knows or has reason to know that any Termination
Event has occurred, a statement of an officer of such Credit Party setting forth
details as to such Termination Event and the corrective action (if any) that
such Credit Party proposes to take with respect thereto, together with a copy of
the notice of any Reportable Event given to the PBGC, and (ii) promptly after
receipt thereof, a copy of any notice such Credit Party may receive from the
PBGC relating to the intention of the PBGC to terminate any Plan or to appoint a
trustee to administer any such Plan.
1.10 SECTION ACCESS TO PREMISES AND RECORDS. Such Credit Party shall permit
------------------------------
representatives of the Administrative Agent and each Lender to have access to
such Credit Party's books and records and to the Collateral and the premises of
such Credit Party at reasonable times upon reasonable notice (and after the
occurrence and during the continuance of any Default or Event of Default,
without notice and at any time) and to make such ex-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
cerpts from such records as such representatives deem necessary and to inspect
the Collateral.
1.11 SECTION DESIGN AND CONSTRUCTION. Such Credit Party shall design,
-----------------------
construct, equip and operate its Systems in accordance with prudent industry
standards.
1.12 SECTION ENVIRONMENTAL NOTICES. If such Credit Party shall (a) receive
---------------------
written notice that any violation of any Environmental Law may have been
committed or is about to be committed by such Credit Party, (b) receive written
notice that any administrative or judicial complaint or order has been filed or
is about to be filed against such Credit Party alleging violations of any
Environmental Law or requiring such Credit Party to take any action in
connection with any Release of any Contaminant into the environment, or (c)
receive any written notice from a Governmental Authority or private party
alleging that such Credit Party may be liable or responsible for costs
associated with a response to or cleanup of a Release or any damages caused
thereby, such Credit Party shall provide the Administrative Agent with a copy of
such notice within ten (10) Business Days of such Credit Party's receipt
thereof.
1.13 SECTION AMENDMENT OF ORGANIZATIONAL DOCUMENTS. Such Credit Party shall
-------------------------------------
notify the Administrative Agent of any amendment to its Certificate or Articles
of Incorporation or other organizational Documents within ten (10) days of the
occurrence of any such event, and provide the Agent with copies of any
amendments certified by the secretary of such Credit Party and of all other
relevant documentation. Such Credit Party shall promptly deliver to the
Administrative Agent such financing statements executed by such Credit Party
which the Administrative Agent may request as a result of any such event.
1.14 SECTION FISCAL YEAR. Such Credit Party shall maintain a fiscal year
-----------
ending on December 31.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
1.15 SECTION YEAR 2000 PROBLEMS. On or prior to March 31, 1999, each Credit
------------------
Party shall complete and deliver to the Agent a Year 2000 Corrective Plan. On or
prior to April 30, 1999 each Credit Party shall implement Year 2000 Corrective
Actions. On or prior to June 30, 1999 each Credit Party shall complete Year 2000
Corrective Actions and Year 2000 Implementation Testing. On or prior to August
31, 1999 each Credit Party shall eliminate all Year 2000 Problems, except where
the failure to correct the same could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate.
1.16 SECTION FUTURE SUBSIDIARIES. In the event that any Person becomes a
-------------------
Subsidiary of Holdings, Holdings shall (i) promptly cause such Subsidiary to
become a Guarantor hereunder and a Grantor under the Pledge and Security
Agreement by executing and delivering to Administrative Agent and Collateral
Agent a Counterpart Agreement, and (ii) take all such actions and execute and
deliver, or cause to be executed and delivered, all such documents, instruments,
agreements, and certificates similar to those described in Section 4.01(d).
---------------
With respect to each such Subsidiary, Holdings shall promptly send to
Administrative Agent written notice setting forth with respect to such Person
(i) the date on which such Person became a Subsidiary of Holdings, and (ii) all
of the data required to be set forth in Schedule 3.16 with respect to all
Subsidiaries of Holdings; provided, such written notice shall be deemed to
supplement Schedule 3.16 for all purposes hereof.
1.17 SECTION ACCOUNTING; MAINTENANCE OF RECORDS. Such Credit Party shall
----------------------------------
maintain a system of accounting established and administered in accordance with
GAAP. Such Credit Party shall keep and maintain, and cause each of its
Subsidiaries to keep and maintain, in all material respects, proper books of
record and account in which entries in conformity with GAAP shall be made of all
dealings and transactions in relation to their respective businesses and
activities.
1.18 SECTION FURTHER ASSURANCES. Such Credit Party agrees to do such further
------------------
acts and things and to execute and deliver to or the Administrative Agent or the
Collateral Agent such additional assignments, agreements, powers and
instruments, at such Credit Party's expense, as the Administrative Agent or the
Collateral Agent may require or deem advisable to carry into effect the purposes
of this Agreement and the other Loan Documents or to better assure and confirm
unto the Administrative Agent or the Collateral Agent its rights, powers and
remedies hereunder and thereunder.
1.19 SECTION INTEREST RATE AGREEMENTS. At all times after the date which is
------------------------
thirty (30) days after the Closing Date, Borrower shall maintain, or caused to
be maintained, in effect one or more Interest Rate Agreements for a term of not
less than two years and otherwise in form and substance reasonably satisfactory
to Agent, which Interest Rate Agreements together with the amount of fixed rate
Debt of the Credit Parties shall effectively fix the interest costs of Credit
Parties with respect to an aggregate notional principal amount of
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
not less than 50% of the aggregate principal amount of the Loans and Second
Priority Loans outstanding from time to time to a rate not in excess of the Base
LIBO Rate as of the Closing Date plus 2.00, % per annum.
1.20 SECTION DEPOSIT ACCOUNTS. The Borrower shall, and shall cause each of
-----------------
its Subsidiaries to, within 30 days of the Closing Date (a) to deliver to
Collateral Agent an agreement, satisfactory in form and substance to Collateral
Agent and executed by the financial institution at which such Deposit Account is
maintained, pursuant to which such financial institution confirms and
acknowledges Collateral Agent's security interest in, and sole dominion and
control over, such Deposit Account and waives its rights to set-off with respect
to amounts in such Deposit Account, and (b) to take all other steps necessary
or, in the opinion of Collateral Agent, desirable to ensure that Collateral
Agent has sole dominion and control over such Deposit Account; provided that if
--------
the Borrower or such Subsidiary is unable to obtain such agreement from such
financial institution the Borrower shall, or shall cause such Subsidiary to,
within 30 days after receiving a written request by Collateral Agent to do so,
transfer all amounts in the applicable Deposit Account to a Deposit Account
maintained at a financial institution from which the Borrower or such Subsidiary
has obtained such an agreement.
1.21 SECTION CERTAIN POST CLOSING OBLIGATIONS.
---------------------------------
(a) On or before the 18-month anniversary of the Closing Date, Holdings
shall cause Borrower to have received aggregate cash equity contributions and/or
Qualified Intercompany Loans, since the date of its formation, of not less than
$250,000,000; provided, as used in this Section 5.21(a), the phrase "aggregate
cash equity contributions" shall not include any amount included in clause
(ii)(F) of the definition of the term of "EBITDA".
(b) In addition to the five (5) Landlord Consents and Estoppels delivered
by Borrower on the Closing Date pursuant to Section 4.01(k), within 90 days
after the Closing Date, Borrower shall obtain a Landlord Consent and Estoppel
with respect to four (4) of the premises at which as of the Closing Date a
transmission node (ATM switch center node) is located, and within 180 days after
the Closing Date, Borrower shall obtain a Landlord Consent and Estoppel with
respect to all remaining premises at which, as of the Closing Date, a
transmission node (ATM switch center node) is located; provided, however, that
on and after the date of consummation of a Qualified Equity Offering, Borrower
shall only by obligated under this clause (b) to use its best efforts to
accomplish the foregoing.
(c) Within 180 days after the Closing Date, with respect to not less than
50% of Borrower's collocation agreements in effect as of the Closing Date,
Borrower shall either (y) obtain the consents of any necessary parties to the
grant of a security interest therein in favor of Collateral Agent under the
Pledge and Security Agreement or (z) assign all rights under
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
such collocation agreements to a newly-created, wholly-owned Subsidiary, in each
case in a manner reasonably acceptable to the Administrative Agent and
Collateral Agent; provided that on and after the date of consummation of a
--------
Qualified Equity Offering, Borrower shall only be obligated under this clause
(c) to use its best efforts to accomplish the foregoing.
(d) Notwithstanding anything in this Agreement or in any other Loan
Document to the contrary (but subject, in any event to Sections 5.21(b) and
5.21(c)), each Credit Party shall use its best efforts to (i) obtain a Landlord
Consent and Estoppel with respect to any Leasehold Property at which a
transmission node (ATM switch center node) is located, and (ii) take the steps
set forth at Section 5.21(c)(y) or (c)(z) with respect to any collocation
agreement entered into thereby.
1 ARTICLE NEGATIVE COVENANTS
------------------
Each Credit Party covenants and agrees with the Administrative Agent
and the Lenders that as long as this Agreement shall remain in effect, any
Commitment hereunder shall be outstanding or any Obligations hereunder or under
any of the Loan Documents shall be unpaid, unless the Requisite Lenders shall
have otherwise given prior written consent:
1.1 SECTION LIENS, ETC. Such Credit Party shall not create, incur, assume
----------
or suffer to exist, directly or indirectly, any Lien upon or with respect to any
of its properties or the Collateral, now owned or hereafter acquired, or upon
any proceeds, products, issues, income or profits therefrom except for the
following ("PERMITTED LIENS"):
---------------
(i) Liens granted pursuant to the Loan Documents;
(ii) Liens securing any Purchase Debt to the extent that
the Liens cover only the subject assets purchased with such
Purchase Debt or other assets financed by the same lender
with other Purchase Debt provided by such lender and is
limited to the amount of the purchase price of such subject
assets;
(iii) Liens securing any Vendor Financing to the extent
that the Liens cover only the subject assets purchased with
such Vendor Financing and is limited to the amount of the
purchase price of such subject assets;
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(iv) Liens for taxes, assessments or governmental charges
or levies on such Credit Party's property if the same shall
not at the time be delinquent or thereafter can be paid
without penalty, or are being diligently contested in good
faith and by appropriate proceedings, which does not entail
any material danger of forfeiture and for which such Credit
Party shall have set aside reserves on its books as required
by GAAP;
(v) Liens imposed by law, such as landlord's, carrier's,
warehousemen's and mechanic's liens, which liens shall be
waived in writing to the extent available, and with respect
to obligations not yet due or being contested in good faith
by appropriate proceedings which does not entail any
material danger of forfeiture and in either case for which
such Credit Party shall have set aside reserves on its books
as required by GAAP;
(vi) Liens arising out of pledges or deposits under
workmen's compensation laws, unemployment insurance, old age
pensions, or other social security benefits other than any
Lien imposed by ERISA;
(vii) Liens incurred or deposits made in the ordinary
course of business to secure surety bonds provided that such
Liens shall extend only to cash collateral for such surety
bonds;
(viii) easements and rights of way and other encumbrances
arising in the ordinary course of business which do not
secure Debt and which do not materially detract from the
operation of business on, or materially impair the title to,
the properties subject to such Liens;
(ix) Liens securing the Second Priority Loans on a second
priority basis as contemplated by the Second Priority Loan
Documents; or
(x) Liens on cash deposits or other Temporary Cash
Investments securing Debt permitted under Section 6.12(viii)
and not in excess of 105% of the undrawn amount of the
applicable letter of credit.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
1.2 SECTION USE OF PROCEEDS. Such Credit Party shall not use the than as
---------------
provided in Section 2.01(d) hereof.
---------------
(A) SECTION SALE OF ASSETS, CONSOLIDATION, MERGER, ACQUISITIONS ETC. Such
-------------------------------------------------------
Credit Party shall not consolidate with or merge into any other Person without
the prior written consent of the Requisite Lenders, or otherwise sell, lease,
transfer or otherwise dispose of any assets except for (i) sales of inventory in
the ordinary course of business, (ii) any sale, lease, transfer or other
disposition of assets no longer used or useful in the conduct of the Business
for the fair market value thereof not to exceed $250,000 in any fiscal year and
$1,000,000 in the aggregate during the term of this Agreement, and (iii) sales
of Investments in accordance with Section 6.06(viii).
(b) Such Credit Party shall not purchase or otherwise acquire all or any
portion of the assets or business of another Person, except for (i) acquisitions
of assets in the ordinary course of business and (ii) Permitted Acquisitions.
1.3 SECTION DIVIDENDS AND DISTRIBUTIONS; SALE OF EQUITY INTERESTS.
-----------------------------------------------------
(a) Such Credit Party shall not purchase, redeem or otherwise acquire any
interest of such Credit Party, declare or make or pay any dividends in any
fiscal year of such Credit Party on any class or classes of stock, return
capital of such Credit Party to its shareholders, make any other distribution on
or in respect of any shares of any class of capital stock of such Credit Party
or make other payments to any shareholder of such Credit Party in its/his/her
capacity as a shareholder, or make payments in respect of Qualified Inter
company Loans; provided, that (i) so long as no Event of Default or Default
--------
has occurred and is continuing or would result therefrom and so long as the
Total Leverage Ratio is less than 6.00:1.00, Borrower may make payments or pay
dividends to Holdings in the amount necessary to make scheduled principal and
interest payments on Permitted Holdings Debt, (ii) Borrower may make payments or
pay dividends to Holdings to pay administrative costs (including overhead,
accounting and legal fees (in each case payable to unaffiliated third parties),
regulatory expenses and filing fees and expenses and out-of-pocket costs of
permitted Debt and equity offerings, not in excess of $1,000,000 in the
aggregate in any fiscal year and (iii) the foregoing restrictions shall not
apply to any payments or dividends made by a Subsidiary of Borrower to Borrower.
(b) Such Credit Party other than Holdings shall not sell or issue any
additional Equity Interests except to Holdings or Borrower (so long as such
additional Equity Interest are pledged to the Collateral Agent as security for
the Obligations).
1.4 SECTION MANAGEMENT FEES AND PERMITTED CORPORATE OVERHEAD. Such Credit
------------------------------------------------
Party shall not pay or enter into any arrangement to pay any fee or
compensation, or reimburse expenses of, an Affiliate or any other Person for
services which are in the nature
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
of management, corporate overhead or administrative services (other than
employment agreements and consulting agreements in lieu of employment
agreements).
1.5 SECTION INVESTMENTS. Such Credit Party shall not, directly or
-----------
indirectly, make any Investments except:
(i) Temporary Cash Investments;
(ii) Investments in certificates of deposit, repurchase
agreements, money market or other cash management accounts,
bankers acceptances and short term Eurodollar time deposits
with financial institutions having a long term deposit
rating of at least A+ from Moody's Investors Service, Inc.
or Standard & Poor's Ratings Group, respectively;
(iii) Investments in commercial paper rated P1 or A1 by
Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group respectively;
(iv) a Credit Party may own Equity Interests in another
Credit Party or any person that, after giving effect to such
Investment, becomes a Credit Party;
(v) Investments arising from asset sales otherwise
permitted by this Agreement;
(vi) Investments arising from distributions in
bankruptcy or other reorganization proceedings;
(vii) Permitted Acquisitions; and
(viii) other Investments not exceeding, in the aggregate,
the sum of (x) (1) $5,000,000, and (2) the amount of any
cash proceeds received by Borrower and its Subsidiaries with
respect to Investments made pursuant to this clause (x) in
an amount not in excess of the initial Investment; provided,
the aggregate amount of any increase pursuant to this clause
(2) shall not exceed $10,000,000, in the aggregate; plus (y)
----
50% of the amount of equity contributed to, and/or Qualified
Inter company Loans received by, Borrower since the date of
its formation in excess of $250,000,000, but all such
Investments
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
permitted pursuant to this clause (y) shall not exceed
$20,000,000 in the aggregate.
1.6 SECTION SUBSIDIARIES. Such Credit Party shall not create or acquire any
------------
Subsidiary except any Subsidiary the formation of which was (i) undertaken
solely to comply with the licensing requirements of a Governmental Authority and
shall otherwise comply with the applicable requirements of the definition of
"Permitted Acquisition", (ii) to effect a Permitted Acquisition or (iii) to
comply with Section 5.21(c) or 5.21(d); provided that, concurrently with such
--------
creation or acquisition such Subsidiary shall execute and deliver a Counterpart
Agreement in accordance with Section 5.16 hereof.
------------
1.7 SECTION PERMITTED ACTIVITIES. Such Credit Party (other than Holdings)
--------------------
shall not engage in any business or activity other than the operation of its
Business as currently conducted and businesses incidental or complementary
thereto without the prior written consent of the Requisite Lenders. Holdings
shall not engage in any other activity than the ownership of the capital stock
of its Subsidiaries and the incurrence of Permitted Holdings Debt and activities
incidental thereto.
1.8 SECTION DISPOSITION OF LICENSES, ETC. Such Credit Party shall not sell,
----------------------------
assign, transfer or otherwise dispose or attempt to dispose of in any way any
Governmental Approval or any other licenses, permits or approvals except where
the same is not reasonably likely to have a Material Adverse Effect.
1.9 SECTION TRANSACTIONS WITH AFFILIATES. Such Credit Party shall not
----------------------------
directly or indirectly, enter into any transaction, including, without
limitation, leases or other agreements for the purchase or use of any goods or
services, with any Affiliate, except in the ordinary course of and pursuant to
reasonable requirements of such Credit Party's business upon fair and reasonable
terms no less favorable to such Credit Party than it would obtain in a
comparable arm's length transaction with an unaffiliated Person; provided that
--------
the foregoing shall not apply to the sale of any Equity Interests or to an
employment agreement.
1.10 SECTION ERISA. Unless the failure to comply with the following is not
-----
reasonably likely to have a Material Adverse Effect, such Credit Party shall
not:
(a) engage, or permit any ERISA Affiliate to engage, in any prohibited
transaction described in Section 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the United States Department of Labor and which
may result in a material liability to the Borrower;
(b) permit to exist any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the IRC), whether or not waived;
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(c) fail, or permit any ERISA Affiliate to fail, to pay timely required
contributions or annual installments due with respect to any waived funding
deficiency to any Benefit Plan;
(d) terminate, or permit any ERISA Affiliate to terminate, any Benefit
Plan which would result in any material liability of such Credit Party under
Title IV of ERISA;
(e) fail to make any contribution or payment to any Multiemployer Plan
which such Credit Party or any ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining thereto;
(f) amend, or permit any ERISA Affiliate to amend, a Plan resulting in an
increase in current liability for the plan year such that such Credit Party is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(g) fail, or permit any ERISA Affiliate to fail, to pay any required
installment under Section 412 of the IRC on or before the due date for such
installment or other payment.
1.11 SECTION DEBT. Such Credit Party shall not create or suffer to exist any
----
Debt except:
(i) the Obligations and the Second Priority Loans;
(ii) other obligations arising under any Loan Documents
or any Second Priority Loan Documents;
(iii) Capitalized Lease Obligations;
(iv) Debt with respect to the financing and contemplated
purchase of office equipment, vehicles and non-essential
telecommunications equipment, not to exceed an aggregate
amount for the Credit Parties of $1,000,000 at any time
("PURCHASE DEBT");
-------------
(v) Qualified Inter company Loans;
(vi) Comdisco Debt and all other Debt outstanding on the
Closing Date set forth on Schedule 6.12 hereto;
(vii) other unsecured Debt not in excess of $5,000,000 at
any time outstanding;
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(viii) other Debt in the form of reimbursement obligations
under letters of credit not in excess of $5,000,000 at any
time outstanding; provided, any such letter of credit shall
be issued by a Lender or an Affiliate thereof, unless no
Lender or no such Affiliate is willing to provide such
letter of credit within 5 Business Days from the request to
the Administrative Agent therefor, and otherwise on market
terms;
(ix) Vendor Financing not to exceed at any time, an
aggregate principal amount, (y) prior to the consummation of
a Qualified Equity Offering, $10,000,000, and (z) after
consummation of a Qualified Equity Offering, $20,000,000;
(x) Permitted Holdings Debt; and
(xi) Interest Rate Agreements (A) entered into pursuant
to Section 5.19, and (B) not in excess of $3,000,000 of
------------
actual risk exposure on the last day of any fiscal quarter;
provided, any such Interest Rate Agreement otherwise
--------
permitted pursuant to this clause (xi) shall have a Lender
or an Affiliate thereof as the Credit Party's counterparty
thereto, unless no Lender or no such Affiliate is willing to
enter into any such Interest Rate Agreement within 5
Business Days from the request to the Administrative Agent
therefor, and otherwise on market terms.
1.12 SECTION PREPAYMENT AND DEBT DOCUMENTS.
-----------------------------
(a) Subject to provisions of Section 6.13(c), until such time as a
---------------
Qualified Equity Offering shall have been consummated, such Credit Party shall
not voluntarily prepay any Debt, except the Obligations in accordance with the
terms hereof or out of equity proceeds.
(b) Subject to provisions of Section 6.13(c), until such time as a
---------------
Qualified Equity Offering shall have been consummated, such Credit Party shall
not amend any agreement relating to Debt other than the Obligations in any
manner which would increase the amount of principal, interest or fees on such
Debt, or accelerate any payments of such Debt.
(c) In no event shall Borrower prepay the Second Priority Loans.
1.13 SECTION SALE AND LEASEBACK TRANSACTIONS. Such Credit Party shall not,
-------------------------------
directly or indirectly, enter into any arrangement with any Person providing for
such Credit
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
Party to lease or rent property that any Credit Party has sold or will sell or
otherwise transfer to such Person.
1.14 SECTION MARGIN REGULATION. Such Credit Party shall not use or permit
-----------------
any other Person to use any portion of the proceeds of any credit extended under
this Agreement in any manner which might cause the extension of credit made by
any Lender or the application of such proceeds to violate the Securities Act of
1933 or Securities Exchange Act of 1934 (each as amended from time to time, and
any successor statute) or to violate Regulation G, Regulation U, or Regulation
X, or any other regulation of the Federal Reserve Board, in each case as in
effect on the date or dates of such extension of credit and such use of
proceeds.
1.15 SECTION RESTRICTIVE AGREEMENTS, ETC. Such Credit Party shall not enter
---------------------------
into any agreement (excluding this Agreement, the Loan Documents, the Second
Priority Loan Documents, any Vendor Financing or any Purchase Debt with respect
to the assets financed thereby) prohibiting the creation or assumption of any
Lien upon its properties, revenues or assets, whether now owned or hereafter
acquired, or the ability of such Credit Party to amend or otherwise modify this
Agreement or any other Loan Document.
2 ARTICLE
FINANCIAL COVENANTS
-------------------
Each Credit Party covenants and agrees with the Agents and the Lenders
that as long as this Agreement shall remain in effect, any Commitment hereunder
shall be outstanding or the Obligations hereunder or under any of the Loan
Documents shall be unpaid, unless the Requisite Lenders shall have otherwise
given prior written consent:
1.1 SECTION FINANCIAL COVENANTS PRIOR TO ACHIEVING POSITIVE EBITDA. Until
------------------------------------------------------
the date on which Borrower and its Subsidiaries shall have achieved positive
EBITDA for Borrower and its Subsidiaries on a consolidated basis for two (2)
consecutive fiscal quarters as determined by reference to the financial
statements submitted pursuant to Section 5.06 (which in any event shall be
------------
required to occur on or before June 30, 2001):
(a) Total Debt to Capitalization. Borrower and its Subsidiaries shall not
----------------------------
at any time permit the ratio of the Total Debt to Capitalization to exceed
0.30:1.00.
(b) Consolidated Debt to Capitalization. Holdings and its Subsidiaries
-----------------------------------
shall not at any time permit the ratio of Consolidated Debt to Capitalization to
exceed 0.50:1.00.
(c) Minimum Central Office Collocations. As of the last day of each fiscal
-----------------------------------
quarter, Borrower and its Subsidiaries shall maintain an aggregate number of
Production Ready COs at least equal to the correlative numbers set forth below:
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
----------------------------------------------------------
Fiscal Quarter Ending Minimum Production
Ready Colocations
----------------------------------------------------------
June 30, 1999 380
----------------------------------------------------------
September 30, 1999 570
----------------------------------------------------------
December 31, 1999 770
----------------------------------------------------------
March 31, 2000 870
----------------------------------------------------------
June 30, 2000 980
----------------------------------------------------------
September 30, 2000 980
----------------------------------------------------------
December 31, 2000 980
----------------------------------------------------------
March 31, 2001 980
----------------------------------------------------------
June 30, 2001 980
----------------------------------------------------------
(a) EBITDA.
-------
(i) As of the last day of each fiscal quarter occurring on or
before December 31, 2000, Borrower and its Subsidiaries shall not
permit the EBITDA losses for Borrower and its Subsidiaries on a
consolidated basis for the fiscal quarter then ending to exceed the
correlative amount indicated below:
----------------------------------------------------------
Fiscal Quarter Ending Maximum EBITDA
Losses
----------------------------------------------------------
June 30, 1999 $19,600,000
----------------------------------------------------------
September 30, 1999 $23,400,000
----------------------------------------------------------
December 31, 1999 $25,900,000
----------------------------------------------------------
March 31, 2000 $25,000,000
----------------------------------------------------------
June 30, 2000 $19,200,000
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
----------------------------------------------------------
September 30, 2000 $11,900,000
----------------------------------------------------------
December 31, 2000 $ 4,700,000
----------------------------------------------------------
(i) As of the last day of each fiscal quarter thereafter,
Borrower and its Subsidiaries shall not permit EBITDA for
Borrower and its Subsidiaries on a consolidated basis for the
fiscal quarter then ending to be less than the correlative
amount indicated below:
------------------------------------------------------------
Fiscal Quarter Ending Minimum EBITDA
------------------------------------------------------------
March 31, 2001 $ 900,000
------------------------------------------------------------
June 30, 2001 $9,300,000
------------------------------------------------------------
(a) Capital Expenditures. As of the last day of each fiscal quarter,
--------------------
Borrower and its Subsidiaries shall not permit Capital Expenditures on a
consolidated, cumulative basis from the Closing Date to exceed the correlative
amount set forth below:
---------------------------------------------------------------------
Fiscal Quarter Ending Maximum Cumulative
Capital Expenditures
---------------------------------------------------------------------
June 30, 1999 $ 45,600,000
---------------------------------------------------------------------
September 30, 1999 $ 82,500,000
---------------------------------------------------------------------
December 31, 1999 $112,900,000
---------------------------------------------------------------------
March 31, 2000 $137,800,000
---------------------------------------------------------------------
June 30, 2000 $158,500,000
---------------------------------------------------------------------
September 30, 2000 $162,000,000
---------------------------------------------------------------------
December 31, 2000 $173,700,000
---------------------------------------------------------------------
March 31, 2001 $189,400,000
---------------------------------------------------------------------
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
June 30, 2001 $203,800,000
--------------------------------------------------------------------
1.1 SECTION FINANCIAL COVENANTS AFTER ACHIEVING POSITIVE EBITDA.
---------------------------------------------------
On and after the date on which Borrower and its Subsidiaries have achieved
positive EBITDA on a consolidated basis for two (2) consecutive fiscal quarters
as determined by reference to the financial statements submitted pursuant to
Section 5.06 (which in any event shall occur on or before June 30, 2001):
(a) Minimum Debt Service Coverage Ratio. As of the last day of each fiscal
-----------------------------------
quarter, Borrower and its Subsidiaries shall not permit the ratio of (1) the
product of two (2) times the EBITDA for Borrower and its Subsidiaries on a
consolidated basis for the most recently ended six (6) month period, to (2) the
product of two (2) times the Interest Expense for the most recently ended six
(6) month period plus Principal Payments required during the most recently ended
six (6) month period to be less than the following:
Fiscal Quarter Ending Minimum Debt Service
---------------------
Coverage Ratio
--------------
On or prior to March 31, 2002 1.30:1.00
On or after June 30, 2002 to and including December 1.75:1.00
31, 2002
Last Day of each Fiscal 2.00:1.00
Quarter Thereafter
(a) Minimum Fixed Charge Coverage Ratio. As of the last day of any fiscal
-----------------------------------
quarter, Borrower and its Subsidiaries shall not permit the ratio of (1) the
product of two (2) times the EBITDA for Borrower and its Subsidiaries on a
consolidated basis for the most recently ended six (6) month period to (2) Fixed
Charges for Borrower and its Subsidiaries (such ratio being referred to as the
"FIXED CHARGE COVERAGE RATIO") to be less than the following:
---------------------------
Fiscal Quarter Ending Minimum Fixed Charge
---------------------
Coverage Ratio
--------------
On or prior to March 31, 2003 1.10 to 1.00
Last Day of each Fiscal Quarter 1.25:1.00
Thereafter
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(a) Maximum Total Leverage Ratio. As of the last day of any fiscal
----------------------------
quarter, Borrower and its Subsidiaries shall not permit the ratio of (1) Total
Debt as of such date to (2) the product of two (2) times the EBITDA for Borrower
and its Subsidiaries for the most recently ended six (6) month period to exceed
the correlative ratio set forth below:
------------------------------------------------------
Maximum Total
Fiscal Quarter Ending Leverage Ratio
------------------------------------------------------
September 30, 2001 6.00:1.00
------------------------------------------------------
December 31, 2001 4.00:1.00
------------------------------------------------------
Last Day of each Fiscal
Quarter Thereafter 3.00:1.00
------------------------------------------------------
(a) Maximum Consolidated Leverage Ratio. As of the last day of any fiscal
-----------------------------------
quarter, Holdings and its Subsidiaries shall not permit the ratio of (1)
Consolidated Debt as of such date to (2) the product of two (2) times the EBITDA
for Borrower and its Subsidiaries for the most recently ended six (6) month
period to exceed the correlative ratio set forth below:
(b)
------------------------------------------------------------
Fiscal Quarter Ending Maximum Consolidated
Leverage Ratio
------------------------------------------------------------
September 30, 2001 8.00:1.00
------------------------------------------------------------
December 31, 2001 6.00:1.00
------------------------------------------------------------
March 31, 2002 5.00:1.00
------------------------------------------------------------
June 30, 2002 4.00:1.00
------------------------------------------------------------
Last Day of each Fiscal
Quarter Thereafter 3.00:1.00
------------------------------------------------------------
(a) Capital Expenditures. Borrower and its Subsidiaries shall not permit
--------------------
Capital Expenditures on a consolidated cumulative basis for the period of April
5, 1999 to September 30, 2001 to exceed $243,800,000.
(b)
1.2 SECTION CERTAIN CALCULATIONS. With respect to any period ending on or
--------------------
after consummation of a Permitted Acquisition, for purposes of determining
compliance with the financial covenants set forth in this Article VII, or clause
(iv) of the definition of Permitted Acquisition, EBITDA shall be calculated with
respect to such period on a pro forma basis (without giving effect to
adjustments to increase EBITDA to account for expected improvements in the
operations of the Permitted Acquisition unless otherwise approved in writing by
the Requisite Lenders) using the historical financial statements of any business
or person
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
acquired or to be acquired and the consolidated financial statements of Borrower
and its Subsidiaries, which shall be reformulated as if such Permitted
Acquisition, and any Debt incurred in connection therewith, had been consummated
or incurred at the beginning of such period (and assuming that such Debt bears
interest during any portion of the applicable measurement period prior to the
relevant acquisition at the weighted average of the interest rates applicable to
outstanding Loans incurred during such period).
1 ARTICLE
GUARANTY
- --------
2.1 SECTION GUARANTY OF THE OBLIGATIONS. Subject to the provisions of
---------------------------
Section 8.02, Guarantors jointly and severally hereby irrevocably and
- ------------
unconditionally guaranty the due and punctual payment in full of all Obligations
when the same shall become due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including amounts
that would become due but for the operation of the United States Bankruptcy
Code.
2.2 SECTION CONTRIBUTION BY GUARANTORS. Each Guarantor desires to
--------------------------
allocate among themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a
-----------------------
fair and equitable manner, their obligations arising under this Guaranty.
Accordingly, in the event any payment or distribution is made on any date by a
Guarantor under this Guaranty (a "FUNDING GUARANTOR") that exceeds its Fair
-----------------
Share as of such date, that Funding Guarantor shall be entitled to a
contribution from each of the other Contributing Guarantors in the amount of
such other Contributing Guarantor's Fair Share Shortfall as of such date, with
the result that all such contributions will cause each Contributing Guarantor's
Aggregate Payments to equal its Fair Share as of such date. "FAIR SHARE" means,
----------
with respect to a Contributing Guarantor as of any date of determination, an
amount equal to the ratio of the Fair Share Contribution Amount with respect to
such Contributing Guarantor to the aggregate of the Fair Share Contribution
Amounts with respect to all Contributing Guarantors multiplied by the aggregate
amount paid or distributed on or before such date by all Funding Guarantors
under this Guaranty in respect of the obligations guarantied. "FAIR SHARE
----------
SHORTFALL" means, with respect to a Contributing Guarantor as of any date of
- ---------
determination, the excess, if any, of the Fair Share of such Contributing
Guarantor over the Aggregate Payments of such Contributing Guarantor. "FAIR
----
SHARE CONTRIBUTION AMOUNT" means, with respect to a Contributing Guarantor as of
- -------------------------
any date of determination, the maximum aggregate amount of the obligations of
such Contributing Guarantor under this Guaranty that would not render its
obligations hereunder or thereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any applicable provisions of comparable state law; provided, solely for
purposes of calculating the "FAIR SHARE CONTRIBUTION AMOUNT" with respect to any
------------------------------
Contributing Guarantor for purposes of this Section 8.02, any assets or
------------
liabilities of such Contributing Guarantor arising by virtue of any rights
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
to subrogation, reimbursement or indemnification or any rights to or obligations
of contribution hereunder shall not be considered as assets or liabilities of
such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with respect to a
------------------
Contributing Guarantor as of any date of determination, an amount equal to the
aggregate amount of all payments and distributions made on or before such date
by such Contributing Guarantor in respect of this Guaranty (including, without
limitation, in respect of this Section 8.02), minus the aggregate amount of all
------------
payments received on or before such date by such Contributing Guarantor from the
other Contributing Guarantors as contributions under this Section 8.02. The
------------
amounts payable as contributions hereunder shall be determined as of the date on
which the related payment or distribution is made by the applicable Funding
Guarantor. The allocation among Contributing Guarantors of their obligations as
set forth in this Section 8.02 shall not be construed in any way to limit the
------------
liability of any Contributing Guarantor for all of the Obligations as set forth
in Section 8.01 and otherwise hereunder. Each Subsidiary Guarantor is a third
party beneficiary to the contribution agreement set forth in this Section 8.02.
------------
2.3 SECTION PAYMENT BY GUARANTORS. Guarantors hereby jointly and
---------------------
severally agree, in furtherance of the foregoing and not in limitation of any
other right which any Beneficiary may have at law or in equity against any
Guarantor by virtue hereof, that upon the failure of Borrower to pay any of the
Obligations when and as the same shall become due, whether at stated maturity,
by required prepayment, declaration, acceleration, demand or otherwise
(including amounts that would become due but for the operation of the United
States Bankruptcy Code), Guarantors will upon demand pay, or cause to be paid,
in cash, to Administrative Agent for the ratable benefit of Beneficiaries, an
amount equal to the sum of the unpaid principal amount of all Obligations then
due as aforesaid, accrued and unpaid interest on such Obligations (including
interest which, but for the filing of a petition in bankruptcy with respect to
Borrower, would have accrued on such Obligations, whether or not a claim is
allowed against Borrower for such interest in the related bankruptcy proceeding)
and all other Obligations then owed to Beneficiaries as aforesaid.
2.4 SECTION LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that
--------------------------------
its obligations hereunder are irrevocable, absolute, independent and
unconditional and shall not be affected by any circumstance which constitutes a
legal or equitable discharge of a guarantor or surety other than payment in full
of the Obligations. In furtherance of the foregoing and without limiting the
generality thereof, each Guarantor agrees as follows:
(a) this Guaranty is a guaranty of payment when due and not of
collectibility;
(b) Administrative Agent may enforce this Guaranty upon the occurrence of
an Event of Default notwithstanding the existence of any dispute between
Borrower and any Beneficiary with respect to the existence of such Event of
Default;
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(c) the obligations of each Guarantor hereunder are independent of the
obligations of Borrower and the obligations of any other guarantor (including
any other Guarantor) of the obligations of Borrower, and a separate action or
actions may be brought and prosecuted against such Guarantor whether or not any
action is brought against Borrower or any of such other guarantors and whether
or not Borrower is joined in any such action or actions;
(d) payment by any Guarantor of a portion, but not all, of the Obligations
shall in no way limit, affect, modify or abridge any Guarantor's liability for
any portion of the Obligations which has not been paid. Without limiting the
generality of the foregoing, if Administrative Agent is awarded a judgment in
any suit brought to enforce any Guarantor's covenant to pay a portion of the
Obligations, such judgment shall not be deemed to release such Guarantor from
its covenant to pay the portion of the Obligations that is not the subject of
such suit, and such judgment shall not, except to the extent satisfied by such
Guarantor, limit, affect, modify or abridge any other Guarantor's liability
hereunder in respect of the Obligations;
(e) any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability hereof or
giving rise to any reduction, limitation, impairment, discharge or termination
of any Guarantor's liability hereunder, from time to time may (i) renew, extend,
accelerate, increase the rate of interest on, or otherwise change the time,
place, manner or terms of payment of the Obligations; (ii) settle, compromise,
release or discharge, or accept or refuse any offer of performance with respect
to, or substitutions for, the Obligations or any agreement relating thereto
and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Obligations and
take and hold security for the payment hereof or the Obligations; (iv) release,
surrender, exchange, substitute, compromise, settle, rescind, waive, alter,
subordinate or modify, with or without consideration, any security for payment
of the Obligations, any other guaranties of the Obligations, or any other
obligation of any Person (including any other Guarantor) with respect to the
Obligations; (v) enforce and apply any security now or hereafter held by or for
the benefit of such Beneficiary in respect hereof or the Obligations and direct
the order or manner of sale thereof, or exercise any other right or remedy that
such Beneficiary may have against any such security, in each case as such
Beneficiary in its discretion may determine consistent herewith or the
applicable Lender Counterparty Interest Rate Agreement and any applicable
security agreement, including foreclosure on any such security pursuant to one
or more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, and even though such action operates to impair
or extinguish any right of reimbursement or subrogation or other right or remedy
of any Guarantor against Borrower or any security for the Obligations; and (vi)
exercise any other rights available to it under the Loan Documents or the Lender
Counterparty Interest Rate Agreements; and
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
----------------------------
(f) this Guaranty and the obligations of Guarantors hereunder shall be
valid and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in full
of the Obligations), including the occurrence of any of the following, whether
or not any Guarantor shall have had notice or knowledge of any of them: (i) any
failure or omission to assert or enforce or agreement or election not to assert
or enforce, or the stay or enjoining, by order of court, by operation of law or
otherwise, of the exercise or enforcement of, any claim or demand or any right,
power or remedy (whether arising under the Loan Documents or the Lender
Counterparty Interest Rate Agreements, at law, in equity or otherwise) with
respect to the Obligations or any agreement relating thereto, or with respect to
any other guaranty of or security for the payment of the Obligations; (ii) any
rescission, waiver, amendment or modification of, or any consent to departure
from, any of the terms or provisions (including provisions relating to events of
default) hereof, any of the other Loan Documents, any of the Lender Counterparty
Interest Rate Agreements or any agreement or instrument executed pursuant
thereto, or of any other guaranty or security for the Obligations, in each case
whether or not in accordance with the terms hereof or such Loan Document, such
Lender Counterparty Interest Rate Agreement or any agreement relating to such
other guaranty or security; (iii) the Obligations, or any agreement relating
thereto, at any time being found to be illegal, invalid or unenforceable in any
respect; (iv) the application of payments received from any source (other than
payments received pursuant to the other Loan Documents or Lender Counterparty
Interest Rate Agreements from the proceeds of any security for the Obligations,
except to the extent such security also serves as collateral for indebtedness
other than the Obligations) to the payment of indebtedness other than the
Obligations, even though any Beneficiary might have elected to apply such
payment to any part or all of the Obligations; (v) any Beneficiary's consent to
the change, reorganization or termination of the corporate or organizational
structure or existence of Borrower or any of its Subsidiaries and to any
corresponding restructuring of the Obligations; (vi) any failure to perfect or
continue perfection of a security interest in any collateral which secures any
of the Obligations; (vii) any defenses, set-offs or counterclaims which Borrower
may allege or assert against any Beneficiary in respect of the Obligations,
including, without limitation, failure of consideration, breach of warranty,
payment, statute of frauds, statute of limitations, accord and satisfaction and
usury; and (viii) any other act or thing or omission, or delay to do any other
act or thing, which may or might in any manner or to any extent vary the risk of
any Guarantor as an obligor in respect of the Obligations.
2.5 SECTION WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the
---------------------
benefit of Beneficiaries: (i) any right to require any Beneficiary, as a
condition of payment or performance by such Guarantor, to proceed against
Borrower, any other guarantor (including any other Guarantor) of the Obligations
or any other Person, proceed against or exhaust any security held from Borrower,
any such other guarantor or any other Person, proceed against or have resort to
any balance of any deposit account or credit on the books
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
of any Beneficiary in favor of Borrower, any such other guarantor (including any
other Guarantor) or any other Person, or pursue any other remedy in the power of
any Beneficiary whatsoever; (ii) any defense arising by reason of the
incapacity, lack of authority or any disability or other defense of Borrower
including any defense based on or arising out of the lack of validity or the
unenforceability of the Obligations or any agreement or instrument relating
thereto or by reason of the cessation of the liability of Borrower from any
cause other than payment in full of the Obligations; (iii) any defense based
upon any statute or rule of law which provides that the obligation of a surety
must be neither larger in amount nor in other respects more burdensome than that
of the principal; (iv) any defense based upon any Beneficiary's errors or
omissions in the administration of the Obligations, except behavior which
amounts to bad faith; (v) any principles or provisions of law, statutory or
otherwise, which are or might be in conflict with the terms hereof and any legal
or equitable discharge of such Guarantor's obligations hereunder, the benefit of
any statute of limitations affecting such Guarantor's liability hereunder or the
enforcement hereof, any rights to set-offs, recoupments and counterclaims, and
promptness, diligence and any requirement that any Beneficiary protect, secure,
perfect or insure any security interest or lien or any property subject thereto;
(vi) notices, demands, presentments, protests, notices of protest, notices of
dishonor and notices of any action or inaction, including acceptance hereof,
notices of default hereunder, or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Obligations or any
agreement related thereto, notices of any extension of credit to Borrower and
notices of any of the matters referred to in Section 8.04 and any right to
------------
consent to any thereof; and (vii) any defenses or benefits that may be derived
from or afforded by law which limit the liability of or exonerate guarantors or
sureties, or which may conflict with the terms hereof.
2.6 SECTION GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC.
----------------------------------------------------
Each Guarantor hereby waives, until the Obligations shall have been indefeasibly
paid in full and the Commitments shall have terminated, shall have expired or
been cancelled, any claim, right or remedy, direct or indirect, that such
Guarantor now has or may hereafter have against Borrower or any of its assets in
connection with this Guaranty or the performance by such Guarantor of its
obligations hereunder, in each case whether such claim, right or remedy arises
in equity, under contract, by statute, under common law or otherwise and
including without limitation any right of subrogation, reimbursement or
indemnification that such Guarantor now has or may hereafter have against
Borrower with respect to the Obligations, any right to enforce, or to
participate in, any claim, right or remedy that any Beneficiary now has or may
hereafter have against Borrower, and any benefit of, and any right to
participate in, any collateral or security now or hereafter held by any
Beneficiary. In addition, until the Obligations shall have been indefeasibly
paid in full and the Commitments shall have terminated shall have expired or
been cancelled, each Guarantor shall withhold exercise of any right of
contribution such Guarantor may have against any other guarantor (including any
other Guarantor) of the Obligations, including, without limitation, any such
right of contri-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
bution as contemplated by Section 8.02. Each Guarantor further agrees that, to
------------
the extent the waiver or agreement to withhold the exercise of its rights of
subrogation, reimbursement, indemnification and contribution as set forth herein
is found by a court of competent jurisdiction to be void or voidable for any
reason, any rights of subrogation, reimbursement or indemnification such
Guarantor may have against Borrower or against any collateral or security, and
any rights of contribution such Guarantor may have against any such other
guarantor, shall be junior and subordinate to any rights any Beneficiary may
have against Borrower, to all right, title and interest any Beneficiary may have
in any such collateral or security, and to any right any Beneficiary may have
against such other guarantor. If any amount shall be paid to any Guarantor on
account of any such subrogation, reimbursement, indemnification or contribution
rights at any time when all Obligations shall not have been paid in full, such
amount shall be held in trust for such Beneficiary and shall forthwith be paid
over to such Person to be credited and applied against the Obligations, whether
matured or unmatured, in accordance with the terms hereof.
2.7 SECTION SUBORDINATION OF OTHER OBLIGATIONS. Any Indebtedness of Borrower
----------------------------------
or any Guarantor now or hereafter held by any Guarantor (the "OBLIGEE
-------
GUARANTOR") is hereby subordinated in right of payment to the Obligations, and
- ---------
any such indebtedness collected or received by the Obligee Guarantor after an
Event of Default has occurred and is continuing shall be held in trust for
Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over
to Administrative Agent for the benefit of Beneficiaries to be credited and
applied against the Obligations but without affecting, impairing or limiting in
any manner the liability of the Obligee Guarantor under any other provision
hereof.
2.8 SECTION CONTINUING GUARANTY. This Guaranty is a continuing guaranty and
-------------------
shall remain in effect until all of the Obligations shall have been paid in full
and the Commitments shall have terminated. Each Guarantor hereby irrevocably
waives any right to revoke this Guaranty as to future transactions giving rise
to any Obligations.
2.9 SECTION AUTHORITY OF GUARANTORS OR BORROWER. It is not necessary for any
-----------------------------------
Beneficiary to inquire into the capacity or powers of any Guarantor or Borrower
or the officers, directors or any agents acting or purporting to act on behalf
of any of them.
2.10 SECTION FINANCIAL CONDITION OF BORROWER. Any Loan may be granted to
-------------------------------
Borrower or continued from time to time, and any Lender Counterparty Interest
Rate Agreements may be entered into from time to time, in each case without
notice to or authorization from any Guarantor regardless of the financial or
other condition of Borrower at the time of any such grant or continuation or at
the time such Lender Counterparty Interest Rate Agreement is entered into, as
the case may be. No Beneficiary shall have any obligation to disclose or discuss
with any Guarantor its assessment, or any Guarantor's assessment, of the
financial condition of Borrower. Each Guarantor has adequate means to obtain
information
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
from Borrower on a continuing basis concerning the financial condition of
Borrower and its ability to perform its obligations under the Loan Documents and
the Lender Counterparty Interest Rate Agreements, and each Guarantor assumes the
responsibility for being and keeping informed of the financial condition of
Borrower and of all circumstances bearing upon the risk of nonpayment of the
Obligations. Each Guarantor hereby waives and relinquishes any duty on the part
of any Beneficiary to disclose any matter, fact or thing relating to the
business, operations or conditions of Borrower now known or hereafter known by
any Beneficiary.
2.11 SECTION BANKRUPTCY, ETC.
---------------
(a) The obligations of Guarantors hereunder shall not be reduced, limited,
impaired, discharged, deferred, suspended or terminated by any proceeding,
voluntary or involuntary, involving the bankruptcy, insolvency, receivership,
reorganization, liquidation or arrangement of Borrower or by any defense which
Borrower may have by reason of the order, decree or decision of any court or
administrative body resulting from any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any portion of
the Obligations which accrues after the commencement of any proceeding referred
to in clause (a) above (or, if interest on any portion of the Obligations ceases
to accrue by operation of law by reason of the commencement of said proceeding,
such interest as would have accrued on such portion of the Obligations if said
proceedings had not been commenced) shall be included in the Obligations because
it is the intention of Guarantors and Beneficiaries that the Obligations which
are guarantied by Guarantors pursuant hereto should be determined without regard
to any rule of law or order which may relieve Borrower of any portion of such
Obligations. Guarantors will permit any trustee in bankruptcy, receiver, debtor
in possession, assignee for the benefit of creditors or similar person to pay
Administrative Agent, or allow the claim of Administrative Agent in respect of,
any such interest accruing after the date on which such proceeding is commenced.
(c) In the event that all or any portion of the Obligations are paid by
Borrower or any other Person (including any Guarantor), the obligations of
Guarantors hereunder shall continue and remain in full force and effect or be
reinstated, as the case may be, in the event that all or any part of such
payment(s) are rescinded or recovered directly or indirectly from any
Beneficiary as a preference, fraudulent transfer or otherwise (and whether by
action or proceeding, settlement or otherwise), and any such payments which are
so rescinded or recovered shall constitute Obligations for all purposes
hereunder.
2.12 SECTION NOTICE OF EVENTS. As soon as any Guarantor obtains knowledge
----------------
thereof, such Guarantor shall give Administrative Agent written notice of any
condition or
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FIRST PRIORITY LOAN AGREEMENT
-----------------------------
event which has resulted in a material adverse change in the financial condition
of any Guarantor or Borrower or a breach of or noncompliance with any term,
condition or covenant contained herein, any other Loan Document or any other
document delivered pursuant hereto or thereto.
2.13 SECTION DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the
--------------------------------------------
equity Securities of any Guarantor or any of its successors in interest
hereunder shall be sold or otherwise disposed of (including by merger or
consolidation) in accordance with the terms and conditions hereof, the Guaranty
of such Guarantor hereunder or such successor in interest hereunder, as the case
may be, shall automatically be discharged and released without any further
action by any Beneficiary or any other Person effective as of the time of such
asset sale; provided, as a condition precedent to such discharge and release,
Collateral Agent shall have received evidence satisfactory to it that
arrangements satisfactory to it have been made for delivery to Collateral Agent
of the applicable proceeds of such disposition pursuant to Section 2.09(c).
---------------
3 ARTICLE
EVENTS OF DEFAULT; REMEDIES
- ---------------------------
4.1 SECTION EVENTS OF DEFAULT. The following events shall each constitute an
-----------------
"EVENT OF DEFAULT":
----------------
(a) Borrower shall fail to pay the principal of, or, within 5 days of the date
that it is due, interest on its Notes, or any other amounts payable hereunder or
under any of the other Loan Documents when due, whether as scheduled, at a date
fixed for prepayment, by acceleration or otherwise; or
(b) any Credit Party shall fail to observe or perform any other covenant,
condition or agreement to be observed or performed by such Credit Party in any
of the Loan Documents, and such Credit Party fails to cure such breach within
ten (10) Days after written notice thereof unless the breach relates to a
covenant contained in Section 5.04, or Article VI (other than Section 6.05 or
------------ ---------- ------------
Section 6.06) or VII, in which case no notice or grace period shall apply, or
- ------------ ---
unless the breach relates to Section 5.06, in which case an Event of Default
------------
shall occur on the thirtieth day following the breach without any notice
requirement, unless the breach shall have been cured before such date; or
(c) any representation or warranty made by any Credit Party in connection with
this Agreement or any other Loan Document, or the Loans or any statement or
representation made in any report, certificate, financial statement or other
instrument furnished by or on behalf of such Credit Party pursuant to this
Agreement or any other Loan Document, shall prove to have been false or
misleading in any material respect when made or delivered or when deemed made in
accordance with the terms hereof or thereof; or
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FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(d) any Credit Party shall fail to make any payment due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) on any other
obligation for borrowed money in excess of $250,000 with respect to any Credit
Party (other than Holdings) or in excess of $1,000,000 with respect to Holdings,
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such indebtedness; or any
other default or event under any agreement or instrument relating to any
indebtedness for borrowed money in excess of $250,000 with respect to any Credit
Party (other than Holdings) or in excess of $1,000,000 with respect to Holdings,
or any other event, shall occur and shall continue after the applicable grace
period, if any, specified in such agreement or instrument if the effect of such
default or event is to accelerate, or to permit the acceleration of, the
maturity of such indebtedness in excess of $250,000 with respect to any Credit
Party (other than Holdings) or in excess of $1,000,000 with respect to Holdings;
or any such indebtedness in excess of $250,000 with respect to any Credit Party
(other than Holdings) or in excess of $1,000,000 with respect to Holdings shall
be declared to be due and payable or required to be prepaid (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof;
or
(e) any Credit Party shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator or similar official for such Credit
Party or for a substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) become unable, or admit in writing its
inability, to pay its debts as they become due, (iv) voluntarily or
involuntarily dissolve, liquidate or wind up its affairs, or (v) take action for
the purpose of effecting any of the foregoing; or
(f) a proceeding under any bankruptcy, reorganization, arrangement of debts,
insolvency or receivership law is filed by or against any Credit Party, or any
Credit Party takes any action to authorize any of the foregoing matters, and in
the case of any such proceeding instituted against any Credit Party (but not
instituted by any Credit Party), either such proceeding shall remain undismissed
or unstayed for a period of sixty (60) days or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee or other similar official for
any Credit Party or any substantial part of its property) shall be granted or
shall occur; or
(g) a Termination Event (other than a Reportable Event) occurs which the
Requisite Lenders in good faith believe would subject Borrower to a liability
which is reasonably likely to have a Material Adverse Effect; or
(h) the plan administrator of any Plan applies under Section 412(d) of the IRC
for a waiver of the minimum funding standards of Section 412(a) of the IRC and
the Requisite Lenders in good faith believe that the approval of such waiver
could subject Borrower
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
or any ERISA Affiliate to liability which is reasonably likely to have a
Material Adverse Effect; or
(i) unless it is not reasonably likely to have a Material Adverse Effect, any
of the Governmental Approvals or any other license, Governmental Approval or
other governmental consent or approval necessary for the continuing operation of
any Credit Party or any System or any other material Governmental Approval or
approval of or material filing with the FCC, any PUC or any other Governmental
Authority with respect to the conduct by any Credit Party of its business and
operations, including its Business, shall not be obtained or shall cease to be
in full force and effect, which in respect of any of the Governmental Approvals
shall, in the case of an order of the FCC, any PUC or other Governmental
Authority having jurisdiction with respect thereto, revoking, or deciding not to
renew, any such Governmental Approval, occur upon the issuance of such order,
and, in the case of any other order revoking or terminating any of the
Governmental Approvals or deciding not to renew such Governmental Approvals
prior to the termination thereof, occur when such order becomes final; or
(j) unless it is not reasonably likely to have a Material Adverse Effect, the
FCC, any PUC or any other Governmental Authority, by final order, determines
that the existence or performance of this Agreement or any other Loan Document
will result in a revocation, suspension or material adverse modification of any
of the Governmental Approvals for any System; or
(k) for any reason any Loan Document shall not be in full force and effect or
shall not be enforceable in accordance with its terms, or the Guaranty set forth
at Article VIII hereof for any reason, other than the satisfaction in full of
------------
all Obligations, shall cease to be in full force and effect (other than in
accordance with its terms) or shall be declared to be null and void or voidable
or any Guarantor shall repudiate its obligations thereunder with respect to such
Guaranty, or any security interest or lien granted pursuant thereto with respect
to Collateral having an aggregate value of $500,000 or greater shall fail to be
perfected or to have its intended priority, or any Credit Party or any Affiliate
thereof shall contest the validity of any Lien granted under, or shall disaffirm
its obligations under any Loan Document; or
(l) unless it is not reasonably likely to have a Material Adverse Effect, for
any reason, any Credit Party ceases to operate any System or ceases to own any
of its Governmental Approvals necessary for the continuing operation of any
System; or
(m) a judgment or judgments for the payment of money in excess of $500,000
individually or $1,000,000 in the aggregate at any one time shall have been
rendered against
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
any Credit Party and the same shall have remained unsatisfied and in effect for
any period of ninety (90) days during which no stay of execution shall have been
obtained; or
(n) unless it is not reasonably likely to have a Material Adverse Effect, any
Credit Party is enjoined, restrained or in any way prevented by the order of any
court or administrative or regulatory agency from conducting its business in any
material respect with respect to any one or more of its Systems; or
(o) any Credit Party becomes subject to any liabilities, costs, expenses,
damages, fines or penalties which could reasonably be expected to have a
Material Adverse Effect arising out of or related to (i) any Remedial Action in
response to a Release or threatened Release at any location of any Contaminant
into the indoor or outdoor environment or (ii) any material violation of any
Environmental Law;
(p) a Change of Control shall occur; or
(q) an Event of Default (as such term is defined in the Second Priority Loan
Agreement) shall occur.
4.2 SECTION TERMINATION OF COMMITMENT; ACCELERATION. Upon the occurrence and
---------------------------------------
at any time during the continuance of any Event of Default, the Administrative
Agent shall upon direction from the Requisite Lenders:
(a) by notice to Borrower, terminate Lenders' Commitment to make Loans
hereunder; or
(b) by notice to Borrower, declare the Obligations to be immediately due and
payable, whereupon all the Obligations shall be immediately due and payable
without further notice of any kind, provided, however, that if an Event of
-------- -------
Default described in Section 9.01(e) or 9.01(f) shall exist or occur, all of the
--------------------------
Obligations shall automatically, without declaration or notice of any kind, be
immediately due and payable and the Commitments shall be automatically
terminated.
(c) Any amounts described in clause (b) above, when received by Administrative
Agent, shall be held by Administrative Agent pursuant to the terms of the
Intercreditor Agreement and shall be applied as therein provided.
4.3 SECTION WAIVERS. Demand, presentment, protest and notices of nonpayment,
-------
protest, dishonor and acceptance are hereby waived by Borrower. Borrower also
waives the benefit of all valuation, appraisal and exemption laws and the
posting of any bond required of the Administrative Agent or any Lender in
connection with any judicial process to realize on the Collateral, to enforce
any judgment or other court order entered in favor of the Ad-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
ministrative Agent or any Lender or to enforce by specific performance,
temporary restraining order, or preliminary or permanent injunction, this
Agreement or any other Loan Documents. Each Borrower waives the right, if any,
to the benefit of, or to direct the application of, any Collateral. Each
Borrower hereby acknowledges that none of the Administrative Agent or any Lender
has any obligation to resort to any Collateral or make claim against any other
Person before seeking payment or performance from Borrower.
5 ARTICLE
AGENTS
- ------
6.1 SECTION APPOINTMENT OF AGENTS. GSCP is hereby appointed Joint Lead
---------------------
Arranger and Syndication Agent hereunder, CSC is hereby appointed Joint Lead
Arranger, and each Lender hereby authorizes each Joint Lead Arranger and
Syndication Agent to act as its agent in accordance with the terms hereof and
the other Loan Documents. CIBC is hereby appointed Administrative Agent
hereunder and under the other Loan Documents and each Lender hereby authorizes
Administrative Agent to act as its agent in accordance with the terms hereof and
the other Loan Documents. Newcourt is hereby appointed Collateral Agent
hereunder, under the Intercreditor Agreement and the other Loan Documents, and
each Lender hereby authorizes Collateral Agent to act as its agent in accordance
with the terms of the Intercreditor Agreement and the other Loan Documents.
Newcourt is hereby appointed Documentation Agent hereunder, and each Lender
hereby authorizes Documentation Agent to act as its agent in accordance with the
terms hereof and the other Loan Documents. Each Agent hereby agrees to act upon
the express conditions contained herein and the other Loan Documents, as
applicable. Without limitation of any right of the Borrower pursuant to Section
10.07, the provisions of this Article X are solely for the benefit of Agents and
---------
Lenders and no Person shall have any rights as a third party beneficiary of any
of the provisions thereof. In performing its functions and duties hereunder,
each Agent shall act solely as an agent of Lenders and does not assume and shall
not be deemed to have assumed any obligation towards or relationship of agency
or trust with or for any of Borrower, any of the other Credit Parties or any of
their respective Affiliates. As of the Closing Date, all the respective
obligations of CSC, in its capacity as Joint Lead Arranger, GSCP, in its
capacity as Joint Lead Arranger and Syndication Agent, and Newcourt, in its
capacity as Documentation Agent, shall terminate.
6.2 SECTION POWERS AND DUTIES. Each Lender irrevocably authorizes each Agent
-----------------
to take such action on such Lender's behalf and to exercise such powers, rights
and remedies hereunder and under the other Loan Documents as are specifically
delegated or granted to such Agent by the terms hereof and thereof, together
with such powers, rights and remedies as are reasonably incidental thereto. Each
Agent shall have only those duties and responsibilities that are expressly
specified herein and the other Loan Documents. Each Agent may exercise such
powers, rights and remedies and perform such duties by or through its agents
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
or employees and such Agent shall have no liability with respect to the actions,
omissions, exercise or performance of any such Agent or employees selected by
such Agent with reasonable care. No Agent shall have, by reason hereof or any of
the other Loan Documents, a fiduciary relationship in respect of any Lender; and
nothing herein or any of the other Loan Documents, expressed or implied, is
intended to or shall be so construed as to impose upon any Agent any obligations
in respect hereof or any of the other Loan Documents except as expressly set
forth herein or therein.
(a) SECTION GENERAL IMMUNITY. No Agent shall be responsible to any Lender for
----------------
the execution, effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency hereof or of any other Loan Document or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statements or in any financial or other statements,
instruments, reports or certificates or any other documents furnished or made by
any of the Agents to Lenders or by or on behalf of any Credit Party to any of
the Agents or any Lender in connection with the Loan Documents and the
transactions contemplated thereby or for the financial condition or business
affairs of any Person liable for the payment of any Obligations, nor shall any
Agent be required to ascertain or inquire as to the performance or observance of
any of the terms, conditions, provisions, covenants or agreements contained in
any of the Loan Documents or as to the use of the proceeds of the Loans or as to
the existence or possible existence of any Event of Default or Default. Anything
contained herein to the contrary notwithstanding, Administrative Agent shall not
have any liability arising from confirmations of the amount of outstanding Loans
or the component amounts thereof, except as to any such liability arising from
gross negligence or willful misconduct.
(b) No Agent nor any of its officers, partners, directors, employees or agents
shall be liable to Lenders for any action taken or omitted by any Agent under or
in connection with any of the Loan Documents except to the extent caused by such
Agent's gross negligence or willful misconduct. Each Agent shall be entitled to
refrain from any act or the taking of any action (including the failure to take
an action) in connection herewith or any of the other Loan Documents or from the
exercise of any power, discretion or authority vested in it hereunder or
thereunder unless and until such Agent shall have received instructions in
respect thereof from Requisite Lenders (or such other Lenders as may be required
to give such instructions under Section 11.05) and, upon receipt of such
instructions from Requisite Lenders (or such other Lenders, as the case may be),
such Agent shall be entitled to act or (where so instructed) refrain from
acting, or to exercise such power, discretion or authority, in accordance with
such instructions. Without prejudice to the generality of the foregoing, (i)
each Agent shall be entitled to rely, and shall be fully protected in relying,
upon any communication, instrument or document believed by it to be genuine and
correct and to have been signed or sent by the proper person or persons, and
shall be entitled to rely and shall be protected in relying on opinions and
judgments of attorneys (who may be attorneys for Bor-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
rower and its Affiliates), accountants, experts and other professional advisors
selected by it; and (ii) no Lender shall have any right of action whatsoever
against any Agent as a result of such Agent acting or (where so instructed)
refraining from acting hereunder or any of the other Loan Documents in
accordance with the instructions of Requisite Lenders (or such other Lenders as
may be required to give such instructions under Section 11.05).
--------------
6.3 SECTION AGENTS ENTITLED TO ACT AS LENDER. The agency hereby created shall
--------------------------------
in no way impair or affect any of the rights and powers of, or impose any duties
or obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans, each Agent shall have the same
rights and powers hereunder as any other Lender and may exercise the same as
though it were not performing the duties and functions delegated to it
hereunder, and the term "Lender" shall, unless the context clearly otherwise
indicates, include each Agent in its individual capacity. Any Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust, financial advisory or other business with any of
Borrower and its Affiliates as if it were not performing the duties specified
herein, and may accept fees and other consideration from any Credit Party for
services in connection herewith and otherwise without having to account for the
same to Lenders.
6.4 SECTION LENDERS' REPRESENTATIONS AND WARRANTIES. Each Lender represents
---------------------------------------
and warrants that it has made its own independent investigation of the financial
condition and affairs of the Credit Parties and their Affiliates in connection
with Loans made hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of Credit Parties and their Affiliates. No
Agent shall have any duty or responsibility, either initially or on a continuing
basis, to make any such investigation or any such appraisal on behalf of Lenders
or to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter, and no Agent shall have any responsibility with
respect to the accuracy of or the completeness of any information provided to
Lenders.
6.5 SECTION RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata
------------------
Share, severally agrees to indemnify each Agent, to the extent that such Agent
shall not have been reimbursed by Borrower, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including counsel fees and disbursements) or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Agent in exercising its powers, rights and remedies or performing
its duties hereunder or under the other Loan Documents or otherwise in its
capacity as such Agent in any way relating to or arising out hereof or the other
Loan Documents; provided, no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct; provided further, however,
-------- ------- -------
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
that the gross negligence or willful misconduct of any Agent shall not affect
any other Agent's right to indemnification hereunder. If any indemnity furnished
to any Agent for any purpose shall, in the opinion of such Agent, be
insufficient or become impaired, such Agent may call for additional indemnity
and cease, or not commence, to do the acts indemnified against until such
additional indemnity is furnished; provided, in no event shall this sentence
require any Lender to indemnify any Agent against any liability, obligation,
loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in
excess of such Lender's Pro Rata Share thereof; and provided further, this
sentence shall not be deemed to require any Lender, subject to the second
provisio of the immediately preceding sentence, to indemnify any Agent against
any liability, obligation, loss, damage, penalty, action, judgment, suit, cost,
expense or disbursement described in the initial proviso in the immediately
preceding sentence.
6.6 SECTION SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may resign
------------------------------
at any time by giving thirty (30) days' prior written notice thereof to Lenders
and Borrower, and Administrative Agent may be removed at any time with or
without cause by an instrument or concurrent instruments in writing delivered to
Borrower and Administrative Agent and signed by Requisite Lenders. Upon any such
notice of resignation or any such removal, Requisite Lenders shall have the
right, upon five Business Days' notice to Borrower, to appoint a successor
Administrative Agent which successor shall, unless a Default or Event of Default
shall have occurred and be continuing, be reasonably acceptable to the Borrower.
Upon the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, that successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Administrative Agent and the retiring or
removed Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring or removed Administrative Agent's resignation or
removal hereunder as Administrative Agent, the provisions of this Article X
---------
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent hereunder.
6.7 SECTION OTHER LOAN DOCUMENTS. Each Lender hereby further authorizes
--------------------
Administrative Agent, on behalf of and for the benefit of Lenders, to enter into
the other Loan Documents , and each Lender agrees to be bound by the terms of
the other Loan Documents; provided that Administrative Agent shall not enter
--------
into or consent to any amendment, modification, supplementation, termination or
waiver of any other Loan Document without the prior consent of Requisite Lenders
(or such other Lenders as may be required to give such instructions under
Section 11.05 hereof). Each Lender hereby further authorizes Collateral Agent
- -------------
(and under the terms of the Intercreditor Agreement Collateral Agent is
authorized), on behalf of and for the benefit of Lenders, to enter into each
Collateral Document as secured party, and each Lender agrees to be bound by the
terms of each Collateral Document; provided that Collateral Agent shall not
--------
enter into or consent to any amend-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
ment, modification, supplementation, termination or waiver of the Intercreditor
Agreement without the prior consent of Requisite Lenders (or such other Lenders
as may be required to give such instructions under Section 11.05 hereof);
-------------
provided further, however, that, without further written consent or
- -------- ------- -------
authorization from Lenders, Collateral Agent may execute any documents or
instruments necessary to (a) release any Lien encumbering any item of Collateral
that is the subject of a sale or other disposition of assets permitted by this
Agreement or as permitted or required under the Intercreditor Agreement or the
Collateral Documents or to which Requisite Lenders (or such other Lenders as may
be required to give such consent under Section 11.05 hereof) have otherwise
-------------
consented or (b) release any Guarantor from its Guaranty hereunder if all of the
capital stock of such Guarantor is sold to any Person pursuant to a sale or
other disposition permitted hereunder or as permitted under the Intercreditor
Agreement or to which Requisite Lenders (or such other Lenders as may be
required to give such consent under Section 11.05 hereof) have otherwise
-------------
consented. Anything contained in any of the Collateral Documents to the contrary
notwithstanding, Borrower, Administrative Agent, Collateral Agent and each
Lender hereby agree that (X) no Lender shall have any right individually to
realize upon any of the Collateral under any Collateral Document or to a
Guarantor's Guaranty hereunder, it being understood and agreed that all powers,
rights and remedies under the Collateral Documents may be exercised solely by
Collateral Agent for the benefit of Secured Parties in accordance with the terms
hereof or thereof, and (Y) in the event of a foreclosure by Collateral Agent on
any of the Collateral pursuant to a public or private sale, Collateral Agent or
any Secured Party may be the purchaser of any or all of such Collateral at any
such sale and Collateral Agent, as agent for and representative of Secured
Parties (but not any Secured Party or Secured Parties in its or their respective
individual capacities unless Requisite Lenders shall otherwise agree in writing)
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
public sale, to use and apply any of the Obligations as a credit on account of
the purchase price for any Collateral payable by Collateral Agent at such sale.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
7 ARTICLE MISCELLANEOUS
---------------------
8.1 SECTION NOTICES. Unless otherwise specifically provided herein, any notice
-------
or other communication herein required or permitted to be given to a Credit
Party, an Agent or a Lender shall be sent to such Person's address as set forth
on the signature pages hereto or in the other relevant Loan Document, and in the
case of any Lender, the address as set forth on the signature pages hereto or
otherwise indicated to Administrative Agent in writing. Each notice hereunder
shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service and signed for
against receipt thereof, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed; provided, no notice to any Agent shall be effective
until received by such Agent.
8.2 SECTION EXPENSES. Whether or not the transactions contemplated hereby shall
--------
be consummated, Borrower agrees to pay promptly (a) all the actual and
reasonable costs and expenses of the Documentation Agent, and the Syndication
Agent and each Joint Lead Arranger (without duplication with respect to each
such Person) of preparation of the Loan Documents and any consents, amendments,
waivers or other modifications thereto; (b) all the costs of furnishing all
opinions by counsel for Borrower (including any opinions requested by Lenders as
to any legal matters arising hereunder) and of each Credit Party's performance
of and compliance with all agreements and conditions on its part to be performed
or complied with hereunder and the other Loan Documents including with respect
to confirming compliance with environmental, insurance and solvency
requirements; (c) the reasonable fees, expenses and disbursements of counsel to
Agents (in each case including allocated costs of internal counsel) in
connection with the negotiation, preparation, execution and administration of
the Loan Documents and any consents, amendments, waivers or other modifications
thereto and any other Loan Documents or matters requested by a Credit Party; (d)
all the actual costs and reasonable expenses of creating and perfecting Liens in
favor of Collateral Agent on behalf of Lenders pursuant hereto, including filing
and recording fees, expenses and taxes, stamp or documentary taxes, search fees,
title insurance premiums and reasonable fees, expenses and disbursements of
counsel to each Agent and of counsel providing any opinions that any Agent or
Requisite Lenders may request in respect of the Collateral or the Liens created
pursuant the Loan Documents pertaining to the Collateral; (e) all the actual
costs and reasonable fees, expenses and disbursements of any auditors,
accountants, consultants or appraisers retained by the Administrative Agent; (f)
all the actual costs and reasonable expenses (including the reasonable fees,
expenses and disbursements of any appraisers, consultants, advisors and agents
employed or retained by any Agent and its counsel) in connection with the
custody or preservation of any of the Collateral; (g) all other actual and
reasonable costs and expenses incurred by each Agent in connection with the
syndi-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
cation of the Loans and the negotiation, preparation and execution of the Loan
Documents and any consents, amendments, waivers or other modifications thereto
and the transactions contemplated thereby; (h) and after the occurrence of an
Event of Default, all costs and expenses, including reasonable attorneys' fees
(including allocated costs of internal counsel) and costs of settlement,
incurred by any Agent and Lenders in enforcing any Obligations of or in
collecting any payments due from any Credit Party hereunder or under the other
Loan Documents by reason of such Event of Default (including in connection with
the sale of, collection from, or other realization upon any of the Collateral or
the enforcement of the Guaranty) or in connection with any refinancing or
restructuring of the credit arrangements provided hereunder in the nature of a
"work-out" or pursuant to any insolvency or bankruptcy proceedings.
8.3 SECTION INDEMNITY. In addition to the payment of expenses pursuant to
---------
Section 11.02, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to defend (subject to Indemnitees' selection of
counsel), indemnify, pay and hold harmless, each Agent and Lender and the
officers, partners, directors, trustees, employees, agents and Affiliates of
each Agent and each Lender (each, an "INDEMNITEE"), from and against any and all
----------
Indemnified Liabilities; provided, no Credit Party shall have any obligation to
any Indemnitee hereunder with respect to any Indemnified Liabilities to the
extent such Indemnified Liabilities arise solely from the gross negligence or
willful misconduct of that Indemnitee as determined by a final, non-appealable
judgment of a court of competent jurisdiction; and provided, further, however,
-------- ------- -------
that the gross negligence or willful misconduct of any Indemnitee shall not
affect the right of indemnification of any other Indemnitee hereunder. To the
extent that the undertakings to defend, indemnify, pay and hold harmless set
forth in this Section 11.03 may be unenforceable in whole or in part because
they are violative of any law or public policy, the applicable Credit Party
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by Indemnitees or any of them.
8.4 SECTION SET-OFF. In addition to any rights now or hereafter granted under
-------
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default each Lender is hereby authorized by each
Credit Party at any time or from time to time subject to the consent of
Administrative Agent (such consent not to be unreasonably withheld, conditioned
or delayed), without notice to any Credit Party or any other Person (other than
Administrative Agent), any such notice being hereby expressly waived, to set off
and to appropriate and to apply any and all deposits (general or special,
including Indebtedness evidenced by certificates of deposit, whether matured or
unmatured, but not including trust accounts) and any other Indebtedness at any
time held or owing by such Lender to or for the credit or the account of such
Credit Party against and on account of the obligations and liabilities of such
Credit Party to such Lender hereunder and under the other Loan Documents,
including all claims of any nature or description arising out of or connected
with
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
this Agreement or any other Loan Document, irrespective of whether or not (a)
such Lender shall have made any demand hereunder or (b) the principal of or the
interest on the Loans or any other amounts due hereunder shall have become due
and payable pursuant to Article II and although said obligations and
----------
liabilities, or any of them, may be contingent or unmatured.
(A) SECTION AMENDMENTS AND WAIVERS. Subject to Section 11.05(b) and 11.05(c),
---------------------- ---------------- --------
no amendment, modification, termination or waiver of any provision of the Loan
Documents, or consent to any departure by any Credit Party therefrom, shall in
any event be effective without the prior written concurrence of the Requisite
Lenders.
(b) Without the prior written consent of each Lender that would be affected
thereby, no amendment, modification, termination, or consent shall be
effective if the effect thereof would:
(i) extend the scheduled final maturity of any Loan or Note;
(ii) waive, reduce or postpone any scheduled repayment (but not
prepayment);
(iii) reduce the rate of interest on any Loan (other than any waiver of
any increase in the interest rate applicable to any Loan pursuant to
Section 2.05(b)) or any fee payable hereunder;
(iv) extend the time for payment of any such interest or fees;
(v) reduce the principal amount of any Loan;
(vi) amend, modify, terminate or waive any provision of this Section
11.05(b);
(vii) amend the definition of "Requisite Lenders" and "Pro Rata Shares";
provided, with the consent of Requisite Lenders, additional
extensions of credit pursuant hereto may be included in the
determination of "Requisite Lenders" and "Pro Rata Shares" on
substantially the same basis as the Term Loan Commitment Amounts,
the Term Loans, the Revolving Loan Commitment Amounts and the
Revolving Loans are included on the Closing Date;
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(viii) release or otherwise subordinate all or
substantially all of the Collateral or any
Guarantor from its obligations hereunder except as
expressly provided in the Loan Documents; or
(ix) consent to the assignment or transfer by any Credit
Party of any of its rights and obligations under
any Loan Document.
(c) No amendment, modification, termination or waiver of any provision
of the Loan Documents, or consent to any departure by Borrower or Holdings
therefrom, shall:
(i) increase any Revolving Loan Commitment
Amount of any Revolving Lender over the amount
thereof then in effect without the consent of such
Revolving Lender; provided, no amendment,
modification or waiver of any condition precedent,
covenant, Default or Event of Default shall
constitute an increase in any Revolving Loan
Commitment Amount of any Lender; or
(ii) amend, modify, terminate or waive any
provision of Article X as the same applies to any
---------
Agent, or any other provision hereof as the same
applies to the rights or obligations of any Agent,
in each case without the consent of such Agent.
(d) Administrative Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of such Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 11.05 shall be binding upon each Lender
-------------
at the time outstanding, each future Lender and, if signed by a Borrower or
Holdings, on Borrower or Holdings.
(e) SECTION SUCCESSORS AND ASSIGNS; PARTICIPATIONS. This Agreement shall be
binding upon the parties hereto and their respective successors and assigns and
shall inure to the benefit of the parties hereto and the successors and assigns
of Lenders. No rights or obligations of Borrower or Holdings hereunder nor any
interest therein may be assigned or delegated by Borrower or Holdings without
the prior written consent of all Lenders.
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
(f) Borrower, Administrative Agent and Lenders shall deem and treat
the Persons listed as Lenders in the Register as the holders and owners of the
corresponding Revolving Loan Commitment Amounts and Loans listed therein for all
purposes hereof, and no assignment or transfer of any such Revolving Loan
Commitment Amount or Loan shall be effective unless and until an Assignment
Agreement effecting the assignment or transfer thereof shall have been delivered
to Administrative Agent and recorded in the Register. Prior to such recordation,
all amounts owed with respect to the applicable Commitment Amount or Loan shall
be owed to the Lender listed in the Register as the owner thereof, and any
request, authority or consent of any Person who, at the time of making such
request or giving such authority or consent, is listed in the Register as a
Lender shall be conclusive and binding on any subsequent holder, assignee or
transferee of the corresponding Commitment Amounts or Loans.
(g) Each Lender shall have the right at any time to sell, assign or
transfer any Revolving Loan Commitment Amount, any Loan or any other Obligation:
(i) to any Person meeting the criteria of clause
(i) of the definition of the term of "Eligible
Assignee" upon the giving of notice to Borrower and
Administrative Agent; and
(ii) to any Person meeting the criteria of clause
(ii) of the definition of the term of "Eligible
Assignee" upon the consent of each of Borrower and
Administrative Agent (neither of which shall be
unreasonably withheld or delayed or shall be
required at any time an Event of Default shall have
occurred and then be continuing); provided, each
such assignment pursuant to this Section
11.06(c)(ii) shall be in an aggregate amount of not
less than $2,000,000 (or such lesser amount as may
be agreed to by Borrower and Administrative Agent
or as shall constitute the aggregate amount of the
Revolving Loan Commitment Amounts, Loans and other
Obligations of the assigning Lender); and provided
further, no consent of Borrower or Administrative
Agent shall be required with respect to any
assignment of a Term Loan or any Revolving Loan
after the Revolving Loan Commitment Termination Date.
(h) The assigning Lender and the assignee thereof shall execute and
deliver to Administrative Agent an Assignment Agreement, together with (i) a
processing and recordation fee of (y) $1,000 in the case of assignments by or to
GSCP or Newcourt; provided that no such fee shall be payable until such time as
GSCP and Newcourt have notified Ad-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
ministrative Agent that the primary syndication of the Loans has been completed,
and (z) $3,500 in the case of other assignments pursuant to Section
-------
11.06(c)(ii); provided, no such processing and recordation fee shall be payable
- -----------
upon any assignment pursuant to Section 11.06(c)(i), and (ii) such forms,
certificates or other evidence, if any, with respect to United States federal
income tax withholding matters as the assignee under such Assignment Agreement
may be required to deliver to Administrative Agent pursuant to Section
-------
2.12(b)(5).
- ----------
(i) Upon its receipt of a duly executed and completed Assignment Agreement,
together with the processing and recordation fee referred to in Section 11.06(d)
----------------
(and any forms, certificates or other evidence required by this Agreement in
connection therewith), Administrative Agent shall record the information
contained in such Assignment Agreement in the Register, shall give prompt notice
thereof to Borrower and shall maintain a copy of such Assignment Agreement.
(j) Each Lender, upon execution and delivery hereof or upon executing and
delivering an Assignment Agreement, as the case may be, represents and warrants
as of the Closing Date or as of the applicable Effective Date (as defined in the
applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it
has experience and expertise in the making of or investing in commitments or
loans such as the Revolving Loan Commitment Amounts or Loans, as the case may
be; and (iii) it will make or invest in, as the case may be, its Revolving Loan
Commitment Amounts or Loans for its own account in the ordinary course of its
business and without a view to distribution of such Revolving Loan Commitment
Amounts or Loans within the meaning of the Securities Act or the Exchange Act or
other federal securities laws (it being understood that, subject to the
provisions of this Section 11.06, the disposition of such Revolving Loan
-------------
Commitment Amounts or Loans or any interests therein shall at all times remain
within its exclusive control).
(k) Subject to the terms and conditions of this Section 11.06, as of the
-------------
"Effective Date" specified in such Assignment Agreement: (i) the assignee
thereunder shall have the rights and obligations of a "Lender" hereunder to the
extent such rights and obligations hereunder have been assigned to it pursuant
to such Assignment Agreement and shall thereafter be a party hereto and a
"Lender" for all purposes hereof; (ii) the assigning Lender thereunder shall, to
the extent that rights and obligations hereunder have been assigned thereby
pursuant to such Assignment Agreement, relinquish its rights (other than any
rights which survive the termination hereof under Section 11.08) and be released
from its obligations hereunder (and, in the case of an Assignment Agreement
covering all or the remaining portion of an assigning Lender's rights and
obligations hereunder, such Lender shall cease to be a party hereto; (iii) the
Revolving Loan Commitment Amounts shall be modified to reflect the Revolving
Loan Commitment Amount of such assignee and any remaining Revolving Loan
Commitment Amount of such assigning Lender, if any; and (iv) if any such
as-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
signment occurs after the issuance of any Note hereunder, the assigning Lender
shall, upon the effectiveness of such assignment or as promptly thereafter as
practicable, surrender its applicable Notes to Administrative Agent for
cancellation, and thereupon Borrower shall issue and deliver new Notes, if so
requested by the assignee and/or assigning Lender, to such assignee and/or to
such assigning Lender, with appropriate insertions, to reflect the new Revolving
Loan Commitment Amounts and/or outstanding Loans of the assignee and/or the
assigning Lender.
(l) Each Lender shall have the right at any time to sell one or more
participations to any Person in all or any part of its Revolving Loan Commitment
Amounts, Loans or in any other Obligation. The holder of any such participation,
other than an Affiliate of the Lender granting such participation, shall not be
entitled to require such Lender to take or omit to take any action hereunder
except with respect to any amendment, modification or waiver described in
Section 11.05(b) or 11.05(c) to the extent directly affecting the Loan or
Revolving Loan Commitment Amount relating to the participation. All amounts
payable by Borrower or Holdings hereunder, including amounts payable to such
Lender pursuant to Section 2.07(e), 2.12 or 2.14, shall be determined as if such
Lender had not sold such participation. Each Borrower and Holdings and each
Lender hereby acknowledge and agree that, solely for purposes of Sections 11.04
and 11.18, any participation will give rise to a direct obligation of Borrower
and Holdings to the participant and the participant shall be considered to be a
"Lender".
(m) In addition to any other assignment permitted pursuant to this Section
11.06, (i) any Lender may assign and pledge all or any portion of its Loans, the
other Obligations owed to such Lender, and its Notes for or in connection with
any loan or financing, or as part of any securitization or other similar
transaction, and (ii) with the consent of Borrower and Administrative Agent any
Lender which is an investment fund may pledge all or any portion of its Notes or
Loans to its trustee in support of its obligations to such trustee; provided, no
Lender, as between Borrower and such Lender, shall be relieved of any of its
obligations hereunder as a result of any such assignment and pledge, and
provided further, in no event shall the applicable Federal Reserve Bank or
trustee be considered to be a "Lender" or be entitled to require the assigning
Lender to take or omit to take any action hereunder.
8.5 SECTION INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
-------------------------
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or would otherwise be within the limitations of, another covenant shall not
avoid the occurrence of a Default or an Event of Default if such action is taken
or condition exists.
8.6 SECTION SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENT. All
-----------------------------------------------------
representations, warranties and agreements made herein shall survive the
execution and delivery
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
hereof and the making of any Loan. Notwithstanding anything herein or implied by
law to the contrary, the agreements of any Credit Party set forth in Sections
2.07(e), 2.12, 2.14, 11.02, 11.03, 11.04 and 11.17 and the agreements of Lenders
set forth in Sections 10.06 and 11.18 shall survive the payment of the Loans and
the reimbursement of any amounts drawn thereunder, and the termination hereof.
8.7 SECTION NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
------------------------------
any Agent or any Lender in the exercise of any power, right or privilege
hereunder or under any other Loan Document shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other power, right or
privilege. The rights, powers and remedies given to each Agent and each Lender
hereby are cumulative and shall be in addition to and independent of all rights,
powers and remedies existing by virtue of any statute or rule of law or in any
of the other Loan Documents. Any forbearance or failure to exercise, and any
delay in exercising, any right, power or remedy hereunder shall not impair any
such right, power or remedy or be construed to be a waiver thereof, nor shall it
preclude the further exercise of any such right, power or remedy.
8.8 SECTION MARSHALLING; PAYMENTS SET AIDE. Neither Administrative Agent nor
------------------------------
any Lender shall be under any obligation to marshal any assets in favor of any
Credit Party or any other Person or against or in payment of any or all of the
Obligations. To the extent that any Credit Party makes a payment or payments to
Administrative Agent or Lenders (or to Administrative Agent for the benefit of
Lenders), or any Agent or Lenders enforce any security interests or exercise
their rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, any other state
or federal law, common law or any equitable cause (whether as a result of any
action or proceeding settlement or otherwise), then, to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefor or related thereto, shall be revived
and continued in full force and effect as if such payment or payments had not
been made or such enforcement or setoff had not occurred.
8.9 SECTION SEVERABILITY. In case any provision in or obligation hereunder or
------------
any Note shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
8.10 SECTION OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The
----------------------------------------------------------
obligations of Lenders hereunder are several and no Lender shall be responsible
for the obli-
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
gations or Revolving Loan Commitment Amounts or Term Loan Commitment Amounts of
any other Lender hereunder. Nothing contained herein or in any other Loan
Document, and no action taken by Lenders pursuant hereto or thereto, shall be
deemed to constitute Lenders as a partnership, an association, a joint venture
or any other kind of entity. The amounts payable at any time hereunder to each
Lender shall be a separate and independent debt, and each Lender shall be
entitled to protect and enforce its rights arising out hereof and it shall not
be necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.
8.11 SECTION ENTIRE AGREEMENT; HEADINGS. This Agreement, together with the
--------------------------
other Loan Documents, constitutes and expresses the entire understanding between
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings, inducements, commitments or conditions,
express or implied, oral or written, except as herein contained. Section
headings herein are included herein for convenience of reference only and shall
not constitute a part hereof for any other purpose or be given any substantive
effect.
8.12 SECTION APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401
OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.
8.13 SECTION CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST
ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER LOAN DOCUMENT,
OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK AND ANY
APPELLATE COURT TO WHICH APPEALS WITH RESPECT TO JUDICIAL PROCEEDINGS IN SUCH
COURTS MAY BE TAKEN. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT
PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY ACCEPTS
GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH
COURTS; WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; AGREES THAT SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS
ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 11.01; AGREES THAT SERVICE AS
PROVIDED HEREINABOVE IS SUFFICIENT TO CONFER
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN
ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT; AND AGREES SUCH LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST EACH CREDIT PARTY IN THE
COURTS OF ANY OTHER JURISDICTION.
8.14 SECTION WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES
TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT HEREOF OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR
THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH
PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION
11.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR
ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
8.15 SECTION CONFIDENTIALITY. Each Lender shall hold all non-public
---------------
information obtained pursuant to the requirements hereof which is in written,
printed or other tangible form and consists of Projections or which has been
marked or labeled as confidential by Borrower in accordance with such Lender's
customary procedures for handling confidential
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
information of this nature and in accordance with prudent lending or investing
practices, it being understood and agreed by Borrower that in any event a Lender
may make disclosures to Affiliates of such Lender or disclosures reasonably
required by any bona fide or potential assignee, transferee or participant in
connection with the contemplated assignment, transfer or participation by such
Lender of any Loans or any participations therein or by any direct or indirect
contractual counterparties (or the professional advisors thereto) in swap
agreements (provided, such swap counterparties and advisors are advised of and
agree to be bound by the provisions of this Section 11.17) or in connection with
the enforcement of any rights or remedies hereunder or under any other Loan
Document or disclosures required or requested by any governmental agency or
representative thereof or by the National Association of Insurance Commissioners
or as request or required pursuant to any law, rules or regulations or legal
process; provided, unless specifically prohibited by applicable law or court
order, each Lender shall notify Borrower of any request by any governmental
agency or representative thereof (other than any such request in connection with
any examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information; and provided further, in no event shall any Lender be
obligated or required to return any materials furnished by Borrower or any of
its Affiliates. Notwithstanding anything contained herein or otherwise to the
contrary, none of the Lenders shall in any event be required to hold as
confidential any information (a) that is or becomes published or otherwise
generally available to the public other than as a result of a disclosure in
violation of this Section 11.17, (b) that was available to any Lender on a non-
confidential basis prior to its disclosure to any Lender hereunder, or (c) that
becomes available to any Lender on a non-confidential basis from a source other
than Borrower or any other Credit Party. The obligations of the Lenders under
this Section 11.17 shall continue with respect to any item of non-public
information for only so long as such item of non-public information has or
retains a confidential or proprietary nature, but in no event beyond a period of
two (2) years after the date on which such information is provided to any Lender
hereunder.
8.16 SECTION RATABLE SHARING. Lenders hereby agree among themselves that if
---------------
any of them shall, whether by voluntary payment (other than a voluntary
prepayment of Loans made and applied in accordance with the terms hereof), by
realization upon security, through the exercise of any right of set-off or
banker's lien, by counterclaim or cross action or by the enforcement of any
right under the Loan Documents or otherwise, or as adequate protection of a
deposit treated as cash collateral under the Bankruptcy Code, receive payment or
reduction of a proportion of the aggregate amount of principal, interest, fees
and other amounts then due and owing to such Lender hereunder or under the other
Loan Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which
---------------------
is greater than the proportion received by any other Lender in respect of the
Aggregate Amounts Due to such other Lender, then the Lender receiving such
proportionately greater payment shall (a) notify Administrative Agent and each
other Lender of the receipt of such payment and (b) apply a
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
portion of such payment to purchase participations (which it shall be deemed to
have purchased from each seller of a participation simultaneously upon the
receipt by such seller of its portion of such payment) in the Aggregate Amounts
Due to the other Lenders so that all such recoveries of Aggregate Amounts Due
shall be shared by all Lenders in proportion to the Aggregate Amounts Due to
them; provided, if all or part of such proportionately greater payment received
by such purchasing Lender is thereafter recovered from such Lender upon the
bankruptcy or reorganization of Borrower or otherwise, those purchases shall be
rescinded and the purchase prices paid for such participations shall be returned
to such purchasing Lender ratably to the extent of such recovery, but with any
interest on such purchase prices as such purchasing Lender is required to pay in
connection with such recovery. Borrower expressly consents to the foregoing
arrangement and agrees that any holder of a participation so purchased may
exercise any and all rights of banker's lien, set-off or counterclaim with
respect to any and all monies owing by Borrower to that holder with respect
thereto as fully as if that holder were owed the amount of the participation
held by that holder and that such holder shall be treated as a Lender with
respect to such participation for any and all purposes.
8.17 SECTION COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in
---------------------------
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, but all such counterparts together shall constitute but
one and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto and receipt by
Borrower and Administrative Agent of written or telephonic notification of such
execution and authorization of delivery thereof.
[The remainder of this page is intentionally left blank.]
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized officers as of the day and year first
above written.
NORTHPOINT COMMUNICATIONS, INC.
By: ___________________________
Name:
Title:
Notice Address: 222 Sutter Street
San Francisco, California
94108
NORTHPOINT COMMUNICATIONS OF
VIRGINIA, INC.
By: ___________________________
Name:
Title:
Notice Address: 222 Sutter Street
San Francisco, California
94108
NORTHPOINT COMMUNICATIONS
HOLDINGS, INC.
By: ___________________________
Name:
Title:
Notice Address: 222 Sutter Street
San Francisco, California
94108
1
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
GOLDMAN SACHS CREDIT PARTNERS L.P., as Syndication
Agent, Joint Lead Arranger and as a Lender
By: ___________________________
Authorized Signatory
Notice Address:
2
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
CANADIAN IMPERIAL BANK OF COMMERCE,
as Administrative Agent and as a Lender
By: ___________________________
Name:
Title:
Notice Address:
3
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
NEWCOURT COMMERCIAL FINANCE CORPORATION,
as Documentation Agent,
Collateral Agent and a Lender
By: ___________________________
Name:
Title:
Notice Address:
4
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
CAPITAL SYNDICATION CORPORATION,
as Joint Lead Arranger
By: ___________________________
Name:
Title:
Notice Address:
5
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
[OTHER LENDERS]
6
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
ANNEX A
COMMITMENT AMOUNTS
------------------
REVOLVING LOANS
Lender Revolving Loan Commitment Amount
- --------------------------------------------------------------------------------
_______________
- --------------------------------------------------------------------------------
TOTAL $50,000,000
- --------------------------------------------------------------------------------
TERM LOANS
Lender Term Loan Commitment Amount
- --------------------------------------------------------------------------------
_______________
- --------------------------------------------------------------------------------
TOTAL $10,000,000
- --------------------------------------------------------------------------------
TOTAL COMMITMENTS $60,000,000
1
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
SCHEDULE 3.15
INSURANCE
The Borrower shall at its own expense, with insurers and with maximum
deductibles satisfactory to the Collateral Agent:
(a) keep its insurable properties, adequately insured on a all risk basis for
the full replacement value thereof at all times;
(b)
(c) maintain in full force and effect, pay all premiums when due in respect of,
and comply with all terms and conditions of the following insurance coverages:
(d)
(i) All Risk Property Insurance. The Borrower shall maintain all
---------------------------
risk property insurance against physical loss or damage,
including but not limited to fire and extended coverage,
collapse, flood, earth movement and comprehensive boiler and
machinery coverage (including electrical and mechanical
breakdown). Such insurance shall cover the Borrower's entire
operation shall not contain any exclusion for resultant damage
caused by faulty workmanship, design or materials. Coverage shall
be written on a replacement cost basis in an amount reasonably
acceptable to the Collateral Agent. Such insurance policy shall
contain an agreed amount endorsement waiving any coinsurance
penalty;
(i) Business Interruption. As an extension of the coverage
---------------------
required under the preceding clause (b)(i), the Borrower shall
maintain business interruption insurance in an agreed amount
equal to twelve (12) months projected loss of net profits,
continuing expenses and debt service payment and shall contain an
agreed amount endorsement waiving any coinsurance penalty;
(i) Comprehensive or Commercial General Liability Insurance. The
-------------------------------------------------------
Borrower shall maintain comprehensive general liability insurance
written on an occurrence basis with a limit of not less than
$2,000,000. Such coverage shall include, but not be limited to,
premises/operations, explosion, collapse, underground hazards,
contractual liability, independent contractors, products, com-
2
<PAGE>
FIRST PRIORITY LOAN AGREEMENT
-----------------------------
pleted operations, property damage and personal injury liability.
Such insurance shall not exclude coverage for punitive or
exemplary damages where insurable by law; and
(i) Workers' Compensation/Employer's Liability. The Borrower
------------------------------------------
shall maintain workers' compensation insurance in accordance with
statutory provisions covering accidental injury, illness or death
of an employee of the Borrower while at work or in the scope of
his or her employment with the Borrower and employer's liability
insurance in an amount not less than $500,000. Such coverage
shall not contain any occupational disease exclusions; and
(i) Automobile Liability. The Borrower shall maintain automobile
--------------------
liability insurance covering owned, non-owned, leased, hired or
borrowed vehicles against bodily injury or property damage. Such
coverage shall have a limit of not less than $1,000,000; and
(i) Excess/Umbrella Liability. The Borrower shall maintain
-------------------------
excess or umbrella liability insurance in an amount not less than
$10,000,000 written on an occurrence basis providing coverage
limits in excess of the insurance limits required under clauses
(b)(iii), (b)(iv) (employer's liability only), and (b)(v). Such
insurance shall follow from the primary insurances and drop down
in case of exhaustion of underlying limits and/or aggregates.
Such insurance shall not exclude coverage for punitive or
exemplary damages where insurable by law; and
(i) Directors and Officer's Liability Insurance. On or after any
-------------------------------------------
initial public offering of Holdings Common Stock, the Borrower
shall maintain Directors and Officers Liability Insurance in an
amount not less than $2,000,000.
<PAGE>
EXHIBIT 10.29
EXECUTION
SECOND PRIORITY LOAN AND GUARANTY AGREEMENT
DATED AS OF APRIL 5, 1999
AMONG
NORTHPOINT COMMUNICATIONS, INC.,
AS BORROWER,
NORTHPOINT COMMUNICATIONS HOLDINGS, INC.
AND
NORTHPOINT COMMUNICATIONS OF VIRGINIA, INC.,
AS GUARANTORS,
VARIOUS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS JOINT LEAD ARRANGER AND SYNDICATION AGENT,
NEWCOURT COMMERCIAL FINANCE CORPORATION,
AS ADMINISTRATIVE AGENT, DOCUMENTATION AGENT AND COLLATERAL AGENT,
AND
CAPITAL SYNDICATION CORPORATION,
AS JOINT LEAD ARRANGER
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
EXHIBITS:
EXHIBIT A-1 Notice of Borrowing
EXHIBIT A-2 Notice of Continuation/Conversion
EXHIBIT B Note
EXHIBIT C Compliance Certificate
EXHIBIT D Opinion of Credit Parties' Counsel
EXHIBIT E Assignment Agreement
EXHIBIT F Closing Date Certificate
EXHIBIT G Counterpart Agreement
EXHIBIT H Pledge and Security Agreement
EXHIBIT I Intercreditor Agreement
EXHIBIT J-1 Landlord Consent and Estoppel (Node Site)
EXHIBIT J-2 Landlord Consent and Estoppel (Collocation)
EXHIBIT K Certificate Re Non-bank Status
SCHEDULES:
SCHEDULE 3.02 Certain Disclosures
SCHEDULE 3.10(a) Governmental Authorizations and Approvals
SCHEDULE 3.10(b) Material Agreements
SCHEDULE 3.12 ERISA Matters
SCHEDULE 3.15 Insurance
SCHEDULE 3.16 Capitalization and Subsidiaries
SCHEDULE 3.17 Real Estate Assets
SCHEDULE 6.12 Debt
ANNEXES:
ANNEX A Commitment Amounts
v
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
SECOND PRIORITY LOAN AND GUARANTY AGREEMENT
SECOND PRIORITY LOAN AND GUARANTY AGREEMENT, dated as of April 5,
1999, among NORTHPOINT COMMUNICATIONS, INC., a Delaware corporation
("BORROWER"), NORTHPOINT COMMUNICATIONS OF VIRGINIA, INC., a Virginia
--------
corporation ("NORTHPOINT VIRGINIA"), and NORTHPOINT COMMUNICATIONS HOLDINGS,
-------------------
INC., a Delaware corporation ("HOLDINGS"), as Guarantors, the Lenders party
--------
hereto from time to time ("LENDERS"), Goldman Sachs Credit Partners L.P.
-------
("GSCP"), as a Joint Lead Arranger (in such capacity, a "JOINT LEAD ARRANGER")
---- -------------------
and Syndication Agent (in such capacity, a "SYNDICATION AGENT"), Newcourt
-----------------
Commercial Finance Corporation ("NEWCOURT"), as Administrative Agent (in such
--------
capacity, the "ADMINISTRATIVE AGENT"), as Documentation Agent (in such capacity,
--------------------
the "DOCUMENTATION AGENT") and Collateral Agent (in such capacity, the
-------------------
"COLLATERAL AGENT"), and Capital Syndication Corporation ("CSC") as a Joint Lead
- ----------------- ---
Arranger (in such capacity, a "JOINT LEAD ARRANGER").
-------------------
R E C I T A L S
- - - - - - - -
WHEREAS, Borrower has requested the Lenders to extend credit to
Borrower; and
WHEREAS, the Lenders are willing to extend such credit to Borrower
subject to, and on the terms and conditions of, this Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Borrower, each Guarantor, the Agents and the Lenders agree as follows:
1 ARTICLE
DEFINITIONS
- -----------
2.1 SECTION Definitions. As used in this Agreement, including the preamble,
recitals, exhibits, schedules and annexes hereto, the following words and terms
shall have the meanings specified below:
"ADDITIONAL INTEREST AMOUNT" means, for any period, an amount equal to
--------------------------
the difference between y) the amount of interest that would have been payable
with respect to First Priority Loans outstanding during such period if the First
Priority Applicable Margin were equal to the Second Priority Applicable Margin
and z) the amount of interest that was payable during such period with respect
to First Priority Loans pursuant to the First Priority Loan Documents.
"AFFILIATE" shall mean, with respect to a Person, any Person (other
---------
than any Lender) directly or indirectly controlling, controlled by or under
common control with such
1
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
Person and any officer or shareholder of such Person, which shareholder
beneficially owns at least ten percent (10%) of the Equity Interests of such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by", and "under
common control with"), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided, however, that beneficial
-------- -------
ownership of at least 10% of the Equity Interests of a Person shall be deemed to
constitute control.
"AGENTS" shall mean collectively, the Administrative Agent, the
------
Collateral Agent, the Documentation Agent, the Syndication Agent and the Joint
Lead Arrangers.
"AGGREGATE AMOUNTS DUE" shall have the meaning given to such term in
---------------------
Section 11.18 hereof.
- -------------
"AGGREGATE PAYMENTS" shall have the meaning given to such term in
------------------
Section 8.02.
- ------------
"AGREEMENT" shall mean this Second Priority Loan and Guaranty
---------
Agreement, dated as of April 5, 1999, as it may be amended, supplemented or
otherwise modified from time to time.
"ASSIGNMENT AGREEMENT" shall mean an assignment agreement entered into
--------------------
in connection with an assignment pursuant to Section 11.06 hereof substantially
-------------
in the form of Exhibit E hereof.
---------
"BASE LIBO RATE" shall mean, with respect to each day during each
--------------
Interest Period pertaining to a LIBOR Loan, the rate per annum determined by the
Administrative Agent to be the arithmetic mean (rounded to the nearest 1/100th
of 1%) of the offered rates for deposits in Dollars with a term comparable to
such Interest Period that appears on the Telerate British Bankers Assoc.
Interest Settlement Rates Page (as defined below) at approximately 11:00 A.M.,
London time, on the second full Business Day preceding the first day of such
Interest Period; provided, however, that if there shall at any time no longer
exists a Telerate British Bankers Assoc. Interest Settlement Rates Page, "Base
LIBO Rate" shall mean, with respect to each day during each Interest Period
pertaining to a LIBOR Loan, the rate per annum equal to the rate at which CIBC
is offered Dollar deposits at or about 10:00 A.M., New York City time, two
Business Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its LIBOR Loans are then being conducted for delivery
on the first day of such Interest Period for the number of days comprised
therein and in an amount comparable to the amount of its LIBOR Loan to be
outstanding during such Interest Period. "Telerate British Bankers Assoc.
Interest Settlement Rates Page" shall mean
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
the display designated as Page 3750 on the Telerate System Incorporates Service
(or such other page as may replace such page on such service for the purpose of
displaying the rates at which Dollar deposits are offered by leading banks in
the London interbank deposit market).
"BASE RATE" shall mean the higher of (i) a rate per annum equal to
---------
the prime rate announced by CIBC from time to time, changing when and as such
rate changes, it being understood that such rate of interest is not necessarily
the lowest or best rate charged by CIBC to its customers, and (ii) the sum of
the Federal Funds Effective Rate plus one-half percent (0.50%) per annum.
"BASE RATE LOAN" shall mean a Loan, or portion thereof, during any
--------------
period in which it bears interest at a rate based upon the Base Rate.
"BENEFICIARY" shall mean any Agent or any Lender.
-----------
"BENEFIT PLAN" shall mean a defined benefit plan as defined in Section
------------
3(35) of ERISA (other than a Multiemployer Plan) in respect of which Borrower or
any ERISA Affiliate is, or within the immediately preceding six (6) years was,
an "employer" as defined in Section 3(5) of ERISA.
"BORROWER" shall have the meaning given to such term in the preamble
--------
hereto.
"BUSINESS" shall mean the business of operating and maintaining the
--------
Systems owned by Borrower and its Subsidiaries and all operations related
thereto or in support thereof.
"BUSINESS DAY" shall mean (a) any day not a Saturday, Sunday or legal
------------
holiday in the State of New York or the State of New Jersey, on which banks are
open for business in New York and New Jersey and (b) with respect to all
notices, determinations, fundings and payments in connection with the LIBO Rate
or LIBOR Loans, any day that is a Business Day pursuant to clause (a) above and
----------
that is also a day on which trading is carried on by and between banks in the
London interbank market.
"CAPITAL EXPENDITURES" shall mean, for any period, the aggregate of
--------------------
all expenditures of Borrower and its Subsidiaries during such period determined
on a consolidated basis that, in accordance with GAAP, are or should be included
in "purchase of property and equipment" or similar items reflected in the
consolidated statement of cash flows of Borrower and its Subsidiaries
including, in any event, the amount of any cash expenditures made with respect
to Permitted Acquisitions.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
"CAPITALIZATION" shall mean an amount equal to the funded equity
--------------
capitalization and all funded Debt of Credit Parties, less the aggregate of all
amounts included in clause (ii)(F) of the definition of the term "EBITDA" since
the Closing Date.
"CAPITALIZED LEASE OBLIGATIONS" shall mean indebtedness represented by
-----------------------------
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"CERTIFICATE RE NON-BANK STATUS" means a certificate in the form of
------------------------------
Exhibit K.
"CHANGE OF CONTROL" shall mean (i) prior to the consummation of an
-----------------
initial public offering of common stock by Holdings providing gross proceeds to
Holdings of not less than $125,000,000, the net proceeds of which are used to
make capital contributions to Borrower constituting Contributed Capital, (a)
Michael W. Malaga (or any replacement thereof as Lenders holding at least 66% of
the outstanding Loans may approve) shall cease to be a member of the senior
management of Holdings and Borrower, or (b) either of the Founders referred to
in clauses (iii) or (iv) of the definition thereof shall cease to own and
control any of the capital stock of Holdings owned or controlled by such Founder
as of the Closing Date; (ii) for one year after the Closing Date, either of the
Founders referred to in clauses (i) or (ii) of the definition thereof shall
cease to own and control at least 20% of the capital stock of Holdings owned and
controlled by such Founder as of the Closing Date; (iii) any Person (other than
one or more of the Founders), including a "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act) which includes such
Person, shall purchase or otherwise acquire, directly or indirectly, beneficial
ownership of securities of Holdings and, as a result of such purchase or
acquisition, any person (together with its associates and Affiliates), shall
directly or indirectly beneficially own in the aggregate securities representing
more than 30% of the combined voting power of Holdings' voting securities; (iv)
a "Change of Control" or similar event shall occur under any other Debt of a
Credit Party or (v) Holdings shall cease to own and control 100% of the
outstanding capital stock of Borrower or any of its other Subsidiaries or
Borrower shall cease to own and control 100% of the outstanding capital stock of
any of its Subsidiaries.
"CIBC" shall mean Canadian Imperial Bank of Commerce.
----
"CLOSING DATE" shall mean the date on which this Agreement is executed
------------
and delivered by the parties hereto.
"CLOSING DATE CERTIFICATE" shall mean a certificate in the form of
------------------------
Exhibit F.
"COLLATERAL" shall mean, all property and interests in property now
----------
owned or hereafter acquired by any Credit Party, whether real, personal or
mixed, and whether tangi-
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
ble or intangible, in or upon which a security interest, lien or mortgage is
granted to the Collateral Agent by any Credit Party under any of the Loan
Documents.
"COLLATERAL AGENT" shall mean Newcourt in its capacity as Collateral
----------------
Agent under the Loan Documents and the Intercreditor Agreement and also means
any successor Collateral Agent appointed pursuant to Section 1 of the
Intercreditor Agreement.
"COLLATERAL DOCUMENTS" shall mean the Pledge and Security Agreement,
--------------------
the Intercreditor Agreement, and all other instruments or documents delivered by
any Credit Party pursuant to this Agreement or any of the other Loan Documents
in order to grant to Collateral Agent, on behalf of Lenders, a Lien on any real,
personal or mixed, or tangible or intangible, property of that Credit Party as
security for the Obligations, as any of the foregoing may be amended,
supplemented or otherwise modified from time to time.
"COMDISCO FACILITY" shall mean the Master Lease Agreement dated as of
-----------------
October 23, 1997 by and between Comdisco, Inc. and Borrower, as it may be
amended from time to time in accordance with this Agreement.
"COMMITMENT" shall mean the commitments of Lenders to lend as set
----------
forth in Section 2.01 hereof.
------------
"COMMITMENT AMOUNT" shall mean (a) as to any Lender, the Commitment
-----------------
Amount as set forth opposite such Lender's name on Annex A to this Agreement or
-------
in the most recent Assignment Agreement executed by such Lender and (b) as to
all Lenders, the aggregate of all Commitment Amounts, which aggregate commitment
shall be forty million dollars ($40,000,000) on the Closing Date, as such amount
may be adjusted from time to time in accordance with this Agreement.
"COMMON STOCK" shall mean with respect to any Person, all Equity
------------
Interests of such Person that are generally entitled to (i) vote in the election
of directors of such Person or (ii) if such Person is not a corporation, vote or
otherwise participate in the selection of the governing body, partners, managers
or others that will control the management and policies of such Person.
"COMPLIANCE CERTIFICATE" shall mean a compliance certificate in the
----------------------
form of Exhibit C attached hereto.
---------
"CONSOLIDATED" or "CONSOLIDATED" refers, with respect to any Person,
------------ ------------
to the consolidation of the accounts of such Person and its Subsidiaries, if
any, in accordance with GAAP.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
"CONSOLIDATED DEBT" shall mean, as of any date of determination, the
-----------------
Debt of Holdings and its Subsidiaries determined on a consolidated basis in
accordance with GAAP (and shall include, without limitation, the fully accreted
value of any discount notes issued by Holdings) less, prior to the consummation
----
of an initial public offering of common stock by Holdings providing gross
proceeds to Holdings of not less than $125,000,000, the net proceeds of which
are used to make capital contributions to Borrower constituting Contributed
Capital, the amount of cash on hand and any Temporary Cash Investment in excess
of $10,000,000 held by Borrower and its Subsidiaries as of such date.
"CONTAMINANT" shall mean any pollutant, hazardous substance, toxic
-----------
substance, hazardous waste, special waste, petroleum or petroleum derived
substance or waste, or any constituent of any such substance or waste.
"CONTRIBUTED CAPITAL" shall mean, with respect to any Person, at any
-------------------
date of determination, all capital contributed in the form of cash to such
Person, including all funded equity and all Qualified Inter company Loans.
"CONTRIBUTING GUARANTORS" shall have the meaning given to such term in
-----------------------
Section 8.02 hereof.
- ------------
"COUNTERPART AGREEMENT" shall mean a counterpart agreement in the form
---------------------
of Exhibit G hereto.
---------
"CREDIT PARTY" shall mean each Person (other than any Agent or any
------------
Lender or any other representative thereof) from time to time party to a Loan
Document.
"DEBT" shall mean, with respect to any Person, (i) indebtedness for
----
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred purchase price of
property or services, excluding trade payables not more than 90 days past due
and accrued expenses incurred in the ordinary course of business, (iv)
Capitalized Lease Obligations, (v) all Guaranties of such Person, including
without limitation, all debt of any other Person secured by a Lien on property
of such Person, (vi) all reimbursement obligations, contingent or otherwise,
with respect to letters of credit or banker's acceptances issued for the account
of Borrower (other than letters of credit issued in support of ordinary trade
liabilities or workers' compensation obligations, unless and until drawn and
unreimbursed within one Business Day after such drawing), and (vii) all
indebtedness, obligations or other liabilities in respect of any Interest Rate
Agreement/1/, provided that Debt shall not include any liability for Federal,
--------
state, local or other
________________________
/1/ For purposes of determining the amount of Debt associated with any Interest
Rate Agreement, such determination shall only be made as of the last day of each
calendar quarter and shall be effective until the last day of the immediately
succeeding calendar quarter.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
taxes, and provided, further, that the amount outstanding at any time of any
-------- -------
Debt issued with original issue discount is the principal amount of such Debt
less the remaining unamortized portion of the original issue discount of such
Debt at such time as determined in conformity with GAAP, and that with respect
to any high-yield Debt, the amount thereof shall not include fees incurred in
raising such Debt or overfunded amounts set aside solely to pay interest.
Notwithstanding any other provision of the foregoing definition, any trade
payable not more than 90 days past due arising from the purchase of goods or
materials or for services obtained in the ordinary course of business shall not
be deemed to be "Debt" of Borrower for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting) Debt
otherwise included in the determination of such amount shall not be included.
"DEFAULT" shall mean any event which but for the passage of time
-------
requirement or the giving of notice requirement, or both, would constitute an
Event of Default.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
---------------
account with any financial institution, including, without limitation, a bank,
savings and loan association or credit union, other than an account evidenced by
a negotiable certificate of deposit.
"DOLLARS" or "$" shall mean lawful money of the United States of
------- -
America.
"EBITDA" shall mean, with respect to any Person, for any period, an
------
amount equal to, without duplication, (i) Net Income plus (ii) the sum of the
----
following, to the extent deducted in determining Net Income: (A) income and
franchise taxes, (B) interest expense, (C) amortization and depreciation
expense, including, without limitation, amortization of deferred compensation,
(D) all extraordinary non-cash losses, (E) other non-cash charges (including,
without limitation, non-cash charges incurred in connection with the valuation
of warrants) reducing Net Income and (F) to the extent deducted in determining
Net Income, Market Co-Development Costs funded by Permitted Funds, minus (iii)
-----
the sum of (A) interest income, (B) extraordinary gains and (C) other non-cash
items increasing Net Income, all as determined for Borrower and its Subsidiaries
on a consolidated basis and in accordance with GAAP.
"ELIGIBLE ASSIGNEE" shall mean (i) any Lender, any Affiliate of any
-----------------
Lender, and any Related Fund (any two or more Related Funds being treated as a
single Eligible Assignee for all purposes hereof) and (ii) any commercial bank,
insurance company, investment or mutual fund, finance company or other entity
that is an "accredited investor" (as defined in Regulation D under the
Securities Act) and which extends credit or buys loans as one of its businesses;
provided, no Affiliate of Borrower shall be an Eligible Assignee.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
"ENVIRONMENTAL LAWS" shall mean all federal, state and local laws,
------------------
rules, regulations, ordinances, programs, permits, guidance, orders and consent
decrees or other binding determination of any Governmental Authority relating to
protection of the environment, the handling, disposal or Release of Contaminants
and occupational safety and health. Such laws and regulations include but are
not limited to the Resource Conservation and Recovery Act, 33 U.S.C. (S) 6901 et
--
seq., as amended; the Comprehensive Environmental Response, Compensation and
- ----
Liability Act, 42 U.S.C. (S) 9601 et seq., as amended; the Toxic Substances
-- ----
Control Act, 15 U.S.C. (S) 2601 et seq., as amended; the Clean Water Act, 33
-- ----
U.S.C. (S) 1251 et seq., as amended; the Clean Air Act, 42 U.S.C. (S) 7401 et
-- ---- --
seq., as amended; state and federal environmental lien and environmental cleanup
- ----
programs; the Occupational Safety and Health Act, 29 U.S.C. (S) 651 et seq.; and
------
U.S. Department of Transportation regulations related to the transportation of
hazardous materials, each as from time to time hereafter in effect.
"EQUITY AFFILIATE" shall mean, as applied to any Person, any other
----------------
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"EQUITY INTEREST" shall mean, with respect to any Person, any and all
---------------
shares or other equivalents (however designated) of capital stock, membership
units, partnership interests or any other participation right or other interest
in the nature of an equity interest in such Person or any option, warrant or
other security convertible into any of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"ERISA AFFILIATE" shall mean (i) any corporation which is a member of
---------------
the same controlled group of corporations (within the meaning of Section 414(b)
of the IRC) as Borrower, (ii) any partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the IRC) with Borrower and (iii) any member of the same
affiliated service group (within the meaning of Section 414(m) of the IRC) as
Borrower.
"EUROCURRENCY LIABILITIES" shall have the meaning assigned to that
------------------------
term in Regulation D of the Federal Reserve Board, as in effect from time to
time.
"EVENT OF DEFAULT" shall have the meaning given to such term in
----------------
Article IX hereof.
- ----------
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
"EVENT OF LOSS" shall mean, with respect to any item of Collateral,
-------------
the actual or constructive loss of such item of Collateral or the use thereof,
due to theft, destruction, damage beyond repair or damage from any reason
whatsoever, to an extent which makes repair uneconomical, or rendition thereof
unfit for normal use, or the condemnation, confiscation or seizure of, or
requisition of title to or use of, such item of Collateral by any Governmental
Authority or any other Person, acting under or deemed to be acting under color
of any Governmental Authority.
"EXCESS OPERATING CASH FLOW" shall mean, for any period, Net Income of
--------------------------
Borrower and its Subsidiaries plus non-cash interest expense, depreciation and
amortization and any other non-cash items of Borrower and its Subsidiaries
reducing Net Income, minus scheduled Principal Payments of Borrower and its
-----
Subsidiaries, lease payments and capital expenditures of Borrower and its
Subsidiaries (to the extent not otherwise deducted in determining Net Income),
plus or minus changes in working capital of Borrower and its Subsidiaries during
such period.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time.
"FAIR SHARE CONTRIBUTION AMOUNT" shall have the meaning given to such
------------------------------
term in Section 8.02.
------------
"FAIR SHARE" shall have the meaning given to such term in Section
---------- -------
8.02.
- ----
"FAIR SHARE SHORTFALL" shall have the meaning given to such term in
--------------------
Section 8.02.
- ------------
"FCC" shall mean the Federal Communications Commission or any
---
successor commission or agency of the United States of America having
jurisdiction over Borrower or any System.
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any period, a
----------------------------
fluctuating interest rate per annum equal for each day during such period to (a)
the weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or if such day is not a Business Day, for the preceding
Business Day) by the Federal Reserve Bank of New York in the Composite Closing
Quotations for U.S. Government Securities; or (b) if such rate is not so
published for any day which is a Business Day, the average of the quotations at
approximately 10:30 a.m. (New York time) for such day on such transactions as
determined by the Administrative Agent from three federal funds brokers of
recognized standing selected by it.
<PAGE>
SECOND PRIORITY AGREEMENT
-------------------------
"FEDERAL RESERVE BOARD" shall mean the Board of Governors of the
---------------------
Federal Reserve System or any successor thereto.
"FINANCIALS" shall have the meaning given to such term in Section
---------- -------
3.03.
- ----
"FIRST PRIORITY APPLICABLE MARGIN" shall mean the "Applicable Margin"
--------------------------------
as such term is defined in the First Priority Loan Documents.
"FIRST PRIORITY LOANS" shall mean the up to $60,000,000 aggregate
--------------------
principal amount of loans made to Borrower pursuant to the First Priority Loan
Documents.
"FIRST PRIORITY LOAN DOCUMENTS" shall mean, collectively, the Loan and
-----------------------------
Guaranty Agreement, dated as of April 5, 1999, as it may be from time to time
amended, supplemented or otherwise modified, among Borrower, Holdings,
NorthPoint Virginia, the Lenders party thereto from time to time, GSCP, as a
Joint Lead Arranger and Syndication Agent, CIBC, as Administrative Agent,
Newcourt, as Documentation Agent and Collateral Agent, and Capital Syndication
Corporation, as a Joint Lead Arranger, together with the other "Loan Documents"
as such term is defined in such Loan and Guaranty Agreement.
"FIRST PRIORITY LOANS PREPAYMENT PREMIUM" means with respect to any
---------------------------------------
First Priority Loans prepaid during any of the periods set forth below, the
percentage of the amount of the First Priority Loans so prepaid indicated
opposite such period:
Monthly Anniversary Percentage
After the Closing Date ----------
----------------------
7 6%
8 5%
9 4%
10 3%
11 2%
12 1%
13-24 1%
25 & thereafter 0%
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
"FIXED CHARGES" shall mean with respect to any six-month period for
-------------
Borrower and its Subsidiaries, the sum of the following amounts calculated on a
consolidated basis at the end of such period with respect to such period without
duplication and in accordance with GAAP: (i) scheduled principal and interest
payments with respect to Debt during such period, (ii) capital expenditures made
during such period, (iii) income tax payments payable in cash with respect to
such period, and (iv) cash dividend payments made during such period.
"FIXED CHARGE COVERAGE RATIO" shall have the meaning given to such
---------------------------
term in Section 7.02(c).
---------------
"FOUNDERS" shall mean each of (i) Michael W. Malaga, (ii) Tim Monahan,
--------
William Euske, Nathan Gregory, Robert Flood and Steve Gorosh, as a group, (iii)
investment funds controlled by The Carlyle Group owning capital stock of
Holdings as of the Closing Date, as a group, and (iv) investment funds
controlled by Vulcan Ventures Incorporated owning capital stock of Holdings as
of the Closing Date, as a group.
"FUNDING DATE" shall mean the date upon which, subject to the
------------
satisfaction of all conditions precedent contained in Section 4.01, or the
------------
waiver thereof by the Agents and the Requisite Lenders, the Loans are made on or
after the Closing Date.
"FUNDING GUARANTOR" shall have the meaning given to such term in
-----------------
Section 8.02.
- ------------
"GAAP" shall mean United States generally accepted accounting
----
principles in effect as of the date of determination thereof.
"GOVERNMENTAL APPROVAL" shall mean, with respect to Borrower or any of
---------------------
its Subsidiaries, any license, permit, franchise or certificate of public
convenience and necessity issued to Borrower or any of its Subsidiaries by the
FCC, any PUC or any other Governmental Authority in connection with any System.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state, local or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"GUARANTOR" shall mean Holdings and each direct or indirect Subsidiary
---------
of Holdings other than Borrower.
"GUARANTY" shall mean any (y) obligation, contingent or otherwise, of
--------
any Person guaranteeing any Debt of any other Person (the "PRIMARY OBLIGOR") in
---------------
any manner, whether directly or indirectly, and including any obligation of such
Person, direct or indirect,
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such indebtedness or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such indebtedness; (ii) to purchase
property, securities or services for the purpose of assuring the owner of such
indebtedness of the payment of such indebtedness; or (iii) to maintain working
capital, equity capital or other financial statement condition of the Primary
Obligor so as to enable the Primary Obligor to pay such indebtedness and (z) any
Interest Rate Agreement.
"HOLDINGS" shall have the meaning as set forth in the preamble to this
--------
Agreement.
"INDEMNIFIED LIABILITIES" shall mean, collectively, any and all
-----------------------
liabilities, obligations, losses, damages (including natural resource damages),
penalties, actions, judgments, suits, claims (including, without limitation,
environmental claims), costs (including the costs of any investigation, study,
sampling, testing, abatement, cleanup, removal, remediation or other response
action necessary to remove, remediate, clean up or abate any hazardous materials
activity), expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened by any Person, whether or not any such Indemnitee shall
be designated as a party or a potential party thereto, and any fees or expenses
incurred by Indemnitees in enforcing this indemnity), whether direct, indirect
or consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or
arising out of (i) this Agreement or any of the other Loan Documents or the
transactions contemplated hereby or thereby (including Lenders' agreement to
make Loans or the use or intended use of the proceeds thereof or the use or
intended use of any thereof, or any enforcement of any of the Loan Documents
(including any sale of, collection from, or other realization upon any of the
Collateral or the enforcement of any Guaranty)); (ii) the statements contained
in the commitment letter delivered by any Lender to Borrower with respect
thereto; or (iii) any environmental claim or any hazardous materials activity
relating to or arising from, directly or indirectly, any past or present
activity, operation, land ownership, or practice of any Credit Party or their
Affiliates.
"INDEMNITEE" shall have the meaning given to such term in Section
---------- -------
11.03 hereof.
- -----
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor Agreement by
-----------------------
and between Administrative Agent, Collateral Agent and Newcourt, as
Administrative Agent
<PAGE>
SECOND PRIORITY AGREEMENT
-------------------------
under the Second Priority Loan Documents in substantially the form of Exhibit I
---------
annexed hereto to be executed and delivered pursuant to Section 4.01.
------------
"INTEREST EXPENSE" shall mean for any period, the total interest
----------------
expense (including, without limitation, interest expense attributable to
Capitalized Lease Obligations) determined on a consolidated basis, without
duplication, for Borrower and its Subsidiaries in accordance with GAAP.
"INTEREST PERIOD" shall mean, with respect to each LIBOR Loan, the
---------------
interest period applicable to such LIBOR Loan as set forth in the applicable
Notice of Borrowing or Notice of Continuation/Conversion .
"INTEREST RATE AGREEMENT" shall mean for any Person, any interest rate
-----------------------
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"INVESTMENT" shall mean, as applied to any Person, any direct or
----------
indirect purchase or other acquisition by that Person of securities, or of a
beneficial interest in securities, of any other Person, and any direct or
indirect loan, advance (other than deposits with financial institutions
available for withdrawal on demand, prepaid expenses, advances to employees,
officers and directors and similar items, each made or incurred in the ordinary
course of business), or capital contribution by that Person to any other Person,
including all Debt of such other Person to that Person, but excluding accounts
owed by that other Person in the ordinary course of business. Investments shall
exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices. The amount of any Investment shall be
determined in conformity with GAAP.
"IRC" shall mean the Internal Revenue Code of 1986, as amended from
---
time to time and any successor statutes.
"IRS" shall mean the Internal Revenue Service or any successor agency.
---
"LANDLORD CONSENT AND ESTOPPEL" shall mean (i) with respect to any
-----------------------------
node site, a consent and estoppel in the form of Exhibit J-1 annexed hereto, and
(ii) with respect to any collocation agreement, a consent and estoppel in the
form of Exhibit J-2 annexed hereto; provided that Collateral Agent may, in its
discretion eliminate or modify the provisions otherwise required to be included
in any such Landlord Consent and Estoppel.
"LEASEHOLD PROPERTY" shall mean any leasehold interest of any Credit
------------------
Party as lessee under any lease of real property, other than any such leasehold
interest designated
<PAGE>
SECOND PRIORITY AGREEMENT
-------------------------
from time to time by Collateral Agent in its sole discretion as not being
required to be included in the Collateral.
"LENDER COUNTERPARTY INTEREST RATE AGREEMENT" shall have the meaning
-------------------------------------------
ascribed thereto in the definition of the term "Loan Documents".
"LENDING OFFICE" shall mean, with respect to a Lender or Agent, any
--------------
office, branch, subsidiary or affiliate of such Lender or the Agent.
"LIBO RATE" shall mean, with respect to each day during each Interest
---------
Period pertaining to a LIBOR Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
LIBO RATE = BASE LIBO RATE
-------------------------------
1.00 - LIBOR Reserve Percentage
"LIBOR INTEREST PAYMENT DATE" shall mean, with respect to a LIBOR
---------------------------
Loan, the last day of each Interest Period applicable to such Loan, and, if such
Interest Period has a duration of more than three months, on each day which
occurs during such Interest Period every three months from the first day of such
Interest Period.
"LIBOR INTEREST RATE DETERMINATION DATE" shall mean each date of
--------------------------------------
calculating the LIBO Rate for purposes of determining the interest rate with
respect to an Interest Period. The LIBOR Interest Rate Determination Date for
any LIBOR Loan shall be the second Business Day prior to the first day of the
related Interest Period for such LIBOR Loan.
"LIBOR LOAN" shall mean a Loan, or portion thereof, during any period
----------
in which it bears interest at a rate based upon the LIBO Rate.
"LIBOR RESERVE PERCENTAGE" shall mean for any day for any Interest
------------------------
Period the maximum reserve percentage (expressed as a decimal, rounded upward to
the next 1/100th of 1.0%) in effect on such day (whether or not applicable to
any Lender) for United States domestic banks under regulations issued from time
to time by the Federal Reserve Board for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency Liabilities having a term comparable
to such Interest Period.
"LIEN" shall mean any mortgage, pledge, deed of trust, assignment,
----
lien, charge, encumbrance or security interest of any kind, or the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement, but excluding easements, rights of way or similar
encumbrances on real property which are in the
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
ordinary course and which do not materially affect the value, use and
insurability of title of such real property.
"LOAN" shall mean a loan made by a Lender to Borrower pursuant to
----
Section 2.01.
"LOAN DOCUMENTS" shall mean all agreements, instruments and documents,
--------------
including, without limitation, security agreements, loan agreements, notes,
guarantees, mortgages, deeds of trust, subordination agreements, pledges, powers
of attorney, consents, assignments, contracts, notices, leases, financing
statements, between Borrower, any Guarantor, any Agent or any of the Lenders and
all other written matter whether heretofore, now, or hereafter executed by or on
behalf of Borrower, any Guarantor or any other Person in connection with the
transactions contemplated hereby or by any other Loan Document and delivered to
any Agent or any of the Lenders, together with all agreements and documents
referred to therein or contemplated thereby; provided, the term "Loan Documents"
shall not include any Interest Rate Agreement unless y) such Interest Rate
Agreement is entered into by a Lender or an Affiliate thereof with the Borrower
(each, a "LENDER COUNTERPARTY INTEREST RATE AGREEMENT"), and z) Borrower and
-------------------------------------------
such Lender or Affiliate thereof have agreed that such Lender Counterparty
Interest Rate Agreement is a Loan Document.
"MARKET CO-DEVELOPMENT COSTS" means actual cash expenses incurred by
---------------------------
Borrower or any of its Subsidiaries in connection with the development of a
market; provided that y) such expenses are only incurred as a result of the
--------
development of such market in cooperation with another Person, other than an
Affiliate and z) such expenses are not included as projected expenses in the
Projections.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, a
-----------------------
material adverse effect upon the business, condition (financial or otherwise),
operations, properties, or prospects of such Person, or upon the ability of such
Person to perform, or the ability of such Person to enforce any right or remedy,
under the Loan Documents.
"MAXIMUM RATE" shall have the meaning given to such term in Section
------------ -------
2.13 hereof.
- ----
"MORGAN STANLEY BRIDGE NOTES" shall mean Senior Increasing Rate Notes
---------------------------
due July 15, 1999 issued pursuant to the Note Purchase Agreement dated as of
July 10, 1998 between NorthPoint and Morgan Stanley Senior Funding, Inc.
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by Borrower or an ERISA Affiliate.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
"NET INCOME" shall mean, with respect to any Person for any period,
----------
the net income (or loss) of such Person determined in accordance with GAAP minus
-----
(ii) (a) the income of any Person (other than a Subsidiary of such Person) in
which any other Person has a joint interest, except to the extent of the amount
of dividends or other distributions actually paid to such Person or any of its
Subsidiaries by such Person during such period, (b) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of such Person or is
merged into or consolidated with that Person or that Person's assets are
acquired by such Person, (c) the income of any Subsidiary (other than a
Guarantor) of that Person to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that income is not at
the time permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary, (d) any after-tax gains or losses attributable to
asset sales or returned surplus assets of any pension plan, and (e) (to the
extent not included in clauses (a) through (d) above) any net extraordinary
gains or net non-cash extraordinary losses.
"NOTE" shall mean a promissory note of Borrower substantially in the
----
form of Exhibit B attached hereto.
---------
"NOTICE OF BORROWING" shall mean a notice substantially in the form of
-------------------
Exhibit A-1 attached hereto.
- -----------
"NOTICE OF CONVERSION/CONTINUATION" shall mean a notice in
---------------------------------
substantially the form of Exhibit A-2 annexed hereto.
-----------
"OBLIGEE GUARANTOR" shall have the meaning set forth in Section 8.07
----------------- ------------
hereof.
"OBLIGATIONS" shall mean all the obligations of any Credit Party now
-----------
or hereafter existing under this Agreement or any other Loan Document to which
any Credit Party is a party, whether for principal, interest, fees, expenses,
reimbursement, indemnification or otherwise. Obligations shall include,
without limitation, all interest, charges, expenses, fees, attorneys' fees and
disbursements, and paralegals' fees which accrue after the commencement of any
case or proceeding in bankruptcy after the insolvency of, or for the liquidation
or reorganization of any Credit Party, whether or not allowed in such
proceeding.
"PAYMENT ACCOUNT" shall mean the Administrative Agent's account at
---------------
Northern Trust, Chicago, Illinois, ABA No. 071000152, Account No. 86711,
attention: AT&T Capital Corporation, Capital Markets Division, reference:
NorthPoint.
"PAYMENT DATE" shall mean the last day of March, June, September, and
------------
December in each calendar year, but if any such date is not a Business Day, the
next succeeding Business Day, commencing on the first such date to occur after
the Closing Date.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
----
and defined in ERISA.
"PERMITTED ACQUISITION" shall mean any acquisition by Borrower,
---------------------
whether by purchase, merger or otherwise (but, in any event, except in the
ordinary course of business), of any assets, or a business line or a division
of, or Equity Securities of, any Person; provided that, (i) immediately prior
to, and after giving effect to such acquisition, no Default or Event of Default
shall have occurred and be continuing or would result therefrom, (ii) all
transactions in connection therewith shall be consummated in accordance with all
applicable laws and in conformity with all applicable Governmental
Authorizations, (iii) all of the Equity Securities acquired or otherwise issued
by such Person or any newly formed Subsidiary of Borrower in connection with
such acquisition shall be owned 100% by Borrower or a Guarantor, and Borrower
shall have taken, or caused to be taken, as of the date such Person becomes a
Subsidiary of Company, each of the actions set forth in Section 5.16 hereof,
------------
(iv) Borrower and its Subsidiaries shall be in compliance with, on a pro forma
basis after giving effect to such acquisition, the provisions of Article VII
hereof, (v) Borrower shall have delivered to Administrative Agent a certificate
in the form of a Compliance Certificate evidencing such compliance with such
Section, together with all relevant financial information for such acquired
assets, (vi) any Person or assets or division as acquired in accordance herewith
shall be in the same business or lines of business in which Borrower and/or its
Subsidiaries are engaged as of the Closing Date and (vii) the aggregate amount
of cash consideration paid by Borrower and its Subsidiaries to third parties in
connection with all such acquisitions shall not exceed $17,000,000.
"PERMITTED ASSET SALE AMOUNT" means as of any date of determination
---------------------------
aggregate assets of Borrower and its Subsidiaries not in excess of the greater
of (y) assets generating 50% of positive EBITDA for Borrower and its
Subsidiaries during the most recently concluded twelve months period and (z) 50%
of the fair market value of all of the assets of Borrower and its Subsidiaries.
"PERMITTED FUNDS" shall mean the proceeds of any equity issued by
---------------
Holdings to a Person that will co-develop a market with Borrower or any of its
Subsidiaries and which are contributed as equity to Borrower for the purpose of
funding Market Co-Development Costs referred to in clause (ii)(F) of the
definition of EBITDA for the purpose of developing a market in cooperation with
such Person.
"PERMITTED HOLDINGS DEBT" shall mean unsecured Debt of Holdings in an
-----------------------
aggregate principal amount not to exceed, at any time outstanding, $175,000,000
(or in the case of Debt issued at a discount, an initial accreted value of
$175,000,000), which Debt shall not by its terms, require cash payments of
principal or interest or any mandatory redemption or other repayments (other
than in the case of a change of control or a sale of as-
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
sets, provided that no such repayment is required with respect to asset sales so
long as the net proceeds thereof are used to repay Debt of the Borrower and/or
its Subsidiaries) with respect thereto (whether before or after default, at
maturity, as a result of acceleration or otherwise) at any time the Total
Leverage Ratio is greater than or equal to 6.00:1.00 and which shall not be
guaranteed by Borrower or any of its Subsidiaries.
"PERMITTED LIENS" shall have the meaning set forth in Section 6.01
--------------- ------------
hereof.
"PERSON" shall mean any natural person, corporation, division of a
------
corporation, business trust, joint venture, association, company, partnership,
unincorporated organization or other legal entity, or a government or any agency
or political subdivision thereof.
"PLAN" shall mean any employee benefit plan as defined in Section 3(3)
----
of ERISA (other than a Multiemployer Plan) in respect of which Borrower or any
ERISA Affiliate is, or within the immediately preceding six (6) years was, an
"employer" as defined in Section 3(5) of ERISA.
"PLEDGE AND SECURITY AGREEMENT" shall mean the Pledge and Security
-----------------------------
Agreement substantially in the form of Exhibit H attached hereto.
---------
"PREPAYMENT PREMIUM" shall mean with respect to a Loan prepaid during
------------------
any of the periods set forth below, the percentage of the amount of the Loan
prepaid indicated opposite such period:
Monthly Anniversary Percentage
After the Closing Date ----------
----------------------
7 8%
8 7%
9 6%
10 5%
11 4%
12 3%
13-24 2%
25 & thereafter 0%
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
"PRINCIPAL PAYMENTS" shall mean, for any period, total required Debt
------------------
amortization (including, without limitation, the principal payments attributable
to Capitalized Leases) determined on a consolidated basis, without duplication,
for Borrower and its Subsidiaries in accordance with GAAP.
"PRO RATA SHARE" shall mean with respect to all matters relating to
--------------
any Lender, the percentage obtained by dividing (a) at any time prior to the
date on which the Loans are funded, the Commitment Amount of that Lender by the
Commitment Amount of all Lenders, and (b) on and after the date on which the
Loans are funded, the aggregate outstanding principal balance of the Loans held
by that Lender, by the aggregate outstanding principal balance of the Loans held
by all Lenders.
"PRODUCTION READY COS" shall mean a central office (i) where Borrower
--------------------
has secured either physical or virtual collocation, (ii) where equipment and
transport installation have been successfully completed, (iii) with respect to
which paid traffic is being billed and (iv) that has obtained all necessary
Governmental Approvals.
"PROJECTIONS" shall have the meaning given to such term in Section
----------- -------
3.03.
- ----
"PUC" shall mean any state Governmental Authority having utility or
---
telecommunications regulatory authority over Borrower or any System.
"PURCHASE DEBT" shall have the meaning given to such term in Section
------------- -------
6.12(iv).
- --------
"QUALIFIED EQUITY OFFERING" shall mean one or more private or public
-------------------------
offerings of Equity Securities by Holdings providing gross proceeds to Holdings
of not less than $125,000,000, the net proceeds of which are used to make
capital contributions to Borrower constituting Contributed Capital.
"QUALIFIED INTER COMPANY LOAN" shall mean a loan to Borrower from
----------------------------
Holdings, which loan is expressly subordinated to the Obligations on terms and
conditions satisfactory to the Administrative Agent and Documentation Agent, has
a maturity date occurring on or after the annual anniversary of the Termination
Date, and requires no cash payment of principal or interest prior to the
scheduled maturity date of such Loan (other than as permitted by Section 6.04).
------------
"REAL ESTATE ASSET" shall mean, at any time of determination, any
-----------------
interest then owned by any Credit Party in any real property, including, without
limitation, all easements, rights of way, rights of occupancy, licenses and
similar rights with respect thereto.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
"REGISTER" shall have the meaning given to such term in Section
-------- -------
2.03(d).
- -------
"RELATED FUND" shall mean, with respect to any Lender that is an
------------
investment fund, any other investment fund that invests in commercial loans and
that is managed or advised by the same investment advisor as such Lender or by
an Affiliate of such investment advisor.
"RELEASE" shall mean any release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment or into or out of any property, including the movement of
Contaminants through or in the air, soil, surface water, groundwater or
property.
"REMEDIAL ACTION" shall mean actions required to (1) clean up, remove,
---------------
treat or in any other way address Contaminants in the environment; (2) prevent
the Release or threat of Release or prevent or minimize the further Release of
Contaminants so they do not migrate or endanger or threaten to endanger public
health or welfare or the environment; or (3) perform preremedial studies and
investigations and postremedial monitoring and care.
"REPORTABLE EVENT" shall mean any reportable event as defined in
----------------
Section 4043 of ERISA unless the reporting requirement with respect to such
reportable event has been waived by the PBGC or other appropriate Governmental
Authority.
"REQUISITE LENDERS" shall mean (a) prior to the date on which the
-----------------
Loans are made, Lenders having at least fifty-one percent (51%) of the aggregate
Commitment Amounts of all Lenders, (b) on and after the date on which the Loans
are made Lenders holding at least fifty-one percent (51%) of the aggregate
outstanding amount of the Loans.
"SECOND PRIORITY APPLICABLE MARGIN" shall mean with respect to (i)
---------------------------------
each Loan bearing interest based upon the Base Rate, 7.0% per annum, and (ii)
each Loan bearing interest based upon the LIBO Rate, 8.0% per annum.
"SECURED PARTIES" shall have the meaning assigned to that term in the
---------------
Intercreditor Agreement.
"SILICON VALLEY FACILITY" shall mean the QuickStart Loan and Security
-----------------------
Agreement, dated October 23, 1997, between Silicon Valley Bank and Borrower.
"SOLVENT" shall mean, at any time of determination, with respect to
-------
any Person:
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(i) the assets of such Person, at a fair valuation, are in excess of
the total amount of its debts (including, without limitation, contingent
liabilities); and
(ii) the present fair saleable value of its assets is greater than
its probable liability on its existing debts as such debts become absolute
and matured; and
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other commitments) as
they mature; and
(iv) it has capital sufficient to carry on its business as conducted
or contemplated to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or mature liability.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation,
----------
partnership, joint venture, association or other business entity, whether now
existing or hereafter organized or acquired, (i) in the case of a corporation,
of which more than 50% of the total voting power of the Equity Interests
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, officers or trustees thereof is held by such Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with GAAP such entity is consolidated with the such Person for
financial statement purposes.
"SWITCH EQUIPMENT" shall mean telecommunications switches and
----------------
associated electronics.
"SYSTEM" shall mean each data communications, telecommunications or
------
information system (including, without limitation, any voice, video
transmission, data or Internet services), and any related, ancillary or
complementary services, owned by Borrower or its Subsidiaries and all
replacements, enhancements or additions thereto.
"TAXES" shall mean any and all license, documentation, recording and
-----
registration fees, and all taxes, including, without limitation, income (other
than taxes on net income or profits and franchise taxes imposed on the Lenders
or any Agent by the United
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
States of America, or by the jurisdiction under the laws of which such recipient
is organized or in which its principal office is located or, in the case of any
Lender, in which its applicable Lending Office is located), gross receipts,
sales, value-added, use, excise, personal property (tangible and intangible),
real estate and stamp, documentary, transfer or recording taxes, levies,
imposts, deductions, duties, assessments, fees, charges, and withholdings of any
nature whatsoever, whether or not presently in existence, together with any
penalties, fines, additions to tax, or interest thereon, imposed by any taxing
authority or other Governmental Authority.
"TEMPORARY CASH INVESTMENTS" shall mean (i) Investments in marketable,
--------------------------
direct obligations issued or guaranteed by the United States of America, or of
any governmental agency or political subdivision thereof, maturing within 365
days of the date of purchase; (ii) Investments in certificates of deposit or
time deposits issued by a bank organized under the laws of the United States of
America or any state thereof or the District of Columbia, in each case having
capital, surplus and undivided profits totaling more than $500,000,000 and rated
at least A by Standard & Poor's Ratings Service and A-2 by Moody's Investors
Service, Inc. maturing within 365 days of purchase; (iii) Investments not
exceeding 365 days in duration in money market funds that are sponsored by a
registered broker dealer or mutual fund distributor, (iv) commercial paper
issued by any Person organized under the laws of any State of the United States
of America and rated at least "Prime-1" (or the then equivalent grade) by
Moody's Investor's Service, Inc. or at least "A-1" (or the then equivalent
grade) by Standard and Poor's Ratings Group, a division of McGraw-Hill
Companies, Inc., in each case with maturities of not more than 180 days from the
date of acquisition thereof; and (v) repurchase agreements entered into by
Borrower with a bank or trust company or recognized securities dealer having
combined capital and surplus of at least $50,000,000 for direct obligations
issued by or fully guaranteed by the United States of America in which a Credit
Party shall have a valid and perfected first priority security interest (subject
to no other Liens) provided that each such repurchase agreement shall have a
fair market value of at least 100% of the amount of the repurchase obligations
thereunder on the date of purchase thereof.
"TERMINATION DATE" shall mean March 31, 2004.
----------------
"TERMINATION EVENT" shall mean (i) a Reportable Event with respect to
-----------------
a Benefit Plan; (ii) the withdrawal of Borrower or any ERISA Affiliate from a
Benefit Plan during a plan year in which Borrower or such ERISA Affiliate was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii) the
imposition of an obligation on Borrower or any ERISA Affiliate under Section
4041 of ERISA to provide affected parties written notice of intent to terminate
a Benefit Plan in a distress termination described in Section 4041(c) of ERISA;
(iv) the institution by the PBGC of proceedings to terminate a Benefit Plan; (v)
the termination of, or the appointment of a trustee to administer, any Benefit
Plan
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
pursuant to Section 4042 of ERISA; or (vi) the partial or complete withdrawal of
Borrower or any ERISA Affiliate from a Multiemployer Plan, in each case,
provided that such event results or is reasonably likely to result in a material
liability to Borrower.
"THIRD PARTY INTERACTIVES" shall mean all Persons with whom Borrower
------------------------
exchanges data electronically in the ordinary course of business, including
without limitation, customers, suppliers, third-party vendors, subcontractors,
processors-converters, shippers and warehousemen.
"TOTAL DEBT" shall mean, as of any date of determination, the Debt of
----------
Borrower and its Subsidiaries determined on a consolidated basis in accordance
with GAAP, less, prior to the consummation of an initial public offering of
----
common stock by Holdings providing gross proceeds to Holdings of not less than
$125,000,000, the net proceeds of which are used to make capital contributions
to Borrower constituting Contributed Capital, the amount of cash on hand and any
Temporary Cash Investment in excess of $10,000,000 held by Borrower and its
Subsidiaries as of such date.
"TOTAL INTEREST AMOUNT" shall have the meaning set forth in Section
--------------------- -------
2.05(a)(ii) hereof.
- -----------
"TOTAL LEVERAGE RATIO" shall mean the ratio of (i) Total Debt as of
--------------------
the last day of any fiscal quarter, to (ii) the product of (A) two (2)
multiplied by (B) EBITDA of Borrower and its Subsidiaries on a consolidated
basis, for the six month period ending on the last day of such fiscal quarter.
"VENDOR FINANCING" means Debt of Borrower owed to the provider of
----------------
Telecommunications Equipment (or an Affiliate thereof) with respect to the
purchase or acquisition of such Telecommunications Equipment by Borrower.
"VOTING STOCK" shall mean securities of any class or classes of a
------------
corporation, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
"YEAR 2000 CORRECTIVE ACTIONS" shall mean, as to each of the Credit
----------------------------
Parties, all actions necessary to eliminate such Credit Party's Year 2000
Problems, including, without limitation, computer code enhancements and
revisions, upgrades and replacements of Year 2000 Date-Sensitive
Systems/Components, and coordination of such enhancements, revisions, upgrades
and replacements with Third Party Interactives.
"YEAR 2000 CORRECTIVE PLAN" shall mean, with respect to each of the
-------------------------
Credit Parties, a comprehensive plan to eliminate all of its Year 2000 Problems
on or before August 31, 1999, including without limitations (i) computer code
enhancements or revisions, (ii)
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
upgrades or replacements of Year 2000 Date-Sensitive Systems/Components, (iii)
test and validation procedures, (iv) an implementation time line and budget and
(v) designation of specific employees who will be responsible for planning,
coordinating and implementing each phase or subpart of the Year 2000 Corrective
Plan.
"YEAR 2000 DATE-SENSITIVE SYSTEM/COMPONENT" shall mean, as to any
-----------------------------------------
Person, any system software, network software, applications software, database,
computer file, embedded microchip, firmware or hardware that accepts, creates,
manipulates, sorts, sequences, calculates, compares or outputs calendar-related
data accurately; such systems and components shall include, without limitation,
mainframe computers, file server/client system, computer workstations, routers,
hubs, other network-related hardware, and other computer-related software,
firmware or hardware and information processing and delivery systems of any kind
and telecommunications systems and other communications processors, security
systems, alarms, elevators and HVAC systems.
"YEAR 2000 IMPLEMENTATION TESTING" shall mean, as to each of the
--------------------------------
Credit Parties, (i) the performance of test and validation procedures regarding
Year 2000 Corrective Actions on a unit basis and a system wide basis, (ii) the
performance of test and validation procedures regarding data exchanges among the
Credit Parties' Year 2000 Date-Sensitive Systems/Components and data exchanges
with Third Party Interactives, and (iii) the design and implementation of
additional Year 2000 Corrective Actions, the need for which has been
demonstrated by test and validation procedures.
"YEAR 2000 PROBLEMS" shall mean, with respect to each of the Credit
------------------
Parties, limitations on the capacity or readiness of any such Credit Party's
Year 2000 Date-Sensitive Systems/Components to accurately accept, create,
manipulate, sort, sequence, calculate, compare or output calendar date
information with respect to calendar year 1999 or any subsequent calendar year
beginning on or after January 1, 2000 (including leap year computations),
including, without limitation, exchanges of information among Year 2000 Date-
Sensitive Systems/Components of the Credit Parties and exchanges of information
among the Credit Parties and Year 2000 Date-Sensitive Systems/Components of
Third Party Interactives and functionality of peripheral interfaces, firmware
and embedded microchips.
1.1 SECTION ACCOUNTING TERMS. EXCEPT AS OTHERWISE EXPRESSLY
-----------------
PROVIDED HEREIN, ALL ACCOUNTING TERMS NOT OTHERWISE DEFINED HEREIN SHALL HAVE
THE MEANINGS ASSIGNED TO THEM IN CONFORMITY WITH GAAP. FINANCIAL STATEMENTS AND
OTHER INFORMATION REQUIRED TO BE DELIVERED BY CREDIT PARTIES TO LENDERS PURSUANT
TO Section 5.06 shall be prepared in accordance with GAAP as in effect at the
------------
time of such preparation. Subject to the foregoing, calculations in connection
with the definitions, covenants and other provisions hereof shall utilize
accounting principles and policies in conformity with those used to prepare the
Financials.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1.2 SECTION OTHER TERMS DEFINED IN NEW YORK UNIFORM COMMERCIAL CODE.
-------------------------------------------------------
All other terms contained in this Agreement (and which are not otherwise
specifically defined herein) shall have the meanings provided by the Uniform
Commercial Code of the State of New York (the "CODE") to the extent the same are
----
used or defined therein.
2 ARTICLE
LOANS
- -----
3.1 SECTION AGREEMENT TO LEND.
-----------------
(a) Each Lender severally agrees, on the terms and conditions hereinafter
set forth, to make in a single draw-down on the Funding Date a Loan to Borrower
in the amount of such Lender's Commitment
(b) The proceeds of the Loans, together with the proceeds of up to
$15,000,000 of First Priority Loans, shall be used, on the Funding Date, to
repay the principal of, interest and prepayment fees relating to the Morgan
Stanley Bridge Notes and the Silicon Valley Facility, and to pay all fees and
expenses incurred in connection with the Loan Documents.
(c) Loans that are repaid or prepaid may not be reborrowed.
3.2 SECTION LOANS.
-----
(a) Each Base Rate Loan shall be in a minimum principal amount of
$1,000,000 and increments of $250,000 in excess thereof. Each LIBOR Loan shall
be in a minimum principal amount of $5,000,000 and increments of $1,000,000 in
excess thereof.
(b) At any time, Loans may be subject to a number of Interest Periods no
greater than the difference between y) seven (7) Interest Periods and z) the
number of Interest Periods in effect under the First Priority Loan Documents.
3.3 SECTION PROCEDURE FOR LOAN REQUEST.
--------------------------
(a) Borrower shall deliver to Administrative Agent a Notice of Borrowing
with respect to the Loans on or before 11:00 a.m. (New York time) at least three
(3) Business Days prior to the Funding Date. The Loans made on the Funding Date
shall be Base Rate Loans and thereafter may be continued as Base Rate Loans or
converted into LIBOR Loans in the manner provided in Section 2.06 and subject to
------------
the other conditions and limitations therein set forth and set forth in this
Article II.
- ----------
(b) The Administrative Agent agrees, promptly upon receipt of a Notice of
Borrowing, to notify each Lender of the date and amount of the Loans proposed
thereunder and
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
the amount of such Lender's Pro Rata Share therein. So long as no Event of
Default has occurred and is continuing and upon fulfillment of the applicable
conditions set forth in Article IV, each such Lender severally agrees, on or
----------
before 12:00 P.M. (New York time) on the Funding Date, to pay into the Payment
Account, an amount equal to such Lender's Pro Rata Share of such Loan in dollars
and in same day funds. After the Administrative Agent's receipt of such Lender's
Loan proceeds, the Administrative Agent shall make available such proceeds to
Borrower or the Person entitled to payment thereof at the bank account(s)
specified in the Notice of Borrowing on the date specified in such Notice of
Borrowing in Dollars in immediately available funds.
(c) Unless the Administrative Agent has received written notice from a
Lender on or prior to the date of any proposed Loan that such Lender will not
make available to the Administrative Agent such Lender's Pro Rata Share of such
Loan, the Administrative Agent may, but is not obligated to, assume that such
Lender has made its Pro Rata Share of such Loan available to the Administrative
Agent on the date of such Loan in accordance with paragraph (b) above, and the
-------------
Lenders may, in reliance upon such assumption, make available to Borrower on
such date a corresponding amount. If such Pro Rata Share is not, in fact, paid
to Administrative Agent by such Lender when due, the Administrative Agent will
be entitled to recover such amount on demand from such Lender or Borrower which
received the proceeds of such Loan without set-off, counterclaim or deduction of
any kind, together with interest thereon, for each day from the date such amount
is made available to Borrower until the date such amount is repaid to the
Administrative Agent either by Borrower or such Lender, at, (1) in the case of
Borrower, the interest rate applicable to such Loan, and (2) in the case of such
Lender, the Federal Funds Effective Rate. Nothing in this Section 2.03(c) or
---------------
elsewhere in this Agreement or the other Loan Documents shall be deemed to
require Administrative Agent to advance funds on behalf of any Lender or to
relieve any Lender from its obligation to fulfill its Commitment hereunder or to
prejudice any rights that Borrower may have against any Lender as a result of
any default by such Lender hereunder. Without limiting the foregoing, with
respect to any Lender which for any reason fails to make timely payment to the
Administrative Agent of its Pro Rata Share of any Loan, the Administrative
Agent, in addition to other rights and remedies which it may have, shall be
entitled to withhold or set off from any payments due to such Lender hereunder,
an amount equal to the Pro Rata Share required to have been paid by such Lender
plus interest as described above, and to bring an action or suit against such
Lender in a court of competent jurisdiction to recover such Pro Rata Share
thereof and any related interest thereon. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's applicable Pro Rata Share of such Loan for purposes of
this Agreement. If both such Lender and Borrower shall have repaid the
corresponding amount, the Administrative Agent shall promptly return to Borrower
its corresponding amount.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(d) Administrative Agent shall maintain at its principal office a register for
the recordation of the names and addresses of Lenders and the Commitment Amount
and Loans of each Lender from time to time (the "REGISTER"). The Register shall
--------
be available for inspection by Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice. Administrative Agent shall
record in the Register the Commitment Amounts and the Loans, and each repayment
or prepayment in respect of the principal amount of the Loans, and any such
recordation shall be prima facie evidence of such matters; provided, failure to
make any such recordation, or any error in such recordation, shall not affect
any Commitment Amounts or any Obligations in respect of any Loan. Each Borrower
hereby designates Newcourt to serve as such Borrower's agent solely for purposes
of maintaining the Register as provided in this Section 2.03(d), and Borrower
---------------
hereby agrees that, to the extent Newcourt serves in such capacity, Newcourt and
its officers, directors, employees, agents and affiliates shall constitute
"Indemnitees".
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
3.4 SECTION THE NOTES. Borrower shall execute and deliver to each Lender a Note
---------
to evidence the Commitment of that Lender. Each Note shall be in the principal
amount of the Commitment Amount of the applicable Lender, dated the Funding
Date, stated to mature on March 31, 2004. The Note payable to a Lender shall
represent the obligation of Borrower to pay the unpaid principal amount of all
Loans (including, without limitation, all Loans deemed made pursuant to Section
2.08(c)) to Borrower by such Lender together with interest thereon as prescribed
in Section 2.05. The aggregate principal amount of all the Notes shall not
------------
exceed the aggregate Commitments of all the Lenders, plus all Loans deemed made
pursuant to Section 2.08(c)). The Administrative Agent is hereby authorized by
Borrower to record in the Register the date and amount of each Loan made to
Borrower, as applicable, and to record therein the date and amount of each
payment on each Loan made to Borrower, and such recordations shall be prima
facie evidence of the amounts owing to the Lenders with respect to the Loans in
the absence of manifest error; provided, however, that the failure of the
-------- -------
Administrative Agent to register any such information on such schedule shall not
in any manner affect the obligation of Borrower to repay the Loans made to
Borrower in accordance with the terms of this Agreement.
3.5 SECTION INTEREST ON LOANS.
-----------------
(a) General. Subject to the provisions of Sections 2.05(b), 2.06, 2.07,
------- ---------------- ---- ----
and 2.08(c):
(i) each Loan shall bear interest at the rate per annum equal to (i)
the Base Rate plus the Second Priority Applicable Margin, computed on
the basis of a 365 or 366 day year, or (ii) the LIBO Rate plus the
Second Priority Applicable Margin, computed on the basis of a 360 day
year, as selected by Borrower in the Notices of Borrowing and the
Notices of Continuation/Conversion; and
(ii) the Loans shall also bear interest in an additional amount equal
to the Additional Interest Amount (together with the interest payable
pursuant to clause (i), herein collectively referred to as the "TOTAL
-----
INTEREST AMOUNT").
---------------
(b) Default Interest. If Borrower shall default in the payment of the
----------------
principal of or interest on any Loan or any other amount becoming due hereunder
or under any of the other Loan Documents on its due date, then Borrower shall,
on demand from the Administrative Agent, thereafter pay interest on all Loans at
a rate that is four percent (4.00%) per annum above the rates of interest
otherwise payable on all the Loans from the date such
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
payment is due to the date such payment default is either cured or waived in
writing by the Requisite Lenders. If any other Event of Default shall occur and
be continuing and shall be declared by the Administrative Agent upon the
direction of the Requisite Lenders, then Borrower shall, on demand, thereafter
pay interest on all the Loans at a rate that is two percent (2.00%) per annum
above the rates of interest otherwise payable on the Loans from the date of the
occurrence of such Event of Default until the date such Event of Default has
been cured or waived in writing by the Requisite Lenders; provided, that if an
--------
Event of Default described in the first sentence of this clause (b) shall occur
----------
at any time that an Event of Default described in this second sentence has
occurred and is continuing, then the rate of interest described in the first
sentence of this clause (b) shall apply. After the occurrence and during the
----------
continuance of any Event of Default, Borrower shall be subject to the
limitations on borrowings of, conversions into and continuations as LIBOR Loans
set forth in Section 2.07(g).
---------------
3.6 SECTION CONVERSION OR CONTINUATION.
--------------------------
(a) Subject to the provisions of Section 2.07, Borrower shall have the
------------
option (i) to convert all or any part of its outstanding Loans, in a minimum
amount of $5,000,000 and integral multiples of $1,000,000 in excess of that
amount from Loans that are Base Rate Loans to LIBOR Loans; (ii) to convert all
or any part of its outstanding Loans from LIBOR Loans to Base Rate Loans on the
expiration of the Interest Period applicable thereto; and (iii) upon the
expiration of any Interest Period applicable to any outstanding LIBOR Loan, to
continue all of such LIBOR Loan equal to $5,000,000 and integral multiples of
$1,000,000 in excess of that amount as a LIBOR Loan or LIBOR Loan, as
applicable; provided, the minimum amounts referred to in this Section 2.06(a)
--------
shall not apply to any Loan deemed made pursuant to Section 2.08(c); and
provided, further, that no outstanding Loans may be converted into, or continued
- -------- -------
as, LIBOR Loans when any Default or Event of Default referred to in Section
9.01(a) has occurred and is continuing.
(b) Whenever a Borrower elects to convert or continue Loans under this Section
-------
2.06, Borrower shall deliver to the Administrative Agent a Notice of
- ----
Conversion/Continuation signed by an authorized officer of Borrower (i) no later
than 10:00 a.m. (New York time) three (3) Business Days in advance of the
requested conversion date, in the case of a conversion into Base Rate Loans, and
(ii) no later than 10:00 a.m. (New York time) three (3) Business Days in advance
of the requested conversion or continuation date, in the case of a conversion
into, or continuation of, LIBOR Loans. The Notice of Conversion/Continuation
shall specify (1) the conversion or continuation date (which shall be a Business
Day) and, in the case of any continuation, the last day of the then applicable
Interest Period, (2) the amount and type of the Loans to be converted or
continued, (3) the nature of the requested conversion or continuation, and (4)
in the case of a conversion into, or continuation of, LIBOR Loans, the requested
Interest Period. Promptly after receipt of a Notice
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
of Conversion/Continuation pursuant to this Section 2.06(b), the Administrative
---------------
Agent shall notify the Lenders by telecopy, telephone or other similar form of
transmission, of the requested conversion or continuation. In the event that a
Borrower should fail to provide a Notice of Conversion/Continuation with respect
to any LIBOR Loans as provided above, such Loans shall, on the last day of the
Interest Period with respect to such Loans, convert to Base Rate Loans.
(c) Any Notice of Conversion/Continuation for conversion to, or
continuation of, Loans made pursuant to this Section 2.06 shall be irrevocable
------------
and the applicable Borrower shall be bound to convert or continue in accordance
therewith.
3.7 SECTION SPECIAL PROVISIONS GOVERNING LIBOR LOANS. Notwithstanding any
----------------------------------------
other provisions to the contrary contained in this Agreement, the following
provisions shall govern with respect to LIBOR Loans as to the matters covered:
(a) Amount of LIBOR Loans. Each continuation of or conversion to LIBOR
---------------------
Loans, shall be in a minimum amount of $5,000,000 and in integral multiples of
$1,000,000 in excess of that amount.
(b) Determination of Interest Period. By giving notice as set forth in
--------------------------------
Section 2.06(b), a Borrower shall have the option, subject to the other
- ---------------
provisions of this Section 2.07, to specify whether the Interest Period for such
------------
LIBOR Loan shall be a one, two, three or six month period. The determination of
Interest Periods shall be subject to the following provisions:
(i) In the case of immediately successive Interest Periods, each
successive Interest Period shall commence on the day on which the
preceding Interest Period expires.
(ii) If any Interest Period would otherwise expire on a day which is
not a Business Day, the Interest Period shall be extended to expire on
the next succeeding Business Day; provided, however, that if the next
-------- -------
succeeding Business Day occurs in the following calendar month, then
such Interest Period shall expire on the immediately preceding
Business Day.
(iii) Borrower may not select an Interest Period for any LIBOR Loan,
which Interest Period expires later than the maturity date of such
Loan.
(c) Determination of Interest Rate. As soon as practicable after 10:00
------------------------------
a.m. (New York time) on the LIBOR Interest Rate Determination Date, the
Administrative Agent shall
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
determine (which determination shall, absent manifest error, be presumptively
correct) the interest rate for the LIBOR Loans for which an interest rate is
then being determined and shall promptly give notice thereof (in writing or by
telephone confirmed in writing) to the Borrower and the Lenders. In the event
that on any LIBOR Interest Rate Determination Date the Administrative Agent
shall have determined (which determination shall, absent manifest error, be
presumptively correct and binding upon all parties) that:
(i) adequate and fair means do not exist for ascertaining the
applicable interest rates by reference to which the LIBO Rate then
being determined is to be fixed; or
(ii) Dollar deposits in the relevant amounts and for the relevant
Interest Period are not generally available to Lenders in the
eurodollar market at the LIBO Rate, then:
(A) each LIBOR Loan will automatically, on the last day of the
then existing Interest Period therefor, convert into a Base Rate Loan;
and
(B) the obligation of the Lenders to make, or to convert Loans
into, LIBOR Loans shall be suspended until the Administrative Agent
shall notify the Borrower and the Lenders that the circumstances
causing such suspension no longer exist.
(d) Illegality. Notwithstanding any other provision of this Agreement, if
----------
any Lender shall notify the Administrative Agent that the introduction of or any
change in or in the interpretation of any law or regulation after the Closing
Date makes it unlawful, or any central bank or other Governmental Authority
asserts that it is unlawful, for any Lender to perform its obligations hereunder
to make LIBOR Loans or to fund or maintain LIBOR Loans hereunder, (i) the
obligation of the Lenders to make, or to convert Loans into or to continue Loans
as, LIBOR Loans shall be suspended until the Administrative Agent shall notify
Borrower and the Lenders that the circumstances causing such suspension no
longer exist and (ii) Borrower shall on the termination of the Interest Period
then applicable thereto, or on such earlier date required by law, prepay in full
all LIBOR Loans then outstanding together with accrued interest thereon, or
convert all such LIBOR Loans into Base Rate Loans in accordance with Section
-------
2.06.
- ----
(e) Compensation. In addition to such amounts as are required to be paid
------------
by Borrower pursuant to the other Sections of this Article II, Borrower agrees
----------
to compensate any Lender for all losses, expenses and liabilities, including,
without limitation, any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
acquired by such Lender to fund or maintain such Lender's LIBOR Loans to
Borrower, which such Lender may sustain (i) if for any reason a funding of any
LIBOR Loans does not occur on a date specified therefor in a Notice of Borrowing
or Notice of Conversion/Continuation, or a successive Interest Period does not
commence after notice therefor is given pursuant to Section 2.06 as a result of
------------
any act or omission of Borrower, (ii) if any voluntary or mandatory prepayment
of any LIBOR Loans occurs for any reason on a date which is not the last
scheduled day of an Interest Period, (iii) as a consequence of any required
conversion of LIBOR Loans to Base Rate Loans as a result of any of the events
indicated in Section 2.07(d), or (iv) as a consequence of any other failure by a
---------------
Borrower to repay LIBOR Loans when required by the terms of this Agreement.
(f) Booking of LIBOR Loans. The Lenders may make, carry or transfer LIBOR
----------------------
Loans at, to, or for the account of, any of their respective branch offices or
the office of any of their respective affiliates.
(g) LIBOR Loans After Event of Default. After the occurrence of and
----------------------------------
during the continuance of any Event of Default referred to in Section 9.01(a),
Borrower may not elect to have any Loans continued as, or converted to, LIBOR
Loans after the expiration of any Interest Period then in effect for such Loans.
3.8 SECTION PAYMENTS.
--------
(a) Interest equal to the Additional Interest Amount shall be payable in
arrears on each date interest is payable with respect to the First Priority
Loans to the extent that interest is payable on such First Priority Loans on
such date.
(b) Interest on each LIBOR Loan shall be payable in arrears on each LIBOR
Interest Payment Date and, if such LIBOR Loan is paid in full other than on such
LIBOR Interest Payment date, on such other date. Interest on each Base Rate Loan
will be payable in arrears on each Payment Date and, if such Base Rate Loan is
paid in full (other than by means of a conversion to a LIBOR Loan) other than on
such Payment Date, on such other date; provided, in no event shall any amount
payable under this Section 2.08(b) include any amount payable under Section
2.08(a).
(c) Prior to the first anniversary of the Closing Date, on each date
interest is paid on the Loans or the First Priority Loans, a portion of interest
payable on the Loans equal to 2.0% per annum of the amount of the Loans and/or
First Priority Loans giving rise to such interest payment for the period during
which accrued interest is then being paid shall not be payable in cash but shall
be added (i.e., capitalized) to the aggregate principal amount of the
outstanding Loans on a pro rata basis, and shall on and after such interest
payment date (the "CAPITALIZATION DATE") constitute a Loan for all purposes
-------------------
under this Agreement; provided, that (i) any such Loans resulting from the
--------
capitalization of interest as described above shall
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
bear interest (y) so long as any LIBOR Loans are outstanding as of the
applicable Capitalization Date and no Interest Period is otherwise ending on
such Capitalization Date, at the rate of interest (including a proportionate
share of the Additional Interest Amount) borne by the LIBOR Loans with the
Interest Period next scheduled to expire, (and shall otherwise be treated for
all purposes under this Agreement as an addition to such LIBOR Loans) until the
date of expiration of such Interest Period and thereafter as otherwise provided
pursuant to the provisions of this Agreement and (z) otherwise at a rate of
interest as otherwise determined with respect to the Loans pursuant to the
provisions of this Agreement and (ii) the principal amount thereof shall be
repaid on or before March 31, 2004.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(d) Subject to the provisions of Sections 2.09 and 9.02, the outstanding
------------- ----
principal balance of the Loans shall be repaid in the percentages of the Loans
outstanding on the Closing Date and on the dates specified below.
<TABLE>
<CAPTION>
Date % of Loans
-------------------------------- ---------------------
<S> <C>
June 30, 2001 1.25
September 30, 2001 1.25
December 31, 2001 1.25
March 31, 2002 1.25
June 30, 2002 1.25
September 30, 2002 1.25
December 31, 2002 1.25
March 31, 2003 1.25
June 30, 2003 1.25
September 30, 2003 1.25
December 31, 2003 43.75
March 31, 2004 43.75
</TABLE>
(a) After the occurrence and during the continuance of an Event of
Default, all proceeds received by Administrative Agent or Collateral Agent from
any sale of, collection from, or other realization upon all or any part of the
Collateral under any Collateral Document during the continuation of such Event
of Default shall be applied as follows:
(i) to the payment in full of all Obligations (as defined in the
First Priority Loan Documents);
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(ii) to the payment of all costs and expenses of such sale,
collection or other realization, including all expenses, liabilities
and advances made or incurred by Administrative Agent, Collateral
Agent and their respective agents and counsel in connection therewith,
and all amounts for which Administrative Agent, Collateral Agent or
any Lender is entitled to indemnification under any of the Loan
Documents and all advances made by Administrative Agent or Collateral
Agent thereunder for the account of the applicable Credit Party, and
to the payment of all costs and expenses paid or incurred by
Administrative Agent or Collateral Agent in connection with the
exercise of any right or remedy under any Loan Document;
(iii) thereafter, to the payment of accrued interest and fees owed to
Agents and Lenders;
(iv) thereafter, to the extent of any excess such proceeds, to the
payment of all other Obligations then due and owing for the benefit of
the holders thereof in accordance with the terms of the Intercreditor
Agreement; and
(v) thereafter, to the extent of any excess such proceeds, to the
payment to or upon the order of such Credit Party or to whosoever may
be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
1.2 SECTION VOLUNTARY AND MANDATORY PREPAYMENT OF LOANS.
-------------------------------------------
(a) No amount of Loans may be prepaid at any time prior to the six-month
anniversary of the Closing Date. At any time after the six-month anniversary of
the Closing Date, Borrower shall have the right upon the provision of five days'
prior written notice to the Administrative Agent, which notice, once given,
shall be irrevocable, to prepay the outstanding principal of the Base Rate Loans
in a minimum principal amount of $1,000,000 and increments of $250,000 in excess
thereof, or the outstanding principal amount of the LIBOR Loans in a minimum
principal amount of $5,000,000 and increments of $1,000,000 in excess thereof,
together in each case with accrued interest thereon, the aggregate Prepayment
Premium applicable thereto and any amount payable pursuant to Section 2.07(e).
---------------
The amount of principal so prepaid shall be applied to the remaining scheduled
Principal Payments in accordance with Section 2.10;
------------
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(b) Upon the occurrence of any Event of Loss in excess of $250,000 with
respect to any item of assets of a Credit Party that is not repaired or replaced
with assets used or useful in the business of such Credit Party that have a
value at least equal to the assets to be replaced before the occurrence of the
Event of Loss (assuming that the assets to be replaced had been maintained in
the condition and repair as required by the terms and conditions hereof or of
any other Loan Document) within 180 days after the occurrence of such Event of
Loss or any Events of Loss which, in the aggregate, exceed $500,000 with respect
to any assets that are not so repaired or replaced (in each case, other than an
item of assets no longer used or useful in the business of the Credit Parties),
Borrower shall make a principal prepayment within thirty (30) days of such Event
of Loss in an amount equal to the net cash proceeds, if any, so received,
together with accrued interest thereon (but without the Prepayment Premium) with
such principal payment to be applied, pro rata, to outstanding principal balance
--- ----
of the Loans and further applied to the remaining scheduled Principal Payments
on such Loans in accordance with Section 2.10; provided, that no
------------ --------
such prepayment shall be required to be made to the extent the proceeds giving
rise to such prepayment are required to be used to prepay the First Priority
Loans under the terms of the First Priority Loan Documents.
(c) Borrower shall prepay the Loans on a pro rata basis (and such
prepayment shall be further applied to the remaining scheduled Principal
Payments in accordance with Section 2.10) in a principal amount equal to all of
------------
the net proceeds of any sales of assets of Borrower other than sales in the
ordinary course of business, which proceeds are not reinvested within one
hundred eighty (180) days after receipt thereof in productive long term assets
used or useful in the business of Borrower that have value at least equal to the
assets sold (assuming that such assets were maintained in good condition and
repair as required by the terms and conditions hereof or of any other Loan
Document), plus the applicable Prepayment Premium, within five (5) days after
the expiration of the applicable one hundred eighty (180) day period; provided,
--------
that no such prepayment shall be required to be made to the extent the proceeds
giving rise to such prepayment are required to be used to prepay the First
Priority Loans under the terms of the First Priority Loan Documents.
(d) On the first Payment Date of each year, commencing with the Payment
Date occurring on March 31, 2002, the Loans shall be prepaid on a pro rata basis
(and the amount of such prepayment (but without a Prepayment Premium) further
applied to the remaining scheduled Principal Payments on the Loans in accordance
with Section 2.10) by an amount equal to fifty percent (50%) of Excess Operating
------------
Cash Flow for the preceding fiscal year until Borrower has achieved and
maintained for at least two (2) consecutive fiscal quarters (whether before or
after March 31, 2002), a Total Leverage Ratio of less than 6:1, as determined by
reference to the financial statements delivered pursuant to Section 5.06;
------------
provided, that no such prepayment shall be required to be made to the extent the
- --------
proceeds giving rise
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
to such prepayment are required to be used to prepay the First Priority Loans
under the terms of the First Priority Loan Documents.
(e) Upon the occurrence and during the continuance of a Default, Borrower
shall prepay the Loans on a pro rata basis (and such prepayment shall be further
applied to the remaining scheduled Principal Payments in accordance with Section
-------
2.10) in a principal amount equal to all of the net proceeds of any sales of
- ----
Investments permitted pursuant to Section 6.06(viii), plus the applicable
Prepayment Premium, within five (5) days after the receipt of such proceeds;
provided, that no such prepayment shall be required to be made to the extent the
- --------
proceeds giving rise to such prepayment are required to be used to prepay the
First Priority Loans under the terms of the First Priority Loan Documents.
1.3 SECTION CERTAIN PROVISIONS REGARDING PREPAYMENTS.
-----------------------------------------
(a) Any prepayment of Loans shall be applied first to Base Rate Loans to
the full extent thereof before application to LIBOR Loans in each case so as to
minimize the amount of any payments required to be made by Borrower pursuant to
Section 2.07(e).
- ---------------
(b) Notwithstanding any provision to the contrary contained in Section
-------
2.09, no voluntary or mandatory prepayment of Loans shall be made until the six-
- ----
month anniversary of the Closing Date, and any proceeds otherwise required to be
used to make a mandatory prepayment prior to such date shall be delivered on the
date otherwise required to be used to prepay Loans in accordance with Section
-------
2.09 to Collateral Agent to be held in escrow, and invested in Temporary Cash
- ----
Investments (to the extent the Collateral Agent is able to provide or otherwise
invest in such Temporary Cash Investments), for application to prepayment of
Loans on the six-month anniversary of the Closing Date.
(c) Each voluntary and mandatory prepayment made pursuant to Section 2.09
------------
shall also be applied, on a pro rata basis, to reduce each Principal Payment
scheduled to occur after the date of such prepayment.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(d) Each voluntary and mandatory prepayment required under Section 2.09
------------
shall be allocated among the Lenders to repay their Loans on the basis of their
Pro Rata Shares.
1.4 SECTION FEES.
----
(a) COMMITMENT FEE. The Borrower shall pay to the Lenders a commitment
--------------
fee (the "COMMITMENT FEE") for the period commencing on the Effective Date and
--------------
ending on the Revolving Credit Commitment Termination Date (as such term is
defined in the First Priority Loan Agreement), computed (on the basis of the
actual number of days elapsed over a year of 360 days) at the rate of 1.00%, per
annum, on the average daily aggregate amount of unused Revolving Loan Commitment
Amounts (as such term is defined in the First Priority Loan Agreement). Such
Commitment Fee, to the extent then accrued, shall be payable on each Payment
Date.
(b) The Borrowers shall pay and be liable to the Administrative Agent for
the account of the Lenders to be allocated among the Lenders on the basis of
their Pro Rata Shares, a fee equal to the product of (y) the amount of any First
Priority Loans prepaid prior to the twenty fifth monthly anniversary of the
Closing Date times (z) the applicable First Priority Prepayment Premium, such
fee to be payable on the date of any such prepayment of the First Priority
Loans.
(c) The Borrower shall also pay the Agents and shall be liable to the
Agents, for payment of other amounts separately agreed to by Borrower and
Agents.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(d) All fees once paid shall be deemed fully earned and nonrefundable.
1.5 SECTION MANNER OF PAYMENT; SPECIAL TAX CONSIDERATIONS.
---------------------------------------------
(a) All payments by Borrower hereunder and under the Notes shall be made
to the Administrative Agent by wire transfer or other electronic payment method
to the Payment Account or to such bank account as the Administrative Agent may
designate, for the account of the Lenders in Dollars in immediately available
funds by 11:00 a.m., New York time, on the date on which such payment shall be
due. The Administrative Agent will promptly thereafter (but in no event later
than the date of receipt of such payment, if such is received at or prior to
12:00 p.m., New York time, on the date immediately following the date of receipt
of such payment, if such is received after 12:00 p.m., New York time) cause to
be distributed like funds relating to the payment of principal or interest or
other fees ratably (other than amounts payable pursuant to Section 2.14) to each
------------
Lender in accordance with its Pro Rata Share. In the event that the
Administrative Agent shall not make distributions to any Lender in accordance
with the terms of the immediately preceding sentence, the amounts required to be
so distributed by the Administrative Agent shall bear interest at then Federal
Funds Effective Rate from the date such amount was required to be distributed to
such Lender pursuant to the immediately preceding sentence until the date such
distribution is actually made to such Lender. Any such accrued interest shall be
payable by the Administrative Agent on demand. Interest in respect of any Loan
hereunder shall accrue from the day such Loan is made up to and including the
day prior to the date on which such Loan is paid in full. Payments received
after 12:00 p.m. New York time shall not be given credit until the next Business
Day, and Borrower shall be liable for interest, if any, accruing on such payment
until the next Business Day.
(1) Any and all payments by Borrower hereunder shall be made free and
clear of and without deduction for any and all Taxes. If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the other Loan Documents to any Lender or Administrative
Agent, (A) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.12) such Lender or Administrative Agent
------------
receives an amount equal to the sum it would have received had no such
deductions been made, (B) Borrower shall make such deductions, and (C) Borrower
shall pay the full amount deducted to the relevant taxation authority or other
authority in accordance with applicable law. If a withholding tax of the United
States of America or any other Governmental Authority shall be or become
applicable (y) after the date of this Agreement, to the payments by Borrower
made to the Lending Office or any other office that a Lender may claim as its
Lending Office, or (z) after such Lender's selection and designation of any
other Lending Office, to such payments made to such other Lending Office, such
Lender shall use reasonable efforts to make, fund and maintain its Loans through
another Lending Office of
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
such Lender in another jurisdiction so as to reduce, but not increase, the
applicable Borrower's liability hereunder, if the making, funding or maintenance
of such Loans through such other Lending Office of such Lender does not, in the
sole and absolute judgment of such Lender, otherwise materially adversely affect
such Loans, such Lender's obligations under its Commitment or such Lender.
Notwithstanding anything to the contrary hereunder, if a Person becomes a Lender
under this Agreement pursuant to Section 11.06 hereof, Borrower shall in no
-------------
event be required to increase any payment pursuant to paragraph (b) of this
Section 2.12 by an amount that would exceed the amount of any increase that
- ------------
would be required to be made under paragraph (b) of this Section 2.12 to the
------------
assigning Lender.
(2) The Borrower will indemnify each Lender and each Agent and hold it
harmless for the full amount of Taxes (including, without limitation, any Taxes
imposed by any Governmental Authority on amounts payable under this Section 2.12
------------
or any other documentary taxes, assessments or charges made by any Governmental
Authority by reason of the execution and delivery of this Agreement or any other
Loan Document) paid by such Lender or such Agent (as the case may be) and any
liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto. This indemnification shall be made within thirty (30) days
after the date such Lender or such Agent (as the case may be) makes written
demand therefor. A certificate as to any additional amount payable to any Lender
or Agent under this Section 2.12 submitted to Borrower and the Administrative
------------
Agent (if a Lender is so submitting) by such Lender or such Agent shall show in
reasonable detail the amount payable and the calculations used to determine such
amount. With respect to such deduction or withholding for or on account of any
Taxes and to confirm that all such Taxes have been paid to the appropriate
Governmental Authorities, the Borrower shall promptly (and in any event not
later than thirty (30) days after receipt) furnish to each Lender and each Agent
such certificates, receipts and other documents as may be required (in the
judgment of such Lender or such Agent) to establish any tax credit to which such
Lender or such Agent may be entitled.
(3) Within thirty (30) days after the date of any payment of Taxes on
amounts payable hereunder by Borrower, Borrower will furnish to the
Administrative Agent, at its address referred to in Section 11.01, the original
-------------
or a certified copy of a receipt evidencing payment thereof.
(4) Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in this Section
-------
2.12 shall survive the payment in full of principal and interest hereunder and
- ----
the termination of this Agreement.
(5) Each Lender that is not created or organized under the laws of the
United States of America or a political subdivision thereof shall deliver to
Borrower and the
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
Administrative Agent on or before the effective date hereof, or, if later, the
date on which such Lender becomes a Lender pursuant to Section 11.06 hereof, a
-------------
true and accurate certificate executed in duplicate by a duly authorized officer
of such Lender, in a form reasonably satisfactory to Borrower and the
Administrative Agent, to the effect that such Lender is capable under the
provisions of an applicable tax treaty concluded by the United States of America
(in which case the certificate shall be accompanied by two original, executed
copies of Form 1001 of the IRS (or any successor form or forms required under
the IRC or the applicable regulations promulgated thereunder)) or under Section
1442 of the IRC (in which case the certificate shall be accompanied by two
original, executed copies of Form 4224 of the IRS (or any successor form or
forms required under the IRC or the applicable regulations promulgated
thereunder)) of receiving payments of interest hereunder exempt from or at a
reduced deduction or withholding of United States federal income tax or that
such Lender is not a bank described in Section 881(c)(3)(A) of the IRC (in which
case the certificate should be accompanied by two original, executed copies of a
Certificate re Non-Bank Status, together with two original, executed copies of
Form W-8 or W-9 of the IRS (or any successor form or forms required under the
IRC or the applicable regulations promulgated thereunder)). Each such Lender
further agrees to deliver to Borrower and the Administrative Agent from time to
time a true and accurate certificate executed in duplicate by a duly authorized
officer of such Lender substantially in a form reasonably satisfactory to
Borrower and the Administrative Agent, before or promptly upon the occurrence of
any event requiring a change in the most recent certificate previously delivered
by it to Borrower and the Administrative Agent pursuant to this Section
-------
2.12(b)(5). Further, each Lender which delivers a certificate accompanied by
- ----------
Form 1001 of the IRS covenants and agrees to deliver to Borrower and the
Administrative Agent within fifteen (15) days prior to the first Payment Date
and every third anniversary of such date thereafter, on which this Agreement is
still in effect, another such certificate and two accurate and complete original
signed copies of Form 1001 (or any successor form or forms required under the
IRC or the applicable regulations promulgated thereunder), and each Lender that
delivers a certificate accompanied by Form 4224 of the IRS (or any successor
form or forms required under the IRC or the applicable regulations promulgated
thereunder) covenants and agrees to deliver to Borrower and the Administrative
Agent within fifteen (15) days prior to the beginning of each subsequent taxable
year of such Lender during which this Agreement is still in effect, another such
certificate and two accurate and complete original signed copies of IRS Form
4224 (or any successor form or forms required under the IRC or the applicable
regulations promulgated thereunder). Each such certificate shall certify as to
one of the following:
(ii) that such Lender is capable of receiving payments of interest
hereunder exempt from withholding of United States of America federal
income tax;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(iii) that such Lender is not capable of receiving payments of
interest hereunder exempt from withholding of United States of America
federal income tax as specified therein but is capable of recovering
the full amount of any such withholding from a source other than
Borrower and will not seek any such recovery from Borrower; or
(iv) that, as a result of the adoption of or any change in any law,
treaty, rule, regulation, guideline or determination of a Governmental
Authority or any change in the interpretation or application thereof
by a Governmental Authority after the date such Lender became a party
hereto, such Lender is not capable of receiving payments of interest
hereunder without deduction or withholding of United States of America
federal income tax as specified therein and that it is not capable of
recovering the full amount of the same from a source other than
Borrower.
Each Lender shall promptly furnish to Borrower and the Administrative Agent such
additional documents as may be reasonably required by Borrower or the
Administrative Agent to establish any exemption from or reduction of any Taxes
required to be deducted or withheld and which may be obtained without undue
expense to such Lender or at the expense of the requisite Person.
(6) For a period with respect to which a Lender has failed to provide the
Administrative Agent and Borrower with the appropriate form described in Section
-------
2.12(b)(5) (other than if such failure is due to a change in law occurring
- ----------
subsequent to the date on which a form originally was required to be provided),
such Lender shall not be entitled to indemnification under this Section 2.12
------------
with respect to Taxes imposed by the United States by reason of such failure;
provided, however, that should a Lender become subject to Taxes because of its
- -------- -------
failure to deliver a form required hereunder, Borrower shall take such steps as
such Lender shall reasonably request, and at such Lender's expense, to assist
such Lender to recover such Taxes.
(7) If a Borrower pays any additional amount under this Section 2.12 and,
------------
as a result, any Lender, together with the Administrative Agent, subsequently,
in their sole discretion and based on their own interpretation of any relevant
laws (but acting in good faith) receive or are granted a final and non-
appealable credit against or deduction from or in respect of any tax payable by
such Lender, or obtain any other final and non-appealable relief in respect of
any tax, which in the opinion of such Lender and the Administrative Agent,
acting in good faith, is both reasonably identifiable and quantifiable by them
without requir-
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
ing any Lender, the Administrative Agent or their professional advisers to
expend a material amount of time or incur a material cost in so identifying or
quantifying (any of the foregoing, to the extent so reasonably identifiable and
quantifiable, being referred to as a "SAVING"), such Lender shall, to the extent
------
that it can do so without prejudice to the retention of the Saving, reimburse
Borrower promptly after such identification and quantification with the amount
of such Saving; provided, however, that any such Saving shall be reduced by
-------- -------
any costs incurred by such Lender or the Administrative Agent in obtaining such
Saving.
(8) Nothing in this Section 2.12(c) shall require any Lender to disclose
---------------
to any Person any information regarding its tax affairs or to arrange its tax
and other affairs in any particular manner.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1.2 SECTION MAXIMUM LAWFUL INTEREST RATE. Notwithstanding any provision
----------------------------
contained herein, the total liability of Borrower for payment of interest
pursuant hereto and the Notes, including any other charges or other amounts, to
the extent such charges and other amounts are deemed to be interest, shall not
exceed the maximum amount of such interest permitted by law to be charged,
collected, or received from Borrower (the "MAXIMUM RATE"). If any payments by
------------
Borrower for the account of any Lender include interest in excess of the Maximum
Rate, such Lender shall apply such excess to the reduction of the unpaid
principal amount owing by Borrower, or if none is due, such excess shall be
returned to Borrower.
1.3 SECTION FUNDING ISSUES.
--------------
(a) Increased Costs. If, due to either (i) the introduction after the
---------------
date hereof of, or any change after the date hereof in or in the interpretation
of, any applicable law, rule or regulation by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof or (ii) compliance by any Lender after the date hereof
with any final request or final directive issued after the date hereof (whether
or not having the force of law) by any such Governmental Authority, central bank
or comparable agency, and, as a result of any of the events set forth in the
above clauses (i) and (ii), (x) there shall be any increase in the cost to such
----------- ----
Lender in maintaining its Commitment under this Agreement or funding or
maintaining its Pro Rata Share of the Loans under this Agreement, or (y) any
Lender is subjected to any charge or withholding on its obligations hereunder,
or changes in the basis of taxation of payments to any Lender in connection with
any of the foregoing (except for changes in the rate of tax on overall net
income of any Lender) (collectively, "INCREASED COSTS"), then Borrower shall,
---------------
from time to time, pay, to the Administrative Agent for the benefit of such
Lender within 15 days after such Lender shall have provided notice to the
Administrative Agent (and the Administrative Agent shall have provided notice to
Borrower which the Administrative Agent shall promptly do) of such Increased
Cost, an amount sufficient to compensate such Lender for such Increased Cost, as
provided herein. A certificate setting forth in reasonable detail the
computation of the amount of such Increased Cost (which increase in cost shall
be determined by such Lender's reasonable allocation of the aggregate of such
cost increases resulting from such event), submitted to Borrower by such Lender,
shall be conclusive and binding for all purposes, absent manifest error.
(b) Increased Capital. If any Lender which is subject to minimum capital
-----------------
requirements determines that compliance by such Lender with any guideline or
request from any central bank or other Governmental Authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by such Lender, or any corporation controlling such
Lender, and such Lender reasonably determines that the amount of such capital is
increased by or based upon any commitment to lend here-
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
under or making or maintaining Loans, or other commitments of this type, then,
upon demand by such Person, Borrower agrees to, within five (5) days of such
demand, pay to such Person, from time to time as specified by such Person,
additional amounts sufficient to compensate such Person in the light of such
circumstances, to the extent that such Person reasonably determines such
increase in capital to be allocable to such Person's commitment or maintenance
of Loans hereunder. A certificate as to the amount of such increased cost,
submitted to Borrower by the applicable Person shall, absent manifest error, be
conclusive and binding on Borrower for all purposes.
(c) Replacement of Lender. If Borrower, as a result of the requirements
---------------------
of any of Section 2.12, Section 2.14(a) or Section 2.14(b), shall be required to
------------ --------------- ---------------
pay any particular Lender (an "AFFECTED LENDER") the additional amounts referred
---------------
to in such Section, which costs are not imposed by the other Lenders, and such
additional amounts are material, then Borrower shall be entitled to find a
replacement Lender, reasonably acceptable to the Administrative Agent and the
Requisite Lenders (such consent to such replacement Lender not to be
unreasonably withheld), to replace the Affected Lender. The Affected Lender and
the replacement Lender shall execute an Assignment Agreement with respect to all
of the Affected Lender's Commitments and all Loans owing to the Affected Lender
and comply with the other provisions of Section 11.06. Upon the payment by the
-------------
replacement Lender to the Affected Lender of the then outstanding principal
amount of Loans owing to the Affected Lender, together with accrued interest
thereon, and the payment by Borrower to the Affected Lender of any compensation
required with respect to LIBOR Loans pursuant to Section 2.07(e), the
---------------
replacement Lender shall succeed to all of the Affected Lender's rights and
obligations under this Agreement and the other Loan Documents.
(d) Limitation. Any demand for payment to be given by a Lender under
----------
Section 2.14 shall be effective only if given within 180 days of an officer of
such Lender having knowledge of the facts giving rise to the right to make such
demand.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1 ARTICLE
REPRESENTATIONS AND WARRANTIES
- ------------------------------
Each Credit Party represents and warrants to the Agents and the
Lenders that:
1.1 SECTION ORGANIZATION; POWERS.
--------------------
(a) Such Credit Party (i) is a corporation or limited liability company
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and (ii) is qualified to do business in the
jurisdiction in which its principal place of business is located and in every
other jurisdiction where such qualification is necessary except where a failure
to so qualify is not reasonably expected to have a Material Adverse Effect;
(b) such Credit Party has the power and authority to own its properties,
to carry on its business as now conducted; and
(c) such Credit Party has the power and the authority to enter into each
Loan Document to which it is a party and to carry out the transactions
contemplated thereby.
1.2 SECTION CORPORATE AUTHORIZATION. The execution, delivery and performance
-----------------------
of this Agreement and the other Loan Documents to which such Credit Party is a
party, and the Loans hereunder:
(a) have been duly authorized by such Credit Party's Board of Directors or
managers and, if necessary, such Credit Party's stockholders or members;
(b) (1) do not (except as disclosed in Schedule 3.02) violate (i) any
-------------
existing provision of law applicable to such Credit Party and not immaterial to
its business, (ii) such Credit Party's Certificate or Articles of Incorporation
or other organizational Documents, as the case may be, or (iii) any applicable
order of any court or other governmental agency, and (2) do not conflict with,
result in a breach of or constitute (with due notice or lapse of time or both) a
default under any indenture, agreement for borrowed money, bond, note or other
similar instrument or any other material agreement to which such Credit Party is
a party or by which such Credit Party or any of such Credit Party's property is
bound;
(c) do not result in the creation or imposition of any Lien of any nature
whatsoever upon any property or assets of such Credit Party other than the Liens
granted pursuant to this Loan Agreement or the other Loan Documents;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(d) constitute legal, valid and binding obligations of such Credit Party,
enforceable against such Credit Party in accordance with their respective terms;
and
(e) do not, as of the date of execution hereof, require any governmental
consent, filing, registration or approval other than any consent, filing,
registration or approval that have been made to the extent required by
applicable law, order, rule or regulations; provided, the failure of any such
consent or approval to be obtained or filing or registration to be made or
otherwise be effective shall not affect the validity or enforceability of the
Loan Documents or otherwise be adverse in any respect to any Agent or Lender.
1.3 SECTION FINANCIAL STATEMENTS. Borrower has furnished to the Agent and
---------------------
the Lenders the audited consolidated financial statements of Borrower and its
Subsidiaries dated as of, and covering the fiscal year ended, December 31, 1998
(the "FINANCIALS"). The Financials have been prepared in accordance with GAAP
----------
applied on a basis consistent with that of preceding periods and are complete
and correct in all material respects. As of the date of the Financials, (a) the
Financials fairly represent Borrower's and its Subsidiaries' financial position
and results of operations; and (b) there are no omissions from the Financials or
any other facts or circumstances not reflected in the Financials which are or
may be material according to GAAP. On and as of the Closing Date, the
Projections of Holdings and its Subsidiaries for the period from the first day
of fiscal year 1999 through and including the last day of fiscal year 2004 (the
"PROJECTIONS") are based on good faith estimates and assumptions made by the
-----------
management of Holdings; provided, the Projections are not to be viewed as facts
and that actual results during the period or periods covered by the Projections
may differ from such Projections and that the differences may be material;
provided further, as of the Closing Date, management of Holdings believed that
the Projections were reasonable and attainable.
1.4 SECTION NO MATERIAL ADVERSE CHANGE. Since December 31, 1998, no event or
--------------------------
change has occurred that has caused or evidences, either in any case or in the
aggregate, a Material Adverse Effect.
1.5 SECTION LITIGATION. There are no actions, suits or proceedings at law or
----------
in equity or by or before any Governmental Authority now pending or, to the
knowledge of such Credit Party, threatened, against or affecting such Credit
Party or any property or rights of such Credit Party as to which there is a
reasonable likelihood of an adverse determination and which, if adversely
determined, would individually or in the aggregate materially impair the right
of any Credit Party to carry on business substantially as now being conducted or
as presently contemplated or which is likely to result in any Material Adverse
Effect.
1.6 SECTION TAX RETURNS. Such Credit Party has filed or caused to be filed
-----------
all material Federal, state and local tax returns that are required to be filed,
which returns are
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
true, correct and complete in all material respects, and has paid or caused to
be paid all taxes that have become due or shown on any assessment received by it
to the extent that such taxes have become due, except such taxes the amount,
applicability or validity of which are being contested in good faith by
appropriate proceedings and with respect to which such Credit Party shall have
set aside on its books adequate reserves with respect to such taxes as are
required by GAAP.
1.7 SECTION NO DEFAULTS. Such Credit Party is not in default (i) with
-----------
respect to any judgment, writ, injunction, decree, rule or regulation of any
Governmental Authority, or (ii) in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any agreement or
instrument to which such Credit Party is a party or by which any of its assets
are bound except, in the case of any matter otherwise included in clause (i) or
(ii), to the extent such matter could not reasonably be expected to have a
Material Adverse Effect.
1.8 SECTION PROPERTIES. Each Credit Party has good, sufficient, legal title
----------
beneficial to (in the case of fee interests in real property), valid leasehold
interests in (in the case of leasehold interests in real or personal property),
or good and sufficient title to (in the case of all other personal property),
all of their respective properties and assets reflected in the Financials,
except for assets disposed of since the date of such financial statements in the
ordinary course of business or as otherwise permitted under Section 6.03. Except
------------
as permitted by this Agreement, all such properties and assets are free and
clear of Liens.
1.9 SECTION COLLATERAL.
(a) The execution and delivery of the Collateral Documents by Credit
Parties, together with the actions taken on or prior to the date hereof pursuant
to Section 4.01, are effective to create in favor of Collateral Agent for the
------------
benefit of Lenders, as security for the Obligations, a valid and perfected
second priority Lien on all of the Collateral, and all filings and other actions
necessary or desirable to perfect and maintain the perfection and second
priority status of such Liens have been duly made or taken and remain in full
force and effect, other than the filing of any UCC financing statements
delivered to Collateral Agent for filing (but not yet filed) and the periodic
filing of UCC continuation statements in respect of UCC financing statements
filed by or on behalf of Collateral Agent and actions necessary with respect to
perfection of security interests not governed by the Uniform Commercial Code.
(b) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for
either the pledge or grant by any Credit Party of the Liens purported to be
created in favor of Collateral Agent pursuant to any of the Collateral Documents
or the exercise by Collateral Agent of any rights or reme-
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
dies in respect of any Collateral (whether specifically granted or created
pursuant to any of the Collateral Documents or created or provided for by
applicable law), except for filings or recordings contemplated by Section 4.01
------------
and except as may be required, in connection with the disposition of any
Investment Property, by laws generally affecting the offering and sale of
securities.
(c) Except with respect to any Permitted Lien and such as may have been
filed in favor of Collateral Agent as contemplated by Section 4.01, no effective
------------
UCC financing statement, fixture filing or other instrument similar in effect
covering all or any part of the Collateral is on file in any filing or recording
office.
(d) All information supplied to Collateral Agent by or on behalf of any
Credit Party with respect to any of the Collateral (in each case taken as a
whole with respect to any particular Collateral) is accurate and complete in all
material respects.
1.10 SECTION LICENSES, MATERIAL AGREEMENTS, INTELLECTUAL PROPERTY.
----------------------------------------------------
(a) Such Credit Party has obtained all approvals of any Governmental
Authority having jurisdiction over such Credit Party, which approvals are
necessary or appropriate for the construction and operation of the Systems as
are presently operating, to the extent such approvals are required to be
obtained currently. Such Governmental Approvals and approvals are listed on
Schedule 3.10(a) and constitute the only licenses, permits or franchises of any
- ----------------
Governmental Authority required in connection with the Systems as are presently
operating. All Governmental Approvals of such Credit Party are in full force and
effect, are duly issued in the name of, or validly assigned to, such Credit
Party and such Credit Party has the power and authority to operate thereunder.
(b) Schedule 3.10(b) accurately and completely lists all material
----------------
agreements to which such Credit Party is a party as of the Closing Date,
including, without limitation, all purchase agreements, construction contracts,
right of way or right of occupancy agreements, lease agreements, consulting,
employment, management and related agreements. All of the foregoing agreements
are valid, subsisting and in full force and effect and none of such Credit
Party, or any other parties, are in default thereunder in any material respect.
Such Credit Party has given true and complete copies of all such agreements to
the Agents and the Lenders.
(c) Such Credit Party owns or possesses all the patents, trademarks,
service marks, trade names, copyrights and licenses, and all rights with respect
to the foregoing (the "INTELLECTUAL PROPERTY"), necessary for the conduct of its
---------------------
business as presently conducted without any known conflict with the rights of
others except where such conflict is not reasonably expected to have a Material
Adverse Effect. Schedule 2.1(b) of the Pledge and Se-
---------------
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
curity Agreement accurately and completely lists all Intellectual Property owned
or possessed by or licensed to such Credit Party.
1.11 SECTION COMPLIANCE WITH LAWS. The operations of such Credit Party
--------------------
comply with all applicable federal, state or local laws and regulations,
including, without limitation, Environmental Laws and regulations promulgated by
the FCC and any PUC, and other telecommunications laws and regulations, except
where noncompliance is not reasonably expected to have a Material Adverse
Effect. None of the operations of such Credit Party is subject to any judicial
or administrative proceeding alleging the violation of any Environmental Laws.
None of the operations of such Credit Party is the subject of federal or state
investigation evaluating whether any Remedial Action is needed to respond to a
Release. Such Credit Party has not filed any notice under any federal or state
law indicating past or present treatment, storage or disposal of a hazardous
waste or reporting a Release. Such Credit Party has no contingent liability of
which such Credit Party has knowledge or (with the reasonable exercise of
diligence) should have knowledge other than contingent liabilities that are not
reasonably expected to have a Material Adverse Effect.
1.12 SECTION ERISA. None of such Credit Party or any ERISA Affiliate of such
------
Credit Party maintains or contributes to any Plan other than a Plan listed on
Schedule 3.12 hereto. Except as disclosed on Schedule 3.12, each Plan which is
- ------------- -------------
intended to be qualified under Section 401(a) of the IRC has been determined by
the IRS to be so qualified, and each trust related to any such Plan has been
determined to be exempt from federal income tax under Section 501(a) of the IRC.
Except as disclosed on Schedule 3.12, none of such Credit Party or any ERISA
-------------
Affiliate maintains or contributes to any employee welfare benefit plan within
the meaning of Section 3(1) of ERISA which provides benefits to employees after
termination of employment other than as required by Section 601 of ERISA. None
of such Credit Party or any ERISA Affiliate has breached any of the material
responsibilities, obligations or duties imposed on it by ERISA or regulations
promulgated thereunder with respect to any Plan. No Plan has incurred any
accumulated funding deficiency (as defined in Section 302(a)(2) of ERISA and
Section 412(a) of the IRC), whether waived or not waived. None of such Credit
Party or any ERISA Affiliate nor any fiduciary of any Plan which is not a
Multiemployer Plan (i) has engaged in a nonexempt "prohibited transaction"
described in Section 406 of ERISA or Section 4975 of the IRC or (ii) has taken
or failed to take any action which would constitute or result in a Termination
Event; provided that, in the case of the events described in clauses (i) and
(ii), such action, or failure to take action results in a material liability to
the Borrower. None of such Credit Party or any ERISA Affiliate has incurred any
liability to the PBGC which remains outstanding, other than the payment of
premiums, and there are no premium payments which have become due which are
unpaid. Schedule B to the most recent annual report filed with the IRS with
respect to each Plan is complete and accurate. Since the date of each such
Schedule B, there has been no adverse change in the funding status or financial
condition of the Plan relating to such Schedule B.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
None of such Credit Party or any ERISA Affiliate has (i) failed to make a
required contribution or payment to a Multiemployer Plan or (ii) made a complete
or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer
Plan. None of such Credit Party or any ERISA Affiliate has failed to make a
required installment or any other required payment under Section 412 of the IRC
on or before the due date for such installment or other payment. None of such
Credit Party or any ERISA Affiliate is required to provide security to a Plan
under Section 401(a)(29) of the IRC due to a Plan amendment that results in an
increase in current liability for the plan year.
1.13 SECTION INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.
----------------------------------------------------------
Such Credit Party is not an "investment company" as that term is defined in, and
is not otherwise subject to regulation under, the Investment Company Act of
1940. Such Credit Party is not a "holding company" as that term is defined in,
and is not otherwise subject to regulation under, the Public Utility Holding
Company Act of 1935.
1.14 SECTION FEDERAL RESERVE REGULATIONS. Such Credit Party is not engaged
---------------------------
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
of the United States), and no part of the proceeds of the Loans made to such
Credit Party will be used to purchase or carry any such margin stock or to
extend credit to others for the purpose of purchasing or carrying any such
margin stock or for any purpose that violates, or is inconsistent with, the
provisions of Regulation T, U or X of said Board of Governors.
1.15 SECTION INSURANCE. Schedule 3.15 contains a description of all
--------- -------------
insurance which such Credit Party maintains or has maintained on its behalf as
of the Closing Date. All of such insurance is in full force and effect.
1.16 SECTION CAPITALIZATION AND SUBSIDIARIES. As of the Closing Date, the
-------------------------------
classes of Equity Interests, number of authorized shares, number of outstanding
shares and par values or other designations of the Equity Interests or other
equity securities or beneficial interests of such Credit Party are correctly set
forth on Schedule 3.16. All the outstanding shares of Equity Interests or other
-------------
equity securities or beneficial interests of such Credit Party are duly and
validly issued, fully paid and nonassessable, and none of such issued and
outstanding shares, equity securities or beneficial interests has been issued in
violation of, or is subject to, any preemptive or subscription rights. Except as
set forth on Schedule 3.16, as of the Closing Date, there are no: (A)
-------------
outstanding shares of Equity Interests or other equity securities or beneficial
interests or other securities convertible into or exchangeable for shares of
Equity Interests or other equity securities or other beneficial interests of
such Credit Party, (B) outstanding rights of subscription, warrants, calls,
options, contracts or other agreements of any kind, issued, made or granted to
or with any Person under which such Credit Party
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
may be obligated to issue, sell, purchase, retire or redeem or otherwise acquire
or dispose of any shares of Equity Interests or other equity securities or
beneficial interests of such Credit Party, or (C) Subsidiaries of such Credit
Party.
1.17 SECTION REAL ESTATE ASSETS. Set forth on Schedule 3.17 is a list of all
------------------ -------------
Real Estate Assets owned as of the Closing Date by such Credit Party, together
with a street address of each such Real Estate Assets, including a description
of such properties' current use. Such Credit Party's interests in the Real
Estate Assets are sufficient in order for such Credit Party to conduct its
business and operations as conducted on the Closing Date.
1.18 SECTION SOLVENCY. After giving effect to any Loans made to such Credit
--------
Party hereunder, the disbursement of the proceeds of such Loans pursuant to such
Credit Party's instructions and the execution, delivery and performance of each
of the Loan Documents and transactions contemplated thereby, such Credit Party
is Solvent and is not contemplating either the filing of a petition by it under
any state or federal bankruptcy or insolvency laws or the liquidation of all or
a substantial portion of its property, and has no knowledge of any Person
contemplating the filing of any such petition against such Credit Party.
1.19 SECTION BROKERS, ETC. Such Credit Party has not dealt with any broker,
------------
finder, commission agent or other similar Person in connection with the Loans or
the transactions being effected contemporaneously with this Agreement, and such
Credit Party covenants and agrees to indemnify and hold harmless the Agents, and
the Lenders from and against, any broker's fee, finder's fee or commission in
connection with such transactions.
1.20 SECTION NO MATERIAL MISSTATEMENTS. Neither any report, financial
-------------------------
statement, exhibit or schedule furnished by or on behalf of such Credit Party to
any of the Agents or any Lender in connection with the negotiation of this
Agreement and the other Loan Documents or included herein or therein, nor any
other information required to be furnished pursuant to the provisions of Article
-------
V hereof, contains any material misstatement of fact or omits to state any
- -
material fact necessary to make the statements therein not misleading in light
of the circumstances under which they were made.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1.21 SECTION YEAR 2000 MATTERS. Each Credit Party has made a full and
-----------------
complete assessment of the Year 2000 Problems and has a realistic and achievable
program for remediating the Year 2000 Problems on a timely basis. Based on such
assessment and program, such Credit Party does not reasonably anticipate that
Year 2000 Problems will have a Material Adverse Effect.
2 ARTICLE
CONDITIONS FOR LOANS
- --------------------
3.1 SECTION CONDITIONS PRECEDENT. The obligations of each Lender to make a
--------------------
Loan hereunder are subject to the satisfaction of the following conditions:
(a) All then applicable legal matters incident to this Agreement and the
other Loan Documents shall be reasonably satisfactory to Agents.
(b) The Agents, as applicable, shall have received payment in full of the
fees set forth in their separate written agreements and all other out-of-pocket
costs and expenses of the Agents and the Lenders incurred on or prior to the
Funding Date, including, without limitation, attorneys' and paralegals' fees and
expenses and the fees and expenses incurred in connection with preparation of
the Loan Documents.
(c) The Agents shall have received the following items, in each case in
form and substance satisfactory to the Agents:
(i) the Financials and the Projections;
(ii) certificates dated the Funding Date or dated the
Closing Date and a reaffirmation of such certificate dated
the Funding Date, of the secretaries or assistant
secretaries of each of Credit Party, certifying (1) the
names and true signatures of the officers authorized to sign
each Loan Document to which such Credit Party is a party,
(2) the resolutions of the Board of Directors of such Credit
Party approving the transactions contemplated by the Loan
Documents to which each is a party, and (3) such Credit
Party's bylaws;
(iii) the written opinions of special, regulatory and local
counsel for the Credit Parties, dated the Funding Date,
addressed to the Agents and the Lenders satisfactory to (and
containing only such qualifications and limitations as are
satisfactory to) Agents, which opinions shall be
substantially in the forms set forth in Exhibit D attached
---------
hereto;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(iv) certificates of appropriate public officials dated
not more than thirty (30) days prior to the Funding Date, as
to the legal existence or qualification, and good standing
of each Credit Party from such Person's jurisdiction of
organization and from the jurisdiction in which such Person
has its principal place of business;
(v) each Credit Party's Certificate or Articles of
Incorporation or other organizational documents, as amended,
modified or supplemented on or prior to the Funding Date,
each certified to be true, correct and complete by the
Secretary of State of the state in which such Person is
organized;
(vi) an originally executed Closing Date Certificate,
together with all attachments thereto;
(vii) a completed Year 2000 questionnaire executed by
Borrower;
(viii) the Notes duly executed and delivered by Borrower;
(ix) this Agreement duly executed and delivered by the
Credit Parties;
(x) the Pledge and Security Agreement executed and
delivered by the parties thereto; and
(xi) the Intercreditor Agreement, duly executed and
delivered by each of the parties thereto.
(d) In order to create in favor of the Collateral Agent, for the benefit
of Lenders, a valid and, subject to any filing and/or recording referred to
herein, perfected second priority security interest in all of the Collateral,
Collateral Agent shall have received:
(i) certificates (which certificates shall be accompanied
by irrevocable undated stock powers, duly endorsed in blank
and otherwise satisfactory in form and substance to
Collateral Agent) representing all capital stock pledged
pursuant to the Pledge and Security Agreement, and
Acknowledgments of Pledge from each applicable issuer of
Securities pledged pursuant to the Pledge and Security
Agreement;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(ii) the results of a recent search, by a Person
satisfactory to Agents, of all effective UCC financing
statements and fixture filings and all judgment and tax lien
filings which may have been made with respect to any
personal or mixed property of any Credit Party, together
with copies of all such filings disclosed by such search,
and UCC termination statements duly executed by all
applicable Persons for filing in all applicable
jurisdictions as may be necessary to terminate any effective
UCC financing statements or fixture filings disclosed in
such search (other than any such financing statements or
fixture filings in respect of Permitted Liens;
(iii) UCC financing statements, duly executed by each
applicable Credit Party with respect to all personal and
mixed property Collateral of such Credit Party, for filing
in all jurisdictions as may be necessary or, in the opinion
of the Agents, desirable to perfect the security interests
created in such Collateral pursuant to the Collateral
Documents;
(iv) all cover sheets or other documents or instruments
required to be filed in order to create or perfect Liens in
respect of any Intellectual Property;
(v) an opinion of counsel (which counsel shall be
reasonably satisfactory to Collateral Agent) with respect to
the creation and perfection of the security interests in
favor of Collateral Agent in such Collateral and such other
matters governed by the laws of each jurisdiction in which
any Credit Party or any personal or mixed property
Collateral is located as Collateral Agent may reasonably
request, in each case in form and substance reasonably
satisfactory to Agents; and
(vi) evidence that each Credit Party shall have taken or
caused to be taken any other action, executed and delivered
or caused to be executed and delivered any other agreement,
document and instrument, and made or caused to be made any
other filing and recording (other than as set forth herein)
reasonably required by Agents.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(e) The Administrative Agent shall have received evidence satisfactory to
the Administrative Agent that no Credit Party has any Debt other than as
described in Section 6.12.
------------
(f) On the Funding Date, Borrower shall have borrowed $10,000,000 in
aggregate principal amount of First Priority Loans under the First Priority Loan
Documents.
(g) All of Borrower's Series C Convertible Preferred Equity Interests
shall have been converted into Equity Interests of Holdings with terms and
conditions identical thereto.
(h) Borrower shall have received from inception to the Closing Date, cash
equity contributions in an aggregate amount equal to at least $70,000,000.
(i) Borrower shall have delivered to Lenders, as attachments to the
Closing Date Certificate referred to in Section 4.01(c)(iv), a closing balance
sheet giving pro forma effect to the transactions contemplated hereby and by the
First Priority Loan Documents, including, without limitation, the making of any
Loans and First Priority Loans on the Funding Date, and, together with a
detailed budget for the one year period following the Closing Date.
(j) Borrower shall have provided to Administrative Agent certificates of
insurance reflecting Borrower's and its Subsidiaries' compliance with the
provisions of Section 5.04 and the applicable provisions of any other Loan
Document, including, without limitation, naming the Collateral Agent as loss
payee and/or additional insured under the applicable coverages.
(k) Borrower shall have delivered to Collateral Agent Landlord Consents
and Estoppel with respect to (x) the Borrower's premises located at 222 Sutter
Street and (y) not less than four (4) of the premises at which a transmission
node (ATM switch center node) is located.
(l) The representations and warranties of Borrower set forth in Article
-------
III or in any other Loan Document shall be true and correct in all material
- ---
respects on and as of the date of such Loan with the same effect as though such
representations and warranties had been made on and as of such date, except that
any representations or warranties that relate to a specified date shall only be
reaffirmed as of such date.
(m) At the time of each such Loan, and after giving effect to such Loan,
each Credit Party shall be in compliance with all the terms and provisions set
forth herein on its part to be observed or performed, and no Event of Default or
Default shall have occurred and be continuing and no event or change shall have
occurred that shall have caused or evidenced, either singularly or in the
aggregate, a Material Adverse Effect.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(n) The Administrative Agent shall have received a Notice of Borrowing for
the Loan together with the other materials required pursuant to Section 2.03.
------------
1 ARTICLE
AFFIRMATIVE COVENANTS
- ---------------------
Each Credit Party covenants and agrees that so long as this Agreement
shall remain in effect, any Commitment hereunder shall be outstanding or any
Obligations hereunder or under any of the other Loan Documents are unpaid,
unless the Requisite Lenders shall have otherwise given prior written consent:
1.1 SECTION CORPORATE AND FRANCHISE EXISTENCE. Such Credit Party shall
---------------------------------
preserve and maintain its corporate or other organizational existence, rights,
franchises, licenses and privileges in its jurisdiction of its organization, and
in all other jurisdictions in which such qualification is necessary in view of
its business and operations and property and preserve, protect and keep in full
force and effect its material rights and its Governmental Approvals except where
the failure to do so would not reasonably be expected to have a Material Adverse
Effect.
1.2 SECTION COMPLIANCE WITH LAWS, ETC. Such Credit Party shall comply in
--------------------------
all material respects with all laws and regulations applicable to it, including,
without limitation, Environmental Laws, regulations promulgated by the FCC and
any PUC, and other telecommunications laws and regulations, and all material
contractual obligations applicable to it except where the failure to do so would
not reasonably be expected to have a Material Adverse Effect.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1.3 SECTION MAINTENANCE OF PROPERTIES. Such Credit Party shall at all times
-------------------------
maintain in good repair, working order and condition, excepting ordinary wear
and tear, all of its properties material to its operations and make all
appropriate repairs, replacements and renewals thereof, in each case consistent
with prudent industry practices and sound business judgment and with respect to
the maintenance of machinery and equipment, in compliance with applicable
government regulations, manufacturers' warranty request and licensing
requirements, except where the failure to do so would not reasonably be expected
to have a Material Adverse Effect.
1.4 SECTION INSURANCE.
---------
(a) Maintenance of Insurance. Such Credit Party will maintain or cause to
------------------------
be maintained, with financially sound and reputable insurers, such public
liability insurance, third party property damage insurance, business
interruption insurance and casualty insurance with respect to liabilities,
losses or damage in respect of the assets, properties and businesses of such
Credit Party and its Subsidiaries as may customarily be carried or maintained
under similar circumstances by Persons of established reputation engaged in
similar businesses, in each case in such amounts, with such deductibles,
covering such risks and otherwise on such terms and conditions as shall be
customary for such Persons, and in any event, all such insurance shall be
maintained in accordance with the terms set forth on Schedule 3.15 hereof.
Without limiting the generality of the foregoing, such Credit Party will
maintain or cause to be maintained replacement value casualty insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts, with such deductibles, and covering such risks as are at all times
carried or maintained under similar circumstances by Persons of established
reputation engaged in similar businesses. Each such policy of insurance shall
(i) name Collateral Agent, the other Agents and the Lenders and their respective
Affiliates as additional insureds thereunder, as their respective interests may
appear and (ii) in the case of casualty insurance policy, contain a loss payable
clause or endorsement, satisfactory in form and substance to Collateral Agent,
that names Collateral Agent for the benefit of the Lenders and the First
Priority Lenders as the sole loss payee thereunder under a standard lender loss
payee endorsement for any covered loss in excess of $500,000 and provides for at
least thirty (30) days prior written notice to Collateral Agent of any
modification or cancellation of such policy.
(b) Application of Payments. All payments in excess of $500,000 received
-----------------------
by such Credit Party from any insurance referred in Section 5.04(a) shall, at
-------
the request of Collateral Agent be promptly delivered directly to the Collateral
Agent, which amounts shall be applied by the Collateral Agent, upon request by
such Credit Party (and after receipt by Collateral Agent of such information
with respect to the application of such amounts as Collateral Agent may
reasonably request), for the purposes set forth in Section 2.09(b) unless an
Event of Default or Default shall have occurred and be continuing or such Credit
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
Party shall have failed to make such request within thirty (30) days after
receipt of such amounts by Collateral Agent, in which case such amounts shall be
applied in accordance with the terms of the Intercreditor Agreement.
(c) General. The Collateral Agent shall be entitled, upon reasonable
-------
advance notice, to review and/or receive copies of such Credit Party's (or other
appropriate party's) books and records regarding all insurance policies carried
and maintained with respect to each System and such Credit Party's obligations
under this Section 5.04. Notwithstanding anything to the contrary herein, no
------------
provision of this Agreement or any other Loan Document shall impose on the
Collateral Agent, the Agent or any Lender any duty or obligation to verify the
existence or adequacy of the insurance coverage maintained by such Credit Party,
nor shall the Collateral Agent or any Lender be responsible for any
representations or warranties made by or on behalf of such Credit Party to any
insurance broker, company or underwriter. The Collateral Agent, at its sole
option, may obtain such insurance if not provided by such Credit Party; in such
event, such Credit Party shall reimburse the Collateral Agent or the Agents upon
demand for the cost thereof together with interest, and such costs shall
constitute Obligations secured by the Collateral. Not later than thirty (30)
days prior to the anticipated expiration date of any insurance coverage required
hereby, Borrower shall provide to Collateral Agent certificates evidencing the
renewal of each of such insurance coverage.
1.5 SECTION OBLIGATIONS AND TAXES. Such Credit Party shall pay all of its
---------------------
indebtedness and obligations promptly and in accordance with their terms and pay
and discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its property, as
such become due, as well as all lawful claims for labor, materials and supplies
or otherwise which, if unpaid, might become a Lien upon such properties or any
part thereof; provided, however, that such Credit Party shall not be required to
-------- -------
pay and discharge or to cause to be paid and discharged any such tax,
assessment, charge, levy or claim so long as the validity or amount thereof
shall be contested in good faith by appropriate proceedings diligently pursued,
there exists no material risk of forfeiture and such Credit Party shall set
aside on its books such reserves as are required by GAAP and in an amount
satisfactory to the Administrative Agent with respect to any such tax,
assessment, charge, levy or claim so contested.
1.6 SECTION FINANCIAL STATEMENTS, REPORTS, ETC. Credit Parties shall
----------------------------------
furnish to the Administrative Agent and the Lenders (except as otherwise
provided herein):
(a) as soon as available and in any event within thirty (30) days after
the end of each month occurring after the Closing Date, such financial
statements for Holdings and its Subsidiaries as Holdings or its Subsidiaries may
otherwise prepare as a matter of internal policy;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(b) as soon as available and in any event within one hundred twenty (120)
days after the end of each fiscal year of Holdings, annual consolidated and
consolidating financial statements for Holdings and its Subsidiaries, including
the balance sheets and statements of operations, income, stockholders' equity
and cash flows, for such fiscal year, prepared in accordance with GAAP, which
consolidated financial statements and other above described financial
information shall have been audited by a nationally recognized independent
certified public accounting firm satisfactory to the Administrative Agent, and
accompanied by such independent certified public accounting firm's unqualified
opinion;
(c) as soon as available and in any event within forty-five (45) days
after the end of each month and each fiscal quarter during each fiscal year of
Holdings, consolidated and consolidating unaudited balance sheets and statements
of operations for Holdings and its Subsidiaries, and consolidated and
consolidating statements of stockholders' equity and cash flows of Holdings and
its Subsidiaries, and consolidated statements of stockholders' equity and cash
flows of Holdings and its Subsidiaries as of the end of each such month or
fiscal quarter, as applicable, and for the then elapsed portion of the fiscal
year;
(d) together with the financial statements delivered pursuant to clause
------
(c) above a report thereon of PriceWaterhouseCoopers LLP or other independent
- ---
certified public accountants of recognized national standing selected by
Holdings and in form and substance satisfactory to Administrative Agent,
together with a written statement (which statement may contain such
qualifications as the accountants deem appropriate) by such independent
certified public accountants stating that their audit examination has included a
review of the terms of the Loan Documents, whether, in connection therewith, any
condition or event that constitutes a Default or an Event of Default has come to
their attention and, if such a condition or event has come to their attention,
specifying the nature and period of existence thereof, and that nothing has come
to their attention that causes them to believe that the information contained in
any Compliance Certificate is not correct or that the matters set forth in such
Compliance Certificate are not stated in accordance with the terms hereof;
(e) concurrently with the delivery of financial statements pursuant to
clauses (b) and (c) above, a Compliance Certificate of the chief financial
officer of Holdings setting forth the calculations contemplated in Article VII
-----------
hereof, which shall include, without limitation, a detailed calculation,
together with the basis therefor, of any amount included in clause (ii)(F) of
the definition of the term "EBITDA" as calculated for such the period for which
such financial statements are being delivered, and certifying as to the fact
that such Person has examined the provisions of this Agreement and that no Event
of Default or any Default, shall have occurred and be continuing or if such an
event has occurred, a statement explaining its nature and extent and setting
forth the steps the Credit Parties propose to take to cure such Event of
Default;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(f) not later than December 31 of each calendar year (i) consolidated and
consolidating projected annual revenue and income statements (including detailed
revenue and expense statements), balance sheets and cash flow statements for
Holdings and its Subsidiaries for the succeeding fiscal year, such statements to
be reasonably acceptable to the Administrative Agent, and (ii) an annual
operating budget presented on a monthly basis for such succeeding fiscal year;
(g) to the Administrative Agent, promptly upon their becoming available,
copies of any periodic or special Documents, statements or other information
filed by any Credit Party with the FCC, PUC or other Governmental Authority in
connection with the construction and/or operation of any System or with respect
to the transactions contemplated by any of the Loan Documents, and copies of any
material notices and other material communications from the FCC, PUC or from any
other Governmental Authority;
(h) promptly upon any officer of any Credit Party obtaining knowledge of
any condition or event which either constitutes an Event of Default or a Default
or which would result in any financial result for any fiscal year to deviate
materially and adversely from the financial results projected for such fiscal
year in the Projections, a certificate signed by an authorized officer of such
Credit Party specifying in reasonable detail the nature and period of existence
thereof and what corrective action such Credit Party has taken or proposes to
take with respect thereto;
(i) within thirty (30) days after the end of each fiscal year of such
Credit Party, a certificate signed by an authorized officer of such Credit Party
setting forth all the Real Estate Assets acquired by such Credit Party in the
preceding year;
(j) evidence of insurance complying with Section 5.04;
------------
(k) promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports which
Holdings files with the Securities and Exchange Commission; and
(l) promptly from time to time such other information regarding the
operations (including, without limitation, construction budgeting and System
completion), business affairs and condition (financial or otherwise) of such
Credit Party as the Administrative Agent may reasonably request.
1.7 SECTION LITIGATION AND OTHER NOTICES. Such Credit Party shall give the
----------------------------
Administrative Agent prompt written notice upon obtaining knowledge of the
following: (a) all events of default or any event that would become an event of
default upon notice or lapse of time or both under any of the terms or
provisions of any note, or of any other evidence of indebtedness or agreement or
contract governing the borrowing of money of such Credit
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
Party; (b) any levy, attachment, execution or other process against any of the
property or assets, real or personal, of such Credit Party; (c) the filing or
commencement of any action, suit or proceeding by or before any court or any
Governmental Authority which, if adversely determined against such Credit Party,
would likely result in a Material Adverse Effect; (d) any adverse notice, letter
or other correspondence of any kind from the FCC or the PUC relating to the
Governmental Approvals or any System; (e) any material default under any other
material license, agreement or contract to which such Credit Party is a party;
and (f) any matter, individually or in the aggregate with any other matter,
which has resulted in, or which such Credit Party believes may result in, a
Material Adverse Effect on such Credit Party.
1.8 SECTION FUTURE PROPERTIES. In the event that any Credit Party acquires
-----------------
an interest in any Real Estate Asset that the Administrative Agent reasonably
determines is material to such Credit Party's Business, and such interest has
not otherwise been made subject to the Lien of the Collateral Documents in favor
of Collateral Agent, for the benefit of Lenders, then such Credit Party,
contemporaneously with acquiring such Real Estate Asset, shall take all such
actions and execute and deliver, or cause to be executed and delivered, all such
documents, instruments, agreements, opinions and certificates as Collateral
Agent may reasonably request to establish a Lien on such Real Estate Asset in
favor of the Collateral Agent for the benefit of the Lenders; provided, that on
and after the date of consummation of a Qualified Equity Offering, Borrower
shall only by obligated under this Section 5.08 to use its best efforts to
obtain a Landlord Consent and Estoppel with respect to any premise at which a
transmission node (ATM switch center node) is located.
1.9 SECTION ERISA. Such Credit Party shall comply in all material respects
-----
with the applicable provisions of ERISA and furnish to the Agent, (i) as soon as
possible, and in any event within ten (10) days after such Credit Party or any
officer of such Credit Party knows or has reason to know that any Termination
Event has occurred, a statement of an officer of such Credit Party setting forth
details as to such Termination Event and the corrective action (if any) that
such Credit Party proposes to take with respect thereto, together with a copy of
the notice of any Reportable Event given to the PBGC, and (ii) promptly after
receipt thereof, a copy of any notice such Credit Party may receive from the
PBGC relating to the intention of the PBGC to terminate any Plan or to appoint a
trustee to administer any such Plan.
1.10 SECTION ACCESS TO PREMISES AND RECORDS. Such Credit Party shall permit
------------------------------
representatives of the Administrative Agent and each Lender to have access to
such Credit Party's books and records and to the Collateral and the premises of
such Credit Party at reasonable times upon reasonable notice (and after the
occurrence and during the continuance of any Default or Event of Default,
without notice and at any time) and to make such ex-
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
cerpts from such records as such representatives deem necessary and to inspect
the Collateral.
1.11 SECTION DESIGN AND CONSTRUCTION. Such Credit Party shall design,
-----------------------
construct, equip and operate its Systems in accordance with prudent industry
standards.
1.12 SECTION ENVIRONMENTAL NOTICES. If such Credit Party shall (a) receive
---------------------
written notice that any violation of any Environmental Law may have been
committed or is about to be committed by such Credit Party, (b) receive written
notice that any administrative or judicial complaint or order has been filed or
is about to be filed against such Credit Party alleging violations of any
Environmental Law or requiring such Credit Party to take any action in
connection with any Release of any Contaminant into the environment, or (c)
receive any written notice from a Governmental Authority or private party
alleging that such Credit Party may be liable or responsible for costs
associated with a response to or cleanup of a Release or any damages caused
thereby, such Credit Party shall provide the Administrative Agent with a copy of
such notice within ten (10) Business Days of such Credit Party's receipt
thereof.
1.13 SECTION AMENDMENT OF ORGANIZATIONAL DOCUMENTS. Such Credit Party shall
-------------------------------------
notify the Administrative Agent of any amendment to its Certificate or Articles
of Incorporation or other organizational Documents within ten (10) days of the
occurrence of any such event, and provide the Agent with copies of any
amendments certified by the secretary of such Credit Party and of all other
relevant documentation. Such Credit Party shall promptly deliver to the
Administrative Agent such financing statements executed by such Credit Party
which the Administrative Agent may request as a result of any such event.
1.14 SECTION FISCAL YEAR. Such Credit Party shall maintain a fiscal year
-----------
ending on December 31.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1.15 SECTION YEAR 2000 PROBLEMS. On or prior to March 31, 1999, each Credit
------------------
Party shall complete and deliver to the Agent a Year 2000 Corrective Plan. On or
prior to April 30, 1999 each Credit Party shall implement Year 2000 Corrective
Actions. On or prior to June 30, 1999 each Credit Party shall complete Year 2000
Corrective Actions and Year 2000 Implementation Testing. On or prior to August
31, 1999 each Credit Party shall eliminate all Year 2000 Problems, except where
the failure to correct the same could not reasonably be expected to have a
Material Adverse Effect, individually or in the aggregate.
1.16 SECTION FUTURE SUBSIDIARIES. In the event that any Person becomes a
-------------------
Subsidiary of Holdings, Holdings shall (i) promptly cause such Subsidiary to
become a Guarantor hereunder and a Grantor under the Pledge and Security
Agreement by executing and delivering to Administrative Agent and Collateral
Agent a Counterpart Agreement, and (ii) take all such actions and execute and
deliver, or cause to be executed and delivered, all such documents, instruments,
agreements, and certificates similar to those described in Section 4.01(d). With
---------------
respect to each such Subsidiary, Holdings shall promptly send to Administrative
Agent written notice setting forth with respect to such Person (i) the date on
which such Person became a Subsidiary of Holdings, and (ii) all of the data
required to be set forth in Schedule 3.16 with respect to all Subsidiaries of
Holdings; provided, such written notice shall be deemed to supplement Schedule
3.16 for all purposes hereof.
1.17 SECTION ACCOUNTING; MAINTENANCE OF RECORDS. Such Credit Party shall
----------------------------------
maintain a system of accounting established and administered in accordance with
GAAP. Such Credit Party shall keep and maintain, and cause each of its
Subsidiaries to keep and maintain, in all material respects, proper books of
record and account in which entries in conformity with GAAP shall be made of all
dealings and transactions in relation to their respective businesses and
activities.
1.18 SECTION FURTHER ASSURANCES. Such Credit Party agrees to do such further
------------------
acts and things and to execute and deliver to or the Administrative Agent or the
Collateral Agent such additional assignments, agreements, powers and
instruments, at such Credit Party's expense, as the Administrative Agent or the
Collateral Agent may require or deem advisable to carry into effect the purposes
of this Agreement and the other Loan Documents or to better assure and confirm
unto the Administrative Agent or the Collateral Agent its rights, powers and
remedies hereunder and thereunder.
1.19 SECTION INTEREST RATE AGREEMENTS. At all times after the date which is
------------------------
thirty (30) days after the Closing Date, Borrower shall maintain, or caused to
be maintained, in effect one or more Interest Rate Agreements for a term of not
less than two years and otherwise in form and substance reasonably satisfactory
to Agent, which Interest Rate Agreements together with the amount of fixed rate
Debt of the Credit Parties shall effectively fix the interest costs of Credit
Parties with respect to an aggregate notional principal amount of
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
not less than 50% of the aggregate principal amount of the Loans and First
Priority Loans outstanding from time to time to a rate not in excess of the Base
LIBO Rate as of the Closing Date plus 2.00, % per annum.
1.20 SECTION DEPOSIT ACCOUNTS. The Borrower shall, and shall cause each of
----------------
its Subsidiaries to, within 30 days of the Closing Date (a) to deliver to
Collateral Agent an agreement, satisfactory in form and substance to Collateral
Agent and executed by the financial institution at which such Deposit Account is
maintained, pursuant to which such financial institution confirms and
acknowledges Collateral Agent's security interest in, and sole dominion and
control over, such Deposit Account and waives its rights to set-off with respect
to amounts in such Deposit Account, and (b) to take all other steps necessary
or, in the opinion of Collateral Agent, desirable to ensure that Collateral
Agent has sole dominion and control over such Deposit Account; provided that if
--------
the Borrower or such Subsidiary is unable to obtain such agreement from such
financial institution the Borrower shall, or shall cause such Subsidiary to,
within 30 days after receiving a written request by Collateral Agent to do so,
transfer all amounts in the applicable Deposit Account to a Deposit Account
maintained at a financial institution from which the Borrower or such Subsidiary
has obtained such an agreement.
1.21 SECTION CERTAIN POST CLOSING OBLIGATIONS.
---------------------------------
(a) On or before the 18-month anniversary of the Closing Date, Holdings
shall cause Borrower to have received aggregate cash equity contributions and/or
Qualified Inter company Loans, since the date of its formation, of not less than
$250,000,000; provided, as used in this Section 5.21(a), the phrase "aggregate
cash equity contributions" shall not include any amount included in clause
(ii)(F) of the definition of the term of "EBITDA".
(b) In addition to the five (5) Landlord Consents and Estoppels delivered
by Borrower on the Closing Date pursuant to Section 4.01(k), within 90 days
after the Closing Date, Borrower shall obtain a Landlord Consent and Estoppel
with respect to four (4) of the premises at which as of the Closing Date a
transmission node (ATM switch center node) is located, and within 180 days after
the Closing Date, Borrower shall obtain a Landlord Consent and Estoppel with
respect to all remaining premises at which, as of the Closing Date, a
transmission node (ATM switch center node) is located; provided, however, that
on and after the date of consummation of a Qualified Equity Offering, Borrower
shall only be obligated under this clause (b) to use its best efforts to
accomplish the foregoing.
(c) Within 180 days after the Closing Date, with respect to not less than
50% of Borrower's collocation agreements in effect as of the Closing Date,
Borrower shall either (y) obtain the consents of any necessary parties to the
grant of a security interest therein in favor of Collateral Agent under the
Pledge and Security Agreement or (z) assign all rights under
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
such collocation agreements to a newly-created, wholly-owned Subsidiary, in each
case in a manner reasonably acceptable to the Administrative Agent and
Collateral Agent; provided that on and after the date of a Qualified Equity
--------
Offering, Borrower shall only be obligated under this clause (c) to use its best
efforts to accomplish the foregoing.
(d) Notwithstanding anything in this Agreement or in any other Loan
Document to the contrary (but subject, in any event to Sections 5.21(b) and
5.21(c)), each Credit Party shall use its best efforts to (i) obtain a Landlord
Consent and Estoppel with respect to any Leasehold Property at which a
transmission node (ATM switch center node) is located, and (ii) take the steps
set forth at Section 5.21(c)(y) or (c)(z) with respect to any collocation
agreement entered into thereby.
2 ARTICLE
NEGATIVE COVENANTS
- ------------------
Each Credit Party covenants and agrees with the Administrative Agent
and the Lenders that as long as this Agreement shall remain in effect, any
Commitment hereunder shall be outstanding or any Obligations hereunder or under
any of the Loan Documents shall be unpaid, unless the Requisite Lenders shall
have otherwise given prior written consent:
1.1 SECTION LIENS, ETC. Such Credit Party shall not create, incur, assume
----------
or suffer to exist, directly or indirectly, any Lien upon or with respect to any
of its properties or the Collateral, now owned or hereafter acquired, or upon
any proceeds, products, issues, income or profits therefrom except for the
following ("PERMITTED LIENS"):
---------------
(i) Liens granted pursuant to the Loan Documents;
(ii) Liens securing any Purchase Debt to the extent that
the Liens cover only the subject assets purchased with such
Purchase Debt or other assets financed by the same lender
with other Purchase Debt provided by such lender and is
limited to the amount of the purchase price of such subject
assets;
(iii) Liens securing any Vendor Financing to the extent that
the Liens cover only the subject assets purchased with such
Vendor Financing and is limited to the amount of the
purchase price of such subject assets;
(iv) Liens for taxes, assessments or governmental charges
or levies on such Credit Party's property if the same
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
shall not at the time be delinquent or thereafter can be
paid without penalty, or are being diligently contested in
good faith and by appropriate proceedings, which does not
entail any material danger of forfeiture and for which such
Credit Party shall have set aside reserves on its books as
required by GAAP;
(v) Liens imposed by law, such as landlord's, carrier's,
warehousemen's and mechanic's liens, which liens shall be
waived in writing to the extent waivable, and with respect
to obligations not yet due or being contested in good faith
by appropriate proceedings which does not entail any
material danger of forfeiture and in either case for which
such Credit Party shall have set aside reserves on its books
as required by GAAP;
(vi) Liens arising out of pledges or deposits under
workmen's compensation laws, unemployment insurance, old age
pensions, or other social security benefits other than any
Lien imposed by ERISA;
(vii) Liens incurred or deposits made in the ordinary
course of business to secure surety bonds provided that such
Liens shall extend only to cash collateral for such surety
bonds;
(viii) easements and rights of way and other encumbrances
arising in the ordinary course of business which do not
secure Debt and which do not materially detract from the
operation of business on, or materially impair the title to,
the properties subject to such Liens;
(ix) Liens securing the First Priority Loans on a first
priority basis as contemplated by the First Priority Loan
Documents; or
(x) Liens on cash deposits or other Temporary Cash
Investments securing Debt permitted under Section 6.12(viii)
and not in excess of 105% of the undrawn amount of the
applicable letter of credit.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1.2 SECTION USE OF PROCEEDS. Such Credit Party shall not use the proceeds of
---------------
any Loan for any purpose other than as provided in Section 2.01(d) hereof.
(a) SECTION SALE OF ASSETS, CONSOLIDATION, MERGER, ACQUISITIONS ETC. Such
----------------------------------------------
Credit Party shall not consolidate with or merge into any other Person out the
prior written consent of the with Requisite Lenders, or otherwise sell, lease,
transfer or otherwise dispose of any assets except for (i) sales of inventory in
the ordinary course of business, (ii) any sale, lease, transfer or other
disposition of assets no longer used or useful in the conduct of the Business
for the fair market value thereof not to exceed $250,000 in any fiscal year and
$1,000,000 in the aggregate during the term of this Agreement, (iii) sales of
Investments in accordance with Section 6.06(viii) hereof, and (iv) so long as no
Event of Default or Default has occurred and is continuing, sales of other
assets in an aggregate amount not to exceed the Permitted Asset Sale Amount the
proceeds of which are used to repay First Priority Loans.
(b) Such Credit Party shall not purchase or otherwise acquire all or any
portion of the assets or business of another Person, except for (i) acquisitions
of assets in the ordinary course of business and (ii) Permitted Acquisitions.
1.3 SECTION DIVIDENDS AND DISTRIBUTIONS; SALE OF EQUITY INTERESTS.
-----------------------------------------------------
(a) Such Credit Party shall not purchase, redeem or otherwise acquire any
interest of such Credit Party, declare or make or pay any dividends in any
fiscal year of such Credit Party on any class or classes of stock, return
capital of such Credit Party to its shareholders, make any other distribution on
or in respect of any shares of any class of capital stock of such Credit Party
or make other payments to any shareholder of such Credit Party in its/his/her
capacity as a shareholder, or make payments in respect of Qualified Inter
company Loans; provided, that (i) so long as no Event of Default or Default has
--------
occurred and is continuing or would result therefrom and so long as the Total
Leverage Ratio is less than 6.00:1.00, Borrower may make payments or pay
dividends to Holdings in the amount necessary to make scheduled principal and
interest payments on Permitted Holdings Debt, (ii) Borrower may make payments or
pay dividends to Holdings to pay administrative costs (including overhead,
accounting and legal fees (in each case payable to unaffiliated third parties),
regulatory expenses and filing fees and expenses and out-of-pocket costs of
permitted Debt and equity offerings, not in excess of $1,000,000 in the
aggregate in any fiscal year and (iii) the foregoing restrictions shall not
apply to any payments or dividends made by a Subsidiary of Borrower to Borrower.
(b) Such Credit Party other than Holdings shall not sell or issue any
additional Equity Interests except to Holdings or Borrower (so long as such
additional Equity Interest are pledged to the Collateral Agent as security for
the Obligations).
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1.4 SECTION MANAGEMENT FEES AND PERMITTED CORPORATE OVERHEAD. Such Credit
------------------------------------------------
Party shall not pay or enter into any arrangement to pay any fee or
compensation, or reimburse expenses of, an Affiliate or any other Person for
services which are in the nature of management, corporate overhead or
administrative services (other than employment agreements and consulting
agreements in lieu of employment agreements).
1.5 SECTION INVESTMENTS. Such Credit Party shall not, directly or
-----------
indirectly, make any Investments except:
(i) Temporary Cash Investments;
(ii) Investments in certificates of deposit, repurchase
agreements, money market or other cash management accounts,
bankers acceptances and short term Eurodollar time deposits
with financial institutions having a long term deposit
rating of at least A+ from Moody's Investors Service, Inc.
or Standard & Poor's Ratings Group, respectively;
(iii) Investments in commercial paper rated P1 or A1 by
Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group respectively;
(iv) a Credit Party may own Equity Interests in another
Credit Party or any person that, after giving effect to such
Investment, becomes a Credit Party;
(v) Investments arising from asset sales otherwise
permitted by this Agreement;
(vi) Investments arising from distributions in
bankruptcy or other reorganization proceedings;
(vii) Permitted Acquisitions; and
(viii) other Investments not exceeding, in the aggregate,
the sum of (x) (1) $5,000,000, and (2) the amount of any
cash proceeds received by Borrower and its Subsidiaries with
respect to Investments made pursuant to this clause (x) in
an amount not in excess of the initial Investment; provided,
the aggregate amount of any increase pursuant to this clause
(2) shall not exceed $10,000,000, in the aggregate; plus (y)
----
50% of the amount of equity contributed to, and/or Qualified
Inter
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
company Loans received by, Borrower since the date of its
formation in excess of $250,000,000, but all such
Investments permitted pursuant to this clause (y) shall not
exceed $20,000,000 in the aggregate.
1.6 SECTION SUBSIDIARIES. Such Credit Party shall not create or acquire any
------------
Subsidiary except any Subsidiary the formation of which was (i) undertaken
solely to comply with the licensing requirements of a Governmental Authority and
shall otherwise comply with the applicable requirements of the definition of
"Permitted Acquisition", (ii) to effect a Permitted Acquisition or (iii) to
comply with Section 5.21(c) or 5.21(d); provided that, concurrently with such
--------
creation or acquisition such Subsidiary shall execute and deliver a Counterpart
Agreement in accordance with Section 5.16 hereof.
1.7 SECTION PERMITTED ACTIVITIES. Such Credit Party (other than Holdings)
--------------------
shall not engage in any business or activity other than the operation of its
Business as currently conducted and businesses incidental or complementary
thereto without the prior written consent of the Requisite Lenders. Holdings
shall not engage in any other activity than the ownership of the capital stock
of its Subsidiaries and the incurrence of Permitted Holdings Debt and activities
incidental thereto.
1.8 SECTION DISPOSITION OF LICENSES, ETC. Such Credit Party shall not sell,
----------------------------
assign, transfer or otherwise dispose or attempt to dispose of in any way any
Governmental Approval or any other licenses, permits or approvals except where
the same is not reasonably likely to have a Material Adverse Effect.
1.9 SECTION TRANSACTIONS WITH AFFILIATES. Such Credit Party shall
----------------------------
not directly or indirectly, enter into any transaction, including, without
limitation, leases or other agreements for the purchase or use of any goods or
services, with any Affiliate, except in the ordinary course of and pursuant to
reasonable requirements of such Credit Party's business upon fair and reasonable
terms no less favorable to such Credit Party than it would obtain in a
comparable arm's length transaction with an unaffiliated Person; provided that
--------
the foregoing shall not apply to the sale of any Equity Interests or to an
employment agreement.
1.10 SECTION ERISA. Unless the failure to comply with the following is not
-----
reasonably likely to have a Material Adverse Effect, such Credit Party shall
not:
(a) engage, or permit any ERISA Affiliate to engage, in any prohibited
transaction described in Section 406 of ERISA or 4975 of the IRC for which a
statutory or class exemption is not available or a private exemption has not
been previously obtained from the United States Department of Labor and which
may result in a material liability to the Borrower;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(b) permit to exist any accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the IRC), whether or not waived;
(c) fail, or permit any ERISA Affiliate to fail, to pay timely required
contributions or annual installments due with respect to any waived funding
deficiency to any Benefit Plan;
(d) terminate, or permit any ERISA Affiliate to terminate, any Benefit
Plan which would result in any material liability of such Credit Party under
Title IV of ERISA;
(e) fail to make any contribution or payment to any Multiemployer Plan
which such Credit Party or any ERISA Affiliate may be required to make under any
agreement relating to such Multiemployer Plan, or any law pertaining thereto;
(f) amend, or permit any ERISA Affiliate to amend, a Plan resulting in an
increase in current liability for the plan year such that such Credit Party is
required to provide security to such Plan under Section 401(a)(29) of the IRC;
or
(g) fail, or permit any ERISA Affiliate to fail, to pay any required
installment under Section 412 of the IRC on or before the due date for such
installment or other payment.
1.11 SECTION DEBT. Such Credit Party shall not create or suffer to exist any
----
Debt except:
(i) the Obligations and the First Priority Loans;
(ii) other obligations arising under any Loan Documents
or any First Priority Loan Documents;
(iii) Capitalized Lease Obligations;
(iv) Debt with respect to the financing and
contemplated purchase of office equipment, vehicles and non-
essential telecommunications equipment, not to exceed an
aggregate amount for the Credit Parties of $1,000,000 at any
time ("PURCHASE DEBT");
-------------
(v) Qualified Inter company Loans;
(vi) Comdisco Debt and all other Debt outstanding on
the Closing Date set forth on Schedule 6.12 hereto;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(vii) other unsecured Debt not in excess of $5,000,000
at any time outstanding;
(viii) other Debt permitted pursuant to Section
6.12(viii) of the First Priority Loan Agreement;
(ix) Vendor Financing not to exceed at any time, an
aggregate principal amount, (y) prior to the consummation of
a Qualified Equity Offering, $10,000,000, and (z) after
consummation of a Qualified Equity Offering, $20,000,000;
(x) Permitted Holdings Debt; and
(xi) Interest Rate Agreements permitted pursuant to
Section 6.12(xi) of the First Priority Loan Agreement.
1.12 SECTION PREPAYMENT AND DEBT DOCUMENTS.
-----------------------------
(a) Until such time as a Qualified Equity Offering shall have been
consummated, such Credit Party shall not voluntarily prepay any Debt other than
the First Priority Loans except the Obligations in accordance with the terms
hereof or out of equity proceeds.
(b) Until such time as a Qualified Equity Offering shall have been
consummated, such Credit Party shall not amend any agreement relating to Debt
other than the First Priority Loans other than the Obligations in any manner
which would increase the amount of principal, interest or fees on such Debt, or
accelerate any payments of such Debt.
1.13 SECTION SALE AND LEASEBACK TRANSACTIONS. Such Credit Party shall not,
-------------------------------
directly or indirectly, enter into any arrangement with any Person providing for
such Credit Party to lease or rent property that any Credit Party has sold or
will sell or otherwise transfer to such Person.
1.14 SECTION MARGIN REGULATION. Such Credit Party shall not use or permit any
-----------------
other Person to use any portion of the proceeds of any credit extended under
this Agreement in any manner which might cause the extension of credit made by
any Lender or the application of such proceeds to violate the Securities Act of
1933 or Securities Exchange Act of 1934 (each as amended from time to time, and
any successor statute) or to violate Regulation G, Regulation U, or Regulation
X, or any other regulation of the Federal Reserve Board, in each case as in
effect on the date or dates of such extension of credit and such use of
proceeds.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1.15 SECTION RESTRICTIVE AGREEMENTS, ETC. Such Credit Party shall not enter
---------------------------
into any agreement (excluding this Agreement, the Loan Documents, the First
Priority Loan Documents, any Vendor Financing or any Purchase Debt with respect
to the assets financed thereby) prohibiting the creation or assumption of any
Lien upon its properties, revenues or assets, whether now owned or hereafter
acquired, or the ability of such Credit Party to amend or otherwise modify this
Agreement or any other Loan Document.
2 ARTICLE
FINANCIAL COVENANTS
- -------------------
Each Credit Party covenants and agrees with the Agents and the Lenders
that as long as this Agreement shall remain in effect, any Commitment hereunder
shall be outstanding or the Obligations hereunder or under any of the Loan
Documents shall be unpaid, unless the Requisite Lenders shall have otherwise
given prior written consent:
1.1 SECTION FINANCIAL COVENANTS PRIOR TO ACHIEVING POSITIVE EBITDA. Until
------------------------------------------------------
the date on which Borrower and its Subsidiaries shall have achieved positive
EBITDA for Borrower and its Subsidiaries on a consolidated basis for two (2)
consecutive fiscal quarters as determined by reference to the financial
statements submitted pursuant to Section 5.06 (which in any event shall be
required to occur on or before June 30, 2001):
(a) Consolidated Debt to Capitalization. Holdings and its Subsidiaries
-----------------------------------
shall not at any time permit the ratio of Consolidated Debt to Capitalization to
exceed 0.60:1.00.
(b) EBITDA.
-------
(i) As of the last day of each fiscal quarter
occurring on or before December 31, 2000, Borrower and its
Subsidiaries shall not permit the EBITDA losses for Borrower
and its Subsidiaries on a consolidated basis for the fiscal
quarter then ending to exceed the correlative amount
indicated below:
-----------------------------------------------------
Fiscal Quarter Ending Maximum EBITDA
Losses
-----------------------------------------------------
June 30, 1999 $22,500,000
-----------------------------------------------------
September 30, 1999 $27,500,000
-----------------------------------------------------
December 31, 1999 $29,800,000
-----------------------------------------------------
March 31, 2000 $29,000,000
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
-----------------------------------------------------
June 30, 2000 $22,100,000
-----------------------------------------------------
September 30, 2000 $13,700,000
-----------------------------------------------------
December 31, 2000 $ 6,700,000
-----------------------------------------------------
(i) As of the last day of each fiscal quarter
thereafter, Borrower and its Subsidiaries shall not permit
EBITDA for Borrower and its Subsidiaries on a consolidated
basis for the fiscal quarter then ending to be less than the
correlative amount indicated below:
-----------------------------------------------------
Fiscal Quarter Ending Minimum EBITDA
-----------------------------------------------------
March 31, 2001 $ 500,000
-----------------------------------------------------
June 30, 2001 $7,500,000
-----------------------------------------------------
(a) Capital Expenditures. As of the last day of each fiscal quarter,
--------------------
Borrower and its Subsidiaries shall not permit Capital Expenditures on a
consolidated, cumulative basis from the Closing Date to exceed the
correlative amount set forth below:
Fiscal Quarter Ending Maximum Cumulative
Capital Expenditures
-----------------------------------------------------
June 30, 1999 $ 45,600,000
-----------------------------------------------------
September 30, 1999 $ 82,500,000
-----------------------------------------------------
December 31, 1999 $112,900,000
-----------------------------------------------------
March 31, 2000 $137,800,000
-----------------------------------------------------
June 30, 2000 $158,500,000
-----------------------------------------------------
September 30, 2000 $162,000,000
-----------------------------------------------------
December 31, 2000 $173,700,000
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
-----------------------------------------------------
March 31, 2001 $189,400,000
-----------------------------------------------------
June 30, 2001 $203,800,000
-----------------------------------------------------
1.1 SECTION FINANCIAL COVENANTS AFTER ACHIEVING POSITIVE EBITDA. On and
after the date on which Borrower and its Subsidiaries have achieved positive
EBITDA on a consolidated basis for two (2) consecutive fiscal quarters as
determined by reference to the financial statements submitted pursuant to
Section 5.06 (which in any event, shall occur on or before June 30, 2001):
(a) Minimum Fixed Charge Coverage Ratio. As of the last day of any fiscal
-----------------------------------
quarter, Borrower and its Subsidiaries shall not permit the ratio of (1) the
product of two (2) times the EBITDA for Borrower and its Subsidiaries on a
consolidated basis for the most recently ended six (6) month period to (2) Fixed
Charges for Borrower and its Subsidiaries (such ratio being referred to as the
"FIXED CHARGE COVERAGE RATIO") to be less than the following:
---------------------------
Fiscal Quarter Ending Minimum Fixed
Charge Coverage Ratio
On or prior to March 31, 2003 1.00 to 1.00
Last Day of each 1.10:1.00
Fiscal Quarter Thereafter
(a) Maximum Total Leverage Ratio. As of the last day of any fiscal
----------------------------
quarter, Borrower and its Subsidiaries shall not permit the ratio of (1) Total
Debt as of such date to (2) the product of two (2) times the EBITDA for Borrower
and its Subsidiaries for the most recently ended six (6) month period to exceed
the correlative ratio set forth below:
-----------------------------------------------------
Maximum Total
Fiscal Quarter Ending Leverage Ratio
-----------------------------------------------------
September 30, 2001 7.00:1.00
-----------------------------------------------------
December 31, 2001 5.00:1.00
-----------------------------------------------------
Last Day of each Fiscal
Quarter Thereafter 4.00:1.00
-----------------------------------------------------
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(a) Maximum Consolidated Leverage Ratio. As of the last day of any fiscal
-----------------------------------
quarter, Holdings and its Subsidiaries shall not permit the ratio of (1)
Consolidated Debt as of such date to (2) the product of two (2) times the EBITDA
for Borrower and its Subsidiaries for the most recently ended six (6) month
period to exceed the correlative ratio set forth below:
(b)
-----------------------------------------------------
Fiscal Quarter Ending Maximum Consolidated
Leverage Ratio
-----------------------------------------------------
September 30, 2001 9.00:1.00
-----------------------------------------------------
December 31, 2001 7.00:1.00
-----------------------------------------------------
March 31, 2002 6.00:1.00
-----------------------------------------------------
June 30, 2002 and
each Fiscal Quarter 5.00:1.00
Thereafter
-----------------------------------------------------
(a) Capital Expenditures. Borrower and its Subsidiaries shall not permit
--------------------
Capital Expenditures on a consolidated cumulative basis for the period of April
5, 1999 to September 30, 2001 to exceed $243,800,000.
(b)
1.2 SECTION CERTAIN CALCULATIONS. With respect to any period ending on or
--------------------
after consummation of a Permitted Acquisition, for purposes of determining
compliance with the financial covenants set forth in this Article VII, or clause
(iv) of the definition of Permitted Acquisition, EBITDA shall be calculated with
respect to such period on a pro forma basis (without giving effect to
adjustments to increase EBITDA to account for expected improvements in the
operations of the Permitted Acquisition unless otherwise approved in writing by
the Requisite Lenders) using the historical financial statements of any business
or person acquired or to be acquired and the consolidated financial statements
of Borrower and its Subsidiaries, which shall be reformulated as if such
Permitted Acquisition, and any Debt incurred in connection therewith, had been
consummated or incurred at the beginning of such period (and assuming that such
Debt bears interest during any portion of the applicable measurement period
prior to the relevant acquisition at the weighted average of the interest rates
applicable to outstanding Loans incurred during such period).
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
1 ARTICLE
GUARANTY
- --------
2.1 SECTION GUARANTY OF THE OBLIGATIONS. Subject to the provisions of
---------------------------
Section 8.02, Guarantors jointly and severally hereby irrevocably and
- ------------
unconditionally guaranty the due and punctual payment in full of all Obligations
when the same shall become due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including amounts
that would become due but for the operation of the United States Bankruptcy
Code.
2.2 SECTION CONTRIBUTION BY GUARANTORS. Each Guarantor desires to allocate
--------------------------
among themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and
-----------------------
equitable manner, their obligations arising under this Guaranty. Accordingly, in
the event any payment or distribution is made on any date by a Guarantor under
this Guaranty (a "FUNDING GUARANTOR") that exceeds its Fair Share as of such
-----------------
date, that Funding Guarantor shall be entitled to a contribution from each of
the other Contributing Guarantors in the amount of such other Contributing
Guarantor's Fair Share Shortfall as of such date, with the result that all such
contributions will cause each Contributing Guarantor's Aggregate Payments to
equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a
----------
Contributing Guarantor as of any date of determination, an amount equal to the
ratio of the Fair Share Contribution Amount with respect to such Contributing
Guarantor to the aggregate of the Fair Share Contribution Amounts with respect
to all Contributing Guarantors multiplied by the aggregate amount paid or
distributed on or before such date by all Funding Guarantors under this Guaranty
in respect of the obligations guarantied. "FAIR SHARE SHORTFALL" means, with
--------------------
respect to a Contributing Guarantor as of any date of determination, the excess,
if any, of the Fair Share of such Contributing Guarantor over the Aggregate
Payments of such Contributing Guarantor. "FAIR SHARE CONTRIBUTION AMOUNT" means,
------------------------------
with respect to a Contributing Guarantor as of any date of determination, the
maximum aggregate amount of the obligations of such Contributing Guarantor under
this Guaranty that would not render its obligations hereunder or thereunder
subject to avoidance as a fraudulent transfer or conveyance under Section 548 of
Title 11 of the United States Code or any applicable provisions of comparable
state law; provided, solely for purposes of calculating the "FAIR SHARE
----------
CONTRIBUTION AMOUNT" with respect to any Contributing Guarantor for purposes of
- -------------------
this Section 8.02, any assets or liabilities of such Contributing Guarantor
------------
arising by virtue of any rights to subrogation, reimbursement or indemnification
or any rights to or obligations of contribution hereunder shall not be
considered as assets or liabilities of such Contributing Guarantor. "AGGREGATE
---------
PAYMENTS" means, with respect to a Contributing Guarantor as of any date of
- --------
determination, an amount equal to the aggregate amount of all payments and
distributions made on or before such date by such Contributing Guarantor in
respect of this Guaranty (including, without limitation, in respect of this
Section 8.02), minus the aggregate amount
- ------------
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
of all payments received on or before such date by such Contributing Guarantor
from the other Contributing Guarantors as contributions under this Section 8.02.
------------
The amounts payable as contributions hereunder shall be determined as of the
date on which the related payment or distribution is made by the applicable
Funding Guarantor. The allocation among Contributing Guarantors of their
obligations as set forth in this Section 8.02 shall not be construed in any way
------------
to limit the liability of any Contributing Guarantor for all of the Obligations
as set forth in Section 8.01 and otherwise hereunder. Each Subsidiary Guarantor
is a third party beneficiary to the contribution agreement set forth in this
Section 8.02.
- ------------
2.3 SECTION PAYMENT BY GUARANTORS. Guarantors hereby jointly and severally
---------------------
agree, in furtherance of the foregoing and not in limitation of any other right
which any Beneficiary may have at law or in equity against any Guarantor by
virtue hereof, that upon the failure of Borrower to pay any of the Obligations
when and as the same shall become due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including amounts
that would become due but for the operation of the United States Bankruptcy
Code), Guarantors will upon demand pay, or cause to be paid, in cash, to
Administrative Agent for the ratable benefit of Beneficiaries, an amount equal
to the sum of the unpaid principal amount of all Obligations then due as
aforesaid, accrued and unpaid interest on such Obligations (including interest
which, but for the filing of a petition in bankruptcy with respect to Borrower,
would have accrued on such Obligations, whether or not a claim is allowed
against Borrower for such interest in the related bankruptcy proceeding) and all
other Obligations then owed to Beneficiaries as aforesaid.
2.4 SECTION LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its
--------------------------------
obligations hereunder are irrevocable, absolute, independent and unconditional
and shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than payment in full of the
Obligations. In furtherance of the foregoing and without limiting the generality
thereof, each Guarantor agrees as follows:
(a) this Guaranty is a guaranty of payment when due and not of
collectibility;
(b) Administrative Agent may enforce this Guaranty upon the occurrence of
an Event of Default notwithstanding the existence of any dispute between
Borrower and any Beneficiary with respect to the existence of such Event of
Default;
(c) the obligations of each Guarantor hereunder are independent of the
obligations of Borrower and the obligations of any other guarantor (including
any other Guarantor) of the obligations of Borrower, and a separate action or
actions may be brought and prosecuted against such Guarantor whether or not any
action is brought against Borrower or any of such other guarantors and whether
or not Borrower is joined in any such action or actions;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(d) payment by any Guarantor of a portion, but not all, of the Obligations
shall in no way limit, affect, modify or abridge any Guarantor's liability for
any portion of the Obligations which has not been paid. Without limiting the
generality of the foregoing, if Administrative Agent is awarded a judgment in
any suit brought to enforce any Guarantor's covenant to pay a portion of the
Obligations, such judgment shall not be deemed to release such Guarantor from
its covenant to pay the portion of the Obligations that is not the subject of
such suit, and such judgment shall not, except to the extent satisfied by such
Guarantor, limit, affect, modify or abridge any other Guarantor's liability
hereunder in respect of the Obligations;
(e) any Beneficiary, upon such terms as it deems appropriate, without
notice or demand and without affecting the validity or enforceability hereof or
giving rise to any reduction, limitation, impairment, discharge or termination
of any Guarantor's liability hereunder, from time to time may (i) renew, extend,
accelerate, increase the rate of interest on, or otherwise change the time,
place, manner or terms of payment of the Obligations; (ii) settle, compromise,
release or discharge, or accept or refuse any offer of performance with respect
to, or substitutions for, the Obligations or any agreement relating thereto
and/or subordinate the payment of the same to the payment of any other
obligations; (iii) request and accept other guaranties of the Obligations and
take and hold security for the payment hereof or the Obligations; (iv) release,
surrender, exchange, substitute, compromise, settle, rescind, waive, alter,
subordinate or modify, with or without consideration, any security for payment
of the Obligations, any other guaranties of the Obligations, or any other
obligation of any Person (including any other Guarantor) with respect to the
Obligations; (v) enforce and apply any security now or hereafter held by or for
the benefit of such Beneficiary in respect hereof or the Obligations and direct
the order or manner of sale thereof, or exercise any other right or remedy that
such Beneficiary may have against any such security, in each case as such
Beneficiary in its discretion may determine consistent herewith or the
applicable Lender Counterparty Interest Rate Agreement and any applicable
security agreement, including foreclosure on any such security pursuant to one
or more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable, and even though such action operates to impair
or extinguish any right of reimbursement or subrogation or other right or remedy
of any Guarantor against Borrower or any security for the Obligations; and (vi)
exercise any other rights available to it under the Loan Documents or the Lender
Counterparty Interest Rate Agreements; and
(f) this Guaranty and the obligations of Guarantors hereunder shall be valid
and enforceable and shall not be subject to any reduction, limitation,
impairment, discharge or termination for any reason (other than payment in full
of the Obligations), including the occurrence of any of the following, whether
or not any Guarantor shall have had notice or knowledge of any of them: (i) any
failure or omission to assert or enforce or agreement or election not to assert
or enforce, or the stay or enjoining, by order of court, by operation of
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
law or otherwise, of the exercise or enforcement of, any claim or demand or any
right, power or remedy (whether arising under the Loan Documents or the Lender
Counterparty Interest Rate Agreements, at law, in equity or otherwise) with
respect to the Obligations or any agreement relating thereto, or with respect to
any other guaranty of or security for the payment of the Obligations; (ii) any
rescission, waiver, amendment or modification of, or any consent to departure
from, any of the terms or provisions (including provisions relating to events of
default) hereof, any of the other Loan Documents, any of the Lender Counterparty
Interest Rate Agreements or any agreement or instrument executed pursuant
thereto, or of any other guaranty or security for the Obligations, in each case
whether or not in accordance with the terms hereof or such Loan Document, such
Lender Counterparty Interest Rate Agreement or any agreement relating to such
other guaranty or security; (iii) the Obligations, or any agreement relating
thereto, at any time being found to be illegal, invalid or unenforceable in any
respect; (iv) the application of payments received from any source (other than
payments received pursuant to the other Loan Documents or Lender Counterparty
Interest Rate Agreements from the proceeds of any security for the Obligations,
except to the extent such security also serves as collateral for indebtedness
other than the Obligations) to the payment of indebtedness other than the
Obligations, even though any Beneficiary might have elected to apply such
payment to any part or all of the Obligations; (v) any Beneficiary's consent to
the change, reorganization or termination of the corporate or organizational
structure or existence of Borrower or any of its Subsidiaries and to any
corresponding restructuring of the Obligations; (vi) any failure to perfect or
continue perfection of a security interest in any collateral which secures any
of the Obligations; (vii) any defenses, set-offs or counterclaims which Borrower
may allege or assert against any Beneficiary in respect of the Obligations,
including, without limitation, failure of consideration, breach of warranty,
payment, statute of frauds, statute of limitations, accord and satisfaction and
usury; and (viii) any other act or thing or omission, or delay to do any other
act or thing, which may or might in any manner or to any extent vary the risk of
any Guarantor as an obligor in respect of the Obligations.
2.5 SECTION WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the
---------------------
benefit of Beneficiaries: (i) any right to require any Beneficiary, as a
condition of payment or performance by such Guarantor, to proceed against
Borrower, any other guarantor (including any other Guarantor) of the Obligations
or any other Person, proceed against or exhaust any security held from Borrower,
any such other guarantor or any other Person, proceed against or have resort to
any balance of any deposit account or credit on the books of any Beneficiary in
favor of Borrower, any such other guarantor (including any other Guarantor) or
any other Person, or pursue any other remedy in the power of any Beneficiary
whatsoever; (ii) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of Borrower including any defense
based on or arising out of the lack of validity or the unenforceability of the
Obligations or any agreement or instrument relating thereto or by reason of the
cessation of the liability of Borrower from any cause
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
other than payment in full of the Obligations; (iii) any defense based upon any
statute or rule of law which provides that the obligation of a surety must be
neither larger in amount nor in other respects more burdensome than that of the
principal; (iv) any defense based upon any Beneficiary's errors or omissions in
the administration of the Obligations, except behavior which amounts to bad
faith; (v) any principles or provisions of law, statutory or otherwise, which
are or might be in conflict with the terms hereof and any legal or equitable
discharge of such Guarantor's obligations hereunder, the benefit of any statute
of limitations affecting such Guarantor's liability hereunder or the enforcement
hereof, any rights to set-offs, recoupments and counterclaims, and promptness,
diligence and any requirement that any Beneficiary protect, secure, perfect or
insure any security interest or lien or any property subject thereto; (vi)
notices, demands, presentments, protests, notices of protest, notices of
dishonor and notices of any action or inaction, including acceptance hereof,
notices of default hereunder, or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Obligations or any
agreement related thereto, notices of any extension of credit to Borrower and
notices of any of the matters referred to in Section 8.04 and any right to
------------
consent to any thereof; and (vii) any defenses or benefits that may be derived
from or afforded by law which limit the liability of or exonerate guarantors or
sureties, or which may conflict with the terms hereof.
2.6 SECTION GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Each
----------------------------------------------------
Guarantor hereby waives, until the Obligations shall have been indefeasibly paid
in full and the Commitments shall have terminated, shall have expired or been
cancelled, any claim, right or remedy, direct or indirect, that such Guarantor
now has or may hereafter have against Borrower or any of its assets in
connection with this Guaranty or the performance by such Guarantor of its
obligations hereunder, in each case whether such claim, right or remedy arises
in equity, under contract, by statute, under common law or otherwise and
including without limitation any right of subrogation, reimbursement or
indemnification that such Guarantor now has or may hereafter have against
Borrower with respect to the Obligations, any right to enforce, or to
participate in, any claim, right or remedy that any Beneficiary now has or may
hereafter have against Borrower, and any benefit of, and any right to
participate in, any collateral or security now or hereafter held by any
Beneficiary. In addition, until the Obligations shall have been indefeasibly
paid in full and the Commitments shall have terminated shall have expired or
been cancelled, each Guarantor shall withhold exercise of any right of
contribution such Guarantor may have against any other guarantor (including any
other Guarantor) of the Obligations, including, without limitation, any such
right of contribution as contemplated by Section 8.02. Each Guarantor further
------------
agrees that, to the extent the waiver or agreement to withhold the exercise of
its rights of subrogation, reimbursement, indemnification and contribution as
set forth herein is found by a court of competent jurisdiction to be void or
voidable for any reason, any rights of subrogation, reimbursement or
indemnification such Guarantor may have against Borrower or against any
collateral or security, and any rights of contribution such Guarantor may have
against any such other guar-
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
antor, shall be junior and subordinate to any rights any Beneficiary may have
against Borrower, to all right, title and interest any Beneficiary may have in
any such collateral or security, and to any right any Beneficiary may have
against such other guarantor. If any amount shall be paid to any Guarantor on
account of any such subrogation, reimbursement, indemnification or contribution
rights at any time when all Obligations shall not have been paid in full, such
amount shall be held in trust for such Beneficiary and shall forthwith be paid
over to such Person to be credited and applied against the Obligations, whether
matured or unmatured, in accordance with the terms hereof.
2.7 SECTION SUBORDINATION OF OTHER OBLIGATIONS. Any Indebtedness of Borrower
----------------------------------
or any Guarantor now or hereafter held by any Guarantor (the "OBLIGEE
-------
GUARANTOR") is hereby subordinated in right of payment to the Obligations, and
- ---------
any such indebtedness collected or received by the Obligee Guarantor after an
Event of Default has occurred and is continuing shall be held in trust for
Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over
to Administrative Agent for the benefit of Beneficiaries to be credited and
applied against the Obligations but without affecting, impairing or limiting in
any manner the liability of the Obligee Guarantor under any other provision
hereof.
2.8 SECTION CONTINUING GUARANTY. This Guaranty is a continuing guaranty and
-------------------
shall remain in effect until all of the Obligations shall have been paid in full
and the Commitments shall have terminated. Each Guarantor hereby irrevocably
waives any right to revoke this Guaranty as to future transactions giving rise
to any Obligations.
2.9 SECTION AUTHORITY OF GUARANTORS OR BORROWER. It is not necessary for any
-----------------------------------
Beneficiary to inquire into the capacity or powers of any Guarantor or Borrower
or the officers, directors or any agents acting or purporting to act on behalf
of any of them.
2.10 SECTION FINANCIAL CONDITION OF BORROWER. Any Loan may be granted to
-------------------------------
Borrower or continued from time to time, and any Lender Counterparty Interest
Rate Agreements may be entered into from time to time, in each case without
notice to or authorization from any Guarantor regardless of the financial or
other condition of Borrower at the time of any such grant or continuation or at
the time such Lender Counterparty Interest Rate Agreement is entered into, as
the case may be. No Beneficiary shall have any obligation to disclose or discuss
with any Guarantor its assessment, or any Guarantor's assessment, of the
financial condition of Borrower. Each Guarantor has adequate means to obtain
information from Borrower on a continuing basis concerning the financial
condition of Borrower and its ability to perform its obligations under the Loan
Documents and the Lender Counterparty Interest Rate Agreements, and each
Guarantor assumes the responsibility for being and keeping informed of the
financial condition of Borrower and of all circumstances bearing upon the risk
of nonpayment of the Obligations. Each Guarantor hereby waives and relinquishes
any duty on the part of any Beneficiary to disclose any matter, fact or thing
relating
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
to the business, operations or conditions of Borrower now known or hereafter
known by any Beneficiary.
2.11 SECTION BANKRUPTCY, ETC.
---------------
(a) The obligations of Guarantors hereunder shall not be reduced, limited,
impaired, discharged, deferred, suspended or terminated by any proceeding,
voluntary or involuntary, involving the bankruptcy, insolvency, receivership,
reorganization, liquidation or arrangement of Borrower or by any defense which
Borrower may have by reason of the order, decree or decision of any court or
administrative body resulting from any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any
portion of the Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Obligations if said proceedings had not been commenced) shall be
included in the Obligations because it is the intention of Guarantors and
Beneficiaries that the Obligations which are guarantied by Guarantors pursuant
hereto should be determined without regard to any rule of law or order which may
relieve Borrower of any portion of such Obligations. Guarantors will permit any
trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit
of creditors or similar person to pay Administrative Agent, or allow the claim
of Administrative Agent in respect of, any such interest accruing after the date
on which such proceeding is commenced.
(c) In the event that all or any portion of the Obligations are paid by
Borrower or any other Person (including any Guarantor), the obligations of
Guarantors hereunder shall continue and remain in full force and effect or be
reinstated, as the case may be, in the event that all or any part of such
payment(s) are rescinded or recovered directly or indirectly from any
Beneficiary as a preference, fraudulent transfer or otherwise (and whether by
action or proceeding, settlement or otherwise), and any such payments which are
so rescinded or recovered shall constitute Obligations for all purposes
hereunder.
2.12 SECTION NOTICE OF EVENTS. As soon as any Guarantor obtains knowledge
----------------
thereof, such Guarantor shall give Administrative Agent written notice of any
condition or event which has resulted in a material adverse change in the
financial condition of any Guarantor or Borrower or a breach of or noncompliance
with any term, condition or covenant contained herein, any other Loan Document
or any other document delivered pursuant hereto or thereto.
2.13 SECTION DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the
--------------------------------------------
equity Securities of any Guarantor or any of its successors in interest
hereunder shall be sold or
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
otherwise disposed of (including by merger or consolidation) in accordance with
the terms and conditions hereof, the Guaranty of such Guarantor hereunder or
such successor in interest hereunder, as the case may be, shall automatically be
discharged and released without any further action by any Beneficiary or any
other Person effective as of the time of such asset sale; provided, as a
condition precedent to such discharge and release, Collateral Agent shall have
received evidence satisfactory to it that arrangements satisfactory to it have
been made for delivery to Collateral Agent of the applicable proceeds of such
disposition pursuant to Section 2.09(c).
---------------
3 ARTICLE
EVENTS OF DEFAULT; REMEDIES
- ----------------------------
4.1 SECTION EVENTS OF DEFAULT. The following events shall each constitute
-----------------
an "EVENT OF DEFAULT":
----------------
(a) Borrower shall fail to pay the principal of, or, within 5 days of the
date that it is due, interest on its Notes, or any other amounts payable
hereunder or under any of the other Loan Documents when due, whether as
scheduled, at a date fixed for prepayment, by acceleration or otherwise; or
(b) any Credit Party shall fail to observe or perform any other covenant,
condition or agreement to be observed or performed by such Credit Party in any
of the Loan Documents, and such Credit Party fails to cure such breach within
ten (10) Days after written notice thereof unless the breach relates to a
covenant contained in Section 5.04, or Article VI (other than Section 6.05 or
Section 6.06) or VII, in which case no notice or grace period shall apply, or
unless the breach relates to Section 5.06, in which case an Event of Default
shall occur on the thirtieth day following the breach without any notice
requirement, unless the breach shall have been cured before such date; or
(c) any representation or warranty made by any Credit Party in connection
with this Agreement or any other Loan Document, or the Loans or any statement or
representation made in any report, certificate, financial statement or other
instrument furnished by or on behalf of such Credit Party pursuant to this
Agreement or any other Loan Document, shall prove to have been false or
misleading in any material respect when made or delivered or when deemed made in
accordance with the terms hereof or thereof; or
(d) any Credit Party shall fail to make any payment due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) on
any other obligation for borrowed money in excess of $250,000 with respect to
any Credit Party (other than Holdings) or in excess of $1,000,000 with respect
to Holdings, and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such indebtedness;
or any other default or event under any agreement or instrument
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(other than the First Priority Loan Agreement) relating to any indebtedness for
borrowed money in excess of $250,000 with respect to any Credit Party (other
than Holdings) or in excess of $1,000,000 with respect to Holdings, or any other
event, shall occur and shall continue after the applicable grace period, if any,
specified in such agreement or instrument if the effect of such default or event
is to accelerate, or to permit the acceleration of, the maturity of such
indebtedness in excess of $250,000 with respect to any Credit Party (other than
Holdings) or in excess of $1,000,000 with respect to Holdings; or any such
indebtedness in excess of $250,000 with respect to any Credit Party (other than
Holdings) or in excess of $1,000,000 with respect to Holdings shall be declared
to be due and payable or required to be prepaid (other than by a regularly
scheduled required prepayment) prior to the stated maturity thereof; or
(e) any Credit Party shall (i) apply for or consent to the appointment of
a receiver, trustee, custodian, sequestrator or similar official for such Credit
Party or for a substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) become unable, or admit in writing its
inability, to pay its debts as they become due, (iv) voluntarily or
involuntarily dissolve, liquidate or wind up its affairs, or (v) take action for
the purpose of effecting any of the foregoing; or
(f) a proceeding under any bankruptcy, reorganization, arrangement of
debts, insolvency or receivership law is filed by or against any Credit Party,
or any Credit Party takes any action to authorize any of the foregoing matters,
and in the case of any such proceeding instituted against any Credit Party (but
not instituted by any Credit Party), either such proceeding shall remain
undismissed or unstayed for a period of sixty (60) days or any of the actions
sought in such proceeding (including, without limitation, the entry of an order
for relief against, or the appointment of a receiver, trustee or other similar
official for any Credit Party or any substantial part of its property) shall be
granted or shall occur; or
(g) a Termination Event (other than a Reportable Event) occurs which the
Requisite Lenders in good faith believe would subject Borrower to a liability
which is reasonably likely to have a Material Adverse Effect; or
(h) the plan administrator of any Plan applies under Section 412(d) of the
IRC for a waiver of the minimum funding standards of Section 412(a) of the IRC
and the Requisite Lenders in good faith believe that the approval of such waiver
could subject Borrower or any ERISA Affiliate to liability which is reasonably
likely to have a Material Adverse Effect; or
(i) unless it is not reasonably likely to have a Material Adverse Effect,
any of the Governmental Approvals or any other license, Governmental Approval or
other governmental consent or approval necessary for the continuing operation of
any Credit Party or any
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
System or any other material Governmental Approval or approval of or material
filing with the FCC, any PUC or any other Governmental Authority with respect to
the conduct by any Credit Party of its business and operations, including its
Business, shall not be obtained or shall cease to be in full force and effect,
which in respect of any of the Governmental Approvals shall, in the case of an
order of the FCC, any PUC or other Governmental Authority having jurisdiction
with respect thereto, revoking, or deciding not to renew, any such Governmental
Approval, occur upon the issuance of such order, and, in the case of any other
order revoking or terminating any of the Governmental Approvals or deciding not
to renew such Governmental Approvals prior to the termination thereof, occur
when such order becomes final; or
(j) unless it is not reasonably likely to have a Material Adverse Effect,
the FCC, any PUC or any other Governmental Authority, by final order, determines
that the existence or performance of this Agreement or any other Loan Document
will result in a revocation, suspension or material adverse modification of any
of the Governmental Approvals for any System; or
(k) for any reason any Loan Document shall not be in full force and effect
or shall not be enforceable in accordance with its terms, or the Guaranty set
forth at Article VIII hereof for any reason, other than the satisfaction in full
------------
of all Obligations, shall cease to be in full force and effect (other than in
accordance with its terms) or shall be declared to be null and void or voidable
or any Guarantor shall repudiate its obligations thereunder with respect to such
Guaranty, or any security interest or lien granted pursuant thereto with respect
to Collateral having an aggregate value of $500,000 or greater shall fail to be
perfected or to have its intended priority, or any Credit Party or any Affiliate
thereof shall contest the validity of any Lien granted under, or shall disaffirm
its obligations under any Loan Document; or
(l) unless it is not reasonably likely to have a Material Adverse Effect,
for any reason, any Credit Party ceases to operate any System or ceases to own
any of its Governmental Approvals necessary for the continuing operation of any
System; or
(m) a judgment or judgments for the payment of money in excess of $500,000
individually or $1,000,000 in the aggregate at any one time shall have been
rendered against any Credit Party and the same shall have remained unsatisfied
and in effect for any period of ninety (90) days during which no stay of
execution shall have been obtained; or
(n) unless it is not reasonably likely to have a Material Adverse Effect,
any Credit Party is enjoined, restrained or in any way prevented by the order of
any court or administrative or regulatory agency from conducting its business in
any material respect with respect to any one or more of its Systems; or
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(o) any Credit Party becomes subject to any liabilities, costs, expenses,
damages, fines or penalties which could reasonably be expected to have a
Material Adverse Effect arising out of or related to (i) any Remedial Action in
response to a Release or threatened Release at any location of any Contaminant
into the indoor or outdoor environment or (ii) any material violation of any
Environmental Law; or
(p) a Change of Control shall occur; or
(q) an Event of Default (as such term is defined in the First Priority
Loan Agreement) shall occur and be continuing for a period of 45 days.
4.2 SECTION TERMINATION OF COMMITMENT; ACCELERATION. Upon the
---------------------------------------
occurrence and at any time during the continuance of any Event of Default, the
Administrative Agent shall upon direction from the Requisite Lenders:
(a) by notice to Borrower, terminate Lenders' Commitment to make Loans
hereunder; or
(b) by notice to Borrower, declare the Obligations to be immediately due
and payable, whereupon all the Obligations shall be immediately due and payable
without further notice of any kind, provided, however, that if an Event of
-------- -------
Default described in Section 9.01(e) or 9.01(f) shall exist or occur, all of the
--------------------------
Obligations shall automatically, without declaration or notice of any kind, be
immediately due and payable and the Commitments shall be automatically
terminated.
(c) Any amounts described in clause (b) above, when received by Administrative
Agent, shall be held by Administrative Agent pursuant to the terms of the
Intercreditor Agreement and shall be applied as therein provided.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
4.3 SECTION WAIVERS. Demand, presentment, protest and notices of nonpayment,
-------
protest, dishonor and acceptance are hereby waived by Borrower. Borrower also
waives the benefit of all valuation, appraisal and exemption laws and the
posting of any bond required of the Administrative Agent or any Lender in
connection with any judicial process to realize on the Collateral, to enforce
any judgment or other court order entered in favor of the Administrative Agent
or any Lender or to enforce by specific performance, temporary restraining
order, or preliminary or permanent injunction, this Agreement or any other Loan
Documents. Each Borrower waives the right, if any, to the benefit of, or to
direct the application of, any Collateral. Each Borrower hereby acknowledges
that none of the Administrative Agent or any Lender has any obligation to resort
to any Collateral or make claim against any other Person before seeking payment
or performance from Borrower.
5 ARTICLE
AGENTS
- ------
6.1 SECTION APPOINTMENT OF AGENTS. GSCP is hereby appointed Joint Lead
---------------------
Arranger and Syndication Agent hereunder, CSC is hereby appointed Joint Lead
Arranger, and each Lender hereby authorizes each Joint Lead Arranger and
Syndication Agent to act as its agent in accordance with the terms hereof and
the other Loan Documents. Newcourt is hereby appointed Administrative Agent
hereunder and under the other Loan Documents and each Lender hereby authorizes
Administrative Agent to act as its agent in accordance with the terms hereof and
the other Loan Documents. Newcourt is hereby appointed Collateral Agent
hereunder, under the Intercreditor Agreement and the other Loan Documents, and
each Lender hereby authorizes Collateral Agent to act as its agent in accordance
with the terms of the Intercreditor Agreement and the other Loan Documents.
Newcourt is hereby appointed Documentation Agent hereunder, and each Lender
hereby authorizes Documentation Agent to act as its agent in accordance with the
terms hereof and the other Loan Documents. Each Agent hereby agrees to act upon
the express conditions contained herein and the other Loan Documents, as
applicable. Without limitation of any right of the Borrower pursuant to Section
10.07, the provisions of this Article X are solely for the benefit of Agents and
---------
Lenders and no Person shall have any rights as a third party beneficiary of any
of the provisions thereof. In performing its functions and duties hereunder,
each Agent shall act solely as an agent of Lenders and does not assume and shall
not be deemed to have assumed any obligation towards or relationship of agency
or trust with or for any of Borrower, any of the other Credit Parties or any of
their respective Affiliates. As of the Closing Date, all the respective
obligations of CSC, in its capacity as Joint Lead Arranger, GSCP, in its
capacity as Joint Lead Arranger and Syndication Agent, and Newcourt, in its
capacity as Documentation Agent, shall terminate.
6.2 SECTION POWERS AND DUTIES. Each Lender irrevocably authorizes
-----------------
each Agent to take such action on such Lender's behalf and to exercise such
powers, rights and remedies
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
hereunder and under the other Loan Documents as are specifically delegated or
granted to such Agent by the terms hereof and thereof, together with such
powers, rights and remedies as are reasonably incidental thereto. Each Agent
shall have only those duties and responsibilities that are expressly specified
herein and the other Loan Documents. Each Agent may exercise such powers, rights
and remedies and perform such duties by or through its agents or employees and
such Agent shall have no liability with respect to the actions, omissions,
exercise or performance of any such Agent or employees selected by such Agent
with reasonable care. No Agent shall have, by reason hereof or any of the other
Loan Documents, a fiduciary relationship in respect of any Lender; and nothing
herein or any of the other Loan Documents, expressed or implied, is intended to
or shall be so construed as to impose upon any Agent any obligations in respect
hereof or any of the other Loan Documents except as expressly set forth herein
or therein.
(a) SECTION GENERAL IMMUNITY. No Agent shall be responsible to any Lender
----------------
for the execution, effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency hereof or of any other Loan Document or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statements or in any financial or other statements,
instruments, reports or certificates or any other documents furnished or made by
any of the Agents to Lenders or by or on behalf of any Credit Party to any of
the Agents or any Lender in connection with the Loan Documents and the
transactions contemplated thereby or for the financial condition or business
affairs of any Person liable for the payment of any Obligations, nor shall any
Agent be required to ascertain or inquire as to the performance or observance of
any of the terms, conditions, provisions, covenants or agreements contained in
any of the Loan Documents or as to the use of the proceeds of the Loans or as to
the existence or possible existence of any Event of Default or Default. Anything
contained herein to the contrary notwithstanding, Administrative Agent shall not
have any liability arising from confirmations of the amount of outstanding Loans
or the component amounts thereof, except as to any such liability arising from
gross negligence or willful misconduct.
(b) No Agent nor any of its officers, partners, directors, employees or
agents shall be liable to Lenders for any action taken or omitted by any Agent
under or in connection with any of the Loan Documents except to the extent
caused by such Agent's gross negligence or willful misconduct. Each Agent shall
be entitled to refrain from any act or the taking of any action (including the
failure to take an action) in connection herewith or any of the other Loan
Documents or from the exercise of any power, discretion or authority vested in
it hereunder or thereunder unless and until such Agent shall have received
instructions in respect thereof from Requisite Lenders (or such other Lenders as
may be required to give such instructions under Section 11.05) and, upon receipt
--------------
of such instructions from Requisite Lenders (or such other Lenders, as the case
may be), such Agent shall be entitled to act or (where so instructed) refrain
from acting, or to exercise such power, discretion or authority,
<PAGE>
SECTION PRIORITY LOAN AGREEMENT
-------------------------------
in accordance with such instructions. Without prejudice to the generality of the
foregoing, (i) each Agent shall be entitled to rely, and shall be fully
protected in relying, upon any communication, instrument or document believed by
it to be genuine and correct and to have been signed or sent by the proper
person or persons, and shall be entitled to rely and shall be protected in
relying on opinions and judgments of attorneys (who may be attorneys for
Borrower and its Affiliates), accountants, experts and other professional
advisors selected by it; and (ii) no Lender shall have any right of action
whatsoever against any Agent as a result of such Agent acting or (where so
instructed) refraining from acting hereunder or any of the other Loan Documents
in accordance with the instructions of Requisite Lenders (or such other Lenders
as may be required to give such instructions under Section 11.05).
--------------
6.3 SECTION AGENTS ENTITLED TO ACT AS LENDER. The agency hereby created
--------------------------------
shall in no way impair or affect any of the rights and powers of, or impose any
duties or obligations upon, any Agent in its individual capacity as a Lender
hereunder. With respect to its participation in the Loans, each Agent shall have
the same rights and powers hereunder as any other Lender and may exercise the
same as though it were not performing the duties and functions delegated to it
hereunder, and the term "Lender" shall, unless the context clearly otherwise
indicates, include each Agent in its individual capacity. Any Agent and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of banking, trust, financial advisory or other business with any of
Borrower and its Affiliates as if it were not performing the duties specified
herein, and may accept fees and other consideration from any Credit Party for
services in connection herewith and otherwise without having to account for the
same to Lenders.
6.4 SECTION LENDERS' REPRESENTATIONS AND WARRANTIES. Each Lender represents
---------------------------------------
and warrants that it has made its own independent investigation of the financial
condition and affairs of the Credit Parties and their Affiliates in connection
with Loans made hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of Credit Parties and their Affiliates. No
Agent shall have any duty or responsibility, either initially or on a continuing
basis, to make any such investigation or any such appraisal on behalf of Lenders
or to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter, and no Agent shall have any responsibility with
respect to the accuracy of or the completeness of any information provided to
Lenders.
6.5 SECTION RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata
------------------
Share, severally agrees to indemnify each Agent, to the extent that such Agent
shall not have been reimbursed by Borrower, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including counsel fees and disbursements) or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Agent in exercising its powers, rights and remedies
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
or performing its duties hereunder or under the other Loan Documents or
otherwise in its capacity as such Agent in any way relating to or arising out
hereof or the other Loan Documents; provided, no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from such Agent's
gross negligence or willful misconduct; provided further, however, that the
-------- ------- -------
gross negligence or willful misconduct of any Agent shall not affect any other
Agent's right to indemnification hereunder. If any indemnity furnished to any
Agent for any purpose shall, in the opinion of such Agent, be insufficient or
become impaired, such Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished; provided, in no event shall this sentence require any Lender to
indemnify any Agent against any liability, obligation, loss, damage, penalty,
action, judgment, suit, cost, expense or disbursement in excess of such Lender's
Pro Rata Share thereof; and provided further, this sentence shall not be deemed
to require any Lender, subject to the second provisio of the immediately
preceding sentence, to indemnify any Agent against any liability, obligation,
loss, damage, penalty, action, judgment, suit, cost, expense or disbursement
described in the initial proviso in the immediately preceding sentence.
6.6 SECTION SUCCESSOR ADMINISTRATIVE AGENT. Administrative Agent may resign
------------------------------
at any time by giving thirty (30) days' prior written notice thereof to Lenders
and Borrower, and Administrative Agent may be removed at any time with or
without cause by an instrument or concurrent instruments in writing delivered to
Borrower and Administrative Agent and signed by Requisite Lenders. Upon any such
notice of resignation or any such removal, Requisite Lenders shall have the
right, upon five Business Days' notice to Borrower, to appoint a successor
Administrative Agent which successor shall, unless a Default or Event of Default
shall have occurred and be continuing, be reasonably acceptable to the Borrower.
Upon the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, that successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring or removed Administrative Agent and the retiring or
removed Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring or removed Administrative Agent's resignation or
removal hereunder as Administrative Agent, the provisions of this Article X
--------
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent hereunder.
6.7 SECTION OTHER LOAN DOCUMENTS. Each Lender hereby further authorizes
--------------------
Administrative Agent, on behalf of and for the benefit of Lenders, to enter into
the other Loan Documents , and each Lender agrees to be bound by the terms of
the other Loan Documents; provided that Administrative Agent shall not enter
--------
into or consent to any amendment, modification, supplementation, termination or
waiver of any other Loan Document without the prior consent of Requisite Lenders
(or such other Lenders as may be re-
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
quired to give such instructions under Section 11.05 hereof). Each Lender hereby
-------------
further authorizes Collateral Agent (and under the terms of the Intercreditor
Agreement Collateral Agent is authorized), on behalf of and for the benefit of
Lenders, to enter into each Collateral Document as secured party, and each
Lender agrees to be bound by the terms of each Collateral Document; provided
--------
that Collateral Agent shall not enter into or consent to any amendment,
modification, supplementation, termination or waiver of the Intercreditor
Agreement without the prior consent of Requisite Lenders (or such other Lenders
as may be required to give such instructions under Section 11.05 hereof);
-------------
provided further, however, that, without further written consent or
- -------- ------- -------
authorization from Lenders, Collateral Agent may execute any documents or
instruments necessary to (a) release any Lien encumbering any item of Collateral
that is the subject of a sale or other disposition of assets permitted by this
Agreement or as permitted or required under the Intercreditor Agreement or the
Collateral Documents or to which Requisite Lenders (or such other Lenders as may
be required to give such consent under Section 11.05 hereof) have otherwise
-------------
consented or (b) release any Guarantor from its Guaranty hereunder if all of the
capital stock of such Guarantor is sold to any Person pursuant to a sale or
other disposition permitted hereunder or as permitted under the Intercreditor
Agreement or to which Requisite Lenders (or such other Lenders as may be
required to give such consent under Section 11.05 hereof) have otherwise
-------------
consented. Anything contained in any of the Collateral Documents to the contrary
notwithstanding, Borrower, Administrative Agent, Collateral Agent and each
Lender hereby agree that (X) no Lender shall have any right individually to
realize upon any of the Collateral under any Collateral Document or to a
Guarantor's Guaranty hereunder, it being understood and agreed that all powers,
rights and remedies under the Collateral Documents may be exercised solely by
Collateral Agent for the benefit of Secured Parties in accordance with the terms
hereof or thereof, and (Y) in the event of a foreclosure by Collateral Agent on
any of the Collateral pursuant to a public or private sale, Collateral Agent or
any Secured Party may be the purchaser of any or all of such Collateral at any
such sale and Collateral Agent, as agent for and representative of Secured
Parties (but not any Secured Party or Secured Parties in its or their respective
individual capacities unless Requisite Lenders shall otherwise agree in writing)
shall be entitled, for the purpose of bidding and making settlement or payment
of the purchase price for all or any portion of the Collateral sold at any such
public sale, to use and apply any of the Obligations as a credit on account of
the purchase price for any Collateral payable by Collateral Agent at such sale.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
7 ARTICLE
MISCELLANEOUS
- -------------
8.1 SECTION NOTICES. Unless otherwise specifically provided herein, any
-------
notice or other communication herein required or permitted to be given to a
Credit Party, an Agent or a Lender shall be sent to such Person's address as set
forth on the signature pages hereto or in the other relevant Loan Document, and
in the case of any Lender, the address as set forth on the signature pages
hereto or otherwise indicated to Administrative Agent in writing. Each notice
hereunder shall be in writing and may be personally served, telexed or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service and signed for
against receipt thereof, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed; provided, no notice to any Agent shall be effective
until received by such Agent.
8.2 SECTION EXPENSES. Whether or not the transactions contemplated hereby
--------
shall be consummated, Borrower agrees to pay promptly (a) all the actual and
reasonable costs and expenses of the Documentation Agent, and the Syndication
Agent and each Joint Lead Arranger (without duplication with respect to each
such Person) of preparation of the Loan Documents and any consents, amendments,
waivers or other modifications thereto; (b) all the costs of furnishing all
opinions by counsel for Borrower (including any opinions requested by Lenders as
to any legal matters arising hereunder) and of each Credit Party's performance
of and compliance with all agreements and conditions on its part to be performed
or complied with hereunder and the other Loan Documents including with respect
to confirming compliance with environmental, insurance and solvency
requirements; (c) the reasonable fees, expenses and disbursements of counsel to
Agents (in each case including allocated costs of internal counsel) in
connection with the negotiation, preparation, execution and administration of
the Loan Documents and any consents, amendments, waivers or other modifications
thereto and any other Loan Documents or matters requested by a Credit Party; (d)
all the actual costs and reasonable expenses of creating and perfecting Liens in
favor of Collateral Agent on behalf of Lenders pursuant hereto, including filing
and recording fees, expenses and taxes, stamp or documentary taxes, search fees,
title insurance premiums and reasonable fees, expenses and disbursements of
counsel to each Agent and of counsel providing any opinions that any Agent or
Requisite Lenders may request in respect of the Collateral or the Liens created
pursuant the Loan Documents pertaining to the Collateral; (e) all the actual
costs and reasonable fees, expenses and disbursements of any auditors,
accountants, consultants or appraisers retained by the Administrative Agent; (f)
all the actual costs and reasonable expenses (including the reasonable fees,
expenses and disbursements of any appraisers, consultants, advisors and agents
employed or retained by any Agent and its counsel) in connection with the
custody or preservation of any of the Collateral; (g) all other actual and
reasonable costs and expenses incurred by each Agent in connection with the
syndi-
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
cation of the Loans and the negotiation, preparation and execution of the Loan
Documents and any consents, amendments, waivers or other modifications thereto
and the transactions contemplated thereby; (h) and after the occurrence of an
Event of Default, all costs and expenses, including reasonable attorneys' fees
(including allocated costs of internal counsel) and costs of settlement,
incurred by any Agent and Lenders in enforcing any Obligations of or in
collecting any payments due from any Credit Party hereunder or under the other
Loan Documents by reason of such Event of Default (including in connection with
the sale of, collection from, or other realization upon any of the Collateral or
the enforcement of the Guaranty) or in connection with any refinancing or
restructuring of the credit arrangements provided hereunder in the nature of a
"work-out" or pursuant to any insolvency or bankruptcy proceedings.
8.3 SECTION INDEMNITY. In addition to the payment of expenses pursuant to
---------
Section 11.02, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to defend (subject to Indemnitees' selection of
counsel), indemnify, pay and hold harmless, each Agent and Lender and the
officers, partners, directors, trustees, employees, agents and Affiliates of
each Agent and each Lender (each, an "INDEMNITEE"), from and against any and all
----------
Indemnified Liabilities; provided, no Credit Party shall have any obligation to
any Indemnitee hereunder with respect to any Indemnified Liabilities to the
extent such Indemnified Liabilities arise solely from the gross negligence or
willful misconduct of that Indemnitee as determined by a final, non-appealable
judgment of a court of competent jurisdiction; and provided, further, however,
-------- ------- -------
that the gross negligence or willful misconduct of any Indemnitee shall not
affect the right of indemnification of any other Indemnitee hereunder. To the
extent that the undertakings to defend, indemnify, pay and hold harmless set
forth in this Section 11.03 may be unenforceable in whole or in part because
they are violative of any law or public policy, the applicable Credit Party
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all Indemnified
Liabilities incurred by Indemnitees or any of them.
8.4 SECTION SET-OFF. In addition to any rights now or hereafter granted
-------
under applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default each Lender is hereby authorized by each
Credit Party at any time or from time to time subject to the consent of
Administrative Agent (such consent not to be unreasonably withheld, conditioned
or delayed), without notice to any Credit Party or any other Person (other than
Administrative Agent), any such notice being hereby expressly waived, to set off
and to appropriate and to apply any and all deposits (general or special,
including Indebtedness evidenced by certificates of deposit, whether matured or
unmatured, but not including trust accounts) and any other Indebtedness at any
time held or owing by such Lender to or for the credit or the account of such
Credit Party against and on account of the obligations and liabilities of such
Credit Party to such Lender hereunder and under the other Loan Documents,
including all claims of any nature or description arising out of or connected
with
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
this Agreement or any other Loan Document, irrespective of whether or not (a)
such Lender shall have made any demand hereunder or (b) the principal of or the
interest on the Loans or any other amounts due hereunder shall have become due
and payable pursuant to Article II and although said obligations and
----------
liabilities, or any of them, may be contingent or unmatured.
(a) SECTION AMENDMENTS AND WAIVERS. Subject to Section 11.05(b) and
---------------------- ----------------
11.05(c), no amendment, modification, termination or waiver of any provision of
- --------
the Loan Documents, or consent to any departure by any Credit Party therefrom,
shall in any event be effective without the prior written concurrence of the
Requisite Lenders.
(b) Without the prior written consent of each Lender that would be
affected thereby, no amendment, modification, termination, or consent shall be
effective if the effect thereof would:
(i) extend the scheduled final maturity of any Loan or
Note;
(ii) waive, reduce or postpone any scheduled repayment
(but not prepayment);
(iii) reduce the rate of interest on any Loan (other
than any waiver of any increase in the interest rate
applicable to any Loan pursuant to Section 2.05(b)) or any
fee payable hereunder;
(iv) extend the time for payment of any such interest
or fees;
(v) reduce the principal amount of any Loan;
(vi) amend, modify, terminate or waive any provision of
this Section 11.05(b);
(vii) amend the definition of "Requisite Lenders" and
"Pro Rata Shares"; provided, with the consent of Requisite
Lenders, additional extensions of credit pursuant hereto may
be included in the determination of "Requisite Lenders" and
"Pro Rata Shares" on substantially the same basis as the
Commitment Amounts and the Loans are included on the Closing
Date;
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(viii) release or otherwise subordinate all or
substantially all of the Collateral or any Guarantor from
its obligations hereunder except as expressly provided in
the Loan Documents; or
(ix) consent to the assignment or transfer by any
Credit Party of any of its rights and obligations under any
Loan Document.
(c) No amendment, modification, termination or waiver of any provision of
the Loan Documents, or consent to any departure by Borrower or Holdings
therefrom, shall:
(i) increase any Commitment Amount of any Lender over
the amount thereof then in effect without the consent of
such Lender; provided, no amendment, modification or waiver
of any condition precedent, covenant, Default or Event of
Default shall constitute an increase in any Commitment
Amount of any Lender; or
(ii) amend, modify, terminate or waive any provision of
Article X as the same applies to any Agent, or any other
---------
provision hereof as the same applies to the rights or
obligations of any Agent, in each case without the consent
of such Agent.
(d) Administrative Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of such Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this Section 11.05 shall be binding upon each Lender
-------------
at the time outstanding, each future Lender and, if signed by a Borrower or
Holdings, on Borrower or Holdings.
(e) SECTION SUCCESSORS AND ASSIGNS; PARTICIPATIONS. This Agreement shall be
binding upon the parties hereto and their respective successors and assigns and
shall inure to the benefit of the parties hereto and the successors and assigns
of Lenders. No rights or obligations of Borrower or Holdings hereunder nor any
interest therein may be assigned or delegated by Borrower or Holdings without
the prior written consent of all Lenders.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(f) Borrower, Administrative Agent and Lenders shall deem and treat the
Persons listed as Lenders in the Register as the holders and owners of the
corresponding Commitment Amounts and Loans listed therein for all purposes
hereof, and no assignment or transfer of any such Commitment Amount or Loan
shall be effective unless and until an Assignment Agreement effecting the
assignment or transfer thereof shall have been delivered to Administrative Agent
and recorded in the Register. Prior to such recordation, all amounts owed with
respect to the applicable Commitment Amount or Loan shall be owed to the Lender
listed in the Register as the owner thereof, and any request, authority or
consent of any Person who, at the time of making such request or giving such
authority or consent, is listed in the Register as a Lender shall be conclusive
and binding on any subsequent holder, assignee or transferee of the
corresponding Commitment Amounts or Loans.
(g) Each Lender shall have the right at any time to sell, assign or
transfer any Commitment Amount, any Loan or any other Obligation:
(i) to any Person meeting the criteria of clause (i)
of the definition of the term of "Eligible Assignee" upon
the giving of notice to Borrower and Administrative Agent;
and
(ii) to any Person meeting the criteria of clause (ii)
of the definition of the term of "Eligible Assignee";
provided, each such assignment pursuant to this Section
11.06(c)(ii) shall be in an aggregate amount of not less
than $2,000,000 (or such lesser amount as may be agreed to
by Borrower and Administrative Agent or as shall constitute
the aggregate amount of the Commitment Amount, Loans and
other Obligations of the assigning Lender).
(h) The assigning Lender and the assignee thereof shall execute and
deliver to Administrative Agent an Assignment Agreement, together with (i) a
processing and recordation fee of (y) $1,000 in the case of assignments by or to
GSCP, Newcourt or CIBC; provided that no such fee shall be payable until such
time as GSCP and Newcourt have notified Administrative Agent that the primary
syndication of the Loans has been completed, and (z) $3,500 in the case of other
assignments pursuant to Section 11.06(c)(ii); provided, no such processing and
--------------------
recordation fee shall be payable upon any assignment pursuant to Section
11.06(c)(i), and (ii) such forms, certificates or other evidence, if any, with
respect to United States federal income tax withholding matters as the assignee
under such Assignment Agreement may be required to deliver to Administrative
Agent pursuant to Section 2.12(b)(5).
------------------
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(i) Upon its receipt of a duly executed and completed Assignment
Agreement, together with the processing and recordation fee referred to in
Section 11.06(d) (and any forms, certificates or other evidence required by this
- ----------------
Agreement in connection therewith), Administrative Agent shall record the
information contained in such Assignment Agreement in the Register, shall give
prompt notice thereof to Borrower and shall maintain a copy of such Assignment
Agreement.
(j) Each Lender, upon execution and delivery hereof or upon executing and
delivering an Assignment Agreement, as the case may be, represents and warrants
as of the Closing Date or as of the applicable Effective Date (as defined in the
applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it
has experience and expertise in the making of or investing in commitments or
loans such as the Commitment Amounts or Loans, as the case may be; and (iii) it
will make or invest in, as the case may be, its Commitment Amounts or Loans for
its own account in the ordinary course of its business and without a view to
distribution of such Commitment Amounts or Loans within the meaning of the
Securities Act or the Exchange Act or other federal securities laws (it being
understood that, subject to the provisions of this Section 11.06, the
-------------
disposition of such Commitment Amounts or Loans or any interests therein shall
at all times remain within its exclusive control).
(k) Subject to the terms and conditions of this Section 11.06, as of the
-------------
"Effective Date" specified in such Assignment Agreement: (i) the assignee
thereunder shall have the rights and obligations of a "Lender" hereunder to the
extent such rights and obligations hereunder have been assigned to it pursuant
to such Assignment Agreement and shall thereafter be a party hereto and a
"Lender" for all purposes hereof; (ii) the assigning Lender thereunder shall, to
the extent that rights and obligations hereunder have been assigned thereby
pursuant to such Assignment Agreement, relinquish its rights (other than any
rights which survive the termination hereof under Section 11.08) and be released
from its obligations hereunder (and, in the case of an Assignment Agreement
covering all or the remaining portion of an assigning Lender's rights and
obligations hereunder, such Lender shall cease to be a party hereto; (iii) the
Commitment Amounts shall be modified to reflect the Commitment Amount of such
assignee and any remaining Commitment Amount of such assigning Lender, if any;
and (iv) if any such assignment occurs after the issuance of any Note hereunder,
the assigning Lender shall, upon the effectiveness of such assignment or as
promptly thereafter as practicable, surrender its applicable Notes to
Administrative Agent for cancellation, and thereupon Borrower shall issue and
deliver new Notes, if so requested by the assignee and/or assigning Lender, to
such assignee and/or to such assigning Lender, with appropriate insertions, to
reflect the new Commitment Amounts and/or outstanding Loans of the assignee
and/or the assigning Lender.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
(l) Each Lender shall have the right at any time to sell one or more
participations to any Person in all or any part of its Commitment Amounts, Loans
or in any other Obligation. The holder of any such participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except with
respect to any amendment, modification or waiver described in Section 11.05(b)
or 11.05(c) to the extent directly affecting the Loan or Commitment Amount
relating to the participation. All amounts payable by Borrower or Holdings
hereunder, including amounts payable to such Lender pursuant to Section 2.07(e),
2.12 or 2.14, shall be determined as if such Lender had not sold such
participation. Each Borrower and Holdings and each Lender hereby acknowledge and
agree that, solely for purposes of Sections 11.04 and 11.18, any participation
will give rise to a direct obligation of Borrower and Holdings to the
participant and the participant shall be considered to be a "Lender".
(m) In addition to any other assignment permitted pursuant to this
Section 11.06, (i) any Lender may assign and pledge all or any portion of its
Loans, the other Obligations owed to such Lender, and its Notes for or in
connection with any loan or financing, or as part of any securitization or other
similar transaction, and (ii) with the consent of Borrower and Administrative
Agent any Lender which is an investment fund may pledge all or any portion of
its Notes or Loans to its trustee in support of its obligations to such trustee;
provided, no Lender, as between Borrower and such Lender, shall be relieved of
any of its obligations hereunder as a result of any such assignment and pledge,
and provided further, in no event shall the applicable Federal Reserve Bank or
trustee be considered to be a "Lender" or be entitled to require the assigning
Lender to take or omit to take any action hereunder.
8.5 SECTION INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
-------------------------
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or would otherwise be within the limitations of, another covenant shall not
avoid the occurrence of a Default or an Event of Default if such action is taken
or condition exists.
8.6 SECTION SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
------------------------------------------------------
representations, warranties and agreements made herein shall survive the
execution and delivery hereof and the making of any Loan. Notwithstanding
anything herein or implied by law to the contrary, the agreements of any Credit
Party set forth in Sections 2.07(e), 2.12, 2.14, 11.02, 11.03, 11.04 and 11.17
and the agreements of Lenders set forth in Sections 10.06 and 11.18 shall
survive the payment of the Loans and the reimbursement of any amounts drawn
thereunder, and the termination hereof.
8.7 SECTION NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of
------------------------------
any Agent or any Lender in the exercise of any power, right or privilege
hereunder or under any other Loan Document shall impair such power, right or
privilege or be construed to
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
be a waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. The rights, powers
and remedies given to each Agent and each Lender hereby are cumulative and shall
be in addition to and independent of all rights, powers and remedies existing by
virtue of any statute or rule of law or in any of the other Loan Documents. Any
forbearance or failure to exercise, and any delay in exercising, any right,
power or remedy hereunder shall not impair any such right, power or remedy or be
construed to be a waiver thereof, nor shall it preclude the further exercise of
any such right, power or remedy.
8.8 SECTION MARSHALLING; PAYMENTS SET AIDE. Neither Administrative Agent nor
------------------------------
any Lender shall be under any obligation to marshal any assets in favor of any
Credit Party or any other Person or against or in payment of any or all of the
Obligations. To the extent that any Credit Party makes a payment or payments to
Administrative Agent or Lenders (or to Administrative Agent for the benefit of
Lenders), or any Agent or Lenders enforce any security interests or exercise
their rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, any other state
or federal law, common law or any equitable cause (whether as a result of any
action or proceeding settlement or otherwise), then, to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefor or related thereto, shall be revived
and continued in full force and effect as if such payment or payments had not
been made or such enforcement or setoff had not occurred.
8.9 SECTION SEVERABILITY. In case any provision in or obligation hereunder or
------------
any Note shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
8.10 SECTION OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The
----------------------------------------------------------
obligations of Lenders hereunder are several and no Lender shall be responsible
for the obligations or Commitment Amounts of any other Lender hereunder. Nothing
contained herein or in any other Loan Document, and no action taken by Lenders
pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out hereof and it shall not be necessary for any other Lender to
be joined as an additional party in any proceeding for such purpose.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
8.11 SECTION ENTIRE AGREEMENT; HEADINGS. This Agreement, together with the
--------------------------
other Loan Documents, constitutes and expresses the entire understanding between
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings, inducements, commitments or conditions,
express or implied, oral or written, except as herein contained. Section
headings herein are included herein for convenience of reference only and shall
not constitute a part hereof for any other purpose or be given any substantive
effect.
8.12 SECTION APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401
OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.
8.13 SECTION CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST
ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER LOAN DOCUMENT,
OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK AND ANY
APPELLATE COURT TO WHICH APPEALS WITH RESPECT TO JUDICIAL PROCEEDINGS IN SUCH
COURTS MAY BE TAKEN. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT
PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY ACCEPTS
GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH
COURTS; WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; AGREES THAT SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS
ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 11.01; AGREES THAT SERVICE AS
PROVIDED HEREINABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE
APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE
CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND AGREES SUCH
LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO BRING PROCEEDINGS AGAINST EACH CREDIT PARTY IN THE COURTS OF ANY OTHER
JURISDICTION.
8.14 SECTION WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO
WAIVE ITS RESPECTIVE RIGHTS TO A JURY
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT HEREOF OR ANY OF
THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT
MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS
BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY
HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING
INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR
RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT
IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SECTION 11.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS HERETO OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
8.15 SECTION CONFIDENTIALITY. Each Lender shall hold all non-public information
---------------
obtained pursuant to the requirements hereof which is in written, printed or
other tangible form and consists of Projections or which has been marked or
labeled as confidential by Borrower in accordance with such Lender's customary
procedures for handling confidential information of this nature and in
accordance with prudent lending or investing practices, it being understood and
agreed by Borrower that in any event a Lender may make disclosures to Affiliates
of such Lender or disclosures reasonably required by any bona fide or potential
assignee, transferee or participant in connection with the contemplated
assignment, transfer or participation by such Lender of any Loans or any
participations therein or by any direct or indirect contractual counterparties
(or the professional advisors thereto) in swap agreements (provided, such swap
counterparties and advisors are advised of and agree to be bound by the
provisions of this Section 11.17) or in connection with the enforcement of any
rights or remedies hereunder or under any other Loan Document or disclosures
required or requested
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
by any governmental agency or representative thereof or by the National
Association of Insurance Commissioners or as request or required pursuant to any
law, rules or regulations or legal process; provided, unless specifically
prohibited by applicable law or court order, each Lender shall notify Borrower
of any request by any governmental agency or representative thereof (other than
any such request in connection with any examination of the financial condition
of such Lender by such governmental agency) for disclosure of any such non-
public information prior to disclosure of such information; and provided
further, in no event shall any Lender be obligated or required to return any
materials furnished by Borrower or any of its Affiliates. Notwithstanding
anything contained herein or otherwise to the contrary, none of the Lenders
shall in any event be required to hold as confidential any information (a) that
is or becomes published or otherwise generally available to the public other
than as a result of a disclosure in violation of this Section 11.17, (b) that
was available to any Lender on a non-confidential basis prior to its disclosure
to any Lender hereunder, or (c) that becomes available to any Lender on a non-
confidential basis from a source other than Borrower or any other Credit Party.
The obligations of the Lenders under this Section 11.17 shall continue with
respect to any item of non-public information for only so long as such item of
non-public information has or retains a confidential or proprietary nature, but
in no event beyond a period of two (2) years after the date on which such
information is provided to any Lender hereunder.
8.16 SECTION RATABLE SHARING. Lenders hereby agree among themselves that if any
---------------
of them shall, whether by voluntary payment (other than a voluntary prepayment
of Loans made and applied in accordance with the terms hereof), by realization
upon security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Loan
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, fees and other
amounts then due and owing to such Lender hereunder or under the other Loan
Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which
---------------------
is greater than the proportion received by any other Lender in respect of the
Aggregate Amounts Due to such other Lender, then the Lender receiving such
proportionately greater payment shall (a) notify Administrative Agent and each
other Lender of the receipt of such payment and (b) apply a portion of such
payment to purchase participations (which it shall be deemed to have purchased
from each seller of a participation simultaneously upon the receipt by such
seller of its portion of such payment) in the Aggregate Amounts Due to the other
Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by
all Lenders in proportion to the Aggregate Amounts Due to them; provided, if all
or part of such proportionately greater payment received by such purchasing
Lender is thereafter recovered from such Lender upon the bankruptcy or
reorganization of Borrower or otherwise, those purchases shall be rescinded and
the purchase prices paid for such participations shall be returned to such
purchasing Lender ratably to the extent of such recovery, but with any interest
on such purchase
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
prices as such purchasing Lender is required to pay in connection with such
recovery. Borrower expressly consents to the foregoing arrangement and agrees
that any holder of a participation so purchased may exercise any and all rights
of banker's lien, set-off or counterclaim with respect to any and all monies
owing by Borrower to that holder with respect thereto as fully as if that holder
were owed the amount of the participation held by that holder and that such
holder shall be treated as a Lender with respect to such participation for any
and all purposes.
8.17 SECTION COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in any
---------------------------
number of counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto and receipt by
Borrower and Administrative Agent of written or telephonic notification of such
execution and authorization of delivery thereof.
[The remainder of this page is intentionally left blank.]
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized officers as of the day and year first
above written.
NORTHPOINT COMMUNICATIONS, INC.
By: _____________________________________
Name:
Title:
Notice Address: 222 Sutter Street
San Francisco, California 94108
NORTHPOINT COMMUNICATIONS OF
VIRGINIA, INC.
By: _____________________________________
Name:
Title:
Notice Address: 222 Sutter Street
San Francisco, California 94108
NORTHPOINT COMMUNICATIONS
HOLDINGS, INC.
By: _____________________________________
Name:
Title:
Notice Address: 222 Sutter Street
San Francisco, California 94108
1
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
GOLDMAN SACHS CREDIT PARTNERS
L.P., as Syndication Agent, Joint Lead Arranger and as a Lender
By: ___________________________
Authorized Signatory
Notice Address:
2
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
NEWCOURT COMMERCIAL FINANCE
CORPORATION, as Administrative Agent,
Documentation Agent, Collateral Agent and a
Lender
By: ___________________________
Name:
Title:
Notice Address:
3
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
CAPITAL SYNDICATION CORPORATION,
as Joint Lead Arranger,
By: ___________________________
Name:
Title:
Notice Address:
4
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
[OTHER LENDERS]
5
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
ANNEX A
Commitment Amounts
------------------
LOANS
<TABLE>
Lender Commitment Amount
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
- --------------------
- --------------------------------------------------------------------------------------------------------------------------
TOTAL $40,000,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
SCHEDULE 3.15
INSURANCE
The Borrower shall at its own expense, with insurers and with maximum
deductibles satisfactory to the Collateral Agent:
(a) keep its insurable properties, adequately insured on a all risk basis
for the full replacement value thereof at all times;
(b)
(c) maintain in full force and effect, pay all premiums when due in
respect of, and comply with all terms and conditions of the following insurance
coverages:
(d)
(i) All Risk Property Insurance. The Borrower shall
---------------------------
maintain all risk property insurance against physical loss
or damage, including but not limited to fire and extended
coverage, collapse, flood, earth movement and comprehensive
boiler and machinery coverage (including electrical and
mechanical breakdown). Such insurance shall cover the
Borrower's entire operation shall not contain any exclusion
for resultant damage caused by faulty workmanship, design or
materials. Coverage shall be written on a replacement cost
basis in an amount reasonably acceptable to the Collateral
Agent. Such insurance policy shall contain an agreed amount
endorsement waiving any coinsurance penalty;
(i) Business Interruption. As an extension of the
---------------------
coverage required under the preceding clause (b)(i), the
Borrower shall maintain business interruption insurance in
an agreed amount equal to twelve (12) months projected loss
of net profits, continuing expenses and debt service payment
and shall contain an agreed amount endorsement waiving any
coinsurance penalty;
(i) Comprehensive or Commercial General Liability
---------------------------------------------
Insurance. The Borrower shall maintain comprehensive general
---------
liability insurance written on an occurrence basis with a
limit of not less than $2,000,000. Such coverage shall
include, but not be limited to, premises/operations,
explosion, collapse, underground hazards, contractual
liability, independent contractors, products, com-
2
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
pleted operations, property damage and personal injury
liability. Such insurance shall not exclude coverage for
punitive or exemplary damages where insurable by law; and
(i) Workers' Compensation/Employer's Liability. The
------------------------------------------
Borrower shall maintain workers' compensation insurance in
accordance with statutory provisions covering accidental
injury, illness or death of an employee of the Borrower
while at work or in the scope of his or her employment with
the Borrower and employer's liability insurance in an amount
not less than $500,000. Such coverage shall not contain any
occupational disease exclusions; and
(i) Automobile Liability. The Borrower shall maintain
--------------------
automobile liability insurance covering owned, non-owned,
leased, hired or borrowed vehicles against bodily injury or
property damage. Such coverage shall have a limit of not
less than $1,000,000; and
(i) Excess/Umbrella Liability. The Borrower shall
-------------------------
maintain excess or umbrella liability insurance in an amount
not less than $10,000,000 written on an occurrence basis
providing coverage limits in excess of the insurance limits
required under clauses (b)(iii), (b)(iv) (employer's
liability only), and (b)(v). Such insurance shall follow
from the primary insurances and drop down in case of
exhaustion of underlying limits and/or aggregates. Such
insurance shall not exclude coverage for punitive or
exemplary damages where insurable by law; and
(i) Directors and Officer's Liability Insurance. On or
-------------------------------------------
after any initial public offering of Holdings Common Stock,
the Borrower shall maintain Directors and Officers Liability
Insurance in an amount not less than $2,000,000.
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I
DEFINITIONS 1
SECTION 1.01 Definitions 1
SECTION 1.02 Accounting Terms. 24
SECTION 1.03 Other Terms Defined in New York Uniform Commercial Code 24
ARTICLE II
LOANS 24
SECTION 2.01 Agreement to Lend 24
SECTION 2.02 Loans 24
SECTION 2.03 Procedure for Loan Request. 25
SECTION 2.04 The Notes 26
SECTION 2.05 Interest on Loans 27
SECTION 2.06 Conversion or Continuation 27
SECTION 2.07 Special Provisions Governing LIBOR Loans 28
SECTION 2.08 Payments 31
SECTION 2.09 Voluntary and Mandatory Prepayment of Loans 33
SECTION 2.10 Certain Provisions Regarding Prepayments. 34
SECTION 2.11 Fees 35
SECTION 2.12 Manner of Payment; Special Tax Considerations 36
SECTION 2.13 Maximum Lawful Interest Rate 40
SECTION 2.14 Funding Issues 40
ARTICLE III
REPRESENTATIONS AND WARRANTIES 41
SECTION 3.01 Organization; Powers 42
SECTION 3.02 Corporate Authorization 42
SECTION 3.03 Financial Statements 43
SECTION 3.04 No Material Adverse Change 43
SECTION 3.05 Litigation 43
SECTION 3.06 Tax Returns 43
SECTION 3.07 No Defaults 43
SECTION 3.08 Properties 44
SECTION 3.09 Collateral 44
</TABLE>
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
<TABLE>
<S> <C> <C>
SECTION 3.10 Licenses, Material Agreements, Intellectual Property 45
SECTION 3.11 Compliance With Laws 45
SECTION 3.12 ERISA 46
SECTION 3.13 Investment Company Act; Public Utility Holding Company Act 46
SECTION 3.14 Federal Reserve Regulations 47
SECTION 3.15 Insurance 47
SECTION 3.16 Capitalization and Subsidiaries 47
SECTION 3.17 Real Estate Assets 47
SECTION 3.18 Solvency 47
SECTION 3.19 Brokers, etc. 48
SECTION 3.20 No Material Misstatements 48
SECTION 3.21 Year 2000 Matters 48
ARTICLE IV
CONDITIONS FOR LOANS 48
SECTION 4.01 Conditions Precedent 48
ARTICLE V
AFFIRMATIVE COVENANTS 52
SECTION 5.01 Corporate and Franchise Existence 52
SECTION 5.02 Compliance with Laws, Etc. 52
SECTION 5.03 Maintenance of Properties 53
SECTION 5.04 Insurance 53
SECTION 5.05 Obligations and Taxes 54
SECTION 5.06 Financial Statements, Reports, etc 54
SECTION 5.07 Litigation and Other Notices 56
SECTION 5.08 Future Properties 57
SECTION 5.09 ERISA 57
SECTION 5.10 Access to Premises and Records 57
SECTION 5.11 Design and Construction 57
SECTION 5.12 Environmental Notices 57
SECTION 5.13 Amendment of Organizational Documents 58
SECTION 5.14 Fiscal Year 58
SECTION 5.15 Year 2000 Problems 58
SECTION 5.16 Future Subsidiaries 58
SECTION 5.17 Accounting; Maintenance of Records 58
SECTION 5.18 Further Assurances 59
SECTION 5.19 Interest Rate Agreements 59
</TABLE>
ii
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
<TABLE>
<S> <C> <C>
ARTICLE VI
NEGATIVE COVENANTS 60
SECTION 6.01 Liens, etc 60
SECTION 6.02 Use of Proceeds 62
SECTION 6.03 Sale of Assets, Consolidation, Merger, Acquisitions etc 62
SECTION 6.04 Dividends and Distributions; Sale of Equity Interests 62
SECTION 6.05 Management Fees and Permitted Corporate Overhead 63
SECTION 6.06 Investments 63
SECTION 6.07 Subsidiaries 64
SECTION 6.08 Permitted Activities 64
SECTION 6.09 Disposition of Licenses, etc. 64
SECTION 6.10 Transactions with Affiliates 64
SECTION 6.11 ERISA 65
SECTION 6.12 Debt 65
SECTION 6.13 Prepayment and Debt Documents 66
SECTION 6.14 Sale and Leaseback Transactions 66
SECTION 6.15 Margin Regulation 67
SECTION 6.16 Restrictive Agreements, etc. 67
ARTICLE VII
FINANCIAL COVENANTS 67
SECTION 7.01 Financial Covenants Prior to Achieving Positive EBITDA 67
SECTION 7.02 Financial Covenants After Achieving Positive EBITDA 69
ARTICLE VIII
GUARANTY 71
SECTION 8.01 Guaranty of the Obligations 71
SECTION 8.02 Contribution by Guarantors 71
SECTION 8.03 Payment by Guarantors 72
SECTION 8.04 Liability of Guarantors Absolute 72
SECTION 8.05 Waivers by Guarantors 74
SECTION 8.06 Guarantors' Rights of Subrogation, Contribution, Etc. 75
SECTION 8.07 Subordination of Other Obligations 76
SECTION 8.08 Continuing Guaranty 76
SECTION 8.09 Authority of Guarantors or Borrower 76
</TABLE>
iii
<PAGE>
SECOND PRIORITY LOAN AGREEMENT
------------------------------
<TABLE>
<S> <C> <C>
SECTION 8.10 Financial Condition of Borrower 76
SECTION 8.11 Bankruptcy, Etc. 76
SECTION 8.12 Notice of Events 77
SECTION 8.13 Discharge of Guaranty Upon Sale of Guarantor 77
ARTICLE IX
EVENTS OF DEFAULT; REMEDIES 78
SECTION 9.01 Events of Default 78
SECTION 9.02 Termination of Commitment; Acceleration 81
SECTION 9.03 Waivers 81
ARTICLE X
AGENTS 81
SECTION 10.01 Appointment of Agents 81
SECTION 10.02 Powers and Duties 82
SECTION 10.03 General Immunity 82
SECTION 10.04 Agents Entitled to Act as Lender 83
SECTION 10.05 Lenders' Representations and Warranties 83
SECTION 10.06 Right to Indemnity 84
SECTION 10.07 Successor Administrative Agent 84
SECTION 10.08 Other Loan Documents 85
ARTICLE XI
MISCELLANEOUS 86
SECTION 11.01 Notices 86
SECTION 11.02 Expenses 86
SECTION 11.03 Indemnity 87
SECTION 11.04 Set-Off 87
SECTION 11.05 Amendments and Waivers 88
SECTION 11.06 Successors and Assigns; Participations 89
SECTION 11.07 Independence of Covenants 92
SECTION 11.08 Survival of Representations, Warranties and Agreements 92
SECTION 11.09 No Waiver; Remedies Cumulative 92
SECTION 11.10 Marshalling; Payments Set Aide 93
SECTION 11.11 Severability 93
SECTION 11.12 Obligations Several; Independent Nature of Lenders' Rights 93
SECTION 11.13 Entire Agreement; Headings 93
SECTION 11.14 APPLICABLE LAW 94
SECTION 11.15 CONSENT TO JURISDICTION 94
</TABLE>
iv
<PAGE>
SECOND LOAN AGREEMENT
---------------------
<TABLE>
<S> <C> <C>
SECTION 11.16 WAIVER OF JURY TRIAL 94
SECTION 11.17 Confidentiality 95
SECTION 11.18 Ratable Sharing 96
SECTION 11.19 Counterparts; Effectiveness 96
</TABLE>
v
<PAGE>
EXHIBIT 11.1
SCHEDULE REGARDING COMPUTATION OF PER SHARE EARNINGS
(000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
Net income (loss) $ (1,440) $(28,847)
-------- --------
Weighted average common shares 21,734 24,379
Common equivalent shares:
Dilutive Stock options -- --
Dilutive Warrants -- --
-------- --------
Common and common equivalent shares 21,734 24,379
======== ========
Earnings (loss) per common and common
equivalent share $ (.07) $ (1.18)
======== ========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 2 to this registration statement
on Form S-1 (No. 333-73065) of our report dated February 24, 1999, on our
audits of the financial statements of NorthPoint Communications, Inc. as of
December 31, 1997 and 1998, for the period from May 16, 1997 (date of
inception) through December 31, 1997, and for the year ended December 31, 1998.
We also consent to the references to our firm under the captions "Experts" and
"Selected Financial Data."
/s/ PricewaterhouseCoopers LLP
San Francisco, California
April 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> MAY-16-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 9,448,259 10,955,655
<SECURITIES> 0 0
<RECEIVABLES> 0 541,901
<ALLOWANCES> 0 (18,640)
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,507,264 14,128,184
<PP&E> 1,802,911 47,421,839
<DEPRECIATION> 27,179 (1,318,575)
<TOTAL-ASSETS> 11,355,937 60,501,500
<CURRENT-LIABILITIES> 514,159 64,396,093
<BONDS> 0 0
0 0
37,014 39,820
<COMMON> 24,345 24,593
<OTHER-SE> 9,913,861 (6,598,586)
<TOTAL-LIABILITY-AND-EQUITY> 11,355,937 60,501,500
<SALES> 0 930,776
<TOTAL-REVENUES> 0 930,776
<CGS> 55,553 3,970,339
<TOTAL-COSTS> 55,553 3,970,339
<OTHER-EXPENSES> 1,574,573 22,322,117
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 17 3,694,150
<INCOME-PRETAX> (1,440,269) (28,846,706)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,440,269) (28,846,706)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,440,269) (28,846,706)
<EPS-PRIMARY> (.07) (1.18)
<EPS-DILUTED> (.07) (1.18)
</TABLE>
